UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
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 (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 the 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. [X]
The number of shares outstanding of the Registrant's Common Stock is 6,731,874
(as of April 13, 2000).
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is approximately $36,786,655 (as of April 13, 2000).
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
Portions of Proxy Statement for 2000 Annual Meeting--Part III
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UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO "PERRY ELLIS," THE
"COMPANY," "WE," "US" OR "OUR" INCLUDE PERRY ELLIS INTERNATIONAL, INC. AND ITS
SUBSIDIARIES. REFERENCES IN THIS REPORT TO ANNUAL FINANCIAL DATA FOR PERRY ELLIS
REFER TO FISCAL YEARS ENDING JANUARY 31.
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FORWARD-LOOKING STATEMENTS
We caution readers that this report includes forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties, and assumptions about us,
including, among other things:
o Our anticipated growth strategies;
o Our substantial debt service obligations;
o Our expected internal growth;
o Our ability to obtain additional financing;
o Our ability to integrate acquired businesses, trademarks, tradenames
and licensees;
o Our ability to renew certain licenses;
o Anticipated trends and conditions in our industry, including future
consolidation of our existing and potential customers and changes in
fashion trends;
o Our future capital needs;
o Our ability to compete;
o The continued economic health of our customers; and
o Other factors set forth in this report and in our filings with the
Securities and Exchange Commission (the "Commission").
We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report might not occur.
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PART I
ITEM 1. BUSINESS
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, casual and dress pants and shorts 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 33-year operating
history. Our distribution channels include regional, national and international
department stores, chain stores, mass merchandisers and specialty stores
throughout the United States, Puerto Rico and Canada. We are one of the top
branded suppliers to department stores in the knit and woven shirt product
categories. Our largest customers include Target Corp., Federated Department
Stores, Inc., Sears Roebuck & Co., Kohl's Corporation, Wal-Mart Stores, Inc. and
J.C. Penney Company, Inc. We currently use over 115 independent suppliers,
located in the Far East, other parts of Asia, Mexico, and Central America.
Through acquisition of brands and internal growth, we have experienced
significant overall growth in recent years. Our total revenues have increased to
$252.4 million for fiscal 2000 from $122.6 million for fiscal 1996, representing
a compound annual growth rate of 19.8%. During that same period, our EBITDA (as
defined herein; see "Summary Historical Financial Information") grew to $36.5
million from $10.1 million, representing a compound annual growth rate of 38.0%.
We own or license the brand names under which most of our products are
sold. These brand names include Crossings/registered trademark/ and Natural
Issue/registered trademark/ for casual sportswear, John Henry/registered
trademark/ and Manhattan/registered trademark/ for dress casual wear, Perry
Ellis/registered trademark/ and Andrew Fezza/registered trademark/ for dress
sportswear, Perry Ellis America/registered trademark/ for jeans wear,
PING/registered trademark/ and Munsingwear/registered trademark/ for golf
sportswear and PNB Nation/registered trademark/ for urban wear. Through our
"family of brands" marketing strategy, we seek to develop and enhance a distinct
brand name for each product category within each distribution channel. We market
our brands to a wide range of 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 decreased to 79.0% in fiscal 2000 from 81.4% in fiscal 1999.
We also license our proprietary brands to third parties for the
manufacture and marketing of various products, that we do not sell, including
underwear, active wear, loungewear and outerwear. In addition to generating
additional sources of revenue for us, these licensing arrangements raise the
overall awareness of our brands. On April 6, 1999, we acquired the Perry Ellis
brand names, one of the top selling brands in specialty chains and department
stores in the United States. As a result of this acquisition and in recognition
that this purchase gives us a widely recognized brand in the market and will be
our premier brand, we changed our corporate name to Perry Ellis International,
Inc. effective June 1999.
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We believe that our competitive strengths position us well to
capitalize on several trends that have affected the apparel sector in recent
years. These include the consolidation of the department and chain store sectors
into a smaller number of stronger retailers, which represent some of our most
important customers; the increased reliance of retailers on reliable suppliers
with design expertise and advanced systems and technology; and the continued
importance of a brand as a source of product differentiation.
THE ACQUISITIONS
On March 29, 1999, we acquired the John Henry, Manhattan and Lady
Manhattan trademarks for $28.8 million. John Henry is a leading brand of men's
dress casualwear sold at Sears Roebuck and Manhattan is a popular dress shirt
brand name sold at Wal-Mart. On April 6, 1999, we acquired for approximately
$80.1 million all the outstanding capital stock of the company that owned and
licensed the Perry Ellis brand name. Perry Ellis is currently one of the top
selling brands in specialty chains and department stores in the United States.
We believe that these acquisitions greatly expand our licensing
revenues, add to our strong portfolio of brands, allow us to broaden our product
line into product categories such as women's wear, and provide opportunities to
expand into geographic areas where we believe these brands have been
historically underrepresented, such as Europe and Asia.
DEBT OFFERING
We issued $100 million in senior subordinated notes on April 6, 1999.
Our proceeds were $98,852,000 after the deduction of discounts. We pay interest
on the notes on April 1 and October 1 of each year. The notes mature on April 1,
2006. The notes may be redeemed in whole, or in part, at any time on or after
April 1, 2003. In addition, on or before April 1, 2002, we may redeem up to 35%
of the aggregate principal amount of the notes with the net proceeds of a public
equity offering, provided at least 65% of the aggregate principal amount of the
notes originally issued remains outstanding after such redemption. The notes
issued have been registered under the Securities Act of 1933.
COMPETITIVE STRENGTHS
We believe that we have the following competitive advantages in our industry:
PORTFOLIO OF STRONG BRANDS. We currently own and distribute eight major
brands (Perry Ellis, Munsingwear, Crossings, Natural Issue, John Henry,
Manhattan, Grand Slam/registered trademark/ and PNB Nation) with over 40
sub-brands (such as Penguin/registered trademark/ and Career Club/registered
trademark/). We also design, source and market two other major brands (Andrew
Fezza and PING), which we license under existing agreements with various
expiration dates and renewal options. We also license the Perry Ellis, John
Henry, Manhattan and Munsingwear brands to licensees for products that we do not
directly sell. These brands enjoy national recognition in their respective
sectors of the market and have a loyal consumer and retailer following. Brand
recognition is critical in the apparel industry, where strong brand names help
define consumer preferences and drive department store floor space allocation.
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STRONG RETAILER RELATIONSHIPS. We believe our established relationships
with retailers at all distribution levels give us the opportunity to maximize
the selling space dedicated to our products, monitor our brand presentation and
merchandising selection, and introduce new brands and products. We have
long-standing relationships with our largest customers, which include J.C.
Penney and Sears Roebuck (more than 20 years), Federated Department Stores (13
years), Wal-Mart (11 years), Kohl's (7 years) and Target Corp. (6 years). We
believe that we have maintained these relationships as a result of our quality
brand name products and our dedication to customer service. Management, in
conjunction with our 59 salespeople, meets with our major customers frequently
to review product offerings, establish and monitor sales plans, and design joint
advertising and promotional campaigns. We believe our reliable delivery times,
consistent product quality and quick response to fashion trends and inventory
demands allow us to meet our retailers' current requirements. In addition, our
global sourcing network, design expertise, advanced systems and technology, and
warehousing facility enhance our ability to meet the changing and increasing
needs of our retailers.
STRONG LICENSING CAPABILITIES AND RELATIONSHIPS. By actively licensing
the brands we own, we have gained significant experience in identifying
potential licensing opportunities and have established relationships with many
active licensees. Our recent acquisitions of the Perry Ellis, John Henry, and
Manhattan brands have positioned us in more retail outlets with more exposure
nationally and internationally. We believe that we successfully integrated the
new brands into our business. We also believe that our broad portfolio of brands
appeals to licensees because it gives them the opportunity to sell their
products into many different retail distribution channels. For example, a
manufacturer of men's accessories might license the Crossings brand name to sell
to national department stores or the Munsingwear name to target mass
merchandisers. We believe that our licensing expertise, which is supported by a
dedicated staff, will allow us to continue marketing our brands to apparel
producers effectively. We believe that we have successfully integrated the new
brands into our business.
WORLD-WIDE LOW-COST SOURCING CAPABILITIES. Our global network of
suppliers enables us to purchase apparel products at competitive cost without
sacrificing quality, while at the same time reacting quickly to our retailers'
needs and maximizing production flexibility. We developed this expertise through
more than 33 years of experience in purchasing our products from suppliers
around the world. No individual supplier in fiscal 2000 accounted for more than
10.0% of our total sourcing needs. We currently maintain a staff of experienced
professionals principally located in the United States, China and Mexico, and a
global network of ten sourcing and quality assurance offices, which closely
monitor our suppliers to maintain strict quality standards and identify new
sourcing opportunities. By sourcing our products, we manage our inventories more
effectively and do not incur the costs of maintaining and operating production
facilities.
DESIGN EXPERTISE AND ADVANCED TECHNOLOGY. Our in-house staff consists
of 11 senior designers, who have an average of 18 years of experience, and are
supported by a staff of 20 other design professionals. Together, they design
substantially all of our products utilizing computer-aided design technology.
The use of this technology minimizes the time-consuming and costly production of
actual sewn samples prior to customer approval. It also allows us to create
custom-designed products meeting the specific needs of our customers and
facilitates a quick response to changing fashion trends. Our computer-aided
design technology presently produces approximately 1,400 designs per month and
our current library contains approximately 71,000 designs.
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CAPACITY FOR GROWTH. We are leveraging our recent investments in
infrastructure and our skilled personnel to accommodate future internal growth
and selected acquisitions. Our move during 1998 to an approximately 240,000 sq.
ft. office and warehouse facility in Miami with 160,000 sq. ft. of warehouse
space has positioned us to increase capacity to handle current growth.
PROVEN ABILITY TO INTEGRATE ACQUISITIONS. Since 1993, we have
selectively acquired and integrated seven major brands, which currently have
over 40 sub-brands. We selectively target brands that we believe are under-
performing and can be revitalized using our competitive strengths. To date our
most significant brand purchases were our acquisitions of the Munsingwear brand
in 1996, and the Perry Ellis, John Henry and Manhattan brands in 1999. As part
of an extensive integration process, we:
o improved the responsiveness to market trends by
applying our design and sourcing expertise;
o communicated new positioning of the brands through
various wide-ranging marketing programs;
o continued licensing operations immediately upon
acquisition without interruption;
o solidified the management team to design and market
licensing brands;
o renegotiated existing contracts and developed new
licensing agreements in new segments and markets;
o repositioned the Munsingwear brand based on our
"family of brands" strategy; and
o implemented the sourcing and distribution of products
previously licensed.
We believe that we successfully integrate and revitalize additional
brands into our family of brands.
EXPERIENCED MANAGEMENT TEAM. Our senior management team averages nearly
20 years of experience in the apparel industry. Our management team also has
significant experience in developing and revitalizing brand names, has an
established reputation with retailers, the trade and the financial community,
and possesses a diverse skill base, which incorporates brand marketing, sourcing
and management information systems.
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BUSINESS STRATEGY
Our "family of brands" marketing approach is designed to develop a
distinct brand for each product category within each distribution channel. For
example, we sell our golf sportswear under the Munsingwear brand to mass
merchants, under the Grand Slam brand to department stores and under the PING
brand to higher end retailers, golf shops and resorts. By differentiating our
brands in this manner, we can better satisfy the needs of each type of retailer
by offering brands tailored to its specific distribution channel. In addition,
we believe that this strategy helps insulate us from changing retail patterns,
allows us to maintain the integrity of each distribution channel and helps
prevent brand erosion.
Our objective is to develop and enhance our brands by:
o carefully maintaining distinct distribution channels
for each of our brands;
o consistently designing, sourcing and marketing
quality products;
o reinforcing the image of our brands and continuously
promoting them; and
o updating our styles to keep them current.
Controlling strong brands allows us to increase our retail base,
license these brands to third parties, develop sub-brands and grow
internationally.
To achieve our objective, we have adopted a strategy based on the following
elements:
INCREASE BRAND NAME RECOGNITION. We intend to enhance recognition of
our brand names by promoting our brands at the retailer and consumer levels. We
conduct cooperative advertising in print and broadcast media in which various
retailers feature our products in their advertisements. We have also begun
direct consumer advertising in select markets by placing highly visible
billboards, sponsorships, special event advertisements and magazine
advertisements in periodicals such as Men's Health and Gentleman's Quarterly.
Licensing our brands to third parties also serves to enhance brand recognition
by providing increased consumer exposure. We also recently established Web sites
for each of our major brands to take advantage of opportunities created by the
Internet.
INCREASE DISTRIBUTION. We intend to increase the distribution of our
existing products by expanding the number of regional, national and
international retailers that carry our brands and increasing the number of
stores in which each of these retailers sells our products. This increased
exposure should broaden our established reputation at the retail and consumer
levels. We selectively pursue new channels of distribution for our products,
focusing on maintaining the integrity of our products and reinforcing our image
at existing retail stores, as well as introducing our products to geographic
areas and consumer sectors that are presently less familiar with our products.
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CONTINUE TO DIVERSIFY PRODUCT LINE. We intend to broaden the range of
our product lines, capitalizing on the name recognition, popularity and discrete
target customer segmentation of each major brand. For example, we introduced a
sweater line under the Crossings brand and expanded it to include several of our
other brands. We have also expanded into urban wear with the PNB Nation brand,
dress sportswear with the licensing of the Andrew Fezza brand and high-end golf
sportswear with the licensing of the PING brand.
EXPAND LICENSING ACTIVITIES. Since acquiring Munsingwear in 1996, we
have significantly expanded the licensing of our brands to third parties for
various product categories. We believe that the acquisitions of the Perry Ellis,
John Henry and Manhattan brands have provided and will provide further
significant licensing opportunities. We have and are using these nationally
recognized brands to expand our licensing activities, particularly with respect
to product categories such as women's wear, and into historically underserved
geographic areas, such as Europe and Asia. We are continually working with our
licensees to strengthen their marketing efforts and thereby increasing our
revenues.
BRANDS
The key components of our brand strategy are to (a) provide consistent
quality products, (b) distribute the brands in distinct channels of distribution
and (c) reinforce and capitalize on the brand's image through new product
development and image advertising. This strategy has enabled us to increase our
customer base, license our brands to third parties and develop sub-brands.
Nearly 79.0% of our products are sold under brands we own or license
from third parties. We currently own six nationally recognized brands that we
sell, which are Natural Issue, Munsingwear, Grand Slam, PNB Nation, John
Henry and Crossings. There have been over 40 sub-brands developed from these six
major brands. We also distribute under license arrangements the PING and Andrew
Fezza brands. Our depth of brand selection enables us to target consumers across
a wide range of ages, incomes and ethnic groups. We also license all of these
brands in addition to the licensing of Perry Ellis, Manhattan, and PING.
NATURAL ISSUE. We developed the Natural Issue brand in 1988 to appeal
to middle-income men who are 25-55 years old. The brand is now well established
and we have positioned it to be associated with value and quality. Natural Issue
products include shirts, sweaters, pants and shorts and are primarily sold in
national chain stores, such as Kohl's, J.C. Penney and Mervyn's at retail price
points ranging from $19.99 to $30.99.
MUNSINGWEAR AND GRAND SLAM. We purchased the Munsingwear and Grand Slam
brands along with their associated sub-brands in 1996 to appeal to the
middle-income 30-70 year-old men who are sports enthusiasts. These well-known
brands are identified by their signature penguin logo and have over 100 years of
history. Munsingwear and Grand Slam products include golf shirts, vests,
jackets, pants and shorts. The Munsingwear brand is primarily sold in sporting
goods stores at retail price points ranging from $12.99 to $26.99. The Grand
Slam brand is primarily sold in department stores such as Federated Department
Stores and May's Department Stores at retail price points ranging from $24.99 to
$39.99.
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Some of the successful sub-brands of the Munsingwear brand include the
Munsingwear Lifestyle sub-brands for casual sportswear and the Munsingwear Golf
and Slammer sub-brands for golf sportswear. These sub-brands are sold primarily
to regional mass merchandisers such as Meijer at retail price points ranging
from $18.99 to $24.99.
We also offer golf sportswear under the Penguin Sports sub-brand, which
is sold primarily to the chain stores. The retail price points of the Grand Slam
Tour and Penguin Sport sub-brands are $24.99 to $39.99 and $23.99 to $29.95,
respectively.
CROSSINGS. We purchased the well-known Crossings sweater brand in 1997
in order to increase our product offerings to include sweaters and to appeal to
middle-income 25-55 year-old men. We positioned the brand to be associated with
value and quality and have expanded it to include shirts, shorts and pants. The
Crossings brand is primarily sold to department stores such as Federated
Department Stores, May's Department Stores and Saks, Inc. at retail price points
ranging from $19.99 to $30.99.
PING. We obtained a license for the prestigious PING golf brand in 1998
to appeal to high-income 25-50 year-old men who are status conscious. The
license, which covers the world other than Japan, has an initial term expiring
in December 2003 with the possibility of renewal depending on satisfactory
performance of our obligations under the licensing agreement. The brand is a
well-known and prestigious golf brand, which we positioned to be associated with
the highest standard of quality in the golf business. Currently, we sell golf
shirts, sweaters, pants, outerwear and hats under this brand. The brand is sold
primarily in the golf shops and top-tier specialty stores at retail price points
ranging from $50.00 to $105.00.
ANDREW FEZZA. We obtained a license for the Andrew Fezza brand in 1998
to appeal to high-income 25-50 year-old men who enjoy shopping for designer
clothes. The license covers the United States, its territories and possessions
and has an initial term expiring in June 2003. We have an option to renew for an
additional 5 years depending on satisfactory performance of our obligations
under the licensing agreement. Andrew Fezza is a recognized living American
designer who is actively involved with the design and marketing of the brand. We
have positioned the brand to be associated with a classic European style at a
moderate price. Andrew Fezza's products include shirts and pants. The Andrew
Fezza brand is primarily sold to department stores such as May's Department
Stores, Federated Department Stores and Saks Inc. at retail price points ranging
from $25.99 to $34.99 for shirts, and $29.99 to $49.99 for pants.
JOHN HENRY. We obtained a license for the John Henry brand in 1997 for
dress sportswear to appeal to middle income 25-45 year old men. The brand is
well known and is associated with quality and value. With the acquisition of the
trademark in March 1999, we have expanded the product offerings to form a "dress
casual collection". The John Henry brand is primarily sold to Sears Roebuck
(both in the United States and Canada) and Mervyns at price points ranging from
$20.00 to $38.00
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PNB NATION. We completed the purchase of the urban-oriented PNB Nation
brand in 1999 to appeal to 15-30 year old men whose clothes are very important
to their identities and who are into the urban culture, music and night life.
PNB Nation's products include shirts, pants and outerwear. The brand is
primarily sold in urban stores and sporting goods stores such as The Buckle,
Pacific Sunwear and Dr. Jays at retail price points ranging from $14.99 to
$34.99 for shirts and $39.99 to $79.99 for pants.
CUBAVERA/registered trademark/. In 1999, we introduced the Cubavera
line of clothing to appeal to the growing tropical and Latin influences on
consumer's style and tastes. Cubavera is currently sold in major department
stores such as Federated Department Stores and May's Department Stores, as well
as specialty shops around the country. The Cubavera line currently sells at
retail price points ranging from $29.99 to $39.99.
PRIVATE LABEL. In addition to our sales of branded products, we sell
products to retailers for marketing as private label, own-store lines. In fiscal
2000, we sold private label products to Wal-Mart, Kmart, J.C. Penney, Sears
Roebuck, Meijer and Target Corp. Private label sales generally yield lower
profit margins than comparable branded products, but can achieve increased sales
volumes for us. Private label sales accounted for approximately 21.0%, 18.6% and
24.6% of net sales during fiscal 2000, 1999 and 1998 respectively.
We have also recently announced that, beginning January 2001, we will
be designing, sourcing and marketing the jeans wear collection under the Perry
Ellis America brand.
PRODUCTS AND PRODUCT DESIGN
We offer a broad line of high quality men's sportswear, including sport
and dress shirts, golf sportswear, sweaters, urban wear and casual and dress
pants and shorts. Substantially all our products are designed by our in-house
staff utilizing our advanced computer-aided design technology. This technology
enables us to produce computer-generated simulated samples that display how a
particular style will look in a given color and fabric. These samples can be
printed on paper or directly onto fabric to more accurately present the colors
and patterns to a potential retailer. In addition, we can quickly alter the
simulated sample in response to retailer comments, such as a request to change
the colors, print layout, collar style and trimming, pocket details and/or
placket treatments. The use of computer-aided design technology minimizes the
time-consuming and costly need to produce actual sewn samples prior to retailer
approval and allows us to create custom-designed products meeting the specific
needs of a retailer.
In designing our apparel, we seek to foster consumer appeal by
combining functional, colorful and high quality fabrics with creative designs
and graphics. Styles, color schemes and fabrics are also selected to encourage
consumers to coordinate outfits, thereby encouraging multiple purchases. Our
design staff seeks to stay abreast of the latest design trends by attending
trade shows and periodically conducting market research in Europe and the United
States.
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Our products include:
SHIRTS. We offer a broad line of sport shirts, which include cotton and
cotton-blend printed and plain knit shirts, cotton woven shirts, silk, cotton
and rayon printed button front sport shirts, linen sport shirts, golf shirts,
and embroidered cotton shirts. Our shirt line also includes dress shirts,
brushed twill shirts, jacquard knits and yarn-dyed flannels. In addition, we are
also the leading distributor in the United States of Guayabera and the newly
designed Cubavera shirts. We market shirts under a number of our own brands as
well as the private labels of our retailers. Our shirts are produced in a wide
range of men's sizes, including sizes for the big and tall men's market. Sales
of shirts accounted for approximately 78%, 82% and 83% of our net sales during
fiscal 2000, 1999, and 1998, respectively.
PANTS. Our pants lines include a variety of styles of wool, wool-blend,
linen and poly/rayon dress pants, casual pants in cotton and poly/cotton and
linen/cotton walking shorts. We offer our pants in a wide range of men's sizes
and generally market them as complementary to our shirt lines. Sales of pants
accounted for approximately 16%, 11% and 11% of our net sales during fiscal
2000, 1999 and 1998, respectively.
OTHER PRODUCTS. The majority of the other products we sell are
sweaters, which accounted for approximately 5% of net sales during fiscal 2000
and 4% during fiscal 1999. We began to offer sweaters when we purchased the
Crossings brand in 1997 and recently introduced a line of sweaters under our
other brands. Sales of other products (including sweaters) accounted for
approximately 6%, 7% and 7% of net sales during each of fiscal years 2000, 1999
and 1998, respectively.
MARKETING AND DISTRIBUTION
We market our apparel products to retailers principally through the
direct efforts of an in-house sales staff and independent commissioned sales
representatives who work exclusively for us. These in-house employees and
commissioned sales representatives accounted for approximately 84.0% of net
sales for fiscal 2000. To supplement our sales efforts, we also use other
non-exclusive independent commissioned sales representatives, who generally
market other product lines as well as ours, attend major industry trade shows
and tele-market our products to specialty retailers. We also advertise to
retailers through print advertisements in a variety of trade magazines and
newspapers. In order to promote our men's sportswear at the retail level, we
conduct cooperative advertising in print and broadcast media in which our
products are featured by various retailers in their advertisements and the cost
of the advertisements is shared with the retailers. We also conduct various
in-store marketing activities with our retailers, such as placing displays of
our product line with an emphasis on related and coordinated clothing in highly
visible locations and offering promotions geared to holidays such as Christmas
and Father's Day. We started direct consumer advertising in select markets
featuring the Perry Ellis, Natural Issue, John Henry, Grand Slam and Munsingwear
brand names through the placement of highly visible billboards, sponsorships,
and special event advertising. We also established Web sites featuring our
brands.
The following table sets forth the principal brand names for our
product categories at different levels of retail distribution:
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
RETAIL DISTRIBUTION DRESS JEANS YOUNG
LEVEL CASUAL CASUAL WEAR MENS GOLF
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Department Store Crossings Andrew Fezza Perry Ellis PNB PING Collection
Cubavera Perry Ellis (1) America Nation Grand Slam
Havana Shirt
Co.
Chain Stores Natural Issue John Henry (2) Penguin Sport
Mass Market Munsingwear Manhattan (2) Munsingwear
Green Grass(3) PING Collection
- ---------------------------------------------------------------------------------------------
<FN>
(1) We are primarily a licensor for the Perry Ellis brand in the dress sportswear category.
(2) We are the seller, licensor and wholesaler of the John Henry brand. We are the licensor of the Manhattan brand
in the dress shirt category.
(3) This includes high end specialty golf shops and resorts.
</FN>
</TABLE>
We believe that the Perry Ellis, John Henry and Manhattan acquisitions
provided us with additional nationally recognized brands, which we have been
able to leverage into additional sub-brands, geographic areas and distribution
channels.
We believe that customer service is a key factor in successfully
marketing our apparel products and seek to provide retailers with a high level
of customer service. We coordinate efforts with retailers to develop products
meeting their specific needs using our design expertise and computer-aided
design technology to offer custom-designed products and utilizing our sourcing
capabilities to produce and deliver products on a timely basis.
Our in-house sales staff is responsible for retailer follow-up and
support including monitoring prompt order fulfillment and timely delivery. We
utilize an Electronic Data Interchange ("EDI") system for certain retailers in
order to provide advance-shipping notices, process orders and conduct billing
operations. In addition, certain retailers use the EDI system to communicate
their weekly inventory requirements per store to us electronically. We then fill
those orders either by shipping directly to the individual stores or by sending
shipments, individually packaged and bar coded by store, to a retailer
centralized distribution center.
SOURCES OF SUPPLY
We currently use independent contract foreign manufacturers to produce
all of our products. We have 84 suppliers from countries in the Far East and
other parts of Asia and 31 suppliers from Mexico and from countries in Central
America. We believe that the use of numerous independent suppliers allows us to
maximize production flexibility while avoiding significant capital expenditures
and the costs of maintaining and operating production facilities.
We maintain offices in Beijing, Guangzhou, Seoul, Taipei and Mexico
City. We also operate through independent agents based in Thailand, Hong Kong,
Pakistan, Korea, Turkey, Indonesia, India, and Sri Lanka to source our products
in the Far East and monitor production at contract manufacturing facilities in
order to ensure quality control and timely delivery. Similar functions with
respect to our Central American suppliers are performed by our personnel based
in our Miami, Florida and Mexico
12
<PAGE>
City offices. We conduct periodic inspections of samples of each product prior
to cutting by contractors, during the manufacturing process and prior to
shipment. We also have full-time quality assurance inspectors in the Dominican
Republic, Honduras, El Salvador, Guatemala and each of our overseas offices.
Finished goods are generally shipped to our Miami, Florida facility for
repackaging and distribution to customers. Our return policy permits customers
to return any defective products for credit. Returns were not material in any of
the last three fiscal years.
In order to assist with timely delivery of finished goods, we function
as our own customs broker. We prepare our own customs documentation and arrange
for any inspections or other clearance procedures with the United States Customs
Service. We are a member of the United States Customs Automated Interface
program. This membership permits us to clear our goods through United States
Customs electronically and generally reduces the necessary clearance time to a
matter of hours rather than days.
LICENSING OPERATIONS
For the past five years, we have been actively licensing the brands we
own. The licensing of our brands to third parties for various product categories
is one of our strategies. The licensing of our brands enhances their image by
widening the range and distribution of these products without requiring us to
make significant capital investments or incur significant operating expenses. As
a result of this strategy, we have gained significant experience in identifying
potential licensing opportunities and have established relationships with many
active licensees.
We are currently the licensor of over 100 license agreements for
various products including sportswear, outerwear, underwear, active wear,
women's sportswear, fragrances and loungewear. Our sales of licensed products by
our licensees were approximately $485.0 million, $79.0 million and $74.0 million
in fiscal 2000, 1999 and 1998, respectively. We received royalties from these
sales of approximately $22.8 million, $3.1 million and $4.0 million in fiscal
2000, 1999 and 1998, respectively. Nearly all of the increase experienced in
fiscal 2000 was due to the recent acquisition of the Perry Ellis, John Henry and
Manhattan brands.
We consummated the Perry Ellis acquisition in April 2000. Perry Ellis
International, Inc., a New York corporation ("PEI"), was a privately held
company, which owned and licensed the Perry Ellis brand, one of the top selling
brands in department stores in the United States. PEI was the licensor under 40
license agreements, primarily for various categories of men's wear, boys' wear
and fragrances. We are now the licensor under 45 agreements for the Perry Ellis
brand. The purchase of the Perry Ellis brand gives us a widely recognized brand
in the market and is our premier brand.
Perry Ellis, who was an internationally-known American designer,
positioned his brand to be associated with quality, value and innovative designs
and to appeal to high-income, status-conscious, 25-50 year-old men. The brand is
currently one of the largest selling brands in department stores such as
Federated Department Stores, Saks, Inc. and May's Department Stores at retail
price points ranging from $39.99 to $99.99 for dress shirts.
We have capitalized on Perry Ellis's image as a premier brand by
licensing the product in categories in which we did not have a large presence,
such as women's wear and men's accessories.
13
<PAGE>
We plan to apply the elements of our brand strategy to the Perry Ellis brand in
order to strengthen it.
Although the Perry Ellis brand has international recognition, we still
perceive the brand to be underperforming in international markets such as Europe
and Asia. We anticipate licensing the product into these underperforming
international markets. We believe that our brand and licensing experience will
enable us to capitalize on these international opportunities.
The Manhattan brand has a history in excess of over 100 years. The
brand appeals to 25-65 year-old men and is a popular dress shirt at Wal-Mart and
other mass merchandisers such as Meijer. It also has a strong presence in Asia
and Latin America. The brand has been positioned to be associated with value at
a moderate price.
To maintain a brand's image, we closely monitor our licensees and
approve all products licensed. In evaluating a potential license, we consider
the experience, financial stability, manufacturing performance and marketing
ability of the proposed licensee. We also evaluate the marketability of the
proposed products and the compatibility of the proposed products with our other
products. We regularly monitor product design, development, merchandising and
marketing, and we schedule meetings throughout the year with licensees to ensure
quality, uniformity and consistency with our overall marketing, merchandising
and design strategies. We must approve in advance all of our licensees'
products, advertising, promotional and packaging materials.
As part of our licensing strategy, we work with our licensees to
further enhance the products, images and sales. We offer licensees marketing
support and our relationship with retailers to help them become more profitable.
Our license agreements generally extend for a period of three to five
years with options to renew prior to expiration for an additional multi-year
period. The typical agreement requires that the licensee pay us the greater of a
royalty based on a percentage of the licensee's net sales of the licensed
products or a guaranteed minimum royalty that typically increases over the term
of the agreement. Generally, licensees are required to spend a percentage of the
net sales of licensed products for advertising and promotion of the licensed
products.
CUSTOMERS
We sell merchandise to a broad spectrum of retailers, including chain
stores, department stores, mass merchandisers and specialty stores. Our largest
customers include Target Corp, Wal-Mart, J.C. Penney, Federated Department
Stores, Sears Roebuck, and Kohl's. Net sales to our five largest customers
aggregated approximately 49%, 48% and 47% of net sales in fiscal 2000, 1999 and
1998, respectively. For fiscal 2000, sales to Target Corp. accounted for
approximately 14% of net sales. For fiscal 1999, sales to Target Corp accounted
for approximately 15% and to Federated Department Stores accounted for
approximately 10% of net sales. For fiscal 1998, sales to Target Corp. and to
Sears Roebuck accounted for approximately 12% and 11% of net sales,
respectively. No other single customer accounted for more than 10% of net sales
during such fiscal years.
14
<PAGE>
SEASONALITY AND BACKLOG
Our products were historically geared towards lighter weight products
generally worn during the spring and summer months. We believe that this
seasonality has been reduced with the introduction of fall, winter, and holiday
merchandise. Our higher priced products generally tend to be less sensitive to
economic conditions and the weather, as compared to our lower priced products.
While the variation in our sales on a quarterly basis has narrowed, seasonality
can be affected by a variety of factors, including the mix of advance and
fill-in orders, the amounts of sales to different distribution levels and
overall product mix between traditional and fashion merchandise.
We generally receive orders from our retailers approximately five to
seven months prior to shipment. For approximately 80.0% of our sales, we have
orders from our retailers before we place orders with our suppliers. A summary
of the order and delivery cycle for our 4 primary selling seasons is illustrated
below:
<TABLE>
<CAPTION>
Merchandise Season Advance Order Period Delivery Period to Retailers
- ----------------------------- ----------------------------- ----------------------------------
<S> <C> <C>
Spring June to August January to March
Summer August to October April and May
Fall November to January July to September
Holiday February to March October and November
</TABLE>
Sales and receivables are recorded when inventory is shipped, with
payment terms generally 30 to 60 days from the date of shipment. At February 28,
2000 our backlog of orders for our products, all of which are expected to be
shipped prior to December 2000 was approximately $150.0 million, compared to
approximately $120.0 million at February 28, 1999.
COMPETITION
The retail apparel industry is highly competitive and fragmented. Our
competitors include numerous apparel designers, manufacturers, importers and
licensors, many of which have greater financial and marketing resources than we
do. We believe that the principal competitive factors in the industry are (1)
timeliness, reliability and quality of services provided, (2) market share and
visibility, (3) price, and (4) the ability to anticipate consumer demands and
maintain appeal of products to customers.
The level of competition and the nature of our competitors varies by
product segment with low-margin, mass-market manufacturers being our main
competitors in the less expensive segment of the market and American and foreign
designers and licensors competing with us in the more upscale segment of the
market. We believe that our continued dedication to customer service, product
assortment and quality control, as well as our aggressive pursuit of licensing
and acquisition opportunities, directly address the competitive factors in all
market segments. We have been able to compete successfully, but there can be no
guarantee that we will continue to be able to do so in the future.
TRADEMARKS
Most of our material trademarks are registered with the United States
Patent and Trademark office. We may be subject to claims and suits against us,
as well as the initiator of claims and suits against others, in the ordinary
course of our business, including claims arising from the use of our trademarks.
There are no challenges pending to our right to use any of our trademarks in the
United States. We do not believe that the resolution of any pending claims will
have a material adverse affect on our business, financial condition, results of
operations or cash flows.
15
<PAGE>
EMPLOYEES
We employed approximately 440 persons as of January 31, 2000. None of
our employees are subject to collective bargaining agreements, and we believe
that our employee relations are satisfactory.
ITEM 2. PROPERTIES
Our administrative offices, warehouse and distribution facility are
located in a 240,000 square foot leased facility in Miami, Florida, which was
built to our specifications and was completed in 1997. The facility is occupied
pursuant to a synthetic lease, which has an initial term expiring in 2003,
minimum annual rental payment of approximately $1.3 million and a minimum
contingent rental payment of $12.3 million if we do not renew the synthetic
lease after the initial 5-year term. In March 1998 and March 2000, for purposes
of potential future expansion, we purchased certain land adjacent to our
facility from non-affiliated third parties for approximately $1.5 million.
We occupy two locations in New York City under leases which expire in
December 2007 and April 2004. The locations are used for offices and showrooms
and comprise 26,000 square feet.
In order to monitor Far East production of our respective products, we
maintain an office in each of Guangzhou and Mexico City and also lease offices
jointly with Carfel, Inc. ("Carfel"), a privately-held corporation controlled by
George Feldenkreis, our Chairman of the Board, in Beijing and Taipei.
ITEM 3. LEGAL PROCEEDINGS
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 business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Our Common Stock has been listed for trading on the Nasdaq National
Market under the symbol "PERY" since June 1999. Prior to that date, the trading
symbol was "SUPI" under our former name Supreme International Corporation. The
following table sets forth, for the fiscal quarters indicated, the range of high
and low closing bid prices per share of common stock as reported by the Nasdaq
National Market. Such quotations represent inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions.
FISCAL 1999 HIGH LOW
- ----------- ---- ---
First Quarter $16.38 $10.38
Second Quarter 17.63 15.13
Third Quarter 17.63 7.50
Fourth Quarter 16.00 9.63
FISCAL 2000
- -----------
First Quarter $14.75 $ 8.69
Second Quarter 14.50 8.75
Third Quarter 13.25 10.25
Fourth Quarter 12.75 10.63
(b) Holders
As of April 13, 2000, there were approximately 52 shareholders of
record of our common stock. We believe the number of beneficial owners of our
Common Stock is in excess of 1,100.
(c) Dividends
We have not paid any cash dividends since our inception and do not
contemplate doing so in the near future. Payment of cash dividends is prohibited
under the revolving and term credit agreement as well as the senior subordinated
notes. See Notes 12 and 13 to the consolidated financial statements of the
Company included in Item 8 of this Report. Any future decision as to payment of
cash dividends will depend on our earnings and financial position and such other
factors as our Board of Directors deems relevant.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following selected financial data is qualified by reference
to, and should be read in conjunction with, the Consolidated Financial
Statements of the Company and related Notes thereto included in Item 8 of this
Report and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations." Certain amounts in prior fiscal years have been
reclassified to conform to the 2000 presentation.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000
----------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $121,839 $157,373 $190,689 $221,347 $229,549
Net royalty income 759 1,654 4,032 3,057 22,840
----------------------------------------------------------------------------
Total revenues 122,598 159,027 194,721 224,404 252,389
Cost of sales 92,145 122,046 145,991 166,198 171,413
----------------------------------------------------------------------------
Gross profit 30,453 36,981 48,730 58,206 80,976
Selling, general and
administrative
expenses 20,395 24,729 34,137 39,478 44,480
Depreciation and
amortization 725 1,147 1,748 2,161 5,181
----------------------------------------------------------------------------
Operating income 9,333 11,105 12,845 16,567 31,315
Interest expense 2,224 1,664 2,782 3,494 13,905
----------------------------------------------------------------------------
Income before income taxes 7,109 9,441 10,063 13,073 17,410
Income taxes 2,685 3,597 2,885 4,491 6,530
----------------------------------------------------------------------------
Net Income $ 4,424 $ 5,844 $ 7,178 $ 8,582 $ 10,880
============================================================================
Net income per share:
Basic $0.76 $0.89 $1.10 $1.29 $1.62
Diluted $0.75 $0.89 $1.08 $1.27 $1.59
Weighted average number of
shares outstanding (000's)
Basic 5,800 6,534 6,541 6,674 6,726
Diluted 5,874 6,595 6,666 6,770 6,857
OTHER FINANCIAL DATA AND
RATIOS:
EBITDA (a) 10,058 12,252 14,593 18,728 36,496
Capital expenditures 1,309 1,058 3,828 4,005 2,332
Ratio of earnings to fixed
charges (b) 3.8x 5.7x 4.1x 4.2x 2.2x
18
<PAGE>
BALANCE SHEET DATA:
Working capital 47,760 23,575 66,166 71,300 68,339
Total assets 53,735 88,158 101,650 108,958 222,148
Total debt (c) 6,968 31,949 39,658 33,511 128,270
Total stockholders' equity 43,833 47,775 55,155 64,946 75,989
<FN>
a) EBITDA represents net income before taking into considerations 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 cash flows as a measure of liquidity. We believe that
EBITDA is widely used by analysts, investors and other interested
parties in our industry but is not necessarily comparable with
similarly titled measures for other companies. See "Statements of Cash
Flows" in our consolidated financial statements.
b) For purposes 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.
</FN>
</TABLE>
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 to all levels of distribution. We have
built a broad portfolio through selective acquisitions and the establishment of
our own brands over our 33-year operating history. We are currently one of the
five top branded suppliers to department stores in the knit and woven shirt
product categories. We use over 115 independent suppliers, mostly located in the
Far East, other parts of Asia, Mexico, and Central America.
We own or license the brand names under which most of its products are
sold. These brand names include Crossings, Natural Issue, Cubavera and Havana
Shirt Co. for casual sportswear; Perry Ellis, John Henry and Manhattan for dress
casual wear; Perry Ellis and Andrew Fezza for dress sportswear; PING and
Munsingwear for golf sportswear; PNB Nation for urban wear; and Perry Ellis
America and Revival for jeans wear. We market our brands to a wide range of
segments, targeted at consumers in specific age, income and ethnic groups.
Currently, 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. We signed a license agreement with Kellwood Company for women's wear
in the fall of 1999 for shipment of product initially during the summer of 2000.
The percentage of our revenues from branded products increased to 79% in fiscal
2000 from 71% in fiscal 1997.
We also license brands to third parties for the manufacture and
marketing of various products which we do not sell, including underwear, active
wear, loungewear, outerwear, women's wear and fragrances. In addition to
generating additional sources of revenue for us, these licensing arrangements
raise overall awareness of our brands.
19
<PAGE>
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,
1998 1999 2000
<S> <C> <C> <C>
Net Sales 97.9% 98.6% 91.0%
Royalty Income 2.1% 1.4% 9.0%
------------- ------------- -------------
Total Revenues 100.0% 100.0% 100.0%
Cost of Sales 75.0% 74.1% 67.9%
Gross Profit 25.0% 25.9% 32.1%
Selling, general and administrative
expenses 17.5% 17.6% 17.6%
Depreciation and amortization 0.9% 0.9% 2.1%
------------- ------------- -------------
Operating Income 6.6% 7.4% 12.4%
Interest Expense 1.4% 1.6% 5.5%
------------- ------------- -------------
Income before income taxes 5.2% 5.8% 6.9%
Income tax provision 1.5% 2.0% 2.6%
------------- ------------- -------------
Net Income 3.7% 3.8% 4.3%
============= ============= =============
</TABLE>
FISCAL 2000 AS COMPARED TO FISCAL 1999
TOTAL REVENUES. Total revenues consist of net sales and royalty income.
Total revenue grew $28.0 million or 12.5% to $252.4 million in fiscal 2000 from
$224.4 million in fiscal 1999 as a result of internal growth and the
acquisitions of Perry Ellis International, Inc. and the John Henry and Manhattan
trademarks.
NET SALES. Net sales increased $8.2 million or 3.7% to $229.5 million
in fiscal 2000 from $221.3 million in fiscal 1999 as private label products grew
to represent nearly 21.0% of net sales in fiscal 2000 compared to 18.0% of net
sales in fiscal 1999. Within branded products, the increase in net sales was
primarily the result of the sales growth in the John Henry, Crossings, PING,
Andrew Fezza and PNB Nation brands. We introduced the Andrew Fezza, PNB Nations
and the PING brands during fiscal 1999. The increases in net sales in fiscal
1999 were slightly offset by declines in net sales of our other branded product.
20
<PAGE>
ROYALTY INCOME. Royalty income was $22.8 million for fiscal 2000
compared to $3.1 million for fiscal 1998. The increase of $19.8 million was
primarily the result of the acquisitions of the Perry Ellis, John Henry and
Manhattan brands in early 1999.
COST OF SALES. Cost of sales for fiscal 2000 was $171.4 million or
67.9% of total revenue as compared to $166.2 million or 74.1% of total revenue
for fiscal 1999. The cost of sales as a percentage of net sales for fiscal 2000
was 74.7% as compared to 75.1% for fiscal 1999 as a result of increased sales in
certain branded product. The decrease in the cost of sales as a percentage of
total revenues is a result of the increase in royalty income, which reflects no
cost of sales. Gross profit was $81.0 million or 32.1% of total revenue for
fiscal 2000 as compared to $58.2 million or 25.9% of total revenue in fiscal
1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 2000 were $44.5 million or 17.6% of total
revenue as compared to $39.5 million or 17.6% of total revenue for fiscal 1999.
The increase is primarily attributable to payroll and advertising related costs
associated with the Perry Ellis, John Henry and Manhattan acquisitions.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expense for fiscal 2000 was $5.2 million or 2.1% of total revenues, as compared
to $2.2 million or 0.9% of total revenues for fiscal 1999. The increase is
principally the result of the additional amortization of the intangible assets
acquired in connection with the Perry Ellis, John Henry and Manhattan
acquisitions.
INTEREST EXPENSE. Interest expense for fiscal 2000 was $13.9 million as
compared to $3.5 million for fiscal 1999. The increase was the result of
additional indebtedness incurred as a result of the Perry Ellis, John Henry and
Manhattan acquisitions.
INCOME TAXES. Income taxes during fiscal 2000 had a statutory tax rate
of 37.5% compared to 34.4% in fiscal 1999. The prior year's tax rate was lower
than normal as it reflected an adjustment for overpayments made in prior years.
NET INCOME. Net income for fiscal 2000 increased $2.3 million or 26.8%
to $10.9 million or 4.3% of total revenue from $8.6 million or 3.8% of total
revenue for fiscal 1999 as a result of the items discussed above.
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 15.2% 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% of net sales in fiscal 1999 compared to 75% 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 in fiscal 1999. In the portfolio of other branded
products, the John Henry brand also experienced an increase in net sales. We
introduced the Andrew Fezza, PNB Nation and Ping brands during fiscal 1999.
21
<PAGE>
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. Royalty income was $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.
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 for fiscal 1999 were $39.5 million or 17.6% of total
revenue as compared to $34.1 million or 17.5% of total revenue for fiscal 1998.
The increase is primarily attributed to costs associated with the 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 license acquisitions are primarily related
to payroll and advertising.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses for fiscal year 1999 were $2.2 million compared to $1.7 million for
fiscal 1998.
INTEREST EXPENSE. Interest expense for fiscal 1999 was $3.5 million as
compared to $2.8 million in 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. Income taxes during fiscal 1999 had an effective tax rate
of 34.4% compared to 28.7% in fiscal 1998. 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 19.6%
to $8.6 million or 3.8% of total revenue from $7.2 million or 3.7% of total
revenue for fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
We rely primarily upon cash flow from operations and borrowings under
our senior credit agreement to finance operations and expansion. Cash provided
by operating activities was $14.0 million in fiscal 2000, and $14.3 million in
fiscal 1999, compared to a usage of cash of $3.1 million in 1998. The cash
generated from operations has primarily come from net income and from non-cash
depreciation and amortization. In fiscal year 2000, cash provided by operations
included increases of $4.2 million of accrued interest payable on the newly
issued subordinated notes offset by increases in accounts receivable of $6.7
million, commensurate with increased sales activity in the fourth quarter, and
increases in inventory balances of $3.0 million, reflective of anticipated
increased future order activity.
22
<PAGE>
Net cash used in investing activities was $104.1 million in fiscal
2000, the majority of which was used for Perry Ellis, John Henry and Manhattan
acquisitions. Net cash used in investing activities for fiscal 1999 was $10.2
million, of which $6.0 million related to the deposits for these acquisitions.
Net cash provided by financing activities for fiscal 2000 totaled $90.1
million, which primarily came from the $100.0 million senior subordinated notes
offering used to consummate the Perry Ellis, John Henry and Manhattan
acquisitions. Net cash used in financing activities for fiscal 1999 totaled $4.9
million, which was primarily due to overall reductions in borrowings on the
credit facility.
We have a $90.0 million 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 $15.0 million
("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 60.0%
of eligible inventories, as defined. Interest on revolving borrowings is
variable, as a function of total debt to EBITDA, upon either LIBOR plus 1.75%,
or the agent brokers' prime rate. Interest on the term loan is 25 basis points
higher than on the revolving credit facility. The Senior Credit Facility
contains certain covenants which requires us to maintain certain financial
ratios and a minimum net worth and which restricts the payment of dividends. The
Senior Credit Facility is secured by all of our assets. The outstanding balance
of our Senior Credit Facility was $29.3 million on January 31, 2000. The Senior
Credit Facility expires in October 2002.
We also maintain two letters of credit facilities totaling $52.0
million. Each letter of credit is secured by the consignment of merchandise in
transit under that letter of credit. As of January 31, 2000, there was $18.7
million available under these facilities.
Capital expenditures for fiscal 2000 totaled $2.3 million and consisted
primarily of software costs and purchases of equipment. Capital expenditures of
$4.0 million for fiscal 1999 were principally associated with the new
distribution and office facility.
Our products have historically been geared toward lighter-weight
products generally worn during the spring and summer months, which caused
disproportionately higher revenues typically to be realized during the first
quarter of each fiscal year. This seasonality has been somewhat reduced with the
introduction of fall, winter and holiday merchandise. 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 Senior Credit Facility, 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.
Our purchases from foreign suppliers are made in U.S. dollars.
Accordingly, we have not, to date, been materially adversely affected by foreign
currency fluctuations.
23
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS - 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, 2000. Management does not expect the adoption of SFAS No. 133 to
have a significant impact on the Company's financial statements.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk is limited to fluctuations in interest rates as it
pertains to our borrowings under the Senior Credit Facility. As of January 31,
2000, the interest rate on borrowings under the long-term debt was 8.25%. If the
interest rate on the past year's average borrowing amounts under the Senior
Credit Facility fluctuated by 25 basis points, our interest expense would
increase and income before income taxes would decrease by $90,000. This amount
is determined solely by considering the impact of the hypothetical change in the
interest rate on our borrowing cost under the Senior Credit Facility without
consideration of other factors such as actions management might take to manage
this cost with respect to its exposure to interest rate changes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-21 appearing at the end of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers and
regarding compliance with Section 16 of the Securities Exchange Act of 1934
required by this item will be set forth in the Company's definitive Proxy
Statement, to be filed within 120 days after the end of the fiscal year covered
by this Form 10-K, and is incorporated by reference to the Company's Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth in the Company's
definitive Proxy Statement, to be filed within 120 days after the end of the
fiscal year covered by this Form 10-K, and is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be set forth in the Company's
definitive Proxy Statement, to be filed within 120 days after the end of the
fiscal year covered by this Form 10-K, and is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be set forth in the Company's
definitive Proxy Statement, to be filed within 120 days after the end of the
fiscal year covered by this Form 10-K, and is incorporated by reference to the
Company's Proxy Statement.
25
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report
(1) Consolidated Financial Statements.
The following Consolidated Financial Statements of
Perry Ellis International, Inc. and subsidiaries are
included in Part II, Item 8:
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets as of January 31,
2000 and 1999 F-3
Consolidated Statements of Income for each of
the three years in the period ended
January 31, 2000 F-4
Consolidated Statements of Changes in
Stockholders' Equity for each of the three
years in the period ended January 31, 2000 F-5
Consolidated Statements of Cash Flows for each
of the three years in the period ended
January 31, 2000 F-6
Notes to Consolidated Financial Statements F-7
(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.
(3) Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
3.1 Registrant's Amended and Restated Articles of Incorporation (1)
3.2 Registrant's Amended and Restated Bylaws (1)
4.1 Form of Common Stock Certificate (1)
4.2 Indenture dated April 6, 1999 between the Company and State Street
Bank and Trust Company as amended (6)
4.4 Purchase Agreement dated March 31, 1999 by and among the Company and
the Initial Purchasers (6)
4.5 Specimen Forms of 12 1/4% Senior Subordinated Notes Due 2006 (6)
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
26
<PAGE>
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 Georgia 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 (6)
10.25 Lease Agreement [Building] dated as of August 28, 1997 between SUP
Joint Venture, as Lessor and Registrant, as Lessee (6)
10.26 Amended and Restated Loan and Security Agreement dated as of March
31, 1998 (6)
10.27 Amendment to Amend and Restated Loan and Security Agreement dated as
of August 1, 1998 (7)
10.28 Purchase and Sale Agreement dated as of December 28, 1998 among
Salant Corportion, Frost Bros. Enterprises, Inc. Maquiladora Sur,
S.A. de C.V. and the Company (the "Salant Purchase Sale Agreement")
(7)
10.29 First Amendment to the Salant Purchase and Sale Agreement dated as of
February 24, 1999 (7)
10.30 Amended and Restated Loan and Security Agreement dated as of March
26, 1999 (7)
10.31 Inventory Purchase Agreement dated March 12, 1999 between the Company
and Phillips-Van Heusen Corporation (7)
10.32 Stock Purchase Agreement dated as of January 28, 1999 by and among
the Company and Christopher C. Angell, Barbara Gallagher and Morgan
Guaranty Trust Company of New York, as Trustees of the PEI Trust
created under Par. E. of Article 3 of the Agreement dated November
19, 1985, as amended January 27, 1986 (the "Perry Ellis Purchase and
Sale Agreement") (8)
10.33 First Amendment to the Perry Ellis Purchase and Sale Agreement dated
as of March 31, 1999 (8)
10.34 Employment agreement between Allan Zwerner and the Company (2)(6)
10.35 Employment agreement between Neil S. Nackman and the Company (2)(6)
12.1 Computation of Ratio of Earnings to Fixed Charges (9)
22.1 Subsidiaries of Registrant (3)
23.2 Consent of Deloitte & Touche LLP (9)
27.1 Financial Data Schedule (SEC use only) (9)
- ----------
(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.
27
<PAGE>
(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) Previously filed as an Exhibit to Registrant's Registration Statement
on Form S-4 (File No. 33-78427) and incorporated herein by reference.
(7) Previously filed as an Exhibit to Registrant's Current Report on Form
8-K dated March 29, 1999 as amended and incorporated herein by
reference.
(8) Previously filed as an Exhibit to Registrant's Current Report on Form
8-K dated April 6, 1999 as amended and incorporated herein by
reference.
(9) Filed herewith.
(b) Reports on Form 8-K
None.
(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.
28
<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.
PERRY ELLIS INTERNATIONAL, INC.
BY: /s/ GEORGE FELDENKREIS
----------------------------
George Feldenkreis
Chairman of the Board and
Chief Executive Officer
Dated: April 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in their capacities
and on the date indicated:
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
/S/ GEORGE FELDENKREIS Chairman of the Board and April 24, 2000
- --------------------------- Chief Executive Officer
George Feldenkreis
/S/ OSCAR FELDENKREIS President, Chief Operating April 24, 2000
- --------------------------- Officer and Director
Oscar Feldenkreis
/S/ RON KAPLOVE Controller April 24, 2000
- ---------------------------
RON KAPLOVE
/S/ NEAL S. NACKMAN Chief Financial Officer and April 24, 2000
- --------------------------- Principal Accounting Officer
Neal S. Nackman
/S/ ALLAN ZWERNER President of Licensing April 24, 2000
- --------------------------- and Director
Allan Zwerner
/S/ RONALD BUCH Director April 24, 2000
- ---------------------------
Ronald Buch
/S/ GARY DIX Director April 24, 2000
- ---------------------------
Gary Dix
/S/ SALOMON HANONO Director April 24, 2000
- ---------------------------
Salomon Hanono
/S/ JOSEPH P. LACHER Director April 24, 2000
- ---------------------------
Joseph P. Lacher
/S/ RICHARD MCEWEN Director April 24, 2000
- ---------------------------
Richard McEwen
/S/ LEONARD MILLER Director April 24, 2000
- ---------------------------
Leonard Miller
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets as of January 2000 and 1999 F-3
Consolidated Statements of Income for each of the three years
in the period ended January 2000, 1999 and 1998 F-4
Consolidated Statements of Changes in Stockholders' Equity for each
of the three years in the period ended January 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flow for each of the three years
in the period ended January 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Perry Ellis International, Inc. and subsidiaries:
We have audited the consolidated balance sheets of Perry Ellis
International, Inc. and subsidiaries (the "Company") as of January 31, 2000 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, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 24, 2000
F-2
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31
<TABLE>
<CAPTION>
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 173,493 $ 225,631
Accounts receivable, net 38,969,845 46,006,774
Inventories 32,965,655 36,003,285
Deferred income taxes 1,091,482 1,960,103
Prepaid income taxes -- 1,856,815
Other current assets 8,040,200 2,340,166
------------ ------------
Total current assets 81,240,675 88,392,774
Property and equipment, net 7,851,592 8,930,393
Intangible assets, net 18,842,797 123,047,545
Other 1,022,467 4,502,476
------------ ------------
TOTAL $108,957,531 $224,873,188
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,595,688 $ 5,763,401
Accrued expenses 4,754,077 5,273,334
Accrued interest payable 177,448 4,410,631
Other current liabilities 413,505 2,294,304
------------ ------------
Total current liabilities 9,940,718 17,741,670
Senior subordinated notes payable, net -- 98,988,667
Deferred income tax 559,728 2,841,084
Long term debt-senior credit agreement 33,511,157 18,031,496
Long term debt-term loan -- 11,250,000
------------ ------------
Total liabilities 44,011,603 148,852,917
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;
6,712,374 and 6,731,874 shares issued and outstanding
as of January 31, 1999 and 2000, respectively 67,123 67,318
Additional paid-in-capital 28,806,455 29,000,655
Retained earnings 36,072,350 46,952,298
------------ ------------
Total stockholders' equity 64,945,928 76,020,271
------------ ------------
TOTAL $108,957,531 $224,873,188
============ ============
</TABLE>
See Notes to consolidated financial statements.
F-3
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31
<TABLE>
<CAPTION>
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Net Sales $190,689,212 $221,347,295 $229,549,158
Royalty Income 4,031,878 3,057,357 22,839,698
------------ ------------ ------------
Total Revenues 194,721,090 224,404,652 252,388,856
Cost of Sales 145,991,132 166,198,450 171,412,946
------------ ------------ ------------
Gross Profit 48,729,958 58,206,202 80,975,910
------------ ------------ ------------
Operating Expenses
Selling, General and Administrative Expenses 34,137,437 39,478,274 44,479,497
Depreciation and Amortization 1,748,006 2,161,398 5,181,286
------------ ------------ ------------
Total Operating Expenses 35,885,443 41,639,672 49,660,783
------------ ------------ ------------
Operating Income 12,844,515 16,566,530 31,315,127
Interest Expense 2,781,509 3,493,985 13,905,498
------------ ------------ ------------
Income Before Income Tax Provision 10,063,006 13,072,545 17,409,629
Income Tax Provision 2,884,844 4,490,866 6,529,681
------------ ------------ ------------
Net Income $ 7,178,162 $ 8,581,679 $ 10,879,948
============ ============ ============
Net Income Per Share
Basic $ 1.10 $ 1.29 $ 1.62
============ ============ ============
Diluted $ 1.08 $ 1.27 $ 1.59
============ ============ ============
Weighted Average Number of Shares Outstanding
Basic 6,540,604 6,674,103 6,725,722
============ ============ ============
Diluted 6,665,635 6,769,810 6,856,538
============ ============ ============
</TABLE>
See Notes to consolidated financial statements.
F-4
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS ENDED JANUARY 31
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
Exercise of stock options 19,500 195 163,333 -- 163,528
Net Income -- -- -- 10,879,948 10,879,948
Tax benefit for exercise of non-qualified
stock options -- -- 30,867 -- 30,867
------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 31, 2000 6,731,874 $ 67,318 $ 29,000,655 $ 46,952,298 $ 76,020,271
============ ============ ============ ============ ============
</TABLE>
See Notes to consolidated financial statements.
F-5
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED JANUARY 31
<TABLE>
<CAPTION>
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,178,162 $ 8,581,679 $ 10,879,948
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,748,006 2,161,398 5,181,286
Provision for bad debt 360,000 167,659 450,541
Loss on sale and abandonment of property 187,692 -- 32,758
(Increase) decrease in deferred taxes (203,342) 340,246 1,412,735
Amortization of bond discount -- -- 136,667
Amortization of debt issue cost -- -- 299,711
Changes in operating assets and liabilities (net of effects of acquisitions):
Accounts receivable, net (7,055,371) (3,634,897) (6,662,205)
Inventories (3,598,866) 2,833,733 (3,037,630)
Other current assets (727,633) 213,128 (1,291,628)
Other assets 889,854 291,280 509,924
Accounts payable and accrued expenses (1,907,414) 3,415,976 1,686,981
Accrued interest payable -- -- 4,233,183
Other current liabilities 28,055 (29,285) 214,260
------------- ------------- -------------
Net cash provided by (used in) operating activities (3,100,857) 14,340,917 14,046,531
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (3,796,040) (4,004,588) (2,331,513)
Payment on purchase of intangible assets (758,598) (235,479) (1,025,185)
Deposit for acquisitions -- (6,000,000) --
Payment for acquired businesses, net of cash acquired -- -- (100,734,467)
------------- ------------- -------------
Net cash used in investing activities (4,554,638) (10,240,067) (104,091,165)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in borrowings under letter of credit facilities (3,812,629) (3,000,000) --
Net proceeds from (repayments of) long-term debt 11,521,373 (3,147,017) (15,479,661)
Net proceeds from term loan -- -- 11,250,000
Net proceeds from senior subordinated notes -- -- 98,852,000
Debt issuance costs -- -- (4,719,962)
Tax benefit for exercise of non-qualified stock options -- 751,252 --
Proceeds from exercise of stock options 201,209 458,152 194,395
------------- ------------- -------------
Net cash provided by (used in) financing activities: 7,909,953 (4,937,613) 90,096,772
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 254,458 (836,763) 52,138
CASH AT BEGINNING OF YEAR 755,798 1,010,256 173,493
------------- ------------- -------------
CASH AT END OF YEAR $ 1,010,256 $ 173,493 $ 225,631
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 2,820,016 $ 3,293,877 $ 9,672,315
============= ============= =============
Income taxes $ 3,174,807 $ 1,762,479 $ 8,556,537
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
As described in Note 3, the company acquired tangible assets and assumed
liabilities in connection with the Perry Ellis and John Henry/
Manhattan acquisitions.
</TABLE>
See Notes to consolidated financial statements.
F-6
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 2000
1. GENERAL
Perry Ellis International, Inc., formerly called Supreme International
Corporation, together with its 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, moderately priced
better men's sportswear, sports and dress shirts, casual and dress pants and
shorts to all levels of retail distribution throughout the United States, Puerto
Rico and Canada.
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 Perry Ellis International, Inc. 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 the senior credit facility approximates fair
value due to the relatively frequent resets of its floating interest rate. The
fair value of the 12 1/4% senior subordinated notes approximates their carrying
amount based on quoted market prices. 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. Cost consists 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 method 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 acquisitions, registration and maintenance of
brand names and license rights. Intangibles are amortized over their estimated
useful lives, which range from ten to forty years with a weighted average of
33.4 years. As of January 31, 1999 and 2000, accumulated amortization related to
intangible assets amounted to $2,717,930 and $6,302,249, respectively.
F-7
<PAGE>
DEFERRED DEBT ISSUE COSTS - We incurred costs in connection with the
bond issuance and bank refinancing. These costs have been capitalized and are
being amortized on a straight-line basis, which approximates the interest
method, over the term of the related debt. Such amounts are included in other
long-term assets in the consolidated balance sheet.
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 estimate of assumptions concerning future conditions.
REVENUE RECOGNITION - Sales are recognized upon shipment, net of trade
allowances and a provision for estimated returns. Royalty income is recognized
when earned on the basis of the terms specified in the underlying contractual
agreements. We operate predominantly in North America, with over 90% of our
sales in the domestic market. One customer accounted for approximately 14% of
net sales for fiscal 2000; two customers for approximately 15% and 10% of net
sales for fiscal 1999; and two customers for approximately 12% and 11% of net
sales for fiscal 1998. We do not believe that these concentrations of sales and
credit risk represent a material risk of loss with respect to our financial
position as of January 31, 2000.
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 liability method of computing deferred income taxes. Under the
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 potential dilutive common stock. The
potential dilutive 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 17, as determined using the treasury stock method.
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
beginning 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
F-8
<PAGE>
COMPENSATION, the Company has presented certain pro forma and other disclosures
related to stock-based compensation plans as if it had applied SFAS 123.
RECLASSIFICATIONS - Certain amounts in the 1999 and 1998 financial
statements have been reclassified to conform to the 2000 presentation.
RECENT ACCOUNTING PRONOUNCEMENT - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133 ("SFAS 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
years beginning after June 15, 2000. Management does not expect the adoption of
SFAS No. 133 to have a significant impact on the Company's financial statements.
3. ACQUISITIONS
On March 26, 1999, the Company acquired the John Henry, Manhattan and
Lady Manhattan trademarks for approximately $27.0 million plus purchase price
adjustments and expenses incurred of $1.8 million. On April 6, 1999, we acquired
all the outstanding capital stock of the former Perry Ellis International, Inc.
("PEI") for approximately $75.0 million in cash plus purchase price adjustments
and expenses incurred of $5.1 million. PEI was a privately held company which
owned and licensed the Perry Ellis brand name, currently one of the top selling
brands in specialty chains and department stores in the United States.
The acquisitions were accounted for using the purchase method of
accounting and, accordingly, the financial statements of the Company include the
results of operations of the acquisitions commencing on March 26, 1999 for the
John Henry/Manhattan acquisition; and April 6, 1999 for the Perry Ellis
acquisition. Costs in excess of the fair value of the net tangible assets
acquired were allocated to the trademarks acquired, are being amortized over a
40 year life, and were determined as follows:
Purchase price $102,000,000
Plus purchase price adjustments 1,708,138
Plus expenses incurred in connection with the
acquisitions 5,176,705
------------
Adjusted purchase price 108,884,843
Tangible assets acquired:
Cash 2,150,377
Accounts receivable 825,265
Other current assets 792,251
Property and Equipment 19,599
------------
105,097,352
Liabilities assumed:
Accounts payables and accrued expenses 1,666,529
------------
Trademarks $106,763,881
============
F-9
<PAGE>
The adjusted purchase price was paid in cash and is reflected in the
statement of cash flows net of cash acquired and deposits of $6.0 million made
in fiscal 1999.
4. PRO FORMA INFORMATION
The following sets forth the Company's unaudited pro forma financial
information, based under the assumption that operations were in effect for each
of the fiscal years ended January 31, 1999 and 2000, giving effect to the Perry
Ellis, John Henry and Manhattan acquisitions under the purchase method of
accounting and the related financing as if they had been consummated on the
first day of each period presented. The information is presented for
illustrative purposes only, and therefore does not purport to present the
results of operations of the Company had the Perry Ellis, John Henry and
Manhattan acquisition and the related financing occurred on the dates indicated,
nor are they necessarily indicative of the results of operations which may be
expected to occur in the future.
Pro Forma Pro Forma
(Unaudited) (Unaudited)
-------------- --------------
Year Ended Year Ended
January 31, January 31,
1999 2000
-------------- --------------
Total revenues $244,461,652 $256,313,588
============== ==============
Net income $ 5,831,034 $ 10,614,785
============== ==============
Net income per share (diluted) $ 0.86 $ 1.55
============== ==============
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following as of January 31:
1999 2000
------------ ------------
Trade accounts $ 38,100,570 $ 42,475,152
Royalties and other receivables 1,479,149 4,546,198
------------ ------------
Total 39,579,719 47,021,350
Less: Allowance for doubtful accounts (609,874) (1,014,576)
------------ ------------
Total $ 38,969,845 $ 46,006,774
============ ============
F-10
<PAGE>
The activity for the allowance account is as follows:
1998 1999 2000
----------- ----------- -----------
Allowance for doubtful accounts:
Beginning balance $ 250,000 $ 609,874 $ 609,874
Provision 360,000 167,659 450,541
Write-offs, net of recoveries (126) (167,659) (45,839)
----------- ----------- -----------
Ending balance $ 609,874 $ 609,874 $ 1,014,576
=========== =========== ===========
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
estimates.
6. INVENTORIES
Inventories consist of the following as of January 31:
1999 2000
----------- -----------
Finished goods $30,730,131 $31,470,392
Raw materials and in process 255,085 183,927
Merchandise in transit 1,980,439 4,348,966
----------- -----------
Total $32,965,655 $36,003,285
=========== ===========
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of January 31:
1999 2000
Furniture, fixture and equipment $ 7,205,651 $ 9,337,319
Vehicles 371,364 326,513
Leasehold improvements 2,299,704 2,477,128
Land 1,125,000 1,139,941
------------ ------------
11,001,719 13,280,901
Less: accumulated depreciation and amortization (3,150,127) (4,350,508)
------------ ------------
Total $ 7,851,592 $ 8,930,393
============ ============
Depreciation expense relating to property and equipment amounted to
approximately $847,000, $1,052,000 and $1,241,000 for the fiscal years ended
January 31, 1998, 1999 and 2000, respectively.
F-11
<PAGE>
8. INTANGIBLE ASSETS
Intangible assets consisted of the following as of January 31:
1999 2000
------------- -------------
Trademarks & Licenses $ 21,544,562 $ 129,333,629
Goodwill 16,165 16,165
------------- -------------
21,560,727 129,349,794
Accumulated Amortization (2,717,930) (6,302,249)
------------- -------------
Balance, net $ 18,842,797 $ 123,047,545
============= =============
Amortization expense relating to the intangible assets amounted to
approximately $901,000, $1,109,000, and $3,584,000 for the fiscal years ended
January 31, 1998, 1999 and 2000, respectively.
9. ACCRUED EXPENSES
Accrued expenses consists of the following as of January 31:
1999 2000
---------- ----------
Income taxes $2,107,457 $ --
Salaries and commissions 1,549,758 1,504,001
Buying commissions 818,188 860,431
Unearned advertising revenues -- 1,353,764
Other 278,674 1,555,138
---------- ----------
Total $4,754,077 $5,273,334
========== ==========
10. OTHER CURRENT LIABILITIES
Other current liabilities consists of the following as of January 31:
1999 2000
---------- ----------
Unearned Royalty Revenues $ 87,853 $1,717,964
Other 325,652 576,340
---------- ----------
Total $ 413,505 $2,294,304
========== ==========
11. BORROWINGS UNDER LETTER OF CREDIT FACILITIES
We have two letter of credit facilities totaling $52.0 million as of
January 31, 2000. Each letter of credit facility is secured by the consignment
of merchandise in transit under such letter of credit.
F-12
<PAGE>
Borrowings and availability under letter of credit facilities consist
of the following as of January 31:
1999 2000
------------ ------------
Total letter of credit facilities $ 60,000,000 $ 52,000,000
Outstanding letters of credit (23,420,765) (33,300,358)
------------ ------------
Available $ 36,579,235 $ 18,699,642
============ ============
12. LONG TERM DEBT-SENIOR CREDIT FACILITY
The Company has a senior credit facility with a group of banks
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, which generally restricts the outstanding
balance to 85% of eligible receivables plus 60% of eligible inventories, as
defined. Interest on borrowings is variable, based upon the Company's options of
selecting a LIBOR plus 1.75% or the bank's prime rate. The weighted average
interest rate on the senior credit facility was 6.7% and 7.8% for the fiscal
years ending January 31, 1999 and 2000, respectively. 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.
13. BONDS (SENIOR SUBORDINATED NOTES PAYABLE)
The Company issued $100 million in notes on April 6, 1999, the proceeds
of which were used to acquire PEI and to pay down the outstanding balance of the
senior credit facility. The notes mature on April 1, 2006, and bear interest at
the rate of 12 1/4% payable on April 1 and October 1 in each year. The proceeds
to the Company were $98,852,000, yielding an effective interest rate of 12.4%.
The notes are unsecured senior subordinated obligations and are
subordinated to all of our existing and future senior indebtedness.
The notes contain certain covenants which require us to maintain
certain financial ratios and restricts the payment of dividends.
OPTIONAL REDEMPTION. The notes will be redeemable at the option of the
Company, as a whole or from time to time in part, at any time on or after April
1, 2003 at the redemption prices (expressed as percentages of principal amount)
set forth below, together with accrued interest, if any, to the date of
redemption, if redeemed during the 12-month period beginning on April 1 of the
years indicated below.
F-13
<PAGE>
YEAR REDEMPTION PRICE
- ---- ----------------
2003 106.125%
2004 103.063%
2005 and thereafter 100.000%
In addition, at any time or from time to time before April 1, 2002, the
Company may redeem up to 35% of the aggregate principal amount of the notes
within 60 days of one or more public equity offerings with the net proceeds of
such offering at a redemption price equal to 112.25% of the principal amount
thereof, together with accrued interest, if any, to the date of redemption;
provided that, after giving effect to any such redemption, at least 65% of the
aggregate principal amount of the notes initially issued remains outstanding.
14. INCOME TAXES
The income tax provision consists of the following for each of the
years ended January 31:
1998 1999 2000
----------- ----------- -----------
Current income taxes:
Federal $ 2,780,815 $ 3,057,838 $ 4,677,353
State 307,371 1,002,692 528,930
Foreign -- 90,090 (89,337)
----------- ----------- -----------
Total 3,088,186 4,150,620 5,116,946
Deferred income taxes:
Federal and state (203,342) 340,246 1,412,735
----------- ----------- -----------
Total $ 2,884,844 $ 4,490,866 $ 6,529,681
=========== =========== ===========
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>
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 35%
Increase (decrease) resulting from
State income taxes, net of federal income tax benefit 2.1 2.9 2.5
Benefit of graduated rate (1.0) (1.0) (0.6)
Reversal of certain income tax reserves (5.0) -- --
Other (2.4) (2.5) 0.6
------ ------ ------
Total 28.7% 34.4% 37.5%
====== ====== ======
</TABLE>
F-14
<PAGE>
Deferred income taxes are provided for the temporary differences
between financial reporting basis and the tax basis of the Company's assets and
liabilities under SFAS 109. The tax effects of temporary differences as of
January 31 are as follows:
1999 2000
----------- -----------
Deferred income tax assets:
Inventories $ 795,442 $ 785,636
Accounts receivable 220,165 379,512
Accrued expenses -- 37,861
Unearned Revenues -- 642,621
Other 75,875 114,473
----------- -----------
Deferred income tax assets 1,091,482 1,960,103
----------- -----------
Deferred income tax liabilities:
Fixed assets (318,580) (1,188,572)
Intangible (241,148) (1,652,446)
Other -- (66)
----------- -----------
Deferred income tax liabilities (559,728) (2,841,084)
----------- -----------
Net deferred income tax (liability) asset $ 531,754 $ (880,981)
=========== ===========
Management believes that a valuation allowance for deferred income tax
assets is not deemed necessary as it is more likely than not that the assets
will be recovered.
15. RETIREMENT PLAN
The Company has 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 $74,000, $115,000, and $128,000 for the fiscal years
ended January 31, 1998, 1999 and 2000, respectively.
16. RELATED PARTY TRANSACTIONS
We lease certain office and warehouse space owned by our Chairman
of the Board of Directors and Chief Executive Officer under a non-cancelable
operating lease arrangement. Rent expense, including taxes, for these leases
amounted to $625,000, $546,000 and $265,000, for the years ended January 31,
1998, 1999 and 2000, respectively.
We entered into licensing agreements (the "License Agreements") with
Isaco International, Inc. ("Isaco"), pursuant to which Isaco was granted the
exclusive license to use the Natural Issue and Perry Ellis brand names in the
United States and Puerto Rico to market a line of men's underwear and
loungewear. The principal shareholder of Isaco is the father-in-law of our
President
F-15
<PAGE>
and Chief Operating Officer. Royalty income earned from the License Agreements
amounted to $296,000, $298,000 and $438,000 for the years ended January 31,
1998, 1999 and 2000, respectively.
17. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS - We 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 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.
A summary of the stock option activity for options issued under the
1993 Plan and the Directors Plan is as follows for the years ended January 31:
<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, 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
Granted 2000 501,050 $ 8.81 $ 13.50 $ 9.26
Exercised 2000 (19,500) $ 6.67 $ 10.07 $ 8.39
Cancelled 2000 (15,000) $ 6.50 $ 15.25 $ 9.59
----------
Outstanding January 31, 2000 1,032,550 $ 7.67 $ 15.75 $ 10.69 833,459 $ 10.73
==========
</TABLE>
F-16
<PAGE>
The following table summarizes information about options outstanding as
of January 31, 2000:
<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>
$ 7.50 - $ 10.00 707,000 7.1 $8.96 585,209 $8.80
$ 10.01 - $ 12.00 65,050 6.5 $10.66 17,250 $10.27
$ 12.01 - $ 16.00 260,500 8.0 $15.41 231,000 $15.66
</TABLE>
As described in Note 2, we account 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, 1998, 1999 and 2000
as the exercise prices for the stock options granted are equal to the fair
market value of the underlying stock. Had compensation cost for options granted
been determined in accordance with the fair value provisions of SFAS 123, our
net income and net income per share would have been as follows for the years
ended January 31:
1998 1999 2000
---------- ---------- -----------
Net income $7,026,242 $8,145,789 $10,150,643
========== ========== ===========
Net income per share:
Basic $ 1.07 $ 1.22 $ 1.51
========== ========== ===========
Diluted $ 1.05 $ 1.20 $ 1.48
========== ========== ===========
The fair value of these options was estimated at the date of grant
using the Black-Scholes Option Pricing Model with the following weighted-average
assumptions for 1998, 1999 and 2000:
1998 1999 2000
-------- -------- --------
Risk free interest 6.5% 6.5% 6.5%
Dividend Yield 0.0% 0.0% 0.0%
Volatility factors 45.9% 67.3% 64.0%
Weighted average life (years) 5.0 5.0 9.0
Using the Black-Scholes Option Pricing Model, the estimated
weighted-average fair value per option granted in 1998, 1999 and 2000 were
$5.99, $9.22 and $6.99, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition,
F-17
<PAGE>
option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because our 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 our 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.
WARRANTS - In conjunction with our initial public offering in May 1993,
we 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.
F-18
<PAGE>
18. 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. This is the first year that management has segregated the operations for
the two segments. Trademark assets and costs have been allocated among the
divisions where the brands are shared. Shared selling, general and
administrative expenses are allocated amongst the segments based on relative
gross profit contribution.
TWELVE MONTHS
ENDED
JANUARY 31, 2000
----------------
Revenues:
Product $229,549,158
Licensing 22,839,698
------------
Total Revenues $252,388,856
============
Operating Income
Product $ 17,286,831
Licensing 14,028,295
------------
Total Operating Income $ 31,315,126
============
Interest Expense
Product $ 3,417,678
Licensing 10,487,820
------------
Total Interest Expense $ 13,905,498
============
Income Tax Provision
Product $ 5,205,543
Licensing 1,324,138
------------
Total Income Tax Provision $ 6,529,681
============
Depreciation and Amortization
Product $ 2,272,154
Licensing 2,909,132
------------
Total Depreciation and Amortization $ 5,181,286
============
Identifiable Assets
Product $106,474,408
Licensing 13,973,198
Corporate 4,425,582
------------
Total Identifiable Assets $224,873,188
============
F-19
<PAGE>
19. 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, 2003. Total royalty payments under these license
agreements amounted to $330,000, $573,000 and $1,105,716 for the years ended
January 31, 1998, 1999 and 2000, respectively, and were classified as cost of
sales.
We consolidated our administrative offices, warehouses and distribution
facilities into a 240,000 square foot facility in Miami, Florida. The lease has
a term of five years, minimum annual rental of approximately $1.3 million and
requires a minimum contingent rental payment at the termination of the lease of
$12.3 million.
Minimum aggregate annual commitments for all of the Company's
non-cancelable operating lease commitments, including the related party leases
described in Note 16 and the minimum contingent rental payment described above,
are as follows.
YEAR ENDING JANUARY 31,
2001 $ 2,218,638
2002 2,063,656
2003 13,798,662
2004 459,766
2005 265,037
-----------
Total $18,805,760
===========
Rent expense for these leases, including the related party rent
payments discussed in Note 16 amounted to $1,460,000, $1,946,000 and $1,660,632
for the fiscal years ended January 31, 1998, 1999 and 2000 respectively.
We guarantee up to $600,000 of letters of credit of an unaffiliated
entity.
We are subject to claims and suits against us, as well as the initiator
of claims and suits against others, in the ordinary course of business. We do
not believe that the resolution of any pending claims will have a material
adverse affect on our financial position, results of operations or cash flows.
F-20
<PAGE>
20. SUMMARIZED QUARTERLY FINANCIAL DATA
(Unaudited)
1Q 2Q 3Q 4Q TOTAL
-------- -------- -------- -------- --------
(Dollars in thousands)
FISCAL YEAR ENDED JANUARY 31, 2000
Net Sales $ 59,479 $ 45,273 $ 66,618 $ 58,179 $229,549
Royalty Income 2,316 6,744 6,454 7,326 22,840
-------- -------- -------- -------- --------
Total Revenues 61,795 52,017 73,072 65,505 252,389
Gross Profit 17,623 18,707 23,210 21,435 80,975
Net Income $ 2,892 $ 1,607 $ 3,964 $ 2,417 $ 10,880
Income per share:
Basic $ 0.43 $ 0.24 $ 0.59 $ 0.36 $ 1.62
Diluted $ 0.43 $ 0.23 $ 0.58 $ 0.35 $ 1.59
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
F-21
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
23.2 Consent of Deloitte & Touche LLP
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 Perry Ellis International, Inc. on Form S-8 of our report
dated March 24, 2000 appearing in the Annual Report on Form 10-K of Perry Ellis
International, Inc. for the year ended January 31, 2000.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
April 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 225,631
<SECURITIES> 0
<RECEIVABLES> 47,021,350
<ALLOWANCES> (1,014,576)
<INVENTORY> 36,003,285
<CURRENT-ASSETS> 88,392,774
<PP&E> 13,280,901
<DEPRECIATION> (4,350,508)
<TOTAL-ASSETS> 224,873,188
<CURRENT-LIABILITIES> 17,741,670
<BONDS> 98,988,667
0
0
<COMMON> 67,318
<OTHER-SE> 75,952,953
<TOTAL-LIABILITY-AND-EQUITY> 224,873,188
<SALES> 229,549,158
<TOTAL-REVENUES> 252,388,856
<CGS> 171,412,946
<TOTAL-COSTS> 171,412,946
<OTHER-EXPENSES> 49,660,783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,905,498
<INCOME-PRETAX> 17,409,629
<INCOME-TAX> 6,529,681
<INCOME-CONTINUING> 10,879,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,879,948
<EPS-BASIC> 1.62
<EPS-DILUTED> 1.59
</TABLE>
