UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended November 2, 20131, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 0-21764
PERRY ELLIS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida | 59-1162998 | |
(State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
3000 N.W. 107 Avenue Miami, Florida | 33172 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code:(305) 592-2830
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrant’s common stock is 15,679,62915,619,000 (as of December 3, 2013)2014).
PERRY ELLIS INTERNATIONAL, INC.
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PART I: FINANCIAL INFORMATION | ||||
Item 1: | ||||
1 | ||||
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3 | ||||
4 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
32 | ||||
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33 | ||||
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Item 2: | ||||
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Item 6: | ||||
34 |
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share data)
November 2, 2013 | February 2, 2013 | November 1, 2014 | February 1, 2014 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 49,493 | $ | 54,957 | $ | 30,402 | $ | 26,989 | ||||||||
Accounts receivable, net | 148,982 | 174,484 | 129,266 | 146,392 | ||||||||||||
Inventories | 166,491 | 183,127 | 155,681 | 206,602 | ||||||||||||
Investments, at fair value | 22,635 | 15,398 | ||||||||||||||
Deferred income taxes | 10,519 | 11,608 | 16,705 | 14,060 | ||||||||||||
Prepaid income taxes | 9,276 | 7,261 | 7,536 | 7,579 | ||||||||||||
Prepaid expenses and other current assets | 8,912 | 11,667 | 7,880 | 7,369 | ||||||||||||
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Total current assets | 393,673 | 443,104 | 370,105 | 424,389 | ||||||||||||
Property and equipment, net | 61,206 | 50,749 | 63,546 | 59,912 | ||||||||||||
Other intangible assets, net | 245,978 | 246,681 | 210,431 | 211,485 | ||||||||||||
Goodwill | 13,794 | 13,794 | 6,022 | 6,022 | ||||||||||||
Other assets | 8,429 | 8,801 | 5,506 | 4,927 | ||||||||||||
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TOTAL | $ | 723,080 | $ | 763,129 | $ | 655,610 | $ | 706,735 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 76,425 | $ | 132,028 | $ | 65,848 | $ | 112,442 | ||||||||
Accrued expenses and other liabilities | 25,871 | 28,595 | 21,013 | 24,642 | ||||||||||||
Accrued interest payable | 1,104 | 4,061 | 1,109 | 4,095 | ||||||||||||
Unearned revenues | 4,630 | 4,647 | 4,959 | 5,013 | ||||||||||||
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Total current liabilities | 108,030 | 169,331 | 92,929 | 146,192 | ||||||||||||
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Senior subordinated notes payable, net | 150,000 | 150,000 | 150,000 | 150,000 | ||||||||||||
Senior credit facility | 18,826 | — | — | 8,162 | ||||||||||||
Real estate mortgages | 23,539 | 24,202 | 22,302 | 22,844 | ||||||||||||
Deferred pension obligation | 12,457 | 14,686 | 7,646 | 9,862 | ||||||||||||
Unearned revenues and other long-term liabilities | 14,929 | 14,828 | 15,691 | 14,732 | ||||||||||||
Deferred income taxes | 19,298 | 18,842 | 11,970 | 7,410 | ||||||||||||
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Total long-term liabilities | 239,049 | 222,558 | 207,609 | 213,010 | ||||||||||||
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Total liabilities | 347,079 | 391,889 | 300,538 | 359,202 | ||||||||||||
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Commitments and contingencies | ||||||||||||||||
Commitment and contingencies | ||||||||||||||||
Equity: | ||||||||||||||||
Preferred stock $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding | — | — | — | — | ||||||||||||
Common stock $.01 par value; 100,000,000 shares authorized; 15,946,152 shares issued and outstanding as of November 2, 2013 and 15,326,658 shares issued and outstanding as of February 2, 2013 | 159 | 153 | ||||||||||||||
Common stock $.01 par value; 100,000,000 shares authorized; 16,126,436 shares issued and outstanding as of November 1, 2014 and 15,901,956 shares issued and outstanding as of February 1, 2014 | 161 | 159 | ||||||||||||||
Additional paid-in-capital | 154,572 | 150,091 | 159,882 | 155,522 | ||||||||||||
Retained earnings | 234,524 | 229,056 | 211,999 | 206,277 | ||||||||||||
Accumulated other comprehensive loss | (8,255 | ) | (8,060 | ) | (7,791 | ) | (7,468 | ) | ||||||||
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Total | 381,000 | 371,240 | 364,251 | 354,490 | ||||||||||||
Treasury stock at cost; 267,274 shares as of November 2, 2013 and no shares as of February 2, 2013 | (4,999 | ) | — | |||||||||||||
Treasury stock at cost; 510,929 as of November 1, 2014 and 400,516 as of February 1, 2014 | (9,179 | ) | (6,957 | ) | ||||||||||||
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Total equity | 376,001 | 371,240 | 355,072 | 347,533 | ||||||||||||
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TOTAL | $ | 723,080 | $ | 763,129 | $ | 655,610 | $ | 706,735 | ||||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
1
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
November 2, 2013 | October 27, 2012 | November 2, 2013 | October 27, 2012 | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
November 1, 2014 | November 2, 2013 | November 1, 2014 | November 2, 2013 | |||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Net sales | $ | 214,700 | $ | 229,330 | $ | 674,676 | $ | 691,436 | $ | 203,267 | $ | 214,700 | $ | 649,193 | $ | 674,676 | ||||||||||||||||
Royalty income | 7,421 | 6,918 | 21,469 | 19,772 | 8,173 | 7,421 | 23,093 | 21,469 | ||||||||||||||||||||||||
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Total revenues | 222,121 | 236,248 | 696,145 | 711,208 | 211,440 | 222,121 | 672,286 | 696,145 | ||||||||||||||||||||||||
Cost of sales | 150,757 | 160,453 | 467,554 | 478,348 | 141,133 | 150,757 | 443,850 | 467,554 | ||||||||||||||||||||||||
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Gross profit | 71,364 | 75,795 | 228,591 | 232,860 | 70,307 | 71,364 | 228,436 | 228,591 | ||||||||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 68,434 | 64,394 | 205,624 | 196,844 | 64,477 | 68,434 | 201,045 | 205,624 | ||||||||||||||||||||||||
Depreciation and amortization | 3,573 | 3,424 | 9,375 | 10,314 | 3,008 | 3,573 | 8,976 | 9,375 | ||||||||||||||||||||||||
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Total operating expenses | 72,007 | 67,818 | 214,999 | 207,158 | 67,485 | 72,007 | 210,021 | 214,999 | ||||||||||||||||||||||||
(Loss) gain on sale of long-lived assets | (108 | ) | 410 | 6,162 | 410 | — | (108 | ) | 885 | 6,162 | ||||||||||||||||||||||
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Operating (loss) income | (751 | ) | 8,387 | 19,754 | 26,112 | |||||||||||||||||||||||||||
Operating income (loss) | 2,822 | (751 | ) | 19,300 | 19,754 | |||||||||||||||||||||||||||
Interest expense | 3,782 | 3,689 | 11,307 | 11,011 | 3,517 | 3,782 | 10,838 | 11,307 | ||||||||||||||||||||||||
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Net (loss) income before income taxes | (4,533 | ) | 4,698 | 8,447 | 15,101 | (695 | ) | (4,533 | ) | 8,462 | 8,447 | |||||||||||||||||||||
Income tax (benefit) provision | (1,511 | ) | 1,518 | 2,979 | 4,687 | (258 | ) | (1,511 | ) | 2,740 | 2,979 | |||||||||||||||||||||
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Net (loss) income | $ | (3,022 | ) | $ | 3,180 | $ | 5,468 | $ | 10,414 | $ | (437 | ) | $ | (3,022 | ) | $ | 5,722 | $ | 5,468 | |||||||||||||
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Net (loss) income per share: | ||||||||||||||||||||||||||||||||
Basic | $ | (0.20 | ) | $ | 0.22 | $ | 0.36 | $ | 0.71 | $ | (0.03 | ) | $ | (0.20 | ) | $ | 0.38 | $ | 0.36 | |||||||||||||
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Diluted | $ | (0.20 | ) | $ | 0.21 | $ | 0.36 | $ | 0.68 | $ | (0.03 | ) | $ | (0.20 | ) | $ | 0.38 | $ | 0.36 | |||||||||||||
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Weighted average number of shares outstanding | ||||||||||||||||||||||||||||||||
Basic | 14,991 | 14,662 | 15,042 | 14,669 | 14,954 | 14,991 | 14,881 | 15,042 | ||||||||||||||||||||||||
Diluted | 14,991 | 15,295 | 15,363 | 15,275 | 14,954 | 14,991 | 15,246 | 15,363 |
See Notes to Unaudited Condensed Consolidated Financial Statements
2
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(amounts in thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
November 2, 2013 | October 27, 2012 | November 2, 2013 | October 27, 2012 | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
November 1, 2014 | November 2, 2013 | November 1, 2014 | November 2, 2013 | |||||||||||||||||||||||||||||
Net (loss) income | $ | (3,022 | ) | $ | 3,180 | $ | 5,468 | $ | 10,414 | $ | (437 | ) | $ | (3,022 | ) | $ | 5,722 | $ | 5,468 | |||||||||||||
Other Comprehensive (loss) income: | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net | (1,228 | ) | 623 | (591 | ) | (438 | ) | |||||||||||||||||||||||||
Unrealized gain on pension liability, net of tax (1) | 80 | 81 | 239 | 243 | ||||||||||||||||||||||||||||
Unrealized gain on investments | 14 | — | 29 | — | ||||||||||||||||||||||||||||
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Other Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net | 623 | 568 | (438 | ) | 472 | |||||||||||||||||||||||||||
Unrealized gain on pension liability, net of tax | 81 | — | 243 | — | ||||||||||||||||||||||||||||
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Total other comprehensive income (loss) | 704 | 568 | (195 | ) | 472 | |||||||||||||||||||||||||||
Total other comprehensive (loss) income | (1,134 | ) | 704 | (323 | ) | (195 | ) | |||||||||||||||||||||||||
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Comprehensive (loss) income | $ | (2,318 | ) | $ | 3,748 | $ | 5,273 | $ | 10,886 | $ | (1,571 | ) | $ | (2,318 | ) | $ | 5,399 | $ | 5,273 | |||||||||||||
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(1) | Unrealized gain on pension liability for the three months ended November 1, 2014 and November 2, 2013 is net of tax in the amount of $50 and $52, respectively. Unrealized gain on pension liability for the nine months ended November 1, 2014 and November 2, 2013 is net of tax in the amount of $151 and $156, respectively. See footnote 12 to the consolidated financial statements for further information. |
See Notes to Unaudited Condensed Consolidated Financial Statements
3
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Nine Months Ended | ||||||||||||||||
November 2, 2013 | October 27, 2012 | Nine Months Ended | ||||||||||||||
November 1, 2014 | November 2, 2013 | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 5,468 | $ | 10,414 | $ | 5,722 | $ | 5,468 | ||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 9,814 | 10,237 | 9,541 | 9,814 | ||||||||||||
Provision for bad debts | (154 | ) | 111 | 360 | (154 | ) | ||||||||||
Tax benefit from exercise of stock options | 78 | (384 | ) | |||||||||||||
Amortization of debt issue cost | 528 | 533 | 483 | 528 | ||||||||||||
Amortization of premiums and discounts | 48 | 38 | 320 | 48 | ||||||||||||
Amortization of unrealized loss on pension liability | 390 | 399 | ||||||||||||||
Deferred income taxes | 1,389 | 2,105 | 1,764 | 1,389 | ||||||||||||
Gain on sale of long-lived assets, net | (6,162 | ) | (410 | ) | ||||||||||||
Gain on sale of long-lived assets | (885 | ) | (6,162 | ) | ||||||||||||
Share-based compensation | 4,431 | 2,968 | 4,424 | 4,431 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable, net | 25,544 | (9,271 | ) | 16,614 | 25,544 | |||||||||||
Inventories | 16,416 | 41,125 | 50,420 | 16,416 | ||||||||||||
Prepaid income taxes | (2,105 | ) | 1,885 | 44 | (2,027 | ) | ||||||||||
Prepaid expenses and other current assets | (464 | ) | (748 | ) | (538 | ) | (464 | ) | ||||||||
Other assets | (155 | ) | 161 | (313 | ) | (155 | ) | |||||||||
Deferred pension obligation | (1,830 | ) | (1,708 | ) | (2,221 | ) | (2,229 | ) | ||||||||
Accounts payable and accrued expenses | (56,509 | ) | 6,689 | (50,297 | ) | (56,509 | ) | |||||||||
Accrued interest payable | (2,957 | ) | (3,168 | ) | (2,986 | ) | (2,957 | ) | ||||||||
Unearned revenues and other liabilities | 255 | (370 | ) | 991 | 255 | |||||||||||
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Net cash (used in) provided by operating activities | (6,365 | ) | 60,207 | |||||||||||||
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Net cash provided by (used in) operating activities | 33,833 | (6,365 | ) | |||||||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchase of property and equipment | (18,585 | ) | (6,415 | ) | (12,525 | ) | (18,585 | ) | ||||||||
Purchase of investments | (27,331 | ) | — | |||||||||||||
Proceeds from investment maturities | 19,844 | — | ||||||||||||||
Proceeds on sale of intangible assets | 4,875 | 410 | — | 4,875 | ||||||||||||
Proceeds on sale of long-lived assets, net | 1,892 | — | ||||||||||||||
Payment on purchase of intangible assets | — | (7,000 | ) | |||||||||||||
Proceeds in connection with purchase price adjustment | — | 4,547 | ||||||||||||||
Proceeds from note receivable | 250 | — | ||||||||||||||
Proceeds on sale of long-lived assets | — | 1,892 | ||||||||||||||
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Net cash used in investing activities | (11,818 | ) | (8,458 | ) | (19,762 | ) | (11,818 | ) | ||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Borrowings from senior credit facility | 321,364 | 237,047 | 220,166 | 321,364 | ||||||||||||
Payments on senior credit facility | (302,538 | ) | (258,726 | ) | (228,328 | ) | (302,538 | ) | ||||||||
Purchase of treasury stock | (4,999 | ) | (2,582 | ) | (2,222 | ) | (4,999 | ) | ||||||||
Payments on real estate mortgages | (606 | ) | (534 | ) | (593 | ) | (606 | ) | ||||||||
Payments on capital leases | (237 | ) | (258 | ) | (150 | ) | (237 | ) | ||||||||
Tax benefit from exercise of stock options | (78 | ) | 384 | |||||||||||||
Deferred financing fees | (66 | ) | (100 | ) | — | (66 | ) | |||||||||
Proceeds from exercise of stock options | 134 | 601 | 360 | 134 | ||||||||||||
Tax benefit from exercise of equity instruments | (134 | ) | (78 | ) | ||||||||||||
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Net cash provided by (used in) financing activities | 12,974 | (24,168 | ) | |||||||||||||
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Net cash (used in) provided by financing activities | (10,901 | ) | 12,974 | |||||||||||||
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Effect of exchange rate changes on cash and cash equivalents | (255 | ) | (38 | ) | 243 | (255 | ) | |||||||||
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (5,464 | ) | 27,543 | |||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 3,413 | (5,464 | ) | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 54,957 | 24,116 | 26,989 | 54,957 | ||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 49,493 | $ | 51,659 | $ | 30,402 | $ | 49,493 | ||||||||
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Continued
4
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Nine Months Ended | ||||||||||||||||
November 2, 2013 | October 27, 2012 | Nine Months Ended | ||||||||||||||
November 1, 2014 | November 2, 2013 | |||||||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 13,688 | $ | 13,966 | $ | 13,021 | $ | 13,688 | ||||||||
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Income taxes | $ | 1,561 | $ | 5,622 | $ | 616 | $ | 1,561 | ||||||||
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NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||||||||||
Accrued purchases of property and equipment | $ | 971 | $ | 1 | $ | 17 | $ | 971 | ||||||||
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Capital lease financing | $ | — | $ | 888 | ||||||||||||
Note receivable on sale of intangible asset | $ | 1,250 | $ | — | ||||||||||||
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Investment in joint venture | $ | — | $ | 396 | ||||||||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
5
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements of Perry Ellis International, Inc. and subsidiaries (“Perry Ellis” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the requirements of the Securities and Exchange Commission on Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows required by GAAP for annual financial statements. These condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended February 2, 2013,1, 2014, filed with the Securities and Exchange Commission on April 16, 2013.15, 2014.
The information presented reflects all adjustments, which are in the opinion of management of a normal and recurring nature, necessary for a fair presentation of the interim periods. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In FebruaryMarch 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02,“Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU No. 2013-02 did not have a material impact on the Company’s results of operations or the Company’s financial position.
In March 2013, the FASB issued ASU No. 2013-05,“Foreign Currency Matters.” ASUAccounting Standards Update (“ASU”) No. 2013-05 indicates that a cumulative translation adjustment (“CTA”) is attached to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). ASU No. 2013-05 does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. ASU No. 2013-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company is currently evaluating the impact, if any, that the adoption of this ASU willNo. 2013-05 did not have a material impact on the Company’s results of operations or the Company’s financial position.
In July 2013, the FASB issued ASU No. 2013-11,“Income Taxes (Topic 740): Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.” Under the amendments of this update an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The
assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The provisions of this update will beare effective prospectively for the Company in fiscal years beginning after December 15, 2013, and for the interim periods within such fiscal years with early adoption and retrospective application permitted. The adoption of ASU No. 2013-11 did not have a material impact on the Company’s results of operations or the Company’s financial position.
In April 2014, the FASB issued ASU No. 2014-08,“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU No. 2014-08 amends the definition of discontinued operations by
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limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The amendments require expanded disclosures for discontinued operations that would provide users of financial statements with more information about the assets, liabilities, revenues, and expenses of discontinued operations and disclosure of the pretax profit or loss of individually significant components of an entity that do not qualify for discontinued operations reporting. ASU No. 2014-08 is to be applied prospectively to all disposals (or classifications as held for sale) of components of an entity and all businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within fiscal years, and interim periods within those years, beginning after December 15, 2014. The adoption of ASU No. 2014-08 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU No. 2014-09 clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”) that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Companies can choose to apply the ASU using either the full retrospective approach or a modified retrospective approach. The Company is currently evaluating both methods of adoption and the impact, if any, that the adoption of this ASU will have on the Company’s results of operations or the Company’s financial position.
In June 2014, the FASB issued ASU No. 2014-12,“Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force).” ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU No. 2014-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Earlier adoption is permitted. The amendments can be applied either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards. The Company is currently evaluating both methods of adoption and the impact, if any, that the adoption of this ASU will have on the Company’s results of operations or the Company’s financial position.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of:
November 2, 2013 | February 2, 2013 | November 1, 2014 | February 1, 2014 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Trade accounts | $ | 164,461 | $ | 192,268 | $ | 141,528 | $ | 160,332 | ||||||||
Royalties | 4,665 | 3,912 | 4,671 | 5,998 | ||||||||||||
Other receivables | 1,218 | 4,147 | 2,440 | 1,483 | ||||||||||||
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Total | 170,344 | 200,327 | 148,639 | 167,813 | ||||||||||||
Less: allowances | (21,362 | ) | (25,843 | ) | (19,373 | ) | (21,421 | ) | ||||||||
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Total | $ | 148,982 | $ | 174,484 | $ | 129,266 | $ | 146,392 | ||||||||
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4. INVENTORIES
Inventories are stated at the lower of cost (weighted moving average cost) or market. Cost principally consists of the purchase price, customs, duties, freight, and commissions to buying agents.
Inventories consisted of the following as of:
November 2, 2013 | February 2, 2013 | |||||||||||||||
(in thousands) | November 1, 2014 | February 1, 2014 | ||||||||||||||
(in thousands) | ||||||||||||||||
Finished goods | $ | 165,399 | $ | 181,668 | $ | 155,525 | $ | 205,971 | ||||||||
Raw materials and in process | 1,092 | 1,459 | 156 | 631 | ||||||||||||
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Total | $ | 166,491 | $ | 183,127 | $ | 155,681 | $ | 206,602 | ||||||||
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5. INVESTMENTS
The Company’s investments include marketable securities and certificates of deposit at November 1, 2014 and February 1, 2014. Marketable securities are classified as available-for-sale and consist of corporate bonds with maturity dates less than two years. Certificates of deposit are classified as available-for-sale with $8.0 million with maturity dates within one year or less and $1.1 million with maturity dates over one year and less than two years. Investments are stated at fair value. The estimated fair value of the marketable securities is based on quoted prices in an active market (Level 1 fair value measures).
Investments consisted of the following as of November 1, 2014:
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Marketable securities | $ | 13,533 | $ | 5 | $ | (4 | ) | $ | 13,534 | |||||||
Certificates of deposit | 9,112 | 1 | (12 | ) | 9,101 | |||||||||||
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Total investments | $ | 22,645 | $ | 6 | $ | (16 | ) | $ | 22,635 | |||||||
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Investments consisted of the following as of February 1, 2014:
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Marketable securities | $ | 10,636 | $ | 1 | $ | (39 | ) | $ | 10,598 | |||||||
Certificates of deposit | 4,801 | 2 | (3 | ) | 4,800 | |||||||||||
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Total investments | $ | 15,437 | $ | 3 | $ | (42 | ) | $ | 15,398 | |||||||
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6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
November 2, 2013 | February 2, 2013 | |||||||
(in thousands) | ||||||||
Furniture, fixtures and equipment | $ | 87,280 | $ | 90,365 | ||||
Buildings and building improvements | 19,597 | 19,550 | ||||||
Vehicles | 796 | 923 | ||||||
Leasehold improvements | 40,172 | 30,621 | ||||||
Land | 9,448 | 9,426 | ||||||
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Total | 157,293 | 150,885 | ||||||
Less: accumulated depreciation and amortization | (96,087 | ) | (100,136 | ) | ||||
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Total | $ | 61,206 | $ | 50,749 | ||||
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Furniture, fixtures and equipment Buildings and building improvements Vehicles Leasehold improvements Land Total Less: accumulated depreciation and amortization Total November 1,
2014 February 1,
2014 (in thousands) $ 78,651 $ 74,188 19,700 19,614 462 771 46,300 40,335 9,488 9,488 154,601 144,396 (91,055 ) (84,484 ) $ 63,546 $ 59,912
The above table of property and equipment includes assets held under capital leases as of:
November 2, 2013 | February 2, 2013 | November 1, 2014 | February 1, 2014 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Furniture, fixtures and equipment | $ | 938 | $ | 938 | $ | 888 | $ | 938 | ||||||||
Less: accumulated depreciation and amortization | (465 | ) | (230 | ) | (717 | ) | (543 | ) | ||||||||
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Total | $ | 473 | $ | 708 | $ | 171 | $ | 395 | ||||||||
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For the three months ended November 1, 2014 and November 2, 2013, and October 27, 2012, depreciation and amortization expense relating to property and equipment amounted to $3.5$3.1 million and $3.3$3.5 million, respectively. For the nine months ended November 1, 2014 and November 2, 2013, and October 27, 2012, depreciation and amortization expense relating to property and equipment amounted to $9.1$8.9 million and $9.5$9.1 million, respectively. These amounts include amortization expense for leased property under capital leases.
The Company previously closed its Winnsboro distribution facility (“Winnsboro”) and listed the property for sale. Accordingly, Winnsboro was classified as a held-for-sale asset in the amount of $2.0 million. During the third quarter of fiscal 2014, the Company sold Winnsboro for a total sales price of $2.0 million, less selling commissions and closing costs. As a result of this transaction, the Company recorded a loss of $0.1 million.
6.7. OTHER INTANGIBLE ASSETS
Trademarks
Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $240.2$205.5 million and $205.9 million at November 2, 20131, 2014 and February 2, 2013.1, 2014.
On August 1, 2014, the Company entered into a sales agreement, in the amount of $1.3 million, for the sale of Australian, Fiji and New Zealand trademark rights with respect to Jantzen. Payments on the purchase price are due in five installments of $250,000 over a five year period. Interest on the purchase price that remains unpaid will accrue at a rate of 3.5% per annum calculated on an annual basis. The first payment was due within four days of the completion date and has been paid. The remaining four payments are to be paid annually commencing on August 1, 2015 with the final payment to be made on August 1, 2018. As a result of this transaction, the Company recorded a gain of $0.9 million in the licensing segment.
During the fourth quarter of fiscal 2013, the Company entered into a sales agreement, in the amount of $7.5 million, for certain Asian trademark rights with respect to John Henry. This transaction closed in the first quarter of fiscal 2014. The Company collected proceeds of $4.9 million and $2.6 million during the first quarter of fiscal 2014 and $2.6 million during the fourth quarter of fiscal 2013, respectively.2013. As a result of this transaction, the Company recorded a gain of $6.3 million in the licensing segment. The Company plans to continue executing on the domestic strategy of the John Henry brand as a modern lifestyle resource to select retailers and through its licensing relationships in Latin America.
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Other
Other intangible assets represent:represent as of:
November 2, 2013 | February 2, 2013 | November 1, 2014 | February 1, 2014 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Customer lists | $ | 8,450 | $ | 8,450 | $ | 8,450 | $ | 8,450 | ||||||||
Less: accumulated amortization | (2,631 | ) | (1,927 | ) | (3,553 | ) | (2,863 | ) | ||||||||
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Total | $ | 5,819 | $ | 6,523 | $ | 4,897 | $ | 5,587 | ||||||||
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For the three months ended November 1, 2014 and November 2, 2013, and October 27, 2012, amortization expense relating to customer lists amounted to $0.2 million, respectively, for each period. For the nine months ended November 1, 2014 and November 2, 2013, and October 27, 2012, amortization expense relating to customer lists amounted to $0.7 million, respectively, for each period. Other intangible assets are amortized over their estimated useful lives of 10 years. Assuming no impairment, the estimated amortization expense for future periods based on recorded amounts as of November 2, 2013,1, 2014, will be approximately $0.9 million a year from fiscal 2015 through fiscal 2017, and approximately $0.8 million a year from fiscal 2018 through fiscal 2019.
7.8. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consisted of the following as of:
November 2, 2013 | February 2, 2013 | |||||||||||||||
(in thousands) | November 1, 2014 | February 1, 2014 | ||||||||||||||
(in thousands) | ||||||||||||||||
Total letter of credit facilities | $ | 55,320 | $ | 55,316 | $ | 45,320 | $ | 45,329 | ||||||||
Outstanding letters of credit | (11,879 | ) | (11,768 | ) | (11,595 | ) | (11,858 | ) | ||||||||
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Total letters of credit available | $ | 43,441 | $ | 43,548 | $ | 33,725 | $ | 33,471 | ||||||||
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8. REAL ESTATE MORTGAGE
In July 2010, the Company paid off its then existing real estate mortgage loan and refinanced its main administrative office, warehouse and distribution facility in Miami with a $13.0 million mortgage loan. The loan is due on August 1, 2020. The interest rate has been modified since the refinancing date. The interest rate most recently was 4.25% per annum and monthly payments of principal and interest were $71,000, based on a 25-year amortization with the outstanding principal due at maturity. In July 2013, the Company amended the mortgage loan agreement to modify the interest rate. The interest rate was reduced to 3.90% per annum and the terms were restated to reflect new monthly payments of principal and interest of $69,000 based on a 25-year amortization with the outstanding principal due at maturity. At November 2, 2013, the balance of the real estate mortgage loan totaled $11.8 million, net of discount, of which $357,000 is due within one year.
The real estate mortgage loan contains certain covenants. The Company is not aware of any non-compliance with any of the covenants. If the Company violates any of these covenants, the lender under the real estate mortgage loan could declare all amounts outstanding thereunder to be immediately due and payable, which the Company may not be able to satisfy. A covenant violation could also constitute a cross-default under the Company’s senior credit facility, the letter of credit facilities and the indenture relating to its senior subordinated notes resulting in all of its debt obligations becoming immediately due and payable, which the Company may not be able to satisfy.
9. ADVERTISING AND RELATED COSTS
The Company’s accounting policy relating to advertising and related costs is to expense these costs in the period incurred. Advertising and related costs were approximately $4.7$4.4 million and $3.8$4.7 million for the three months ended November 1, 2014 and November 2, 2013, and October 27, 2012, respectively, and $13.4$12.2 million and $11.4$13.4 million for the nine months ended November 1, 2014 and November 2, 2013, and October 27, 2012, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
10. NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average shares of outstanding common stock. The calculation of diluted net (loss) income per share is similar to basic earnings per share except that the denominator includes potentially dilutive common stock. The potentially dilutive common stock included in the Company’s computation of diluted net (loss) income per share includes the effects of stock options, stock appreciation rights (“SARS”), warrants and unvested restricted shares as determined using the treasury stock method.
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The following table sets forth the computation of basic and diluted (loss) income per share:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | November 1, | November 2, | November 1, | November 2, | |||||||||||||||||||||||||||
November 2, 2013 | October 27, 2012 | November 2, 2013 | October 27, 2012 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||
(in thousands, except per share data) | (in thousands, except per share data) | |||||||||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||||||||||
Net (loss) income | $ | (3,022 | ) | $ | 3,180 | $ | 5,468 | $ | 10,414 | $ | (437 | ) | $ | (3,022 | ) | $ | 5,722 | $ | 5,468 | |||||||||||||
Denominator: | ||||||||||||||||||||||||||||||||
Basic-weighted average shares | 14,991 | 14,662 | 15,042 | 14,669 | 14,954 | 14,991 | 14,881 | 15,042 | ||||||||||||||||||||||||
Dilutive effect: equity awards | — | 526 | 321 | 499 | — | — | 365 | 321 | ||||||||||||||||||||||||
Dilutive effect: warrant | — | 107 | — | 107 | ||||||||||||||||||||||||||||
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Diluted-weighted average shares | 14,991 | 15,295 | 15,363 | 15,275 | 14,954 | 14,991 | 15,246 | 15,363 | ||||||||||||||||||||||||
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Basic (loss) income per share | $ | (0.20 | ) | $ | 0.22 | $ | 0.36 | $ | 0.71 | $ | (0.03 | ) | $ | (0.20 | ) | $ | 0.38 | $ | 0.36 | |||||||||||||
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Diluted (loss) income per share | $ | (0.20 | ) | $ | 0.21 | $ | 0.36 | $ | 0.68 | $ | (0.03 | ) | $ | (0.20 | ) | $ | 0.38 | $ | 0.36 | |||||||||||||
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Antidilutive effect:(1) | 2,038 | 771 | 908 | 1,142 | 1,778 | 2,038 | 886 | 908 | ||||||||||||||||||||||||
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(1) | Represents weighted average of stock options to purchase shares of common stock, SARS and restricted stock that were not included in computing diluted (loss) income per share because their effects were antidilutive for the respective periods. |
11. EQUITY
The following table reflects the changes in equity:
Changes in Equity | Changes in Equity | |||||||
(in thousands) | (in thousands) | |||||||
Equity at February 1, 2014 | $ | 347,533 | ||||||
Comprehensive income | 5,399 | |||||||
Share transactions under employee equity compensation plans | 4,362 | |||||||
Purchase of treasury stock | (2,222 | ) | ||||||
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Equity at November 1, 2014 | $ | 355,072 | ||||||
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Equity at February 2, 2013 | $ | 371,240 | $ | 371,240 | ||||
Comprehensive income | 5,273 | 5,273 | ||||||
Share transactions under employee equity compensation plans | 4,487 | 4,487 | ||||||
Purchase of treasury stock | (4,999 | ) | (4,999 | ) | ||||
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Equity at November 2, 2013 | $ | 376,001 | $ | 376,001 | ||||
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Equity at January 28, 2012 | $ | 366,495 | ||||||
Comprehensive income | 10,886 | |||||||
Share transactions under employee equity compensation plans | 3,953 | |||||||
Purchase of treasury stock | (2,582 | ) | ||||||
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Equity at October 27, 2012 | $ | 378,752 | ||||||
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During the three months ended November 2, 2013,1, 2014, the Board of Directors extended the stock repurchase program to authorize the Company to purchase, from time to time and as market and business conditions warranted, up to $60 million of the Company’s common stock for cash in the open market or in privately negotiated transactions through October 31, 2014.2015. Although the Board of Directors allocated a maximum of $60 million to carry out the program, the Company is not obligated to purchase any specific number of outstanding shares and will reevaluate the program on an ongoing basis. Total purchases under the plan to date amount to $40.9$45.1 million.
During Januarythe three months ended November 1, 2014 and November 2, 2013, the Company retired 1,290,022 shares of treasury stock recorded at a cost of approximately $18.5 million. Accordingly, during fiscal 2013, the Company reduced common stock and additional paid-in-capital by $13,000 and $18.5 million, respectively. Additionally, the Company repurchased shares of its common stock during fiscal 2014 at a cost of $2.2 million and $5.0 million.million, respectively.
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12. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive loss by component, net of tax:
Unrealized (Loss) Gain on Pension Liability | Foreign Currency Translation Adjustments, Net | Total | ||||||||||
(in thousands) | ||||||||||||
Balance, February 2, 2013 | $ | (7,176 | ) | $ | (884 | ) | $ | (8,060 | ) | |||
Other comprehensive loss before reclassifications | — | (438 | ) | (438 | ) | |||||||
Amounts reclassified from accumulated other comprehensive loss | 243 | — | 243 | |||||||||
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Balance, November 2, 2013 | $ | (6,933 | ) | $ | (1,322 | ) | $ | (8,255 | ) | |||
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Unrealized | Foreign | Unrealized | ||||||||||||||
(Loss) Gain on | Currency Translation | (Loss) Gain on | ||||||||||||||
Pension Liability | Adjustments, Net | Investments | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance, February 1, 2014 | $ | (5,866 | ) | $ | (1,563 | ) | $ | (39 | ) | $ | (7,468 | ) | ||||
Other comprehensive loss (income) before reclassifications | — | (591 | ) | 29 | (562 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss | 239 | — | — | 239 | ||||||||||||
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Balance, November 1, 2014 | $ | (5,627 | ) | $ | (2,154 | ) | $ | (10 | ) | $ | (7,791 | ) | ||||
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A summary of the impact on the condensed consolidated statements of incomeoperations line items is as follows:
Details about Accumulated Other Comprehensive | Three Months Ended | |||||||||
November 2, 2013 | October 27, 2012 | |||||||||
(in thousands) | ||||||||||
Amortization of defined benefit pension items | ||||||||||
Actuarial losses | $ | 133 | $ | — | Selling, general and administrative expenses | |||||
Tax benefit | (52 | ) | — | Income tax (benefit) provision | ||||||
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Total, net of tax | $ | 81 | $ | — | ||||||
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Nine Months Ended | ||||||||||
November 2, 2013 | October 27, 2012 | |||||||||
(in thousands) | ||||||||||
Amortization of defined benefit pension items | ||||||||||
Actuarial losses | $ | 399 | $ | — | Selling, general and administrative expenses | |||||
Tax benefit | (156 | ) | — | Income tax (benefit) provision | ||||||
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Total, net of tax | $ | 243 | $ | — | ||||||
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Three Months Ended | ||||||||||||
November 1, 2014 | November 2, 2013 | |||||||||||
(in thousands) | ||||||||||||
Amortization of defined benefit pension items | ||||||||||||
Actuarial gains | $ | 130 | $ | 133 | Selling, general and administrative expenses | |||||||
Tax provision | (50 | ) | (52 | ) | Income tax provision | |||||||
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Total, net of tax | $ | 80 | $ | 81 | ||||||||
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Nine Months Ended | ||||||||||||
November 1, 2014 | November 2, 2013 | |||||||||||
(in thousands) | ||||||||||||
Amortization of defined benefit pension items | ||||||||||||
Actuarial gains | $ | 390 | $ | 399 | Selling, general and administrative expenses | |||||||
Tax provision | (151 | ) | (156 | ) | Income tax provision | |||||||
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Total, net of tax | $ | 239 | $ | 243 | ||||||||
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13. INCOME TAXES
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various statesstate and foreign jurisdictions. The Company’s U.S. federal income tax returns for fiscal 2011 through 2013fiscal 2014 are open tax years. The Company’s state tax filings are subject to varying statutes of limitations. The Company’s unrecognized state tax benefits are related to open tax years from fiscal 2005 through 2014,fiscal 2015, depending on each state’s particular statute of limitation. As of November 2, 2013,1, 2014, the fiscal 2011 and 2012 U.S. federal income tax return isreturns are under examination as well as various state, local, and foreign income tax returns by various taxing authorities.
The ability to realize deferred tax assets requires significant judgment. While the company currently expects to realize its net deferred tax assets based on projected future income, if taxable income falls below its forecasted income, management may need to provide a valuation allowance on a portion or all of its deferred tax assets. Additional factors that raise the risk of realization of its deferred tax assets include certain net operating losses in the domestic operations, which are also subject to Section 382 limitations that begin expiring in 2018.
The Company has a $0.6$0.8 million liability recorded for unrecognized tax benefits as of February 2, 2013,1, 2014, which includes interest and penalties of $0.1$0.3 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. All of the unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. During the three monthmonths and nine months ended November 2, 2013, 1, 2014,
12
the total amount of unrecognized tax benefits increased by approximately $46,000 and decreased by approximately $73,000 and $9,000,$35,000, respectively. The change to the total amount of the unrecognized tax benefit for the three and nine months ended November 2, 20131, 2014 included a decreasean increase in interest and penalties of approximately $13,000$12,000 and an increasea decrease of approximately $6,000,$92,000, respectively.
The Company does not currently anticipate a resolution within the next twelve months for any of the remaining unrecognized tax benefits as of November 2, 2013. However, the1, 2014. The statute of limitations related to the Company’s fiscal 2011 U.S. federal tax year has been extended as part of the examination and will expirenot be expected to lapse within the next twelve months. The lapse in the statute of limitations would be expected to decrease tax expense within the next twelve months. The expiration of the statute of limitations related to the Company’s 2011 U.S. federal tax year could result in a tax benefit of up to approximately $0.1 million.
14. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES
During the first quarter of fiscal 2014, the Company granted performance-based restricted stock to certain key employees pursuant to the Company’s 2005 Long-Term Incentive Compensation Plan, as amended and restated, and subject to certain conditions in the grant agreement. Such stock generally vests 100% in May 2016, provided that each employee is still an employee of the Company on such date, and the Company has met certain performance criteria. A total of 109,644 shares of performance-based restricted stock were issued at an estimated value of $1.9 million, which is being recorded as compensation expense on a straight-line basis over the vesting period.
Also, during the first, second and third quarters of fiscal 2014,2015, the Company granted an aggregate of 225,938, 133,460240,852, 12,504 and 120,4002,034 shares of restricted stock to certain key employees, which vest primarily over a three to five yearthree-year period, at an estimated value of $4.0$3.6 million, $2.7$0.2 million and $2.2 million,$40,000, respectively. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
During the second quarter of fiscal 2014,2015, the Company awarded to five directors an aggregate of 13,74016,950 shares of restricted stock, which vest over a three-yearthree year period at an estimated fair value of $0.3 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
During the first and third quartersquarter of fiscal 2014,2015, the Company granted an aggregate of 14,0003,501 SARs, to be settled in shares of common stock, to certain key employees. The SARs have an exercise prices ranging from $16.79 to $18.57,price of $20.12, generally vest over a three to four yearthree-year period and have seven to ten year terms.aseven-year term. The total fair value of the SARs, based on theBlack-Scholes Option Pricing Model, amounted to approximately $141,000,$38,000, which is being recorded as compensation expense on a straight-line basis over the vesting period of each SAR.
Also, during the first and second quarters of fiscal 2015, the Company granted an aggregate of 5,883 and 5,157 SARs, to be settled in shares of common stock, to a director, respectively. The SARs have an exercise price of $15.49 and $17.71, respectively, generally vest over a three-year period and have a seven-year term. The total fair value of the SARs, based on theBlack-Scholes Option Pricing Model, amounted to approximately $50,000 and $50,000, respectively, which is being recorded as compensation expense on a straight-line basis over the vesting period of each SAR.
In April, May and August 2014, a total of 42,132, 1,000 and 1,667 shares of restricted stock vested, of which 17,929, 404 and 617 shares were withheld to cover the employees’ statutory income tax requirements, respectively. The estimated value of the withheld shares was $0.3 million, $6,000 and $13,000 respectively.
15. SEGMENT INFORMATION
The Company has four reportable segments: Men’s Sportswear and Swim, Women’s Sportswear, Direct-to-Consumer and Licensing. The Men’s Sportswear and Swim and Women’s Sportswear segments derive revenues from the design, import and distribution of apparel to department stores and other retail outlets, principally throughout the United States. The Direct-to-Consumer segment derives its revenues from the sale of the Company’s branded and licensed products through its retail stores and e-commerce platform. The Licensing segment derives its revenues from royalties associated with the use of the Company’s brand names, principally Perry Ellis, Original Penguin, Laundry by Shelly Segal, Ben Hogan, Jantzen, John Henry, Original Penguin, Gotcha, Farah, Savane, Pro Player Laundry, Manhattan and Munsingwear.Manhattan.
The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by each segment.
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 | October 27, 2012 | November 2, 2013 | October 27, 2012 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Men’s Sportswear and Swim | $ | 158,585 | $ | 165,517 | $ | 509,856 | $ | 514,981 | ||||||||
Women’s Sportswear | 37,912 | 45,105 | 110,032 | 118,033 | ||||||||||||
Direct-to-Consumer | 18,203 | 18,708 | 54,788 | 58,422 | ||||||||||||
Licensing | 7,421 | 6,918 | 21,469 | 19,772 | ||||||||||||
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Total revenues | $ | 222,121 | $ | 236,248 | $ | 696,145 | $ | 711,208 | ||||||||
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Depreciation and amortization: | ||||||||||||||||
Men’s Sportswear and Swim | $ | 1,893 | $ | 2,108 | $ | 5,364 | $ | 6,377 | ||||||||
Women’s Sportswear | 583 | 531 | 1,408 | 1,466 | ||||||||||||
Direct-to-Consumer | 1,062 | 712 | 2,500 | 2,169 | ||||||||||||
Licensing | 35 | 73 | 103 | 302 | ||||||||||||
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Total depreciation and amortization | $ | 3,573 | $ | 3,424 | $ | 9,375 | $ | 10,314 | ||||||||
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Operating (loss) income: | ||||||||||||||||
Men’s Sportswear and Swim | $ | (1,188 | ) | $ | 3,910 | $ | 6,640 | $ | 14,607 | |||||||
Women’s Sportswear | (735 | ) | 327 | (36 | ) | (139 | ) | |||||||||
Direct-to-Consumer | (4,330 | ) | (2,267 | ) | (9,595 | ) | (4,886 | ) | ||||||||
Licensing(1) | 5,502 | 6,417 | 22,745 | 16,530 | ||||||||||||
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Total operating (loss) income | $ | (751 | ) | $ | 8,387 | $ | 19,754 | $ | 26,112 | |||||||
Total interest expense | 3,782 | 3,689 | 11,307 | 11,011 | ||||||||||||
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Total net (loss) income before income taxes | $ | (4,533 | ) | $ | 4,698 | $ | 8,447 | $ | 15,101 | |||||||
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13
Three Months Ended | Nine Months Ended | |||||||||||||||
November 1, 2014 | November 2, 2013 | November 1, 2014 | November 2, 2013 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Men’s Sportswear and Swim | $ | 145,732 | $ | 158,585 | $ | 487,906 | $ | 509,856 | ||||||||
Women’s Sportswear | 36,721 | 37,912 | 97,448 | 110,032 | ||||||||||||
Direct-to-Consumer | 20,814 | 18,203 | 63,839 | 54,788 | ||||||||||||
Licensing | 8,173 | 7,421 | 23,093 | 21,469 | ||||||||||||
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Total revenues | $ | 211,440 | $ | 222,121 | $ | 672,286 | $ | 696,145 | ||||||||
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Depreciation and amortization: | ||||||||||||||||
Men’s Sportswear and Swim | $ | 1,606 | $ | 1,893 | $ | 4,804 | $ | 5,364 | ||||||||
Women’s Sportswear | 487 | 583 | 1,444 | 1,408 | ||||||||||||
Direct-to-Consumer | 880 | 1,062 | 2,615 | 2,500 | ||||||||||||
Licensing | 35 | 35 | 113 | 103 | ||||||||||||
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Total depreciation and amortization | $ | 3,008 | $ | 3,573 | $ | 8,976 | $ | 9,375 | ||||||||
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| |||||||||
Operating (loss) income: | ||||||||||||||||
Men’s Sportswear and Swim | $ | (2,091 | ) | $ | (1,188 | ) | $ | 7,163 | $ | 6,640 | ||||||
Women’s Sportswear | 1,324 | (735 | ) | (249 | ) | (36 | ) | |||||||||
Direct-to-Consumer | (2,937 | ) | (4,330 | ) | (5,915 | ) | (9,595 | ) | ||||||||
Licensing(1) | 6,526 | 5,502 | 18,301 | 22,745 | ||||||||||||
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| |||||||||
Total operating income (loss) | $ | 2,822 | $ | (751 | ) | $ | 19,300 | $ | 19,754 | |||||||
Total interest expense | 3,517 | 3,782 | 10,838 | 11,307 | ||||||||||||
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| |||||||||
Total net (loss) income before income taxes | $ | (695 | ) | $ | (4,533 | ) | $ | 8,462 | $ | 8,447 | ||||||
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(1) | Operating income for the licensing segment for the nine months ended November 1, 2014 and November 2, 2013 includes a gain on sale of long-lived assets in the amount of $0.9 million and $6.3 |
16. BENEFIT PLAN
The Company sponsors a qualified pension plan. The following table provides the components of net benefit cost for the plan during the three and nine months ended fiscal 20142015 and 2013:2014:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
November 2, 2013 | October 27, 2012 | November 2, 2013 | October 27, 2012 | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
(in thousands) | November 1, 2014 | November 2, 2013 | November 1, 2014 | November 2, 2013 | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Service cost | $ | 63 | $ | 63 | $ | 189 | $ | 189 | $ | 63 | $ | 63 | $ | 189 | $ | 189 | ||||||||||||||||
Interest cost | 406 | 433 | 1,218 | 1,299 | 433 | 406 | 1,299 | 1,218 | ||||||||||||||||||||||||
Expected return on plan assets | (555 | ) | (483 | ) | (1,665 | ) | (1,449 | ) | (508 | ) | (555 | ) | (1,524 | ) | (1,665 | ) | ||||||||||||||||
Amortization of net loss | 133 | 131 | 399 | 393 | 130 | 133 | 390 | 399 | ||||||||||||||||||||||||
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Net periodic benefit cost | $ | 47 | $ | 144 | $ | 141 | $ | 432 | $ | 118 | $ | 47 | $ | 354 | $ | 141 | ||||||||||||||||
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17. FAIR VALUE MEASUREMENTS
Accounts receivable, accounts payable, accrued interest payable and accrued expenses. The carrying amounts reported in the balance sheets approximate fair value due to theshort-term nature of these instruments.
Real estate mortgages. (classified within Level 2 of the valuation hierarchy) - —The carrying amounts of the real estate mortgages were approximately $24.4$23.1 million and $25.0$24.0 million at November 2, 20131, 2014 and February 2, 2013,1, 2014, respectively. The carrying values of the real estate mortgages at November 2, 20131, 2014 and February 2, 20131, 2014 approximate fair value since they were recently entered into and thus the interest rates approximate market.
Senior credit facility. The carrying amount of the senior credit facility approximates fair value due to the frequent resets of its floating interest rate.
14
Senior subordinated notes payable. (classified within Level 1 of the valuation hierarchy) - —The carrying amounts of the 77⁄/8% senior subordinated notes payable were approximately $150.0 million at November 2, 20131, 2014 and February 2, 2013, respectively.1, 2014. As of November 2, 20131, 2014 and February 2, 2013,1, 2014, the fair value of the 77⁄/8% senior subordinated notes payable was approximately $162.3 million$156.0 and $160.5$160.0 million, respectively, based on quoted market prices.
These estimated fair value amounts have been determined using available market information and appropriate valuation methods.
18. COMMITMENTS AND CONTINGENCIESRELATED PARTY TRANSACTIONS
On May 7, 2013, theThe Company entered into employment agreements with George Feldenkreis,leases approximately 66,000 square feet comprised of approximately 16,000 square feet for administrative offices, approximately 45,000 square feet for warehouse distribution and approximately 5,000 square feet for retail. These facilities, which are owned by the Company’s Chairman of the Board of Directors and Chief Executive Officer, were originally leased by the Company under a 10-year lease for the office space and Oscar Feldenkreis,a 10-year lease for the warehouse and retail space. These facilities are in close proximity to the Company’s Vice ChairmanHeadquarter. During fiscal 2015, the Company amended the leases to extend the term for 60 months, beginning July 1, 2014 and expiring June 30, 2019. Beginning July 1, 2014, the basic monthly rent will be $41,750 and will increase 3% on the first of each of the Board of Directors, President and Chief Operating Officer. The term of each employment agreement ends on January 30, 2016. Pursuant to the employment agreements, base salaries will not be less than $1.0 million per yearremaining 12-month periods during the termextended term. The Company’s Governance Committee reviewed the terms of employment. Additionally, the executives are entitledlease extensions to participateensure that they were reasonable and at market. This review included information from third party sources. As disclosed in Form 10k for year ended February 1, 2014, our total facilities, retail and office space both owned and leased totals over 1.5 million square feet.
19. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in Humberto Ordaz v. Perry Ellis International, Inc., Case No. BC490485 (Cal. Sup. Ct. 2012), involving claims for unpaid wages, missed breaks and related claims, which was originally filed on August 17, 2012 by a former employee in the Company’s incentive compensation plans.
On September 9, 2013,California administrative offices. The plaintiff is seeking an unspecified amount of damages. The lawsuit has been pleaded but not certified as a class action. Mediation was held during the third quarter of fiscal 2015. Currently, the parties are in settlement discussions. The Company entered into an employment agreement with Stanley Silverstein,believes that it has meritorious defenses to the President of International Developmentclaims alleged and Global Licensing.is vigorously defending the matter. The termfinal outcome of the agreement endscase is not expected to have a material impact on September 9, 2018. Pursuant to the employment agreement, Mr. Silverstein will receive an annual salary of $500,000, subject to annual reviews for increases at the sole discretion of the Company’s Chief Executive Officer. Additionally, Mr. Silverstein is eligible to participate in the Company’s incentive compensation plans.Company.
19.20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Company and several of its subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. These guarantees are subject to release in limited circumstances (only upon the occurrence of certain customary conditions). The following are condensed consolidating financial statements, which present, in separate columns: Perry Ellis International, Inc. (Parent Only), the Guarantors on a combined, or where appropriate, consolidated basis, and the Non-Guarantors on a combined, or where appropriate, consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of November 2, 20131, 2014 and February 2, 20131, 2014 and for the three and nine months ended November 1, 2014 and November 2, 2013 and October 27, 2012.2013. The combined Guarantors are 100% owned subsidiaries of Perry Ellis International, Inc., and have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis.
Effective JuneSubsequent to the issuance of the February 2, 2013 financial statements, the Company changeddetermined that the condensed consolidating guarantor financial statements required an adjustment relating to the cash flow classification of certain intercompany transactions between the parent and its reporting entity structure through the merger of companies under common control. C&C California, LLC (“C&C California”) and Laundry, LLC (“Laundry”) were merged with Supreme International, LLC. C&C California and Laundry were previously classified as non-guarantor subsidiaries inaffiliates. As a result, the condensed consolidating financial statements have been adjusted to correct prior year amounts in the Condensed Consolidated Statements of Cash Flows to reflect certain intercompany activities between the parent and are currently classified as guarantorits subsidiaries as a result of the merger. The change in reporting entity was retrospectively applied to the condensed consolidating financial statements for all periods presented.cash flows from investing activities that had previously been reflected within cash flows from financing activities.
The effect on the condensed consolidating statement of comprehensive income,cash flows as a result of the changeadjustment in reporting entity,intercompany activities is a decrease of approximately ($0.1) million and an increase of approximately $0.218.4) million in net (loss) income and comprehensive (loss) income tocash from financing activities in the guarantor subsidiariesparent only column for the three and nine months ended October 27, 2012,November 2, 2013, respectively, with a corresponding change to the non-guarantor fornet cash from investing activity in the respective periodsparent only column from the previously reported amounts.
The effect on the condensed consolidating balance sheet as of February 2, 2013, as a result of the change in reporting entity, is a decrease in net assets of $20.7 million to the guarantor subsidiaries and a corresponding increase in net assets to the non-guarantor.
15
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF NOVEMBER 2, 20131, 2014
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 1,242 | $ | 48,251 | $ | — | $ | 49,493 | $ | — | $ | 9,196 | $ | 21,206 | $ | — | $ | 30,402 | ||||||||||||||||||||
Accounts receivable, net | — | 128,797 | 20,185 | — | 148,982 | — | 108,516 | 20,750 | — | 129,266 | ||||||||||||||||||||||||||||||
Intercompany receivable, net | 166,084 | — | — | (166,084 | ) | — | 172,031 | — | — | (172,031 | ) | — | ||||||||||||||||||||||||||||
Inventories | — | 148,033 | 18,458 | — | 166,491 | — | 132,362 | 23,319 | — | 155,681 | ||||||||||||||||||||||||||||||
Investment, at fair value | — | — | 22,635 | — | 22,635 | |||||||||||||||||||||||||||||||||||
Deferred income taxes | — | 10,044 | 475 | — | 10,519 | — | 16,351 | 354 | — | 16,705 | ||||||||||||||||||||||||||||||
Prepaid income taxes | 6,789 | — | 954 | 1,533 | 9,276 | 6,339 | — | — | 1,197 | 7,536 | ||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | — | 8,056 | 856 | — | 8,912 | — | 6,925 | 955 | — | 7,880 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total current assets | 172,873 | 296,172 | 89,179 | (164,551 | ) | 393,673 | 178,370 | 273,350 | 89,219 | (170,834 | ) | 370,105 | ||||||||||||||||||||||||||||
Property and equipment, net | — | 56,244 | 4,962 | — | 61,206 | — | 58,981 | 4,565 | — | 63,546 | ||||||||||||||||||||||||||||||
Other intangible assets, net | — | 207,547 | 38,431 | — | 245,978 | — | 176,793 | 33,638 | — | 210,431 | ||||||||||||||||||||||||||||||
Goodwill | — | 13,794 | — | — | 13,794 | — | 6,022 | — | — | 6,022 | ||||||||||||||||||||||||||||||
Investment in subsidiaries | 348,173 | — | — | (348,173 | ) | — | 325,648 | — | — | (325,648 | ) | — | ||||||||||||||||||||||||||||
Other assets | 6,059 | 1,836 | 534 | — | 8,429 | 2,163 | 1,954 | 1,389 | — | 5,506 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
TOTAL | $ | 527,105 | $ | 575,593 | $ | 133,106 | $ | (512,724 | ) | $ | 723,080 | $ | 506,181 | $ | 517,100 | $ | 128,811 | $ | (496,482 | ) | $ | 655,610 | ||||||||||||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — | $ | 70,506 | $ | 5,919 | $ | — | $ | 76,425 | $ | — | $ | 57,956 | $ | 7,892 | $ | — | $ | 65,848 | ||||||||||||||||||||
Accrued expenses and other liabilities | — | 21,879 | 4,443 | (451 | ) | 25,871 | — | 17,743 | 3,769 | (499 | ) | 21,013 | ||||||||||||||||||||||||||||
Accrued interest payable | 1,104 | — | — | — | 1,104 | 1,109 | — | — | — | 1,109 | ||||||||||||||||||||||||||||||
Unearned revenues | — | 2,888 | 1,742 | — | 4,630 | — | 3,192 | 1,767 | — | 4,959 | ||||||||||||||||||||||||||||||
Intercompany payable, net | — | 140,528 | 27,490 | (168,018 | ) | — | ||||||||||||||||||||||||||||||||||
Intercompany payable , net | — | 152,083 | 22,723 | (174,806 | ) | — | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total current liabilities | 1,104 | 235,801 | 39,594 | (168,469 | ) | 108,030 | 1,109 | 230,974 | 36,151 | (175,305 | ) | 92,929 | ||||||||||||||||||||||||||||
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Senior subordinated notes payable, net | 150,000 | — | — | — | 150,000 | 150,000 | — | — | — | 150,000 | ||||||||||||||||||||||||||||||
Real estate mortgages | — | 23,539 | — | — | 23,539 | — | 22,302 | — | — | 22,302 | ||||||||||||||||||||||||||||||
Deferred pension obligation | — | 12,364 | 93 | — | 12,457 | — | 7,572 | 74 | — | 7,646 | ||||||||||||||||||||||||||||||
Unearned revenues and other long-term liabilities | — | 29,922 | 3,833 | — | 33,755 | — | 13,977 | 1,714 | — | 15,691 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 17,314 | — | 1,984 | 19,298 | — | 10,274 | — | 1,696 | 11,970 | ||||||||||||||||||||||||||||||
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Total long-term liabilities | 150,000 | 83,139 | 3,926 | 1,984 | 239,049 | 150,000 | 54,125 | 1,788 | 1,696 | 207,609 | ||||||||||||||||||||||||||||||
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Total liabilities | 151,104 | 318,940 | 43,520 | (166,485 | ) | 347,079 | 151,109 | 285,099 | 37,939 | (173,609 | ) | 300,538 | ||||||||||||||||||||||||||||
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Total equity | 376,001 | 256,653 | 89,586 | (346,239 | ) | 376,001 | 355,072 | 232,001 | 90,872 | (322,873 | ) | 355,072 | ||||||||||||||||||||||||||||
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TOTAL | $ | 527,105 | $ | 575,593 | $ | 133,106 | $ | (512,724 | ) | $ | 723,080 | $ | 506,181 | $ | 517,100 | $ | 128,811 | $ | (496,482 | ) | $ | 655,610 | ||||||||||||||||||
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16
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF FEBRUARY 2, 20131, 2014
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 14,825 | $ | 40,132 | $ | — | $ | 54,957 | $ | — | $ | — | $ | 29,988 | $ | (2,999 | ) | $ | 26,989 | |||||||||||||||||||
Accounts receivable, net | — | 156,645 | 17,839 | — | 174,484 | — | 123,539 | 22,853 | — | 146,392 | ||||||||||||||||||||||||||||||
Intercompany receivable, net | 180,030 | — | — | (180,030 | ) | — | 174,075 | — | — | (174,075 | ) | — | ||||||||||||||||||||||||||||
Inventories | — | 164,106 | 19,021 | — | 183,127 | — | 183,216 | 23,386 | — | 206,602 | ||||||||||||||||||||||||||||||
Investments, at fair value | — | — | 15,398 | — | 15,398 | |||||||||||||||||||||||||||||||||||
Deferred income taxes | — | 11,474 | 134 | — | 11,608 | — | 13,806 | 254 | — | 14,060 | ||||||||||||||||||||||||||||||
Prepaid income taxes | — | 12,804 | — | (5,543 | ) | 7,261 | 5,141 | — | 1,193 | 1,245 | 7,579 | |||||||||||||||||||||||||||||
Prepaid expenses and other current assets | — | 9,883 | 1,784 | — | 11,667 | — | 6,578 | 791 | — | 7,369 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current assets | 180,030 | 369,737 | 78,910 | (185,573 | ) | 443,104 | 179,216 | 327,139 | 93,863 | (175,829 | ) | 424,389 | ||||||||||||||||||||||||||||
Property and equipment, net | — | 46,278 | 4,471 | — | 50,749 | — | 55,046 | 4,866 | — | 59,912 | ||||||||||||||||||||||||||||||
Other intangible assets, net | — | 208,251 | 38,430 | — | 246,681 | — | 177,482 | 34,003 | — | 211,485 | ||||||||||||||||||||||||||||||
Goodwill | — | 13,794 | — | — | 13,794 | — | 6,022 | — | — | 6,022 | ||||||||||||||||||||||||||||||
Investment in subsidiaries | 342,705 | — | — | (342,705 | ) | — | 319,926 | — | — | (319,926 | ) | — | ||||||||||||||||||||||||||||
Other assets | 6,096 | 2,097 | 608 | — | 8,801 | 2,486 | 1,822 | 619 | — | 4,927 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
TOTAL | $ | 528,831 | $ | 640,157 | $ | 122,419 | $ | (528,278 | ) | $ | 763,129 | $ | 501,628 | $ | 567,511 | $ | 133,351 | $ | (495,755 | ) | $ | 706,735 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — | $ | 123,177 | $ | 8,851 | $ | — | $ | 132,028 | $ | — | $ | 104,480 | $ | 10,961 | $ | (2,999 | ) | $ | 112,442 | |||||||||||||||||||
Accrued expenses and other liabilities | 3,530 | 21,542 | 11,050 | (7,527 | ) | 28,595 | — | 19,294 | 5,799 | (451 | ) | 24,642 | ||||||||||||||||||||||||||||
Accrued interest payable | 4,061 | — | — | — | 4,061 | 4,095 | — | — | — | 4,095 | ||||||||||||||||||||||||||||||
Unearned revenues | — | 2,627 | 2,020 | — | 4,647 | — | 3,192 | 1,821 | — | 5,013 | ||||||||||||||||||||||||||||||
Intercompany payable, net | — | 163,644 | 17,882 | (181,526 | ) | — | — | 151,253 | 24,997 | (176,250 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current liabilities | 7,591 | 310,990 | 39,803 | (189,053 | ) | 169,331 | 4,095 | 278,219 | 43,578 | (179,700 | ) | 146,192 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Senior subordinated notes payable, net | 150,000 | — | — | — | 150,000 | 150,000 | — | — | — | 150,000 | ||||||||||||||||||||||||||||||
Senior credit facility | — | 8,162 | — | — | 8,162 | |||||||||||||||||||||||||||||||||||
Real estate mortgages | — | 24,202 | — | — | 24,202 | — | 22,844 | — | — | 22,844 | ||||||||||||||||||||||||||||||
Deferred pension obligation | — | 14,580 | 106 | — | 14,686 | — | 9,792 | 70 | — | 9,862 | ||||||||||||||||||||||||||||||
Unearned revenues and other long-term liabilities | — | 10,216 | 4,612 | — | 14,828 | — | 12,064 | 2,668 | — | 14,732 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 16,858 | — | 1,984 | 18,842 | — | 5,712 | 2 | 1,696 | 7,410 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total long-term liabilities | 150,000 | 65,856 | 4,718 | 1,984 | 222,558 | 150,000 | 58,574 | 2,740 | 1,696 | 213,010 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 157,591 | 376,846 | 44,521 | (187,069 | ) | 391,889 | 154,095 | 336,793 | 46,318 | (178,004 | ) | 359,202 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total equity | 371,240 | 263,311 | 77,898 | (341,209 | ) | 371,240 | 347,533 | 230,718 | 87,033 | (317,751 | ) | 347,533 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
TOTAL | $ | 528,831 | $ | 640,157 | $ | 122,419 | $ | (528,278 | ) | $ | 763,129 | $ | 501,628 | $ | 567,511 | $ | 133,351 | $ | (495,755 | ) | $ | 706,735 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
17
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 1, 2014
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 182,512 | $ | 20,755 | $ | — | $ | 203,267 | ||||||||||
Royalty income | — | 4,995 | 3,178 | — | 8,173 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 187,507 | 23,933 | — | 211,440 | |||||||||||||||
Cost of sales | — | 128,438 | 12,695 | — | 141,133 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 59,069 | 11,238 | — | 70,307 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 55,639 | 8,838 | — | 64,477 | |||||||||||||||
Depreciation and amortization | — | 2,735 | 273 | — | 3,008 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 58,374 | 9,111 | — | 67,485 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 695 | 2,127 | — | 2,822 | |||||||||||||||
Interest expense | — | 3,531 | (14 | ) | — | 3,517 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income before income taxes | — | (2,836 | ) | 2,141 | — | (695 | ) | |||||||||||||
Income tax (benefit) provision | — | (1,320 | ) | 1,062 | — | (258 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | (437 | ) | — | — | 437 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income | (437 | ) | (1,516 | ) | 1,079 | 437 | (437 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | (1,134 | ) | 80 | (1,214 | ) | 1,134 | (1,134 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive (loss) income | $ | (1,571 | ) | $ | (1,436 | ) | $ | (135 | ) | $ | 1,571 | $ | (1,571 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
18
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 2, 2013
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 195,535 | $ | 19,165 | $ | — | $ | 214,700 | ||||||||||
Royalty income | — | 4,290 | 3,131 | — | 7,421 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 199,825 | 22,296 | — | 222,121 | |||||||||||||||
Cost of sales | — | 138,957 | 11,800 | — | 150,757 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 60,868 | 10,496 | — | 71,364 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 61,468 | 6,966 | — | 68,434 | |||||||||||||||
Depreciation and amortization | — | 3,381 | 192 | — | 3,573 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 64,849 | 7,158 | — | 72,007 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Loss on sale of long-lived assets | — | (108 | ) | — | — | (108 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating (loss) income | — | (4,089 | ) | 3,338 | — | (751 | ) | |||||||||||||
Interest expense | — | 3,755 | 27 | — | 3,782 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income before income taxes | — | (7,844 | )�� | 3,311 | — | (4,533 | ) | |||||||||||||
Income tax (benefit) provision | — | (1,945 | ) | 434 | — | (1,511 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | (3,022 | ) | — | — | 3,022 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income | (3,022 | ) | (5,899 | ) | 2,877 | 3,022 | (3,022 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | 704 | 81 | 623 | (704 | ) | 704 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive (loss) income | $ | (2,318 | ) | $ | (5,818 | ) | $ | 3,500 | $ | 2,318 | $ | (2,318 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
19
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREENINE MONTHS ENDED OCTOBER 27, 2012NOVEMBER 1, 2014
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | — | $ | 213,681 | $ | 15,649 | $ | — | $ | 229,330 | $ | — | $ | 581,632 | $ | 67,561 | $ | — | $ | 649,193 | ||||||||||||||||||||
Royalty income | — | 4,099 | 2,819 | — | 6,918 | — | 14,085 | 9,008 | — | 23,093 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total revenues | — | 217,780 | 18,468 | — | 236,248 | — | 595,717 | 76,569 | — | 672,286 | ||||||||||||||||||||||||||||||
Cost of sales | — | 151,049 | 9,404 | — | 160,453 | — | 400,997 | 42,853 | — | 443,850 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gross profit | — | 66,731 | 9,064 | — | 75,795 | — | 194,720 | 33,716 | — | 228,436 | ||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | — | 58,325 | 6,069 | — | 64,394 | — | 173,069 | 27,976 | — | 201,045 | ||||||||||||||||||||||||||||||
Depreciation and amortization | — | 3,243 | 181 | — | 3,424 | — | 8,256 | 720 | — | 8,976 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total operating expenses | — | 61,568 | 6,250 | — | 67,818 | — | 181,325 | 28,696 | — | 210,021 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gain on sale of long-lived assets | — | 410 | — | — | 410 | — | — | 885 | — | 885 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Operating income | — | 5,573 | 2,814 | — | 8,387 | — | 13,395 | 5,905 | — | 19,300 | ||||||||||||||||||||||||||||||
Interest expense | — | 3,668 | 21 | — | 3,689 | — | 10,831 | 7 | — | 10,838 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income before income taxes | — | 1,905 | 2,793 | — | 4,698 | — | 2,564 | 5,898 | — | 8,462 | ||||||||||||||||||||||||||||||
Income tax provision | — | 1,410 | 108 | — | 1,518 | — | 1,281 | 1,459 | — | 2,740 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries, net | 3,180 | — | — | (3,180 | ) | — | 5,722 | — | — | (5,722 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income | 3,180 | 495 | 2,685 | (3,180 | ) | 3,180 | 5,722 | 1,283 | 4,439 | (5,722 | ) | 5,722 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Other comprehensive income | 568 | — | 568 | (568 | ) | 568 | ||||||||||||||||||||||||||||||||||
Other comprehensive (loss) income | (323 | ) | 239 | (562 | ) | 323 | (323 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income | $ | 3,748 | $ | 495 | $ | 3,253 | $ | (3,748 | ) | $ | 3,748 | $ | 5,399 | $ | 1,522 | $ | 3,877 | $ | (5,399 | ) | $ | 5,399 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
20
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 2, 2013
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 619,446 | $ | 55,230 | $ | — | $ | 674,676 | ||||||||||
Royalty income | — | 12,612 | 8,857 | — | 21,469 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 632,058 | 64,087 | — | 696,145 | |||||||||||||||
Cost of sales | — | 433,855 | 33,699 | — | 467,554 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 198,203 | 30,388 | — | 228,591 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 183,313 | 22,311 | — | 205,624 | |||||||||||||||
Depreciation and amortization | — | 8,804 | 571 | — | 9,375 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 192,117 | 22,882 | — | 214,999 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Loss) gain on sale of long-lived assets | — | (799 | ) | 6,961 | — | 6,162 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 5,287 | 14,467 | — | 19,754 | |||||||||||||||
Interest expense | — | 11,226 | 81 | — | 11,307 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income before income taxes | — | (5,939 | ) | 14,386 | — | 8,447 | ||||||||||||||
Income tax provision | — | 719 | 2,260 | — | 2,979 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 5,468 | — | — | (5,468 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 5,468 | (6,658 | ) | 12,126 | (5,468 | ) | 5,468 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | (195 | ) | 243 | (438 | ) | 195 | (195 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | $ | 5,273 | $ | (6,415 | ) | $ | 11,688 | $ | (5,273 | ) | $ | 5,273 | ||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 27, 2012
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 641,461 | $ | 49,975 | $ | — | $ | 691,436 | ||||||||||
Royalty income | — | 10,890 | 8,882 | — | 19,772 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 652,351 | 58,857 | — | 711,208 | |||||||||||||||
Cost of sales | — | 447,718 | 30,630 | — | 478,348 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 204,633 | 28,227 | — | 232,860 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 176,305 | 20,539 | — | 196,844 | |||||||||||||||
Depreciation and amortization | — | 9,809 | 505 | — | 10,314 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 186,114 | 21,044 | — | 207,158 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gain on sale of long-lived assets | — | 410 | — | — | 410 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 18,929 | 7,183 | — | 26,112 | |||||||||||||||
Interest expense | — | 10,937 | 74 | — | 11,011 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income before income taxes | — | 7,992 | 7,109 | — | 15,101 | |||||||||||||||
Income tax provision | — | 3,928 | 759 | — | 4,687 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 10,414 | — | — | (10,414 | ) | — | ||||||||||||||
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Net income | 10,414 | 4,064 | 6,350 | (10,414 | ) | 10,414 | ||||||||||||||
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Other comprehensive income | 472 | — | 472 | (472 | ) | 472 | ||||||||||||||
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| |||||||||||
Comprehensive income | $ | 10,886 | $ | 4,064 | $ | 6,822 | $ | (10,886 | ) | $ | 10,886 | |||||||||
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 1, 2014
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: | $ | (3,859 | ) | $ | 33,000 | $ | 1,693 | $ | 2,999 | $ | 33,833 | |||||||||
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| |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (11,860 | ) | (665 | ) | — | (12,525 | ) | ||||||||||||
Purchase of investments | — | — | (27,331 | ) | — | (27,331 | ) | |||||||||||||
Proceeds from investments maturities | — | — | 19,844 | — | 19,844 | |||||||||||||||
Proceeds from note receivable | — | — | 250 | — | 250 | |||||||||||||||
Intercompany transactions | 5,612 | — | — | (5,612 | ) | — | ||||||||||||||
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| |||||||||||
Net cash provided by (used in) investing activities | 5,612 | (11,860 | ) | (7,902 | ) | (5,612 | ) | (19,762 | ) | |||||||||||
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| |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Borrowings from senior credit facility | — | 220,166 | — | — | 220,166 | |||||||||||||||
Payments on senior credit facility | — | (228,328 | ) | — | — | (228,328 | ) | |||||||||||||
Payments on real estate mortgages | — | (593 | ) | — | — | (593 | ) | |||||||||||||
Purchase of treasury stock | (2,222 | ) | — | — | — | (2,222 | ) | |||||||||||||
Payments on capital leases | — | (150 | ) | — | — | (150 | ) | |||||||||||||
Proceeds from exercise of stock options | 360 | — | — | — | 360 | |||||||||||||||
Tax benefit from exercise of equity instruments | (134 | ) | — | — | — | (134 | ) | |||||||||||||
Intercompany transactions | — | (3,039 | ) | (2,816 | ) | 5,855 | — | |||||||||||||
|
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|
|
|
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|
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|
| |||||||||||
Net cash (used in) provided by financing activities | (1,996 | ) | (11,944 | ) | (2,816 | ) | 5,855 | (10,901 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | 243 | — | 243 | (243 | ) | 243 | ||||||||||||||
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|
|
| |||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — | 9,196 | (8,782 | ) | 2,999 | 3,413 | ||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | — | 29,988 | (2,999 | ) | 26,989 | ||||||||||||||
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|
| |||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 9,196 | $ | 21,206 | $ | — | $ | 30,402 | ||||||||||
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21
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 2, 2013
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: | $ | (13,239 | ) | $ | 11,329 | $ | (4,455 | ) | $ | — | $ | (6,365 | ) | |||||||
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|
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|
|
| |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (17,337 | ) | (1,248 | ) | — | (18,585 | ) | ||||||||||||
Proceeds on sale of intangible assets | — | — | 4,875 | — | 4,875 | |||||||||||||||
Proceeds on sale of long-lived assets, net | — | 1,892 | — | — | 1,892 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash (used in) provided by investing activities | — | (15,445 | ) | 3,627 | — | (11,818 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Borrowings from senior credit facility | — | 321,364 | — | — | 321,364 | |||||||||||||||
Payments on senior credit facility | — | (302,538 | ) | — | — | (302,538 | ) | |||||||||||||
Purchase of treasury stock | (4,999 | ) | — | — | — | (4,999 | ) | |||||||||||||
Payments on real estate mortgages | — | (606 | ) | — | — | (606 | ) | |||||||||||||
Payments on capital leases | — | (237 | ) | — | — | (237 | ) | |||||||||||||
Tax benefit from exercise of stock options | (78 | ) | — | — | — | (78 | ) | |||||||||||||
Deferred financing fees | — | (66 | ) | — | — | (66 | ) | |||||||||||||
Proceeds from exercise of stock options | 134 | — | — | — | 134 | |||||||||||||||
Intercompany transactions | 18,437 | (27,384 | ) | 9,202 | (255 | ) | — | |||||||||||||
|
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|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 13,494 | (9,467 | ) | 9,202 | (255 | ) | 12,974 | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (255 | ) | — | (255 | ) | 255 | (255 | ) | ||||||||||||
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|
|
|
|
|
| |||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — | (13,583 | ) | 8,119 | — | (5,464 | ) | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | 14,825 | 40,132 | — | 54,957 | |||||||||||||||
|
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|
|
|
|
|
|
| |||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 1,242 | $ | 48,251 | $ | — | $ | 49,493 | ||||||||||
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|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 27, 2012
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment Proceeds on sale of intangible assets Proceeds on sale of long-lived assets, net Intercompany transactions Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from senior credit facility Payments on senior credit facility Purchase of treasury stock Payments on real estate mortgages Payments on capital leases Tax benefit from exercise of stock options Deferred financing fees Proceeds from exercise of stock options Intercompany transactions Net cash (used in) provided by financing activities Effect of exchange rate changes on cash and cash equivalents NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS AT END OF PERIOD (amounts in thousands) Parent Only Guarantors Non-
Guarantors Eliminations Consolidated $ (13,239 ) $ 11,329 $ (4,455 ) $ — $ (6,365 ) — (17,337 ) (1,248 ) — (18,585 ) — — 4,875 — 4,875 — 1,892 — — 1,892 18,437 — — (18,437 ) — 18,437 (15,445 ) 3,627 (18,437 ) (11,818 ) — 321,364 — — 321,364 — (302,538 ) — — (302,538 ) (4,999 ) — — — (4,999 ) — (606 ) — — (606 ) — (237 ) — — (237 ) (78 ) — — — (78 ) — (66 ) — — (66 ) 134 — — — 134 — (27,384 ) 9,202 18,182 — (4,943 ) (9,467 ) 9,202 18,182 12,974 (255 ) — (255 ) 255 (255 ) — (13,583 ) 8,119 — (5,464 ) — 14,825 40,132 — 54,957 $ — $ 1,242 $ 48,251 $ — $ 49,493
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: | $ | (1,678 | ) | $ | 47,468 | $ | 14,417 | $ | — | $ | 60,207 | |||||||||
|
|
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|
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (5,426 | ) | (989 | ) | — | (6,415 | ) | ||||||||||||
Payment on purchase of intangible assets | — | (7,000 | ) | — | — | (7,000 | ) | |||||||||||||
Proceeds in connection with purchase price adjustment | — | 4,547 | — | — | 4,547 | |||||||||||||||
Proceeds on sale of intangible assets | — | 410 | — | — | 410 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash used in investing activities | — | (7,469 | ) | (989 | ) | — | (8,458 | ) | ||||||||||||
|
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|
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Borrowings on senior credit facility | — | 237,047 | — | — | 237,047 | |||||||||||||||
Payments on senior credit facility | — | (258,726 | ) | — | — | (258,726 | ) | |||||||||||||
Payments on real estate mortgages | — | (534 | ) | — | — | (534 | ) | |||||||||||||
Deferred financing fees | — | (100 | ) | — | — | (100 | ) | |||||||||||||
Payments on capital leases | — | (258 | ) | — | — | (258 | ) | |||||||||||||
Proceeds from exercise of stock options | 601 | — | — | — | 601 | |||||||||||||||
Tax benefit from exercise of stock options | 384 | — | — | — | 384 | |||||||||||||||
Purchase of treasury stock | (2,582 | ) | — | — | — | (2,582 | ) | |||||||||||||
Intercompany transactions | 3,313 | 2,591 | (5,866 | ) | (38 | ) | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 1,716 | (19,980 | ) | (5,866 | ) | (38 | ) | (24,168 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | (38 | ) | — | (38 | ) | 38 | (38 | ) | ||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | — | 20,019 | 7,524 | — | 27,543 | |||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | 293 | 23,823 | — | 24,116 | |||||||||||||||
|
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|
|
|
|
|
|
| |||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 20,312 | $ | 31,347 | $ | — | $ | 51,659 | ||||||||||
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22
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, all references to “Perry Ellis,” the “Company,” “we,” “us” or “our” include Perry Ellis International, Inc. and its subsidiaries. This management’s discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended February 2, 2013,1, 2014, filed with the Securities and Exchange Commission on April 16, 2013.15, 2014.
Forward–Looking Statements
We caution readers that this report includes “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations rather than historical facts and they are indicated by words or phrases such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” or “will” or the negative thereof or other variations thereon and similar words or phrases or comparable terminology. Such forward-looking statements include, but are not limited to, statements regarding Perry Ellis’ strategic operating review, growth initiatives and internal operating improvements intended to drive revenues and enhance profitability, the implementation of Perry Ellis’ profitability improvement plan and Perry Ellis’ plans to exit underperforming, low growth brands and businesses. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could affect our financial performance, cause actual results to differ from our estimates, or underlie such forward-looking statements, are as set forth below and in various places in this report. These factors include, but are not limited to:
general economic conditions,
a significant decrease in business from or loss of any of our major customers or programs,
anticipated and unanticipated trends and conditions in our industry, including the impact of recent or future retail and wholesale consolidation,
recent and future economic conditions, including turmoil in the financial and credit markets,
the effectiveness of our planned advertising, marketing and promotional campaigns,
our ability to contain costs,
disruptions in the supply chain,
our future capital needs and our ability to obtain financing,
our ability to protect our trademarks,
our ability to integrate acquired businesses, trademarks, tradenames and licenses,
our ability to predict consumer preferences and changes in fashion trends and consumer acceptance of both new designs and newly introduced products,
the termination or non-renewal of any material license agreements to which we are a party,
23
changes in the costs of raw materials, labor and advertising,
our ability to carry out growth strategies including expansion in international and direct-to-consumer retail markets,
our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion,
potential cyber risk and technology failures that could disrupt operations or result in a data breach,
the level of consumer spending for apparel and other merchandise,
our ability to compete,
exposure to foreign currency risk and interest rate risk,
possible disruption in commercial activities due to terrorist activity and armed conflict, and
actions of activist investors and the cost and disruption of responding to those actions, and
other factors set forth in this report and in our other Securities and Exchange Commission (“SEC”) filings.
You are cautioned that all forward-looking statements involve risks and uncertainties, detailed in our filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.
Critical Accounting Policies
Included in the footnotes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended February 2, 20131, 2014 is a summary of all significant accounting policies used in the preparation of our consolidated financial statements. We follow the accounting methods and practices as required by accounting principles generally accepted in the United States of America (“GAAP”). In particular, our critical accounting policies and areas in which we use judgment are in the areas of revenue recognition, the estimated collectability of accounts receivable, the recoverability of obsolete or overstocked inventory, the impairment of long-lived assets that are our trademarks and goodwill, the recoverability of deferred tax assets and the measurement of retirement related benefits. We believe that there have been no significant changes to our critical accounting policies during the three and nine months ended November 2, 20131, 2014 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended February 2, 2013.1, 2014.
24
Results of Operations
The following table sets forth, for the periods indicated, selected financial data expressed by segments and includes a reconciliation of EBITDA to operating income by segment, the most directly comparable GAAP financial measure:
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
November 2, 2013 | October 27, 2012 | November 2, 2013 | October 27, 2012 | November 1, 2014 | November 2, 2013 | November 1, 2014 | November 2, 2013 | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Revenues by segment: | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 158,585 | $ | 165,517 | $ | 509,856 | $ | 514,981 | $ | 145,732 | $ | 158,585 | $ | 487,906 | $ | 509,856 | ||||||||||||||||
Women’s Sportswear | 37,912 | 45,105 | 110,032 | 118,033 | 36,721 | 37,912 | 97,448 | 110,032 | ||||||||||||||||||||||||
Direct-to-Consumer | 18,203 | 18,708 | 54,788 | 58,422 | 20,814 | 18,203 | 63,839 | 54,788 | ||||||||||||||||||||||||
Licensing | 7,421 | 6,918 | 21,469 | 19,772 | 8,173 | 7,421 | 23,093 | 21,469 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Total revenues | $ | 222,121 | $ | 236,248 | $ | 696,145 | $ | 711,208 | $ | 211,440 | $ | 222,121 | $ | 672,286 | $ | 696,145 | ||||||||||||||||
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| |||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
November 2, 2013 | October 27, 2012 | November 2, 2013 | October 27, 2012 | November 1, 2014 | November 2, 2013 | November 1, 2014 | November 2, 2013 | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Reconciliation of operating income to EBITDA | ||||||||||||||||||||||||||||||||
Operating (loss) income by segment: | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | (1,188 | ) | $ | 3,910 | $ | 6,640 | $ | 14,607 | $ | (2,091 | ) | $ | (1,188 | ) | $ | 7,163 | $ | 6,640 | |||||||||||||
Women’s Sportswear | (735 | ) | 327 | (36 | ) | (139 | ) | 1,324 | (735 | ) | (249 | ) | (36 | ) | ||||||||||||||||||
Direct-to-Consumer | (4,330 | ) | (2,267 | ) | (9,595 | ) | (4,886 | ) | (2,937 | ) | (4,330 | ) | (5,915 | ) | (9,595 | ) | ||||||||||||||||
Licensing | 5,502 | 6,417 | 22,745 | 16,530 | 6,526 | 5,502 | 18,301 | 22,745 | ||||||||||||||||||||||||
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|
|
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|
| |||||||||||||||||||||||||
Total operating (loss) income | $ | (751 | ) | $ | 8,387 | $ | 19,754 | $ | 26,112 | |||||||||||||||||||||||
Total operating income (loss) | $ | 2,822 | $ | (751 | ) | $ | 19,300 | $ | 19,754 | |||||||||||||||||||||||
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| |||||||||||||||||||||||||
Add: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 1,893 | $ | 2,108 | $ | 5,364 | $ | 6,377 | $ | 1,606 | $ | 1,893 | $ | 4,804 | $ | 5,364 | ||||||||||||||||
Women’s Sportswear | 583 | 531 | 1,408 | 1,466 | 487 | 583 | 1,444 | 1,408 | ||||||||||||||||||||||||
Direct-to-Consumer | 1,062 | 712 | 2,500 | 2,169 | 880 | 1,062 | 2,615 | 2,500 | ||||||||||||||||||||||||
Licensing | 35 | 73 | 103 | 302 | 35 | 35 | 113 | 103 | ||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||
Total depreciation and amortization | $ | 3,573 | $ | 3,424 | $ | 9,375 | $ | 10,314 | $ | 3,008 | $ | 3,573 | $ | 8,976 | $ | 9,375 | ||||||||||||||||
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| |||||||||||||||||||||||||
EBITDA by segment: | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 705 | $ | 6,018 | $ | 12,004 | $ | 20,984 | $ | (485 | ) | $ | 705 | $ | 11,967 | $ | 12,004 | |||||||||||||||
Women’s Sportswear | (152 | ) | 858 | 1,372 | 1,327 | 1,811 | (152 | ) | 1,195 | 1,372 | ||||||||||||||||||||||
Direct-to-Consumer | (3,268 | ) | (1,555 | ) | (7,095 | ) | (2,717 | ) | (2,057 | ) | (3,268 | ) | (3,300 | ) | (7,095 | ) | ||||||||||||||||
Licensing | 5,537 | 6,490 | 22,848 | 16,832 | 6,561 | 5,537 | 18,414 | 22,848 | ||||||||||||||||||||||||
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|
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|
| |||||||||||||||||||||||||
Total EBITDA | $ | 2,822 | $ | 11,811 | $ | 29,129 | $ | 36,426 | $ | 5,830 | $ | 2,822 | $ | 28,276 | $ | 29,129 | ||||||||||||||||
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| |||||||||||||||||||||||||
EBITDA margin by segment | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | 0.4 | % | 3.6 | % | 2.4 | % | 4.1 | % | (0.3 | %) | 0.4 | % | 2.5 | % | 2.4 | % | ||||||||||||||||
Women’s Sportswear | (0.4 | %) | 1.9 | % | 1.2 | % | 1.1 | % | 4.9 | % | (0.4 | %) | 1.2 | % | 1.2 | % | ||||||||||||||||
Direct-to-Consumer | (18.0 | %) | (8.3 | %) | (12.9 | %) | (4.7 | %) | (9.9 | %) | (18.0 | %) | (5.2 | %) | (12.9 | %) | ||||||||||||||||
Licensing | 74.6 | % | 93.8 | % | 106.4 | % | 85.1 | % | 80.3 | % | 74.6 | % | 79.7 | % | 106.4 | % | ||||||||||||||||
Total EBITDA margin | 1.3 | % | 5.0 | % | 4.2 | % | 5.1 | % | 2.8 | % | 1.3 | % | 4.2 | % | 4.2 | % |
EBITDA consists of earnings before interest, depreciation and amortization and income taxes. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America, and does not represent cash flow from operations. The most directly comparable GAAP financial measure, presented above, is operating income. EBITDA and EBITDA margin are presented solely as a supplemental disclosure because management believes that they are a common measure of operating performance in the apparel industry.
25
The following is a discussion of the results of operations for the three and nine month periods ended November 2, 20131, 2014 of the fiscal year ending February 1, 2014January 31, 2015 (“fiscal 2014”2015”) compared with the three and nine month periods ended October 27, 2012November 2, 2013 of the fiscal year ended February 2, 20131, 2014 (“fiscal 2013”2014”).
Results of Operations - Operations—three and nine months ended November 2, 20131, 2014 compared to the three and nine months ended October 27, 2012.November 2, 2013.
Net sales. Men’s Sportswear and Swim net sales for the three months ended November 2, 20131, 2014 were $158.6$145.7 million, a decrease of $6.9$12.9 million, or 4.2%8.1%, from $165.5$158.6 million for the three months ended October 27,
2012.November 2, 2013. The net sales decrease was attributed primarily to decreasesthe exit of private and retailer exclusive branded products and a planned decline in private label and proprietary brands in the mid-tier distribution channel as that channel experienced more softness and retailers worked to manage inventory levels. These declines werePerry Ellis domestically, partially offset by growthstrength in our golf brands including Callaway and Ben Hogan.Original Penguin.
Men’s Sportswear and Swim net sales for the nine months ended November 2, 20131, 2014 were $509.9$487.9 million, a decrease of $5.1$22.0 million, or 1.0%4.3%, from $515.0$509.9 million for the nine months ended October 27, 2012.November 2, 2013. The net sales decrease was attributed primarily to decreasesthe exit of certain private and retailer exclusive branded programs and planned reductions in our mid-tier channel, private label and proprietary branded business, which wasPerry Ellis domestically, partially offset by increases across our golf sportswear brands, including CallawayOriginal Penguin and Ben Hogan. Increases were also experienced in our licensed Nike swimwear.swim.
Women’s Sportswear net sales for the three months ended November 2, 20131, 2014 were $37.9$36.7 million, a decrease of $7.2$1.2 million, or 16.0%3.2%, from $45.1$37.9 million for the three months ended October 27, 2012.November 2, 2013. The net sales decrease was attributed to decreaseslower sales in ourcontemporary Laundry dresses and Rafaella sportswear business dueas we refined distribution to accelerated fall shipments duringfocus on full price specialty and department stores and reduced programs to the second quarter. We also experienced declines in our contemporary Laundry dress business.special markets channel.
Women’s Sportswear net sales for the nine months ended November 2, 20131, 2014 were $110.0$97.4 million, a decrease of $8.0$12.6 million, or 6.8%11.5%, from $118.0$110.0 million for the nine months ended October 27, 2012.November 2, 2013. The net sales changedecrease was attributable primarily due to the decreases in our contemporary Laundry dress business.described above.
Direct-to-Consumer net sales for the three months ended November 2, 20131, 2014 were $18.2$20.8 million, a decreasean increase of $0.5$2.6 million, or 2.7%14.3%, from $18.7$18.2 million for the three months ended October 27, 2012.November 2, 2013. The net sales decreaseincrease was attributed to a 5.0% comparable same store decreasessales increase driven by increased conversion as well as a higher average dollar per transaction in our store base, partially offset by an increaseboth Perry Ellis and Original Penguin stores. We also experienced increases in ecommercee-commerce comparable sales of 23% from38% over the comparable period last year as we anniversaried a full price strategy that we implemented during the third quarter of fiscal 2013.year.
Direct-to-Consumer net sales for the nine months ended November 2, 20131, 2014 were $54.8$63.8 million, a decreasean increase of $3.6$9.0 million, or 6.2%16.4%, from $58.4$54.8 million for the nine months ended October 27, 2012.November 2, 2013. The decreaseincrease was driven by lower traffic patterns in our stores influenceda 4.0% comparable same store sales increase driven by macroeconomic factors, such as the unseasonal weather conditionsPerry Ellis as well as overall economic weakness and consumer pull back in spending. Additionally, ecommerceby our direct e-commerce sales, were down approximately 11% fromwhich posted a 33.0% sales increase over the comparable period last year due to the rollout of a less promotional strategy across our sites implemented during the third quarter of fiscal 2013.year.
Royalty income. Royalty income for the three months ended November 2, 20131, 2014 was $7.4$8.2 million, an increase of $0.5$0.8 million, or 7.2%10.8%, from $6.9$7.4 million for the three months ended October 27, 2012. The net salesNovember 2, 2013.The royalty income increase was driven by our Perry Ellis, and Original Penguin brands.and Laundry brands, as well as eight new licensing agreements executed during the period.
Royalty income for the nine months ended November 2, 20131, 2014 was $21.5$23.1 million, an increase of $1.7$1.6 million, or 8.6%7.4%, from $19.8$21.5 million for the nine months ended October 27, 2012.November 2, 2013. Royalty income increases were attributed to increases in ourthe Perry Ellis, Original Penguin Perry Ellis and contemporary Laundry businesses.brands as well as twenty new licensing agreements executed during the period.
Gross profit.Gross profit was $70.3 million for the three months ended November 1, 2014, a decrease of $1.1 million, or 1.5%, from $71.4 million for the three months ended November 2, 2013,2013. The decrease is primarily attributed to the decline in revenues attributed to the exit of certain private and retailer exclusive branded programs over the prior year.
Gross profit was $228.4 million for the nine months ended November 1, 2014, a decrease of $4.4$0.2 million, or 5.8%0.1%, from $75.8 million for the three months ended October 27, 2012. This decrease is attributed to the reduction in contribution from our direct-to-consumer segment as well as mid-tier channel revenues.
Gross profit was $228.6 million for the nine months ended November 2, 2013, a decrease of $4.3 million, or 1.8%, from $232.9 million for the nine months ended October 27, 2012. This decrease2013. Gross profit is attributedessentially even as compared to the sales mix composition described above andprior year, due to the factors described withinbelow regarding our margin expansion during the gross profit margin section below.third quarter of fiscal 2015.
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Gross profit margin. As a percentage of total revenue, gross profit margins remained flat atwere 33.3% for the three months ended November 1, 2014, as compared to 32.1% for the three months ended November 2, 2013 which represents an expansion of 120 basis points. The increase was primarily attributed to an emphasis on higher margin channels and forgeographies including international distribution and licensing, as well as the three months ended October 27, 2012. Gross profit margins were positively impacted by expanded margins in our collection businesses driven by reduced markdowns. This margindirect-to-consumer which realized lower promotions across all venues. The increase was partially offset by decreases due to the lower contributionadditional liquidation of stock resulting from our direct-to-consumer segment.strategic transition of legacy programs in men’s sportswear to new proven fabrications that were tested and performed well at retail.
For the nine months ended November 2, 2013,1, 2014, gross profit margins were 32.8%34.0% as a percentage of total revenue as compared to 32.7%32.8% for the nine months ended October 27,November 2, 2013, an increase of 10120 basis points. This increase is primarily associated with factors described above as well as higher margins in our golf lifestyle apparel,Perry Ellis and Original Penguin sportswear businesses. The margin expansion also reflected reduced freight costs as well as expansion in our Rafaella collection sportswear business driven by reduced markdowns.a result of the infrastructure rationalization program initiated last year.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended November 2, 20131, 2014 were $68.4$64.5 million, an increasea decrease of $4.0$3.9 million, or 6.2%5.7%, from $64.4$68.4 million for the three months ended October 27, 2012.November 2, 2013. The increase wasdecrease reflects a reduction in line withcosts as we see the benefits of our expectationsstreamlining efforts and was primarily attributedongoing strategic initiatives. The decrease also reflects reductions in production samples and travel costs as we continue to additional investment in brand marketing, ecommerce photography,streamline our style designs, productivity and other infrastructure spends.
The three months ended October 27, 2012, included costs infocus on efficient communication networks. These decreases were partially offset by negative currency translation of $0.8 million due to the amount of approximately $1.1 million related to our reorganization, which included the coststrengthening of the new Callaway business,US dollar and severance expense related to exited businesses, however, no such$1.2 million in additional costs were incurred inassociated with the comparable period during fiscal 2014.streamlining efforts.
Selling, general and administrative expenses for the nine months ended November 2, 20131, 2014 were $205.6$201.0 million, an increasea decrease of $8.8$4.6 million, or 4.5%2.2%, from $196.8$205.6 million for the nine months ended October 27, 2012.November 2, 2013. The increasedecrease was due to costs efficiencies associated with streamlining and consolidation of our operations as well as reduced headcount in line with our expectationsinfrastructure, reduced design, travel, samples and was primarily attributed toprofessional fees expenses. These reductions were partially offset by additional investment in brand marketing ecommerce photography,for our national brands as well as investment in Europe for our golf platform and other infrastructure spends. Also,Original Penguin during this period. In addition, we incurred $2.7 million in costs associated with our streamlining and strategic initiatives. During the nine months ended November 2, 2013 we experienced costs in the amount of $2.1 million related to the relocation of our New York offices and $0.8 million in costs associated with the sale of the Asian rights of the John Henry trademark. Also included were costs in the amount of approximately $1.0 million related to reorganization within our business. The nine months ended October 27, 2012, included costs in the amount of approximately $5.4 million related to our reorganization, which primarily encompassed voluntary early retirement costs, the costs associated with the exit of our Rafaella distribution facility and the move to our current third party logistics warehouse, relocation of our New York offices and severance expense related to exited businesses, however, no such costs were incurred in the comparable period during fiscal 2014.
EBITDA. Men’s Sportswear and Swim EBITDA margin for the three months ended November 2, 20131, 2014 decreased 32070 basis points to 0.4%(0.3)%, from 3.6%0.4% for the three months ended October 27, 2012.November 2, 2013. The EBITDA margin was negatively impacted by the reduced leverage due to the decrease in net sales described above. Men’s Sportswear and Swim EBITDA margin for the nine months ended November 2, 2013 decreased 1701, 2014 increased 10 basis points to 2.4%2.5%, from 4.1%2.4% for the nine months ended October 27, 2012.November 2, 2013. The EBITDA margin was negativelyfavorably impacted from cost savings as a result of our infrastructure review as well as favorable gross margin expansion driven by reduced leverage from the mix of revenue in our international business coupled with increased infrastructure expendituresmargins in this segment. Theour Perry Ellis and Original Penguin sportswear collections. During fiscal 2014, the margin was also negatively impacted by costs associated with theour relocation of our New York offices.
Women’s Sportswear EBITDA margin for the three months ended November 2, 2013 decreased 2301, 2014 increased 530 basis points to (0.4%)4.9%, from 1.9%(0.4%) for the three months ended October 27, 2012. The margin was negatively impacted by the net sales decrease attributed to our Rafaella sportswear business due to earlier shipments during the second quarter rather than the third quarter and by costs associated with the relocation of our New York offices.
November 2, 2013. Women’s Sportswear EBITDA margin for the nine months ended November 2, 2013 increased 10 basis points to1, 2014 remained flat at 1.2%, from 1.1% for the nine months ended October 27, 2012.November 2, 2013. The EBITDA margin was positively impacted by the increase in gross margin experienced in Rafaella sportswear, as well as Laundry. Theoffset by the negative impact of the reduced leverage from the decrease in net sales described above. Additionally, during fiscal 2014, the margin increase was negatively impacted by costs associated with the relocation of our New York offices.
Direct-to-Consumer EBITDA margin for the three months ended November 2, 2013 decreased 9701, 2014 increased 810 basis points to (18.0%(9.9%), from (8.3%(18.0%) for the three months ended October 27, 2012.November 2, 2013. Direct-to-Consumer EBITDA margin for the nine months ended November 2, 2013 decreased 8201, 2014 increased 770 basis points to (12.9%(5.2%), from (4.7%(12.9%) for the nine months ended October 27, 2012.November 2, 2013. The decreases wereincrease was primarily attributable to the reductionincrease in revenue from our stores and ecommercee-commerce business, as described above. Because of the reductionAn increase in revenue we were not able to realizeresulted in a favorable leverage in
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selling, general and administrative expenses. In addition, we consolidated our businesses under one operational team thereby reducing overhead. EBITDA margin also benefited from the expansion in gross profit margins discussed above.
Licensing EBITDA margin for the three months ended November 2, 2013 decreased 1,9201, 2014 increased 570 basis points to 74.6%80.3%, from 93.8%74.6% for the three months ended October 27, 2012.November 2, 2013. The decreaseincrease is primarily attributed to additional investmentthe increase in brand marketing, photography,royalty income attributed to Original Penguin partnerships for footwear and other infrastructure spends.
international licensed retail stores, as well as eight new licensing agreements. Licensing EBITDA margin for the nine months ended November 2, 2013 increased 2,130 basis points1, 2014 decreased to 106.4%79.7%, from 85.1%106.4% for the nine months ended October 27, 2012. This increase was primarily attributed toNovember 2, 2013. During the nine months ended November 2, 2013, we had a gain on the sale of the Asian rights of the John Henry brand, as described below. The gain was the primary reason for the higher EBITDA margin in fiscal 2014.
Depreciation and amortization. Depreciation and amortization for the three months ended November 2, 2013,1, 2014, was $3.6$3.0 million, an increasea decrease of $0.2$0.6 million, or 5.9%16.7%, from $3.4$3.6 million for the three months ended October 27, 2012. The increase is attributed to depreciation related to our capital expenditures, primarily in the direct-to-consumer segment and leaseholds.November 2, 2013. Depreciation and amortization for the nine months ended November 2, 2013,1, 2014, was $9.4$9.0 million, a decrease of $0.9$0.4 million, or 8.7%4.3%, from $10.3$9.4 million for the nine months ended October 27, 2012. TheNovember 2, 2013.The decrease is attributed to the reduction in depreciation associated with the impairments of long-lived assets takenbecoming fully depreciated and less capital expenditures during the fourth quarter of fiscal 2013, offset bycurrent year. For the increases in depreciation related to ournine months ended November 1, 2014 we had capital expenditures primarilyof $12.5 million as compared to capital expenditures of $18.6 million in the direct-to-consumer segment and leaseholds.same period of prior year.
(Loss) gainGain on sale of long-lived assets. During the second quarter of fiscal 2015, we entered into a sales agreement, in the amount of $1.3 million, for the sale of Australian, Fiji and New Zealand trademark rights with respect to Jantzen. Payments on the purchase price are due in five installments of $250,000 over a five year period. Interest on the purchase price that remains unpaid will accrue at a rate of 3.5% per annum calculated on an annual basis. As a result of this transaction, we recorded a gain of $0.9 million in the licensing segment.
During the fourth quarter of fiscal 2013, we entered into a sales agreement, in the amount of $7.5 million, for certain Asian trademark rights with respect our John Henry brand. The transaction closed in the first quarter of fiscal 2014. As a result of this transaction, we recorded a gain of $6.3
million. This gain was included in our licensing segment’s operating income. We plan to continue to execute our domestic strategy for the John Henry brand as a modern lifestyle resource to select retailers as well as its licensing relationships in Latin America. The gain of $6.3 million was partially offset by the $0.1 million loss related to the sale of our Winnsboro distribution facility during the third quarter of fiscal 2014.
Interest expense. Interest expense for the three months ended November 2, 20131, 2014 was $3.8$3.5 million, an increasea decrease of $0.1$0.3 million, or 2.7%7.9%, from $3.7$3.8 million for the three months ended October 27, 2012.November 2, 2013. Interest expense for the nine months ended November 2, 20131, 2014 was $11.3$10.8 million, an increasea decrease of $0.3$0.5 million, or 2.7%4.4%, from $11.0$11.3 million for the nine months ended October 27, 2012.November 2, 2013. The primary reason for the slight increase in interest expensedecrease is duerelated to the highersavings generated from the refinancing of our mortgage loans in the second half of fiscal 2014, as well as lower average borrowings on our credit facility as compared to our borrowings in the prior year.
Income taxestaxes.. The income tax benefit for the three months ended November 2, 2013,1, 2014, was $1.5$0.3 million, an increasea decrease of $3.0$1.2 million, as compared to the income tax provision of $1.5 million for the three months ended October 27, 2012.November 2, 2013. For the three months ended November 2, 2013,1, 2014, our effective tax rate was 33.3%37.1% as compared to 32.3%33.3% for the three months ended October 27, 2012.November 2, 2013. Our income tax expense for the nine months ended November 2, 2013,1, 2014, was $3.0$2.7 million, a decrease of $1.7$0.3 million, as compared to $4.7$3.0 million for the nine months ended October 27, 2012.November 2, 2013. For the nine months ended November 2, 2013,1, 2014, our effective tax rate was 35.3%32.4% as compared to 31.0%35.3% for the nine months ended October 27, 2012.November 2, 2013. The overall change in the effective tax rate is attributed to the unfavorable disallowance of certain executive compensation andin fiscal 2014, the sale of certain intangible rights ofrelated to the John Henry trademark as well asin fiscal 2014, and the change in ratio of income between domestic and foreign operations, of which the domestic operations are taxed at higher statutory tax rates.
Net (loss) income.Net (loss) incomefor the three months ended November 1, 2014 was ($0.4) million, an improvement of $2.6 million, or 86.7%, as compared to ($3.0) million for the three months ended November 2, 2013 was ($3.0) million, a decrease of $6.2 million, or 193.8%, as compared to $3.2 million for the three months ended October 27, 2012.2013. Net income for the nine months ended November 2, 20131, 2014 was $5.5$5.7 million, a decreasean increase of $4.9$0.2 million, or 47.1%3.6%, as compared to $10.4$5.5 million for the nine months ended October 27, 2012.November 2, 2013. The changes in operating results were due to the items described above.
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Liquidity and Capital Resources
We rely principally on cash flow from operations and borrowings under our senior credit facility to finance our operations, acquisitions and capital expenditures; and to a lesser extent, on letter of credit facilities for the acquisition of a small portion of our inventory purchases. We believe that our working capital requirements will decrease for fiscal 20142015 driven primarily by lower levels of inventory.inventory associated with stronger inventory management. As of November 2, 2013,1, 2014, our total working capital was $285.6$277.2 million as compared to $273.8$278.2 million as of February 2, 20131, 2014 and $277.0$285.6 million as of October 27, 2012.November 2, 2013. We believe that our cash flows from operations and availability under our senior credit facility and remaining letter of credit facilities are sufficient to meet our working capital needs. We also believe that our real estate assets, which had a net book value of $23.3$23.0 million at November 2, 2013,1, 2014, have a higher market value. These real estate assets may provide us with additional capital resources. Additional borrowings against these real estate assets, however, would be subject to certain loan to value criteria established by lending institutions. As of November 2, 2013,1, 2014, we had mortgage loans on these properties totaling $24.4$23.1 million.
We consider the undistributed earnings of our foreign subsidiaries as of November 2, 2013,1, 2014, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of November 2, 2013,1, 2014, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $48.3$21.2 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
Net cash provided by operating activities was $33.8 million for the nine months ended November 1, 2014, as compared to cash used in operating activities wasof $6.4 million for the nine months ended November 2, 2013, as compared to2013.
The cash provided by operating activities of $60.2 million for the nine months ended October 27, 2012.November 1, 2014, is primarily attributable to a decrease in accounts receivable of $16.6 million and a decrease in inventory of $50.4 million associated with improved inventory management. This was partially offset by decreases in accounts payable and accrued expenses of $50.3 million, deferred pension of $2.2 million and accrued interest payable of $3.0 million, respectively. For the nine months ended November 1, 2014, our inventory turnover ratio decreased slightly to 3.28 as compared to 3.69 for the comparable period in fiscal 2014. While the turnover decreased, inventory levels declined as noted above resulting from tighter inventory management. In addition, inventory decreased as compared to the end of the same period last year.
The cash used in operating activities for the nine months ended November 2, 2013, is primarily attributable to a decrease in accounts payable and accrued expenses of $56.5 million and a decrease in accrued interest payable of $3.0 million; which was partially offset by a decrease in accounts receivable of $25.5 million and a decrease in inventory of $16.4 million associated with improved inventory management. As a result of the decrease in inventory for the nine months ended November 2, 2013, our inventory turnover ratio decreased slightly to 3.69 as compared to 3.73.70 for the comparable period in fiscal 2013. The cash provided by operating activities for nine months ended October 27, 2012 is primarily attributable to a decrease in inventory of $41.1 million associated with our improved inventory
management, an increase in our accounts payable and accrued expenses of $6.7 million and an decrease in other current assets and prepaid income taxes of $1.1 million; partially offset by an increase in accounts receivable of $9.3 million, and a decrease in accrued interest in the amount of $3.2 million. As a result of the decrease in inventory for the nine months ended October 27, 2012, our inventory turnover ratio increased to 3.7 as compared to 3.3 for the comparable period in fiscal 2012.
Net cash used in investing activities was $19.8 million for the nine months ended November 1, 2014, as compared to cash used in investing activities of $11.8 million for the nine months ended November 2, 2013, as compared to2013. The net cash used in investing activities of $8.5 million forduring the first nine months ended October 27, 2012.of fiscal 2015 primarily reflects the purchase of investments of $27.3 million and the purchase of property and equipment of $12.5 million, primarily for leasehold improvements and store fixtures; which was partially offset by proceeds from maturities of investments in the amount of $19.8 million and the proceeds from notes receivable associated with the sale of Australian, Fiji and New Zealand Jantzen trademark right in the amount of $0.3 million. The net cash used during the first nine months of fiscal 2014 primarily reflects the purchase of property and equipment of $18.6 million, primarily for leaseholds; which was partially offset by proceeds on the sale of certain Asian trademark rights with respect to John Henry of $4.9 million and by the net proceeds on the sale of our Winnsboro distribution facility of $1.9 million. The net cash used during the nine months ended October 27, 2012, primarily reflects the purchase of Ben Hogan in the amount of $7.0 million and the purchase of property and equipment in the amount of $6.4 million; partially offset by the proceeds related to the Rafaella purchase price adjustment of $4.5 million. We anticipate capital expenditures during fiscal 20142015 of $20.0$14.0 million to $22.0$16.0 million in technology, systems, retail stores, and other expenditures.
Net cash used in financing activities was $10.9 million for the nine months ended November 1, 2014, as compared to cash provided by financing activities wasof $13.0 million for the nine months ended November 2, 2013, as compared to2013. The net cash used in financing activities of $24.2 million forduring the first nine months ended October 27, 2012.of fiscal 2015 primarily reflects net payments on our senior credit facility of $8.2 million, purchases of treasury stock of $2.2 million, payments on real estate mortgages of $0.6
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million and payments on capital leases of $0.2 million; partially offset by proceeds from exercises of stock options of $0.4 million. The net cash provided during the first nine months of fiscal 2014 primarily reflects net borrowings on our senior credit facility of $18.8 million and proceeds from exercises of stock options of $0.1 million; partially offset by purchases of treasury stock of $5.0 million, payments on real estate mortgages of $0.6 million and payments on capital leases of $0.2 million. The net cash used during the first nine months of fiscal 2013 primarily reflects net payments on our senior credit facility of $21.7 million, the purchase of treasury stock of $2.6 million, payments on real estate mortgages of $0.5 million and payments on capital leases of $0.3 million; partially offset by proceeds from exercises of stock options of $0.6 million and a tax benefit from the exercise of stock options of $0.4 million.
Our Board of Directors has authorized us to purchase, from time to time and as market and business conditions warrant,warranted, up to $60 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2014.2015. Although our Board of Directors allocated a maximum of $60 million to carry out the program, we are not obligated to purchase any specific number of outstanding shares and will reevaluate the program on an ongoing basis. Total purchases under the plan to date amount to $40.9 million.
During January 2013, we retired 1,290,022 sharesthe third quarter of treasury stock recorded at a cost of approximately $18.5 million. Accordingly, during fiscal 2013, we reduced common stock and additional paid-in-capital by $13,000 and $18.5 million, respectively. During fiscal 2013,2015, we repurchased 132,722110,413 shares of our common stock at a cost of $2.6$2.2 million. Additionally,During fiscal 2014, we repurchased 267,274400,516 shares of our common stock during fiscal 2014 at a cost of $5.0$7.0 million. As of November 1, 2014 and February 1, 2014, there were 510,929 and 400,516 shares of treasury stock outstanding at a cost of approximately $9.2 million and $7.0 million, respectively.
Acquisitions
Acquisition of Ben HoganNone.
On February 16, 2012, we acquired the world-wide intellectual property rights of the Ben Hogan family of brands from Callaway Golf Company for a purchase price of $7.0 million. The acquisition was financed through existing cash and borrowings under our existing senior credit facility. Ben Hogan brands are ideally positioned to strengthen our golf business within the Men’s Sportswear and Swim segment.
The assets acquired were comprised of tradenames, which have been identified as indefinite useful life assets, and are not subject to amortization.
77⁄/8% $150 Million Senior Subordinated Notes Payable
In March 2011, we issued $150 million 77⁄/8% senior subordinated notes, due April 1, 2019. The proceeds of this offering were used to retire the $150 million 87⁄/8% senior subordinated notes due September 15, 2013 and to repay a portion of the outstanding balance on the senior credit facility. The proceeds to us were $146.5 million yielding an effective interest rate of 8.0%.
Certain Covenants. The indenture governing the senior subordinated notes contains certain covenants which restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in
certain circumstances, pay dividends or make other distributions on, redeem or repurchase capital stock, make investments or other restricted payments, create liens on assets to secure debt, engage in transactions with affiliates, and effect a consolidation or merger. We are not aware of any non-compliance with any of our covenants in this indenture. We could be materially harmed if we violate any covenants because the indenture’s trustee could declare the outstanding notes, together with accrued interest, to be immediately due and payable, which we may not be able to satisfy. In addition, a violation could also constitute a cross-default under the senior credit facility, the letter of credit facilities and the real estate mortgages resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Senior Credit Facility
On December 2, 2011,January 9, 2014, we amended and restated our existing senior credit facility (the “Credit Facility”), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $125 million, subject to increases from time to time in increments of $25 million up to a maximum of $200 million. The Credit Facility has a five-year term that expires onwas extended through December 2, 2016.1, 2018. At November 2, 2013,1, 2014, we had no outstanding borrowings and at February 1, 2014, we had borrowings of $18.8$8.2 million under the Credit Facility. At February 2, 2013, we had no outstanding borrowings under the Credit Facility.
Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require us to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. We are not aware of any non-compliance with any of our covenants in this Credit Facility. These covenants may restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. We may pay cash dividends subject to certain restrictions set forth in the covenants including, but not limited to, meeting a minimum excess availability threshold and no occurrence of a default. We could be materially harmed if we violate any of the covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If we are unable to repay those amounts, the lenders could proceed against our assets and the assets of our subsidiaries that are borrowers or guarantors. In addition, a
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covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of our other outstanding indebtedness, such as the indenture relating to our 7 7⁄8% 7/8% senior subordinated notes due April 1, 2019, our letter of credit facilities, or our real estate mortgage loans. Such a cross-default could result in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Borrowing Base. Borrowings under the Credit Facility are limited to a borrowing base calculation, which generally restricts the outstanding balance to the sum of (a) 87.5% of eligible receivables plus (b) 87.5% of eligible foreign accounts up to $1.5 million plus (c) the lesser of (i) the inventory loan limit, which equals 80% of the maximum credit under the Credit Facility at the time, or (ii) a maximum of 70.0% of eligible finished goods inventory, or (iii) 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.
InterestInterest.. Interest on the outstanding principal balance drawn under the Credit Facility accrues at our option,the prime rate and at either (a) the greater of the agent’s prime lending rate plus a margin of 1.25% per year through March 31, 2012, provided such margin shall be adjusted quarterly thereafter, or the Federal Funds rate in effect on such day plus one half of one percent (.50%); or (b) the rate quoted by the agent as thefor Eurodollar Rate for one-, two- or three-month Eurodollar deposits, as selected by us, plus a margin of 2.25% per year through March 31, 2012. Thereafter, theloans. The margin adjusts quarterly, in a range of 1.75%0.50% to 2.50%,1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on ourthe previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.
Security. As security for the indebtedness under the Credit Facility, we granted to the lenders a first priority security interest (subject to liens permitted under the Credit Facility to be senior thereto) in substantially all of our existing and future assets, including, without limitation, accounts receivable, inventory, deposit accounts, general intangibles, equipment and capital stock or membership interests, as the case may be, of certain subsidiaries, and real estate but excluding our non-U.S. subsidiaries and all of our trademark portfolio.
Letter of Credit Facilities
As of November 2, 2013,1, 2014, we maintained two U.S. dollar letter of credit facilities totaling $55.0$45.0 million and one letter of credit facility totaling $0.3 million utilized by our United Kingdom subsidiary. Each documentary letter of credit is secured primarily by the consignment of merchandise in transit under that letter of credit and certain subordinated liens on our assets.
During fiscal 2014, we decreased the letter of credit sublimit in our Senior Credit Facility to $30.0 million. As of November 2, 20131, 2014 and February 2, 2013,1, 2014, there was $43.4$33.7 million and $43.5$33.5 million, respectively, available under our existing letter of credit facilities.
Real Estate Mortgage Loans
In July 2010, we paid off ourthe then existing real estate mortgage loan and refinanced our main administrative office, warehouse and distribution facility in Miami with a $13.0 million mortgage loan. The loan is due on August 1, 2020. The interest rate has been modified since the refinancing date. The interest rate most recently was 4.25% per annum and monthly payments of principal and interest of $71,000 were $71,000,due based on a 25-year amortization with the outstanding principal due at maturity. In July 2013, we amended the mortgage loan agreement to modify the interest rate. The interest rate was reduced to 3.90% per annum and the terms were restated to reflect new monthly payments of principal and interest of $69,000 based on a 25-year amortization with the outstanding principal due at maturity. At November 2, 2013,1, 2014, the balance of the real estate mortgage loan totaled $11.8$11.4 million, net of discount, of which $357,000$341,000 is due within one year.
In June 2006, we entered into a mortgage loan for $15 million secured by our Tampa facility. The loan is due on June 7, 2016.January 23, 2019. The originalmortgage loan has been refinanced and the interest rate has been modified.modified since such date. The interest rate most recently was 4.95%4.00% per annum and quarterly payments of principal and interest of $248,000 were $268,000,due based on a 20-year amortization with the outstanding principal due at maturity. In July 2012,January 2014, we amended the mortgage loan agreement to modify the interest rate. The interest rate was reduced to 4.00%3.25% per annum and the terms were restated to reflect new quarterlymonthly payments of principal and interest of approximately $248,000,$68,000 based on a 20-year amortization with the outstanding principal due at maturity. At November 2, 2013,1, 2014, the balance of the real estate mortgage loan totaled $12.6$11.6 million, net of discount, of which approximately $484,000$442,000 is due within one year.
The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of these covenants. If we violate any of these covenants, the lender under the real estate mortgage loansloan could declare all amounts outstanding thereunder to be immediately due and payable, which we may not be able to satisfy. A covenant violation could also constitute a cross-default under our senior credit facility, the letter of credit facilityfacilities and the indenture relating to our senior subordinated notes resulting in all our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
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Off-Balance Sheet Arrangements
We are not a party to any “off-balance sheet arrangements” as defined by applicable GAAP and SEC rules.
Effects of Inflation and Foreign Currency Fluctuations
We do not believe that inflation or foreign currency fluctuations significantly affected our results of operations for the three and nine months ended November 2, 2013.1, 2014.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
The market risk inherent in our financial statements represents the potential changes in the fair value, earnings or cash flows arising from changes in interest rates. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposure, including interest rate.
Commodity Price Risk
We are exposed to market risks for the pricing of cotton and other fibers, which may impact fabric prices. Fabric is a portion of the overall product cost, which includes various components. We manage our fabric prices by using a combination of different strategies including the utilization of sophisticated logistics and supply chain management systems, which allow us to maintain maximum flexibility in our global sourcing of products. This provides us with the ability to re-direct our sourcing of products to the most cost-effective jurisdictions. In addition, we may modify our product offerings to our customers based on the availability of new fibers, yield enhancement techniques and other technological advances that allow us to utilize more cost effective fibers. Finally, we also have
the ability to adjust our price points of such products, to the extent market conditions allow. These factors, along with our foreign-based sourcing offices, allow us to procure product from lower cost countries or capitalize on certain tariff-free arrangements, which help mitigate any commodity price increases that may occur. We have not historically managed, and do not currently intend to manage, commodity price exposures by using derivative instruments.
Other
Our current exposure to foreign exchange risk is not significant and accordingly, we have not entered into any transactions to hedge against those risks.
Item 4: Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) of the Securities Exchange Act. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of November 2, 20131, 2014 in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the quarter ended November 2, 20131, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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See Footnote 19 to the Condensed Consolidated Financial Statements, included in this filing, for further information.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
We repurchased the following amounts of our common stock during the third quarter of fiscal 2014:2015:
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Maximum Approximate Dollar Value that May Yet Be Purchased under the Plans or Programs | ||||||||||||
August 26, 2013 to August 30, 2013 | 67,372 | $ | 18.56 | 67,372 | $ | 22,795,234 | ||||||||||
September 2, 2013 to September 27, 2013 | 199,902 | $ | 18.75 | 199,902 | $ | 19,047,214 | ||||||||||
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Total shares repurchased during Fiscal 2014 | 267,274 | $ | 18.70 | 267,274 | $ | 19,047,214 | ||||||||||
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Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | Maximum Approximate Dollar Value that May Yet Be Purchased under the Plans or Programs | ||||||||||||
August 30, 2014 | 617 | (1) | $ | 20.48 | — | $ | 17,089,000 | |||||||||
October 5, 2014 to November 1, 2014 | 110,413 | (2) | $ | 20.13 | 110,413 | $ | 14,867,000 |
(1) | Represents shares withheld to pay statutory income taxes resulting from vesting of restricted shares. |
(2) | During |
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Index to Exhibits
Exhibit | Exhibit Description | Where Filed | ||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||
32.1 | Certification of Principal Executive Officer pursuant to Section 1350 | |||
32.2 | Certification of Principal Financial Officer pursuant to Section 1350 | |||
101.INS | XBRL Instance Document | Filed herewith. | ||
101.SCH | XBRL Taxonomy Extension Schema | Filed herewith. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith. | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Perry Ellis International, Inc. | ||||||
December 9, | By: /S/ ANITA BRITT | |||||
Anita Britt, Chief Financial Officer | ||||||
(Principal Financial Officer) |
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Exhibit Index
Exhibit | Exhibit Description | |
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | |
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1 | Certification of Principal Executive Officer pursuant to Section 1350 | |
32.2 | Certification of Principal Financial Officer pursuant to Section 1350 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
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