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 AugustMay 2, 20142015
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 15,727,000is15,613,000 (as of September 4, 2014)June 04, 2015).
PERRY ELLIS INTERNATIONAL, INC.
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PART I: FINANCIAL INFORMATION | ||||
Item 1: | ||||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
28 | ||||
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share data)
May 2, | January 31, | |||||||||||||||
August 2, 2014 | February 1, 2014 | 2015 | 2015 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 49,218 | $ | 26,989 | $ | 18,736 | $ | 43,547 | ||||||||
Accounts receivable, net | 110,532 | 146,392 | 180,992 | 137,432 | ||||||||||||
Inventories | 174,507 | 206,602 | 153,495 | 183,734 | ||||||||||||
Investments, at fair value | 23,955 | 15,398 | 14,009 | 19,996 | ||||||||||||
Deferred income taxes | 15,358 | 14,060 | 741 | 725 | ||||||||||||
Prepaid income taxes | 7,346 | 7,579 | 5,451 | 6,384 | ||||||||||||
Prepaid expenses and other current assets | 9,550 | 7,369 | 6,359 | 7,124 | ||||||||||||
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Total current assets | 390,466 | 424,389 | 379,783 | 398,942 | ||||||||||||
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Property and equipment, net | 61,632 | 59,912 | 64,723 | 64,633 | ||||||||||||
Other intangible assets, net | 210,660 | 211,485 | 206,781 | 210,201 | ||||||||||||
Goodwill | 6,022 | 6,022 | 6,022 | 6,022 | ||||||||||||
Other assets | 5,757 | 4,927 | 5,506 | 5,191 | ||||||||||||
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TOTAL | $ | 674,537 | $ | 706,735 | $ | 662,815 | $ | 684,989 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 76,520 | $ | 112,442 | $ | 70,830 | $ | 117,789 | ||||||||
Accrued expenses and other liabilities | 22,643 | 24,642 | 27,372 | 22,355 | ||||||||||||
Accrued interest payable | 3,990 | 4,095 | 1,037 | 4,045 | ||||||||||||
Unearned revenues | 5,257 | 5,013 | 5,265 | 4,856 | ||||||||||||
Deferred pension obligation | 8,985 | 8,930 | ||||||||||||||
Deferred income taxes | 797 | 797 | ||||||||||||||
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Total current liabilities | 108,410 | 146,192 | 114,286 | 158,772 | ||||||||||||
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Senior subordinated notes payable, net | 150,000 | 150,000 | 150,000 | 150,000 | ||||||||||||
Senior credit facility | — | 8,162 | 9,670 | — | ||||||||||||
Real estate mortgages | 22,461 | 22,844 | 21,882 | 22,109 | ||||||||||||
Deferred pension obligation | 8,690 | 9,862 | ||||||||||||||
Unearned revenues and other long-term liabilities | 16,248 | 14,732 | 14,707 | 15,009 | ||||||||||||
Deferred income taxes | 11,332 | 7,410 | 38,881 | 37,082 | ||||||||||||
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Total long-term liabilities | 208,731 | 213,010 | 235,140 | 224,200 | ||||||||||||
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Total liabilities | 317,141 | 359,202 | 349,426 | 382,972 | ||||||||||||
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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; 16,116,003 shares issued and outstanding as of August 2, 2014 and 15,901,956 shares issued and outstanding as of February 1, 2014 | 161 | 159 | ||||||||||||||
Common stock $.01 par value; 100,000,000 shares authorized; 16,126,491 shares issued and outstanding as of May 2, 2015 and 16,128,775 shares issued and outstanding as of January 31, 2015 | 161 | 161 | ||||||||||||||
Additional paid-in-capital | 158,412 | 155,522 | 162,231 | 161,336 | ||||||||||||
Retained earnings | 212,436 | 206,277 | 178,513 | 169,102 | ||||||||||||
Accumulated other comprehensive loss | (6,656 | ) | (7,468 | ) | (11,786 | ) | (12,852 | ) | ||||||||
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Total | 364,353 | 354,490 | 329,119 | 317,747 | ||||||||||||
Treasury stock at cost; 400,516 as of August 2, 2014 and February 1, 2014 | (6,957 | ) | (6,957 | ) | ||||||||||||
Treasury stock at cost; 770,753 as of May 2, 2015 and 770,753 shares as of January 31, 2015 | (15,730 | ) | (15,730 | ) | ||||||||||||
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Total equity | 357,396 | 347,533 | 313,389 | 302,017 | ||||||||||||
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TOTAL | $ | 674,537 | $ | 706,735 | $ | 662,815 | $ | 684,989 | ||||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME (UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended | ||||||||||||||||||||||||
Three Months Ended | Six Months Ended | May 2, | May 3, | |||||||||||||||||||||
August 2, 2014 | August 3, 2013 | August 2, 2014 | August 3, 2013 | 2015 | 2014 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Net sales | $ | 196,010 | $ | 204,492 | $ | 445,926 | $ | 459,976 | $ | 258,257 | $ | 249,916 | ||||||||||||
Royalty income | 7,522 | 7,213 | 14,920 | 14,048 | 8,157 | 7,398 | ||||||||||||||||||
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Total revenues | 203,532 | 211,705 | 460,846 | 474,024 | 266,414 | 257,314 | ||||||||||||||||||
Cost of sales | 133,068 | 143,159 | 302,717 | 316,797 | 176,314 | 169,649 | ||||||||||||||||||
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Gross profit | 70,464 | 68,546 | 158,129 | 157,227 | 90,100 | 87,665 | ||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||
Selling, general and administrative expenses | 66,858 | 66,521 | 136,568 | 137,190 | 69,608 | 69,710 | ||||||||||||||||||
Depreciation and amortization | 2,988 | 3,010 | 5,968 | 5,802 | 3,322 | 2,980 | ||||||||||||||||||
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Total operating expenses | 69,846 | 69,531 | 142,536 | 142,992 | 72,930 | 72,690 | ||||||||||||||||||
Gain on sale of long-lived assets | 885 | — | 885 | 6,270 | ||||||||||||||||||||
Loss on sale of long-lived assets | (697 | ) | — | |||||||||||||||||||||
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Operating income (loss) | 1,503 | (985 | ) | 16,478 | 20,505 | |||||||||||||||||||
Operating income | 16,473 | 14,975 | ||||||||||||||||||||||
Interest expense | 3,605 | 3,722 | 7,321 | 7,525 | 3,627 | 3,716 | ||||||||||||||||||
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Net (loss) income before income taxes | (2,102 | ) | (4,707 | ) | 9,157 | 12,980 | ||||||||||||||||||
Income tax (benefit) provision | (486 | ) | (1,877 | ) | 2,998 | 4,490 | ||||||||||||||||||
Net income before income taxes | 12,846 | 11,259 | ||||||||||||||||||||||
Income tax provision | 3,435 | 3,484 | ||||||||||||||||||||||
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Net (loss) income | $ | (1,616 | ) | $ | (2,830 | ) | $ | 6,159 | $ | 8,490 | ||||||||||||||
Net income | $ | 9,411 | $ | 7,775 | ||||||||||||||||||||
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Net (loss) income per share: | ||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||
Basic | $ | (0.11 | ) | $ | (0.19 | ) | $ | 0.41 | $ | 0.56 | $ | 0.64 | $ | 0.53 | ||||||||||
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Diluted | $ | (0.11 | ) | $ | (0.19 | ) | $ | 0.41 | $ | 0.55 | $ | 0.62 | $ | 0.52 | ||||||||||
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Weighted average number of shares outstanding | ||||||||||||||||||||||||
Basic | 14,906 | 15,112 | 14,844 | 15,068 | 14,649 | 14,782 | ||||||||||||||||||
Diluted | 14,906 | 15,112 | 15,142 | 15,406 | 15,161 | 15,010 |
See Notes to Unaudited Condensed Consolidated Financial Statements
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(amounts in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||
August 2, 2014 | August 3, 2013 | August 2, 2014 | August 3, 2013 | |||||||||||||
Net (loss) income | $ | (1,616 | ) | $ | (2,830 | ) | $ | 6,159 | $ | 8,490 | ||||||
Other Comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments, net | 2 | (656 | ) | 638 | (1,061 | ) | ||||||||||
Unrealized gain on pension liability, net of tax (1) | 79 | 81 | 159 | 162 | ||||||||||||
Unrealized (loss) gain on investments | (23 | ) | — | 15 | — | |||||||||||
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Total other comprehensive income (loss) | 58 | (575 | ) | 812 | (899 | ) | ||||||||||
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Comprehensive (loss) income | $ | (1,558 | ) | $ | (3,405 | ) | $ | 6,971 | $ | 7,591 | ||||||
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Three Months Ended | ||||||||
May 2, | May 3, | |||||||
2015 | 2014 | |||||||
Net income | $ | 9,411 | $ | 7,775 | ||||
Other Comprehensive income: | ||||||||
Foreign currency translation adjustments, net | 938 | 636 | ||||||
Unrealized gain on pension liability, net of tax(1) | 135 | 80 | ||||||
Unrealized (loss) gain on investments | (7 | ) | 38 | |||||
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Total other comprehensive income | 1,066 | 754 | ||||||
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Comprehensive income | $ | 10,477 | $ | 8,529 | ||||
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(1) | Unrealized gain on pension liability for the three months ended |
See Notes to Unaudited Condensed Consolidated Financial Statements
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Three Months Ended | ||||||||||||||||
Six Months Ended | May 2, | May 3, | ||||||||||||||
August 2, 2014 | August 3, 2013 | 2015 | 2014 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 6,159 | $ | 8,490 | $ | 9,411 | $ | 7,775 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 6,280 | 6,081 | 3,482 | 3,134 | ||||||||||||
Provision for bad debts | 253 | (248 | ) | 250 | 299 | |||||||||||
Amortization of debt issue cost | 320 | 351 | 163 | 158 | ||||||||||||
Amortization of premiums and discounts | 223 | 31 | 54 | 127 | ||||||||||||
Amortization of unrealized loss on pension liability | 260 | 266 | 135 | 130 | ||||||||||||
Deferred income taxes | 2,523 | 4,115 | 1,783 | 3,270 | ||||||||||||
Gain on sale of long-lived assets | (885 | ) | (6,270 | ) | ||||||||||||
Share-based compensation | 3,114 | 2,522 | 1,049 | 1,508 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Loss on sale of long-lived assets | 697 | — | ||||||||||||||
Changes in operating assets and liabilities, net of acquisitions | ||||||||||||||||
Accounts receivable, net | 36,277 | 33,677 | (43,443 | ) | (36,595 | ) | ||||||||||
Inventories | 32,603 | 3,599 | 30,553 | 29,942 | ||||||||||||
Prepaid income taxes | 245 | (1,950 | ) | 908 | 337 | |||||||||||
Prepaid expenses and other current assets | (2,166 | ) | (409 | ) | 773 | (599 | ) | |||||||||
Other assets | (150 | ) | 89 | 92 | (11 | ) | ||||||||||
Deferred pension obligation | (1,172 | ) | (1,507 | ) | ||||||||||||
Accounts payable and accrued expenses | (38,636 | ) | (35,656 | ) | (42,726 | ) | (55,191 | ) | ||||||||
Accrued interest payable | (105 | ) | (5 | ) | (3,008 | ) | (3,059 | ) | ||||||||
Unearned revenues and other liabilities | 1,835 | 875 | 104 | 2,059 | ||||||||||||
Deferred pension obligation | 55 | (591 | ) | |||||||||||||
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Net cash provided by operating activities | 46,978 | 14,051 | ||||||||||||||
Net cash used in operating activities | (39,668 | ) | (47,307 | ) | ||||||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchase of property and equipment | (7,323 | ) | (14,587 | ) | (3,319 | ) | (3,050 | ) | ||||||||
Purchase of investments | (22,897 | ) | — | (2,640 | ) | (15,387 | ) | |||||||||
Proceeds from investment maturities | 14,160 | — | ||||||||||||||
Proceeds from investments maturities | 8,580 | 9,490 | ||||||||||||||
Proceeds on sale of intangible assets | — | 4,875 | 2,500 | — | ||||||||||||
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Net cash used in investing activities | (16,060 | ) | (9,712 | ) | ||||||||||||
Net cash provided by (used in) investing activities | 5,121 | (8,947 | ) | |||||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Borrowings from senior credit facility | 159,402 | 214,131 | 90,036 | 110,991 | ||||||||||||
Payments on senior credit facility | (167,564 | ) | (214,131 | ) | (80,366 | ) | (54,586 | ) | ||||||||
Payments on real estate mortgages | (396 | ) | (403 | ) | (206 | ) | (200 | ) | ||||||||
Payments on capital leases | (150 | ) | (157 | ) | (77 | ) | (75 | ) | ||||||||
Deferred financing fees | — | (25 | ) | (569 | ) | — | ||||||||||
Proceeds from exercise of stock options | 197 | 124 | 114 | — | ||||||||||||
Tax benefit from exercise of equity instruments | (144 | ) | 96 | 396 | (95 | ) | ||||||||||
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Net cash used in financing activities | (8,655 | ) | (365 | ) | ||||||||||||
Net cash provided by financing activities | 9,328 | 56,035 | ||||||||||||||
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Effect of exchange rate changes on cash and cash equivalents | (34 | ) | (174 | ) | 408 | (161 | ) | |||||||||
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NET INCREASE IN CASH AND CASH EQUIVALENTS | 22,229 | 3,800 | ||||||||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (24,811 | ) | (380 | ) | ||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 26,989 | 54,957 | 43,547 | 26,989 | ||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 49,218 | $ | 58,757 | $ | 18,736 | $ | 26,609 | ||||||||
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Continued
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Three Months Ended | ||||||||||||||||
Six Months Ended | May 2, | May 3, | ||||||||||||||
August 2, 2014 | August 3, 2013 | 2015 | 2014 | |||||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 6,883 | $ | 7,149 | $ | 6,418 | $ | 6,490 | ||||||||
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Income taxes | $ | 464 | $ | 1,432 | $ | 57 | $ | 287 | ||||||||
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NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||||||||||
Accrued purchases of property and equipment | $ | 168 | $ | 80 | $ | — | $ | 4 | ||||||||
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Note receivable on sale of intangible asset | $ | 1,250 | $ | — | ||||||||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
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 1, 2014,January 31, 2015, filed with the Securities and Exchange Commission on April 15, 2014.14, 2015.
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 March 2013,April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-05,“Foreign Currency Matters.”Accounting 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 adoption of ASU No. 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 are 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 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 isdid 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.
In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis”, which changes the guidance for evaluating whether to consolidate certain legal entities. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities. Additionally, the amendments eliminate the presumption that a general partner should consolidate a limited partnership, as well as affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for periods beginning after December 15, 2015 and early adoption is permitted, including adoption during an interim period. Companies have an option of using either a full retrospective or modified retrospective adoption approach. The Company is currently evaluating the impact that the adoption of ASU 2015-02 will have on its consolidated financial statements.
In March 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30)”, which is simplifying the Presentation of Debt Issuance Costs. The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for interim periods beginning after December 15, 2015. The Company expects the adoption of the standard will result in the presentation of debt issuance costs, which are currently included in other assets, in the condensed consolidated balance sheets, as a direct deduction from the carrying amount of the related debt instrument.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of:
August 2, | February 1, | |||||||||||||||
2014 | 2014 | May 2, 2015 | January 31, 2015 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Trade accounts | $ | 122,983 | $ | 160,332 | $ | 200,002 | $ | 150,515 | ||||||||
Royalties | 3,282 | 5,998 | 4,579 | 6,662 | ||||||||||||
Other receivables | 2,645 | 1,483 | 958 | 1,034 | ||||||||||||
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Total | 128,910 | 167,813 | 205,539 | 158,211 | ||||||||||||
Less: allowances | (18,378 | ) | (21,421 | ) | (24,547 | ) | (20,779 | ) | ||||||||
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Total | $ | 110,532 | $ | 146,392 | $ | 180,992 | $ | 137,432 | ||||||||
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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:
August 2, | February 1, | |||||||||||||||
2014 | 2014 | May 2, 2015 | January 31, 2015 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Finished goods | $ | 174,177 | $ | 205,971 | $ | 153,198 | $ | 183,468 | ||||||||
Raw materials and in process | 330 | 631 | 297 | 266 | ||||||||||||
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Total | $ | 174,507 | $ | 206,602 | $ | 153,495 | $ | 183,734 | ||||||||
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5. INVESTMENTS
The Company’s investments include marketable securities and certificates of deposit at AugustMay 2, 20142015 and February 1, 2014.January 31, 2015. 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 $5.9$6.2 million with maturity dates within one year or less and $3.4$0.6 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 AugustMay 2, 2014:2015:
Gross | Gross | Estimated | ||||||||||||||||||||||||||||||
Cost | Unrealized Gains | Unrealized Losses | Fair Value | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Marketable securities | $ | 14,616 | $ | 6 | $ | (1 | ) | $ | 14,621 | $ | 7,207 | $ | 1 | $ | (1 | ) | $ | 7,207 | ||||||||||||||
Certificates of deposit | 9,363 | — | (29 | ) | 9,334 | 6,802 | 1 | (1 | ) | 6,802 | ||||||||||||||||||||||
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Total investments | $ | 23,979 | $ | 6 | $ | (30 | ) | $ | 23,955 | $ | 14,009 | $ | 2 | $ | (2 | ) | $ | 14,009 | ||||||||||||||
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Investments consisted of the following as of February 1, 2014:January 31, 2015:
Gross | Gross | Estimated | ||||||||||||||||||||||||||||||
Cost | Unrealized Gains | Unrealized Losses | Fair Value | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Marketable securities | $ | 10,636 | $ | 1 | $ | (39 | ) | $ | 10,598 | $ | 12,247 | $ | 9 | — | $ | 12,256 | ||||||||||||||||
Certificates of deposit | 4,801 | 2 | (3 | ) | 4,800 | 7,742 | 1 | (3 | ) | 7,740 | ||||||||||||||||||||||
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Total investments | $ | 15,437 | $ | 3 | $ | (42 | ) | $ | 15,398 | $ | 19,989 | $ | 10 | $ | (3 | ) | $ | 19,996 | ||||||||||||||
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6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
August 2, | February 1, | |||||||
2014 | 2014 | |||||||
(in thousands) | ||||||||
Furniture, fixtures and equipment | $ | 76,213 | $ | 74,188 | ||||
Buildings and building improvements | 19,674 | 19,614 | ||||||
Vehicles | 632 | 771 | ||||||
Leasehold improvements | 44,512 | 40,335 | ||||||
Land | 9,488 | 9,488 | ||||||
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Total | 150,519 | 144,396 | ||||||
Less: accumulated depreciation and amortization | (88,887 | ) | (84,484 | ) | ||||
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Total | $ | 61,632 | $ | 59,912 | ||||
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Furniture, fixtures and equipment Buildings and building improvements Vehicles Leasehold improvements Land Total Less: accumulated depreciation and amortization Total May 2,
2015 January 31,
2015 (in thousands) $ 80,890 $ 79,225 19,880 19,719 560 569 48,597 47,807 9,488 9,488 159,415 156,808 (94,692 ) (92,175 ) $ 64,723 $ 64,633
The above table of property and equipment includes assets held under capital leases as of:
August 2, | February 1, | |||||||||||||||
2014 | 2014 | May 2, 2015 | January 31, 2015 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Furniture, fixtures and equipment | $ | 888 | $ | 938 | $ | 888 | $ | 888 | ||||||||
Less: accumulated depreciation and amortization | (643 | ) | (543 | ) | (865 | ) | (791 | ) | ||||||||
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Total | $ | 245 | $ | 395 | $ | 23 | $ | 97 | ||||||||
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For the three months ended AugustMay 2, 20142015 and AugustMay 3, 2013,2014, depreciation and amortization expense relating to property and equipment amounted to $2.9 million. For the six months ended August 2, 2014 and August 3, 2013, depreciation and amortization expense relating to property and equipment amounted to $5.8$3.3 million and $5.6$2.9 million, respectively.respectively, for each of the periods. These amounts include amortization expense for leased property under capital leases.
7. OTHER INTANGIBLE ASSETS
Trademarks
Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $202.3 million at May 2, 2015 and $205.5 million and $205.9 million at August 2, 2014 and February 1, 2014, respectively.January 31, 2015.
On August 1, 2014,March 19, 2015, the Company entered into an agreement to sell the intellectual property of its C&C California brand to a third party. The sales agreement, inprice was $2.5 million, which was collected during the amountfirst quarter of $1.3 million, for the sale of Australian, Fiji and New Zealand trademark rightsfiscal 2016. In connection 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 is 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 gainloss 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 the fourth quarter of fiscal 2013, respectively. As a result of this transaction, the Company recorded a gain of $6.3($0.7) million in the licensing segment.
Other
Other intangible assets consisted of the following as of:represent:
August 2, | February 1, | |||||||||||||||
2014 | 2014 | May 2, 2015 | January 31, 2015 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Customer lists | $ | 8,450 | $ | 8,450 | $ | 8,450 | $ | 8,450 | ||||||||
Less: accumulated amortization | (3,324 | ) | (2,863 | ) | (4,006 | ) | (3,782 | ) | ||||||||
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Total | $ | 5,126 | $ | 5,587 | $ | 4,444 | $ | 4,668 | ||||||||
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For the three months ended AugustMay 2, 20142015 and AugustMay 3, 2013,2014, amortization expense relating to customer lists amounted to $0.3approximately $0.2 million, respectively, for each of the periods. For the six months ended August 2, 2014 and August 3, 2013, amortization expense relating to customer lists amounted to $0.5 million, 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 AugustMay 2, 2014,2015, will be approximately $0.9 million a year from fiscal 20152016 through fiscal 2017, and approximately $0.8 million a year from fiscal 2018 through fiscal 2019.2019, approximately $0.7 million for fiscal 2020 and approximately $0.5 million for fiscal 2021.
8. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consisted of the following as of:
August 2, | February 1, | |||||||||||||||
2014 | 2014 | May 2, 2015 | January 31, 2015 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Total letter of credit facilities | $ | 45,337 | $ | 45,329 | $ | 30,305 | $ | 45,301 | ||||||||
Outstanding letters of credit | (11,595 | ) | (11,858 | ) | (11,595 | ) | (11,595 | ) | ||||||||
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Total credit available | $ | 33,742 | $ | 33,471 | $ | 18,710 | $ | 33,706 | ||||||||
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During the first quarter of fiscal 2016, a $15 million line of credit expired and was not renewed.
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 $3.1$3.8 million and $4.1$4.7 million for the three months ended AugustMay 2, 20142015 and AugustMay 3, 2013, respectively, and $7.8 million and $8.7 million for the six months ended August 2, 2014, and August 3, 2013, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.expenses.
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 income per share includes the effects of stock options, stock appreciation rights (“SARS”), and unvested restricted shares as determined using the treasury stock method.
The following table sets forth the computation of basic and diluted (loss) income per share:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
August 2, | August 3, | August 2, | August 3, | Three Months Ended | ||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | May 2, 2015 | May 3, 2014 | |||||||||||||||||||
(in thousands, except per share data) | (in thousands, except per share data) | |||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net (loss) income | $ | (1,616 | ) | $ | (2,830 | ) | $ | 6,159 | $ | 8,490 | ||||||||||||||
Net income | $ | 9,411 | $ | 7,775 | ||||||||||||||||||||
Denominator: | ||||||||||||||||||||||||
Basic-weighted average shares | 14,906 | 15,112 | 14,844 | 15,068 | 14,649 | 14,782 | ||||||||||||||||||
Dilutive effect: equity awards | — | — | 298 | 338 | 512 | 228 | ||||||||||||||||||
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Diluted-weighted average shares | 14,906 | 15,112 | 15,142 | 15,406 | 15,161 | 15,010 | ||||||||||||||||||
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Basic (loss) income per share | $ | (0.11 | ) | $ | (0.19 | ) | $ | 0.41 | $ | 0.56 | ||||||||||||||
Basic income per share | $ | 0.64 | $ | 0.53 | ||||||||||||||||||||
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Diluted (loss) income per share | $ | (0.11 | ) | $ | (0.19 | ) | $ | 0.41 | $ | 0.55 | ||||||||||||||
Diluted income per share | $ | 0.62 | $ | 0.52 | ||||||||||||||||||||
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Antidilutive effect:(1) | 1,825 | 1,945 | 1,109 | 1,939 | 479 | 1,360 | ||||||||||||||||||
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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 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 | ||||||
Equity at January 31, 2015 | $ | 302,017 | ||||||
Comprehensive income | 6,971 | 10,477 | ||||||
Share transactions under employee equity compensation plans | 2,892 | 895 | ||||||
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Equity at August 2, 2014 | $ | 357,396 | ||||||
Equity at May 2, 2015 | $ | 313,389 | ||||||
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Equity at February 2, 2013 | $ | 371,240 | ||||||
Equity at February 1, 2014 | $ | 347,533 | ||||||
Comprehensive income | 7,591 | 8,529 | ||||||
Share transactions under employee equity compensation plans | 2,742 | 1,141 | ||||||
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Equity at August 3, 2013 | $ | 381,573 | ||||||
Equity at May 3, 2014 | $ | 357,203 | ||||||
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12. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive loss by component, net of tax:
Unrealized | Foreign | Unrealized | Unrealized (Loss) Gain on Pension Liability | Foreign Currency Translation Adjustments, Net | Unrealized Gain (Loss) on Investments | Total | ||||||||||||||||||||||||||
(Loss) Gain on | Currency Translation | (Loss) Gain on | (in thousands) | |||||||||||||||||||||||||||||
Pension Liability | Adjustments, Net | Investments | Total | |||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Balance, February 1, 2014 | $ | (5,866 | ) | $ | (1,563 | ) | $ | (39 | ) | $ | (7,468 | ) | ||||||||||||||||||||
Balance, January 31, 2015 | $ | (8,085 | ) | $ | (4,774 | ) | $ | 7 | $ | (12,852 | ) | |||||||||||||||||||||
Other comprehensive income before reclassifications | — | 638 | 15 | 653 | — | 938 | (7 | ) | 931 | |||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | 159 | — | — | 159 | 135 | — | — | 135 | ||||||||||||||||||||||||
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Balance, August 2, 2014 | $ | (5,707 | ) | $ | (925 | ) | $ | (24 | ) | $ | (6,656 | ) | ||||||||||||||||||||
Balance, May 2, 2015 | $ | (7,950 | ) | $ | (3,836 | ) | $ | 0 | $ | (11,786 | ) | |||||||||||||||||||||
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A summary of the impact on the condensed consolidated statementsstatement of operationsincome line items is as follows:
Three Months Ended | Three Months Ended | |||||||||||||||||||
August 2, 2014 | August 3, 2013 | May 2, 2015 | May 3, 2014 | |||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||
Amortization of defined benefit pension items | ||||||||||||||||||||
Actuarial gains | $ | 130 | $ | 133 | Selling, general and administrative expenses | $ | 135 | $ | 130 | Selling, general and administrative expenses | ||||||||||
Tax provision | 51 | 52 | Income tax provision | — | 50 | Income tax provision | ||||||||||||||
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Total, net of tax | $ | 79 | $ | 81 | $ | 135 | $ | 80 | ||||||||||||
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Six Months Ended | ||||||||||||||||||||
August 2, 2014 | August 3, 2013 | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Amortization of defined benefit pension items | ||||||||||||||||||||
Actuarial gains | $ | 260 | $ | 266 | Selling, general and administrative expenses | |||||||||||||||
Tax provision | 101 | 104 | Income tax provision | |||||||||||||||||
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Total, net of tax | $ | 159 | $ | 162 | ||||||||||||||||
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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 state and foreign jurisdictions. The Company’s U.S. federal income tax returns for fiscal 2011 through fiscal 20142015 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 fiscal 2015,2016, depending on each state’s particular statute of limitation. As of AugustMay 2, 2014,2015, 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 Company has a $0.8$1.0 million liability recorded for unrecognized tax benefits as of February 1, 2014,January 31, 2015, which includes interest and penalties of $0.3$0.2 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 months and six months ended AugustMay 2, 2014,2015, the total amount of unrecognized tax benefits decreasedincreased by approximately $12,000 and $81,000, respectively.$118,000. The change to the total amount of the unrecognized tax benefit for the three and six months ended AugustMay 2, 20142015 included an increase in interest and penalties of approximately $6,000 and a decrease$20,000.
The Company expects to complete the ongoing examination with the state of approximately $103,000, respectively.
New York within the next twelve months. The Company does not currently anticipate a resolution within the next twelve months for any of the remaining unrecognized tax benefits as of AugustMay 2, 2014. However, the2015. The statute of limitations related to the Company’s 2011fiscal 2011and 2012 U.S. federal tax year will expireyears has been extended as part of the examination and is not be expected to lapse within the next twelve months.
During the fourth quarter of fiscal 2015, the Company recognized a valuation allowance of $42.4 million against the remaining deferred tax assets, utilization of which is not restricted by factors beyond the Company’s control. The lapseestablishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. While the Company recognized pretax earnings in the statutefirst quarter of limitations wouldfiscal 2016, by itself that does not represent sufficient positive evidence that deferred tax asset will be expectedrealized to decreasewarrant removing the valuation allowances established against the U.S. deferred tax expense withinassets. Deferred tax assets without valuation allowances remain in certain foreign tax jurisdictions, where supported by 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.evidence.
14. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES
During the first and second quarters of fiscalthree months ended May 2, 2015, the Company granted an aggregate of 240,852 and 12,50473,489 shares of restricted stock to certain key employees, which vest primarily over a three-year period, at an estimated value of $3.6 million and $0.2 million, 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 2015, the Company awarded to five directors an aggregate of 16,950 shares of restricted stock, which vest over a three year period at an estimated fair value of $0.3$1.8 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
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, which is being recorded as compensation expense on a straight-line basis over the vesting period of each SAR.
In April and May 2014,2015, a total of 42,132 and 1,00091,083 shares of restricted stock vested, of which 17,929 and 40427,325 shares were withheld to cover the employees’ statutory income tax requirements, respectively.requirements. The estimated value of the withheld shares was $0.3 million and $6,000, respectively.$0.7 million.
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, Jantzen, John Henry, Original Penguin, Gotcha, Farah, Savane, Pro Player, Laundry, Manhattan and Munsingwear.
The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by each segment.
Revenues: Men’s Sportswear and Swim Women’s Sportswear Direct-to-Consumer Licensing Total revenues Depreciation and amortization: Men’s Sportswear and Swim Women’s Sportswear Direct-to-Consumer Licensing Total depreciation and amortization Operating income (loss) : Men’s Sportswear and Swim Women’s Sportswear Direct-to-Consumer Licensing(1) Total operating income (loss) Total interest expense Total net (loss) income before income taxes Three Months Ended Six Months Ended August 2, August 3, August 2, August 3, 2014 2013 2014 2013 (in thousands) $ 147,175 $ 152,594 $ 342,174 $ 351,271 26,240 32,326 60,727 72,120 22,595 19,572 43,025 36,585 7,522 7,213 14,920 14,048 $ 203,532 $ 211,705 $ 460,846 $ 474,024 $ 1,564 $ 1,777 $ 3,198 $ 3,471 496 425 957 825 889 777 1,735 1,438 39 31 78 68 $ 2,988 $ 3,010 $ 5,968 $ 5,802 $ (1,779 ) $ (3,413 ) $ 9,254 $ 7,828 (1,970 ) (864 ) (1,573 ) 699 (1,126 ) (2,412 ) (2,978 ) (5,265 ) 6,378 5,704 11,775 17,243 $ 1,503 $ (985 ) $ 16,478 $ 20,505 3,605 3,722 7,321 7,525 $ (2,102 ) $ (4,707 ) $ 9,157 $ 12,980
Three Months Ended | ||||||||
May 2, 2015 | May 3, 2014 | |||||||
(in thousands) | ||||||||
Revenues: | ||||||||
Men’s Sportswear and Swim | $ | 198,453 | $ | 194,999 | ||||
Women’s Sportswear | 38,823 | 34,487 | ||||||
Direct-to-Consumer | 20,981 | 20,430 | ||||||
Licensing | 8,157 | 7,398 | ||||||
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| |||||
Total revenues | $ | 266,414 | $ | 257,314 | ||||
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| |||||
Depreciation and amortization: | ||||||||
Men’s Sportswear and Swim | $ | 1,875 | $ | 1,634 | ||||
Women’s Sportswear | 500 | 461 | ||||||
Direct-to-Consumer | 904 | 846 | ||||||
Licensing | 43 | 39 | ||||||
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| |||||
Total depreciation and amortization | $ | 3,322 | $ | 2,980 | ||||
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| |||||
Operating income (loss): | ||||||||
Men’s Sportswear and Swim | $ | 11,330 | $ | 11,033 | ||||
Women’s Sportswear | 1,382 | 397 | ||||||
Direct-to-Consumer | (1,866 | ) | (1,852 | ) | ||||
Licensing(1) | 5,627 | 5,397 | ||||||
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| |||||
Total operating income | $ | 16,473 | $ | 14,975 | ||||
Total interest expense | 3,627 | 3,716 | ||||||
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| |||||
Total net income before income taxes | $ | 12,846 | $ | 11,259 | ||||
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|
(1) | Operating income for the licensing segment for the three months ended |
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 first three and six monthsquarter of fiscal 20152016 and 2014:2015:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
August 2, | August 3, | August 2, | August 3, | Three Months Ended | ||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | May 2, 2015 | May 3, 2014 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Service cost | $ | 63 | $ | 63 | $ | 126 | $ | 126 | $ | 63 | $ | 63 | ||||||||||||
Interest cost | 433 | 406 | 866 | 812 | 337 | 433 | ||||||||||||||||||
Expected return on plan assets | (508 | ) | (555 | ) | (1,016 | ) | (1,110 | ) | (658 | ) | (508 | ) | ||||||||||||
Amortization of net loss | 130 | 133 | 260 | 266 | ||||||||||||||||||||
Amortization of net gain | 135 | 130 | ||||||||||||||||||||||
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Net periodic benefit cost | $ | 118 | $ | 47 | $ | 236 | $ | 94 | ||||||||||||||||
Net periodic benefit cost (income) | $ | (123 | ) | $ | 118 | |||||||||||||||||||
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17. SENIOR CREDIT FACILITY
On April 22, 2015, the Company amended and restated its 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 $200 million. The Credit Facility has been extended through April 30, 2020 (“Maturity Date”). In connection with this amendment and restatement, the Company paid fees in the amount of $0.6 million. These fees will be amortized over the term of the credit facility as interest expense. At May 2, 2015, we had outstanding borrowings of $9.7 million under the Credit Facility. At January 31, 2015, the Company had no outstanding borrowings under the Credit Facility.
Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require the Company to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. The Company is not aware of any non-compliance with any of its covenants in this Credit Facility. These covenants may restrict its ability and the ability of its subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. The Company 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. The Company could be materially harmed if it violates any covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If the Company is unable to repay those amounts, the lenders could proceed against its assets and the assets of its subsidiaries that are borrowers or guarantors. In addition, a covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of its other outstanding indebtedness, such as the indenture relating to its 7 7/8% senior subordinated notes due April 1, 2019, its letter of credit facilities, or its real estate mortgage loans. Such a cross-default could result in all of its debt obligations becoming immediately due and payable, which it 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, (ii) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.
Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the 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, the Company 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 its 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 its non-U.S. subsidiaries and all of its trademark portfolio.
18. FAIR VALUE MEASUREMENTS
Accounts receivable, accounts payable, accrued interest payable and accrued expenses. The carrying amounts reported in the consolidated balance sheets approximate fair value due to theshort-term nature of these instruments.
Investments. (classified within Level 1 of the valuation hierarchy) - The carrying amounts of the available-for-sale investments are measured at fair value on a recurring basis in the consolidated balance sheets.
Real estate mortgages. (classified within Level 2 of the valuation hierarchy)— - The carrying amounts of the real estate mortgages were approximately $23.0 million at May 2, 2015 and $24.0 million at August 2, 2014 and February 1, 2014,January 31, 2015, respectively. The carrying values of the real estate mortgages at AugustMay 2, 20142015 and February 1, 2014January 31, 2015, approximate their fair valuevalues 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.
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 AugustMay 2, 20142015 and February 1, 2014. As of August 2, 2014 and February 1, 2014, theJanuary 31, 2015. The fair value of the 77/8% senior subordinated notes payable was $155.1approximately $156.0 million and $160.0$157.0 million as of May 2, 2015 and January 31, 2015, respectively, based on quoted market prices.
These estimated fair value amounts have been determined using available market information and appropriate valuation methods.
18. RELATED PARTY TRANSACTIONS
The Company 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 a 10-year lease for the warehouse space. These facilities are in close proximity to the Company Headquarter. 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 remaining 12-month periods during the extended term. The Company’s Governance Committee reviewed the terms of the lease extensions to ensure that they were reasonable and at market. This review included information from third party sources.
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 California administrative offices. The lawsuit has been pleaded but not certified as a class action. Mediation has been scheduled for the third quarter of fiscal 2015, and formal discovery has been deferred until after the mediation. The Company believes that it has meritorious defenses to the claims alleged and is vigorously defending the matter.
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 AugustMay 2, 20142015 and February 1, 2014January 31, 2015 and for the three and six months ended AugustMay 2, 20142015 and AugustMay 3, 2013.2014. 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.
Subsequent to the issuance of the February 2, 2013 financial statements, the Company determined 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 affiliates. 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 its subsidiaries as cash flows from investing activities that had previously been reflected within cash flows from financing activities.
The effect on the condensed consolidating statement of cash flows as a result of the adjustment in intercompany activities is a decrease of approximately ($1.4) million in net cash from financing activities in the parent only column for the six months ended August 3, 2013, respectively, with a corresponding change to the net cash from investing activity in the parent only column from the previously reported amounts.
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF AUGUSTMAY 2, 20142015
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 21,409 | $ | 27,809 | $ | — | $ | 49,218 | $ | — | $ | 3,193 | $ | 15,543 | $ | — | $ | 18,736 | ||||||||||||||||||||
Accounts receivable, net | — | 88,389 | 22,143 | — | 110,532 | — | 153,189 | 27,803 | — | 180,992 | ||||||||||||||||||||||||||||||
Intercompany receivable, net | 177,595 | — | — | (177,595 | ) | — | 174,586 | — | — | (174,586 | ) | — | ||||||||||||||||||||||||||||
Inventories | — | 152,013 | 22,494 | — | 174,507 | — | 129,691 | 23,804 | — | 153,495 | ||||||||||||||||||||||||||||||
Investment, at fair value | — | — | 23,955 | — | 23,955 | — | — | 14,009 | — | 14,009 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 14,987 | 371 | — | 15,358 | — | — | 741 | — | 741 | ||||||||||||||||||||||||||||||
Prepaid income taxes | 5,439 | — | 662 | 1,245 | 7,346 | 4,018 | — | 188 | 1,245 | 5,451 | ||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | — | 8,661 | 889 | — | 9,550 | — | 5,345 | 1,014 | — | 6,359 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total current assets | 183,034 | 285,459 | 98,323 | (176,350 | ) | 390,466 | 178,604 | 291,418 | 83,102 | (173,341 | ) | 379,783 | ||||||||||||||||||||||||||||
Property and equipment, net | — | 56,866 | 4,766 | — | 61,632 | — | 60,288 | 4,435 | — | 64,723 | ||||||||||||||||||||||||||||||
Other intangible assets, net | — | 177,022 | 33,638 | — | 210,660 | — | 173,143 | 33,638 | — | 206,781 | ||||||||||||||||||||||||||||||
Goodwill | — | 6,022 | — | — | 6,022 | — | 6,022 | — | — | 6,022 | ||||||||||||||||||||||||||||||
Investment in subsidiaries | 326,085 | — | — | (326,085 | ) | — | 284,125 | — | — | (284,125 | ) | — | ||||||||||||||||||||||||||||
Other assets | 2,267 | 1,843 | 1,647 | — | 5,757 | 1,697 | 2,424 | 1,385 | — | 5,506 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
TOTAL | $ | 511,386 | $ | 527,212 | $ | 138,374 | $ | (502,435 | ) | $ | 674,537 | $ | 464,426 | $ | 533,295 | $ | 122,560 | $ | (457,466 | ) | $ | 662,815 | ||||||||||||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — | $ | 65,599 | $ | 10,921 | $ | — | $ | 76,520 | $ | — | $ | 64,493 | $ | 6,337 | $ | — | $ | 70,830 | ||||||||||||||||||||
Accrued expenses and other liabilities | — | 18,227 | 4,867 | (451 | ) | 22,643 | — | 23,119 | 4,253 | — | 27,372 | |||||||||||||||||||||||||||||
Accrued interest payable | 3,990 | — | — | — | 3,990 | 1,037 | — | — | — | 1,037 | ||||||||||||||||||||||||||||||
Income taxes payable | — | 452 | — | (452 | ) | — | ||||||||||||||||||||||||||||||||||
Unearned revenues | — | 3,368 | 1,889 | — | 5,257 | — | 3,356 | 1,909 | �� | — | 5,265 | |||||||||||||||||||||||||||||
Intercompany payable , net | — | 151,587 | 27,568 | (179,155 | ) | — | ||||||||||||||||||||||||||||||||||
Deferred pension obligation | — | 8,911 | 74 | — | 8,985 | |||||||||||||||||||||||||||||||||||
Deferred income taxes | — | 797 | — | — | 797 | |||||||||||||||||||||||||||||||||||
Intercompany payable, net | — | 155,841 | 23,191 | (179,032 | ) | — | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total current liabilities | 3,990 | 238,781 | 45,245 | (179,606 | ) | 108,410 | 1,037 | 256,969 | 35,764 | (179,484 | ) | 114,286 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Senior subordinated notes payable, net | 150,000 | — | — | — | 150,000 | 150,000 | — | — | — | 150,000 | ||||||||||||||||||||||||||||||
Senior credit facility | — | 9,670 | — | — | 9,670 | |||||||||||||||||||||||||||||||||||
Real estate mortgages | — | 22,461 | — | — | 22,461 | — | 21,882 | — | — | 21,882 | ||||||||||||||||||||||||||||||
Deferred pension obligation | — | 8,608 | 82 | — | 8,690 | |||||||||||||||||||||||||||||||||||
Unearned revenues and other long-term liabilities | — | 14,209 | 2,039 | — | 16,248 | — | 13,633 | 1,074 | — | 14,707 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 9,636 | — | 1,696 | 11,332 | — | 37,182 | 3 | 1,696 | 38,881 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total long-term liabilities | 150,000 | 54,914 | 2,121 | 1,696 | 208,731 | 150,000 | 82,367 | 1,077 | 1,696 | 235,140 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total liabilities | 153,990 | 293,695 | 47,366 | (177,910 | ) | 317,141 | 151,037 | 339,336 | 36,841 | (177,788 | ) | 349,426 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total equity | 357,396 | 233,517 | 91,008 | (324,525 | ) | 357,396 | 313,389 | 193,959 | 85,719 | (279,678 | ) | 313,389 | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||
TOTAL | $ | 511,386 | $ | 527,212 | $ | 138,374 | $ | (502,435 | ) | $ | 674,537 | $ | 464,426 | $ | 533,295 | $ | 122,560 | $ | (457,466 | ) | $ | 662,815 | ||||||||||||||||||
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 1, 2014JANUARY 31, 2015
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 29,988 | $ | (2,999 | ) | $ | 26,989 | |||||||||
Accounts receivable, net | — | 123,539 | 22,853 | — | 146,392 | |||||||||||||||
Intercompany receivable, net | 174,075 | — | — | (174,075 | ) | — | ||||||||||||||
Inventories | — | 183,216 | 23,386 | — | 206,602 | |||||||||||||||
Investments, at fair value | — | — | 15,398 | — | 15,398 | |||||||||||||||
Deferred income taxes | — | 13,806 | 254 | — | 14,060 | |||||||||||||||
Prepaid income taxes | 5,141 | — | 1,193 | 1,245 | 7,579 | |||||||||||||||
Prepaid expenses and other current assets | — | 6,578 | 791 | — | 7,369 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 179,216 | 327,139 | 93,863 | (175,829 | ) | 424,389 | ||||||||||||||
Property and equipment, net | — | 55,046 | 4,866 | — | 59,912 | |||||||||||||||
Other intangible assets, net | — | 177,482 | 34,003 | — | 211,485 | |||||||||||||||
Goodwill | — | 6,022 | — | — | 6,022 | |||||||||||||||
Investment in subsidiaries | 319,926 | — | — | (319,926 | ) | — | ||||||||||||||
Other assets | 2,486 | 1,822 | 619 | — | 4,927 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
TOTAL | $ | 501,628 | $ | 567,511 | $ | 133,351 | $ | (495,755 | ) | $ | 706,735 | |||||||||
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|
|
|
|
| |||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 104,480 | $ | 10,961 | $ | (2,999 | ) | $ | 112,442 | |||||||||
Accrued expenses and other liabilities | — | 19,294 | 5,799 | (451 | ) | 24,642 | ||||||||||||||
Accrued interest payable | 4,095 | — | — | — | 4,095 | |||||||||||||||
Unearned revenues | — | 3,192 | 1,821 | — | 5,013 | |||||||||||||||
Intercompany payable, net | — | 151,253 | 24,997 | (176,250 | ) | — | ||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 4,095 | 278,219 | 43,578 | (179,700 | ) | 146,192 | ||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
Senior subordinated notes payable, net | 150,000 | — | — | — | 150,000 | |||||||||||||||
Senior credit facility | — | 8,162 | — | — | 8,162 | |||||||||||||||
Real estate mortgages | — | 22,844 | — | — | 22,844 | |||||||||||||||
Deferred pension obligation | — | 9,792 | 70 | — | 9,862 | |||||||||||||||
Unearned revenues and other long-term liabilities | — | 12,064 | 2,668 | — | 14,732 | |||||||||||||||
Deferred income taxes | — | 5,712 | 2 | 1,696 | 7,410 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total long-term liabilities | 150,000 | 58,574 | 2,740 | 1,696 | 213,010 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities | 154,095 | 336,793 | 46,318 | (178,004 | ) | 359,202 | ||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
Total equity | 347,533 | 230,718 | 87,033 | (317,751 | ) | 347,533 | ||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
TOTAL | $ | 501,628 | $ | 567,511 | $ | 133,351 | $ | (495,755 | ) | $ | 706,735 | |||||||||
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS ) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED AUGUST 2, 2014
(amounts in thousands)
Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 30,055 | $ | 13,492 | $ | — | $ | 43,547 | ||||||||||
Accounts receivable, net | — | 114,325 | 23,107 | — | 137,432 | |||||||||||||||
Intercompany receivable, net | 174,264 | — | — | (174,264 | ) | — | ||||||||||||||
Inventories | — | 156,107 | 27,627 | — | 183,734 | |||||||||||||||
Investments, at fair value | — | — | 19,996 | — | 19,996 | |||||||||||||||
Deferred income taxes | — | — | 725 | — | 725 | |||||||||||||||
Prepaid income taxes | 5,275 | — | 314 | 795 | 6,384 | |||||||||||||||
Prepaid expenses and other current assets | — | 6,159 | 965 | — | 7,124 | |||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
Total current assets | 179,539 | 306,646 | 86,226 | (173,469 | ) | 398,942 | ||||||||||||||
Property and equipment, net | — | 60,216 | 4,417 | — | 64,633 | |||||||||||||||
Other intangible assets, net | — | 176,563 | 33,638 | — | 210,201 | |||||||||||||||
Goodwill | — | 6,022 | — | — | 6,022 | |||||||||||||||
Investment in subsidiaries | 274,714 | — | — | (274,714 | ) | — | ||||||||||||||
Other assets | 1,809 | 1,926 | 1,456 | — | 5,191 | |||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
TOTAL | $ | 456,062 | $ | 551,373 | $ | 125,737 | $ | (448,183 | ) | $ | 684,989 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 105,046 | $ | 12,743 | $ | — | $ | 117,789 | ||||||||||
Accrued expenses and other liabilities | — | 17,945 | 4,410 | — | 22,355 | |||||||||||||||
Accrued interest payable | 4,045 | — | — | — | 4,045 | |||||||||||||||
Income taxes payable | — | 901 | — | (901 | ) | — | ||||||||||||||
Unearned revenues | — | 3,023 | 1,833 | — | 4,856 | |||||||||||||||
Deferred pension obligation | — | 8,878 | 52 | — | 8,930 | |||||||||||||||
Deferred income taxes | — | 797 | — | — | 797 | |||||||||||||||
Intercompany payable, net | — | 156,438 | 23,211 | (179,649 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 4,045 | 293,028 | 42,249 | (180,550 | ) | 158,772 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Senior subordinated notes payable, net | 150,000 | — | — | — | 150,000 | |||||||||||||||
Real estate mortgages | — | 22,109 | — | — | 22,109 | |||||||||||||||
Unearned revenues and other long-term liabilities | — | 13,620 | 1,389 | — | 15,009 | |||||||||||||||
Deferred income taxes | — | 35,383 | 3 | 1,696 | 37,082 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total long-term liabilities | 150,000 | 71,112 | 1,392 | 1,696 | 224,200 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities | 154,045 | 364,140 | 43,641 | (178,854 | ) | 382,972 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total equity | 302,017 | 187,233 | 82,096 | (269,329 | ) | 302,017 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
TOTAL | $ | 456,062 | $ | 551,373 | $ | 125,737 | $ | (448,183 | ) | $ | 684,989 | |||||||||
|
|
|
|
|
|
|
|
|
|
Non- | ||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 173,789 | $ | 22,221 | $ | — | $ | 196,010 | ||||||||||
Royalty income | — | 4,570 | 2,952 | — | 7,522 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 178,359 | 25,173 | — | 203,532 | |||||||||||||||
Cost of sales | — | 118,314 | 14,754 | — | 133,068 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 60,045 | 10,419 | — | 70,464 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 56,876 | 9,982 | — | 66,858 | |||||||||||||||
Depreciation and amortization | — | 2,752 | 236 | — | 2,988 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 59,628 | 10,218 | — | 69,846 | |||||||||||||||
Gain on sale of long-lived assets | — | — | 885 | — | 885 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 417 | 1,086 | — | 1,503 | |||||||||||||||
Interest expense | — | 3,615 | (10 | ) | — | 3,605 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income before income taxes | — | (3,198 | ) | 1,096 | — | (2,102 | ) | |||||||||||||
Income tax (benefit) provision | — | 381 | (867 | ) | — | (486 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | (1,616 | ) | — | — | 1,616 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income | (1,616 | ) | (3,579 | ) | 1,963 | 1,616 | (1,616 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss) | 58 | 79 | (21 | ) | (58 | ) | 58 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive (loss) income | $ | (1,558 | ) | $ | (3,500 | ) | $ | 1,942 | $ | 1,558 | $ | (1,558 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED AUGUST 3, 2013
(amounts in thousands)
Non- | ||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 187,666 | $ | 16,826 | $ | — | $ | 204,492 | ||||||||||
Royalty income | — | 4,288 | 2,925 | — | 7,213 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 191,954 | 19,751 | — | 211,705 | |||||||||||||||
Cost of sales | — | 132,900 | 10,259 | — | 143,159 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 59,054 | 9,492 | — | 68,546 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 58,891 | 7,630 | — | 66,521 | |||||||||||||||
Depreciation and amortization | — | 2,821 | 189 | — | 3,010 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 61,712 | 7,819 | — | 69,531 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating (loss) income | — | (2,658 | ) | 1,673 | — | (985 | ) | |||||||||||||
Interest expense | — | 3,694 | 28 | — | 3,722 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income before income taxes | — | (6,352 | ) | 1,645 | — | (4,707 | ) | |||||||||||||
Income tax (benefit) provision | — | (1,933 | ) | 56 | — | (1,877 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | (2,830 | ) | — | — | 2,830 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income | (2,830 | ) | (4,419 | ) | 1,589 | 2,830 | (2,830 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | (575 | ) | 81 | (656 | ) | 575 | (575 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive (loss) income | $ | (3,405 | ) | $ | (4,338 | ) | $ | 933 | $ | 3,405 | $ | (3,405 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE SIXTHREE MONTHS ENDED AUGUSTMAY 2, 20142015
(amounts in thousands)
Non- | ||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 399,120 | $ | 46,806 | $ | — | $ | 445,926 | ||||||||||
Royalty income | — | 9,090 | 5,830 | — | 14,920 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 408,210 | 52,636 | — | 460,846 | |||||||||||||||
Cost of sales | — | 272,559 | 30,158 | — | 302,717 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 135,651 | 22,478 | — | 158,129 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 117,430 | 19,138 | — | 136,568 | |||||||||||||||
Depreciation and amortization | — | 5,521 | 447 | — | 5,968 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 122,951 | 19,585 | — | 142,536 | |||||||||||||||
Gain on sale of long-lived assets | — | — | 885 | — | 885 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 12,700 | 3,778 | — | 16,478 | |||||||||||||||
Interest expense | — | 7,300 | 21 | — | 7,321 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income before income taxes | — | 5,400 | 3,757 | — | 9,157 | |||||||||||||||
Income tax provision | — | 2,601 | 397 | — | 2,998 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 6,159 | — | — | (6,159 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 6,159 | 2,799 | 3,360 | (6,159 | ) | 6,159 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income | 812 | 159 | 653 | (812 | ) | 812 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income | $ | 6,971 | $ | 2,958 | $ | 4,013 | $ | (6,971 | ) | $ | 6,971 | |||||||||
|
|
|
|
|
|
|
|
|
|
Revenues: Net sales Royalty income Total revenues Cost of sales Gross profit Operating expenses: Selling, general and administrative expenses Depreciation and amortization Total operating expenses Loss on sale of long-lived assets Operating income Interest expense Net income before income taxes Income tax provision Equity in earnings of subsidiaries, net Net income Other comprehensive income Comprehensive income Parent Only Guarantors Non-
Guarantors Eliminations Consolidated $ — $ 232,279 $ 25,978 $ — $ 258,257 — 4,912 3,245 — 8,157 — 237,191 29,223 — 266,414 — 160,251 16,063 — 176,314 — 76,940 13,160 — 90,100 — 59,845 9,763 — 69,608 �� — 3,024 298 — 3,322 — 62,869 10,061 — 72,930 — (697 ) — — (697 ) — 13,374 3,099 — 16,473 — 3,567 60 — 3,627 — 9,807 3,039 — 12,846 — 3,081 354 — 3,435 9,411 — — (9,411 ) — 9,411 6,726 2,685 (9,411 ) 9,411 1,066 135 931 (1,066 ) 1,066 $ 10,477 $ 6,861 $ 3,616 $ (10,477 ) $ 10,477
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE SIXTHREE MONTHS ENDED AUGUSTMAY 3, 2013
(amounts in thousands)
Non- | ||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 423,911 | $ | 36,065 | $ | — | $ | 459,976 | ||||||||||
Royalty income | — | 8,322 | 5,726 | — | 14,048 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 432,233 | 41,791 | — | 474,024 | |||||||||||||||
Cost of sales | — | 294,898 | 21,899 | — | 316,797 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 137,335 | 19,892 | — | 157,227 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 121,845 | 15,345 | — | 137,190 | |||||||||||||||
Depreciation and amortization | — | 5,423 | 379 | — | 5,802 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 127,268 | 15,724 | — | 142,992 | |||||||||||||||
Gain on sale of long-lived assets | — | (691 | ) | 6,961 | — | 6,270 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 9,376 | 11,129 | — | 20,505 | |||||||||||||||
Interest expense | — | 7,471 | 54 | — | 7,525 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income before income taxes | — | 1,905 | 11,075 | — | 12,980 | |||||||||||||||
Income tax provision | — | 2,664 | 1,826 | — | 4,490 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 8,490 | — | — | (8,490 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 8,490 | (759 | ) | 9,249 | (8,490 | ) | 8,490 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | (899 | ) | 162 | (1,061 | ) | 899 | (899 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | $ | 7,591 | $ | (597 | ) | $ | 8,188 | $ | (7,591 | ) | $ | 7,591 | ||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED AUGUST 2, 2014
(amounts in thousands)
Non- | ||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: | $ | (182 | ) | $ | 39,319 | $ | 4,842 | $ | 2,999 | $ | 46,978 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (6,895 | ) | (428 | ) | — | (7,323 | ) | ||||||||||||
Purchase of investments | — | — | (22,897 | ) | — | (22,897 | ) | |||||||||||||
Proceeds from investments maturities | — | — | 14,160 | — | 14,160 | |||||||||||||||
Intercompany transactions | 163 | — | (163 | ) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) investing activities | 163 | (6,895 | ) | (9,165 | ) | (163 | ) | (16,060 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Borrowings from senior credit facility | — | 159,402 | — | — | 159,402 | |||||||||||||||
Payments on senior credit facility | — | (167,564 | ) | — | — | (167,564 | ) | |||||||||||||
Payments on real estate mortgages | — | (396 | ) | — | — | (396 | ) | |||||||||||||
Payments on capital leases | — | (150 | ) | — | — | (150 | ) | |||||||||||||
Proceeds from exercise of stock options | 197 | — | — | — | 197 | |||||||||||||||
Tax benefit from exercise of equity instruments | (144 | ) | — | — | — | (144 | ) | |||||||||||||
Intercompany transactions | — | (2,307 | ) | 2,178 | 129 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 53 | (11,015 | ) | 2,178 | 129 | (8,655 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (34 | ) | — | (34 | ) | 34 | (34 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — | 21,409 | (2,179 | ) | 2,999 | 22,229 | ||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | — | 29,988 | (2,999 | ) | 26,989 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 21,409 | $ | 27,809 | $ | — | $ | 49,218 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 225,331 | $ | 24,585 | $ | — | $ | 249,916 | ||||||||||
Royalty income | — | 4,520 | 2,878 | — | 7,398 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 229,851 | 27,463 | — | 257,314 | |||||||||||||||
Cost of sales | — | 154,245 | 15,404 | — | 169,649 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 75,606 | 12,059 | — | 87,665 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 60,554 | 9,156 | — | 69,710 | |||||||||||||||
Depreciation and amortization | — | 2,769 | 211 | — | 2,980 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 63,323 | 9,367 | — | 72,690 | |||||||||||||||
Gain on sale of long-lived assets | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 12,283 | 2,692 | — | 14,975 | |||||||||||||||
Interest expense | — | 3,685 | 31 | — | 3,716 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income before income taxes | — | 8,598 | 2,661 | — | 11,259 | |||||||||||||||
Income tax provision | — | 2,220 | 1,264 | — | 3,484 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 7,775 | — | — | (7,775 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 7,775 | 6,378 | 1,397 | (7,775 | ) | 7,775 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | 754 | 80 | 674 | (754 | ) | 754 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income | $ | 8,529 | $ | 6,458 | $ | 2,071 | $ | (8,529 | ) | $ | 8,529 | |||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIXTHREE MONTHS ENDED AUGUST 3, 2013MAY 2, 2015
(amounts in thousands)
Non- | Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: | $ | (1,406 | ) | $ | 16,272 | $ | (815 | ) | $ | — | $ | 14,051 | ||||||||||||||||||||||||||||
NET CASH USED IN BY OPERATING ACTIVITIES: | $ | (1,639 | ) | $ | (34,209 | ) | $ | (3,820 | ) | $ | — | $ | (39,668 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Purchase of property and equipment | — | (13,600 | ) | (987 | ) | — | (14,587 | ) | — | (2,969 | ) | (350 | ) | — | (3,319 | ) | ||||||||||||||||||||||||
Purchase of investments | — | — | (2,640 | ) | — | (2,640 | ) | |||||||||||||||||||||||||||||||||
Proceeds from investments maturities | — | — | 8,580 | — | 8,580 | |||||||||||||||||||||||||||||||||||
Proceeds on sale of intangible assets | — | — | 4,875 | — | 4,875 | — | 2,500 | — | — | 2,500 | ||||||||||||||||||||||||||||||
Intercompany transactions | 1,360 | — | — | (1,360 | ) | — | 721 | — | — | (721 | ) | — | ||||||||||||||||||||||||||||
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Net cash provided by (used in) investing activities | 1,360 | (13,600 | ) | 3,888 | (1,360 | ) | (9,712 | ) | 721 | (469 | ) | 5,590 | (721 | ) | 5,121 | |||||||||||||||||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Borrowings from senior credit facility | — | 214,131 | — | — | 214,131 | — | 90,036 | — | — | 90,036 | ||||||||||||||||||||||||||||||
Payments on senior credit facility | — | (214,131 | ) | — | — | (214,131 | ) | — | (80,366 | ) | — | — | (80,366 | ) | ||||||||||||||||||||||||||
Payments on real estate mortgages | — | (403 | ) | — | — | (403 | ) | — | (206 | ) | — | — | (206 | ) | ||||||||||||||||||||||||||
Payments on capital leases | — | (157 | ) | — | — | (157 | ) | — | (77 | ) | — | — | (77 | ) | ||||||||||||||||||||||||||
Deferred financing fees | — | (25 | ) | — | — | (25 | ) | — | (569 | ) | — | — | (569 | ) | ||||||||||||||||||||||||||
Proceeds from exercise of stock options | 124 | — | — | — | 124 | 114 | — | — | — | 114 | ||||||||||||||||||||||||||||||
Tax benefit from exercise of stock options | 96 | — | — | — | 96 | |||||||||||||||||||||||||||||||||||
Tax benefit from exercise of equity instruments | 396 | — | — | — | 396 | |||||||||||||||||||||||||||||||||||
Intercompany transactions | — | (7,785 | ) | 6,599 | 1,186 | — | — | (1,002 | ) | (127 | ) | 1,129 | — | |||||||||||||||||||||||||||
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Net cash provided by (used in) financing activities | 220 | (8,370 | ) | 6,599 | 1,186 | (365 | ) | 510 | 7,816 | (127 | ) | 1,129 | 9,328 | |||||||||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (174 | ) | — | (174 | ) | 174 | (174 | ) | 408 | — | 408 | (408 | ) | 408 | ||||||||||||||||||||||||||
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — | (5,698 | ) | 9,498 | — | 3,800 | — | (26,862 | ) | 2,051 | — | (24,811 | ) | |||||||||||||||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | — | 14,825 | 40,132 | — | 54,957 | |||||||||||||||||||||||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | 30,055 | 13,492 | — | 43,547 | |||||||||||||||||||||||||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | — | $ | 9,127 | $ | 49,630 | $ | — | $ | 58,757 | ||||||||||||||||||||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 3,193 | $ | 15,543 | $ | — | $ | 18,736 | ||||||||||||||||||||||||||||||
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 3, 2014
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH (USED IN) OPERATING ACTIVITIES: | $ | (4,408 | ) | $ | (45,242 | ) | $ | (656 | ) | $ | 2,999 | $ | (47,307 | ) | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (2,816 | ) | (234 | ) | — | (3,050 | ) | ||||||||||||
Purchase of investments | — | — | (15,387 | ) | — | (15,387 | ) | |||||||||||||
Proceeds from investments maturities | — | — | 9,490 | — | 9,490 | |||||||||||||||
Intercompany transactions | 4,664 | — | — | (4,664 | ) | — | ||||||||||||||
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Net cash provided by (used in) investing activities | 4,664 | (2,816 | ) | (6,131 | ) | (4,664 | ) | (8,947 | ) | |||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Borrowings from senior credit facility | — | 110,991 | — | — | 110,991 | |||||||||||||||
Payments on senior credit facility | — | (54,586 | ) | — | — | (54,586 | ) | |||||||||||||
Payments on real estate mortgages | — | (200 | ) | — | — | (200 | ) | |||||||||||||
Payments on capital leases | — | (75 | ) | — | — | (75 | ) | |||||||||||||
Tax benefit from exercise of equity instruments | (95 | ) | — | — | — | (95 | ) | |||||||||||||
Intercompany transactions | — | (4,946 | ) | 443 | 4,503 | — | ||||||||||||||
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Net cash (used in) provided by financing activities | (95 | ) | 51,184 | 443 | 4,503 | 56,035 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (161 | ) | — | (161 | ) | 161 | (161 | ) | ||||||||||||
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — | 3,126 | (6,505 | ) | 2,999 | (380 | ) | |||||||||||||
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 | $ | — | $ | 3,126 | $ | 23,483 | $ | — | $ | 26,609 | ||||||||||
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20. SUBSEQUENT EVENT
On April 6, 2015, the Company elected to call for the partial redemption of $100 million of its $150 million outstanding 7.875% Senior Subordinated Notes due 2019 and a notice of redemption was sent to all registered holders of the notes. The terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, the Company completed the redemption of the $100 million of its senior subordinated notes. The Company incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including this redemption premium as well as the write-off of note issuance costs.
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 1, 2014,January 31, 2015, filed with the Securities and Exchange Commission on April 15, 2014.14, 2015.
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,“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, including, but not limited to those caused by port disruptions,
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,
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 1, 2014January 31, 2015 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 six months ended AugustMay 2, 20142015 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 1, 2014.January 31, 2015.
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 | Six Months Ended | Three Months Ended | ||||||||||||||||||||||
August 2, 2014 | August 3, 2013 | August 2, 2014 | August 3, 2013 | May 2, 2015 | May 3, 2014 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Revenues by segment: | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 147,175 | $ | 152,594 | $ | 342,174 | $ | 351,271 | $ | 198,453 | $ | 194,999 | ||||||||||||
Women’s Sportswear | 26,240 | 32,326 | 60,727 | 72,120 | 38,823 | 34,487 | ||||||||||||||||||
Direct-to-Consumer | 22,595 | 19,572 | 43,025 | 36,585 | 20,981 | 20,430 | ||||||||||||||||||
Licensing | 7,522 | 7,213 | 14,920 | 14,048 | 8,157 | 7,398 | ||||||||||||||||||
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Total revenues | $ | 203,532 | $ | 211,705 | $ | 460,846 | $ | 474,024 | $ | 266,414 | $ | 257,314 | ||||||||||||
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Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||||||||
August 2, 2014 | August 3, 2013 | August 2, 2014 | August 3, 2013 | May 2, 2015 | May 3, 2014 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Reconciliation of operating income to EBITDA | ||||||||||||||||||||||||
Operating income (loss) by segment: | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | (1,779 | ) | $ | (3,413 | ) | $ | 9,254 | $ | 7,828 | $ | 11,330 | $ | 11,033 | ||||||||||
Women’s Sportswear | (1,970 | ) | (864 | ) | (1,573 | ) | 699 | 1,382 | 397 | |||||||||||||||
Direct-to-Consumer | (1,126 | ) | (2,412 | ) | (2,978 | ) | (5,265 | ) | (1,866 | ) | (1,852 | ) | ||||||||||||
Licensing | 6,378 | 5,704 | 11,775 | 17,243 | 5,627 | 5,397 | ||||||||||||||||||
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Total operating income (loss) | $ | 1,503 | $ | (985 | ) | $ | 16,478 | $ | 20,505 | |||||||||||||||
Total operating income | $ | 16,473 | $ | 14,975 | ||||||||||||||||||||
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Depreciation and amortization | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 1,564 | $ | 1,777 | $ | 3,198 | $ | 3,471 | $ | 1,875 | $ | 1,634 | ||||||||||||
Women’s Sportswear | 496 | 425 | 957 | 825 | 500 | 461 | ||||||||||||||||||
Direct-to-Consumer | 889 | 777 | 1,735 | 1,438 | 904 | 846 | ||||||||||||||||||
Licensing | 39 | 31 | 78 | 68 | 43 | 39 | ||||||||||||||||||
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Total depreciation and amortization | $ | 2,988 | $ | 3,010 | $ | 5,968 | $ | 5,802 | $ | 3,322 | $ | 2,980 | ||||||||||||
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EBITDA by segment: | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | (215 | ) | $ | (1,636 | ) | $ | 12,452 | $ | 11,299 | $ | 13,205 | $ | 12,667 | ||||||||||
Women’s Sportswear | (1,474 | ) | (439 | ) | (616 | ) | 1,524 | 1,882 | 858 | |||||||||||||||
Direct-to-Consumer | (237 | ) | (1,635 | ) | (1,243 | ) | (3,827 | ) | (962 | ) | (1,006 | ) | ||||||||||||
Licensing | 6,417 | 5,735 | 11,853 | 17,311 | 5,670 | 5,436 | ||||||||||||||||||
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Total EBITDA | $ | 4,491 | $ | 2,025 | $ | 22,446 | $ | 26,307 | $ | 19,795 | $ | 17,955 | ||||||||||||
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EBITDA margin by segment | ||||||||||||||||||||||||
Men’s Sportswear and Swim | (0.1 | %) | (1.1 | %) | 3.6 | % | 3.2 | % | 6.7 | % | 6.5 | % | ||||||||||||
Women’s Sportswear | (5.6 | %) | (1.4 | %) | (1.0 | %) | 2.1 | % | 4.8 | % | 2.5 | % | ||||||||||||
Direct-to-Consumer | (1.0 | %) | (8.4 | %) | (2.9 | %) | (10.5 | %) | (4.6 | %) | (4.9 | %) | ||||||||||||
Licensing | 85.3 | % | 79.5 | % | 79.4 | % | 123.2 | % | 69.5 | % | 73.5 | % | ||||||||||||
Total EBITDA margin | 2.2 | % | 1.0 | % | 4.9 | % | 5.5 | % | 7.4 | % | 7.0 | % |
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.
The following is a discussion of the results of operations for the three and six month periods ended August 2, 2014period in the first quarter of the fiscal year ending January 31, 201530, 2016 (“fiscal 2015”2016”) compared with the three and six month periods ended August 3, 2013period in the first quarter of the fiscal year ended February 1, 2014January 31, 2015 (“fiscal 2014”2015”).
Results of Operations—three and six months ended AugustMay 2, 20142015 compared to the three and six months ended August 3, 2013.May 3. 2014.
Net sales. Men’s Sportswear and Swim net sales for the three months ended AugustMay 2, 20142015 were $147.2$198.5 million, a decreasean increase of $5.4$3.5 million, or 3.5%1.8%, from $152.6$195.0 million for the three months ended AugustMay 3, 2013.2014. The net sales decreaseincrease was attributed primarily to increases in Perry Ellis and Original Penguin collections and golf lifestyle apparel, partially offset by decreases in our private and exclusive branded products, partially offset by a 14% increase in golf lifestyle apparel and strength in Original Penguin.
Men’s Sportswear and Swim net sales for the six months ended August 2, 2014 were $342.2 million, a decreasemid-tier sportswear as we reduced penetration of $9.1 million, or 2.6%, from $351.3 million for the six months ended August 3, 2013. The net sales decrease was attributed primarily to planned reductions in private and exclusive brands, partially offset by increases across our golf sportswear brands, Original Penguin and Nike swim.proprietary brands.
Women’s Sportswear net sales for the three months ended AugustMay 2, 20142015 were $26.2$38.8 million, a decreasean increase of $6.1$4.3 million, or 18.9%12.5%, from $32.3$34.5 million for the three months ended AugustMay 3, 2013.2014. The net sales decrease was attributed to a shift in shipments for Rafaella into the second half of fiscal 2105, and lower sales in contemporary Laundry dresses as we refined distribution to focus on full price specialty stores and reduced programs to the special markets channel.
Women’s Sportswear net sales for the six months ended August 2, 2014 were $60.7 million, a decrease of $11.4 million, or 15.8%, from $72.1 million for the six months ended August 3, 2013. The net sales decreaseincrease was primarily due to decreasesincreases in our contemporary Laundry by Shelli Segal dresses and in Rafaella due to a shift in special market business to the second half of fiscal 2015.sportswear, driven by strong performance at retail.
Direct-to-Consumer net sales for the three months ended AugustMay 2, 20142015 were $22.6$21.0 million, an increase of $3.0$0.6 million, or 15.3%2.9%, from $19.6$20.4 million for the three months ended AugustMay 3, 2013. The net sales increase was attributed to a 2.7% comparable same store sales increase driven by increased conversion as well as a higher average dollar per transaction in both Perry Ellis and Original Penguin stores. We also experienced increases in ecommerce comparable sales of 20% over last year.
Direct-to-Consumer net sales for the six months ended August 2, 2014 were $43.0 million, an increase of $6.4 million, or 17.5%, from $36.6 million for the six months ended August 3, 2013.2014. The increase was driven by e-commerce, which posted a 4.0%45% increase in comparable sales, partially offset by retail stores sales decline of 1.4% in comparable same store sales increase driven by Perry Ellissales. Business is responding strongly to our spring assortments which hit selling floors a few weeks late as well as by our direct e-commerce sales, which posted a 30.0% comparable sales increase.result of the west coast port slow down issues.
Royalty income. Royalty income for the three months ended AugustMay 2, 20142015 was $7.5$8.2 million, an increase of $0.3$0.8 million, or 4.2%10.8%, from $7.2$7.4 million for the three months ended AugustMay 3, 2013. The net sales increase was attributed to Original Penguin partnerships for footwear and international licensed retail stores, as well as eight new licensing agreements executed during the period.
Royalty income for the six months ended August 2, 2014 was $14.9 million, an increase of $0.9 million, or 6.4%, from $14.0 million for the six months ended August 3, 2013.2014. Royalty income increases were attributed to increases in theour Perry Ellis, and Original Penguin and Laundry businesses as well as increases in our licensed only businesses.the new licenses signed last year.
Gross profit.Gross profit was $70.5$90.1 million for the three months ended AugustMay 2, 2014,2015, an increase of $2.0$2.4 million, or 2.9 %,2.7%, from $68.5$87.7 million for the three months ended AugustMay 3, 2013. The increase is attributed to growth in direct-to-consumer, international expansion in Europe as well as increases in golf life style apparel and in Original Penguin sportswear. Gross profit was $158.1 million for the six months ended August 2, 2014, an increase of $0.9 million, or 0.6%, from $157.2 million for the six months ended August 3, 2013.2014. This increase is attributed to netthe sales increasesmix composition described above and the factors described within the gross profit margin section below.
Gross profit margin. As a percentage of total revenue, gross profit margins were 34.6%33.8% for the three months ended AugustMay 2, 2014,2015, as compared to 32.4%34.1% for the three months ended August 3, 2013, an expansionMay 2, 2014, a decrease of 22030 basis points. The increase wasThis decrease is primarily attributed to an emphasis on higher margin channels and geographies,associated with the exit of the Elite component of our Nike licensed business, the inventory liquidation of divested C&C California, as well as the direct-to-consumer segment mix through lower promotions in all venues. For the six months ended August 2, 2014, gross profit margins were 34.3% as a percentageconsolidation of total revenue as compared to 33.2% for the six months ended August 3, 2013, an increase of 110 basis points. This increase is primarily associated with factors described above as well as higher margins in our Perry EllisBeijing sourcing office, partially offset by expansion across our licensing and Rafaella collection businesses. The margin expansion also reflected reduced freight costs as a result of the infrastructure rationalization program initiated last year.core domestic collections.
Selling, general and administrative expensesexpenses.. Selling, general and administrative expenses for the three months ended AugustMay 2, 20142015 were $66.9$69.6 million, an increasea decrease of $0.4$0.1 million, or 0.6%0.1%, from $66.5$69.7 million for the three months ended AugustMay 3, 2013.2014. We realized favorability from reduced headcount and tighter expense control across in our infrastructure . The increase reflectsdecrease was partially offset by restructuring costs associated with streamlining and consolidation of
our operations including direct-to-consumer and private label business exits. The increase also reflects additional investment in brand marketing initiatives for our national brands, investment in Europe for our golf platform and Original Penguinrelated to exited businesses as well as negative currency translation of $0.3 million due to the strengthening of the US dollar. These increases were partially offset by reduced employee costs, travel costs and professional fees.
Selling, general and administrative expenses for the six months ended August 2, 2014 were $136.6 million, a decrease of $0.6 million, or 0.4%, from $137.2 million for the six months ended August 3, 2013. from the decrease was due to reduced headcount in our infrastructure, as well as, reduced design, travel, samples and professional fees expenses. These reductions were partially offset by costs associated with streamlining and consolidation of our operations as describe above. We also made additional investment in brand marketing for our national brands as well as investment in Europe for our golf platform and Original Penguin during this period. Also, during the six months ended August 3, 2013 we experienced costs in the amount of $1.2 million related to our relocation of our New York offices and $0.8 million inexit costs associated with the saleconsolidation of the Asian rights of the John Henry trademark that were not repeated during the six months ended August 2, 2014.our N.Y. corporate office space.
EBITDA. Men’s Sportswear and Swim EBITDA margin for the three months ended AugustMay 2, 20142015 increased 100by 20 basis points to (0.1%),6.7% from (1.1%)6.5% for the three months ended AugustMay 3, 2013. Men’s Sportswear and Swim EBITDA margin for the six months ended August 2, 2014 increased 40 basis points to 3.6%, from 3.2% for the six months ended August 3, 2013.2014. The EBITDA margin was favorably impacted from cost savings asby the increase in net sales described above. Because of this increase in revenue, we were able to realize a result of ourfavorable leverage in selling, general and administrative expenses, more specifically on payroll and advertising expenses, which was partially offset by the increased infrastructure reviewexpenditures planned in this segment, as well as increases in our golf and sportswear brands. During fiscal 2014, the margin was also negatively impacted byexit costs associated with our relocationthe Elite component of our New York offices.Nike licensed business.
Women’s Sportswear EBITDA margin for the three months ended AugustMay 2, 2014 decreased 4202015 increased 230 basis points to (5.6%)4.8%, from (1.4%)2.5% for the three months ended AugustMay 3, 2013. Women’s Sportswear EBITDA margin for the six months ended August 2, 2014 decreased 310 basis points to (1.0%), from 2.1% for the six months ended August 3, 2013.2014. The EBITDA margin was negativelyfavorably impacted by the reduced leverage due to the decreaseincrease in net sales described above. However, the margin was positively impacted by theBecause of this increase in gross margin experiencedrevenue, we were able to realize favorable leverage in Rafaella sportswear. During fiscal 2014, the marginselling, general and administrative expenses, more specifically on payroll and other overhead, which was negatively impactedpartially offset by an increase in exit costs associated with the relocation of our New York offices.C&C California.
Direct-to-Consumer EBITDA margin for the three months ended AugustMay 2, 20142015 increased 74030 basis points to (1.0%(4.6%), from (8.4%(4.9%) for the three months ended AugustMay 3, 2013. Direct-to-Consumer EBITDA margin for the six months ended August 3, 2013 increased 760 basis points to (2.9%), from (10.5%) for the six months ended August 3, 2013.2014. The increase was primarily attributable to the increase inof revenue from our stores and e-commerce business, as described above. Because of this increase in revenue, we were able to realize a favorable leverage in selling, general and administrative expenses.
Licensing EBITDA margin for the three months ended AugustMay 2, 2014 increased 580 basis points2015 decreased to 85.3%69.5%, from 79.5%73.5% for the three months ended AugustMay 3, 2013. The increase is primarily attributed to2014. As described below, during the increase in royalty income attributed to Original Penguin partnerships for footwear and international licensed retail stores, as well as eight new licensing agreements. Additionally the margin was positively impacted by the sale of certain Jantzen rights as described below. Licensing EBITDA margin for the sixthree months ended AugustMay 2, 2014 decreased to 79.4%, from 123.2% for the six months ended August 3, 2013. During the six months ended August 3, 2013,2015, we had a gainloss on the sale of the Asian rights of the John HenryC&C California brand as described below. The gainwhich was the primary reason for the higherlower EBITDA margin in the first halfquarter of fiscal 2014.2016.
Depreciation and amortization. Depreciation and amortization for the three months ended AugustMay 2, 2014,2015, was $3.0$3.3 million, remaining flat,an increase of $0.3 million, or 10.0%, from $3.0 million for the three months ended AugustMay 3, 2013. Depreciation and amortization for the six months ended August 2, 2014, was $6.0 million, an increase of $0.2 million, or 3.4%, from $5.8 million for the six months ended August 3, 2013.2014. The increase is attributed to depreciation related to our capital expenditures, primarily in the direct-to-consumer segment, and leasehold improvements.improvements made during fiscal 2015.
GainLoss on sale of long-lived assetsassets.. During the secondfirst quarter of fiscal 2015,2016, we entered into an agreement to sell the intellectual property of our C&C California brand to 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.third party. As a result of this transaction, we recorded a gainloss of $0.9($0.7) 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.
Interest expense. Interest expense for the three months ended AugustMay 2, 20142015, was $3.6 million, a decrease of $0.1 million, or 2.7%, from $3.7 million for the three months ended AugustMay 3, 2013. Interest expense for the six months ended August 2, 2014, was $7.3 million,primarily attributable to a decrease of $0.2 million, or 2.7%, from $7.5 million for the six months ended August 3, 2013. The primary reason for the decrease is related to the savings generated from the refinancing of our mortgage loans in the second half of fiscal 2014, as well as lower average borrowingsamount borrowed on our credit facility as compared to our borrowings inthe comparable quarter of the prior year.
Income taxes.The income tax benefitexpense for the three months ended AugustMay 2, 2014,2015, was $0.5$3.4 million, a decrease of $1.4$0.1 million, as compared to $1.9$3.5 million for the three months ended AugustMay 3, 2013.2014. For the three months ended AugustMay 2, 2014,2015, our effective tax rate was 23.1%26.7% as compared to 39.9%30.9% for the three months ended AugustMay 3, 2013. Our income tax expense for the six months ended August 2, 2014, was $3.0 million, a decrease of $1.5 million, as compared to $4.5 million for the six months ended August 3, 2013. For the six months ended August 2, 2014, our effective tax rate was 32.7% as compared to 34.6% for the six months ended August 3, 2013.2014. The overall change in the effective tax rate is attributed to the unfavorable disallowancecurrent year impact of certain executive compensationthe valuation allowance on domestic taxes and a change in fiscal 2014, the sale of certain intangible rights related to the John Henry trademark in 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 lossincome for the three months ended AugustMay 2, 20142015 was $9.4 million, an increase of $1.6 million, an improvement of $1.2 million, or 42.9%20.5%, as compared to a loss of $2.8$7.8 million for the three months ended AugustMay 3, 2013. Net income for the six months ended August 2, 2014 was $6.2 million, a decrease of $2.3 million, or 27.1%, as compared to $8.5 million for the six months ended August 3, 2013.2014. The changes in operating results were due to the items described above.
Liquidity and Capital Resources
We rely principally on cash flow from operations and borrowings under our senior credit facility to finance our operations, pension funding requirements, acquisitions, future redemption of our senior subordinated notes payable and capital expenditures; and to a lesser extent, on letter of credit facilities for the acquisition of a small portion of our inventory purchases.expenditures. We believe that our working capital requirements will decreaseincrease for fiscal 2015 driven primarily by lower levels of inventory associated with stronger inventory management.next year as we continue to expand internationally. As of AugustMay 2, 2014,2015, our total working capital was $282.1$265.5 million as compared to $278.2$240.2 million as of February 1, 2014January 31, 2015 and $275.7$348.4 million as of AugustMay 3, 2013.2014. 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.needs and capital expenditure needs over the next year. We also believe that our real estate assets, which had a net book value of $23.0$22.8 million at AugustMay 2, 2014,2015, 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 AugustMay 2, 2014,2015, we had mortgage loans on these properties totaling $23.3$22.7 million.
We consider the undistributed earnings of our foreign subsidiaries as of AugustMay 2, 2014,2015, to be indefinitely reinvested and, accordingly, no U.S.United States income taxes have been provided thereon. As of AugustMay 2, 2014,2015, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $27.8$15.5 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 byused in operating activities was $47.0$39.7 million for the sixthree months ended AugustMay 2, 2014,2015, as compared to cash provided byused in operating activities of $14.1$47.3 million for the sixthree months ended AugustMay 3, 2013.2014.
The cash provided byused in operating activities for the sixthree months ended AugustMay 2, 2014,2015, is primarily attributable to a decreasean increase in accounts receivable of $36.3$43.4 million, due to the timing of shipments as compared to prior year as well as decreased inventory of $32.6 million due to improved inventory management. This was partially offset by a decrease in accounts payable and accrued expenses of $38.6 million. For the six months ended August 2, 2014, our inventory turnover ratio decreased slightly to 3.3 as compared to 3.8 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 same period last year. Additionally prepaid expenses and other current assets increased by $2.2 million, offset by an increase in unearned revenue and other liabilities of $1.8 million. The cash provided by operating activities for the six months ended August 3, 2013 is primarily attributable to a decrease in accounts receivable of $33.7$42.7 million and a decrease in accrued interest payable of $3.0 million; which was partially offset by a decrease in inventory of $3.6$30.6 million associated with strong inventory management; which was offset bymanagement. As a result of the increase in sales and the tighter management of inventory for the first quarter of fiscal 2016 as compared to prior quarter, our inventory turnover ratio increased to 3.6 as compared to 3.3 for the comparable quarter in fiscal 2015.
The cash used in operating activities for three months ended May 3, 2014, is primarily attributable to an increase in accounts receivable of $36.6 million, a decrease in accounts payable and accrued expenses of $35.7$55.2 million and an increasea decrease in prepaid income taxesaccrued interest payable of $1.9 million.$3.1 million; which was partially offset by a decrease in inventory of $29.9 million associated with strong inventory management. As a result of the decrease in inventorysales for the six months ended August 3, 2013,first quarter of fiscal 2015 as compared to prior quarter, our inventory turnover ratio increaseddecreased to 3.83.3 as compared to 3.53.9 for the comparable periodquarter in fiscal 2013.2014.
Net cash used inprovided by investing activities was $16.1$5.1 million for the sixthree months ended AugustMay 2, 2014,2015, as compared to cash used in investing activities of $9.7$8.9 million for the sixthree months ended AugustMay 3, 2013. 2014. The net cash provided by investing activities during the first three months of fiscal 2016 primarily reflects the proceeds from the maturities of investments in the amount of $8.6 million and proceeds on sale of the C&C California brand in the amount of $2.5 million; offset by the purchase of property and equipment of $3.3 million primarily for leaseholds and the purchase of investments of $2.6 million. We anticipate capital expenditures during the remainder of fiscal 2016 of $12.0 million to $13.0 million in new leasehold improvements, technology, systems, retail stores, and other expenditures.
The net cash used during the first sixthree months of fiscal 2015 primarily reflects the purchase of investments of $22.9$15.4 million and the purchase of property and equipment of $7.3$3.1 million, primarily for leasehold improvements and store fixtures; which was partiallyleaseholds; offset by the proceeds from the maturities of investments in the amount of $14.2 million. The net cash used during the first six months of fiscal 2014 primarily reflects the purchase of property and equipment of $14.6$9.5 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.
Net cash used inprovided by financing activities was $8.7$9.3 million for the sixthree months ended AugustMay 2, 2014,2015, as compared to cash used inprovided by financing activities of $0.4$56.0 million for the sixthree months ended AugustMay 3, 2013.2014. The net cash usedprovided during the first sixthree months of fiscal 20152016 primarily reflects net paymentsborrowings on our senior credit facility of $8.2$9.7 million, payments of $0.4 million on our mortgage loans and payments on capital leases of $0.2 million; partially offset by proceeds from exercises of stock options of $0.2 million. The net cash used during the first six months of fiscal 2014 primarily reflects payments of $0.4 million on our mortgage loans and payments on capital leases of $0.2 million; partially offset by proceeds from exercisesexercise of stock options of $0.1 million and a tax benefit from the exercise of stock optionsequity instruments of $0.1 million.$0.4 million; which was partially offset by payments of $0.6 million in deferred financing fees on the senior credit facility and $0.2 million in payments on our mortgage loans.
The net cash provided by financing during the first three months of fiscal 2015 primarily reflects net borrowings on our senior credit facility of $7.7 million; which was partially offset by payments of $0.2 million on our mortgage loans.
Our Board of Directors has authorized us to purchase, from time to time and as market and business conditions warranted,warrant, 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.
During fiscal 2014,2015, we repurchased shares of our common stock at a cost of $7.0$8.8 million. There have been no open market purchases during fiscal 2015.2016. Total purchases under the plan to date amount to approximately $51.7 million. As of AugustMay 2, 20142015 and February 1, 2014,January 31, 2015, there were 400,516770,753 shares of treasury stock outstanding at a cost of approximately $7.0$15.7 million, respectively.
Acquisitions
None.
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%.
On April 6, 2015, we elected to call for the partial redemption of $100 million of our $150 million outstanding 77/8% Senior Subordinated Notes due April 1, 2019 and a notice of redemption was sent to all registered holders of the notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, the Company completed the redemption of the $100 million of its senior subordinated notes. The Company incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including the redemption premium as well as the write-off of note issuance costs.
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 January 9, 2014,April 22, 2015, 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 washas been extended through December 1, 2018. WeApril 30, 2020 (“Maturity Date”). In connection with this amendment and restatement, we paid fees in the amount of $0.6 million. These fees will be amortized over the term of the credit facility as interest expense. At May 2, 2015, we had borrowings of $9.7 million under the Credit Facility. At January 31, 2015, we had no outstanding borrowings at August 2, 2014 and we had borrowings of $8.2 million at February 1, 2014, 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 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 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% 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, (ii) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.
Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the 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 AugustMay 2, 2014,2015, we maintained twoone U.S. dollar letter of credit facilitiesfacility totaling $45.0$30.0 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 the first quarter of fiscal 2016, a $15 million line of credit expired and was not renewed. During fiscal 2014, we decreased the letter of credit sublimit in our Senior Credit Facility to $30.0 million. As of AugustAt May 2, 20142015 and February 1, 2014,January 31, 2015, there was $33.7$18.7 million and $33.5$33.7 million, respectively, available under ourthe existing letter of credit facilities.
Real Estate Mortgage Loans
In July 2010, we paid off theour 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 was 4.25% per annum and monthly payments of principal and interest of $71,000 were 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%3.9% 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 AugustMay 2, 2014,2015 the balance of the real estate mortgage loan totaled $11.5$11.2 million, net of discount, of which $369,000$378,000 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 January 23, 2019. The mortgage loan has been refinanced and the interest rate has been modified since such date. The interest rate was 4.00% per annum and quarterly payments of principal and interest of approximately $248,000 were due, based on a 20-year amortization with the outstanding principal due at maturity. In January 2014, we again amended the mortgage loan to modify the interest rate. The interest rate was reduced to 3.25% per annum and the terms were restated to reflect new monthly payments of principal and interest of approximately $68,000, based on a 20-year amortization with the outstanding principal due at maturity. At AugustMay 2, 2014,2015, the balance of the real estate mortgage loan totaled $11.7$11.4 million, net of discount, of which approximately $438,000$448,000 is due within one year.
The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of thesethe covenants. If we violate any covenants, the lender under the real estate mortgage loan 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 facilities and the indenture relating to our senior subordinated notes resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Off-Balance Sheet Arrangements
We are not a party to any “off-balance sheet arrangements”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 financial position and results of operations as of and for the three and six months ended AugustMay 2, 2014.2015.
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. We currently do not have any derivative financial instruments for identifiable market risk.
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 AugustMay 2, 20142015 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 AugustMay 2, 20142015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
See Footnote 19 toWe are 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 our California administrative offices. The plaintiff sought an unspecified amount of damages. The lawsuit has been pleaded but not certified as a class action. Mediation was held during the Condensed Consolidated Financial Statements, includedthird quarter of fiscal 2015. Currently, the parties have reached a tentative settlement. The tentative settlement amount has been provided for in this filing,the Company’s results of operations for further information.fiscal 2015.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
We repurchased the following amounts of our common stock during the secondfirst quarter of fiscal 2015:2016:
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 | 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 | ||||||||||||||||||||||||
May 20, 2014 | 404 | (2) | $ | 14.69 | — | $ | 17,000,000 | |||||||||||||||||||||||||
March 1, 2015 to April 4, 2015 | 1,075 | (2) | $ | 22.77 | — | $ | 8,316,000 | |||||||||||||||||||||||||
April 5, 2015 to May 2, 2015 | 26,250 | (2) | $ | 24.37 | — | $ | 8,316,000 |
(1) | During fiscal 2014, our Board of Directors extended the stock repurchase program to authorize us to purchase, from time to time and as market and business conditions warrant, up to $60 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, |
(2) | Represents shares withheld to pay statutory income taxes resulting from vesting of restricted shares. |
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 | Filed herewith. | ||||
32.2 | Certification of Principal Financial Officer pursuant to Section 1350 | Filed herewith. | ||||
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. |
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. | ||||||
June 9, 2015 | By: /S/ ANITA BRITT | |||||
Anita Britt, Chief Financial Officer | ||||||
(Principal Financial Officer) |
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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