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 April 30, 2001
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 0-21764
PERRY ELLIS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida 59-1162998
(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) Number)
3000 N.W. 107 Avenue
Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 592-2830
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ______
-----
The number of shares outstanding of the registrant's common stock is 6,557,374
(as of June 6, 2001).
PERRY ELLIS INTERNATIONAL, INC.
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1:
Consolidated Balance Sheets (Unaudited)
as of April 30, 2001 and January 31, 2001 1
Consolidated Statements of Income (Unaudited)
for the three months ended April 30, 2001 and 2000 2
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended April 30, 2001 and 2000 3
Notes to Consolidated Financial Statements 4
Item 2:
Management's Discussion and Analysis
of Financial Condition and Results of Operations 5
PART II: OTHER INFORMATION 9
Signature 10
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS April 30, 2001 January 31, 2001
----------------- ------------------
Current Assets:
Cash and cash equivalents $ 461,381 $ 344,741
Accounts receivable, net 65,477,124 58,821,622
Inventories 40,262,558 43,556,374
Deferred income taxes 1,951,553 1,951,553
Prepaid income taxes - 136,718
Other current assets 1,870,064 2,305,283
----------------- ----------------
Total current assets 110,022,680 107,116,291
Property and equipment, net 9,578,436 9,820,628
Intangible assets, net 120,966,539 122,016,681
Other 4,832,525 4,159,482
----------------- ----------------
TOTAL ASSETS $ 245,400,180 $ 243,113,082
================= ================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,917,247 6,712,859
Accrued expenses 3,585,692 3,660,364
Income taxes payable 1,381,032 -
Accrued interest payable 1,245,590 4,215,835
Unearned revenues 1,883,658 1,996,752
Other current liabilities 1,235,924 1,651,467
----------------- ----------------
Total current liabilities 15,249,143 18,237,277
Senior subordinated notes payable, net 99,193,667 99,152,667
Deferred income tax 4,930,829 4,930,829
Long term debt - senior credit agreement 40,099,018 37,913,126
----------------- ----------------
Total long-term liabilities 144,223,514 141,996,622
----------------- ----------------
Total liabilities 159,472,657 160,233,899
----------------- ----------------
Stockholders' Equity:
Preferred stock $.01 par value; 1,000,000 shares authorized;
no shares issued or outstanding - -
Class A Common Stock $.01 par value; 30,000,000 shares authorized;
no shares issued or outstanding - -
Common stock $.01 par value; 30,000,000 shares authorized;
6,579,374 shares issued and 6,557,374 shares outstanding
as of April 30, 2001 and 6,739,374 shares issued and
6,579,374 shares outstanding as of January 31, 2001. 65,793 67,393
Additional paid-in-capital 28,035,088 29,063,407
Retained earnings 57,975,902 54,778,302
----------------- ----------------
Total 86,076,783 83,909,102
Common stock in treasury at cost; 22,000 and 160,000 shares
as of April 30, 2001 and January 31, 2001, respectively (149,260) (1,029,919)
----------------- ----------------
Total stockholders' equity 85,927,523 82,879,183
----------------- ----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 245,400,180 $ 243,113,082
================= =================
See Notes to Consolidated Financial Statements.
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended April 30,
---------------------------------------
2001 2000
-------------- ---------------
Revenues
Net Sales $ 80,865,625 $ 78,232,412
Royalty Income 6,065,629 6,092,556
-------------- ---------------
Total Revenues 86,931,254 84,324,968
Cost of Sales * 60,781,609 58,871,648
-------------- ---------------
Gross Profit 26,149,645 25,453,320
Operating Expenses
Selling, General and Administrative Expenses 15,410,444 14,307,428
Depreciation and Amortization 1,598,338 1,502,212
-------------- ---------------
Total Operating Expenses 17,008,782 15,809,640
Operating Income 9,140,863 9,643,680
Interest Expense 4,091,767 3,866,382
-------------- ---------------
Income Before Share of Income from Unconsolidated
Subsidiary and Income Taxes 5,081,145 5,777,298
Share of Income from Unconsolidated Subsidiary - Net 32,049 -
Income Taxes 1,883,545 2,187,535
-------------- ---------------
Net Income $ 3,197,600 $ 3,589,763
============== ===============
*Included in cost of sales is $32,139 and $17,970 for
three months ended April 30, 2001 and 2000, respectively,
of depreciation expense.
Net Income per Share
Basic $ 0.49 $ 0.53
Diluted $ 0.48 $ 0.53
Weighted Average Number of Shares Outstanding
Basic 6,576,430 6,732,354
Diluted 6,590,839 6,835,903
See Notes to Consolidated Financial Statements.
2
PERRY ELLIS INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED APRIL 30,
----------------------------------------
2001 2000
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,197,600 $ 3,589,763
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,473,140 1,410,049
Amortization of bond discount 41,000 41,000
Amortization of debt issue cost 157,337 110,133
Other (33,959) -
Changes in operating assets and liabilities
(net of effects of acquisitions):
Accounts receivable, net (6,655,503) (21,585,831)
Inventories 3,293,816 (3,735,662)
Prepaid income taxes 136,718 -
Other current assets 485,219 2,199,439
Other assets (830,379) (41,396)
Accounts payable and accrued expenses (836,325) (530,306)
Income Taxes Payable 1,381,032 -
Accrued Interest Payable (2,970,245) (3,122,332)
Other current liabilities (528,637) (259,116)
--------------- --------------
Net cash used in operating activities: (1,689,186) (21,924,259)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (189,337) (799,442)
Payment on purchase of intangible assets (41,469) (35,495)
--------------- --------------
Net cash used in investing activities: (230,806) (834,937)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings under credit facilities 2,185,892 23,981,197
Net payments on long-term debt - (1,250,000)
Purchase of treasury stock (149,260) -
Proceeds from exercise of stock option - 57,501
--------------- --------------
Net cash provided by financing activities: 2,036,632 22,788,698
--------------- --------------
NET INCREASE IN CASH 116,640 29,502
CASH AT BEGINNING OF YEAR 344,741 225,631
--------------- --------------
CASH AT END OF PERIOD $ 461,381 $ 255,133
=============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7,062,012 $ 6,964,273
=============== --------------
Income taxes $ 652,872 $ 130,000
=============== ==============
See Notes to Consolidated Financial Statements.
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
Item 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements of Perry Ellis
International, Inc. and Subsidiaries ("Perry Ellis" or the "Company") have been
prepared in accordance with the instructions for Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and changes in cash flows in
conformity with generally accepted accounting principles. The unaudited
consolidated financial statements should be read in conjunction with the audited
financial statements and related notes included in the Company's Annual Report
on Form 10-K for the year ended January 31, 2001. In the opinion of management,
the unaudited consolidated financial statements contain all adjustments
necessary for a fair presentation of the interim periods presented and all
adjustments are of a normal and recurring nature. The results of operations for
the three months ended April 30, 2001 are not necessarily indicative of the
results which may be expected for the entire fiscal year.
Certain amounts in the prior period have been reclassified to conform to
the current period's presentation.
2. INVENTORIES
Inventories are stated at the lower of cost or market on a first-in, first-
out basis and consist principally of finished goods.
3. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consist of
the following as of:
April 30, January 31,
2001 2001
------------ -------------
Total letter of credit facilities $ 52,000,000 $ 52,000,000
Outstanding letters of credit (26,086,281) (27,923,927)
------------ ------------
Total available $ 25,913,719 $ 24,076,073
============ ============
4. SEGMENT INFORMATION
In accordance with SFAS No. 131, Disclosure About Segments of an Enterprise
and Related Information, our principal segments are grouped between the
generation of revenues from products and royalties. The Licensing segment
derives its revenues from royalties associated from the use of its brand names,
principally Perry Ellis, John Henry, Manhattan and Munsingwear. The Product
segment derives its revenues from the design, import and
4
distribution of apparel to department stores and other retail outlets,
principally throughout the United States. Trademark costs have been allocated
among the divisions where the brands are shared. Shared selling, general and
administrative expenses are allocated amongst the segments based upon department
utilization rates.
THREE MONTHS ENDED APRIL 30,
------------------------------------
2001 2000
------------------------------------
Revenues:
Product $ 80,865,625 $ 78,232,412
Licensing 6,065,629 6,092,556
------------------------------------
Total Revenues $ 86,931,254 $ 84,324,968
====================================
Operating Income:
Product $ 5,886,615 $ 5,674,600
Licensing 3,254,248 3,969,080
------------------------------------
Total Operating Income $ 9,140,863 $ 9,643,680
====================================
5. TRADEMARK ACQUISITIONS
For the year ended January 31, 2001, Perry Ellis acquired intellectual
property for approximately $3.05 million which includes the following
trademarks: Pro-Player, Artex, Fun Gear, Salem Sportswear, Mondo di Marco. Pro-
Player is a well-known brand in the sports apparel business with distribution in
department stores and middle market retailers. The Mondo di Marco trademarks
were acquired from the bankruptcy estate of Mondo, Inc.
6. SHARE REPURCHASE
On July 11, 2000 the board of directors of Perry Ellis approved a share
repurchase program in which up to 500,000 shares of common stock may be
purchased from time to time during the following 12 months. The shares may be
purchased in the open market or in privately negotiated transactions. On March
2, 2001 the Company retired 160,000 shares held in the treasury. As of April 30,
2001, the Company had repurchased 22,000 additional shares at an average price
of $6.78 per share.
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Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially from
any forward-looking statements which may be deemed to have been made in this
report or which are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "would," "estimate," or "continue"
or the negative other variations thereof or comparable terminology are intended
to identify forward-looking statements. Factors which may affect the Company's
results include, but are not limited to, risk related to fashion trends; the
retail industry; reliance on key customers; contract manufacturing; foreign
sourcing; import and export restrictions; competition; seasonality; rapid
expansion of business; dependence on key personnel and other factors discussed
herein and in the Company's other filings with the Securities and Exchange
Commission.
Results of Operations
Three months ended April 30, 2001 as compared to three months ended April 30,
2000.
Total revenues. Total revenues consist of net sales and royalty income.
Total revenues increased 3.1% to $86.9 million for the three months ended April
30, 2001 from $84.3 million for the comparable period in 2000. The increase for
the three months period is primarily the result of the increase in product sales
as described below.
Net sales. Net sales increased 3.5% to $80.9 million for the three months
ended April 30, 2001 from $78.2 million in the comparable prior period, relating
to increases in the Ad Specialty Incentive market, mass merchandise channels of
distribution and our European subsidiary of Perry Ellis America footwear.
Royalty income. Royalty income remained essentially flat for the three
months ended April 30, 2001 at $6.07 million compared to $6.09 in the comparable
prior period.
Cost of sales. Cost of sales for the three months ended April 30, 2001
increased $1.9 million or 3.2% to $60.8 million from $58.9 million in the
comparable prior period, reflecting an increase in the number of units sold for
the period. As a percentage of net sales, cost of sales decreased for the three
months period ended April 30, 2001 to 75.2% from 75.3% for the three months
period ended April 30, 2000. The decrease in cost of sales as a percentage of
net sales is a result of product mix changes in both branded and private label
goods.
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Gross Profit. Gross profit was $26.1 million for the three months period
ended April 30, 2001, compared to $25.5 million for the comparable prior period.
The increase in gross profit of 2.4% for the three months period reflects the
change in product mix.
Selling, general and administrative expenses. Selling, general and
administrative expenses, excluding depreciation and amortization, increased $1.1
million or 7.7% for the three months period ended April 30, 2001 to $15.4
million from $14.3 million in the 2000 period. As a percentage of total revenue,
selling, general and administrative expenses were 17.7% for the three months
ended April 30, 2001 compared to 17.0% in the comparable 2000 period. The
increase in selling, general and administrative costs were attributable to
higher payroll, advertising and warehouse costs associated with increased
inventory and shipping activity.
Depreciation and amortization. Depreciation and amortization for the three
months period ended April 30, 2001 increased to $1.6 million from $1.5 million
in the comparable 2000 period. The small increase primarily reflects an increase
in amortization due to the acquisition of the Pro-Player and Mondo di Marco
trademarks during the fiscal year ended January 31, 2001.
Interest expense. Interest expense increased $0.2 million for the three
months period ended April 30, 2001 to $4.1 million from $3.9 million in the
comparable 2000 period. The increase for the three months period is primarily
attributable to the additional interest from increased borrowings under the
revolving credit agreement to support the increase in sales.
Income taxes. For the three month period ended April 30, 2001, the
effective tax rate was 37.1% compared to 37.9% for the comparable 2000 period.
Net income. Net income for the three months period ended April 30, 2001
decreased $0.4 million to $3.2 million from $3.6 million in the comparable 2000
period. As a percentage of total revenue, net income was 3.7% for the three
months period ended April 30, 2001, compared to 4.3% in the comparable 2000
period.
Liquidity and Capital Resources
The Company relies primarily upon cash flow from operations and borrowings
under its senior credit facility to finance operations and expansion. Cash used
in operating activities was $1.7 million in the three months ended April 30,
2001, compared to $21.9 million in the three months ended April 30, 2000. The
decreased level in cash used in operating activities is primarily attributable
to timing of sales and timing of cash collections on accounts receivable in the
current period as compared to the three months ended April 30, 2000.
Net cash used in investing activities was $0.2 million for the three months
ended April 30, 2001, which primarily reflects purchases of property and
equipment.
Net cash provided by financing activities for the three months ended April
30, 2001 totaled $2.0 million, which was primarily the result of net borrowings
under the Company's senior credit facility.
7
The Company has a senior credit facility consisting of a revolving credit
facility of up to an aggregate amount of $75.0 million. The senior credit
facility expires in October 2002. Borrowings are limited under the terms of a
borrowing base calculation. Interest on borrowings is variable, based upon the
Company's option of selecting a LIBOR plus 2.0% interest rate or the bank's
prime rate. The facility contains covenants which require the Company to
maintain certain financial and net worth ratios and restricts the payment of
dividends. The Company's assets are pledged as collateral for the facility.
Management believes that the combination of borrowing availability under
the senior credit facility, existing working capital and funds are anticipated
to be generated from operating activities will be sufficient to meet the
Company's anticipated operating and capital needs in the foreseeable future.
Effects of Inflation and Foreign Currency Fluctuations
The Company does not believe that inflation or foreign currency
fluctuations significantly affected its results of operations for the three
months ended April 30, 2001.
Market Risk in the Loans
The Company is subject to market risk associated principally with changes
in interest rates. Interest rate exposure is principally limited to borrowings
under the senior credit facility.
8
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (for SEC only)
(b) Reports on Form 8-K - None
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 8, 2001 By: /s/ Timothy B. Page
----------------------------------------
Timothy B. Page, Chief Financial Officer
10