SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X]
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 2003 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended October 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-21764
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PERRY ELLIS INTERNATIONAL, INC.
(Exact(Exact Name of Registrant as Specified in its Charter)
Florida 59-1162998 (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3000 N.W. 107 Avenue Miami, Florida 33172 (Address of Principal Executive Offices) (Zip Code) Registrant's
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]x No[ ]¨Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the
registrant'sregistrant’s common stock is6,419,7246,500,076 (as ofDecemberJune 12,2002)2003).PERRY ELLIS INTERNATIONAL, INC.
INDEX
PAGE ---- PART I: FINANCIAL INFORMATION Item 1: Consolidated Balance Sheets as of October 31, 2002 (Unaudited) and January 31, 2002 1 Consolidated Statements of Income (Unaudited) for the three and nine months ended October 31, 2002 and 2001 2 Consolidated Statements of Cash Flows (Unaudited) for the nine months ended October 31, 2002 and 2001 3 Notes to Unaudited Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3: Quantitative and Qualitative Disclosures About Market Risk 26 Item 4: Internal Controls 27 PART II: OTHER INFORMATION 28 Signature 29 Certifications 30PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
October 31, 2002 January 31, 2002 -------------------- -------------------ASSETS Current Assets: Cash and cash equivalents $ 1,066,138 $ 1,303,978 Accounts receivable, net 61,949,009 50,370,245 Inventories, net 45,966,043 45,409,047 Deferred income taxes 2,704,281 2,384,316 Prepaid income taxes 2,775,404 - Other current assets 3,690,506 1,886,163 -------------------- ------------------- Total current assets 118,151,381 101,353,749 Property and equipment, net 30,311,900 10,897,334 Intangible assets, net 142,534,058 117,938,894 Other 11,776,691 3,870,703 -------------------- ------------------- TOTAL $ 302,774,030 $ 234,060,680 ==================== =================== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 9,894,061 $ 5,966,369 Accrued expenses 5,374,027 3,259,602 Income taxes payable - 1,381,551 Accrued interest payable 1,266,760 3,808,997 Current portion - senior credit facility - 21,756,094 Unearned revenues 1,926,398 1,838,929 Other current liabilities 2,385,529 2,410,583 -------------------- ------------------- Total current liabilities 20,846,775 40,422,125 Senior subordinated notes payable, net 98,862,338 99,071,515 Senior secured notes payable, net 60,571,612 - Senior credit facility 4,087,767 - Real estate mortgage 11,600,000 - Deferred income tax 9,624,126 6,749,832 -------------------- ------------------- Total long-term liabilities 184,745,843 105,821,347 -------------------- ------------------- Total liabilities 205,592,618 146,243,472 -------------------- ------------------- Minority Interest 716,337 613,671 -------------------- ------------------- 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; 6,416,390 shares issued and outstanding as of October 31, 2002 and 6,337,440 shares issued and 6,286,740 shares outstanding as of January 31, 2002 64,164 63,374 Additional paid-in-capital 27,111,889 26,286,040 Retained earnings 69,398,992 61,386,243 Accumulated other comprehensive income (109,970) (121,753) -------------------- ------------------- Total 96,465,075 87,613,904 Common stock in treasury at cost; 50,700 shares as of January 31, 2002 - (410,367) -------------------- ------------------- Total stockholders' equity 96,465,075 87,203,537 -------------------- ------------------- TOTAL $ 302,774,030 $ 234,060,680 ==================== ===================
April 30, 2003 January 31, 2003 ASSETS
Current Assets:
Cash and cash equivalents
$ 1,518,310 $ 4,683,177 Accounts receivable, net
97,132,008 79,489,739 Inventories, net
45,588,454 51,306,474 Deferred income taxes
2,769,086 2,957,765 Prepaid income taxes
— 3,361,650 Other current assets
5,755,882 4,104,767 Total current assets
152,763,740 145,903,572 Property and equipment, net
31,079,085 31,048,876 Intangible assets, net
142,186,062 142,186,062 Other
12,163,614 12,098,835 TOTAL
$ 338,192,501 $ 331,237,345 LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$ 9,057,672 $ 12,820,168 Accrued expenses
5,286,676 5,058,748 Accrued interest payable
1,163,015 4,674,929 Unearned revenues
1,592,348 1,994,554 Other current liabilities
974,689 1,457,422 Total current liabilities
18,074,400 26,005,821 Senior subordinated notes payable, net
99,332,637 99,180,580 Senior secured notes payable, net
61,282,101 60,729,796 Senior credit facility
30,841,228 22,922,287 Real estate mortgage
11,600,000 11,600,000 Deferred income tax
10,432,897 10,694,595 Total long-term liabilities
213,488,863 205,127,258 Total liabilities
231,563,263 231,133,079 Commitments and Contingencies
Minority Interest
748,957 702,480 Stockholders' Equity:
Preferred stock $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding
— — Common stock $.01 par value; 30,000,000 shares authorized; 6,500,076 shares issued and outstanding as of April 30, 2003 and 6,425,641 shares issued and outstanding as of January 31, 2003
65,001 64,257 Additional paid-in-capital
27,887,923 27,198,094 Retained earnings
77,810,550 72,182,529 Accumulated other comprehensive income
116,807 (43,094 ) Total stockholders' equity
105,880,281 99,401,786 TOTAL
$ 338,192,501 $ 331,237,345 See Notes to Unaudited Consolidated Financial Statements
1PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended October 31, Nine Months Ended October 31, ------------------------------------ --------------------------------- 2002 2001 2002 2001 -------------- ----------------- -------------- ---------------Revenues Net sales $ 63,037,262 $ 59,957,359 $198,050,391 $ 199,132,288 Royalty income 7,561,270 6,402,886 21,238,697 19,325,950 -------------- ----------------- -------------- --------------- Total revenues 70,598,532 66,360,245 219,289,088 218,458,238 Cost of sales 46,046,555 47,372,009 146,514,444 153,264,855 -------------- ----------------- -------------- --------------- Gross profit 24,551,977 18,988,236 72,774,644 65,193,383 Operating expenses Selling, general and administrative expenses 17,710,051 12,964,934 45,703,916 40,753,657 Depreciation and amortization 853,366 1,686,912 2,256,194 4,926,577 -------------- ----------------- -------------- --------------- Total operating expenses 18,563,417 14,651,846 47,960,110 45,680,234 -------------- ----------------- -------------- --------------- Operating income 5,988,560 4,336,390 24,814,534 19,513,149 Interest expense 4,153,081 2,850,189 11,806,392 10,587,043 -------------- ----------------- -------------- --------------- Income before minority interest and income tax provision 1,835,479 1,486,201 13,008,142 8,926,106 Minority interest (79,103) - (88,948) - Share of income from unconsolidated subsidiary - 60,950 - 85,485 Income taxes 694,499 577,476 4,906,445 3,357,409 -------------- ----------------- -------------- --------------- Net income $ 1,061,877 $ 969,675 $ 8,012,749 $ 5,654,182 ============== ================= ============== =============== Net income per share Basic $ 0.17 $ 0.15 $ 1.26 $ 0.87 ============== ================= ============== =============== Diluted $ 0.16 $ 0.15 $ 1.24 $ 0.87 ============== ================= ============== =============== Weighted average number of shares outstanding Basic 6,416,390 6,572,398 6,376,215 6,516,256 Diluted 6,601,985 6,592,860 6,481,413 6,534,655
Three Months Ended April 30, 2003 2002 Revenues
Net sales
$ 101,866,844 $ 78,619,092 Royalty income
6,411,177 6,076,793 Total revenues
108,278,021 84,695,885 Cost of sales
71,545,115 57,932,099 Gross profit
36,732,906 26,763,786 Operating expenses
Selling, general and administrative expenses
21,609,413 14,510,386 Depreciation and amortization
1,112,011 659,738 Total operating expenses
22,721,424 15,170,124 Operating income
14,011,482 11,593,662 Interest expense
4,963,311 3,866,731 Income before minority interest and income taxes
9,048,171 7,726,931 Minority interest
46,477 32,020 Income taxes
3,373,673 2,928,711 Net income
$ 5,628,021 $ 4,766,200 Net income per share
Basic
$ 0.87 $ 0.75 Diluted
$ 0.80 $ 0.75 Weighted average number of shares outstanding
Basic
6,451,193 6,325,674 Diluted
7,029,014 6,391,139 See Notes to Unaudited Consolidated Financial Statements
2PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended October 31, --------------------------------------------------- 2002 2001 ----------------------- -----------------------CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,012,749 $ 5,654,182 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,725,400 4,569,237 Amortization of debt issue cost 612,188 462,011 Amortization of bond discount 257,356 123,000 Deferred income taxes 2,554,329 - Minority interest 88,948 - Other 11,783 (58,453) Changes in operating assets and liabilities (net of effects of acquisition transaction): Accounts receivable, net (11,578,764) 2,588,824 Inventories 1,634,146 9,052,418 Other current assets and prepaid income taxes (4,632,567) (185,850) Other assets (1,802,855) (1,063,024) Accounts payable and accrued expenses 4,075,046 (1,984,818) Income taxes payable (1,381,551) 2,221,819 Accrued interest payable (2,542,237) (3,161,433) Other current liabilities and unearned revenues 62,415 236,620 ----------------------- ----------------------- Net cash (used in) provided by operating activities (2,903,614) 18,454,533 ----------------------- ----------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (20,611,092) (1,930,689) Payment on purchase of intangible assets (210,914) (119,079) Payment for acquired businesses (25,084,374) - ----------------------- ----------------------- Net cash used in investing activities: (45,906,380) (2,049,768) ----------------------- ----------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments from senior credit facility (17,668,327) (14,843,898) Net payments from senior subordinated notes (2,199,492) - Net proceeds from senior secured notes 55,589,250 - Net proceeds from real estate mortgage 11,600,000 - Purchase of treasury stock - (1,787,130) Proceeds from exercise of stock options 1,237,005 6,875 ----------------------- ----------------------- Net cash provided by (used in) financing activities: 48,558,436 (16,624,153) ----------------------- ----------------------- Effect of exchange rate changes on cash and cash equivalents 13,718 - ----------------------- ----------------------- NET DECREASE IN CASH (237,840) (219,388) CASH AT BEGINNING OF YEAR 1,303,978 344,741 ----------------------- ----------------------- CASH AT END OF PERIOD $ 1,066,138 $ 125,353 ======================= ======================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 15,609,746 $ 14,028,640 ======================= ======================= Income taxes $ 6,302,561 $ 1,608,192 ======================= ======================= NON-CASH FINANCING AND INVESTING ACTIVITIES: Change in fair value of mark-to-market interest rate swap/option $ 6,715,321 $ 465,429 ----------------------- -----------------------
Three Months Ended April 30, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 5,628,021 $ 4,766,200 Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization
850,737 502,162 Amortization of debt issue cost
279,085 189,169 Amortization of bond discount
91,385 74,589 Minority interest
46,477 32,020 Other
111,888 12,628 Changes in operating assets and liabilities (net of effects of acquisition transaction):
Accounts receivable, net
(17,642,269 ) (17,947,365 ) Inventories
5,718,020 10,815,158 Other current assets and prepaid income taxes
1,637,516 186,734 Other assets
263,121 (1,673,546 ) Accounts payable and accrued expenses
(3,534,568 ) 213,988 Income taxes payable
— 515,525 Accrued interest payable
(3,511,914 ) (2,555,087 ) Other current liabilities and unearned revenues
(884,939 ) 320,866 Net cash used in operating activities
(10,947,440 ) (4,546,959 ) CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
(874,954 ) (831,473 ) Payment on purchase of intangible assets
— (12,218 ) Payment for acquired businesses
— (25,050,474 ) Net cash used in investing activities:
(874,954 ) (25,894,165 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) from senior credit facility
7,918,941 (21,756,094 ) Net proceeds from senior secured notes
— 55,589,250 Proceeds from exercise of stock options
690,573 316,184 Net cash provided by financing activities:
8,609,514 34,149,340 Effect of exchange rate changes on cash and cash equivalents
48,013 9,044 NET (DECREASE)/INCREASE IN CASH
(3,164,867 ) 3,717,260 CASH AT BEGINNING OF YEAR
4,683,177 1,303,978 CASH AT END OF PERIOD
$ 1,518,310 $ 5,021,238 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest
$ 7,329,008 $ 6,634,281 Income taxes
$ 4,625 $ 2,422,500 NON-CASH FINANCING AND INVESTING ACTIVITIES:
Change in fair value of mark-to-market interest rate swap/option
$ 51,914 $ 1,188,684 See Notes to Unaudited Consolidated Financial Statements
3PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
Item 1.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited consolidated financial statements of Perry Ellis International, Inc. and subsidiaries
("(“PerryEllis"Ellis” or the"Company"“Company”) have been prepared in accordance with accounting principles generally accepted in the United States("GAAP"(“GAAP”) for interim financial information and in accordance with the requirements of 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. These consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes included in theCompany'sCompany’s Annual Report on Form 10-K for the year ended January 31,2002.2003. Certain amounts in the prior period have been reclassified to conform to the currentperiod'speriod’s presentation.In our opinion, the information presented reflects all adjustments, all of which are 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. INVENTORIES
Inventories are stated at the lower of cost (moving average cost) or
market on a first-in, first-out basismarket. Cost principally consists of the purchase price, customs, duties, freight, insurance andconsist principally of finished goods.commissions to buying agents.3. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consist of the following as of:
April 30, 2003 January 31, 2003 Total letter of credit facilities
$ 62,599,834 $ 54,453,386 Outstanding letters of credit
(17,938,043 ) (31,966,591 ) Total credit available
$ 44,661,791 $ 22,486,795 4. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the lease term or estimated useful lives of the improvements. The useful lives range from three to thirty-nine years:
October 31, 2002 January 31, 2002 ------------------ ------------------Total letter of credit facilities $ 59,394,375 $ 44,362,500 Oustanding letters of credit (29,260,088) (11,035,880) ------------------ ------------------ Total credit available $ 30,134,287 $ 33,326,620 ================== ==================Asset Class
Avg. Useful Lives in Years Furniture, fixtures and equipment
3-7 Vehicles
7 Leasehold improvements
11 Buildings
39 4.5. INTANGIBLE ASSETS
Intangible assets primarily represent costs capitalized in connection with the acquisitions of brand names and license rights. Under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” identifiable intangible assets with an indefinite useful life are not amortized but are tested for impairment annually on Feb 1st of each year.
6. LONG-LIVED ASSETS
Management reviews long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If there is an indication of impairment, management prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to reduce the asset to its estimated fair value. Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning future conditions. There has not been any material impairment to long-lived assets.
7. ADVERTISING AND RELATED COSTS
The
Company'sCompany’s accounting policy relating to advertising and related costs is to expense these costs in the period incurred. Advertising and related costs were$2.9$2.7 million and$2.2$1.4 million for the three months endedOctober 31,April 30, 2003 and April 30, 2002and October 31, 2001,respectively, and$7.4 millionare included in selling, general and$6.1 millionadministrative expenses.8. ACCOUNTING FOR STOCK BASED COMPENSATION
The Company has chosen to account for stock-based compensation to employees and non-employee members of the Board using the intrinsic value method prescribed by Accounting Principles Board Opinion ( “APB”) No. 25,Accounting for Stock Issued to Employees, and related interpretations. As required by SFAS No. 123,Accounting for Stock-Based Compensation, the Company presents certain pro forma and other disclosures related to stock-based compensation
plans as if compensation cost for options granted had been determined in accordance with the fair value provisions of SFAS No. 123.
Three Months Ended April 30, 2003 2002 Net income as reported
$ 5,628,021 $ 4,766,200 Add : Total stock based employee compensation expense included in reported net income, net
— — Deduct : Total stock based employee compensation expense not included in reported net income, net
100,833 70,196 Pro forma net income
$ 5,527,188 $ 4,696,004 Pro forma net income per share:
Basic
$ 0.86 $ 0.74 Diluted
$ 0.79 $ 0.73 9. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted average shares of outstanding common stock. The calculation of diluted net income per share is similar to basic earnings per share except that the denominator includes potential dilutive common stock. The potential dilutive common stock included in the Company’s computation of diluted net income per share includes the effects of the stock options and warrants as determined using the treasury stock method.
The following table sets forth the computation of basic and diluted income per share
Three Months Ended April 30, 2003 2002 Numerator: Net income
$ 5,628,021 $ 4,766,200 Denominator:
Basic income per share—weighted average shares
6,451,193 6,325,674 Dilutive effect: stock options
577,821 65,465 Diluted income per share—weighted average shares
7,029,014 6,391,139 Basic income per share
$ 0.87 $ 0.75 Diluted income per share
$ 0.80 $ 0.75 Antidilutive effect: stock options(1)
— 199,550
(1) Represents weighted average stock options to purchase shares of common stock that were not included in computing diluted income per share because their effects were antidilutive for the respective periods. 10. COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and the effect of foreign currency translation. Comprehensive income was $5,787,922 and $4,778,828 for the
ninethree months endedOctober 31,April 30, 2003 and 2002,and October 31, 2001,respectively.45. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful lives of property and equipment consists of the following: Asset Class Avg. Useful Lives in Years --------------------------------- --------------------------- Furniture, fixtures and equipment 7 Vehicles 7 Leasehold improvements 11 The Company occupied its main administrative office, warehouse and distribution facility under a synthetic operating lease for a 240,000 square foot facility in Miami, Florida. The lease, as amended, expired on June 30, 2002, and required a final payment at termination of $14.5 million. On June 30, 2002, the Company made the required payment under the synthetic lease and partially refinanced the acquisition of the Miami facility with an $11.6 million mortgage. 6.11. SEGMENT INFORMATION
In accordance with
Statement of Financial Accounting Standards ("SFAS")SFAS No. 131,"Disclosure“Disclosure About Segments of an Enterprise and Related Information,"”our principal business segments are grouped into the generation of revenues from sale of products and royalties from licensing activity. These segments are identified and managed by the Company based on the products and services offered by each. The product segment derives its revenues from the design, importation and distribution of apparel to various retail channels, which include regional, national and international mass merchants, chain stores, department stores and other specialty retail stores, principally throughout the United States, Puerto Rico and Canada. The licensing segment derives its revenues from royalties associated with the licensing of itsbrand namestrademarks to third parties, principally PerryEllis(R)Ellis®, JohnHenry(R)Henry®,Manhattan(R)Manhattan® andMunsingwear(R)Munsingwear®. Trademark costs have been allocated among the segments where the brands are shared. Shared selling, general and administrative expenses are allocated amongst the segments based upon department utilization rates.
Three Months Ended October 31, Nine Months Ended October 31, ----------------------------------------- ------------------------------------------- 2002 2001 2002 2001 ------------------- ------------------- -------------------- --------------------Revenues: Product $ 63,037,262 $ 59,957,359 $ 198,050,391 $ 199,132,288 Licensing 7,561,270 6,402,886 21,238,697 19,325,950 ------------------- ------------------- -------------------- -------------------- Total Revenues $ 70,598,532 $ 66,360,245 $ 219,289,088 $ 218,458,238 =================== =================== ==================== ==================== Operating Income: Product $ 48,287 $ 494,839 $ 6,870,779 $ 8,268,228 Licensing 5,940,273 3,841,551 17,943,755 11,244,921 ------------------- ------------------- -------------------- -------------------- Total Operating Income $ 5,988,560 $ 4,336,390 $ 24,814,534 $ 19,513,149 =================== =================== ==================== ====================57.
Three Months Ended April 30, 2003 2002 Revenues:
Product
$ 101,866,844 $ 78,619,092 Licensing
6,411,177 6,076,793 Total Revenues
$ 108,278,021 $ 84,695,885 Operating Income:
Product
$ 9,663,594 $ 6,126,099 Licensing
4,347,889 5,467,563 Total Operating Income
$ 14,011,483 $ 11,593,662 12. JANTZEN ACQUISITION
On March 22, 2002, the Company acquired the Jantzen swimwear business from subsidiaries of VF Corporation for approximately $24.0 million, excluding
costsliabilities assumed and expenses incurred related to the transaction. The acquisition was financed with a portion of the proceeds from a $57.0 million private offering of9 1/2%9½% senior secured notes, which closed simultaneously with the acquisition.The Jantzen assets acquired consist primarily of the Jantzen trademarks and tradenames, license agreements, certain equipment
other items of personal property, showroom leasesand inventory relating to the 2003 season, which commenced in July 2002.As part of this acquisition, the Company also acquired licenses for the Tommy Hilfiger(R) brand for women's swimwear and for the Nike(R) brand for women's and girl's swimwear, men's and boy's racing swimsuits, swim equipment, swimwear accessories and apparel.In connection with the Jantzen acquisition, the Company entered into a lease agreement with VF Corporation to occupy
Jantzen'sJantzen’s Portland, Oregon administrative facility for an initial six-monthperiod, thereafter on a month-to-month basis. In addition, the Company entered into a lease agreement to occupy a portion of
Jantzen'sJantzen’s Seneca, South Carolina distribution center facility for a one-year period. The Company was also granted a right of first refusal to purchase the Seneca distribution center facility. The option was exercised on May 20, 2002 at a price of $2.5 million. The Company closed on this purchase during September 2002.The Jantzen assets acquired and liabilities assumed have been recorded at their
estimatedfair values.A final determination of the required purchase accounting adjustments and of the fair value of the assets and liabilities of Jantzen acquired or assumed has not yet been made.The following is a summary of the purchase price andmanagement's estimate of thepurchase price allocation.
(Dollars in Thousands) -----------------------Purchase price determination: Net purchase price $ 23,978 Liabilities assumed and expenses incurred in connection with the acquisition 3,063 --------------- Gross purchase price $ 27,041 --------------- Purchase price allocation: Inventories $ 2,191 Machinery and equipment 465 Trademarks 24,385 --------------- Gross purchase price $ 27,041 Less: liabilities assumed (1,957) --------------- Cash paid for acquisition and acquisition cost $ 25,084 ---------------68. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below, gives effect to the Jantzen acquisition, the offering of the senior secured notes and repayment of the senior credit facility, in each case as if they occurred as of the beginning of the fiscal year for the three and nine months ended October 31, 2002 and 2001. The information presented below is for illustrative purposes only and is not indicative of results, which would have been achieved, or results, which may be achieved in the future.
Three Months Ended October 31, Nine Months Ended October 31, ------------------------------- ------------------------------ 2002 2001 2002 2001 -------------- --------------- -------------- -------------- (Dollars in Thousands) (Dollars in Thousands)Total Revenues $ 70,599 $ 69,730 $ 221,318 $ 238,121 -------------- --------------- -------------- -------------- Net Income $ 1,062 $ 1,097 $ 8,262 $ 6,763 -------------- --------------- -------------- -------------- Net Income per Share Basic $ 0.17 $ 0.17 $ 1.30 $ 1.04 -------------- --------------- -------------- -------------- Diluted $ 0.16 $ 0.17 $ 1.27 $ 1.03 -------------- --------------- -------------- --------------9.
(Dollars in Thousands) Purchase price determination:
Net purchase price
$ 23,978 Liabilities assumed and expenses incurred in connection with the acquisition
3,063 Gross purchase price
$ 27,041 Purchase price allocation:
Inventories
$ 2,191 Machinery and equipment
465 Trademarks
24,385 Gross purchase price
$ 27,041 Less: liabilities assumed
(1,957 ) Cash paid for acquisition and acquisition cost
$ 25,084 13. RECENT ACCOUNTING PRONOUNCEMENT
In April
2001, the Financial Accounting Standards Board ("FASB") Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." This issue addresses the recognition, measurement and income statement classification of consideration from a vendor to a customer in connection with the customer's purchase or promotion of the vendor's products. This consensus is expected to only impact revenue and expense classifications by immaterial amounts and have no effect on reported income. Beginning in the first quarter of fiscal 2003, the Company adopted EITF Issue No. 01-09 on sales incentives in its financial statements and restated previously issued financial statements to reflect the provisions of these guidelines. The net impact from the adoption of these rules did not impact operating income, net income or the financial position of the Company, but resulted in the reclassification of certain selling, general and administrative expenses to net sales. In July 2001,2002, the FASB issued SFAS No.141, "Business Combinations." SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. SFAS No. 141 also addresses the recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 141 did not have a significant effect on the financial position or results of operations of the Company. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which changes the accounting treatment as it applies to goodwill and other identifiable intangible assets with indefinite useful lives from an amortization method to an impairment-only approach. Under SFAS No. 142, proper accounting treatment requires annual assessment for any impairment of the carrying value of the assets based upon an estimation of the fair value of the identifiable intangible asset with an indefinite useful life, or in the case of goodwill of the reporting unit to 7which the goodwill pertains. Impairment losses, if any, arising from the initial application of SFAS No. 142 are to be reported as a cumulative effect of a change in accounting principle. The- effective date of this statement is for fiscal years beginning after December 15, 2001. The Company has adopted SFAS No. 142 for its fiscal year beginning February 1, 2002. In accordance with SFAS No. 142, the Company obtained a valuation of all its trademarks from a third party independent valuation firm. Based on this valuation, no significant impairment was identified. Under SFAS No. 142, goodwill and identifiable intangible assets with an indefinite useful life are no longer subject to amortization. SFAS No. 142 does not permit the restatement of previously issued financial statements, but does require the disclosure of prior results adjusted to exclude amortization expense related to goodwill and intangible assets, which are no longer being amortized. Basic and diluted earnings per share for the three months ended October 31, 2001, adjusted to exclude amounts no longer being amortized under the provisions of SFAS No. 142, were $0.25. Basic and diluted earnings per share for the nine-month period ended October 31, 2001 were $1.17.
Three Months Ended October 31, Nine Months Ended October 31, ------------------------------- ------------------------------ 2002 2001 2002 2001 -------------- --------------- -------------- --------------Net income Reported net income $ 1,061,877 $ 969,675 $ 8,012,749 $ 5,654,182 Amortization of trademarks - 646,692 - 1,939,555 -------------- --------------- -------------- -------------- Adjusted net income $ 1,061,877 $ 1,616,367 $ 8,012,749 $ 7,593,737 -------------- --------------- -------------- -------------- Basic earnings per share Reported basic earnings per share $ 0.17 $ 0.15 $ 1.26 $ 0.87 Amortization of trademarks - 0.10 - 0.30 -------------- --------------- -------------- -------------- Adjusted basic earnings per share $ 0.17 $ 0.25 $ 1.26 $ 1.17 -------------- --------------- -------------- -------------- Diluted earnings per share Reported diluted earnings per share $ 0.16 $ 0.15 $ 1.24 $ 0.87 Amortization of trademarks - 0.10 - 0.30 -------------- --------------- -------------- -------------- Adjusted diluted earnings per share $ 0.16 $ 0.25 $ 1.24 $ 1.17 -------------- --------------- -------------- --------------On October 3, 2001, the FASB issued SFAS No. 144. "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," it retains many of the fundamental provisions of that Statement. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations---Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. The effective date of this statement is for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected to have a significant effect on the financial position or the results of operation of the Company. 8In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.145,"Rescission“Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections," ("SFAS 145"),” which all but eliminates the presentation in income statements of debt extinguishments as extraordinary items. SFAS No. 145 will be effective for fiscal years beginning after May 15, 2002. The Companyplans to implementadopted SFAS No. 145 as of February 1, 2003. SFAS 145at the beginning of fiscal 2004. SFAS 145 isdid notexpected tohave asignificant effectmaterial impact on the financial position or results of operations of the Company.In July 2002, the
Financial Accounting Standards BoardFASB issuedStatement of Financial Accounting StandardsSFAS No. 146,"Accounting“Accounting for Costs Associated with Exit of Disposal Activities" ("SFAS 146"),” which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to exit or disposal plan. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. SFAS No. 146isdid notexpected tohave asignificant effectmaterial impact on the financial position or results of operations of the Company.10. DERIVATIVES FINANCIAL INSTRUMENTS The Company adoptedIn November 2002, the FASB
Statementissued FASB Interpretation No.133, "Accounting45 “Guarantor’s Accounting and Disclosure Requirements forDerivative InstrumentsGuarantees, Including Indirect Guarantees of Indebtedness of Others—an Interpretation of FASB Statements No. 5, 57, andHedging Activities," as amended107 and Rescission of FASB Interpretation No. 34” (“FIN 45”). FIN 45 elaborates on the disclosures to be made bySFAS 138, effective February 1, 2001. SFAS 133 requires that all derivative financial instruments such as interest rate swap contractsa guarantor in its interim andforeign exchange contracts, be recognized in theannual financial statementsand measuredabout its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, atfair value regardlessthe inception ofthe purpose or intenta guarantee, a liability forholding them. Changes inthe fair value ofderivativethe obligation undertaken in issuing the guarantee. The initialrecognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. However, the disclosure requirements in FIN 45 are effective for financial
instruments are either recognizedstatements of interim or annual periods ending after December 15, 2002. Perry Ellis is not a party to any agreement inincome or shareholders' equity (aswhich it is acomponentguarantor ofcomprehensive income), depending on whether the derivative is being used to hedge changes in fair value or cash flows. The adoptionindebtedness ofSFAS 133others. FIN 45 did not have a material effect on Perry Ellis’ financial position or results of operations.In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,”to require disclosure in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure provision of SFAS No. 148 effective for fiscal year ended January 31, 2003.
In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities—an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities or SPEs). In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The objective of FIN 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The Company is required to adopt the provisions of FIN 46 immediately for variable interests in variable interest entities created after January 31, 2003, and in the quarter ending October 31, 2003 for variable interests in variable interest entities created before February 1, 2003. However, certain of the disclosure requirements apply to financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities as defined in FIN 46. Accordingly, the Company has determined that it is not reasonably possible that it will be required to consolidate or disclose information about a variable interest entity upon the adoption of FIN 46.
In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. The new guidance amends SFAS No. 133 for decisions made (a) as part of the Derivatives Implementation Group process that effectively required amendments to SFAS No. 133, (b) in connection with other Board projects dealing with financial instruments, and (c) regarding implementation issues raised in relation to the application of the definition of a derivative, particularly regarding the meaning of an “underlying” and the characteristics of a derivative that contains financing components. The amendments set forth in SFAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. SFAS No. 149 is not expected to have a material impact on the financial position or results of operations of the Company.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The new Statement requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. For financial instruments created before May 2003 and still existing at the beginning of the interim period of adoption, transition will be accomplished by reporting the cumulative effect of a change in an accounting principle. SFAS No. 150 is not expected to have a material impact on the financial position or results of operations of the Company.
14. DERIVATIVES FINANCIAL INSTRUMENTS
The Company has entered into derivative financial instruments in order to manage the overall borrowing costs associated with its senior subordinated notes and senior secured notes.
At
October 31, 2002,April 30, 2003, the Company has an interest rate swap agreement with a notional amount of $40.0 milliondollarsmaturing on April 1, 2006. The swap is a fair value hedge as it has been designated against the senior subordinated notes carrying a fixed rate of interest and converts such notes to variable rate debt. The interest rate swap contracts are reflected at fair value in theCompany'sCompany’s consolidated balance sheet.At
October 31, 2002,April 30, 2003, the Company alsohadhas an interest rate cap maturing on April 1, 2006andwith a notional amount of $40.0 million. The Company also had a basis swapmaturing on April 3, 2003, bothwith a notional amount of $40.0 milliondollars.that matured in April 2003. The interest rate cap effectively hedges against increases in the variable rate of interest paid on the interest rate swap and the basis swapdecreasesdecreased the spread on the interest rate swap for 18months.months thru April 2003. Neither of these derivatives qualified for hedge accounting and accordingly, are reflected at fair value in theCompany `sCompany’s consolidated balance sheet with the offset being recognized in the consolidatedstatementstatements of income for thecurrent period.periods presented. Interest expense for the threeand ninemonths endedOctober 31,April 30, 2003 and April 30, 2002has beenincreased by approximately $0.2 million andincreased by approximately $0.4$0.3 million, respectively as a result of the recognition of these derivatives.In conjunction with the March 2002 offering of $57.0 million of 9 1/2% senior secured notes due March 15, 2009,At April 30, 2003, the Company
entered intohas an interest rate swap and optionagreements(the"March“March SwapAgreement"Agreement”) for an aggregate notional amount of $57.0 million in order to minimize the debt servicing costs associated with the senior secured notes.The March Swap Agreement is scheduled to 9terminate on March 15, 2009. Under the March Swap Agreement, the Company is entitled to receive semi-annual interest payments on September 15 and March 15 at a fixed rate of 9 1/2% and are obligated to make semi-annual interest payments on September 15 and March 15 at a floating rate based on the three-month LIBOR rate plus 369 basis points for the period from March 22, 2002 through March 15, 2009. The March Swap Agreement has optional call provisions with trigger dates of March 15, 2005, March 15, 2006 and March 15, 2007, which contain premium requirements in the event the call is exercised.The March Swap Agreement is a fair value hedge as it has been designated against the senior secured notes carrying a fixed rate of interest and converts such notes to variable rate debt. The interest rate swap contracts are reflected at fair value in thecompany'scompany’s consolidated balance sheet.11.The fair value of the March Swap Agreement recorded on the Company’s Consolidated Balance Sheet was $5.5 million as of April 30, 2003.In December 2002, the Company entered into an interest rate floor agreement (the “December Floor Agreement”) for an aggregate notional amount of $57.0 million associated with the senior secured notes. The December Floor Agreement is scheduled to terminate on March 15, 2005. Under the December Floor Agreement, the Company must pay the difference between the three-month LIBOR rate and 1.50% for all rate resets in which the LIBOR is below 1.50%. When the LIBOR is equal to or greater than 1.50%, the Company makes no payments under the Floor.
The December Floor Agreement did not qualify for hedge accounting treatment, resulting in $0.1 million increase of recorded interest expense on the Consolidated Statement of Income for
the quarter ended April 30, 2003. The fair value of the December Floor Agreement recorded on the Company’s Consolidated Balance Sheet was ($0.3) million as of April 30, 2003.
In April 2003, the Company entered into an interest rate cap agreement (the “April Cap Agreement”) for an aggregate notional amount of $57.0 million associated with the senior secured notes. The April Cap Agreement is scheduled to terminate on March 15, 2009. The April Cap Agreement caps the interest rate on the $57.0 million senior secured notes at 10%.
The April Cap Agreement did not qualify for hedge accounting treatment, resulting in $0.3 million increase of recorded interest expense on the Consolidated Statement of Income for the quarter ended April 30, 2003. The fair value of the April Cap Agreement recorded on the Company’s Consolidated Balance Sheet was ($0.3) million as of April 30, 2003.
The Company does not currently have a significant exposure to foreign exchange risk and accordingly, has not entered into any transactions to hedge against those risks.
15. SALANT ACQUISITION
On February 3, 2003, the Company entered into a merger agreement with Salant Corporation, the Company’s largest licensee, which provides for the merger of a wholly owned Company subsidiary with Salant. If the merger is completed, Salant will become a wholly owned subsidiary of the Company.
The aggregate merger consideration to be paid by the Company is $91.0 million, comprised of approximately $52.0 million in cash and approximately $39.0 million worth of newly issued Perry Ellis common stock. Salant shareholders will receive approximately $9.37 per share in value comprised of at least $5.35 per share in cash and not more than $4.02 per share of Perry Ellis common stock. The precise fraction of a share of Perry Ellis common stock that the Company will issue in the merger for each Salant share will be determined based on the average closing price of the Perry Ellis common stock for the 20-day period ending three trading days before the anticipated merger closing date. The maximum number of shares of Perry Ellis common stock that may be issued in the Salant acquisition is limited to 3,250,000. The Company expects the transactions costs to be approximately $10.0 million.
Salant licenses the Perry Ellis brand from the Company for men���s sportswear, dress shirts, dress bottoms and accessories and derived approximately $164.3 million or 65% of its fiscal 2002 revenues from the sale of Perry Ellis products. Salant is the Company’s largest licensee of Perry Ellis branded apparel. The remaining $87.7 million of Salant’s fiscal 2002 revenue is made up of Salant’s owned brands such as Axis and Tricots St. Raphael, sales under license agreements for use of the JNCO and Ocean Pacific brands, as well as, several private label programs. The Salant acquisition is expected to close on or about June 19th, 2003.
16. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
ThePerry Ellis International, Inc. and several of its subsidiaries have fully and unconditionally guaranteed the senior secured notes and senior subordinated notes on a joint and several basis. As such, the following
areconsolidating condensed financial statements, which present, in separate columns: Perry Ellis,International, Inc.,theGuarantorsguarantors on a combinedor where appropriate, consolidated basis,and theNon-Guarantorsnon-guarantors on a consolidatedbasis.basis are required to be presented. Additional columns present eliminating adjustments and consolidated totals as ofOctober 31, 2002April 30, 2003 and January 31,2002,2003, and for the three months ended April 30, 2003 andnine months ended October 31, 2002 and 2001. The combined Guarantors are wholly owned subsidiaries of Perry Ellis International, Inc., and have fully and unconditionally guaranteed the senior secured notes on a joint and several basis.2002. The Company has not presented separate financial statements and other disclosures concerning the combinedGuarantorsguarantors because management has determined that such information is not material to investors.10
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF APRIL 30, 2003
Non- Parent Only Guarantors Guarantors Eliminations Consolidated ASSETS
Current Assets:
Cash and cash equivalents
$ (1,040,265 ) $ 422,090 $ 2,136,485 $ — $ 1,518,310 Accounts receivable, net
31,378 116,830,345 1,812,071 (21,541,786 ) 97,132,008 Intercompany receivable—Guarantors
— 43,496,438 — (43,496,438 ) — Intercompany receivable—Non Guarantors
— 758,772 — (758,772 ) — Inventories, net
— 45,358,944 229,510 — 45,588,454 Deferred income taxes
— 2,769,086 — — 2,769,086 Other current assets
561,889 5,172,049 21,944 — 5,755,882 Total current assets
(446,998 ) 214,807,724 4,200,010 (65,796,996 ) 152,763,740 Property and equipment, net
— 31,054,058 25,027 — 31,079,085 Intangible assets, net
— 120,473,276 21,712,786 — 142,186,062 Investment in subsidiaries
80,943,780 — — (80,943,780 ) — Other
873,500 11,290,114 — — 12,163,614 TOTAL
$ 81,370,282 $ 377,625,172 $ 25,937,823 $ (146,740,776 ) $ 338,192,501 LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$ 134,886 $ 8,729,143 $ 193,643 $ — $ 9,057,672 Accrued expenses
197,436 5,089,240 — — 5,286,676 Intercompany payable—Parent
(21,963,764 ) 64,177,188 1,924,979 (44,138,403 ) — Income taxes payable
(679,065 ) 349,630 329,435 — — Accrued interest payable
— 1,163,015 — — 1,163,015 Unearned revenues
— 1,434,016 158,332 — 1,592,348 Other current liabilities
— 895,868 78,821 — 974,689 Total current liabilities
(22,310,507 ) 81,838,100 2,685,210 (44,138,403 ) 18,074,400 Senior subordinated notes payable, net
(2,199,492 ) 101,532,129 21,541,786 (21,541,786 ) 99,332,637 Deferred income tax
— 10,432,897 — — 10,432,897 Senior credit facility
— 30,841,228 — — 30,841,228 Real estate mortgage
— 11,600,000 — — 11,600,000 Senior secured notes payable, net
— 61,282,101 — — 61,282,101 Total long-term liabilities
(2,199,492 ) 215,688,355 21,541,786 (21,541,786 ) 213,488,863 Total liabilities
(24,509,999 ) 297,526,455 24,226,996 (65,680,189 ) 231,563,263 Commitments and Contingencies
Long Term Debt
— — 613,525 (613,525 ) — Minority Interest
— — 748,926 31 748,957 Stockholders' Equity:
Preferred stock $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding
— Common stock $.01 par value; 30,000,000 shares authorized; 6,500,076 shares issued and outstanding as of April 30, 2003
65,001 100 63 (163 ) 65,001 Additional paid-in-capital
27,887,923 — — — 27,887,923 Contributing Capital
— 3,997,338 — (3,997,338 ) — Retained earnings
77,810,550 76,132,115 257,273 (76,389,388 ) 77,810,550 Accumulated other comprehensive income
116,807 (30,836 ) 91,040 (60,204 ) 116,807 Total stockholders' equity
105,880,281 80,098,717 348,376 (80,447,093 ) 105,880,281 TOTAL
$ 81,370,282 $ 377,625,172 $ 25,937,823 $ (146,740,776 ) $ 338,192,501 PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF
OCTOBERJANUARY 31,2002
Non- Parent Only Guarantors Guarantors Eliminations Consolidated --------------- -------------- ------------- --------------- ---------------ASSETS Current Assets: Cash and cash equivalents $ 157,648 $ (61,072) $ 969,562 $ 1,066,138 Accounts receivable, net 800,051 60,480,154 668,804 61,949,009 Intercompany receivable - Guarantors - 14,746,772 - (14,746,772) - Intercompany receivable - Non Guarantors - 606,065 - (606,065) - Inventories, net - 45,522,331 443,712 45,966,043 Deferred income taxes - 2,704,281 - 2,704,281 Prepaid income taxes - 2,775,404 - 2,775,404 Other current assets 358,435 3,294,001 38,070 3,690,506 -------------- ------------- ----------- -------------- ------------- Total current assets 1,316,134 130,067,936 2,120,148 (15,352,837) 118,151,381 Property and equipment, net - 30,280,440 31,460 30,311,900 Intangible assets, net 15,568,834 126,965,224 142,534,058 Investment in subsidiaries 74,622,685 - (74,622,685) - Other 912,349 10,864,342 11,776,691 -------------- ------------- ----------- -------------- ------------- TOTAL $ 92,420,002 $ 298,177,942 $ 2,151,608 $ (89,975,522) $ 302,774,030 ============== ============= =========== ============== ============= LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 17,207 $ 9,611,959 $ 264,895 $ 9,894,061 Accrued expenses 606,415 4,694,037 73,575 5,374,027 Intercompany payable - Parent (4,875,369) 19,622,141 606,065 (15,352,837) - Accrued interest payable - 1,266,760 1,266,760 Unearned revenues 206,674 1,719,724 1,926,398 Other current liabilities - 2,330,806 54,723 2,385,529 -------------- ------------- ----------- -------------- ------------- Total current liabilities (4,045,073) 39,245,427 999,258 (15,352,837) 20,846,775 Senior subordinated notes payable, net - 98,862,338 98,862,338 Senior secured notes payable, net - 60,571,612 60,571,612 Senior credit facility - 4,087,767 4,087,767 Real estate mortgage - 11,600,000 556,922 (556,922) 11,600,000 Deferred income tax - 9,624,126 9,624,126 -------------- ------------- ----------- -------------- ------------- Total long-term liabilities - 184,745,843 556,922 (556,922) 184,745,843 -------------- ------------- ----------- -------------- ------------- Total liabilities (4,045,073) 223,991,270 1,556,180 (15,909,759) 205,592,618 -------------- ------------- ----------- -------------- ------------- Minority Interest 716,306 31 716,337 -------------- ------------- ----------- -------------- ------------- 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; 6,416,390 shares issued and outstanding as of October 31, 2002 64,164 100 63 (163) 64,164 Additional paid-in-capital 27,111,889 27,111,889 Contributing Capital - 6,196,830 (6,196,830) - Retained earnings 69,398,992 68,108,669 (129,898) (67,978,771) 69,398,992 Accumulated other comprehensive income (109,970) (118,927) 8,957 109,970 (109,970) -------------- ------------- ----------- -------------- ------------- Total 96,465,075 74,186,672 (120,878) (74,065,794) 96,465,075 Common stock in treasury at cost -------------- ------------- ----------- -------------- ------------- Total stockholders' equity 96,465,075 74,186,672 (120,878) (74,065,794) 96,465,075 -------------- ------------- ----------- -------------- ------------- TOTAL $ 92,420,002 $ 298,177,942 $ 2,151,608 $ (89,975,522) $ 302,774,030 ============== ============= =========== ============== =============112003
Non- Parent Only Guarantors Guarantors Eliminations Consolidated ASSETS
Current Assets:
Cash and cash equivalents
$ (44,791 ) $ 3,533,055 $ 1,194,913 $ — $ 4,683,177 Accounts receivable, net
1,072,969 78,161,200 255,570 — 79,489,739 Intercompany receivable—Guarantors
— 53,636,456 — (53,636,456 ) — Intercompany receivable—Non Guarantors
— 582,410 — (582,410 ) — Inventories
— 50,908,167 398,307 — 51,306,474 Deferred income taxes
— 2,957,765 — — 2,957,765 Prepaid income taxes
— 3,361,650 — — 3,361,650 Other current assets
285,385 3,819,382 — — 4,104,767 Total current assets
1,313,563 196,960,085 1,848,790 (54,218,866 ) 145,903,572 Property and equipment, net
— 31,019,320 29,556 — 31,048,876 Intangible assets, net
15,490,786 126,695,276 — — 142,186,062 Investment in subsidiaries
74,553,931 — — (74,553,931 ) — Other
837,500 11,261,335 — — 12,098,835 TOTAL
$ 92,195,780 $ 365,936,016 $ 1,878,346 $ (128,772,797 ) $ 331,237,345 LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$ 124,806 $ 12,501,910 $ 193,452 $ — $ 12,820,168 Accrued expenses
242,248 4,812,742 3,758 — 5,058,748 Intercompany payable—Parent
(5,351,406 ) 59,034,006 579,360 (54,261,960 ) — Income taxes payable
(151,616 ) 123,305 28,311 — — Accrued interest payable
— 4,674,929 — — 4,674,929 Unearned revenues
129,454 1,865,100 — — 1,994,554 Other current liabilities
— 1,449,615 7,807 — 1,457,422 Total current liabilities
(5,006,514 ) 84,461,607 812,688 (54,261,960 ) 26,005,821 Senior subordinated notes payable, net
(2,199,492 ) 101,380,072 — — 99,180,580 Senior secured notes payable, net
— 60,729,796 — — 60,729,796 Senior credit facilities
— 22,922,287 — — 22,922,287 Real Estate Mortgage
— 11,600,000 556,922 (556,922 ) 11,600,000 Deferred income tax
— 10,694,595 — — 10,694,595 Total long-term liabilities
(2,199,492 ) 207,326,750 556,922 (556,922 ) 205,127,258 Total liabilities
(7,206,006 ) 291,788,357 1,369,610 (54,818,882 ) 231,133,079 Commitment and Contingencies
Minority Interest
— — 702,449 31 702,480 Stockholders' Equity:
Preferred stock $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding
— — — — — Common stock $.01 par value; 30,000,000 shares authorized; 6,425,641 shares issued and outstanding as of January 31, 2003
64,257 100 63 (163 ) 64,257 Additional paid-in-capital
27,198,094 — — 27,198,094 Contributing Capital
— 3,997,338 — (3,997,338 ) — Retained earnings
72,182,529 70,252,092 (252,553 ) (69,999,539 ) 72,182,529 Accumulated other comprehensive income
(43,094 ) (101,871 ) 58,777 43,094 (43,094 ) Total stockholders' equity
99,401,786 74,147,659 (193,713 ) (73,953,946 ) 99,401,786 TOTAL
$ 92,195,780 $ 365,936,016 $ 1,878,346 $ (128,772,797 ) $ 331,237,345 PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETSSTATEMENTS OF INCOME (UNAUDITED)AS OF JANUARY 31, 2002
Non- Parent Only Guarantors Guarantors Eliminations Consolidated ------------- ------------ ------------ -------------- --------------ASSETS Current Assets: Cash and cash equivalents $ - $ 124,998 $ 1,178,980 $ - $ 1,303,978 Accounts receivable, net 793,111 48,978,288 712,804 (113,958) 50,370,245 Intercompany receivable - Guarantors - 456,813 (456,813) - Intercompany receivable - Non Guarantors - 698,854 (698,854) - Inventories - 45,317,126 91,921 - 45,409,047 Deferred income taxes - 1,951,553 432,763 2,384,316 Other current assets 188,616 1,697,547 - 1,886,163 ------------- ------------ ------------ -------------- -------------- Total current assets 981,727 99,225,179 1,983,705 (836,862) 101,353,749 Property and equipment, net - 10,862,844 34,490 - 10,897,334 Intangible assets, net 15,568,834 102,370,060 - 117,938,894 Investment in subsidiaries 60,993,698 - (60,993,698) - Other 309,656 3,561,047 - 3,870,703 ------------- ------------ ------------ -------------- -------------- TOTAL $ 77,853,915 $216,019,130 $ 2,018,195 $ (61,830,560) $ 234,060,680 ============= ============ ============ ============== ============== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ - $ 5,908,727 $ 171,599 $ (113,958) $ 5,966,368 Accrued expenses 325,960 2,903,642 30,000 - 3,259,602 Intercompany payable - Parent (9,926,537) 10,383,350 698,854 (1,155,667) - Income taxes payable - 2,607,686 160,105 (1,386,240) 1,381,551 Accrued interest payable - 3,808,997 - - 3,808,997 Current portion - senior credit facility - 21,819,334 (63,240) - 21,756,094 Unearned revenues 250,954 1,587,975 - - 1,838,929 Other current liabilities - 2,319,622 90,961 - 2,410,583 ------------- ------------ ------------ -------------- -------------- Total current liabilities (9,349,623) 51,339,333 1,088,279 (2,655,865) 40,422,124 Senior subordinated notes payable, net - 99,071,515 - - 99,071,515 Deferred income tax - 4,930,829 - 1,819,003 6,749,832 ------------- ------------ ------------ -------------- -------------- Total long-term liabilities - 104,002,344 - 1,819,003 105,821,347 ------------- ------------ ------------ -------------- -------------- Total liabilities (9,349,623) 155,341,677 1,088,279 (836,862) 146,243,471 ------------- ------------ ------------ -------------- -------------- Minority Interest - - 613,671 - 613,671 ------------- ------------ ------------ -------------- -------------- 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; 6,337,440 shares issued and 6,286,740 shares outstanding as of January 31, 2002. 63,374 100 556,954 (557,054) 63,374 Additional paid-in-capital 26,286,040 - - 26,286,040 Retained earnings 61,386,244 60,799,106 (240,709) (60,558,397) 61,386,244 Accumulated other comprehensive income (121,753) (121,753) 121,753 (121,753) ------------- ------------ ------------ -------------- -------------- Total 87,613,905 60,677,453 316,245 (60,993,698) 87,613,905 Common stock in treasury at cost (410,367) - - - (410,367) ------------- ------------ ------------ -------------- -------------- Total stockholders' equity 87,203,538 60,677,453 316,245 (60,993,698) 87,203,538 ------------- ------------ ------------ -------------- -------------- TOTAL $ 77,853,915 $216,019,130 $ 2,018,195 $ (61,830,560) $ 234,060,680 ============= ============ ============ ============== ==============12FOR THE THREE MONTHS ENDED APRIL 30, 2003
Non- Parent Only Guarantors Guarantors Eliminations Consolidated Revenues
Net sales
$ — $ 100,736,349 $ 1,130,495 $ — $ 101,866,844 Royalty income
— 5,193,857 1,217,320 — 6,411,177 Total revenues
— 105,930,206 2,347,815 — 108,278,021 Cost of sales
— 70,868,613 676,502 — 71,545,115 Gross profit
— 35,061,593 1,671,313 — 36,732,906 Operating expenses
Selling, general and administrative expenses
1,209,250 19,852,411 547,752 — 21,609,413 Depreciation and amortization
— 1,107,986 4,025 — 1,112,011 Total operating expenses
1,209,250 20,960,397 551,777 — 22,721,424 Operating income
(1,209,250 ) 14,101,196 1,119,536 — 14,011,482 Interest expense
— 4,742,587 220,724 — 4,963,311 Income before minority interest and income taxes
(1,209,250 ) 9,358,609 898,812 — 9,048,171 Minority interest
— — 46,477 — 46,477 Equity in earnings of subsidiaries, net
(6,389,849 ) — — 6,389,849 — Income taxes
(447,422 ) 3,478,587 342,508 — 3,373,673 Net income
$ 5,628,021 $ 5,880,022 $ 509,827 $ (6,389,849 ) $ 5,628,021 PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED
OCTOBER 31,APRIL 30, 2002
Non- Parent Only Guarantors Guarantors Eliminations Consolidated -------------- -------------- ------------- ------------- --------------Revenues Net sales $ - $ 61,215,789 $ 1,821,473 $ - $ 63,037,262 Royalty income 1,400,015 6,161,255 - - 7,561,270 ------------- -------------- ------------ ------------- -------------- Total revenues 1,400,015 67,377,044 1,821,473 - 70,598,532 Cost of sales - 45,150,015 896,540 - 46,046,555 ------------- -------------- ------------ ------------- -------------- Gross profit 1,400,015 22,227,029 924,933 - 24,551,977 Operating expenses Selling, general and administrative expenses 932,500 16,267,916 509,635 - 17,710,051 Depreciation and amortization - 851,481 1,885 - 853,366 ------------- -------------- ------------ ------------- -------------- Total operating expenses 932,500 17,119,397 511,520 - 18,563,417 ------------- -------------- ------------ ------------- -------------- Operating income 467,515 5,107,632 413,413 - 5,988,560 Interest expense (18,058) 4,168,890 2,249 - 4,153,081 ------------- -------------- ------------ ------------- -------------- Income before minority interest and income tax provision 485,573 938,742 411,164 - 1,835,479 Minority interest - - (79,103) - (79,103) Equity in earnings of subsidiaries, net (757,911) - - 757,911 - Income taxes 181,607 346,625 166,267 - 694,499 ------------- -------------- ------------ ------------- -------------- Net income $ 1,061,877 $ 592,117 $ 165,794 $ (757,911) $ 1,061,877 ============= ============== ============ ============= ==============13
Parent Only Guarantors Non-Guarantors Eliminations Consolidated Revenues
Net sales
$ — $ 77,971,412 $ 647,680 $ — $ 78,619,092 Royalty income
884,070 5,192,723 — — 6,076,793 Total revenues
884,070 83,164,135 647,680 — 84,695,885 Cost of sales
— 57,366,328 565,771 — 57,932,099 Gross profit
884,070 25,797,807 81,909 — 26,763,786 Operating expenses
Selling, general and administrative expenses
769,050 13,277,246 464,090 — 14,510,386 Depreciation and amortization
— 657,872 1,866 — 659,738 Total operating expenses
769,050 13,935,118 465,956 — 15,170,124 Operating income
115,020 11,862,689 (384,047 ) — 11,593,662 Interest expense
(15,467 ) 3,881,356 842 — 3,866,731 Income before minority interest and income taxes
130,487 7,981,333 (384,889 ) — 7,726,931 Minority Interest
— — 32,020 32,020 Equity in earnings of subsidiaries, net
(4,684,907 ) — 4,684,907 — Income taxes
49,194 3,021,127 (141,610 ) — 2,928,711 Net income
$ 4,766,200 $ 4,960,206 $ (275,299 ) $ (4,684,907 ) $ 4,766,200 PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
INCOMECASH FLOWS (UNAUDITED)FOR THE THREE MONTHS ENDED
OCTOBER 31, 2001
Non- Parent Only Guarantors Guarantors Eliminations Consolidated ----------- ------------ ------------- -------------- ------------Revenues Net sales $ - $ 61,694,928 $ (1,183,803) $ - $ 60,511,125 Royalty income 778,181 5,624,705 - - 6,402,886 ----------- ------------ ------------- -------------- ------------ Total revenues 778,181 67,319,633 (1,183,803) - 66,914,011 Cost of sales - 47,607,000 (234,991) - 47,372,009 ----------- ------------ ------------- -------------- ------------ Gross profit 778,181 19,712,633 (948,812) - 19,542,002 Operating expenses Selling, general and administrative expenses 583,094 12,894,043 41,563 - 13,518,700 Depreciation and amortization 133,397 1,553,515 - - 1,686,912 ----------- ------------ ------------- -------------- ------------ Total operating expenses 716,491 14,447,558 41,563 - 15,205,612 ----------- ------------ ------------- -------------- ------------ Operating income 61,690 5,265,075 (990,375) - 4,336,390 Interest expense (11,401) 2,861,590 - - 2,850,189 ----------- ------------ ------------- -------------- ------------ Income before minority interest and income tax provision 73,091 2,403,485 (990,375) - 1,486,201 Equity in earnings of subsidiaries, net (925,016) - 60,950 925,016 60,950 Income taxes 28,432 897,653 (348,609) - 577,476 ----------- ------------ ------------- -------------- ------------ Net income $ 969,675 $ 1,505,832 $ (580,816) $ (925,016) $ 969,675 =========== ============ ============= ============== ============14APRIL 30, 2003
Parent Only Guarantors Non-Guarantors Eliminations Consolidated CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$ 5,628,021 $ 5,880,022 $ 509,827 $ (6,389,849 ) $ 5,628,021 Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization
— 845,130 5,607 — 850,737 Amortization of debt issue cost
— 279,085 — — 279,085 Amortization of bond discount
— 91,385 — — 91,385 Minority Interest
— — 46,477 — 46,477 Equity in earnings of subsidiaries, net
(6,389,849 ) — — 6,389,849 — Other
159,901 — (48,013 ) 111,888 Changes in operating assets and liabilities
Accounts receivable, net
(79,981 ) (17,269,272 ) (293,016 ) — (17,642,269 ) Inventories
— 5,549,223 168,797 — 5,718,020 Other current assets and prepaid income taxes
(276,504 ) 1,935,964 (21,944 ) — 1,637,516 Other assets
(36,000 ) 299,121 — — 263,121 Accounts payable and accrued expenses
(34,732 ) (3,496,268 ) (3,568 ) — (3,534,568 ) Income taxes payable
(527,449 ) 226,325 301,124 — — Accrued interest payable
— (3,511,914 ) — — (3,511,914 ) Other current liabilities and unearned revenues
(129,454 ) (984,831 ) 229,346 — (884,939 ) Net cash provided by (used) in operating activities
(1,686,047 ) (10,156,030 ) 894,637 — (10,947,440 ) CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
— (873,876 ) (1,078 ) — (874,954 ) Net cash used in investing activities:
— (873,876 ) (1,078 ) — (874,954 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from senior credit facility
— 7,918,941 — — 7,918,941 Proceeds from exercise of stock options
690,573 — — — 690,573 Net cash provided by financing activities:
690,573 7,918,941 — — 8,609,514 Effect of exchange rate changes on cash and cash equivalents
48,013 48,013 NET (DECREASE) INCREASE IN CASH
(995,474 ) (3,110,965 ) 941,572 — (3,164,867 ) CASH AT BEGINNING OF YEAR
(44,791 ) 3,533,055 1,194,913 — 4,683,177 CASH AT END OF YEAR
(1,040,265 ) 422,090 2,136,485 — 1,518,310 PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED OCTOBER 31, 2002
Non- Parent Only Guarantors Guarantors Eliminations Consolidated --------------- -------------- ------------- -------------- --------------Revenues Net sales $ - $ 195,527,563 $ 2,522,828 $ - $ 198,050,391 Royalty income 3,350,103 17,888,594 - - 21,238,697 --------------- -------------- ------------ -------------- -------------- Total revenues 3,350,103 213,416,157 2,522,828 - 219,289,088 Cost of sales - 145,000,204 1,514,240 - 146,514,444 --------------- -------------- ------------ -------------- -------------- Gross profit 3,350,103 68,415,953 1,008,588 - 72,774,644 Operating expenses Selling, general and administrative expenses 2,422,308 42,628,013 653,595 - 45,703,916 Depreciation and amortization - 2,253,164 3,030 - 2,256,194 --------------- -------------- ------------ -------------- -------------- Total operating expenses 2,422,308 44,881,177 656,625 - 47,960,110 --------------- -------------- ------------ -------------- -------------- Operating income 927,795 23,534,776 351,963 - 24,814,534 Interest expense (18,058) 11,820,671 3,779 - 11,806,392 --------------- -------------- ------------ -------------- -------------- Income before minority interest and income tax provision 945,853 11,714,105 348,184 - 13,008,142 Minority interest - - (88,948) - (88,948) Equity in earnings of subsidiaries, net (7,420,374) 7,420,374 - Income taxes 353,478 4,404,542 148,425 - 4,906,445 --------------- -------------- ------------ -------------- -------------- Net income $ 8,012,749 $ 7,309,563 $ 110,811 $ (7,420,374) $ 8,012,749 =============== ============== ============ ============== ==============15PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED OCTOBER 31, 2001
Non- Parent Only Guarantors Guarantors Eliminations Consolidated ------------- ------------ ------------ -------------- ------------Revenues Net sales $ - $194,011,479 $ 5,120,809 $ - $199,132,288 Royalty income 2,757,782 16,568,168 - - 19,325,950 ------------- ------------ ------------ -------------- ------------ Total revenues 2,757,782 210,579,647 5,120,809 - 218,458,238 Cost of sales - 149,295,074 3,969,781 - 153,264,855 ------------- ------------ ------------ -------------- ------------ Gross profit 2,757,782 61,284,573 1,151,028 - 65,193,383 Operating expenses Selling, general and administrative expenses 1,759,757 36,937,815 2,056,085 - 40,753,657 Depreciation and amortization 400,187 4,526,390 - - 4,926,577 ------------- ------------ ------------ -------------- ------------ Total operating expenses 2,159,944 41,464,205 2,056,085 - 45,680,234 ------------- ------------ ------------ -------------- ------------ Operating income 597,838 19,820,368 (905,057) - 19,513,149 Interest expense (42,348) 10,623,137 6,253 - 10,587,042 ------------- ------------ ------------ -------------- ------------ Income before minority interest and income tax provision 640,186 9,197,231 (911,310) - 8,926,107 Equity in earnings of subsidiaries, net (5,263,028) - 85,485 5,263,028 85,485 Income taxes 249,032 3,427,338 (318,960) 3,357,410 ------------- ------------ ------------ -------------- ------------ Net income $ 5,654,182 $ 5,769,893 $ (506,865) $ (5,263,028) $ 5,654,182 ============= ============ ============ ============== ============16PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE
NINETHREE MONTHS ENDEDOCTOBER 31,APRIL 30, 2002
Non- Parent Only Guarantors Guarantors Eliminations Consolidated ------------ ------------ ------------ ------------ ------------CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 8,012,749 $ 7,309,563 $ 110,811 $ (7,420,374) $ 8,012,749 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization - 1,722,370 3,030 - 1,725,400 Amortization of debt issue cost - 612,188 - - 612,188 Amortization of bond discount - 257,356 - - 257,356 Deferred income taxes - 2,554,329 - - 2,554,329 Minority Interest - - 88,948 - 88,948 Equity in earnings of subsidiaries, net (13,617,204) 6,196,830 - 7,420,374 - Other 2,826 8,957 - 11,783 Changes in operating assets and liabilities (net of effects of acquisitions): Accounts receivable, net 4,604,311 (16,134,286) (48,789) - (11,578,764) Inventories - 1,985,937 (351,791) - 1,634,146 Other current assets and prepaid income taxes (169,819) (4,424,678) (38,070) - (4,632,567) Other assets (602,693) (1,200,162) - - (1,802,855) Accounts payable and accrued expenses 687,004 3,320,988 67,054 - 4,075,046 Income taxes payable 50,575 (1,341,838) (90,288) - (1,381,551) Accrued interest payable - (2,542,237) - - (2,542,237) Other current liabilities and unearned revenues (44,280) 142,933 (36,238) - 62,415 ------------ ------------ ------------ ------------ ------------ Net cash used in operating activities (1,079,357) (1,537,881) (286,376) - (2,903,614) ------------ ------------ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment - (20,611,092) - - (20,611,092) Payment on purchase of intangible assets, net - (210,914) - - (210,914) Payment for acquired businesses, net of cash acquired - (25,084,374) - - (25,084,374) ------------ ------------ ------------ ------------ ------------ Net cash used in investing activities: - (45,906,380) - - (45,906,380) ------------ ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net payments of senior subordinated notes - (2,199,492) - - (2,199,492) Net (payments) proceeds from senior credit facility - (17,731,567) 63,240 - (17,668,327) Net proceeds from senior secured notes - 55,589,250 - - 55,589,250 Net proceeds from real estate mortgage - 11,600,000 - - 11,600,000 Proceeds from exercise of stock options 1,237,005 - - - 1,237,005 ------------ ------------ ------------ ------------ ------------ Net cash provided by financing activities: 1,237,005 47,258,191 63,240 - 48,558,436 ------------ ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash and cash equivalents 13,718 13,718 NET (DECREASE) INCREASE IN CASH 157,648 (186,070) (209,418) - (237,840) CASH AT BEGINNING OF YEAR - 124,998 1,178,980 - 1,303,978 ------------ ------------ ------------ ------------ ------------ CASH AT END OF YEAR $ 157,648 $ (61,072) $ 969,562 $ - $ 1,066,138 ============ ============ ============ ============ ============17PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED OCTOBER 31, 2001
Non- Parent Only Guarantors Guarantors Eliminations Consolidated ------------- ------------ ------------ -------------- --------------CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 5,654,182 $ 5,769,893 $ (506,865) $ (5,263,028) $ 5,654,182 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 400,187 4,169,050 - - 4,569,237 Amortization of debt issue cost - 462,011 - - 462,011 Amortization of bond discount - 123,000 - - 123,000 Equity in earnings of subsidiaries, net (5,263,028) - - 5,263,028 - Other (58,453) - - (58,453) Changes in operating assets and liabilities (net of effects of acquisitions): Accounts receivable, net 1,321,162 648,035 580,013 39,614 2,588,824 Inventories - 9,096,938 (44,520) - 9,052,418 Other current assets and prepaid income taxes 12,743 (198,593) - - (185,850) Other assets (82,768) (894,771) (85,485) - (1,063,024) Accounts payable and accrued expenses (77,592) (2,051,443) 183,831 (39,614) (1,984,818) Income taxes payable - 2,302,152 (80,333) - 2,221,819 Accrued interest payable - (3,161,433) - - (3,161,433) Other current liabilities and unearned revenues (46,570) 283,190 - - 236,620 ------------- ------------ ------------ -------------- -------------- Net cash provided by operating activities 1,918,316 16,489,576 46,641 - 18,454,533 ------------- ------------ ------------ -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment - (1,930,689) - - (1,930,689) Payment on purchase of intangible assets, net (138,061) 18,982 - - (119,079) ------------- ------------ ------------ -------------- -------------- Net cash used in investing activities: (138,061) (1,911,707) - - (2,049,768) ------------- ------------ ------------ -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments in borrowings under term loan - (14,843,898) - - (14,843,898) Purchase of treasury stock (1,787,130) - - - (1,787,130) Proceeds from exercise of stock options 6,875 - - - 6,875 ------------- ------------ ------------ -------------- -------------- Net cash used in financing activities: (1,780,255) (14,843,898) - - (16,624,153) ------------- ------------ ------------ -------------- -------------- NET (DECREASE) INCREASE IN CASH - (266,029) 46,641 - (219,388) CASH AT BEGINNING OF YEAR - 344,741 - - 344,741 ------------- ------------ ------------ -------------- -------------- CASH AT END OF YEAR $ - $ 78,712 $ 46,641 $ - $ 125,353 ============= ============ ============ ============== ==============18
Parent Only Guarantors Non-Guarantors Eliminations Consolidated CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$ 4,766,200 $ 4,960,206 $ (275,299 ) $ (4,684,907 ) $ 4,766,200 Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization
— 500,296 1,866 — 502,162 Amortization of debt issue cost
— 189,169 — — 189,169 Amortization of bond discount
— 74,589 — — 74,589 Minority Interest
— — 32,020 — 32,020 Equity in earnings of subsidiaries, net
(4,684,907 ) — — 4,684,907 — Other
4,749 7,879 — 12,628 Changes in operating assets and liabilities (net of effects of acquisitions):
Accounts receivable, net
(624,911 ) (17,600,349 ) 151,704 126,191 (17,947,365 ) Inventories
— 10,823,083 (7,925 ) — 10,815,158 Other current assets and prepaid income taxes
19,911 174,252 (7,429 ) — 186,734 Other assets
(213,427 ) (1,460,119 ) — (1,673,546 ) Accounts payable and accrued expenses
384,334 (176,567 ) 132,412 (126,191 ) 213,988 Income taxes payable
— 645,018 (129,493 ) — 515,525 Accrued interest payable
— (2,555,087 ) — — (2,555,087 ) Other current liabilities and unearned revenues
36,616 254,458 29,792 — 320,866 Net cash used in operating activities
(316,184 ) (4,166,302 ) (64,473 ) — (4,546,959 ) CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
— (831,473 ) — — (831,473 ) Payment on purchase of intangible assets, net
— (12,218 ) — — (12,218 ) Payment for acquired businesses, net of cash acquired
— (25,050,474 ) — (25,050,474 ) Net cash used in investing activities:
— (25,894,165 ) — — (25,894,165 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds from senior credit facility
— (21,819,334 ) 63,240 — (21,756,094 ) Purchase of treasury stock
— 55,589,250 — — 55,589,250 Proceeds from exercise of stock options
316,184 — — — 316,184 Net cash used in financing activities:
316,184 33,769,916 63,240 — 34,149,340 Effect of exchange rate changes on cash and cash equivalents
— — 9,044 — 9,044 NET INCREASE IN CASH
— 3,709,449 7,811 3,717,260 CASH AT BEGINNING OF YEAR
— 124,998 1,178,980 — 1,303,978 CASH AT END OF YEAR
$ — $ 3,834,447 $ 1,186,791 $ — $ 5,021,238 Item 2:
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSForward -Unless the context otherwise requires, all references to “Perry Ellis,” the “Company,” “we,” “us” or “our” include Perry Ellis International, Inc. and its subsidiaries. References in this report to the Jantzen acquisition refer to our acquisition of the Jantzen swimwear business from subsidiaries of VF Corporation in March 2002. References in this report to the Salant acquisition refer to our pending acquisition by merger of Salant Corporation pursuant to a definitive merger agreement entered into in February 2003 and anticipated to be completed in June 2003. This management’s discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended January 31, 2003.
Forward—Looking Statements
We caution readers that this report includes
"forward-looking statements"“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," "estimate," "expect," "project," "believe," "intend," "envision,"“ anticipate,” “estimate,” “expect,” “project,” “believe,” “intend,” “envision,” and similar words or phrases. These forward-looking statements involve known and unknown risks, 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. Some of the factors that would affect our financial performance, cause actual results to differ from our estimates, or underlie such forward-looking statements, are set forth in various places in this report. These factors include:.general economic conditions;.a decrease in business from or loss of an important customer;the effectiveness of our planned advertising, marketing and promotional campaigns;.our ability to carry out growth strategies;.our ability to contain costs;.our ability to integrate acquired businesses, trademarks, tradenames and licenses into our existing organization and operations;.our future capital needs and the ability to obtain financing;.our ability to predict consumer preferences;.our ability to compete;.the termination or non-renewal of any material license agreements to which we are a party;.anticipated trends and conditions in our industry, including future consolidation;.changes in the costs of raw materials, labor and advertising;failure of a supplier or licensee to use acceptable operating and labor practices;restrictions and limitations placed on us by our debt instruments;changes in fashion trends and customer acceptance of both new designs and newly introduced products;.the level of consumer spending for apparel and other merchandise;.exposure to foreign currency risks;competition among department and specialty stores;.possible disruption in commercial activities due to terrorist activity and armed conflict; and.other factors set forth in this report and in our other filings with the Securities and Exchange Commission.19You are cautioned not to place 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
Financial Reporting Release No. 60 requires all registrants to outline critical accounting policies or methods used in the preparation of its financial statements.Included in the footnotes to the consolidated financial statements in
the Company'sour Annual Report on Form 10-K for the year ended January 31,20022003 is a summary of all significant accounting policies used in the preparation ofthe Company'sour consolidated financial statements.The Company followsWe follow the accounting methods and practices as required by Accounting Principles Generally Accepted in the United States of America("GAAP"(“GAAP”). In particular,the Company'sour critical accounting policies and areasit useswe use judgment in are the areas of revenue recognition, theallowance forestimated collectability of accounts receivable, the recoverability ofcustomer accounts receivable, provision for customer sales returnsobsolete or overstocked inventory andallowances, inventory methods and valuations, and provisions for impairmentsthe impairment on long-lived assets which are our trademarks.Revenue Recognition.Sales are recognized at the time legal title to the product passes to the customer, generally FOB Perry Ellis’ distribution facilities, net of trade allowances and a provision for estimated returns and other allowances. Royalty income is recognized when earned on the basis of the terms specified in the underlying contractual agreements. We believe that our revenue recognition policies conform to Staff Accounting Bulletin No. 101,Revenue Recognition in Financial Statements.
Accounts Receivable.We maintain an allowance for doubtful accounts receivables for estimated trade discounts, co-op advertising, allowances provided to retail customers to flow goods through the retail channel, and losses resulting from the inability of our retail customers to make required payments considering historical and anticipated trends. Judgment is critical because some retail customers are currently operating in bankruptcy or have experienced financial difficulties. Additional allowances might be required if their financial condition were to worsen.
Inventories.Our inventories are valued at the lower of cost or market value. We evaluate all of our inventory style-size-color stock keeping units or SKUs to determine excess or slow-moving SKUs based on orders on hand and projections of future demand and market conditions. For those units in inventory that are so identified, we estimate their market value or net sales value based on current realization trends. If the projected net sales value is less than cost, on an individual SKU basis, we provide an allowance to reflect the lower value of that inventory. This methodology recognizes projected inventory losses at the time such losses are evident rather than at the time goods are actually sold.
Intangible Assets. We have, at the present time, only one class of indefinite lived assets, trademarks. We review our intangible assets with indefinite useful lives for possible impairments on an annual basis in accordance with SFAS No. 142 and perform impairment testing as of February
1st. We evaluate the “fair value” of our identifiable intangible assets for purposes of recognition and measurement of impairment losses. Evaluating indefinite useful life assets for impairment involves certain judgments and estimates, including
trademarks.the interpretation of current economic indicators and market valuations, and our strategic plans with regard to our operations, historical and anticipated performance of our operations and other factors. If we incorrectly anticipate these trends or unexpected events occur, our results of operations could be materially affected.Results of Operations
The following is a discussion of the results of operations for the
three and nine month periods ended Octoberfirst quarter of the fiscal year ending January 31,20022004 (“fiscal 2004”) compared with thethree and nine month periodsfirst quarter of the year endedOctoberJanuary 31,2001 Items Affecting Comparability2003 (“fiscal 2003”).Results of Operations—First Quarter of Fiscal
2002 Period Adoption2004 compared with First Quarter ofSFAS No. 142. As is disclosed in Note 9 to the Unaudited Consolidated Financial Statements, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," as of February 1, 2002. Under the provisions of SFAS No. 142, goodwill is no longer amortized after the date of adoption. Intangible assets as of the date of adoption are evaluated to determine if they have finite or indefinite useful lives. Intangible assets determined to have finite lives are amortized over those lives and intangible assets that have indefinite useful lives are not amortized. SFAS No. 142 does not permit the restatement of previously issued financial statements, but does require the disclosure of prior years results adjusted to exclude amortization expense related to goodwill and intangible assets which are no longer being amortized. Basic and diluted earnings per share for the three months ended October 31, 2001, adjusted to exclude amounts no longer being amortized under the provisions of SFAS No. 142, were $0.25. Basic and diluted earnings per share for the nine-month period ended October 31, 2001 were $1.17. Adoption of EITF Issue No. 01-09. As is disclosed in Note 9 to the Unaudited Consolidated Financial Statements, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products," as of February 1, 2002. The provisions of EITF No. 01-09, relates to the measurement, recognition and presentation of certain sales incentives offered to the company's customers. These new accounting rules apply to certain sales incentives such as discounts, coupons, rebates and certain payments made to retailers for shelf space or reimbursement of advertising costs. These accounting rules generally require these incentives to be reflected as a reduction in revenue on the income statement rather than selling, general and administrative expense. Upon adoption of these rules at the beginning of fiscal 2003, all prior financial statement results have been restated to reflect the impact of the change. Previously reported net sales for the first, second and third quarters of fiscal 2002 were reduced by $403,000, $214,000 and $554,000, respectively to conform to the new accounting standard. The adoption of this new accounting standard had no impact on the Company's income before minority interest and income taxes, net income or financial position. 20Results Of Operations- Three and Nine Months Ended October 31, 2002 Compared with Three and Nine Months Ended October 31, 2001.Fiscal 2003.Total
revenues.revenues. Total revenues consist of net sales and royalty income. Total revenues for thethree months ended October 31, 2002first quarter of fiscal 2004 were$70.6$108.3 million, an increase of6.4%27.8% or $23.6 million from$66.4$84.7 million for thethirdfirst quarter ofthefiscalyear ended January 31, 2002 ("fiscal 2002"). Total revenues for the nine months ended October 31, 2002 increased 0.4% to $219.3 million from $218.5 million for the nine months ended October 31, 2001.2003. The increase was due mainly to an increase of $27.3 million in net sales generated by our swimwear business and an increase in royalty incomeas discussed below. Net sales. Net sales increased $3.0of $0.4 millionor 5.1% to $63.0 million for the third quarter of the fiscal year ending January 31, 2003 ("fiscal 2003") from $60.0 million in the third quarter of the fiscal year ended January 31, 2002 ("fiscal 2002"). The increase was mainly due to increases in net sales of branded products in the chain department stores and corporate wear channels of distribution, and net sales of the Jantzen swimwear line acquired in March 2002,offset by areduction in sales of private label products and in the off-price stores channel of distribution. Net sales decreased $1.0$4.0 millionor 0.5% to $198.1 million for the nine months ended October 31, 2002 from $199.1 million for the nine months ended October 31, 2001. Net sales for the nine months ended October 31, 2001 included $5.1 million from sales of Perry Ellis America shoes by the Company's European subsidiary. In periods both prior and subsequent to such quarter this product was sold by a third party licensee and accordingly, the Company only recognized royalty income from those sales during those periods. During the nine month period ended October 31, 2002, the decreasereduction in net sales inEurope andour men’s sportswear business.Net sales. Net sales increased $23.2 million or 29.6% to $101.9 million for the first quarter of fiscal 2004 from $78.6 million in the
private label products and in the off-price stores channelfirst quarter ofdistribution was offset in part by anfiscal 2003. The increase in net salesin Canada of $2.3is primarily attributable to the $27.3 millionandincrease in net sales generated by our swimwear business. The increase in net sales by our swimwear business was offset by lower net sales in our men’s sportswear business as compared to the same period ofthe Jantzen swimwear line of $7.3 million.fiscal 2003. The decrease in men’s sportswear business was due to our planned reduction in low margin private label sales.Royalty
income.income. Royalty income for thethree months ended October 31, 2002first quarter of fiscal 2004 was$7.6$6.4 million, an increase of18.1%5.5% from$6.4$6.0 million for the comparable first quarter of fiscal2002 quarter.2003. Royalty income is derived from agreements entered into by us with our licensees, which average three years in length. The vast majority of our license agreements require licensees to pay us a royalty, based on net sales and require licensees to pay a guaranteed minimum royalty. Approximately 77.1% and 73.9% of our royalty income was attributable to guaranteed minimum royalties with the balance attributable to royalty income in excess of the guaranteed minimums for thenine months ended October 31, 2002 increased 9.9% to $21.2 million from $19.3 million for the nine months ended October 31, 2001.first quarter of fiscal 2004 and 2003, respectively. The increase in royalty incomefor the three and nine months ended October 31, 2002was due primarily toincreasedthe increase in royalty incomefrom licensesin excess of guaranteed minimums for certain of the licensees of the Perry Ellis brand and royalties from new licenses for the Jantzen brand.Cost of sales. Cost of sales for first quarter of fiscal 2004 increased $13.6 million or 23.5% to $71.5 million from $57.9 million in the comparable first quarter of fiscal 2003 due mainly to the increase in net sales as described above. As a percentage of revenues, cost of sales decreased from 68.4% in the first quarter of fiscal 2003 to 66.1% in the first quarter of fiscal 2004, due primarily to a change in our sales mix between private label and branded label sales with higher sales volume of branded label sales which typically generate higher margins of sales. Cost of sales
for the three months ended October 31, 2002 decreased $1.3includes only costs relating to sale of product and excludes costs relating to royalty income which are immaterial. Gross profit was $36.7 million in first quarter of fiscal 2004 or 33.9% of total revenues as compared to $26.7 million or2.8% to $46.1 million from $47.4 million31.6% of revenues in thecomparablefirst quarter of fiscal2002 quarter. For the nine months ended October 31, 2002, costyear 2003. Our planned increased focus on branded label sales, which accounted for 86.2% ofsales of $146.5 million was $6.8 million, or 4.4% lower than $153.3 million for the nine months ended October 31, 2001. The decrease in costs of sales for the three and nine month periods ended October 31, 2002 was due mainly to the decrease inour net salesto certain channels of distribution as described aboveinnet sales. As a percentage of net sales, cost of sales forthethree months ended October 31, 2002 decreased to 73.0% from 79.0% for three months ended October 31, 2001. As a percentage of net sales, cost of sales for the nine months ended October 31, 2002 decreased to 74.0% from 77.0% for the comparable periodfirst quarter of fiscal2002. The decrease2004 as compared to 70.1% incost of sales as a percentage of net sales forthethree and nine month periodsfirst quarter of fiscal 2003,was due primarilycontributed toimprovementsgreater grossmargins because branded label sales typically generate higher gross margins. Our gross profit percentage for branded label sales typically are 3% to 5% higher than our private label sales depending on customer and product mix. Our gross profit percentage may not be comparable to others in the
Company's sourcing costs, more effective inventory management and a change in sales mix from private label to branded products. Gross Profit. For the three months ended October 31, 2002,industry, because our gross profitincreased 29.3% to $24.6 million from $19.0 million for the comparable fiscal 2002 quarter. For the nine months of fiscal 2003, gross profit increased 11.6% to $72.8 million from $65.2 million for the comparable fiscal 2002 period. The increaseincludes royalty income in gross profitfor the threeandnine month periods ended October 2131, 2002 is primarily attributable to improvementsothers in theCompany's sourcing costs, more effective inventory management, a change in the Company's product sales mix,apparel industry may not.Selling, General and
an increase in royalty income all as described above. Selling, general and administrative expenses.Administrative Expenses. Selling, general and administrative expenses increased$4.7$7.1 million or36.6%48.9%, to$17.7$21.6 million for the first quarterended October 31, 2002of fiscal 2004 from$13.0$14.5 million for the first quarter of fiscal2002 quarter.2003. As a percentage of totalrevenue,revenues, selling, general and administrative expenses were25.1%20.0% in the fiscal20032004 quarter compared to19.6%17.1% in the comparable fiscal20022003 quarter. The increase in selling, general and administrative costsfor the quarter ended October 31, 2002is primarily attributable to theincreaseadditional $5.1 million inoperatingexpenses incurred by our swimwear business which were immaterial in the comparable prior year period and an additional $2.0 million incurred by our men’s sportswear business as a result of$3.6 million related to the Jantzen acquisition, operating expenses of the Canadian joint venture of $0.35 million,our increased focus on branded label sales which generally result in greater design, marketing andthe timing of certain other recurring operatingadvertising expenses.Selling, generalDepreciation and
administrative expenses, excluding depreciationamortization. Depreciation and amortization increased$4.9 million or 12.1%, to $45.7$0.5 million for thenine months ended October 31, 2002 from $40.8 million in the comparable fiscal 2002 period. As a percentage of total revenue, selling, general and administrative expenses were 20.8% in the nine month period ended October 31, 2002 compared to 18.7% in the comparable fiscal 2002 period. The increase in selling, general and administrative costs for the nine month period ended October 31, 2002first quarter of fiscal2003 is primarily attributable2004 toexpenses incurred by the Jantzen operation of $5.3 million, operating expenses of the Company's Canadian joint venture of $0.6 million and increased operating expenses of the Company's retail outlet by $0.6 million, offset by the elimination of expenses of our European subsidiary of $2.0 million. Depreciation and amortization. Depreciation and amortization decreased $0.8 million for the three months ended October 31, 2002 to $0.9$1.1 million from$1.7$0.6 million in the comparable quarter of fiscal2002. Depreciation2003. The increase is due to the increase in property, plant andamortization decreased $2.7equipment purchases in fiscal 2003 and the purchase of the main administrative office, warehouse and distribution facility in Miami and the Seneca distribution center. As of April 30, 2003, there was approximately $31.1 million of property, plant and equipment compared to $11.7 million of property, plant and equipment as of the same period in fiscal 2003.Interest expense. Interest expense increased $1.1 million or 28.3% for the
nine months ended October 31, 2002first quarter of fiscal 2004 to$2.2$5.0 million from$4.9$3.9 million in the comparable fiscal2002 period. The decrease is due primarily to the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," as of February 1, 2002. Under the provisions of SFAS No. 142, goodwill is no longer amortized after the date of adoption. Intangible assets as of the date of adoption are evaluated to determine if they have finite or indefinite useful lives. Intangible assets determined to have finite lives are amortized over those lives and intangible assets that have indefinite useful lives are not amortized. Interest expense. Interest expense increased $1.3 million or 45.7% for the three months ended October 31, 2002 to $4.2 million from $2.9 million in the comparable fiscal 20022003 quarter. The increase is mainly due to the9 1/2%increase in long-term debt from the first quarter of fiscal 2004 as compared to the first quarter of fiscal 2003. As of April 30, 2003, we had $203.1 million in long-term debt compared to $155.9 million in April 30, 2002. In addition, the $57.0 million senior secured notesissueddue 2009 were outstanding for the entire first quarter of fiscal 2004 compared to only one-third of the first quarter of fiscal 2003 resulting inMarch 2002,additional interest for the current quarter. The interest expense on higher outstanding debt was offset, however, bythe reduction in borrowings, favorablelower interest rates and theinterest rate swap agreements on the Company's 12 1/4% senior subordinated notespositive impact of certain derivative hedging transactions described in “Item 3: Quantitative andthe 9 1/2% senior secured notes. Interest expense increased $1.2 million or 11.5% for the nine months ended October 31, 2002 to $11.8 million from $10.6 million in the comparable fiscal 2002 period. The increase is mainly due to the 9 1/2 % senior secured notes issued in March 2002, offset by reduction in borrowings, favorable interest rates and the effect of the interest rate swap agreements on the Company's 12 1/4% senior subordinated notes and the 9 1/2% senior secured notes.Qualitative Disclosures about Market Risks.”Income
taxes.taxes. For thethree months and nine months ended October 31, 2002,first quarter of fiscal 2004, the effective tax rate was37.8% and 37.7%37.3% as compared to38.9% and 37.6%37.9% for the comparable fiscal20022003 period.Net
income.income. Net income forthe three months ended October 31, 2002first quarter of fiscal 2004 increased$0.1$0.8 million or 18.1% to$1.1$5.6 million from$1.0$4.8 million for the comparable fiscal20022003 quarter.As a percentageThe increase was the result oftotal 22revenues, net income was 1.5% forthethree months ended October 31, 2002, compared to 1.5% in the comparable fiscal 2002 quarter. Net income for the nine months ended October 31, 2002 increased $2.3 million to $8.0 million from $5.7 million for the comparable fiscal 2002 period. As a percentage of total revenues, net income was 3.7% for the nine months ended October 31, 2002, compared to 2.6% in the comparable fiscal 2002 period. Theincrease in net sales of $23.2 million, royalty incomewas due toof $0.4 million and thechanges described above.related improvement in gross margin of $10.0 million.Liquidity and Capital Resources
The Company reliesWe rely primarily upon cash flow from operations and borrowings under
itsour senior credit facility to finance operations and expansion.CashNet cash used in operating activities was$2.9$10.9 million in thenine months ended October 31, 2002,first quarter of fiscal 2004, compared to cashprovided byused in operating activities of$18.5$4.5 million in the comparable fiscal20022003 quarter. The increase of$21.4$6.4 million in the level of cash used in operatingactivities is primarily attributable to an increase in accounts receivable, accounts payable and
other current assets,accrued expenses, offset in part by higherearnings,net income and a decrease in inventory.Net cash used in investing activities was
$45.9$0.9 million for thenine months ended October 31, 2002,first quarter of fiscal 2004, which primarily reflects purchases of property and equipment made during the$27.0quarter. Net cash used in investing was $25.9 million for the first quarter of fiscal 2003, which reflects the $25.1 million purchase price of the Jantzenbusiness (including fees related to the transaction). In addition, the Company used $20.6 million for the purchase of property, plant and equipment which included the $14.5 million contingent rental payment that was required by the termination of the synthetic lease and theacquisitionof the building, $2.5 million purchase of the Seneca distribution centerand purchases of computer equipment and related softwareenhancement costsenhancements cost of$3.6$0.8 million.Net cash provided by financing activities for the first quarter of fiscal 2004 totaled $8.6 million, which was primarily the result of proceeds from our senior credit facility of $7.9 million and proceeds from exercise of employee stock options of $0.7 million. Net cash provided by financing activities for the
nine months ended October 31, 2002first quarter of fiscal 2003 totaled$48.6$34.1 million, which was primarily the result of the net proceedsof theoffering of the9 1/2%senior secured notes of$ 55.6$55.6 million, net of repayments of borrowings underthe Company'sour senior credit facility of$17.7$21.8 millionnet repayments of senior subordinated notes of $2.2 million,and proceeds from the exercise of employee stock options of$1.2$0.3 million.If the Salant acquisition is completed, the aggregate merger consideration to be paid by Perry Ellis is $91.0 million, comprised of approximately $52.0 million in cash and approximately $39.0 million worth of newly issued Perry Ellis common stock. If the
real estate mortgageaverage closing price of$11.6the Perry Ellis common stock for the 20-day period ending three trading days before the anticipated merger closing date is less than $12.00, the cash portion of the merger consideration will increase by the amount of any deficiency. We expect the transaction costs to be approximately $10.0 million. The cash portion of the merger consideration will be funded from our existing cash reserves and through borrowings under our existing senior credit facility, which is expected to be increased to $110.0 million,on the Company's main administrative office, warehouse and distribution facility.as described below.Senior Credit Facility
In October 2002,
the Companywe entered into a new senior credit facility with a group of financial institutions. The senior credit facility providesthe Companyus with a revolving credit line up to an aggregate amount of $60.0 million.The followingSeth forth below is a description of the terms of the new senior credit facility, and does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the senior credit facility. In anticipation of the Salant acquisition, we received a commitment from a senior lender in its existing senior credit facility to increase the senior credit facility to $110.0 million with a sub limit of $30.0 million for letters of credit. We anticipate that on the closing date of the Salant acquisition, after financing the cash portion of the merger consideration and the related transaction expenses, we will have an aggregate outstanding balance of between $42.0 million and $52.0 million under the senior credit facility and availability under the senior credit facility of between $68.0 million and $58.0 million respectively. We do not expect that Salant will have any long-term debt outstanding as of the anticipated closing date. As of June 12, 2003, Perry Ellis has an aggregate outstanding balance of $7.6 million under the senior credit facility and availability of $52.4 million.It is anticipated that the terms and conditions of this amended credit facility will mirror the terms outlined below but, in the case of certain covenants, the amounts will increase to reflect the increase in the facility.
Certain Covenants.The senior credit facility contains certain covenants, which,
requireamong other things, requires us to maintain a minimum EBITDA if availability falls below a certain minimum. It may restrict our ability andwhich restrictthepaymentability ofdividends. The Company isour subsidiaries to, among other things, incuradditional indebtedness in certain circumstances, redeem or repurchase capital stock, make certain investments, or sell assets. We are prohibited from paying cash dividends under these covenants. We believe we are currently in compliance with all
itsof our covenants under the senior credit facility. We could be materially harmed if we violate any covenants as the lenders under the senior credit facility could declare all amounts outstanding thereunder, 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. In addition, a violation could also constitute a cross-default under the indentures and mortgage, resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.Borrowing
Base.Base. Borrowings under the senior credit facility are limited under its terms to a borrowing base calculation, which generally restricts the outstanding balances to the lesser of either (1) the sum ofa)(a) 85.0% of eligible receivables plusb)(b) 85.0% of our eligible factored accounts receivables up to $5.0 million plusc)(c) the lesser of (i) the inventory loan limit, or (ii) the lesser of (A) 65.0% of eligible finished goods inventory, or85%(B) 85.0% of the net recovery percentage(such net recovery percentage being 62%)(as defined in the senior credit facility) of eligible inventory, or (2) the loanlimitlimit; and in each case minusd) 35%(x) 35.0% of the amount of outstanding letters of credit for23eligible inventory, e)(y) the full amount of all other outstanding letters of credit issued pursuant to the senior credit facility which are not fully secured by cash collateral, andf)(z) licensing reserves for whichthe Company iswe are the licensee of certain branded products.Interest. Interest on the principal balance under the senior credit facility accrues, at the
Company'sour option, at eithera) the Company's(a) our bank prime lending rate with adjustments depending uponthe Company'sour quarterly average excess availability plus excess cash or leverage ratio or b) 2.00% above the rate quoted bythe Company' sour bank as the average Eurodollar Rate("Eurodollar"(“Eurodollar”) for 1, 2, 3 and 6-month Eurodollar deposits with1/4one-quarter percentage point adjustments depending upon theCompany'sour quarterly average excess availability plus excess cash and leverage ratio at the time of borrowing.Security.Security. As security for the indebtedness under the senior credit facility,
the Companywe granted the lenders a first priority security interest in substantially all ofthe Company'sour existing and future assets other thanitsour trademark portfolio existingtrademark portfolio,as of March 2002, including, without limitation, accounts receivable, inventory deposit accounts, general intangibles and equipment. Lenders under the senior credit facility have a second priority security interest in our trademark portfolio as of March 2002 and a first priority lien on theCompany'srest of our trademarks.Letter of Credit
FacilityFacilitiesAs of
October 31, 2002, the CompanyApril 30, 2003, we maintainedfour USthree U.S. dollar letter of credit facilities totaling$57.0$60.0 million and oneCanadian dollarletter of credit facility totaling$2.4$2.6 million utilized by theCompany `sour Canadian joint venture. Each letter of credit is secured primarily by the consignment of merchandise in transit under that letter of credit and certain subordinated liens orthe Company'sour assets. As ofOctober 31, 2002,April 30, 2003 there was$30.1$44.7 million available under existing letter of credit facilities.Senior Secured Notes
On March 22, 2002,
the Companywe completed a private offering of $57.0 million9 1/2%9½% senior secured notes due 2009. The proceeds of the private offering were used tofundfinance the Jantzen acquisition, to reduce the amount of outstanding debt under the previous senior credit facility and as additional working capital. The proceeds to us were $55,589,250 yielding an effective interest rate of 9.74% after deduction of discounts. We entered into certain derivative hedging transaction described in“Item 3: Quantitative and Qualitative Disclosures about Market Risks” in order to minimize debt service costs related to these senior secured notes.
The senior secured notes are secured by a first priority security interest granted in our existing portfolio of trademarks and licenses as of the closing date of the Jantzen acquisition, including the trademarks,
andlicensesacquired in the Jantzen acquisition; all license agreements with respect to these trademarks;and all income, royalties and other paymentswith respect to such licenses.acquired in the Jantzen acquisition. The senior secured notes are senior secured obligations ofPerry Ellisours and rankpari passuin right of payment with all of our existing and future senior indebtedness. The senior secured notes are effectively senior to all of our unsecured indebtednessof Perry Ellisto the extent of the value of the assets securing the senior secured notes.Certain Covenants. The indenture governing the senior secured notes contains certain covenants which restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in certain circumstances, redeem or repurchase capital stock, make certain investments, or sell assets. We are prohibited from paying cash dividends under these covenants. We believe we are currently in compliance with all of the 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, mortgage and other indenture resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Senior Subordinated Notes
We issued $100.0 million senior subordinated notes on April 6, 1999, the proceeds of which were used to acquire the Perry Ellis, John Henry and Manhattan brands and to pay down the outstanding balance of the senior credit facility at that time. The notes mature on April 1, 2006 and bear interest at the rate of 12¼% payable on April 1 and October 1 in each year. The proceeds to us were $98,852,000 yielding an effective interest rate of 12.39% after deduction of discounts. We entered into certain derivative hedging transaction described in “Item 3: Quantitative and Qualitative Disclosures about Market Risks” in order to minimize debt service costs related to these senior subordinated notes.
24In November 2002, we repurchased $2.2 million of the senior subordinated notes. 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, redeem or repurchase capital stock, make certain investments, or sell assets. We believe we are currently in compliance with all of the covenants in this indenture. We are prohibited from paying cash dividends under these covenants. 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, mortgage and other indenture resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Real Estate Financing
The CompanyWe occupied
itsour main administrative office, warehouse and distribution facility under a synthetic operating lease for a 240,000 square foot facility in Miami, Florida. The lease, as amended, expired on June 30, 2002, and required a final payment at termination of $14.5 million.On June 30, 2002,
the Companywe made the required payment under the synthetic operating lease and partially refinanced the acquisition of the facility with an $11.6 million mortgage. The mortgagehas customary covenants and as of October 31, 2002, the Company iscontains certain covenants. We believe we are currently in compliance withthese covenants.all of our covenants under the mortgage. We could be materially harmed if we violate any covenants because the lender under the mortgage could declare all amounts outstanding thereunder to be immediately due and payable which we may not be able to satisfy. In addition, a violation could constitute a cross-default under our senior credit facility and indentures resulting in all our of debt obligations becoming immediately due and payable.On September 13, 2002,
the Companywe purchased a distribution center in Seneca, South Carolina for $2.5 million in cash.The CompanyWe had secured the option to purchase the facility as part of theMarch 2002Jantzen acquisition.Contractual Obligations and Commercial Commitments
The following tables illustrate our contractual obligations and commercial commitments as of
October 31, 2002April 30, 2003 and include the effects of the transactions and amendments discussed above that occurred during thethirdfirst quarter endedOctober 31, 2002.
Payments Due by Period ---------------------------------------------------------------------------------------- Less than Contractual Obligations Total 1 year 1-3 years 4-5 years After 5 years ----------------------- --------------- --------------- ------------- --------------- ---------------Senior subordinated notes $ 100,000,000 $ - $ - $ 100,000,000 $ - =============== =============== ============= =============== =============== Senior secured notes $ 57,000,000 $ - $ - $ - $ 57,000,000 =============== =============== ============= =============== =============== Real estate mortgage $ 11,600,000 $ 170,896 $ 307,025 $ 11,122,079 =============== =============== ============= =============== =============== Operating leases $ 9,907,724 $ 2,039,164 $ 3,272,034 $ 3,123,117 $ 1,473,409 =============== =============== ============= =============== =============== Total contractual cash obligations $ 178,507,724 $ 2,039,164 $ 3,442,930 $ 103,430,142 $ 69,595,488 =============== =============== ============= =============== ===============April 30, 2003.
Amount of Commitment Expiration Per Period --------------------------------------------------------------------- Less than Other Commercial Commitments Total 1 year 1-3 years 4-5 years After 5 years ---------------------------- --------------- --------------- ------------- --------------- ---------------Letter of credit $ 29,260,088 $ 29,260,088 $ - $ - $ - =============== =============== ============= =============== =============== Stand by letters of credit $ 2,750,000 $ - $ - $ 2,750,000 $ - =============== =============== ============= =============== =============== Total commercial commitments $ 32,010,088 $ 29,260,088 $ - $ 2,750,000 $ - =============== =============== ============= =============== ===============
Payments Due by Period Contractual Obligations
Total Less than
1 year
1-3 years 4-5 years After 5 years Senior subordinated notes
$ 100,000,000 $ — $ 100,000,000 $ — $ — Senior secured notes
$ 57,000,000 $ — $ — $ — $ 57,000,000 Real estate mortgage
$ 11,600,000 $ — $ 243,615 $ 332,378 $ 11,024,007 Operating leases
$ 11,328,470 $ 2,028,697 $ 4,023,036 $ 3,700,383 $ 1,576,354 Total contractual cash obligations
$ 179,928,470 $ 2,028,697 $ 104,266,651 $ 4,032,761 $ 69,600,361 Amount of Commitment Expiration Per Period Other Commercial Commitments
Total Less than
1 year
1-3 years 4-5 years After 5 years Letter of credit
$ 17,938,043 $ 17,938,043 $ — $ — $ — Stand by letters of credit
$ 2,750,000 $ — $ — $ 2,750,000 $ — Total commercial commitments
$ 20,688,043 $ 17,938,043 $ — $ 2,750,000 $ — Management believes that the combination of borrowing availability under the amended senior credit facility, letter of credit facilities, and funds anticipated to be generated from operating activities, will be sufficient to meet our operating and capital needs in the foreseeable future.
Effects of Inflation and Foreign Currency Fluctuations
The Company does not believe that inflation or foreign currency fluctuations significantly affected its results of operations for the three
and ninemonths endedOctober 31, 2002. 25April 30, 2003. Item 3:Quantitative and Qualitative Disclosures about Market Risks
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 or foreign currency exchange 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 and foreign currency fluctuations. We do not enter into derivative financial contracts for trading or other speculative purposes except for as discussed below.
In August 2001,
the Companywe entered into an interest rate swap, option and interest rate cap agreements (the"August“August SwapAgreement"Agreement”), for an aggregate notional amount of $40.0 million in order to minimizeitsour debt servicing costs associated withitsour $100.0 million of12 1/412¼% senior subordinated notes due April 1, 2006. The August Swap Agreement was subsequently modified through a basis swap entered into in October 2001 (the"October“October Swap Agreement,"” and collectively with the August Swap Agreement, the"Swap Agreement"“Swap Agreement”). The Swap Agreement is scheduled to terminate on April 1, 2006. Under the Swap Agreement,the Company iswe are entitled to receive semi-annual interest payments on October 1 and April 1 at a fixed rate of12 1/4%12¼% and is obligated to make semi-annual interest payments on October 1 and April 1 at a floating rate based on the6-monthsix-month LIBOR rate plus 715 basis points for the18 months18-month period from October 1, 2001 through March 31, 2003 (per October Swap Agreement); and3-monththree-month LIBOR rate plus 750 basis point for the period April 1, 2003 through April 1, 2006 (per the August Swap Agreement). The Swap Agreement has optional call provisions with trigger dates of April 1, 2003, April 1, 2004 and April 1, 2005, which contain certain premium requirements in the event the call is exercised.The fair value of the August 2001 swap and the option component of the Swap Agreement recorded on
the Company'sour Consolidated Balance Sheet was ($0.6)0.7) million and$2.2$2.7 millionrespectively,as ofOctober 31, 2002.April 30, 2003, respectively. The interest rate cap and basis swap component of the Swap Agreement did not qualify for hedge accounting treatment,under the SFAS No. 133,resulting in $0.2 million increase in interest expense for thethree months ended October 2002first quarter of fiscal20032004 and an increase of$0.4$0.3 million in interest expensefor the nine months ended October 2002 of fiscal 2003on the Statement of Operations for thethree and nine months ended October 31, 2002first quarter of fiscal 2003.In conjunction with
theour March 2002 offering of $57.0 million of9 1/2%9½% senior secured notes due March 15, 2009,the Companywe entered into interest rate swap and option agreements (the"March“March SwapAgreement"Agreement”) for an aggregate notional amount of $57.0 million in order to minimize the debt servicing costs associated with the senior secured notes. The March Swap Agreement is scheduled to terminate on March 15, 2009. Under the March Swap Agreement,the Company iswe are entitled to receive semi-annual interest payments on September 15 and March 15 at a fixed rate of9 1/2%9½% and are obligated to make semi-annual interest payments on September 15 and March 15 at a floating rate based on the three-month LIBOR rate plus 369 basis points for the period from March 22, 2002 through March 15, 2009. The March Swap Agreement has optional call provisions with trigger dates of March 15, 2005, March 15, 2006 and March 15, 2007, which contain premium requirements in the event the call is exercised.The March Swap Agreement is a fair value hedge as it has been designated against the 9½% senior secured notes carrying a fixed rate of interest and converts such notes to variable rate debt. The interest rate swap contracts are reflected at fair value in our consolidated balance sheet. The fair value of the March 2002 swap and the option component of the March Swap Agreement
recorded on the
Company'sConsolidated Balance Sheet was$5.6$6.3 million and ($0.8) million respectively, as ofOctober 31, 2002. 26April 30, 2003. In December 2002, we entered into an interest rate floor agreement (the “December Floor Agreement”) for an aggregate notional amount of $57.0 million. The
CompanyDecember Floor Agreement is scheduled to terminate on March 15, 2005. Under the December Floor Agreement, we must pay the difference between the three-month LIBOR rate and 1.50% for all rate resets in which the LIBOR is below 1.50%. When the LIBOR is equal to or greater than 1.50%, we make no payments under the Floor.The December Floor Agreement did not qualify for hedge accounting treatment under the SFAS No. 133, resulting in $0.1 million increase of recorded interest expense in the Consolidated Statement of Income for the first quarter ended April 30, 2003. The fair value of the December Floor Agreement recorded on our Consolidated Balance Sheet was ($0.3) million as of April 30, 2003.
In April 2003, we entered into an interest rate cap agreement (the “April Cap Agreement”) for an aggregate notional amount of $57.0 million associated with the senior secured notes. The April Cap Agreement is scheduled to terminate on March 15, 2009. The April Cap Agreement caps the interest rate on the $57.0 million senior secured notes at 10%.
The April Cap Agreement did not qualify for hedge accounting treatment, resulting in $0.3 million increase of recorded interest expense on the Consolidated Statement of Income for the quarter ended April 30, 2003. The fair value of the April Cap Agreement recorded on our Consolidated Balance Sheet was ($0.3) million as of April 30, 2003.
Our current exposure to foreign exchange risk is not significant and accordingly,
the Company haswe have not entered into any transactions to hedge against those risks.Item 4:
InternalControls and Procedures(a)Evaluation of disclosure controls and procedures.
The Company's principal executive officer and its principal financial officer, after evaluatingAn evaluation of the effectiveness of the
Company'sdesign and operation of the Company’s disclosure controls and procedures(as defined in Exchange Act Rules 13a-14(c)within 90 days of this report was carried out by the Company under the supervision and15d-14(c))with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based onOctober 16, 2002, havethat evaluation, the Chief Executive Officer and Chief Financial Officer concluded thatas of such date,theCompany'sCompany’s disclosure controls and procedureswere adequatehave been designed andeffectiveare being operated in a manner that provides reasonable assurance that the information required toensure that material information relating tobe disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized andits consolidated subsidiaries would be made known to them by othersreported withinthose entities.the time periods specified in the SEC’s rules and forms. A control system, no matter how well designed and operated, cannot provide absolute assurance that the objective of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.(b)Changes in internal controls.
ThereSubsequent to the date of the most recent evaluation of the Company’s internal controls, there were no significant changes in the
Company'sCompany’s internal controls or in other factors that couldsignificantly affect the
Company'sinternal controls,and procedures subsequent October 16, 2002, the date of their last evaluation, nor were thereincluding any corrective actions with regard to significant deficienciesorand materialweaknesses in the Company's internal controls. As a result, no corrective actions were required or undertaken. 27weaknesses. ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibit Number Description ------ ----------- 10.40 Loan and Security Agreement dated as of October 1, 2002 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
Exhibit
NumberDescription
99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
(b) Reports on Form 8-K:
None 281) On February 3, 2003, Perry Ellis filed a report on Form 8-K to report that it had entered in an agreement and plan of merger with Salant Corporation.
2) On March 11, 2003, Perry Ellis filed a report on Form 8-K to report its fourth quarter and fiscal year end January 31, 2003 results of operations.
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:
DecemberJune 13,2002 By: /s/ Timothy B. Page ---------------------------------------- Timothy B. Page, Chief Financial Officer 292003
By:
/s/ TIMOTHY B. PAGE
Timothy B. Page, Chief Financial Officer I, George Feldenkreis, certify that:
1) I have reviewed the
Registrant'sRegistrant’s Form 10-Q quarterly report for the period endedOctober 31, 2002April 30, 2003 (the"Re port"“Report”).;2) Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the
Report.Report;3) Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in the
Report.Report;4) The
registrant'sregistrant’s other certifyingofficersofficer and Iamare responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the
registrant'sregistrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"“Evaluation Date”); andc) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5) The
registrant'sregistrant’s other certifyingofficersofficer and I have disclosed, based on our most recent evaluation, to theregistrant `sregistrant’s auditors and the audit committee ofregistrant'sregistrant’s board of directors (or persons performing the equivalent function):a) all significant deficiencies in the design or operation of internal controls which could adversely affect the
registrant'sregistrant’s ability to record, process, summarize and report financial data and have identified for theregistrant'sregistrant’s auditors any material weaknesses in the internal controls; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant'sregistrant’s internal controls; and6) The
registrant'sregistrant’s other certifyingofficersofficer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses./s/ George Feldenkreis ------------------------------------------- Name: George Feldenkreis Title: Chairman and Chief Executive Officer (Chief Executive Officer) 30June 13, 2003
/s/ GEORGE FELDENKREIS
Name:
George Feldenkreis Title:
Chairman and Chief Executive Officer
(Chief Executive Officer)
Certification
I, Timothy B. Page, certify that:
1) I have reviewed the Report.
2) Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the
Report.Report;3) Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in the
Report.Report;4) The
registrant'sregistrant’s other certifyingofficersofficer and Iamare responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the
registrant'sregistrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"“Evaluation Date”); andc) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5) The
registrant'sregistrant’s other certifyingofficersofficer and I have disclosed, based on our most recent evaluation, to theregistrant'sregistrant’s auditors and the audit committee ofregistrant'sregistrant’s board of directors (or persons performing the equivalent function):a) all significant deficiencies in the design or operation of internal controls which could adversely affect the
registrant' sregistrant’s ability to record, process, summarize and report financial data and have identified for theregistrant'sregistrant’s auditors any material weaknesses in the internal controls; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant'sregistrant’s internal controls; and6) The
registrant'sregistrant’s other certifyingofficersofficer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses./s/ Timothy B. Page -------------------------------- Name: Timothy B. Page Title: Chief Financial Officer (Chief Financial Officer) 31June 13, 2003
/s/ TIMOTHY B. PAGE
Name:
Timothy B. Page Title:
Chief Financial Officer
(Chief Financial Officer)
Exhibit Index
Exhibit
NumberDescription10.40 Loan and Security Agreement dated as of October 1, 2002 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
99.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act | |
99.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act | |