UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended October 31, 2015April 30, 2016
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 0-21764
PERRY ELLIS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida | 59-1162998 | |
(State or other jurisdiction of | (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 Telephone Number, Including Area Code: (305) 592-2830
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrant’s common stock is 15,723,08915,567,000 (as of December 2, 2015)May 31, 2016).
PERRY ELLIS INTERNATIONAL, INC.
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PART I: FINANCIAL INFORMATION | ||||
Item 1: | ||||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share data)
April 30, | January 30, | |||||||||||||||
October 31, 2015 | January 31, 2015 | 2016 | 2016 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 26,016 | $ | 43,547 | $ | 26,953 | $ | 31,902 | ||||||||
Accounts receivable, net | 130,453 | 137,432 | 174,233 | 132,066 | ||||||||||||
Inventories | 145,301 | 183,734 | 153,673 | 182,750 | ||||||||||||
Investments, at fair value | 10,291 | 19,996 | 10,279 | 9,782 | ||||||||||||
Deferred income taxes | 694 | 725 | ||||||||||||||
Prepaid income taxes | 2,743 | 6,384 | — | 1,818 | ||||||||||||
Prepaid expenses and other current assets | 7,892 | 7,124 | 7,707 | 8,461 | ||||||||||||
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Total current assets | 323,390 | 398,942 | 372,845 | 366,779 | ||||||||||||
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Property and equipment, net | 67,040 | 64,633 | 64,763 | 63,908 | ||||||||||||
Other intangible assets, net | 206,333 | 210,201 | 187,702 | 187,919 | ||||||||||||
Goodwill | 6,022 | 6,022 | ||||||||||||||
Deferred income tax | 470 | 442 | ||||||||||||||
Other assets | 3,879 | 5,191 | 2,848 | 2,927 | ||||||||||||
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TOTAL | $ | 606,664 | $ | 684,989 | $ | 628,628 | $ | 621,975 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 62,946 | $ | 117,789 | $ | 51,544 | $ | 103,684 | ||||||||
Accrued expenses and other liabilities | 25,594 | 22,355 | 27,036 | 26,497 | ||||||||||||
Accrued interest payable | 536 | 4,045 | 601 | 1,521 | ||||||||||||
Income taxes payable | 2,651 | — | ||||||||||||||
Unearned revenues | 4,143 | 4,856 | 4,292 | 4,213 | ||||||||||||
Deferred pension obligation | 8,514 | 8,930 | 12,189 | 12,107 | ||||||||||||
Deferred income taxes | 172 | 797 | ||||||||||||||
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Total current liabilities | 101,905 | 158,772 | 98,313 | 148,022 | ||||||||||||
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Senior subordinated notes payable, net | 50,000 | 150,000 | 49,564 | 49,528 | ||||||||||||
Senior credit facility | 60,621 | — | 100,872 | 61,758 | ||||||||||||
Real estate mortgages | 21,517 | 22,109 | 21,112 | 21,318 | ||||||||||||
Unearned revenues and other long-term liabilities | 15,223 | 15,009 | 15,308 | 14,853 | ||||||||||||
Deferred income taxes | 40,290 | 37,082 | 35,449 | 35,015 | ||||||||||||
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Total long-term liabilities | 187,651 | 224,200 | 222,305 | 182,472 | ||||||||||||
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Total liabilities | 289,556 | 382,972 | 320,618 | 330,494 | ||||||||||||
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Commitment and contingencies | ||||||||||||||||
Equity: | ||||||||||||||||
Preferred stock $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding | — | — | — | — | ||||||||||||
Common stock $.01 par value; 100,000,000 shares authorized; 15,789,519 shares issued and outstanding as of October 31, 2015 and 16,128,775 shares issued and outstanding as of January 31, 2015 | 158 | 161 | ||||||||||||||
Common stock $.01 par value; 100,000,000 shares authorized; 15,567,017 shares issued and outstanding as of April 30, 2016 and 15,409,310 shares issued and outstanding as of January 30, 2016 | 156 | 154 | ||||||||||||||
Additional paid-in-capital | 149,418 | 161,336 | 144,477 | 144,025 | ||||||||||||
Retained earnings | 179,505 | 169,102 | 176,060 | 161,810 | ||||||||||||
Accumulated other comprehensive loss | (11,973 | ) | (12,852 | ) | (12,683 | ) | (14,508 | ) | ||||||||
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Total | 317,108 | 317,747 | ||||||||||||||
Treasury stock at cost; no shares as of October 31, 2015 and 770,753 shares as of January 31, 2015 | — | (15,730 | ) | |||||||||||||
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Total equity | 317,108 | 302,017 | 308,010 | 291,481 | ||||||||||||
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TOTAL | $ | 606,664 | $ | 684,989 | $ | 628,628 | $ | 621,975 | ||||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME (UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | April 30, | May 2, | |||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Net sales | $ | 196,447 | $ | 203,267 | $ | 659,342 | $ | 649,193 | $ | 250,875 | $ | 258,257 | ||||||||||||
Royalty income | 8,992 | 8,173 | 25,810 | 23,093 | 10,419 | 8,157 | ||||||||||||||||||
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Total revenues | 205,439 | 211,440 | 685,152 | 672,286 | 261,294 | 266,414 | ||||||||||||||||||
Cost of sales | 132,144 | 141,133 | 445,815 | 443,850 | 166,210 | 176,314 | ||||||||||||||||||
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Gross profit | 73,295 | 70,307 | 239,337 | 228,436 | 95,084 | 90,100 | ||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||
Selling, general and administrative expenses | 64,869 | 64,477 | 202,731 | 201,045 | 69,934 | 69,608 | ||||||||||||||||||
Depreciation and amortization | 3,383 | 3,008 | 10,151 | 8,976 | 3,467 | 3,322 | ||||||||||||||||||
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Total operating expenses | 68,252 | 67,485 | 212,882 | 210,021 | 73,401 | 72,930 | ||||||||||||||||||
(Loss) gain on sale of long-lived assets | — | — | (697 | ) | 885 | |||||||||||||||||||
Loss on sale of long-lived assets | — | (697 | ) | |||||||||||||||||||||
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Operating income | 5,043 | 2,822 | 25,758 | 19,300 | 21,683 | 16,473 | ||||||||||||||||||
Costs of early extinguishment of debt | — | — | 5,121 | — | ||||||||||||||||||||
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Interest expense | 1,853 | 3,517 | 7,423 | 10,838 | 2,025 | 3,627 | ||||||||||||||||||
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Net income (loss) before income taxes | 3,190 | (695 | ) | 13,214 | 8,462 | |||||||||||||||||||
Income tax provision (benefit) | 917 | (258 | ) | 2,811 | 2,740 | |||||||||||||||||||
Net income before income taxes | 19,658 | 12,846 | ||||||||||||||||||||||
Income tax provision | 5,408 | 3,435 | ||||||||||||||||||||||
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Net income (loss) | $ | 2,273 | $ | (437 | ) | $ | 10,403 | $ | 5,722 | |||||||||||||||
Net income | $ | 14,250 | $ | 9,411 | ||||||||||||||||||||
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Net income (loss) per share: | ||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||
Basic | $ | 0.15 | $ | (0.03 | ) | $ | 0.70 | $ | 0.38 | $ | 0.96 | $ | 0.64 | |||||||||||
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Diluted | $ | 0.15 | $ | (0.03 | ) | $ | 0.68 | $ | 0.38 | $ | 0.95 | $ | 0.62 | |||||||||||
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Weighted average number of shares outstanding | ||||||||||||||||||||||||
Basic | 15,148 | 14,954 | 14,948 | 14,881 | 14,810 | 14,649 | ||||||||||||||||||
Diluted | 15,465 | 14,954 | 15,344 | 15,246 | 15,060 | 15,161 |
See Notes to Unaudited Condensed Consolidated Financial Statements
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(amounts in thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | |||||||||||||
Net income (loss) | $ | 2,273 | $ | (437 | ) | $ | 10,403 | $ | 5,722 | |||||||
Other Comprehensive (loss) income: | ||||||||||||||||
Foreign currency translation adjustments, net | (609 | ) | (1,228 | ) | 482 | (591 | ) | |||||||||
Unrealized gain on pension liability, net of tax (1) | 135 | 80 | 405 | 239 | ||||||||||||
Unrealized gain on investments | (1 | ) | 14 | (8 | ) | 29 | ||||||||||
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Total other comprehensive (loss) income | (475 | ) | (1,134 | ) | 879 | (323 | ) | |||||||||
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Comprehensive income (loss) | $ | 1,798 | $ | (1,571 | ) | $ | 11,282 | $ | 5,399 | |||||||
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Three Months Ended | ||||||||
April 30, | May 2, | |||||||
2016 | 2015 | |||||||
Net income | $ | 14,250 | $ | 9,411 | ||||
Other Comprehensive income: | ||||||||
Foreign currency translation adjustments, net | 1,663 | 938 | ||||||
Unrealized gain on pension liability, net of tax | 155 | 135 | ||||||
Unrealized gain (loss) on investments | 7 | (7 | ) | |||||
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Total other comprehensive income | 1,825 | 1,066 | ||||||
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Comprehensive income | $ | 16,075 | $ | 10,477 | ||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Nine Months Ended | Three Months Ended | |||||||||||||||
October 31, 2015 | November 1, 2014 | April 30, | May 2, | |||||||||||||
2016 | 2015 | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 10,403 | $ | 5,722 | $ | 14,250 | $ | 9,411 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 10,632 | 9,541 | 3,565 | 3,482 | ||||||||||||
Provision for bad debts | 435 | 360 | 404 | 250 | ||||||||||||
Amortization of debt issue cost | 369 | 483 | 103 | 163 | ||||||||||||
Amortization of premiums and discounts | 124 | 320 | 14 | 54 | ||||||||||||
Amortization of unrealized loss on pension liability | 405 | 390 | ||||||||||||||
Costs on early extinguishment of debt | 1,158 | — | ||||||||||||||
Amortization of unrealized (gain) loss on pension liability | 155 | 135 | ||||||||||||||
Deferred income taxes | 2,614 | 1,764 | 406 | 1,783 | ||||||||||||
Loss (gain) on sale of long-lived assets | 697 | (885 | ) | |||||||||||||
Share-based compensation | 3,641 | 4,424 | 1,336 | 1,049 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Loss on sale of long-lived assets | — | 697 | ||||||||||||||
Changes in operating assets and liabilities, net of acquisitions | ||||||||||||||||
Accounts receivable, net | 6,507 | 16,614 | (41,451 | ) | (43,443 | ) | ||||||||||
Inventories | 38,380 | 50,420 | 30,226 | 30,553 | ||||||||||||
Prepaid income taxes | 3,606 | 44 | 1,878 | 908 | ||||||||||||
Prepaid expenses and other current assets | (762 | ) | (538 | ) | 1,194 | 773 | ||||||||||
Other assets | 111 | (313 | ) | 16 | 92 | |||||||||||
Deferred pension obligation | (416 | ) | (2,221 | ) | ||||||||||||
Accounts payable and accrued expenses | (54,759 | ) | (50,297 | ) | (53,081 | ) | (42,726 | ) | ||||||||
Accrued interest payable | (3,509 | ) | (2,986 | ) | (920 | ) | (3,008 | ) | ||||||||
Income taxes payable | 2,157 | — | ||||||||||||||
Unearned revenues and other liabilities | (998 | ) | 991 | 667 | 104 | |||||||||||
Deferred pension obligation | 81 | 55 | ||||||||||||||
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Net cash provided by operating activities | 18,638 | 33,833 | ||||||||||||||
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Net cash used in operating activities | (39,000 | ) | (39,668 | ) | ||||||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchase of property and equipment | (9,837 | ) | (12,525 | ) | (4,098 | ) | (3,319 | ) | ||||||||
Purchase of investments | (8,230 | ) | (27,331 | ) | (2,455 | ) | (2,640 | ) | ||||||||
Proceeds from investment maturities | 17,845 | 19,844 | ||||||||||||||
Proceeds from investments maturities | 1,965 | 8,580 | ||||||||||||||
Proceeds on sale of intangible assets | 2,500 | — | — | 2,500 | ||||||||||||
Proceeds from note receivable | 250 | 250 | ||||||||||||||
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Net cash provided by (used in) investing activities | 2,528 | (19,762 | ) | |||||||||||||
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Net cash (used in) provided by investing activities | (4,588 | ) | 5,121 | |||||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Borrowings from senior credit facility | 330,644 | 220,166 | 123,995 | 90,036 | ||||||||||||
Payments on senior credit facility | (270,023 | ) | (228,328 | ) | (84,881 | ) | (80,366 | ) | ||||||||
Payments on senior subordinated notes | (100,000 | ) | — | |||||||||||||
Purchase of treasury stock | — | (2,222 | ) | |||||||||||||
Payments on real estate mortgages | (615 | ) | (593 | ) | (212 | ) | (206 | ) | ||||||||
Payments on capital leases | (137 | ) | (150 | ) | (64 | ) | (77 | ) | ||||||||
Deferred financing fees | (574 | ) | — | — | (569 | ) | ||||||||||
Proceeds from exercise of stock options | 1,408 | 360 | — | 114 | ||||||||||||
Tax benefit from exercise of equity instruments | — | (134 | ) | — | 396 | |||||||||||
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Net cash used in financing activities | (39,297 | ) | (10,901 | ) | ||||||||||||
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Net cash provided by financing activities | 38,838 | 9,328 | ||||||||||||||
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Effect of exchange rate changes on cash and cash equivalents | 600 | 243 | (199 | ) | 408 | |||||||||||
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (17,531 | ) | 3,413 | |||||||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (4,949 | ) | (24,811 | ) | ||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 43,547 | 26,989 | 31,902 | 43,547 | ||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 26,016 | $ | 30,402 | $ | 26,953 | $ | 18,736 | ||||||||
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4 | Continued |
Continued
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Nine Months Ended | Three Months Ended | |||||||||||||||
October 31, 2015 | November 1, 2014 | April 30, | May 2, | |||||||||||||
2016 | 2015 | |||||||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 10,439 | $ | 13,021 | $ | 2,828 | $ | 6,418 | ||||||||
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Income taxes | $ | 507 | $ | 616 | $ | 150 | $ | 57 | ||||||||
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NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||||||||||
Accrued purchases of property and equipment | $ | 1,684 | $ | 17 | $ | 39 | $ | — | ||||||||
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Note receivable on sale of intangible asset | $ | — | $ | 1,250 | ||||||||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements of Perry Ellis International, Inc. and subsidiaries (“Perry Ellis” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the requirements of the Securities and Exchange Commission on Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows required by GAAP for annual financial statements. These condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2015,30, 2016, filed with the Securities and Exchange Commission on April 14, 2015.2016.
The information presented reflects all adjustments, which are in the opinion of management of a normal and recurring nature, necessary for a fair presentation of the interim periods. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2014, the FASB issued ASU No. 2014-08,“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU No. 2014-08 amends the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The amendments require expanded disclosures for discontinued operations that would provide users of financial statements with more information about the assets, liabilities, revenues, and expenses of discontinued operations and disclosure of the pretax profit or loss of individually significant components of an entity that do not qualify for discontinued operations reporting. ASU No. 2014-08 is to be applied prospectively to all disposals (or classifications as held for sale) of components of an entity and all businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within fiscal years, and interim periods within those years, beginning after December 15, 2014. The adoption of ASU No. 2014-08 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.
In May 2014, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” ASU No. 2014-09 clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”) that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Companies can choose to apply the ASU using either the full retrospective approach or a modified retrospective approach. The Company is currently evaluating both methods of adoption and the impact, if any, that the adoption of this ASU will have on the Company’s results of operations or the Company’s financial position.
In June 2014, the FASB issued ASU No. 2014-12,“Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force).” ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU No. 2014-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Earlier adoption is permitted. The amendments can be applied either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards. The adoption of ASU No. 2014-12 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position
In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis”, which change the guidance for evaluating whether to consolidate certain legal entities. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities. Additionally, the amendments eliminate the presumption that a general partner should consolidate a limited partnership, as well as affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for periods beginning after December 15, 2015 and early adoption is permitted, including adoption during an interim period. Companies have an option of using either a full retrospective or modified retrospective adoption approach. The adoption of ASU No. 2015-02 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.
In March 2015, the FASB issued ASU 2015-03, “Interest - Interest—Imputation of Interest (Subtopic 835-30)”, which is simplifying the Presentation of Debt Issuance Costs. The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for interim periods beginning after December 15, 2015. The Company expectsadopted the adoption of theaccounting standard will result in the presentationfirst quarter of fiscal 2017. Prior to the adoption, debt issuance costs which are currently included inwere classified as other assets, inassets. This presentation change was applied retrospectively to the condensed consolidated balance sheets,sheet and consequently, amounts related to debt issuance costs are presented as a direct deduction from the carrying amount of the relatedcorresponding debt instrument.liability for all periods presented.
The effect on the condensed consolidating balance sheet as of January 30, 2016, as a result of this change in presentation, is a decrease of ($0.5) million in other assets, and a decrease of ($0.5) million in senior subordinated notes payable.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”, which requires inventory measured using any method other than last-in, first out (“LIFO”) or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Under this ASU, subsequent measurement of inventory using the LIFO and retail inventory method is unchanged. ASU 2015-11 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. Early application is permitted. The adoption of ASU No. 2015-11 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”which requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, using a modified retrospective approach, and early adoption is permitted. The Company is evaluating the effect that the adoption will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-07, “Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting,” which eliminates the requirement to retroactively adjust an investment that subsequently qualifies for equity method accounting (as a result of an increase in level of ownership interest or degree of influence) as if the equity method of accounting had been applied during all prior periods that the investment was held. The new standard requires that the investor add the cost of acquiring additional ownership interest in the investee to its current basis and prospectively adopt the equity method of accounting. Any unrealized gains or losses in an available-for-sale investment that subsequently qualifies as an equity method investment should be recognized in earnings at the date the investment qualifies as an equity method investment. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. This new guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which is part of the FASB’s Simplification Initiative. The updated guidance simplifies the accounting for share-based payment transactions. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, which amends certain aspects of the FASB’s new revenue standard, ASU 2014-09, “Revenue from Contracts with Customers”,specifically the standard’s guidance on identifying performance obligations and the implementation guidance on licensing. The amendments clarify when promised goods or services are separately identifiable (i.e., distinct within the context of a contract), an important step in determining whether goods and services should be accounted for as separate performance obligations. In addition, the amendments allow entities to disregard goods or services that are immaterial in the context of a contract and provide an accounting policy election for accounting for certain shipping and handling activities. The amendments also clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property (IP), which will determine whether the entity recognizes revenue over time or at a point in time. The amendments revise the guidance to address how entities should apply the exception for sales- and usage-based royalties to licenses of IP, recognize revenue for licenses that are not separate performance obligations and evaluate different types of license restrictions (e.g., time-based, geography-based). The new guidance’s effective date and transition provisions are aligned with the requirements in the new revenue standard, which is not yet effective. The Company is currently evaluating the impact, if any, that the adoption of this ASU will have on the Company’s results of operations or the Company’s financial position.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of:
April 30, | January 30, | |||||||||||||||
October 31, 2015 | January 31, 2015 | 2016 | 2016 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Trade accounts | $ | 144,670 | $ | 150,515 | $ | 192,668 | $ | 144,708 | ||||||||
Royalties | 7,331 | 6,662 | 3,986 | 5,892 | ||||||||||||
Other receivables | 1,054 | 1,034 | 1,841 | 1,769 | ||||||||||||
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Total | 153,055 | 158,211 | 198,495 | 152,369 | ||||||||||||
Less: allowances | (22,602 | ) | (20,779 | ) | (24,262 | ) | (20,303 | ) | ||||||||
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Total | $ | 130,453 | $ | 137,432 | $ | 174,233 | $ | 132,066 | ||||||||
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4. INVENTORIES
Inventories are stated at the lower of cost (weighted moving average cost) or market. Cost principally consists of the purchase price, customs, duties, freight, and commissions to buying agents.
Inventories consisted of the following as of:
October 31, 2015 | January 31, 2015 | |||||||
(in thousands) | ||||||||
Finished goods | $ | 144,972 | $ | 183,468 | ||||
Raw materials and in process | 329 | 266 | ||||||
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Total | $ | 145,301 | $ | 183,734 | ||||
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Finished goods Raw materials and in process Total April 30, January 30, 2016 2016 (in thousands) $ 153,581 $ 182,414 92 336 $ 153,673 $ 182,750
5. INVESTMENTS
The Company’s investments include marketable securities and certificates of deposit at October 31, 2015April 30, 2016 and January 31, 2015. Marketable securities are classified as available-for-sale and consist of corporate bonds with maturity dates less than two years.30, 2016. Certificates of deposit are classified as available-for-sale with $7.3$10.3 million with maturity dates within one year. Investments are stated at fair value.year or less. The estimated fair value of the marketable securities is based on quoted prices in an active market (Level 1 fair value measures).
Investments consisted of the following as of October 31, 2015:April 30, 2016:
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Gross | Gross | Estimated | ||||||||||||||||||||||||||
(in thousands) | Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Marketable securities | $ | 3,030 | $ | 1 | $ | — | $ | 3,031 | ||||||||||||||||||||||||
Certificates of deposit | 7,262 | 1 | (3 | ) | 7,260 | 10,281 | 0 | (2 | ) | 10,279 | ||||||||||||||||||||||
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Total investments | $ | 10,292 | $ | 2 | $ | (3 | ) | $ | 10,291 | $ | 10,281 | $ | 0 | $ | (2 | ) | $ | 10,279 | ||||||||||||||
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Investments consisted of the following as of January 31, 2015:30, 2016:
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Gross | Gross | Estimated | ||||||||||||||||||||||||||
(in thousands) | Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Marketable securities | $ | 12,247 | $ | 9 | $ | — | $ | 12,256 | ||||||||||||||||||||||||
Certificates of deposit | 7,742 | 1 | (3 | ) | 7,740 | 9,791 | 0 | (9 | ) | 9,782 | ||||||||||||||||||||||
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Total investments | $ | 19,989 | $ | 10 | $ | (3 | ) | $ | 19,996 | $ | 9,791 | $ | 0 | $ | (9 | ) | $ | 9,782 | ||||||||||||||
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6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
October 31, 2015 | January 31, 2015 | |||||||
(in thousands) | ||||||||
Furniture, fixtures and equipment | $ | 86,174 | $ | 79,225 | ||||
Buildings and building improvements | 22,431 | 19,719 | ||||||
Vehicles | 560 | 569 | ||||||
Leasehold improvements | 48,568 | 47,807 | ||||||
Land | 9,488 | 9,488 | ||||||
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Total | 167,221 | 156,808 | ||||||
Less: accumulated depreciation and amortization | (100,181 | ) | (92,175 | ) | ||||
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Total | $ | 67,040 | $ | 64,633 | ||||
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Furniture, fixtures and equipment Buildings and building improvements Vehicles Leasehold improvements Land Total Less: accumulated depreciation and amortization Total April 30, January 30, 2016 2016 (in thousands) $ 86,384 $ 84,634 19,916 19,462 556 523 47,717 46,882 9,430 9,430 164,003 160,931 (99,240 ) (97,023 ) $ 64,763 $ 63,908
The above table of property and equipment includes assets held under capital leases as of:
April 30, | January 30, | |||||||||||||||
October 31, 2015 | January 31, 2015 | 2016 | 2016 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Furniture, fixtures and equipment | $ | 810 | $ | 888 | $ | 810 | $ | 810 | ||||||||
Less: accumulated depreciation and amortization | (114 | ) | (791 | ) | (249 | ) | (182 | ) | ||||||||
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Total | $ | 696 | $ | 97 | $ | 561 | $ | 628 | ||||||||
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For the three months ended October 31,April 30, 2016 and May 2, 2015, and November 1, 2014, depreciation and amortization expense relating to property and equipment amounted to $3.4$3.3 million and $3.1 million, respectively. Forfor each of the nine months ended October 31, 2015 and November 1, 2014, depreciation and amortization expense relating to property and equipment amounted to $10.0 million and $8.9 million, respectively.periods. These amounts include amortization expense for leased property under capital leases.
7. OTHER INTANGIBLE ASSETS
Trademarks
Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $202.3 million and $205.5$184.1 million at October 31, 2015April 30, 2016 and January 31, 2015.30, 2016.
On March 19, 2015, the Company entered into an agreement to sell the intellectual property of its C&C California brand to a third party. The sales price was $2.5 million, which was collected during the first quarter of fiscal 2016. In connection with this transaction, the Company recorded a loss of ($0.7) million in the licensing segment.
On August 1, 2014, the Company entered into a sales agreement, in the amount of $1.3 million, for the sale of Australian, Fiji and New Zealand trademark rights with respect to Jantzen. Payments on the purchase price are due in five installments of $250,000 over a five year period. Interest on the purchase price that remains unpaid will accrue at a rate of 3.5% per annum calculated on an annual basis. The first payment was due within four days of the completion date and has been paid. The second payment has also been received. The remaining three payments are to be paid annually commencing on August 1, 2016 with the final payment to be made on August 1, 2018. As a result of this transaction, the Company recorded a gain of $0.9 million in the licensing segment.
Other
Other intangible assets represent customer lists as of:
April 30, | January 30, | |||||||||||||||
October 31, 2015 | January 31, 2015 | 2016 | 2016 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Customer lists | $ | 8,450 | $ | 8,450 | $ | 8,450 | $ | 8,450 | ||||||||
Less: accumulated amortization | (4,453 | ) | (3,782 | ) | (4,894 | ) | (4,677 | ) | ||||||||
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Total | $ | 3,997 | $ | 4,668 | $ | 3,556 | $ | 3,773 | ||||||||
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For the three months ended October 31,April 30, 2016 and May 2, 2015, and November 1, 2014, amortization expense relating to customer lists amounted to $0.3 million andapproximately $0.2 million respectively, for each period. Forof the nine months ended October 31, 2015 and November 1, 2014, amortization expense relating to customer lists amounted to $0.7 million, respectively, for each period.periods. Other intangible assets are amortized over their estimated useful lives of 10 years. Assuming no impairment, the table sets forth the estimated amortization expense for future periods based on recorded amounts as of October 31, 2015, will be approximately $0.9 million a year from fiscal 2016 through fiscal 2017, approximately $0.8 million a year from fiscal 2018 through fiscal 2019, approximately $0.7 million for fiscal 2020 and approximately $0.5 million for fiscal 2021.
(in thousands) | ||||
2017 | $ | 868 | ||
2018 | 835 | |||
2019 | 793 | |||
2020 | 734 | |||
2021 | 543 |
8. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consisted of the following as of:
October 31, 2015 | January 31, 2015 | |||||||
(in thousands) | ||||||||
Total letter of credit facilities | $ | 30,307 | $ | 45,301 | ||||
Outstanding letters of credit | (11,395 | ) | (11,595 | ) | ||||
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Total credit available | $ | 18,912 | $ | 33,706 | ||||
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During the first quarter of fiscal 2016, a $15 million line of credit expired and was not renewed.
April 30, | January 30, | |||||||
2016 | 2016 | |||||||
(in thousands) | ||||||||
Total letter of credit facilities | $ | 30,292 | $ | 30,286 | ||||
Outstanding letters of credit | (11,395 | ) | (11,395 | ) | ||||
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Total credit available | $ | 18,897 | $ | 18,891 | ||||
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9. ADVERTISING AND RELATED COSTS
The Company’s accounting policy relating to advertising and related costs is to expense these costs in the period incurred. Advertising and related costs were approximately $4.1$4.3 million and $4.4$3.8 million for the three months ended October 31,April 30, 2016 and May 2, 2015, and November 1, 2014, respectively, and $11.1 million and $12.2 million for the nine months ended October 31, 2015 and November 1, 2014, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.expenses.
10. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares of outstanding common stock. The calculation of diluted net income (loss) per share is similar to basic earnings per share except that the denominator includes potentially dilutive common stock. The potentially dilutive common stock included in the Company’s computation of diluted net income (loss) per share includes the effects of stock options, stock appreciation rights (“SARS”), and unvested restricted shares as determined using the treasury stock method.
The following table sets forth the computation of basic and diluted income (loss) per share:
Three Months Ended | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | April 30, | May 2, | |||||||||||||||||||||
October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | 2016 | 2015 | |||||||||||||||||||
(in thousands, except per share data) | (in thousands, except per share data) | |||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net income (loss) | $ | 2,273 | $ | (437 | ) | $ | 10,403 | $ | 5,722 | |||||||||||||||
Net income | $ | 14,250 | $ | 9,411 | ||||||||||||||||||||
Denominator: | ||||||||||||||||||||||||
Basic-weighted average shares | 15,148 | 14,954 | 14,948 | 14,881 | 14,810 | 14,649 | ||||||||||||||||||
Dilutive effect: equity awards | 317 | — | 396 | 365 | 250 | 512 | ||||||||||||||||||
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Diluted-weighted average shares | 15,465 | 14,954 | 15,344 | 15,246 | 15,060 | 15,161 | ||||||||||||||||||
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Basic income per share | $ | 0.96 | $ | 0.64 | ||||||||||||||||||||
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Basic income (loss) per share | $ | 0.15 | $ | (0.03 | ) | $ | 0.70 | $ | 0.38 | |||||||||||||||
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Diluted income (loss) per share | $ | 0.15 | $ | (0.03 | ) | $ | 0.68 | $ | 0.38 | |||||||||||||||
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Diluted income per share | $ | 0.95 | $ | 0.62 | ||||||||||||||||||||
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Antidilutive effect:(1) | 530 | 1,778 | 693 | 886 | 804 | 479 | ||||||||||||||||||
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(1) | Represents weighted average of stock options to purchase shares of common stock, SARS and restricted stock that were not included in computing diluted income |
11. EQUITY
The following table reflects the changes in equity:
Changes in Equity | ||||
(in thousands) | ||||
Equity at January 31, 2015 | $ | 302,017 | ||
Comprehensive income | 11,282 | |||
Share transactions under employee equity compensation plans | 3,809 | |||
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Equity at October 31, 2015 | $ | 317,108 | ||
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Equity at February 1, 2014 | $ | 347,533 | ||
Comprehensive income | 5,399 | |||
Share transactions under employee equity compensation plans | 4,362 | |||
Purchase of treasury stock | (2,222 | ) | ||
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Equity at November 1, 2014 | $ | 355,072 | ||
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During the second quarter of fiscal 2016, the Company retired 770,753 shares of treasury stock recorded at a cost of approximately $15.7 million. Accordingly, during the second quarter of fiscal 2016, the Company reduced common stock and additional paid in capital by $7,000 and $15.7 million, respectively.
During the three months ended November 1, 2014, the Company repurchased shares of its common stock at a cost of $2.2 million.
Changes in Equity | ||||
(in thousands) | ||||
Equity at January 30, 2016 | $ | 291,481 | ||
Comprehensive income | 16,075 | |||
Share transactions under employee equity compensation plans | 454 | |||
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Equity at April 30, 2016 | $ | 308,010 | ||
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Equity at January 31, 2015 | $ | 302,017 | ||
Comprehensive income | 10,477 | |||
Share transactions under employee equity compensation plans | 895 | |||
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Equity at May 2, 2015 | $ | 313,389 | ||
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12. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive loss by component, net of tax:
Unrealized (Loss) Gain on Pension Liability | Foreign Currency Translation Adjustments, Net | Unrealized (Loss) Gain on Investments | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance, January 31, 2015 | $ | (8,085 | ) | $ | (4,774 | ) | $ | 7 | $ | (12,852 | ) | |||||
Other comprehensive loss (income) before reclassifications | — | 482 | (8 | ) | 474 | |||||||||||
Amounts reclassified from accumulated other comprehensive loss | 405 | — | — | 405 | ||||||||||||
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Balance, October 31, 2015 | $ | (7,680 | ) | $ | (4,292 | ) | $ | (1 | ) | $ | (11,973 | ) | ||||
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Unrealized | Foreign | Unrealized | ||||||||||||||
(Loss) Gain on | Currency Translation | Gain (Loss) on | ||||||||||||||
Pension Liability | Adjustments, Net | Investments | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance, January 30, 2016 | $ | (7,368 | ) | $ | (7,131 | ) | $ | (9 | ) | $ | (14,508 | ) | ||||
Other comprehensive income before reclassifications | — | 1,663 | 7 | 1,670 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income | 155 | — | — | 155 | ||||||||||||
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Balance, April 30, 2016 | $ | (7,213 | ) | $ | (5,468 | ) | $ | (2 | ) | $ | (12,683 | ) | ||||
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Balance, January 31, 2015 Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Balance, May 2, 2015 Unrealized Foreign Unrealized (Loss) Gain on Currency Translation (Loss) Gain on Pension Liability Adjustments, Net Investments Total (in thousands) $ (8,085 ) $ (4,774 ) $ 7 $ (12,852 ) — 938 (7 ) 931 135 — — 135 $ (7,950 ) $ (3,836 ) $ — $ (11,786 )
A summary of the impact on the condensed consolidated statementsstatement of operationsincome line items is as follows:
Three Months Ended | Three Months Ended | |||||||||||||||||||||
October 31, 2015 | November 1, 2014 | April 30, 2016 | May 2, 2015 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||
Amortization of defined benefit pension items | ||||||||||||||||||||||
Actuarial gains | $ | 135 | $ | 130 | Selling, general and administrative expenses | $ | 155 | $ | 135 | Selling, general and administrative expenses | ||||||||||||
Tax provision | — | (50 | ) | Income tax provision | — | — | ||||||||||||||||
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Total, net of tax | $ | 135 | $ | 80 | $ | 155 | $ | 135 | ||||||||||||||
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Nine Months Ended | ||||||||||||||||||||||
October 31, 2015 | November 1, 2014 | |||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
Amortization of defined benefit pension items | ||||||||||||||||||||||
Actuarial gains | $ | 405 | $ | 390 | Selling, general and administrative expenses | |||||||||||||||||
Tax provision | — | (151 | ) | Income tax provision | ||||||||||||||||||
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Total, net of tax | $ | 405 | $ | 239 | ||||||||||||||||||
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13. INCOME TAXES
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company’s U.S. federal income tax returns for fiscal 2011 through fiscal 20152016 are open tax years. The Company’s state and foreign tax filings are subject to varying statutes of limitations. The Company’s unrecognized state tax benefits are related to open tax years from fiscal 2005 through fiscal 2016,2017, depending on each state’s particular statute of limitation. As of October 31, 2015,April 30, 2016, the fiscal 2011, 2012 and 2013 U.S. federal income tax returns are under examination as well as various state, local, and foreign income tax returns, by various taxing authorities.
The Company has a $1.0$1.1 million liability recorded for unrecognized tax benefits as of January 31, 2015,30, 2016, which includes interest and penalties of $0.2 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. All of the unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. During the three months and nine months ended October 31, 2015,April 30, 2016, the total amount of unrecognized tax benefits decreasedincreased by approximately $81,000 and increased by $29,000, respectively.$50,000. The change to the total amount of the unrecognized tax benefitsbenefit for the three and nine months ended October 31, 2015April 30, 2016 included a decreasean increase in interest and penalties of approximately $29,000 and $2,000, respectively.$26,000.
The Company finalized amounts due to New York City as a corollary to the recently resolved New York State examination during the three months ended October 31, 2015. Within the next twelve months the accepted look back period associated with various state and local tax jurisdictions will close. This event could result in a reduction of the unrecognized tax benefit of up to approximately $47,000. The Company does not currently anticipate a resolution within the next twelve months for any of the other remaining unrecognized tax benefits as of October 31, 2015.April 30, 2016. The statute of limitations related to the Company’s fiscal 2011, 2012 and 2013 U.S. federal tax years has been extended as part of the examination and willis not be expected to lapse within the next twelve months.
DuringAt the fourth quarterend of fiscal 2015,2016, the Company recognizedmaintained a $46.2 million valuation allowance of $42.4 million against theits remaining domestic deferred tax assets,asset; including, but not limited to, the federal net operating loss carryforward and the U.S. state net operating loss carryforwards, whose utilization is not restricted by factors beyond the Company’s control. The establishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. WhileAn accumulation of recent pretax losses is considered strong negative evidence in that evaluation. Although the Company recognized pretax earnings throughin the nine months ended October 31, 2015,first quarter of fiscal 2017, by itself that does not represent sufficient positive evidence ofthat the deferred tax asset realizabilitywill be realized to warrant removing the valuation allowances established against the U.S. deferred tax assets. Deferred tax assets without valuation allowances remain in certain foreign tax jurisdictions, where supported by the evidence.
14. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES
In 2002, the Company adopted the 2002 Stock Option Plan (the “2002 Plan”). The 2002 Plan was amended in 2003 to increase the number of shares reserved for issuance thereunder, among other changes. As amended, the 2002 Plan allowed the Company to grant Options to purchase up to an aggregate of 1,500,000 shares of the Company’s common stock. In 2005, the Company adopted the 2005 Long-Term Incentive Compensation Plan (the “2005 Plan”). The 2005 Plan allowed the Company to grant Options and other awards to purchase or receive up to an aggregate of 2,250,000 shares of the Company’s common stock, reduced by any awards outstanding under the 2002 Plan. On March 13, 2008, the Board of Directors unanimously adopted an amendment and restatement of the 2005 Plan that increased the number of shares available for grants by an additional 2,250,000 shares to an aggregate of 4,750,000 shares of common stock. On March 17, 2011, the Board of Directors unanimously adopted the second amendment and restatement of the 2005 Plan, which increased the number of shares available for grants by an additional 500,000 shares to an aggregate of 5,250,000 shares of common stock. On May 20, 2015, the Board of Directors unanimously adopted, subject to shareholder approval at the annual meeting, the Perry Ellis International, Inc. 2015 Long Term Incentive Compensation Plan, which is an amendment and restatement of the 2005 Plan (the “2015 Plan, and collectively with the 2002 and 2005 Plans, as amended, the “Stock Plan”). The amendment was approved by the shareholders at the Company’s 2015 annual meeting.
The 2015 Plan extends the existing term until July 17, 2025 as well as increases the number of shares of common stock reserved for issuance by an additional 1,000,000 shares to an aggregate of 6,250,000 shares.
The Stock Plan is designed to serve as an incentive for attracting and retaining qualified and competent employees, officers, directors, consultants, and other persons who provide services to the Company.
The 2015 Plan provides for the grants of Incentive Stock Options and Nonstatutory Stock Options. An Incentive Stock Option is an option to purchase common stock, which meets the requirements set forth under Section 422 of the Internal Revenue Code of 1986, as amended (“Section 422”). A Nonstatutory Stock Option is an option to purchase common stock, which meets the requirements of the 2015 Plan, but does not meet the definition of an “incentive stock option” under Section 422.
The 2015 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), which is comprised of two or more non-employee directors. Subject to the terms of the 2015 Plan, the Committee determines the participants, the allotment of shares to participants, and the term of the options. The Committee also determines the exercise price and certain other terms of the options; provided, however that the per share exercise price of options granted under the 2015 Plan may not be less than the fair market value of the common stock on the date of grant, and in the case of an Incentive Stock Option granted to a 10% shareholder, the per share exercise price will not be less than 110% of the fair market value of the common stock on the date of grant.
Under the 2015 Plan, restricted stock awards are granted subject to restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, or as otherwise provided in the 2015 Plan, covering a period of time specified by the Committee. The terms of any restricted stock awards granted under the 2015 Plan are set forth in a written award agreement, which contains provisions determined by the Committee that are not inconsistent with the 2015 Plan. The restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Committee may determine at the date of grant or thereafter. Except to the extent restricted under the terms of the 2015 Plan and any award agreement relating to a restricted stock award, a participant granted restricted stock shall have all of the rights of a shareholder, including the right to vote the restricted stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Committee). During the Restriction Period (as defined in the 2015 Plan), the restricted stock may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered by the participant.
During the second quarter of fiscalthree months ended April 30, 2016, the Company granted an aggregate of 8,130 SARs, to be settled in86,173 shares of commonrestricted stock to two new directors. The SARs have an exercise price of $23.38 and generallycertain key employees, which vest primarily over a three-year period, and have a seven-year term, at an estimated value based on theBlack-Scholes Option Pricing Model, of approximately $0.1$1.6 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
During the first and second quarters of fiscalthree months ended April 30, 2016, the Company granted an aggregate of 73,489 and 141,613 shares ofperformance based restricted stock to certain key employees, which vest primarily over a three-year period,employees. Such stock generally vests 100% in April 2019, provided that each employee is still an employee of the Company on such date, and the Company has met certain performance criteria. A total of 184,044 shares of performance-based restricted stock were issued at an estimated value of $1.8 million and $3.5 million, respectively. This value is being recorded as compensation expense on a straight-line basis over$1.9 million.
During the vesting period of the restricted stock.
Also, during the second quarter of fiscalthree months ended April 30, 2016, the Company awarded to five directors an aggregate of 12,840 shares of restricted stock. The restricted stock awarded vests primarily over a three-year period, at an estimated value of $0.3 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
In April 2015, a total of 91,083159,862 shares of restricted stock vested, of which 27,32546,000 shares were withheld to cover the employees’ statutory income tax requirements. The estimated value of the withheld shares was $0.7$0.9 million.
15. SEGMENT INFORMATION
The Company has four reportable segments: Men’s Sportswear and Swim, Women’s Sportswear, Direct-to-Consumer and Licensing. The Men’s Sportswear and Swim and Women’s Sportswear segments derive revenues from the design, import and distribution of apparel to department stores and other retail outlets, principally throughout the United States. The Direct-to-Consumer segment derives its revenues from the sale of the Company’s branded and licensed products through itsthe Company’s retail stores and e-commerce platform.platforms. The Licensing segment derives its revenues from royalties associated withfrom the use of the Company’s brand names, principally Perry Ellis, Original Penguin, Laundry, by Shelly Segal,Gotcha, Pro Player, Farah, Ben Hogan, Jantzen, John Henry, Gotcha, Farah, Pro PlayerJantzen, and Manhattan.Savane.
The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by each segment.the segments.
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
October 31, | November 1, | October 31, | November 1, | April 30, | May 2, | |||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2016 | 2015 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 141,512 | $ | 145,732 | $ | 490,453 | $ | 487,906 | $ | 197,925 | $ | 198,453 | ||||||||||||
Women’s Sportswear | 33,421 | 36,721 | 102,126 | 97,448 | 32,489 | 38,823 | ||||||||||||||||||
Direct-to-Consumer | 21,514 | 20,814 | 66,763 | 63,839 | 20,461 | 20,981 | ||||||||||||||||||
Licensing | 8,992 | 8,173 | 25,810 | 23,093 | 10,419 | 8,157 | ||||||||||||||||||
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Total revenues | $ | 205,439 | $ | 211,440 | $ | 685,152 | $ | 672,286 | $ | 261,294 | $ | 266,414 | ||||||||||||
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Depreciation and amortization: | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 1,771 | $ | 1,606 | $ | 5,509 | $ | 4,804 | $ | 1,897 | $ | 1,875 | ||||||||||||
Women’s Sportswear | 589 | 487 | 1,655 | 1,444 | 614 | 500 | ||||||||||||||||||
Direct-to-Consumer | 976 | 880 | 2,851 | 2,615 | 896 | 904 | ||||||||||||||||||
Licensing | 47 | 35 | 136 | 113 | 60 | 43 | ||||||||||||||||||
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Total depreciation and amortization | $ | 3,383 | $ | 3,008 | $ | 10,151 | $ | 8,976 | $ | 3,467 | $ | 3,322 | ||||||||||||
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Operating income: | ||||||||||||||||||||||||
Operating income (loss): | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 2,392 | $ | (2,091 | ) | $ | 14,544 | $ | 7,163 | $ | 16,942 | $ | 11,330 | |||||||||||
Women’s Sportswear | (109 | ) | 1,324 | 222 | (249 | ) | (351 | ) | 1,382 | |||||||||||||||
Direct-to-Consumer | (4,038 | ) | (2,937 | ) | (8,051 | ) | (5,915 | ) | (3,372 | ) | (1,866 | ) | ||||||||||||
Licensing(1) | 6,798 | 6,526 | 19,043 | 18,301 | 8,464 | 5,627 | ||||||||||||||||||
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Total operating income | $ | 5,043 | $ | 2,822 | $ | 25,758 | $ | 19,300 | $ | 21,683 | $ | 16,473 | ||||||||||||
Costs on early extinguishment of debt | — | — | 5,121 | — | ||||||||||||||||||||
Total interest expense | 1,853 | 3,517 | 7,423 | 10,838 | 2,025 | 3,627 | ||||||||||||||||||
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Total net income (loss) before income taxes | $ | 3,190 | $ | (695 | ) | $ | 13,214 | $ | 8,462 | |||||||||||||||
Total net income before income taxes | $ | 19,658 | $ | 12,846 | ||||||||||||||||||||
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(1) | Operating income for the licensing segment for the |
16. BENEFIT PLAN
The Company sponsors a qualified pension plan. The following table provides the components of net benefit cost for the plan during the threefirst quarter of fiscal 2017 and nine months ended fiscal 2016 and 2015:2016:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
October 31, | November 1, | October 31, | November 1, | Three Months Ended | ||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | April 30, | May 2, | |||||||||||||||||||
(in thousands) | 2016 | 2015 | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Service cost | $ | 63 | $ | 63 | $ | 189 | $ | 189 | $ | 63 | $ | 63 | ||||||||||||
Interest cost | 337 | 433 | 1,011 | 1,299 | 124 | 337 | ||||||||||||||||||
Expected return on plan assets | (658 | ) | (508 | ) | (1,974 | ) | (1,524 | ) | (87 | ) | (658 | ) | ||||||||||||
Amortization of net loss | 135 | 130 | 405 | 390 | ||||||||||||||||||||
Amortization of net gain | 155 | 135 | ||||||||||||||||||||||
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Net periodic benefit cost | $ | (123 | ) | $ | 118 | $ | (369 | ) | $ | 354 | ||||||||||||||
Net periodic benefit cost (income) | $ | 255 | $ | (123 | ) | |||||||||||||||||||
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17. SENIOR SUBORDINATED NOTES PAYABLE
In March 2011, the Company issued $150 million 7 7 / 8 % senior subordinated notes, due April 1, 2019. The proceeds of this offering were used to retire the $150 million 8 7 / 8 % senior subordinated notes due September 15, 2013 and to repay a portion of the outstanding balance on the senior credit facility. The proceeds to the Company were $146.5 million yielding an effective interest rate of 8.0%.
On April 6, 2015, the Company elected to call for the partial redemption of $100 million of its $150 million 7 7 / 8 % senior subordinated notes due 2019 and a notice of redemption was sent to all registered holders of the senior subordinated notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, the Company completed the redemption of the $100 million of its senior subordinated notes. The Company incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including the redemption premium as well as the write-off of note issuance costs. At April 30, 2016, the balance of the 7 7 / 8 % senior subordinated notes totaled $49.6 million, net of debt issuance cost in the amount of $0.4 million. At January 30, 2016, the balance of the 7 7 / 8 % senior subordinated notes totaled $49.5 million, net of debt issuance cost in the amount of $0.5 million.
Certain Covenants.The indenture governing the senior subordinated notes contains certain covenants which restrict the Company’s ability and the ability of its subsidiaries to, among other things, incur additional indebtedness in certain circumstances, pay dividends or make other distributions on, redeem or repurchase capital stock, make investments or other restricted payments, create liens on assets to secure debt, engage in transactions with affiliates, and effect a consolidation or merger. The Company is not aware of any non-compliance with any of its covenants in this indenture. The Company could be materially harmed if it violates any covenants because the indenture’s trustee could declare the outstanding notes, together with accrued interest, to be immediately due and payable, which it may not be able to satisfy. In addition, a violation could also constitute a cross-default under the senior credit facility, the letter of credit facilities and the real estate mortgages resulting in all of its debt obligations becoming immediately due and payable, which the Company may not be able to satisfy.
18. SENIOR CREDIT FACILITY
On April 22, 2015, the Company amended and restated its existing senior credit facility (the “Credit Facility”), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $200 million. The Credit Facility has been extended through April 30, 2020 (“Maturity Date”). In connection with this amendment and restatement, the Company paid fees in the amount of $0.6 million. These fees will be amortized over the term of the credit facility as interest expense. At October 31, 2015, TheApril 30, 2016, the Company had outstanding borrowings of $60.6$100.9 million under the Credit Facility. At January 31, 2015,30, 2016, the Company had no outstanding borrowings of $61.8 million, under the Credit Facility.
Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require the Company to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. The Company is not aware of any non-compliance with any of its covenants in this Credit Facility. These covenants may restrict its ability and the ability of its subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. The Company may pay cash dividends subject to certain restrictions set forth in the covenants including, but not limited to, meeting a minimum excess availability threshold and no occurrence of a default. The Company could be materially harmed if it violates any covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If the Company is unable to repay those amounts, the lenders could proceed against its assets and the assets of its subsidiaries that are borrowers or guarantors. In addition, a covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of its other outstanding indebtedness, such as the indenture relating to its 77⁄/ 8% senior subordinated notes due April 1, 2019, its letter of credit facilities, or its real estate mortgage loans. Such aA cross-default could result in all of its debt obligations becoming immediately due and payable, which it may not be able to satisfy. Additionally, the Credit Facility includes a subjective acceleration clause if a “material adverse change” in the Company’s business occurs. The Company believes that the likelihood of the lender exercising this right is remote.
Borrowing BaseBase.. Borrowings under the Credit Facility are limited to a borrowing base calculation, which generally restricts the outstanding balance to the sum of (a) 87.5% of eligible receivables plus (b) 87.5% of eligible foreign accounts up to $1.5 million plus (c) the lesser of (i) the inventory loan limit, which equals 80% of the maximum credit under the Credit Facility at the time, (ii) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.
Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.
Security. As security for the indebtedness under the Credit Facility, the Company granted to the lenders a first priority security interest (subject to liens permitted under the Credit Facility to be senior thereto) in substantially all of its existing and future assets, including, without limitation, accounts receivable, inventory, deposit accounts, general intangibles, equipment and capital stock or membership interests, as the case may be, of certain subsidiaries, and real estate, but excluding its non-U.S. subsidiaries and all of its trademark portfolio.
18. SENIOR SUBORDINATED NOTES PAYABLE
In March 2011, the Company issued $150 million 7 7⁄8% senior subordinated notes, due April 1, 2019. The proceeds of this offering were used to retire the $150 million 8 7⁄8% senior subordinated notes due September 15, 2013 and to repay a portion of the outstanding balance on the senior credit facility. The proceeds to the Company were $146.5 million yielding an effective interest rate of 8.0%.
On April 6, 2015, the Company elected to call for the partial redemption of $100 million of its $150 million 7 7⁄8% senior subordinated notes due 2019 and a notice of redemption was sent to all registered holders of the senior subordinated notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, the Company completed the redemption of the $100 million of its senior subordinated notes. The Company incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including the redemption premium as well as the write-off of note issuance costs.
Certain Covenants. The indenture governing the senior subordinated notes contains certain covenants which restrict the Company’s ability and the ability of its subsidiaries to, among other things, incur additional indebtedness in certain circumstances, pay dividends or make other distributions on, redeem or repurchase capital stock, make investments or other restricted payments, create liens on assets to secure debt, engage in transactions with affiliates, and effect a consolidation or merger. The Company is not aware of any non-compliance with any of its covenants in this indenture. The Company could be materially harmed if it violated any covenants because the indenture’s trustee could declare the outstanding notes, together with accrued interest, to be immediately due and payable, which the Company may not be able to satisfy. In addition, a violation could also constitute a cross-default under the senior credit facility, the letter of credit facilities and the real estate mortgages resulting in all of the Company’s debt obligations becoming immediately due and payable, which it may not be able to satisfy.
19. FAIR VALUE MEASUREMENTS
Accounts receivable, accounts payable, accrued interest payable and accrued expenses. The carrying amounts reported in the consolidated balance sheets approximate fair value due to theshort-term nature of these instruments.
Investments. (classified within Level 1 of the valuation hierarchy)—The carrying amounts of the available-for-sale investments are measured at fair value on a recurring basis in the consolidated balance sheets.
Real estate mortgages. (classified within Level 2 of the valuation hierarchy) - —The carrying amounts of the real estate mortgages were approximately $23.0$21.9 and $22.0 million at October 31, 2015April 30, 2016 and January 31, 2015,30, 2016, respectively. The carrying values of the real estate mortgages at October 31, 2015April 30, 2016 and January 31, 2015,30, 2016, approximate their fair values since the interest rates approximate market.
Senior credit facility. (classified within Level 2 of the valuation hierarchy) - The carrying amount of the senior credit facility approximates fair value due to the frequent resets of its floating interest rate.
Senior subordinated notes payable. (classified within Level 1 of the valuation hierarchy) - —The carrying amounts of the 7 7⁄ / 8% senior subordinated notes payable were approximately $50.0$49.6 million and $150.0$49.5 million at October 31, 2015April 30, 2016 and January 31, 2015, respectively.30, 2016. The fair value of the 7 7⁄ / 8% senior subordinated notes payable was approximately $51.7$52.0 million and $157.0$49.0 million as of October 31, 2015April 30, 2016 and January 31, 2015,30, 2016, respectively, based on quoted market prices.
These estimated fair value amounts have been determined using available market information and appropriate valuation methods.
20. COMMITMENTS AND CONTINGENCIES
On April 20, 2016, the Company entered into an employment agreement with George Feldenkreis, the Company’s Executive Chairman. The term of the employment agreement shall continue until the death, or termination of the employment agreement by the Company or Mr. Feldenkreis. He will be paid a base salary of not less than $750,000 per year during the term of employment and, among other things, a lump sum payment of $1.0 million upon the termination of his employment in most circumstances. Additionally, he is a defendantentitled to participate in Joseph T. Cook v. Perry Ellis International, Inc. andthe Company’s incentive compensation plans.
On April 20, 2016, the Company entered into an employment agreement with Oscar Feldenkreis, Case No. 15-cv-08290 (U.S. District Court, Southern Districtthe Company’s Vice Chairman of New York), involving claimsthe Board of unlawfulDirectors, Chief Executive Officer and President. The term of the employment practices, including unlawful discrimination and retaliation, which was filedagreement ends on October 21, 2015 by an employeeFebruary 2, 2019. Pursuant to the employment agreement he will be paid a base salary of not less than $1,350,000 per year during the term of his employment with the Company. Additionally, he is entitled to participate in the New York offices. The plaintiff seeks an unspecified amount of damages. The Company believes that the allegations are without merit and intends to vigorously defend against them.Company’s incentive compensation plans.
21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Company and several of its subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. These guarantees are subject to release in limited circumstances (only upon the occurrence of certain customary conditions). The following are condensed consolidating financial statements, which present, in separate columns: Perry Ellis International, Inc., (Parent Only), the Guarantors on a combined, or where appropriate, consolidated basis, and the Non-Guarantors on a combined, or where appropriate, consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of October 31, 2015April 30, 2016 and January 31, 201530, 2016 and for the three and nine months ended October 31, 2015April 30, 2016 and November 1, 2014.May 2, 2015. The combined Guarantors are 100% owned subsidiaries of Perry Ellis International, Inc., and have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis.
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF OCTOBER 31, 2015APRIL 30, 2016
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 2,532 | $ | 23,484 | $ | — | $ | 26,016 | $ | — | $ | 3,399 | $ | 23,554 | $ | — | $ | 26,953 | ||||||||||||||||||||
Accounts receivable, net | — | 104,425 | 26,028 | — | 130,453 | — | 146,714 | 27,519 | — | 174,233 | ||||||||||||||||||||||||||||||
Intercompany receivable, net | 79,334 | — | — | (79,334 | ) | — | 82,603 | — | — | (82,603 | ) | — | ||||||||||||||||||||||||||||
Inventories | — | 123,145 | 22,156 | — | 145,301 | — | 129,936 | 23,737 | — | 153,673 | ||||||||||||||||||||||||||||||
Investment, at fair value | — | — | 10,291 | — | 10,291 | — | — | 10,279 | — | 10,279 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | — | 694 | — | 694 | |||||||||||||||||||||||||||||||||||
Prepaid income taxes | 2,726 | — | — | 17 | 2,743 | |||||||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | — | 6,766 | 1,126 | — | 7,892 | — | 6,977 | 730 | — | 7,707 | ||||||||||||||||||||||||||||||
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Total current assets | 82,060 | 236,868 | 83,779 | (79,317 | ) | 323,390 | 82,603 | 287,026 | 85,819 | (82,603 | ) | 372,845 | ||||||||||||||||||||||||||||
Property and equipment, net | — | 62,750 | 4,290 | — | 67,040 | — | 61,980 | 2,783 | — | 64,763 | ||||||||||||||||||||||||||||||
Other intangible assets, net | — | 172,695 | 33,638 | — | 206,333 | — | 155,370 | 32,332 | — | 187,702 | ||||||||||||||||||||||||||||||
Goodwill | — | 6,022 | — | — | 6,022 | |||||||||||||||||||||||||||||||||||
Deferred income taxes | — | — | 470 | — | 470 | |||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 285,117 | — | — | (285,117 | ) | — | 278,966 | — | — | (278,966 | ) | — | ||||||||||||||||||||||||||||
Other assets | 467 | 2,281 | 1,131 | — | 3,879 | — | 2,043 | 805 | — | 2,848 | ||||||||||||||||||||||||||||||
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TOTAL | $ | 367,644 | $ | 480,616 | $ | 122,838 | $ | (364,434 | ) | $ | 606,664 | $ | 361,569 | $ | 506,419 | $ | 122,209 | $ | (361,569 | ) | $ | 628,628 | ||||||||||||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — | $ | 56,192 | $ | 6,754 | $ | — | $ | 62,946 | $ | — | $ | 46,847 | $ | 4,697 | $ | — | $ | 51,544 | ||||||||||||||||||||
Accrued expenses and other liabilities | — | 20,865 | 4,729 | — | 25,594 | — | 22,275 | 4,761 | — | 27,036 | ||||||||||||||||||||||||||||||
Accrued interest payable | 536 | — | — | — | 536 | 601 | — | — | — | 601 | ||||||||||||||||||||||||||||||
Income taxes payable | — | 451 | 1,228 | (1,679 | ) | — | 3,394 | 190 | 763 | (1,696 | ) | 2,651 | ||||||||||||||||||||||||||||
Unearned revenues | — | 2,725 | 1,418 | — | 4,143 | — | 3,141 | 1,151 | — | 4,292 | ||||||||||||||||||||||||||||||
Deferred pension obligation | — | 8,433 | 81 | — | 8,514 | — | 12,124 | 65 | — | 12,189 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 172 | — | — | 172 | |||||||||||||||||||||||||||||||||||
Intercompany payable, net | — | 62,709 | 21,528 | (84,237 | ) | — | — | 68,566 | 20,116 | (88,682 | ) | — | ||||||||||||||||||||||||||||
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Total current liabilities | 536 | 151,547 | 35,738 | (85,916 | ) | 101,905 | 3,995 | 153,143 | 31,553 | (90,378 | ) | 98,313 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Senior subordinated notes payable, net | 50,000 | — | — | — | 50,000 | 49,564 | — | — | — | 49,564 | ||||||||||||||||||||||||||||||
Senior credit facility | — | 60,621 | — | — | 60,621 | — | 100,872 | — | — | 100,872 | ||||||||||||||||||||||||||||||
Real estate mortgages | — | 21,517 | — | — | 21,517 | — | 21,112 | — | — | 21,112 | ||||||||||||||||||||||||||||||
Unearned revenues and other long-term liabilities | — | 14,749 | 474 | — | 15,223 | — | 15,073 | 235 | — | 15,308 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 38,591 | 3 | 1,696 | 40,290 | — | 33,753 | — | 1,696 | 35,449 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total long-term liabilities | 50,000 | 135,478 | 477 | 1,696 | 187,651 | 49,564 | 170,810 | 235 | 1,696 | 222,305 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 50,536 | 287,025 | 36,215 | (84,220 | ) | 289,556 | 53,559 | 323,953 | 31,788 | (88,682 | ) | 320,618 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total equity | 317,108 | 193,591 | 86,623 | (280,214 | ) | 317,108 | 308,010 | 182,466 | 90,421 | (272,887 | ) | 308,010 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
TOTAL | $ | 367,644 | $ | 480,616 | $ | 122,838 | $ | (364,434 | ) | $ | 606,664 | $ | 361,569 | $ | 506,419 | $ | 122,209 | $ | (361,569 | ) | $ | 628,628 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 31, 201530, 2016
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 30,055 | $ | 13,492 | $ | — | $ | 43,547 | $ | — | $ | 775 | $ | 31,127 | $ | — | $ | 31,902 | ||||||||||||||||||||
Accounts receivable, net | — | 114,325 | 23,107 | — | 137,432 | — | 106,018 | 26,048 | — | 132,066 | ||||||||||||||||||||||||||||||
Intercompany receivable, net | 174,264 | — | — | (174,264 | ) | — | 74,091 | — | — | (74,091 | ) | — | ||||||||||||||||||||||||||||
Inventories | — | 156,107 | 27,627 | — | 183,734 | — | 155,703 | 27,047 | — | 182,750 | ||||||||||||||||||||||||||||||
Investments, at fair value | — | — | 19,996 | — | 19,996 | |||||||||||||||||||||||||||||||||||
Investment, at fair value | — | — | 9,782 | — | 9,782 | |||||||||||||||||||||||||||||||||||
Deferred income taxes | — | — | 725 | — | 725 | — | — | — | — | — | ||||||||||||||||||||||||||||||
Prepaid income taxes | 5,275 | — | 314 | 795 | 6,384 | 1,017 | — | — | 801 | 1,818 | ||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | — | 6,159 | 965 | — | 7,124 | — | 7,426 | 1,035 | — | 8,461 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current assets | 179,539 | 306,646 | 86,226 | (173,469 | ) | 398,942 | 75,108 | 269,922 | 95,039 | (73,290 | ) | 366,779 | ||||||||||||||||||||||||||||
Property and equipment, net | — | 60,216 | 4,417 | — | 64,633 | — | 61,260 | 2,648 | — | 63,908 | ||||||||||||||||||||||||||||||
Other intangible assets, net | — | 176,563 | 33,638 | — | 210,201 | — | 155,587 | 32,332 | — | 187,919 | ||||||||||||||||||||||||||||||
Goodwill | — | 6,022 | — | — | 6,022 | |||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 274,714 | — | — | (274,714 | ) | — | 267,422 | — | — | (267,422 | ) | — | ||||||||||||||||||||||||||||
Deferred income taxes | — | — | 442 | — | 442 | |||||||||||||||||||||||||||||||||||
Other assets | 1,809 | �� | 1,926 | 1,456 | — | 5,191 | — | 2,150 | 777 | — | 2,927 | |||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
TOTAL | $ | 456,062 | $ | 551,373 | $ | 125,737 | $ | (448,183 | ) | $ | 684,989 | $ | 342,530 | $ | 488,919 | $ | 131,238 | $ | (340,712 | ) | $ | 621,975 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — | $ | 105,046 | $ | 12,743 | $ | — | $ | 117,789 | $ | — | $ | 89,961 | $ | 13,723 | $ | — | $ | 103,684 | ||||||||||||||||||||
Accrued expenses and other liabilities | — | 17,945 | 4,410 | — | 22,355 | — | 21,524 | 4,973 | — | 26,497 | ||||||||||||||||||||||||||||||
Accrued interest payable | 4,045 | — | — | — | 4,045 | 1,521 | — | — | — | 1,521 | ||||||||||||||||||||||||||||||
Income taxes payable | — | 901 | — | (901 | ) | — | — | 623 | 272 | (895 | ) | — | ||||||||||||||||||||||||||||
Unearned revenues | — | 3,023 | 1,833 | — | 4,856 | — | 2,952 | 1,261 | — | 4,213 | ||||||||||||||||||||||||||||||
Deferred pension obligation | — | 8,878 | 52 | — | 8,930 | — | 12,025 | 82 | — | 12,107 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 797 | — | — | 797 | |||||||||||||||||||||||||||||||||||
Intercompany payable, net | — | 156,438 | 23,211 | (179,649 | ) | — | — | 60,384 | 21,449 | (81,833 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current liabilities | 4,045 | 293,028 | 42,249 | (180,550 | ) | 158,772 | 1,521 | 187,469 | 41,760 | (82,728 | ) | 148,022 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Senior subordinated notes payable, net | 150,000 | — | — | — | 150,000 | 49,528 | — | — | — | 49,528 | ||||||||||||||||||||||||||||||
Senior credit facility | — | 61,758 | — | — | 61,758 | |||||||||||||||||||||||||||||||||||
Real estate mortgages | — | 22,109 | — | — | 22,109 | — | 21,318 | — | — | 21,318 | ||||||||||||||||||||||||||||||
Unearned revenues and other long-term liabilities | — | 13,620 | 1,389 | — | 15,009 | — | 14,608 | 245 | — | 14,853 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 35,383 | 3 | 1,696 | 37,082 | — | 33,319 | — | 1,696 | 35,015 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total long-term liabilities | 150,000 | 71,112 | 1,392 | 1,696 | 224,200 | 49,528 | 131,003 | 245 | 1,696 | 182,472 | ||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total liabilities | 154,045 | 364,140 | 43,641 | (178,854 | ) | 382,972 | 51,049 | 318,472 | 42,005 | (81,032 | ) | 330,494 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total equity | 302,017 | 187,233 | 82,096 | (269,329 | ) | 302,017 | 291,481 | 170,447 | 89,233 | (259,680 | ) | 291,481 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
TOTAL | $ | 456,062 | $ | 551,373 | $ | 125,737 | $ | (448,183 | ) | $ | 684,989 | $ | 342,530 | $ | 488,919 | $ | 131,238 | $ | (340,712 | ) | $ | 621,975 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED OCTOBER 31, 2015APRIL 30, 2016
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 174,315 | $ | 22,132 | $ | — | $ | 196,447 | ||||||||||
Royalty income | — | 5,495 | 3,497 | — | 8,992 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 179,810 | 25,629 | — | 205,439 | |||||||||||||||
Cost of sales | — | 118,154 | 13,990 | — | 132,144 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 61,656 | 11,639 | — | 73,295 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 55,570 | 9,299 | — | 64,869 | |||||||||||||||
Depreciation and amortization | — | 3,096 | 287 | — | 3,383 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 58,666 | 9,586 | — | 68,252 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 2,990 | 2,053 | — | 5,043 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest expense, net | — | 1,857 | (4 | ) | — | 1,853 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income before income taxes | — | 1,133 | 2,057 | — | 3,190 | |||||||||||||||
Income tax provision | — | 344 | 573 | — | 917 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 2,273 | — | — | (2,273 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 2,273 | 789 | 1,484 | (2,273 | ) | 2,273 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | (475 | ) | 135 | (610 | ) | 475 | (475 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income | $ | 1,798 | $ | 924 | $ | 874 | $ | (1,798 | ) | $ | 1,798 | |||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 1, 2014
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 182,512 | $ | 20,755 | $ | — | $ | 203,267 | ||||||||||
Royalty income | — | 4,995 | 3,178 | — | 8,173 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 187,507 | 23,933 | — | 211,440 | |||||||||||||||
Cost of sales | — | 128,438 | 12,695 | — | 141,133 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 59,069 | 11,238 | — | 70,307 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 55,639 | 8,838 | — | 64,477 | |||||||||||||||
Depreciation and amortization | — | 2,735 | 273 | — | 3,008 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 58,374 | 9,111 | — | 67,485 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 695 | 2,127 | — | 2,822 | |||||||||||||||
Interest expense | — | 3,531 | (14 | ) | — | 3,517 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) before income taxes | — | (2,836 | ) | 2,141 | — | (695 | ) | |||||||||||||
Income tax (benefit) provision | — | (1,320 | ) | 1,062 | — | (258 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | (437 | ) | — | — | 437 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (loss) income | (437 | ) | (1,516 | ) | 1,079 | 437 | (437 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | (1,134 | ) | 80 | (1,214 | ) | 1,134 | (1,134 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive loss | $ | (1,571 | ) | $ | (1,436 | ) | $ | (135 | ) | $ | 1,571 | $ | (1,571 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
Revenues: Net sales Royalty income Total revenues Cost of sales Gross profit Operating expenses: Selling, general and administrative expenses Depreciation and amortization Total operating expenses Operating income Interest expense Net income before income taxes Income tax provision Equity in earnings of subsidiaries, net Net income Other comprehensive income Comprehensive income Non- Parent Only Guarantors Guarantors Eliminations Consolidated $ — $ 224,905 $ 25,970 $ — $ 250,875 — 7,214 3,205 — 10,419 — 232,119 29,175 — 261,294 — 148,976 17,234 — 166,210 — 83,143 11,941 — 95,084 — 61,433 8,501 — 69,934 — 3,191 276 — 3,467 — 64,624 8,777 — 73,401 — 18,519 3,164 — 21,683 — 2,034 (9 ) — 2,025 — 16,485 3,173 — 19,658 — 4,466 942 — 5,408 14,250 — — (14,250 ) — 14,250 12,019 2,231 (14,250 ) 14,250 1,825 155 1,670 (1,825 ) 1,825 $ 16,075 $ 12,174 $ 3,901 $ (16,075 ) $ 16,075
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE NINETHREE MONTHS ENDED OCTOBER 31,MAY 2, 2015
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 586,515 | $ | 72,827 | $ | — | $ | 659,342 | ||||||||||
Royalty income | — | 15,693 | 10,117 | — | 25,810 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 602,208 | 82,944 | — | 685,152 | |||||||||||||||
Cost of sales | — | 399,813 | 46,002 | — | 445,815 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 202,395 | 36,942 | — | 239,337 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 172,690 | 30,041 | — | 202,731 | |||||||||||||||
Depreciation and amortization | — | 9,258 | 893 | — | 10,151 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 181,948 | 30,934 | — | 212,882 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Loss on sale of long-lived assets | — | (697 | ) | — | — | (697 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 19,750 | 6,008 | — | 25,758 | |||||||||||||||
Costs of early extinguishment of debt | — | 5,121 | — | — | 5,121 | |||||||||||||||
Interest expense | — | 7,363 | 60 | — | 7,423 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income before income taxes | — | 7,266 | 5,948 | — | 13,214 | |||||||||||||||
Income tax provision | — | 908 | 1,903 | — | 2,811 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 10,403 | — | — | (10,403 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 10,403 | 6,358 | 4,045 | (10,403 | ) | 10,403 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income | 879 | 405 | 474 | (879 | ) | 879 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income | $ | 11,282 | $ | 6,763 | $ | 4,519 | $ | (11,282 | ) | $ | 11,282 | |||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 1, 2014
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Non- | |||||||||||||||||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | — | $ | 581,632 | $ | 67,561 | $ | — | $ | 649,193 | $ | — | $ | 232,279 | $ | 25,978 | $ | — | $ | 258,257 | ||||||||||||||||||||
Royalty income | — | 14,085 | 9,008 | — | 23,093 | — | 4,912 | 3,245 | — | 8,157 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total revenues | — | 595,717 | 76,569 | — | 672,286 | — | 237,191 | 29,223 | — | 266,414 | ||||||||||||||||||||||||||||||
Cost of sales | — | 400,997 | 42,853 | — | 443,850 | — | 160,251 | 16,063 | — | 176,314 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gross profit | — | 194,720 | 33,716 | — | 228,436 | — | 76,940 | 13,160 | — | 90,100 | ||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | — | 173,069 | 27,976 | — | 201,045 | — | 59,845 | 9,763 | — | 69,608 | ||||||||||||||||||||||||||||||
Depreciation and amortization | — | 8,256 | 720 | — | 8,976 | — | 3,024 | 298 | — | 3,322 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total operating expenses | — | 181,325 | 28,696 | — | 210,021 | — | 62,869 | 10,061 | — | 72,930 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gain on sale of long-lived assets | — | — | 885 | — | 885 | |||||||||||||||||||||||||||||||||||
Loss on sale of long-lived assets | — | (697 | ) | — | — | (697 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Operating income | — | 13,395 | 5,905 | — | 19,300 | — | 13,374 | 3,099 | — | 16,473 | ||||||||||||||||||||||||||||||
Interest expense | — | 10,831 | 7 | — | 10,838 | — | 3,567 | 60 | — | 3,627 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
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Net income before income taxes | — | 2,564 | 5,898 | — | 8,462 | — | 9,807 | 3,039 | — | 12,846 | ||||||||||||||||||||||||||||||
Income tax provision | — | 1,281 | 1,459 | — | 2,740 | — | 3,081 | 354 | — | 3,435 | ||||||||||||||||||||||||||||||
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Equity in earnings of subsidiaries, net | 5,722 | — | — | (5,722 | ) | — | 9,411 | — | — | (9,411 | ) | — | ||||||||||||||||||||||||||||
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Net income | 5,722 | 1,283 | 4,439 | (5,722 | ) | 5,722 | 9,411 | 6,726 | 2,685 | (9,411 | ) | 9,411 | ||||||||||||||||||||||||||||
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Other comprehensive (loss) income | (323 | ) | 239 | (562 | ) | 323 | (323 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | 1,066 | 135 | 931 | (1,066 | ) | 1,066 | ||||||||||||||||||||||||||||||||||
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Comprehensive income | $ | 5,399 | $ | 1,522 | $ | 3,877 | $ | (5,399 | ) | $ | 5,399 | $ | 10,477 | $ | 6,861 | $ | 3,616 | $ | (10,477 | ) | $ | 10,477 | ||||||||||||||||||
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINETHREE MONTHS ENDED OCTOBER 31, 2015APRIL 30, 2016
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Non- | |||||||||||||||||||||||||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES: | $ | 382 | $ | 15,691 | $ | 2,565 | $ | — | $ | 18,638 | ||||||||||||||||||||||||||||||
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| Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: | $ | 6,192 | $ | (40,153 | ) | $ | (7,745 | ) | $ | 2,706 | $ | (39,000 | ) | |||||||||||||||||||||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Purchase of property and equipment | — | (8,913 | ) | (924 | ) | — | (9,837 | ) | — | (3,742 | ) | (356 | ) | — | (4,098 | ) | ||||||||||||||||||||||||
Purchase of investments | — | — | (8,230 | ) | — | (8,230 | ) | — | — | (2,455 | ) | — | (2,455 | ) | ||||||||||||||||||||||||||
Proceeds from investment maturities | — | — | 17,845 | — | 17,845 | |||||||||||||||||||||||||||||||||||
Proceeds on sale of intangible assets | — | 2,500 | — | — | 2,500 | |||||||||||||||||||||||||||||||||||
Proceeds from note receivable | — | — | 250 | — | 250 | |||||||||||||||||||||||||||||||||||
Proceeds from investments maturities | — | — | 1,965 | — | 1,965 | |||||||||||||||||||||||||||||||||||
Intercompany transactions | 97,610 | — | — | (97,610 | ) | — | (5,993 | ) | — | — | 5,993 | — | ||||||||||||||||||||||||||||
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Net cash provided by (used in) investing activities | 97,610 | (6,413 | ) | 8,941 | (97,610 | ) | 2,528 | |||||||||||||||||||||||||||||||||
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Net cash used in investing activities | (5,993 | ) | (3,742 | ) | (846 | ) | 5,993 | (4,588 | ) | |||||||||||||||||||||||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Payments on senior subordinated notes | (100,000 | ) | — | — | — | (100,000 | ) | |||||||||||||||||||||||||||||||||
Borrowings from senior credit facility | — | 330,644 | — | — | 330,644 | — | 123,995 | — | — | 123,995 | ||||||||||||||||||||||||||||||
Payments on senior credit facility | — | (270,023 | ) | — | — | (270,023 | ) | — | (84,881 | ) | — | — | (84,881 | ) | ||||||||||||||||||||||||||
Payments on real estate mortgages | — | (615 | ) | — | — | (615 | ) | — | (212 | ) | — | — | (212 | ) | ||||||||||||||||||||||||||
Payments on capital leases | — | (137 | ) | — | — | (137 | ) | — | (64 | ) | — | — | (64 | ) | ||||||||||||||||||||||||||
Deferred financing fees | — | (574 | ) | — | — | (574 | ) | |||||||||||||||||||||||||||||||||
Proceeds from exercise of stock options | 1,408 | — | — | — | 1,408 | |||||||||||||||||||||||||||||||||||
Dividends paid to stockholder | — | — | 2,706 | (2,706 | ) | — | ||||||||||||||||||||||||||||||||||
Intercompany transactions | — | (96,096 | ) | (2,114 | ) | 98,210 | — | — | 7,681 | �� | (1,489 | ) | (6,192 | ) | — | |||||||||||||||||||||||||
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Net cash used in financing activities | (98,592 | ) | (36,801 | ) | (2,114 | ) | 98,210 | (39,297 | ) | |||||||||||||||||||||||||||||||
Net cash provided by financing activities | — | 46,519 | 1,217 | (8,898 | ) | 38,838 | ||||||||||||||||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 600 | — | 600 | (600 | ) | 600 | (199 | ) | — | (199 | ) | 199 | (199 | ) | ||||||||||||||||||||||||||
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — | (27,523 | ) | 9,992 | — | (17,531 | ) | |||||||||||||||||||||||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — | 2,624 | (7,573 | ) | — | (4,949 | ) | |||||||||||||||||||||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | 30,055 | 13,492 | — | 43,547 | — | 775 | 31,127 | — | 31,902 | ||||||||||||||||||||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 2,532 | $ | 23,484 | — | $ | 26,016 | $ | — | $ | 3,399 | $ | 23,554 | $ | — | $ | 26,953 | |||||||||||||||||||||
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINETHREE MONTHS ENDED NOVEMBER 1, 2014MAY 2, 2015
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: | $ | (3,859 | ) | $ | 33,000 | $ | 1,693 | $ | 2,999 | $ | 33,833 | |||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (11,860 | ) | (665 | ) | — | (12,525 | ) | ||||||||||||
Purchase of investments | — | — | (27,331 | ) | — | (27,331 | ) | |||||||||||||
Proceeds from investment maturities | — | — | 19,844 | — | 19,844 | |||||||||||||||
Proceeds from note receivable | — | — | 250 | — | 250 | |||||||||||||||
Intercompany transactions | 5,612 | — | — | (5,612 | ) | — | ||||||||||||||
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Net cash provided by (used in) investing activities | 5,612 | (11,860 | ) | (7,902 | ) | (5,612 | ) | (19,762 | ) | |||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Borrowings from senior credit facility | — | 220,166 | — | — | 220,166 | |||||||||||||||
Payments on senior credit facility | — | (228,328 | ) | — | — | (228,328 | ) | |||||||||||||
Payments on real estate mortgages | — | (593 | ) | — | — | (593 | ) | |||||||||||||
Purchase of treasury stock | (2,222 | ) | — | — | — | (2,222 | ) | |||||||||||||
Payments on capital leases | — | (150 | ) | — | — | (150 | ) | |||||||||||||
Proceeds from exercise of stock options | 360 | — | — | — | 360 | |||||||||||||||
Tax benefit from exercise of equity instruments | (134 | ) | — | — | — | (134 | ) | |||||||||||||
Intercompany transactions | — | (3,039 | ) | (2,816 | ) | 5,855 | — | |||||||||||||
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Net cash (used in) provided by financing activities | (1,996 | ) | (11,944 | ) | (2,816 | ) | 5,855 | (10,901 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | 243 | — | 243 | (243 | ) | 243 | ||||||||||||||
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| |||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — | 9,196 | (8,782 | ) | 2,999 | 3,413 | ||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | — | 29,988 | (2,999 | ) | 26,989 | ||||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 9,196 | $ | 21,206 | $ | — | $ | 30,402 | ||||||||||
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Non- | ||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH USED IN OPERATING ACTIVITIES: | $ | (1,639 | ) | $ | (34,209 | ) | $ | (3,820 | ) | $ | — | $ | (39,668 | ) | ||||||
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| |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (2,969 | ) | (350 | ) | — | (3,319 | ) | ||||||||||||
Purchase of investments | — | — | (2,640 | ) | — | (2,640 | ) | |||||||||||||
Proceeds from investments maturities | — | — | 8,580 | — | 8,580 | |||||||||||||||
Proceeds on sale of intangible assets | — | 2,500 | — | — | 2,500 | |||||||||||||||
Intercompany transactions | 721 | — | — | (721 | ) | — | ||||||||||||||
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Net cash provided by (used in) investing activities | 721 | (469 | ) | 5,590 | (721 | ) | 5,121 | |||||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Borrowings from senior credit facility | — | 90,036 | — | — | 90,036 | |||||||||||||||
Payments on senior credit facility | — | (80,366 | ) | — | — | (80,366 | ) | |||||||||||||
Payments on real estate mortgages | — | (206 | ) | — | — | (206 | ) | |||||||||||||
Payments on capital leases | — | (77 | ) | — | — | (77 | ) | |||||||||||||
Deferred financing fees | — | (569 | ) | — | — | (569 | ) | |||||||||||||
Proceeds from exercise of stock options | 114 | — | — | — | 114 | |||||||||||||||
Tax benefit from exercise of equity instruments | 396 | — | — | — | 396 | |||||||||||||||
Intercompany transactions | — | (1,002 | ) | (127 | ) | 1,129 | — | |||||||||||||
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Net cash provided by (used in) financing activities | 510 | 7,816 | (127 | ) | 1,129 | 9,328 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 408 | — | 408 | (408 | ) | 408 | ||||||||||||||
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — | (26,862 | ) | 2,051 | — | (24,811 | ) | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | 30,055 | 13,492 | — | 43,547 | |||||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 3,193 | $ | 15,543 | $ | — | $ | 18,736 | ||||||||||
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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, all references to “Perry Ellis,” the “Company,” “we,” “us” or “our” include Perry Ellis International, Inc. and its subsidiaries. This management’s discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended January 31, 2015,30, 2016, filed with the Securities and Exchange Commission on April 14, 2015.2016.
Forward–Looking Statements
We caution readers that this report includes “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations rather than historical facts and they are indicated by words or phrases such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” or “will” or the negative thereof or other variations thereon and similar words or phrases or comparable terminology. Such forward-looking statements include, but are not limited to, statements regarding Perry Ellis’ strategic operating review, growth initiatives and internal operating improvements intended to drive revenues and enhance profitability, the implementation of Perry Ellis’ profitability improvement plan and Perry Ellis’ plans to exit underperforming, low growth brands and businesses. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could affect our financial performance, cause actual results to differ from our estimates, or underlie such forward-looking statements, are as set forth below and in various places in this report. These factors include, but are not limited to:
You are cautioned that all forward-looking statements involve risks and uncertainties detailed in our filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.
Critical Accounting Policies
Included in the footnotes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended January 31, 201530, 2016 is a summary of all significant accounting policies used in the preparation of our consolidated financial statements. We follow the accounting methods and practices as required by accounting principles generally accepted in the United States of America (“GAAP”). In particular, our critical accounting policies and areas in which we use judgment are in the areas of revenue recognition, the estimated collectability of accounts receivable, the recoverability of obsolete or overstocked inventory, the impairment of long-lived assets that are our trademarks, and goodwill, the recoverability of deferred tax assets and the measurement of retirement related benefits. We believe that there have been no significant changes to our critical accounting policies during the three and nine months ended October 31, 2015April 30, 2016 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended January 31, 2015.30, 2016.
Results of Operations
The following table sets forth, for the periods indicated, selected financial data expressed by segments and includes a reconciliation of EBITDA to operating income by segment, the most directly comparable GAAP financial measure:
Three Months Ended | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | April 30, | May 2, | |||||||||||||||||||||
October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | 2016 | 2015 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Revenues by segment: | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 141,512 | $ | 145,732 | $ | 490,453 | $ | 487,906 | $ | 197,925 | $ | 198,453 | ||||||||||||
Women’s Sportswear | 33,421 | 36,721 | 102,126 | 97,448 | 32,489 | 38,823 | ||||||||||||||||||
Direct-to-Consumer | 21,514 | 20,814 | 66,763 | 63,839 | 20,461 | 20,981 | ||||||||||||||||||
Licensing | 8,992 | 8,173 | 25,810 | 23,093 | 10,419 | 8,157 | ||||||||||||||||||
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Total revenues | $ | 205,439 | $ | 211,440 | $ | 685,152 | $ | 672,286 | $ | 261,294 | $ | 266,414 | ||||||||||||
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Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | April 30, 2016 | May 2, 2015 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Reconciliation of operating income to EBITDA | ||||||||||||||||||||||||
Operating (loss) income by segment: | ||||||||||||||||||||||||
Operating income (loss) by segment: | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 2,392 | $ | (2,091 | ) | $ | 14,544 | $ | 7,163 | $ | 16,942 | $ | 11,330 | |||||||||||
Women’s Sportswear | (109 | ) | 1,324 | 222 | (249 | ) | (351 | ) | 1,382 | |||||||||||||||
Direct-to-Consumer | (4,038 | ) | (2,937 | ) | (8,051 | ) | (5,915 | ) | (3,372 | ) | (1,866 | ) | ||||||||||||
Licensing | 6,798 | 6,526 | 19,043 | 18,301 | 8,464 | 5,627 | ||||||||||||||||||
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Total operating income | $ | 5,043 | $ | 2,822 | $ | 25,758 | $ | 19,300 | $ | 21,683 | $ | 16,473 | ||||||||||||
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Add: | ||||||||||||||||||||||||
Depreciation and amortization | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 1,771 | $ | 1,606 | $ | 5,509 | $ | 4,804 | $ | 1,897 | $ | 1,875 | ||||||||||||
Women’s Sportswear | 589 | 487 | 1,655 | 1,444 | 614 | 500 | ||||||||||||||||||
Direct-to-Consumer | 976 | 880 | 2,851 | 2,615 | 896 | 904 | ||||||||||||||||||
Licensing | 47 | 35 | 136 | 113 | 60 | 43 | ||||||||||||||||||
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Total depreciation and amortization | $ | 3,383 | $ | 3,008 | $ | 10,151 | $ | 8,976 | $ | 3,467 | $ | 3,322 | ||||||||||||
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EBITDA by segment: | ||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 4,163 | $ | (485 | ) | $ | 20,053 | $ | 11,967 | $ | 18,839 | $ | 13,205 | |||||||||||
Women’s Sportswear | 480 | 1,811 | 1,877 | 1,195 | 263 | 1,882 | ||||||||||||||||||
Direct-to-Consumer | (3,062 | ) | (2,057 | ) | (5,200 | ) | (3,300 | ) | (2,476 | ) | (962 | ) | ||||||||||||
Licensing | 6,845 | 6,561 | 19,179 | 18,414 | 8,524 | 5,670 | ||||||||||||||||||
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| |||||||||||||||||||
Total EBITDA | $ | 8,426 | $ | 5,830 | $ | 35,909 | $ | 28,276 | $ | 25,150 | $ | 19,795 | ||||||||||||
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EBITDA margin by segment | ||||||||||||||||||||||||
Men’s Sportswear and Swim | 2.9 | % | (0.3 | %) | 4.1 | % | 2.5 | % | 9.5 | % | 6.7 | % | ||||||||||||
Women’s Sportswear | 1.4 | % | 4.9 | % | 1.8 | % | 1.2 | % | 0.8 | % | 4.8 | % | ||||||||||||
Direct-to-Consumer | (14.2 | %) | (9.9 | %) | (7.8 | %) | (5.2 | %) | (12.1 | %) | (4.6 | %) | ||||||||||||
Licensing | 76.1 | % | 80.3 | % | 74.3 | % | 79.7 | % | 81.8 | % | 69.5 | % | ||||||||||||
Total EBITDA margin | 4.1 | % | 2.8 | % | 5.2 | % | 4.2 | % | 9.6 | % | 7.4 | % |
EBITDA consists of earnings before interest, depreciation and amortization, costs on early extinguishment of debt and income taxes. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America, and does not represent cash flow from operations. The most directly comparable GAAP financial measure, presented above, is operating income. EBITDA and EBITDA margin are presented solely as a supplemental disclosure because management believes that they are a common measure of operating performance in the apparel industry.
The following is a discussion of the results of operations for the three and nine month periods ended October 31, 2015period in the first quarter of the fiscal year ending January 30, 201628, 2017 (“fiscal 2016”2017”) compared with the three and nine month periods ended November 1, 2014period in the first quarter of the fiscal year ended January 31, 201530, 2016 (“fiscal 2015”2016”).
Results of Operations - Operations—three and nine months ended October 31, 2015April 30, 2016 compared to the three and nine months ended November 1, 2014.May 2, 2015.
Net sales. Men’s Sportswear and Swim net sales for the three months ended October 31, 2015April 30, 2016 were $141.5$197.9 million, a decrease of $4.2$0.6 million, or 2.9%0.3%, from $145.7$198.5 million for the three months ended November 1, 2014.May 2, 2015. The net sales decrease was attributed primarily to a 3% decrease due to exited brands coupled with the exit of private and retailer exclusive branded products,negative impact in our special markets programs, partially offset by strength in Perry Ellis, Original Penguin and golf lifestyle apparel.
Men’s Sportswear and Swim net sales for the nine months ended October 31, 2015 were $490.5 million, an increase of $2.6 million, or 0.5%, from $487.9 million for the nine months ended November 1, 2014. The net sales increase was attributed primarily to increases in theour core Perry Ellis and Original Penguin collections, and golf lifestyle apparel partially offset by decreases in our mid-tier sportswear as we reduced penetration of our exclusive branded products.business.
Women’s Sportswear net sales for the three months ended October 31, 2015April 30, 2016 were $33.4$32.5 million, a decrease of $3.3$6.3 million, or 9.0%16.2%, from $36.7$38.8 million for the three months ended November 1, 2014.May 2, 2015. The net sales decrease was attributed to the sale of C&C California, which occurred during the first quarter of fiscal 2016. The decrease was partially offset by increased sales in Rafaella.
Women’s Sportswear net sales for the nine months ended November 1, 2014 were $102.1 million, an increase of $4.7 million, or 4.8%, from $97.4 million for the nine months ended November 1, 2014. The net sales increase was primarily due to increases in our contemporary Laundry by Shelli Segal dresses and Rafaella sportswear, driven by strong performance at retail. These increases were partially offset by the sale of C&C California in the first quarter.prior year and our planned decrease in special markets programs.
Direct-to-Consumer net sales for the three months ended October 31, 2015April 30, 2016 were $21.5$20.5 million, an increasea decrease of $0.7$0.5 million, or 3.4%2.4%, from $20.8$21.0 million for the three months ended November 1, 2014.May 2, 2015. The net sales increasedecrease was attributed to a 28.1% increases in e-commerce comparable sales over the same period last year, as well as a comparable store sales increase of 1% in Perry Ellis retail stores. This increase was partially offsetdriven by a decreaseretail stores sales decline of 1.3% in comparable same store sales of 13.1% in Original Penguin retail stores.
Direct-to-Consumer net sales for the nine months ended November 1, 2014 were $66.8 million, an increase of $3.0 million, or 4.7%, from $63.8 million fordirect to consumer business, coupled with two net fewer stores as compared to the nine months ended November 1, 2014. The increase was driven by e-commerce, which posted a 34.6% increase in comparable sales, while retail store sales were slightly down.prior period.
Royalty income. Royalty income for the three months ended October 31, 2015April 30, 2016 was $9.0$10.4 million, an increase of $0.8$2.2 million, or 9.8%26.8%, from $8.2 million for the three months ended November 1, 2014. The net sales increase was attributed to new licenses signed during fiscal 2015 and through the first part of fiscal 2016 as well as strong performance in existing licenses for our core brands.
Royalty income for the nine months ended October 31, 2015 was $25.8 million, an increase of $2.7 million, or 11.7%, from $23.1 million for the nine months ended November 1, 2014.May 2, 2015. Royalty income increases were attributed to increases in our Perry Ellis and Original Penguin and Laundry businessesbrands as well as the new licenses signed during fiscal 2015last year, and throughfrom our continuing initiatives to upgrade our licensing partners. For the first partremainder of fiscal 2016.the year, we anticipate even royalty income, compared to the prior quarter periods.
Gross profit.Gross profit was $73.3$95.1 million for the three months ended October 31, 2015,April 30, 2016, an increase of $3.0$5.0 million, or 4.3%5.5%, from $70.3$90.1 million for the three months ended November 1, 2014. During the three months ended October 31, 2015, we continued to focus and emphasize higher margin channels and geographies. This expansion was realized across our core domestic collections principally in Perry Ellis, Original Penguin and golf lifestyle, as well as through our growth of higher margin licensing and direct to consumer revenues.
Gross profit was $239.3 million for the nine months ended October 31, 2015, an increase of $10.9 million, or 4.8%, from $228.4 million for the nine months ended November 1, 2014.May 2, 2015. This increase is attributed to the sales mix composition described above and the factors described within the gross profit margin section below.
Gross profit margin. As a percentage of total revenue, gross profit margins were 35.7%36.4% for the three months ended October 31, 2015,April 30, 2016, as compared to 33.3%33.8% for the three months ended November 1, 2014 which representsMay 2, 2015, an expansionincrease of 240260 basis points. The increase was primarilyis attributed to the factors described abovestronger product margins and reduced markdowns in our men’s collection, golf apparel and Nike businesses as well as cost savings associated withan increase in royalty income and consolidation in our foreign sourcing offices.
For the nine months ended October 31, 2015, gross profit margins were 34.9% as a percentage of total revenue as compared to 34.0% for the nine months ended November 1, 2014, an increase of 90 basis points. This increase was primarily associated with expansion across our licensingbuying offices and core domestic collections; partially offset by the exit of the Elite component of our Nike licensed business, the inventory liquidation of divested C&C California, as well as the consolidation of our foreign sourcing offices.freight services.
Selling, general and administrative expensesexpenses.. Selling, general and administrative expenses for the three months ended October 31, 2015April 30, 2016 were $64.9$69.9 million, an increase of $0.4$0.3 million, or 0.6%0.4%, from $64.5$69.6 million for the three months ended November 1, 2014.May 2, 2015. The increase reflects our continued investment in our growth strategies relatedis attributed to international, licensing and direct-to-consumer. These increases wereslightly higher incentive compensation accruals, partially offset by $400,000 in cost savings this quarter as a result of the initiatives implemented during fiscal 2015.
Selling, general and administrative expenses for the nine months ended October 31, 2015 were $202.7 million, an increase of $1.7 million, or 0.8%,reduced costs resulting from $201.0 million for the nine months ended November 1, 2014. The increase reflects costs primarily related to the activist campaign as well as restructuring costs related to exited businesses and exit costs associated with the consolidation of our N.Y. corporate office space. We benefitted favorably from reduced headcount and tighter expense control across our infrastructure.infrastructure review.
EBITDA. Men’s Sportswear and Swim EBITDA margin for the three months ended October 31, 2015April 30, 2016 increased 320by 280 basis points to 2.9%,9.5% from (0.3)%6.7% for the three months ended November 1, 2014.May 2, 2015. The EBITDA margin increase was driven principally by the expansion in gross margin in our Perry Ellis and Original Penguin collection businesses. Additionally during fiscal 2015, EBITDA margin was negativelyfavorably impacted by the reduced leverage due to the decrease in net sales during the period.
Men’s Sportswear and Swim EBITDA margin for the nine months ended October 31, 2015 increased 160 basis points to 4.1%, from 2.5% for the nine months ended November 1, 2014. The EBITDA margin increase was driven principally by the expansion in gross marginprofit and margins in our Perry Ellismen’s collection, golf apparel and Original Penguin collectionNike businesses. We also realizedBecause of this increase, we were able to realize a favorable leverage in selling, general and administrative expenses, most notably in employee related expenses, which was partially offset by the planned increased infrastructure expenditures in this segment, as well as exit costs associated with the Elite component of our licensed Nike business.more specifically on payroll and advertising expenses.
Women’s Sportswear EBITDA margin for the three months ended October 31, 2015April 30, 2016 decreased 350 basis points to 1.4%0.8%, from 4.9%4.8% for the three months ended November 1, 2014. Women’s Sportswear EBITDA margin for the nine months ended October 31, 2015 increased 60 basis points to 1.8% from 1.2% for the nine months ended November 1, 2014.May 2, 2015. The EBITDA margin for the nine months ended October 31, 2015 was favorablyunfavorably impacted by the expansiondecrease in the Rafaella collection business coupled withnet sales described above. Because of this decrease in revenue, we were not able to realize favorable leverage in selling, general and administrative expenses, most notably in employee expenses and other overhead. This was partially offset by exit costs associated with C&C California.expenses.
Direct-to-Consumer EBITDA margin for the three months ended October 31, 2015April 30, 2016 decreased 430750 basis points to (14.2%(12.1%), from (9.9%(4.6%) for the three months ended November 1, 2014. Direct-to-Consumer EBITDA margin for the nine months ended October 31, 2015 decreased 260 basis points to (7.8%), from (5.2%) for the nine months ended November 1, 2014.May 2, 2015. The decrease was primarily due to an increase in occupancy costs attributable to renewal contracts coupled with additional costs associated with freightthe decrease of revenue from our stores, as described above. Additionally, selling, general and professional fees.administrative expenses were unfavorably impacted by increases in rent as we renewed some of our leases at higher rates.
Licensing EBITDA margin for the three months ended October 31, 2015 decreased 420 basis pointsApril 30, 2016 increased to 76.1%81.8%, from 80.3%69.5% for the three months ended November 1, 2014.May 2, 2015. The decrease is primarily due to the unfavorable leverage attributed to increased employee costs. Licensing EBITDA margin forwas favorably impacted by the nineincrease in royalty income described above. Also, as described below, during the three months ended October 31, 2015 decreased to 74.3%, from 79.7% for the nine months ended November 1, 2014. During the nine months ended October 31,May 2, 2015, we realizedhad a loss on the sale of the C&C California brand, whilewhich was the primary reason for the lower EBITDA margin in the prior year we realized a gain in the nine months ended November 1, 2014 from the salefirst quarter of the Jantzen rights described below.fiscal 2016.
Depreciation and amortization. Depreciation and amortization for the three months ended October 31, 2015,April 30, 2016, was $3.4$3.5 million, an increase of $0.4$0.2 million, or 13.3%6.1%, from $3.0$3.3 million for the three months ended November 1, 2014. Depreciation and amortization for the nine months ended October 31, 2015, was $10.2 million, an increase of $1.2 million, or 13.3%, from $9.0 million for the nine months ended November 1, 2014.May 2, 2015. The increase is attributed to depreciation related to our capital expenditures, and leaseholds, primarily in the men’s sportsweardirect-to-consumer segment, and swim segment, as well as the direct-to-consumer segment.
(Loss) gainLoss on sale of long-lived assets.During the first quarter of fiscal 2016, we entered into an agreement to sell the intellectual property of our C&C California brand to a third party. As a result of this transaction, we recorded a loss of ($0.7) million in the licensing segment. During the second quarter of fiscal 2015, we entered into a sales agreement, in the amount of $1.3 million, for the sale of the Australian, Fiji and New Zealand trademark rights with respect to Jantzen. As a result of this transaction, we recorded a gain of $0.9 million in the licensing segment.
Cost on early extinguishment of debt.On April 6, 2015, we called for partial redemption $100 million of our $150 million outstanding 7 7⁄8% Senior Subordinated Notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, we completed the redemption of $100 million of our senior subordinated notes. We incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption premium and the write-off of note issuance costs.
Interest expense. Interest expense for the three months ended October 31, 2015,April 30, 2016, was $1.9$2.0 million, a decrease of $1.6 million, or 45.7%44.4%, from $3.5$3.6 million for the three months ended November 1, 2014. Interest expense for the nine months ended October 31, 2015 was $7.4 million, a decrease of $3.4 million, or 31.5%, from $10.8 million for the nine months ended November 1, 2014.May 2, 2015. The decrease was primarily attributable to a decrease in interest resulting from the partial redemption of $100 million of our senior subordinated notes.notes during the second quarter of fiscal 2016. This decrease was partially offset by a higher average amount borrowed on our credit facility as compared to the comparable period of the prior year.year period. The increase in the credit facility was due to its use for the redemption of the notes as discussed above.
Income taxes. The income tax expense for the three months ended October 31, 2015,April 30, 2016, was $0.9$5.4 million, an increase of $1.2$2.0 million, as compared to a benefit of $0.3$3.4 million for the three months ended November 1, 2014.May 2, 2015. For the three months ended October 31, 2015,April 30, 2016, our effective tax rate was 28.7%27.5% as compared to 37.1%26.7% for the three months ended November 1, 2014. The income tax expense for the nine months ended October 31, 2015, was $2.8 million, an increase of $0.1 million, as compared to $2.7 million for the nine months ended November 1, 2014. For the nine months ended October 31, 2015, our effective tax rate was 21.3% as compared to 32.4% for the nine months ended November 1, 2014.May 2, 2015. The overall change in the effective tax rate is attributed to the current year impact of the valuation allowance on domestic taxes and a change in the ratio of income between domestic and foreign operations, of which the domestic operations are taxed at higher statutory tax rates.
Net (loss) income.Net income (loss) for the three months ended October 31, 2015April 30, 2016 was $2.3$14.3 million, an improvementincrease of $2.7$4.9 million, or 52.1%, as compared to ($0.4)$9.4 million for the three months ended November 1, 2014. Net income for the nine months ended October 31, 2015 was $10.4 million, an increase of $4.7 million, or 82.5%, as compared to $5.7 million for the nine months ended November 1, 2014.May 2, 2015. The changes in operating results were due to the items described above.
Liquidity and Capital Resources
We rely principally on cash flow from operations and borrowings under our senior credit facility to finance our operations, pension funding requirements, acquisitions, and capital expenditures. We believe that our working capital requirements will increase for nextthis year as we continue to expand internationally. As of October 31, 2015,April 30, 2016, our total working capital was $221.5$274.5 million as compared to $240.2$218.8 million as of January 31, 201530, 2016 and $277.2$265.5 million as of November 1, 2014.May 2, 2015. We believe that our cash flows from operations and availability under our senior credit facility and remaining letter of credit facilities are sufficient to meet our working capital needs and capital expenditure needs over the next year. We also believe that our real estate assets, which had a net book value of $25.0 million at October 31, 2015, have a higher market value. These real estate assets may provide us with additional capital resources. Additional borrowings against these real estate assets, however, would be subject to certain loan to value criteria established by lending institutions. As of October 31, 2015, we had mortgage loans on these properties totaling $22.3 million.
We consider the undistributed earnings of our foreign subsidiaries as of October 31, 2015,April 30, 2016, to be indefinitely reinvested and, accordingly, no United States income taxes have been provided thereon. As of
October 31, 2015, April 30, 2016, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $23.5$23.6 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
Net cash provided byused in operating activities was $18.6$39.0 million for the ninethree months ended October 31, 2015,April 30, 2016, as compared to cash provided byused in operating activities of $33.8$39.7 million for the ninethree months ended November 1, 2014.May 2, 2015.
The cash provided byused in operating activities for the ninethree months ended October 31, 2015,April 30, 2016, is primarily attributable to a decreasean increase in accounts receivable of $6.5$41.5 million a decreased inventory of $38.4 million due to improved inventory management, as well as a reduction in prepaid taxes of 3.6 million. This was partially offset byand a decrease in accounts payable and accrued expenses of $54.8$53.1 million; which was partially offset by a decrease in inventory of $30.2 million associated with strong inventory management, an increase in income taxes payable of $2.2 million, a decrease in prepaid expenses and other current assets of $1.2 million, and a decrease in prepaid income taxes of $1.9 million. Our inventory turnover ratio remained constant at 3.6 as well as decreasedcompared to the prior period because of our continued tight inventory management.
The cash used in operating activities for three months ended May 2, 2015, is primarily attributable to an increase in accounts receivable of $43.4 million, an increase in accounts payable and accrued expenses of $42.7 million and an increase in accrued interest payable of $3.5 million. For$3.0 million; which was partially offset by a decrease in inventory of $30.6 million associated with strong inventory management. As a result of the nine months ended October 31, 2015,increase in sales for the first quarter of fiscal 2016 as compared to prior quarter, our inventory turnover ratio increased to 3.73.6 as compared to 3.3 for the comparable periodquarter in fiscal 2015.
TheNet cash provided by operatingused in investing activities was $4.6 million for the ninethree months ended November 1, 2014, is primarily attributable to a decrease in accounts receivable of $16.6 million and a decrease in inventory of $50.4 million associated with improved inventory management. This was partially offset by decreases in accounts payable and accrued expenses of $50.3 million deferred pension of $2.2 million and accrued interest payable of $3.0 million. For the nine months ended November 1, 2014, our inventory turnover ratio decreased slightly to 3.3April 30, 2016, as compared to 3.7 for the comparable period in fiscal 2014. While the turnover decreased, inventory levels declined as noted above resulting from tighter inventory management.
Net cash provided by investing activities was $2.5of $5.1 million for the ninethree months ended October 31, 2015, as compared toMay 2, 2015. The net cash used in investing activities during the first three months of $19.8fiscal 2017 primarily reflects the purchase of property and equipment of $4.1 million primarily for leaseholds and the nine months ended November 1, 2014. purchase of investments of $2.5 million; partially offset by the proceeds from the maturities of investments in the amount of $2.0 million. We anticipate capital expenditures during the remainder of fiscal 2017 of $8.0 million to $9.0 million in new leasehold improvements, technology, systems, retail stores, and other expenditures.
The net cash provided by investing activities during the first ninethree months of fiscal 2016ended May 2, 2015 primarily reflects the proceeds from the maturities of investments in the amount of $17.8$8.6 million theand proceeds on the sale of the C&C California brand in the amount of $2.5 million and the proceeds from notes receivable associated with the sale of the Australian, Fiji and New Zealand Jantzen trademark rights in the amount of $0.3 million; partially offset by the purchase of investments of $8.2 million and the purchase of property and equipment of $9.8$3.3 million primarily for leasehold improvementsleaseholds and store fixtures. We anticipate capital expenditures during fiscal 2016 of $14.0 million to $16.0 million in technology, retail stores and other expenditures. The net cash used during the first nine months of fiscal 2015 primarily reflects the purchase of investments of $27.3$2.6 million.
Net cash provided by financing activities was $38.8 million andfor the purchasethree months ended April 30, 2016, as compared to net cash provided by financing activities of property and equipment$9.3 million for the three months ended May 2, 2015. The net cash provided during the first three months of $12.5 million,fiscal 2017 primarily for leasehold improvements and store fixtures;reflects net borrowings on our senior credit facility of $39.1 million; which was partially offset by proceeds from maturities of investments$0.2 million in the amount of $19.8 million and the proceeds from notes receivable associated with the sale of the Australian, Fiji and New Zealand Jantzen trademark rights in the amount of $0.3 million.payments on our mortgage loans.
Net cash used in financing activities was $39.3 million for the nine months ended October 31, 2015, as compared to $10.9 million for the nine months ended November 1, 2014. The net cash usedprovided during the first ninethree months of fiscal 2016 primarily reflects payments for the partial redemptionnet borrowings on our senior subordinated notescredit facility of $100$9.7 million, proceeds from the exercise of stock options of $0.1 million and a tax benefit from exercise of equity instruments of $0.4 million; which was partially offset by payments of $0.6 million on our mortgage loans, payments ofin deferred financing fees on the senior credit facility of $0.6and $0.2 million and payments on capital leases of $0.1 million; partially offset by net borrowings on our senior credit facility of $60.6 million and the proceeds from exercises of stock options of $1.4 million. We financed the redemption of the subordinated notes through our senior credit facility. The net cash used during the first nine months of fiscal 2015 primarily reflects netin payments on our senior credit facility of $8.2 million, purchases of treasury stock of $2.2 million, payments on real estate mortgages of $0.6 million and payments on capital leases of $0.2 million; partially offset by proceeds from exercises of stock options of $0.4 million.mortgage loans.
Our Board of Directors has authorized us to purchase, from time to time and as market and business conditions warrant, up to $70 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2016. Although our Board of Directors allocated a maximum of $70 million to carry out the program, we are not obligated to purchase any specific number of outstanding shares and will reevaluate the program on an ongoing basis.
During the second quarter of fiscal 2016, we retired 770,753 shares of treasury stock recorded at a cost of approximately $15.7 million. Accordingly, during the second quarter of fiscal 2016, we reduced common stock and additional paid in capital by $7,000 and $15.7 million, respectively.
During fiscal 2015, we repurchased shares of our common stock at a cost of $8.8 million. There have been no open market purchases during the first nine months of fiscal 2016.2017. Total purchases under the plan through October 31, 2015, wereto date amount to approximately $51.7 million. As of October 31, 2015, there were no treasury shares outstanding and as of January 31, 2015, there were 770,753 shares of treasury stock outstanding at a cost of approximately $15.7$58.6 million.
Acquisitions
None.
77⁄/8% $150 Million Senior Subordinated Notes Payable
In March 2011, we issued $150 million 77⁄/ 8% senior subordinated notes, due April 1, 2019. The proceeds of this offering were used to retire the $150 million 87⁄/ 8% senior subordinated notes due September 15, 2013 and to repay a portion of the outstanding balance on ourthe senior credit facility. The proceeds to us were $146.5 million yielding an effective interest rate of 8.0%.
On April 6, 2015, we elected to call for the partial redemption of $100 million of our $150 million outstanding 77⁄/ 8% Senior Subordinated Notessenior subordinated notes due April 1, 2019 and a notice of redemption was sent to all registered holders of the senior subordinated notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, we completed the redemption of the $100 million of our senior subordinated notes. We incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including the redemption premium andas well as the write-off of note issuance costs. At April 30, 2016, the balance of the 7 7 / 8 % senior subordinated notes totaled $49.6 million, net of debt issuance costs in the amount of $0.4 million. At January 30, 2016, the balance of the 7 7 / 8 % senior subordinated notes totaled $49.5 million, net of debt issuance costs in the amount of $0.5 million.
Certain Covenants.The indenture governing the senior subordinated notes contains certain covenants which restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in certain circumstances, pay dividends or make other distributions on, redeem or repurchase capital stock, make investments or other restricted payments, create liens on assets to secure debt, engage in transactions with affiliates, and effect a consolidation or merger. We are not aware of any non-compliance with any of our covenants in this indenture. We could be materially harmed if we violate any covenants because the indenture’s trustee could declare the outstanding notes, together with accrued interest, to be immediately due and payable, which we may not be able to satisfy. In addition, a violation could also constitute a cross-default under the senior credit facility, the letter of credit facilities and the real estate mortgages resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Senior Credit Facility
On April 22, 2015, we amended and restated our existing senior credit facility (the “Credit Facility”), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $200 million. The Credit Facility has been extended through April 30, 2020 (“Maturity Date”). In connection with this amendment and restatement, we paid fees in the amount of $0.6 million. These fees will be amortized over the term of the credit facility as interest expense. At October 31, 2015,April 30, 2016, we had outstanding borrowings of $60.6$100.9 million, under the Credit Facility. At January 31, 2015,30, 2016, we had no outstanding borrowings of $61.8 million, under the Credit Facility.
Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require usthe Company to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. We are not aware of any non-compliance with any of our covenants in this Credit Facility. These covenants may restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. We may pay cash dividends subject to certain restrictions set forth in the covenants including, but not limited to, meeting a minimum excess availability threshold and no occurrence of a default. We could be materially harmed if we violate any covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued
interest, to be immediately due and payable. If we are unable to repay those amounts, the lenders could proceed against our assets and the assets of our subsidiaries that are borrowers or guarantors. In addition, a covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of our other outstanding indebtedness, such as the indenture relating to our 77⁄/ 8% senior subordinated notes due April 1, 2019, our letter of credit facilities, or our real estate mortgage loans. Such aA cross-default could result in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy. Additionally, our Credit Facility includes a subjective acceleration clause if a “material adverse change” in our business occurs. We believe that the likelihood of the lender exercising this right is remote.
Borrowing Base. Borrowings under the Credit Facility are limited to a borrowing base calculation, which generally restricts the outstanding balance to the sum of (a) 87.5% of eligible receivables plus (b) 87.5% of eligible foreign accounts up to $1.5 million plus (c) the lesser of (i) the inventory loan limit, which equals 80% of the maximum credit under the Credit Facility at the time, (ii) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.
Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.
Security. As security for the indebtedness under the Credit Facility, we granted to the lenders a first priority security interest (subject to liens permitted under the Credit Facility to be senior thereto) in substantially all of our existing and future assets, including, without limitation, accounts receivable, inventory, deposit accounts, general intangibles, equipment and capital stock or membership interests, as the case may be, of certain subsidiaries, and real estate, but excluding our non-U.S. subsidiaries and all of our trademark portfolio.
Letter of Credit Facilities
As of October 31, 2015,April 30, 2016, we maintained one U.S. dollar letter of credit facility totaling $30.0 million and one letter of credit facility totaling $0.3 million utilized by our United Kingdom subsidiary. Each documentary letter of credit is secured primarily by the consignment of merchandise in transit under that letter of credit and certain subordinated liens on our assets.
During the first quarter of fiscal 2016, a $15 million line of credit expired and was not renewed. During fiscal 2014,2016, we decreased the letter of credit sublimit in our Senior Credit Facility to $30.0 million. At October 31, 2015April 30, 2016 and January 31, 2015,30, 2016, there was $18.9 million, and $33.7 million, respectively, available under the existing letter of credit facilities.
Real Estate Mortgage Loans
In July 2010, we paid off our then existing real estate mortgage loan and refinanced our main administrative office, warehouse and distribution facility in Miami with a $13.0 million mortgage loan. The loan is due on August 1, 2020. The interest rate has been modified since the refinancing date. The interest rate was 4.25% per annum and monthly payments of principal and interest of $71,000 were due, based on a 25-year amortization with the outstanding principal due at maturity. In July 2013, we amended the mortgage loan agreement to modify the interest rate. The interest rate was reduced to 3.9% per annum and the terms were restated to reflect new monthly payments of principal and interest of $69,000, based on a 25-year amortization with the outstanding principal due at maturity. At October 31, 2015,April 30, 2016, the balance of the real estate mortgage loan totaled $11.1$11.0 million, net of discount, of which $354,000$361,000 is due within one year.
In June 2006, we entered into a mortgage loan for $15 million secured by our Tampa facility. The loan is due on January 23, 2019. The mortgage loan has been refinanced and the interest rate has been modified since such date. The interest rate was 4.00% per annum and quarterly payments of principal and interest of approximately $248,000 were due, based on a 20-year amortization with the outstanding principal due at maturity. In January 2014, we again amended the mortgage loan to modify the interest rate. The interest rate was reduced to 3.25% per annum and the terms were restated to reflect new monthly payments of principal and interest of approximately $68,000, based on a 20-year amortization with the outstanding principal due at maturity. At October 31, 2015,April 30, 2016, the balance of the real estate mortgage loan totaled $11.2$11.0 million, net of discount, of which approximately $456,000$464,000 is due within one year.
The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of the covenants. If we violate any covenants, the lender under the real estate mortgage loan could declare all amounts outstanding thereunder to be immediately due and payable, which we may not be able to satisfy. A covenant violation could constitute a cross-default under our senior credit facility, the letter of credit facilities and the indenture relating to our senior subordinated notes resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Off-Balance Sheet Arrangements
We are not a party to any “off-balance sheet arrangements,” as defined by applicable GAAP and SEC rules.
Effects of Inflation and Foreign Currency Fluctuations
We do not believe that inflation or foreign currency fluctuations significantly affected our financial position and results of operations as of and for the three and nine months ended October 31, 2015.April 30, 2016.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
The market risk inherent in our financial statements represents the potential changes in the fair value, earnings or cash flows arising from changes in interest rates. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposure, including interest rate. We currently do not have any derivative financial instruments for identifiable market risk.
Commodity Price Risk
We are exposed to market risks for the pricing of cotton and other fibers, which may impact fabric prices. Fabric is a portion of the overall product cost, which includes various components. We manage our fabric prices by using a combination of different strategies including the utilization of sophisticated logistics and supply chain management systems, which allow us to maintain maximum flexibility in our global sourcing of products. This provides us with the ability to re-direct our sourcing of products to the most cost-effective jurisdictions. In addition, we may modify our product offerings to our customers based on the availability of new fibers, yield enhancement techniques and other technological advances that allow us to utilize more cost effective fibers. Finally, we also have the ability to adjust our price points of such products, to the extent market conditions allow. These factors, along with our foreign-based sourcing offices, allow us to procure product from lower cost countries or capitalize on certain tariff-free arrangements, which help mitigate any commodity price increases that may occur. We have not historically managed, and do not currently intend to manage, commodity price exposures by using derivative instruments.
Other
Our current exposure to foreign exchange risk is not significant and accordingly, we have not entered into any transactions to hedge against those risks.
Item 4: Controls and Procedures
Evaluation of Disclosures Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) of the Securities Exchange Act. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of October 31, 2015April 30, 2016 in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f), during the quarter ended October 31, 2015April 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We were a defendant in Humberto Ordaz v. Perry Ellis International, Inc., Case No. BC490485 (Cal. Sup. Ct. 2012), involving claims for unpaid wages, missed breaks and related claims, which was originally filed on August 17, 2012 by a former employee in our California administrative offices. The plaintiff sought an unspecified amount of damages. The lawsuit was pleaded but not certified as a class action. The parties reached a settlement on August 12, 2015. The settlement amount was provided for in the Company’s results of operations for fiscal 2015.
We are a defendant in Joseph T. Cook v. Perry Ellis International, Inc. and Oscar Feldenkreis, Case No. 15-cv-08290 (U.S. District Court, Southern District of New York), involving claims of unlawful employment practices, including unlawful discrimination and retaliation, which was filed on October 21, 2015 by an employee in our New York offices. The plaintiff seeks an unspecified amount of damages. We believe that the allegations are without merit and intend to vigorously defend against them.
Index to Exhibits
Exhibit | Exhibit Description | Where Filed | ||||
10.74 | Employment Agreement dated April 20, 2016, by and between Perry Ellis International, Inc. and George Feldenkreis (1) | Filed herewith. | ||||
10.75 | Employment Agreement dated April 20, 2016, by and between Perry Ellis International, Inc. and Oscar Feldenkreis (1) | Filed herewith. | ||||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||||
32.1 | Certification of Principal Executive Officer pursuant to Section 1350 | Filed herewith. | ||||
32.2 | Certification of Principal Financial Officer pursuant to Section 1350 | Filed herewith. | ||||
101.INS | XBRL Instance Document | Filed herewith. | ||||
101.SCH | XBRL Taxonomy Extension Schema | Filed herewith. | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith. | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith. | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith. | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith. |
(1) | Management Contract or Compensation Plan. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Perry Ellis International, Inc. | ||||||
By: | /S/ ANITA BRITT | |||||
Anita Britt, Chief Financial Officer | ||||||
(Principal Financial Officer) |
Exhibit Index
32
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38