UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended OctoberJuly 29, 20162017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 0-21764
PERRY ELLIS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida | 59-1162998 | |
(State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
3000 N.W. 107 Avenue Miami, Florida | 33172 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (305) 592-2830
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ 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” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock is 15,498,00015,712,678 (as of November 30, 2016)August 23, 2017).
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 | |||
Item 2: | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
Item 3: | ||||
Item 4: | ||||
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Item 2: | ||||
Item 6: | ||||
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share data)
October 29, | January 30, | |||||||||||||||
2016 | 2016 | July 29, 2017 | January 28, 2017 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 29,824 | $ | 31,902 | $ | 23,812 | $ | 30,695 | ||||||||
Investments, at fair value | 12,915 | 9,782 | 28,870 | 10,921 | ||||||||||||
Accounts receivable, net | 128,782 | 132,066 | 131,455 | 140,240 | ||||||||||||
Inventories | 112,266 | 182,750 | 131,197 | 151,251 | ||||||||||||
Prepaid income taxes | 1,788 | 1,818 | — | 1,647 | ||||||||||||
Prepaid expenses and other current assets | 8,217 | 8,461 | 6,819 | 6,462 | ||||||||||||
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Total current assets | 293,792 | 366,779 | 322,153 | 341,216 | ||||||||||||
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Property and equipment, net | 63,682 | 63,908 | 59,272 | 61,835 | ||||||||||||
Other intangible assets, net | 187,268 | 187,919 | 186,633 | 187,051 | ||||||||||||
Deferred income tax | 441 | 442 | 462 | 334 | ||||||||||||
Other assets | 2,355 | 2,927 | 2,226 | 2,269 | ||||||||||||
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TOTAL | $ | 547,538 | $ | 621,975 | $ | 570,746 | $ | 592,705 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 43,786 | $ | 103,684 | $ | 69,358 | $ | 92,843 | ||||||||
Accrued expenses and other liabilities | 25,577 | 26,497 | 25,906 | 20,861 | ||||||||||||
Accrued interest payable | 528 | 1,521 | 1,407 | 1,450 | ||||||||||||
Accrued income taxes payable | 1,334 | — | ||||||||||||||
Unearned revenues | 3,494 | 4,213 | 3,579 | 2,710 | ||||||||||||
Deferred pension obligation | 6,904 | 12,107 | ||||||||||||||
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Total current liabilities | 80,289 | 148,022 | 101,584 | 117,864 | ||||||||||||
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Senior subordinated notes payable, net | 49,637 | 49,528 | 49,744 | 49,673 | ||||||||||||
Senior credit facility | 37,837 | 61,758 | — | 22,504 | ||||||||||||
Real estate mortgages | 20,668 | 21,318 | 33,153 | 33,591 | ||||||||||||
Unearned revenues and other long-term liabilities | 18,917 | 14,853 | ||||||||||||||
Other long-term liabilities | 19,358 | 18,271 | ||||||||||||||
Deferred income taxes | 36,235 | 35,015 | 36,572 | 37,115 | ||||||||||||
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Total long-term liabilities | 163,294 | 182,472 | 138,827 | 161,154 | ||||||||||||
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Total liabilities | 243,583 | 330,494 | 240,411 | 279,018 | ||||||||||||
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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; 15,610,661 shares issued and outstanding as of October 29, 2016 and 15,409,310 shares issued and outstanding as of January 30, 2016 | 156 | 154 | ||||||||||||||
Common stock $.01 par value; 100,000,000 shares authorized; 15,762,678 shares issued and outstanding as of July 29, 2017 and 15,530,273 shares issued and outstanding as of January 28, 2017 | 158 | 155 | ||||||||||||||
Additional paid-in-capital | 148,186 | 144,025 | 149,992 | 147,300 | ||||||||||||
Retained earnings | 167,330 | 161,810 | 190,077 | 176,327 | ||||||||||||
Accumulated other comprehensive loss | (9,566 | ) | (14,508 | ) | (8,955 | ) | (10,095 | ) | ||||||||
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Total | 306,106 | 291,481 | 331,272 | 313,687 | ||||||||||||
Treasury stock at cost; 113,935 shares as of October 29, 2016 and no shares as of January 30, 2016 | (2,151 | ) | — | |||||||||||||
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Treasury stock at cost; 50,000 as of July 29, 2017 and no shares as of January 28, 2017 | (937 | ) | — | |||||||||||||
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Total equity | 303,955 | 291,481 | 330,335 | 313,687 | ||||||||||||
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TOTAL | $ | 547,538 | $ | 621,975 | $ | 570,746 | $ | 592,705 | ||||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 29, | October 31, | October 29, | October 31, | |||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
July 29, 2017 | July 30, 2016 | July 29, 2017 | July 30, 2016 | |||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Net sales | $ | 185,298 | $ | 196,447 | $ | 629,514 | $ | 659,342 | $ | 198,394 | $ | 193,341 | $ | 432,217 | $ | 444,216 | ||||||||||||||||
Royalty income | 8,661 | 8,992 | 27,392 | 25,810 | 8,215 | 8,312 | 16,482 | 18,731 | ||||||||||||||||||||||||
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Total revenues | 193,959 | 205,439 | 656,906 | 685,152 | 206,609 | 201,653 | 448,699 | 462,947 | ||||||||||||||||||||||||
Cost of sales | 122,856 | 132,144 | 416,888 | 445,815 | 130,129 | 127,822 | 281,131 | 294,032 | ||||||||||||||||||||||||
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Gross profit | 71,103 | 73,295 | 240,018 | 239,337 | 76,480 | 73,831 | 167,568 | 168,915 | ||||||||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 72,846 | 64,869 | 215,434 | 202,731 | 68,412 | 72,654 | 139,611 | 142,588 | ||||||||||||||||||||||||
Depreciation and amortization | 3,534 | 3,383 | 10,717 | 10,151 | 3,496 | 3,716 | 6,964 | 7,183 | ||||||||||||||||||||||||
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Total operating expenses | 76,380 | 68,252 | 226,151 | 212,882 | 71,908 | 76,370 | 146,575 | 149,771 | ||||||||||||||||||||||||
Loss on sale of long-lived assets | — | — | — | (697 | ) | |||||||||||||||||||||||||||
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Operating (loss) income | (5,277 | ) | 5,043 | 13,867 | 25,758 | |||||||||||||||||||||||||||
Costs of early extinguishment of debt | — | — | — | 5,121 | ||||||||||||||||||||||||||||
Operating income (loss) | 4,572 | (2,539 | ) | 20,993 | 19,144 | |||||||||||||||||||||||||||
Interest expense | 1,738 | 1,853 | 5,652 | 7,423 | 1,869 | 1,889 | 3,825 | 3,914 | ||||||||||||||||||||||||
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Net (loss) income before income taxes | (7,015 | ) | 3,190 | 8,215 | 13,214 | |||||||||||||||||||||||||||
Income tax (benefit) provision | (1,850 | ) | 917 | 2,695 | 2,811 | |||||||||||||||||||||||||||
Net income (loss) before income taxes | 2,703 | (4,428 | ) | 17,168 | 15,230 | |||||||||||||||||||||||||||
Income tax provision (benefit) | 1,724 | (863 | ) | 3,418 | 4,545 | |||||||||||||||||||||||||||
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Net (loss) income | $ | (5,165 | ) | $ | 2,273 | $ | 5,520 | $ | 10,403 | |||||||||||||||||||||||
Net income (loss) | $ | 979 | $ | (3,565 | ) | $ | 13,750 | $ | 10,685 | |||||||||||||||||||||||
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Net (loss) income per share: | ||||||||||||||||||||||||||||||||
Net income (loss) per share: | ||||||||||||||||||||||||||||||||
Basic | $ | (0.34 | ) | $ | 0.15 | $ | 0.37 | $ | 0.70 | $ | 0.06 | $ | (0.24 | ) | $ | 0.91 | $ | 0.72 | ||||||||||||||
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Diluted | $ | (0.34 | ) | $ | 0.15 | $ | 0.36 | $ | 0.68 | $ | 0.06 | $ | (0.24 | ) | $ | 0.90 | $ | 0.71 | ||||||||||||||
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Weighted average number of shares outstanding | ||||||||||||||||||||||||||||||||
Basic | 14,991 | 15,148 | 14,920 | 14,948 | 15,075 | 14,953 | 15,042 | 14,882 | ||||||||||||||||||||||||
Diluted | 14,991 | 15,465 | 15,169 | 15,344 | 15,289 | 14,953 | 15,296 | 15,139 |
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 29, | October 31, | October 29, | October 31, | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | July 29, 2017 | July 30, 2016 | July 29, 2017 | July 30, 2016 | |||||||||||||||||||||||||
Net income (loss) | $ | (5,165 | ) | $ | 2,273 | $ | 5,520 | $ | 10,403 | $ | 979 | $ | (3,565 | ) | $ | 13,750 | $ | 10,685 | ||||||||||||||
Other Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Other Comprehensive income: | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net | (2,342 | ) | (609 | ) | (3,772 | ) | 482 | 1,273 | (3,093 | ) | 1,552 | (1,430 | ) | |||||||||||||||||||
Unrealized gain on pension liability, net of tax | 8,142 | 135 | 8,452 | 405 | — | 155 | — | 310 | ||||||||||||||||||||||||
Unrealized gain on forward contract | 255 | — | 255 | — | ||||||||||||||||||||||||||||
Unrealized gain (loss) on investments | (10 | ) | (1 | ) | 7 | (8 | ) | |||||||||||||||||||||||||
Unrealized loss on forward contract | (50 | ) | — | (412 | ) | — | ||||||||||||||||||||||||||
Unrealized (loss) gain on investments | (6 | ) | 10 | — | 17 | |||||||||||||||||||||||||||
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Total other comprehensive income (loss) | 6,045 | (475 | ) | 4,942 | 879 | 1,217 | (2,928 | ) | 1,140 | (1,103 | ) | |||||||||||||||||||||
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Comprehensive income | $ | 880 | $ | 1,798 | $ | 10,462 | $ | 11,282 | ||||||||||||||||||||||||
Comprehensive income (loss) | $ | 2,196 | $ | (6,493 | ) | $ | 14,890 | $ | 9,582 | |||||||||||||||||||||||
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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 | ||||||||
October 29, | October 31, | |||||||
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 5,520 | $ | 10,403 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 11,013 | 10,632 | ||||||
Provision for bad debts | 680 | 435 | ||||||
Amortization of debt issue cost | 309 | 369 | ||||||
Amortization of premiums and discounts | 42 | 124 | ||||||
Amortization of unrealized loss on pension liability | 465 | 405 | ||||||
Pension settlement charge | 8,300 | — | ||||||
Costs on early extinguishment of debt | — | 1,158 | ||||||
Deferred income taxes | 1,221 | 2,614 | ||||||
Share-based compensation | 5,104 | 3,641 | ||||||
Loss (gain) on sale of long-lived assets | — | 697 | ||||||
Changes in operating assets and liabilities, net of acquisitions | ||||||||
Accounts receivable, net | 506 | 6,507 | ||||||
Inventories | 69,012 | 38,380 | ||||||
Prepaid income taxes | 17 | 3,606 | ||||||
Prepaid expenses and other current assets | 402 | (762 | ) | |||||
Other assets | 121 | 111 | ||||||
Deferred pension obligation | (5,516 | ) | (416 | ) | ||||
Accounts payable and accrued expenses | (62,602 | ) | (54,759 | ) | ||||
Accrued interest payable | (993 | ) | (3,509 | ) | ||||
Unearned revenues and other liabilities | 3,640 | (998 | ) | |||||
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Net cash provided by operating activities | 37,241 | 18,638 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (9,334 | ) | (9,837 | ) | ||||
Purchases of investments | (12,467 | ) | (8,230 | ) | ||||
Proceeds from investment maturities | 9,341 | 17,845 | ||||||
Proceeds on sale of intangible assets | — | 2,500 | ||||||
Proceeds from note receivable | 250 | 250 | ||||||
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Net cash (used in) provided by investing activities | (12,210 | ) | 2,528 | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings from senior credit facility | 250,012 | 330,644 | ||||||
Payments on senior credit facility | (273,933 | ) | (270,023 | ) | ||||
Payments on senior subordinated notes | — | (100,000 | ) | |||||
Purchase of treasury stock | (2,151 | ) | — | |||||
Payments on real estate mortgages | (634 | ) | (615 | ) | ||||
Payments on capital leases | (196 | ) | (137 | ) | ||||
Deferred financing fees | — | (574 | ) | |||||
Proceeds from exercise of stock options | 5 | 1,408 | ||||||
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Net cash used in financing activities | (26,897 | ) | (39,297 | ) | ||||
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Effect of exchange rate changes on cash and cash equivalents | (212 | ) | 600 | |||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS | (2,078 | ) | (17,531 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 31,902 | 43,547 | ||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 29,824 | $ | 26,016 | ||||
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Six Months Ended | ||||||||
July 29, 2017 | July 30, 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 13,750 | $ | 10,685 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 7,130 | 7,382 | ||||||
Provision for bad debts | 1,686 | 478 | ||||||
Amortization of debt issue cost | 202 | 205 | ||||||
Amortization of premiums and discounts | 53 | 28 | ||||||
Amortization of unrealized (gain) loss on pension liability | — | 310 | ||||||
Deferred income taxes | (671 | ) | 1,042 | |||||
Share-based compensation | 3,425 | 3,786 | ||||||
Changes in operating assets and liabilities, net of acquisitions | ||||||||
Accounts receivable, net | 8,527 | 10,087 | ||||||
Inventories | 21,342 | 47,604 | ||||||
Prepaid income taxes | 1,611 | 1,874 | ||||||
Prepaid expenses and other current assets | (300 | ) | 110 | |||||
Other assets | (85 | ) | 37 | |||||
Accounts payable and accrued expenses | (19,746 | ) | (51,626 | ) | ||||
Accrued interest payable | (43 | ) | (34 | ) | ||||
Income taxes payable | 1,418 | 344 | ||||||
Unearned revenues and other liabilities | 2,021 | 3,469 | ||||||
Deferred pension obligation | — | 99 | ||||||
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Net cash provided by operating activities | 40,320 | 35,880 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (3,901 | ) | (6,609 | ) | ||||
Purchases of investments | (28,124 | ) | (9,039 | ) | ||||
Proceeds from investment maturities | 10,136 | 5,205 | ||||||
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Net cash used in investing activities | (21,889 | ) | (10,443 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings from senior credit facility | 141,588 | 179,380 | ||||||
Payments on senior credit facility | (164,092 | ) | (207,273 | ) | ||||
Payments on real estate mortgages | (435 | ) | (423 | ) | ||||
Purchase of treasury shares | (937 | ) | — | |||||
Payments for employee taxes on shares withheld | (753 | ) | (946 | ) | ||||
Payments on capital leases | (140 | ) | (129 | ) | ||||
Proceeds from exercise of stock options | 23 | 5 | ||||||
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Net cash used in financing activities | (24,746 | ) | (29,386 | ) | ||||
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Effect of exchange rate changes on cash and cash equivalents | (568 | ) | (71 | ) | ||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS | (6,883 | ) | (4,020 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 30,695 | 31,902 | ||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 23,812 | $ | 27,882 | ||||
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Continued
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Nine Months Ended | ||||||||||||||||
October 29, | October 31, | |||||||||||||||
2016 | 2015 | Six Months Ended | ||||||||||||||
July 29, 2017 | July 30, 2016 | |||||||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 6,294 | $ | 10,439 | $ | 3,613 | $ | 3,715 | ||||||||
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Income taxes | $ | 904 | $ | 507 | $ | 771 | $ | 700 | ||||||||
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NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||||||||||
Accrued purchases of property and equipment | $ | 1,172 | $ | 1,684 | $ | 138 | $ | 407 | ||||||||
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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. TheThese 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 30, 2016,28, 2017, filed with the Securities and Exchange Commission on April 14, 2016.10, 2017.
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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting 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 willis 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 - 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 adopted the accounting standard in the first quarter of fiscal 2017. Prior to the adoption, debt issuance costs were classified as other assets. This presentation change was applied retrospectively to the condensed consolidated balance sheet and consequently, amounts related to debt issuance costs are presented as a direct deduction of the corresponding debt 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, during the first quarter of fiscal 2018, of ASU No. 2015-11 isdid 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 “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 currently 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 evaluatingadopted the impactprovisions of ASU 2016-09 in the first quarter of fiscal 2018 using a modified retrospective approach. For the three months ended April 29, 2017, the Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit as a discrete item. Given the Company’s valuation allowance position, there was no net tax expense or benefit recognized as a result of the adoption of ASU 2016-09. Furthermore, there was no change to retained earnings with respect to excess tax benefits due to the Company’s valuation allowance position. The effect on the condensed consolidating statement of cash flows for the six months ended July 30, 2016, as a result of this standard on its consolidated financial statements.adoption, is an increase of approximately $0.9 million in cash provided by operating activities, with a corresponding increase of approximately $0.9 million in cash used in financing activities from the previously reported amounts.
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 willis not expected to have a material impact on the Company’s results of operations or the Company’s financial position.
In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” which amends certain aspects of the new revenue standard, ASU 2014-09,“Revenue from Contracts with Customers”. The amendments are intended to provide clarifying guidance in a few narrow areas such as collectability, contract modifications, completed contracts at transition, and non-cash considerations. 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 of the adoption of this standardASU is not expected to have a material impact on its consolidatedthe Company’s results of operations or the Company’s financial statements.position.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides guidance for the accounting for credit losses on instruments within its scope. The amendments guide on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. The amendments require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments also require that credit losses
on available-for-sale debt securities be presented as an allowance. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including 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 August 2016, the FASB issued ASU No. 2016-15,“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this update are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact of the future adoption of this standard on its consolidated Statements of Cash Flows.
In October 2016, the FASB issued ASU No. 2016-16, ““Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This update removes the current exception in GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. The amendments in this update are effective for public entities for annual reporting periods beginning after December 15, 2017. Early adoption is permitted and should be in the first interim period if an entity issues interim financial statements. The Company has chosen to early adopt the provisions of ASU 2016-16 in the first quarter of fiscal 2018. The adoption of ASU 2016-16 resulted in a decrease to prepaid income taxes of $1.7 million and a decrease to deferred tax liabilities of $1.7 million.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic718): Scope of Modification Accounting,” which amends the scope of modification accounting for share-based payment arrangements. This update provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The guidance is required to be applied prospectively to an award modified on or after the adoption date. The Company will apply this guidance to any future changes made to the terms or conditions, of share-based payment awards, after adoption. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.
In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception,” which is intended to reduce the complexity of accounting for certain financial instruments with down round features and address the difficulty of accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently assessingevaluating the impact of the future adoption of this standard on its consolidated financial statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of:
October 29, | January 30, | |||||||||||||||
2016 | 2016 | July 29, 2017 | January 28, 2017 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Trade accounts | $ | 143,033 | $ | 144,708 | $ | 144,757 | $ | 151,370 | ||||||||
Royalties | 5,220 | 5,892 | 5,293 | 6,659 | ||||||||||||
Other receivables | 812 | 1,769 | 1,153 | 712 | ||||||||||||
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Total | 149,065 | 152,369 | 151,203 | 158,741 | ||||||||||||
Less: allowances | (20,283 | ) | (20,303 | ) | (19,748 | ) | (18,501 | ) | ||||||||
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Total | $ | 128,782 | $ | 132,066 | $ | 131,455 | $ | 140,240 | ||||||||
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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 29, | January 30, | |||||||
2016 | 2016 | |||||||
(in thousands) | ||||||||
Finished goods | $ | 112,266 | $ | 182,414 | ||||
Raw materials and in process | — | 336 | ||||||
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Total | $ | 112,266 | $ | 182,750 | ||||
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Finished goods July 29,
2017 January 28,
2017 (in thousands) $ 131,197 $ 151,251
5. INVESTMENTS
The Company’s investments at July 29, 2017 and January 28, 2017 include marketable securities and certificates of deposit at October 29, 2016 and January 30, 2016. Marketable securities are classified as available-for-sale and consist of corporate bonds with maturity dates less than two years. Certificatesone year. Marketable securities consist of deposit are classified as available-for-sale with $9.7 million with maturity dates within one year.corporate and government bonds. Investments are stated at fair value. The estimated fair value of the marketable securities is based on quoted prices in an active market (Level 1 fair value measures).market.
Investments consisted of the following as of OctoberJuly 29, 2016:2017:
Gross | Gross | Estimated | ||||||||||||||||||||||||||||||
Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||
(in thousands) | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Marketable securities | $ | 3,262 | $ | 4 | $ | — | $ | 3,266 | $ | 22,752 | $ | — | $ | (11 | ) | $ | 22,741 | |||||||||||||||
Certificates of deposit | 9,655 | — | (6 | ) | 9,649 | 6,130 | — | (1 | ) | 6,129 | ||||||||||||||||||||||
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Total investments | $ | 12,917 | $ | 4 | $ | (6 | ) | $ | 12,915 | $ | 28,882 | $ | — | $ | (12 | ) | $ | 28,870 | ||||||||||||||
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Investments consisted of the following as of January 30, 2016:28, 2017:
Gross | Gross | Estimated | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||||||
Cost | Unrealized Gains | Unrealized Losses | Fair Value | (in thousands) | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Marketable securities | $ | 3,258 | $ | — | $ | (8 | ) | $ | 3,250 | |||||||||||||||||||||||
Certificates of deposit | $ | 9,791 | $ | — | $ | (9 | ) | $ | 9,782 | 7,675 | — | (4 | ) | 7,671 | ||||||||||||||||||
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Total investments | $ | 9,791 | $ | — | $ | (9 | ) | $ | 9,782 | $ | 10,933 | $ | — | $ | (12 | ) | $ | 10,921 | ||||||||||||||
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6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
October 29, | January 30, | |||||||||||||||
2016 | 2016 | |||||||||||||||
(in thousands) | July 29, 2017 | January 28, 2017 | ||||||||||||||
(in thousands) | ||||||||||||||||
Furniture, fixtures and equipment | $ | 90,141 | $ | 84,634 | $ | 94,973 | $ | 91,639 | ||||||||
Buildings and building improvements | 20,660 | 19,462 | 21,295 | 21,359 | ||||||||||||
Vehicles | 523 | 523 | 537 | 523 | ||||||||||||
Leasehold improvements | 48,329 | 46,882 | 48,215 | 48,799 | ||||||||||||
Land | 9,430 | 9,430 | 9,430 | 9,430 | ||||||||||||
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Total | 169,083 | 160,931 | 174,450 | 171,750 | ||||||||||||
Less: accumulated depreciation and amortization | (105,401 | ) | (97,023 | ) | (115,178 | ) | (109,915 | ) | ||||||||
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Total | $ | 63,682 | $ | 63,908 | $ | 59,272 | $ | 61,835 | ||||||||
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The above table of property and equipment includes assets held under capital leases as of:
October 29, | January 30, | |||||||||||||||
2016 | 2016 | July 29, 2017 | January 28, 2017 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Furniture, fixtures and equipment | $ | 810 | $ | 810 | $ | 810 | $ | 810 | ||||||||
Less: accumulated depreciation and amortization | (384 | ) | (182 | ) | (587 | ) | (452 | ) | ||||||||
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Total | $ | 426 | $ | 628 | $ | 223 | $ | 358 | ||||||||
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For the three months ended OctoberJuly 29, 20162017 and October 31, 2015,July 30, 2016, depreciation and amortization expense relating to property and equipment amounted to $3.5$3.4 million and $3.4$3.6 million, respectively. For the ninesix months ended OctoberJuly 29, 20162017 and October 31, 2015,July 30, 2016, depreciation and amortization expense relating to property and equipment amounted to $10.4$6.7 million and $10.0$6.9 million, respectively. 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 intangible assets and totaled $184.1 million at OctoberJuly 29, 20162017 and January 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.28, 2017.
Other
Other intangible assets represent customer lists as of:
October 29, | January 30, | |||||||||||||||
2016 | 2016 | July 29, 2017 | January 28, 2017 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Customer lists | $ | 8,450 | $ | 8,450 | $ | 8,450 | $ | 8,450 | ||||||||
Less: accumulated amortization | (5,328 | ) | (4,677 | ) | (5,962 | ) | (5,545 | ) | ||||||||
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Total | $ | 3,122 | $ | 3,773 | $ | 2,488 | $ | 2,905 | ||||||||
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For the three months ended OctoberJuly 29, 20162017 and October 31, 2015,July 30, 2016, amortization expense relating to customer lists amounted to $0.3approximately $0.2 million for each of the periods. For the ninesix months ended OctoberJuly 29, 20162017 and October 31, 2015,July 30, 2016, amortization expense relating to customer lists amounted to $0.7$0.4 million for each of the 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 January 30, 2016:28, 2017:
(in thousands) | (in thousands) | |||||||
2017 | $ | 868 | ||||||
2018 | $ | 835 | $ | 835 | ||||
2019 | $ | 793 | $ | 793 | ||||
2020 | $ | 734 | $ | 734 | ||||
2021 | $ | 543 | $ | 543 |
8. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consisted of the following as of:
October 29, | January 30, | |||||||
2016 | 2016 | |||||||
(in thousands) | ||||||||
Total letter of credit facilities | $ | 30,000 | $ | 30,286 | ||||
Outstanding letters of credit | (10,788 | ) | (11,395 | ) | ||||
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Total credit available | $ | 19,212 | $ | 18,891 | ||||
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During the third quarter of fiscal 2017, one letter of credit facility totaling $0.3 million, utilized by the Company’s United Kingdom subsidiary, expired and has not been renewed.
July 29, 2017 | January 28, 2017 | |||||||
(in thousands) | ||||||||
Total letter of credit facilities | $ | 30,000 | $ | 30,000 | ||||
Outstanding letters of credit | (10,727 | ) | (10,788 | ) | ||||
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Total credit available | $ | 19,273 | $ | 19,212 | ||||
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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 $4.2$3.8 million and $4.1$3.7 million for the three months ended OctoberJuly 29, 20162017 and October 31, 2015,July 30, 2016, respectively, and $12.2$7.8 million and $11.1$8.0 million for the ninesix months ended OctoberJuly 29, 20162017 and October 31, 2015,July 30, 2016, respectively, and are included in selling, general and administrative expenses.
10. NET INCOME (LOSS) INCOME PER SHARE
Basic net income (loss) income per share is computed by dividing net income (loss) income 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 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) income per share:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 29, | October 31, | October 29, | October 31, | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | July 29, 2017 | July 30, 2016 | July 29, 2017 | July 30, 2016 | |||||||||||||||||||||||||
(in thousands, except per share data) | (in thousands, except per share data) | |||||||||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||||||||||
Net (loss) income | $ | (5,165 | ) | $ | 2,273 | $ | 5,520 | $ | 10,403 | |||||||||||||||||||||||
Net income (loss) | $ | 979 | $ | (3,565 | ) | $ | 13,750 | $ | 10,685 | |||||||||||||||||||||||
Denominator: | ||||||||||||||||||||||||||||||||
Basic-weighted average shares | 14,991 | 15,148 | 14,920 | 14,948 | 15,075 | 14,953 | 15,042 | 14,882 | ||||||||||||||||||||||||
Dilutive effect: equity awards | — | 317 | 249 | 396 | 214 | — | 254 | 257 | ||||||||||||||||||||||||
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Diluted-weighted average shares | 14,991 | 15,465 | 15,169 | 15,344 | 15,289 | 14,953 | 15,296 | 15,139 | ||||||||||||||||||||||||
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Basic income (loss) per share | $ | 0.06 | $ | (0.24 | ) | $ | 0.91 | $ | 0.72 | |||||||||||||||||||||||
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Basic (loss) income per share | $ | (0.34 | ) | $ | 0.15 | $ | 0.37 | $ | 0.70 | |||||||||||||||||||||||
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Diluted (loss) income per share | $ | (0.34 | ) | $ | 0.15 | $ | 0.36 | $ | 0.68 | |||||||||||||||||||||||
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Diluted income (loss) per share | $ | 0.06 | $ | (0.24 | ) | $ | 0.90 | $ | 0.71 | |||||||||||||||||||||||
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Antidilutive effect:(1) | 1,015 | 530 | 532 | 693 | 404 | 1,103 | 398 | 604 | ||||||||||||||||||||||||
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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 | Changes in Equity | |||||||
(in thousands) | (in thousands) | |||||||
Equity at January 30, 2016 | $ | 291,481 | ||||||
Equity at January 28, 2017 | $ | 313,687 | ||||||
Comprehensive income | 10,462 | 14,890 | ||||||
Share transactions under employee equity compensation plans | 4,163 | 2,695 | ||||||
Purchase of treasury stock | (2,151 | ) | (937 | ) | ||||
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Equity at October 29, 2016 | $ | 303,955 | ||||||
Equity at July 29, 2017 | $ | 330,335 | ||||||
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Equity at January 31, 2015 | $ | 302,017 | ||||||
Equity at January 30, 2016 | $ | 291,481 | ||||||
Comprehensive income | 11,282 | 9,582 | ||||||
Share transactions under employee equity compensation plans | 3,809 | 2,845 | ||||||
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Equity at October 31, 2015 | $ | 317,108 | ||||||
Equity at July 30, 2016 | $ | 303,908 | ||||||
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During the third quarter of fiscal 2017, theThe Board of Directors extended the stock repurchase program to authorizehas authorized the Company to purchase, from time to time and as market and business conditions warranted,warrant, up to $70 million of the Company’sour common stock for cash in the open market or in privately negotiated transactions through October 31, 2017. Although theThe Board of Directors allocated a maximum of $70 million to carry out the program, the Company is not obligated to purchase any specific number of outstanding shares and will reevaluatereevaluates the program on an ongoing basis. Total purchases under the plan life-to-date amount to $60.8 million.
During the thirdsecond quarter of fiscal 2017,2018, the Company repurchased 50,000 shares of its common stock at a cost of $2.2$0.9 million. There were no treasury shares outstanding as of January 30, 2016. During28, 2017. Total purchases under the second quarter of fiscal 2016, the Company retired 770,753 shares of treasury stock recorded at a cost ofplan to date amount to approximately $15.7$61.7 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.
12. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive loss by component, net of tax, are as follows:tax:
Unrealized | Foreign | Unrealized | Unrealized | |||||||||||||||||
(Loss) Gain on | Currency Translation | (Loss) Gain on | Gain on | |||||||||||||||||
Pension Liability | Adjustments, Net | Investments | Forward Contract | Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance, January 30, 2016 | $ | (7,368 | ) | $ | (7,131 | ) | $ | (9 | ) | $ | — | $ | (14,508 | ) | ||||||
Other comprehensive loss (income) before reclassifications | (313 | ) | (3,772 | ) | 7 | 255 | (3,823 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | 8,765 | — | — | — | 8,765 | |||||||||||||||
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Balance, October 29, 2016 | $ | 1,084 | $ | (10,903 | ) | $ | (2 | ) | $ | 255 | $ | (9,566 | ) | |||||||
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Unrealized (Loss) Gain on Pension Liability | Foreign Currency Translation Adjustments, Net | Unrealized (Loss) Gain on Investments | Unrealized (Loss) Gain on Forward Contract | Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance, January 28, 2017 | $ | — | $ | (9,902 | ) | $ | (12 | ) | $ | (181 | ) | $ | (10,095 | ) | ||||||
Other comprehensive income (loss) before reclassifications | — | 1,552 | — | (404 | ) | 1,148 | ||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | — | — | (8 | ) | (8 | ) | |||||||||||||
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Balance, July 29, 2017 | $ | — | $ | (8,350 | ) | $ | (12 | ) | $ | (593 | ) | $ | (8,955 | ) | ||||||
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Unrealized (Loss) Gain on Pension Liability | Foreign Currency Translation Adjustments, Net | Unrealized (Loss) Gain on Investments | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance, January 30, 2016 | $ | (7,368 | ) | $ | (7,131 | ) | $ | (9 | ) | $ | (14,508 | ) | ||||
Other comprehensive (loss) income before reclassifications | — | (1,430 | ) | 17 | (1,413 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss | 310 | — | — | 310 | ||||||||||||
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Balance, July 30, 2016 | $ | (7,058 | ) | $ | (8,561 | ) | $ | 8 | $ | (15,611 | ) | |||||
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Balance, January 31, 2015 Other comprehensive loss (income) before reclassifications Amounts reclassified from accumulated other comprehensive loss Balance, October 31, 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 ) — 482 (8 ) 474 405 — — 405 $ (7,680 ) $ (4,292 ) $ (1 ) $ (11,973 )
A summary of the impact on the condensed consolidated statements of operations line items is as follows:
Three Months Ended | ||||||||||
October 29, 2016 | October 31, 2015 | |||||||||
(in thousands) | ||||||||||
Amortization of defined benefit pension items | ||||||||||
Actuarial loss | $ | 8,455 | $ | 135 | Selling, general and administrative expenses | |||||
Tax provision | — | — | Income tax provision | |||||||
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Total, net of tax | $ | 8,455 | $ | 135 | ||||||
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Nine Months Ended | ||||||||||
October 29, 2016 | October 31, 2015 | |||||||||
(in thousands) | ||||||||||
Amortization of defined benefit pension items | ||||||||||
Actuarial loss | $ | 8,765 | $ | 405 | Selling, general and administrative expenses | |||||
Tax provision | — | — | Income tax provision | |||||||
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Total, net of tax | $ | 8,765 | $ | 405 | ||||||
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Three Months Ended | ||||||||||
Statement of Operations Location | July 29, 2017 | July 30, 2016 | ||||||||
Amortization of defined benefit pension items actuarial gains | Selling, general and administrative expenses | $ | — | $ | 155 | |||||
Forward contract loss reclassified from accumulated other comprehensive loss to income | Cost of goods sold | 33 | — | |||||||
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Total, net of tax | $ | 33 | $ | 155 | ||||||
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Six Months Ended | ||||||||||
Statement of Operations Location | July 29, 2017 | July 30, 2016 | ||||||||
Amortization of defined benefit pension items actuarial gains | Selling, general and administrative expenses | $ | — | $ | 310 | |||||
Forward contract gain reclassified from accumulated other comprehensive loss to income | Cost of goods sold | (8 | ) | — | ||||||
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Total, net of tax | $ | (8 | ) | $ | 310 | |||||
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13. DERIVATIVE FINANCIAL INSTRUMENT
– Cash Flow Hedges
The Company has a risk management policy to manage foreign currency risk relating to inventory purchases by its subsidiaries that are denominated in foreign currencies. As such, the Company may employ hedging and derivative strategies to limit the effects of changes in foreign currency on its operating income and cash flows. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. The Company achieves this by closely matching the notional amount, term and conditions of the derivative instrument with the underlying risk being hedged. The Company does not use derivative instruments for trading or speculative purposes.
For derivatives that will be accounted for as hedging instruments, the Company formally designates and documents at inception the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company will formally assess at least quarterly whether the financial instruments used in hedging are “highly effective” at offsetting changes in cash flows of the related underlying exposures. For purposes of assessing hedge effectiveness, the Company uses the forward method, and assesses effectiveness based on the changes in both spot and forward points of the hedging instrument. If and when a derivative is no longer expected to be “highly effective,” hedge accounting is discontinued and hedge ineffectiveness, if any, is included in current period earnings. As of OctoberJuly 29, 2016,2017, there was no hedge ineffectiveness.
The Company’s United Kingdom subsidiary is exposed to foreign currency risk from inventory purchases. In order to mitigate the financial risk of settlement of inventory at various prices based on movement of the U.S.
dollar against the British pound, the Company entered into foreign currency forward exchange contracts (the “Hedging Instruments”) in October 2016.. These are formally designated and “highly effective” as cash flow hedges. The Company will hedge approximately 45% of its U.S. dollar denominated purchases. All changes in the Hedging Instruments’ fair value associated with inventory purchases are recorded in equity as a component of accumulated other comprehensive income until the underlying hedged item is reclassified to earnings. The Company records the foreign currency forward exchange contracts at fair value in its Consolidated Balance Sheets. The cash flows from derivative instruments that are designated as cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. The Company considers the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. The Company classifies derivative instrument cash flows from hedges of foreign currency risk on the settlement of inventory as operating activities.
The Company’s Hedging Instruments were classified within Level 2 of the fair value hierarchy. The following table summarizes the effects, fair value and balance sheet classification of the Company’s Hedging Instruments.
October 29, | January 30, | |||||||||||||||||||
Derivatives Designated As Hedging Instruments | Balance sheet location | 2016 | 2016 | Balance sheet location | July 29, 2017 | January 28, 2017 | ||||||||||||||
(in thousands) | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Foreign currency forward exchange contract (inventory purchases) | Other Current Assets | $ | 255 | $ | — | Accounts Payable | $ | 593 | $ | 181 | ||||||||||
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Total | $ | 255 | $ | — | Total | $ | 593 | $ | 181 | |||||||||||
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At October 29, 2016,The following table summarizes the effect and classification of the Company’s Hedging Instruments.
Three Months Ended | Six Months Ended | |||||||||||||||||
Derivatives Designated As Hedging Instruments | Statement of Operations Location | July 29, 2017 | July 30, 2016 | July 29, 2017 | July 30, 2016 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||
Foreign currency forward exchange contract (inventory purchases): | ||||||||||||||||||
Loss (gain) reclassified from accumulated other comprehensive loss to income | Cost of goods sold | $ | 33 | $ | — | $ | (8 | ) | $ | — | ||||||||
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$ | 33 | $ | (8 | ) | ||||||||||||||
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The notional amountamounts outstanding of foreign exchange forward contracts is $5.7 million.were $15.1 million and $15.0 million at July 29, 2017 and January 28, 2017, respectively. Such contracts expire between October 2016 and March 2017. There were no outstanding Hedging Instruments at January 30, 2016.through July 2018.
At October 29, 2016, accumulatedAccumulated other comprehensive incomeloss included a $255 thousand net deferred gainloss for Hedging Instruments that are expected to be reclassed duringin the next 12 months.amount of $0.6 million and $0.2 million at July 29, 2017 and January 28, 2017, respectively. The net deferred gainloss will be reclassified from accumulated other comprehensive incomeloss to costs of goods sold during the next twelve months when the inventory is sold.
No gains or losses relating to Hedging Instruments were reclassified to earnings during any of the fiscal periods presented.
14. 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 20162018 are open tax years. The Company’s state tax filings are subject to varying statutes of limitations. The Company’s unrecognized state tax benefits are related to open tax years from fiscal 20052006 through fiscal 2017, depending on each state’s particular statute of limitations.limitation. As of OctoberJuly 29, 2016,2017, 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 $1.1 million liability recorded for unrecognized tax benefits as of January 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 29, 2016, the total amount of unrecognized tax benefits decreased by approximately $13,000 and increased by $75,000, respectively. The change to the total amount of the unrecognized tax benefitInternal Revenue Service for the three and nine months ended October 29, 2016 included a decrease in interest and penalties of approximately $11,000 and an increase of $30,000, respectively.
The Company does not currently anticipate a resolution within the next twelve months for any of the remaining unrecognized tax benefits as of October 29, 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 is not expected to lapse within the next twelve months.still ongoing. During the three months ended October 29, 2016,fiscal 2017, the Company received a Notice of Proposed Adjustment from the Internal Revenue Service, which proposed adjustments to taxable income for fiscal 2011, 2012 and 2013 of $6.1 million, $5.3 million and $6.8 million, respectively. TheDuring the three months ended July 29, 2017, the Company engaged in further conversations with the Internal Revenue Service concerning the proposed adjustments. Based upon those conversations, the Company has not established uncertain tax position reserves relateda reserve of $1 million for the amount it would be willing to this matter aspay to settle the issue. While the Company still believes its positions are highly certain toposition would be sustained upon appeal or, if necessary, through litigation.litigation, it has made this determination based upon the desire to reach an ultimate resolution and limit the costs associated with continuing the examination. Furthermore, various other state and local income tax returns are also under examination by taxing authorities.
The Company has a $1.2 million liability recorded for unrecognized tax benefits as of January 28, 2017, which includes interest and penalties of $0.3 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the three and six months ended July 29, 2017, the total amount of unrecognized tax benefits increased by approximately $5.0 million and $5.0 million, respectively. The change to the total amount of the unrecognized tax benefit for the three and six months ended July 29, 2017 included an increase in interest and penalties of approximately $171,000 and $187,000, respectively. The amount of the unrecognized tax benefits, if recognized, that would affect the Company’s effective tax rate as of January 28, 2017 and July 29, 2017 is $1.2 million and $2.3 million, respectively.
The Company currently anticipates a resolution within the next twelve months for the unrecognized tax benefits relating to the Internal Revenue Service Proposed Adjustment, but does not currently anticipate a resolution for any of the remaining unrecognized tax benefits as of July 29, 2017. The statute of limitations related to the Company’s fiscal 2011, 2012, 2013, and 2014 U.S. federal tax years has been extended as part of the examination and is expected to lapse within the next twelve months.
At the end of fiscal 2016,2017, the Company maintained a $46.2$38.6 million valuation allowance against its remaining domestic deferred tax asset; including, but not limited to, the federal net operating loss carryforwardscarryforward and the U.S. state net operating loss carryforwards, whose utilization of which areis not restricted by factors beyond the Company’s control. The establishment of valuation allowances and the developmentsdevelopment 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. An accumulation of recent pretax losses is considered strong negative evidence in that evaluation. Although the Company recognized pretax earnings through the ninesix months ended OctoberJuly 29, 2016,2017, by itself that does not represent sufficient positive evidence that itsa deferred tax asset will be realized to warrant removing the valuation allowances established against the U.S. deferred tax assets. Additionally, the Company’s cumulative domestic pretax results for the past 36 months still remain in a loss position. The Company would be able to remove the valuation allowances in future periods when positive evidence outweighs the negative evidence from the relevant look-back period. Deferred tax assets without valuation allowances remain in certain foreign tax jurisdictions, where supported by the evidence.
15. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES
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 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 Plan and the prior 2005 Plan, as amended, the “Stock Plans”). The amendment was approved by the shareholders at the Company’s 2015 annual meeting.
The 2015 Plan extends the term of the 2005 Plan 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.
On March 16, 2017, the Board of Directors unanimously adopted an amendment and restatement of the 2015 Plan (as amended and restated, the “Amended Plan”). The Amended Plan increases the number of shares available for grants by an additional 1,400,000 shares to an aggregate of 7,650,000 shares of common stock and makes other clarifications and technical revisions designed primarily to improve administration and ensure compliance with recent changes in the law including Internal Revenue Code Section 409A. Other than the amendments noted above, the Amended Plan generally contains the same features, terms and conditions as the 2015 Plan. The amendment was approved by the shareholders at the Company’s 2017 annual meeting.
During the first second and thirdsecond quarters of fiscal 2017,2018, the Company granted an aggregate of 86,173, 14,91472,307 and 3,00010,681 shares of restricted stock to certain key employees, which vest primarily over a three-year period, at an estimated value of $1.6 million, $0.3$1.5 million and $0.06$0.2 million, respectively. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
Also, during the second quarter of fiscal 2017,2018, the Company awarded to sixfive directors an aggregate of 31,90228,995 shares of restricted stock. The restricted stock awarded vests primarily over a one-year period, at an estimated value of $0.7$0.6 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 quarter of fiscal 2017,2018, the Company granted performance-basedperformance based restricted stock to certain key employees. Such stock generally vests 100% in April 2019,2020, provided that each employee is still an employee of the Company on such date, and that the Company has met certain performance criteria. A total of 184,004154,401 shares of performance-based restricted stock were issued at an estimated value of $3.5$3.3 million.
During the first quarter of fiscal 2018, the Company granted an aggregate of 10,953 shares of restricted stock units to a key employee, that vest primarily over a three-year period, at an estimated value of $0.2 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 fiscal 2017,2018, a total of 159,86277,655 and 11,34331,448 shares of restricted stock vested, of which 46,00025,241 and 3,10511,259 shares were withheld to cover the employees’ statutory income tax requirements.requirements, respectively. The estimated value of the withheld shares was $880,000$0.5 million and $60,000,$0.2 million, respectively.
16. 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 the Company’s retail stores and e-commerce platforms. The Licensing segment derives its revenues from royalties associated from the use of the Company’s brand names, principally Perry Ellis, Original Penguin, Laundry, Gotcha, Pro Player, Farah, Ben Hogan, and John Henry.
The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by the segments.
Revenues: Men’s Sportswear and Swim Women’s Sportswear Direct-to-Consumer Licensing Total revenues Depreciation and amortization: Men’s Sportswear and Swim Women’s Sportswear Direct-to-Consumer Licensing Total depreciation and amortization Operating (loss) income: Men’s Sportswear and Swim(1) Women’s Sportswear Direct-to-Consumer Licensing(2) Total operating (loss) income Costs on early extinguishment of debt Total interest expense Total net (loss) income before income taxes Three Months Ended Nine Months Ended October 29, October 31, October 29, October 31, 2016 2015 2016 2015 (in thousands) $ 135,717 $ 141,512 $ 478,790 $ 490,453 28,676 33,421 85,301 102,126 20,905 21,514 65,423 66,763 8,661 8,992 27,392 25,810 $ 193,959 $ 205,439 $ 656,906 $ 685,152 $ 1,814 $ 1,771 $ 5,717 $ 5,509 729 589 2,107 1,655 932 976 2,717 2,851 59 47 176 136 $ 3,534 $ 3,383 $ 10,717 $ 10,151 $ (7,683 ) $ 2,392 $ 6,834 $ 14,544 (1,289 ) (109 ) (4,746 ) 222 (3,370 ) (4,038 ) (9,675 ) (8,051 ) 7,065 6,798 21,454 19,043 $ (5,277 ) $ 5,043 $ 13,867 $ 25,758 — — — 5,121 1,738 1,853 5,652 7,423 $ (7,015 ) $ 3,190 $ 8,215 $ 13,214
Three Months Ended | Six Months Ended | |||||||||||||||
July 29, 2017 | July 30, 2016 | July 29, 2017 | July 30, 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Men’s Sportswear and Swim | $ | 155,466 | $ | 145,148 | $ | 341,332 | $ | 343,073 | ||||||||
Women’s Sportswear | 19,718 | 24,136 | 49,457 | 56,625 | ||||||||||||
Direct-to-Consumer | 23,210 | 24,057 | 41,428 | 44,518 | ||||||||||||
Licensing | 8,215 | 8,312 | 16,482 | 18,731 | ||||||||||||
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Total revenues | $ | 206,609 | $ | 201,653 | $ | 448,699 | $ | 462,947 | ||||||||
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Depreciation and amortization: | ||||||||||||||||
Men’s Sportswear and Swim | $ | 1,786 | $ | 2,006 | $ | 3,637 | $ | 3,903 | ||||||||
Women’s Sportswear | 866 | 764 | 1,661 | 1,378 | ||||||||||||
Direct-to-Consumer | 784 | 889 | 1,550 | 1,785 | ||||||||||||
Licensing | 60 | 57 | 116 | 117 | ||||||||||||
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Total depreciation and amortization | $ | 3,496 | $ | 3,716 | $ | 6,964 | $ | 7,183 | ||||||||
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Operating income (loss) : | ||||||||||||||||
Men’s Sportswear and Swim | $ | 3,869 | $ | (2,425 | ) | $ | 19,384 | $ | 14,517 | |||||||
Women’s Sportswear | (3,409 | ) | (3,106 | ) | (4,378 | ) | (3,457 | ) | ||||||||
Direct-to-Consumer | (1,960 | ) | (2,933 | ) | (6,061 | ) | (6,305 | ) | ||||||||
Licensing | 6,072 | 5,925 | 12,048 | 14,389 | ||||||||||||
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Total operating income (loss) | $ | 4,572 | $ | (2,539 | ) | $ | 20,993 | $ | 19,144 | |||||||
Total interest expense | 1,869 | 1,889 | 3,825 | 3,914 | ||||||||||||
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Total net income (loss) before income taxes | $ | 2,703 | $ | (4,428 | ) | $ | 17,168 | $ | 15,230 | |||||||
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17. BENEFIT PLAN
The Company sponsors asponsored two qualified pension plans as a result of the Perry Ellis Menswear acquisition that occurred in June 2003. The plans were frozen and merged as of December 31, 2003.
During fiscal 2015, the Board of Directors resolved to terminate the pension plan. As of January 28, 2017, the Company satisfied the regulatory requirements prescribed by the Internal Revenue Service and the Pension Benefit Guaranty Corporation, and the distribution of plan assets was completed.
The following table provides the components of net benefit cost for the plan during the three and ninesix months endedof fiscal 20172018 and 2016:2017:
Three Months Ended | Nine Months Ended | |||||||||||||||
October 29, | October 31, | October 29, | October 31, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in thousands) | ||||||||||||||||
Service cost | $ | 63 | $ | 63 | $ | 189 | $ | 189 | ||||||||
Interest cost | 124 | 337 | 372 | 1,011 | ||||||||||||
Expected return on plan assets | (87 | ) | (658 | ) | (261 | ) | (1,974 | ) | ||||||||
Settlement | 8,300 | — | 8,300 | — | ||||||||||||
Amortization of net loss | 155 | 135 | 465 | 405 | ||||||||||||
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Net periodic benefit cost | $ | 8,555 | $ | (123 | ) | $ | 9,065 | $ | (369 | ) | ||||||
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Settlement accounting, which accelerates recognition of a plan’s unrecognized net gain or loss, is triggered if the lump sums paid during a year exceed the sum of the plan’s service and interest cost. Since the lump sums paid or expected to be paid in Fiscal 2017 exceed that threshold, the Company recognized a settlement charge of $8.3 million in anticipation of the plan’s termination in fiscal 2017.
Service cost Interest cost Expected return on plan assets Amortization of net gain Net periodic benefit cost Three Months Ended Six Months Ended July 29,
2017 July 30,
2016 July 29,
2017 July 30,
2016 (in thousands) $ — $ 63 $ — $ 126 — 124 — 248 — (87 ) — (174 ) — 155 — 310 $ — $ 255 $ — $ 510
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. At October 29, 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 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 the Company may not be able to satisfy.
19. 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 29, 2016, The Company had outstanding borrowings of $37.8 million under the Credit Facility. At January 30, 2016, the Company had 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 7 7⁄8% senior subordinated notes due April 1, 2019, its letter of credit facilities, or its real estate mortgage loans. A cross-default could result in all of the Company’s 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 Base. Borrowings under the Credit Facility are limited to a borrowing base calculation, which generally restricts the outstanding balance to the sum of (a) 87.5% of eligible receivables plus (b) 87.5% of eligible foreign accounts up to $1.5 million plus (c) the lesser of (i) the inventory loan limit, which equals 80% of the maximum credit under the Credit Facility at the time, (ii) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.
Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.
Security. As security for the indebtedness under the Credit Facility, the Company granted to the lenders a first priority security interest (subject to liens permitted under the Credit Facility to be senior thereto) in substantially all of its existing and future assets, including, without limitation, accounts receivable, inventory, deposit accounts, general intangibles, equipment and capital stock or membership interests, as the case may be, of certain subsidiaries, and real estate but excluding its non-U.S. subsidiaries and all of its trademark portfolio.
20. 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 the short-term nature of these instruments.
Investments. (classified within Level 12 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 $21.4$34.0 million and $22.0$34.5 million at OctoberJuly 29, 20162017 and January 30, 2016,28, 2017, respectively. The carrying values of the real estate mortgages at OctoberJuly 29, 20162017 and January 30, 2016,28, 2017, approximate their fair values since the interest rates approximate market rates.market.
Senior credit facility. The carrying amount of the senior credit facility approximates fair value due to the frequent resets of its floating interest rate.
Senior subordinated notes payable. (classified within Level 12 of the valuation hierarchy) - —The carrying amounts of the 77⁄/8% senior subordinated notes payable were approximately $49.6 million and $49.5$49.7 million at OctoberJuly 29, 20162017 and January 30, 2016, respectively.28, 2017. The fair value of the 77⁄/8% senior subordinated notes payable was approximately $50.3$50.2 million and $49.0$50.1 million as of OctoberJuly 29, 20162017 and January 30, 2016,28, 2017, respectively, based on quoted market prices.
See footnote 13 to the consolidated financial statements for disclosure of the fair value and line item caption of derivative instruments recorded in the consolidated balance sheets.
These estimated fair value amounts have been determined using available market information and appropriate valuation methods.
21. 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 Mr. Feldenkreis’ 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 entitled to participate in the Company’s incentive compensation plans. In connection with the terms of this new employment agreement, the Company accelerated the expense recognition related to Mr. Feldenkreis’ outstanding cash incentive and stock based compensation awards. The impact of the acceleration was a $4.2 million charge during the second quarter of fiscal 2017 to selling, general and administrative expenses.
On April 20, 2016, the Company entered into an employment agreement with Oscar Feldenkreis, the Company’s Vice Chairman of the Board of Directors, Chief Executive Officer and President. The term of the employment agreement ends on February 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 Company’s incentive compensation plans.
22.19. 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 OctoberJuly 29, 20162017 and January 30, 201628, 2017 and for the three and ninesix months ended OctoberJuly 29, 20162017 and October 31, 2015.July 30, 2016. 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.
The Company adopted the provisions of ASU 2016-09 in the first quarter of fiscal 2018 and the change was retrospectively applied to the condensed consolidating financial statements for all periods presented. The effect on the condensed consolidating statement of cash flows, as a result of the adoption, is an increase of approximately $0.9 million in cash provided by operating activities to the guarantor subsidiaries for the six months ended July 30, 2016, with a corresponding increase in cash used in financing activities to the guarantor for the respective periods from the previously reported amounts.
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF OCTOBERJULY 29, 20162017
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 4,239 | $ | 25,585 | $ | — | $ | 29,824 | $ | — | $ | 8,229 | $ | 15,583 | $ | — | $ | 23,812 | ||||||||||||||||||||
Investment, at fair value | — | — | 12,915 | — | 12,915 | — | — | 28,870 | — | 28,870 | ||||||||||||||||||||||||||||||
Accounts receivable, net | — | 104,580 | 24,202 | — | 128,782 | — | 103,110 | 28,345 | — | 131,455 | ||||||||||||||||||||||||||||||
Intercompany receivable, net | 82,241 | — | — | (82,241 | ) | — | 89,162 | — | — | (89,162 | ) | — | ||||||||||||||||||||||||||||
Inventories | — | 96,480 | 15,786 | — | 112,266 | — | 107,531 | 23,666 | — | 131,197 | ||||||||||||||||||||||||||||||
Prepaid income taxes | 1,643 | — | — | 145 | 1,788 | |||||||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | — | 7,219 | 998 | — | 8,217 | — | 5,978 | 841 | — | 6,819 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current assets | 83,884 | 212,518 | 79,486 | (82,096 | ) | 293,792 | 89,162 | 224,848 | 97,305 | (89,162 | ) | 322,153 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Property and equipment, net | — | 61,425 | 2,257 | — | 63,682 | — | 56,722 | 2,550 | — | 59,272 | ||||||||||||||||||||||||||||||
Other intangible assets, net | — | 154,936 | 32,332 | — | 187,268 | — | 154,301 | 32,332 | — | 186,633 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | — | 441 | — | 441 | — | — | 462 | — | 462 | ||||||||||||||||||||||||||||||
Investment in subsidiaries | 270,236 | — | — | (270,236 | ) | — | 292,983 | — | — | (292,983 | ) | — | ||||||||||||||||||||||||||||
Other assets | — | 1,879 | 476 | — | 2,355 | — | 1,641 | 585 | — | 2,226 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
TOTAL | $ | 354,120 | $ | 430,758 | $ | 114,992 | $ | (352,332 | ) | $ | 547,538 | $ | 382,145 | $ | 437,512 | $ | 133,234 | $ | (382,145 | ) | $ | 570,746 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — | $ | 39,330 | $ | 4,456 | $ | — | $ | 43,786 | $ | — | $ | 56,906 | $ | 12,452 | $ | — | $ | 69,358 | ||||||||||||||||||||
Accrued expenses and other liabilities | — | 20,804 | 4,773 | — | 25,577 | — | 19,930 | 5,976 | — | 25,906 | ||||||||||||||||||||||||||||||
Accrued interest payable | 528 | — | — | — | 528 | 1,407 | — | — | — | 1,407 | ||||||||||||||||||||||||||||||
Income taxes payable | — | 623 | 928 | (1,551 | ) | — | 659 | 583 | 92 | — | 1,334 | |||||||||||||||||||||||||||||
Unearned revenues | — | 2,835 | 659 | — | 3,494 | — | 3,074 | 505 | — | 3,579 | ||||||||||||||||||||||||||||||
Deferred pension obligation | — | 6,863 | 41 | — | 6,904 | |||||||||||||||||||||||||||||||||||
Intercompany payable, net | — | 75,929 | 17,826 | (93,755 | ) | — | — | 76,594 | 18,999 | (95,593 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current liabilities | 528 | 146,384 | 28,683 | (95,306 | ) | 80,289 | 2,066 | 157,087 | 38,024 | (95,593 | ) | 101,584 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Senior subordinated notes payable, net | 49,637 | — | — | — | 49,637 | 49,744 | — | — | — | 49,744 | ||||||||||||||||||||||||||||||
Senior credit facility | — | 37,837 | — | — | 37,837 | |||||||||||||||||||||||||||||||||||
Real estate mortgages | — | 20,668 | — | — | 20,668 | — | 33,153 | — | — | 33,153 | ||||||||||||||||||||||||||||||
Unearned revenues and other long-term liabilities | — | 18,728 | 189 | — | 18,917 | — | 19,074 | 284 | — | 19,358 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 34,539 | — | 1,696 | 36,235 | — | 36,572 | — | — | 36,572 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total long-term liabilities | 49,637 | 111,772 | 189 | 1,696 | 163,294 | 49,744 | 88,799 | 284 | — | 138,827 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 50,165 | 258,156 | 28,872 | (93,610 | ) | 243,583 | 51,810 | 245,886 | 38,308 | (95,593 | ) | 240,411 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total equity | 303,955 | 172,602 | 86,120 | (258,722 | ) | 303,955 | 330,335 | 191,626 | 94,926 | (286,552 | ) | 330,335 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
TOTAL | $ | 354,120 | $ | 430,758 | $ | 114,992 | $ | (352,332 | ) | $ | 547,538 | $ | 382,145 | $ | 437,512 | $ | 133,234 | $ | (382,145 | ) | $ | 570,746 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF JANUARY 30, 201628, 2017
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 775 | $ | 31,127 | $ | — | $ | 31,902 | $ | — | $ | 2,578 | $ | 28,117 | $ | — | $ | 30,695 | ||||||||||||||||||||
Investment, at fair value | — | — | 9,782 | — | 9,782 | — | — | 10,921 | — | 10,921 | ||||||||||||||||||||||||||||||
Accounts receivable, net | — | 106,018 | 26,048 | — | 132,066 | — | 116,874 | 23,366 | — | 140,240 | ||||||||||||||||||||||||||||||
Intercompany receivable, net | 74,091 | — | — | (74,091 | ) | — | 85,028 | — | — | (85,028 | ) | — | ||||||||||||||||||||||||||||
Inventories | — | 155,703 | 27,047 | — | 182,750 | — | 126,557 | 24,694 | — | 151,251 | ||||||||||||||||||||||||||||||
Prepaid income taxes | 1,017 | — | — | 801 | 1,818 | 549 | — | 25 | 1,073 | 1,647 | ||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | — | 7,426 | 1,035 | — | 8,461 | — | 5,584 | 878 | — | 6,462 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current assets | 75,108 | 269,922 | 95,039 | (73,290 | ) | 366,779 | 85,577 | 251,593 | 88,001 | (83,955 | ) | 341,216 | ||||||||||||||||||||||||||||
Property and equipment, net | — | 61,260 | 2,648 | — | 63,908 | — | 59,651 | 2,184 | — | 61,835 | ||||||||||||||||||||||||||||||
Other intangible assets, net | — | 155,587 | 32,332 | — | 187,919 | — | 154,719 | 32,332 | — | 187,051 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | — | 334 | — | 334 | |||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 267,422 | — | — | (267,422 | ) | — | 279,233 | — | — | (279,233 | ) | — | ||||||||||||||||||||||||||||
Deferred income taxes | — | — | 442 | — | 442 | |||||||||||||||||||||||||||||||||||
Other assets | — | 2,150 | 777 | — | 2,927 | — | 1,797 | 472 | — | 2,269 | ||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
TOTAL | $ | 342,530 | $ | 488,919 | $ | 131,238 | $ | (340,712 | ) | $ | 621,975 | $ | 364,810 | $ | 467,760 | $ | 123,323 | $ | (363,188 | ) | $ | 592,705 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — | $ | 89,961 | $ | 13,723 | $ | — | $ | 103,684 | $ | — | $ | 79,600 | $ | 13,243 | $ | — | $ | 92,843 | ||||||||||||||||||||
Accrued expenses and other liabilities | — | 21,524 | 4,973 | — | 26,497 | — | 15,543 | 5,318 | — | 20,861 | ||||||||||||||||||||||||||||||
Accrued interest payable | 1,521 | — | — | — | 1,521 | 1,450 | — | — | — | 1,450 | ||||||||||||||||||||||||||||||
Income taxes payable | — | 623 | 272 | (895 | ) | — | — | 623 | — | (623 | ) | — | ||||||||||||||||||||||||||||
Unearned revenues | — | 2,952 | 1,261 | — | 4,213 | — | 2,353 | 357 | — | 2,710 | ||||||||||||||||||||||||||||||
Deferred pension obligation | — | 12,025 | 82 | — | 12,107 | |||||||||||||||||||||||||||||||||||
Intercompany payable, net | — | 60,384 | 21,449 | (81,833 | ) | — | — | 77,398 | 15,614 | (93,012 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current liabilities | 1,521 | 187,469 | 41,760 | (82,728 | ) | 148,022 | 1,450 | 175,517 | 34,532 | (93,635 | ) | 117,864 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Senior subordinated notes payable, net | 49,528 | — | — | — | 49,528 | 49,673 | — | — | — | 49,673 | ||||||||||||||||||||||||||||||
Senior credit facility | — | 61,758 | — | — | 61,758 | — | 22,504 | — | — | 22,504 | ||||||||||||||||||||||||||||||
Real estate mortgages | — | 21,318 | — | — | 21,318 | — | 33,591 | — | — | 33,591 | ||||||||||||||||||||||||||||||
Unearned revenues and other long-term liabilities | — | 14,608 | 245 | — | 14,853 | — | 17,945 | 326 | — | 18,271 | ||||||||||||||||||||||||||||||
Deferred income taxes | — | 33,319 | — | 1,696 | 35,015 | — | 35,419 | — | 1,696 | 37,115 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total long-term liabilities | 49,528 | 131,003 | 245 | 1,696 | 182,472 | 49,673 | 109,459 | 326 | 1,696 | 161,154 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 51,049 | 318,472 | 42,005 | (81,032 | ) | 330,494 | 51,123 | 284,976 | 34,858 | (91,939 | ) | 279,018 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total equity | 291,481 | 170,447 | 89,233 | (259,680 | ) | 291,481 | 313,687 | 182,784 | 88,465 | (271,249 | ) | 313,687 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
TOTAL | $ | 342,530 | $ | 488,919 | $ | 131,238 | $ | (340,712 | ) | $ | 621,975 | $ | 364,810 | $ | 467,760 | $ | 123,323 | $ | (363,188 | ) | $ | 592,705 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE THREE MONTHS ENDED OCTOBERJULY 29, 2017
(amounts in thousands)
Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 172,708 | $ | 25,686 | $ | — | $ | 198,394 | ||||||||||
Royalty income | — | 5,108 | 3,107 | — | 8,215 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 177,816 | 28,793 | — | 206,609 | |||||||||||||||
Cost of sales | — | 113,243 | 16,886 | — | 130,129 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 64,573 | 11,907 | — | 76,480 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 59,259 | 9,153 | — | 68,412 | |||||||||||||||
Depreciation and amortization | — | 3,252 | 244 | — | 3,496 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 62,511 | 9,397 | — | 71,908 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 2,062 | 2,510 | — | 4,572 | |||||||||||||||
Interest expense (income) | — | 1,920 | (51 | ) | — | 1,869 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income before income taxes | — | 142 | 2,561 | — | 2,703 | |||||||||||||||
Income tax provision | — | 1,322 | 402 | — | 1,724 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 979 | — | — | (979 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 979 | (1,180 | ) | 2,159 | (979 | ) | 979 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income | 1,217 | — | 1,217 | (1,217 | ) | 1,217 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | $ | 2,196 | $ | (1,180 | ) | $ | 3,376 | $ | (2,196 | ) | $ | 2,196 | ||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS ) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 30, 2016
(amounts in thousands)
Non- | ||||||||||||||||||||||||||||||||||||||||
Parent Only | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | — | $ | 162,185 | $ | 23,113 | $ | — | $ | 185,298 | $ | — | $ | 169,237 | $ | 24,104 | $ | — | $ | 193,341 | ||||||||||||||||||||
Royalty income | — | 5,230 | 3,431 | — | 8,661 | — | 5,061 | 3,251 | — | 8,312 | ||||||||||||||||||||||||||||||
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|
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|
| |||||||||||||||||||||||||||||||
Total revenues | — | 167,415 | 26,544 | — | 193,959 | — | 174,298 | 27,355 | — | 201,653 | ||||||||||||||||||||||||||||||
Cost of sales | — | 107,489 | 15,367 | — | 122,856 | — | 111,729 | 16,093 | — | 127,822 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gross profit | — | 59,926 | 11,177 | — | 71,103 | — | 62,569 | 11,262 | — | 73,831 | ||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | — | 63,475 | 9,371 | — | 72,846 | — | 62,361 | 10,293 | — | 72,654 | ||||||||||||||||||||||||||||||
Depreciation and amortization | — | 3,220 | 314 | — | 3,534 | — | 3,276 | 440 | — | 3,716 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total operating expenses | — | 66,695 | 9,685 | — | 76,380 | — | 65,637 | 10,733 | — | 76,370 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Operating (loss) income | — | (6,769 | ) | 1,492 | — | (5,277 | ) | — | (3,068 | ) | 529 | — | (2,539 | ) | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Interest expense (income) | — | 1,756 | (18 | ) | — | 1,738 | — | 1,901 | (12 | ) | — | 1,889 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net (loss) income before income taxes | — | (8,525 | ) | 1,510 | — | (7,015 | ) | — | (4,969 | ) | 541 | — | (4,428 | ) | ||||||||||||||||||||||||||
Income tax (benefit) provision | — | (2,189 | ) | 339 | — | (1,850 | ) | — | (1,441 | ) | 578 | — | (863 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries, net | (5,165 | ) | — | — | 5,165 | — | (3,565 | ) | — | — | 3,565 | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net (loss) income | (5,165 | ) | (6,336 | ) | 1,171 | 5,165 | (5,165 | ) | ||||||||||||||||||||||||||||||||
Net loss | (3,565 | ) | (3,528 | ) | (37 | ) | 3,565 | (3,565 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Other comprehensive income (loss) | 6,045 | 8,142 | (2,097 | ) | (6,045 | ) | 6,045 | |||||||||||||||||||||||||||||||||
Other comprehensive (loss) income | (2,928 | ) | 155 | (3,083 | ) | 2,928 | (2,928 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | 880 | $ | 1,806 | $ | (926 | ) | $ | (880 | ) | $ | 880 | ||||||||||||||||||||||||||||
Comprehensive loss | $ | (6,493 | ) | $ | (3,373 | ) | $ | (3,120 | ) | $ | 6,493 | $ | (6,493 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREESIX MONTHS ENDED OCTOBER 31, 2015JULY 29, 2017
(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 | — | 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 INCOME (LOSS) (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 29, 2016
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net sales | $ | — | $ | 556,327 | $ | 73,187 | $ | — | $ | 629,514 | ||||||||||
Royalty income | — | 17,505 | 9,887 | — | 27,392 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | — | 573,832 | 83,074 | — | 656,906 | |||||||||||||||
Cost of sales | — | 368,194 | 48,694 | — | 416,888 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 205,638 | 34,380 | — | 240,018 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses | — | 187,269 | 28,165 | — | 215,434 | |||||||||||||||
Depreciation and amortization | — | 9,687 | 1,030 | — | 10,717 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating expenses | — | 196,956 | 29,195 | — | 226,151 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 8,682 | 5,185 | — | 13,867 | |||||||||||||||
Interest expense (income) | — | 5,691 | (39 | ) | — | 5,652 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income before income taxes | — | 2,991 | 5,224 | — | 8,215 | |||||||||||||||
Income tax provision | — | 836 | 1,859 | — | 2,695 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity in earnings of subsidiaries, net | 5,520 | — | — | (5,520 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 5,520 | 2,155 | 3,365 | (5,520 | ) | 5,520 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss) | 4,942 | 8,452 | (3,510 | ) | (4,942 | ) | 4,942 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | $ | 10,462 | $ | 10,607 | $ | (145 | ) | $ | (10,462 | ) | $ | 10,462 | ||||||||
|
|
|
|
|
|
|
|
|
|
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 (income) Net income before income taxes Income tax provision Equity in earnings of subsidiaries, net Net income Other comprehensive income Comprehensive income Parent Only Guarantors Non-Guarantors Eliminations Consolidated $ — $ 379,394 $ 52,823 $ — $ 432,217 — 10,494 5,988 — 16,482 — 389,888 58,811 — 448,699 — 247,170 33,961 — 281,131 — 142,718 24,850 — 167,568 — 120,858 18,753 — 139,611 — 6,462 502 — 6,964 — 127,320 19,255 — 146,575 — 15,398 5,595 — 20,993 — 3,909 (84 ) — 3,825 — 11,489 5,679 — 17,168 — 2,647 771 — 3,418 13,750 — — (13,750 ) — 13,750 8,842 4,908 (13,750 ) 13,750 1,140 — 1,140 (1,140 ) 1,140 $ 14,890 $ 8,842 $ 6,048 $ (14,890 ) $ 14,890
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE NINESIX MONTHS ENDED OCTOBER 31, 2015JULY 30, 2016
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | — | $ | 586,515 | $ | 72,827 | $ | — | $ | 659,342 | $ | — | $ | 394,142 | $ | 50,074 | $ | — | $ | 444,216 | ||||||||||||||||||||
Royalty income | — | 15,693 | 10,117 | — | 25,810 | — | 12,275 | 6,456 | — | 18,731 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total revenues | — | 602,208 | 82,944 | — | 685,152 | — | 406,417 | 56,530 | — | 462,947 | ||||||||||||||||||||||||||||||
Cost of sales | — | 399,813 | 46,002 | — | 445,815 | — | 260,705 | 33,327 | — | 294,032 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gross profit | — | 202,395 | 36,942 | — | 239,337 | — | 145,712 | 23,203 | — | 168,915 | ||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | — | 172,690 | 30,041 | — | 202,731 | — | 123,794 | 18,794 | — | 142,588 | ||||||||||||||||||||||||||||||
Depreciation and amortization | — | 9,258 | 893 | — | 10,151 | — | 6,467 | 716 | — | 7,183 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total operating expenses | — | 181,948 | 30,934 | — | 212,882 | — | 130,261 | 19,510 | — | 149,771 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Loss on sale of long-lived assets | — | (697 | ) | — | — | (697 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Operating income | — | 19,750 | 6,008 | — | 25,758 | — | 15,451 | 3,693 | — | 19,144 | ||||||||||||||||||||||||||||||
Costs of early extinguishment of debt | — | 5,121 | — | — | 5,121 | |||||||||||||||||||||||||||||||||||
Interest expense | — | 7,363 | 60 | — | 7,423 | |||||||||||||||||||||||||||||||||||
Interest expense (income) | — | 3,935 | (21 | ) | — | 3,914 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income before income taxes | — | 7,266 | 5,948 | — | 13,214 | — | 11,516 | 3,714 | — | 15,230 | ||||||||||||||||||||||||||||||
Income tax provision | — | 908 | 1,903 | — | 2,811 | — | 3,025 | 1,520 | — | 4,545 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries, net | 10,403 | — | — | (10,403 | ) | — | 10,685 | — | — | (10,685 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income | 10,403 | 6,358 | 4,045 | (10,403 | ) | 10,403 | 10,685 | 8,491 | 2,194 | (10,685 | ) | 10,685 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Other comprehensive income | 879 | 405 | 474 | (879 | ) | 879 | ||||||||||||||||||||||||||||||||||
Other comprehensive (loss) income | (1,103 | ) | 310 | (1,413 | ) | 1,103 | (1,103 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income | $ | 11,282 | $ | 6,763 | $ | 4,519 | $ | (11,282 | ) | $ | 11,282 | $ | 9,582 | $ | 8,801 | $ | 781 | $ | (9,582 | ) | $ | 9,582 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINESIX MONTHS ENDED OCTOBERJULY 29, 20162017
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES: | $ | 1,155 | $ | 32,968 | $ | 5,824 | $ | (2,706 | ) | $ | 37,241 | $ | 1,236 | $ | 35,631 | $ | 3,453 | $ | — | $ | 40,320 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Purchase of property and equipment | — | (8,292 | ) | (1,042 | ) | — | (9,334 | ) | — | (3,121 | ) | (780 | ) | — | (3,901 | ) | ||||||||||||||||||||||||
Purchase of investments | — | — | (12,467 | ) | — | (12,467 | ) | — | — | (28,124 | ) | — | (28,124 | ) | ||||||||||||||||||||||||||
Proceeds from investment maturities | — | — | 9,341 | — | 9,341 | |||||||||||||||||||||||||||||||||||
Proceeds from note receivable | — | — | 250 | — | 250 | |||||||||||||||||||||||||||||||||||
Proceeds from investments maturities | — | — | 10,136 | — | 10,136 | |||||||||||||||||||||||||||||||||||
Intercompany transactions | 1,203 | — | — | (1,203 | ) | — | 246 | — | — | (246 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net cash provided by (used in) investing activities | 1,203 | (8,292 | ) | (3,918 | ) | (1,203 | ) | (12,210 | ) | 246 | (3,121 | ) | (18,768 | ) | (246 | ) | (21,889 | ) | ||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Borrowings from senior credit facility | — | 250,012 | — | — | 250,012 | — | 141,588 | — | — | 141,588 | ||||||||||||||||||||||||||||||
Payments on senior credit facility | — | (273,933 | ) | — | — | (273,933 | ) | — | (164,092 | ) | — | — | (164,092 | ) | ||||||||||||||||||||||||||
Payments on real estate mortgages | — | (634 | ) | — | — | (634 | ) | — | (435 | ) | — | — | (435 | ) | ||||||||||||||||||||||||||
Purchase of treasury shares | (937 | ) | — | — | — | (937 | ) | |||||||||||||||||||||||||||||||||
Payments for employee taxes on shares withheld | (753 | ) | — | — | (753 | ) | ||||||||||||||||||||||||||||||||||
Payments on capital leases | — | (196 | ) | — | — | (196 | ) | — | (140 | ) | — | — | (140 | ) | ||||||||||||||||||||||||||
Dividends paid to stockholder | — | — | (2,706 | ) | 2,706 | — | ||||||||||||||||||||||||||||||||||
Purchase of treasury stock | (2,151 | ) | — | — | — | (2,151 | ) | |||||||||||||||||||||||||||||||||
Proceeds from exercise of stock options | 5 | — | — | — | 5 | 23 | — | — | — | 23 | ||||||||||||||||||||||||||||||
Intercompany transactions | — | 3,539 | (4,530 | ) | 991 | — | (3,027 | ) | 3,349 | (322 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net cash used in financing activities | (2,146 | ) | (21,212 | ) | (7,236 | ) | 3,697 | (26,897 | ) | |||||||||||||||||||||||||||||||
Net cash (used in) provided by financing activities | (914 | ) | (26,859 | ) | 3,349 | (322 | ) | (24,746 | ) | |||||||||||||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (212 | ) | — | (212 | ) | 212 | (212 | ) | (568 | ) | — | (568 | ) | 568 | (568 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — | 3,464 | (5,542 | ) | — | (2,078 | ) | |||||||||||||||||||||||||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — | 5,651 | (12,534 | ) | — | (6,883 | ) | |||||||||||||||||||||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | 775 | 31,127 | — | 31,902 | — | 2,578 | 28,117 | — | 30,695 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 4,239 | $ | 25,585 | $ | — | $ | 29,824 | $ | — | $ | 8,229 | $ | 15,583 | $ | — | $ | 23,812 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINESIX MONTHS ENDED OCTOBER 31, 2015JULY 30, 2016
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES: | $ | 382 | $ | 15,691 | $ | 2,565 | $ | — | $ | 18,638 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (8,913 | ) | (924 | ) | — | (9,837 | ) | ||||||||||||
Purchase of investments | — | — | (8,230 | ) | — | (8,230 | ) | |||||||||||||
Proceeds from investment maturities | — | — | 17,845 | — | 17,845 | |||||||||||||||
Proceeds on sale of intangible assets | — | 2,500 | — | — | 2,500 | |||||||||||||||
Proceeds from note receivable | — | — | 250 | — | 250 | |||||||||||||||
Intercompany transactions | 97,610 | — | — | (97,610 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) investing activities | 97,610 | (6,413 | ) | 8,941 | (97,610 | ) | 2,528 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Payments on senior subordinated notes | (100,000 | ) | — | — | — | (100,000 | ) | |||||||||||||
Borrowings from senior credit facility | — | 330,644 | — | — | 330,644 | |||||||||||||||
Payments on senior credit facility | — | (270,023 | ) | — | — | (270,023 | ) | |||||||||||||
Payments on real estate mortgages | — | (615 | ) | — | — | (615 | ) | |||||||||||||
Payments on capital leases | — | (137 | ) | — | — | (137 | ) | |||||||||||||
Deferred financing fees | — | (574 | ) | — | — | (574 | ) | |||||||||||||
Proceeds from exercise of stock options | 1,408 | — | — | — | 1,408 | |||||||||||||||
Intercompany transactions | — | (96,096 | ) | (2,114 | ) | 98,210 | — | |||||||||||||
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Net cash used in financing activities | (98,592 | ) | (36,801 | ) | (2,114 | ) | 98,210 | (39,297 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | 600 | — | 600 | (600 | ) | 600 | ||||||||||||||
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — | (27,523 | ) | 9,992 | — | (17,531 | ) | |||||||||||||
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 | $ | — | $ | 2,532 | $ | 23,484 | $ | — | $ | 26,016 | ||||||||||
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23. SUBSEQUENT EVENTS
In November 2016, the Company paid off its then existing real estate mortgage loan and refinanced its main administrative office, warehouse and distribution facility in Miami with a $21.7 million mortgage loan. The loan is due on November 22, 2026. The interest rate is 3.715% per annum. Monthly payments of principal and interest approximate $112,000, based on a 25-year amortization with the outstanding principal due at maturity.
In November 2016, the Company refinanced its Tampa facility with a $13.2 million mortgage loan. The loan is due on November 22, 2026. The interest rate is 3.715% per annum. Monthly payments of principal and interest approximate $68,000, based on a 25-year amortization with the outstanding principal due at maturity.
Additionally, the Company may use some of the excess funds generated from the mortgage loans described above to pay down the senior credit facility and repurchase certain of its outstanding senior subordinated notes.
Parent Only | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES: | $ | 4,543 | $ | 29,241 | $ | 4,802 | $ | (2,706 | ) | $ | 35,880 | |||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property and equipment | — | (5,854 | ) | (755 | ) | — | (6,609 | ) | ||||||||||||
Purchase of investments | — | — | (9,039 | ) | — | (9,039 | ) | |||||||||||||
Proceeds from investments maturities | — | — | 5,205 | — | 5,205 | |||||||||||||||
Intercompany transactions | (4,477 | ) | — | — | 4,477 | — | ||||||||||||||
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Net cash used in investing activities | (4,477 | ) | (5,854 | ) | (4,589 | ) | 4,477 | (10,443 | ) | |||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Borrowings from senior credit facility | — | 179,380 | — | — | 179,380 | |||||||||||||||
Payments on senior credit facility | — | (207,273 | ) | — | — | (207,273 | ) | |||||||||||||
Payments on real estate mortgages | — | (423 | ) | — | — | (423 | ) | |||||||||||||
Payments for employee taxes on shares withheld | — | (946 | ) | — | — | (946 | ) | |||||||||||||
Payments on capital leases | — | (129 | ) | — | — | (129 | ) | |||||||||||||
Dividends paid to stockholder | — | — | (2,706 | ) | 2,706 | — | ||||||||||||||
Proceeds from exercise of stock options | 5 | — | — | — | 5 | |||||||||||||||
Intercompany transactions | — | 9,178 | (4,630 | ) | (4,548 | ) | — | |||||||||||||
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Net cash provided by (used in) financing activities | 5 | (20,213 | ) | (7,336 | ) | (1,842 | ) | (29,386 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | (71 | ) | — | (71 | ) | 71 | (71 | ) | ||||||||||||
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — | 3,174 | (7,194 | ) | — | (4,020 | ) | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | 775 | 31,127 | — | 31,902 | |||||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 3,949 | $ | 23,933 | $ | — | $ | 27,882 | ||||||||||
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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 30, 2016,28, 2017, filed with the Securities and Exchange Commission on April 14, 2016.10, 2017.
Forward–Looking Statements
We caution readers that the forward-looking statements (statements which are not historical facts) in this report includes “forward-looking statements” as that term is used inrelease are made pursuant to the safe harbor provisions of 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,“proforma,” “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:include:
You
Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those risks and uncertainties detailed in ourPerry Ellis’ 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 30, 201628, 2017 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, 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 ninesix months ended OctoberJuly 29, 20162017 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 30, 2016.28, 2017.
Results of Operations
The following table sets forth, for the periods indicated, selected financial data expressed by segments and includes a reconciliation of EBITDA to operating income by segment, the most directly comparable GAAP financial measure:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
October 29, | October 31, | October 29, | October 31, | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | July 29, 2017 | July 30, 2016 | July 29, 2017 | July 30, 2016 | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Revenues by segment: | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 135,717 | $ | 141,512 | $ | 478,790 | $ | 490,453 | $ | 155,466 | $ | 145,148 | $ | 341,332 | $ | 343,073 | ||||||||||||||||
Women’s Sportswear | 28,676 | 33,421 | 85,301 | 102,126 | 19,718 | 24,136 | 49,457 | 56,625 | ||||||||||||||||||||||||
Direct-to-Consumer | 20,905 | 21,514 | 65,423 | 66,763 | 23,210 | 24,057 | 41,428 | 44,518 | ||||||||||||||||||||||||
Licensing | 8,661 | 8,992 | 27,392 | 25,810 | 8,215 | 8,312 | 16,482 | 18,731 | ||||||||||||||||||||||||
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Total revenues | $ | 193,959 | $ | 205,439 | $ | 656,906 | $ | 685,152 | $ | 206,609 | $ | 201,653 | $ | 448,699 | $ | 462,947 | ||||||||||||||||
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Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
October 29, 2016 | October 31, 2015 | October 29, 2016 | October 31, 2015 | |||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Reconciliation of operating (loss) income to EBITDA | ||||||||||||||||||||||||||||||||
Operating (loss) income by segment: | ||||||||||||||||||||||||||||||||
Reconciliation of operating income (loss) to EBITDA | July 29, 2017 | July 30, 2016 | July 29, 2017 | July 30, 2016 | ||||||||||||||||||||||||||||
Operating income (loss) by segment: | (in thousands) | |||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | (7,683 | ) | $ | 2,392 | $ | 6,834 | $ | 14,544 | $ | 3,869 | $ | (2,425 | ) | $ | 19,384 | $ | 14,517 | ||||||||||||||
Women’s Sportswear | (1,289 | ) | (109 | ) | (4,746 | ) | 222 | (3,409 | ) | (3,106 | ) | (4,378 | ) | (3,457 | ) | |||||||||||||||||
Direct-to-Consumer | (3,370 | ) | (4,038 | ) | (9,675 | ) | (8,051 | ) | (1,960 | ) | (2,933 | ) | (6,061 | ) | (6,305 | ) | ||||||||||||||||
Licensing | 7,065 | 6,798 | 21,454 | 19,043 | 6,072 | 5,925 | 12,048 | 14,389 | ||||||||||||||||||||||||
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Total operating (loss) income | $ | (5,277 | ) | $ | 5,043 | $ | 13,867 | $ | 25,758 | |||||||||||||||||||||||
Total operating income (loss) | $ | 4,572 | $ | (2,539 | ) | $ | 20,993 | $ | 19,144 | |||||||||||||||||||||||
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Depreciation and amortization | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | 1,814 | $ | 1,771 | $ | 5,717 | $ | 5,509 | $ | 1,786 | $ | 2,006 | $ | 3,637 | $ | 3,903 | ||||||||||||||||
Women’s Sportswear | 729 | 589 | 2,107 | 1,655 | 866 | 764 | 1,661 | 1,378 | ||||||||||||||||||||||||
Direct-to-Consumer | 932 | 976 | 2,717 | 2,851 | 784 | 889 | 1,550 | 1,785 | ||||||||||||||||||||||||
Licensing | 59 | 47 | 176 | 136 | 60 | 57 | 116 | 117 | ||||||||||||||||||||||||
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Total depreciation and amortization | $ | 3,534 | $ | 3,383 | $ | 10,717 | $ | 10,151 | $ | 3,496 | $ | 3,716 | $ | 6,964 | $ | 7,183 | ||||||||||||||||
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EBITDA by segment: | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | $ | (5,869 | ) | $ | 4,163 | $ | 12,551 | $ | 20,053 | $ | 5,655 | $ | (419 | ) | $ | 23,021 | $ | 18,420 | ||||||||||||||
Women’s Sportswear | (560 | ) | 480 | (2,639 | ) | 1,877 | (2,543 | ) | (2,342 | ) | (2,717 | ) | (2,079 | ) | ||||||||||||||||||
Direct-to-Consumer | (2,438 | ) | (3,062 | ) | (6,958 | ) | (5,200 | ) | (1,176 | ) | (2,044 | ) | (4,511 | ) | (4,520 | ) | ||||||||||||||||
Licensing | 7,124 | 6,845 | 21,630 | 19,179 | 6,132 | 5,982 | 12,164 | 14,506 | ||||||||||||||||||||||||
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Total EBITDA | $ | (1,743 | ) | $ | 8,426 | $ | 24,584 | $ | 35,909 | $ | 8,068 | $ | 1,177 | $ | 27,957 | $ | 26,327 | |||||||||||||||
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EBITDA margin by segment | ||||||||||||||||||||||||||||||||
Men’s Sportswear and Swim | (4.3 | %) | 2.9 | % | 2.6 | % | 4.1 | % | 3.6 | % | (0.3 | %) | 6.7 | % | 5.4 | % | ||||||||||||||||
Women’s Sportswear | (2.0 | %) | 1.4 | % | (3.1 | %) | 1.8 | % | (12.9 | %) | (9.7 | %) | (5.5 | %) | (3.7 | %) | ||||||||||||||||
Direct-to-Consumer | (11.7 | %) | (14.2 | %) | (10.6 | %) | (7.8 | %) | (5.1 | %) | (8.5 | %) | (10.9 | %) | (10.2 | %) | ||||||||||||||||
Licensing | 82.3 | % | 76.1 | % | 79.0 | % | 74.3 | % | 74.6 | % | 72.0 | % | 73.8 | % | 77.4 | % | ||||||||||||||||
Total EBITDA margin | (0.9 | %) | 4.1 | % | 3.7 | % | 5.2 | % | 3.9 | % | 0.6 | % | 6.2 | % | 5.7 | % |
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 ninesix month periods ended OctoberJuly 29, 20162017 of the fiscal year ending January 28, 2017February 3, 2018 (“fiscal 2017”2018”) compared with the three and ninesix month periods ended October 31, 2015July 30, 2016 of the fiscal year ended January 30, 201628, 2017 (“fiscal 2016”2017”).
Results of Operations - Operations—three and ninesix months ended OctoberJuly 29, 20162017 compared to the three and ninesix months ended October 31, 2015.July 30, 2016.
Net salessales.. Men’s Sportswear and Swim net sales for the three months ended OctoberJuly 29, 20162017 were $135.7$155.5 million, a decreasean increase of $5.8$10.4 million, or 4.1%7.2%, from $141.5$145.1 million for the three months ended October 31, 2015.July 30, 2016. The net sales decreaseincrease was attributed primarily to business exitsstrong sell through rates throughout the spring season and the negative impact of foreign currency translation, partially offset by increasessome movement up in shipments that were originally anticipated for third quarter. Of particular strength were our core brands, specifically Perry Ellis, Golf lifestyleOriginal Penguin, Nike and golf apparel and Nike swim business.businesses.
Men’s Sportswear and Swim net sales for the ninesix months ended OctoberJuly 29, 20162017 were $478.8$341.3 million, a decrease of $11.7$1.8 million, or 2.4%0.5%, from $490.5$343.1 million for the ninesix months ended October 31, 2015.July 30, 2016. Although we had an increase in the second quarter, it was offset by our customer’s preference to receive product closer to their needs resulting in a shift in sales from the first half of the year to the second half. The net sales decrease was attributed primarily to exited brands coupled with the negative impact in our special markets programs and foreign currency conversions, partially offset by increases in our core Perry Ellis, and Original Penguin, collections, as well as our Golfgolf lifestyle apparel andbusiness, Nike swim, business.and other core global brands as described above.
Women’s Sportswear net sales for the three months ended OctoberJuly 29, 20162017 were $28.7$19.7 million, a decrease of $4.7$4.4 million, or 14.1%18.3%, from $33.4$24.1 million for the three months ended October 31, 2015.July 30, 2016. The net sales decrease was attributed primarily to softer replenishment business acrossplanned reductions as we continue to focus on re-launching the women’s market drivenLaundry brand, as well as, a shift in part byplanned sales from the impact of Hurricane Matthew for some of our east coast retail partners.second quarter to the third quarter.
Women’s Sportswear net sales for the ninesix months ended OctoberJuly 29, 20162017 were $85.3$49.5 million, a decrease of $16.8$7.1 million, or 16.5%12.5%, from $102.1$56.6 million for the ninesix months ended October 31, 2015.July 30, 2016. The net sales decrease was primarily due to planned reductions in Laundry as we work on the salere-launch of C&C Californiathe brand. The decrease was partially offset by increases in Rafaella driven by the prior year, planned decreases in special markets programs and softer replenishment business across the women’s market consistent with the reductions cited above.earlier timing of spring shipments.
Direct-to-Consumer net sales for the three months ended OctoberJuly 29, 20162017 were $20.9$23.2 million, a decrease of $0.6$0.9 million, or 2.8%3.7%, from $21.5$24.1 million for the three months ended October 31, 2015.July 30, 2016. The decrease was driven by five stores closing duringten store closings since the second quarter of fiscal 2017, partially offset by a comparable sales5% increase of 1%. We have experienced a significant decline in traffic and comparablee-commerce. Comparable same store sales forremained flat while comparable margins increased 4% due to strong consumer response to our retail locations that cater to higher level of tourist activity. These doors represent close to 45% of our total store count.product assortments.
Direct-to-Consumer net sales for the ninesix months ended OctoberJuly 29, 20162017 were $65.4$41.4 million, a decrease of $1.4$3.1 million, or 2.1%7.0%, from $66.8$44.5 million for the ninesix months ended October 31, 2015.July 30, 2016. The decrease was driven by relatively flata retail stores sales decline of 1.9% in comparable same store sales for the direct-to-consumer business, coupled with five netten fewer stores as discussed above.compared to the prior period.
Royalty income. Royalty income for the three months ended OctoberJuly 29, 20162017 was $8.7$8.2 million, a decrease of $0.3$0.1 million, or 3.3%,essentially flat, from $9.0$8.3 million for the three months ended October 31, 2015. TheJuly 30, 2016.
Royalty income for the six months ended July 29, 2017 was $16.5 million, a decrease in royaltyof $2.2 million, or 11.8%, from $18.7 million for the six months ended July 30, 2016. Royalty income wasdecreases were attributed to the transition of two of our licensed partnerspartners; one brought in-house and one to a new partnerships.
Royalty income for the nine months ended October 29, 2016 was $27.4 million, an increase of $1.6 million, or 6.2%, from $25.8 million for the nine months ended October 31, 2015. Royalty income increases were attributed to increases in our Perry Ellis and Original Penguin brands as well as the new licenses signed during this and last year, and from our continuing initiatives to upgrade our licensing partners, partially offset by the transition discussed above.partnership.
Gross profit.Gross profit was $71.1$76.5 million for the three months ended OctoberJuly 29, 2016, a decrease2017, an increase of $2.2$2.7 million, or 3.0%3.7%, from $73.3$73.8 million for the three months ended October 31, 2015.July 30, 2016. This increase is attributed to a strong sales performance by our core brands coupled with strong inventory management.
Gross profit was $167.6 million for the six months ended July 29, 2017, a decrease of $1.3 million, or 0.8%, from $168.9 million for the six months ended July 30, 2016. This decrease is attributed to the sales decrease from our brand exits, foreign currency translations and softer replenishment business across the women’s marketreductions described above.
Gross profit was $240.0 million for the nine months ended October 29, 2016, an increase of $0.7 million, or 0.3%, from $239.3 million for the nine months ended October 31, 2015. This increase is attributed to the sales mix composition, our increase in royalty income,above and the factors described within the gross profit margin section below; partially offset by sales decrease from our brand exits, softer special market programs and softer replenishment business across the women’s market described above.below.
Gross profit margin. As a percentage of total revenue, gross profit margins were 36.7%37.0% for the three months ended OctoberJuly 29, 2016,2017, as compared to 35.7%36.6% for the three months ended October 31, 2015 which representsJuly 30, 2016, an expansion of 10040 basis points. The expansion was driven by solid performance across our core brandsstronger product margins in our wholesale business, as well as stronger metrics in ourmen’s collection, golf apparel, Nike and direct-to-consumer business.businesses.
For the ninesix months ended OctoberJuly 29, 2016,2017, gross profit margins were 36.5%37.3% as a percentage of total revenue as compared to 34.9%36.5% for the ninesix months ended October 31, 2015,July 30, 2016, an increaseexpansion of 16080 basis points. The increase is attributed to stronger product marginsthe disciplined management of inventory across all channels, increased sales of higher margin core brands and reduced markdowns inefficiencies achieved within our men’s collection, Golf apparelsupply chain infrastructure. Additionally, our direct-to-consumer gross profit margin increased due to improved pricing strategies and Nike businesses as well as an increase in royalty income and reduced cost realized through consolidation in our foreign buying offices and freight services.a move away from highly promotional events.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended OctoberJuly 29, 20162017 were $72.8$68.4 million, an increasea decrease of $7.9$4.3 million, or 12.2%5.9%, from $64.9$72.7 million for the three months ended October 31, 2015.July 30, 2016. The increasedecrease was attributed primarily to reduced employee expenses resulting from our continued focus on our core infrastructure. Additionally, during three months ended July 30, 2016, we had a required acceleration of $8.3 million associated withcompensation costs relating to the terminationnew contract for our executive chairman, which was not repeated in the comparable period of our defined pension plan offset by savings from the streamlining and consolidations of our operations.2017.
Selling, general and administrative expenses for the ninesix months ended OctoberJuly 29, 20162017 were $215.4$139.6 million, an increasea decrease of $12.7$3.0 million, or 6.3%2.1%, from $202.7$142.6 million for the ninesix months ended October 31, 2015.July 30, 2016. The increase isdecrease was attributed primarily to expenses associated with the termination of our defined pension plan, as described above, slightly higher incentive compensation accruals, severance costs and the acceleration of executive compensation costs, partially offset by reduced costsemployee expenses resulting from our continued focus on theour core infrastructure. See footnote 21infrastructure, and during three months ended July 30, 2016, we had a required acceleration of compensation costs relating to the unaudited condensed consolidated financial statementsnew contract for further information regarding the acceleration ofour executive compensation costs.chairman.
EBITDA. Men’s Sportswear and Swim EBITDA margin for the three months ended OctoberJuly 29, 2016, decreased 7202017 increased 390 basis points to (4.3%),3.6% from 2.9%(0.3%) for the three months ended October 31, 2015.July 30, 2016. The EBITDA margin was unfavorablyfavorably impacted by a decrease in net salessourcing efficiencies and a settlement charge related to the terminationstrong performance of our defined benefit plan in the amount of $8.3 million.core brands, specifically Perry Ellis, Original Penguin, Nike and golf apparel businesses.
Men’s Sportswear and Swim EBITDA margin for the ninesix months ended OctoberJuly 29, 2016, decreased 1502017 increased 130 basis points to 2.6%6.7%, from 4.1%5.4% for the ninesix months ended October 31, 2015.July 30, 2016. The EBITDA margin was unfavorablyfavorably impacted by a settlement charge related tosourcing efficiencies and the terminationstrong sales performance of our defined benefit plan in the amount of $8.3 million, partially offset by the increase in gross profitcore brands, specifically Perry Ellis, Original Penguin, Nike and margins in our men’s collection, Golf lifestylegolf apparel and Nike businesses.
Women’s Sportswear EBITDA margin for the three months ended OctoberJuly 29, 20162017 decreased 340320 basis points to (2.0%(12.9%) from 1.4%(9.7%) for the three months ended October 31, 2015. July 30, 2016. The EBITDA margin was unfavorably impacted by planned reductions and shifts in sales as discussed above.
Women’s Sportswear EBITDA margin for the ninesix months ended OctoberJuly 29, 20162017 decreased 490180 basis points to (3.1%(5.5%) from 1.8%(3.7%) for the ninesix months ended October 31, 2015.July 30, 2016. The EBITDA margin was unfavorably impacted by the exit of C&C California, planned decreasesdecrease in special markets programs and softer replenishment business across the women’s market.net sales described above. As a result of these factorsthis decrease in revenue, we were not able to realize favorable leverage in selling, general and administrative expenses.
Direct-to-Consumer EBITDA margin for the three months ended OctoberJuly 29, 2016,2017 increased 250340 basis points to (11.7%(5.1%), from (14.2%(8.5%) for the three months ended October 31, 2015. This increaseJuly 30, 2016. The EBITDA margin was attributedfavorably impacted by the product sales mix as we focus to expansion in gross margin and tighter overhead spending. Because of these factors, we were able to realize favorable leverage.be less dependent on everyday promotions.
Direct-to-Consumer EBITDA margin for the ninesix months ended OctoberJuly 29, 20162017 decreased 28070 basis points to (10.6%(10.9%), from (7.8%(10.2%) for the ninesix months ended October 31, 2015.July 30, 2016. The EBITDA margin was unfavorably impacted by the closing of a net of fivedecrease in revenue from our stores, as described above. Additionally, selling, general and 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 OctoberJuly 29, 2016,2017 increased 620260 basis points to 82.3%74.6%, from 76.1%72.0% for the three months ended October 31, 2015.July 30, 2016. The increase is primarily due to a decreaseEBITDA margin was favorably impacted by reductions in the direct costsselling, general and administrative expenses associated with the licensing segment.
Licensing EBITDA margin for the ninesix months ended OctoberJuly 29, 2016, increased 4702017 decreased 360 basis points to 79.0%73.8%, from 74.3%77.4% for the ninesix months ended October 31, 2015.July 30, 2016. The EBITDA margin was favorablyunfavorably impacted by the increasedecrease in royalty income as described above, and a decrease in the direct costs associated with the licensing segment. Also, as described below, during the nine months ended October 31, 2015, we had a loss on the sale of the C&C California brand tradename, which was the primary reason for the lower EBITDA margin in the first quarter of fiscal 2016.above.
Depreciation and amortization. Depreciation and amortization for the three months ended OctoberJuly 29, 2016,2017, was $3.5 million, an increasea decrease of $0.1$0.2 million, or 2.9%,5.4% from $3.4$3.7 million for the three months ended October 31, 2015. July 30, 2016. The decrease is primarily reflected in the direct-to-consumer segment as a result of ten store closures since the second half of fiscal 2017.
Depreciation and amortization for the ninesix months ended OctoberJuly 29, 2016,2017, was $10.7$7.0 million, an increasea decrease of $0.5$0.2 million, or 4.9%2.8%, from $10.2$7.2 million for the ninesix months ended October 31, 2015.July 30, 2016. The increasedecrease is attributed to depreciation related to our increased capital expenditures, primarily reflected in the direct-to-consumer segment and leasehold improvements made during fiscal 2017 and 2016.
Loss 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. Asas a result of this transaction, we recorded a lossten store closures since the second half of ($0.7) million in the licensing segment.
Cost on early extinguishment of debt. On April 6, 2015, we called for partial redemption of $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.fiscal 2017.
Interest expense. Interest expense for the three months ended OctoberJuly 29, 2017 and the three months ended July 30, 2016 remained flat at $1.9 million. Interest expense for the six months ended July 29, 2017 was $1.7$3.8 million, a decrease of $0.2$0.1 million, or 10.5%2.6%, from $1.9$3.9 million for the threesix months ended October 31, 2015. Interest expense for the nine months ended October 29, 2016, was $5.7 million, a decrease of $1.7 million, or 23.0%, from $7.4 million for the nine months ended October 31, 2015. TheJuly 30, 2016. This decrease was primarily attributableattributed to a decrease in interest resulting from the partial redemption of $100 million of our senior subordinated notes during the second quarter of fiscal 2016 as well as a lower average amount borrowed on our credit facility as compared to the prior year period.
Income taxestaxes.. The income tax benefitexpense for the three months ended OctoberJuly 29, 2016,2017, was $1.9$1.7 million, a decreasean increase of $2.8$2.6 million, as compared to an expensea tax benefit of $0.9 million for the three months ended October 31, 2015.July 30, 2016. For the three months ended OctoberJuly 29, 2016,2017, our effective tax rate was 26.4%63.8% as compared to 28.8%19.5% for the three months ended October 31, 2015.July 30, 2016. This increase is attributed to the net impact of the increase in the reserve for uncertain tax positions associated with our Internal Revenue Service examination in the amount of $1 million, as well as, 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. The income tax provisionexpense for the ninesix months ended OctoberJuly 29, 2016,2017, was $2.7$3.4 million, a decrease of $0.1$1.1 million, as compared to $2.8$4.5 million for the ninesix months ended October 31, 2015.July 30, 2016. For the ninesix months ended OctoberJuly 29, 2016,2017, our effective tax rate was 32.8%19.9% as compared to 21.3%29.8% for the ninesix months ended October 31, 2015.July 30, 2016. 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 income (loss) income..Net (loss) income for the three months ended OctoberJuly 29, 2016,2017 was ($5.2)$1.0 million, a decreasean increase of $7.5$4.6 million, or 127.8%, as compared to $2.3a net loss of $3.6 million for the three months ended October 31, 2015.July 30, 2016. Net income for the ninesix months ended OctoberJuly 29, 2016,2017 was $5.5$13.8 million, a decreasean increase of $4.9$3.1 million, or 47.1%29.0%, as compared to $10.4$10.7 million for the ninesix months ended October 31, 2015.July 30, 2016. 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 next year as we continue to expand internationally. As of OctoberJuly 29, 2016,2017, our total working capital was $213.5$220.6 million as compared to $218.8 million at January 30, 2016 and $221.5$223.4 million as of October 31, 2015.January 28, 2017 and $208.3 million as of July 30, 2016. We believe that our cash flows from operations, and availability under our senior credit facility and remaining letter of credit facilityfacilities are sufficient to meet our working capital needs and capital expenditure needs over the next year.
We consider the undistributed earnings of our foreign subsidiaries as of OctoberJuly 29, 2016,2017, to be indefinitely reinvested and, accordingly, no United States income taxes have been provided thereon. As of OctoberJuly 29, 2016,2017, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $25.6$15.6 million. We have not, nor do we anticipate the need to, repatriate these funds to the United States to satisfy our domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
Net cash provided by operating activities was $37.2$40.3 million for the ninesix months ended OctoberJuly 29, 2016,2017, as compared to cash provided by operating activities of $18.6$35.9 million for the ninesix months ended October 31, 2015.
The cash provided by operating activities for the nine months ended October 29, 2016, is primarily attributable to decreased inventory of $69.0 million due to improved inventory management. This was partially offset by a decrease in accounts payable and accrued expenses of $62.6 million, as well as a reduction in deferred pension obligation of $5.5 million due to our funding of our pension in anticipation of its termination and a reduction in accrued interest of $1.0 million. For the nine months ended October 29, 2016, our inventory turnover ratio increased to 3.8, as we continued to improve our inventory management, from 3.7 for the comparable period in fiscalJuly 30, 2016.
The cash provided by operating activities for the ninesix months ended October 31, 2015,July 29, 2017, is primarily attributable to a decreased inventory of $21.3 million, due to improved inventory management, a decrease in accounts receivable of $6.5$8.5 million, decreased inventoryan increased income taxes payable of $38.4$1.4 million due to improved inventory management,and an increase in unearned revenues of $2.0 million, as well as a reductiondecrease in prepaid income taxes of 3.6$1.6 million. This was partially offset by a decrease in accounts payable and accrued expenses of $54.8$19.7 million. Our inventory turnover ratio increased to 4.0 as compared to 3.6 in the prior period because of our continued focus on inventory management.
The cash provided by operating activities for the six months ended July 30, 2016, is primarily attributable to a decrease in accounts receivable of $10.1 million, decreased inventory of $47.6 million due to improved inventory management, an increase in unearned revenues and other liabilities of $3.5 million, as well as decreaseda decrease in prepaid income taxes of $1.9 million. This was partially offset by a decrease in accounts payable and accrued interest payableexpenses of $3.5$51.6 million.
Net cash used in investing activities was $12.2$21.9 million for the ninesix months ended OctoberJuly 29, 2016,2017 as compared to cash provided byused in investing activities of $2.5$10.4 million for the ninesix months ended October 31, 2015.July 30, 2016. The net cash used in investing activities during the first ninesix months of fiscal 2018 primarily reflects the purchase of investments of $28.1 million and the purchase of property and equipment of $3.9 million primarily for leasehold improvements and store fixtures; offset by the proceeds from the maturities of investments in the amount of $10.1 million.
We anticipate capital expenditures during the remainder of fiscal 2018 of $8.0 million to $9.0 million in new office leasehold improvements, technology, systems, retail store leasehold improvements, and other expenditures.
Net cash used in investing activities was $10.4 million for the six months ended July 30, 2016. The net cash used in investing activities during the first six months of fiscal 2017 primarily reflects the purchase of investments of $12.5$9.0 million and the purchase of property and equipment of $9.3$6.6 million primarily for leasehold improvements and store fixtures; partially offset by proceeds from the maturities of investments of $9.3 million. We anticipate capital expenditures during the remainder of fiscal 2017 of $3.0 million to $4.0 million in new leasehold improvements, technology, systems, retail stores, and other expenditures.
Net cash provided by investing activities was $2.5 million for the nine months ended October 31, 2015, as compared to cash used in investing activities of $19.8 million for the nine months ended November 1, 2014. The net cash provided by investing activities during the first nine months of fiscal 2016 primarily reflects the proceeds from the maturities of investments in the amount of $17.8 million, the 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 million primarily for leasehold improvements and store fixtures.$5.2 million.
Net cash used in financing activities was $26.9$24.7 million for the ninesix months ended OctoberJuly 29, 2016,2017 as compared to $39.3cash used in financing activities of $29.4 million for the ninesix months ended October 31, 2015.July 30, 2016. The net cash used during the first ninesix months of fiscal 2018 primarily reflects net payments on our senior credit facility of $22.5 million, purchase of treasury shares of $0.9 million, payments for employee taxes on shares withheld upon vesting of $0.8 million, payments of $0.4 million on our mortgage loans and payments on capital leases of $0.1 million.
Net cash used in financing activities was $29.4 million for the six months ended July 30, 2016. The net cash used during the first six months of fiscal 2017 primarily reflects net payments on our senior credit facility of $23.9$27.9 million, purchasespayments for employee taxes on shares withheld upon vesting of treasury stock of $2.2$0.9 million, payments of $0.6$0.4 million on our mortgage loans and payments on capital leases of $0.2 million; partially offset by the proceeds from exercises of stock options of 5,000.
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 used during the first nine months of fiscal 2016 primarily reflects payments for the partial redemption on our senior subordinated notes of $100 million, payments of $0.6 million on our mortgage loans, payments of deferred financing fees on the senior credit facility of $0.6 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.
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, 2017. 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. Total purchases under the plan life-to-date amount to approximately $60.8 million.basis
During the thirdsecond quarter of fiscal 2017,2018, we repurchased 50,000 shares of common stock at a cost of $2.2$0.9 million. There were no treasury shares outstanding as of January 30, 2016. During28, 2017. Total purchases under the second quarter of fiscal 2016, we retired 770,753 shares of treasury stock recorded at a cost ofplan to date amount to approximately $15.7$61.7 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.
Acquisitions
None.
7 7⁄8% $150 Million Senior Subordinated Notes Payable
In March 2011, we 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 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 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, 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 as well as the write-off of note issuance costs. At OctoberJuly 29, 2016,2017 and January 28, 2017, the balance of the 7 7⁄8% senior subordinated notes totaled $49.6$49.7 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$0.3 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, 2020.2020 (“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 facilityCredit Facility as interest expense. At OctoberJuly 29, 20162017, we had no outstanding borrowings of $37.8 million, under the Credit Facility. At January 30, 2016,28, 2017, we had outstanding borrowings of $61.8$22.5 million under the Credit Facility.
Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require us to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. We are not aware of any non-compliance with any of our covenants in this Credit Facility. These covenants may restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. We may pay cash dividends subject to certain restrictions set forth in the covenants including, but not limited to, meeting a minimum excess availability threshold and no occurrence of a default. We could be materially harmed if we violate any covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If we are unable to repay those amounts, the lenders could proceed against our assets and the assets of our subsidiaries that are borrowers or guarantors. In addition, a covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of our other outstanding indebtedness, such as the indenture relating to our 7 7⁄8% senior subordinated notes due April 1, 2019, our letter of credit facilities, or our real estate mortgage loans. A 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 OctoberJuly 29, 2016,2017, we maintained one U.S. dollar letter of credit facility totaling $30.0 million. 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 third quarter of fiscalAt July 29, 2017 one letter of credit facility totaling, $0.3 million utilized by our United Kingdom subsidiary, expired and has not been renewed.
During fiscal 2016, a $15 million line of credit expired and was not renewed and we decreased the letter of credit sublimit in our Senior Credit Facility to $30.0 million.
At October 29, 2016 and January 30, 2016,28, 2017, there was $19.2$19.3 million and $18.9$19.2 million, respectively, available under the existing letter of credit facility.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. 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 29, 2016, the balance of the real estate mortgage loan totaled $10.8 million, net of discount, of which $403,000 is due within one year.
In November 2016, we paid off our existing real estate mortgage loan and refinanced our main administrative office, warehouse and distribution facility in Miami with a $21.7 million mortgage loan. The loan is due on November 22, 2026. The interest rate is 3.715% per annum. Monthly payments of principal and interest approximate $112,000, based on a 25-year amortization with the outstanding principal due at maturity. At July 29, 2017, the balance of the real estate mortgage loan totaled $21.1 million, net of discount, of which $546,000 is due within one year.
In June 2006, we entered into a mortgage loan for $15 million secured by our Tampa facility. The loan iswas due on January 23, 2019. In January 2014, we 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 29, 2016, the balance of the real estate mortgage loan totaled $10.7 million, net of discount, of which approximately $472,000 is due within one year.
In November 2016, we refinanced our Tampa facility with aamended the mortgage to increase the amount to $13.2 million mortgage loan.million. The loan is due on November 22, 2026. The interest rate is 3.715% per annum. Monthly payments of principal and interest approximate $68,000, based on a 25-year amortization with the outstanding principal due at maturity. At July 29, 2017, the balance of the real estate mortgage loan totaled $12.9 million, net of discount, of which approximately $333,000 is due within one year.
Additionally, we may use some ofWe used the excess funds generated from the new mortgage loans described above to pay down our senior credit facility and repurchase certain of our outstanding senior subordinated notes.facility.
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 loanloans 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, our 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 results of operations for the three and ninesix months ended OctoberJuly 29, 2016.2017.
Item 3:7A. Quantitative and Qualitative Disclosures aboutAbout 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.rates or foreign currency. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposure, including interest rate and foreign currency.
Derivative Financial Instrument - Cash Flow Hedges
Our United Kingdom subsidiary is exposed to foreign currency risk from inventory purchases. In order to mitigate the financial risk of settlement of inventory at various prices based on movement of the U.S. dollar against the British pound, in October 2016, we entered into foreign currency forward exchange contracts (the “Hedging Instruments”). These contracts are formally designated and “highly effective” as cash flow hedges.
All changes in the Hedging Instruments’ fair value associated with inventory purchases are recorded in equity as a component of accumulated other comprehensive income until the underlying hedged item is reclassified to earnings. We record the Hedging Instrumentshedging instruments at fair value in our Consolidated Balance Sheet. The cash flows from such hedges are presented in the same category in our Consolidated Statement of Cash Flows as the items being hedged.
At October 29, 2016, theThe notional amountamounts outstanding of Hedging Instruments is $5.7 million. Such contracts expire between October 2016 and March 2017. There were no outstanding Hedging Instruments at January 30, 2016.
No gains or losses relating to foreign exchange forward contracts were $15.1 million and $15.0 million at July 29, 2017 and January 28, 2017, respectively. Such contracts expire through July 2018.
Accumulated other comprehensive loss included a net deferred loss for Hedging Instruments in the amount of $0.6 million and $0.2 million at July 29, 2017 and January 28, 2017, respectively. The net deferred loss will be reclassified from accumulated other comprehensive loss to costs of goods sold during the next twelve months when the inventory is sold.
The total gain (loss) relating to hedging instruments reclassified to earnings during anythe first and second quarter of fiscal 2018 was $41,000 and ($33,000), respectively. There was no gain or loss relating to hedging instruments reclassified to earnings during the first and second quarter of fiscal periods presented.2017.
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
We have a risk management policy to manage foreign currency risk relating to inventory purchases by our subsidiaries which are denominated in foreign currencies. As such, we may employ hedging and derivative strategies to limit the effects of changes in foreign currency on our operating income and cash flows. However, we consider our current exposure to foreign exchange risk as not significant.
Item 4: Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) of the Securities Exchange Act. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of OctoberJuly 29, 20162017 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.
During the last fiscal quarter, we upgraded our accounting system to Oracle E-Business Suite 12.1.3. The upgrade was fully integrated into our current system of internal controls.
Other than the changes noted above there have been
There were no other changes in our internal controlscontrol over financial reporting that occurred during our last fiscalthe quarter ended July 29, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Maximum Approximate Dollar Value that May Yet Be Purchased under the Plans or Programs | ||||||||||||
July 31, 2016 to August 27, 2016 | 87,600 | $ | 18.83 | 87,600 | $ | 9,716,088 | ||||||||||
August 28, 2016 to October 1, 2016 | 26,335 | $ | 19.03 | 26,335 | $ | 9,215,045 | ||||||||||
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Total shares repurchased during Fiscal 2017 | 113,935 | $ | 18.88 | 113,935 | $ | 9,215,045 | ||||||||||
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Period | Total Number of | Average | Total Number of | Maximum | ||||||||||||
April 30, 2017 to May 27, 2017 | 50,000 | $ | 18.74 | 50,000 | $ | 8,278,199 | ||||||||||
July 2, 2017 to July 29, 2017(2) | 11,259 | $ | 19.17 | — | $ | 8,278,199 |
(1) | During fiscal 2017, our Board of Directors extended the stock repurchase program to authorize us to purchase, from time to time and as market and business conditions warrant, up to $70 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2017. 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. Total purchases under the plan to date amount to |
(2) | Represents shares withheld to pay statutory income taxes resulting from vesting of restricted shares. |
Exhibit | Exhibit Description | Where Filed | ||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||
32.1 | Certification of Principal Executive Officer pursuant to Section 1350 | Filed herewith. | ||
32.2 | Certification of Principal Financial Officer pursuant to Section 1350 | Filed herewith. | ||
101.INS | XBRL Instance Document | Filed herewith. | ||
101.SCH | XBRL Taxonomy Extension Schema | Filed herewith. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith. | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Perry Ellis International, Inc. | ||||||
| By: |
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(Principal Financial Officer and Duly Authorized Officer) |
Exhibit Index
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4237