UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended November 2, 2013
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) |
Registrants Telephone Number, Including Area Code: (305) 592-2830
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrants common stock is 15,679,629 (as of December 3, 2013).
PERRY ELLIS INTERNATIONAL, INC.
PAGE | ||||
PART I: FINANCIAL INFORMATION |
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Item 1: |
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Condensed Consolidated Balance Sheets (Unaudited) as of November 2, 2013 and February 2, 2013 |
1 | |||
2 | ||||
3 | ||||
4 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements |
6 | |||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
22 | |||
30 | ||||
31 | ||||
32 | ||||
32 | ||||
32 |
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share data)
November 2, 2013 |
February 2, 2013 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | 49,493 | $ | 54,957 | ||||
Accounts receivable, net |
148,982 | 174,484 | ||||||
Inventories |
166,491 | 183,127 | ||||||
Deferred income taxes |
10,519 | 11,608 | ||||||
Prepaid income taxes |
9,276 | 7,261 | ||||||
Prepaid expenses and other current assets |
8,912 | 11,667 | ||||||
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Total current assets |
393,673 | 443,104 | ||||||
Property and equipment, net |
61,206 | 50,749 | ||||||
Other intangible assets, net |
245,978 | 246,681 | ||||||
Goodwill |
13,794 | 13,794 | ||||||
Other assets |
8,429 | 8,801 | ||||||
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TOTAL |
$ | 723,080 | $ | 763,129 | ||||
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Accounts payable |
$ | 76,425 | $ | 132,028 | ||||
Accrued expenses and other liabilities |
25,871 | 28,595 | ||||||
Accrued interest payable |
1,104 | 4,061 | ||||||
Unearned revenues |
4,630 | 4,647 | ||||||
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Total current liabilities |
108,030 | 169,331 | ||||||
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Senior subordinated notes payable, net |
150,000 | 150,000 | ||||||
Senior credit facility |
18,826 | | ||||||
Real estate mortgages |
23,539 | 24,202 | ||||||
Deferred pension obligation |
12,457 | 14,686 | ||||||
Unearned revenues and other long-term liabilities |
14,929 | 14,828 | ||||||
Deferred income taxes |
19,298 | 18,842 | ||||||
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Total long-term liabilities |
239,049 | 222,558 | ||||||
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Total liabilities |
347,079 | 391,889 | ||||||
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Commitments and contingencies |
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Equity: |
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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; 15,946,152 shares issued and outstanding as of November 2, 2013 and 15,326,658 shares issued and outstanding as of February 2, 2013 |
159 | 153 | ||||||
Additional paid-in-capital |
154,572 | 150,091 | ||||||
Retained earnings |
234,524 | 229,056 | ||||||
Accumulated other comprehensive loss |
(8,255 | ) | (8,060 | ) | ||||
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Total |
381,000 | 371,240 | ||||||
Treasury stock at cost; 267,274 shares as of November 2, 2013 and no shares as of February 2, 2013 |
(4,999 | ) | | |||||
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Total equity |
376,001 | 371,240 | ||||||
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TOTAL |
$ | 723,080 | $ | 763,129 | ||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
1
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 | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
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Revenues: |
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Net sales |
$ | 214,700 | $ | 229,330 | $ | 674,676 | $ | 691,436 | ||||||||
Royalty income |
7,421 | 6,918 | 21,469 | 19,772 | ||||||||||||
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Total revenues |
222,121 | 236,248 | 696,145 | 711,208 | ||||||||||||
Cost of sales |
150,757 | 160,453 | 467,554 | 478,348 | ||||||||||||
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Gross profit |
71,364 | 75,795 | 228,591 | 232,860 | ||||||||||||
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Operating expenses: |
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Selling, general and administrative expenses |
68,434 | 64,394 | 205,624 | 196,844 | ||||||||||||
Depreciation and amortization |
3,573 | 3,424 | 9,375 | 10,314 | ||||||||||||
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Total operating expenses |
72,007 | 67,818 | 214,999 | 207,158 | ||||||||||||
(Loss) gain on sale of long-lived assets |
(108 | ) | 410 | 6,162 | 410 | |||||||||||
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Operating (loss) income |
(751 | ) | 8,387 | 19,754 | 26,112 | |||||||||||
Interest expense |
3,782 | 3,689 | 11,307 | 11,011 | ||||||||||||
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Net (loss) income before income taxes |
(4,533 | ) | 4,698 | 8,447 | 15,101 | |||||||||||
Income tax (benefit) provision |
(1,511 | ) | 1,518 | 2,979 | 4,687 | |||||||||||
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Net (loss) income |
$ | (3,022 | ) | $ | 3,180 | $ | 5,468 | $ | 10,414 | |||||||
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Net (loss) income per share: |
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Basic |
$ | (0.20 | ) | $ | 0.22 | $ | 0.36 | $ | 0.71 | |||||||
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Diluted |
$ | (0.20 | ) | $ | 0.21 | $ | 0.36 | $ | 0.68 | |||||||
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Weighted average number of shares outstanding |
||||||||||||||||
Basic |
14,991 | 14,662 | 15,042 | 14,669 | ||||||||||||
Diluted |
14,991 | 15,295 | 15,363 | 15,275 |
See Notes to Unaudited Condensed Consolidated Financial Statements
2
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(amounts in thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
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Net (loss) income |
$ | (3,022 | ) | $ | 3,180 | $ | 5,468 | $ | 10,414 | |||||||
Other Comprehensive income (loss): |
||||||||||||||||
Foreign currency translation adjustments, net |
623 | 568 | (438 | ) | 472 | |||||||||||
Unrealized gain on pension liability, net of tax |
81 | | 243 | | ||||||||||||
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Total other comprehensive income (loss) |
704 | 568 | (195 | ) | 472 | |||||||||||
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Comprehensive (loss) income |
$ | (2,318 | ) | $ | 3,748 | $ | 5,273 | $ | 10,886 | |||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
3
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Nine Months Ended | ||||||||
November 2, 2013 |
October 27, 2012 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 5,468 | $ | 10,414 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
9,814 | 10,237 | ||||||
Provision for bad debts |
(154 | ) | 111 | |||||
Tax benefit from exercise of stock options |
78 | (384 | ) | |||||
Amortization of debt issue cost |
528 | 533 | ||||||
Amortization of premiums and discounts |
48 | 38 | ||||||
Deferred income taxes |
1,389 | 2,105 | ||||||
Gain on sale of long-lived assets, net |
(6,162 | ) | (410 | ) | ||||
Share-based compensation |
4,431 | 2,968 | ||||||
Changes in operating assets and liabilities: |
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Accounts receivable, net |
25,544 | (9,271 | ) | |||||
Inventories |
16,416 | 41,125 | ||||||
Prepaid income taxes |
(2,105 | ) | 1,885 | |||||
Prepaid expenses and other current assets |
(464 | ) | (748 | ) | ||||
Other assets |
(155 | ) | 161 | |||||
Deferred pension obligation |
(1,830 | ) | (1,708 | ) | ||||
Accounts payable and accrued expenses |
(56,509 | ) | 6,689 | |||||
Accrued interest payable |
(2,957 | ) | (3,168 | ) | ||||
Unearned revenues and other liabilities |
255 | (370 | ) | |||||
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Net cash (used in) provided by operating activities |
(6,365 | ) | 60,207 | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
(18,585 | ) | (6,415 | ) | ||||
Proceeds on sale of intangible assets |
4,875 | 410 | ||||||
Proceeds on sale of long-lived assets, net |
1,892 | | ||||||
Payment on purchase of intangible assets |
| (7,000 | ) | |||||
Proceeds in connection with purchase price adjustment |
| 4,547 | ||||||
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Net cash used in investing activities |
(11,818 | ) | (8,458 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Borrowings from senior credit facility |
321,364 | 237,047 | ||||||
Payments on senior credit facility |
(302,538 | ) | (258,726 | ) | ||||
Purchase of treasury stock |
(4,999 | ) | (2,582 | ) | ||||
Payments on real estate mortgages |
(606 | ) | (534 | ) | ||||
Payments on capital leases |
(237 | ) | (258 | ) | ||||
Tax benefit from exercise of stock options |
(78 | ) | 384 | |||||
Deferred financing fees |
(66 | ) | (100 | ) | ||||
Proceeds from exercise of stock options |
134 | 601 | ||||||
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Net cash provided by (used in) financing activities |
12,974 | (24,168 | ) | |||||
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Effect of exchange rate changes on cash and cash equivalents |
(255 | ) | (38 | ) | ||||
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
(5,464 | ) | 27,543 | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
54,957 | 24,116 | ||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 49,493 | $ | 51,659 | ||||
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Continued
4
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Nine Months Ended | ||||||||
November 2, 2013 |
October 27, 2012 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid during the period for: |
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Interest |
$ | 13,688 | $ | 13,966 | ||||
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Income taxes |
$ | 1,561 | $ | 5,622 | ||||
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NON-CASH FINANCING AND INVESTING ACTIVITIES: |
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Accrued purchases of property and equipment |
$ | 971 | $ | 1 | ||||
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Capital lease financing |
$ | | $ | 888 | ||||
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Investment in joint venture |
$ | | $ | 396 | ||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
5
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements of Perry Ellis International, Inc. and subsidiaries (Perry Ellis or the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the requirements of the Securities and Exchange Commission on Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows required by GAAP for annual financial statements. These condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended February 2, 2013, filed with the Securities and Exchange Commission on April 16, 2013.
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 February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU No. 2013-02 did not have a material impact on the Companys results of operations or the Companys financial position.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters. ASU No. 2013-05 indicates that a cumulative translation adjustment (CTA) is attached to the parents investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). ASU No. 2013-05 does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. ASU No. 2013-05 is effective for fiscal years, and interim periods within those years, after December 15, 2013. The Company is currently evaluating the impact, if any, that the adoption of this ASU will have on the Companys results of operations or the Companys financial position.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under the amendments of this update an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The
6
assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The provisions of this update will be effective prospectively for the Company in fiscal years beginning after December 15, 2013, and for the interim periods within fiscal years with early adoption and retrospective application permitted. The Company is currently evaluating the impact, if any, that the adoption of this ASU will have on the Companys results of operations or the Companys financial position.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of:
November 2, 2013 |
February 2, 2013 |
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(in thousands) | ||||||||
Trade accounts |
$ | 164,461 | $ | 192,268 | ||||
Royalties |
4,665 | 3,912 | ||||||
Other receivables |
1,218 | 4,147 | ||||||
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Total |
170,344 | 200,327 | ||||||
Less: allowances |
(21,362 | ) | (25,843 | ) | ||||
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Total |
$ | 148,982 | $ | 174,484 | ||||
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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:
November 2, 2013 |
February 2, 2013 |
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(in thousands) | ||||||||
Finished goods |
$ | 165,399 | $ | 181,668 | ||||
Raw materials and in process |
1,092 | 1,459 | ||||||
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Total |
$ | 166,491 | $ | 183,127 | ||||
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5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
November 2, 2013 |
February 2, 2013 |
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(in thousands) | ||||||||
Furniture, fixtures and equipment |
$ | 87,280 | $ | 90,365 | ||||
Buildings and building improvements |
19,597 | 19,550 | ||||||
Vehicles |
796 | 923 | ||||||
Leasehold improvements |
40,172 | 30,621 | ||||||
Land |
9,448 | 9,426 | ||||||
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Total |
157,293 | 150,885 | ||||||
Less: accumulated depreciation and amortization |
(96,087 | ) | (100,136 | ) | ||||
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Total |
$ | 61,206 | $ | 50,749 | ||||
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7
The above table of property and equipment includes assets held under capital leases as of:
November 2, 2013 |
February 2, 2013 |
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(in thousands) | ||||||||
Furniture, fixtures and equipment |
$ | 938 | $ | 938 | ||||
Less: accumulated depreciation and amortization |
(465 | ) | (230 | ) | ||||
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Total |
$ | 473 | $ | 708 | ||||
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For the three months ended November 2, 2013 and October 27, 2012, depreciation and amortization expense relating to property and equipment amounted to $3.5 million and $3.3 million, respectively. For the nine months ended November 2, 2013 and October 27, 2012, depreciation and amortization expense relating to property and equipment amounted to $9.1 million and $9.5 million, respectively. These amounts include amortization expense for leased property under capital leases.
The Company previously closed its Winnsboro distribution facility (Winnsboro) and listed the property for sale. Accordingly, Winnsboro was classified as a held-for-sale asset in the amount of $2.0 million. During the third quarter of fiscal 2014, the Company sold Winnsboro for a total sales price of $2.0 million, less selling commissions and closing costs. As a result of this transaction, the Company recorded a loss of $0.1 million.
6. INTANGIBLE ASSETS
Trademarks
Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $240.2 million at November 2, 2013 and February 2, 2013.
During the fourth quarter of fiscal 2013, the Company entered into a sales agreement, in the amount of $7.5 million, for certain Asian trademark rights with respect to John Henry. This transaction closed in the first quarter of fiscal 2014. The Company collected proceeds of $4.9 million and $2.6 million during the first quarter of fiscal 2014 and the fourth quarter of fiscal 2013, respectively. As a result of this transaction, the Company recorded a gain of $6.3 million in the licensing segment. The Company plans to continue executing on the domestic strategy of the John Henry brand as a modern lifestyle resource to select retailers and through its licensing relationships in Latin America.
Other
Other intangible assets represent:
November 2, 2013 |
February 2, 2013 |
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(in thousands) | ||||||||
Customer lists |
$ | 8,450 | $ | 8,450 | ||||
Less: accumulated amortization |
(2,631 | ) | (1,927 | ) | ||||
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Total |
$ | 5,819 | $ | 6,523 | ||||
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For the three months ended November 2, 2013 and October 27, 2012, amortization expense relating to customer lists amounted to $0.2 million, respectively, for each period. For the nine months ended November 2, 2013 and October 27, 2012, amortization expense relating to customer lists amounted to $0.7 million, respectively, for each period. Other intangible assets are amortized over their estimated useful lives of 10 years. Assuming no impairment, the estimated amortization expense for future periods based on recorded amounts as of November 2, 2013, will be approximately $0.9 million a year through fiscal 2019.
8
7. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consisted of the following as of:
November 2, 2013 |
February 2, 2013 |
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(in thousands) | ||||||||
Total letter of credit facilities |
$ | 55,320 | $ | 55,316 | ||||
Outstanding letters of credit |
(11,879 | ) | (11,768 | ) | ||||
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Total letters of credit available |
$ | 43,441 | $ | 43,548 | ||||
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8. REAL ESTATE MORTGAGE
In July 2010, 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 $13.0 million mortgage loan. The loan is due on August 1, 2020. The interest rate has been modified since the refinancing date. The interest rate most recently was 4.25% per annum and monthly payments of principal and interest were $71,000, based on a 25-year amortization with the outstanding principal due at maturity. In July 2013, the Company amended the mortgage loan agreement to modify the interest rate. The interest rate was reduced to 3.90% 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 November 2, 2013, the balance of the real estate mortgage loan totaled $11.8 million, net of discount, of which $357,000 is due within one year.
The real estate mortgage loan contains certain covenants. The Company is not aware of any non-compliance with any of the covenants. If the Company violates any of these covenants, the lender under the real estate mortgage loan could declare all amounts outstanding thereunder to be immediately due and payable, which the Company may not be able to satisfy. A covenant violation could also constitute a cross-default under the Companys senior credit facility, the letter of credit facilities and the indenture relating to its senior subordinated notes resulting in all of its debt obligations becoming immediately due and payable, which the Company may not be able to satisfy.
9. ADVERTISING AND RELATED COSTS
The Companys accounting policy relating to advertising and related costs is to expense these costs in the period incurred. Advertising and related costs were approximately $4.7 million and $3.8 million for the three months ended November 2, 2013 and October 27, 2012, respectively, and $13.4 million and $11.4 million for the nine months ended November 2, 2013 and October 27, 2012, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
10. NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average shares of outstanding common stock. The calculation of diluted net (loss) income per share is similar to basic earnings per share except that the denominator includes potentially dilutive common stock. The potentially dilutive common stock included in the Companys computation of diluted net income per share includes the effects of stock options, stock appreciation rights (SARS), warrants and unvested restricted shares as determined using the treasury stock method.
9
The following table sets forth the computation of basic and diluted income per share:
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
|||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Numerator: |
||||||||||||||||
Net (loss) income |
$ | (3,022 | ) | $ | 3,180 | $ | 5,468 | $ | 10,414 | |||||||
Denominator: |
||||||||||||||||
Basic-weighted average shares |
14,991 | 14,662 | 15,042 | 14,669 | ||||||||||||
Dilutive effect: equity awards |
| 526 | 321 | 499 | ||||||||||||
Dilutive effect: warrant |
| 107 | | 107 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted-weighted average shares |
14,991 | 15,295 | 15,363 | 15,275 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic (loss) income per share |
$ | (0.20 | ) | $ | 0.22 | $ | 0.36 | $ | 0.71 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted (loss) income per share |
$ | (0.20 | ) | $ | 0.21 | $ | 0.36 | $ | 0.68 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Antidilutive effect:(1) |
2,038 | 771 | 908 | 1,142 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | Represents weighted average of stock options to purchase shares of common stock, SARS and restricted stock that were not included in computing diluted (loss) income per share because their effects were antidilutive for the respective periods. |
11. EQUITY
The following table reflects the changes in equity:
Changes in Equity | ||||
(in thousands) | ||||
Equity at February 2, 2013 |
$ | 371,240 | ||
Comprehensive income |
5,273 | |||
Share transactions under employee equity compensation plans |
4,487 | |||
Purchase of treasury stock |
(4,999 | ) | ||
|
|
|||
Equity at November 2, 2013 |
$ | 376,001 | ||
|
|
|||
Equity at January 28, 2012 |
$ | 366,495 | ||
Comprehensive income |
10,886 | |||
Share transactions under employee equity compensation plans |
3,953 | |||
Purchase of treasury stock |
(2,582 | ) | ||
|
|
|||
Equity at October 27, 2012 |
$ | 378,752 | ||
|
|
During the three months ended November 2, 2013, the Board of Directors extended the stock repurchase program to authorize the Company to purchase, from time to time and as market and business conditions warranted, up to $60 million of the Companys common stock for cash in the open market or in privately negotiated transactions through October 31, 2014. Although the Board of Directors allocated a maximum of $60 million to carry out the program, the Company is 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 $40.9 million.
During January 2013, the Company retired 1,290,022 shares of treasury stock recorded at a cost of approximately $18.5 million. Accordingly, during fiscal 2013, the Company reduced common stock and additional paid-in-capital by $13,000 and $18.5 million, respectively. Additionally, the Company repurchased shares of its common stock during fiscal 2014 at a cost of $5.0 million.
10
12. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive loss by component, net of tax:
Unrealized (Loss) Gain on Pension Liability |
Foreign Currency Translation Adjustments, Net |
Total | ||||||||||
(in thousands) | ||||||||||||
Balance, February 2, 2013 |
$ | (7,176 | ) | $ | (884 | ) | $ | (8,060 | ) | |||
Other comprehensive loss before reclassifications |
| (438 | ) | (438 | ) | |||||||
Amounts reclassified from accumulated other comprehensive loss |
243 | | 243 | |||||||||
|
|
|
|
|
|
|||||||
Balance, November 2, 2013 |
$ | (6,933 | ) | $ | (1,322 | ) | $ | (8,255 | ) | |||
|
|
|
|
|
|
A summary of the impact on the condensed consolidated statements of income line items is as follows:
Details about Accumulated Other Comprehensive |
Three Months Ended | |||||||||
November 2, 2013 | October 27, 2012 | |||||||||
(in thousands) | ||||||||||
Amortization of defined benefit pension items |
||||||||||
Actuarial losses |
$ | 133 | $ | | Selling, general and administrative expenses | |||||
Tax benefit |
(52 | ) | | Income tax (benefit) provision | ||||||
|
|
|
|
|||||||
Total, net of tax |
$ | 81 | $ | | ||||||
|
|
|
|
|||||||
Nine Months Ended | ||||||||||
November 2, 2013 | October 27, 2012 | |||||||||
(in thousands) | ||||||||||
Amortization of defined benefit pension items |
||||||||||
Actuarial losses |
$ | 399 | $ | | Selling, general and administrative expenses | |||||
Tax benefit |
(156 | ) | | Income tax (benefit) provision | ||||||
|
|
|
|
|||||||
Total, net of tax |
$ | 243 | $ | | ||||||
|
|
|
|
13. INCOME TAXES
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The Companys U.S. federal income tax returns for 2011 through 2013 are open tax years. The Companys state tax filings are subject to varying statutes of limitations. The Companys unrecognized state tax benefits are related to open tax years from 2005 through 2014, depending on each states particular statute of limitation. As of November 2, 2013, the 2011 U.S. federal income tax return is under examination as well as various state, local, and foreign income tax returns by various taxing authorities.
The Company has a $0.6 million liability recorded for unrecognized tax benefits as of February 2, 2013, which includes interest and penalties of $0.1 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 Companys effective tax rate. During the three month and nine months ended November 2, 2013, the total amount of unrecognized tax benefits decreased by approximately $73,000 and $9,000, respectively. The change to the total amount of the unrecognized tax benefit for the three and nine months ended November 2, 2013 included a decrease in interest and penalties of approximately $13,000 and an increase of approximately $6,000, respectively.
The Company does not currently anticipate a resolution within the next twelve months for any of the remaining unrecognized tax benefits as of November 2, 2013. However, the statute of limitations related to the Companys 2011 U.S. federal tax year will expire within the next twelve months. The lapse in the statute of limitations would be expected to decrease tax expense within the next twelve months. The expiration of the statute of limitations related to the Companys 2011 U.S. federal tax year could result in a tax benefit of up to approximately $0.1 million.
14. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES
During the first quarter of fiscal 2014, the Company granted performance-based restricted stock to certain key employees pursuant to the Companys 2005 Long-Term Incentive Compensation Plan, as amended and restated, and subject to certain conditions in the grant agreement. Such stock generally vests 100% in May 2016, provided that each employee is still an employee of the Company on such date, and the Company has met certain performance criteria. A total of 109,644 shares of performance-based restricted stock were issued at an estimated value of $1.9 million, which is being recorded as compensation expense on a straight-line basis over the vesting period.
11
Also, during the first, second and third quarters of fiscal 2014, the Company granted an aggregate of 225,938, 133,460 and 120,400 shares of restricted stock to certain key employees, which vest over a three to five year period, at an estimated value of $4.0 million, $2.7 million and $2.2 million, respectively. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
During the second quarter of fiscal 2014, the Company awarded, to five directors, an aggregate of 13,740 shares of restricted stock, which vest over a three-year period at an estimated fair value of $0.3 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
During the first and third quarters of fiscal 2014, the Company granted an aggregate of 14,000 SARs, to be settled in shares of common stock, to certain key employees. The SARs have exercise prices ranging from $16.79 to $18.57, generally vest over a three to four year period and have seven to ten year terms. The total fair value of the SARs, based on the Black-Scholes Option Pricing Model, amounted to approximately $141,000, which is being recorded as compensation expense on a straight-line basis over the vesting period of each SAR.
15. SEGMENT INFORMATION
The Company has four reportable segments: Mens Sportswear and Swim, Womens Sportswear, Direct-to-Consumer and Licensing. The Mens Sportswear and Swim and Womens 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 Companys branded and licensed products through its retail stores and e-commerce platform. The Licensing segment derives its revenues from royalties associated with the use of the Companys brand names, principally Perry Ellis, Jantzen, John Henry, Original Penguin, Gotcha, Farah, Savane, Pro Player, Laundry, Manhattan and Munsingwear.
The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by each segment.
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
|||||||||||||
(in thousands) | ||||||||||||||||
Revenues: |
||||||||||||||||
Mens Sportswear and Swim |
$ | 158,585 | $ | 165,517 | $ | 509,856 | $ | 514,981 | ||||||||
Womens Sportswear |
37,912 | 45,105 | 110,032 | 118,033 | ||||||||||||
Direct-to-Consumer |
18,203 | 18,708 | 54,788 | 58,422 | ||||||||||||
Licensing |
7,421 | 6,918 | 21,469 | 19,772 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 222,121 | $ | 236,248 | $ | 696,145 | $ | 711,208 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Depreciation and amortization: |
||||||||||||||||
Mens Sportswear and Swim |
$ | 1,893 | $ | 2,108 | $ | 5,364 | $ | 6,377 | ||||||||
Womens Sportswear |
583 | 531 | 1,408 | 1,466 | ||||||||||||
Direct-to-Consumer |
1,062 | 712 | 2,500 | 2,169 | ||||||||||||
Licensing |
35 | 73 | 103 | 302 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total depreciation and amortization |
$ | 3,573 | $ | 3,424 | $ | 9,375 | $ | 10,314 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating (loss) income: |
||||||||||||||||
Mens Sportswear and Swim |
$ | (1,188 | ) | $ | 3,910 | $ | 6,640 | $ | 14,607 | |||||||
Womens Sportswear |
(735 | ) | 327 | (36 | ) | (139 | ) | |||||||||
Direct-to-Consumer |
(4,330 | ) | (2,267 | ) | (9,595 | ) | (4,886 | ) | ||||||||
Licensing (1) |
5,502 | 6,417 | 22,745 | 16,530 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating (loss) income |
$ | (751 | ) | $ | 8,387 | $ | 19,754 | $ | 26,112 | |||||||
Total interest expense |
3,782 | 3,689 | 11,307 | 11,011 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net (loss) income before income taxes |
$ | (4,533 | ) | $ | 4,698 | $ | 8,447 | $ | 15,101 | |||||||
|
|
|
|
|
|
|
|
(1) | Operating income for the licensing segment for the nine months ended November 2, 2013 includes a gain on sale of long-lived assets in the amount of $6.3 million. See footnote 6 to the condensed consolidated financial statements for further information. |
12
16. BENEFIT PLAN
The Company sponsors a qualified pension plan. The following table provides the components of net benefit cost for the plan during the three and nine months ended fiscal 2014 and 2013:
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
|||||||||||||
(in thousands) | ||||||||||||||||
Service cost |
$ | 63 | $ | 63 | $ | 189 | $ | 189 | ||||||||
Interest cost |
406 | 433 | 1,218 | 1,299 | ||||||||||||
Expected return on plan assets |
(555 | ) | (483 | ) | (1,665 | ) | (1,449 | ) | ||||||||
Amortization of net loss |
133 | 131 | 399 | 393 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost |
$ | 47 | $ | 144 | $ | 141 | $ | 432 | ||||||||
|
|
|
|
|
|
|
|
17. FAIR VALUE MEASUREMENTS
Accounts receivable, accounts payable, accrued interest payable and accrued expenses. The carrying amounts reported in the balance sheets approximate fair value due to the short-term nature of these instruments.
Real estate mortgages. (classified within Level 2 of the valuation hierarchy) - The carrying amounts of the real estate mortgages were approximately $24.4 million and $25.0 million at November 2, 2013 and February 2, 2013, respectively. The carrying values of the real estate mortgages at November 2, 2013 and February 2, 2013 approximate fair value since they were recently entered into and thus the interest rates approximate market.
Senior credit facility. The carrying amount of the senior credit facility approximates fair value due to the frequent resets of its floating interest rate.
Senior subordinated notes payable. (classified within Level 1 of the valuation hierarchy) - The carrying amounts of the 7 7⁄8% senior subordinated notes payable were approximately $150.0 million at November 2, 2013 and February 2, 2013, respectively. As of November 2, 2013 and February 2, 2013, the fair value of the 7 7⁄8% senior subordinated notes payable was approximately $162.3 million and $160.5 million, respectively, based on quoted market prices.
These estimated fair value amounts have been determined using available market information and appropriate valuation methods.
18. COMMITMENTS AND CONTINGENCIES
On May 7, 2013, the Company entered into employment agreements with George Feldenkreis, the Companys Chairman of the Board of Directors and Chief Executive Officer, and Oscar Feldenkreis, the Companys Vice Chairman of the Board of Directors, President and Chief Operating Officer. The term of each employment agreement ends on January 30, 2016. Pursuant to the employment agreements, base salaries will not be less than $1.0 million per year during the term of employment. Additionally, the executives are entitled to participate in the Companys incentive compensation plans.
On September 9, 2013, the Company entered into an employment agreement with Stanley Silverstein, the President of International Development and Global Licensing. The term of the agreement ends on September 9, 2018. Pursuant to the employment agreement, Mr. Silverstein will receive an annual salary of $500,000, subject to annual reviews for increases at the sole discretion of the Companys Chief Executive Officer. Additionally, Mr. Silverstein is eligible to participate in the Companys incentive compensation plans.
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 consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of November 2, 2013 and February 2, 2013 and for the three and nine months ended November 2, 2013 and October 27, 2012. 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.
13
Effective June 2013, the Company changed its reporting entity structure through the merger of companies under common control. C&C California, LLC (C&C California) and Laundry, LLC (Laundry) were merged with Supreme International, LLC. C&C California and Laundry were previously classified as non-guarantor subsidiaries in the condensed consolidating financial statements and are currently classified as guarantor subsidiaries as a result of the merger. The change in reporting entity was retrospectively applied to the condensed consolidating financial statements for all periods presented.
The effect on the condensed consolidating statement of comprehensive income, as a result of the change in reporting entity, is a decrease of approximately ($0.1) million and an increase of approximately $0.2 million in net (loss) income and comprehensive (loss) income to the guarantor subsidiaries for the three and nine months ended October 27, 2012, respectively with a corresponding change to the non-guarantor for the respective periods from the previously reported amounts.
The effect on the condensed consolidating balance sheet as of February 2, 2013, as a result of the change in reporting entity, is a decrease in net assets of $20.7 million to the guarantor subsidiaries and a corresponding increase in net assets to the non-guarantor.
14
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF NOVEMBER 2, 2013
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 1,242 | $ | 48,251 | $ | | $ | 49,493 | ||||||||||
Accounts receivable, net |
| 128,797 | 20,185 | | 148,982 | |||||||||||||||
Intercompany receivable, net |
166,084 | | | (166,084 | ) | | ||||||||||||||
Inventories |
| 148,033 | 18,458 | | 166,491 | |||||||||||||||
Deferred income taxes |
| 10,044 | 475 | | 10,519 | |||||||||||||||
Prepaid income taxes |
6,789 | | 954 | 1,533 | 9,276 | |||||||||||||||
Prepaid expenses and other current assets |
| 8,056 | 856 | | 8,912 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
172,873 | 296,172 | 89,179 | (164,551 | ) | 393,673 | ||||||||||||||
Property and equipment, net |
| 56,244 | 4,962 | | 61,206 | |||||||||||||||
Other intangible assets, net |
| 207,547 | 38,431 | | 245,978 | |||||||||||||||
Goodwill |
| 13,794 | | | 13,794 | |||||||||||||||
Investment in subsidiaries |
348,173 | | | (348,173 | ) | | ||||||||||||||
Other assets |
6,059 | 1,836 | 534 | | 8,429 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL |
$ | 527,105 | $ | 575,593 | $ | 133,106 | $ | (512,724 | ) | $ | 723,080 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 70,506 | $ | 5,919 | $ | | $ | 76,425 | ||||||||||
Accrued expenses and other liabilities |
| 21,879 | 4,443 | (451 | ) | 25,871 | ||||||||||||||
Accrued interest payable |
1,104 | | | | 1,104 | |||||||||||||||
Unearned revenues |
| 2,888 | 1,742 | | 4,630 | |||||||||||||||
Intercompany payable, net |
| 140,528 | 27,490 | (168,018 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
1,104 | 235,801 | 39,594 | (168,469 | ) | 108,030 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Senior subordinated notes payable, net |
150,000 | | | | 150,000 | |||||||||||||||
Real estate mortgages |
| 23,539 | | | 23,539 | |||||||||||||||
Deferred pension obligation |
| 12,364 | 93 | | 12,457 | |||||||||||||||
Unearned revenues and other long-term liabilities |
| 29,922 | 3,833 | | 33,755 | |||||||||||||||
Deferred income taxes |
| 17,314 | | 1,984 | 19,298 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term liabilities |
150,000 | 83,139 | 3,926 | 1,984 | 239,049 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
151,104 | 318,940 | 43,520 | (166,485 | ) | 347,079 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
376,001 | 256,653 | 89,586 | (346,239 | ) | 376,001 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL |
$ | 527,105 | $ | 575,593 | $ | 133,106 | $ | (512,724 | ) | $ | 723,080 | |||||||||
|
|
|
|
|
|
|
|
|
|
15
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF FEBRUARY 2, 2013
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 14,825 | $ | 40,132 | $ | | $ | 54,957 | ||||||||||
Accounts receivable, net |
| 156,645 | 17,839 | | 174,484 | |||||||||||||||
Intercompany receivable, net |
180,030 | | | (180,030 | ) | | ||||||||||||||
Inventories |
| 164,106 | 19,021 | | 183,127 | |||||||||||||||
Deferred income taxes |
| 11,474 | 134 | | 11,608 | |||||||||||||||
Prepaid income taxes |
| 12,804 | | (5,543 | ) | 7,261 | ||||||||||||||
Prepaid expenses and other current assets |
| 9,883 | 1,784 | | 11,667 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
180,030 | 369,737 | 78,910 | (185,573 | ) | 443,104 | ||||||||||||||
Property and equipment, net |
| 46,278 | 4,471 | | 50,749 | |||||||||||||||
Other intangible assets, net |
| 208,251 | 38,430 | | 246,681 | |||||||||||||||
Goodwill |
| 13,794 | | | 13,794 | |||||||||||||||
Investment in subsidiaries |
342,705 | | | (342,705 | ) | | ||||||||||||||
Other assets |
6,096 | 2,097 | 608 | | 8,801 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL |
$ | 528,831 | $ | 640,157 | $ | 122,419 | $ | (528,278 | ) | $ | 763,129 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 123,177 | $ | 8,851 | $ | | $ | 132,028 | ||||||||||
Accrued expenses and other liabilities |
3,530 | 21,542 | 11,050 | (7,527 | ) | 28,595 | ||||||||||||||
Accrued interest payable |
4,061 | | | | 4,061 | |||||||||||||||
Unearned revenues |
| 2,627 | 2,020 | | 4,647 | |||||||||||||||
Intercompany payable, net |
| 163,644 | 17,882 | (181,526 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
7,591 | 310,990 | 39,803 | (189,053 | ) | 169,331 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Senior subordinated notes payable, net |
150,000 | | | | 150,000 | |||||||||||||||
Real estate mortgages |
| 24,202 | | | 24,202 | |||||||||||||||
Deferred pension obligation |
| 14,580 | 106 | | 14,686 | |||||||||||||||
Unearned revenues and other long-term liabilities |
| 10,216 | 4,612 | | 14,828 | |||||||||||||||
Deferred income taxes |
| 16,858 | | 1,984 | 18,842 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term liabilities |
150,000 | 65,856 | 4,718 | 1,984 | 222,558 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
157,591 | 376,846 | 44,521 | (187,069 | ) | 391,889 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
371,240 | 263,311 | 77,898 | (341,209 | ) | 371,240 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL |
$ | 528,831 | $ | 640,157 | $ | 122,419 | $ | (528,278 | ) | $ | 763,129 | |||||||||
|
|
|
|
|
|
|
|
|
|
16
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 2, 2013
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Net sales |
$ | | $ | 195,535 | $ | 19,165 | $ | | $ | 214,700 | ||||||||||
Royalty income |
| 4,290 | 3,131 | | 7,421 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 199,825 | 22,296 | | 222,121 | |||||||||||||||
Cost of sales |
| 138,957 | 11,800 | | 150,757 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 60,868 | 10,496 | | 71,364 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
| 61,468 | 6,966 | | 68,434 | |||||||||||||||
Depreciation and amortization |
| 3,381 | 192 | | 3,573 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 64,849 | 7,158 | | 72,007 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss on sale of long-lived assets |
| (108 | ) | | | (108 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating (loss) income |
| (4,089 | ) | 3,338 | | (751 | ) | |||||||||||||
Interest expense |
| 3,755 | 27 | | 3,782 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income before income taxes |
| (7,844 | ) | 3,311 | | (4,533 | ) | |||||||||||||
Income tax (benefit) provision |
| (1,945 | ) | 434 | | (1,511 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity in earnings of subsidiaries, net |
(3,022 | ) | | | 3,022 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income |
(3,022 | ) | (5,899 | ) | 2,877 | 3,022 | (3,022 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive (loss) income |
704 | 81 | 623 | (704 | ) | 704 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive (loss) income |
$ | (2,318 | ) | $ | (5,818 | ) | $ | 3,500 | $ | 2,318 | $ | (2,318 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
17
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED OCTOBER 27, 2012
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Net sales |
$ | | $ | 213,681 | $ | 15,649 | $ | | $ | 229,330 | ||||||||||
Royalty income |
| 4,099 | 2,819 | | 6,918 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 217,780 | 18,468 | | 236,248 | |||||||||||||||
Cost of sales |
| 151,049 | 9,404 | | 160,453 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 66,731 | 9,064 | | 75,795 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
| 58,325 | 6,069 | | 64,394 | |||||||||||||||
Depreciation and amortization |
| 3,243 | 181 | | 3,424 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 61,568 | 6,250 | | 67,818 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gain on sale of long-lived assets |
| 410 | | | 410 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 5,573 | 2,814 | | 8,387 | |||||||||||||||
Interest expense |
| 3,668 | 21 | | 3,689 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income before income taxes |
| 1,905 | 2,793 | | 4,698 | |||||||||||||||
Income tax provision |
| 1,410 | 108 | | 1,518 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity in earnings of subsidiaries, net |
3,180 | | | (3,180 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
3,180 | 495 | 2,685 | (3,180 | ) | 3,180 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income |
568 | | 568 | (568 | ) | 568 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 3,748 | $ | 495 | $ | 3,253 | $ | (3,748 | ) | $ | 3,748 | |||||||||
|
|
|
|
|
|
|
|
|
|
18
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 2, 2013
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Net sales |
$ | | $ | 619,446 | $ | 55,230 | $ | | $ | 674,676 | ||||||||||
Royalty income |
| 12,612 | 8,857 | | 21,469 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 632,058 | 64,087 | | 696,145 | |||||||||||||||
Cost of sales |
| 433,855 | 33,699 | | 467,554 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 198,203 | 30,388 | | 228,591 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
| 183,313 | 22,311 | | 205,624 | |||||||||||||||
Depreciation and amortization |
| 8,804 | 571 | | 9,375 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 192,117 | 22,882 | | 214,999 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
(Loss) gain on sale of long-lived assets |
| (799 | ) | 6,961 | | 6,162 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 5,287 | 14,467 | | 19,754 | |||||||||||||||
Interest expense |
| 11,226 | 81 | | 11,307 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income before income taxes |
| (5,939 | ) | 14,386 | | 8,447 | ||||||||||||||
Income tax provision |
| 719 | 2,260 | | 2,979 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity in earnings of subsidiaries, net |
5,468 | | | (5,468 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
5,468 | (6,658 | ) | 12,126 | (5,468 | ) | 5,468 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive (loss) income |
(195 | ) | 243 | (438 | ) | 195 | (195 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) |
$ | 5,273 | $ | (6,415 | ) | $ | 11,688 | $ | (5,273 | ) | $ | 5,273 | ||||||||
|
|
|
|
|
|
|
|
|
|
19
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 27, 2012
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Net sales |
$ | | $ | 641,461 | $ | 49,975 | $ | | $ | 691,436 | ||||||||||
Royalty income |
| 10,890 | 8,882 | | 19,772 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 652,351 | 58,857 | | 711,208 | |||||||||||||||
Cost of sales |
| 447,718 | 30,630 | | 478,348 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 204,633 | 28,227 | | 232,860 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
| 176,305 | 20,539 | | 196,844 | |||||||||||||||
Depreciation and amortization |
| 9,809 | 505 | | 10,314 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 186,114 | 21,044 | | 207,158 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gain on sale of long-lived assets |
| 410 | | | 410 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 18,929 | 7,183 | | 26,112 | |||||||||||||||
Interest expense |
| 10,937 | 74 | | 11,011 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income before income taxes |
| 7,992 | 7,109 | | 15,101 | |||||||||||||||
Income tax provision |
| 3,928 | 759 | | 4,687 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity in earnings of subsidiaries, net |
10,414 | | | (10,414 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
10,414 | 4,064 | 6,350 | (10,414 | ) | 10,414 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income |
472 | | 472 | (472 | ) | 472 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 10,886 | $ | 4,064 | $ | 6,822 | $ | (10,886 | ) | $ | 10,886 | |||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 2, 2013
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: |
$ | (13,239 | ) | $ | 11,329 | $ | (4,455 | ) | $ | | $ | (6,365 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||||||||||
Purchase of property and equipment |
| (17,337 | ) | (1,248 | ) | | (18,585 | ) | ||||||||||||
Proceeds on sale of intangible assets |
| | 4,875 | | 4,875 | |||||||||||||||
Proceeds on sale of long-lived assets, net |
| 1,892 | | | 1,892 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash (used in) provided by investing activities |
| (15,445 | ) | 3,627 | | (11,818 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Borrowings from senior credit facility |
| 321,364 | | | 321,364 | |||||||||||||||
Payments on senior credit facility |
| (302,538 | ) | | | (302,538 | ) | |||||||||||||
Purchase of treasury stock |
(4,999 | ) | | | | (4,999 | ) | |||||||||||||
Payments on real estate mortgages |
| (606 | ) | | | (606 | ) | |||||||||||||
Payments on capital leases |
| (237 | ) | | | (237 | ) | |||||||||||||
Tax benefit from exercise of stock options |
(78 | ) | | | | (78 | ) | |||||||||||||
Deferred financing fees |
| (66 | ) | | | (66 | ) | |||||||||||||
Proceeds from exercise of stock options |
134 | | | | 134 | |||||||||||||||
Intercompany transactions |
18,437 | (27,384 | ) | 9,202 | (255 | ) | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
13,494 | (9,467 | ) | 9,202 | (255 | ) | 12,974 | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(255 | ) | | (255 | ) | 255 | (255 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
| (13,583 | ) | 8,119 | | (5,464 | ) | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 14,825 | 40,132 | | 54,957 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | | $ | 1,242 | $ | 48,251 | $ | | $ | 49,493 | ||||||||||
|
|
|
|
|
|
|
|
|
|
20
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 27, 2012
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: |
$ | (1,678 | ) | $ | 47,468 | $ | 14,417 | $ | | $ | 60,207 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||||||||||
Purchase of property and equipment |
| (5,426 | ) | (989 | ) | | (6,415 | ) | ||||||||||||
Payment on purchase of intangible assets |
| (7,000 | ) | | | (7,000 | ) | |||||||||||||
Proceeds in connection with purchase price adjustment |
| 4,547 | | | 4,547 | |||||||||||||||
Proceeds on sale of intangible assets |
| 410 | | | 410 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (7,469 | ) | (989 | ) | | (8,458 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Borrowings on senior credit facility |
| 237,047 | | | 237,047 | |||||||||||||||
Payments on senior credit facility |
| (258,726 | ) | | | (258,726 | ) | |||||||||||||
Payments on real estate mortgages |
| (534 | ) | | | (534 | ) | |||||||||||||
Deferred financing fees |
| (100 | ) | | | (100 | ) | |||||||||||||
Payments on capital leases |
| (258 | ) | | | (258 | ) | |||||||||||||
Proceeds from exercise of stock options |
601 | | | | 601 | |||||||||||||||
Tax benefit from exercise of stock options |
384 | | | | 384 | |||||||||||||||
Purchase of treasury stock |
(2,582 | ) | | | | (2,582 | ) | |||||||||||||
Intercompany transactions |
3,313 | 2,591 | (5,866 | ) | (38 | ) | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
1,716 | (19,980 | ) | (5,866 | ) | (38 | ) | (24,168 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(38 | ) | | (38 | ) | 38 | (38 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
| 20,019 | 7,524 | | 27,543 | |||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 293 | 23,823 | | 24,116 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | | $ | 20,312 | $ | 31,347 | $ | | $ | 51,659 | ||||||||||
|
|
|
|
|
|
|
|
|
|
21
Item 2: | Managements 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 managements discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended February 2, 2013, filed with the Securities and Exchange Commission on April 16, 2013.
ForwardLooking Statements
We caution readers that this report includes forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations rather than historical facts and they are indicated by words or phrases such as anticipate, believe, budget, contemplate, continue, could, envision, estimate, expect, guidance, indicate, intend, may, might, plan, possibly, potential, predict, probably, pro-forma, project, seek, should, target, or will or the negative thereof or other variations thereon and similar words or phrases or comparable terminology. 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. 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 set forth in various places in this report. These factors include, but are not limited to:
| general economic conditions, |
| a significant decrease in business from or loss of any of our major customers or programs, |
| anticipated and unanticipated trends and conditions in our industry, including the impact of recent or future retail and wholesale consolidation, |
| recent and future economic conditions, including turmoil in the financial and credit markets, |
| the effectiveness of our planned advertising, marketing and promotional campaigns, |
| our ability to contain costs, |
| disruptions in the supply chain, |
| our future capital needs and our ability to obtain financing, |
| our ability to protect our trademarks, |
| our ability to integrate acquired businesses, trademarks, tradenames and licenses, |
| our ability to predict consumer preferences and changes in fashion trends and consumer acceptance of both new designs and newly introduced products, |
| the termination or non-renewal of any material license agreements to which we are a party, |
| changes in the costs of raw materials, labor and advertising, |
| our ability to carry out growth strategies including expansion in international and direct-to-consumer retail markets, |
22
| the level of consumer spending for apparel and other merchandise, |
| our ability to compete, |
| exposure to foreign currency risk and interest rate risk, |
| possible disruption in commercial activities due to terrorist activity and armed conflict, and |
| other factors set forth in this report and in our other Securities and Exchange Commission (SEC) filings. |
You are cautioned that all forward-looking statements involve risks and uncertainties, detailed in our filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.
Critical Accounting Policies
Included in the footnotes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended February 2, 2013 is a summary of all significant accounting policies used in the preparation of our consolidated financial statements. We follow the accounting methods and practices as required by accounting principles generally accepted in the United States of America (GAAP). In particular, our critical accounting policies and areas in which we use judgment are in the areas of revenue recognition, the estimated collectability of accounts receivable, the recoverability of obsolete or overstocked inventory, the impairment of long-lived assets that are our trademarks and goodwill, and the measurement of retirement related benefits. We believe that there have been no significant changes to our critical accounting policies during the three and nine months ended November 2, 2013 as compared to those we disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended February 2, 2013.
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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 | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
|||||||||||||
(in thousands) | ||||||||||||||||
Revenues by segment: |
||||||||||||||||
Mens Sportswear and Swim |
$ | 158,585 | $ | 165,517 | $ | 509,856 | $ | 514,981 | ||||||||
Womens Sportswear |
37,912 | 45,105 | 110,032 | 118,033 | ||||||||||||
Direct-to-Consumer |
18,203 | 18,708 | 54,788 | 58,422 | ||||||||||||
Licensing |
7,421 | 6,918 | 21,469 | 19,772 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 222,121 | $ | 236,248 | $ | 696,145 | $ | 711,208 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
|||||||||||||
(in thousands) | ||||||||||||||||
Reconciliation of operating income to EBITDA |
||||||||||||||||
Operating (loss) income by segment: |
||||||||||||||||
Mens Sportswear and Swim |
$ | (1,188 | ) | $ | 3,910 | $ | 6,640 | $ | 14,607 | |||||||
Womens Sportswear |
(735 | ) | 327 | (36 | ) | (139 | ) | |||||||||
Direct-to-Consumer |
(4,330 | ) | (2,267 | ) | (9,595 | ) | (4,886 | ) | ||||||||
Licensing |
5,502 | 6,417 | 22,745 | 16,530 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating (loss) income |
$ | (751 | ) | $ | 8,387 | $ | 19,754 | $ | 26,112 | |||||||
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|
|
|
|
|
|
|
|||||||||
Add: |
||||||||||||||||
Depreciation and amortization |
||||||||||||||||
Mens Sportswear and Swim |
$ | 1,893 | $ | 2,108 | $ | 5,364 | $ | 6,377 | ||||||||
Womens Sportswear |
583 | 531 | 1,408 | 1,466 | ||||||||||||
Direct-to-Consumer |
1,062 | 712 | 2,500 | 2,169 | ||||||||||||
Licensing |
35 | 73 | 103 | 302 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total depreciation and amortization |
$ | 3,573 | $ | 3,424 | $ | 9,375 | $ | 10,314 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
EBITDA by segment: |
||||||||||||||||
Mens Sportswear and Swim |
$ | 705 | $ | 6,018 | $ | 12,004 | $ | 20,984 | ||||||||
Womens Sportswear |
(152 | ) | 858 | 1,372 | 1,327 | |||||||||||
Direct-to-Consumer |
(3,268 | ) | (1,555 | ) | (7,095 | ) | (2,717 | ) | ||||||||
Licensing |
5,537 | 6,490 | 22,848 | 16,832 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total EBITDA |
$ | 2,822 | $ | 11,811 | $ | 29,129 | $ | 36,426 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
EBITDA margin by segment |
||||||||||||||||
Mens Sportswear and Swim |
0.4 | % | 3.6 | % | 2.4 | % | 4.1 | % | ||||||||
Womens Sportswear |
(0.4 | %) | 1.9 | % | 1.2 | % | 1.1 | % | ||||||||
Direct-to-Consumer |
(18.0 | %) | (8.3 | %) | (12.9 | %) | (4.7 | %) | ||||||||
Licensing |
74.6 | % | 93.8 | % | 106.4 | % | 85.1 | % | ||||||||
Total EBITDA margin |
1.3 | % | 5.0 | % | 4.2 | % | 5.1 | % |
EBITDA consists of earnings before interest, depreciation and amortization and income taxes. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America, and does not represent cash flow from operations. The most directly comparable GAAP financial measure, presented above, is operating income. EBITDA and EBITDA margin are presented solely as a supplemental disclosure because management believes that they are a common measure of operating performance in the apparel industry.
The following is a discussion of the results of operations for the three and nine month periods ended November 2, 2013 of the fiscal year ending February 1, 2014 (fiscal 2014) compared with the three and nine month periods ended October 27, 2012 of the fiscal year ended February 2, 2013 (fiscal 2013).
Results of Operations - three and nine months ended November 2, 2013 compared to the three and nine months ended October 27, 2012.
Net sales. Mens Sportswear and Swim net sales for the three months ended November 2, 2013 were $158.6 million, a decrease of $6.9 million, or 4.2%, from $165.5 million for the three months ended October 27,
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2012. The net sales decrease was attributed primarily to decreases in private label and proprietary brands in the mid-tier distribution channel as that channel experienced more softness and retailers worked to manage inventory levels. These declines were partially offset by growth in our golf brands including Callaway and Ben Hogan.
Mens Sportswear and Swim net sales for the nine months ended November 2, 2013 were $509.9 million, a decrease of $5.1 million, or 1.0%, from $515.0 million for the nine months ended October 27, 2012. The net sales decrease was attributed primarily to decreases in our mid-tier channel, private label and proprietary branded business, which was partially offset by increases across our golf sportswear brands, including Callaway and Ben Hogan. Increases were also experienced in our licensed Nike swimwear.
Womens Sportswear net sales for the three months ended November 2, 2013 were $37.9 million, a decrease of $7.2 million, or 16.0%, from $45.1 million for the three months ended October 27, 2012. The net sales decrease was attributed to decreases in our Rafaella sportswear business due to accelerated fall shipments during the second quarter. We also experienced declines in our contemporary Laundry dress business.
Womens Sportswear net sales for the nine months ended November 2, 2013 were $110.0 million, a decrease of $8.0 million, or 6.8%, from $118.0 million for the nine months ended October 27, 2012. The net sales change was attributable primarily to decreases in our contemporary Laundry dress business.
Direct-to-Consumer net sales for the three months ended November 2, 2013 were $18.2 million, a decrease of $0.5 million, or 2.7%, from $18.7 million for the three months ended October 27, 2012. The net sales decrease was attributed to comparable store decreases in our store base, partially offset by an increase in ecommerce sales of 23% from last year as we anniversaried a full price strategy that we implemented during the third quarter of fiscal 2013.
Direct-to-Consumer net sales for the nine months ended November 2, 2013 were $54.8 million, a decrease of $3.6 million, or 6.2%, from $58.4 million for the nine months ended October 27, 2012. The decrease was driven by lower traffic patterns in our stores influenced by macroeconomic factors, such as the unseasonal weather conditions as well as overall economic weakness and consumer pull back in spending. Additionally, ecommerce sales were down approximately 11% from last year due to the rollout of a less promotional strategy across our sites implemented during the third quarter of fiscal 2013.
Royalty income. Royalty income for the three months ended November 2, 2013 was $7.4 million, an increase of $0.5 million, or 7.2%, from $6.9 million for the three months ended October 27, 2012. The net sales increase was driven by our Perry Ellis and Original Penguin brands.
Royalty income for the nine months ended November 2, 2013 was $21.5 million, an increase of $1.7 million, or 8.6%, from $19.8 million for the nine months ended October 27, 2012. Royalty income increases were attributed to increases in our Original Penguin, Perry Ellis and contemporary Laundry businesses.
Gross profit. Gross profit was $71.4 million for the three months ended November 2, 2013, a decrease of $4.4 million, or 5.8%, from $75.8 million for the three months ended October 27, 2012. This decrease is attributed to the reduction in contribution from our direct-to-consumer segment as well as mid-tier channel revenues.
Gross profit was $228.6 million for the nine months ended November 2, 2013, a decrease of $4.3 million, or 1.8%, from $232.9 million for the nine months ended October 27, 2012. This decrease is attributed to the sales mix composition described above and the factors described within the gross profit margin section below.
Gross profit margin. As a percentage of total revenue, gross profit margins remained flat at 32.1% for the three months ended November 2, 2013, and for the three months ended October 27, 2012. Gross profit margins were positively impacted by expanded margins in our collection businesses driven by reduced markdowns. This margin was offset by decreases due to the lower contribution from our direct-to-consumer segment.
For the nine months ended November 2, 2013, gross profit margins were 32.8% as a percentage of total revenue as compared to 32.7% for the nine months ended October 27, 2013, an increase of 10 basis points. This increase is primarily associated with higher margins in our golf lifestyle apparel, as well as expansion in our Rafaella collection sportswear business driven by reduced markdowns.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended November 2, 2013 were $68.4 million, an increase of $4.0 million, or 6.2%, from $64.4 million for the three months ended October 27, 2012. The increase was in line with our expectations and was primarily attributed to additional investment in brand marketing, ecommerce photography, and other infrastructure spends.
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The three months ended October 27, 2012, included costs in the amount of approximately $1.1 million related to our reorganization, which included the cost of the new Callaway business, and severance expense related to exited businesses, however, no such costs were incurred in the comparable period during fiscal 2014.
Selling, general and administrative expenses for the nine months ended November 2, 2013 were $205.6 million, an increase of $8.8 million, or 4.5%, from $196.8 million for the nine months ended October 27, 2012. The increase was in line with our expectations and was primarily attributed to additional investment in brand marketing, ecommerce photography, and other infrastructure spends. Also, we experienced costs in the amount of $2.1 million related to the relocation of our New York offices and $0.8 million in costs associated with the sale of the Asian rights of the John Henry trademark. Also included were costs in the amount of approximately $1.0 million related to reorganization within our business. The nine months ended October 27, 2012, included costs in the amount of approximately $5.4 million related to our reorganization, which primarily encompassed voluntary early retirement costs, the costs associated with the exit of our Rafaella distribution facility and the move to our current third party logistics warehouse, relocation of our New York offices and severance expense related to exited businesses, however, no such costs were incurred in the comparable period during fiscal 2014.
EBITDA. Mens Sportswear and Swim EBITDA margin for the three months ended November 2, 2013 decreased 320 basis points to 0.4%, from 3.6% for the three months ended October 27, 2012. Mens Sportswear and Swim EBITDA margin for the nine months ended November 2, 2013 decreased 170 basis points to 2.4%, from 4.1% for the nine months ended October 27, 2012. The EBITDA margin was negatively impacted by reduced leverage from the increased infrastructure expenditures in this segment. The margin was also negatively impacted by costs associated with the relocation of our New York offices.
Womens Sportswear EBITDA margin for the three months ended November 2, 2013 decreased 230 basis points to (0.4%), from 1.9% for the three months ended October 27, 2012. The margin was negatively impacted by the net sales decrease attributed to our Rafaella sportswear business due to earlier shipments during the second quarter rather than the third quarter and by costs associated with the relocation of our New York offices.
Womens Sportswear EBITDA margin for the nine months ended November 2, 2013 increased 10 basis points to 1.2%, from 1.1% for the nine months ended October 27, 2012. The margin was positively impacted by the increase in gross margin in Rafaella sportswear, as well as Laundry. The margin increase was negatively impacted by costs associated with the relocation of our New York offices.
Direct-to-Consumer EBITDA margin for the three months ended November 2, 2013 decreased 970 basis points to (18.0%), from (8.3%) for the three months ended October 27, 2012. Direct-to-Consumer EBITDA margin for the nine months ended November 2, 2013 decreased 820 basis points to (12.9%), from (4.7%) for the nine months ended October 27, 2012. The decreases were primarily attributable to the reduction in revenue from our stores and ecommerce business, as described above. Because of the reduction in revenue, we were not able to realize a favorable leverage in selling, general and administrative expenses.
Licensing EBITDA margin for the three months ended November 2, 2013 decreased 1,920 basis points to 74.6%, from 93.8% for the three months ended October 27, 2012. The decrease is primarily attributed to additional investment in brand marketing, photography, and other infrastructure spends.
Licensing EBITDA margin for the nine months ended November 2, 2013 increased 2,130 basis points to 106.4%, from 85.1% for the nine months ended October 27, 2012. This increase was primarily attributed to the gain on the sale of the Asian rights of the John Henry brand as described below.
Depreciation and amortization. Depreciation and amortization for the three months ended November 2, 2013, was $3.6 million, an increase of $0.2 million, or 5.9%, from $3.4 million for the three months ended October 27, 2012. The increase is attributed to depreciation related to our capital expenditures, primarily in the direct-to-consumer segment and leaseholds. Depreciation and amortization for the nine months ended November 2, 2013, was $9.4 million, a decrease of $0.9 million, or 8.7%, from $10.3 million for the nine months ended October 27, 2012. The decrease is attributed to the reduction in depreciation associated with the impairments of long-lived assets taken during the fourth quarter of fiscal 2013, offset by the increases in depreciation related to our capital expenditures, primarily in the direct-to-consumer segment and leaseholds.
(Loss) gain on sale of long-lived assets. During the fourth quarter of fiscal 2013, we entered into a sales agreement, in the amount of $7.5 million, for certain Asian trademark rights with respect our John Henry brand. The transaction closed in the first quarter of fiscal 2014. As a result of this transaction, we recorded a gain of $6.3
26
million. This gain was included in our licensing segments operating income. We plan to continue to execute our domestic strategy for the John Henry brand as a modern lifestyle resource to select retailers as well as its licensing relationships in Latin America. The gain of $6.3 million was partially offset by the $0.1 million loss related to the sale of our Winnsboro distribution facility during the third quarter of fiscal 2014.
Interest expense. Interest expense for the three months ended November 2, 2013 was $3.8 million, an increase of $0.1 million, or 2.7%, from $3.7 million for the three months ended October 27, 2012. Interest expense for the nine months ended November 2, 2013 was $11.3 million, an increase of $0.3 million, or 2.7%, from $11.0 million for the nine months ended October 27, 2012. The primary reason for the slight increase in interest expense is due to the higher average borrowings on our credit facility as compared to our borrowings in the prior year.
Income taxes. The income tax benefit for the three months ended November 2, 2013, was $1.5 million, an increase of $3.0 million, as compared to the income tax provision of $1.5 million for the three months ended October 27, 2012. For the three months ended November 2, 2013, our effective tax rate was 33.3% as compared to 32.3% for the three months ended October 27, 2012. Our income tax expense for the nine months ended November 2, 2013, was $3.0 million, a decrease of $1.7 million, as compared to $4.7 million for the nine months ended October 27, 2012. For the nine months ended November 2, 2013, our effective tax rate was 35.3% as compared to 31.0% for the nine months ended October 27, 2012. The overall change in the effective tax rate is attributed to the unfavorable disallowance of certain executive compensation and the sale of certain intangible rights of the John Henry trademark as well as the change in ratio of income between domestic and foreign operations, of which the domestic operations are taxed at higher statutory tax rates.
Net (loss) income. Net (loss) income for the three months ended November 2, 2013 was ($3.0) million, a decrease of $6.2 million, or 193.8%, as compared to $3.2 million for the three months ended October 27, 2012. Net income for the nine months ended November 2, 2013 was $5.5 million, a decrease of $4.9 million, or 47.1%, as compared to $10.4 million for the nine months ended October 27, 2012. 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, acquisitions and capital expenditures; and to a lesser extent, on letter of credit facilities for the acquisition of a small portion of our inventory purchases. We believe that our working capital requirements will decrease for fiscal 2014 driven primarily by lower levels of inventory. As of November 2, 2013, our total working capital was $285.6 million as compared to $273.8 million as of February 2, 2013 and $277.0 million as of October 27, 2012. We believe that our cash flows from operations and availability under our senior credit facility and remaining letter of credit facilities are sufficient to meet our working capital needs. We also believe that our real estate assets, which had a net book value of $23.3 million at November 2, 2013, have a higher market value. These real estate assets may provide us with additional capital resources. Additional borrowings against these real estate assets, however, would be subject to certain loan to value criteria established by lending institutions. As of November 2, 2013, we had mortgage loans on these properties totaling $24.4 million.
We consider the undistributed earnings of our foreign subsidiaries as of November 2, 2013, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of November 2, 2013, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $48.3 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
Net cash used in operating activities was $6.4 million for the nine months ended November 2, 2013, as compared to cash provided by operating activities of $60.2 million for the nine months ended October 27, 2012.
The cash used in operating activities for the nine months ended November 2, 2013, is primarily attributable to a decrease in accounts payable and accrued expenses of $56.5 million and a decrease in accrued interest payable of $3.0 million; which was partially offset by a decrease in accounts receivable of $25.5 million and a decrease in inventory of $16.4 million associated with improved inventory management. As a result of the decrease in inventory for the nine months ended November 2, 2013, our inventory turnover ratio decreased slightly to 3.69 as compared to 3.7 for the comparable period in fiscal 2013. The cash provided by operating activities for nine months ended October 27, 2012 is primarily attributable to a decrease in inventory of $41.1 million associated with our improved inventory
27
management, an increase in our accounts payable and accrued expenses of $6.7 million and an decrease in other current assets and prepaid income taxes of $1.1 million; partially offset by an increase in accounts receivable of $9.3 million, and a decrease in accrued interest in the amount of $3.2 million. As a result of the decrease in inventory for the nine months ended October 27, 2012, our inventory turnover ratio increased to 3.7 as compared to 3.3 for the comparable period in fiscal 2012.
Net cash used in investing activities was $11.8 million for the nine months ended November 2, 2013, as compared to cash used in investing activities of $8.5 million for the nine months ended October 27, 2012. The net cash used during the first nine months of fiscal 2014 primarily reflects the purchase of property and equipment of $18.6 million, primarily for leaseholds; which was partially offset by proceeds on the sale of certain Asian trademark rights with respect to John Henry of $4.9 million and by the net proceeds on the sale of our Winnsboro distribution facility of $1.9 million. The net cash used during the nine months ended October 27, 2012, primarily reflects the purchase of Ben Hogan in the amount of $7.0 million and the purchase of property and equipment in the amount of $6.4 million; partially offset by the proceeds related to the Rafaella purchase price adjustment of $4.5 million. We anticipate capital expenditures during fiscal 2014 of $20.0 million to $22.0 million in technology, systems, retail stores, and other expenditures.
Net cash provided by financing activities was $13.0 million for the nine months ended November 2, 2013, as compared to cash used in financing activities of $24.2 million for the nine months ended October 27, 2012. The net cash provided during the first nine months of fiscal 2014 primarily reflects net borrowings on our senior credit facility of $18.8 million and proceeds from exercises of stock options of $0.1 million; partially offset by purchases of treasury stock of $5.0 million, payments on real estate mortgages of $0.6 million and payments on capital leases of $0.2 million. The net cash used during the first nine months of fiscal 2013 primarily reflects net payments on our senior credit facility of $21.7 million, the purchase of treasury stock of $2.6 million, payments on real estate mortgages of $0.5 million and payments on capital leases of $0.3 million; partially offset by proceeds from exercises of stock options of $0.6 million and a tax benefit from the exercise of stock options of $0.4 million.
Our Board of Directors has authorized us to purchase, from time to time and as market and business conditions warrant, up to $60 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2014. Although our Board of Directors allocated a maximum of $60 million to carry out the program, we are not obligated to purchase any specific number of outstanding shares and will reevaluate the program on an ongoing basis. Total purchases under the plan to date amount to $40.9 million.
During January 2013, we retired 1,290,022 shares of treasury stock recorded at a cost of approximately $18.5 million. Accordingly, during fiscal 2013, we reduced common stock and additional paid-in-capital by $13,000 and $18.5 million, respectively. During fiscal 2013, we repurchased 132,722 shares of our common stock at a cost of $2.6 million. Additionally, we repurchased 267,274 shares of our common stock during fiscal 2014 at a cost of $5.0 million.
Acquisitions
Acquisition of Ben Hogan
On February 16, 2012, we acquired the world-wide intellectual property rights of the Ben Hogan family of brands from Callaway Golf Company for a purchase price of $7.0 million. The acquisition was financed through existing cash and borrowings under our existing senior credit facility. Ben Hogan brands are ideally positioned to strengthen our golf business within the Mens Sportswear and Swim segment.
The assets acquired were comprised of tradenames, which have been identified as indefinite useful life assets, and are not subject to amortization.
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%.
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
28
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 indentures 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 December 2, 2011, we amended and restated our existing senior credit facility (the Credit Facility), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $125 million, subject to increases from time to time in increments of $25 million up to a maximum of $200 million. The Credit Facility has a five-year term that expires on December 2, 2016. At November 2, 2013, we had outstanding borrowings of $18.8 million under the Credit Facility. At February 2, 2013, we had no outstanding borrowings 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 of the covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If we are unable to repay those amounts, the lenders could proceed against our assets and the assets of our subsidiaries that are borrowers or guarantors. In addition, a covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of our other outstanding indebtedness, such as the indenture relating to our 7 7⁄8% senior subordinated notes due April 1, 2019, our letter of credit facilities, or our real estate mortgage loans. Such a cross-default could result in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Borrowing Base. Borrowings under the Credit Facility are limited to a borrowing base calculation, which generally restricts the outstanding balance to the sum of (a) 87.5% of eligible receivables, plus (b) 87.5% of eligible foreign accounts up to $1.5 million, plus (c) the lesser of (i) the inventory loan limit, which equals 80% of the maximum credit under the Credit Facility at the time, (ii) a maximum of 70.0% of eligible finished goods inventory, or (iii) 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 our option, at either (a) the greater of the agents prime lending rate plus a margin of 1.25% per year through March 31, 2012, provided such margin shall be adjusted quarterly thereafter, or the Federal Funds rate in effect on such day plus one half of one percent (.50%); or (b) the rate quoted by the agent as the Eurodollar Rate for one-, two- or three-month Eurodollar deposits, as selected by us, plus a margin of 2.25% per year through March 31, 2012. Thereafter, the margin adjusts quarterly, in a range of 1.75% to 2.50%, based on our 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 November 2, 2013, we maintained two U.S. dollar letter of credit facilities totaling $55.0 million and one letter of credit facility totaling $0.3 million utilized by our United Kingdom subsidiary. Each documentary letter of credit is secured primarily by the consignment of merchandise in transit under that letter of credit and certain subordinated liens on our assets.
29
As of November 2, 2013 and February 2, 2013, there was $43.4 million and $43.5 million, respectively available under our existing letter of credit facilities.
Real Estate Mortgage Loans
In July 2010, we paid off our then existing real estate mortgage loan and refinanced our main administrative office, warehouse and distribution facility in Miami with a $13.0 million mortgage loan. The loan is due on August 1, 2020. The interest rate has been modified since the refinancing date. The interest rate most recently was 4.25% per annum and monthly payments of principal and interest were $71,000, based on a 25-year amortization with the outstanding principal due at maturity. In July 2013, we amended the mortgage loan agreement to modify the interest rate. The interest rate was reduced to 3.90% 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 November 2, 2013, the balance of the real estate mortgage loan totaled $11.8 million, net of discount, of which $357,000 is due within one year.
In June 2006, we entered into a mortgage loan for $15 million secured by our Tampa facility. The loan is due on June 7, 2016. The original interest rate has been modified. The interest rate most recently was 4.95% per annum and quarterly payments of principal and interest were $268,000, based on a 20-year amortization with the outstanding principal due at maturity. In July 2012, we amended the mortgage loan agreement to modify the interest rate. The interest rate was reduced to 4.00% per annum and the terms were restated to reflect new quarterly payments of principal and interest of approximately $248,000, based on a 20-year amortization with the outstanding principal due at maturity. At November 2, 2013, the balance of the real estate mortgage loan totaled $12.6 million, net of discount, of which approximately $484,000 is due within one year.
The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of these covenants. If we violate any of these covenants, the lender under the real estate mortgage loans could declare all amounts outstanding thereunder to be immediately due and payable, which we may not be able to satisfy. A covenant violation could also constitute a cross-default under our senior credit facility, the letter of credit facility and the indenture relating to our senior subordinated notes resulting in all 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 nine months ended November 2, 2013.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
The market risk inherent in our financial statements represents the potential changes in the fair value, earnings or cash flows arising from changes in interest rates. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposure, including interest rate.
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
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the ability to adjust our price points of such products, to the extent market conditions allow. These factors, along with our foreign-based sourcing offices, allow us to procure product from lower cost countries or capitalize on certain tariff-free arrangements, which help mitigate any commodity price increases that may occur. We have not historically managed, and do not currently intend to manage, commodity price exposures by using derivative instruments.
Other
Our current exposure to foreign exchange risk is not significant and accordingly, we have not entered into any transactions to hedge against those risks.
Item 4: Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) of the Securities Exchange Act. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of November 2, 2013 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 SECs rules and forms and (ii) that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the quarter ended November 2, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: | OTHER INFORMATION |
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
We repurchased the following amounts of our common stock during the third quarter of fiscal 2014:
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 |
||||||||||||
August 26, 2013 to August 30, 2013 |
67,372 | $ | 18.56 | 67,372 | $ | 22,795,234 | ||||||||||
September 2, 2013 to September 27, 2013 |
199,902 | $ | 18.75 | 199,902 | $ | 19,047,214 | ||||||||||
|
|
|
|
|||||||||||||
Total shares repurchased during Fiscal 2014 |
267,274 | $ | 18.70 | 267,274 | $ | 19,047,214 | ||||||||||
|
|
|
|
(1) | During the three months ended November 2, 2013, the Board of Directors extended the stock repurchase program to authorize us to purchase, from time to time and as market and business conditions warrant, up to $60 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2014. Although the Board of Directors allocated a maximum of $60 million to carry out the program, we are not obligated to purchase any specific number of outstanding shares and will reevaluate the program on an ongoing basis. Total purchases under the plan to date amount to $40.9 million. |
Item 6. | Exhibits |
Index to Exhibits
Exhibit |
Exhibit Description |
Where Filed | ||
10.64 | Employment Agreement dated September 9, 2013 between Stanely Silverstein and the Registrant (1) | Filed herewith. | ||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||
32.1 | Certification of Principal Executive Officer pursuant to Section 1350 | Furnished herewith. | ||
32.2 | Certification of Principal Financial Officer pursuant to Section 1350 | Furnished herewith. | ||
101.INS | XBRL Instance Document | Filed herewith. | ||
101.SCH | XBRL Taxonomy Extension Schema | Filed herewith. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith. | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith. |
(1) | Management Contract or Compensation Plan. |
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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. | ||||||
December 9, 2013 | By: /S/ ANITA BRITT | |||||
Anita Britt, Chief Financial Officer | ||||||
(Principal Financial Officer) |
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Exhibit Index
Exhibit |
Exhibit Description | |
10.64 | Employment Agreement dated September 9, 2013 between Stanely Silverstein and the Registrant | |
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | |
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1 | Certification of Principal Executive Officer pursuant to Section 1350 | |
32.2 | Certification of Principal Financial Officer pursuant to Section 1350 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
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Exhibit 10.64
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this Agreement) is made and entered into as of the 9th day of September, 2013, by and between Perry Ellis International, Inc., a Florida corporation (together with its successors and assigns permitted under this Agreement, the Company), and Stanley Silverstein (the Executive).
WITNESSETH
WHEREAS, the Company desires to employ the Executive as its President, International Development and Global Licensing, according to the terms and conditions as set forth in this Agreement;
WHEREAS, the Executive desires to enter into this Agreement and to accept such employment;
NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the Company and the Executive (each individually a Party and together the Parties) agree as follows:
1. Term of Employment. The Company hereby employs the Executive, and the Executive hereby accepts such employment, for the period commencing on September 9, 2013 (the Effective Date) and ending on the fifth anniversary of the Effective Date, unless terminated earlier as provided herein (such period or abbreviated period referred to as the Term).
2. Position, Duties and Responsibilities: Reporting. During the Term, the Executive shall be employed as President, International Development and Global Licensing, shall be appointed as an executive officer of the Company, and shall be responsible for certain operations and other general management of the affairs of the Company and for such duties and responsibilities as reasonably assigned by the Company consistent with the legitimate business needs of the Company. The Executive shall serve the Company faithfully, conscientiously and to the best of the Executives ability and shall promote the interests and reputation of the Company. The Executive shall devote substantially all of the Executives time, attention, knowledge, energy and skills to the duties of the Executives employment. During the Term, the Executive shall undertake no employment other than for the Company without the express written consent of the Companys Chief Executive Officer. The Executive shall report solely and directly to the Chief Executive Officer and President of the Company. Provided that the following activities do not interfere with the Executives duties and responsibilities, the Executive may (i) engage in charitable and community affairs, so long as such activities are consistent with his duties and responsibilities under this Agreement, (ii) manage his personal investments so long as such investments are not in conflict with the business of the Company, and (iii) serve on the boards of directors of other companies subject to the written approval of the Companys Chief Executive Officer. Executive shall report to Chief Executive Officer and President of the Company.
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3. Base Salary. During the Term, the Executive shall be paid an annualized base salary of five hundred thousand dollars ($500,000.00), payable in installments in accordance with the Companys regular payroll practices, subject to deduction for taxes and voluntary payroll deductions, and shall be reviewed annually for purposes of increase in the discretion of the Chief Executive Officer (such base salary, as it may be increased from time to time, Base Salary).
4. Annual Incentive Compensation Program.
(a) During the Term, the Executive shall participate in the Companys annual incentive compensation plan, program and/or arrangements applicable to senior-level executives as established and modified from time to time by the board of directors of the Company (the Board) in its sole discretion. During the Term, the Executive shall have a Threshold Bonus opportunity under such plan or program of 40% of his current Base Salary, a Target Bonus opportunity under such plan or program of not less than 100% of his current Base Salary, and a Maximum Bonus opportunity under such plan or program of not less than 130% of his current Base Salary, in each case based on satisfaction of performance criteria to be established by the Compensation Committee of the Board (the Bonus Opportunity). Payment of annual incentive compensation awards shall be made in the same manner and at the same time that other senior-level executives receive their annual incentive compensation awards. The Executive shall first be eligible to participate in the fiscal year 2015 plan. The Executive shall not be eligible for an incentive compensation award in fiscal year 2014 other than as described in Section 4(b) hereof.
(b) The Executive shall be paid the gross amount of One Hundred, Seventy-Five Thousand Dollars ($175,000.00), less applicable tax deductions, as a guaranteed bonus for fiscal year 2014. The bonus payable under this Section 4(b) shall be payable in September, 2014. This will be a one-time signing bonus payable September, 2014.
5. Long Term Incentive Program.
(a) The Executive shall be granted an aggregate of 120,000 shares that are registered in a Form S-8 registration statement filed with the SEC relating to the Perry Ellis International, Inc. 2005 Long-Term Incentive Compensation Plan, as amended and restated on June 12, 2008 and as further amended and restated on June 9, 2011 (Shares) on or as soon as practicable after the Effective Date. The first tranche of Twenty-Thousand (20,000) Shares shall vest on September 9, 2014. Twenty-Five Thousand (25,000) Shares shall thereafter vest on September 9, 2015, 2016, 2017 and 2018, provided that all of the Shares shall fully and immediately vest upon (i) a Change in Control (as defined in Section 10(g)), and (ii) a termination of the Executives employment pursuant to Section 10(a), (b), (d), or (e). The Shares shall be forfeited to the extent that they are not vested as of the date the Executives employment is terminated if such termination is pursuant to Section 10(c) or (f). The Shares shall be subject to such other terms, conditions, and/or restrictions as determined by the Company and as set forth in the related restricted stock agreement to be entered into between the Executive and the Company in the form attached hereto as Exhibit A.
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(b) In addition to the grant of the Shares, commencing in fiscal year 2016, the Executive may, in the discretion of the Company, be eligible to participate in the Companys applicable long-term incentive compensation plan as may be established and modified from time to time by the Board in its sole discretion commensurate with his titles and position, and may be eligible to receive awards under that plan in such form and amounts, and subject to such conditions, as the Compensation Committee shall determine each year.
6. Employee Benefit Programs.
(a) During the Term, and except as provided herein, the Executive shall be entitled to participate in all employee welfare and pension benefit plans, programs and/or arrangements generally applicable to senior-level executives.
(b) During the Term, the Company shall provide and/or pay for a life insurance policy on the Executives life with a death benefit of Four Hundred, Fifty Thousand Dollars ($450,000.00).
(c) During the Term, the Company shall provide, and Executive shall pay for, long-term disability insurance with a benefit of up to Twenty Thousand Dollars ($20,000.00) per month. The Company shall reimburse the Executive for the cost of the premium payable under the policy at the end of each fiscal year.
7. Reimbursement of Business Expenses. During the Term, the Executive is authorized to incur reasonable business expenses in carrying out his duties and responsibilities under this Agreement, and the Company shall promptly reimburse him for all such reasonable business expenses incurred in connection with carrying out the business of the Company, subject to documentation in accordance with the Companys policy. The Executive shall also be entitled to reimbursement for legal fees incurred in connection with his entry into this Agreement, but not to exceed $3,000.
8. Perquisites. During the Term, the Executive shall be entitled to participate in the Companys executive perquisite and fringe benefit programs applicable generally to the Companys senior-level executives in accordance with the terms and conditions of such arrangements as are in effect from time to time. Notwithstanding anything contained in this Agreement or applicable Company policy to the contrary, the Executive shall be entitled to business class air travel.
9. Vacation. The Executive shall be entitled to 20 paid vacation days per calendar year, commencing in the 2014 calendar year (and seven (7) vacation days in the 2013 calendar year), in accordance with the Companys vacation policy in effect from time to time, including but not limited to the policies with respect to carryover or forfeiture of unused vacation days. Executive shall not be eligible to accrue or use vacation leave until after three months of employment with the Company.
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10. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the Executives death during the Term, the Term and the employment relationship shall end as of the date of the Executives death and his estate and/or beneficiaries, as the case may be, shall be entitled to the following: (i) the Executives Base Salary through the date of such termination, subject to withholding and other appropriate deductions and (ii) reimbursement for expenses accrued during the period of employment in accordance with Section 7, (iii) vested benefits (including vacation) accrued through the date of such termination in accordance with applicable law or the governing plan rules, and (iv) any rights with respect to the vested portion of the Shares granted under Section 5 hereof or any other equity awards pursuant to the governing documents related thereto ((i) through (iv), collectively, the Accrued Obligations). In addition, the Executive shall be entitled to receive any annual bonus in respect of the fiscal year preceding the fiscal year in which the Executives employment ends that has not yet been paid on the date on which Executives employment ends (the Previous Year Bonus).
(b) Termination of Employment Due to Disability. If the Executives employment is terminated by the Company due to Disability during the Term, the Term shall end as of the date of the termination of the Executives employment and the Executive shall be entitled to the Accrued Obligations and the Previous Year Bonus.
The term Disability shall mean the Executives failure and inability to perform his essential duties and responsibilities under this Agreement, with or without reasonable accommodation, because of a serious health condition (as that term is defined and interpreted under the federal Family and Medical Leave Act) for a period of greater than twelve (12) weeks in any 12-month period.
(c) Termination of Employment by the Company for Cause. If the Company terminates the Executives employment for Cause during the Term, the Term and the employment relationship shall end as of the date of the termination of the Executives employment for Cause and the Executive shall be entitled to the Accrued Obligations.
The term Cause shall mean: (a) commission by the Executive of a felony; or (b) willful misconduct or gross negligence by the Executive in connection with his performance of duties for the Company; or (c) a willful failure by the Executive to carry out the reasonable and lawful directions of the Company; or (d) fraud, embezzlement, theft or dishonesty by the Executive against the Company or a willful material violation by the Executive of a policy or procedure of the Company; or (e) a material breach by the Executive of this Agreement after written notice by the Company and without cure by Executive within 30 days of such notice.
(d) Termination of Employment by the Company Without Cause. If the Executives employment is terminated by the Company without Cause, other than due to death or Disability, the Term and the employment relationship shall end and the Executive shall be entitled to the Accrued Obligations and the Previous Year Bonus. In
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addition, the Executive shall be entitled to a lump sum cash amount equal to 50% of the Base Salary payable as soon as practicable following the termination date (the Severance Payment). In no event shall a termination of the Executives employment without Cause occur unless the Company gives written notice to the Executive.
(e) Termination of Employment by the Executive for Good Reason. The Executive may terminate his employment for Good Reason. Upon a termination by the Executive of his employment for Good Reason, the Executive shall be entitled to the same payments and benefits as provided in Section 10(d) above. In no event shall a termination of the Executives employment for Good Reason occur unless the Executive gives written notice to the Company and an opportunity to cure within 30 days of such notice stating with specificity the events or actions that constitute Good Reason. Good Reason shall mean, without the Executives prior written consent, the occurrence of any of the following events or actions: (1) a reduction of the Executives Base Salary or Bonus Opportunity (i.e. - not a reduction of any actual bonus amount (if any) paid from year to year); (2) a material breach by the Company of this Agreement; or (3) a material diminution of the Executives duties, title, position, reporting lines, or status as an executive officer.
(f) Voluntary Termination of Employment by the Executive Without Good Reason. If the Executive voluntarily terminates his employment without Good Reason, other than a termination of employment due to death or Disability, the Term and the employment relationship shall end as of the date specified in the notice of the termination of the Executives employment without Good Reason, such notice not less than 14 days and not greater than 28 days from the termination date, and the Executive shall be entitled to the same payments and benefits as provided in Section 10(c) above.
(g) Termination of Employment in Connection with a Change in Control. If the Executives employment is terminated by the Company without Cause or by the Executive for Good Reason during (i) the 6-month period immediately preceding the date of the Change in Control or (ii) the 2-year period immediately following the date of the Change in Control, the Severance Payment shall be increased to an amount equal 200% of the sum of the Executives Base Salary and Bonus Opportunity at Target. A Change in Control shall mean: (1) the acquisition by any person, entity or group (as defined in Section 13(d) of the Exchange Act) (other than by (i) any subsidiary or affiliate of the Company, (ii) any entity owned, directly or indirectly, 50% or more by the Company, (iii) any employee benefit plan of any such entity, or (iv) George Feldenkreis, any spouse, parent, sibling or descendant of George Feldenkreis, or any spouse or descendant of any parent, sibling or descendent of George Feldenkreis and/or any entity for their benefit), through one transaction or a series of related transactions of 50% or more of the combined voting power of the then outstanding voting securities of the Company; or (2) the liquidation or dissolution of the Company (other than a dissolution occurring upon a merger or consolidation thereof); or (3) the sale, transfer or other disposition of all or substantially all of the assets of the Company through one transaction or a series of related transactions to one or more persons or entities that are not, immediately prior to such sale, transfer or other disposition, affiliates of the Company.
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(h) Clawback of Certain Compensation and Benefits. If, after the termination of the Executives employment with the Company for any reason other than by the Company for Cause, it is determined in good faith by the Board that the Executives employment could have been terminated by the Company for Cause, or the Executive breaches Sections 13 below, then in addition to any other remedy that may be available to the Company in law or equity and/or pursuant to any other provisions of this Agreement, the Executive shall be required to pay to the Company, immediately upon written demand by the Board, any Severance Payment previously paid to the Executive.
(i) General Release Agreement. In order to receive the cash payments and cash benefits available to the Executive under this Section 10 (other than the non-cash Accrued Obligations), the Executive or his estate, as the case may be, must execute a general release of claims in substantially the form attached as Exhibit B.
(j) Reduction for Other Benefits. Notwithstanding anything contained in this Agreement to the contrary, all compensation and benefits payable under this Section 10 shall be reduced by any other compensation payable under any severance or change-in-control plan, program, policy or arrangement of the Company in which the Executive is a participant and under which he has or will actually receive compensation.
(k) Resignation as an Officer. On or before the date Executives employment terminates, the Executive shall submit to the Company in writing his resignation, if applicable, in any capacity other than the employment relationship.
11. Board Policies. The payments and benefits provided under this Agreement shall be subject to any compensation or governance policies that the Board may adopt from time to time that are applicable by their terms to the Executive.
12. Confidentiality: Assignment of Rights.
(a) During the Term and thereafter, the Executive shall not disclose to anyone or make use of any trade secret or proprietary or confidential information of the Company which he acquires during Executives employment, except (i) as such disclosure or use may be required or appropriate in connection with his work as an employee of the Company or (ii) when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body with apparent jurisdiction. For purposes of this Agreement, confidential information includes all trade secrets and information disclosed to the Executive or known by the Executive as a consequence of or through the unique position of his employment with the Company (including information conceived, originated, discovered or developed by the Executive and any information acquired by the Company from others) prior to or after the Effective Date, and not generally or publicly known, (other than as a result of unauthorized disclosure by the Executive), with respect to the Company or the Companys business.
(b) The Executive hereby sells, assigns and transfers to the Company all of his right, title and interest in and to all inventions, discoveries, improvements and
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copyrightable subject matter (the rights) which during the Term are made or conceived by him, alone or with others, and which are within or arise out of any general field of the Companys business or arise out of any work he performs or information he receives regarding the business of the Company while employed by the Company. The Executive shall fully disclose to the Company as promptly as available all information known or possessed by him concerning the rights referred to in the preceding sentence, and upon request by the Company and without any further compensation in any form to him by the Company, but at the expense of the Company, execute all applications for patents and for copyright registration, assignments thereof and other instruments and do all things which the Company may deem necessary to vest and maintain in it the entire right, title and interest in and to all such rights.
13. Noncompetition: Nonsolicitation. The Executive covenants and agrees that, during the Term and for six months after Executives last date of employment with the Company, Executive shall not directly or indirectly, engage in a Competitive Activity or call on, solicit or do business with any customer or client of the Company or any subsidiary. Competitive Activity shall mean, directly or indirectly (whether as a principal, agent, partner, employee, investor, owner, consultant, board member or otherwise), activity that is in direct competition with the Company or any of its Subsidiaries in any of the States within the United States, or countries within the world, in which the Company or any of its Subsidiaries conducts business with respect to a business in which the Company or any of its Subsidiaries engaged during the Term; provided, however, that an ownership interest of 1% or less in any publicly held company shall not constitute a Competitive Activity. The Executive covenants and agrees that, for two (2) years after Executives last date of employment with the Company, he will not, directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity, employ or attempt to employ any employee of the Company or any Subsidiary, or any person that was employed with the Company during the last six months of Executives employment.
14. Assignability, Binding Nature. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of the Executive) and assigns. The Executive may not assign his rights under this Agreement. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company; provided, however, that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law.
15. Section 409A. This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended from time to time (the Code) and its corresponding regulations, or an exemption, and payments may only be made under this Agreement upon an event and in a manner permitted by Code Section 409A, to the extent applicable. Severance benefits under the Agreement are intended to be exempt from
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Code Section 409A under the separation pay exception, to the maximum extent applicable. Any payments that qualify for the short-term deferral exception or another exception under Code Section 409A shall be paid under the applicable exception. Notwithstanding anything in this Agreement to the contrary, if required by Code Section 409A, if the Executive is considered a specified employee for purposes of Code Section 409A and if payment of any amounts under this Agreement is required to be delayed for a period of six months after separation from service pursuant to Code Section 409A, payment of such amounts shall be delayed as required by Code Section 409A, and the accumulated amounts shall be paid in a lump sum payment within ten days after the end of the six-month period. If the Executive dies during the postponement period prior to the payment of benefits, the amounts withheld on account of Code Section 409A shall be paid to the personal representative of the Executives estate within 60 days after the date of the Executives death.
16. No Mitigation; No Offset. In the event of any termination of the Executives employment under Section 10, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Agreement on account of any compensation attributable to any subsequent employment that he may obtain except as specifically provided in Section 10. Notwithstanding anything contained in this Agreement to the contrary, all compensation and benefits payable under Section 10 shall be reduced by any other compensation and benefits payable under any severance or change-in-control plan, program, policy or arrangement of the Company in which the Executive is a participant and under which he has actually and previously received compensation and/or benefits.
17. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding), by reason of the fact that he is or was a director, officer or employee of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is the Executives alleged action in an official capacity while serving as a director, officer, member, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Companys certificate of incorporation or bylaws or resolutions of the Board and any applicable laws, or, if greater, and not precluded by applicable laws, by the laws of the State of Florida, against all cost, expense, liability and loss (including, without limitation, attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, employee or agent of the Company or other entity and shall inure to the benefit of the Executives heirs, executors and administrators. Any indemnification by the Company shall only be required where, to the extent practical without prejudice to the Executives rights, the Executive submits notice to the Company of the cost, expense, liability and loss and receives the Companys approval, such approval not unreasonably withheld.
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(b) Neither the failure of the Company (including its board of directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of any proceeding concerning payment of amounts claimed by the Executive under Section 17(a) above that indemnification of the Executive is proper because he has met the applicable standard of conduct, nor a determination by the Company (including its board of directors, independent legal counsel or stockholders) that the Executive has not met such applicable standard of conduct, shall create a presumption that the Executive has not met the applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and officers liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers.
18. Representation. The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. The Executive represents and warrants that no agreement exists between him and any other person, firm or organization that would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement. This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto.
20. Amendment or Waiver. No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case maybe.
21. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. If such invalidity or unenforceability is caused by length of time or size of area, or both, the otherwise invalid provision shall be considered to be reduced to a period or area which would cure such invalidity.
22. Survivorship. The respective rights and obligations of the Parties hereunder shall survive any termination of the Executives employment hereunder, to the extent necessary to the intended preservation of such rights and obligations.
9
23. Governing Law/Jurisdiction. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Florida without reference to principles of conflict of laws unless superseded by federal law.
24. Resolution of Disputes. Any disputes arising under or in connection with this Agreement shall be resolved by binding arbitration, to be held in Miami, Florida or any other location mutually agreed to by the Parties in accordance with the rules and procedures of the American Arbitration Association governing employment disputes. The Executive and the Company shall mutually select the arbitrator. If the Executive and the Company cannot agree on the selection of an arbitrator, each Party shall select an arbitrator and the two arbitrators shall select a third arbitrator who shall resolve the dispute. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. All arbitration costs shall be shared equally by the Parties, and all other costs shall be borne by the Party incurring such cost. Nothing in this section shall, however, limit or prevent the Company from litigating in any court of competent jurisdiction any claim for emergency, temporary, or permanent injunctive relief related to any violation of a restrictive covenant described herein.
25. Notices. All notices shall be in writing, shall be sent to the following addresses listed below or to such other address as either Party shall request by notice to the other, using a reputable overnight express delivery service, and shall be deemed to be received when sent.
If to the Company: | Perry Ellis International, Inc. | |
3000 N.W. 107th Avenue | ||
Miami, Florida 33172 | ||
Attention: General Counsel | ||
If to the Executive: | The Executives last known address on file with the Company with a copy to: | |
Gary Rothstein, Esq. | ||
Morgan Lewis & Bockius | ||
101 Park Avenue | ||
New York, NY 10178 |
26. Headings. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.
27. Counterparts. This Agreement may be executed in two or more counterparts, and such counterparts shall constitute one and the same instrument. Signatures delivered by facsimile shall be deemed effective for all purposes to the extent permitted under applicable law.
10
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.
STANLEY SILVERSTEIN | ||
| ||
Stanley Silverstein | ||
Date: | ||
PERRY ELLIS INTERNATIONAL, INC. | ||
By: |
| |
Name: | Anita Britt | |
Title: | Chief Financial Officer | |
Date: |
11
Exhibit 31.1
Certification
I, George Feldenkreis, certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of Perry Ellis International, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Accounting Principles Generally Accepted in the United States of America;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5) The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
December 9, 2013
/S/ GEORGE FELDENKREIS | ||
Name: | George Feldenkreis | |
Title: | Chairman and Chief Executive Officer | |
(Principal Executive Officer) |
Exhibit 31.2
Certification
I, Anita Britt, certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of Perry Ellis International, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Accounting Principles Generally Accepted in the United States of America;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5) The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
December 9, 2013
/S/ ANITA BRITT | ||
Name: | Anita Britt | |
Title: | Chief Financial Officer | |
(Principal Financial Officer) |
Exhibit 32.1
Certification
I, George Feldenkreis, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Perry Ellis International, Inc. (the Company) for the quarter ended November 2, 2013 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
December 9, 2013
/S/ GEORGE FELDENKREIS | ||
Name: | George Feldenkreis | |
Title: | Chairman and Chief Executive Officer | |
(Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification
I, Anita Britt, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Perry Ellis International, Inc. (the Company) for the quarter ended November 2, 2013 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
December 9, 2013
/S/ ANITA BRITT | ||
Name: | Anita Britt | |
Title: | Chief Financial Officer | |
(Principal Financial Officer) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Equity
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 02, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | 11. EQUITY The following table reflects the changes in equity:
During the three months ended November 2, 2013, the Board of Directors extended the stock repurchase program to authorize the Company to purchase, from time to time and as market and business conditions warranted, up to $60 million of the Company’s common stock for cash in the open market or in privately negotiated transactions through October 31, 2014. Although the Board of Directors allocated a maximum of $60 million to carry out the program, the Company is 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 $40.9 million. During January 2013, the Company retired 1,290,022 shares of treasury stock recorded at a cost of approximately $18.5 million. Accordingly, during fiscal 2013, the Company reduced common stock and additional paid-in-capital by $13,000 and $18.5 million, respectively. Additionally, the Company repurchased shares of its common stock during fiscal 2014 at a cost of $5.0 million. |
Stock Options, Stock Appreciation Rights and Restricted Shares - Additional Information (Detail) (USD $)
|
3 Months Ended | 9 Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 04, 2013
Performance Based Restricted Stock Awards
Second Amended And Restated Long Term Incentive Compensation Plan, 2005
|
Nov. 02, 2013
Restricted Stock
Key employees
|
Aug. 03, 2013
Restricted Stock
Key employees
|
May 04, 2013
Restricted Stock
Key employees
|
Nov. 02, 2013
Restricted Stock
Key employees
Minimum
|
Aug. 03, 2013
Restricted Stock
Key employees
Minimum
|
May 04, 2013
Restricted Stock
Key employees
Minimum
|
Nov. 02, 2013
Restricted Stock
Key employees
Maximum
|
Aug. 03, 2013
Restricted Stock
Key employees
Maximum
|
May 04, 2013
Restricted Stock
Key employees
Maximum
|
Aug. 03, 2013
Restricted Stock
Director
|
May 04, 2013
Restricted Stock
Second Amended And Restated Long Term Incentive Compensation Plan, 2005
|
Nov. 02, 2013
Stock Appreciation Rights Sars Settleable In Shares
|
Nov. 02, 2013
Stock Appreciation Rights Sars Settleable In Shares
Minimum
|
Nov. 02, 2013
Stock Appreciation Rights Sars Settleable In Shares
Maximum
|
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||||
Awards expected vesting percentage | 100.00% | ||||||||||||||
Award vesting date | 2016-05 | ||||||||||||||
Number of shares awarded | 120,400 | 133,460 | 225,938 | 13,740 | 109,644 | 14,000 | |||||||||
Fair value of stock granted | $ 2,200,000 | $ 2,700,000 | $ 4,000,000 | $ 300,000 | $ 1,900,000 | $ 141,000 | |||||||||
Vesting Period | 3 years | 3 years | 3 years | 5 years | 5 years | 5 years | 3 years | 4 years | |||||||
Number of directors awarded restricted stock | 5 | ||||||||||||||
Exercise price | $ 16.79 | $ 18.57 | |||||||||||||
Award Expiration term | 10 years |
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