UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended May 5, 2018
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrants common stock is 15,867,000 (as of June 11, 2018).
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 May 5, 2018 and February 3, 2018 |
1 | |||
2 | ||||
3 | ||||
4 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements |
6 | |||
Item 2: |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
26 | |||
Item 3: |
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33 | ||||
Item 4: |
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34 | ||||
Item 2: |
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36 | ||||
Item 6: |
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37 |
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share data)
May 5, 2018 |
February 3, 2018 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | 50,471 | $ | 35,222 | ||||
Investments, at fair value |
4,912 | 14,086 | ||||||
Accounts receivable, net |
201,818 | 156,863 | ||||||
Inventories |
150,965 | 175,459 | ||||||
Prepaid expenses and other current assets |
9,810 | 8,151 | ||||||
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Total current assets |
417,976 | 389,781 | ||||||
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Property and equipment, net |
55,425 | 56,164 | ||||||
Other intangible assets, net |
186,017 | 186,216 | ||||||
Deferred income tax |
541 | 411 | ||||||
Other assets |
1,569 | 1,590 | ||||||
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TOTAL |
$ | 661,528 | $ | 634,162 | ||||
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Accounts payable |
$ | 52,674 | $ | 98,848 | ||||
Accrued expenses and other liabilities |
44,858 | 35,768 | ||||||
Accrued interest payable |
350 | 1,334 | ||||||
Accrued income tax payable |
1,805 | 1,466 | ||||||
Unearned revenues |
4,651 | 2,907 | ||||||
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Total current liabilities |
104,338 | 140,323 | ||||||
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Senior subordinated notes payable, net |
49,855 | 49,818 | ||||||
Senior credit facility |
62,404 | 11,154 | ||||||
Real estate mortgages |
32,495 | 32,721 | ||||||
Income tax payable |
3,868 | 4,157 | ||||||
Unearned revenues and other long-term liabilities |
13,989 | 13,524 | ||||||
Deferred income taxes |
7,269 | 4,915 | ||||||
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Total long-term liabilities |
169,880 | 116,289 | ||||||
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Total liabilities |
274,218 | 256,612 | ||||||
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Commitment 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; 15,868,685 shares issued and outstanding as of May 5, 2018 and 15,690,669 shares issued and outstanding as of February 3, 2018 |
159 | 157 | ||||||
Additional paid-in-capital |
153,087 | 151,563 | ||||||
Retained earnings |
242,336 | 232,977 | ||||||
Accumulated other comprehensive loss |
(8,272 | ) | (7,147 | ) | ||||
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Total equity |
387,310 | 377,550 | ||||||
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TOTAL |
$ | 661,528 | $ | 634,162 | ||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
1
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended | ||||||||
May 5, | April 29, | |||||||
2018 | 2017 | |||||||
Revenues: |
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Net sales |
$ | 245,435 | $ | 233,823 | ||||
Royalty income |
9,799 | 8,267 | ||||||
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Total revenues |
255,234 | 242,090 | ||||||
Cost of sales |
161,367 | 151,002 | ||||||
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Gross profit |
93,867 | 91,088 | ||||||
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Operating expenses: |
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Selling, general and administrative expenses |
75,549 | 71,199 | ||||||
Depreciation and amortization |
3,227 | 3,468 | ||||||
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Total operating expenses |
78,776 | 74,667 | ||||||
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Operating income |
15,091 | 16,421 | ||||||
Interest expense |
2,009 | 1,956 | ||||||
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Net income before income taxes |
13,082 | 14,465 | ||||||
Income tax provision |
2,835 | 1,694 | ||||||
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Net income |
$ | 10,247 | $ | 12,771 | ||||
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Net income per share: |
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Basic |
$ | 0.68 | $ | 0.85 | ||||
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Diluted |
$ | 0.66 | $ | 0.83 | ||||
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Weighted average number of shares outstanding |
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Basic |
15,156 | 15,009 | ||||||
Diluted |
15,519 | 15,303 |
See Notes to Unaudited Condensed Consolidated Financial Statements
2
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(amounts in thousands)
Three Months Ended | ||||||||
May 5, 2018 |
April 29, 2017 |
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Net income |
$ | 10,247 | $ | 12,771 | ||||
Other Comprehensive (loss) income: |
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Foreign currency translation adjustments, net |
(1,676 | ) | 279 | |||||
Unrealized gain (loss) on forward contract |
541 | (362 | ) | |||||
Unrealized gain on investments |
10 | 6 | ||||||
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Total other comprehensive loss |
(1,125 | ) | (77 | ) | ||||
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Comprehensive income |
$ | 9,122 | $ | 12,694 | ||||
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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)
Three Months Ended | ||||||||
May 5, | April 29, | |||||||
2018 | 2017 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 10,247 | $ | 12,771 | ||||
Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation and amortization |
3,309 | 3,554 | ||||||
Provision for bad debts |
766 | 759 | ||||||
Amortization of debt issue cost |
104 | 101 | ||||||
Amortization of premiums and discounts |
7 | 20 | ||||||
Deferred income taxes |
2,274 | (1,789 | ) | |||||
Share-based compensation |
1,686 | 1,843 | ||||||
Changes in operating assets and liabilities, net of acquisitions |
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Accounts receivable, net |
(33,690 | ) | (43,816 | ) | ||||
Inventories |
23,449 | 11,910 | ||||||
Prepaid income taxes |
318 | 1,737 | ||||||
Prepaid expenses and other current assets |
(238 | ) | 331 | |||||
Other assets |
(52 | ) | (72 | ) | ||||
Accounts payable and accrued expenses |
(50,662 | ) | (27,044 | ) | ||||
Accrued interest payable |
(984 | ) | (907 | ) | ||||
Income taxes payable |
(30 | ) | 1,570 | |||||
Unearned revenues and other liabilities |
418 | 1,265 | ||||||
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Net cash used in operating activities |
(43,078 | ) | (37,767 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
(1,693 | ) | (1,901 | ) | ||||
Purchase of investments |
| (10,256 | ) | |||||
Proceeds from investments maturities |
9,184 | 4,655 | ||||||
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Net cash provided by (used in) investing activities |
7,491 | (7,502 | ) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Borrowings from senior credit facility |
106,959 | 98,764 | ||||||
Payments on senior credit facility |
(55,709 | ) | (57,140 | ) | ||||
Payments on real estate mortgages |
(225 | ) | (220 | ) | ||||
Payments for employee taxes on shares withheld |
(259 | ) | | |||||
Payments on capital leases |
(17 | ) | (69 | ) | ||||
Proceeds from exercise of stock options |
101 | 23 | ||||||
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Net cash provided by financing activities |
50,850 | 41,358 | ||||||
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Effect of exchange rate changes on cash and cash equivalents |
(14 | ) | (380 | ) | ||||
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
15,249 | (4,291 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
35,222 | 30,695 | ||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 50,471 | $ | 26,404 | ||||
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4
CONTINUED
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Three Months Ended | ||||||||
May 5, | April 29, | |||||||
2018 | 2017 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid during the period for: |
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Interest |
$ | 2,883 | $ | 2,742 | ||||
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Income taxes |
$ | 163 | $ | 19 | ||||
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NON-CASH FINANCING AND INVESTING ACTIVITIES: |
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Accrued purchases of property and equipment |
$ | 85 | $ | 208 | ||||
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Capital lease financing |
$ | 703 | $ | | ||||
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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 3, 2018, filed with the Securities and Exchange Commission on April 17, 2018.
The information presented reflects all adjustments, which are in the opinion of management of a normal and recurring nature, necessary for a fair presentation of the interim periods. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU creates a single comprehensive new revenue recognition standard. Under the new standard and its related amendments (collectively known as Accounting Standards Codification (ASC 606)), an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The new standard requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017. The Company adopted the standard as of February 4, 2018, using the modified retrospective method resulting in a cumulative-effect reduction to retained earnings of $0.9 million, net of tax, as of the date of adoption. Under this approach, the Company did not restate the prior financial statements presented. The provisions under this ASU were applied to contracts not completed as of that date.
The cumulative effects of the changes made to the condensed consolidated balance sheet at February 4, 2018, as a result of the adoption of ASC 606 were as follows:
Balance at | Adjustments | Balance at | ||||||||||
February 3, | due to ASC | February 4, | ||||||||||
2018 | 606 | 2018 | ||||||||||
(in thousands) | ||||||||||||
Accounts receivable, net |
156,863 | 13,017 | 169,880 | |||||||||
Prepaid expenses and other current assets |
8,151 | 1,420 | 9,571 | |||||||||
Deferred income tax |
411 | 43 | 454 | |||||||||
Accrued expenses and other liabilities |
35,768 | 14,294 | 50,062 | |||||||||
Unearned revenues |
2,907 | 1,313 | 4,220 | |||||||||
Deferred income taxes |
4,915 | (239 | ) | 4,676 | ||||||||
Retained earnings |
232,977 | (888 | ) | 232,089 |
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall (subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and
6
also updates certain presentation and disclosure requirements. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption, during the first quarter of fiscal 2019, of ASU No. 2016-01 did not have a material impact on the Companys results of operations or the Companys financial position.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, using a modified retrospective approach, and early adoption is permitted. The Company is currently evaluating the effect that the adoption will have on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides guidance for the accounting for credit losses on instruments within its scope. The amendments guide on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. The amendments require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments also require that credit losses on available-for-sale debt securities be presented as an allowance. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this update are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The adoption, during the first quarter of fiscal 2019, of ASU No. 2016-01 did not have a material impact on the Companys results of operations or the Companys financial position.
In May 2017, the FASB issued ASU No. 2017-09, Compensation Stock Compensation (Topic718): Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements. This update provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The guidance is required to be applied prospectively to an award modified on or after the adoption date. The Company will apply this guidance to any future changes made to the terms or conditions, of share-based payment awards, after adoption. The adoption, during the first quarter of fiscal 2019, of ASU No. 2016-01 did not have a material impact on the Companys results of operations or the Companys financial position.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, which is intended to reduce the complexity of accounting for certain financial instruments with down round features and address the difficulty of accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which simplifies the application of hedge accounting guidance to better portray the economic results of risk management activities in the financial statements. The guidance aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the update. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
7
On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cut and Jobs Act (Tax Act). In accordance with SAB 118, during fiscal 2018, the Company determined that the net ($3.9) million of the deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $5.8 million of current tax expense recorded in connection with the Transition tax on foreign earnings were provisional amounts and reasonable estimates at February 3, 2018. Over the SAB 118 measurement period, the Company intends to further analyze and update the calculated impacts noted above, as well as other potential correlative adjustments. During the three months ended May 5, 2018, the Company did not record any adjustments to the provisional income tax benefit recorded in fiscal 2018. Any subsequent adjustment to these amounts or additional amounts identified will be recorded to current tax expense in the quarter when the analysis is complete.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (GILTI) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. For the three months ended May 5, 2018, while the Company is completing its analysis of the GILTI tax rules and the two available accounting policy elections, it has included a reasonable estimate of $0.5 million for the impact of GILTI as an increase to its fiscal 2019 tax expense for purposes of estimating the fiscal 2019 annual effective tax rate. As part of this estimate, the Company has not included GILTI as part of its deferred taxes. The Company does not expressly consider its methodology for calculating its fiscal 2019 annual estimated tax rate to constitute an election of either of the acceptable accounting policy elections relative to the GILTI tax regime. The Company will continue to analyze the GILTI tax rules over the SAB 118 measurement period and any subsequent adjustment pertaining to an ultimate accounting policy election will be recorded in the quarter when the analysis is complete.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement Reporting Comprehensive Income (Topic 220):Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The amendments eliminate the stranded tax effects resulting from the Tax Act. The updates also require certain disclosures about stranded tax effects. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which makes minor changes to ASU 2016-01. The update clarifies that entities must use a prospective transition approach only for equity securities they elect to measure using the new measurement alternative. The update also clarifies other aspects of the guidance on how to apply the measurement alternative and the presentation requirements for financial liabilities measured under the fair value option. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption, during the first quarter of fiscal 2019, of ASU No. 2016-01 did not have a material impact on the Companys results of operations or the Companys financial position.
In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Act in the period of enactment. The update also provides guidance on the financial statement disclosures that are required under a measurement period approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
8
3. REVENUE RECOGNITION
The Company recognizes revenue pursuant to ASC 606. The majority of the Companys revenue is derived from the sales of its products, which represents net sales recorded in the Companys condensed consolidated statements of income. The Company also recognizes revenues for sales-based royalties related to its licenses of its symbolic intellectual property principally consisting of licenses of trade names and trademarks, which represents royalty income recorded in the Companys condensed consolidated statements of income.
Disaggregation of revenue
The Company has four reportable segments: Mens Sportswear and Swim, Womens Sportswear, Direct-to-Consumer comprised of product sales and Licensing comprised of sales-based royalties. For a presentation of the Companys revenues disaggregated by segment and geographical region, refer to footnote 17 in these notes to unaudited condensed consolidated financial statements.
Performance Obligations
Product sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. Transfer of title and risk of loss is based upon shipment under free on board shipping point for most goods. In some instances, transfer of title and risk of loss takes place at the point of sale at the Companys retail stores and e-commerce platforms. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). In order to determine the transaction price, the Company estimates the amount of variable consideration, which principally relates to estimated customer returns, allowances, co-op advertising, markdowns and discounts, at the outset of the contract utilizing the expected value. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Companys control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.
The Companys contracts with customers, for a license to symbolic intellectual property, typically include a nonrefundable minimum guarantee (MG) establishing a floor for the amount of consideration to be paid to the Company in installments over the term of the license period. The Company earns additional sales-based royalties when the royalties exceed the nonrefundable MG. As a result, the Companys contracts contain both a sales-based royalty and an MG and therefore, include both fixed and variable consideration. In order to determine the appropriate approach to utilize for the pattern of recognition of transaction price for contracts that contain a MG and sales-based royalty, the Company has determined that the approach applied should be based on the Companys evaluation of whether it is expected that the MG would be exceeded. For contracts, where the Company has determined that it is unlikely that the MG will be exceeded, the Company believes that these contracts, for the license of symbolic intellectual property, the measure of progress for the fixed consideration would be based on time elapsed because the customer simultaneously receives and consumes the benefits as the entity performs. The Company will recognize additional sales-based royalties, if any, when the cumulative royalties exceed the MG as the Company has concluded that the variable consideration is fully constrained as it is not expected to be entitled to the variable consideration. For contracts, where the Company anticipates that the MG will be exceeded, the Company has determined that the substance of these arrangements is that it is paid consideration based on the sales-base royalties and therefore, would apply the recognition constraint on sales-based royalties in ASC 606 and will recognize the consideration based on sales-based royalty earned in each distinct period of the series.
On the Companys consolidated balance sheet, reserves for returns, allowances, co-op advertising and markdowns will be included within accrued expenses and other liabilities, rather than accounts receivable, net, and the asset for the Companys right to recover products from a customer upon settling a return is recorded at the original carrying amount of the product less any expected cost to recover and any decreases in value of product, neither of which have been deemed significant. This refund asset has been included within prepaid expenses and other current assets. On the Companys consolidated statement of income, advertising reimbursements received from licensees expenses will be considered a component of the transaction price in its contracts with customers and therefore, will be recorded as revenue upon recognition. Previously, these amounts were recorded in selling, general and administrative expenses.
9
Contract Balances
The Company recognizes unearned royalty income when licensees pay contractual obligations before being earned or when up-front fees are collected and as such is included in current liabilities on the consolidated balance sheet. This liability is recognized as royalty income over the applicable term of the respective license agreement. As of May 5, 2018 and February 3, 2018, unearned revenue was $4.7 million and $2.9 million, respectively. For the three months ended May 5, 2018, the Company recognized $2.8 million of revenue that was previously included in unearned revenue as of February 3, 2018.
Certain of the Companys contracts with customers that provide for the license of intellectual property do not meet the adopted practical expedients. As of May 5, 2018, the Company had approximately 163 contracts for the license of intellectual property with unsatisfied performance obligations extending through December 2026. The total aggregate transaction price allocated to the unsatisfied performance obligations of these contracts was approximately $170.5 million, of which $39.5 million is expected to be realized in fiscal 2019.
Significant Judgements
The Company records reductions to revenue for estimated customer returns, allowances, co-op advertising, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Companys estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Provisions for customer specific discounts are based on contractual obligations with certain major customers. Reserves for returns, allowances, co-op advertising and markdowns are included within accrued expenses and other liabilities. Discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the consolidated balance sheet.
Practical Expedients and Policy Elections
The Company has adopted or made a policy election related to the accounting for sales tax, shipping and handling, costs to obtain a contract, significant financing components and transaction price allocated to future performance obligations.
| Sales Tax |
The Company has elected to exclude sales tax and similar taxes from the measurement of transaction price. As the Company historically has presented taxes on a net revenue basis, there is no change to the current presentation as a result of the adoption of ASC 606.
| Shipping and Handling Costs |
Costs associated for shipment of products to a customer are accounted for as a fulfillment cost and are included in selling, general and administrative expenses. The Company has elected to apply the practical expedient for shipping costs and will account for shipping and handling activities performed after control of a good has been transferred to the customer as a fulfillment cost and not a performance obligation. Therefore, both revenue and costs of shipping and handling will be recorded at the same time.
| Costs to Obtain and Fulfill a Contract |
The Company historically has recognized the incremental costs of obtaining contracts as an expense when incurred, and if the amortization period of the assets that the Company otherwise would have recognized is one year or less, there is no change to the current presentation as a result of the adoption of ASC 606. As such, the Company has elected to adopt the practical expedient for costs to obtain and fulfill a contract. The Company, as of February 3, 2018 and May 5, 2018, incurred no incremental costs to obtain or fulfill the Companys contracts with customers that were required to be capitalized.
| Significant Financing Component |
The Company does not believe that there is a significant financing component related to product sales or for licenses of symbolic intellectual property since at inception of the contract the Company expects to be paid within one year and the right to access the license is transferred over time, respectively. As such, the Company has elected to adopt the practical expedient for evaluating whether there is a significant financing component.
10
| Transaction Price Allocated to Future Performance Obligations |
Certain of the Companys contracts meet the following practical expedients: (1) the performance obligation is part of a contract that has an original expected duration of one year or less, (2) revenue is recognized from the satisfaction of the performance obligations in the amount billable to the customer, and (3) the variable consideration is allocated entirely to a wholly unsatisfied performance obligation or unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation. The Company has elected to adopt the practical expedients that limit this requirement.
The impact of adoption of ASC 606 on the condensed consolidated balance sheet at May 5, 2018 and condensed consolidated statement of income for the three months ended May 5, 2018 was as follows:
May 5, 2018 | ||||||||||||
Excluding | ||||||||||||
Adjustments | ||||||||||||
due to ASC | ||||||||||||
As Reported | 606(1) | As Adjusted | ||||||||||
(in thousands) | ||||||||||||
Accounts receivable, net |
201,818 | (14,757 | ) | 187,061 | ||||||||
Prepaid expenses and other current assets |
9,810 | (1,953 | ) | 7,857 | ||||||||
Accrued expenses and other liabilities |
44,858 | (16,743 | ) | 28,115 | ||||||||
Accrued income tax payable |
1,805 | (60 | ) | 1,745 | ||||||||
Unearned revenues |
4,651 | (245 | ) | 4,406 | ||||||||
Retained earnings |
242,336 | 338 | 242,674 | |||||||||
Three Months Ended May 5, 2018 | ||||||||||||
Excluding | ||||||||||||
Adjustments | ||||||||||||
due to ASC | ||||||||||||
As Reported | 606(1) | As Adjusted | ||||||||||
(in thousands) | ||||||||||||
Royalty income |
9,799 | (1,226 | ) | 8,573 | ||||||||
Total revenues |
255,234 | (1,226 | ) | 254,008 | ||||||||
Gross profit |
93,867 | (1,226 | ) | 92,641 | ||||||||
Selling, general and administrative expenses |
75,549 | (1,504 | ) | 74,045 | ||||||||
Total operating expenses |
78,776 | (1,504 | ) | 77,272 | ||||||||
Operating income |
15,091 | (278 | ) | 14,813 | ||||||||
Income tax provision |
2,835 | (60 | ) | 2,775 | ||||||||
Net income |
10,247 | (338 | ) | 9,909 |
(1) | Refer to footnote 2: Accounting Standards Update, No. 2014-09, Revenue from Contracts with Customers (ASC 606). |
11
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of:
May 5, | February 3, | |||||||
2018 | 2018 | |||||||
(in thousands) | ||||||||
Trade accounts |
$ | 196,930 | $ | 163,872 | ||||
Royalties |
6,540 | 7,107 | ||||||
Other receivables |
912 | 902 | ||||||
|
|
|
|
|||||
Total |
204,382 | 171,881 | ||||||
Less: Allowances (1) |
(2,564 | ) | (15,018 | ) | ||||
|
|
|
|
|||||
Total |
$ | 201,818 | $ | 156,863 | ||||
|
|
|
|
(1) | Due to the adoption of Accounting Standards Update No 2014-09, Revenue from Contracts with Customers (ASC 606), sales allowances and reserves for fiscal 2019 have been reclassified as other current liabilities. There was no reclassification made to sales allowances and reserves for fiscal 2018. Refer to footnote 2. |
5. INVENTORIES
Inventories are stated at the lower of cost (weighted moving average cost) or net realizable value. Cost principally consists of the purchase price, customs, duties, freight, and commissions to buying agents.
Inventories consisted of the following as of:
May 5, | February 3, | |||||||
2018 | 2018 | |||||||
(in thousands) | ||||||||
Finished goods |
$ | 150,965 | $ | 175,459 |
6. INVESTMENTS
The Companys investments include marketable securities and certificates of deposit at May 5, 2018 and February 3, 2018. Certificates of deposit with maturity dates less than one year are classified as available-for-sale. Marketable securities are classified as available-for-sale and consist of corporate and government bonds with maturity dates less than one year. Investments are stated at fair value.
Investments consisted of the following as of May 5, 2018:
Gross | Gross | Estimated | ||||||||||||||
Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Marketable securities |
$ | 905 | $ | | $ | | $ | 905 | ||||||||
Certificates of deposit |
4,011 | | (4 | ) | 4,007 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total investments |
$ | 4,916 | $ | | $ | (4 | ) | $ | 4,912 | |||||||
|
|
|
|
|
|
|
|
12
Investments consisted of the following as of February 3, 2018:
Gross | Gross | Estimated | ||||||||||||||
Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Marketable securities |
$ | 6,655 | $ | | $ | (5 | ) | $ | 6,650 | |||||||
Certificates of deposit |
7,441 | | (5 | ) | 7,436 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total investments |
$ | 14,096 | $ | | $ | (10 | ) | $ | 14,086 | |||||||
|
|
|
|
|
|
|
|
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
May 5, | February 3, | |||||||
2018 | 2018 | |||||||
(in thousands) | ||||||||
Furniture, fixtures and equipment |
$ | 98,158 | $ | 97,414 | ||||
Buildings and building improvements |
22,288 | 22,341 | ||||||
Vehicles |
537 | 537 | ||||||
Leasehold improvements |
47,088 | 47,765 | ||||||
Land |
9,431 | 9,430 | ||||||
|
|
|
|
|||||
Total |
177,502 | 177,487 | ||||||
Less: accumulated depreciation and amortization |
(122,077 | ) | (121,323 | ) | ||||
|
|
|
|
|||||
Total |
$ | 55,425 | $ | 56,164 | ||||
|
|
|
|
The above table of property and equipment includes assets held under capital leases as of:
May 5, | February 3, | |||||||
2018 | 2018 | |||||||
(in thousands) | ||||||||
Furniture, fixtures and equipment |
$ | 703 | $ | 810 | ||||
Less: accumulated depreciation and amortization |
(18 | ) | (722 | ) | ||||
|
|
|
|
|||||
Total |
$ | 685 | $ | 88 | ||||
|
|
|
|
For the three months ended May 5, 2018 and April 29, 2017, depreciation and amortization expense relating to property and equipment amounted to $3.1 and $3.3 million, respectively. These amounts include amortization expense for leased property under capital leases.
8. OTHER INTANGIBLE ASSETS
Trademarks
Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $184.1 million at May 5, 2018 and February 3, 2018.
Other
Other intangible assets represent customer lists as of:
May 5, | February 3, | |||||||
2018 | 2018 | |||||||
(in thousands) | ||||||||
Customer lists |
$ | 8,450 | $ | 8,450 | ||||
Less: accumulated amortization |
(6,578 | ) | (6,380 | ) | ||||
|
|
|
|
|||||
Total |
$ | 1,872 | $ | 2,070 | ||||
|
|
|
|
13
For the three months ended May 5, 2018 and April 29, 2017, amortization expense relating to customer lists amounted to approximately $0.2 million for each of the periods. Other intangible assets are amortized over their estimated useful lives of 10 years. Assuming no impairment, the table sets forth the estimated amortization expense for future periods based on recorded amounts as of February 3, 2018:
(in thousands) | ||||
2019 |
$ | 793 | ||
2020 |
$ | 734 | ||
2021 |
$ | 543 |
9. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consisted of the following as of:
May 5, 2018 |
February 3, 2018 |
|||||||
(in thousands) | ||||||||
Total letter of credit facilities |
$ | 30,000 | $ | 30,000 | ||||
Outstanding letters of credit |
(10,268 | ) | (10,268 | ) | ||||
|
|
|
|
|||||
Total credit available |
$ | 19,732 | $ | 19,732 | ||||
|
|
|
|
10. 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 $5.7 million and $4.0 million for the three months ended May 5, 2018 and April 29, 2017, respectively, and are included in selling, general and administrative expenses.
11. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted average shares of outstanding common stock. The calculation of diluted net income per share is similar to basic earnings per share except that the denominator includes 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), and unvested restricted shares as determined using the treasury stock method.
14
The following table sets forth the computation of basic and diluted income per share:
Three Months Ended | ||||||||
May 5, 2018 |
April 29, 2017 |
|||||||
(in thousands, except per share data) | ||||||||
Numerator: |
||||||||
Net income |
$ | 10,247 | $ | 12,771 | ||||
Denominator: |
||||||||
Basic-weighted average shares |
15,156 | 15,009 | ||||||
Dilutive effect: equity awards |
363 | 294 | ||||||
|
|
|
|
|||||
Diluted-weighted average shares |
15,519 | 15,303 | ||||||
|
|
|
|
|||||
Basic income per share |
$ | 0.68 | $ | 0.85 | ||||
|
|
|
|
|||||
Diluted income per share |
$ | 0.66 | $ | 0.83 | ||||
|
|
|
|
|||||
Antidilutive effect:(1) |
161 | 392 | ||||||
|
|
|
|
(1) | Represents weighted average of stock options to purchase shares of common stock, SARS and restricted stock that were not included in computing diluted income per share because their effects were antidilutive for the respective periods. |
12. EQUITY
The following table reflects the changes in equity:
Changes in Equity | ||||
(in thousands) | ||||
Equity at February 3, 2018 |
$ | 377,550 | ||
Retained earnings adjustment (1) |
(888 | ) | ||
Comprehensive income |
9,122 | |||
Share transactions under employee equity compensation plans |
1,526 | |||
|
|
|||
Equity at May 5, 2018 |
$ | 387,310 | ||
|
|
|||
Equity at January 30, 2017 |
$ | 313,687 | ||
Comprehensive income |
12,694 | |||
Share transactions under employee equity compensation plans |
1,486 | |||
|
|
|||
Equity at April 29, 2017 |
$ | 327,867 | ||
|
|
(1) | Due to the adoption of Accounting Standards Update No 2014-09, Revenue from Contracts with Customers (ASC 606), the opening balance of retained earnings has been reduced by $0.9 million for fiscal year 2018. There was no adjustment made to retained earnings for fiscal 2019. See footnote 2. |
15
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive loss by component, net of tax (in thousands):
Foreign Currency Translation Adjustments, Net |
Unrealized (Loss) Gain on Investments |
Unrealized (Loss) Gain on Forward Contract |
Total | |||||||||||||
Balance, February 3, 2018 |
$ | (6,488 | ) | $ | (10 | ) | $ | (649 | ) | $ | (7,147 | ) | ||||
Other comprehensive loss (income) before reclassifications |
(1,676 | ) | 10 | 378 | (1,288 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss |
| | 163 | 163 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, May 5, 2018 |
$ | (8,164 | ) | $ | | $ | (108 | ) | $ | (8,272 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Foreign Currency Translation Adjustments, Net |
Unrealized (Loss) Gain on Investments |
Unrealized (Loss) Gain on Forward Contract |
Total | |||||||||||||
Balance, January 28, 2017 |
$ | (9,902 | ) | $ | (12 | ) | $ | (181 | ) | $ | (10,095 | ) | ||||
Other comprehensive loss (income) before reclassifications |
279 | 6 | (321 | ) | (36 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss |
| | (41 | ) | (41 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, April 29, 2017 |
$ | (9,623 | ) | $ | (6 | ) | $ | (543 | ) | $ | (10,172 | ) | ||||
|
|
|
|
|
|
|
|
A summary of the impact on the condensed consolidated statement of income line items is as follows (in thousands):
Three Months Ended | ||||||||||
Statement of Operations Location | May 5, 2018 |
April 29, 2017 |
||||||||
Forward contract loss (gain) reclassified from accumulated other comprehensive loss to income |
Cost of goods sold | $ | 163 | $ | (41 | ) |
14. DERIVATIVE FINANCIAL INSTRUMENT Cash Flow Hedges
The Company has a risk management policy to manage foreign currency risk relating to inventory purchases by its subsidiaries that are denominated in foreign currencies. As such, the Company may employ hedging and derivative strategies to limit the effects of changes in foreign currency on its operating income and cash flows. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. The Company achieves this by closely matching the notional amount, terms and conditions of the derivative instrument with the underlying risk being hedged. The Company does not use derivative instruments for trading or speculative purposes.
For derivatives that will be accounted for as hedging instruments, the Company formally designates and documents at inception the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company will formally assess at least quarterly whether the financial instruments used in hedging are highly effective at offsetting changes in cash flows of the related underlying exposures. For purposes of assessing hedge effectiveness, the Company uses the forward method, and assesses effectiveness based on the changes in both spot and forward points of the hedging instrument. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued and hedge ineffectiveness, if any, is included in current period earnings. As of May 5, 2018, there was no hedge ineffectiveness.
16
The Companys United Kingdom subsidiary is exposed to foreign currency risk from inventory purchases. In order to mitigate the financial risk of settlement of inventory at various prices based on movement of the U.S. dollar against the British pound, the Company entered into foreign currency forward exchange contracts (the Hedging Instruments). These are formally designated and highly effective as cash flow hedges. The Company will hedge approximately 45% of its U.S. dollar denominated purchases. All changes in the Hedging Instruments fair value associated with inventory purchases are recorded in equity as a component of accumulated other comprehensive income until the underlying hedged item is reclassified to earnings. The Company records the foreign currency forward exchange contracts at fair value in its consolidated balance sheets. The cash flows from derivative instruments that are designated as cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. The Company considers the classification of the underlying hedged items cash flows in determining the classification for the designated derivative instruments cash flows. The Company classifies derivative instrument cash flows from hedges of foreign currency risk on the settlement of inventory as operating activities.
The Companys Hedging Instruments were classified within Level 2 of the fair value hierarchy. The following table summarizes the effects, fair value and balance sheet classification of the Companys Hedging Instruments.
Derivatives Designated As Hedging Instruments |
Balance sheet location | May 5, 2018 |
February 3, 2018 |
|||||||||
(in thousands) | ||||||||||||
Foreign currency forward exchange contract (inventory purchases) |
Accounts Payable | $ | 108 | $ | 649 |
The following table summarizes the effect and classification of the Companys Hedging Instruments.
Three Months Ended | ||||||||||||
Derivatives Designated As Hedging Instruments |
Statement of Operations Location |
May 5, 2018 |
April 29, 2017 |
|||||||||
(in thousands) | ||||||||||||
Foreign currency forward exchange contract (inventory purchases): |
||||||||||||
Loss (Gain) reclassified from accumulated other comprehensive loss to income |
Cost of goods sold | $ | 163 | $ | (41 | ) |
The notional amounts outstanding of foreign exchange forward contracts were $10.4 million and $6.0 million at May 5, 2018 and February 3, 2018, respectively. Such contracts expire through January 2019.
Accumulated other comprehensive loss included a net deferred loss for Hedging Instruments in the amount of $0.1 million and $0.6 million at May 5, 2018 and February 3, 2018, respectively. The net deferred loss will be reclassified from accumulated other comprehensive loss to costs of goods sold during the next twelve months when the inventory is sold.
15. INCOME TAXES
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Companys U.S. federal income tax returns for fiscal 2011 through fiscal 2018 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 fiscal 2006 through fiscal 2018, depending on each states particular statute of limitation. As of May 5, 2018, the examination by the Internal Revenue Service for the Companys, fiscal 2011 through fiscal 2015, U.S. federal tax years is still ongoing.
17
The Company has a $1.4 million liability recorded for unrecognized tax benefits as of February 3, 2018, which includes interest and penalties of $0.3 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. All of the unrecognized tax benefits, if recognized, would affect the Companys effective tax rate. During the three months ended May 5, 2018, the total amount of unrecognized tax benefits increased by approximately $33,000. The change to the total amount of the unrecognized tax benefit for the three months ended May 5, 2018 included an increase in interest and penalties of approximately $14,000.
In the next twelve months, it is reasonably possible the Company could resolve the U.S. federal examination related to the fiscal 2011 through fiscal 2015 tax years.
At the end of fiscal 2018, the Company maintained a $2.4 million valuation allowance against its remaining general domestic deferred tax assets and U.S. state net operating loss carryforwards. During the three months ended May 5, 2018, the related valuation allowance decreased by approximately $114,000. The establishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. The balance of this valuation allowance is associated with U.S. domestic operations for different state and local taxing jurisdictions where the Company anticipates that it will generate continuing tax losses.
16. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES
During the three months ended May 5, 2018, the Company granted an aggregate of 45,093 shares of restricted stock to certain key employees, which vest primarily over a three-year period, at an estimated value of $1.2 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.
During the three months ended May 5, 2018, the Company granted performance based restricted stock to certain key employees. Such stock generally vests 100% in April 2021, 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 116,328 shares of performance-based restricted stock were issued at an estimated value of $3.1 million.
During the three months ended May 5, 2018, a total of 77,453 shares of restricted stock vested, of which 9,708 shares were withheld to cover the employees statutory income tax requirements. The estimated value of the withheld shares was $0.3 million.
17. SEGMENT INFORMATION
The Company has four reportable segments: Mens Sportswear and Swim, Womens Sportswear, Direct-to-Consumer comprised of product sales and Licensing comprised of sales-based royalties. 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 the Companys retail stores and e-commerce platforms. The Licensing segment derives its revenues from royalties associated from the use of the Companys brand names, principally Perry Ellis, Original Penguin, Laundry, Gotcha, Pro Player, Farah, Ben Hogan and John Henry. The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by the segments.
18
Three Months Ended | ||||||||
May 5, 2018 |
April 29, 2017 |
|||||||
(in thousands) | ||||||||
Revenues: |
||||||||
Mens Sportswear and Swim |
$ | 199,606 | $ | 185,866 | ||||
Womens Sportswear |
25,890 | 29,739 | ||||||
Direct-to-Consumer |
19,939 | 18,218 | ||||||
Licensing |
9,799 | 8,267 | ||||||
|
|
|
|
|||||
Total revenues |
$ | 255,234 | $ | 242,090 | ||||
|
|
|
|
|||||
Depreciation and amortization: |
||||||||
Mens Sportswear and Swim |
$ | 1,839 | $ | 1,851 | ||||
Womens Sportswear |
746 | 795 | ||||||
Direct-to-Consumer |
585 | 766 | ||||||
Licensing |
57 | 56 | ||||||
|
|
|
|
|||||
Total depreciation and amortization |
$ | 3,227 | $ | 3,468 | ||||
|
|
|
|
|||||
Operating income (loss): |
||||||||
Mens Sportswear and Swim |
$ | 13,245 | $ | 15,515 | ||||
Womens Sportswear |
(3,143 | ) | (969 | ) | ||||
Direct-to-Consumer |
(1,397 | ) | (4,101 | ) | ||||
Licensing |
6,386 | 5,976 | ||||||
|
|
|
|
|||||
Total operating income |
$ | 15,091 | $ | 16,421 | ||||
Total interest expense |
2,009 | 1,956 | ||||||
|
|
|
|
|||||
Total net income before income taxes |
$ | 13,082 | $ | 14,465 | ||||
|
|
|
|
Revenues from external customers related to continuing operations in the United States and foreign countries are as follows:
Three Months Ended | ||||||||
May 5, 2018 |
April 29, 2017 |
|||||||
(in thousands) | ||||||||
United States |
$ | 222,592 | $ | 212,072 | ||||
International |
32,642 | 30,018 | ||||||
|
|
|
|
|||||
Total revenues |
$ | 255,234 | $ | 242,090 | ||||
|
|
|
|
18. FAIR VALUE MEASUREMENTS
Accounts receivable, accounts payable, accrued interest payable and accrued expenses. The carrying amounts reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments.
Investments. (classified within Level 2 of the valuation hierarchy)The carrying amounts of the available-for-sale investments are measured at fair value on a recurring basis in the consolidated balance sheets.
Real estate mortgages. (classified within Level 2 of the valuation hierarchy)The carrying amounts of the real estate mortgages were approximately $33.4 million and $33.6 million at May 5, 2018 and February 3, 2018, respectively. The carrying values of the real estate mortgages at May 5, 2018 and February 3, 2018, approximate their fair values since the interest rates approximate market rates.
Senior credit facility. The carrying amount of the senior credit facility approximates fair value due to the frequent resets of its floating interest rate.
19
Senior subordinated notes payable. (classified within Level 2 of the valuation hierarchy)The carrying amounts of the 77/8% senior subordinated notes payable were approximately $49.9 and $49.8 million at May 5, 2018 and February 3, 2018, respectively. The fair value of the 77/8% senior subordinated notes payable was approximately $52.1 and $50.1 million as of May 5, 2018 and February 3, 2018, respectively, based on quoted market prices.
See footnote 14 in these notes to unaudited condensed consolidated financial statements for disclosure of the fair value and line item caption of derivative instruments recorded in the consolidated balance sheets.
These estimated fair value amounts have been determined using available market information and appropriate valuation methods.
19. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Company and several of its subsidiaries (the Guarantors) have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. These guarantees are subject to release in limited circumstances (only upon the occurrence of certain customary conditions). The following are condensed consolidating financial statements, which present, in separate columns: Perry Ellis International, Inc., (Parent Only), the Guarantors on a combined, or where appropriate, consolidated basis, and the Non-Guarantors on a combined, or where appropriate, consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of May 5, 2018 and February 3, 2018 and for the three months ended May 5, 2018 and April 29, 2017. 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.
20
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF MAY 5, 2018
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 5,303 | $ | 45,168 | $ | | $ | 50,471 | ||||||||||
Investment, at fair value |
| | 4,912 | | 4,912 | |||||||||||||||
Accounts receivable, net |
| 170,276 | 31,542 | | 201,818 | |||||||||||||||
Intercompany receivable, net |
96,861 | | | (96,861 | ) | | ||||||||||||||
Inventories |
| 125,734 | 25,231 | | 150,965 | |||||||||||||||
Prepaid expenses and other current assets |
| 8,610 | 1,200 | | 9,810 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
96,861 | 309,923 | 108,053 | (96,861 | ) | 417,976 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Property and equipment, net |
| 52,430 | 2,995 | | 55,425 | |||||||||||||||
Other intangible assets, net |
| 153,685 | 32,332 | | 186,017 | |||||||||||||||
Deferred income taxes |
| | 541 | | 541 | |||||||||||||||
Investment in subsidiaries |
345,242 | | | (345,242 | ) | | ||||||||||||||
Other assets |
| 1,347 | 222 | | 1,569 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL |
$ | 442,103 | $ | 517,385 | $ | 144,143 | $ | (442,103 | ) | $ | 661,528 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 47,933 | $ | 4,741 | $ | | $ | 52,674 | ||||||||||
Accrued expenses and other liabilities |
| 37,103 | 7,755 | | 44,858 | |||||||||||||||
Accrued interest payable |
350 | | | | 350 | |||||||||||||||
Accrued income tax payable |
720 | 624 | 461 | | 1,805 | |||||||||||||||
Unearned revenues |
| 3,732 | 919 | | 4,651 | |||||||||||||||
Intercompany payable, net |
| 79,579 | 23,528 | (103,107 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
1,070 | 168,971 | 37,404 | (103,107 | ) | 104,338 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Senior subordinated notes payable, net |
49,855 | | | | 49,855 | |||||||||||||||
Senior credit facility |
| 62,404 | | | 62,404 | |||||||||||||||
Real estate mortgages |
| 32,495 | | | 32,495 | |||||||||||||||
Income taxes payable |
3,868 | | | | 3,868 | |||||||||||||||
Unearned revenues and other long-term liabilities |
| 13,758 | 231 | | 13,989 | |||||||||||||||
Deferred income taxes |
| 7,269 | | | 7,269 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term liabilities |
53,723 | 115,926 | 231 | | 169,880 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
54,793 | 284,897 | 37,635 | (103,107 | ) | 274,218 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
387,310 | 232,488 | 106,508 | (338,996 | ) | 387,310 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL |
$ | 442,103 | $ | 517,385 | $ | 144,143 | $ | (442,103 | ) | $ | 661,528 | |||||||||
|
|
|
|
|
|
|
|
|
|
21
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF FEBRUARY 3, 2018
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 830 | $ | 34,392 | $ | | $ | 35,222 | ||||||||||
Investment, at fair value |
| | 14,086 | | 14,086 | |||||||||||||||
Accounts receivable, net |
| 125,534 | 31,329 | | 156,863 | |||||||||||||||
Intercompany receivable, net |
97,692 | | | (97,692 | ) | | ||||||||||||||
Inventories |
| 145,797 | 29,662 | | 175,459 | |||||||||||||||
Prepaid expenses and other current assets |
| 7,116 | 1,035 | | 8,151 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
97,692 | 279,277 | 110,504 | (97,692 | ) | 389,781 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Property and equipment, net |
| 53,614 | 2,550 | | 56,164 | |||||||||||||||
Other intangible assets, net |
| 153,884 | 32,332 | | 186,216 | |||||||||||||||
Deferred income taxes |
| | 411 | | 411 | |||||||||||||||
Investment in subsidiaries |
335,883 | | | (335,883 | ) | | ||||||||||||||
Other assets |
| 1,391 | 199 | | 1,590 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL |
$ | 433,575 | $ | 488,166 | $ | 145,996 | $ | (433,575 | ) | $ | 634,162 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 85,659 | $ | 13,189 | $ | | $ | 98,848 | ||||||||||
Accrued expenses and other liabilities |
| 27,621 | 8,147 | | 35,768 | |||||||||||||||
Accrued interest payable |
1,334 | | | | 1,334 | |||||||||||||||
Income taxes payable |
716 | 624 | 126 | | 1,466 | |||||||||||||||
Unearned revenues |
| 2,372 | 535 | | 2,907 | |||||||||||||||
Intercompany payable, net |
| 83,376 | 18,886 | (102,262 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
2,050 | 199,652 | 40,883 | (102,262 | ) | 140,323 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Senior subordinated notes payable, net |
49,818 | | | | 49,818 | |||||||||||||||
Senior credit facility |
| 11,154 | | | 11,154 | |||||||||||||||
Real estate mortgages |
| 32,721 | | | 32,721 | |||||||||||||||
Income taxes payable |
4,157 | | | | 4,157 | |||||||||||||||
Unearned revenues and other long-term liabilities |
| 13,277 | 247 | | 13,524 | |||||||||||||||
Deferred income taxes |
| 4,915 | | | 4,915 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term liabilities |
53,975 | 62,067 | 247 | | 116,289 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
56,025 | 261,719 | 41,130 | (102,262 | ) | 256,612 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
377,550 | 226,447 | 104,866 | (331,313 | ) | 377,550 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL |
$ | 433,575 | $ | 488,166 | $ | 145,996 | $ | (433,575 | ) | $ | 634,162 | |||||||||
|
|
|
|
|
|
|
|
|
|
22
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 5, 2018
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Net sales |
$ | | $ | 216,215 | $ | 29,220 | $ | | $ | 245,435 | ||||||||||
Royalty income |
| 6,376 | 3,423 | | 9,799 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 222,591 | 32,643 | | 255,234 | |||||||||||||||
Cost of sales |
| 144,261 | 17,106 | | 161,367 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 78,330 | 15,537 | | 93,867 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
| 64,247 | 11,302 | | 75,549 | |||||||||||||||
Depreciation and amortization |
| 2,912 | 315 | | 3,227 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 67,159 | 11,617 | | 78,776 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 11,171 | 3,920 | | 15,091 | |||||||||||||||
Interest expense |
| 2,107 | (98 | ) | | 2,009 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income before income taxes |
| 9,064 | 4,018 | | 13,082 | |||||||||||||||
Income tax provision |
| 2,326 | 509 | | 2,835 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity in earnings of subsidiaries, net |
10,247 | | | (10,247 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
10,247 | 6,738 | 3,509 | (10,247 | ) | 10,247 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive loss |
(1,125 | ) | | (1,125 | ) | 1,125 | (1,125 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 9,122 | $ | 6,738 | $ | 2,384 | $ | (9,122 | ) | $ | 9,122 | |||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 29, 2017
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Net sales |
$ | | $ | 206,686 | $ | 27,137 | $ | | $ | 233,823 | ||||||||||
Royalty income |
| 5,386 | 2,881 | | 8,267 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
| 212,072 | 30,018 | | 242,090 | |||||||||||||||
Cost of sales |
| 133,927 | 17,075 | | 151,002 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 78,145 | 12,943 | | 91,088 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
| 61,599 | 9,600 | | 71,199 | |||||||||||||||
Depreciation and amortization |
| 3,210 | 258 | | 3,468 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 64,809 | 9,858 | | 74,667 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 13,336 | 3,085 | | 16,421 | |||||||||||||||
Interest expense |
| 1,989 | (33 | ) | | 1,956 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income before income taxes |
| 11,347 | 3,118 | | 14,465 | |||||||||||||||
Income tax provision |
| 1,325 | 369 | | 1,694 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity in earnings of subsidiaries, net |
12,771 | | | (12,771 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
12,771 | 10,022 | 2,749 | (12,771 | ) | 12,771 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive loss |
(77 | ) | | (77 | ) | 77 | (77 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 12,694 | $ | 10,022 | $ | 2,672 | $ | (12,694 | ) | $ | 12,694 | |||||||||
|
|
|
|
|
|
|
|
|
|
23
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 5, 2018
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
NET CASH USED IN OPERATING ACTIVITIES: |
$ | (1,000 | ) | $ | (40,688 | ) | $ | (1,390 | ) | $ | | $ | (43,078 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||||||||||
Purchase of property and equipment |
| (812 | ) | (881 | ) | | (1,693 | ) | ||||||||||||
Proceeds from investments maturities |
| | 9,184 | | 9,184 | |||||||||||||||
Intercompany transactions |
913 | | | (913 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) investing activities |
913 | (812 | ) | 8,303 | (913 | ) | 7,491 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Borrowings from senior credit facility |
| 106,959 | | | 106,959 | |||||||||||||||
Payments on senior credit facility |
| (55,709 | ) | | | (55,709 | ) | |||||||||||||
Payments on real estate mortgages |
| (225 | ) | | | (225 | ) | |||||||||||||
Payments for employee taxes on shares withheld |
| (259 | ) | | | (259 | ) | |||||||||||||
Payments on capital leases |
| (17 | ) | | | (17 | ) | |||||||||||||
Proceeds from exercise of stock options |
101 | | | | 101 | |||||||||||||||
Intercompany transactions |
| (4,776 | ) | 3,877 | 899 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash (used in) provided by financing activities |
101 | 45,973 | 3,877 | 899 | 50,850 | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(14 | ) | | (14 | ) | 14 | (14 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
| 4,473 | 10,776 | | 15,249 | |||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 830 | 34,392 | | 35,222 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | | $ | 5,303 | $ | 45,168 | $ | | $ | 50,471 | ||||||||||
|
|
|
|
|
|
|
|
|
|
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 29, 2017
(amounts in thousands)
Parent Only | Guarantors | Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: |
$ | 445 | $ | (33,893 | ) | $ | (4,319 | ) | $ | | $ | (37,767 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||||||||||
Purchase of property and equipment |
| (1,578 | ) | (323 | ) | | (1,901 | ) | ||||||||||||
Purchase of investments |
| | (10,256 | ) | | (10,256 | ) | |||||||||||||
Proceeds from investments maturities |
| | 4,655 | | 4,655 | |||||||||||||||
Intercompany transactions |
(88 | ) | | | 88 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
(88 | ) | (1,578 | ) | (5,924 | ) | 88 | (7,502 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Borrowings from senior credit facility |
| 98,764 | | | 98,764 | |||||||||||||||
Payments on senior credit facility |
| (57,140 | ) | | | (57,140 | ) | |||||||||||||
Payments on real estate mortgages |
| (220 | ) | | | (220 | ) | |||||||||||||
Payments on capital leases |
| (69 | ) | | | (69 | ) | |||||||||||||
Proceeds from exercise of stock options |
23 | | | | 23 | |||||||||||||||
Intercompany transactions |
| (4,478 | ) | 4,946 | (468 | ) | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by financing activities |
23 | 36,857 | 4,946 | (468 | ) | 41,358 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(380 | ) | | (380 | ) | 380 | (380 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 1,386 | (5,677 | ) | | (4,291 | ) | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 2,578 | 28,117 | | 30,695 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | | $ | 3,964 | $ | 22,440 | $ | | $ | 26,404 | ||||||||||
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20. SUBSEQUENT EVENTS
On May 29, 2018, the Company completed the redemption of the remaining $50 million of its outstanding 7.875% Senior Subordinated Notes due in 2019 (the Notes). The total redemption price for the Notes was $50.6 million, which amount includes 100.00% of the principal amount of the Notes as well as accrued and unpaid interest to, but not including, the May 29, 2018 redemption date. Following the redemption by the Company of the Notes, none of the Notes remain outstanding. The Company paid the redemption price for the Notes with repatriated funds and funds from its senior credit facility.
On February 6, 2018, the Company received a non-binding proposal from George Feldenkreis, a current member and former Executive Chairman of the Board, and Fortress Credit Advisors LLC to acquire all of the Companys outstanding common shares not already beneficially owned by Mr. Feldenkreis. On February 13, 2018, the Board of Directors authorized a special committee of the independent directors to evaluate this proposal. The special committee has retained Paul, Weiss, Rifkind, Wharton & Garrison LLP and Akerman LLP as its legal counsel and PJ SOLOMON as its financial advisor to assist in its review. The special committee is evaluating and negotiating the proposal and no decision has been made with respect to the response. At present, the Company cannot assure you that the proposal will result in a definitive offer to purchase the Companys outstanding capital stock or that any definitive agreement will be executed or that the proposal or any other transaction will be approved or consummated.
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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 3, 2018, filed with the Securities and Exchange Commission on April 17, 2018.
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, estimate, expect, guidance, indicate, intend, may, might, plan, possibly, potential, predict, probably, proforma, project, seek, should, target, or will or the negative thereof or other variations thereon and similar words or phrases or comparable terminology. Such forward-looking statements include, but are not limited to, statements regarding Perry Ellis strategic operating review, growth initiatives and internal operating improvements intended to drive revenues and enhance profitability, the implementation of Perry Ellis profitability improvement plan and our plans to exit underperforming, low growth brands and businesses. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control. These 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, including, but not limited to those caused by port disruptions, |
| disruptions due to weather patterns, |
| 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, |
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| our ability to carry out growth strategies including expansion in international and direct-to-consumer retail markets, |
| the effectiveness of our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion, |
| potential cyber risk and technology failures that could disrupt operations or result in a data breach, |
| the level of consumer spending for apparel and other merchandise, |
| our ability to compete, |
| exposure to foreign currency risk and interest rates, |
| possible disruption in commercial activities due to terrorist activity and armed conflict, |
| actions of activist investors and the cost and disruption of responding to those actions, and |
| other factors set forth in this report and in our other SEC filings. |
Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those 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.
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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 | ||||||||
May 5, 2018 |
April 29, 2017 |
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(in thousands) | ||||||||
Revenues by segment: |
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Mens Sportswear and Swim |
$ | 199,606 | $ | 185,866 | ||||
Womens Sportswear |
25,890 | 29,739 | ||||||
Direct-to-Consumer |
19,939 | 18,218 | ||||||
Licensing |
9,799 | 8,267 | ||||||
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Total revenues |
$ | 255,234 | $ | 242,090 | ||||
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Three Months Ended | ||||||||
May 5, 2018 |
April 29, 2017 |
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(in thousands) | ||||||||
Reconciliation of operating income to EBITDA |
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Operating income (loss) by segment: |
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Mens Sportswear and Swim |
$ | 13,245 | $ | 15,515 | ||||
Womens Sportswear |
(3,143 | ) | (969 | ) | ||||
Direct-to-Consumer |
(1,397 | ) | (4,101 | ) | ||||
Licensing |
6,386 | 5,976 | ||||||
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Total operating income |
$ | 15,091 | $ | 16,421 | ||||
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Add: |
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Depreciation and amortization |
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Mens Sportswear and Swim |
$ | 1,839 | $ | 1,851 | ||||
Womens Sportswear |
746 | 795 | ||||||
Direct-to-Consumer |
585 | 766 | ||||||
Licensing |
57 | 56 | ||||||
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Total depreciation and amortization |
$ | 3,227 | $ | 3,468 | ||||
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EBITDA by segment: |
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Mens Sportswear and Swim |
$ | 15,084 | $ | 17,366 | ||||
Womens Sportswear |
(2,397 | ) | (174 | ) | ||||
Direct-to-Consumer |
(812 | ) | (3,335 | ) | ||||
Licensing |
6,443 | 6,032 | ||||||
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Total EBITDA |
$ | 18,318 | $ | 19,889 | ||||
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EBITDA margin by segment |
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Mens Sportswear and Swim |
7.6% | 9.3% | ||||||
Womens Sportswear |
(9.3% | ) | (0.6% | ) | ||||
Direct-to-Consumer |
(4.1% | ) | (18.3% | ) | ||||
Licensing |
65.8% | 73.0% | ||||||
Total EBITDA margin |
7.2% | 8.2% |
EBITDA consists of earnings before interest expense, 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 by segment. EBITDA and EBITDA margin by segment 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 month period ended May 5, 2018 of the fiscal year ending February 2, 2019 (fiscal 2019) compared with the three month period ended April 29, 2017 of the fiscal year ended February 3, 2018 (fiscal 2018).
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Results of Operations - three months ended May 5, 2018 compared to the three months ended April 29, 2017.
Net sales. Mens Sportswear and Swim net sales for the three months ended May 5, 2018 were $199.6 million, an increase of $13.7 million, or 7.4%, from $185.9 million for the three months ended April 29, 2017. The net sales increase was primarily attributed to strength in our core brands, mainly Golf and Nike Swim. Original Penguin was also slightly up for the quarter. These increases were offset by a slight decrease in Perry Ellis.
Womens Sportswear net sales for the three months ended May 5, 2018 were $25.9 million, a decrease of $3.8 million, or 12.8%, from $29.7 million for the three months ended April 29, 2017. The net sales decrease was primarily due to reductions in Rafaella due to the exit of Bon-Ton, as a result of its bankruptcy filing, and the Laundry by Shelli Segal dress business switching to a licensing model.
Direct-to-Consumer net sales for the three months ended May 5, 2018 were $19.9 million, an increase of $1.7 million, or 9.3%, from $18.2 million for the three months ended April 29, 2017. The increase was primarily driven by a retail stores sales increase of 12.7% in comparable same store sales for the direct-to-consumer business. Overall direct-to-consumer comparable sales were up 8.2%.
Royalty income. Royalty income for the three months ended May 5, 2018 was $9.8 million, an increase of $1.5 million, or 18.1%, from $8.3 million for the three months ended April 29, 2017. The increase was primarily attributed to the application of Accounting Standards Codification 606, which requires advertising reimbursements to be classified as revenue instead of as a reduction of the related advertising costs as was the case in the prior year; More specifically, we reclassified $1.5 million of advertising reimbursements from selling, general and administrative expense to royalty income. Refer to footnotes 2 and 3 in the accompanying consolidated financial statements as of May 5, 2018.
Gross profit. Gross profit was $93.9 million for the three months ended May 5, 2018, an increase of $2.8 million, or 3.1%, from $91.1 million for the three months ended April 29, 2017. The increase was primarily attributed to higher sales volumes in our Golf brands and Nike Swim, and the reclassification of the advertising reimbursements to royalty income as discussed above.
Gross profit margin. As a percentage of total revenue, gross profit margins were 36.8% for the three months ended May 5, 2018, as compared to 37.6% for the three months ended April 29, 2017, a decrease of 80 basis points. The decrease is attributed primarily to the Rafaella liquidations of Bon-Ton specific inventory, as well as the overall mix of business with accelerated Spring shipments.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended May 5, 2018 were $75.5 million, an increase of $4.3 million, or 6.0%, from $71.2 million for the three months ended April 29, 2017. The increase is primarily driven by the reclassification of advertising reimbursements to royalty income as discussed above, divisional employee expenses in the Mens Sportswear and Swim segment, as well as currency translation losses.
Additionally, we incurred $1.3 million, during the first quarter of fiscal 2019, in connection with our Boards exploration and evaluation of potential strategic alternatives and the related February 6, 2018 proposal by Mr. Feldenkreis to acquire all of our outstanding common shares not already beneficially owned by Mr. Feldenkreis. We expect and will continue to incur expenses, which will be significant, during fiscal 2019 in connection with this exploration and evaluation.
EBITDA. Mens Sportswear and Swim EBITDA margin for the three months ended May 5, 2018 decreased by 170 basis points to 7.6% from 9.3% for the three months ended April 29, 2017. The EBITDA margin decreased slightly from last year primarily due to business mix and because of this, we were not able to realize favorable leverage in selling, general and administrative expenses.
Womens Sportswear EBITDA margin for the three months ended May 5, 2018 decreased 870 basis points to (9.3%), from (0.6%) for the three months ended April 29, 2017. The EBITDA margin was unfavorably impacted by the decrease in net sales described above.
Direct-to-Consumer EBITDA margin for the three months ended May 5, 2018 increased 1420 basis points to (4.1%), from (18.3%) for the three months ended April 29, 2017. The increase was attributable to the increases of revenue from our stores, as described above. Additionally, we have been able to realize favorable leverage in selling, general and administrative expenses, because of our reduction during fiscal 2018 of unprofitable stores.
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Licensing EBITDA margin for the three months ended May 5, 2018 decreased to 65.8%, from 73.0% for the three months ended April 29, 2017. The EBITDA margin was unfavorably impacted as we were not able to realize favorable leverage in selling, general and administrative expenses in the Licensing segment.
Depreciation and amortization. Depreciation and amortization for the three months ended May 5, 2018 was $3.2 million, a decrease of $0.3 million, or 8.6%, from $3.5 million for the three months ended April 29, 2017. The decrease is attributed to the overall reduction in capital expenditures during fiscal 2018. Depreciation primarily related to our capital expenditures, primarily in the direct-to-consumer segment, and leasehold improvements.
Interest expense. Interest expense for the three months ended May 5, 2018 and April 29, 2017 remained flat at $2.0 million.
Income taxes. The income tax expense for the three months ended May 5, 2018 was $2.8 million, an increase of $1.1 million, as compared to $1.7 million for the three months ended April 29, 2017. For the three months ended May 5, 2018, our effective tax rate was 21.7% as compared to 11.7% for the three months ended April 29, 2017. The overall change in the effective tax rate is attributed to the impact of the valuation allowance on domestic taxes recorded during the three months ended April 29, 2017. The release of the previously recorded valuation allowance at the end of fiscal 2018 has resulted in increased tax expense during the three month period ended May 5, 2018. This increase was partially offset by the reduction in the Federal tax rate due to the enactment of the Tax Cuts and Jobs Act (Tax Act), during December 2017.
During the three months ended May 5, 2018, we did not record any adjustments to the provisional income tax benefit recorded in fiscal 2018 from the enactment of the Tax Act. At May 5, 2018, we have not yet completed our accounting for the income tax effects of the Tax Act, but have made reasonable estimates of those effects on our existing deferred income tax balances and the one-time deemed repatriation tax. The final financial statement impact of the Tax Act may differ from our previously recorded estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, and changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we have utilized to calculate the provisional impacts. The Securities and Exchange Commission (SEC) has issued rules that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related income tax impacts.
Net income. Net income for the three months ended May 5, 2018 was $10.2 million, a decrease of $2.6 million, or 20.3%, as compared to $12.8 million for the three months ended April 29, 2017. 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. We believe that our working capital requirements will increase slightly in fiscal 2019 as we continue to expand internationally. As of May 5, 2018, our total working capital was $313.6 million as compared to $249.5 million as of February 3, 2018 and $279.6 million as of April 29, 2017. We believe that our cash flows from operations and availability under our senior credit facility and remaining letter of credit facility are sufficient to meet our working capital needs and capital expenditure needs over the next year including the redemption of our senior subordinated notes on May 29, 2018.
The recently enacted Tax Act included a one-time transition tax on unremitted foreign earnings as of December 31, 2017 (the Transition Tax), and accordingly, we recorded U.S. current tax expense of $5.8 million, net of available foreign tax credits, during fiscal 2018 related to the one-time mandatory deemed repatriation. We intend to repatriate the funds associated with the foreign earnings subjected to the Transition Tax. As such, during fiscal 2018, we have accrued deferred taxes associated with the expected future repatriation pertaining to foreign withholding and U.S. state taxes of $0.4 million and $0.2 million, respectively.
Net cash used in operating activities was $43.1 million for the three months ended May 5, 2018, as compared to cash used in operating activities of $37.8 million for the three months ended April 29, 2017.
The cash used in operating activities for the three months ended May 5, 2018 is primarily attributable to an increase in accounts receivable of $33.7 million as well as a decrease in accounts payable and accrued expenses of $50.7 million and a decrease in accrued interest payable of $1.0 million. These decreases were partially offset by a decrease in inventory of $23.4 million associated with strong inventory management, a decrease in prepaid income taxes of $0.3 million and an increase in unearned revenue and other liabilities of $0.4 million. Our inventory turnover ratio was 3.8 as compared to 3.9 for the three months ended April 29, 2017, evidencing our strong inventory management.
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The cash used in operating activities for the three months ended April 29, 2017 is primarily attributable to an increase in accounts receivable of $43.8 million and a decrease in accounts payable and accrued expenses of $27.0 million. These decreases were partially offset by a decrease in inventory of $11.9 million associated with strong inventory management, a decrease in prepaid income taxes of $1.7 million, an increase in income taxes payable of $1.6 million and an increase in unearned revenue and other liabilities of $1.3 million.
Net cash provided by investing activities was $7.5 million for the three months ended May 5, 2018, as compared to cash used in investing activities of $7.5 million for the three months ended April 29, 2017. The net cash provided by investing activities during the first three months of fiscal 2019 primarily reflects the proceeds from the maturities of investments in the amount of $9.2 million; offset by the purchase of property and equipment of $1.7 million primarily for leaseholds and store fixtures. We anticipate capital expenditures during the remainder of fiscal 2019 of $9.0 million to $10.0 million in new leasehold improvements, technology, systems, retail stores, and other expenditures.
Net cash used in investing activities was $7.5 million for the three months ended April 29, 2017. The net cash used in investing activities during the first three months of fiscal 2018 primarily reflects the purchase of investments of $10.3 million and the purchase of property and equipment of $1.9 million primarily for leaseholds and store fixtures; offset by the proceeds from the maturities of investments in the amount of $4.7 million.
Net cash provided by financing activities was $50.9 million for the three months ended May 5, 2018, as compared to net cash provided by financing activities of $41.4 million for the three months ended April 29, 2017. The net cash provided during the first three months of fiscal 2019 primarily reflects net borrowings on our senior credit facility of $51.3 million and proceeds from the exercise of stock options of $0.1 million; partially offset by payments for employee taxes on shares withheld of $0.3 million and $0.2 million in payments on our mortgage loans.
Net cash provided by financing activities was $41.4 million for the three months ended April 29, 2017. The net cash provided during the first three months of fiscal 2018 primarily reflects net borrowings on our senior credit facility of $41.6 million; which was partially offset by $0.2 million in payments on our mortgage loans and payments on capital leases of $0.07 million.
7 7/8% $150 Million Senior Subordinated Notes Payable
In March 2011, we issued $150 million of 7 7 / 8 % senior subordinated notes, due April 1, 2019. The proceeds of this offering were used to retire the $150 million of 8 7 / 8 % senior subordinated notes due September 15, 2013 and to repay a portion of the outstanding balance on the senior credit facility. The proceeds to us were $146.5 million yielding an effective interest rate of 8.0%.
On April 6, 2015, we elected to call for the partial redemption of $100 million of our $150 million 7 7 / 8 % senior subordinated notes due 2019 and a notice of redemption was sent to all registered holders of the senior subordinated notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, we completed the redemption of $100 million of our senior subordinated notes. We incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including the redemption premium as well as the write-off of note issuance costs. At May 5, 2018, the balance of the 7 7 / 8 % senior subordinated notes totaled $49.9 million, net of debt issuance costs in the amount of $0.1 million. At February 3, 2018, the balance of the 7 7 / 8 % senior subordinated notes totaled $49.8 million, net of debt issuance costs in the amount of $0.2 million.
Certain Covenants. The indenture governing the senior subordinated notes contains certain covenants which restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in certain circumstances, pay dividends or make other distributions on, redeem or repurchase capital stock, make investments or other restricted payments, create liens on assets to secure debt, engage in transactions with affiliates, and effect a consolidation or merger. We are not aware of any non-compliance with any of our covenants in this indenture. We could be materially harmed if we violate any covenants because the 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.
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On May 29, 2018, we completed the redemption of the remaining $50 million of our outstanding 7 7 / 8 % senior subordinated notes. The total redemption price for the notes was $50.6 million, which amount includes 100.00% of the principal amount as well as accrued and unpaid interest to, but not including, the May 29, 2018 redemption date. Following the redemption, none of the senior subordinated notes remain outstanding. We paid the redemption price with repatriated funds and funds from our senior credit facility.
Senior Credit Facility
On April 22, 2015, we amended and restated our existing senior credit facility (the Credit Facility), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $200 million. The Credit Facility has been extended through April 30, 2020 (Maturity Date). In connection with this amendment and restatement, we paid fees in the amount of $0.6 million. These fees will be amortized over the term of the Credit Facility as interest expense. At May 5, 2018, we had outstanding borrowings of $62.4 million under the Credit Facility. At February 3, 2018, we had outstanding borrowings of $11.2 million under the Credit Facility.
Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require us to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. We are not aware of any non-compliance with any of our covenants in this Credit Facility. These covenants may restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. We may pay cash dividends subject to certain restrictions set forth in the covenants including, but not limited to, meeting a minimum excess availability threshold and no occurrence of a default. We could be materially harmed if we violate any covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If we are unable to repay those amounts, the lenders could proceed against our assets and the assets of our subsidiaries that are borrowers or guarantors. In addition, a covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of our other outstanding indebtedness, our letter of credit facilities, or our real estate mortgage loans. A cross-default could result in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy. Additionally, our Credit Facility includes a subjective acceleration clause if a material adverse change in our business occurs. We believe that the likelihood of the lender exercising this right is remote.
Borrowing Base. Borrowings under the Credit Facility are limited to a borrowing base calculation, which generally restricts the outstanding balance to the sum of (a) 87.5% of eligible receivables plus (b) 87.5% of eligible foreign accounts up to $1.5 million plus (c) the lesser of (i) the inventory loan limit, which equals 80% of the maximum credit under the Credit Facility at the time, (ii) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.
Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.
Security. As security for the indebtedness under the Credit Facility, we granted to the lenders a first priority security interest (subject to liens permitted under the Credit Facility to be senior thereto) in substantially all of our existing and future assets, including, without limitation, accounts receivable, inventory, deposit accounts, general intangibles, equipment and capital stock or membership interests, as the case may be, of certain subsidiaries, and real estate, but excluding our non-U.S. subsidiaries and all of our trademark portfolio.
Letter of Credit Facilities
As of May 5, 2018, we maintained one U.S. dollar letter of credit facility totaling $30.0 million. Each documentary letter of credit is secured primarily by the consignment of merchandise in transit under that letter of credit and certain subordinated liens on our assets.
At May 5, 2018 and February 3, 2018, there was $19.7 million available under the existing letter of credit facilities.
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Real Estate Mortgage Loans
In November 2016, we paid off our existing real estate mortgage loan and refinanced our main administrative office, warehouse and distribution facility in Miami with a $21.7 million mortgage loan. The loan is due on November 22, 2026. The interest rate is 3.715% per annum. Monthly payments of principal and interest approximate $112,000, based on a 25-year amortization with the outstanding principal due at maturity. At May 5, 2018, the balance of the real estate mortgage loan totaled $20.8 million, net of discount, of which $562,000 is due within one year.
In June 2006, we entered into a mortgage loan for $15 million secured by our Tampa facility. The loan was originally due on January 23, 2019. In January 2014, we amended the mortgage loan to modify the interest rate. The interest rate was reduced to 3.25% per annum and the terms were restated to reflect new monthly payments of principal and interest of approximately $68,000, based on a 20-year amortization, with the outstanding principal due at maturity. In November 2016, we amended the mortgage to increase the amount to $13.2 million. The loan is due on November 22, 2026. The interest rate is 3.715% per annum. Monthly payments of principal and interest approximate $68,000, based on a 25-year amortization with the outstanding principal due at maturity. At May 5, 2018, the balance of the real estate mortgage loan totaled $12.6 million, net of discount, of which approximately $342,000 is due within one year.
Additionally, we used the excess funds generated from the new mortgage loans described above to pay down our senior credit facility.
The real estate mortgage loans described above contain certain covenants. We are not aware of any non-compliance with any of the covenants. If we violate any covenants, the lender under the real estate mortgage 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 constitute a cross-default under our senior credit facility and our letter of credit resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, as defined by applicable GAAP and SEC rules.
Effects of Inflation and Foreign Currency Fluctuations
We do not believe that inflation or foreign currency fluctuations significantly affected our results of operations for the three months ended May 5, 2018.
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 3, 2018 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 the recoverability of deferred tax assets. We believe that there have been no significant changes to our critical accounting policies during the three months ended May 5, 2018 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 3, 2018, except for revenue recognition, which is discussed in footnotes 2 and 3 of the accompanying consolidated financial statements as of May 5, 2018.
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 or foreign currency. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposure, including interest rate and foreign currency.
Cash Flow Hedges
Our United Kingdom subsidiary is exposed to foreign currency risk from inventory purchases. In order to mitigate the financial risk of settlement of inventory at various prices based on movement of the U.S. dollar against the British pound, we entered into foreign currency forward exchange contracts (the Hedging Instruments). These contracts are formally designated and highly effective as cash flow hedges.
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All changes in the Hedging Instruments fair value associated with inventory purchases are recorded in equity as a component of accumulated other comprehensive income until the underlying hedged item is reclassified to earnings. We record the hedging instruments at fair value in our Consolidated Balance Sheet. The cash flows from such hedges are presented in the same category in our Consolidated Statement of Cash Flows as the items being hedged.
At May 5, 2018, the notional amount outstanding of foreign exchange forward contracts was $10.4 million. Such contracts expire through January 2019. At February 3, 2018, the notional amount outstanding of foreign exchange forward contracts was $6.0 million.
At May 5, 2018 and February 3, 2018, accumulated other comprehensive loss included a $0.1 million and $0.6 million net deferred loss, respectively, for Hedging Instruments that were expected to be reclassified during the next 12 months. The net deferred loss will be reclassified from accumulated other comprehensive loss to cost of goods sold when the inventory is sold.
The total loss (gain) relating to Hedging Instruments reclassified to earnings during the first quarter of fiscal 2019 and first quarter of fiscal 2018 were $0.2 million and ($0.04) million, respectively.
Commodity Price Risk
We are exposed to market risks for the pricing of cotton and other fibers, which may impact fabric prices. Fabric is a portion of the overall product cost, which includes various components. We manage our fabric prices by using a combination of different strategies including the utilization of sophisticated logistics and supply chain management systems, which allow us to maintain maximum flexibility in our global sourcing of products. This provides us with the ability to re-direct our sourcing of products to the most cost-effective jurisdictions. In addition, we may modify our product offerings to our customers based on the availability of new fibers, yield enhancement techniques and other technological advances that allow us to utilize more cost effective fibers. Finally, we also have the ability to adjust our price points of such products, to the extent market conditions allow. These factors, along with our foreign-based sourcing offices, allow us to procure product from lower cost countries or capitalize on certain tariff-free arrangements, which help mitigate any commodity price increases that may occur. We have not historically managed, and do not currently intend to manage, commodity price exposures by using derivative instruments.
Other
We have a risk management policy to manage foreign currency risk relating to inventory purchases by our subsidiaries which are denominated in foreign currencies. As such, we may employ hedging and derivative strategies to limit the effects of changes in foreign currency on our operating income and cash flows. However, we consider our current exposure to foreign exchange risk as not significant.
Item 4. Controls and Procedures
As required by Securities Exchange Act Rule 13a-15(b), 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. Based upon the evaluation required by Securities Exchange Act Rule 13a-15(b), our Chief Executive Officer and our Interim Chief Financial Officer concluded that, our disclosure controls and procedures were effective as of May 5, 2018, in providing reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and 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.
We adopted the new revenue guidance under Accounting Standards Update 606 (ASC 606) on February 4, 2018. The adoption of this guidance required the implementation of new accounting processes and procedures, which required us to update our internal controls over accounting for revenue recognition and the related disclosures required under the new guidance.
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Other than the changes noted above, there have been no other changes in our internal controls over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Period |
Total Number of Shares Purchased (1) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Approximate Dollar Value that May Yet Be Purchased under the Plans or Programs |
||||||||||||
February 4, 2018 to March 3, 2018 |
86 | $ | 26.51 | | $ | 8,278,199 | ||||||||||
March 4, 2018 to April 7, 2018 |
83 | $ | 26.59 | | $ | 8,278,199 | ||||||||||
April 8, 2018 to May 5, 2018 |
9,539 | $ | 25.77 | | $ | 8,278,199 |
(1) | Represents shares withheld to pay statutory income taxes resulting from vesting of restricted shares. |
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Index to Exhibits
Exhibit Number |
Exhibit Description |
Where Filed | ||
3.1 | Amendment to Second Amended and Restated Bylaws of Perry Ellis International, Inc. | Filed as an Exhibit to the Registrants Current Report on Form 8-K dated April 27, 2018, and incorporated herein by reference. | ||
10.6 | Change in Control Severance Plan and Summary Plan Description (1) | Filed herewith. | ||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. | ||
32.1 | Certification of Principal Executive Officer pursuant to Section 1350 | Filed herewith. | ||
32.2 | Certification of Principal Financial Officer pursuant to Section 1350 | Filed herewith. | ||
101.INS | XBRL Instance Document | Filed herewith. | ||
101.SCH | XBRL Taxonomy Extension Schema | Filed herewith. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith. | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith. |
(1) | Management Contract or Compensation Plan. |
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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. | ||
June 13, 2018 | By: /S/ JORGE NARINO | |
Jorge Narino, Interim Chief Financial Officer | ||
(Principal Financial Officer and Duly Authorized Officer) |
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Exhibit 10.6
PERRY ELLIS INTERNATIONAL, INC.
CHANGE IN CONTROL SEVERANCE PLAN
AND SUMMARY PLAN DESCRIPTION
1. Introduction. The purpose of this Perry Ellis International, Inc. Change in Control Severance Plan (the Plan) is to provide assurances of specified benefits to certain employees of the Company and its Affiliates whose employment is (i) involuntarily terminated other than for death, Disability, or Cause, or (ii) voluntarily terminated for Good Reason under the circumstances described in the Plan. See page 4 of the Plan for the definition of Participant, which describes the employees of the Company and its Affiliates eligible to participate in the Plan. This Plan is a severance pay arrangement, within the meaning of Section 3(2)(B)(i) of ERISA, that is intended to be excepted from the definitions of employee pension benefit plan and pension plan set forth under Section 3(2) of ERISA, and is intended to meet the descriptive requirements of a plan constituting a severance pay plan within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations §2510.3-2(b). This document constitutes both the written instrument under which the Plan is maintained and the required summary plan description for the Plan.
2. Important Terms. The following words and phrases, when the initial letter of the term is capitalized, will have the meanings set forth in this Section 2, unless a different meaning is plainly required by the context:
2.1 Accrued Obligations mean (i) a Participants Base Salary that is accrued but unpaid as of the date of such Participants Involuntary Termination, (ii) any amount arising from a Participants participation in, or benefits under, any employee benefit plans, programs or arrangements of the Company or its Affiliates (other than severance plans, programs or arrangements) or the Equity Plan (subject to the terms and conditions of the Equity Plan and any applicable award agreement thereunder), (iii) any accrued but unpaid vacation pay owed to the Participant in accordance with the Companys or its Affiliates vacation policy and (iv) any accrued but unpaid business expenses that are reimbursable to a Participant pursuant to the Companys or its Affiliates expense reimbursement policies and procedures.
2.2 Administrator means the Company, acting through the Compensation Committee or another duly constituted committee of members of the Board, or any Person to whom the Administrator has delegated any authority or responsibility with respect to the Plan pursuant to Section 12, but only to the extent of such delegation.
2.3 Affiliate means, (a) any Person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (b) to the extent provided by the Compensation Committee, any Person or entity in which the Company has a significant interest.
2.4 Base Salary means a Participants base salary as in effect immediately prior to such Participants Involuntary Termination or, if greater, at the level in effect immediately prior to the Change in Control.
2.5 Board means the board of directors of the Company.
2.6 Cause means (i) the failure by the Participant to perform, in a reasonable manner, his or her duties as assigned by the Company or its Affiliates; (ii) any violation or breach by the Participant of his or her employment, consulting or other similar agreement with the Company or its Affiliates, if any, or any policies and procedures established from time to time by the Company or its Affiliates, (iii) any violation or breach by the Participant of any noncompetition, non-solicitation, non-disclosure and/or other similar agreement with the Company or its Affiliates, (iv) any act by the Participant of dishonesty or bad faith with respect to the Company or its Affiliates, (v) any involvement by the Participant in fraud, misappropriation or embezzlement related to the business or property of the Company, or (vi) the commission by the Participant of any act, misdemeanor, or crime reflecting unfavorably upon the Participant or the Company or its Affiliates.
2.7 Change in Control means the occurrence of any of the following: (i) the acquisition by any Person of Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either (A) the then outstanding shares of common stock of the Company (the Outstanding Company Common Stock) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities) (the foregoing Beneficial Ownership hereinafter being referred to as a Controlling Interest); provided, however, that the following acquisitions shall not constitute or result in a Change of Control: (v) any acquisition directly from the Company; (w) any acquisition by the Company; (x) any acquisition by any Person that as of the Effective Date owns Beneficial Ownership of a Controlling Interest; (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) below; or (ii) consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its Subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its Subsidiaries (each, a Business Combination), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination or any Person that as of the Effective Date owns Beneficial Ownership of a Controlling Interest) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iii) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
2
2.8 Change in Control Period means the time period beginning on the date of consummation of a Change in Control and ending on the date that is twelve (12) months following such Change in Control.
2.9 Code means the Internal Revenue Code of 1986, as amended.
2.10 Company means Perry Ellis International, Inc., a Florida corporation, and any successor that assumes the obligations of the Company under the Plan, by way of merger, acquisition, consolidation or other transaction.
2.11 Compensation Committee means the Compensation Committee of the Board.
2.12 Disability shall have the meaning set forth in the Equity Plan.
2.13 Effective Date means April 22, 2018, the date on which this Plan was adopted by the Compensation Committee.
2.14 Equity Awards means a Participants stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and any other Company equity compensation awards that are outstanding as of immediately prior to the consummation of the Change in Control.
2.15 Equity Plan means, collectively, the Amended and Restated Perry Ellis International, Inc. 2015 Long Term Incentive Compensation Plan and the Second Amended and Restated Perry Ellis International, Inc. 2005 Long Term Incentive Compensation Plan.
2.16 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
2.17 Good Reason means the occurrence of any of the following events without a Participants express prior written consent: (i) a reduction in the Participants Base Salary or Target Bonus, each as in effect on the date immediately prior to the consummation of the Change in Control; (ii) a material diminution in the Participants authority or responsibilities with the Company as the same may be increased from time to time (other than in connection with the Participants physical or mental illness or incapacity); provided, that no diminution of authority or responsibilities, shall be deemed to occur if, following a Change of Control, the Participant otherwise retains the Participants authority or responsibilities relative to the Company (or its successor) as a subsidiary of such acquiror; or (iii) the relocation of the Participants principal place of employment to a location that increases the Participants one-way commute by more than fifty (50) miles; provided, that no event shall constitute Good Reason unless (x) the Participant gives the Company written notice of Participants objection to such event within thirty (30) days following such event, (y) such event is not corrected, in all material respects, by the Company or its Affiliate within thirty (30) days following the Companys receipt of such notice and (z) the Participant resigns his or her employment with the Company and its Affiliates not more than thirty (30) days following the expiration of the thirty (30)-day correction period described in the foregoing clause (y).
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2.18 Incumbent Board means the individuals who constitute the Board on the Effective Date.
2.19 Involuntary Termination means a termination of employment of a Participant under the circumstances described in Section 4.
2.20 Multiplier means the Multiplier applicable to a Participant, determined in accordance with Appendix A attached hereto.
2.21 Participant means each employee designated as a Tier I, II or III participant by the Compensation Committee.
2.22 Person means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, association, governmental entity, unincorporated entity or other entity.
2.23 Plan means this Perry Ellis International, Inc. Change in Control Severance Plan, as set forth in this document, and as hereafter amended from time to time.
2.24 Restrictive Covenants with respect to a Participant means any written non-competition, non-solicitation, non-disclosure, non-disparagement, return of property or similar provisions or agreements between such Participant and the Company or any of its Affiliates.
2.25 Section 409A Limit means two (2) times the lesser of: (i) the Participants annualized compensation based upon the annual rate of pay paid to the Participant during the Participants taxable year preceding the Participants taxable year of the Participants termination of employment as determined under, and with such adjustments as are set forth in, Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which the Participants employment is terminated.
2.26 Severance Period means the period following a Participants Involuntary Termination as determined in accordance with Appendix A attached hereto.
2.27 Target Bonus means a Participants annual target cash incentive opportunity, as in effect immediately prior to such Participants Involuntary Termination or, if greater, at the level in effect immediately prior to the Change in Control.
3. Eligibility for Severance Benefits. An individual is eligible for Severance Benefits only if he or she experiences an Involuntary Termination, as described in Section 4.
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4. Involuntary Termination During the Change in Control Period. If, during the Change in Control Period, (i) a Participant terminates his or her employment with the Company (or any Affiliate of the Company) for Good Reason, or (ii) the Company (or any Affiliate of the Company) terminates the Participants employment for a reason other than Cause, the Participants death or Disability (in either case, an Involuntary Termination), then, subject to the Participants compliance with Section 7, the Participant will receive the compensation and other benefits (the Severance Benefits) set forth in Section 5, subject to the terms and conditions of the Plan.
5. Severance Benefits. If a Participant becomes eligible for Severance Benefits in accordance with Sections 3 and 4, the Company shall pay or provide (or cause to be paid or provided) to the Participant (in addition to the Accrued Obligations) the following Severance Benefits:
5.1 An aggregate payment equal to the product of the Multiplier and the Participants monthly Base Salary, payable in equal monthly installments during the Severance Period.
5.2 A prorated portion of the Participants annual cash bonus payable with respect to the calendar year in which the Involuntary Termination occurs, determined on a daily basis, based solely on the actual level of achievement of the applicable performance goals for such year, and payable if and when annual bonuses are paid to other similarly situated employees of the Company with respect to such year.
5.3 During the Severance Period, subject to the Participants timely election of (and continued eligibility for) continued health coverage pursuant to the federal law known as COBRA, the applicable COBRA premiums for the Participant and any eligible dependents who participated in the Companys (or its Affiliates) health plan as of immediately prior to the date of the Participants Involuntary Termination; provided, that the Company (or its Affiliate) would not be subject to any excise tax under Section 4980D of the Code or other penalty or liability pursuant to the provisions of the Patient Protection and Affordable Care Act of 2010 (as amended from time to time) or other applicable law (or to the extent such COBRA subsidy is not permitted under the terms of the applicable benefit plan or applicable law). For the avoidance of doubt, the Participants health benefit coverage from the Company (or its Affiliate) during the Severance Period shall run concurrent with the health continuation coverage period mandated by Section 4980B of the Code.
5.4 Any outstanding Equity Awards shall be treated in the manner provided in the Equity Plan and the award agreements issued to the Participant thereunder.
6. Limitation on Payments. In the event that the severance and other benefits provided for in this Plan or otherwise payable to a Participant (i) constitute parachute payments within the meaning of Section 280G of the Code (280G Payments), and (ii) but for this Section 6, would be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then the 280G Payments will be either:
6.1.1 delivered in full, or
5
6.1.2 delivered as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Participant, on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. If a reduction in the 280G Payments is necessary so that no portion of such benefits are subject to the Excise Tax, reduction will occur in the following order: (i) cancellation of awards granted contingent on a change in ownership or control (within the meaning of Section 280G of the Code); (ii) a pro rata reduction of (A) cash payments that are subject to Section 409A as deferred compensation and (B) cash payments not subject to Section 409A of the Code; (iii) a pro rata reduction of (A) employee benefits that are subject to Section 409A as deferred compensation and (B) employee benefits not subject to Section 409A; and (iv) a pro rata cancellation of (A) accelerated vesting of equity awards that are subject to Section 409A as deferred compensation and (B) equity awards not subject to Section 409A. In the event that acceleration of vesting of equity awards is to be canceled, such acceleration of vesting will be canceled in the reverse order of the date of grant of a Participants equity awards.
Any determination required under this Section 6 will be made in writing by the Companys independent public accountants immediately prior to the Change in Control or such other Person to which the parties mutually agree (the Firm), whose determination will be conclusive and binding upon the Participant and the Company. For purposes of making the calculations required by this Section 6, the Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Participant and the Company will furnish to the Firm such information and documents as the Firm may reasonably request in order to make a determination under this Section 6. The Company will bear all costs the Firm may incur in connection with any calculations contemplated by this Section 6.
7. Conditions to Receipt of Severance Benefits.
7.1 Release Agreement. As a condition to receiving the Severance Benefits, each Participant will be required to sign and not revoke a separation and release of claims agreement in the form attached hereto as Appendix B (the Release). In all cases, the Release must become effective and irrevocable no later than the sixtieth (60th) day following the Participants Involuntary Termination (the Release Deadline Date). If the Release does not become effective and irrevocable by the Release Deadline Date, the Participant will forfeit any right to the Severance Benefits. In no event will the Severance Benefits be paid or provided until the Release becomes effective and irrevocable.
7.2 Restrictive Covenants. As a condition to receiving the Severance Benefits, each Participant shall comply with the restrictive covenants set forth on Appendix C.
8. Timing of Severance Benefits. Provided that the Release becomes effective and irrevocable by the Release Deadline Date and subject to Section 10, the Severance Benefits will be paid, or in the case of installments, will commence, on the first Company payroll date following the Release Deadline Date (such payment date, the Severance Start Date), and any Severance Benefits otherwise payable to the Participant during the period immediately following the Participants termination of employment with the Company through the Severance Start Date will be paid in a lump sum to the Participant on the Severance Start Date, with any remaining payments to be made as provided in this Plan.
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9. Exclusive Benefit. The Severance Benefits shall be the exclusive benefit for a Participant related to termination of employment and/or Change in Control during the Change in Control Period (including, without limitation, under any applicable employment or severance agreement or plan).
10. Section 409A.
10.1 Notwithstanding anything to the contrary in this Plan, no Severance Benefits to be paid or provided to a Participant, if any, under this Plan that, when considered together with any other severance payments or separation benefits, are considered deferred compensation under Section 409A of the Code, and the final regulations and any guidance promulgated thereunder (Section 409A) (together, the Deferred Payments) will be paid or provided until the Participant has a separation from service within the meaning of Section 409A. Similarly, no Severance Benefits payable to a Participant, if any, under this Plan that otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be payable until the Participant has a separation from service within the meaning of Section 409A.
10.2 It is intended that the Severance Benefits will be either exempt from Section 409A as a payment that would fall within the short-term deferral period as described in Section 10.4 below or as resulting from an involuntary separation from service as described in Section 10.5 below or will be compliant with Section 409A. In no event will a Participant have discretion to determine the taxable year of payment of any Deferred Payment.
10.3 Notwithstanding anything to the contrary in this Plan, if a Participant is a specified employee within the meaning of Section 409A at the time of the Participants separation from service (other than due to death), then the Deferred Payments, if any, that are payable within the first six (6) months following the Participants separation from service, will become payable on the date six (6) months and one (1) day following the date of the Participants separation from service. All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, in the event of the Participants death following the Participants separation from service, but before the six (6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of the Participants death and all other Deferred Payments will be payable in accordance with the payment schedule applicable to each payment or benefit. Each payment and benefit payable under this Plan is intended to constitute a separate payment under Section 1.409A-2(b)(2) of the Treasury Regulations.
10.4 Any amount paid under this Plan that satisfies the requirements of the short-term deferral rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Payments for purposes of this Section 10.
10.5 Any amount paid under this Plan that qualifies as a payment made as a result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A Limit will not constitute Deferred Payments for purposes of this Section 10.
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10.6 The foregoing provisions are intended to comply with or be exempt from the requirements of Section 409A so that none of the Severance Benefits will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply or be exempt. Notwithstanding anything to the contrary in the Plan, including but not limited to Sections 12 and 15, the Company reserves the right to amend the Plan as it deems necessary or advisable, in its sole discretion and without the consent of the Participants, to comply with Section 409A or to avoid income recognition under Section 409A prior to the actual payment of Severance Benefits or imposition of any additional tax. In no event will the Company reimburse a Participant for any taxes or other costs that may be imposed on the Participant as result of Section 409A.
11. Withholdings. The Company will withhold from any Severance Benefits all applicable U.S. federal, state, local and non-U.S. taxes required to be withheld and any other required payroll deductions.
12. Administration. The Company is the administrator of the Plan (within the meaning of section 3(16)(A) of ERISA). The Plan will be administered and interpreted by the Administrator; provided, that, during the Change in Control Period, the Administrator shall not have discretionary authority in the administration of the Plan, and any court or tribunal that adjudicates any dispute, controversy or claim arising under, in connection with or related to the Plan will apply a de novo standard of review to any determinations made by the Administrator, and such de novo standard shall apply notwithstanding the administrative authority granted hereunder to the Administrator or characterization of any decision by the Administrator as final, binding or conclusive on any party. The Administrator is the named fiduciary of the Plan for purposes of ERISA and will be subject to the fiduciary standards of ERISA when acting in such capacity. In accordance with Section 2.2, the Administrator (a) may, in its sole discretion and on such terms and conditions as it may provide, delegate in writing to one or more officers of the Company all or any portion of its authority or responsibility with respect to the Plan, and (b) has the authority to act for the Company (in a non-fiduciary capacity) as to any matter pertaining to the Plan; provided, however, that any Plan amendment or termination or any other action that reasonably could be expected to increase materially the cost of the Plan must be approved by the Board.
13. Eligibility to Participate. To the extent that the Administrator has delegated administrative authority or responsibility to one or more officers of the Company in accordance with Sections 2.2 and 12 each such officer will not be excluded from participating in the Plan if otherwise eligible, but he or she is not entitled to act upon or make determinations regarding any matters pertaining specifically to his or her own benefit or eligibility under the Plan. The Administrator will act upon and make determinations regarding any matters pertaining specifically to the benefit or eligibility of each such officer under the Plan.
14. Effectiveness. The Plan became effective upon the Effective Date.
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15. Amendment or Termination. The Company, by action of the Administrator, reserves the right to amend or terminate the Plan (including any appendices or annexes thereto) at any time, without advance notice to any Participant and without regard to the effect of the amendment or termination on any Participant or on any other individual, subject to the following. Any amendment or termination of the Plan (or any appendix or exhibit thereto) will be in writing. Notwithstanding the foregoing, any amendment to the Plan (or any appendix or exhibit thereto) that (a) causes an individual to cease to be a Participant, or (b) adversely affects the Severance Benefits potentially payable to a Participant (including, without limitation, imposing additional conditions or modifying the amount or timing of payment), will not be effective without the consent of such Participant, unless such amendment is required by law or a written notice is provided to such Participant at least one (1) year in advance of such amendment; provided, that no such amendments shall be effective during the Change in Control Period. Any action of the Company in amending or terminating the Plan (or any appendix or exhibit thereto) will be taken in a non-fiduciary capacity.
16. Claims and Appeals.
16.1.1 Claims Procedure. Any employee or other Person who believes he or she is entitled to any Severance Benefits may submit a claim in writing to the Administrator within ninety (90) days of the earlier of (i) the date the claimant learned the amount of his or her Severance Benefits or (ii) the date the claimant learned that he or she will not be entitled to any Severance Benefits. If the claim is denied (in full or in part), the claimant will be provided a written notice explaining the specific reasons for the denial and referring to the provisions of the Plan on which the denial is based. The notice also will describe any additional information needed to support the claim and the Plans procedures for appealing the denial. The denial notice will be provided within ninety (90) days after the claim is received. If special circumstances require an extension of time (up to ninety (90) days), written notice of the extension will be given within the initial ninety (90)-day period. This notice of extension will indicate the special circumstances requiring the extension of time and the date by which the Administrator expects to render its decision on the claim.
16.1.2 Appeal Procedure. If the claimants claim is denied, the claimant (or his or her authorized representative) may apply in writing to the Administrator for a review of the decision denying the claim. Review must be requested within sixty (60) days following the date the claimant received the written notice of their claim denial or else the claimant loses the right to review. The claimant (or representative) then has the right to review and obtain copies of all documents and other information relevant to the claim, upon request and at no charge, and to submit issues and comments in writing. The Administrator will provide written notice of its decision on review within sixty (60) days after it receives a review request. If additional time (up to sixty (60) days) is needed to review the request, the claimant (or representative) will be given written notice of the reason for the delay. This notice of extension will indicate the special circumstances requiring the extension of time and the date by which the Administrator expects to render its decision. If the claim is denied (in full or in part), the claimant will be provided a written notice explaining the specific reasons for the denial and referring to the provisions of the Plan on which the denial is based. The notice also will include a statement that the claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents and other information relevant to the claim and a statement regarding the claimants right to bring an action under Section 502(a) of ERISA.
17. Attorneys Fees. The parties shall each bear their own expenses, legal fees and other fees incurred in connection with this Plan.
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18. Source of Payments. All payments under the Plan will be paid from the general funds of the Company; no separate fund will be established under the Plan, and the Plan will have no assets. No right of any Person to receive any payment under the Plan will be any greater than the right of any other general unsecured creditor of the Company.
19. Inalienability. In no event may any current or former employee of the Company or any of its subsidiaries or Affiliates sell, transfer, anticipate, assign or otherwise dispose of any right or interest under the Plan. At no time will any such right or interest be subject to the claims of creditors nor liable to attachment, execution or other legal process.
20. No Enlargement of Employment Rights. Neither the establishment or maintenance or amendment of the Plan, nor the making of any benefit payment hereunder, will be construed to confer upon any individual any right to continue to be an employee of the Company. The Company expressly reserves the right to discharge any of its employees at any time, with or without Cause. However, as described in the Plan, a Participant may be entitled to Severance Benefits depending upon the circumstances of his or her termination of employment.
21. No Setoff. The Companys obligation to pay or provide (or cause to be paid or provided) the Severance Benefits and otherwise to perform its obligations hereunder shall be absolute and unconditional and shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against a Participant or others. In no event shall a Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to such Participant under any provisions of this Plan and no amounts received from other employment shall serve to mitigate the payments hereunder.
22. Successors. Any successor to the Company of all or substantially all of the Companys business and/or assets (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or other transaction) shall assume the obligations under the Plan and agree expressly to perform the obligations under the Plan in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under the Plan, the term Company will include any successor to the Companys business and/or assets which become bound by the terms of the Plan by operation of law, or otherwise.
23. Applicable Law. The provisions of the Plan will be construed, administered and enforced in accordance with ERISA and, to the extent applicable, the internal substantive laws of the state of Florida (but not its conflict of laws provisions).
24. Severability. If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability will not affect any other provision of the Plan, and the Plan will be construed and enforced as if such provision had not been included.
25. Headings. Headings in this Plan document are for purposes of reference only and will not limit or otherwise affect the meaning hereof.
26. Indemnification. The Company hereby agrees to indemnify and hold harmless the officers and employees of the Company, and the members of its Board, from all losses, claims, costs or other liabilities arising from their acts or omissions in connection with the administration, amendment or termination of the Plan, to the maximum extent permitted by applicable law. This indemnity will cover all such liabilities, including judgments, settlements and costs of defense. The Company will provide this indemnity from its own funds to the extent that insurance does not cover such liabilities. This indemnity is in addition to and not in lieu of any other indemnity provided to such Person by the Company.
10
27. | Additional Information. | |||
Plan Name: | Perry Ellis International, Inc. Change in Control Severance Plan | |||
Plan Sponsor: | Perry Ellis International, Inc. c/o General Counsel 3000 N.W. 107th Avenue Miami, Florida 33172 (305) 592-2830 | |||
Identification Numbers: | EIN: 59-1162998 PLAN: 503 | |||
Plan Year: | Companys fiscal year (i.e., December 31) | |||
Plan Administrator: | Perry Ellis International, Inc. Attention: Administrator of the Perry Ellis International, Inc. Change in Control Severance Plan 3000 N.W. 107th Avenue Miami, Florida 33172 (305) 592-2830 | |||
Agent for Service of Legal Process: | Perry Ellis International, Inc. Attention: General Counsel 3000 N.W. 107th Avenue Miami, Florida 33172 (305) 592-2830 | |||
Type of Plan Plan Costs: | Service of process also may be made upon the Administrator. Severance Plan The cost of the Plan is paid by the Company. |
11
28. Statement of ERISA Rights.
Participants under the Plan have certain rights and protections under ERISA:
28.1.1 Participants may examine (without charge) all Plan documents, including any amendments and copies of all documents filed with the U.S. Department of Labor. These documents are available for Participants review in the Companys Human Resources Department.
28.1.2 Participants may obtain copies of all Plan documents and other Plan information upon written request to the Administrator. A reasonable charge may be made for such copies.
In addition to creating rights for Participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan (called fiduciaries) have a duty to do so prudently and in the interests of the other Participants. No one, including the Company or any other Person, may fire a Participant or otherwise discriminate against a Participant in any way to prevent a Participant from obtaining a benefit under the Plan or exercising his or her rights under ERISA. If a Participants claim for a severance benefit is denied, in whole or in part, such Participant must receive a written explanation of the reason for the denial. Participants have the right to have a denial of their claim reviewed. (The claim review procedure is explained in Section 16 above.)
Under ERISA, there are steps Participants can take to enforce the above rights. For example, if a Participant requests materials and does not receive them within thirty (30) days, he or she may file suit in a federal court. In such a case, the court may require the Administrator to provide the materials and to pay the Participant up to $110 a day until he or she receives the materials, unless the materials were not sent due to reasons beyond the control of the Administrator. If a Participant has a claim which is denied or ignored, in whole or in part, the Participant may file suit in a federal court. If it should happen that the Participant is discriminated against for asserting his or her rights, he or she may seek assistance from the U.S. Department of Labor, or may file suit in a federal court.
In any case, the court will decide who will pay court costs and legal fees. If a Participant is successful, the court may order the Person a Participant has sued to pay these costs and fees. If a Participant loses, the court may order the Participant to pay these costs and fees, for example, if it finds that the Participants claim is frivolous.
If a Participant has any questions regarding the Plan, he or she should contact the Administrator. If a Participant has any questions about this statement or about his or her rights under ERISA, he or she may contact the nearest area office of the Employee Benefits Security Administration (formerly the Pension and Welfare Benefits Administration), U.S. Department of Labor, listed in his or her telephone directory, or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W. Washington, D.C. 20210. Participants also may obtain certain publications about their rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.
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Appendix A
Participant Multipliers
Participant Level |
Multiplier |
Severance Period | ||
Tier I | 18 |
18 months | ||
Tier II | 12 |
12 months | ||
Tier III | 1 for each year of service with the Company, with a minimum of 6 and a maximum of 9 | 1 month for each year of service with the Company, with a minimum of 6 months and a maximum of 9 months |
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Appendix B
Form of Release
WAIVER AND RELEASE OF CLAIMS
In connection with the termination of employment of [] (the Participant), and as required under the Perry Ellis International, Inc. Change in Control Severance Plan (the Plan) to be eligible for Severance Benefits, the Participant agrees as follows. All capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
1. Release of Claims
In partial consideration of the Severance Benefits, to which the Participant agrees that the Participant is not entitled until and unless the Participant executes this waiver and release of claims (this Release) and it becomes effective in accordance with the terms hereof, the Participant, for and on behalf of the Participant and the Participants heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, subject to the proviso in the penultimate sentence of this Section 1, hereby waives and releases any common law, statutory or other complaints, claims, charges or causes of action of any kind whatsoever, both known and unknown, in law or in equity, which the Participant ever had, now has or may have against the Company and its former, present or future shareholders, parents, subsidiaries, affiliates, predecessors, successors, assigns, directors, officers, partners, members, managers, employees, trustees (in their official and individual capacities), employee benefit plans and their administrators and fiduciaries (in their official and individual capacities), representatives or agents and each of their affiliates, successors and assigns (collectively, the Releasees), by reason of facts or omissions which have occurred on or prior to the date that the Participant signs this Release, including, without limitation, any complaint, charge or cause of action arising out of the Participants employment or termination of employment, or any term or condition of that employment, or arising under federal, state, local or foreign laws pertaining to employment, including, without limitation, the Age Discrimination in Employment Act of 1967 (ADEA, a law which prohibits discrimination on the basis of age), the Older Workers Benefit Protection Act, the National Labor Relations Act, the Civil Rights Act of 1991, the Americans With Disabilities Act of 1990, Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act of 1974, the Family and Medical Leave Act, the Worker Adjustment Retraining and Notification Act and similar state laws, the Equal Pay Act, the Fair Labor Standards Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Florida Civil Rights Act of 1992, any and all claims/actions for retaliation which have been or could have been raised under Floridas Workers Compensation Act (Florida Statute § 440.205), the Florida Private Sector Whistle-Blower Act (Florida Statute § 448.101-105), the Florida Equal Pay Act, any claims under Florida Statute § 448.08 for unpaid wages, waivable rights under the Florida Constitution and any other federal, state and local laws relating to discrimination on the basis of age, sex or other protected class, all claims under federal, state or local laws for express or implied breach of contract, wrongful discharge, defamation, intentional infliction of emotional distress, and any related claims for attorneys fees and costs. The Participant further agrees that this Release may be pleaded as a full defense to any action, suit, arbitration or other proceeding covered by the terms hereof which is or may be initiated, prosecuted or maintained by the Participant, the Participants descendants, dependents, heirs, executors, administrators or permitted assigns. By signing this Release, the Participant acknowledges that the Participant intends to waive and release any rights known or unknown that the Participant may have against the Releasees under these and any other laws; provided, that the Participant does not waive or release claims with respect to (i) any rights the Participant may have to the Severance Benefits, (ii) any claims or rights under the Companys indemnification policy in accordance with the by-laws of the Company, or any rights the Participant may have as an insured under any directors and officers liability insurance policies, (iii) vested rights to benefits under Company employee benefit plans (including the Equity Plan), (iv) any rights to unemployment, state disability and/or paid family leave insurance benefits pursuant to the terms of applicable law, and (v) rights that cannot be released as a matter of law (collectively, the Unreleased Claims). The Participant hereby waives any and all claims to reemployment with the Company or any of its Affiliates and affirmatively agrees not to seek further employment with the Company or any of its Affiliates.
B-1
If the Participant has worked or is working in California, the Participant expressly agrees to waive the protection of Section 1542 of the California Civil Code, which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
2. Proceedings
The Participant acknowledges that the Participant has not filed any complaint, charge, claim or proceeding against any of the Releasees before any local, state, federal or foreign agency, court, arbitrator, mediator, arbitration or mediation panel or other body (each individually, a Proceeding). The Participant represents that the Participant is not aware of any basis on which such a Proceeding could reasonably be instituted; provided, that if the Participant is aware of any basis on which such a Proceeding could reasonably be instituted, then the Participant has disclosed such basis to the Company in writing. The Participant (i) acknowledges that the Participant shall not initiate or cause to be initiated on the Participants behalf any Proceeding (except with respect to an Unreleased Claim) and shall not participate in any Proceeding (except with respect to an Unreleased Claim), in each case, except as required by law, and (ii) waives any right the Participant may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding, including any Proceeding conducted by the Equal Employment Opportunity Commission (EEOC). Further, the Participant understands that, by executing this Release, the Participant shall be limiting the availability of certain remedies that the Participant may have against the Company and limiting also the ability of the Participant to pursue certain claims against the Releasees. Notwithstanding the above, nothing in Section 1 of this Release shall prevent the Participant from (a) initiating or causing to be initiated on the Participants behalf any complaint, charge, claim or proceeding against the Company before any local, state or federal agency, court or other body challenging the validity of the waiver of the Participants claims under ADEA contained in Section 1 of this Release (but no other portion of such waiver); (b) enforcing the Participants rights to receive the Severance Benefits; or (c) initiating or participating in an investigation or proceeding conducted by the EEOC.
B-2
3. Time to Consider
The Participant acknowledges that the Participant has been advised that the Participant has [twenty-one (21)][forty-five (45)] days from the date of receipt of this Release to consider all the provisions of this Release and to the extent the Participant signs this Release prior to the expiration of such period the Participant does hereby knowingly and voluntarily waive the remaining portion of such [twenty-one (21)][forty-five (45)] day period. THE PARTICIPANT FURTHER ACKNOWLEDGES THAT THE PARTICIPANT HAS READ THIS RELEASE CAREFULLY, HAS BEEN ADVISED BY THE COMPANY TO, AND HAS IN FACT, CONSULTED AN ATTORNEY AND FULLY UNDERSTANDS THAT BY SIGNING BELOW THE PARTICIPANT IS GIVING UP CERTAIN RIGHTS WHICH THE PARTICIPANT MAY HAVE TO SUE OR ASSERT A CLAIM AGAINST ANY OF THE RELEASEES, AS DESCRIBED IN SECTION 1 OF THIS RELEASE AND THE OTHER PROVISIONS HEREOF. THE PARTICIPANT ACKNOWLEDGES THAT THE PARTICIPANT HAS NOT BEEN FORCED OR PRESSURED IN ANY MANNER WHATSOEVER TO SIGN THIS RELEASE, AND THE PARTICIPANT AGREES TO ALL OF ITS TERMS VOLUNTARILY.
4. Revocation
The Participant hereby acknowledges and understands that the Participant shall have seven (7) days from the date of execution of this Release to revoke this Release (including, without limitation, any and all claims arising under ADEA) and that neither the Company nor any other person is obligated to provide any payments or benefits to the Participant pursuant to the Plan until eight (8) days have passed since the Participants signing of this Release without the Participant having revoked this Release (such eighth (8th) day, on which the Release becomes irrevocable and effective, the Release Effective Date). If the Participant revokes this Release, the Participant shall be deemed not to have accepted the terms of this Release, and no action shall be required of the Company under any section of this Release. Any revocation of this Release must be made in writing and delivered to the Company at the Plan Sponsor address provided in Section 27 of the Plan.
5. Remedies. The Participant understands and agrees that if the Participant breaches any provisions of this Release or fails to timely execute and deliver this Release, or timely revokes the Participants acceptance of its terms, in addition to any other legal or equitable remedy the Company may have, the Company shall be entitled to cease making any payments or providing any benefits to the Participant under Section 5 of the Plan, and the Participant shall reimburse the Company for all attorneys fees and costs incurred by it arising out of any such breach, including in defending against any suit brought by the Participant against the Released Parties. The remedies set forth in this paragraph shall not apply to any challenge to the validity of the waiver and release of the Participants rights under ADEA. In the event that the Participant challenges the validity of the waiver and release of the Participants rights under ADEA, then the Companys right to attorneys fees and costs shall be governed by the provisions of ADEA, so that the Company may recover such fees and costs if the lawsuit is brought by the Participant in bad faith. Any such action permitted by this Section, however, shall not affect or impair any of the Participants obligations under this Release, including without limitation, the release of claims in Section 1 hereof. The Participant agrees further that nothing herein shall preclude the Company from recovering attorneys fees, costs or any other remedies specifically authorized under applicable law.
B-3
6. No Admission
This Release does not constitute an admission of liability or wrongdoing of any kind by the Participant or the Company.
7. Certain Specific Acknowledgements
The Participant acknowledges that he or she has received a copy of, read, and understands the Plan, and further acknowledges and agrees that (i) as a condition to the receipt of the Severance Benefits, the Participant confirms by execution of this Release that the Participant is bound by the Restrictive Covenants, and (ii) in accordance with Section 7 of Appendix C to the Plan, upon the Participants violation of any of the provisions of the Plan or the Restrictive Covenants, the Severance Benefits shall immediately terminate and Participant shall forfeit all rights thereto.
8. General Provisions
The provisions of this Release shall be binding upon the Participants heirs, executors, administrators, legal representatives and assigns. A failure of any of the Releasees to insist on strict compliance with any provision of this Release shall not be deemed a waiver of such provision or any other provision hereof. If any provision of this Release is determined to be so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable, and in the event that any provision is determined to be entirely unenforceable, such provision shall be deemed severable, such that all other provisions of this Release shall remain valid and binding upon the Participant and the Releasees.
9. Governing Law
The validity, interpretations, construction and performance of this Release shall be governed by the laws of the State of Florida without giving effect to conflict of laws principles.
* * * * *
IN WITNESS WHEREOF, the Participant has executed and delivered this Release as of the date written below.
DATE | [ ● ] |
B-4
Appendix C
Restrictive Covenants
1. Restrictive Covenants.
1.1. the Participant acknowledges and agrees that he or she shall not, at any time during his or her employment with the Company and its Affiliates or during the Severance Period (the Restricted Period):
1.1.1. engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor or director) in any business in which the Participant has been directly engaged on behalf of the Company, or has supervised as an employee thereof, during the prior two (2)-year period (or, if earlier, the two (2)-year period ending on the date of the Participants Involuntary Termination), or which was engaged in or planned by the Company at the relevant time (or, if earlier, on the date of the Participants Involuntary Termination), in any geographic area in which such business was conducted or planned to be conducted;
1.1.2. induce any customers of the Company with whom the Participant has had contacts or relationships, directly or indirectly, during and within the scope of the Participants employment with the Company, to curtail or cancel their business with the Company;
1.1.3. induce, or attempt to influence, any employee of the Company to terminate employment with the Company; or
1.1.4. solicit, hire or retain as an employee or independent contractor, or assist any third party in the solicitation, hiring or retention as an employee or independent contractor, any person who during the twelve (12) months preceding such solicitation, hiring or retention was an employee of the Company;
provided, however, that the ownership of not more than one percent (1%) of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with Section 1.1.1. The Restricted Period shall be tolled during (and shall be deemed automatically extended by) any period in which the Participant is in violation of any of the provisions of this Section 1. Notwithstanding anything to the contrary contained herein, the covenants contained in Sections 1 through 5 of this Appendix C are in addition to, and not in lieu of, and do not amend or modify, any other similar restrictive covenants that run in favor of the Company and by which the Participant is bound.
1.2. Each of the covenants contained in Section 1.1.1, 1.1.2, 1.1.3 and 1.1.4 are separate and distinct commitments that are independent of each other. In the event that the terms of this Section 1 shall be determined by a final and non-appealable judicial decision by a court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it will be interpreted to extend only over the maximum period of time for which it may be enforceable, over the maximum geographical area as to which it may be enforceable, or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.
C-1
2. Cooperation. A Participant will at all times during the Restricted Period assist the Company in the defense of any claims or potential claims that may be made or threatened to be made against the Company in any action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise, and will assist the Company in the prosecution of any claims that may be made by the Company in any such action, suit or proceeding, to the extent that such claims may relate to such Participants employment or the period of such Participants employment by the Company. Such Participant shall, unless precluded by law, promptly inform the Company if the Participant is asked to participate (or otherwise become involved) in any action, suit or proceeding involving such claims or potential claims. Such Participant also shall, unless precluded by law, promptly inform the Company if Participant is asked to assist in any investigation (whether governmental or otherwise) of the Company (or its actions), regardless of whether a lawsuit has then been filed against the Company with respect to such investigation. Such Participant shall be entitled to reimbursement, upon receipt by the Company of suitable documentation, for Participants reasonable out-of-pocket expenses and any other expenses that are pre-approved by the Company, in either case, for the assistance provided under this Section. Notwithstanding the foregoing, the provisions of this Section 2 with respect to reimbursement of expenses shall in no way affect the Participants rights to be indemnified and/or advanced expenses in accordance with the Companys corporate documents and/or in accordance with this Plan.
3. Nondisclosure of Confidential Information. Except as required in the faithful performance of a Participants duties with the Company, during the period of such Participants employment with the Company and in perpetuity thereafter, the Participant shall maintain in confidence and shall not directly, indirectly or otherwise, use, disseminate, disclose or publish, or use for the Participants benefit or the benefit of any Person, any confidential or proprietary information or trade secrets of or relating to the Company, including, without limitation, information with respect to the Companys operations, protocols, processes, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, compensation paid to employees or other terms of employment (Confidential Information), or deliver to any Person any document, record, notebook, computer program or similar repository of or containing any such Confidential Information. Upon the Participants termination of employment for any reason, the Participant shall promptly deliver to the Company all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents or any other documents concerning the Companys Confidential Information, customers, business plans, marketing strategies, products or processes. The Participant may respond to a lawful and valid subpoena or other legal process but shall give the Company the earliest possible notice thereof, shall, as much in advance of the return date as possible, make available to the Company and its counsel the documents and other information sought and shall assist such counsel in resisting or otherwise responding to such process.
Notwithstanding anything to the contrary contained herein, nothing in this Plan shall prohibit a Participant from reporting possible violations of federal law or regulation to or otherwise cooperating with or providing information requested by any governmental agency or entity, including, but not limited to, the Department of Justice, the Securities and Exchange Commission, the Congress and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. Such Participant does not need the prior authorization of the Company to make any such reports or disclosures and the Participant is not required to notify the Company that the Participant has made such reports or disclosures.
C-2
4. Intellectual Property Rights. 4.1. The results and proceeds of a Participants services for the Company (including, but not limited to, any trade secrets, products, services, processes, know-how, designs, developments, innovations, analyses, drawings, reports, techniques, formulas, methods, developmental or experimental work, improvements, discoveries, inventions, ideas, source and object codes, programs, matters of a literary, musical, dramatic or otherwise creative nature, writings and other works of authorship) resulting from services performed while an employee of the Company and any works in progress, whether or not patentable or registrable under copyright or similar statutes, that were made, developed, conceived or reduced to practice or learned by such Participant, either alone or jointly with others (collectively, Inventions), shall be works-made-for-hire and the Company shall be deemed the sole owner throughout the universe of any and all trade secret, patent, copyright and other intellectual property rights (collectively, Proprietary Rights) of whatsoever nature therein, whether or not now or hereafter known, existing, contemplated, recognized or developed, with the right to use the same in perpetuity in any manner the Company determines in its sole discretion, without any further payment to such Participant whatsoever. If, for any reason, any of such results and proceeds shall not legally be a work-made-for-hire and/or there are any Proprietary Rights which do not accrue to the Company under the immediately preceding sentence, then such Participant hereby irrevocably assigns and agrees to assign any and all of Participants right, title and interest thereto, including any and all Proprietary Rights of whatsoever nature therein, whether or not now or hereafter known, existing, contemplated, recognized or developed, to the Company, and the Company shall have the right to use the same in perpetuity throughout the universe in any manner determined by the Company without any further payment to Participant whatsoever. As to any Invention that a Participant is required to assign, such Participant shall promptly and fully disclose to the Company all information known to Participant concerning such Invention. Each Participant hereby waives and quitclaims to the Company any and all claims, of any nature whatsoever, that Participant now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company.
4.2. A Participant shall, from time to time, as may be requested by the Company and at the Companys sole cost and expense, do any and all things that the Company may reasonably deem useful or desirable to establish or document the Companys exclusive ownership throughout the United States of America or any other country of any and all Proprietary Rights in any such Inventions, including the execution of appropriate copyright and/or patent applications or assignments. To the extent a Participant has any Proprietary Rights in the Inventions that cannot be assigned in the manner described above, such Participant unconditionally and irrevocably waives the enforcement of such Proprietary Rights. This Section 4.2 is subject to and shall not be deemed to limit, restrict or constitute any waiver by the Company of any Proprietary Rights of ownership to which the Company may be entitled by operation of law by virtue of the Companys being a Participants employer. A Participant further shall, from time to time, as may be requested by the Company and at the Companys sole cost and expense, assist the Company in every proper and lawful way to obtain and from time to time enforce Proprietary Rights relating to Inventions in any and all countries. A Participant shall execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining, and enforcing such Proprietary Rights and the assignment thereof. In addition, a Participant shall execute, verify and deliver assignments of such Proprietary Rights to the Company or its designees. A Participants obligations under this Section 4.2 shall continue until the end of the Restricted Period.
C-3
4.3. Notwithstanding anything to the contrary contained herein, a Participant shall not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made: (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. If a Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Participant may disclose the Companys trade secrets to the Participants attorney and use the trade secret information in the court proceeding if the Participant: (1) files any document containing the trade secret under seal; and (2) does not disclose the trade secret, except pursuant to court order.
5. Nondisparagement. A Participant shall not, at any time during the Participants employment and following the Participants termination of employment for any reason, make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company or its officers, directors, employees, advisors, businesses or reputations.
6. Company Defined. As used in this Appendix C, the term Company shall include the Company and any direct or indirect subsidiaries and Affiliates thereof and any successors thereto.
7. Violation of Conditions. The payment of the Severance Benefits will terminate immediately for a Participant if the Participant, at any time, violates any of the provisions of the Plan or the Restrictive Covenants contained in this Appendix C.
C-4
Exhibit 31.1
Certification
I, Oscar 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 generally accepted accounting principles;
(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 evaluation; 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.
June 13, 2018
/S/ OSCAR FELDENKREIS | ||
Name: | Oscar Feldenkreis | |
Title: | Chief Executive Officer and President | |
(Principal Executive Officer) |
Exhibit 31.2
Certification
I, Jorge Narino, 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 generally accepted accounting principles;
(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 evaluation; 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.
June 13, 2018
/S/ JORGE NARINO | ||
Name: | Jorge Narino | |
Title: | Interim Chief Financial Officer | |
(Principal Financial Officer) |
Exhibit 32.1
Certification
I, Oscar 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 May 5, 2018 (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.
June 13, 2018
/S/ OSCAR FELDENKREIS | ||
Name: | Oscar Feldenkreis | |
Title: | Chief Executive Officer and President | |
(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, Jorge Narino, 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 May 5, 2018 (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.
June 13, 2018
/S/ JORGE NARINO | ||
Name: | Jorge Narino | |
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.
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Jun. 11, 2018 |
|
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | May 05, 2018 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | PERY | |
Entity Registrant Name | PERRY ELLIS INTERNATIONAL, INC | |
Entity Central Index Key | 0000900349 | |
Current Fiscal Year End Date | --02-01 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 15,867,000 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 15,868,685 | 15,690,669 |
Common stock, shares outstanding | 15,868,685 | 15,690,669 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
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May 05, 2018 |
Apr. 29, 2017 |
|
Revenues: | ||
Net sales | $ 245,435 | $ 233,823 |
Royalty income | 9,799 | 8,267 |
Total revenues | 255,234 | 242,090 |
Cost of sales | 161,367 | 151,002 |
Gross profit | 93,867 | 91,088 |
Operating expenses: | ||
Selling, general and administrative expenses | 75,549 | 71,199 |
Depreciation and amortization | 3,227 | 3,468 |
Total operating expenses | 78,776 | 74,667 |
Operating income | 15,091 | 16,421 |
Interest expense | 2,009 | 1,956 |
Net income before income taxes | 13,082 | 14,465 |
Income tax provision | 2,835 | 1,694 |
Net income | $ 10,247 | $ 12,771 |
Net income per share: | ||
Basic | $ 0.68 | $ 0.85 |
Diluted | $ 0.66 | $ 0.83 |
Weighted average number of shares outstanding | ||
Basic | 15,156 | 15,009 |
Diluted | 15,519 | 15,303 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | |
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May 05, 2018 |
Apr. 29, 2017 |
|
Net income | $ 10,247 | $ 12,771 |
Other Comprehensive (loss) income: | ||
Foreign currency translation adjustments, net | (1,676) | 279 |
Unrealized gain (loss) on forward contract | 541 | (362) |
Unrealized gain on investments | 10 | 6 |
Total other comprehensive loss | (1,125) | (77) |
Comprehensive income | $ 9,122 | $ 12,694 |
General |
3 Months Ended |
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May 05, 2018 | |
General | 1. GENERAL The accompanying unaudited condensed consolidated financial statements of Perry Ellis International, Inc. and subsidiaries (“Perry Ellis” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the requirements of the Securities and Exchange Commission on Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows required by GAAP for annual financial statements. These condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended February 3, 2018, filed with the Securities and Exchange Commission on April 17, 2018. 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. |
Recent Accounting Pronouncements |
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Recent Accounting Pronouncements | 2. RECENT ACCOUNTING PRONOUNCEMENTS In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU creates a single comprehensive new revenue recognition standard. Under the new standard and its related amendments (collectively known as Accounting Standards Codification (“ASC 606”)), an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The new standard requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017. The Company adopted the standard as of February 4, 2018, using the modified retrospective method resulting in a cumulative-effect reduction to retained earnings of $0.9 million, net of tax, as of the date of adoption. Under this approach, the Company did not restate the prior financial statements presented. The provisions under this ASU were applied to contracts not completed as of that date. The cumulative effects of the changes made to the condensed consolidated balance sheet at February 4, 2018, as a result of the adoption of ASC 606 were as follows:
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and also updates certain presentation and disclosure requirements. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption, during the first quarter of fiscal 2019, of ASU No. 2016-01 did not have a material impact on the Company’s results of operations or the Company’s financial position. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” which requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, using a modified retrospective approach, and early adoption is permitted. The Company is currently evaluating the effect that the adoption will have on its consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides guidance for the accounting for credit losses on instruments within its scope. The amendments guide on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. The amendments require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments also require that credit losses on available-for-sale debt securities be presented as an allowance. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this update are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The adoption, during the first quarter of fiscal 2019, of ASU No. 2016-01 did not have a material impact on the Company’s results of operations or the Company’s financial position. In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic718): Scope of Modification Accounting,” which amends the scope of modification accounting for share-based payment arrangements. This update provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The guidance is required to be applied prospectively to an award modified on or after the adoption date. The Company will apply this guidance to any future changes made to the terms or conditions, of share-based payment awards, after adoption. The adoption, during the first quarter of fiscal 2019, of ASU No. 2016-01 did not have a material impact on the Company’s results of operations or the Company’s financial position. In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception,” which is intended to reduce the complexity of accounting for certain financial instruments with down round features and address the difficulty of accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which simplifies the application of hedge accounting guidance to better portray the economic results of risk management activities in the financial statements. The guidance aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the update. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cut and Jobs Act (“Tax Act”). In accordance with SAB 118, during fiscal 2018, the Company determined that the net ($3.9) million of the deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $5.8 million of current tax expense recorded in connection with the Transition tax on foreign earnings were provisional amounts and reasonable estimates at February 3, 2018. Over the SAB 118 measurement period, the Company intends to further analyze and update the calculated impacts noted above, as well as other potential correlative adjustments. During the three months ended May 5, 2018, the Company did not record any adjustments to the provisional income tax benefit recorded in fiscal 2018. Any subsequent adjustment to these amounts or additional amounts identified will be recorded to current tax expense in the quarter when the analysis is complete. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. For the three months ended May 5, 2018, while the Company is completing its analysis of the GILTI tax rules and the two available accounting policy elections, it has included a reasonable estimate of $0.5 million for the impact of GILTI as an increase to its fiscal 2019 tax expense for purposes of estimating the fiscal 2019 annual effective tax rate. As part of this estimate, the Company has not included GILTI as part of its deferred taxes. The Company does not expressly consider its methodology for calculating its fiscal 2019 annual estimated tax rate to constitute an election of either of the acceptable accounting policy elections relative to the GILTI tax regime. The Company will continue to analyze the GILTI tax rules over the SAB 118 measurement period and any subsequent adjustment pertaining to an ultimate accounting policy election will be recorded in the quarter when the analysis is complete. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220):Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The amendments eliminate the stranded tax effects resulting from the Tax Act. The updates also require certain disclosures about stranded tax effects. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which makes minor changes to ASU 2016-01. The update clarifies that entities must use a prospective transition approach only for equity securities they elect to measure using the new measurement alternative. The update also clarifies other aspects of the guidance on how to apply the measurement alternative and the presentation requirements for financial liabilities measured under the fair value option. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption, during the first quarter of fiscal 2019, of ASU No. 2016-01 did not have a material impact on the Company’s results of operations or the Company’s financial position. In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Act in the period of enactment. The update also provides guidance on the financial statement disclosures that are required under a measurement period approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. |
Revenue recognition |
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Revenue recognition | 3. REVENUE RECOGNITION The Company recognizes revenue pursuant to ASC 606. The majority of the Company’s revenue is derived from the sales of its products, which represents net sales recorded in the Company’s condensed consolidated statements of income. The Company also recognizes revenues for sales-based royalties related to its licenses of its symbolic intellectual property principally consisting of licenses of trade names and trademarks, which represents royalty income recorded in the Company’s condensed consolidated statements of income. Disaggregation of revenue The Company has four reportable segments: Men’s Sportswear and Swim, Women’s Sportswear, Direct-to-Consumer comprised of product sales and Licensing comprised of sales-based royalties. For a presentation of the Company’s revenues disaggregated by segment and geographical region, refer to footnote 17 in these notes to unaudited condensed consolidated financial statements. Performance Obligations Product sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. Transfer of title and risk of loss is based upon shipment under free on board shipping point for most goods. In some instances, transfer of title and risk of loss takes place at the point of sale at the Company’s retail stores and e-commerce platforms. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). In order to determine the transaction price, the Company estimates the amount of variable consideration, which principally relates to estimated customer returns, allowances, co-op advertising, markdowns and discounts, at the outset of the contract utilizing the expected value. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required. The Company’s contracts with customers, for a license to symbolic intellectual property, typically include a nonrefundable minimum guarantee (“MG”) establishing a floor for the amount of consideration to be paid to the Company in installments over the term of the license period. The Company earns additional sales-based royalties when the royalties exceed the nonrefundable MG. As a result, the Company’s contracts contain both a sales-based royalty and an MG and therefore, include both fixed and variable consideration. In order to determine the appropriate approach to utilize for the pattern of recognition of transaction price for contracts that contain a MG and sales-based royalty, the Company has determined that the approach applied should be based on the Company’s evaluation of whether it is expected that the MG would be exceeded. For contracts, where the Company has determined that it is unlikely that the MG will be exceeded, the Company believes that these contracts, for the license of symbolic intellectual property, the measure of progress for the fixed consideration would be based on time elapsed because the customer simultaneously receives and consumes the benefits as the entity performs. The Company will recognize additional sales-based royalties, if any, when the cumulative royalties exceed the MG as the Company has concluded that the variable consideration is fully constrained as it is not expected to be entitled to the variable consideration. For contracts, where the Company anticipates that the MG will be exceeded, the Company has determined that the substance of these arrangements is that it is paid consideration based on the sales-base royalties and therefore, would apply the recognition constraint on sales-based royalties in ASC 606 and will recognize the consideration based on sales-based royalty earned in each distinct period of the series. On the Company’s consolidated balance sheet, reserves for returns, allowances, co-op advertising and markdowns will be included within accrued expenses and other liabilities, rather than accounts receivable, net, and the asset for the Company’s right to recover products from a customer upon settling a return is recorded at the original carrying amount of the product less any expected cost to recover and any decreases in value of product, neither of which have been deemed significant. This refund asset has been included within prepaid expenses and other current assets. On the Company’s consolidated statement of income, advertising reimbursements received from licensees expenses will be considered a component of the transaction price in its contracts with customers and therefore, will be recorded as revenue upon recognition. Previously, these amounts were recorded in selling, general and administrative expenses.
Contract Balances The Company recognizes unearned royalty income when licensees pay contractual obligations before being earned or when up-front fees are collected and as such is included in current liabilities on the consolidated balance sheet. This liability is recognized as royalty income over the applicable term of the respective license agreement. As of May 5, 2018 and February 3, 2018, unearned revenue was $4.7 million and $2.9 million, respectively. For the three months ended May 5, 2018, the Company recognized $2.8 million of revenue that was previously included in unearned revenue as of February 3, 2018. Certain of the Company’s contracts with customers that provide for the license of intellectual property do not meet the adopted practical expedients. As of May 5, 2018, the Company had approximately 163 contracts for the license of intellectual property with unsatisfied performance obligations extending through December 2026. The total aggregate transaction price allocated to the unsatisfied performance obligations of these contracts was approximately $170.5 million, of which $39.5 million is expected to be realized in fiscal 2019. Significant Judgements The Company records reductions to revenue for estimated customer returns, allowances, co-op advertising, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Provisions for customer specific discounts are based on contractual obligations with certain major customers. Reserves for returns, allowances, co-op advertising and markdowns are included within accrued expenses and other liabilities. Discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the consolidated balance sheet. Practical Expedients and Policy Elections The Company has adopted or made a policy election related to the accounting for sales tax, shipping and handling, costs to obtain a contract, significant financing components and transaction price allocated to future performance obligations.
The Company has elected to exclude sales tax and similar taxes from the measurement of transaction price. As the Company historically has presented taxes on a net revenue basis, there is no change to the current presentation as a result of the adoption of ASC 606.
Costs associated for shipment of products to a customer are accounted for as a fulfillment cost and are included in selling, general and administrative expenses. The Company has elected to apply the practical expedient for shipping costs and will account for shipping and handling activities performed after control of a good has been transferred to the customer as a fulfillment cost and not a performance obligation. Therefore, both revenue and costs of shipping and handling will be recorded at the same time.
The Company historically has recognized the incremental costs of obtaining contracts as an expense when incurred, and if the amortization period of the assets that the Company otherwise would have recognized is one year or less, there is no change to the current presentation as a result of the adoption of ASC 606. As such, the Company has elected to adopt the practical expedient for costs to obtain and fulfill a contract. The Company, as of February 3, 2018 and May 5, 2018, incurred no incremental costs to obtain or fulfill the Company’s contracts with customers that were required to be capitalized.
The Company does not believe that there is a significant financing component related to product sales or for licenses of symbolic intellectual property since at inception of the contract the Company expects to be paid within one year and the right to access the license is transferred over time, respectively. As such, the Company has elected to adopt the practical expedient for evaluating whether there is a significant financing component.
Certain of the Company’s contracts meet the following practical expedients: (1) the performance obligation is part of a contract that has an original expected duration of one year or less, (2) revenue is recognized from the satisfaction of the performance obligations in the amount billable to the customer, and (3) the variable consideration is allocated entirely to a wholly unsatisfied performance obligation or unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation. The Company has elected to adopt the practical expedients that limit this requirement. The impact of adoption of ASC 606 on the condensed consolidated balance sheet at May 5, 2018 and condensed consolidated statement of income for the three months ended May 5, 2018 was as follows:
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Accounts Receivable | 4. ACCOUNTS RECEIVABLE Accounts receivable consisted of the following as of:
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Inventories | 5. INVENTORIES Inventories are stated at the lower of cost (weighted moving average cost) or net realizable value. Cost principally consists of the purchase price, customs, duties, freight, and commissions to buying agents. Inventories consisted of the following as of:
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Investments |
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Investments | 6. INVESTMENTS The Company’s investments include marketable securities and certificates of deposit at May 5, 2018 and February 3, 2018. Certificates of deposit with maturity dates less than one year are classified as available-for-sale. Marketable securities are classified as available-for-sale and consist of corporate and government bonds with maturity dates less than one year. Investments are stated at fair value. Investments consisted of the following as of May 5, 2018:
Investments consisted of the following as of February 3, 2018:
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Property and Equipment |
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Property and Equipment | 7. PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of:
The above table of property and equipment includes assets held under capital leases as of:
For the three months ended May 5, 2018 and April 29, 2017, depreciation and amortization expense relating to property and equipment amounted to $3.1 and $3.3 million, respectively. These amounts include amortization expense for leased property under capital leases. |
Other Intangible Assets |
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Other Intangible Assets | 8. OTHER INTANGIBLE ASSETS Trademarks Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $184.1 million at May 5, 2018 and February 3, 2018. Other Other intangible assets represent customer lists as of:
For the three months ended May 5, 2018 and April 29, 2017, amortization expense relating to customer lists amounted to approximately $0.2 million for each of the periods. Other intangible assets are amortized over their estimated useful lives of 10 years. Assuming no impairment, the table sets forth the estimated amortization expense for future periods based on recorded amounts as of February 3, 2018:
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Letter of Credit Facilities |
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Letter of Credit Facilities | 9. LETTER OF CREDIT FACILITIES Borrowings and availability under letter of credit facilities consisted of the following as of:
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Advertising and Related Costs |
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Advertising and Related Costs | 10. ADVERTISING AND RELATED COSTS The Company’s accounting policy relating to advertising and related costs is to expense these costs in the period incurred. Advertising and related costs were approximately $5.7 million and $4.0 million for the three months ended May 5, 2018 and April 29, 2017, respectively, and are included in selling, general and administrative expenses. |
Net Income Per Share |
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Net Income Per Share | 11. NET INCOME PER SHARE Basic net income per share is computed by dividing net income by the weighted average shares of outstanding common stock. The calculation of diluted net income per share is similar to basic earnings per share except that the denominator includes potentially dilutive common stock. The potentially dilutive common stock included in the Company’s computation of diluted net income per share includes the effects of stock options, stock appreciation rights (“SARS”), and unvested restricted shares as determined using the treasury stock method.
The following table sets forth the computation of basic and diluted income per share:
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Equity |
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Equity | 12. EQUITY The following table reflects the changes in equity:
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Accumulated Other Comprehensive Loss |
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Accumulated Other Comprehensive Loss | 13. ACCUMULATED OTHER COMPREHENSIVE LOSS Changes in accumulated other comprehensive loss by component, net of tax (in thousands):
A summary of the impact on the condensed consolidated statement of income line items is as follows (in thousands):
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Derivative Financial Instrument - Cash Flow Hedges |
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Derivative Financial Instrument - Cash Flow Hedges | 14. DERIVATIVE FINANCIAL INSTRUMENT – Cash Flow Hedges The Company has a risk management policy to manage foreign currency risk relating to inventory purchases by its subsidiaries that are denominated in foreign currencies. As such, the Company may employ hedging and derivative strategies to limit the effects of changes in foreign currency on its operating income and cash flows. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. The Company achieves this by closely matching the notional amount, terms and conditions of the derivative instrument with the underlying risk being hedged. The Company does not use derivative instruments for trading or speculative purposes. For derivatives that will be accounted for as hedging instruments, the Company formally designates and documents at inception the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company will formally assess at least quarterly whether the financial instruments used in hedging are “highly effective” at offsetting changes in cash flows of the related underlying exposures. For purposes of assessing hedge effectiveness, the Company uses the forward method, and assesses effectiveness based on the changes in both spot and forward points of the hedging instrument. If and when a derivative is no longer expected to be “highly effective,” hedge accounting is discontinued and hedge ineffectiveness, if any, is included in current period earnings. As of May 5, 2018, there was no hedge ineffectiveness.
The Company’s United Kingdom subsidiary is exposed to foreign currency risk from inventory purchases. In order to mitigate the financial risk of settlement of inventory at various prices based on movement of the U.S. dollar against the British pound, the Company entered into foreign currency forward exchange contracts (the “Hedging Instruments”). These are formally designated and “highly effective” as cash flow hedges. The Company will hedge approximately 45% of its U.S. dollar denominated purchases. All changes in the Hedging Instruments’ fair value associated with inventory purchases are recorded in equity as a component of accumulated other comprehensive income until the underlying hedged item is reclassified to earnings. The Company records the foreign currency forward exchange contracts at fair value in its consolidated balance sheets. The cash flows from derivative instruments that are designated as cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. The Company considers the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. The Company classifies derivative instrument cash flows from hedges of foreign currency risk on the settlement of inventory as operating activities. The Company’s Hedging Instruments were classified within Level 2 of the fair value hierarchy. The following table summarizes the effects, fair value and balance sheet classification of the Company’s Hedging Instruments.
The following table summarizes the effect and classification of the Company’s Hedging Instruments.
The notional amounts outstanding of foreign exchange forward contracts were $10.4 million and $6.0 million at May 5, 2018 and February 3, 2018, respectively. Such contracts expire through January 2019. Accumulated other comprehensive loss included a net deferred loss for Hedging Instruments in the amount of $0.1 million and $0.6 million at May 5, 2018 and February 3, 2018, respectively. The net deferred loss will be reclassified from accumulated other comprehensive loss to costs of goods sold during the next twelve months when the inventory is sold. |
Income Taxes |
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Income Taxes | 15. INCOME TAXES The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company’s U.S. federal income tax returns for fiscal 2011 through fiscal 2018 are open tax years. The Company’s state tax filings are subject to varying statutes of limitations. The Company’s unrecognized state tax benefits are related to open tax years from fiscal 2006 through fiscal 2018, depending on each state’s particular statute of limitation. As of May 5, 2018, the examination by the Internal Revenue Service for the Company’s, fiscal 2011 through fiscal 2015, U.S. federal tax years is still ongoing.
The Company has a $1.4 million liability recorded for unrecognized tax benefits as of February 3, 2018, which includes interest and penalties of $0.3 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. All of the unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. During the three months ended May 5, 2018, the total amount of unrecognized tax benefits increased by approximately $33,000. The change to the total amount of the unrecognized tax benefit for the three months ended May 5, 2018 included an increase in interest and penalties of approximately $14,000. In the next twelve months, it is reasonably possible the Company could resolve the U.S. federal examination related to the fiscal 2011 through fiscal 2015 tax years. At the end of fiscal 2018, the Company maintained a $2.4 million valuation allowance against its remaining general domestic deferred tax assets and U.S. state net operating loss carryforwards. During the three months ended May 5, 2018, the related valuation allowance decreased by approximately $114,000. The establishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. The balance of this valuation allowance is associated with U.S. domestic operations for different state and local taxing jurisdictions where the Company anticipates that it will generate continuing tax losses. |
Stock Options, Stock Appreciation Rights and Restricted Shares |
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Stock Options, Stock Appreciation Rights and Restricted Shares | 16. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES During the three months ended May 5, 2018, the Company granted an aggregate of 45,093 shares of restricted stock to certain key employees, which vest primarily over a three-year period, at an estimated value of $1.2 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock. During the three months ended May 5, 2018, the Company granted performance based restricted stock to certain key employees. Such stock generally vests 100% in April 2021, 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 116,328 shares of performance-based restricted stock were issued at an estimated value of $3.1 million. During the three months ended May 5, 2018, a total of 77,453 shares of restricted stock vested, of which 9,708 shares were withheld to cover the employees’ statutory income tax requirements. The estimated value of the withheld shares was $0.3 million. |
Segment Information |
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Segment Information | 17. SEGMENT INFORMATION The Company has four reportable segments: Men’s Sportswear and Swim, Women’s Sportswear, Direct-to-Consumer comprised of product sales and Licensing comprised of sales-based royalties. The Men’s Sportswear and Swim and Women’s Sportswear segments derive revenues from the design, import and distribution of apparel to department stores and other retail outlets, principally throughout the United States. The Direct-to-Consumer segment derives its revenues from the sale of the Company’s branded and licensed products through the Company’s retail stores and e-commerce platforms. The Licensing segment derives its revenues from royalties associated from the use of the Company’s brand names, principally Perry Ellis, Original Penguin, Laundry, Gotcha, Pro Player, Farah, Ben Hogan and John Henry. The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by the segments.
Revenues from external customers related to continuing operations in the United States and foreign countries are as follows:
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Fair Value Measurements |
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Fair Value Measurements | 18. FAIR VALUE MEASUREMENTS Accounts receivable, accounts payable, accrued interest payable and accrued expenses. The carrying amounts reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. Investments. (classified within Level 2 of the valuation hierarchy)—The carrying amounts of the available-for-sale investments are measured at fair value on a recurring basis in the consolidated balance sheets. Real estate mortgages. (classified within Level 2 of the valuation hierarchy)—The carrying amounts of the real estate mortgages were approximately $33.4 million and $33.6 million at May 5, 2018 and February 3, 2018, respectively. The carrying values of the real estate mortgages at May 5, 2018 and February 3, 2018, approximate their fair values since the interest rates approximate market rates. 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 2 of the valuation hierarchy)—The carrying amounts of the 77/8% senior subordinated notes payable were approximately $49.9 and $49.8 million at May 5, 2018 and February 3, 2018, respectively. The fair value of the 77/8% senior subordinated notes payable was approximately $52.1 and $50.1 million as of May 5, 2018 and February 3, 2018, respectively, based on quoted market prices. See footnote 14 in these notes to unaudited condensed consolidated financial statements for disclosure of the fair value and line item caption of derivative instruments recorded in the consolidated balance sheets. These estimated fair value amounts have been determined using available market information and appropriate valuation methods. |
Condensed Consolidating Financial Statements |
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Condensed Consolidating Financial Statements | 19. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS The Company and several of its subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. These guarantees are subject to release in limited circumstances (only upon the occurrence of certain customary conditions). The following are condensed consolidating financial statements, which present, in separate columns: Perry Ellis International, Inc., (Parent Only), the Guarantors on a combined, or where appropriate, consolidated basis, and the Non-Guarantors on a combined, or where appropriate, consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of May 5, 2018 and February 3, 2018 and for the three months ended May 5, 2018 and April 29, 2017. The combined Guarantors are 100% owned subsidiaries of Perry Ellis International, Inc., and have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) AS OF MAY 5, 2018 (amounts in thousands)
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) AS OF FEBRUARY 3, 2018 (amounts in thousands)
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED MAY 5, 2018 (amounts in thousands)
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED APRIL 29, 2017 (amounts in thousands)
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MAY 5, 2018 (amounts in thousands)
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED APRIL 29, 2017 (amounts in thousands)
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Subsequent Events |
3 Months Ended |
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May 05, 2018 | |
Subsequent Events | 20. SUBSEQUENT EVENTS On May 29, 2018, the Company completed the redemption of the remaining $50 million of its outstanding 7.875% Senior Subordinated Notes due in 2019 (the “Notes”). The total redemption price for the Notes was $50.6 million, which amount includes 100.00% of the principal amount of the Notes as well as accrued and unpaid interest to, but not including, the May 29, 2018 redemption date. Following the redemption by the Company of the Notes, none of the Notes remain outstanding. The Company paid the redemption price for the Notes with repatriated funds and funds from its senior credit facility. On February 6, 2018, the Company received a non-binding proposal from George Feldenkreis, a current member and former Executive Chairman of the Board, and Fortress Credit Advisors LLC to acquire all of the Company’s outstanding common shares not already beneficially owned by Mr. Feldenkreis. On February 13, 2018, the Board of Directors authorized a special committee of the independent directors to evaluate this proposal. The special committee has retained Paul, Weiss, Rifkind, Wharton & Garrison LLP and Akerman LLP as its legal counsel and PJ SOLOMON as its financial advisor to assist in its review. The special committee is evaluating and negotiating the proposal and no decision has been made with respect to the response. At present, the Company cannot assure you that the proposal will result in a definitive offer to purchase the Company’s outstanding capital stock or that any definitive agreement will be executed or that the proposal or any other transaction will be approved or consummated. |
Recent Accounting Pronouncements (Tables) |
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Cumulative Effects and Impact of Adoption Changes Made to Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Income as a Result of the Adoption of ASC 606 | The cumulative effects of the changes made to the condensed consolidated balance sheet at February 4, 2018, as a result of the adoption of ASC 606 were as follows:
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ASU 2014-09 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative Effects and Impact of Adoption Changes Made to Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Income as a Result of the Adoption of ASC 606 | The impact of adoption of ASC 606 on the condensed consolidated balance sheet at May 5, 2018 and condensed consolidated statement of income for the three months ended May 5, 2018 was as follows:
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Accounts Receivable (Tables) |
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May 05, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Accounts Receivable | Accounts receivable consisted of the following as of:
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Inventories (Tables) |
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May 05, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
Summary of Inventories | Inventories consisted of the following as of:
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Investments (Tables) |
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Investments | Investments consisted of the following as of May 5, 2018:
Investments consisted of the following as of February 3, 2018:
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Property and Equipment (Tables) |
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Summary of Property and Equipment | Property and equipment consisted of the following as of:
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Summary of Property and Equipment Includes Assets Held under Capital Leases | The above table of property and equipment includes assets held under capital leases as of:
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Other Intangible Assets (Tables) |
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Summary of Other Intangible Assets | Other intangible assets represent customer lists as of:
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Schedule of Estimated Amortization Expense for Future Periods | Assuming no impairment, the table sets forth the estimated amortization expense for future periods based on recorded amounts as of February 3, 2018:
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Letter of Credit Facilities (Tables) |
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Borrowings and Availability under Letter of Credit Facilities | Borrowings and availability under letter of credit facilities consisted of the following as of:
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Net Income Per Share (Tables) |
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Computation of Basic and Diluted Income (Loss) Per Share | The following table sets forth the computation of basic and diluted income per share:
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Equity (Tables) |
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May 05, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Equity | The following table reflects the changes in equity:
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Accumulated Other Comprehensive Loss (Tables) |
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Changes in Accumulated Other Comprehensive Loss by Component Net of Tax | Changes in accumulated other comprehensive loss by component, net of tax (in thousands):
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Summary of Impact on Condensed Consolidated Statements of Operations Line Items | A summary of the impact on the condensed consolidated statement of income line items is as follows (in thousands):
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Derivative Financial Instrument - Cash Flow Hedges (Tables) - Designated as Hedging Instrument |
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Fair Value and Classification of Hedging Instruments in Balance Sheet and Statement of Operations | The Company’s Hedging Instruments were classified within Level 2 of the fair value hierarchy. The following table summarizes the effects, fair value and balance sheet classification of the Company’s Hedging Instruments.
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Summary of Effect and Classification of Hedging Instruments | The following table summarizes the effect and classification of the Company’s Hedging Instruments.
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Segment Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Information | The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by the segments.
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Revenues From External Customers Related To Continuing Operations In United States and Foreign Countries | Revenues from external customers related to continuing operations in the United States and foreign countries are as follows:
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Condensed Consolidating Financial Statements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Condensed Consolidating Balance Sheet | PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) AS OF MAY 5, 2018 (amounts in thousands)
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) AS OF FEBRUARY 3, 2018 (amounts in thousands)
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Condensed Consolidating Statement of Comprehensive Income (Loss) | PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED MAY 5, 2018 (amounts in thousands)
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED APRIL 29, 2017 (amounts in thousands)
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Condensed Consolidating Statement of Cash Flows | PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MAY 5, 2018 (amounts in thousands)
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED APRIL 29, 2017 (amounts in thousands)
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Cumulative Effects of Changes Made to Condensed Consolidated Balance Sheet as a Result of the Adoption of ASC 606 (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 04, 2018 |
Feb. 03, 2018 |
---|---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Accounts receivable, net | $ 201,818 | $ 156,863 | |
Prepaid expenses and other current assets | 9,810 | 8,151 | |
Deferred income tax | 541 | 411 | |
Accrued expenses and other liabilities | 44,858 | 35,768 | |
Unearned revenues | 4,651 | 2,907 | |
Deferred income taxes | 7,269 | 4,915 | |
Retained earnings | 242,336 | $ 232,977 | |
ASU 2014-09 | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Accounts receivable, net | $ 169,880 | ||
Prepaid expenses and other current assets | 9,571 | ||
Deferred income tax | 454 | ||
Accrued expenses and other liabilities | 50,062 | ||
Unearned revenues | 4,220 | ||
Deferred income taxes | 4,676 | ||
Retained earnings | 232,089 | ||
ASU 2014-09 | Adjustments due to Topic 606 | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Accounts receivable, net | (14,757) | 13,017 | |
Prepaid expenses and other current assets | (1,953) | 1,420 | |
Deferred income tax | 43 | ||
Accrued expenses and other liabilities | (16,743) | 14,294 | |
Unearned revenues | (245) | 1,313 | |
Deferred income taxes | (239) | ||
Retained earnings | $ 338 | $ (888) |
Revenue Recognition - Additional Information (Detail) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018
USD ($)
Segment
Contract
|
Feb. 03, 2018
USD ($)
|
|
Revenue From Contract With Customers [Line Items] | ||
Number of reportable segments | Segment | 4 | |
Unearned revenues | $ 4,651 | $ 2,907 |
Revenue recognized | $ 2,800 | |
Number of contracts | Contract | 163 | |
Contract performance obligation expiration month | 2026-12 | |
Unsatisfied performance obligations | $ 170,500 | |
Performance obligations expected to be realized in fiscal 2019 | $ 39,500 |
Impact of Adoption of ASC 606 on the Condensed Consolidated Balance (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 04, 2018 |
Feb. 03, 2018 |
---|---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Accounts receivable, net | $ 201,818 | $ 156,863 | |
Prepaid expenses and other current assets | 9,810 | 8,151 | |
Accrued expenses and other liabilities | 44,858 | 35,768 | |
Accrued income tax payable | 1,805 | 1,466 | |
Unearned revenues | 4,651 | 2,907 | |
Retained earnings | 242,336 | $ 232,977 | |
ASU 2014-09 | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Accounts receivable, net | $ 169,880 | ||
Prepaid expenses and other current assets | 9,571 | ||
Accrued expenses and other liabilities | 50,062 | ||
Unearned revenues | 4,220 | ||
Retained earnings | 232,089 | ||
ASU 2014-09 | Adjustments due to Topic 606 | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Accounts receivable, net | (14,757) | 13,017 | |
Prepaid expenses and other current assets | (1,953) | 1,420 | |
Accrued expenses and other liabilities | (16,743) | 14,294 | |
Accrued income tax payable | (60) | ||
Unearned revenues | (245) | 1,313 | |
Retained earnings | 338 | $ (888) | |
ASU 2014-09 | As Adjusted | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Accounts receivable, net | 187,061 | ||
Prepaid expenses and other current assets | 7,857 | ||
Accrued expenses and other liabilities | 28,115 | ||
Accrued income tax payable | 1,745 | ||
Unearned revenues | 4,406 | ||
Retained earnings | $ 242,674 |
Impact of Adoption of ASC 606 on the Condensed Consolidated Statement of Income (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Royalty income | $ 9,799 | $ 8,267 |
Total revenues | 255,234 | 242,090 |
Gross profit | 93,867 | 91,088 |
Selling, general and administrative expenses | 75,549 | 71,199 |
Total operating expenses | 78,776 | 74,667 |
Operating income | 15,091 | 16,421 |
Income tax provision | 2,835 | 1,694 |
Net income | 10,247 | $ 12,771 |
ASU 2014-09 | Adjustments due to Topic 606 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Royalty income | (1,226) | |
Total revenues | (1,226) | |
Gross profit | (1,226) | |
Selling, general and administrative expenses | (1,504) | |
Total operating expenses | (1,504) | |
Operating income | (278) | |
Income tax provision | (60) | |
Net income | (338) | |
ASU 2014-09 | As Adjusted | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Royalty income | 8,573 | |
Total revenues | 254,008 | |
Gross profit | 92,641 | |
Selling, general and administrative expenses | 74,045 | |
Total operating expenses | 77,272 | |
Operating income | 14,813 | |
Income tax provision | 2,775 | |
Net income | $ 9,909 |
Components of Accounts Receivable (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 03, 2018 |
||
---|---|---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Accounts receivable | $ 204,382 | $ 171,881 | ||
Less: Allowances | [1] | (2,564) | (15,018) | |
Total | 201,818 | 156,863 | ||
Trade Accounts Receivable | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Accounts receivable | 196,930 | 163,872 | ||
Royalties Receivables | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Accounts receivable | 6,540 | 7,107 | ||
Other Receivables | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Accounts receivable | $ 912 | $ 902 | ||
|
Inventories (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Inventory [Line Items] | ||
Finished goods | $ 150,965 | $ 175,459 |
Investments (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Schedule of Investments [Line Items] | ||
Cost | $ 4,916 | $ 14,096 |
Gross Unrealized Gains | 0 | 0 |
Gross Unrealized Losses | (4) | (10) |
Estimated Fair Value | 4,912 | 14,086 |
Marketable securities | ||
Schedule of Investments [Line Items] | ||
Cost | 905 | 6,655 |
Gross Unrealized Gains | 0 | 0 |
Gross Unrealized Losses | (5) | |
Estimated Fair Value | 905 | 6,650 |
Certificates of Deposit | ||
Schedule of Investments [Line Items] | ||
Cost | 4,011 | 7,441 |
Gross Unrealized Gains | 0 | 0 |
Gross Unrealized Losses | (4) | (5) |
Estimated Fair Value | $ 4,007 | $ 7,436 |
Property and Equipment (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Total | $ 177,502 | $ 177,487 |
Less: accumulated depreciation and amortization | (122,077) | (121,323) |
Total | 55,425 | 56,164 |
Furniture, fixtures and equipment | ||
Property, Plant and Equipment [Line Items] | ||
Total | 98,158 | 97,414 |
Buildings and building improvements | ||
Property, Plant and Equipment [Line Items] | ||
Total | 22,288 | 22,341 |
Vehicles | ||
Property, Plant and Equipment [Line Items] | ||
Total | 537 | 537 |
Leasehold improvements | ||
Property, Plant and Equipment [Line Items] | ||
Total | 47,088 | 47,765 |
Land | ||
Property, Plant and Equipment [Line Items] | ||
Total | $ 9,431 | $ 9,430 |
Summary of Property and Equipment Includes Assets Held under Capital Leases (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Furniture, fixtures and equipment | $ 703 | $ 810 |
Less: accumulated depreciation and amortization | (18) | (722) |
Total | $ 685 | $ 88 |
Property and Equipment - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Property, Plant and Equipment [Line Items] | ||
Depreciation and amortization expense related to property and equipment | $ 3.1 | $ 3.3 |
Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
Feb. 03, 2018 |
|
Intangible Assets [Line Items] | |||
Intangible assets amortized estimated useful lives | 10 years | ||
Customer Lists | |||
Intangible Assets [Line Items] | |||
Amortization expense | $ 0.2 | $ 0.2 | |
Trademarks | |||
Intangible Assets [Line Items] | |||
Trademarks included in other intangible assets, net | $ 184.1 | $ 184.1 |
Intangible Assets (Detail) - Customer Lists - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Customer lists | $ 8,450 | $ 8,450 |
Less: accumulated amortization | (6,578) | (6,380) |
Total | $ 1,872 | $ 2,070 |
Schedule of Estimated Amortization Expense for Future Periods (Detail) $ in Thousands |
Feb. 03, 2018
USD ($)
|
---|---|
Finite-Lived Intangible Assets [Line Items] | |
Estimated amortization expense 2019 | $ 793 |
Estimated amortization expense 2020 | 734 |
Estimated amortization expense 2021 | $ 543 |
Letter of Credit Facilities (Detail) - Letter of Credit - USD ($) |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Line of Credit Facility [Line Items] | ||
Total letter of credit facilities | $ 30,000,000 | $ 30,000,000 |
Outstanding letters of credit | (10,268,000) | (10,268,000) |
Total credit available | $ 19,732,000 | $ 19,732,000 |
Advertising and Related Costs - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Advertising Costs [Line Items] | ||
Advertising and related costs | $ 5.7 | $ 4.0 |
Computation of Basic and Diluted Income (Loss) Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|||
Numerator: | ||||
Net income | $ 10,247 | $ 12,771 | ||
Denominator: | ||||
Basic - weighted average shares | 15,156 | 15,009 | ||
Dilutive effect: equity awards | 363 | 294 | ||
Diluted - weighted average shares | 15,519 | 15,303 | ||
Basic income per share | $ 0.68 | $ 0.85 | ||
Diluted income per share | $ 0.66 | $ 0.83 | ||
Antidilutive effect | [1] | 161 | 392 | |
|
Equity (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Feb. 04, 2018 |
May 05, 2018 |
Apr. 29, 2017 |
Feb. 03, 2018 |
|||
Equity [Line Items] | ||||||
Beginning Balance | $ 377,550 | $ 377,550 | $ 313,687 | $ 313,687 | ||
Retained earnings adjustment | [1] | (888) | ||||
Comprehensive income | 9,122 | 12,694 | ||||
Share transactions under employee equity compensation plans | 1,526 | 1,486 | ||||
Ending Balance | $ 377,550 | $ 387,310 | $ 327,867 | $ 377,550 | ||
|
Equity (Parenthetical) (Detail) - USD ($) |
3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Feb. 04, 2018 |
May 05, 2018 |
Feb. 03, 2018 |
|||
Equity [Line Items] | |||||
Cumulative effect reduction to retained earnings , net of tax | [1] | $ (888,000) | |||
ASU 2014-09 | |||||
Equity [Line Items] | |||||
Cumulative effect reduction to retained earnings , net of tax | $ 900,000 | $ 900,000 | $ 0 | ||
|
Changes in Accumulated Other Comprehensive Loss by Component, Net of Tax (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Beginning Balance | $ 377,550 | $ 313,687 |
Ending Balance | 387,310 | 327,867 |
Foreign Currency Translation Adjustments, Net | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Beginning Balance | (6,488) | (9,902) |
Other comprehensive loss (income) before reclassifications | (1,676) | 279 |
Ending Balance | (8,164) | (9,623) |
Unrealized (Loss) Gain on Investments | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Beginning Balance | (10) | (12) |
Other comprehensive loss (income) before reclassifications | 10 | 6 |
Ending Balance | 0 | (6) |
Unrealized (Loss) Gain on Forward Contract | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Beginning Balance | (649) | (181) |
Other comprehensive loss (income) before reclassifications | 378 | (321) |
Amounts reclassified from accumulated other comprehensive loss | 163 | (41) |
Ending Balance | (108) | (543) |
Accumulated Other Comprehensive Loss | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Beginning Balance | (7,147) | (10,095) |
Other comprehensive loss (income) before reclassifications | (1,288) | (36) |
Amounts reclassified from accumulated other comprehensive loss | 163 | (41) |
Ending Balance | $ (8,272) | $ (10,172) |
Summary of Impact on Condensed Consolidated Statements of Operations Line Items (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||
Cost of goods sold | $ 161,367 | $ 151,002 |
Reclassification out of Accumulated Other Comprehensive Income | Accumulated Other Comprehensive Loss | ||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||
Cost of goods sold | $ 163 | $ (41) |
Derivative Financial Instrument - Cash Flow Hedges - Additional Information (Detail) - USD ($) |
3 Months Ended | ||
---|---|---|---|
May 05, 2018 |
May 05, 2018 |
Feb. 03, 2018 |
|
Derivative [Line Items] | |||
Cash flow hedge ineffectiveness | $ 0 | ||
Foreign currency forward exchange contract loss to be reclassified during next 12 months | 100,000 | $ 100,000 | $ 600,000 |
Foreign currency forward exchange contract | Cash Flow Hedging | |||
Derivative [Line Items] | |||
Derivative instrument, hedging percentage | 45.00% | ||
Notional amount outstanding | $ 10,400,000 | $ 10,400,000 | $ 6,000,000 |
Derivative maturity, month and year | 2019-01 |
Fair Value and Balance Sheet Classification of Hedging Instruments (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Foreign currency forward exchange contract | Designated as Hedging Instrument | Accounts Payable | Level 2 | ||
Derivatives, Fair Value [Line Items] | ||
Derivative financial instrument, fair value | $ 108 | $ 649 |
Summary of Effect and Classification of the Company's Hedging Instruments (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Foreign currency forward exchange contract | Designated as Hedging Instrument | Cost of goods sold | Level 2 | ||
Derivatives, Fair Value [Line Items] | ||
Loss (Gain) reclassified from accumulated other comprehensive loss to income | $ 163 | $ (41) |
Income Taxes - Additional Information (Detail) - USD ($) |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Feb. 03, 2018 |
|
Income Tax Disclosure [Line Items] | ||
Unrecognized tax benefits | $ 1,400,000 | |
Unrecognized tax benefits, interest and penalties | $ 300,000 | |
Unrecognized tax benefits, increase (decrease) | $ 33,000 | |
Increase (decrease) in interest and penalties | 14,000 | |
Deferred Tax Assets, Valuation Allowance against remaining assets | 2,400,000 | |
Decrease in valuation allowance | $ (114,000) | |
Internal Revenue Service (IRS) | Earliest Tax Year | ||
Income Tax Disclosure [Line Items] | ||
Open tax years | 2011 | |
Internal Revenue Service (IRS) | Latest Tax Year | ||
Income Tax Disclosure [Line Items] | ||
Open tax years | 2018 |
Stock Options, Stock Appreciation Rights and Restricted Shares - Additional Information (Detail) |
3 Months Ended |
---|---|
May 05, 2018
USD ($)
shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of restricted stock vested | 77,453 |
Number of restricted stock tax withholding value | $ | $ 300,000 |
Performance Based Restricted Stock Awards | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of shares awarded | 45,093 |
Fair value of stock granted | $ | $ 1,200,000 |
Vesting period of awards | 3 years |
Performance Based Restricted Stock Awards | Second Amended And Restated Long Term Incentive Compensation Plan, 2005 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of shares awarded | 116,328 |
Awards expected vesting percentage | 100.00% |
Award vesting date | 2021-04 |
Value of award granted | $ | $ 3,100,000 |
Restricted Stock | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of restricted stock tax withheld | 9,708 |
Revenues Generated by Segments (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Segment Reporting Information [Line Items] | ||
Total revenues | $ 255,234 | $ 242,090 |
Total depreciation and amortization | 3,227 | 3,468 |
Total operating income | 15,091 | 16,421 |
Interest expense | 2,009 | 1,956 |
Total net income before income taxes | 13,082 | 14,465 |
Men's Sportswear and Swim | ||
Segment Reporting Information [Line Items] | ||
Total revenues | 199,606 | 185,866 |
Total depreciation and amortization | 1,839 | 1,851 |
Total operating income | 13,245 | 15,515 |
Women's Sportswear | ||
Segment Reporting Information [Line Items] | ||
Total revenues | 25,890 | 29,739 |
Total depreciation and amortization | 746 | 795 |
Total operating income | (3,143) | (969) |
Direct-to-Consumer | ||
Segment Reporting Information [Line Items] | ||
Total revenues | 19,939 | 18,218 |
Total depreciation and amortization | 585 | 766 |
Total operating income | (1,397) | (4,101) |
Licensing | ||
Segment Reporting Information [Line Items] | ||
Total revenues | 9,799 | 8,267 |
Total depreciation and amortization | 57 | 56 |
Total operating income | $ 6,386 | $ 5,976 |
Revenues From External Customers Related To Continuing Operations In United States and Foreign Countries (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Total revenues | $ 255,234 | $ 242,090 |
United States | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Total revenues | 222,592 | 212,072 |
International | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Total revenues | $ 32,642 | $ 30,018 |
Fair Value Measurements - Additional Information (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Senior subordinated notes payable, net | $ 49,855 | $ 49,818 |
Level 2 | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Carrying amounts of the real estate mortgages | 33,400 | 33,600 |
Level 2 | Senior Subordinated Notes | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Fair value of the 7 7/8% senior subordinated notes payable | $ 52,100 | $ 50,100 |
Debt instrument stated interest rate | 7.875% | 7.875% |
Condensed Consolidating Balance Sheet (Detail) - USD ($) $ in Thousands |
May 05, 2018 |
Feb. 04, 2018 |
Feb. 03, 2018 |
Apr. 29, 2017 |
Jan. 28, 2017 |
---|---|---|---|---|---|
Current Assets: | |||||
Cash and cash equivalents | $ 50,471 | $ 35,222 | $ 35,222 | $ 26,404 | $ 30,695 |
Investment, at fair value | 4,912 | 14,086 | |||
Accounts receivable, net | 201,818 | 156,863 | |||
Inventories | 150,965 | 175,459 | |||
Prepaid expenses and other current assets | 9,810 | 8,151 | |||
Total current assets | 417,976 | 389,781 | |||
Property and equipment, net | 55,425 | 56,164 | |||
Other intangible assets, net | 186,017 | 186,216 | |||
Deferred income taxes | 541 | 411 | |||
Other assets | 1,569 | 1,590 | |||
TOTAL | 661,528 | 634,162 | |||
Current Liabilities: | |||||
Accounts payable | 52,674 | 98,848 | |||
Accrued expenses and other liabilities | 44,858 | 35,768 | |||
Accrued interest payable | 350 | 1,334 | |||
Accrued income tax payable | 1,805 | 1,466 | |||
Unearned revenues | 4,651 | 2,907 | |||
Total current liabilities | 104,338 | 140,323 | |||
Senior subordinated notes payable, net | 49,855 | 49,818 | |||
Senior credit facility | 62,404 | 11,154 | |||
Real estate mortgages | 32,495 | 32,721 | |||
Income taxes payable | 3,868 | 4,157 | |||
Unearned revenues and other long-term liabilities | 13,989 | 13,524 | |||
Deferred income taxes | 7,269 | 4,915 | |||
Total long-term liabilities | 169,880 | 116,289 | |||
Total liabilities | 274,218 | 256,612 | |||
Total equity | 387,310 | 377,550 | 377,550 | 327,867 | 313,687 |
TOTAL | 661,528 | 634,162 | |||
Parent | |||||
Current Assets: | |||||
Intercompany receivable, net | 96,861 | 97,692 | |||
Total current assets | 96,861 | 97,692 | |||
Investment in subsidiaries | 345,242 | 335,883 | |||
TOTAL | 442,103 | 433,575 | |||
Current Liabilities: | |||||
Accrued interest payable | 350 | 1,334 | |||
Accrued income tax payable | 720 | 716 | |||
Total current liabilities | 1,070 | 2,050 | |||
Senior subordinated notes payable, net | 49,855 | 49,818 | |||
Income taxes payable | 3,868 | 4,157 | |||
Total long-term liabilities | 53,723 | 53,975 | |||
Total liabilities | 54,793 | 56,025 | |||
Total equity | 387,310 | 377,550 | |||
TOTAL | 442,103 | 433,575 | |||
Guarantors | |||||
Current Assets: | |||||
Cash and cash equivalents | 5,303 | 830 | 830 | 3,964 | 2,578 |
Accounts receivable, net | 170,276 | 125,534 | |||
Inventories | 125,734 | 145,797 | |||
Prepaid expenses and other current assets | 8,610 | 7,116 | |||
Total current assets | 309,923 | 279,277 | |||
Property and equipment, net | 52,430 | 53,614 | |||
Other intangible assets, net | 153,685 | 153,884 | |||
Other assets | 1,347 | 1,391 | |||
TOTAL | 517,385 | 488,166 | |||
Current Liabilities: | |||||
Accounts payable | 47,933 | 85,659 | |||
Accrued expenses and other liabilities | 37,103 | 27,621 | |||
Accrued income tax payable | 624 | 624 | |||
Unearned revenues | 3,732 | 2,372 | |||
Intercompany payable, net | 79,579 | 83,376 | |||
Total current liabilities | 168,971 | 199,652 | |||
Senior credit facility | 62,404 | 11,154 | |||
Real estate mortgages | 32,495 | 32,721 | |||
Unearned revenues and other long-term liabilities | 13,758 | 13,277 | |||
Deferred income taxes | 7,269 | 4,915 | |||
Total long-term liabilities | 115,926 | 62,067 | |||
Total liabilities | 284,897 | 261,719 | |||
Total equity | 232,488 | 226,447 | |||
TOTAL | 517,385 | 488,166 | |||
Non-Guarantors | |||||
Current Assets: | |||||
Cash and cash equivalents | 45,168 | $ 34,392 | 34,392 | $ 22,440 | $ 28,117 |
Investment, at fair value | 4,912 | 14,086 | |||
Accounts receivable, net | 31,542 | 31,329 | |||
Inventories | 25,231 | 29,662 | |||
Prepaid expenses and other current assets | 1,200 | 1,035 | |||
Total current assets | 108,053 | 110,504 | |||
Property and equipment, net | 2,995 | 2,550 | |||
Other intangible assets, net | 32,332 | 32,332 | |||
Deferred income taxes | 541 | 411 | |||
Other assets | 222 | 199 | |||
TOTAL | 144,143 | 145,996 | |||
Current Liabilities: | |||||
Accounts payable | 4,741 | 13,189 | |||
Accrued expenses and other liabilities | 7,755 | 8,147 | |||
Accrued income tax payable | 461 | 126 | |||
Unearned revenues | 919 | 535 | |||
Intercompany payable, net | 23,528 | 18,886 | |||
Total current liabilities | 37,404 | 40,883 | |||
Unearned revenues and other long-term liabilities | 231 | 247 | |||
Total long-term liabilities | 231 | 247 | |||
Total liabilities | 37,635 | 41,130 | |||
Total equity | 106,508 | 104,866 | |||
TOTAL | 144,143 | 145,996 | |||
Eliminations | |||||
Current Assets: | |||||
Intercompany receivable, net | (96,861) | (97,692) | |||
Total current assets | (96,861) | (97,692) | |||
Investment in subsidiaries | (345,242) | (335,883) | |||
TOTAL | (442,103) | (433,575) | |||
Current Liabilities: | |||||
Intercompany payable, net | (103,107) | (102,262) | |||
Total current liabilities | (103,107) | (102,262) | |||
Total liabilities | (103,107) | (102,262) | |||
Total equity | (338,996) | (331,313) | |||
TOTAL | $ (442,103) | $ (433,575) |
Condensed Consolidating Statement of Comprehensive Income (Loss) (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Revenues: | ||
Net sales | $ 245,435 | $ 233,823 |
Royalty income | 9,799 | 8,267 |
Total revenues | 255,234 | 242,090 |
Cost of sales | 161,367 | 151,002 |
Gross profit | 93,867 | 91,088 |
Operating expenses: | ||
Selling, general and administrative expenses | 75,549 | 71,199 |
Depreciation and amortization | 3,227 | 3,468 |
Total operating expenses | 78,776 | 74,667 |
Operating income | 15,091 | 16,421 |
Interest expense | 2,009 | 1,956 |
Net income before income taxes | 13,082 | 14,465 |
Income tax provision | 2,835 | 1,694 |
Net income | 10,247 | 12,771 |
Other comprehensive loss | (1,125) | (77) |
Comprehensive income | 9,122 | 12,694 |
Parent | ||
Operating expenses: | ||
Equity in earnings of subsidiaries, net | 10,247 | 12,771 |
Net income | 10,247 | 12,771 |
Other comprehensive loss | (1,125) | (77) |
Comprehensive income | 9,122 | 12,694 |
Guarantors | ||
Revenues: | ||
Net sales | 216,215 | 206,686 |
Royalty income | 6,376 | 5,386 |
Total revenues | 222,591 | 212,072 |
Cost of sales | 144,261 | 133,927 |
Gross profit | 78,330 | 78,145 |
Operating expenses: | ||
Selling, general and administrative expenses | 64,247 | 61,599 |
Depreciation and amortization | 2,912 | 3,210 |
Total operating expenses | 67,159 | 64,809 |
Operating income | 11,171 | 13,336 |
Interest expense | 2,107 | 1,989 |
Net income before income taxes | 9,064 | 11,347 |
Income tax provision | 2,326 | 1,325 |
Net income | 6,738 | 10,022 |
Comprehensive income | 6,738 | 10,022 |
Non-Guarantors | ||
Revenues: | ||
Net sales | 29,220 | 27,137 |
Royalty income | 3,423 | 2,881 |
Total revenues | 32,643 | 30,018 |
Cost of sales | 17,106 | 17,075 |
Gross profit | 15,537 | 12,943 |
Operating expenses: | ||
Selling, general and administrative expenses | 11,302 | 9,600 |
Depreciation and amortization | 315 | 258 |
Total operating expenses | 11,617 | 9,858 |
Operating income | 3,920 | 3,085 |
Interest expense | (98) | (33) |
Net income before income taxes | 4,018 | 3,118 |
Income tax provision | 509 | 369 |
Net income | 3,509 | 2,749 |
Other comprehensive loss | (1,125) | (77) |
Comprehensive income | 2,384 | 2,672 |
Eliminations | ||
Operating expenses: | ||
Equity in earnings of subsidiaries, net | (10,247) | (12,771) |
Net income | (10,247) | (12,771) |
Other comprehensive loss | 1,125 | 77 |
Comprehensive income | $ (9,122) | $ (12,694) |
Condensed Consolidating Statement of Cash Flows (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
May 05, 2018 |
Apr. 29, 2017 |
|
Condensed Cash Flow Statements, Captions [Line Items] | ||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: | $ (43,078) | $ (37,767) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchase of property and equipment | (1,693) | (1,901) |
Purchase of investments | 0 | (10,256) |
Proceeds from investments maturities | 9,184 | 4,655 |
Net cash provided by (used in) investing activities | 7,491 | (7,502) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Borrowings from senior credit facility | 106,959 | 98,764 |
Payments on senior credit facility | (55,709) | (57,140) |
Payments on real estate mortgages | (225) | (220) |
Payments for employee taxes on shares withheld | (259) | 0 |
Payments on capital leases | (17) | (69) |
Proceeds from exercise of stock options | 101 | 23 |
Net cash (used in) provided by financing activities | 50,850 | 41,358 |
Effect of exchange rate changes on cash and cash equivalents | (14) | (380) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 15,249 | (4,291) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 35,222 | 30,695 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 50,471 | 26,404 |
Parent | ||
Condensed Cash Flow Statements, Captions [Line Items] | ||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: | (1,000) | 445 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Intercompany transactions | 913 | (88) |
Net cash provided by (used in) investing activities | 913 | (88) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from exercise of stock options | 101 | 23 |
Net cash (used in) provided by financing activities | 101 | 23 |
Effect of exchange rate changes on cash and cash equivalents | (14) | (380) |
Guarantors | ||
Condensed Cash Flow Statements, Captions [Line Items] | ||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: | (40,688) | (33,893) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchase of property and equipment | (812) | (1,578) |
Net cash provided by (used in) investing activities | (812) | (1,578) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Borrowings from senior credit facility | 106,959 | 98,764 |
Payments on senior credit facility | (55,709) | (57,140) |
Payments on real estate mortgages | (225) | (220) |
Payments for employee taxes on shares withheld | (259) | |
Payments on capital leases | (17) | (69) |
Intercompany transactions | (4,776) | (4,478) |
Net cash (used in) provided by financing activities | 45,973 | 36,857 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 4,473 | 1,386 |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 830 | 2,578 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 5,303 | 3,964 |
Non-Guarantors | ||
Condensed Cash Flow Statements, Captions [Line Items] | ||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: | (1,390) | (4,319) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchase of property and equipment | (881) | (323) |
Purchase of investments | (10,256) | |
Proceeds from investments maturities | 9,184 | 4,655 |
Net cash provided by (used in) investing activities | 8,303 | (5,924) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Intercompany transactions | 3,877 | 4,946 |
Net cash (used in) provided by financing activities | 3,877 | 4,946 |
Effect of exchange rate changes on cash and cash equivalents | (14) | (380) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 10,776 | (5,677) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 34,392 | 28,117 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 45,168 | 22,440 |
Eliminations | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Intercompany transactions | (913) | 88 |
Net cash provided by (used in) investing activities | (913) | 88 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Intercompany transactions | 899 | (468) |
Net cash (used in) provided by financing activities | 899 | (468) |
Effect of exchange rate changes on cash and cash equivalents | $ 14 | $ 380 |
Subsequent Events - Additional Information (Detail) - USD ($) $ in Thousands |
May 29, 2018 |
May 05, 2018 |
Feb. 03, 2018 |
---|---|---|---|
Subsequent Event [Line Items] | |||
Senior subordinated notes payable, net | $ 49,855 | $ 49,818 | |
Subsequent Event | |||
Subsequent Event [Line Items] | |||
Debt instrument stated interest rate | 100.00% | ||
Total redemption price | $ 50,600 | ||
Subsequent Event | Senior Subordinated Notes | |||
Subsequent Event [Line Items] | |||
Senior subordinated notes payable, net | $ 50,000 | ||
Debt instrument stated interest rate | 7.875% |
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