PERRY ELLIS INTERNATIONAL INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 30, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-21764

PERRY ELLIS INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Florida		59-1162998
(State or other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

3000 N.W. 107 Avenue Miami, Florida		33172
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (305) 592-2830

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The number of shares outstanding of the registrant’s common stock is 9,483,056 (as of June 7, 2004).

PERRY ELLIS INTERNATIONAL, INC.

INDEX


		PAGE
PART I: FINANCIAL INFORMATION

Item 1:

Consolidated Balance Sheets (Unaudited) as of April 30, 2004 and January 31, 2004		1

Consolidated Statements of Income (Unaudited) for the three months ended April 30, 2004 and 2003		2

Consolidated Statements of Cash Flows (Unaudited) for the three months ended April 30, 2004 and 2003		3

Notes to Unaudited Consolidated Financial Statements		4

Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3:
Quantitative and Qualitative Disclosures About Market Risk		27

Item 4:
Controls and Procedures		29

PART II: OTHER INFORMATION		30

Item 1:
Legal Proceedings		30

Item 2:
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		30

Item 3:
Defaults Upon Senior Securities		30

Item 4:
Submission of Matters to a Vote of Security Holders		30

Item 5:
Other Information		30

Item 6:
Exhibits and Reports of Form 8-K		30

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share data)


	April 30, 2004			January 31, 2004
ASSETS
Current Assets:
Cash and cash equivalents	$	8,537		$	1,011
Accounts receivable, net		156,695			115,678
Inventories, net		89,512			110,910
Deferred income taxes		8,051			9,621
Prepaid income taxes		2,942			5,002
Other current assets		6,003			6,418

Total current assets		271,740			248,640
Property and equipment, net		39,939			39,093
Intangible assets, net		152,266			152,266
Deferred income taxes		25,319			28,591
Other		4,537			11,811

TOTAL	$	493,801		$	480,401

LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	26,200		$	31,644
Accrued expenses		16,634			16,350
Accrued interest payable		1,448			3,740
Unearned revenues		1,169			984
Other current liabilities		4,151			2,991

Total current liabilities		49,602			55,709
Senior subordinated notes payable		144,893			150,454
Senior secured notes payable		59,221			60,389
Senior credit facility		51,820			34,715
Real estate mortgage		11,600			11,600
Deferred pension obligation		15,713			15,734

Total long-term liabilities		283,247			272,892

Total liabilities		332,849			328,601

Minority Interest		976			917

Stockholders’ Equity:
Preferred stock $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock $.01 par value; 100,000,000 shares authorized; 8,519,631 shares issued and 8,483,944 outstanding as of April 30, 2004 and 8,470,700 shares issued and 8,435,013 outstanding as of January 31, 2004		85			85
Additional paid-in-capital		66,952			66,074
Retained earnings		93,540			85,335
Accumulated other comprehensive income		332			322

Total		160,909			151,816
Common stock in treasury at cost; 35,687 shares as of April 30, 2004 and January 31, 2004		(933	)		(933	)

Total stockholders’ equity		159,976			150,883

TOTAL	$	493,801		$	480,401

See Notes to Unaudited Consolidated Financial Statements

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)


	Three Months Ended April 30,
	2004		2003
Revenues
Net sales	$	192,104	$	101,867
Royalty income		5,315		6,411

Total revenues		197,419		108,278
Cost of sales		134,616		71,545

Gross profit		62,803		36,733
Operating expenses
Selling, general and administrative expenses		44,873		21,610
Depreciation and amortization		1,505		1,112

Total operating expenses		46,378		22,722

Operating income		16,425		14,011
Interest expense		3,445		4,963

Income before minority interest and income taxes		12,980		9,048
Minority interest		59		46
Income taxes		4,716		3,374

Net income	$	8,205	$	5,628

Net income per share
Basic	$	0.97	$	0.87

Diluted	$	0.89	$	0.80

Weighted average number of shares outstanding
Basic		8,476		6,451
Diluted		9,187		7,029

See Notes to Unaudited Consolidated Financial Statements

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)


	Three Months Ended April 30,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,205		$	5,628
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		1,280			851
Provision for bad debt		198			322
Tax benefit from exercise of stock options		304			—
Amortization of debt issue costs		279			279
Amortization of bond discount		50			91
Deferred income taxes		4,842			(73	)
Minority interest		59			46
Other		10			112
Changes in operating assets and liabilities:
Accounts receivable, net		(41,215	)		(17,964	)
Inventories, net		21,398			5,718
Other current assets and prepaid income taxes		2,475			1,711
Other assets		216			263
Accounts payable and accrued expenses		(5,181	)		(3,535	)
Accrued interest payable		(2,292	)		(3,512	)
Other current liabilities and unearned revenues		1,345			(885	)

Net cash used in operating activities		(8,027	)		(10,948	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(2,126	)		(875	)

Net cash used in investing activities:		(2,126	)		(875	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) from senior credit facility		17,105			7,919
Proceeds from exercise of stock options		574			691

Net cash provided by financing activities:		17,679			8,610

Effect of exchange rate changes on cash and cash equivalents		—			48

NET INCREASE (DECREASE) IN CASH		7,526			(3,165	)
CASH AT BEGINNING OF PERIOD		1,011			4,683

CASH AT END OF PERIOD	$	8,537		$	1,518

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	5,709		$	7,329

Income taxes	$	117		$	5

NON-CASH FINANCING AND INVESTING ACTIVITIES:
Change in fair value of mark-to-market interest rate swap/option	$	(6,625	)	$	52

See Notes to Unaudited Consolidated Financial Statements

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The accompanying unaudited 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 Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows required by GAAP. These consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2004. Certain amounts in the prior period have been reclassified to conform to the current period’s presentation.

In our opinion, the information presented reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the interim periods. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire fiscal year.

2. INVENTORIES

Inventories are stated at the lower of cost (moving average cost) or market. Cost principally consists of the purchase price, customs duties, freight, insurance and commissions to buying agents.

3. LETTER OF CREDIT FACILITIES

Borrowings and availability under letter of credit facilities consist of the following as of:


	(in thousands)
	April 30, 2004			January 31, 2004
Total letter of credit facilities	$	92,735		$	92,818
Outstanding letters of credit		(42,542	)		(61,819	)

Total credit available	$	50,193		$	30,999

4. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the lease term or estimated useful lives of the improvements. The useful lives are as follows:


Asset Class		Avg. Useful Lives in Years
Furniture, fixtures and equipment		3-7
Vehicles		7
Leasehold improvements		11
Buildings		39

5. INTANGIBLE ASSETS

Intangible assets primarily represent costs capitalized in connection with the acquisitions of brand names and license rights. Under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” identifiable intangible assets with an indefinite useful life are not amortized but are tested for impairment annually as of February 1^st of each year. As a result of this evaluation, it was determined that there was no impairment of recorded intangible assets as of February 1, 2004. </

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