UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 22, 2002
--------------
PERRY ELLIS INTERNATIONAL, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Florida 0-21764 59-1162998
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
3000 N.W. 107/th/ Avenue, Miami, Florida 33172
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 592-2830
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Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Business Acquired.
Independent Auditors' Report ....................................................... F-1
Balance Sheets as of December 29, 2001 and December 30, 2000 ....................... F-2
Statements of Income and Net Investments of VF Corporation for
the years ended December 29, 2001, December 30, 2000
and January 1, 2000 ................................................................ F-3
Statement of Cash Flows for the years ended December 29, 2001,
December 30, 2000 and January 1, 2000 .............................................. F-4
Notes to Financial Statements ...................................................... F-5
(b) Pro Forma Financial Information.
Introduction to Unaudited Pro Forma Condensed
Combined Financial Information ..................................................... F-14
Unaudited Pro Forma Condensed Combined
Balance Sheet as of January 31, 2002 ............................................... F-15
Unaudited Pro Forma Condensed Combined Income Statement
for the year ended January 31, 2002 ................................................ F-16
Notes to Unaudited Pro Forma Condensed
Combined Financial Information ..................................................... F-17
SIGNATURES
----------
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 hereunto duly authorized.
PERRY ELLIS INTERNATIONAL, INC.
Date: May 31, 2002 By: /s/ Rosemary B. Trudeau
-------------------------------
Rosemary B. Trudeau,
Vice President of Finance
INDEPENDENT AUDITORS' REPORT
To the Management of The Jantzen Business:
We have audited the accompanying balance sheets of The Jantzen Business
("Jantzen"), a business unit owned by VF Corporation, as of December 29, 2001
and December 30, 2000, and the related statements of income and net investment
of VF Corporation and of cash flows for each of the three years in the period
ended December 29, 2001. These financial statements are the responsibility of
Jantzen's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The Jantzen financial statements have been derived from the accounts of VF
Corporation and its subsidiaries as described in Note 1. Moreover, as indicated
in Note 1, Jantzen relies on VF Corporation for treasury, legal and other
services. The financial position, results of operations, and cash flows of
Jantzen could differ from those that would have resulted had Jantzen operated
autonomously or as an entity independent of VF Corporation.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Jantzen as of December 29, 2001 and December
30, 2000, and the results of its operations and its cash flows for each of the
three years in the period ended December 29, 2001 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
May 10, 2002
F-1
THE JANTZEN BUSINESS
(A business unit owned by VF Corporation)
BALANCE SHEETS (In thousands)
--------------------------------------------------------------------------------
Fiscal Year Ended
----------------------------
December 29, December 30,
ASSETS 2001 2000
----------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 445 $ 241
Accounts receivable, less allowances of $1,231 in 2001
and $1,263 in 2000 11,536 12,078
Inventories 23,456 28,740
Deferred income taxes 3,065 702
Prepaid income taxes and other current assets 4,931 958
------- -------
Total current assets 43,433 42,719
Property, plant and equipment, net 5,768 6,773
Goodwill, net 17,737 18,421
Other 467 283
------- -------
$67,405 $68,196
======= =======
LIABILITIES AND NET INVESTMENT OF VF CORPORATION
CURRENT LIABILITIES:
Accounts payable $ 5,368 $ 8,878
Accrued liabilities 8,716 4,545
------- -------
Total current liabilities 14,084 13,423
Other liabilities 588 295
------- -------
Total liabilities 14,672 13,718
NET INVESTMENT OF VF CORPORATION 52,733 54,478
------- -------
$67,405 $68,196
======= =======
See notes to financial statements.
F-2
THE JANTZEN BUSINESS
(A business unit owned by VF Corporation)
STATEMENTS OF INCOME AND NET INVESTMENT OF VF CORPORATION (In thousands)
--------------------------------------------------------------------------------
Fiscal Year Ended
-----------------------------------------
December 29, December 30, January 1,
2001 2000 2000
------------ ------------ ----------
REVENUES:
Net sales $ 94,159 $ 111,524 $ 140,331
Royalty income, net 1,683 1,055 1,740
--------- --------- ---------
95,842 112,579 142,071
--------- --------- ---------
COSTS AND OPERATING EXPENSES:
Cost of sales 73,007 72,033 103,652
Selling, general and administrative expenses 32,611 35,664 41,810
Amortization of goodwill 684 684 684
--------- --------- ---------
106,302 108,381 146,146
--------- --------- ---------
OPERATING INCOME (LOSS) (10,460) 4,198 (4,075)
--------- --------- ---------
OTHER INCOME:
Interest income 41 15 20
Miscellaneous, net 13 405 182
--------- --------- ---------
54 420 202
--------- --------- ---------
Income (loss) before income tax expense (benefit) and
cumulative effect of change in accounting principle (10,406) 4,618 (3,873)
Income tax expense (benefit) (3,782) 1,789 (1,356)
--------- --------- ---------
Income (loss) before cumulative effect of change
in accounting principle (6,624) 2,829 (2,517)
Cumulative effect on prior years of change
in accounting principle, net of income taxes -- (124) --
--------- --------- ---------
Net income (loss) (6,624) 2,705 (2,517)
Net investment of VF Corporation, beginning of year 54,478 57,137 66,752
Increase (decrease) in net investment of
VF Corporation 4,879 (5,364) (7,098)
--------- --------- ---------
Net investment of VF Corporation, end of year $ 52,733 $ 54,478 $ 57,137
========= ========= =========
See notes to financial statements.
F-3
THE JANTZEN BUSINESS
(A business unit owned by VF Corporation)
STATEMENTS OF CASH FLOWS (In thousands)
--------------------------------------------------------------------------------
Fiscal Year Ended
----------------------------------------
December 29, December 30, January 1,
2001 2000 2000
------------ ------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(6,624) $ 2,705 $(2,517)
Adjustments to reconcile net income (loss)
to cash provided by operations:
Provision for restructuring costs 4,993
Depreciation and amortization 1,943 2,140 2,654
Deferred income tax expense (benefit) (2,547) (902) 1,808
Provision for bad debts 61 93 755
Changes in current assets and liabilities:
Accounts receivable 6,783 (3,987) (908)
Inventories 3,932 1,172 8,870
Prepaid income taxes and other current assets (3,973) 262 (931)
Accounts payable and accrued expenses (4,332) (1,254) (9,161)
Other liabilities, net 293 162 23
------- ------- -------
Net cash provided by operating activities 529 391 593
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (325) (604) (634)
------- ------- -------
Net cash used in investing activities (325) (604) (634)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS 204 (213) (41)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 241 454 495
------- ------- -------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 445 $ 241 $ 454
======= ======= =======
See notes to financial statements.
F-4
THE JANTZEN BUSINESS
(A business unit owned by VF Corporation)
NOTES TO FINANCIAL STATEMENTS (Dollars in thousands)
--------------------------------------------------------------------------------
1. BACKGROUND AND DESCRIPTION OF THE BUSINESS
The accompanying financial statements have been prepared to present the
financial position, results of operations and cash flows of The Jantzen
Business ("Jantzen"), a business unit owned by VF Corporation ("VF"). On
March 15, 2002, VF and Perry Ellis International, Inc. ("Perry Ellis")
entered into an asset purchase agreement (the "Agreement"). As a result of
the Agreement, financial statements related to Jantzen are required to be
filed by Regulation S-X, promulgated by the Securities and Exchange
Commission. The financial statements include all the operations of the
business unit, which do not necessarily represent the assets and business
acquired by Perry Ellis. The financial position, results of operations and
cash flows as presented herein may not be the same as would have occurred
had Jantzen operated autonomously or as an entity independent of VF
Corporation during the periods presented and may not be indicative of
future financial results.
Perry Ellis acquired trademarks and trade names owned by Jantzen, certain
operating assets and the capital stock of Jantzen Apparel Corporation. The
Agreement also included the assignment to Perry Ellis of the NIKE(R) and
Tommy Hilfiger(R) licenses for the manufacture and sale of swimwear. The
Agreement did not include working capital related to the 2002 product
lines (primarily accounts receivable and inventories) and real estate
assets, which will be retained by VF. VF expects to complete the sale of
Jantzen's 2002 product lines during the second quarter of 2002 and to
substantially liquidate the remaining net assets of Jantzen through the
end of the third quarter of 2002. The purchase price approximated $24,000
and the transaction closed on March 22, 2002.
Jantzen's operations consist of the design, manufacture and sale of
swimwear and sportswear under the Jantzen(R) and other brands, as well as
swimwear under the licensed NIKE and Tommy Hilfiger brands. The entities
comprising Jantzen are not a separate legal entity and, as a result, net
investments of VF Corporation is shown in lieu of stockholder's equity in
the financial statements and include the accumulation of transactions
between Jantzen and VF described below. All intercompany accounts and
transactions have been eliminated. Fiscal years are 52/53-week periods
ending on the Saturday closest to the end of December of each year.
The Jantzen business is comprised of the following:
. Jantzen Inc., a wholly owned subsidiary of VF. Jantzen Inc. is the
operating company. All net operating assets (working capital, fixed
assets, etc.) are owned and operated through this legal entity. This
legal entity holds the NIKE and Tommy Hilfiger licenses and owns
Jantzen Apparel Corporation and VF Canada, Inc.
. Jantzen Apparel Corporation, a wholly owned subsidiary of Jantzen
Inc., owns the Jantzen and other trade names and trademarks.
. The portion of the business of VF Canada, Inc., a wholly owned
subsidiary of Jantzen Inc., that is directly related to the Jantzen
trademark. VF Canada is substantially a sales operation that sells
exclusively to Canadian customers. The portion of VF Canada, Inc. not
related to the Jantzen trademark is directly related to other
trademarks owned by an affiliated entity within VF and thus not
considered part of Jantzen.
F-5
. The operating results directly related to Jantzen products that are
sold to consumers through factory outlet stores operated by an
affiliate of VF ("VFFO").
. The goodwill resulting from VF's 1986 acquisition of Jantzen Inc. and
the related amortization expense.
Transactions with VF and its other subsidiaries are described below:
. VF operates a chain of retail outlet stores across the United States.
Jantzen transfers primarily excess quantities of first quality
swimwear and sportswear inventories to the outlet stores at Jantzen's
cost. When the VF outlet stores sell these products to retail
consumers, the actual customer sales, cost of sales and marketing
costs incurred are recorded by Jantzen. These operating results are
presented as a separate reportable segment in Note 9. Sales, costs of
sales and selling and distribution expenses were $23,777, $20,838 and
$4,993, respectively, in 2001, $33,930, $23,817 and $6,524,
respectively, in 2000 and $35,105, $21,962 and $6,524, respectively,
in 1999.
. Approximately 18%, 22% and 18% in 2001, 2000 and 1999, respectively,
of products sold by Jantzen were manufactured by VF affiliates at
amounts that approximate VF's cost. The balance of production
requirements was manufactured in Jantzen plants or contracted with
independent parties.
. The financial statements include certain VF corporate expenses
directly related to Jantzen. Corporate expenses for pension,
insurance, audit, information systems and other costs directly related
to Jantzen are based on the actual costs incurred by VF. Jantzen
management believes that amounts for these services are a reasonable
representation of the services performed or benefits received.
. Jantzen does not maintain stand-alone treasury, legal and other
corporate support functions. Included in marketing, administrative and
general expenses are management fees charged by VF of $3,298, $3,386
and $3,367 in 2001, 2000 and 1999, respectively. Jantzen management
believes that amounts for these services are a reasonable
representation of the services performed or benefits received.
. VF uses a centralized approach to cash management and the financing of
its operations. The Jantzen cash accounts are swept on a daily basis
and are netted against the net investments of VF Corporation accounts.
As a result, none of the VF cash and cash equivalents or debt at the
corporate level has been allocated to Jantzen in the financial
statements. Cash in the financial statements represents amounts not
swept by VF. Included in net investments of VF Corporation are
intercompany receivables of $39,294 and $43,934 at December 30, 2001
and December 29, 2000, respectively.
. VF does not charge interest expense on its net investments of VF
Corporation to Jantzen. Accordingly, Jantzen's interest expense and
financing costs as a separate entity may be different than that
presented in the financial statements.
. Jantzen is included in VF's consolidated federal income tax returns.
Income tax provisions (benefits) and related balance sheet accounts in
the financial statements have been computed on a separate tax return
basis.
F-6
2. ACCOUNTING POLICIES
Cash and Cash Equivalents - Jantzen considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash equivalents. Due to the short maturity period of cash equivalents,
the carrying amount of these instruments approximates fair value.
Inventories are stated at the lower of cost or market on the last-in,
first-out method. The current cost of inventories stated on the last-in,
first-out method is not significantly different from their value
determined under the first-in, first-out method.
Property and Depreciation - Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, ranging from 10 to 20 years for
buildings and ranging from 3 to 10 years for machinery and equipment.
Jantzen's principle is to evaluate property for possible impairment
whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. An impairment loss may be
recorded if undiscounted future cash flows are not expected to be adequate
to recover the carrying value of the asset. An impairment loss is
recognized based on the fair value of the asset less any costs of
disposition.
Goodwill represents the excess amount of VF's cost over the fair value of
Jantzen Inc.'s net tangible assets at the 1986 acquisition date. Amounts
are net of accumulated amortization of $11,379 and $10,694 in 2001 and
2000, respectively. These assets are amortized using the straight-line
method over 40 years. Also, whenever events or changes in circumstances
indicated that the carrying amount of goodwill might not be recoverable,
Jantzen had evaluated its recoverability using forecasted net cash flows
on an undiscounted basis. An impairment loss is recognized based on the
fair value of the asset less any costs of disposition.
Revenue Recognition - During the fourth quarter of 2000, Jantzen changed
its accounting principle for recognizing sales in accordance with the
SEC's Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. Previously, sales were recorded upon shipment of goods to the
customer. The new principle recognizes that the risks of ownership in some
transactions do not substantively transfer to customers until they have
received the product, without regard to when legal title has transferred.
The cumulative effect of this change in principle for periods prior to
January 2000 of $219 is shown in the statements of income. Sales to VFFO
accounted for 25%, 30% and 25% of net sales in 2001, 2000 and 1999,
respectively.
Royalty Income from independent licensees is recognized when earned on the
basis of the terms specified in the underlying contractual agreements and
are presented net of directly related expenses of $127, $121 and $68 in
2001, 2000 and 1999, respectively.
Advertising Costs are expensed as incurred and were $3,945 in 2001, $5,449
in 2000 and $5,145 in 1999 and are included in marketing, administrative
and general expenses.
Shipping Costs to customers are included in marketing, administrative and
general expenses and were $231 in 2001, $208 in 2000 and $482 in 1999.
Revenues generated from shipping fees are included in net sales for all
periods presented.
Trademark Costs - All costs of trademark applications and renewals, as
well as costs of trademark defense, are expensed as incurred.
F-7
Income Taxes - Jantzen accounts for income taxes in accordance with
Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes ("SFAS 109"). SFAS 109 requires the asset and liability
method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of the deferred
tax assets will not be realized.
New Accounting Pronouncements - At the end of 2001, Jantzen has $17,737 of
net goodwill arising from the acquisition of Jantzen Inc., by VF in 1986.
Under the accounting rules in effect through the end of 2001, the goodwill
was being amortized over its estimated useful lives, limited to a maximum
period of 40 years. Also, whenever events or changes in circumstances
indicated that the carrying amount of goodwill might not be recoverable,
Jantzen evaluated their recoverability using forecasted net cash flows on
an undiscounted basis.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, Goodwill and Other Intangible Assets, which is
effective for Jantzen at the beginning of 2002 and may not be applied
retroactively to financial statements of prior periods. Under this
Statement, goodwill, including previously existing goodwill, and
intangible assets with indefinite useful lives will not be amortized but
must be tested at least annually for impairment. Other intangible assets
will be amortized over their estimated useful lives. The new Statement
also requires an initial test for impairment of existing goodwill and
intangible assets to determine if the existing carrying value exceeds its
fair value. Any transitional impairment determined upon adoption of the
new Statement must be recognized as the cumulative effect of a change in
accounting principle in the statement of income at the beginning of 2002.
Under the new Statement, amortization of goodwill, which totaled $684 for
2001, 2000 and 1999, will not be required in future years. Jantzen has
completed the initial test of existing goodwill and was not required to
record impairment upon adoption of this Statement.
In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement supersedes
Statement 121 but retains many of its fundamental provisions.
Additionally, this Statement expands the scope of discontinued operations
to include more disposal transactions. The provisions of this Statement
are effective for Jantzen beginning in fiscal 2002. Management does not
anticipate a significant impact to Jantzen's results of operations from
adoption of this Statement.
Fair Value of Financial Instruments - The carrying amounts of accounts
receivable and accounts payable approximates fair value due to their
short-term nature.
Use of Estimates - In preparing financial statements in accordance with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results may differ
from those estimates.
F-8
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at:
2001 2000
In thousands
Trade accounts $ 11,774 $ 11,665
Royalties and other receivables 993 1,676
-------- --------
12,767 13,341
Less: allowance for doubtful accounts (1,231) (1,263)
-------- --------
Total $ 11,536 $ 12,078
======== ========
The activity for the allowance account is as follows:
Allowance for doubtful accounts:
2001 2000 1999
Allownce for doubtful accounts:
Beginning balance $ 1,263 $ 1,157 $ 1,289
Provision 61 93 755
Write-offs, net of recoveries (93) 13 (887)
-------- -------- --------
Ending balance $ 1,231 $ 1,263 $ 1,157
======== ======== ========
Jantzen carries accounts receivable at the amount it deems to be
collectible. Accordingly, Jantzen provides allowances for accounts
receivable it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of accounts receivable that become uncollectible could
differ from those estimates. No single customer accounted for more than
10% of the trade accounts receivable balance at December 29, 2001 and
December 30, 2000.
4. INVENTORIES
2001 2000
In thousands
Finished products $ 15,806 $ 15,446
Work in process 4,675 6,606
Materials and supplies 2,975 6,688
-------- --------
$ 23,456 $ 28,740
======== ========
F-9
5. PROPERTY, PLANT AND EQUIPMENT
2001 2000
In thousands
Land $ 1,699 $ 1,699
Buildings 10,306 10,224
Machinery and equipment 7,592 8,456
-------- --------
19,597 20,379
Less accumulated depreciation (13,829) (13,606)
-------- --------
$ 5,768 $ 6,773
======== ========
Depreciation expense for 2001, 2000 and 1999 was $1,259, $1,455 and
$1,813, respectively.
6. ACCRUED LIABILITIES
2001 2000
In thousands
Compensation $ 1,376 $ 1,118
Restructuring costs (Note 11) 4,993 --
Environmental contamination contingency, net 990 990
Advertising expense -- 796
Other 1,357 1,641
-------- --------
$ 8,716 $ 4,545
======== ========
The environmental contamination contingency is net of $811 representing the
carrying value of the contaminated building at December 29, 2001 and
December 30, 2000.
7. INCOME TAXES
Jantzen is part of an affiliated group of corporations that files a
consolidated federal income tax return. Jantzen reports its share of the
consolidated liability on a separate return basis for financial reporting
purposes. The income tax expense (benefit) for Jantzen for the years
presented, excluding the cumulative effect of the change in accounting
principle, consists of the following:
2001 2000 1999
In thousands
Current:
Federal and state $ (1,785) $ 2,892 $ (3,724)
Foreign 549 (201) 560
-------- -------- --------
(1,236) 2,691 (3,164)
-------- -------- --------
Deferred:
Federal and state (2,558) (870) 1,811
Foreign 12 (32) (3)
-------- -------- --------
(2,546) (902) 1,808
-------- -------- --------
Total $ (3,782) $ 1,789 $ (1,356)
======== ======== ========
F-10
Jantzen is a party to a tax sharing agreement with its affiliated group
members. Based on the agreement, Jantzen is entitled to receive
compensation for the tax benefits it contributed to the consolidated group
or must remit compensation for the tax burden it contributed to the
consolidated group. These amounts are recorded using intercompany
receivable and payable accounts.
The reasons for the difference between income taxes computed by applying
the statutory federal income tax rate and income tax expense in the
financial statements are as follows:
2001 2000 1999
In thousands
Tax at federal statutory rate $(3,642) $ 1,616 $(1,356)
State income taxes,
net of federal tax benefit (408) 30 (271)
Amortization of intangible assets 239 239 239
Other, net 29 (96) 32
------- ------- -------
$(3,782) $ 1,789 $(1,356)
======= ======= =======
Deferred income tax assets and liabilities consist of the following:
2001 2000
In thousands
Deferred income tax assets:
Employee benefits $ 424 $ 517
Other accrued expenses 3,015 1,507
Operating loss carryforwards 921 778
Other 428 586
------ ------
Deferred income tax assets 4,788 3,388
------ ------
Deferred income tax liabilities:
Depreciation 971 1,137
Inventory 285 1,266
------ ------
Deferred income tax liabilities 1,256 2,403
------ ------
Net deferred income tax assets $3,532 $ 985
====== ======
2001 2000
In thousands
Amount included in:
Current assets $3,065 $ 702
Other assets 467 283
------ ------
$3,532 $ 985
====== ======
F-11
8. RETIREMENT PLAN
VF has a 401(k) Profit Sharing Plan (the "Plan") in which eligible
employees may participate. Employees are eligible to participate in the
Plan beginning the first of the month following 30 days of employment.
Participants may elect to contribute 15% of their annual compensation, not
to exceed amounts prescribed by statutory guidelines. VF is required to
contribute an amount equal to 50% of each participant's eligible
contribution up to 6% of the participant's annual compensation. VF's
contributions to the Plan were $225, $186 and $257 in 2001, 2000 and 1999,
respectively.
9. BUSINESS SEGMENT INFORMATION
Jantzen designs, manufactures and markets apparel products under Jantzen
and other owned brand names, and under the licensed NIKE and Tommy
Hilfiger brand names. Customers include department and specialty stores
throughout the United States.
Jantzen manages its business in two segments - - wholesale customers and
VF outlet customers. The wholesale business consists of sales to
retailers, who in turn resell the Jantzen merchandise to their consumers.
The VF outlet business consists of sales of Jantzen's products through
VF's retail factory outlet stores directly to consumers.
Accounting policies for the wholesale segment are those stated in Note 2.
In the VF outlet segment, Jantzen transfers inventory to VF's outlet
affiliate at cost. When these products are sold to retail consumers, the
actual sales, cost of sales and marketing expenses are recorded at
Jantzen. Because there is no allocation of outlet assets to Jantzen, there
is no asset base in this segment. Financial information for Jantzen's
reportable segments is as follows:
2001 2000 1999
In thousands
Revenues:
Wholesale and royalty income $ 72,065 $ 78,649 $ 106,966
VF outlet 23,777 33,930 35,105
--------- --------- ---------
Total revenues $ 95,842 $ 112,579 $ 142,071
========= ========= =========
Operating income (loss):
Wholesale and royalty income $ (8,406) $ 634 $ (10,694)
VF outlet (2,054) 3,564 6,619
--------- --------- ---------
Total operating income (loss) $ (10,460) $ 4,198 $ (4,075)
========= ========= =========
10. COMMITMENTS AND CONTINGENCIES
Jantzen leases certain facilities and equipment under noncancelable
operating leases. Future minimum lease payments are $439, $402, $402, $402
and $365 for the years 2002 through 2006 and $0 thereafter. Rent expense
associated with these leases was $1,257, $1,180 and $2,011 in 2001, 2000
and 1999, respectively.
Jantzen enters into licensing agreements that provide Jantzen rights to
market products under NIKE and Tommy Hilfiger trademarks owned by other
parties. Royalty expense under these agreements were $2,636, $2,536 and
$2,401 in 2001, 2000 and 1999, respectively, and is recognized in cost of
sales in the statements of income. Certain of these agreements contain
provisions for the payment of a guaranteed
F-12
minimum royalty on anticipated sales at the beginning of each quarter and a
minimum percentage royalty based on annual sales. Future minimum royalty
payments are $1,131, $1,345, $858, $910 and $0 for the years 2002 through
2006 and $0 thereafter. Future minimum advertising payments are $775,
$1,000, $1,000, $1,000 and $0 for the years 2002 through 2006 and $0
thereafter.
Jantzen is subject to claims and suits, and is the initiator of claims and
suits against others, in the ordinary course of business. Management does
not believe that the resolution of any pending claims will have a material
adverse effect on its financial position, results of operations or cash
flows.
11. RESTRUCTURING EXPENSE
In the fourth quarter of 2001, VF management informed the employees of
Jantzen that VF intended to sell or otherwise dispose of Jantzen.
Accordingly, substantially all of the 494 employees were notified that
their employment would be terminated during 2002. Jantzen accrued a
restructuring charge of $4,993 in 2001 for severance and related benefits
for these employees. Of the total charge, $1,373 was recorded in cost of
sales and $3,620 in selling, general and administrative expenses.
* * * * * *
F-13
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following sets forth the Unaudited Pro Forma Condensed Combined Financial
Information of Perry Ellis International, Inc. as of and for the fiscal year
ended January 31, 2002, giving effect to the acquisition of The Jantzen Business
("Jantzen"), a business unit owned by VF Corporation, under the "purchase"
method of accounting, the offering of the 9 1/2 Series A Senior Secured Notes
which was closed on March 22, 2002 (the "existing notes"), and repayment of
Perry Ellis' senior credit facility. Perry Ellis' Unaudited Pro Forma Condensed
Combined Balance Sheet Information presents the Jantzen acquisition, the
offering of the existing notes and repayment of the senior credit facility, each
as if they had been consummated on January 31, 2002. Perry Ellis' Unaudited Pro
Forma Condensed Combined Income Statement Information presents the Jantzen
acquisition, the offering of the existing notes and the repayment of the senior
credit facility, each as if they had been consummated on February 1, 2001. The
Unaudited Pro Forma Condensed Combined Financial Information of the combined
companies are presented for illustrative purposes only, and therefore do not
purport to present the financial position or results of operations of Perry
Ellis had the Jantzen acquisition, the offering of the existing notes and
repayment of the senior credit facility occurred on the dates indicated, nor are
they necessarily indicative of the results of operations which may be expected
to occur in the future.
The historical financial information for Perry Ellis and Jantzen has been
derived from the respective audited financial statements. The pro forma
adjustments relating to the acquisition and integration of Jantzen represent
Perry Ellis' preliminary determination of these adjustments and are based upon
available information and certain assumptions Perry Ellis considers reasonable
under the circumstances. Final amounts could differ from those set forth herein.
The pro forma adjustments do not include additional cost savings that Perry
Ellis believes will be realized through the combination of the two companies.
The Jantzen acquisition did not include working capital related to the 2002
product lines (primarily accounts receivable and inventories) and real estate
assets.
F-14
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
BALANCE SHEET
Year Ended January 31, 2002
(Dollars in Thousands)
--------------------------------------------------------------------------------------------------------
Historical (1) Pro forma
-------------------- -----------------------------
Perry Ellis Jantzen Adjustments (2) Combined
----------- ------- --------------- --------
ASSETS
Cash $ 1,304 $ 445 $ 9,421 (a) $ 11,170
Receivables, net 50,370 11,536 (11,536) (b) 50,370
Inventories 45,409 23,456 (21,265) (c) 47,600
Intangible assets, net 117,939 17,737 6,615 (d) 142,291
Other assets 19,039 14,231 (12,022) (e) 21,248
-------- -------- -------- --------
Total Assets $234,061 $ 67,405 $(28,787) $272,679
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities $ 25,415 $ 14,672 $ (9,898) (f) $ 30,189
Senior credit facility 21,756 -- (21,756) (g) --
Senior subordinated notes payable, net 99,072 -- -- 99,072
Notes offered hereby -- -- 55,600 (h) 55,600
-------- -------- -------- --------
Total Liabilities 146,243 14,672 23,946 184,861
Minority interest 614 -- -- 614
Stockholders' equity 87,204 52,733 (52,733) (i) 87,204
-------- -------- -------- --------
Total Liabilities and Stockholders' Equity $234,061 $ 67,405 $(28,787) $272,679
======== ======== ======== ========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
F-15
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
Year Ended January 31, 2002
(Dollars in Thousands Except Per Share Data)
------------------------------------------------------------------------------------------------
Historical (1) Pro forma
----------------------- ------------------------------
Perry Ellis Jantzen Adjustments (3) Combined
----------- --------- --------------- --------
Net sales $ 253,034 $ 94,159 $ (23,777) (a) $323,416
Royalty income 26,681 1,683 -- 28,364
--------- --------- --------- --------
Total revenues 279,715 95,842 (23,777) 351,780
Cost of sales 191,601 73,007 (20,838) (b) 243,770
--------- --------- --------- --------
Gross profit 88,114 22,835 (2,939) 108,010
Selling, general and
administrative expenses 63,916 33,282 (5,848) (c) 91,350
--------- --------- --------- --------
Operating income (loss) 24,198 (10,447) 2,909 16,660
Interest expense (income) 13,550 (41) 1,782 (d) 15,291
--------- --------- --------- --------
Income (loss) before provision
for income taxes 10,648 (10,406) 1,127 1,369
Income tax provision (benefit) 4,040 (3,782) 427 (e) 685
--------- --------- --------- --------
Net income (loss) $ 6,608 $ (6,624) $ 700 $ 684
========= ========= ========= ========
Earnings per share
Basic $ 0.105
========
Diluted $ 0.105
========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
F-16
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Dollars in Thousands)
(1) The year ended January 31, 2002 is Perry Ellis' historical financial
reporting period. For the pro forma year ended January 31, 2002, Jantzen
financial information has been included for the twelve months ended
December 29, 2001, due to Jantzen historically reporting on fiscal years
ending on the Saturday closest to the end of December. Perry Ellis believes
the effect of the difference in these reporting periods is not significant,
and therefore is not reflected in the Unaudited Pro Forma Condensed
Combined Financial Information.
(2) The Jantzen purchase price was $23,978, excluding assumed liabilities of
$1,957 and acquisition costs of $1,073. The purchase price and the purchase
price allocation is calculated as follows:
Purchase price determination:
Net purchase price $ 23,978
Liabilities assumed and expenses incurred in
connection with the acquisition 3,030
------------
Gross purchase price $ 27,008
============
Purchase price allocation:
Inventories $ 2,191
Machinery and equipment 465
Trademarks 24,352
------------
Gross purchase price $ 27,008
============
For purposes of preparing the Unaudited Pro Forma Condensed Combined
Balance Sheet, the Jantzen assets acquired and liabilities assumed have
been recorded at their estimated fair values. A final determination of the
required purchase accounting adjustments and of the fair value of the
assets and liabilities of Jantzen acquired or assumed has not yet been
made. Accordingly, the purchase accounting adjustments made in connection
with the development of the unaudited pro forma condensed combined
financial information reflect Perry Ellis' best estimate based upon
currently available information.
F-17
As of
January 31,
2002
(a) Adjustments to cash:
Elimination of Jantzen cash not acquired $ (445)
Notes offered hereby, net of discounts 55,600
Repayment of senior credit facility (21,756)
Acquisition of Jantzen (23,978)
--------
Total adjustments to cash $ 9,421
--------
(b) Adjustment to receivables, net:
Elimination of Jantzen receivables not acquired $(11,536)
--------
(c) Adjustment to inventories:
Elimination of Jantzen inventories not acquired. Perry Ellis acquired all
inventories held for the 2003 season with a fair value of $2,191 $(21,265)
--------
(d) Adjustments to intangible assets, net:
Elimination of Jantzen intangible assets not acquired $(17,737)
Purchase price allocated to Jantzen trademark 24,352
--------
Total adjustments to intangibles, net $ 6,615
--------
(e) Adjustments to other assets:
Elimination of Jantzen other assets not acquired $(14,231)
Purchase price allocated to property and equipment acquired from Jantzen 465
Deferred financing costs related to the Notes offered hereby 1,744
--------
Total adjustments to other assets $(12,022)
--------
(f) Adjustments to accounts payable and other liabilities:
Elimination of Jantzen liabilities not assumed $(14,672)
Accrual for severance costs assumed from Jantzen 1,957
Accrual for deferred financing and acquisitions costs 2,817
--------
Total adjustments to accounts payable and other liabilities $ (9,898)
--------
(g) Adjustment to senior credit facility:
Repayment of senior credit facility $(21,756)
--------
(h) Adjustment to notes offered hereby:
Notes offered hereby, net of discounts $ 55,600
--------
(i) Adjustment to stockholders' equity:
Elimination of Jantzen equity $(52,733)
--------
(3) The Pro Forma Combined Condensed Income Statement Data for the year ended
January 31, 2002 present the effects of the Jantzen acquisition, the
offering of the existing notes and repayment of the senior credit facility,
in each case as if they occurred as of the beginning of such period,
including:
F-18
For the
year ended
January 31,
2002
(a) Adjustment to net sales:
Elimination of sales related to merchandise sold to retail customers through
an affiliated chain of factory outlet stores owned by VF Corporation. The
retail distribution channel was not acquired by Perry Ellis $(23,777)
--------
(b) Adjustment to cost of sales:
Elimination of cost of sales related to merchandise sold to retail
customers through an affiliated chain of factory outlet stores owned
by VF Corporation. The retail distribution channel was not acquired by
Perry Ellis $(20,838)
--------
(c) Adjustments to selling, general and administrative expenses:
Elimination of selling and distribution expenses related to merchandise
sold to retail customers through an affiliated chain of factory outlet stores
owned by VF Corporation. The retail distribution channel was not acquired
by Perry Ellis $ (4,993)
Amortization of deferred financing costs related to the Notes offered hereby 249
Reductions of depreciation expense on property, plant and equipment not
acquired by Perry Ellis (1,104)
--------
Total adjustments to selling, general and administrative expenses $ (5,848)
--------
(d) Adjustments to interest expense:
Estimated interest expense associated with Notes offered hereby $ 5,415
Estimated effect on interest expense of the interest rate swap entered into
concurrently with the notes offered hereby (2,148)
Estimated savings on interest expense due to the repayment on the senior
credit facility (1,485)
--------
Total adjustments to interest expense $ 1,782
--------
(e) Adjustment to the provision for income taxes at an effective rate of 37.9% $ 427
--------
F-19