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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 October 29, 2011

OR

 

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

Commission File Number: 0-21764

 

 

PERRY ELLIS INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

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

 

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

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

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨		Smaller reporting company		¨

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

The number of shares outstanding of the registrant’s common stock is 15,358,030 (as of December 5, 2011)

 

 

 

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PERRY ELLIS INTERNATIONAL, INC.

INDEX

 

		PAGE
PART I: FINANCIAL INFORMATION
Item 1:
Condensed Consolidated Balance Sheets (Unaudited) as of October 29, 2011 and January 29, 2011			1
Condensed Consolidated Statements of Income (Unaudited) for the three and nine months ended October  29, 2011 and October 30, 2010			2
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended October  29, 2011 and October 30, 2010			3
Notes to Unaudited Condensed Consolidated Financial Statements			5
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3:
Quantitative and Qualitative Disclosures About Market Risk			33
Item 4:
Controls and Procedures			34
PART II: OTHER INFORMATION			35
Item 6:
Exhibits			35

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share data)

 

		October 29, 2011				January 29, 2011
ASSETS
Current Assets:
Cash and cash equivalents		$	21,408			$	18,524
Restricted cash			—				9,369
Accounts receivable, net			149,787				129,534
Inventories			200,299				178,217
Deferred income taxes			13,866				9,926
Prepaid income taxes			4,450				3,867
Other current assets			16,930				13,623
Total current assets			406,740				363,060
Property and equipment, net			56,157				55,077
Intangible assets			259,670				262,647
Other assets			8,627				4,946
TOTAL		$	731,194			$	685,730
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable		$	74,302			$	73,890
Accrued expenses and other liabilities			15,454				23,399
Accrued interest payable			1,264				3,744
Current portion - real estate mortgages			679				592
Unearned revenues			4,332				4,438
Other current liabilities			6,004				6,659
Total current liabilities			102,035				112,722
Senior subordinated notes payable, net			150,000				105,221
Senior credit facility			24,086				97,342
Real estate mortgages			25,251				25,793
Deferred pension obligation			11,488				13,120
Unearned revenues and other long-term liabilities			15,527				17,587
Deferred income taxes			17,702				11,005
Total long-term liabilities			244,054				270,068
Total liabilities			346,089				382,790
Commitment and contingencies
Equity:
Preferred stock $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding			—				—
Common stock $.01 par value; 100,000,000 shares authorized; 16,302,005 shares issued and outstanding as of October 29, 2011 and 16,609,966 shares issued and outstanding as of January 29, 2011			163				166
Additional paid-in-capital			160,540				119,560
Retained earnings			227,684				203,950
Accumulated other comprehensive loss			(3,282	)			(3,321	)
Total			385,105				320,355
Treasury stock at cost; no shares as of October 29, 2011 and 2,462,196 shares as of January 29, 2011			—				(17,415	)
Total equity			385,105				302,940
TOTAL		$	731,194			$	685,730

See Notes to Unaudited Condensed Consolidated Financial Statements

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)

 

		Three Months Ended								Nine Months Ended
		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
Revenues:
Net sales		$	242,116			$	194,856			$	733,487			$	564,720
Royalty income			6,304				6,421				17,657				18,660
Total revenues			248,420				201,277				751,144				583,380
Cost of sales			165,970				129,690				499,456				374,896
Gross profit			82,450				71,587				251,688				208,484
Operating expenses
Selling, general and administrative expenses			66,356				54,713				193,101				163,588
Depreciation and amortization			3,369				2,973				9,982				9,110
Total operating expenses			69,725				57,686				203,083				172,698
Operating income			12,725				13,901				48,605				35,786
Cost on early extinguishment of debt			—				—				1,306				730
Interest expense			3,868				3,181				12,303				10,289
Net income before income taxes			8,857				10,720				34,996				24,767
Income tax provision			2,348				3,407				11,262				7,966
Net income			6,509				7,313				23,734				16,801
Less: net income attributable to noncontrolling interest			—				138				—				400
Net income attributable to Perry Ellis International, Inc.		$	6,509			$	7,175			$	23,734			$	16,401
Net income attributable to Perry Ellis International, Inc. per share:
Basic		$	0.42			$	0.54			$	1.58			$	1.25
Diluted		$	0.40			$	0.51			$	1.47			$	1.16
Weighted average number of shares outstanding
Basic			15,317				13,190				15,009				13,076
Diluted			16,391				14,193				16,131				14,084

See Notes to Unaudited Condensed Consolidated Financial Statements

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

 

		Nine Months Ended
		October 29, 2011				October 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	23,734			$	16,801
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			9,837				8,979
Provision for bad debts			186				497
Tax benefit from exercise of stock options			(456	)			(2,209	)
Amortization of debt issue costs			377				327
Amortization of premiums and discounts			(32	)			82
Deferred income taxes			2,757				808
Share based compensation			4,556				3,264
Cost on early extinguishment of debt			1,306				730
Change in fair value and settlement of derivatives			(1,832	)			2,206
Changes in operating assets and liabilities:
Accounts receivable, net			(20,441	)			21,926
Inventories			(22,064	)			(16,134	)
Other current assets and prepaid income taxes			(3,437	)			6,865
Other assets			(324	)			(444	)
Deferred pension obligation			(1,633	)			(2,750	)
Accounts payable and accrued expenses			(8,206	)			(10,187	)
Accrued interest payable			(2,480	)			(3,064	)
Unearned revenues and other liabilities			(860	)			(3,849	)
Net cash (used in) provided by operating activities			(19,012	)			23,848
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(9,548	)			(4,590	)
Proceeds on sale of intangible assets			2,875				—
Payment on purchase of intangible assets			(535	)			—
Payment on purchase of operating leases			(904	)			—
Redemption of restricted funds as collateral			9,369				—
Net cash provided by (used in) investing activities			1,257				(4,590	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility			303,013				403,365
Payments on senior credit facility			(376,269	)			(403,365	)
Payments on senior subordinated notes			(105,792	)			(25,454	)
Proceeds from real estate mortgage			—				13,000
Payments on real estate mortgages			(381	)			(11,073	)
Proceeds from issuance of senior subordinated notes			150,000				—
Debt issuance costs			(3,504	)			—
Deferred financing fees			(103	)			(158	)
Payment of noncontrolling interest			—				(4,557	)
Payments on capital leases			(281	)			(215	)
Proceeds from issuance of common stock			56,000				—
Stock issuance costs			(3,074	)			—
Tax benefit from exercise of stock options			456				2,209
Proceeds from exercise of stock options			454				2,428
Net cash provided by (used) in financing activities			20,519				(23,820	)
Effect of exchange rate changes on cash and cash equivalents			120				(16	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			2,884				(4,578	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			18,524				18,269
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	21,408			$	13,691

 

Continued

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

 

		Nine Months Ended
		October 29, 2011				October 30, 2010
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	15,082			$	14,368
Income taxes		$	6,503			$	662
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Accrued purchases of property and equipment		$	562			$	178
Capital lease financing		$	66			$	28

See Notes to Unaudited Condensed Consolidated Financial Statements

 

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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 Company’s Annual Report on Form 10-K for the year ended January 29, 2011.

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 January 2010, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements.” ASU 2010-06 requires new disclosures regarding transfers in and out of the Level 1 and 2 and activity within Level 3 fair value measurements and clarifies existing disclosures of inputs and valuation techniques for Level 2 and 3 fair value measurements. ASU 2010-06 also includes conforming amendments to employers’ disclosures about post-retirement benefit plan assets. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure of activity within Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of this standard did not have a material impact on the Company’s financial statements.

In December 2010, the FASB issued ASU 2010-28, “Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” ASU 2010-28 provides amendments to Topic 350 to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts to clarify that, for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this standard did not have a material impact on the results of operations or the financial position of the Company.

In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” ASU 2010-29 provides amendments to Topic 805 to specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of this standard did not have a material impact on the results of operations or the financial position of the Company and the required disclosures have been incorporated.

 

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In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” ASU 2011-04 provides amendments to Topic 820 effective for public entities for interim and annual periods beginning after December 15, 2011, and should be applied prospectively. The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Early adoption is not permitted for public entities. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011, and should be applied prospectively. The Company is in the process of assessing the impact, if any, that the adoption of ASU 2011-04 will have on its results of operations or its financial position.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option that permits the presentation of other comprehensive income in the statement of changes in equity and requires presenting components of net income and comprehensive income in either a one-statement approach with totals for both net income and comprehensive income, or a two-statement approach where a statement presenting the components of net income and total net income must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. Early adoption is permitted. The Company is in the process of assessing the impact that the adoption of ASU 2011-05 will have on its required disclosures.

In September 2011, the FASB issued ASU 2011-08, “Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” ASU 2011-08 simplifies how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU No. 2011-08 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.

 

3.	ACQUISITIONS

On January 28, 2011, the Company completed the acquisition of substantially all of the assets of Rafaella Apparel Group, Inc. (“Rafaella”), Rafaella Apparel Far East Limited (“Rafaella Far East”) and Verrazano, Inc. (“Verrazano”) pursuant to the Asset Purchase Agreement dated as of January 7, 2011 (the “Agreement”) by and among Rafaella, Rafaella Far East and Verrazano (collectively, the “Sellers”) and the Company.

The consideration paid by the Company totaled approximately $80.0 million in cash and a warrant to purchase 106,565 shares of the Company’s common stock valued at approximately $2.6 million. The cash portion of the purchase price is subject to adjustment as set forth in the Agreement based on a post-closing true-up of net working capital. The Agreement provides for the escrow of $3.0 million in connection with the post-closing true-up adjustment. While $3.0 million is currently held in escrow related to the post closing adjustment, such adjustment is not limited to the amount held in escrow. An estimate of the post closing true-up adjustment has been included in other current assets. Also held, is an additional $3.5 million of the cash portion of the purchase price for a period of one year following the closing date to satisfy certain indemnity claims against the Sellers under the Agreement. The Company funded the acquisition through its senior credit facility.

The warrant issued to Rafaella as part of the purchase price became exercisable on the business day immediately following the first business day after the closing on which the closing price of the Company’s common stock equaled or exceeded $28.152 and expires two years following the closing date. The warrant is exercisable for

 

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a total of 106,565 shares of the Company’s common stock at an exercise price of $.01 per share. The exercise price per share and number of shares issuable upon exercise are subject to adjustments for stock splits, dividends, subdivisions or combinations involving the common stock.

The Company incurred approximately $2.2 million in acquisition expenses during the fourth quarter of fiscal 2011. These expenses were included in selling, general and administrative expenses in the fourth quarter consolidated statement of income.

No operations have been included for fiscal 2011 related to this acquisition, since it occurred at the end of the fiscal year.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed. The following purchase accounting adjustments include fair value adjustments and the allocation of purchase price based on fair value:

 

		Estimated Fair Value
		(in thousands)
Total purchase price
Cash consideration paid		$	79,985
Total purchase price			79,985
Warrants			2,599
Total adjusted purchase price		$	82,584
Total allocation of the purchase price is as follows:
Inventory		$	22,698
Accounts receivables			4,946
Other current assets			3,514
Fixed assets			267
Intangibles			62,423
Accounts payable and accrued expenses			(11,264	)
Fair value of net assets acquired		$	82,584

The Company is in the process of completing the allocation of the purchase price to the various components of the net assets acquired and expects to finalize this allocation once the post-closing true-up of net working capital is completed during fiscal 2012. Once finalized, the Company expects intangible assets to be allocated among customer lists, tradename, and goodwill.

 

4.	PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma financial information presented below, gives effect to the Rafaella acquisition, as if it occurred as of the beginning of fiscal 2011. This pro forma information is based upon the historical financial statements and should be read in conjunction with the condensed consolidated financial statements and notes thereto. This pro forma information does not purport to represent what the actual results of our operations would have been had the Rafaella acquisition occurred as of the beginning of fiscal 2011, nor do they purport to predict the results of operations of future periods. For fiscal 2012, the post-acquisition results of the Rafaella acquisition are reflected in the Company’s results of operations for the three and nine months ended October 29, 2011. Pro forma fiscal 2011 results and per share data for Rafaella were derived from Rafaella’s previously reported results for the three and nine months ended September 30, 2010 and are included in the pro forma fiscal 2011 results below:

 

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		Three Months Ended								Nine Months Ended
		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
		(in thousands)
Total revenues		$	248,420			$	238,585			$	751,144			$	680,034
Net income attributable to Perry Ellis International, Inc.		$	6,509			$	10,365			$	23,734			$	23,100
Net income attributable to Perry Ellis International, Inc. per share:
Basic		$	0.42			$	0.68			$	1.58			$	1.56
Diluted		$	0.40			$	0.64			$	1.47			$	1.46
Weighted average number of shares outstanding (1)
Basic			15,317				15,190				15,009				14,805
Diluted			16,391				16,193				16,131				15,813

 

(1)	Weighted average number of shares outstanding for the three and nine months ended October 30, 2010, were adjusted to include the weighted average of 2.0 million shares of common stock issued on March 8, 2011.

For the three and nine months ended October 29, 2011, Rafaella had total revenues of $38.4 million and $100.2 million, respectively, and net income attributable to Perry Ellis International, Inc. of $3.6 million and $7.9 million, respectively, which are included above.

For the three months ended October 30, 2010, pro forma earnings were adjusted to exclude $0.8 million of nonrecurring expense related to Rafaella’s legal and financing transactions, $2.6 million in interest costs associated with debt not assumed, and $1.0 million in depreciation related to assets not acquired. For the three months ended October 30, 2010, pro forma earnings were adjusted to include amortization of $0.2 million on assets acquired and income taxes in the amount of $1.3 million.

For the nine months ended October 30, 2010, pro forma earnings were adjusted to exclude $2.8 million of nonrecurring expenses related to Rafaella’s legal and financing transactions, $7.6 million in interest costs associated with debt not assumed, and $3.2 million in depreciation related to assets not acquired. For the nine months ended October 30, 2010, supplemental pro forma earnings were adjusted to include $2.2 million in acquisition costs incurred by the Company, amortization of $0.7 million on assets acquired, $0.3 million in interest costs associated with the financing of the acquisition and income taxes in the amount of $3.5 million.

 

5.	INVENTORIES

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

Inventories consisted of the following as of:

 

		October 29, 2011				January 29, 2011
		(in thousands)
Finished goods		$	197,266			$	176,020
Raw materials and in process			3,033				2,197
Total		$	200,299			$	178,217

 

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6.	PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

 

		October 29, 2011				January 29, 2011
		(in thousands)
Furniture, fixture and equipment		$	89,158			$	84,146
Buildings			19,524				19,348
Vehicles			904				850
Leasehold improvements			29,362				24,569
Land			9,208				9,189
Total			148,156				138,102
Less: accumulated depreciation and amortization			(91,999	)			(83,025	)
Total, net		$	56,157			$	55,077

The above table of property and equipment includes assets held under capital leases as of:

 

		October 29, 2011				January 29, 2011
		(in thousands)
Furniture, fixture and equipment		$	1,093			$	1,027
Less: accumulated depreciation and amortization			(828	)			(555	)
Total, net		$	265			$	472

For the three months ended October 29, 2011 and October 30, 2010, depreciation and amortization expense relating to property and equipment amounted to $3.1 million and $2.9 million, respectively. For the nine months ended October 29, 2011 and October 30, 2010, depreciation and amortization expense relating to property and equipment amounted to $9.1 million and $9.0 million, respectively. These amounts include amortization expense for leased property under capital leases.

 

7.	LETTER OF CREDIT FACILITIES

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

 

		October 29, 2011				January 29, 2011
		(in thousands)
Total letter of credit facilities		$	55,966			$	50,953
Outstanding letters of credit			(4,643	)			(5,858	)
Total letters of credit available		$	51,323			$	45,095

Additionally, on January 29, 2011, the Company assumed certain letters of credit in the amount of $9.4 million, in connection with the acquisition of certain net assets from Rafaella. These letters of credit were fully collateralized by restricted cash and expired during fiscal 2012. As of October 29, 2011, there was no balance related to these letters of credit and as of January 29, 2011, there was a balance of $9.4 million.

During the third quarter of fiscal 2012, the Company increased one of its two U.S. dollar letters of credit from $10.0 to $15.0 million, under existing terms.

 

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8.	ADVERTISING AND RELATED COSTS

The Company’s accounting policy relating to advertising and related costs is to expense these costs in the period incurred. Advertising and related costs were approximately $4.6 million and $3.1 million for the three months ended October 29, 2011 and October 30, 2010, respectively, and $11.7 million and $9.4 million for the nine months ended October 29, 2011 and October 30, 2010, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

 

9.	NET INCOME PER SHARE ATTRIBUTABLE TO PERRY ELLIS INTERNATIONAL, INC.

Basic net income per share attributable to Perry Ellis International, Inc. is computed by dividing net income attributable to Perry Ellis International, Inc. 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 attributable to Perry Ellis International, Inc. includes the effects of stock options, stock appreciation rights (“SARs”), warrants and unvested restricted shares as determined using the treasury stock method.

In connection with the acquisition of Rafaella, the Company issued a non-participating warrant as part of the purchase price which became exercisable on the business day immediately following the first business day after the closing. The warrant is exercisable for a total of 106,565 shares of the Company’s common stock at an exercise price of $.01 per share, which has been included in the calculation of diluted net income per share for the three and nine months ended October 29, 2011.

The following table sets forth the computation of basic and diluted income per share attributable to Perry Ellis International, Inc.:

 

		Three Months Ended								Nine Months Ended
		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
		(in thousands, except per share data)
Numerator:
Net income attributable to Perry Ellis International, Inc.		$	6,509			$	7,175			$	23,734			$	16,401
Denominator:
Basic - weighted average shares			15,317				13,190				15,009				13,076
Dilutive effect: equity awards			967				1,003				1,015				1,008
Dilutive effect: warrant			107				—				107				—
Diluted - weighted average shares			16,391				14,193				16,131				14,084
Basic income per share		$	0.42			$	0.54			$	1.58			$	1.25
Diluted income per share		$	0.40			$	0.51			$	1.47			$	1.16
Antidilutive effect: (1)			573				103				549				332

 

(1)	Represents stock options and SARs to purchase shares of common stock and unvested restricted stock that were not included in computing diluted income per share because their effects were antidilutive for the respective periods.

 

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10.	NONCONTROLLING INTEREST

During August 2010, the Company purchased the remaining portion of the noncontrolling interest in its Canadian joint venture, which effectively resulted in the termination of the joint venture. Per the terms of the termination agreement, the Company paid approximately $4.6 million, the book value of the noncontrolling interest, to the minority shareholder. The Company originally held 51% of the joint venture and subsequent to the termination, it holds 100%.

 

11.	EQUITY AND COMPREHENSIVE INCOME

The following table reflects the changes in stockholders’ equity attributable to both Perry Ellis International, Inc., and the noncontrolling interests of the subsidiary in which Perry Ellis International, Inc. had a majority, but not total, ownership interest:

 

		Attributable to Perry Ellis International, Inc.				Attributable to Noncontrolling Interest				Total
		(in thousands)
Equity at January 30, 2011		$	302,940			$	—			$	302,940
Comprehensive income			23,773				—				23,773
Share transactions under employee and direct stock purchase plans			5,466				—				5,466
Issuance of common stock			52,926				—				52,926
Equity at October 29, 2011		$	385,105			$	—			$	385,105
Equity at January 31, 2010		$	266,456			$	3,660			$	270,116
Comprehensive income			16,282				897				17,179
Payment of noncontrolling interest			—				(4,557	)			(4,557	)
Share transactions under employee and direct stock purchase plans			7,901				—				7,901
Equity at October 30, 2010		$	290,639			$	—			$	290,639

Accumulated other comprehensive loss attributable to Perry Ellis International, Inc. at October 29, 2011 and January 29, 2011 was comprised of the following:

 

		October 29, 2011				January 29, 2011
		(in thousands)
Foreign currency translation		$	(752	)		$	(791	)
Unrealized loss on pension liability, net of tax			(2,530	)			(2,530	)
		$	(3,282	)		$	(3,321	)

 

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The following table reflects comprehensive income for the three and nine months ended October 29, 2011 and October 30, 2010, attributable to both Perry Ellis International, Inc., and the noncontrolling interests of the subsidiary in which Perry Ellis International, Inc. had a majority, but not total, ownership interest.

 

		Three Months Ended								Nine Months Ended
		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
		(in thousands)
Net income		$	6,509			$	7,313			$	23,734			$	16,801
Other comprehensive income:
Foreign currency translation adjustments, net			(784	)			407				39				378
Total other comprehensive income			(784	)			407				39				378
Comprehensive income			5,725				7,720				23,773				17,179
Less: comprehensive income attributable to the noncontrolling interest			—				635				—				897
Comprehensive income attributable to Perry Ellis International, Inc.		$	5,725			$	7,085			$	23,773			$	16,282

On March 2, 2011, the Company entered into underwriting agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as representatives of the underwriters that are parties thereto (the “Underwriting Agreements”) in connection with common stock and senior subordinated note offerings.

Pursuant to the Underwriting Agreement relating to the common stock offering, the Company agreed to sell, and the underwriters agreed to purchase, 2.0 million shares of the Company’s common stock at a price to the public of $28.00 per share resulting in net proceeds to the Company of $52.9 million, net of $3.1 million in underwriter discounts and stock issuance costs, to the Company. The Company used the net proceeds from the common stock offering to repay a portion of the amounts outstanding under its senior credit facility.

During September 2011, the Company’s Board of Directors authorized the retirement of 2,462,196 shares of treasury stock which were recorded at a cost of approximately $17.4 million on the condensed consolidated balance sheets. Accordingly, the Company reduced common stock and additional paid-in-capital by $25,000 and $17.4 million, respectively. At October 29, 2011, there was no treasury stock balance and at January 29, 2011, there were 2,462,196 shares at a cost of approximately $17.4 million.

 

12.	SENIOR SUBORDINATED NOTES PAYABLE

In March 2011, the Company issued $150 million 7 ⁷/8% senior subordinated notes, due April 1, 2019. Pursuant to the Underwriting Agreement relating to the senior subordinated notes offering, the Company agreed to sell, and the underwriters agreed to purchase, $150 million in aggregate principal amount of the Company’s 7 ⁷/8% Senior Subordinated Notes Due 2019 at a price to the public of 100.00% of par, an underwriting discount of 2.0% and other transaction costs, resulting in aggregate net proceeds to the Company of $146.5 million. The Company used the net proceeds of the senior subordinated notes offering first to redeem its outstanding 8 ⁷/8% Senior Subordinated Notes Due 2013 at a redemption price of 101.4792% of the outstanding principal amount, plus accrued and unpaid interest, and the remaining net proceeds to repay a portion of the amounts outstanding under its senior credit facility.

Certain Covenants. The indenture governing the senior subordinated notes contains certain covenants which restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in certain circumstances, pay dividends or make other distributions on, redeem or repurchase capital stock, make investments or other restricted payments, create liens on assets to secure debt, engage in transactions with affiliates, and effect a consolidation or merger. We are not aware of any non-compliance with any of our covenants in this indenture. We could be materially harmed if we violate any covenants because the indenture’s trustee could declare the outstanding notes, together with accrued interest, to be immediately due and payable, which we may not be able to satisfy. In addition, a violation could also constitute a cross-default under the senior credit facility, the letter of credit facilities and the real estate mortgages resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

 

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In fiscal 2004, the Company issued $150 million 8 ⁷/8% senior subordinated notes, due September 15, 2013. The proceeds of this offering were used to redeem previously issued $100 million 12 ¹/4% senior subordinated notes and to pay down the outstanding balance of the senior credit facility at that time.

During June 2010, the Company retired $25.0 million of its senior subordinated notes payable. In connection with this retirement, the Company paid an additional $453,000 in redemption premiums and commissions. Additionally, the Company wrote-off approximately $277,000 in unamortized discount and bond fees associated with the retired portion of the senior subordinated notes.

On March 8, 2011, the senior subordinated notes due September 15, 2013 were called and subsequently retired by the issuance of the new notes more fully described herein. In connection with the call, the Company incurred an early call premium of $1.5 million. The Company also wrote-off the remaining unamortized discount, premium associated with the terminated swap and bond fees associated with the senior subordinated notes in the net amount of ($0.2) million.

 

13.	SENIOR CREDIT FACILITY

Effective March 31, 2010, the Company entered into an amendment to its senior credit facility. This amendment modified the senior credit facility to permit the sale of certain accounts receivable.

The following is a description of the terms of the Company’s senior credit facility with Wachovia Bank, National Association, et al, as amended, and does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the senior credit facility: (i) the maximum line is up to $150 million with the opportunity to increase this amount in $25 million increments up to $200 million; (ii) the inventory borrowing limit is $90 million or up to 60% of the maximum line; (iii) the sublimit for letters of credit is up to $40 million; (iv) the amount of letter of credit facilities allowed outside of the facility is $110 million and (v) the outstanding balance is due at the maturity date of February 1, 2012. On December 2, 2011, the Company amended and restated the senior credit facility. Refer to Note 22, “Subsequent Events,” for further information. At October 29, 2011 and January 29, 2011, the Company had $24.1 million and $97.3 million of outstanding borrowings under the senior credit facility.

Certain Covenants. The senior credit facility contains certain covenants, which, among other things, require the Company to maintain a minimum adjusted EBITDA (“Senior Credit Facility Adjusted EBITDA”), as defined in the senior credit facility (as opposed to the definition of EBITDA used by the Company for other purposes), if availability falls below a certain threshold. These covenants may restrict the Company’s ability and the ability of its subsidiaries to, among other things, incur additional indebtedness in certain circumstances, redeem or repurchase capital stock, make certain investments, or sell assets. The Company is prohibited from paying cash dividends under these covenants. The Company is not aware of any non-compliance with any of its covenants under the senior credit facility. The Company could be materially harmed if it violates any covenants as the lenders under the senior credit facility could declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If the Company is unable to repay those amounts, the lenders could proceed against its assets. In addition, a violation could also constitute a cross-default under the indenture, the letter of credit facilities and the real estate mortgages resulting in all of its debt obligations becoming immediately due and payable, which it may not be able to satisfy.

Borrowing Base. Borrowings under the Company’s senior credit facility are limited under its terms to a borrowing base calculation, which generally restricts the outstanding balances to the lesser of either (1) the sum of (a) 85.0% of eligible receivables plus (b) 85.0% of eligible factored accounts receivables up to $10.0 million plus (c) the lesser of (i) the inventory loan limit of $90 million, or 60% of the maximum line, or (ii) the lesser of (A) 65.0% of eligible finished goods inventory, or (B) 85.0% of the net recovery percentage (as defined in the senior credit facility) of eligible inventory, or (2) the loan limit; and in each case minus (x) 35.0% of the amount of outstanding letters of credit for eligible inventory, (y) the full amount of all other outstanding letters of credit issued pursuant to the senior credit facility which are not fully secured by cash collateral, and (z) licensing reserves for which the Company is the licensee of certain branded products.

 

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Interest. Interest on the principal balance under the Company’s senior credit facility accrues, at its option, at either (a) the greater of Wachovia’s prime lending rate or the Federal Funds rate; plus  ¹/2 % plus a margin spread of 100 to 175 basis points based upon the sum of our quarterly average excess availability plus excess cash for the immediately preceding fiscal quarter, at the time of borrowing or (b) the rate quoted by Wachovia as the average monthly Eurodollar Rate for 1-month Eurodollar deposits plus a margin spread of 200 to 275 basis points based upon the sum of its quarterly average excess availability plus excess cash for the immediately preceding fiscal quarter, at the time of borrowing.

Security. As security for the indebtedness under the senior credit facility, the Company granted the lenders a first priority security interest in substantially all of its existing and future assets other than its trademark portfolio and real estate owned, 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.

 

14.	REAL ESTATE MORTGAGES

The Company’s main administrative office, warehouse and distribution facility is a 240,000 square foot facility in Miami, Florida. The facility was partially financed with an $11.6 million real estate mortgage loan, which was paid off during July 2010.

In July 2010, the Company refinanced its main administrative office, warehouse and distribution facility in Miami with a $13.0 million mortgage loan. The loan is due on August 1, 2020. Principal and interest of $83,000 were due monthly based on a 25 year amortization with the outstanding principal due at maturity. Interest was fixed at 5.80%. The real estate mortgage loan contains certain covenants. The Company is not aware of any non-compliance with any of its covenants. If the Company violates any covenants, the lender under the real estate mortgage loan could declare all amounts outstanding thereunder to be immediately due and payable, which the Company may not be able to satisfy. In October 2011, the Company refinanced the mortgage loan. The interest rate was reduced to 5.00% per annum and the terms were restated to reflect new monthly payments of principal and interest of $77,000 based on a 25 year amortization with the outstanding principal due at maturity. At October 29, 2011, the balance of the real estate mortgage loan totaled $12.5 million, net of discount, of which $282,000 is due within one year.

In June 2006, the Company entered into a mortgage loan for $15 million secured by its Tampa facility. The loan is due on June 7, 2016. Principal and interest of $297,000 were due quarterly based on a 20 year amortization with the outstanding principal due at maturity. Interest was set at 6.25% for the first five years, at which point it would have reset based on the terms and conditions of the promissory note. In June 2010, the Company negotiated with the bank to accelerate the rate reset that was scheduled to occur in June 2011, and the interest rate was reduced to 5.75% per annum, among other changes to the loan. In October 2011, the Company refinanced this loan again. The interest rate was reduced to 4.95% per annum and the terms were restated to reflect new quarterly payments of principal and interest of $268,000, based on a 20 year amortization with the outstanding principal due at maturity. At October 29, 2011, the balance of the real estate mortgage loan totaled $13.5 million, net of discount, of which $397,000 is due within one year.

Under the terms of the mortgage loans, a covenant violation could constitute a cross-default under the Company’s senior credit facility, the letter of credit facilities and the indenture relating to its senior subordinated notes resulting in all of its debt obligations becoming immediately due and payable, which the Company may not be able to satisfy.

 

15.	DERIVATIVES

In August 2009, the Company entered into an interest rate swap agreement (the “Swap Agreement”) for an aggregate notional amount of $75 million in order to reduce the debt servicing costs associated with its $150 million 8 ⁷/8% senior subordinated notes. The Swap Agreement was scheduled to terminate on September 15, 2013. Under the Swap Agreement, the Company was entitled to receive semi-annual interest payments on September 15 and March 15 at a fixed rate of 8 ⁷/8% and was obligated to make semi-annual interest payments on September 15 and March 15 at a floating rate based on the one-month LIBOR rate plus 632 basis points for the period through September 15, 2013. The Swap Agreement had an optional call provision that allowed the counterparty to settle

 

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the Swap Agreement at any time with 30 days notice and subject to declining termination premium payments from the counterparty in the event the call was exercised. The Swap Agreement was a fair value hedge as it had been designated against the 8⁷/ ₈% senior subordinated notes carrying a fixed rate of interest and converted the fixed interest payments to variable interest payments.

During August 2010, the Company was notified by the counterparty, that it would exercise the optional call provision and terminate the Swap Agreement in September 2010. As per the terms of the call provision, the Company received $1.1 million, the fair value of the Swap Agreement as of the termination date. The fair value of the hedge item at the termination date was amortized over the remaining term of the 8⁷/₈% senior subordinated notes payable, which the Company redeemed in March 2011. As part of the redemption, the unaccreted balance of the fair value hedge in the amount of $1.1 million was charged to earnings.

The location and amount of (losses) gains on derivative instruments and related hedged items reported in the condensed consolidated statements of operations are as follows:

 

				Three Months Ended								Nine Months Ended
Fair Value Hedging Relationship		Location of Gain (Loss) Recognized in Income		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
								(in thousands)
Derivative : Swap Agreement		Interest expense		$	—			$	(134	)		$	—			$	1,572
Hedged item: Fixed rate debt		Interest expense			—				195				—				(286	)
Total (1)				$	—			$	61			$	—			$	1,286

 

(1)	Includes ($764,000) and ($392,000) for the three and nine months ended October 30, 2010, related to the ineffectiveness of the hedging relationship.

In August 2009, the Company entered into an interest rate cap agreement (the “$75 million Cap Agreement”) for an aggregate notional amount of $75 million associated with the 8⁷/₈% senior subordinated notes. The $75 million Cap Agreement became effective on December 15, 2010 and was scheduled to terminate on September 15, 2013. The $75 million Cap Agreement was being used to manage cash flow risk associated with the Company’s floating interest rate exposure pursuant to the Swap Agreement. The $75 million Cap Agreement did not qualify for hedge accounting treatment. In connection with the redemption of the 8⁷/₈% Senior Subordinated Notes Due 2013, the Company elected to terminate the $75 million Cap Agreement. The Company made a $1.6 million termination payment during March 2011.

The location and amount of (losses) on derivative instruments not designated as hedging instruments reported in the condensed consolidated statements of income are as follows:

 

				Three Months Ended								Nine Months Ended
Derivatives Not Designed As Hedging Instruments		Location of (Loss) Recognized  in Income		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
								(in thousands)
Derivative : $75 Million Cap Agreement		Interest expense		$	—			$	(196	)		$	(103	)		$	(1,451	)
Total				$	—			$	(196	)		$	(103	)		$	(1,451	)

Refer to Note 20, “Fair Value Measurements,” for disclosures of the fair value and line item caption of derivative instruments recorded on the condensed consolidated balance sheets.

 

16.	INCOME TAXES

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The Company’s U.S. federal income tax returns for 2009 through 2011 are open

 

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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 state tax returns open from 2004 through 2011, depending on each state’s particular statute of limitation. As of October 29, 2011, various state, local, and foreign income tax returns are under examination by taxing authorities.

The Company has a $1.2 million liability recorded for unrecognized tax benefits as of January 29, 2011, 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 and nine months ended October 29, 2011, the total amount of unrecognized tax benefits decreased by approximately ($58,000) and increased by approximately $220,000, respectively. The change in the total amount of the unrecognized tax benefit for the three and nine months ended October 29, 2011 included an increase in interest and penalties of approximately $6,000 and $86,000, respectively.

It is reasonably possible that within the next twelve months the Company may settle its voluntary disclosure process with the State of New Jersey. The Company does not currently anticipate that such resolution will significantly increase or decrease tax expense within the next twelve months. Furthermore, the statute of limitations related to the Company’s 2008 U.S. federal tax year expired in the current quarter. The lapse in the federal statute of limitations decreased tax expense by approximately $90,000. The statute of limitations related to the Company’s 2009 U.S. federal tax year and 2008 State of Florida tax year will expire within the next twelve months. The expiration of the statute of limitations related to the Company’s 2008 State of Florida tax year could result in a tax benefit of up to approximately $0.2 million.

 

17.	STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES

During the nine months ended October 29, 2011, the Company granted SARs, to purchase shares of common stock to certain key employees. The Company awarded an aggregate of 229,637 SARs with exercise prices ranging from $18.58 to $30.81, which generally vest over a three year period and have a seven year term. The total fair value of the SARs, based on the Black-Scholes Option Pricing Model, amounted to approximately $3.6 million, which will be recorded as compensation expense on a straight-line basis over the vesting period of each SAR.

During the nine months ended October 29, 2011, the Company granted performance based restricted stock to certain key employees pursuant to the Company’s 2005 Long Term Incentive Compensation Plan, and subject to certain conditions in the grant agreements. Such stock generally vests 100% in April 2014, 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 131,686 shares of restricted stock were issued at an estimated value of $4.0 million, which will be recorded as compensation expense on a straight-line basis over the vesting period.

Also, during the nine months ended October 29, 2011, the Company granted an aggregate of 38,750 shares of restricted stock to certain key employees, which vest over a three year period, at an estimated value of $1.0 million. This value will be recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

 

18.	SEGMENT INFORMATION

The Company’s principal segments are grouped between the generation of revenues from products and royalties. The licensing segment derives its revenues from royalties associated from the use of its brand names, principally Perry Ellis, Jantzen, John Henry, Original Penguin, Gotcha, Farah, Savane, Pro Player, Manhattan, Munsingwear and Laundry by Shelli Segal. The product segment derives its revenues from the design, import and distribution of apparel to department stores and other retail outlets, principally throughout the United States.

 

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The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by the segments and eliminates intercompany royalty transactions.

 

		Three Months Ended								Nine Months Ended
		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
		(in thousands)
Revenues:
Product		$	242,116			$	194,856			$	733,487			$	564,720
Licensing			6,304				6,421				17,657				18,660
Total Revenues		$	248,420			$	201,277			$	751,144			$	583,380
Operating Income:
Product		$	7,467			$	8,061			$	34,462			$	20,078
Licensing			5,258				5,840				14,143				15,708
Total Operating Income		$	12,725			$	13,901			$	48,605			$	35,786
Net Income Before Income Taxes
Product		$	5,573			$	6,548			$	27,208			$	14,852
Licensing			3,284				4,172				7,788				9,915
Total Net Income Before Income Taxes		$	8,857			$	10,720			$	34,996			$	24,767

 

19.	BENEFIT PLANS

The Company sponsors a qualified pension plan. The following table provides the components of net benefit cost for the plan during the three and nine months ended October 29, 2011 and October 30, 2010, respectively:

 

		Three Months Ended								Nine Months Ended
		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
		(in thousands)
Service cost		$	63			$	63			$	189			$	189
Interest cost			509				533				1,527				1,599
Expected return on plan assets			(544	)			(452	)			(1,632	)			(1,356	)
Amortization of net gain			4				12				12				36
Net periodic benefit cost		$	32			$	156			$	96			$	468

 

20.	FAIR VALUE MEASUREMENTS

Accounts receivable, accounts payable, accrued interest payable and accrued expenses. The carrying amounts reported in the balance sheets approximate fair value due to the short-term nature of these instruments.

Real estate mortgages. The carrying amounts of the real estate mortgages were approximately $25.9 million and $26.4 million at October 29, 2011 and January 29, 2011, respectively. The carrying values of the real estate mortgages at October 29, 2011 and January 29, 2011 approximate fair value since they were recently entered into and thus the interest rates approximate market.

Senior credit facility. The carrying amount of the senior credit facility approximates fair value due to the frequent resets of its floating interest rate.

Senior secured notes. The carrying amounts of the senior secured notes were approximately $150.0 million and $105.2 million at October 29, 2011 and January 29, 2011, respectively. As of October 29, 2011, the fair value of the 7⁷/₈% senior subordinated notes payable was approximately $151.5 million and as of January 29, 2011, the fair value of the 8⁷/ ₈% senior subordinated notes payable was approximately $106.3 million, based on quoted market prices.

 

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These estimated fair value amounts have been determined using available market information and appropriate valuation methods.

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and the levels of inputs used to measure fair value:

 

				Fair Value Measurements At January 29, 2011 Using
		Balance Sheet Location		Level 1				Level 2				Level 3				Total
				(in thousands)
Liabilities:
Interest rate cap		Other current liabilities		$	—			$	546			$	—			$	546
Interest rate cap		Unearned revenues and other long term liabilities			—				1,286				—				1,286
Total liabilities at fair value				$	—			$	1,832			$	—			$	1,832

The interest rate cap agreement was terminated during March 2011; therefore no fair value measurements are reported as of October 29, 2011.

 

21.	CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Company and several of its subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed the senior subordinated notes on a joint and several basis. The following are condensed consolidating financial statements, which present, in separate columns: Perry Ellis International, Inc., (Parent Only), the Guarantors on a combined, or where appropriate, consolidated basis, and the Non-Guarantors on a consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of October 29, 2011 and January 29, 2011 and for the three and nine months ended October 29, 2011 and October 30, 2010. The combined Guarantors are 100% owned subsidiaries of Perry Ellis International, Inc., and have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. The Company has not presented separate financial statements and other disclosures concerning the combined Guarantors because management has determined that such information is not material to investors.

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)

AS OF OCTOBER 29, 2011

(amounts in thousands)

 

		Parent Only				Guarantors				Non- Guarantors				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	—			$	109			$	21,299			$	—			$	21,408
Accounts receivable, net			—				130,253				19,534				—				149,787
Intercompany receivable			208,981				—								(208,981	)			—
Inventories			—				175,161				25,138				—				200,299
Other current assets			—				32,148				6,013				(2,915	)			35,246
Total current assets			208,981				337,671				71,984				(211,896	)			406,740
Property and equipment, net			—				51,468				4,689				—				56,157
Intangible assets			—				218,944				40,726				—				259,670
Investment in subsidiaries			326,121				—				—				(326,121	)			—
Other assets			6,406				2,141				80				—				8,627
TOTAL		$	541,508			$	610,224			$	117,479			$	(538,017	)		$	731,194
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities		$	6,403			$	85,686			$	15,364			$	(5,418	)		$	102,035
Intercompany payable - Parent			—				163,076				47,254				(210,330	)			—
Total current liabilities			6,403				248,762				62,618				(215,748	)			102,035
Notes payable and senior credit facility			150,000				24,086				—				—				174,086
Other long-term liabilities			—				61,357				6,108				2,503				69,968
Total long-term liabilities			150,000				85,443				6,108				2,503				244,054
Total liabilities			156,403				334,205				68,726				(213,245	)			346,089
Equity			385,105				276,019				48,753				(324,772	)			385,105
TOTAL		$	541,508			$	610,224			$	117,479			$	(538,017	)		$	731,194

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)

AS OF JANUARY 29, 2011

(amounts in thousands)

 

		Parent Only				Guarantors				Non- Guarantors				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	—			$	—			$	19,174			$	(650	)		$	18,524
Restricted cash			—				9,369				—				—				9,369
Accounts receivable, net			—				72,765				56,769				—				129,534
Intercompany receivable			89,317				—				—				(89,317	)			—
Inventories			—				160,923				17,294				—				178,217
Other current assets			13,421				23,272				4,210				(13,487	)			27,416
Total current assets			102,738				266,329				97,447				(103,454	)			363,060
Property and equipment, net			—				51,303				3,774				—				55,077
Intangible assets			—				219,047				43,600				—				262,647
Investment in subsidiaries			302,387				—				—				(302,387	)			—
Other assets			3,036				1,839				71				—				4,946
TOTAL		$	408,161			$	538,518			$	144,892			$	(405,841	)		$	685,730
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities		$	—			$	114,685			$	14,677			$	(16,640	)		$	112,722
Intercompany payable - Parent			—				8,114				82,591				(90,705	)			—
Total current liabilities			—				122,799				97,268				(107,345	)			112,722
Notes payable and senior credit facility			105,221				97,342				—				—				202,563
Other long-term liabilities			—				58,022				6,980				2,503				67,505
Total long-term liabilities			105,221				155,364				6,980				2,503				270,068
Total liabilities			105,221				278,163				104,248				(104,842	)			382,790
Equity			302,940				260,355				40,644				(300,999	)			302,940
TOTAL		$	408,161			$	538,518			$	144,892			$	(405,841	)		$	685,730

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED OCTOBER 29, 2011

(amounts in thousands)

 

		Parent Only				Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenue		$	—			$	218,905			$	29,515			$	—			$	248,420
Gross profit			—				68,774				13,676				—				82,450
Operating income			—				10,922				1,803				—				12,725
Interest and income taxes			—				6,165				51				—				6,216
Equity in earnings of subsidiaries, net			6,509				—				—				(6,509	)			—
Net income attributable to Perry Ellis International, Inc.			6,509				4,757				1,752				(6,509	)			6,509

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED OCTOBER 30, 2010

(amounts in thousands)

 

		Parent Only				Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenue		$	—			$	175,414			$	25,863			$	—			$	201,277
Gross profit			—				59,912				11,675				—				71,587
Operating income			—				11,263				2,638				—				13,901
Interest, noncontrolling interest and income taxes			22				7,237				(533	)			—				6,726
Equity in earnings of subsidiaries, net			7,197				—				—				(7,197	)			—
Net income attributable to Perry Ellis International, Inc.			7,175				4,026				3,171				(7,197	)			7,175

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)

FOR THE NINE MONTHS ENDED OCTOBER 29, 2011

(amounts in thousands)

 

		Parent Only				Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenue		$	—			$	665,204			$	85,940			$	—			$	751,144
Gross profit			—				210,826				40,862				—				251,688
Operating income			—				40,476				8,129				—				48,605
Costs on early extinguishment of debt			—				1,306				—				—				1,306
Interest and income taxes			—				23,513				52				—				23,565
Equity in earnings of subsidiaries, net			23,734				—				—				(23,734	)			—
Net income attributable to Perry Ellis International, Inc.			23,734				15,657				8,077				(23,734	)			23,734

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)

FOR THE NINE MONTHS ENDED OCTOBER 30, 2010

(amounts in thousands)

 

		Parent Only				Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenue		$	—			$	513,527			$	69,853			$	—			$	583,380
Gross profit			—				175,844				32,640				—				208,484
Operating income			—				31,553				4,233				—				35,786
Costs on early extinguishment of debt			—				730				—				—				730
Interest, noncontrolling interest and income taxes			25				20,035				(1,405	)			—				18,655
Equity in earnings of subsidiaries, net			16,426				—				—				(16,426	)			—
Net income attributable to Perry Ellis International, Inc.			16,401				10,788				5,638				(16,426	)			16,401

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED OCTOBER 29, 2011

(amounts in thousands)

 

		Parent Only				Guarantors				Non- Guarantors				Eliminations				Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		$	25,085			$	(80,788	)		$	36,041			$	650			$	(19,012	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			—				(7,981	)			(1,567	)			—				(9,548	)
Proceeds on sale of intangible assets			—				—				2,875				—				2,875
Payment on purchase of intangible assets			—				(535	)			—				—				(535	)
Payment on purchase of operating leases			—				(904	)			—				—				(904	)
Redemption of restricted funds as collateral			—				9,369				—				—				9,369
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES			—				(51	)			1,308				—				1,257
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility			—				303,013				—				—				303,013
Payments on senior credit facility			—				(376,269	)			—				—				(376,269	)
Payments on senior subordinated notes			(105,792	)			—				—				—				(105,792	)
Payments on real estate mortgages			—				(381	)			—				—				(381	)
Deferred financing fees			—				(103	)			—				—				(103	)
Proceeds from issuance of senior subordinated notes			150,000				—				—				—				150,000
Debt issuance costs			(3,504	)			—				—				—				(3,504	)
Payments on capital leases			—				(281	)			—				—				(281	)
Proceeds from issuance of common stock			56,000				—				—				—				56,000
Stock issuance costs			(3,074	)			—				—				—				(3,074	)
Tax benefit from exercise of stock options			456				—				—				—				456
Proceeds from exercise of stock options			454				—				—				—				454
Intercompany transactions			(119,745	)			154,969				(35,344	)			120				—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(25,205	)			80,948				(35,344	)			120				20,519
Effect of exchange rate changes on cash and cash equivalents			120				—				120				(120	)			120
Net increase in cash and cash equivalents			—				109				2,125				650				2,884
Cash and cash equivalents at beginning of period			—				—				19,174				(650	)			18,524
Cash and cash equivalents at end of period		$	—			$	109			$	21,299			$	—			$	21,408

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED OCTOBER 30, 2010

(amounts in thousands)

 

		Parent Only				Guarantors				Non- Guarantors				Eliminations				Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		$	13,747			$	21,356			$	(8,074	)		$	(3,181	)		$	23,848
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(1,739	)			(2,212	)			(639	)			—				(4,590	)
NET CASH USED IN INVESTING ACTIVITIES			(1,739	)			(2,212	)			(639	)			—				(4,590	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on senior credit facility			—				403,365				—				—				403,365
Borrowings from senior credit facility			—				(403,365	)			—				—				(403,365	)
Payments on senior subordinated notes			(454	)			(25,000	)			—				—				(25,454	)
Deferred financing fees			—				(158	)			—				—				(158	)
Proceeds from real estate mortgage			—				13,000				—				—				13,000
Payments on real estate mortgage			—				(11,073	)			—				—				(11,073	)
Payments on capital leases			(215	)			—				—				—				(215	)
Proceeds from exercise of stock options			2,428				—				—				—				2,428
Tax benefit from exercise of stock options			2,209				—				—				—				2,209
Payment of noncontrolling interest			—				—				(4,557	)			—				(4,557	)
Intercompany transactions			(15,960	)			(1,090	)			15,179				1,871				—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(11,992	)			(24,321	)			10,622				1,871				(23,820	)
Effect of exchange rate changes on cash and cash equivalents			(16	)			—				(119	)			119				(16	)
Net increase in cash and cash equivalents			—				(5,177	)			1,790				(1,191	)			(4,578	)
Cash and cash equivalents at beginning of period			—				8,313				12,459				(2,503	)			18,269
Cash and cash equivalents at end of period		$	—			$	3,136			$	14,249			$	(3,694	)		$	13,691

22. SUBSEQUENT EVENTS

Pursuant to FASB ASC TOPIC 855 - “Subsequent Events,” the Company evaluated subsequent events through the date the financial statements were issued for potential recognition or disclosure in the condensed consolidated financial statements.

On December 2, 2011, the Company amended its senior credit facility (“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 amends and restates the Company’s existing senior credit facility. The senior credit facility provides a revolving credit facility of up to an aggregate amount of $125 million, subject to increases from time to time in increments of $25 million to a maximum of $200 million. The senior credit facility has a five-year term which expires December 2, 2016.

Interest on the outstanding principal balance drawn under the Credit Facility accrues, at the Company’s option, at either (a) the greater of the Agent’s prime lending rate plus a margin of 1.25% per year through March 31, 2012, provided such margin shall be adjusted quarterly thereafter, or the Federal Funds rate in effect on such day plus one half of one percent (.50%); or (b) the rate quoted by the Agent as the Eurodollar Rate for one-, two- or three-month Eurodollar deposits, as selected by the Company, plus a margin of 2.25% per year through March 31, 2012. Thereafter, the margin adjusts quarterly, in a range of 1.75% to 2.50%, based on the Company’s quarterly average of excess availability and cash.

In November 2011, the Board of Directors extended and increased the stock repurchase program, which now authorizes the Company to repurchase up to $40 million of its common stock for cash over the next twelve months. Although the Board of Directors allocated a maximum of $40 million to carry out the program, the Company is not obligated to purchase any specific number of outstanding shares, and will reevaluate the program on an ongoing basis. Total purchases under this plan, since inception, have amounted to $17.4 million through the third quarter of fiscal 2012.

Subsequent to October 29, 2011, the Company purchased 940,200 shares as of December 6, 2011, at a cost of $12.9 million, bringing the total purchases under the plan to $30.3 million.

 

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

Unless the context otherwise requires, all references to “Perry Ellis,” the “Company,” “we,” “us” or “our” include Perry Ellis International, Inc. and its subsidiaries. This management’s discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended January 29, 2011.

Forward–Looking Statements

We caution readers that this report includes “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations rather than historical facts and they are indicated by words or phrases such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” or “will” or the negative thereof or other variations thereon and similar words or phrases or comparable terminology. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control. Some of the factors that could affect our financial performance, cause actual results to differ from our estimates, or underlie such forward-looking statements, are set forth in various places in this report. These factors include, but are not limited to:

 

•

general economic conditions,

 

•

a significant decrease in business from or loss of any of our major customers or programs,

 

•

anticipated and unanticipated trends and conditions in our industry, including the impact of recent or future retail and wholesale consolidation,

 

•

recent and future economic conditions, including turmoil in the financial and credit markets,

 

•

the effectiveness of our planned advertising, marketing and promotional campaigns,

 

•

our ability to contain costs,

 

•

disruptions in the supply chain,

 

•

our future capital needs and our ability to obtain financing,

 

•

our ability to protect our trademarks,

 

•

our ability to integrate acquired businesses, trademarks, tradenames and licenses,

 

•

our ability to predict consumer preferences and changes in fashion trends and consumer acceptance of both new designs and newly introduced products,

 

•

the termination or non-renewal of any material license agreements to which we are a party,

 

•

changes in the costs of raw materials, labor and advertising,

 

•

our ability to carry out growth strategies including expansion in international and direct to consumer retail markets,

 

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•

the level of consumer spending for apparel and other merchandise,

 

•

our ability to compete,

 

•

exposure to foreign currency risk and interest rate risk,

 

•

possible disruption in commercial activities due to terrorist activity and armed conflict, and

 

•

other factors set forth in this report and in our other Securities and Exchange Commission (“SEC”) filings.

You are cautioned that all forward-looking statements involve risks and uncertainties, detailed in our filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.

Critical Accounting Policies

Included in the footnotes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended January 29, 2011 is a summary of all significant accounting policies used in the preparation of our consolidated financial statements. We follow the accounting methods and practices as required by accounting principles generally accepted in the United States of America (“GAAP”). In particular, our critical accounting policies and areas in which we use judgment are in the areas of revenue recognition, the estimated collectability of accounts receivable, the recoverability of obsolete or overstocked inventory, the impairment of long-lived assets that are our trademarks, the recoverability of deferred tax assets, the measurement of retirement related benefits and stock-based compensation. We believe that there have been no significant changes to our critical accounting policies during the three and nine months ended October 29, 2011 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended January 29, 2011.

Results of Operations

The following is a discussion of the results of operations for the three and nine month periods of the fiscal year ending January 28, 2012 (“fiscal 2012”) compared with the three and nine month periods of the fiscal year ended January 29, 2011 (“fiscal 2011”).

Results of Operations - three and nine months ended October 29, 2011 compared to the three and nine months ended October 30, 2010.

Net sales. Net sales for the three months ended October 29, 2011 were $242.1 million, an increase of $47.2 million, or 24.2%, from $194.9 million for the three months ended October 30, 2010. Net sales increased due to the addition of the Rafaella business, which accounted for $38.4 million of the increase. Additional increases came from golf, accessories, women’s dresses under Laundry by Shelli Segal and in our direct-to-consumer business.

Net sales for the nine months ended October 29, 2011 were $733.5 million, an increase of $168.8 million, or 29.9%, from $564.7 million for the nine months ended October 30, 2010. Net sales increased due to the addition of the Rafaella business, which accounted for $100.2 million of the increase. Additional increases came from our golf and Hispanic lifestyles products, as well as from Laundry by Shelli Segal, international, direct-to-consumer business and other design brands.

Royalty income. Royalty income for the three months ended October 29, 2011 was $6.3 million, a decrease of $0.1 million, or 1.6%, from $6.4 million for the three months ended October 30, 2010. The decrease was primarily driven by the transition of our businesses in dress shirts, small leather goods, and Munsingwear corporate from licensing to wholesale, partially offset by royalty income from new license agreements including a fragrance license for Laundry by Shelli Segal.

 

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Royalty income for the nine months ended October 29, 2011 was $17.7 million, a decrease of $1.0 million, or 5.3%, from $18.7 million for the nine months ended October 30, 2010. The decrease is attributable to the factors described above.

Gross profit. Gross profit was $82.5 million for the three months ended October 29, 2011, an increase of $10.9 million, or 15.2%, from $71.6 million for the three months ended October 30, 2010. Gross profit was $251.7 million for the nine months ended October 29, 2011, an increase of $43.2 million, or 20.7%, as compared to $208.5 million for the nine months ended October 30, 2010.

Gross profit margin and EBITDA margin. As a percentage of total revenue, gross profit margins were 33.2% for the three months ended October 29, 2011, as compared to 35.6% for the three months ended October 30, 2010, a decrease of 240 basis points. The decrease in the gross profit margin was due to the lower margin associated with our women’s businesses including Rafaella. We also had unusually high levels of promotional activities in women’s better sportswear and product assortment challenges for both Rafaella and Perry Ellis. Additionally, the conversion of the licensed business to wholesale, as described above, caused the gross profit margin to decline due to the decrease of the higher margin licensing business as a percentage of total revenue mix. Those decreases were partially offset by higher gross margins in businesses such as direct-to-consumer and international which carry higher gross margins. For the nine months ended October 29, 2011, gross profit margins were 33.5% as a percentage of total revenue as compared to 35.7% for the nine months ended October 30, 2010, a decrease of 220 basis points. The decrease is related to the factors described above.

Wholesale gross profit margins (which exclude the impact of royalty income) were 31.5% for the three months ended October 29, 2011 as compared to 33.4% for the three months ended October 30, 2010. The wholesale gross profit margin percentages decreased for the nine months ended October 29, 2011, to 31.9% as compared to 33.6% for the nine months ended October 30, 2010. The decreases for the three and nine months ended October 29, 2011 were attributable to the factors described above.

EBITDA margin during the three months ended October 29, 2011, decreased by 190 basis points to 6.5%, from 8.4%, as compared to the same period last year. EBITDA margin declined due to the factors described above concerning gross profit margin. For the nine months ended October 29, 2011, we improved EBITDA margin by 10 basis points, which increased to 7.8%, as compared to 7.7% for the same period last year. We improved our EBITDA margin because of our ability to leverage selling, general and administrative expenses. For the three and nine months ended October 29, 2011, the new Rafaella business contributed approximately $4.5 million and $13.9 million, respectively, to EBITDA.

 

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The following is a reconciliation of EBITDA margin as compared to gross profit margin:

 

		Three Months Ended								Nine Months Ended
		October 29, 2011				October 30, 2010				October 29, 2011				October 30, 2010
Net income attributable to Perry Ellis International, Inc.		$	6,509			$	7,175			$	23,734			$	16,401
Plus:
Depreciation and amortization			3,369				2,973				9,982				9,110
Interest expense			3,868				3,181				12,303				10,289
Net income attributable to noncontrolling interest			—				138				—				400
Cost on early extinguishment of debt			—				—				1,306				730
Income tax provision			2,348				3,407				11,262				7,966
EBITDA		$	16,094			$	16,874			$	58,587			$	44,896
Gross profit		$	82,450			$	71,587			$	251,688			$	208,484
Less:
Selling, general and administrative expenses			(66,356	)			(54,713	)			(193,101	)			(163,588	)
EBITDA			16,094				16,874				58,587				44,896
Total revenues		$	248,420			$	201,277			$	751,144			$	583,380
Gross profit margin as a percentage of revenues			33.2	%			35.6	%			33.5	%			35.7	%
EBITDA margin percentage of revenues			6.5	%			8.4	%			7.8	%			7.7	%

EBITDA consists of earnings before interest, taxes, depreciation, amortization, cost on early extinguishment of debt and noncontrolling interest. 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. EBITDA and EBITDA margin are presented solely as a supplemental disclosure because management believes that they are a common measure of operating performance in the apparel industry.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended October 29, 2011 were $66.4 million, an increase of $11.7 million, or 21.4%, from $54.7 million for the three months ended October 30, 2010. The increase was attributable to the new Rafaella business, which accounted for approximately $4.4 million of the increase. Other increases were attributable to marketing and product support, as well as business investments both domestic and internationally.

As a percentage of total revenues, selling, general and administrative expenses were 26.7% for the three months ended October 29, 2011, as compared to 27.2% for the three months ended October 30, 2010. This decrease was primarily due to the leverage we achieved through our increased sales both organically and through the Rafaella acquisition.

Selling, general and administrative expenses for the nine months ended October 29, 2011, was $193.1 million, an increase of $29.5 million, or 18.0%, from $163.6 million for the nine months ended October 30, 2010. The increase was attributable to the new Rafaella business, which accounted for approximately $12.9 million of the increase. Other increases were attributable to distribution costs, due to our increase in sales and increases in advertising and marketing expenditures.

As a percentage of total revenues, selling, general and administrative expenses were 25.7% for the nine months ended October 29, 2011, as compared to 28.0% for the nine months ended October 30, 2010. This decrease was primarily due to the factors explained above.

Depreciation and amortization. Depreciation and amortization for the three months ended October 29, 2011, was $3.4 million, an increase of $0.4 million, or 13.3%, from $3.0 million for the three months ended October 30, 2010. Depreciation and amortization for the nine months ended October 29, 2011 was $10.0 million, an increase of $0.9 million, or 9.9%, from $9.1 million for the nine months ended October 30, 2010. The increase is attributed to our capital expenditures, primarily in the direct-to-consumer area.

 

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Costs on early extinguishment of debt. During the first quarter of fiscal 2012, we retired our 8 ⁷/8% senior subordinated notes payable in the amount of $104.3 million with the proceeds of our new 7 ⁷/8% senior subordinated notes due 2019. In connection with this retirement, we paid an additional $1.5 million in fees and premiums. We wrote-off approximately $853,000 in unamortized discount and bond fees associated with the 8 ⁷/8% senior subordinated notes. Additionally, we wrote off the remaining premium that was associated with the termination of the swap that occurred during fiscal 2011 in the amount of $1.1 million. The 8 ⁷/8% senior subordinated notes were scheduled to mature on September 15, 2013. During fiscal 2011, we retired $25.0 million of our 8 ⁷/8% senior subordinated notes payable. In connection with this retirement, we paid an additional $453,000 in fees and premiums. Additionally we wrote-off approximately $277,000 in unamortized discount and bond fees associated with the retired portion of the 8 ⁷/8% senior subordinated notes.

Interest expense. Interest expense for the three months ended October 29, 2011 was $3.9 million, an increase of $0.7 million, or 21.9%, from $3.2 million for the three months ended October 30, 2010. The overall increase in interest expense is primarily attributable to the higher balance of our 7 ⁷/8% senior subordinated notes and the higher average balance on our senior credit facility, primarily due to the financing of the acquisition of Rafaella. Interest expense for the nine months ended October 29, 2011, was $12.3 million, an increase of $2.0 million, or 19.4%, from $10.3 million for the nine months ended October 30, 2010. In addition to the factors described above, the 8 ⁷/8% senior subordinated notes and the 7 ⁷/8% senior subordinated notes were outstanding simultaneously for about one month during the nine months ended October 29, 2011, causing us to have approximately $0.7 million in redundant interest expense.

Income taxes. The income tax provision for the three months ended October 29, 2011, was $2.3 million, a decrease of $1.1 million as compared to $3.4 million for the three months ended October 30, 2010. For the three months ended October 29, 2011, our effective tax rate was 26.5% as compared to 31.8% for the three months ended October 30, 2010. The primary reason for the decrease in the effective rate was due to the change in ratio of income between domestic and foreign operations, of which the foreign operations are taxed at lower statutory tax rates.

Our income tax provision for the nine months ended October 29, 2011, was $11.3 million, a $3.3 million increase as compared to $8.0 million for the nine months ended October 30, 2010. For the nine months ended October 29, 2011, our effective tax rate was 32.2% which remained flat as compared to the nine months ended October 30, 2010.

Net income attributable to Perry Ellis International, Inc. The net income for the three months ended October 29, 2011 was $6.5 million, a decrease of $0.7 million, or 9.7%, as compared to $7.2 million for the three months ended October 30, 2010. Net income attributable to Perry Ellis International, Inc. for the nine months ended October 29, 2011 was $23.7 million, an increase of $7.3 million, or 44.5%, as compared to net income of $16.4 million for the nine months ended October 30, 2010. The changes in operating results were due to the items described above.

Liquidity and Capital Resources

We rely principally on cash flow from operations and borrowings under our senior credit facility to finance our operations, acquisitions and capital expenditures; and to a lesser extent, on letter of credit facilities for the acquisition of a small portion of our inventory purchases. We believe that as a result of our recent acquisition of Rafaella and our planned growth, our working capital requirements will increase for fiscal 2012. As of October 29, 2011, our total working capital was $304.7 million as compared to $250.3 million as of January 29, 2011 and $200.4 million as of October 30, 2010. During the third quarter of fiscal 2011, a $3.6 million letter of credit facility was cancelled in connection with the termination of our Canadian joint venture. We have shifted most of our inventory financing strategy from relying on letter of credit facilities to direct trade terms with our vendors, and as such, we did not need the excess capacity provided by these letter of credit facilities. We believe that our cash flows from operations and availability under our senior credit facility and remaining letter of credit facilities are sufficient to meet our working capital needs. We also believe that our real estate assets, which had a net book value of $24.1 million at October 29, 2011, have a higher market value. These real estate assets may provide us with

 

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additional capital resources. Additional borrowings against these real estate assets, however would be subject to certain loan to value criteria established by lending institutions. As of October 29, 2011, we had mortgage loans on these properties totaling $25.9 million.

During March 2011, we sold 2.0 million shares of our common stock at a price to the public of $28.00 per share resulting in net proceeds to us after offering expenses of $52.9 million. We used the net proceeds from the common stock offering to repay a portion of the amounts outstanding under our senior credit facility.

Additionally, in March 2011, we sold $150 million in aggregate principal amount of our 7 ⁷/8% Senior Subordinated Notes Due 2019 at a price to the public of 100.00% of par, an underwriting discount of 2.0% and other transaction costs, resulting in aggregate net proceeds to us of $146.5 million. We used the net proceeds of the senior subordinated notes offering first to redeem our outstanding 8  ⁷/8% Senior Subordinated Notes due 2013 at a redemption price of 101.4792% of the outstanding principal amount, plus accrued and unpaid interest, and the remaining net proceeds to repay a portion of the amounts outstanding under our senior credit facility.

Net cash used in operating activities was $19.0 million for the nine months ended October 29, 2011, as compared to cash provided by operating activities of $23.8 million for the nine months ended October 31, 2010.

The cash used in operating activities for the nine months ended October 29, 2011 is primarily attributable to an increase in inventory of $22.1 million, an increase in account receivable of $20.4 million and an increase in in other current assets and prepaid income taxes of $3.4 million, a decrease in accounts payable and accrued expenses of $8.2 million; offset by net income of $21.4 million. As a result of this increase in inventory and the inventory acquired through the Rafaella acquisition in January 2011, our inventory turnover ratio decreased to 3.3 as of October 29, 2011, as compared to 4.4 as of October 30, 2010.

The cash provided by operating activities for the nine months ended October 30, 2010 is primarily attributable to a decrease in accounts receivable of $21.9 million and a decrease in other current assets and prepaid income taxes of $6.9 million; offset by an increase of $16.1 million in inventory, the reduction of account payable, accrued expenses and other liabilities in the amount of $10.4 million and the decrease of unearned revenues and other liabilities of $3.8 million.

Net cash provided by investing activities was $1.3 million for the nine months ended October 29, 2011, as compared to cash used in investing activities of $4.6 million for the nine months ended October 30, 2010. The net cash provided by the first nine months of fiscal 2012 primarily reflects the redemption of restricted cash collateralizing letters of credit in the amount of $9.4 million acquired in the Rafaella acquisition and the proceeds from the sale of certain foreign intangibles in the amount of $2.9 million; partially offset by the purchase of property and equipment in the amount of $9.5 million. The net cash used during the first nine months of fiscal 2011 primarily reflects the purchase of property and equipment in the amount of $4.6 million. We anticipate capital expenditures during fiscal 2012 of $11.0 million to $13.0 million in technology, systems, retail stores, and other expenditures.

Net cash provided by financing activities for the nine months ended October 29, 2011, was $20.5 million, as compared to net cash used in financing activities of $23.8 million for the nine months ended October 30, 2010. The net cash provided during the first nine months of fiscal 2012 primarily reflects net proceeds from the issuance of our new 7 ⁷/8% senior subordinated notes in the amount of $146.5 million and the net proceeds from our stock offering in the amount of $52.9 million; partially offset by net payments on our senior credit facility of $73.3 million and the retirement of our 8 ⁷/8% senior subordinated notes in the amount of $105.8 million, including redemption premiums and commissions of $1.5 million. The net cash used during the first nine months of fiscal 2011 primarily reflects the repurchase of senior subordinated notes in the amount of $25.5 million, including redemption premiums and commissions of $0.5 million, the payment for the noncontrolling interest in our Canadian joint venture of $4.6 million and the payment of $11.3 million on our mortgages and capital leases; partially offset by proceeds from our mortgage loan in the amount of $13.0 million.

 

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During fiscal 2010, our Board of Directors authorized us to purchase, from time to time and as market and business conditions warrant, our 8 ⁷/8% senior subordinated notes for cash in the open market or in privately negotiated transactions. The amount of senior subordinated notes that could be repurchased or otherwise retired, if any, would be based on parameters approved by the Board of Directors and would depend on market conditions, trading levels of our senior subordinated notes, our cash position and other considerations. During fiscal 2011, we repurchased $25.0 million. On March 8, 2011, the 8 ⁷/8% senior subordinated notes in the amount of $104.3 million due September 15, 2013 were called and subsequently retired from the proceeds of our newly issued 7  ⁷/8% Senior Subordinated Notes Due 2019.

In November 2011, the Board of Directors extended and increased the stock repurchase program, which now authorizes us to repurchase up to $40 million of our common stock for cash over the next twelve months. Although the Board of Directors allocated a maximum of $40 million to carry out the program, we are not obligated to purchase any specific number of outstanding shares, and will reevaluate the program on an ongoing basis. Total purchases under this plan, since inception, have amounted to $17.4 million through the third quarter of fiscal 2012. In September 2011, the Board of Directors authorized the retirement of these 2,462,196 shares of treasury stock which were recorded at a cost of approximately $17.4 million.

Subsequent to October 29, 2011, we purchased 940,200 shares as of December 6, 2011, at a cost of $12.9 million, bringing the total purchases under the plan to $30.3 million.

Senior Credit Facility

Effective March 31, 2010, we entered into an amendment to our senior credit facility. This amendment modified the senior credit facility to permit the sale of all present and future accounts receivable due from Kohl’s to Bank of America, N. A.

The following is a description of the terms of our senior credit facility with Wachovia Bank, National Association, et al, as amended, and does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the senior credit facility: (i) the maximum line is up to $150 million with the opportunity to increase this amount in $25 million increments up to $200 million; (ii) the inventory borrowing limit is $90 million or 60% of the maximum line; (iii) the sublimit for letters of credit is up to $40 million; (iv) the amount of letter of credit facilities allowed outside of the facility is $110 million and (v) the outstanding balance was due at the maturity date of February 1, 2012. As of October 29, 2011 and January 29, 2011 we had $24.1 million and $97.3 million of outstanding borrowings under the senior credit facility, respectively.

Certain Covenants. The senior credit facility contains certain covenants, which, among other things, require us to maintain a minimum adjusted EBITDA (“Senior Credit Facility Adjusted EBITDA”), as defined in the senior credit facility (as opposed to the definition of EBITDA used by us for other purposes), if availability falls below a certain threshold. These covenants may restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in certain circumstances, redeem or repurchase capital stock, make certain investments, or sell assets. We are prohibited from paying cash dividends under these covenants. We are not aware of any non-compliance with any of our covenants under the senior credit facility. We could be materially harmed if we violate any covenants as the lenders under the senior credit facility could declare all amounts outstanding thereunder, 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. In addition, a violation could also constitute a cross-default under the indenture, 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.

Borrowing Base. Borrowings under our senior credit facility are limited under its terms to a borrowing base calculation, which generally restricts the outstanding balances to the lesser of either (1) the sum of (a) 85.0% of eligible receivables plus (b) 85.0% of eligible factored accounts receivables up to $10.0 million plus (c) the lesser of (i) the inventory loan limit of $90 million or up to 60% of the maximum line, or (ii) the lesser of (A) 65.0% of eligible finished goods inventory, or (B) 85.0% of the net recovery percentage (as defined in the senior credit facility) of eligible inventory, or (2) the loan limit; and in each case minus (x) 35.0% of the amount of outstanding letters of credit for eligible inventory, (y) the full amount of all other outstanding letters of credit issued pursuant to the senior credit facility which are not fully secured by cash collateral, and (z) licensing reserves for which we are the licensee of certain branded products.

 

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Interest. Interest on the principal balance under our senior credit facility accrues, at our option, at either (a) the greater of Wachovia’s prime lending rate or the Federal Funds rate; plus  ¹/2 % plus a margin spread of 100 to 175 basis points based upon the sum of our quarterly average excess availability plus excess cash for the immediately preceding fiscal quarter, at the time of borrowing or (b) the rate quoted by Wachovia as the average monthly Eurodollar Rate for 1-month Eurodollar deposits plus a margin spread of 200 to 275 basis points based upon the sum of our quarterly average excess availability plus excess cash for the immediately preceding fiscal quarter, at the time of borrowing.

Security. As security for the indebtedness under the senior credit facility, we granted the lenders a first priority security interest in substantially all of our existing and future assets other than our trademark portfolio and real estate owned, 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.

On December 2, 2011, we amended our senior credit facility (“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 amends and restates our existing senior credit facility. The senior credit facility provides a revolving credit facility of up to an aggregate amount of $125 million, subject to increases from time to time in increments of $25 million to a maximum of $200 million. The senior credit facility has a five-year term which expires December 2, 2016.

Interest on the outstanding principal balance drawn under the Credit Facility accrues, at our option, at either (a) the greater of the Agent’s prime lending rate plus a margin of 1.25% per year through March 31, 2012, provided such margin shall be adjusted quarterly thereafter, or the Federal Funds rate in effect on such day plus one half of one percent (.50%); or (b) the rate quoted by the Agent as the Eurodollar Rate for one-, two- or three-month Eurodollar deposits, as selected by us, plus a margin of 2.25% per year through March 31, 2012. Thereafter, the margin adjusts quarterly, in a range of 1.75% to 2.50%, based on the Company’s quarterly average of excess availability and cash.

Letter of Credit Facilities

As of October 29, 2011 we maintained two U.S. dollar letter of credit facilities totaling $55.0 million and one letter of credit facility totaling $1.0 million utilized by our United Kingdom subsidiary. Each 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. We increased one letter credit from $10.0 million to $15.0 million during the third quarter of fiscal 2012. As of October 29, 2011, there was $51.3 million available under the existing letter of credit facilities.

Additionally, we assumed certain letters of credit in the amount of $9.4 million in connection with the acquisition of certain net assets from Rafaella Apparel Group, Inc. These letters of credit were fully collateralized by restricted cash and expired during fiscal 2012. As of October 29, 2011, there was no balance related to these letters of credit and as of January 29, 2011, there was a balance of $9.4 million.

7  ⁷/8% $150 Million Senior Subordinated Notes Payable

In March 2011, we issued $150 million 7 ⁷/8% senior subordinated notes due April 1, 2019. The proceeds of this offering were used to retire the $150 million senior subordinated notes due September 15, 2013 and to repay a portion of the senior credit facility. The net proceeds to us were $146.5 million yielding an effective interest rate of 8.0%.

Certain Covenants. The indenture governing the senior subordinated notes contains certain covenants which restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in certain circumstances, pay dividends or make other distributions on, redeem or repurchase capital stock, make investments or other restricted payments, create liens on assets to secure debt, engage in transactions with affiliates, and effect a consolidation or merger. We are not aware of any non-compliance with any of our covenants in this indenture. We could be materially harmed if we violate any covenants because the indenture’s trustee could declare the outstanding notes, together with accrued interest, to be immediately due and payable, which we may not be able to satisfy. In addition, a violation could also constitute a cross-default under the senior credit facility, the letter of credit facilities and the real estate mortgages resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

8  ⁷/8% $150 Million Senior Subordinated Notes Payable

In fiscal 2004, we issued $150 million 8 ⁷/8% senior subordinated notes due September 15, 2013. The proceeds of this offering were used to redeem the previously issued $100 million 12 ¹/4 % senior subordinated notes and to pay down the outstanding balance of the senior credit facility at that time. The proceeds to us were $146.8 million yielding an effective interest rate of 9.1%.

During June 2010, we retired $25.0 million of our senior subordinated notes payable. In connection with this retirement, we paid an additional $453,000 in redemption premiums and commissions. Additionally, we wrote-off approximately $277,000 in unamortized discount and bond fees associated with the retired portion of our senior subordinated notes.

 

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On March 8, 2011, the senior subordinated notes due September 15, 2013 were called and subsequently retired by the issuance of new notes more fully described herein. In connection with the call, we incurred an early call premium of $1.5 million. We also wrote-off the remaining unamortized discount, premium associated with the terminated swap and bond fees associated with the senior subordinated notes in the net amount of ($0.2) million.

Real Estate Mortgage Loans

Our main administrative office, warehouse and distribution facility is a 240,000 square foot facility in Miami, Florida. The facility was partially financed with an $11.6 million real estate mortgage loan which was paid off during July 2010.

In July 2010, we refinanced our main administrative office, warehouse and distribution facility in Miami with a $13.0 million mortgage loan. The loan is due on August 1, 2020. Principal and interest of $83,000 were due monthly based on a 25 year amortization with the outstanding principal due at maturity. Interest was fixed at 5.80%. The real estate mortgage loan contains certain covenants. We are not aware of any non-compliance with any of our covenants. If we violate any covenants, the lender under the real estate mortgage loan could declare all amounts outstanding thereunder to be immediately due and payable, which we may not be able to satisfy. In October 2011, we refinanced the mortgage loan. The interest rate was reduced to 5.00% per annum and the terms were restated to reflect new monthly payments of principal and interest of $77,000 based on a 25 year amortization with the outstanding principal due at maturity. At October 29, 2011, the balance of the real estate mortgage loan totaled $12.5 million, net of discount, of which $282,000 is due within one year.

In June 2006, we entered into a mortgage loan for $15 million secured by our Tampa facility. The loan is due on June 7, 2016. Principal and interest of $297,000 were due quarterly based on a 20 year amortization with the outstanding principal due at maturity. Interest was set at 6.25% for the first five years, at which point it would have reset based on the terms and conditions of the promissory note. In June 2010, we negotiated with the bank to accelerate the rate reset that was scheduled to occur in June 2011, and the interest rate was reduced to 5.75% per annum, among other changes to the loan. In October 2011, we refinanced this loan again. The interest rate was reduced to 4.95% per annum and the terms were restated to reflect new quarterly payments of principal and interest of $268,000, based on a 20 year amortization with the outstanding principal due at maturity. At October 29, 2011, the balance of the real estate mortgage loan totaled $13.5 million, net of discount, of which $397,000 is due within one year.

The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of our covenants. If we violate any covenants, the lenders 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. In addition, a covenant violation could constitute a cross-default under our senior credit facility, the letter of credit facilities and indenture relating to our senior subordinated notes resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

Off-Balance Sheet Arrangements

We are not a party to any “off-balance sheet arrangements” as defined by applicable GAAP and SEC rules.

Effects of Inflation and Foreign Currency Fluctuations

We do not believe that inflation or foreign currency fluctuations significantly affected our results of operations for the three and nine months ended October 29, 2011.

 

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Item 3: Quantitative and Qualitative Disclosures about Market Risks

The market risk inherent in our financial statements represents the potential changes in the fair value, earnings or cash flows arising from changes in interest rates. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposure, including interest rate exposure.

Derivatives on $150 Million Senior Subordinated Notes Payable

In August 2009, we entered into an interest rate swap agreement (the “Swap Agreement”) for an aggregate notional amount of $75 million in order to reduce our debt servicing costs associated with our $150 million 8 ⁷/8% senior subordinated notes. The Swap Agreement was scheduled to terminate on September 15, 2013. Under the Swap Agreement, we were entitled to receive semi-annual interest payments on September 15 and March 15 at a fixed rate of 8 ⁷/8% and were obligated to make semi-annual interest payments on September 15 and March 15 at a floating rate based on the one-month LIBOR rate plus 632 basis points for the period through September 15, 2013. The Swap Agreement had an optional call provision that allowed the counterparty to settle the Swap Agreement at any time with 30 days notice and subject to declining termination premium payments from the counterparty in the event the call was exercised. The Swap Agreement was a fair value hedge as it had been designated against the 8 ⁷/8% senior subordinated notes carrying a fixed rate of interest and converted the fixed interest payments to variable interest payments.

During August 2010, we were notified by the counterparty that it would by exercising the optional call provision and effectively terminating the Swap Agreement in September 2010. As per the terms of the call provision, we received $1.1 million, the fair value of the swap as of the termination date. The fair value of the hedge at the termination date was amortized over the remaining term of the senior subordinated notes payable.

The Swap Agreement resulted in a decrease to interest expense of $0.1 million and $1.3 million for the three and nine months ended October 30, 2010, respectively.

In August 2009, we entered into an interest rate cap agreement (the “$75 million Cap Agreement”) for an aggregate notional amount of $75 million associated with our senior subordinated notes. The $75 million Cap Agreement became effective on December 15, 2010. The $75 million Cap Agreement was being used to manage cash flow risk associated with our floating interest rate exposure pursuant to the Swap Agreement. The $75 million Cap Agreement limited the maximum interest rate on $75 million of our senior subordinated notes to 9.32%. The $75 million Cap Agreement did not qualify for hedge accounting treatment.

In connection with the redemption of the 8 ⁷/8% Senior Subordinated Notes Due 2013, we elected to terminate the $75 million Cap Agreement. We made a $1.6 million termination payment during March 2011.

The change in fair value resulted in an increase to interest expense of $0.2 million and $1.5 million for the three and nine months ended October 30, 2010, respectively. The change in fair value did not result in a material increase in interest expense during fiscal 2012. The fair value of the $75 million Cap Agreement recorded on our consolidated balance sheet was $1.8 million as of January 29, 2011.

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.

 

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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

Our current exposure to foreign exchange risk is not significant and accordingly, we have not entered into any transactions to hedge against those risks.

Item 4: Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) of the Securities Exchange Act. Based upon this evaluation, our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of October 29, 2011, in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

During the third quarter of fiscal 2012, the internal controls of the Rafaella operations were fully integrated into our current system of internal controls.

Other than the changes noted above there have been no other changes in our internal control over financial reporting during the quarter ended October 29, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II:

OTHER INFORMATION

 

Item 6.

Exhibits

Index to Exhibits

 

Exhibit Number		Exhibit Description		Where Filed
10.60		Amended and Restated Loan and Security Agreement dated December 2, 2011 among the Perry Ellis International, Inc., the subsidiaries named as Borrowers or Guarantors therein, the Lenders named therein, Wells Fargo Bank, National Association, as agent for the Lenders, and Bank of America, N.A., as syndication agent.		Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated December 6, 2011, as amended and restated, and incorporated herein by reference.
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 (1)		Filed herewith.
101.SCH		XBRL Taxonomy Extension Schema (1)		Filed herewith.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase (1)		Filed herewith.
101.LAB		XBRL Taxonomy Extension Label Linkbase (1)		Filed herewith.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase (1)		Filed herewith.

 

(1)

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		Perry Ellis International, Inc.
December 7, 2011				By: /S/ ANITA BRITT
				Anita Britt, Chief Financial Officer
				(Principal Financial Officer)

 

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Exhibit Index

 

Exhibit Number		Exhibit Description
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1		Certification of Principal Executive Officer pursuant to Section 1350
32.2		Certification of Principal Financial Officer pursuant to Section 1350
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 

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