XNAS:PERY Perry Ellis International Inc Quarterly Report 10-Q Filing - 4/28/2012

Effective Date 4/28/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the Quarterly Period Ended April 28, 2012

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 15,859,967 (as of May 31, 2012).

 

 

 


Table of Contents

PERRY ELLIS INTERNATIONAL, INC.

INDEX

 

     PAGE  

PART I: FINANCIAL INFORMATION

  

Item 1:

  

Condensed Consolidated Balance Sheets (Unaudited) as of April 28, 2012 and January 28, 2012

     1   

Condensed Consolidated Statements of Income (Unaudited) for the three months ended April  28, 2012 and April 30, 2011

     2   

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended April 28, 2012 and April 30, 2011

     3   

Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended April  28, 2012 and April 30, 2011

     4   

Notes to Unaudited Condensed Consolidated Financial Statements

     6   

Item 2:

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     18   

Item 3:

  

Quantitative and Qualitative Disclosures About Market Risks

     26   

Item 4:

  

Controls and Procedures

     27   

PART II: OTHER INFORMATION

     27   

Item 6:

  

Exhibits

     27   


Table of Contents

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share data)

 

     April 28,
2012
    January 28,
2012
 

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 28,471      $ 24,116   

Accounts receivable, net

     175,196        145,563   

Inventories

     167,200        198,264   

Deferred income taxes

     12,196        11,873   

Prepaid income taxes

     7,165        8,247   

Other current assets

     10,450        13,613   
  

 

 

   

 

 

 

Total current assets

     400,678        401,676   

Property and equipment, net

     54,801        56,496   

Other intangible assets, net

     248,995        242,634   

Goodwill

     13,794        13,794   

Other assets

     9,889        9,595   
  

 

 

   

 

 

 

TOTAL

   $ 728,157      $ 724,195   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current Liabilities:

    

Accounts payable

   $ 72,285      $ 80,253   

Accrued expenses and other liabilities

     16,158        15,879   

Accrued interest payable

     1,203        4,186   

Unearned revenues

     3,917        4,179   

Other current liabilities

     7,544        7,263   
  

 

 

   

 

 

 

Total current liabilities

     101,107        111,760   
  

 

 

   

 

 

 

Senior subordinated notes payable, net

     150,000        150,000   

Senior credit facility

     23,162        21,679   

Real estate mortgages

     24,943        25,114   

Deferred pension obligation

     16,858        17,326   

Unearned revenues and other long-term liabilities

     15,200        15,425   

Deferred income taxes

     18,553        16,396   
  

 

 

   

 

 

 

Total long-term liabilities

     248,716        245,940   
  

 

 

   

 

 

 

Total liabilities

     349,823        357,700   
  

 

 

   

 

 

 

Commitments 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; 16,900,761 shares issued and outstanding as of April 28, 2012 and 16,787,161 shares issued and outstanding as of January 28, 2012

     167        167   

Additional paid-in-capital

     162,408        160,997   

Retained earnings

     239,143        229,467   

Accumulated other comprehensive loss

     (7,426     (8,178
  

 

 

   

 

 

 

Total

     394,292        382,453   

Treasury stock at cost; 1,157,300 shares as of April 28, 2012 and January 28, 2012, respectively

     (15,958     (15,958
  

 

 

   

 

 

 

Total equity

     378,334        366,495   
  

 

 

   

 

 

 

TOTAL

   $ 728,157      $ 724,195   
  

 

 

   

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

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Table of Contents

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)

 

     Three Months Ended  
     April 28,      April 30,  
     2012      2011  

Revenues:

     

Net sales

   $ 259,016       $ 282,775   

Royalty income

     6,507         5,514   
  

 

 

    

 

 

 

Total revenues

     265,523         288,289   

Cost of sales

     177,783         191,319   
  

 

 

    

 

 

 

Gross profit

     87,740         96,970   
  

 

 

    

 

 

 

Operating expenses

     

Selling, general and administrative expenses

     66,347         63,375   

Depreciation and amortization

     3,418         3,189   
  

 

 

    

 

 

 

Total operating expenses

     69,765         66,564   
  

 

 

    

 

 

 

Operating income

     17,975         30,406   

Costs on early extinguishment of debt

     —           1,306   

Interest expense

     3,809         4,666   
  

 

 

    

 

 

 

Net income before income taxes

     14,166         24,434   

Income tax provision

     4,490         9,056   
  

 

 

    

 

 

 

Net income

     9,676         15,378   

Net income per share:

     

Basic

   $ 0.66       $ 1.07   
  

 

 

    

 

 

 

Diluted

   $ 0.64       $ 0.99   
  

 

 

    

 

 

 

Weighted average number of shares outstanding

     

Basic

     14,641         14,421   

Diluted

     15,177         15,538   

See Notes to Unaudited Condensed Consolidated Financial Statements

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(amounts in thousands)

 

     Three Months Ended  
     April 28,      April 30,  
     2012      2011  

Net income

   $ 9,676       $ 15,378   

Other Comprehensive income:

     

Foreign currency translation adjustments, net

     752         1,143   
  

 

 

    

 

 

 

Comprehensive income

   $ 10,428       $ 16,521   
  

 

 

    

 

 

 

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)

 

     Three Months Ended  
     April 28,     April 30,  
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 9,676      $ 15,378   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     3,308        3,162   

Provision for bad debts

     146        85   

Tax benefit from exercise of stock options

     (80     (175

Amortization of debt issue cost

     181        115   

Amortization of premiums and discounts

     12        (52

Deferred income taxes

     1,834        2,262   

Share based compensation

     1,186        1,359   

Change in fair value and settlement of derivatives

     —          (1,832

Costs on early extinguishment of debt

     —          1,306   

Changes in operating assets and liabilities:

    

Accounts receivable, net

     (29,479     (52,340

Inventories

     31,559        (2,821

Other current assets and prepaid income taxes

     (195     2,576   

Other assets

     (78     (577

Deferred pension obligation

     (469     (395

Accounts payable and accrued expenses

     (7,736     (2,535

Income taxes payable

     —          1,325   

Accrued interest payable

     (2,983     (1,669

Unearned revenues and other liabilities

     (216     560   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     6,666        (34,268
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of property and equipment

     (1,321     (2,045

Proceeds on sale of intangible assets

     —          2,875   

Payment on purchase of intangible assets

     (7,000     (500

Proceeds in connection with purchase price adjustment

     4,547        —     

Redemption of restricted funds as collateral

     —          7,372   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (3,774     7,702   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Borrowings from senior credit facility

     115,398        122,603   

Payments on senior credit facility

     (113,915     (187,431

Payments on real estate mortgages

     (173     (154

Proceeds from issuance of senior subordinate notes

     —          150,000   

Debt issuance costs

     —          (3,000

Payments on senior subordinate notes

     —          (105,792

Payments on capital leases

     (103     (88

Proceeds from exercise of stock options

     145        165   

Tax benefit from exercise of stock options

     80        175   

Proceeds from issuance of common stock

     —          56,000   

Stock issuance costs

     —          (2,800
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,432        29,678   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     31        92   
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     4,355        3,204   

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     24,116        18,524   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 28,471      $ 21,728   
  

 

 

   

 

 

 

 

Continued

 

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

 

     Three Months Ended  
     April 28,      April 30,  
     2012      2011  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

     

Cash paid during the period for:

     

Interest

   $ 6,780       $ 6,654   
  

 

 

    

 

 

 

Income taxes

   $ 796       $ 180   
  

 

 

    

 

 

 

NON-CASH FINANCING AND INVESTING ACTIVITIES:

     

Accrued purchases of property and equipment

   $ —         $ 129   
  

 

 

    

 

 

 

Capital lease financing

   $ —         $ 15   
  

 

 

    

 

 

 

Investment in joint venture

   $ 396       $ —     
  

 

 

    

 

 

 

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 28, 2012, filed with the Securities and Exchange Commission on April 12, 2012.

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

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” 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 adoption of ASU 2011-04 did not have a material impact on the Company’s results of operations or the Company’s financial position.

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.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 provides for additional disclosures of both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, and disclosures required by these amendments should be provided retrospectively for all comparative periods presented. The adoption of ASU No. 2011-11 did not have a material impact on the Company’s results of operations or its financial position.

 

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Table of Contents

3. ACQUISITIONS

Acquisition of Ben Hogan

On February 16, 2012, the Company acquired the world-wide intellectual property rights of the Ben Hogan family of brands from Callaway Golf Company for a purchase price of $7.0 million. The acquisition was financed through existing cash and borrowings under the Company’s existing senior credit facility. Ben Hogan brands are ideally positioned to strengthen the Company’s golf business within the Men’s Sportswear and Swim segment.

The purchase price of $7.0 million was comprised of tradenames, which have been identified as indefinite useful life assets and are not subject to amortization.

Pro forma information for the acquisition of Ben Hogan has not been provided as it is immaterial to the Company’s consolidated operations.

Acquisition of Rafaella

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.

At January 28, 2011, the initial consideration paid by the Company totaled $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. During the fourth quarter of fiscal 2012, the cash portion of the purchase price was adjusted as set forth in the Agreement based on a post-closing true-up of net working capital, which resulted in total adjusted cash paid by the Company totaling $75.4 million. The original cash paid was reduced by $4.5, and such amount was included as a receivable from the Sellers in other current assets in the consolidated balance sheet as of January 28, 2012. The $4.5 million was collected during the first quarter of fiscal 2013.

4. 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, and commissions to buying agents.

Inventories consisted of the following as of:

 

     April 28,      January 28,  
     2012      2012  
     (in thousands)  

Finished goods

   $ 165,073       $ 195,473   

Raw materials and in process

     2,127         2,791   
  

 

 

    

 

 

 

Total

   $ 167,200       $ 198,264   
  

 

 

    

 

 

 

 

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5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

 

     April 28,     January 28,  
     2012     2012  
     (in thousands)  

Furniture, fixture and equipment

   $ 92,160      $ 91,638   

Buildings

     19,532        19,525   

Vehicles

     902        902   

Leasehold improvements

     30,474        30,577   

Land

     9,210        9,210   
  

 

 

   

 

 

 

Total

     152,278        151,852   

Less: accumulated depreciation and amortization

     (97,477     (95,356
  

 

 

   

 

 

 

Total

   $ 54,801      $ 56,496   
  

 

 

   

 

 

 

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

 

     April 28,     January 28,  
     2012     2012  
     (in thousands)  

Furniture, fixture and equipment

   $ 1,093      $ 1,093   

Less: accumulated depreciation and amortization

     (1,013     (921
  

 

 

   

 

 

 

Total

   $ 80      $ 172   
  

 

 

   

 

 

 

For the three months ended April 28, 2012 and April 30, 2011, depreciation and amortization expense relating to property and equipment amounted to $3.1 million and $2.9 million, respectively, for each of the periods. These amounts include amortization expense for leased property under capital leases.

6. INTANGIBLE ASSETS

Trademarks

Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $241.8 million at April 28, 2012 and $235.2 million at January 28, 2012.

Other Intangible Assets

Other intangible assets represent customer lists as of:

 

     April 28,
2012
    January 28,
2012
 
     (in thousands)  

Customer lists

   $ 8,450      $ 8,450   

Less: accumulated amortization

     (1,215     (972
  

 

 

   

 

 

 

Total

   $ 7,235      $ 7,478   
  

 

 

   

 

 

 

For the three months ended April 28, 2012 and April 30, 2011, amortization expense relating to customer lists amounted to approximately $0.2 million, respectively, for each of the periods.

7. INVESTMENT IN JOINT VENTURE

On April 20, 2012, the Company formed a joint venture, Manhattan China Limited, with China Outfitters Holdings Limited (“COHL”). Under the joint venture agreement, Manhattan China Limited has 10,000,000 initial authorized shares of capital (“joint venture shares”). COHL holds 7,500,000 joint venture shares, a 75% ownership interest in the joint venture, and the Company holds 2,500,000 joint venture shares, a 25% ownership interest in Manhattan China Limited, which is accounted for under the equity method. The Company has a put option to sell its 2,500,000 joint venture shares to COHL in exchange for cash or COHL shares at any time before April 20, 2020. As of April 28, 2012, the Company’s investment in unconsolidated joint venture, which is classified as an other long-term

 

8


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asset in the accompanying condensed consolidated balance sheets was approximately $0.4 million. The Company did not have equity income (loss) for the three months ended April 28, 2012, as the joint venture had no operations.

8. LETTER OF CREDIT FACILITIES

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

 

     April 28,     January 28,  
     2012     2012  
     (in thousands)  

Total letter of credit facilities

   $ 55,324      $ 55,314   

Outstanding letters of credit

     (4,259     (4,555
  

 

 

   

 

 

 

Total letters of credit available

   $ 51,065      $ 50,759   
  

 

 

   

 

 

 

9. 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 $4.0 million and $3.8 million for the three months ended April 28, 2012 and April 30, 2011, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

10. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted average shares of outstanding common stock. The calculation of diluted net income per share is similar to basic earnings per share except that the denominator includes potentially dilutive common stock. The potentially dilutive common stock included in the Company’s computation of diluted net income per share includes the effects of stock options, stock appreciation rights (“SARS”), 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 months ended April 28, 2012 and April 30, 2011.

 

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The following table sets forth the computation of basic and diluted income per share:

 

     Three Months Ended  
     April 28,      April 30,  
     2012      2011  
     (in thousands, except per share data)  

Numerator:

     

Net income

   $ 9,676       $ 15,378   

Denominator:

     

Basic-weighted average shares

     14,641         14,421   

Dilutive effect: equity awards

     429         1,010   

Dilutive effect: warrant

     107         107   
  

 

 

    

 

 

 

Diluted-weighted average shares

     15,177         15,538   
  

 

 

    

 

 

 

Basic income per share

   $ 0.66       $ 1.07   
  

 

 

    

 

 

 

Diluted income per share

   $ 0.64       $ 0.99   
  

 

 

    

 

 

 

Antidilutive effect:(1)

     1,775         497   
  

 

 

    

 

 

 

 

(1)

Represents weighted average of stock options to purchase shares of common stock, SARS and restricted stock that were not included in computing diluted income per share because their effects were antidilutive for the respective periods.

11. EQUITY

The following table reflects the changes in equity of Perry Ellis International, Inc.:

 

     Total Equity of Perry
Ellis International,
Inc.
 
     (in thousands)  

Equity at January 29, 2012

   $ 366,495   

Comprehensive income

     10,428   

Share transactions under employee stock purchase plans

     1,411   
  

 

 

 

Equity at April 28, 2012

   $ 378,334   
  

 

 

 

Equity at January 30, 2011

   $ 302,940   

Comprehensive income

     16,521   

Share transactions under employee stock purchase plans

     1,699   

Issuance of common stock

     53,200   
  

 

 

 

Equity at April 30, 2011

   $ 374,360   
  

 

 

 

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss at April 28, 2012 and January 28, 2012 was comprised of the following:

 

     April 28,
2012
    January 28,
2012
 
     (in thousands)  

Foreign currency translation

   $ (303   $ (1,055

Unrealized loss on pension liability, net of tax

     (7,123     (7,123
  

 

 

   

 

 

 
   $ (7,426   $ (8,178
  

 

 

   

 

 

 

 

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13. DERIVATIVES

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 8 7/8% 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 8 7/8% 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 consolidated statements of income are as follows:

 

     Location of  (Loss)
Recognized in Income
   Three Months Ended  
        April 28,      April 30,  

Derivatives Not Designed As Hedging Instruments

      2012      2011  
          (in thousands)  

Derivative : 75 Million Cap Agreement

   Interest expense    $ —         $ (103
     

 

 

    

 

 

 

Total

      $ —         $ (103
     

 

 

    

 

 

 

Refer to Note 18, “Fair Value Measurements,” for disclosures of the fair value and line item caption of derivative instruments recorded on the condensed consolidated balance sheets.

14. 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 2012 are open tax years. The Company’s state tax filings are subject to varying statutes of limitations. The Company’s unrecognized state tax benefits are related to open tax years from 2005 through 2012, depending on each state’s particular statute of limitation. As of April 28, 2012, various state, local, and foreign income tax returns are under examination by taxing authorities. There are currently no U.S. federal income tax returns under examination.

The Company had a $1.4 million liability recorded for unrecognized tax benefits as of January 28, 2012, which includes interest and penalties of $0.4 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. All of the unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. During the three months ended April 28, 2012, the total amount of unrecognized tax benefits decreased by approximately $0.7 million, including $0.3 million of settlement payments. The change to the total amount of the unrecognized tax benefit for the three months ended April 28, 2012 included a decrease in interest and penalties of approximately $0.1 million.

During the quarter ended April 28, 2012, the Company reached a settlement with the State of New Jersey regarding the income tax liabilities pertaining to the 2004 through 2011 tax years. The liability was settled for less than the recorded amount resulting in a $0.5 million benefit recorded to income tax expense. The Company does not currently anticipate a resolution within the next twelve months for any of the remaining unrecognized tax benefits as of April 28, 2012. However, the statute of limitations related to the Company’s 2009 U.S. federal tax year will expire within the next twelve months. The lapse in the statute of limitations would be expected to decrease tax expense within the next twelve months. The expiration of the statute of limitations related to the Company’s 2009 U.S. federal tax year could result in a tax benefit of up to approximately $0.1 million.

15. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES

During the three months ended April 28, 2012, the Company granted an aggregate of 327,198 SARs, to be settled in shares of common stock to certain key employees. The SARs have an exercise price of $18.19, 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 $3.4 million, which will be recorded as compensation expense on a straight-line basis over the vesting period of each SAR.

 

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During the three months ended April 28, 2012, the Company granted performance based restricted stock to certain key employees pursuant to the Company’s 2005 Long Term Incentive Compensation Plan, as amended and restated, and subject to certain conditions in the grant agreement. Such stock generally vests 100% in May 2015, 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 83,817 shares of restricted stock were issued at an estimated value of $1.5 million, which will be recorded as compensation expense on a straight-line basis over the vesting period.

Also, during the three months ended April 28, 2012, the Company granted an aggregate of 5,500 shares of restricted stock to certain key employees, which vest over a two-year period at an estimated value of $0.1 million. This value will be recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

16. SEGMENT INFORMATION

The Company has four reportable segments: Men’s Sportswear and Swim, Women’s Sportswear, Direct-to-Consumer and Licensing. The Men’s Sportswear and Swim and Women’s Sportswear segments derive revenues from the design, import and distribution of apparel to department stores and other retail outlets, principally throughout the United States. The Direct-to-Consumer segment derives its revenues from the sale of the Company’s branded and licensed products through its retail stores and e-commerce platform. The Licensing segment derives its revenues from royalties associated with the use of its brand names, principally Perry Ellis, Jantzen, John Henry, Original Penguin, Gotcha, Farah, Savane, Pro Player, Manhattan and Munsingwear. Segment results of prior periods were recast to conform to the current presentation.

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

 

     Three Months Ended  
     April 28,     April 30,  
     2012     2011  
     (in thousands)  

Revenues:

    

Men’s Sportswear and Swim

   $ 198,362      $ 220,154   

Women’s Sportswear

     42,402        48,417   

Direct-to-Consumer

     18,252        14,204   

Licensing

     6,507        5,514   
  

 

 

   

 

 

 

Total revenues

   $ 265,523      $ 288,289   
  

 

 

   

 

 

 

Depreciation and amortization

    

Men’s Sportswear and Swim

   $ 2,122      $ 2,266   

Women’s Sportswear

     461        334   

Direct-to-Consumer

     724        511   

Licensing

     111        78   
  

 

 

   

 

 

 

Total depreciation and amortization

   $ 3,418      $ 3,189   
  

 

 

   

 

 

 

Operating income

    

Men’s Sportswear and Swim

   $ 13,217      $ 24,508   

Women’s Sportswear

     1,136        3,095   

Direct-to-Consumer

     (1,740     (1,736

Licensing

     5,362        4,539   
  

 

 

   

 

 

 

Total operating income

   $ 17,975      $ 30,406   

Total costs on early extinguishment of debt

     —          1,306   

Total interest expense

     3,809        4,666   
  

 

 

   

 

 

 

Total net income before income taxes

   $ 14,166      $ 24,434   
  

 

 

   

 

 

 

 

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17. BENEFIT PLAN

The Company sponsors a qualified pension plan. The following table provides the components of net benefit cost for the plan during the first quarter of fiscal 2013 and 2012:

 

     Three Months Ended  
     April 28,     April 30,  
     2012     2011  
     (in thousands)  

Service cost

   $ 63      $ 63   

Interest cost

     433        509   

Expected return on plan assets

     (483     (544

Amortization of net loss (gain)

     131        4   
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 144      $ 32   
  

 

 

   

 

 

 

18. 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 $25.6 million and $25.8 million at April 28, 2012 and January 28, 2012, respectively. The carrying values of the real estate mortgages at April 28, 2012 and January 28, 2012 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 at April 28, 2012 and January 28, 2012, respectively. As of April 28, 2012 and January 28, 2012, the fair value of the 7 7/8% senior subordinated notes payable was approximately $150.5 million and $154.3 million, respectively, based on quoted market prices.

Interest rate cap. The interest rate cap agreement was terminated during March 2011, therefore no fair value measurements were reported as of April 28, 2012 and January 28, 2012, respectively.

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

19. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Company and several of its subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed the senior subordinated notes 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 April 28, 2012 and January 28, 2012 and for the three months ended April 28, 2012 and April 30, 2011. 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.

 

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Table of Contents

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

AS OF APRIL 28, 2012

(amounts in thousands)

 

     Parent Only      Guarantors      Non-Guarantors      Eliminations     Consolidated  

ASSETS

             

Current Assets:

             

Cash and cash equivalents

   $ —         $ 1,731       $ 26,740       $ —        $ 28,471   

Accounts receivable, net

     —           149,890         25,306         —          175,196   

Intercompany receivable

     190,616         —           —           (190,616     —     

Inventories

     —           141,203         25,997         —          167,200   

Other current assets

     —           30,423         2,117         (2,729     29,811   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     190,616         323,247         80,160         (193,345     400,678   

Property and equipment, net

     —           50,068         4,733         —          54,801   

Intangible assets, net

     —           223,459         39,330         —          262,789   

Investment in subsidiaries

     337,580         —           —           (337,580     —     

Other assets

     6,309         3,105         475         —          9,889   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 534,505       $ 599,879       $ 124,698       $ (530,925   $ 728,157   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

Current Liabilities:

             

Accounts payable, accrued expenses and other current liabilities

   $ 6,171       $ 84,868       $ 15,036       $ (4,968   $ 101,107   

Intercompany payable

     —           140,470         51,061         (191,531     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     6,171         225,338         66,097         (196,499     101,107   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Notes payable and senior credit facility

     150,000         23,162         —           —          173,162   

Other long-term liabilities

     —           67,885         5,430         2,239        75,554   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     150,000         91,047         5,430         2,239        248,716   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     156,171         316,385         71,527         (194,260     349,823   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Equity

     378,334         283,494         53,171         (336,665     378,334   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 534,505       $ 599,879       $ 124,698       $ (530,925   $ 728,157   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

AS OF JANUARY 28, 2012

(amounts in thousands)

 

     Parent Only      Guarantors      Non-Guarantors      Eliminations     Consolidated  

ASSETS

             

Current Assets:

             

Cash and cash equivalents

   $ —         $ 294       $ 23,822       $ —        $ 24,116   

Accounts receivable, net

     —           124,016         21,547         —          145,563   

Intercompany receivable

     191,614         —           —           (191,614     —     

Inventories

     —           169,800         28,464         —          198,264   

Other current assets

     —           31,069         5,843         (3,179     33,733   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     191,614         325,179         79,676         (194,793     401,676   

Property and equipment, net

     —           51,745         4,751         —          56,496   

Intangible assets, net

     —           216,702         39,726         —          256,428   

Investment in subsidiaries

     327,904         —           —           (327,904     —     

Other assets

     6,333         3,182         80         —          9,595   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 525,851       $ 596,808       $ 124,233       $ (522,697   $ 724,195   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

Current Liabilities:

             

Accounts payable, accrued expenses and other current liabilities

   $ 9,356       $ 91,712       $ 16,110       $ (5,418   $ 111,760   

Intercompany payable

     —           139,786         53,495         (193,281     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     9,356         231,498         69,605         (198,699     111,760   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Notes payable and senior credit facility

     150,000         21,679         —           —          171,679   

Other long-term liabilities

     —           66,262         5,760         2,239        74,261   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     150,000         87,941         5,760         2,239        245,940   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     159,356         319,439         75,365         (196,460     357,700   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Equity

     366,495         277,369         48,868         (326,237     366,495   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 525,851       $ 596,808       $ 124,233       $ (522,697   $ 724,195   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 28, 2012

(amounts in thousands)

 

                   Non-               
     Parent Only      Guarantors      Guarantors      Eliminations     Consolidated  

Revenue

   $ —         $ 228,928       $ 36,595       $ —        $ 265,523   

Gross profit

     —           70,842         16,898         —          87,740   

Operating income

     —           13,500         4,475         —          17,975   

Interest and income taxes

     —           7,375         924         —          8,299   

Equity in earnings of subsidiaries, net

     9,676         —           —           (9,676     —     

Net income

     9,676         6,125         3,551         (9,676     9,676   

Comprehensive income

     10,428         6,125         4,303         (10,428     10,428   

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, 2011

(amounts in thousands)

 

                   Non-               
     Parent Only      Guarantors      Guarantors      Eliminations     Consolidated  

Revenue

   $ —         $ 258,837       $ 29,452       $ —        $ 288,289   

Gross profit

     —           82,584         14,386         —          96,970   

Operating income

     —           26,053         4,353         —          30,406   

Costs on early extinguishment of debt

     —           1,306         —           —          1,306   

Interest and income taxes

     —           13,150         572         —          13,722   

Equity in earnings of subsidiaries, net

     15,378         —           —           (15,378     —     

Net income

     15,378         11,597         3,781         (15,378     15,378   

Comprehensive income

     16,521         11,597         4,924         (16,521     16,521   

 

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Table of Contents

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 28, 2012

(amounts in thousands)

 

                 Non-              
     Parent Only     Guarantors     Guarantors     Eliminations     Consolidated  

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

   $ (1,975   $ 3,105      $ 5,536      $ —        $ 6,666   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Purchase of property and equipment

     —          (1,106     (215     —          (1,321

Payment on purchase of intangible assets

     —          (7,000     —          —          (7,000

Proceeds in connection with purchase price adjustment

     —          4,547        —          —          4,547   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     —          (3,559     (215     —          (3,774
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Borrowings on senior credit facility

     —          115,398        —          —          115,398   

Payments on senior credit facility

     —          (113,915     —          —          (113,915

Payments on real estate mortgages

     —          (173     —          —          (173

Payments on capital leases

     —          (103     —          —          (103

Proceeds from exercise of stock options

     145        —          —          —          145   

Tax benefit from exercise of stock options

     80        —          —          —          80   

Intercompany transactions

     1,719        684        (2,434     31        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,944        1,891        (2,434     31        1,432   

Effect of exchange rate changes on cash and cash equivalents

     31        —          31        (31     31   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     —          1,437        2,918        —          4,355   

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     —          294        23,822        —          24,116   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ —        $ 1,731      $ 26,740      $ —        $ 28,471   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, 2011

(amounts in thousands)

 

                 Non-              
     Parent Only     Guarantors     Guarantors     Eliminations     Consolidated  

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

   $ 23,861      $ (96,634   $ 39,837      $ (1,332   $ (34,268
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Purchase of property and equipment

     —          (2,007     (38     —          (2,045

Proceeds on sale of intangible assets

     —          —          2,875        —          2,875   

Payment on purchase of intangible assets

     —          (500     —          —          (500

Redemption of restricted funds as collateral

     —          7,372        —          —          7,372   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by investing activities

     —          4,865        2,837        —          7,702   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Borrowings from senior credit facility

     —          122,603        —          —          122,603   

Payments on senior credit facility

     —          (187,431     —          —          (187,431

Payments on real estate mortgages

     —          (154     —          —          (154

Proceeds from issuance of senior subordinate notes

     150,000        —          —          —          150,000   

Debt issuance costs

     (3,000     —          —          —          (3,000

Payments on senior subordinate notes

     (105,792     —          —          —          (105,792

Payments on capital leases

     —          (88     —          —          (88

Proceeds from exercise of stock options

     165        —          —          —          165   

Tax benefit from exercise of stock options

     175        —          —          —          175   

Proceeds from issuance of common stock

     56,000        —          —          —          56,000   

Stock issuance costs

     (2,800     —          —          —          (2,800

Intercompany transactions

     (118,701     156,839        (38,230     92        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (23,953     91,769        (38,230     92        29,678   

Effect of exchange rate changes on cash and cash equivalents

     92        —          92        (92     92   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     —          —          4,536        (1,332     3,204   

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     —          —          19,174        (650     18,524   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ —        $ —        $ 23,710      $ (1,982   $ 21,728   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

20. 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 consolidated financial statements.

 

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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 28, 2012, filed with the Securities and Exchange Commission on April 12, 2012.

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 28, 2012 is a summary of all significant accounting policies used in the preparation of our consolidated financial statements. We follow the accounting methods and practices as required by accounting principles generally accepted in the United States of America (“GAAP”). In particular, our critical accounting policies and areas in which we use judgment are in the areas of revenue recognition, the estimated collectability of accounts receivable, the recoverability of obsolete or overstocked inventory, the impairment of long-lived assets that are our trademarks and goodwill, and the measurement of retirement related benefits. We believe that there have been no significant changes to our critical accounting policies during the three months ended April 28, 2012 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 28, 2012.

 

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Results of Operations

The following table sets forth, for the periods indicated, selected financial data expressed by segments and includes a reconciliation of EBITDA to operating income, the most directly comparable GAAP financial measure:

 

     Three Months Ended  
     April 28,      April 30,  
     2012      2011  
     (in thousands)  

Revenues by segment:

     

Men’s Sportswear and Swim

   $ 198,362       $ 220,154   

Women’s Sportswear

     42,402         48,417   

Direct-to-Consumer

     18,252         14,204   

Licensing

     6,507         5,514   
  

 

 

    

 

 

 

Total revenues

   $ 265,523       $ 288,289   
  

 

 

    

 

 

 

 

000000 000000
     Three Months Ended  
     April 28,
2012
    April 30,
2011
 

Reconciliation of operating income to EBITDA

    

Operating income by segment:

    

Men’s Sportswear and Swim

   $ 13,217      $ 24,508   

Women’s Sportswear

     1,136        3,095   

Direct-to-Consumer

     (1,740     (1,736

Licensing

     5,362        4,539   
  

 

 

   

 

 

 

Total operating income

   $ 17,975      $ 30,406   
  

 

 

   

 

 

 

Add:

    

Depreciation and amortization

    

Men’s Sportswear and Swim

     2,122        2,266   

Women’s Sportswear

     461        334   

Direct-to-Consumer

     724        511   

Licensing

     111        78   
  

 

 

   

 

 

 

Total depreciation and amortization

     3,418        3,189   
  

 

 

   

 

 

 

EBITDA by segment:

    

Men’s Sportswear and Swim

   $ 15,339      $ 26,774   

Women’s Sportswear

     1,597        3,429   

Direct-to-Consumer

     (1,016     (1,225

Licensing

     5,473        4,617   
  

 

 

   

 

 

 

Total EBITDA

   $ 21,393      $ 33,595   
  

 

 

   

 

 

 

EBITDA margin by segment

    

Men’s Sportswear and Swim

     7.7     12.2

Women’s Sportswear

     3.8     7.1

Direct-to-Consumer

     -5.6     -8.6

Licensing

     84.1     83.7

Total EBITDA margin

     8.1     11.7

EBITDA consists of earnings before interest, taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America, and does not represent cash flow from operations. The most directly comparable GAAP financial measure, presented above, is operating income. EBITDA and EBITDA margin are presented solely as a supplemental disclosure because management believes that they are a common measure of operating performance in the apparel industry.

The following is a discussion of the results of operations for the three month period in the first quarter of the fiscal year ending February 2, 2013 (“fiscal 2013”) compared with the three month period in the first quarter of the fiscal year ended January 28, 2012 (“fiscal 2012”).

 

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Results of Operations - three months ended April 28, 2012 compared to the three months ended April 30, 2011.

Net sales. Men’s Sportswear and Swim net sales for the three months ended April 28, 2012 were $198.4 million, a decrease of $21.8 million, or 9.9%, from $220.2 million for the three months ended April 30, 2011. Net sales decreases came primarily from our planned decrease in Perry Ellis, partially offset by increases in our golf and Axist businesses.

Women’s Sportswear net sales for the three months ended April 28, 2012 were $42.4 million, a decrease of $6.0 million, or 12.4%, from $48.4 million for the three months ended April 30, 2011. Net sales decreased primarily due to our Rafaella sportswear business, partially offset by increases in our contemporary Laundry dress business.

Direct-to-Consumer net sales for the three months ended April 28, 2012 were $18.3 million, an increase of $4.1 million, or 28.9%, from $14.2 million for the three months ended April 30, 2011. The primary reason for the increase is our continued store expansion and our e-commerce platform growth. We also realized positive comparable store increases in our store base.

Royalty income. Royalty income for the three months ended April 28, 2012 was $6.5 million, an increase of $1.0 million, or 18.2%, from $5.5 million for the three months ended April 30, 2011. Royalty income increases were attributable to Perry Ellis and Original Penguin footwear, as well as the fragrance license for Laundry by Shelli Segal.

Gross profit. Gross profit was $87.7 million for the three months ended April 28, 2012, decreasing $9.3 million, or 9.6 %, from $97.0 million for the three months ended April 30, 2011.

Gross profit margin. As a percentage of total revenue, gross profit margins were 33.0% for the three months ended April 28, 2012, as compared to 33.6% for the three months ended April 30, 2011, a decrease of 60 basis points. This decrease is primarily associated with the impact from the write-down and liquidation of planned exits of brands, which will be experienced during fiscal 2013. This decrease was partially offset by higher margins in our direct-to-consumer business, golf lifestyle and licensing.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended April 28, 2012 were $66.3 million, an increase of $2.9 million, or 4.6%, from $63.4 million for the three months ended April 30, 2011. The increase was in line with our expectations and was primarily attributed to the direct-to-consumer business for new stores opened during fiscal 2012. Also, we experienced costs in the amount of approximately $0.8 million related to our reorganization which encompassed the exit of our Rafaella distribution facility and move to our current third party logistics warehouse and severance expense related to exited businesses.

EBITDA. Men’s Sportswear and Swim EBITDA margin for the three months ended April 28, 2012 decreased 450 basis points to 7.7%, from 12.2% for the three months ended April 30, 2011. The EBITDA margin was negatively impacted by the reduction in gross profit margin, which was attributable to higher levels of promotional activity in our Perry Ellis sportswear collection business, partially offset by higher gross profit margins in our golf lifestyle business. We also realized reduced leverage from selling, general and administrative expenses attributable to the planned revenue reductions in this segment.

Women’s Sportswear EBITDA margin for the three months ended April 28, 2012 decreased 330 basis points to 3.8%, from 7.1% for the three months ended April 30, 2011. The margin was negatively impacted by the costs associated with moving the Rafaella collection sportswear business from the warehouse logistics provider it had been using prior to the acquisition to our third party logistics warehouse. Margin was also negatively impacted by the loss of leverage in selling, general and administrative expenses attributable to the planned revenue reductions in this segment.

Direct-to-Consumer EBITDA margin for the three months ended April 28, 2012 increased 300 basis points to (5.6)%, from (8.6)% for the three months ended April 30, 2011. The increase was primarily attributable to the expansion of gross profit margin as described above. In addition, the segment realized favorable leverage in selling, general and administrative expenses attributable to the revenue increases realized in the segment.

 

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Licensing EBITDA margin for the three months ended April 28, 2012 increased 40 basis points to 84.1%, from 83.7% for the three months ended April 30, 2011. This increase was primarily attributed to the increase in license business as discussed above.

Depreciation and amortization. Depreciation and amortization for the three months ended April 28, 2012, was $3.4 million, an increase of $0.2 million, or 6.3%, from $3.2 million for the three months ended April 30, 2011. The increase is attributed to our capital expenditures, primarily in the direct-to-consumer segment.

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. Also, we wrote-off approximately $853,000 in unamortized discount and bond fees associated with the 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 senior subordinated notes were scheduled to mature on September 15, 2013. There were no comparable transactions during the first quarter of fiscal 2013.

Interest expense. Interest expense for the three months ended April 28, 2012 was $3.8 million, a decrease of $0.9 million, or 19.1%, from $4.7 million for the three months ended April 30, 2011. The overall decrease in interest expense is primarily attributable to the 8 7/8% senior subordinated notes and the 7 7/8% senior subordinated notes that were outstanding simultaneously for about one month during fiscal 2012 causing us to have approximately $0.7 million in redundant interest expense. There were no comparable transactions during the first quarter of fiscal 2013.

Income taxes. The income tax expense for the three months ended April 28, 2012, was $4.5 million, a decrease of $4.6 million as compared to $9.1 million for the three months ended April 30, 2011. For the three months ended April 28, 2012, our effective tax rate was 31.7% as compared to 37.1% for the three months ended April 30, 2011. The overall decrease in the effective tax rate is attributed to decreased withholding taxes, which taxes were specific to the sale of foreign intangibles in the prior year in the amount of $0.6 million, as well as a change in ratio of income between domestic and foreign operations, of which the foreign operations are taxed at lower statutory tax rates.

Net income. The net income for the three months ended April 28, 2012 was $9.7 million, a decrease of $5.7 million, or 37.0%, as compared to $15.4 million for the three months ended April 30, 2011. The changes in operating results were due to the items described above.

Liquidity and Capital Resources

We rely principally on cash flow from operations and borrowings under our senior credit facility to finance our operations, acquisitions and capital expenditures; and to a lesser extent, on letter of credit facilities for the acquisition of a small portion of our inventory purchases. We believe that our working capital requirements will decrease for fiscal 2013 driven primarily by lower levels of inventory. As of April 28, 2012, our total working capital was $299.6 million as compared to $289.9 million as of January 28, 2012 and $269.9 million as of April 30, 2011. We believe that our cash flows from operations and availability under our senior credit facility and remaining letter of credit facilities are sufficient to meet our working capital needs. We also believe that our real estate assets, which had a net book value of $23.8 million at April 28, 2012, have a higher market value. These real estate assets may provide us with additional capital resources. Additional borrowings against these real estate assets, however, would be subject to certain loan to value criteria established by lending institutions. As of April 28, 2012, we had mortgage loans on these properties totaling $25.6 million.

Net cash provided by operating activities was $6.7 million for the three months ended April 28, 2012, as compared to cash used in operating activities of $34.3 million for the three months ended April 30, 2011.

The cash provided by operating activities for three months ended April 28, 2012 is primarily attributable to a decrease in inventory of $31.6 million associated with inventory management; offset by an increase in accounts receivable of $29.5 million due to the increase in sales toward the end of the first quarter, and a reduction of our accounts payable and accrued expenses of $7.7 million. As a result of the decrease in inventory for the first quarter of fiscal 2013, our inventory turnover ratio decreased to 3.3 as compared to 3.7 for the comparable quarter in fiscal 2012. The cash used in operating activities for three months ended April 30, 2011 is primarily attributable to an increase in accounts receivable of $52.3 million due to the increase in sales toward the end of the first quarter, an

 

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increase in inventory of $2.8 million and a reduction of our accounts payable and accrued expenses of $2.6 million; offset by a decrease in other assets and prepaid income taxes. As a result of this increase in inventory and the inventory acquired through the Rafaella acquisition in January 2011, for the first quarter of fiscal 2012, our inventory turnover ratio decreased to 3.7 as compared to 4.8 for the comparable quarter of fiscal 2011.

Net cash used in investing activities was $3.8 million for the three months ended April 28, 2012, as compared to cash provided by investing activities of $7.7 million for the three months ended April 30. 2011. The net cash used during the first three months of fiscal 2013 primarily reflects the purchase of Ben Hogan in the amount of $7.0 million and the purchase of property and equipment in the amount of $1.3 million; offset by the proceeds related to the Rafaella purchase price adjustment of $4.5 million. The net cash provided during the first three months of fiscal 2012 primarily reflects the redemption of restricted cash collateralizing letters of credit in the amount of $7.3 million acquired in the Rafaella acquisition and the proceeds from the sale of certain foreign intangible in the amount of $2.9 million; offset by the purchase of property and equipment in the amount of $2.0 million. We anticipate capital expenditures during fiscal 2013 of $10 million to $11 million in technology, systems, retail stores, and other expenditures.

Net cash provided by financing activities for the three months ended April 28, 2012, was $1.4 million, as compared to $29.7 million for the three months ended April 30, 2011. The net cash provided during the first three months of fiscal 2013 primarily reflects net borrowings on our senior credit facility of $1.5 million, proceeds from exercises of stock options of $0.1 million and a tax benefit from the exercise of stock options of $0.1 million; partially offset by payments of $0.2 million on our mortgage loans. The net cash provided during the first three months of fiscal 2012 primarily reflects net proceeds from the issuance of our new 7 7/8% senior subordinated notes in the amount of $147.0 million and net proceeds from our stock offering in the amount of $53.2 million; partially offset by net payments on our senior credit facility of $64.8 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.

In November 2011, our Board of Directors extended and increased our 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 our 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.

During September 2011, our 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. Accordingly, we reduced common stock and additional paid-in-capital by $25,000 and $17.4 million, respectively. Additionally, we repurchased shares of our common stock during the fourth quarter of fiscal 2012 at a cost of approximately $16.0 million. We did not repurchase any shares of our common stock during fiscal 2013 and fiscal 2011. Total purchases under the stock repurchase program as of January 28, 2012 were $33.4 million.

Acquisitions

Acquisition of Ben Hogan

On February 16, 2012, we acquired the world-wide intellectual property rights of the Ben Hogan family of brands from Callaway Golf Company. The acquisition was financed through existing cash and borrowings under our existing senior credit facility. Ben Hogan brands are ideally positioned to strengthen our golf business within the Men’s Sportswear and Swim segment.

The purchase price of $7.0 million was comprised of tradenames, which have been identified as indefinite useful life assets and are not subject to amortization.

Investment in Joint Venture

On April 20, 2012, we formed a joint venture, Manhattan China Limited, with China Outfitters Holdings Limited, (“COHL”). Under the joint venture agreement Manhattan China Limited has 10,000,000 initial authorized shares of capital or joint venture shares. COHL holds 7,500,000 joint venture shares, a 75% ownership interest in the joint venture, and we hold 2,500,000 joint venture shares, a 25% ownership interest in Manhattan China

 

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Limited, which is accounted for under the equity method. We have a put option to sell our 2,500,000 joint venture shares to COHL in exchange for cash or COHL shares at any time before April 20, 2020. As of April 28, 2012, our investment in unconsolidated joint venture, which is classified as an other long-term asset in the accompanying condensed consolidated balance sheets, was approximately $0.4 million. We did not have equity income (loss) for the three months ended April 28, 2012, as the joint venture had no operations.

Senior Credit Facility

On December 2, 2011, we amended and restated our existing senior credit facility (the “Credit Facility”), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $125 million, subject to increases from time to time in increments of $25 million up to a maximum of $200 million. The Credit Facility has a five-year term that expires on December 2, 2016. At April 28, 2012 and January 28, 2012, we had outstanding borrowings of $23.2 million and $21.7 million, respectively, under the Credit Facility.

Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require us to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. We are not aware of any non-compliance with any of our covenants in this Credit Facility. These covenants may restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. We may pay cash dividends subject to certain restrictions set forth in the covenants including, but not limited to, meeting a minimum excess availability threshold and no occurrence of a default. We could be materially harmed if we violate any covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If we are unable to repay those amounts, the lenders could proceed against our assets and the assets of our subsidiaries that are borrowers or guarantors. In addition, a covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of our other outstanding indebtedness, such as the indenture relating to our 7 7/8% senior subordinated notes due April 1, 2019, our letter of credit facilities, or our real estate mortgage loans. Such a cross-default could result in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

Borrowing Base. Borrowings under the Credit Facility are limited to a borrowing base calculation, which generally restricts the outstanding balance to the sum of (a) 87.5% of eligible receivables plus (b) 87.5% of eligible foreign accounts up to $1.5 million plus (c) the lesser of (i) the inventory loan limit, which equals 80% of the maximum credit under the Credit Facility at the time, (ii) 70.0% of eligible finished goods inventory, or (iii) 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.

Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues, at our option, at either (a) the greater of the 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 our previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.

Security. As security for the indebtedness under the Credit Facility, we granted to the lenders a first priority security interest (subject to liens permitted under the Credit Facility to be senior thereto) in substantially all of our existing and future assets, including, without limitation, accounts receivable, inventory, deposit accounts, general intangibles, equipment and capital stock or membership interests, as the case may be, of certain subsidiaries, and real estate but excluding our non-U.S. subsidiaries and all of our trademark portfolio.

Letter of Credit Facilities

As of April 28, 2012, we maintained two U.S. dollar letter of credit facilities totaling $55.0 million and one letter of credit facility totaling $0.3 million utilized by our United Kingdom subsidiary. Each documentary letter of credit is secured primarily by the consignment of merchandise in transit under that letter of credit and certain subordinated liens on our assets.

 

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During the third quarter of fiscal 2012, we increased one of our two U.S. dollar letters of credit from $10.0 million to $15.0 million, under existing terms and reduced the letter of credit facility utilized by our United Kingdom subsidiary from $1.0 million to $0.3 million. As of April 28, 2012 and January 28, 2012, there was $51.1 million and $50.8 million, respectively, available under our existing letter of credit facilities.

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 our 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%.

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 and bond fees associated with the senior subordinated notes.

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

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

Certain Covenants. The indenture governing the senior subordinated notes contains certain covenants which restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in 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.

Real Estate Mortgage Loans

In fiscal 2003, we acquired our main administrative office, warehouse and distribution facility in Miami and partially financed the acquisition of the facility with an $11.6 million mortgage loan. Interest was fixed at 7.123%. In August 2008, we executed a maturity extension of the real estate mortgage loan until July 1, 2010. In July 2010, we paid off the then existing real estate mortgage loan and refinanced our main administrative office, warehouse and distribution facility in Miami with a $13.0 million mortgage loan. The loan is due on August 1, 2020. 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%. In October 2011, we amended the mortgage agreement to modify the interest rate. 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 April 28, 2012, the balance of the real estate mortgage loan totaled $12.3 million, net of discount, of which $265,000 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 amended the mortgage agreement to modify the interest rate. 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 April 28, 2012, the balance of the real estate mortgage loan totaled $13.3 million, net of discount, of which $409,000 is due within one year.

 

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The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of these covenants. If we violate any 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. A covenant violation could also 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 our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

Off-Balance Sheet Arrangements

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

Effects of Inflation and Foreign Currency Fluctuations

We do not believe that inflation or foreign currency fluctuations significantly affected our results of operations for the three months ended April 28, 2012.

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.

Derivatives on $150 Million Senior Subordinated Notes Payable

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 8 7/8% 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 our floating interest rate exposure pursuant to the Swap Agreement. The $75 million Cap Agreement did not qualify for hedge accounting treatment. We terminated the $75 million Cap Agreement during March 2011. In connection with the termination, we paid $1.6 million. The change in fair value resulted in an increase to interest expense of $0.1 million for the three months ended April 30, 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. 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.

 

26


Table of Contents

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 April 28, 2012 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.

There were no changes in our internal control over financial reporting during the quarter ended April 28, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II: OTHER INFORMATION

 

Item 6. Exhibits

Index to Exhibits

 

Exhibit
Number

  

Exhibit Description

  

Where Filed

  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.

 

27


Table of Contents

SIGNATURE

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

 

  Perry Ellis International, Inc.
June 6, 2012  

By: /S/ ANITA BRITT

  Anita Britt, Chief Financial Officer
  (Principal Financial Officer)

 

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Table of Contents

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

 

29

XNAS:PERY Perry Ellis International Inc Quarterly Report 10-Q Filling

Perry Ellis International Inc XNAS:PERY Stock - Get Quarterly Report SEC Filing of Perry Ellis International Inc XNAS:PERY stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNAS:PERY Perry Ellis International Inc Quarterly Report 10-Q Filing - 4/28/2012
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