UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

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

For the Quarterly Period Ended AugustMay 2, 20142015

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 smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller 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 15,727,000is15,613,000 (as of September 4, 2014)June 04, 2015).


PERRY ELLIS INTERNATIONAL, INC.

INDEX

 

   PAGE 

PART I: FINANCIAL INFORMATION

  

Item 1:

  

Condensed Consolidated Balance Sheets (Unaudited)
as of AugustMay 2, 20142015 and February 1, 2014January 31, 2015

   1  

Condensed Consolidated Statements of OperationsIncome (Unaudited)
for the three and six months ended AugustMay  2, 20142015 and AugustMay 3, 20132014

   2  

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
for the three and six months ended AugustMay 2, 20142015 and AugustMay 3, 20132014

   3  

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the sixthree months ended AugustMay  2, 20142015 and AugustMay 3, 20132014

   4  

Notes to Unaudited Condensed Consolidated Financial Statements

   6  

Item 2:

  

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

   2220  

Item 3:

  

Quantitative and Qualitative Disclosures About Market Risk

   3027  

Item 4:

  

Controls and Procedures

   3128  

PART II: OTHER INFORMATION

  28

Item 1:

  

Legal Proceedings

   3128  

Item 2:

  

Unregistered Sales of Equity Securities and Use of Proceeds

   3129  

Item 6:

  

Exhibits

   3229  


PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share data)

 

  May 2, January 31, 
  August 2,
2014
 February 1,
2014
   2015 2015 

ASSETS

      

Current Assets:

      

Cash and cash equivalents

  $49,218   $26,989    $18,736   $43,547  

Accounts receivable, net

   110,532    146,392     180,992    137,432  

Inventories

   174,507    206,602     153,495    183,734  

Investments, at fair value

   23,955    15,398     14,009    19,996  

Deferred income taxes

   15,358    14,060     741    725  

Prepaid income taxes

   7,346    7,579     5,451    6,384  

Prepaid expenses and other current assets

   9,550    7,369     6,359    7,124  
  

 

  

 

   

 

  

 

 

Total current assets

   390,466    424,389     379,783    398,942  
  

 

  

 

 

Property and equipment, net

   61,632    59,912     64,723    64,633  

Other intangible assets, net

   210,660    211,485     206,781    210,201  

Goodwill

   6,022    6,022     6,022    6,022  

Other assets

   5,757    4,927     5,506    5,191  
  

 

  

 

   

 

  

 

 

TOTAL

  $674,537   $706,735    $662,815   $684,989  
  

 

  

 

   

 

  

 

 

LIABILITIES AND EQUITY

      

Current Liabilities:

      

Accounts payable

  $76,520   $112,442    $70,830   $117,789  

Accrued expenses and other liabilities

   22,643    24,642     27,372    22,355  

Accrued interest payable

   3,990    4,095     1,037    4,045  

Unearned revenues

   5,257    5,013     5,265    4,856  

Deferred pension obligation

   8,985    8,930  

Deferred income taxes

   797    797  
  

 

  

 

   

 

  

 

 

Total current liabilities

   108,410    146,192     114,286    158,772  
  

 

  

 

   

 

  

 

 

Senior subordinated notes payable, net

   150,000    150,000     150,000    150,000  

Senior credit facility

   —      8,162     9,670    —    

Real estate mortgages

   22,461    22,844     21,882    22,109  

Deferred pension obligation

   8,690    9,862  

Unearned revenues and other long-term liabilities

   16,248    14,732     14,707    15,009  

Deferred income taxes

   11,332    7,410     38,881    37,082  
  

 

  

 

   

 

  

 

 

Total long-term liabilities

   208,731    213,010     235,140    224,200  
  

 

  

 

   

 

  

 

 

Total liabilities

   317,141    359,202     349,426    382,972  
  

 

  

 

   

 

  

 

 

Commitment and contingencies

      

Equity:

      

Preferred stock $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding

   —      —       —      —    

Common stock $.01 par value; 100,000,000 shares authorized; 16,116,003 shares issued and outstanding as of August 2, 2014 and 15,901,956 shares issued and outstanding as of February 1, 2014

   161    159  

Common stock $.01 par value; 100,000,000 shares authorized; 16,126,491 shares issued and outstanding as of May 2, 2015 and 16,128,775 shares issued and outstanding as of January 31, 2015

   161    161  

Additional paid-in-capital

   158,412    155,522     162,231    161,336  

Retained earnings

   212,436    206,277     178,513    169,102  

Accumulated other comprehensive loss

   (6,656  (7,468   (11,786  (12,852
  

 

  

 

   

 

  

 

 

Total

   364,353    354,490     329,119    317,747  

Treasury stock at cost; 400,516 as of August 2, 2014 and February 1, 2014

   (6,957  (6,957

Treasury stock at cost; 770,753 as of May 2, 2015 and 770,753 shares as of January 31, 2015

   (15,730  (15,730
  

 

  

 

   

 

  

 

 

Total equity

   357,396    347,533     313,389    302,017  
  

 

  

 

   

 

  

 

 

TOTAL

  $674,537   $706,735    $662,815   $684,989  
  

 

  

 

   

 

  

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME (UNAUDITED)

(amounts in thousands, except per share data)

 

  Three Months Ended 
  Three Months Ended Six Months Ended   May 2, May 3, 
  August 2,
2014
 August 3,
2013
 August 2,
2014
   August 3,
2013
   2015 2014 

Revenues:

         

Net sales

  $196,010   $204,492   $445,926    $459,976    $258,257   $249,916  

Royalty income

   7,522    7,213    14,920     14,048     8,157    7,398  
  

 

  

 

  

 

   

 

   

 

  

 

 

Total revenues

   203,532    211,705    460,846     474,024     266,414    257,314  

Cost of sales

   133,068    143,159    302,717     316,797     176,314    169,649  
  

 

  

 

  

 

   

 

   

 

  

 

 

Gross profit

   70,464    68,546    158,129     157,227     90,100    87,665  
  

 

  

 

  

 

   

 

   

 

  

 

 

Operating expenses:

         

Selling, general and administrative expenses

   66,858    66,521    136,568     137,190     69,608    69,710  

Depreciation and amortization

   2,988    3,010    5,968     5,802     3,322    2,980  
  

 

  

 

  

 

   

 

   

 

  

 

 

Total operating expenses

   69,846    69,531    142,536     142,992     72,930    72,690  

Gain on sale of long-lived assets

   885    —      885     6,270  

Loss on sale of long-lived assets

   (697  —    
  

 

  

 

  

 

   

 

   

 

  

 

 

Operating income (loss)

   1,503    (985  16,478     20,505  

Operating income

   16,473    14,975  

Interest expense

   3,605    3,722    7,321     7,525     3,627    3,716  
  

 

  

 

  

 

   

 

   

 

  

 

 

Net (loss) income before income taxes

   (2,102  (4,707  9,157     12,980  

Income tax (benefit) provision

   (486  (1,877  2,998     4,490  

Net income before income taxes

   12,846    11,259  

Income tax provision

   3,435    3,484  
  

 

  

 

  

 

   

 

   

 

  

 

 

Net (loss) income

  $(1,616 $(2,830 $6,159    $8,490  

Net income

  $9,411   $7,775  
  

 

  

 

  

 

   

 

   

 

  

 

 

Net (loss) income per share:

      

Net income per share:

   

Basic

  $(0.11 $(0.19 $0.41    $0.56    $0.64   $0.53  
  

 

  

 

  

 

   

 

   

 

  

 

 

Diluted

  $(0.11 $(0.19 $0.41    $0.55    $0.62   $0.52  
  

 

  

 

  

 

   

 

   

 

  

 

 

Weighted average number of shares outstanding

         

Basic

   14,906    15,112    14,844     15,068     14,649    14,782  

Diluted

   14,906    15,112    15,142     15,406     15,161    15,010  

See Notes to Unaudited Condensed Consolidated Financial Statements

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(amounts in thousands)

 

   Three Months Ended  Six Months Ended 
   August 2,
2014
  August 3,
2013
  August 2,
2014
   August 3,
2013
 

Net (loss) income

  $(1,616 $(2,830 $6,159    $8,490  

Other Comprehensive income (loss):

      

Foreign currency translation adjustments, net

   2    (656  638     (1,061

Unrealized gain on pension liability, net of tax (1)

   79    81    159     162  

Unrealized (loss) gain on investments

   (23  —      15     —    
  

 

 

  

 

 

  

 

 

   

 

 

 

Total other comprehensive income (loss)

   58    (575  812     (899
  

 

 

  

 

 

  

 

 

   

 

 

 

Comprehensive (loss) income

  $(1,558 $(3,405 $6,971    $7,591  
  

 

 

  

 

 

  

 

 

   

 

 

 
   Three Months Ended 
   May 2,  May 3, 
   2015  2014 

Net income

  $9,411   $7,775  

Other Comprehensive income:

   

Foreign currency translation adjustments, net

   938    636  

Unrealized gain on pension liability, net of tax(1)

   135    80  

Unrealized (loss) gain on investments

   (7  38  
  

 

 

  

 

 

 

Total other comprehensive income

   1,066    754  
  

 

 

  

 

 

 

Comprehensive income

  $10,477   $8,529  
  

 

 

  

 

 

 

 

(1)

Unrealized gain on pension liability for the three months ended AugustMay 2, 20142015 and AugustMay 3, 20132014 is net of tax in the amount of $51$0 and $52, respectively. Unrealized gain on pension liability for the six months ended August 2, 2014 and August 3, 2013 is net of tax in the amount of $101 and $104,$50, respectively. See footnote 12 to the consolidated financial statements for further information.information

See Notes to Unaudited Condensed Consolidated Financial Statements

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

 

  Three Months Ended 
  Six Months Ended   May 2, May 3, 
  August 2,
2014
 August 3,
2013
   2015 2014 

CASH FLOWS FROM OPERATING ACTIVITIES:

      

Net income

  $6,159   $8,490    $9,411   $7,775  

Adjustments to reconcile net income to net cash provided by operating activities:

   

Adjustments to reconcile net income to net cash used in operating activities:

   

Depreciation and amortization

   6,280    6,081     3,482    3,134  

Provision for bad debts

   253    (248   250    299  

Amortization of debt issue cost

   320    351     163    158  

Amortization of premiums and discounts

   223    31     54    127  

Amortization of unrealized loss on pension liability

   260    266     135    130  

Deferred income taxes

   2,523    4,115     1,783    3,270  

Gain on sale of long-lived assets

   (885  (6,270

Share-based compensation

   3,114    2,522     1,049    1,508  

Changes in operating assets and liabilities:

   

Loss on sale of long-lived assets

   697    —    

Changes in operating assets and liabilities, net of acquisitions

   

Accounts receivable, net

   36,277    33,677     (43,443  (36,595

Inventories

   32,603    3,599     30,553    29,942  

Prepaid income taxes

   245    (1,950   908    337  

Prepaid expenses and other current assets

   (2,166  (409   773    (599

Other assets

   (150  89     92    (11

Deferred pension obligation

   (1,172  (1,507

Accounts payable and accrued expenses

   (38,636  (35,656   (42,726  (55,191

Accrued interest payable

   (105  (5   (3,008  (3,059

Unearned revenues and other liabilities

   1,835    875     104    2,059  

Deferred pension obligation

   55    (591
  

 

  

 

   

 

  

 

 

Net cash provided by operating activities

   46,978    14,051  

Net cash used in operating activities

   (39,668  (47,307
  

 

  

 

   

 

  

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

      

Purchase of property and equipment

   (7,323  (14,587   (3,319  (3,050

Purchase of investments

   (22,897  —       (2,640  (15,387

Proceeds from investment maturities

   14,160    —    

Proceeds from investments maturities

   8,580    9,490  

Proceeds on sale of intangible assets

   —      4,875     2,500    —    
  

 

  

 

   

 

  

 

 

Net cash used in investing activities

   (16,060  (9,712

Net cash provided by (used in) investing activities

   5,121    (8,947
  

 

  

 

   

 

  

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

      

Borrowings from senior credit facility

   159,402    214,131     90,036    110,991  

Payments on senior credit facility

   (167,564  (214,131   (80,366  (54,586

Payments on real estate mortgages

   (396  (403   (206  (200

Payments on capital leases

   (150  (157   (77  (75

Deferred financing fees

   —      (25   (569  —    

Proceeds from exercise of stock options

   197    124     114    —    

Tax benefit from exercise of equity instruments

   (144  96     396    (95
  

 

  

 

   

 

  

 

 

Net cash used in financing activities

   (8,655  (365

Net cash provided by financing activities

   9,328    56,035  
  

 

  

 

   

 

  

 

 

Effect of exchange rate changes on cash and cash equivalents

   (34  (174   408    (161
  

 

  

 

   

 

  

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

   22,229    3,800  

NET DECREASE IN CASH AND CASH EQUIVALENTS

   (24,811  (380

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

   26,989    54,957     43,547    26,989  
  

 

  

 

   

 

  

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $49,218   $58,757    $18,736   $26,609  
  

 

  

 

   

 

  

 

 

 

Continued

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

 

  Three Months Ended 
  Six Months Ended   May 2,   May 3, 
  August 2,
2014
   August 3,
2013
   2015   2014 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

        

Cash paid during the period for:

        

Interest

  $6,883    $7,149    $6,418    $6,490  
  

 

   

 

   

 

   

 

 

Income taxes

  $464    $1,432    $57    $287  
  

 

   

 

   

 

   

 

 

NON-CASH FINANCING AND INVESTING ACTIVITIES:

        

Accrued purchases of property and equipment

  $168    $80    $—      $4  
  

 

   

 

   

 

   

 

 

Note receivable on sale of intangible asset

  $1,250    $—    
  

 

   

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

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 February 1, 2014,January 31, 2015, filed with the Securities and Exchange Commission on April 15, 2014.14, 2015.

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 March 2013,April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-05,“Foreign Currency Matters.”Accounting Standards Update (“ASU”) No. 2013-05 indicates that a cumulative translation adjustment (“CTA”) is attached to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). ASU No. 2013-05 does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. ASU No. 2013-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU No. 2013-05 did not have a material impact on the Company’s results of operations or the Company’s financial position.

In July 2013, the FASB issued ASU No. 2013-11,“Income Taxes (Topic 740): Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.” Under the amendments of this update an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The provisions of this update are effective prospectively for the Company in fiscal years beginning after December 15, 2013, and for the interim periods within such fiscal years with early adoption and retrospective application permitted. The adoption of ASU No. 2013-11 did not have a material impact on the Company’s results of operations or the Company’s financial position.

In April 2014, the FASB issued ASU No. 2014-08,“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU No. 2014-08 amends the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The amendments require expanded disclosures for discontinued operations that would provide users of financial statements with more information about the assets, liabilities, revenues, and expenses of discontinued operations and disclosure of the pretax profit or loss of individually significant components of an entity that do not qualify for discontinued operations reporting. ASU No. 2014-08 is to be applied prospectively to all disposals (or classifications as held for sale) of components of an entity and all businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within fiscal years, and interim periods within those years, beginning after December 15, 2014. The adoption of ASU No. 2014-08 isdid not expected to have a material impact on the Company’s results of operations or the Company’s financial position.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU No. 2014-09 clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”) that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Companies can choose to apply the ASU using either the full retrospective approach or a modified retrospective approach. The Company is currently evaluating both methods of adoption and the impact, if any, that the adoption of this ASU will have on the Company’s results of operations or the Company’s financial position.

In June 2014, the FASB issued ASU No. 2014-12,“Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force).” ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU No. 2014-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Earlier adoption is permitted. The amendments can be applied either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards. The Company is currently evaluating both methods of adoption and the impact, if any, that the adoption of this ASU will have on the Company’s results of operations or the Company’s financial position.

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis”, which changes the guidance for evaluating whether to consolidate certain legal entities. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities. Additionally, the amendments eliminate the presumption that a general partner should consolidate a limited partnership, as well as affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for periods beginning after December 15, 2015 and early adoption is permitted, including adoption during an interim period. Companies have an option of using either a full retrospective or modified retrospective adoption approach. The Company is currently evaluating the impact that the adoption of ASU 2015-02 will have on its consolidated financial statements.

In March 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30)”, which is simplifying the Presentation of Debt Issuance Costs. The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for interim periods beginning after December 15, 2015. The Company expects the adoption of the standard will result in the presentation of debt issuance costs, which are currently included in other assets, in the condensed consolidated balance sheets, as a direct deduction from the carrying amount of the related debt instrument.

3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of:

 

  August 2, February 1, 
  2014 2014   May 2,
2015
   January 31,
2015
 
  (in thousands)   (in thousands) 

Trade accounts

  $122,983   $160,332    $200,002    $150,515  

Royalties

   3,282    5,998     4,579     6,662  

Other receivables

   2,645    1,483     958     1,034  
  

 

  

 

   

 

   

 

 

Total

   128,910    167,813     205,539     158,211  

Less: allowances

   (18,378  (21,421   (24,547   (20,779
  

 

  

 

   

 

   

 

 

Total

  $110,532   $146,392    $180,992    $137,432  
  

 

  

 

   

 

   

 

 

4. INVENTORIES

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

Inventories consisted of the following as of:

 

  August 2,   February 1, 
  2014   2014   May 2,
2015
   January 31,
2015
 
  (in thousands)   (in thousands) 

Finished goods

  $174,177    $205,971    $153,198    $183,468  

Raw materials and in process

   330     631     297     266  
  

 

   

 

   

 

   

 

 

Total

  $174,507    $206,602    $153,495    $183,734  
  

 

   

 

   

 

   

 

 

5. INVESTMENTS

The Company’s investments include marketable securities and certificates of deposit at AugustMay 2, 20142015 and February 1, 2014.January 31, 2015. Marketable securities are classified as available-for-sale and consist of corporate bonds with maturity dates less than two years. Certificates of deposit are classified as available-for-sale with $5.9$6.2 million with maturity dates within one year or less and $3.4$0.6 million with maturity dates over one year and less than two years. Investments are stated at fair value. The estimated fair value of the marketable securities is based on quoted prices in an active market (Level 1 fair value measures).

Investments consisted of the following as of AugustMay 2, 2014:2015:

 

      Gross   Gross Estimated 
  Cost   Unrealized Gains   Unrealized Losses Fair Value   Cost   Gross
Unrealized Gains
   Gross
Unrealized Losses
   Estimated
Fair Value
 
  (in thousands)   (in thousands) 

Marketable securities

  $14,616    $6    $(1 $14,621    $7,207    $1    $(1  $7,207  

Certificates of deposit

   9,363     —       (29  9,334     6,802     1     (1   6,802  
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

 

Total investments

  $23,979    $6    $(30 $23,955    $14,009    $2    $(2  $14,009  
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

 

Investments consisted of the following as of February 1, 2014:January 31, 2015:

 

      Gross   Gross Estimated 
  Cost   Unrealized Gains   Unrealized Losses Fair Value   Cost   Gross
Unrealized Gains
   Gross
Unrealized Losses
   Estimated
Fair Value
 
  (in thousands)   (in thousands) 

Marketable securities

  $10,636    $1    $(39 $10,598    $12,247    $9     —      $12,256  

Certificates of deposit

   4,801     2     (3  4,800     7,742     1     (3   7,740  
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

 

Total investments

  $15,437    $3    $(42 $15,398    $19,989    $10    $(3  $19,996  
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

 

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

 

   August 2,  February 1, 
   2014  2014 
   (in thousands) 

Furniture, fixtures and equipment

  $76,213   $74,188  

Buildings and building improvements

   19,674    19,614  

Vehicles

   632    771  

Leasehold improvements

   44,512    40,335  

Land

   9,488    9,488  
  

 

 

  

 

 

 

Total

   150,519    144,396  

Less: accumulated depreciation and amortization

   (88,887  (84,484
  

 

 

  

 

 

 

Total

  $61,632   $59,912  
  

 

 

  

 

 

 

   May 2,
2015
   January 31,
2015
 
   (in thousands) 

Furniture, fixtures and equipment

  $80,890    $79,225  

Buildings and building improvements

   19,880     19,719  

Vehicles

   560     569  

Leasehold improvements

   48,597     47,807  

Land

   9,488     9,488  
  

 

 

   

 

 

 

Total

   159,415     156,808  

Less: accumulated depreciation and amortization

   (94,692   (92,175
  

 

 

   

 

 

 

Total

  $64,723    $64,633  
  

 

 

   

 

 

 

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

 

  August 2, February 1, 
  2014 2014   May 2,
2015
   January 31,
2015
 
  (in thousands)   (in thousands) 

Furniture, fixtures and equipment

  $888   $938    $888    $888  

Less: accumulated depreciation and amortization

   (643  (543   (865   (791
  

 

  

 

   

 

   

 

 

Total

  $245   $395    $23    $97  
  

 

  

 

   

 

   

 

 

For the three months ended AugustMay 2, 20142015 and AugustMay 3, 2013,2014, depreciation and amortization expense relating to property and equipment amounted to $2.9 million. For the six months ended August 2, 2014 and August 3, 2013, depreciation and amortization expense relating to property and equipment amounted to $5.8$3.3 million and $5.6$2.9 million, respectively.respectively, for each of the periods. These amounts include amortization expense for leased property under capital leases.

7. OTHER INTANGIBLE ASSETS

Trademarks

Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $202.3 million at May 2, 2015 and $205.5 million and $205.9 million at August 2, 2014 and February 1, 2014, respectively.January 31, 2015.

On August 1, 2014,March 19, 2015, the Company entered into an agreement to sell the intellectual property of its C&C California brand to a third party. The sales agreement, inprice was $2.5 million, which was collected during the amountfirst quarter of $1.3 million, for the sale of Australian, Fiji and New Zealand trademark rightsfiscal 2016. In connection with respect to Jantzen. Payments on the purchase price are due in five installments of $250,000 over a five year period. Interest on the purchase price that remains unpaid will accrue at a rate of 3.5% per annum calculated on an annual basis. The first payment is due within four days of the completion date and has been paid. The remaining four payments are to be paid annually commencing on August 1, 2015 with the final payment to be made on August 1, 2018. As a result of this transaction, the Company recorded a gainloss of $0.9 million in the licensing segment.

During the fourth quarter of fiscal 2013, the Company entered into a sales agreement, in the amount of $7.5 million, for certain Asian trademark rights with respect to John Henry. This transaction closed in the first quarter of fiscal 2014. The Company collected proceeds of $4.9 million and $2.6 million during the first quarter of fiscal 2014 and the fourth quarter of fiscal 2013, respectively. As a result of this transaction, the Company recorded a gain of $6.3($0.7) million in the licensing segment.

Other

Other intangible assets consisted of the following as of:represent:

 

  August 2, February 1, 
  2014 2014   May 2,
2015
   January 31,
2015
 
  (in thousands)   (in thousands) 

Customer lists

  $8,450   $8,450    $8,450    $8,450  

Less: accumulated amortization

   (3,324  (2,863   (4,006   (3,782
  

 

  

 

   

 

   

 

 

Total

  $5,126   $5,587    $4,444    $4,668  
  

 

  

 

   

 

   

 

 

For the three months ended AugustMay 2, 20142015 and AugustMay 3, 2013,2014, amortization expense relating to customer lists amounted to $0.3approximately $0.2 million, respectively, for each of the periods. For the six months ended August 2, 2014 and August 3, 2013, amortization expense relating to customer lists amounted to $0.5 million, for each period. Other intangible assets are amortized over their estimated useful lives of 10 years. Assuming no impairment, the estimated amortization expense for future periods based on recorded amounts as of AugustMay 2, 2014,2015, will be approximately $0.9 million a year from fiscal 20152016 through fiscal 2017, and approximately $0.8 million a year from fiscal 2018 through fiscal 2019.2019, approximately $0.7 million for fiscal 2020 and approximately $0.5 million for fiscal 2021.

8. LETTER OF CREDIT FACILITIES

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

 

  August 2, February 1, 
  2014 2014   May 2,
2015
   January 31,
2015
 
  (in thousands)   (in thousands) 

Total letter of credit facilities

  $45,337   $45,329    $30,305    $45,301  

Outstanding letters of credit

   (11,595  (11,858   (11,595   (11,595
  

 

  

 

   

 

   

 

 

Total credit available

  $33,742   $33,471    $18,710    $33,706  
  

 

  

 

   

 

   

 

 

During the first quarter of fiscal 2016, a $15 million line of credit expired and was not renewed.

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 $3.1$3.8 million and $4.1$4.7 million for the three months ended AugustMay 2, 20142015 and AugustMay 3, 2013, respectively, and $7.8 million and $8.7 million for the six months ended August 2, 2014, and August 3, 2013, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.expenses.

10. NET (LOSS) INCOME PER SHARE

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average shares of outstanding common stock. The calculation of diluted net (loss) income per share is similar to basic earnings per share except that the denominator includes potentially dilutive common stock. The potentially dilutive common stock included in the Company’s computation of diluted net income per share includes the effects of stock options, stock appreciation rights (“SARS”), and unvested restricted shares as determined using the treasury stock method.

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

 

  Three Months Ended Six Months Ended 
  August 2, August 3, August 2,   August 3,   Three Months Ended 
  2014 2013 2014   2013   May 2,
2015
   May 3,
2014
 
  (in thousands, except per share data)   (in thousands, except per share data) 

Numerator:

          

Net (loss) income

  $(1,616 $(2,830 $6,159    $8,490  

Net income

  $9,411    $7,775  

Denominator:

          

Basic-weighted average shares

   14,906    15,112    14,844     15,068     14,649     14,782  

Dilutive effect: equity awards

   —      —      298     338     512     228  
  

 

  

 

  

 

   

 

   

 

   

 

 

Diluted-weighted average shares

   14,906    15,112    15,142     15,406     15,161     15,010  
  

 

  

 

  

 

   

 

   

 

   

 

 

Basic (loss) income per share

  $(0.11 $(0.19 $0.41    $0.56  

Basic income per share

  $0.64    $0.53  
  

 

  

 

  

 

   

 

   

 

   

 

 

Diluted (loss) income per share

  $(0.11 $(0.19 $0.41    $0.55  

Diluted income per share

  $0.62    $0.52  
  

 

  

 

  

 

   

 

   

 

   

 

 

Antidilutive effect:(1)

   1,825    1,945    1,109     1,939     479     1,360  
  

 

  

 

  

 

   

 

   

 

   

 

 

 

(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:

 

  Changes in Equity   Changes in Equity 
  (in thousands)   (in thousands) 

Equity at February 1, 2014

  $347,533  

Equity at January 31, 2015

  $302,017  

Comprehensive income

   6,971     10,477  

Share transactions under employee equity compensation plans

   2,892     895  
  

 

   

 

 

Equity at August 2, 2014

  $357,396  

Equity at May 2, 2015

  $313,389  
  

 

   

 

 

Equity at February 2, 2013

  $371,240  

Equity at February 1, 2014

  $347,533  

Comprehensive income

   7,591     8,529  

Share transactions under employee equity compensation plans

   2,742     1,141  
  

 

   

 

 

Equity at August 3, 2013

  $381,573  

Equity at May 3, 2014

  $357,203  
  

 

   

 

 

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in accumulated other comprehensive loss by component, net of tax:

 

  Unrealized Foreign Unrealized     Unrealized
(Loss) Gain on
Pension Liability
   Foreign
Currency Translation
Adjustments, Net
   Unrealized
Gain (Loss) on
Investments
   Total 
  (Loss) Gain on Currency Translation (Loss) Gain on     (in thousands) 
  Pension Liability Adjustments, Net Investments Total 
  (in thousands) 

Balance, February 1, 2014

  $(5,866 $(1,563 $(39 $(7,468

Balance, January 31, 2015

  $(8,085  $(4,774  $7    $(12,852

Other comprehensive income before reclassifications

   —      638    15    653     —       938     (7   931  

Amounts reclassified from accumulated other comprehensive income

   159    —      —      159     135     —       —       135  
  

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

 

Balance, August 2, 2014

  $(5,707 $(925 $(24 $(6,656

Balance, May 2, 2015

  $(7,950  $(3,836  $0    $(11,786
  

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

 

A summary of the impact on the condensed consolidated statementsstatement of operationsincome line items is as follows:

 

  Three Months Ended      Three Months Ended    
  August 2, 2014   August 3, 2013      May 2, 2015   May 3, 2014    
  (in thousands)      (in thousands)    

Amortization of defined benefit pension items

            

Actuarial gains

  $130    $133    Selling, general and administrative expenses  $135    $130    Selling, general and administrative expenses

Tax provision

   51     52    Income tax provision   —       50    Income tax provision
  

 

   

 

     

 

   

 

   

Total, net of tax

  $79    $81      $135    $80    
  

 

   

 

     

 

   

 

   
  Six Months Ended    
  August 2, 2014   August 3, 2013    
  (in thousands)    

Amortization of defined benefit pension items

      

Actuarial gains

  $260    $266    Selling, general and administrative expenses

Tax provision

   101     104    Income tax provision
  

 

   

 

   

Total, net of tax

  $159    $162    
  

 

   

 

   

13. INCOME TAXES

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company’s U.S. federal income tax returns for fiscal 2011 through fiscal 20142015 are open tax years. The Company’s state tax filings are subject to varying statutes of limitations. The Company’s unrecognized state tax benefits are related to open tax years from fiscal 2005 through fiscal 2015,2016, depending on each state’s particular statute of limitation. As of AugustMay 2, 2014,2015, the fiscal 2011 and 2012 U.S. federal income tax return isreturns are under examination as well as various state, local, and foreign income tax returns by various taxing authorities.

The Company has a $0.8$1.0 million liability recorded for unrecognized tax benefits as of February 1, 2014,January 31, 2015, which includes interest and penalties of $0.3$0.2 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 and six months ended AugustMay 2, 2014,2015, the total amount of unrecognized tax benefits decreasedincreased by approximately $12,000 and $81,000, respectively.$118,000. The change to the total amount of the unrecognized tax benefit for the three and six months ended AugustMay 2, 20142015 included an increase in interest and penalties of approximately $6,000 and a decrease$20,000.

The Company expects to complete the ongoing examination with the state of approximately $103,000, respectively.

New York within the next twelve months. The Company does not currently anticipate a resolution within the next twelve months for any of the remaining unrecognized tax benefits as of AugustMay 2, 2014. However, the2015. The statute of limitations related to the Company’s 2011fiscal 2011and 2012 U.S. federal tax year will expireyears has been extended as part of the examination and is not be expected to lapse within the next twelve months.

During the fourth quarter of fiscal 2015, the Company recognized a valuation allowance of $42.4 million against the remaining deferred tax assets, utilization of which is not restricted by factors beyond the Company’s control. The lapseestablishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. While the Company recognized pretax earnings in the statutefirst quarter of limitations wouldfiscal 2016, by itself that does not represent sufficient positive evidence that deferred tax asset will be expectedrealized to decreasewarrant removing the valuation allowances established against the U.S. deferred tax expense withinassets. Deferred tax assets without valuation allowances remain in certain foreign tax jurisdictions, where supported by the next twelve months. The expiration of the statute of limitations related to the Company’s 2011 U.S. federal tax year could result in a tax benefit of up to approximately $0.1 million.evidence.

14. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES

During the first and second quarters of fiscalthree months ended May 2, 2015, the Company granted an aggregate of 240,852 and 12,50473,489 shares of restricted stock to certain key employees, which vest primarily over a three-year period, at an estimated value of $3.6 million and $0.2 million, respectively. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

During the second quarter of fiscal 2015, the Company awarded to five directors an aggregate of 16,950 shares of restricted stock, which vest over a three year period at an estimated fair value of $0.3$1.8 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

Also, during the first and second quarters of fiscal 2015, the Company granted an aggregate of 5,883 and 5,157 SARs, to be settled in shares of common stock, to a director, respectively. The SARs have an exercise price of $15.49 and $17.71, respectively, generally vest over a three-year period and have a seven-year term. The total fair value of the SARs, based on theBlack-Scholes Option Pricing Model, amounted to approximately $50,000 and $50,000, which is being recorded as compensation expense on a straight-line basis over the vesting period of each SAR.

In April and May 2014,2015, a total of 42,132 and 1,00091,083 shares of restricted stock vested, of which 17,929 and 40427,325 shares were withheld to cover the employees’ statutory income tax requirements, respectively.requirements. The estimated value of the withheld shares was $0.3 million and $6,000, respectively.$0.7 million.

15. 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 the Company’s brand names, principally Perry Ellis, Jantzen, John Henry, Original Penguin, Gotcha, Farah, Savane, Pro Player, Laundry, Manhattan and Munsingwear.

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

   Three Months Ended  Six Months Ended 
   August 2,  August 3,  August 2,  August 3, 
   2014  2013  2014  2013 
   (in thousands) 

Revenues:

     

Men’s Sportswear and Swim

  $147,175   $152,594   $342,174   $351,271  

Women’s Sportswear

   26,240    32,326    60,727    72,120  

Direct-to-Consumer

   22,595    19,572    43,025    36,585  

Licensing

   7,522    7,213    14,920    14,048  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenues

  $203,532   $211,705   $460,846   $474,024  
  

 

 

  

 

 

  

 

 

  

 

 

 

Depreciation and amortization:

     

Men’s Sportswear and Swim

  $1,564   $1,777   $3,198   $3,471  

Women’s Sportswear

   496    425    957    825  

Direct-to-Consumer

   889    777    1,735    1,438  

Licensing

   39    31    78    68  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total depreciation and amortization

  $2,988   $3,010   $5,968   $5,802  
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss) :

     

Men’s Sportswear and Swim

  $(1,779 $(3,413 $9,254   $7,828  

Women’s Sportswear

   (1,970  (864  (1,573  699  

Direct-to-Consumer

   (1,126  (2,412  (2,978  (5,265

Licensing(1)

   6,378    5,704    11,775    17,243  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating income (loss)

  $1,503   $(985 $16,478   $20,505  

Total interest expense

   3,605    3,722    7,321    7,525  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total net (loss) income before income taxes

  $(2,102 $(4,707 $9,157   $12,980  
  

 

 

  

 

 

  

 

 

  

 

 

 

 

    Three Months Ended 
    May 2,
2015
   May 3,
2014
 
   (in thousands) 

Revenues:

    

Men’s Sportswear and Swim

  $198,453    $194,999  

Women’s Sportswear

   38,823     34,487  

Direct-to-Consumer

   20,981     20,430  

Licensing

   8,157     7,398  
  

 

 

   

 

 

 

Total revenues

  $266,414    $257,314  
  

 

 

   

 

 

 

Depreciation and amortization:

    

Men’s Sportswear and Swim

  $1,875    $1,634  

Women’s Sportswear

   500     461  

Direct-to-Consumer

   904     846  

Licensing

   43     39  
  

 

 

   

 

 

 

Total depreciation and amortization

  $3,322    $2,980  
  

 

 

   

 

 

 

Operating income (loss):

    

Men’s Sportswear and Swim

  $11,330    $11,033  

Women’s Sportswear

   1,382     397  

Direct-to-Consumer

   (1,866   (1,852

Licensing(1)

   5,627     5,397  
  

 

 

   

 

 

 

Total operating income

  $16,473    $14,975  

Total interest expense

   3,627     3,716  
  

 

 

   

 

 

 

Total net income before income taxes

  $12,846    $11,259  
  

 

 

   

 

 

 

 

(1)

Operating income for the licensing segment for the three months ended AugustMay 2, 2014,2015 includes a gainloss on sale of long-lived assets in the amount of $0.9($0.7) million. Operating income for the licensing segment for the six months ended August 2, 2014 and August 3, 2013 includes a gain on sale of long-lived assets in the amount of $0.9 million and $6.3 million, respectively. See footnote 7 to the consolidated financial statements for further information.

16. 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 three and six monthsquarter of fiscal 20152016 and 2014:2015:

 

  Three Months Ended Six Months Ended 
  August 2, August 3, August 2, August 3,   Three Months Ended 
  2014 2013 2014 2013   May 2,
2015
   May 3,
2014
 
  (in thousands)   (in thousands) 

Service cost

  $63   $63   $126   $126    $63    $63  

Interest cost

   433    406    866    812     337     433  

Expected return on plan assets

   (508  (555  (1,016  (1,110   (658   (508

Amortization of net loss

   130    133    260    266  

Amortization of net gain

   135     130  
  

 

  

 

  

 

  

 

   

 

   

 

 

Net periodic benefit cost

  $118   $47   $236   $94  

Net periodic benefit cost (income)

  $(123  $118  
  

 

  

 

  

 

  

 

   

 

   

 

 

17. SENIOR CREDIT FACILITY

On April 22, 2015, the Company amended and restated its existing senior credit facility (the “Credit Facility”), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $200 million. The Credit Facility has been extended through April 30, 2020 (“Maturity Date”). In connection with this amendment and restatement, the Company paid fees in the amount of $0.6 million. These fees will be amortized over the term of the credit facility as interest expense. At May 2, 2015, we had outstanding borrowings of $9.7 million under the Credit Facility. At January 31, 2015, the Company had no outstanding borrowings under the Credit Facility.

Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require the Company to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. The Company is not aware of any non-compliance with any of its covenants in this Credit Facility. These covenants may restrict its ability and the ability of its subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. The Company 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. The Company could be materially harmed if it violates 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 the Company is unable to repay those amounts, the lenders could proceed against its assets and the assets of its 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 its other outstanding indebtedness, such as the indenture relating to its 7 7/8% senior subordinated notes due April 1, 2019, its letter of credit facilities, or its real estate mortgage loans. Such a cross-default could result in all of its debt obligations becoming immediately due and payable, which it 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) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.

Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.

Security. As security for the indebtedness under the Credit Facility, the Company 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 its 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 its non-U.S. subsidiaries and all of its trademark portfolio.

18. FAIR VALUE MEASUREMENTS

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

Investments. (classified within Level 1 of the valuation hierarchy) - The carrying amounts of the available-for-sale investments are measured at fair value on a recurring basis in the consolidated balance sheets.

Real estate mortgages. (classified within Level 2 of the valuation hierarchy) - The carrying amounts of the real estate mortgages were approximately $23.0 million at May 2, 2015 and $24.0 million at August 2, 2014 and February 1, 2014,January 31, 2015, respectively. The carrying values of the real estate mortgages at AugustMay 2, 20142015 and February 1, 2014January 31, 2015, approximate their fair valuevalues 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 subordinated notes payable. (classified within Level 1 of the valuation hierarchy) - The carrying amounts of the 77/8% senior subordinated notes payable were approximately $150.0 million at AugustMay 2, 20142015 and February 1, 2014. As of August 2, 2014 and February 1, 2014, theJanuary 31, 2015. The fair value of the 77/8% senior subordinated notes payable was $155.1approximately $156.0 million and $160.0$157.0 million as of May 2, 2015 and January 31, 2015, respectively, based on quoted market prices.

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

18. RELATED PARTY TRANSACTIONS

The Company leases approximately 66,000 square feet comprised of approximately 16,000 square feet for administrative offices, approximately 45,000 square feet for warehouse distribution and approximately 5,000 square feet for retail. These facilities, which are owned by the Company’s Chairman of the Board of Directors and Chief Executive Officer, were originally leased by the Company under a 10-year lease for the office space and a 10-year lease for the warehouse space. These facilities are in close proximity to the Company Headquarter. During fiscal 2015, the Company amended the leases to extend the term for 60 months, beginning July 1, 2014 and expiring June 30, 2019. Beginning July 1, 2014, the basic monthly rent will be $41,750 and will increase 3% on the first of each of the remaining 12-month periods during the extended term. The Company’s Governance Committee reviewed the terms of the lease extensions to ensure that they were reasonable and at market. This review included information from third party sources.

19. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in Humberto Ordaz v. Perry Ellis International, Inc., Case No. BC490485 (Cal. Sup. Ct. 2012), involving claims for unpaid wages, missed breaks and related claims, which was originally filed on August 17, 2012 by a former employee in the Company’s California administrative offices. The lawsuit has been pleaded but not certified as a class action. Mediation has been scheduled for the third quarter of fiscal 2015, and formal discovery has been deferred until after the mediation. The Company believes that it has meritorious defenses to the claims alleged and is vigorously defending the matter.

20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Company and several of its subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. These guarantees are subject to release in limited circumstances (only upon the occurrence of certain customary conditions). The following are condensed consolidating financial statements, which present, in separate columns: Perry Ellis International, Inc., (Parent Only), the Guarantors on a combined, or where appropriate, consolidated basis, and the Non-Guarantors on a combined, or where appropriate, consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of AugustMay 2, 20142015 and February 1, 2014January 31, 2015 and for the three and six months ended AugustMay 2, 20142015 and AugustMay 3, 2013.2014. 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.

Subsequent to the issuance of the February 2, 2013 financial statements, the Company determined that the condensed consolidating guarantor financial statements required an adjustment relating to the cash flow classification of certain intercompany transactions between the parent and its affiliates. As a result, the condensed consolidating financial statements have been adjusted to correct prior year amounts in the Condensed Consolidated Statements of Cash Flows to reflect certain intercompany activities between the parent and its subsidiaries as cash flows from investing activities that had previously been reflected within cash flows from financing activities.

The effect on the condensed consolidating statement of cash flows as a result of the adjustment in intercompany activities is a decrease of approximately ($1.4) million in net cash from financing activities in the parent only column for the six months ended August 3, 2013, respectively, with a corresponding change to the net cash from investing activity in the parent only column from the previously reported amounts.

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

AS OF AUGUSTMAY 2, 20142015

(amounts in thousands)

 

  Parent Only   Guarantors   Non-
Guarantors
   Eliminations Consolidated   Parent Only   Guarantors   Non-Guarantors   Eliminations Consolidated 

ASSETS

                  

Current Assets:

                  

Cash and cash equivalents

  $—      $21,409    $27,809    $—     $49,218    $—      $3,193    $15,543    $—     $18,736  

Accounts receivable, net

   —       88,389     22,143     —      110,532     —       153,189     27,803     —      180,992  

Intercompany receivable, net

   177,595     —       —       (177,595  —       174,586     —       —       (174,586  —    

Inventories

   —       152,013     22,494     —      174,507     —       129,691     23,804     —      153,495  

Investment, at fair value

   —       —       23,955     —      23,955     —       —       14,009     —      14,009  

Deferred income taxes

   —       14,987     371     —      15,358     —       —       741     —      741  

Prepaid income taxes

   5,439     —       662     1,245    7,346     4,018     —       188     1,245    5,451  

Prepaid expenses and other current assets

   —       8,661     889     —      9,550     —       5,345     1,014     —      6,359  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

Total current assets

   183,034     285,459     98,323     (176,350  390,466     178,604     291,418     83,102     (173,341  379,783  

Property and equipment, net

   —       56,866     4,766     —      61,632     —       60,288     4,435     —      64,723  

Other intangible assets, net

   —       177,022     33,638     —      210,660     —       173,143     33,638     —      206,781  

Goodwill

   —       6,022     —       —      6,022     —       6,022     —       —      6,022  

Investment in subsidiaries

   326,085     —       —       (326,085  —       284,125     —       —       (284,125  —    

Other assets

   2,267     1,843     1,647     —      5,757     1,697     2,424     1,385     —      5,506  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

TOTAL

  $511,386    $527,212    $138,374    $(502,435 $674,537    $464,426    $533,295    $122,560    $(457,466 $662,815  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

LIABILITIES AND EQUITY

                  

Current Liabilities:

                  

Accounts payable

  $—      $65,599    $10,921    $—     $76,520    $—      $64,493    $6,337    $—     $70,830  

Accrued expenses and other liabilities

   —       18,227     4,867     (451  22,643     —       23,119     4,253     —      27,372  

Accrued interest payable

   3,990     —       —       —      3,990     1,037     —       —       —      1,037  

Income taxes payable

   —       452     —       (452  —    

Unearned revenues

   —       3,368     1,889     —      5,257     —       3,356     1,909  ��  —      5,265  

Intercompany payable , net

   —       151,587     27,568     (179,155  —    

Deferred pension obligation

   —       8,911     74     —      8,985  

Deferred income taxes

   —       797     —       —      797  

Intercompany payable, net

   —       155,841     23,191     (179,032  —    
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

Total current liabilities

   3,990     238,781     45,245     (179,606  108,410     1,037     256,969     35,764     (179,484  114,286  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

Senior subordinated notes payable, net

   150,000     —       —       —      150,000     150,000     —       —       —      150,000  

Senior credit facility

   —       9,670     —       —      9,670  

Real estate mortgages

   —       22,461     —       —      22,461     —       21,882     —       —      21,882  

Deferred pension obligation

   —       8,608     82     —      8,690  

Unearned revenues and other long-term liabilities

   —       14,209     2,039     —      16,248     —       13,633     1,074     —      14,707  

Deferred income taxes

   —       9,636     —       1,696    11,332     —       37,182     3     1,696    38,881  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

Total long-term liabilities

   150,000     54,914     2,121     1,696    208,731     150,000     82,367     1,077     1,696    235,140  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

Total liabilities

   153,990     293,695     47,366     (177,910  317,141     151,037     339,336     36,841     (177,788  349,426  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

Total equity

   357,396     233,517     91,008     (324,525  357,396     313,389     193,959     85,719     (279,678  313,389  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

TOTAL

  $511,386    $527,212    $138,374    $(502,435 $674,537    $464,426    $533,295    $122,560    $(457,466 $662,815  
  

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF FEBRUARY 1, 2014JANUARY 31, 2015

(amounts in thousands)

 

   Parent Only   Guarantors   Non-
Guarantors
   Eliminations  Consolidated 

ASSETS

         

Current Assets:

         

Cash and cash equivalents

  $—      $—      $29,988    $(2,999 $26,989  

Accounts receivable, net

   —       123,539     22,853     —      146,392  

Intercompany receivable, net

   174,075     —       —       (174,075  —    

Inventories

   —       183,216     23,386     —      206,602  

Investments, at fair value

   —       —       15,398     —      15,398  

Deferred income taxes

   —       13,806     254     —      14,060  

Prepaid income taxes

   5,141     —       1,193     1,245    7,579  

Prepaid expenses and other current assets

   —       6,578     791     —      7,369  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total current assets

   179,216     327,139     93,863     (175,829  424,389  

Property and equipment, net

   —       55,046     4,866     —      59,912  

Other intangible assets, net

   —       177,482     34,003     —      211,485  

Goodwill

   —       6,022     —       —      6,022  

Investment in subsidiaries

   319,926     —       —       (319,926  —    

Other assets

   2,486     1,822     619     —      4,927  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

TOTAL

  $501,628    $567,511    $133,351    $(495,755 $706,735  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

LIABILITIES AND EQUITY

         

Current Liabilities:

         

Accounts payable

  $—      $104,480    $10,961    $(2,999 $112,442  

Accrued expenses and other liabilities

   —       19,294     5,799     (451  24,642  

Accrued interest payable

   4,095     —       —       —      4,095  

Unearned revenues

   —       3,192     1,821     —      5,013  

Intercompany payable, net

   —       151,253     24,997     (176,250  —    
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total current liabilities

   4,095     278,219     43,578     (179,700  146,192  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Senior subordinated notes payable, net

   150,000     —       —       —      150,000  

Senior credit facility

   —       8,162     —       —      8,162  

Real estate mortgages

   —       22,844     —       —      22,844  

Deferred pension obligation

   —       9,792     70     —      9,862  

Unearned revenues and other long-term liabilities

   —       12,064     2,668     —      14,732  

Deferred income taxes

   —       5,712     2     1,696    7,410  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total long-term liabilities

   150,000     58,574     2,740     1,696    213,010  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total liabilities

   154,095     336,793     46,318     (178,004  359,202  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total equity

   347,533     230,718     87,033     (317,751  347,533  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

TOTAL

  $501,628    $567,511    $133,351    $(495,755 $706,735  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS ) INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED AUGUST 2, 2014

(amounts in thousands)

   Parent Only   Guarantors   Non-Guarantors   Eliminations  Consolidated 

ASSETS

         

Current Assets:

         

Cash and cash equivalents

  $—      $30,055    $13,492    $—     $43,547  

Accounts receivable, net

   —       114,325     23,107     —      137,432  

Intercompany receivable, net

   174,264     —       —       (174,264  —    

Inventories

   —       156,107     27,627     —      183,734  

Investments, at fair value

   —       —       19,996     —      19,996  

Deferred income taxes

   —       —       725     —      725  

Prepaid income taxes

   5,275     —       314     795    6,384  

Prepaid expenses and other current assets

   —       6,159     965     —      7,124  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total current assets

   179,539     306,646     86,226     (173,469  398,942  

Property and equipment, net

   —       60,216     4,417     —      64,633  

Other intangible assets, net

   —       176,563     33,638     —      210,201  

Goodwill

   —       6,022     —       —      6,022  

Investment in subsidiaries

   274,714     —       —       (274,714  —    

Other assets

   1,809     1,926     1,456     —      5,191  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

TOTAL

  $456,062    $551,373    $125,737    $(448,183 $684,989  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

LIABILITIES AND EQUITY

         

Current Liabilities:

         

Accounts payable

  $—      $105,046    $12,743    $—     $117,789  

Accrued expenses and other liabilities

   —       17,945     4,410     —      22,355  

Accrued interest payable

   4,045     —       —       —      4,045  

Income taxes payable

   —       901     —       (901  —    

Unearned revenues

   —       3,023     1,833     —      4,856  

Deferred pension obligation

   —       8,878     52     —      8,930  

Deferred income taxes

   —       797     —       —      797  

Intercompany payable, net

   —       156,438     23,211     (179,649  —    
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total current liabilities

   4,045     293,028     42,249     (180,550  158,772  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Senior subordinated notes payable, net

   150,000     —       —       —      150,000  

Real estate mortgages

   —       22,109     —       —      22,109  

Unearned revenues and other long-term liabilities

   —       13,620     1,389     —      15,009  

Deferred income taxes

   —       35,383     3     1,696    37,082  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total long-term liabilities

   150,000     71,112     1,392     1,696    224,200  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total liabilities

   154,045     364,140     43,641     (178,854  382,972  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total equity

   302,017     187,233     82,096     (269,329  302,017  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

TOTAL

  $456,062    $551,373    $125,737    $(448,183 $684,989  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

 

         Non-       
   Parent Only  Guarantors  Guarantors  Eliminations  Consolidated 

Revenues:

      

Net sales

  $—     $173,789   $22,221   $—     $196,010  

Royalty income

   —      4,570    2,952    —      7,522  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenues

   —      178,359    25,173    —      203,532  

Cost of sales

   —      118,314    14,754    —      133,068  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   —      60,045    10,419    —      70,464  

Operating expenses:

      

Selling, general and administrative expenses

   —      56,876    9,982    —      66,858  

Depreciation and amortization

   —      2,752    236    —      2,988  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

   —      59,628    10,218    —      69,846  

Gain on sale of long-lived assets

   —      —      885    —      885  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

   —      417    1,086    —      1,503  

Interest expense

   —      3,615    (10  —      3,605  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss) income before income taxes

   —      (3,198  1,096    —      (2,102

Income tax (benefit) provision

   —      381    (867  —      (486
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity in earnings of subsidiaries, net

   (1,616  —      —      1,616    —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss) income

   (1,616  (3,579  1,963    1,616    (1,616
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss)

   58    79    (21  (58  58  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive (loss) income

  $(1,558 $(3,500 $1,942   $1,558   $(1,558
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED AUGUST 3, 2013

(amounts in thousands)

         Non-        
   Parent Only  Guarantors  Guarantors  Eliminations   Consolidated 

Revenues:

       

Net sales

  $—     $187,666   $16,826   $—      $204,492  

Royalty income

   —      4,288    2,925    —       7,213  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total revenues

   —      191,954    19,751    —       211,705  

Cost of sales

   —      132,900    10,259    —       143,159  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Gross profit

   —      59,054    9,492    —       68,546  

Operating expenses:

       

Selling, general and administrative expenses

   —      58,891    7,630    —       66,521  

Depreciation and amortization

   —      2,821    189    —       3,010  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total operating expenses

   —      61,712    7,819    —       69,531  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Operating (loss) income

   —      (2,658  1,673    —       (985

Interest expense

   —      3,694    28    —       3,722  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Net (loss) income before income taxes

   —      (6,352  1,645    —       (4,707

Income tax (benefit) provision

   —      (1,933  56    —       (1,877
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Equity in earnings of subsidiaries, net

   (2,830  —      —      2,830     —    
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Net (loss) income

   (2,830  (4,419  1,589    2,830     (2,830
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Other comprehensive (loss) income

   (575  81    (656  575     (575
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Comprehensive (loss) income

  $(3,405 $(4,338 $933   $3,405    $(3,405
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE SIXTHREE MONTHS ENDED AUGUSTMAY 2, 20142015

(amounts in thousands)

 

           Non-        
   Parent Only   Guarantors   Guarantors   Eliminations  Consolidated 

Revenues:

         

Net sales

  $—      $399,120    $46,806    $—     $445,926  

Royalty income

   —       9,090     5,830     —      14,920  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total revenues

   —       408,210     52,636     —      460,846  

Cost of sales

   —       272,559     30,158     —      302,717  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Gross profit

   —       135,651     22,478     —      158,129  

Operating expenses:

         

Selling, general and administrative expenses

   —       117,430     19,138     —      136,568  

Depreciation and amortization

   —       5,521     447     —      5,968  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total operating expenses

   —       122,951     19,585     —      142,536  

Gain on sale of long-lived assets

   —       —       885     —      885  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Operating income

   —       12,700     3,778     —      16,478  

Interest expense

   —       7,300     21     —      7,321  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income before income taxes

   —       5,400     3,757     —      9,157  

Income tax provision

   —       2,601     397     —      2,998  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Equity in earnings of subsidiaries, net

   6,159     —       —       (6,159  —    
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income

   6,159     2,799     3,360     (6,159  6,159  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Other comprehensive income

   812     159     653     (812  812  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Comprehensive income

  $6,971    $2,958    $4,013    $(6,971 $6,971  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

   Parent Only   Guarantors  Non-
Guarantors
   Eliminations  Consolidated 

Revenues:

        

Net sales

  $—      $232,279   $25,978    $—     $258,257  

Royalty income

   —       4,912    3,245     —      8,157  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total revenues

   —       237,191    29,223     —      266,414  

Cost of sales

   —       160,251    16,063     —      176,314  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Gross profit

   —       76,940    13,160     —      90,100  

Operating expenses:

        

Selling, general and administrative expenses

   —       59,845    9,763     —      69,608  

Depreciation and amortization

 �� —       3,024    298     —      3,322  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total operating expenses

   —       62,869    10,061     —      72,930  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Loss on sale of long-lived assets

   —       (697  —       —      (697
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Operating income

   —       13,374    3,099     —      16,473  

Interest expense

   —       3,567    60     —      3,627  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Net income before income taxes

   —       9,807    3,039     —      12,846  

Income tax provision

   —       3,081    354     —      3,435  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Equity in earnings of subsidiaries, net

   9,411     —      —       (9,411  —    
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Net income

   9,411     6,726    2,685     (9,411  9,411  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Other comprehensive income

   1,066     135    931     (1,066  1,066  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Comprehensive income

  $10,477    $6,861   $3,616    $(10,477 $10,477  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

FOR THE SIXTHREE MONTHS ENDED AUGUSTMAY 3, 2013

(amounts in thousands)

         Non-       
   Parent Only  Guarantors  Guarantors  Eliminations  Consolidated 

Revenues:

      

Net sales

  $—     $423,911   $36,065   $—     $459,976  

Royalty income

   —      8,322    5,726    —      14,048  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenues

   —      432,233    41,791    —      474,024  

Cost of sales

   —      294,898    21,899    —      316,797  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   —      137,335    19,892    —      157,227  

Operating expenses:

      

Selling, general and administrative expenses

   —      121,845    15,345    —      137,190  

Depreciation and amortization

   —      5,423    379    —      5,802  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

   —      127,268    15,724    —      142,992  

Gain on sale of long-lived assets

   —      (691  6,961    —      6,270  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

   —      9,376    11,129    —      20,505  

Interest expense

   —      7,471    54    —      7,525  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income before income taxes

   —      1,905    11,075    —      12,980  

Income tax provision

   —      2,664    1,826    —      4,490  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity in earnings of subsidiaries, net

   8,490    —      —      (8,490  —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

   8,490    (759  9,249    (8,490  8,490  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other comprehensive (loss) income

   (899  162    (1,061  899    (899
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss)

  $7,591   $(597 $8,188   $(7,591 $7,591  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED AUGUST 2, 2014

(amounts in thousands)

 

         Non-       
   Parent Only  Guarantors  Guarantors  Eliminations  Consolidated 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:

  $(182 $39,319   $4,842   $2,999   $46,978  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

      

Purchase of property and equipment

   —      (6,895  (428  —      (7,323

Purchase of investments

   —      —      (22,897  —      (22,897

Proceeds from investments maturities

   —      —      14,160    —      14,160  

Intercompany transactions

   163     —      (163  —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) investing activities

   163    (6,895  (9,165  (163  (16,060
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

      

Borrowings from senior credit facility

   —      159,402    —      —      159,402  

Payments on senior credit facility

   —      (167,564  —      —      (167,564

Payments on real estate mortgages

   —      (396  —      —      (396

Payments on capital leases

   —      (150  —      —      (150

Proceeds from exercise of stock options

   197    —      —      —      197  

Tax benefit from exercise of equity instruments

   (144  —      —      —      (144

Intercompany transactions

   —      (2,307  2,178    129    —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

   53    (11,015  2,178    129    (8,655

Effect of exchange rate changes on cash and cash equivalents

   (34  —      (34  34    (34
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

   —      21,409    (2,179  2,999    22,229  

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

   —      —      29,988    (2,999  26,989  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $—     $21,409   $27,809   $—     $49,218  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   Parent Only   Guarantors   Non-
Guarantors
   Eliminations  Consolidated 

Revenues:

         

Net sales

  $—      $225,331    $24,585    $—     $249,916  

Royalty income

   —       4,520     2,878     —      7,398  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total revenues

   —       229,851     27,463     —      257,314  

Cost of sales

   —       154,245     15,404     —      169,649  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Gross profit

   —       75,606     12,059     —      87,665  

Operating expenses:

         

Selling, general and administrative expenses

   —       60,554     9,156     —      69,710  

Depreciation and amortization

   —       2,769     211     —      2,980  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total operating expenses

   —       63,323     9,367     —      72,690  

Gain on sale of long-lived assets

   —       —       —       —      —    
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Operating income

   —       12,283     2,692     —      14,975  

Interest expense

   —       3,685     31     —      3,716  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income before income taxes

   —       8,598     2,661     —      11,259  

Income tax provision

   —       2,220     1,264     —      3,484  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Equity in earnings of subsidiaries, net

   7,775     —       —       (7,775  —    
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income

   7,775     6,378     1,397     (7,775  7,775  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Other comprehensive (loss) income

   754     80     674     (754  754  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Comprehensive income

  $8,529    $6,458    $2,071    $(8,529 $8,529  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE SIXTHREE MONTHS ENDED AUGUST 3, 2013MAY 2, 2015

(amounts in thousands)

 

      Non-       Parent Only Guarantors Non-
Guarantors
 Eliminations Consolidated 
  Parent Only Guarantors Guarantors Eliminations Consolidated 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:

  $(1,406 $16,272   $(815 $—     $14,051  

NET CASH USED IN BY OPERATING ACTIVITIES:

  $(1,639 $(34,209 $(3,820 $—     $(39,668
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

            

Purchase of property and equipment

   —      (13,600  (987  —      (14,587   —      (2,969  (350  —      (3,319

Purchase of investments

   —      —      (2,640  —      (2,640

Proceeds from investments maturities

   —      —      8,580    —      8,580  

Proceeds on sale of intangible assets

   —      —      4,875    —      4,875     —      2,500    —      —      2,500  

Intercompany transactions

   1,360    —      —      (1,360  —       721    —      —      (721  —    
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Net cash provided by (used in) investing activities

   1,360    (13,600  3,888    (1,360  (9,712   721    (469  5,590    (721  5,121  
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

            

Borrowings from senior credit facility

   —      214,131    —      —      214,131     —      90,036    —      —      90,036  

Payments on senior credit facility

   —      (214,131  —      —      (214,131   —      (80,366  —      —      (80,366

Payments on real estate mortgages

   —      (403  —      —      (403   —      (206  —      —      (206

Payments on capital leases

   —      (157  —      —      (157   —      (77  —      —      (77

Deferred financing fees

   —      (25  —      —      (25   —      (569  —      —      (569

Proceeds from exercise of stock options

   124    —      —      —      124     114    —      —      —      114  

Tax benefit from exercise of stock options

   96    —      —      —      96  

Tax benefit from exercise of equity instruments

   396    —      —      —      396  

Intercompany transactions

   —      (7,785  6,599    1,186    —       —      (1,002  (127  1,129    —    
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Net cash provided by (used in) financing activities

   220    (8,370  6,599    1,186    (365   510    7,816    (127  1,129    9,328  

Effect of exchange rate changes on cash and cash equivalents

   (174  —      (174  174    (174   408    —      408    (408  408  
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

   —      (5,698  9,498    —      3,800     —      (26,862  2,051    —      (24,811

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

   —      14,825    40,132    —      54,957  

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

   —      30,055    13,492    —      43,547  
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

CASH AND CASH EQUIVALENTS AT END OF YEAR

  $—     $9,127   $49,630   $—     $58,757  

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $—     $3,193   $15,543   $—     $18,736  
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 3, 2014

(amounts in thousands)

   Parent Only  Guarantors  Non-
Guarantors
  Eliminations  Consolidated 

NET CASH (USED IN) OPERATING ACTIVITIES:

  $(4,408 $(45,242 $(656 $2,999   $(47,307
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

      

Purchase of property and equipment

   —      (2,816  (234  —      (3,050

Purchase of investments

   —      —      (15,387  —      (15,387

Proceeds from investments maturities

   —      —      9,490    —      9,490  

Intercompany transactions

   4,664    —      —      (4,664  —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) investing activities

   4,664    (2,816  (6,131  (4,664  (8,947
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

      

Borrowings from senior credit facility

   —      110,991    —      —      110,991  

Payments on senior credit facility

   —      (54,586  —      —      (54,586

Payments on real estate mortgages

   —      (200  —      —      (200

Payments on capital leases

   —      (75  —      —      (75

Tax benefit from exercise of equity instruments

   (95  —      —      —      (95

Intercompany transactions

   —      (4,946  443    4,503    —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash (used in) provided by financing activities

   (95  51,184    443    4,503    56,035  

Effect of exchange rate changes on cash and cash equivalents

   (161  —      (161  161    (161
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

   —      3,126    (6,505  2,999    (380

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

   —      —      29,988    (2,999  26,989  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $—     $3,126   $23,483   $—     $26,609  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

20. SUBSEQUENT EVENT

On April 6, 2015, the Company elected to call for the partial redemption of $100 million of its $150 million outstanding 7.875% Senior Subordinated Notes due 2019 and a notice of redemption was sent to all registered holders of the notes. The terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, the Company completed the redemption of the $100 million of its senior subordinated notes. The Company incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including this redemption premium as well as the write-off of note issuance costs.

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 February 1, 2014,January 31, 2015, filed with the Securities and Exchange Commission on April 15, 2014.14, 2015.

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,“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. Such forward-looking statements include, but are not limited to, statements regarding Perry Ellis’ strategic operating review, growth initiatives and internal operating improvements intended to drive revenues and enhance profitability, the implementation of Perry Ellis’ profitability improvement plan and Perry Ellis’ plans to exit underperforming, low growth brands and businesses. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. 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 as set forth below and 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, including, but not limited to those caused by port disruptions,

 

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,

our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion,

 

potential cyber risk and technology failures that could disrupt operations or result in a data breach,

 

the level of consumer spending for apparel and other merchandise,

 

our ability to compete,

 

exposure to foreign currency risk and interest rate risk,

 

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

 

actions of activist investors and the cost and disruption of responding to those actions, and

 

other factors set forth in this report and in our other 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 February 1, 2014January 31, 2015 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, the recoverability of deferred tax assets and the measurement of retirement related benefits. We believe that there have been no significant changes to our critical accounting policies during the three and six months ended AugustMay 2, 20142015 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 February 1, 2014.January 31, 2015.

Results of Operations

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

 

  Three Months Ended Six Months Ended   Three Months Ended 
  August 2,
2014
 August 3,
2013
 August 2,
2014
 August 3,
2013
   May 2,
2015
 May 3,
2014
 
  (in thousands)   (in thousands) 

Revenues by segment:

        

Men’s Sportswear and Swim

  $147,175   $152,594   $342,174   $351,271    $198,453   $194,999  

Women’s Sportswear

   26,240    32,326    60,727    72,120     38,823    34,487  

Direct-to-Consumer

   22,595    19,572    43,025    36,585     20,981    20,430  

Licensing

   7,522    7,213    14,920    14,048     8,157    7,398  
  

 

  

 

  

 

  

 

   

 

  

 

 

Total revenues

  $203,532   $211,705   $460,846   $474,024    $266,414   $257,314  
  

 

  

 

  

 

  

 

   

 

  

 

 
  Three Months Ended Six Months Ended   Three Months Ended 
  August 2,
2014
 August 3,
2013
 August 2,
2014
 August 3,
2013
   May 2,
2015
 May 3,
2014
 
  (in thousands)   (in thousands) 

Reconciliation of operating income to EBITDA

        

Operating income (loss) by segment:

        

Men’s Sportswear and Swim

  $(1,779 $(3,413 $9,254   $7,828    $11,330   $11,033  

Women’s Sportswear

   (1,970  (864  (1,573  699     1,382    397  

Direct-to-Consumer

   (1,126  (2,412  (2,978  (5,265   (1,866  (1,852

Licensing

   6,378    5,704    11,775    17,243     5,627    5,397  
  

 

  

 

  

 

  

 

   

 

  

 

 

Total operating income (loss)

  $1,503   $(985 $16,478   $20,505  

Total operating income

  $16,473   $14,975  
  

 

  

 

  

 

  

 

   

 

  

 

 

Add:

        

Depreciation and amortization

        

Men’s Sportswear and Swim

  $1,564   $1,777   $3,198   $3,471    $1,875   $1,634  

Women’s Sportswear

   496    425    957    825     500    461  

Direct-to-Consumer

   889    777    1,735    1,438     904    846  

Licensing

   39    31    78    68     43    39  
  

 

  

 

  

 

  

 

   

 

  

 

 

Total depreciation and amortization

  $2,988   $3,010   $5,968   $5,802    $3,322   $2,980  
  

 

  

 

  

 

  

 

   

 

  

 

 

EBITDA by segment:

        

Men’s Sportswear and Swim

  $(215 $(1,636 $12,452   $11,299    $13,205   $12,667  

Women’s Sportswear

   (1,474  (439  (616  1,524     1,882    858  

Direct-to-Consumer

   (237  (1,635  (1,243  (3,827   (962  (1,006

Licensing

   6,417    5,735    11,853    17,311     5,670    5,436  
  

 

  

 

  

 

  

 

   

 

  

 

 

Total EBITDA

  $4,491   $2,025   $22,446   $26,307    $19,795   $17,955  
  

 

  

 

  

 

  

 

   

 

  

 

 

EBITDA margin by segment

        

Men’s Sportswear and Swim

   (0.1%)   (1.1%)   3.6  3.2   6.7  6.5

Women’s Sportswear

   (5.6%)   (1.4%)   (1.0%)   2.1   4.8  2.5

Direct-to-Consumer

   (1.0%)   (8.4%)   (2.9%)   (10.5%)    (4.6%)   (4.9%) 

Licensing

   85.3  79.5  79.4  123.2   69.5  73.5

Total EBITDA margin

   2.2  1.0  4.9  5.5   7.4  7.0

EBITDA consists of earnings before interest, depreciation and amortization and income taxes. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America, and does not represent cash flow from operations. The most directly comparable GAAP financial measure, presented above, is operating income. 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 and six month periods ended August 2, 2014period in the first quarter of the fiscal year ending January 31, 201530, 2016 (“fiscal 2015”2016”) compared with the three and six month periods ended August 3, 2013period in the first quarter of the fiscal year ended February 1, 2014January 31, 2015 (“fiscal 2014”2015”).

Results of Operations—three and six months ended AugustMay 2, 20142015 compared to the three and six months ended August 3, 2013.May 3. 2014.

Net sales. Men’s Sportswear and Swim net sales for the three months ended AugustMay 2, 20142015 were $147.2$198.5 million, a decreasean increase of $5.4$3.5 million, or 3.5%1.8%, from $152.6$195.0 million for the three months ended AugustMay 3, 2013.2014. The net sales decreaseincrease was attributed primarily to increases in Perry Ellis and Original Penguin collections and golf lifestyle apparel, partially offset by decreases in our private and exclusive branded products, partially offset by a 14% increase in golf lifestyle apparel and strength in Original Penguin.

Men’s Sportswear and Swim net sales for the six months ended August 2, 2014 were $342.2 million, a decreasemid-tier sportswear as we reduced penetration of $9.1 million, or 2.6%, from $351.3 million for the six months ended August 3, 2013. The net sales decrease was attributed primarily to planned reductions in private and exclusive brands, partially offset by increases across our golf sportswear brands, Original Penguin and Nike swim.proprietary brands.

Women’s Sportswear net sales for the three months ended AugustMay 2, 20142015 were $26.2$38.8 million, a decreasean increase of $6.1$4.3 million, or 18.9%12.5%, from $32.3$34.5 million for the three months ended AugustMay 3, 2013.2014. The net sales decrease was attributed to a shift in shipments for Rafaella into the second half of fiscal 2105, and lower sales in contemporary Laundry dresses as we refined distribution to focus on full price specialty stores and reduced programs to the special markets channel.

Women’s Sportswear net sales for the six months ended August 2, 2014 were $60.7 million, a decrease of $11.4 million, or 15.8%, from $72.1 million for the six months ended August 3, 2013. The net sales decreaseincrease was primarily due to decreasesincreases in our contemporary Laundry by Shelli Segal dresses and in Rafaella due to a shift in special market business to the second half of fiscal 2015.sportswear, driven by strong performance at retail.

Direct-to-Consumer net sales for the three months ended AugustMay 2, 20142015 were $22.6$21.0 million, an increase of $3.0$0.6 million, or 15.3%2.9%, from $19.6$20.4 million for the three months ended AugustMay 3, 2013. The net sales increase was attributed to a 2.7% comparable same store sales increase driven by increased conversion as well as a higher average dollar per transaction in both Perry Ellis and Original Penguin stores. We also experienced increases in ecommerce comparable sales of 20% over last year.

Direct-to-Consumer net sales for the six months ended August 2, 2014 were $43.0 million, an increase of $6.4 million, or 17.5%, from $36.6 million for the six months ended August 3, 2013.2014. The increase was driven by e-commerce, which posted a 4.0%45% increase in comparable sales, partially offset by retail stores sales decline of 1.4% in comparable same store sales increase driven by Perry Ellissales. Business is responding strongly to our spring assortments which hit selling floors a few weeks late as well as by our direct e-commerce sales, which posted a 30.0% comparable sales increase.result of the west coast port slow down issues.

Royalty income. Royalty income for the three months ended AugustMay 2, 20142015 was $7.5$8.2 million, an increase of $0.3$0.8 million, or 4.2%10.8%, from $7.2$7.4 million for the three months ended AugustMay 3, 2013. The net sales increase was attributed to Original Penguin partnerships for footwear and international licensed retail stores, as well as eight new licensing agreements executed during the period.

Royalty income for the six months ended August 2, 2014 was $14.9 million, an increase of $0.9 million, or 6.4%, from $14.0 million for the six months ended August 3, 2013.2014. Royalty income increases were attributed to increases in theour Perry Ellis, and Original Penguin and Laundry businesses as well as increases in our licensed only businesses.the new licenses signed last year.

Gross profit.Gross profit was $70.5$90.1 million for the three months ended AugustMay 2, 2014,2015, an increase of $2.0$2.4 million, or 2.9 %,2.7%, from $68.5$87.7 million for the three months ended AugustMay 3, 2013. The increase is attributed to growth in direct-to-consumer, international expansion in Europe as well as increases in golf life style apparel and in Original Penguin sportswear. Gross profit was $158.1 million for the six months ended August 2, 2014, an increase of $0.9 million, or 0.6%, from $157.2 million for the six months ended August 3, 2013.2014. This increase is attributed to netthe sales increasesmix composition described above and the factors described within the gross profit margin section below.

Gross profit margin. As a percentage of total revenue, gross profit margins were 34.6%33.8% for the three months ended AugustMay 2, 2014,2015, as compared to 32.4%34.1% for the three months ended August 3, 2013, an expansionMay 2, 2014, a decrease of 22030 basis points. The increase wasThis decrease is primarily attributed to an emphasis on higher margin channels and geographies,associated with the exit of the Elite component of our Nike licensed business, the inventory liquidation of divested C&C California, as well as the direct-to-consumer segment mix through lower promotions in all venues. For the six months ended August 2, 2014, gross profit margins were 34.3% as a percentageconsolidation of total revenue as compared to 33.2% for the six months ended August 3, 2013, an increase of 110 basis points. This increase is primarily associated with factors described above as well as higher margins in our Perry EllisBeijing sourcing office, partially offset by expansion across our licensing and Rafaella collection businesses. The margin expansion also reflected reduced freight costs as a result of the infrastructure rationalization program initiated last year.core domestic collections.

Selling, general and administrative expensesexpenses.. Selling, general and administrative expenses for the three months ended AugustMay 2, 20142015 were $66.9$69.6 million, an increasea decrease of $0.4$0.1 million, or 0.6%0.1%, from $66.5$69.7 million for the three months ended AugustMay 3, 2013.2014. We realized favorability from reduced headcount and tighter expense control across in our infrastructure . The increase reflectsdecrease was partially offset by restructuring costs associated with streamlining and consolidation of

our operations including direct-to-consumer and private label business exits. The increase also reflects additional investment in brand marketing initiatives for our national brands, investment in Europe for our golf platform and Original Penguinrelated to exited businesses as well as negative currency translation of $0.3 million due to the strengthening of the US dollar. These increases were partially offset by reduced employee costs, travel costs and professional fees.

Selling, general and administrative expenses for the six months ended August 2, 2014 were $136.6 million, a decrease of $0.6 million, or 0.4%, from $137.2 million for the six months ended August 3, 2013. from the decrease was due to reduced headcount in our infrastructure, as well as, reduced design, travel, samples and professional fees expenses. These reductions were partially offset by costs associated with streamlining and consolidation of our operations as describe above. We also made additional investment in brand marketing for our national brands as well as investment in Europe for our golf platform and Original Penguin during this period. Also, during the six months ended August 3, 2013 we experienced costs in the amount of $1.2 million related to our relocation of our New York offices and $0.8 million inexit costs associated with the saleconsolidation of the Asian rights of the John Henry trademark that were not repeated during the six months ended August 2, 2014.our N.Y. corporate office space.

EBITDA. Men’s Sportswear and Swim EBITDA margin for the three months ended AugustMay 2, 20142015 increased 100by 20 basis points to (0.1%),6.7% from (1.1%)6.5% for the three months ended AugustMay 3, 2013. Men’s Sportswear and Swim EBITDA margin for the six months ended August 2, 2014 increased 40 basis points to 3.6%, from 3.2% for the six months ended August 3, 2013.2014. The EBITDA margin was favorably impacted from cost savings asby the increase in net sales described above. Because of this increase in revenue, we were able to realize a result of ourfavorable leverage in selling, general and administrative expenses, more specifically on payroll and advertising expenses, which was partially offset by the increased infrastructure reviewexpenditures planned in this segment, as well as increases in our golf and sportswear brands. During fiscal 2014, the margin was also negatively impacted byexit costs associated with our relocationthe Elite component of our New York offices.Nike licensed business.

Women’s Sportswear EBITDA margin for the three months ended AugustMay 2, 2014 decreased 4202015 increased 230 basis points to (5.6%)4.8%, from (1.4%)2.5% for the three months ended AugustMay 3, 2013. Women’s Sportswear EBITDA margin for the six months ended August 2, 2014 decreased 310 basis points to (1.0%), from 2.1% for the six months ended August 3, 2013.2014. The EBITDA margin was negativelyfavorably impacted by the reduced leverage due to the decreaseincrease in net sales described above. However, the margin was positively impacted by theBecause of this increase in gross margin experiencedrevenue, we were able to realize favorable leverage in Rafaella sportswear. During fiscal 2014, the marginselling, general and administrative expenses, more specifically on payroll and other overhead, which was negatively impactedpartially offset by an increase in exit costs associated with the relocation of our New York offices.C&C California.

Direct-to-Consumer EBITDA margin for the three months ended AugustMay 2, 20142015 increased 74030 basis points to (1.0%(4.6%), from (8.4%(4.9%) for the three months ended AugustMay 3, 2013. Direct-to-Consumer EBITDA margin for the six months ended August 3, 2013 increased 760 basis points to (2.9%), from (10.5%) for the six months ended August 3, 2013.2014. The increase was primarily attributable to the increase inof revenue from our stores and e-commerce business, as described above. Because of this increase in revenue, we were able to realize a favorable leverage in selling, general and administrative expenses.

Licensing EBITDA margin for the three months ended AugustMay 2, 2014 increased 580 basis points2015 decreased to 85.3%69.5%, from 79.5%73.5% for the three months ended AugustMay 3, 2013. The increase is primarily attributed to2014. As described below, during the increase in royalty income attributed to Original Penguin partnerships for footwear and international licensed retail stores, as well as eight new licensing agreements. Additionally the margin was positively impacted by the sale of certain Jantzen rights as described below. Licensing EBITDA margin for the sixthree months ended AugustMay 2, 2014 decreased to 79.4%, from 123.2% for the six months ended August 3, 2013. During the six months ended August 3, 2013,2015, we had a gainloss on the sale of the Asian rights of the John HenryC&C California brand as described below. The gainwhich was the primary reason for the higherlower EBITDA margin in the first halfquarter of fiscal 2014.2016.

Depreciation and amortization. Depreciation and amortization for the three months ended AugustMay 2, 2014,2015, was $3.0$3.3 million, remaining flat,an increase of $0.3 million, or 10.0%, from $3.0 million for the three months ended AugustMay 3, 2013. Depreciation and amortization for the six months ended August 2, 2014, was $6.0 million, an increase of $0.2 million, or 3.4%, from $5.8 million for the six months ended August 3, 2013.2014. The increase is attributed to depreciation related to our capital expenditures, primarily in the direct-to-consumer segment, and leasehold improvements.improvements made during fiscal 2015.

GainLoss on sale of long-lived assetsassets.. During the secondfirst quarter of fiscal 2015,2016, we entered into an agreement to sell the intellectual property of our C&C California brand to a sales agreement, in the amount of $1.3 million, for the sale of Australian, Fiji and New Zealand trademark rights with respect to Jantzen. Payments on the purchase price are due in five installments of $250,000 over a five year period. Interest on the purchase price that remains unpaid will accrue at a rate of 3.5% per annum calculated on an annual basis.third party. As a result of this transaction, we recorded a gainloss of $0.9($0.7) million in the licensing segment.

During the fourth quarter of fiscal 2013, we entered into a sales agreement, in the amount of $7.5 million, for certain Asian trademark rights with respect our John Henry brand. The transaction closed in the first quarter of fiscal 2014. As a result of this transaction, we recorded a gain of $6.3 million. This gain was included in our licensing segment’s operating income.

Interest expense. Interest expense for the three months ended AugustMay 2, 20142015, was $3.6 million, a decrease of $0.1 million, or 2.7%, from $3.7 million for the three months ended AugustMay 3, 2013. Interest expense for the six months ended August 2, 2014, was $7.3 million,primarily attributable to a decrease of $0.2 million, or 2.7%, from $7.5 million for the six months ended August 3, 2013. The primary reason for the decrease is related to the savings generated from the refinancing of our mortgage loans in the second half of fiscal 2014, as well as lower average borrowingsamount borrowed on our credit facility as compared to our borrowings inthe comparable quarter of the prior year.

Income taxes.The income tax benefitexpense for the three months ended AugustMay 2, 2014,2015, was $0.5$3.4 million, a decrease of $1.4$0.1 million, as compared to $1.9$3.5 million for the three months ended AugustMay 3, 2013.2014. For the three months ended AugustMay 2, 2014,2015, our effective tax rate was 23.1%26.7% as compared to 39.9%30.9% for the three months ended AugustMay 3, 2013. Our income tax expense for the six months ended August 2, 2014, was $3.0 million, a decrease of $1.5 million, as compared to $4.5 million for the six months ended August 3, 2013. For the six months ended August 2, 2014, our effective tax rate was 32.7% as compared to 34.6% for the six months ended August 3, 2013.2014. The overall change in the effective tax rate is attributed to the unfavorable disallowancecurrent year impact of certain executive compensationthe valuation allowance on domestic taxes and a change in fiscal 2014, the sale of certain intangible rights related to the John Henry trademark in fiscal 2014, and the change in ratio of income between domestic and foreign operations, of which the domestic operations are taxed at higher statutory tax rates.

Net (loss) income.Net lossincome for the three months ended AugustMay 2, 20142015 was $9.4 million, an increase of $1.6 million, an improvement of $1.2 million, or 42.9%20.5%, as compared to a loss of $2.8$7.8 million for the three months ended AugustMay 3, 2013. Net income for the six months ended August 2, 2014 was $6.2 million, a decrease of $2.3 million, or 27.1%, as compared to $8.5 million for the six months ended August 3, 2013.2014. 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, pension funding requirements, acquisitions, future redemption of our senior subordinated notes payable and capital expenditures; and to a lesser extent, on letter of credit facilities for the acquisition of a small portion of our inventory purchases.expenditures. We believe that our working capital requirements will decreaseincrease for fiscal 2015 driven primarily by lower levels of inventory associated with stronger inventory management.next year as we continue to expand internationally. As of AugustMay 2, 2014,2015, our total working capital was $282.1$265.5 million as compared to $278.2$240.2 million as of February 1, 2014January 31, 2015 and $275.7$348.4 million as of AugustMay 3, 2013.2014. 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.needs and capital expenditure needs over the next year. We also believe that our real estate assets, which had a net book value of $23.0$22.8 million at AugustMay 2, 2014,2015, 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 AugustMay 2, 2014,2015, we had mortgage loans on these properties totaling $23.3$22.7 million.

We consider the undistributed earnings of our foreign subsidiaries as of AugustMay 2, 2014,2015, to be indefinitely reinvested and, accordingly, no U.S.United States income taxes have been provided thereon. As of AugustMay 2, 2014,2015, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $27.8$15.5 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

Net cash provided byused in operating activities was $47.0$39.7 million for the sixthree months ended AugustMay 2, 2014,2015, as compared to cash provided byused in operating activities of $14.1$47.3 million for the sixthree months ended AugustMay 3, 2013.2014.

The cash provided byused in operating activities for the sixthree months ended AugustMay 2, 2014,2015, is primarily attributable to a decreasean increase in accounts receivable of $36.3$43.4 million, due to the timing of shipments as compared to prior year as well as decreased inventory of $32.6 million due to improved inventory management. This was partially offset by a decrease in accounts payable and accrued expenses of $38.6 million. For the six months ended August 2, 2014, our inventory turnover ratio decreased slightly to 3.3 as compared to 3.8 for the comparable period in fiscal 2014. While the turnover decreased, inventory levels declined as noted above resulting from tighter inventory

management. In addition, inventory decreased as compared to the same period last year. Additionally prepaid expenses and other current assets increased by $2.2 million, offset by an increase in unearned revenue and other liabilities of $1.8 million. The cash provided by operating activities for the six months ended August 3, 2013 is primarily attributable to a decrease in accounts receivable of $33.7$42.7 million and a decrease in accrued interest payable of $3.0 million; which was partially offset by a decrease in inventory of $3.6$30.6 million associated with strong inventory management; which was offset bymanagement. As a result of the increase in sales and the tighter management of inventory for the first quarter of fiscal 2016 as compared to prior quarter, our inventory turnover ratio increased to 3.6 as compared to 3.3 for the comparable quarter in fiscal 2015.

The cash used in operating activities for three months ended May 3, 2014, is primarily attributable to an increase in accounts receivable of $36.6 million, a decrease in accounts payable and accrued expenses of $35.7$55.2 million and an increasea decrease in prepaid income taxesaccrued interest payable of $1.9 million.$3.1 million; which was partially offset by a decrease in inventory of $29.9 million associated with strong inventory management. As a result of the decrease in inventorysales for the six months ended August 3, 2013,first quarter of fiscal 2015 as compared to prior quarter, our inventory turnover ratio increaseddecreased to 3.83.3 as compared to 3.53.9 for the comparable periodquarter in fiscal 2013.2014.

Net cash used inprovided by investing activities was $16.1$5.1 million for the sixthree months ended AugustMay 2, 2014,2015, as compared to cash used in investing activities of $9.7$8.9 million for the sixthree months ended AugustMay 3, 2013. 2014. The net cash provided by investing activities during the first three months of fiscal 2016 primarily reflects the proceeds from the maturities of investments in the amount of $8.6 million and proceeds on sale of the C&C California brand in the amount of $2.5 million; offset by the purchase of property and equipment of $3.3 million primarily for leaseholds and the purchase of investments of $2.6 million. We anticipate capital expenditures during the remainder of fiscal 2016 of $12.0 million to $13.0 million in new leasehold improvements, technology, systems, retail stores, and other expenditures.

The net cash used during the first sixthree months of fiscal 2015 primarily reflects the purchase of investments of $22.9$15.4 million and the purchase of property and equipment of $7.3$3.1 million, primarily for leasehold improvements and store fixtures; which was partiallyleaseholds; offset by the proceeds from the maturities of investments in the amount of $14.2 million. The net cash used during the first six months of fiscal 2014 primarily reflects the purchase of property and equipment of $14.6$9.5 million primarily for leaseholds; which was partially offset by proceeds on the sale of certain Asian trademark rights with respect to John Henry of $4.9 million.

Net cash used inprovided by financing activities was $8.7$9.3 million for the sixthree months ended AugustMay 2, 2014,2015, as compared to cash used inprovided by financing activities of $0.4$56.0 million for the sixthree months ended AugustMay 3, 2013.2014. The net cash usedprovided during the first sixthree months of fiscal 20152016 primarily reflects net paymentsborrowings on our senior credit facility of $8.2$9.7 million, payments of $0.4 million on our mortgage loans and payments on capital leases of $0.2 million; partially offset by proceeds from exercises of stock options of $0.2 million. The net cash used during the first six months of fiscal 2014 primarily reflects payments of $0.4 million on our mortgage loans and payments on capital leases of $0.2 million; partially offset by proceeds from exercisesexercise of stock options of $0.1 million and a tax benefit from the exercise of stock optionsequity instruments of $0.1 million.$0.4 million; which was partially offset by payments of $0.6 million in deferred financing fees on the senior credit facility and $0.2 million in payments on our mortgage loans.

The net cash provided by financing during the first three months of fiscal 2015 primarily reflects net borrowings on our senior credit facility of $7.7 million; which was partially offset by payments of $0.2 million on our mortgage loans.

Our Board of Directors has authorized us to purchase, from time to time and as market and business conditions warranted,warrant, up to $60 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2014.2015. Although our Board of Directors allocated a maximum of $60 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 fiscal 2014,2015, we repurchased shares of our common stock at a cost of $7.0$8.8 million. There have been no open market purchases during fiscal 2015.2016. Total purchases under the plan to date amount to approximately $51.7 million. As of AugustMay 2, 20142015 and February 1, 2014,January 31, 2015, there were 400,516770,753 shares of treasury stock outstanding at a cost of approximately $7.0$15.7 million, respectively.

Acquisitions

None.

77/8% $150 Million Senior Subordinated Notes Payable

In March 2011, we issued $150 million 77/8% senior subordinated notes, due April 1, 2019. The proceeds of this offering were used to retire the $150 million 87/8% senior subordinated notes due September 15, 2013 and to repay a portion of the outstanding balance on the senior credit facility. The proceeds to us were $146.5 million yielding an effective interest rate of 8.0%.

On April 6, 2015, we elected to call for the partial redemption of $100 million of our $150 million outstanding 77/8% Senior Subordinated Notes due April 1, 2019 and a notice of redemption was sent to all registered holders of the notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, the Company completed the redemption of the $100 million of its senior subordinated notes. The Company incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including the redemption premium as well as the write-off of note issuance costs.

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.

Senior Credit Facility

On January 9, 2014,April 22, 2015, we amended and restated our existing senior credit facility (the “Credit Facility”), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $125 million, subject to increases from time to time in increments of $25 million up to a maximum of $200 million. The Credit Facility washas been extended through December 1, 2018. WeApril 30, 2020 (“Maturity Date”). In connection with this amendment and restatement, we paid fees in the amount of $0.6 million. These fees will be amortized over the term of the credit facility as interest expense. At May 2, 2015, we had borrowings of $9.7 million under the Credit Facility. At January 31, 2015, we had no outstanding borrowings at August 2, 2014 and we had borrowings of $8.2 million at February 1, 2014, 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) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.

Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.

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

Letter of Credit Facilities

As of AugustMay 2, 2014,2015, we maintained twoone U.S. dollar letter of credit facilitiesfacility totaling $45.0$30.0 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.

During the first quarter of fiscal 2016, a $15 million line of credit expired and was not renewed. During fiscal 2014, we decreased the letter of credit sublimit in our Senior Credit Facility to $30.0 million. As of AugustAt May 2, 20142015 and February 1, 2014,January 31, 2015, there was $33.7$18.7 million and $33.5$33.7 million, respectively, available under ourthe existing letter of credit facilities.

Real Estate Mortgage Loans

In July 2010, we paid off theour 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. The interest rate has been modified since the refinancing date. The interest rate was 4.25% per annum and monthly payments of principal and interest of $71,000 were due, based on a 25-year amortization with the outstanding principal due at maturity. In July 2013, we amended the mortgage loan agreement to modify the

interest rate. The interest rate was reduced to 3.90%3.9% per annum and the terms were restated to reflect new monthly payments of principal and interest of $69,000, based on a 25-year amortization with the outstanding principal due at maturity. At AugustMay 2, 2014,2015 the balance of the real estate mortgage loan totaled $11.5$11.2 million, net of discount, of which $369,000$378,000 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 January 23, 2019. The mortgage loan has been refinanced and the interest rate has been modified since such date. The interest rate was 4.00% per annum and quarterly payments of principal and interest of approximately $248,000 were due, based on a 20-year amortization with the outstanding principal due at maturity. In January 2014, we again amended the mortgage loan to modify the interest rate. The interest rate was reduced to 3.25% per annum and the terms were restated to reflect new monthly payments of principal and interest of approximately $68,000, based on a 20-year amortization with the outstanding principal due at maturity. At AugustMay 2, 2014,2015, the balance of the real estate mortgage loan totaled $11.7$11.4 million, net of discount, of which approximately $438,000$448,000 is due within one year.

The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of thesethe 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 the indenture relating to our senior subordinated notes resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

Off-Balance Sheet Arrangements

We are not a party to any “off-balance sheet arrangements”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 financial position and results of operations as of and for the three and six months ended AugustMay 2, 2014.2015.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

The market risk inherent in our financial statements represents the potential changes in the fair value, earnings or cash flows arising from changes in interest rates. 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. We currently do not have any derivative financial instruments for identifiable market risk.

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.

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 Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of AugustMay 2, 20142015 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 AugustMay 2, 20142015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1: Legal Proceedings

See Footnote 19 toWe are a defendant in Humberto Ordaz v. Perry Ellis International, Inc., Case No. BC490485 (Cal. Sup. Ct. 2012), involving claims for unpaid wages, missed breaks and related claims, which was originally filed on August 17, 2012 by a former employee in our California administrative offices. The plaintiff sought an unspecified amount of damages. The lawsuit has been pleaded but not certified as a class action. Mediation was held during the Condensed Consolidated Financial Statements, includedthird quarter of fiscal 2015. Currently, the parties have reached a tentative settlement. The tentative settlement amount has been provided for in this filing,the Company’s results of operations for further information.fiscal 2015.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

We repurchased the following amounts of our common stock during the secondfirst quarter of fiscal 2015:2016:

 

Period

  Total Number of
Shares Purchased
 Average
Price Paid
per Share
   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)
   Maximum
Approximate Dollar
Value that May Yet
Be Purchased under
the Plans or
Programs
   Total Number of
Shares Purchased
 Average
Price Paid
per Share
   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)
   Maximum
Approximate Dollar
Value that May Yet
Be Purchased under
the Plans or
Programs
 

May 20, 2014

   404 (2)  $14.69     —      $17,000,000  

March 1, 2015 to April 4, 2015

   1,075(2)  $22.77     —      $8,316,000  

April 5, 2015 to May 2, 2015

   26,250(2)  $24.37     —      $8,316,000  

 

(1)

During fiscal 2014, our Board of Directors extended the stock repurchase program to authorize us to purchase, from time to time and as market and business conditions warrant, up to $60 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2014.2015. Although our Board of Directors allocated a maximum of $60 million to carry out the program, we are not obligated to purchase any specific number of outstanding shares and will reevaluate the program on an ongoing basis. Total purchases under the plan to date amount to $43.0$51.7 million.

 

(2)

Represents shares withheld to pay statutory income taxes resulting from vesting of restricted shares.

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  Filed herewith.
101.SCH  XBRL Taxonomy Extension Schema  Filed herewith.
101.CAL  XBRL Taxonomy Extension Calculation Linkbase  Filed herewith.
101.DEF  XBRL Taxonomy Extension Definition Linkbase  Filed herewith.
101.LAB  XBRL Taxonomy Extension Label Linkbase  Filed herewith.
101.PRE  XBRL Taxonomy Extension Presentation Linkbase  Filed herewith.

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.
September 11, 2014June 9, 2015 

By: /S/ ANITA BRITT

 Anita Britt, Chief Financial Officer
 (Principal Financial Officer)

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.DEF  XBRL Taxonomy Extension Definition Linkbase
101.LAB  XBRL Taxonomy Extension Label Linkbase
101.PRE  XBRL Taxonomy Extension Presentation Linkbase

 

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