Perry Ellis International (PERY) 10-Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended May 2, 2009

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  ¨     No  ¨

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

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 15,523,275(as of June 4, 2009).

PERRY ELLIS INTERNATIONAL, INC.

INDEX

	PAGE
PART I: FINANCIAL INFORMATION
Item 1:
Condensed Consolidated Balance Sheets (Unaudited) as of May 2, 2009 and January 31, 2009	1
Condensed Consolidated Statements of Income (Unaudited) for the three months ended May 2, 2009 and April  30, 2008	2
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended May 2, 2009 and April  30, 2008	3
Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3:
Quantitative and Qualitative Disclosures About Market Risk	22
Item 4:
Controls and Procedures	22
PART II: OTHER INFORMATION	22
Item 2:
Unregistered Sale of Equity Securities and Use of Proceeds	22
Item 6:
Exhibits	23

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share data)

	May 2, 2009			January 31, 2009
ASSETS
Current Assets:
Cash and cash equivalents	$	7,051		$	8,813
Accounts receivable, net		154,697			142,870
Inventories		114,525			139,074
Deferred income taxes		12,180			10,535
Prepaid income taxes		3,646			9,710
Other current assets		9,747			11,263
Total current assets		301,846			322,265
Property and equipment, net		67,705			70,222
Intangible assets		201,229			201,229
Other assets		5,484			5,870
TOTAL	$	576,264		$	599,586
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	34,992		$	45,826
Accrued expenses and other liabilities		24,510			24,319
Accrued interest payable		1,845			5,336
Unearned revenues		5,251			5,654
Total current liabilities		66,598			81,135
Senior subordinated notes payable, net		149,450			149,409
Senior credit facility		38,264			54,415
Real estate mortgages		24,567			24,686
Deferred pension obligation		17,986			17,708
Unearned revenues and other long term liabilities		18,998			20,048
Deferred income tax		3,204			84
Total long-term liabilities		252,469			266,350
Total liabilities		319,067			347,485
Stockholders’ Equity:
Preferred stock $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock $.01 par value; 100,000,000 shares authorized; 15,990,606 shares issued and outstanding as of May 2, 2009 and 15,996,081 shares issued and outstanding as of January 31, 2009		160			160
Additional paid-in-capital		104,332			103,933
Retained earnings		172,520			166,671
Accumulated other comprehensive income		(5,650	)		(6,306	)
Treasury stock at cost; 2,462,196 shares as of May 2, 2009 and 2,044,196 shares as of January 31, 2009		(17,415	)		(15,664	)
Total Perry Ellis International, Inc stockholders’ equity		253,947			248,794
Noncontrolling interest		3,250			3,307
Total stockholders’ equity		257,197			252,101
TOTAL	$	576,264		$	599,586

See Notes to Unaudited Condensed Consolidated Financial Statements

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)

	Three Months Ended
	May 2, 2009			April 30, 2008
Revenues:
Net sales	$	214,038		$	237,762
Royalty income		6,006			5,787
Total revenues		220,044			243,549
Cost of sales		150,810			158,982
Gross profit		69,234			84,567
Operating expenses
Selling, general and administrative expenses		54,374			62,268
Depreciation and amortization		3,623			3,666
Total operating expenses		57,997			65,934
Operating income		11,237			18,633
Interest expense		4,618			4,491
Net income before income taxes		6,619			14,142
Income tax provision		827			4,708
Net income		5,792			9,434
Less: Net (loss) income attributed to noncontrolling interest		(57	)		327
Net income attributed to Perry Ellis International, Inc.	$	5,849		$	9,107
Net income attributed to Perry Ellis International, Inc. per share:
Basic	$	0.46		$	0.63
Diluted	$	0.46		$	0.60
Weighted average number of shares outstanding
Basic		12,701			14,484
Diluted		12,710			15,161

See Notes to Unaudited Condensed Consolidated Financial Statements

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

	Three Months Ended
	May 2, 2009			April 30, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributed to Perry Ellis International, Inc.	$	5,849		$	9,107
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		3,571			3,569
Provision for bad debts		849			69
Tax benefit from exercise of stock options		—			(1,236	)
Amortization of debt issue costs		132			185
Amortization of discounts		47			47
Deferred income taxes		1,475			(39	)
Stock options and unvested restricted shares issued as compensation		399			487
Noncontrolling interest		(57	)		327
Changes in operating assets and liabilities (net of effects of acquisition transaction):
Accounts receivable, net		(12,309	)		(34,394	)
Inventories		24,921			3,817
Other current assets and prepaid income taxes		7,728			1,488
Other assets		254			165
Deferred pension obligation		278			—
Accounts payable and accrued expenses		(9,540	)		(11,495	)
Accrued interest payable		(3,491	)		(3,080	)
Unearned revenues and other current liabilities		(2,733	)		(85	)
Net cash provided by (used in) operating activities		17,373			(31,068	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(931	)		(2,038	)
Payment for assets acquired		—			(33,962	)
Net cash used in investing activities		(931	)		(36,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility		164,441			128,327
Payments on senior credit facility		(180,592	)		(63,002	)
Payments on real estate mortgages		(117	)		(1,105	)
Purchase of treasury stock		(1,751	)		(189	)
Payments on capital leases		(50	)		(63	)
Payment of loan to noncontrolling interest		—			(598	)
Tax benefit from exercise of stock options		—			1,236
Proceeds from exercise of stock options		—			3,329
Net cash (used in) provided by financing activities		(18,069	)		67,935
Effect of exchange rate changes on cash and cash equivalents		(135	)		(1,978	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,762	)		(1,111	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		8,813			13,360
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,051		$	12,249
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	8,062		$	7,524
Income taxes	$	113		$	3,224
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Accrued purchases of property and equipment	$	71		$	361
Unrealized loss on marketable securities included in comprehensive income	$	—		$	26
Capital lease financing	$	—		$	176

See Notes to Unaudited Condensed Consolidated Financial Statements

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The accompanying unaudited condensed consolidated financial statements of Perry Ellis International, Inc. and subsidiaries (“Perry Ellis” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the requirements of the Securities and Exchange Commission on Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows required by GAAP for annual financial statements. These condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2009.

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

Effective for fiscal 2010, the Company has revised its fiscal reporting calendar to a retail calendar. As a result, the fiscal quarters will end on a Saturday. This change is not anticipated to be material to its quarterly or annual reporting. This change allows the Company to be consistent with the reporting period of its retail partners.

2. SHARE REPURCHASE

During November 2007, the Company’s Board of Directors authorized the Company to purchase, from time to time and as market and business conditions warrant, up to $20 million of its common stock for cash in the open market or in privately negotiated transactions over a 12-month period. In September 2008, the Board of Directors extended the stock repurchase program, which authorizes the Company to repurchase up to $20 million of its common stock for cash over the next twelve months. Although the Board of Directors allocated a maximum of $20 million to carry out the program, the Company is not obligated to purchase any specific number of outstanding shares, and will reevaluate the program on an ongoing basis.

The Company repurchased 418,000 and 12,000 shares of its common stock during first quarters of fiscal 2010 and fiscal 2009, respectively, at a cost of approximately of $1.8 million and $0.2 million. Through the first quarter of fiscal 2010 total purchases of $17.4 million have been made under this plan.

3. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the Financial Accounting Standard Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations,” which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No.141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of SFAS No. 141R did not have an impact on the results of operations or the financial position of the Company. A significant impact may, however, result from any future business acquisitions. The amounts of such impact will depend upon the nature and terms of such future acquisitions, if any.

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” SFAS No. 160 requires that noncontrolling (or minority) interests in subsidiaries be reported in the equity section of the Company’s balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. SFAS No. 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling Company’s income statement. SFAS No. 160 also establishes guidelines for accounting for changes in ownership percentages and for deconsolidation. SFAS No. 160 is effective for financial statements for fiscal years beginning on or after December 1, 2008 and interim periods within those years. The Company adopted this statement as of February 1, 2009, including the required retrospective application to all prior periods presented. SFAS No. 160 impacted the Company’s presentation of minority interests on the balance sheet and statement of income but had no impact on the Company’s financial condition, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides for more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. This statement is effective for interim periods beginning after December 15, 2008. The adoption of SFAS No. 161 did not have an impact on the results of operations or the financial position of the Company.

In September 2006, the FASB issued Statement No. 157,“Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. For financial assets and liabilities, SFAS 157 was effective for the fiscal year 2009 financial statements and all required disclosures were incorporated. For non-financial assets and liabilities, SFAS 157 was effective for fiscal years beginning after November 15, 2008, which required the Company to adopt these provisions in the first quarter of fiscal year 2010. The adoption of the deferred provisions of this statement did not have an impact on the results of operations or the financial position of the Company.

In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and Accounting Principles Board Opinion (“APB”) 28-1, “Interim Disclosures about Fair Value of Financial Instruments,”which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This Staff Position is effective for interim reporting periods ending after June 15, 2009. The Company has not completed its assessment of the impact, if any, this new pronouncement will have on the financial statements.

In April 2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,”which amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This Staff Position is effective for interim and annual reporting periods ending after June 15, 2009. The Company has not completed its assessment of the impact, if any, this new pronouncement will have on the financial statements.

4. INVENTORIES

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

5

Inventories consisted of the following as of:

	May 2, 2009		January 31, 2009
	(in thousands)
Finished goods	$	110,086	$	135,040
Raw materials and in process		4,439		4,034
Total	$	114,525	$	139,074

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	May 2, 2009			January 31, 2009
	(in thousands)
Furniture, fixture and equipment	$	77,326		$	75,384
Buildings		19,348			19,348
Vehicles		862			862
Leasehold improvements		24,520			25,841
Land		9,163			9,163
		131,219			130,598
Less: accumulated depreciation and amortization		(63,514	)		(60,376	)
Total	$	67,705		$	70,222

For the three months ended May 2, 2009 and April 30, 2008, depreciation and amortization expense relating to property and equipment amounted to $3.6 million for each of the periods.

6. LETTER OF CREDIT FACILITIES

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

	May 2, 2009			January 31, 2009
	(in thousands)
Total letter of credit facilities	$	55,873		$	86,355
Outstanding letters of credit		(8,097	)		(15,721	)
Total letters of credit available	$	47,776		$	70,634

During the first quarter of fiscal 2010, one credit line totaling an estimated $30.0 million was cancelled.

7. 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 $3.8 million and $6.5 million for the three months ended May 2, 2009 and April 30, 2008, respectively, and are included in selling, general and administrative expenses.

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8. NET INCOME PER SHARE ATTRIBUTED TO PERRY ELLIS INTERNATIONAL, INC.

Basic net income per share attributed to Perry Ellis International, Inc. is computed by dividing net income attributed to Perry Ellis International, Inc. by the weighted average shares of outstanding common stock. The calculation of diluted net income per share is similar to basic earnings per share except that the denominator includes potentially dilutive common stock. The potentially dilutive common stock included in the Company’s computation of diluted net income per share attributed to Perry Ellis International, Inc. includes the effects of the stock options and unvested restricted shares as determined using the treasury stock method.

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

	Three Months Ended
	May 2, 2009		April 30, 2008
	(in thousands, except per share data)
Numerator:
Net income attributed to Perry Ellis International, Inc.	$	5,849	$	9,107
Denominator:
Basic weighted average shares		12,701		14,484
Dilutive effect: stock options and unvested restricted shares		9		677
Diluted weighted average shares		12,710		15,161
Basic income per share	$	0.46	$	0.63
Diluted income per share	$	0.46	$	0.60
Antidilutive effect: stock options (1)		2,867		121

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

9. SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

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

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	Attributed to Perry Ellis International, Inc.			Attributed to Noncontrolling Interest			Total
	(in thousands)
Stockholders’ equity at February 1, 2009	$	248,794		$	3,307		$	252,101
Comprehensive income:
Net income (loss)		5,849			(57	)		5,792
Other comprehensive income:
Foreign currency translation adjustment		656			—			656
Total other comprehensive income		656			—			656
Comprehensive income		6,505			(57	)		6,448
Share transactions under employee and direct stock purchase plans		399			—			399
Share repurchases		(1,751	)		—			(1,751	)
Stockholders’ equity at May 2, 2009	$	253,947		$	3,250		$	257,197
Stockholders’ equity at February 1, 2008	$	273,527		$	3,293		$	276,820
Comprehensive income:
Net income		9,107			327			9,434
Other comprehensive income:
Foreign currency translation adjustment		(1,978	)		—			(1,978	)
Unrealized loss on equity investments		(26	)		—			(26	)
Total other comprehensive income		(2,004	)		—			(2,004	)
Comprehensive income		7,103			327			7,430
Payment of loan to noncontrolling interest		—			(598	)		(598	)
Share transactions under employee and direct stock purchase plans		5,052			—			5,052
Share repurchases		(189	)		—			(189	)
Stockholders’ equity at April 30, 2008	$	285,493		$	3,022		$	288,515

Accumulated other comprehensive income attributed to Perry Ellis International, Inc. at May 2, 2009 and January 31, 2009 was comprised of the following:

	May 2, 2009			January 31, 2009
	(in thousands)
Foreign currency translation	$	(2,427	)	$	(3,083	)
Unrealized loss on pension liability, net of tax		(3,223	)		(3,223	)
	$	(5,650	)	$	(6,306	)

10. INCOME TAXES

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The Company’s U.S. federal income tax returns for 2006 through 2009 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 state tax returns open from 2002 through 2009, depending on each state’s particular statute of limitation. As of May 2, 2009, various state, local, and foreign income tax returns are under examination by taxing authorities.

8

The Company has a $3.5 million liability recorded for unrecognized tax benefits as of February 1, 2009, which includes interest and penalties of $0.8 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 first quarter of fiscal 2010, the total amount of unrecognized tax benefits decreased by $0.4 million. The decrease to the total amount of the unrecognized tax benefit for the first quarter of fiscal 2010 includes a decrease in interest and penalties of $43,000.

It is reasonably possible that within the next twelve months the Company may settle its voluntary disclosure process with the State of New Jersey. The Company does not currently anticipate that such resolutions will significantly increase or decrease tax expense within the next twelve months. Furthermore, the statute of limitations related to the Company’s 2006 U.S. federal tax year will expire within the next twelve months. The lapse in the statute of limitations would be expected to decrease tax expense within the next twelve months. The expiration of the statute of limitations related to the Company’s 2006 U.S. federal tax year could result in a tax benefit of up to approximately $1 million.

11. STOCK OPTIONS AND RESTRICTED SHARES

During the first quarter of fiscal 2010, the Company granted stock options to purchase shares of common stock to certain key employees. The Company awarded an aggregate 1,163,859 stock options to purchase shares of common stock, with exercise prices ranging from $4.53 to $4.89, which generally vest over a three year period and have a ten year term. The total fair value of the stock options, based on the Black-Scholes Option Pricing Model, amounted to approximately $3,300,000, which will be recorded as compensation expense on a straight-line basis over the vesting period of the stock option.

Also, during the first quarter of fiscal 2010, the Company awarded one employee 10,000 shares of restricted stock, which vest over a four year period at an estimated value of $42,000. This value will be recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

12. SEGMENT INFORMATION

In accordance with SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information,”the Company’s principal segments are grouped between the generation of revenues from products and royalties. The Licensing segment derives its revenues from royalties associated from the use of its brand names, principally Perry Ellis, Jantzen, Original Penguin, Gotcha, Farah, Savane, Pro Player, Manhattan, Munsingwear and Laundry by Shelli Segal. The Product segment derives its revenues from the design, import and distribution of apparel to department stores and other retail outlets, principally throughout the United States.

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

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	Three Months Ended
	May 2, 2009		April 30, 2008
	(in thousands)
Revenues:
Product	$	214,038	$	237,762
Licensing		6,006		5,787
Total Revenues	$	220,044	$	243,549
Operating Income:
Product	$	7,023	$	15,320
Licensing		4,214		3,313
Total Operating Income	$	11,237	$	18,633

13. BENEFIT PLANS

The Company sponsors a qualified pension plan. The following table provides the components of net benefit cost for the plan during the first quarter of fiscal 2010 and 2009:

	Three Months Ended
	May 2, 2009			April 30, 2008
	(in thousands)
Service cost	$	63		$	63
Interest cost		589			582
Expected return on plan assets		(389	)		(705	)
Amortization of net loss (gain)		15			(55	)
Net periodic benefit cost	$	278		$	(115	)

14. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS

The Company and several of its subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed the senior subordinated notes on a joint and several basis. The following are consolidating condensed financial statements, which present, in separate columns: Perry Ellis International, Inc., (Parent Only), the Guarantors on a combined, or where appropriate, consolidated basis, and the Non-Guarantors on a consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of May 2, 2009 and January 31, 2009, and for the three months ended May 2, 2009 and April 30, 2008. The combined Guarantors are wholly owned subsidiaries of Perry Ellis International, Inc., and have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. The Company has not presented separate financial statements and other disclosures concerning the combined Guarantors because management has determined that such information is not material to investors.

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF MAY 2, 2009

(amounts in thousands)

	Parent Only		Guarantors		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	2,791	$	6,978	$	(2,718	)	$	7,051
Accounts receivable, net		444		136,476		17,777		—			154,697
Intercompany receivable		66,350		—		—		(66,350	)		—
Inventories		—		99,144		15,381		—			114,525
Other current assets		15,417		18,823		5,091		(13,758	)		25,573
Total current assets		82,211		257,234		45,227		(82,826	)		301,846
Property and equipment, net		12,016		51,685		4,004		—			67,705
Intangible assets, net		—		158,714		42,515		—			201,229
Investment in subsidiaries		269,319		—		—		(269,319	)		—
Other assets		3,633		1,781		70		—			5,484
TOTAL	$	367,179	$	469,414	$	91,816	$	(352,145	)	$	576,264
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities	$	13,736	$	59,519	$	12,322	$	(18,979	)	$	66,598
Intercompany payable - Parent		—		33,906		36,278		(70,184	)		—
Total current liabilities		13,736		93,425		48,600		(89,163	)		66,598
Notes payable		99,450		50,000		—		—			149,450
Other long term liabilities		46		91,093		9,377		2,503			103,019
Total long-term liabilities		99,496		141,093		9,377		2,503			252,469
Total liabilities		113,232		234,518		57,977		(86,660	)		319,067
Total Perry Ellis International, Inc stockholders’ equity		253,947		234,896		30,589		(265,485	)		253,947
Noncontrolling interest		—		—		3,250		—			3,250
Stockholders’ equity		253,947		234,896		33,839		(265,485	)		257,197
TOTAL	$	367,179	$	469,414	$	91,816	$	(352,145	)	$	576,264

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED BALANCE SHEETS

AS OF JANUARY 31, 2009

(amounts in thousands)

	Parent Only		Guarantors		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,805	$	9,604	$	(2,596	)	$	8,813
Accounts receivable, net		482		130,055		12,333		—			142,870
Intercompany receivable		60,735		—		—		(60,735	)		—
Inventories		—		123,162		15,912		—			139,074
Other current assets		22,137		25,537		3,741		(19,907	)		31,508
Total current assets		83,354		280,559		41,590		(83,238	)		322,265
Property and equipment, net		13,256		52,946		4,020		—			70,222
Intangible assets, net		—		158,714		42,515		—			201,229
Investment in subsidiaries		263,462		—		—		(263,462	)		—
Other		4,647		3,429		216		(2,422	)		5,870
TOTAL	$	364,719	$	495,648	$	88,341	$	(349,122	)	$	599,586
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities	$	16,455	$	76,135	$	13,551	$	(25,006	)	$	81,135
Intercompany payable - Parent		—		34,442		29,190		(63,632	)		—
Total current liabilities		16,455		110,577		42,741		(88,638	)		81,135
Notes payable and senior credit facility		99,409		104,415		—		—			203,824
Other long term liabilities		61		52,492		9,892		81			62,526
Total long-term liabilities		99,470		156,907		9,892		81			266,350
Total liabilities		115,925		267,484		52,633		(88,557	)		347,485
Total Perry Ellis International, Inc stockholders’ equity		248,794		228,164		32,401		(260,565	)		248,794
Noncontrolling interest		—		—		3,307		—			3,307
Stockholders’ equity		248,794		228,164		35,708		(260,565	)		252,101
TOTAL	$	364,719	$	495,648	$	88,341	$	(349,122	)	$	599,586

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MAY 2, 2009

(amounts in thousands)

	Parent Only			Guarantors		Non- Guarantors			Eliminations			Consolidated
Revenue	$	—		$	198,552	$	21,492		$	—		$	220,044
Gross profit		—			61,187		8,047			—			69,234
Operating (loss) income		(1	)		12,590		(1,352	)		—			11,237
Interest, non controlling interest and income taxes		7			5,858		(477	)		—			5,388
Equity in earnings of subsidiaries, net		5,857			—		—			(5,857	)		—
Net income (loss) attributed to Perry Ellis International, Inc.		5,849			6,732		(875	)		(5,857	)		5,849

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED APRIL 30, 2008

(amounts in thousands)

	Parent Only		Guarantors		Non- Guarantors		Eliminations			Consolidated
Revenue	$	—	$	214,917	$	28,632	$	—		$	243,549
Gross profit		—		68,557		16,010		—			84,567
Operating income		335		12,533		5,765		—			18,633
Interest, non controlling interest and income taxes		146		7,952		1,428		—			9,526
Equity in earnings of subsidiaries, net		8,918		—		—		(8,918	)		—
Net income attributed to Perry Ellis International, Inc.		9,107		4,581		4,337		(8,918	)		9,107

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MAY 2, 2009

(amounts in thousands)

	Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	6,827		$	18,535		$	(7,867	)	$	(122	)	$	17,373
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(67	)		(745	)		(119	)		—			(931	)
NET CASH USED IN INVESTING ACTIVITIES		(67	)		(745	)		(119	)		—			(931	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on senior credit facility		—			164,441			—			—			164,441
Payments on senior credit facility		—			(180,592	)		—			—			(180,592	)
Payments on real estate mortgage		—			(117	)		—			—			(117	)
Purchase of treasury stock		(1,751	)		—			—			—			(1,751	)
Payments on capital leases		(50	)		—			—			—			(50	)
Intercompany transactions		(4,824	)		(536	)		7,088			(1,728	)		—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(6,625	)		(16,804	)		7,088			(1,728	)		(18,069	)
Effect of exchange rate changes on cash and cash equivalents		(135	)					(1,728	)		1,728			(135	)
Net increase (decrease) in cash and cash equivalents		—			986			(2,626	)		(122	)		(1,762	)
Cash and cash equivalents at beginning of period		—			1,805			9,604			(2,596	)		8,813
Cash and cash equivalents at end of period	$	—		$	2,791		$	6,978		$	(2,718	)	$	7,051

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED APRIL 30. 2008

(amounts in thousands)

	Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(7,335	)	$	(24,657	)	$	1,029		$	(105	)	$	(31,068	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		—			(1,739	)		(299	)		—			(2,038	)
Purchase of assets		—			(33,962	)		—			—			(33,962	)
NET CASH USED IN INVESTING ACTIVITIES		—			(35,701	)		(299	)		—			(36,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on senior credit facility		—			128,327			—			—			128,327
Payments on senior credit facility		—			(63,002	)		—			—			(63,002	)
Payments on real estate mortgage		—			(106	)		(999	)		—			(1,105	)
Purchase of treasury stock		(189	)		—			—			—			(189	)
Payments on capital leases		(63	)		—			—			—			(63	)
Payment of loan to noncontrolling interest		—			—			(598	)		—			(598	)
Tax benefit from exercise of stock options		1,236			—			—			—			1,236
Intercompany transactions		5,000			(5,858	)		3,029			(2,171	)		—
Proceeds from exercise of stock options		3,329			—			—			—			3,329
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		9,313			59,361			1,432			(2,171	)		67,935
Effect of exchange rate changes on cash and cash equivalents		(1,978	)		(192	)		(1,978	)		2,170			(1,978	)
Net increase (decrease) in cash and cash equivalents		—			(1,189	)		184			(106	)		(1,111	)
Cash and cash equivalents at beginning of period		—			8,105			8,727			(3,472	)		13,360
Cash and cash equivalents at end of period	$	—		$	6,916		$	8,911		$	(3,578	)	$	12,249

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

Unless the context otherwise requires, all references to “Perry Ellis,” the “Company,” “we,” “us” or “our” include Perry Ellis International, Inc. and its subsidiaries. This management’s discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended January 31, 2009.

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,” “could,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “intend,” “plan,” “envision,” “continue,” target,” “contemplate,” or “will” and similar words or phrases or corporate terminology. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control.

Some of the factors that could affect our financial performance, cause actual results to differ from our estimates, or underlie such forward-looking statements, are set forth in various places in this report. These factors include, but are not limited to:

• general economic conditions,

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

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

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

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

• our ability to contain costs,

• disruptions in the supply chain,

• our future capital needs and our ability to obtain financing,

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

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

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

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

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

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• the level of consumer spending for apparel and other merchandise,

• our ability to compete,

• exposure to foreign currency risk and interest rate risk,

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

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

You are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.

Critical Accounting Policies

Included in the footnotes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended January 31, 2009 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 we use judgment are in the areas of revenue recognition, the estimated collectability of accounts receivable, the recoverability of obsolete or overstocked inventory, the impairment of long-lived assets that are our trademarks, the recoverability of deferred tax assets, the measurement of retirement related benefits and stock-based compensation. We believe that there have been no significant changes to our critical accounting policies during the three months ended May 2, 2009, as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended January 31, 2009.

Results of Operations

The following is a discussion of the results of operations for the three month period in the first quarter of the fiscal year ending January 30, 2010 (“fiscal 2010”) compared with the three month period in the first quarter of the fiscal year ended January 31, 2009 (“fiscal 2009”).

Results of Operations - three months ended May 2, 2009 compared to the three months ended April 30, 2008

Net sales. Net sales for the three months ended May 2, 2009 were $214.0 million, a decrease of $23.8 million, or 10.0%, from $237.8 million for the three months ended April 30, 2008. This decrease was primarily driven by the transition of the Perry Ellis dress shirts business to a licensed product, which amounted to $3.4 million, and the exiting of Docker’s Outwear and numerous specialty store programs. Additionally several of our previous customers including Mervyns and Goody’s, which accounted for sales of approximately $6.2 million during the first quarter of fiscal 2009, subsequently filed for bankruptcy and liquidated as a result. Further adding to the decrease was our planned reduction of $7.0 million in our bottoms private label and replenishment business. These decreases were partially offset by organic growth of several of our platforms— golf lifestyle, swim, direct retail and our Hispanic brands.

Royalty income. Royalty income for the three months ended May 2, 2009 was $6.0 million, an increase of $0.2 million, or 3.4%, from $5.8 million for the three months ended April 30, 2008. The increase was primarily driven by the new Perry Ellis dress shirt license agreement, partially offset by the loss of some smaller license agreements.

17

Gross profit.Gross profit was $69.2 million for the three months ended May 2, 2009, a decrease of $15.4 million, or 18.2%, from $84.6 million for the three months ended April 30, 2008.

As a percentage of total revenue, gross profit margins were 31.5% for the three months ended May 2, 2009, as compared to 34.7% for the three months ended April 30, 2008, a decrease of 326 basis points. The decrease in the gross profit percentage was attributed to the exit of the licensed PING golf business at the corporate channel and by the unusually promotional retail environment, particularly the private label program within bottoms and swim. This decrease was partially offset by the increase in royalty income from our new Perry Ellis dress shirt license agreement.

Wholesale gross profit margins (which exclude the impact of royalty income) decreased to 29.5% for the three months ended May 2, 2009 from 33.1% for the three months ended April 30, 2008. The decrease of 359 basis points is attributed to the unusually promotional retail environment, particularly the private label program within bottoms and swim.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended May 2, 2009 were $54.4 million, a decrease of $7.9 million, or 12.7%, from $62.3 million for the three months ended April 30, 2008. The decrease, primarily in our wholesale business, in selling, general and administrative expenses, on a dollar basis, is attributed to a decrease in distribution costs mainly driven by the closure of our Winnsboro warehouse, a reduction in advertising expenses of $2.7 million, a decrease of third party commissions as a result of our exiting of certain specialty store programs and as a result of additional cost saving strategies identified during the strategic review process we began during our third quarter of fiscal 2009. As part of our strategic review process, we identified selling, general and administrative expense reductions of approximately $15 million for fiscal 2010. The identified initiatives included: the consolidation of the Tampa bottom’s production department; reductions in headcount and advertising and promotion budget in the men’s specialty store businesses; reduction in the shared services cost structure; restructuring of the Perry Ellis Outlet operations; the annualization of distribution cost savings due to the closing of the Winnsboro distribution center; and a hiring freeze and reduction of travel and other discretionary expenses.

As a percentage of total revenues, selling, general and administrative expenses were 24.7% for the three months ended April 30, 2008, as compared to 25.6% for the three months ended April 30, 2008. As a percentage of total revenue during the first quarter of fiscal 2010, this decrease was in line with our anticipated results and primarily due to the factors explained above.

Depreciation and amortization. Depreciation and amortization for the three months ended May 2, 2009 was $3.6 million, a decrease of $0.1 million, or 2.7%, from $3.7 million for the three months ended April 30, 2008. Depreciation and amortization remained essentially flat as compared to prior year, with the slight decrease attributed to the write off of the long lived assets in the amount of $1.6 million, during the fourth quarter of fiscal 2009.

Interest expense. Interest expense for the three months ended May 2, 2009, was $4.6 million, an increase of $0.1 million, or 2.2%, from $4.5 million for the three months ended April 30, 2008. The overall increase in interest expense is primarily attributable to a slightly higher average balance on our senior credit facility as compared to the prior year. We began the first fiscal quarter of 2010 with $54.4 in borrowings on the senior credit facility and ended the quarter with $38.3 million as of May 2, 2009 as compared to $65.3 million as of April 30, 2008.

Income taxes. The income tax provision for the three months ended May 2, 2009, was $0.8 million, a $3.9 million decrease as compared to $4.7 million for the three months ended April 30, 2008. For the three months ended May 2, 2009, our effective tax rate was 12.5% as compared to 33.3% for the three months ended April 30, 2008. The decrease in the tax rate is attributed to the total amount of unrecognized tax benefits decreasing during the first quarter of fiscal 2010 and the change in ratio of income between domestic and foreign operations, of which the foreign operations are taxed at lower statutory tax rates.

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Net income attributed to Perry Ellis International, Inc.The net income for the three months ended May 2, 2009 was $5.8 million, a decrease of $3.3 million, or 36.3%, as compared to $9.1 million for the three months ended April 30, 2008. The changes in operating results were due to the items described above.

Liquidity and Capital Resources

We rely primarily upon cash flow from operations and borrowings under our senior credit facility and letter of credit facilities to finance our operations, acquisitions and capital expenditures. We believe that as a result of our strategic review process and our increased discipline in our working capital and cash flow management, our working capital requirements will decrease for the remainder of the year. As of May 2, 2009, our total working capital was $235.2 million as compared to $241.1 million as of January 31, 2009 and $204.0 million as of April 30, 2008. During the first quarter of fiscal 2010, an underutilized $30 million letter of credit facility was terminated. Traditionally, our letter of credit facilities were used for trade financing. We have shifted our finance strategy from relying on letter of credit facilities to direct trade terms with our vendors, and as such, we did not need the excess capacity provided by this letter of credit facility. 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.

Net cash provided by operating activities was $17.4 million for the three months ended May 2, 2009, as compared to cash used in operating activities of $31.1 million for the three months ended April 30, 2008. The cash provided by operating activities for three months ended May 2, 2009 is primarily attributable to a decrease in inventory of $24.9 million due to tighter controls in inventory planning and a decrease of other current assets, primarily prepaid taxes in the amount of $6 million; offset by an increase in accounts receivable and a reduction of our accounts payable, accrued expenses and accrued interest payable. The cash used in operating activities for the three months ended April 30, 2008 is primarily attributable to an increase in accounts receivable of $34.4 million, a decrease in accounts payable of $11.5 million; offset by a decrease in inventory of $3.8 million due to tighter controls in inventory planning and an anticipated reduction in certain replenishment programs.

Net cash used in investing activities was $0.9 million for the three months ended May 2, 2009, as compared to cash used in investing activities of $36.0 million for the three months ended April 30, 2008. The net cash used during the first three months of fiscal 2010 primarily reflects the purchase of property and equipment in the amount of $0.9 million, as compared to net cash used in the purchase of property and equipment in the amount of $2.0 million and the acquisition of the C&C California and Laundry by Shelli Segal brands and inventory for $34.0 million during the same period in fiscal 2009. We anticipate capital expenditures during fiscal 2010 of $7 million to $8 million in technology and systems, retail stores, and other expenditures.

Net cash used in financing activities for the three months ended May 2, 2009, was $18.1 million, as compared to net cash provided by financing activities for the three months ended April 30, 2008 of $67.9 million. The net cash used during the first three months of fiscal 2010 primarily reflects the net payments on our senior credit facility of $16.2 million, payments of $0.1 million on our mortgages, and purchase of treasury stock of $1.8 million. The net cash provided during the first three months of fiscal 2009 primarily reflects the net borrowings on our senior credit facility of $65.3 million, of which $34 million was used in the acquisition of the C&C California and Laundry by Shelli Segal brands discussed above, and the proceeds received from the exercise of stock options of $3.3 million, offset by net cash used in financing activities for the payments of $1.1 million on our mortgages, purchase of treasury stock of $0.2 million and a payment of loan to noncontrolling interest of $0.6 million.

The Board of Directors has approved a stock repurchase program, which authorizes us to continue to repurchase up to $20 million of our common stock for cash over the next five months. Although the Board of Directors allocated a maximum of $20 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. Through the first quarter of fiscal 2010 total purchases of $17.4 million have been made under this plan.

19

Acquisitions

On February 4, 2008, the Company completed the acquisition of the C&C California and Laundry by Shelli Segal brands and related assets from Liz Claiborne, Inc. The acquisition was financed through existing cash and borrowings under the Company’s existing senior credit facility. The transaction was valued at $34 million. Both brands are ideally positioned to address the fastest growing segment within women’s apparel: contemporary. Both brands sell in luxury retail stores and high-end specialty boutiques. Together they created our women’s contemporary business platform. The results of operations of the acquired brands have been included in the Company’s operations beginning as of the date of the acquisition.

Senior Credit Facility

In October 2008, we amended our senior credit facility. In connection with the amendment, we paid approximately $338,000 in financing fees. These fees will be amortized over the term of our senior credit facility. The following is a description of the terms of our senior credit facility with Wachovia Bank, National Association, et al, as amended, and does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the senior credit facility: (i) the line is up to $125 million with the opportunity to increase this amount in $25 million increments up to $200 million; (ii) the inventory borrowing limit is $75 million; (iii) the sublimit for letters of credit is up to $40 million; (iv) the amount of letter of credit facilities allowed outside of the facility is $110 million and (v) the outstanding balance is due at the maturity date of February 1, 2012. At May 2, 2009, the balance of the senior credit facility totaled $38.3 million.

Certain Covenants. The senior credit facility contains certain covenants, which, among other things, requires us to maintain a minimum EBITDA if availability falls below a certain minimum. It may restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in certain circumstances, redeem or repurchase capital stock, make certain investments, or sell assets. We are prohibited from paying cash dividends under these covenants. We are not aware of any non-compliance with any of our covenants under the senior credit facility. We could be materially harmed if we violate any covenants as the lenders under the senior credit facility could declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If we are unable to repay those amounts, the lenders could proceed against our assets. In addition, a violation could also constitute a cross-default under the indenture and mortgage, resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

Borrowing Base. Borrowings under our senior credit facility are limited under its terms to a borrowing base calculation, which generally restricts the outstanding balances to the lesser of either (1) the sum of (a) 85.0% of eligible receivables plus (b) 85.0% of its eligible factored accounts receivables up to $10.0 million plus (c) the lesser of (i) the inventory loan limit of $75 million, or (ii) the lesser of (A) 65.0% of eligible finished goods inventory, or (B) 85.0% of the net recovery percentage (as defined in the senior credit facility) of eligible inventory, or (2) the loan limit; and in each case minus (x) 35.0% of the amount of outstanding letters of credit for eligible inventory, (y) the full amount of all other outstanding letters of credit issued pursuant to the senior credit facility which are not fully secured by cash collateral, and (z) licensing reserves for which we are the licensee of certain branded products.

Interest. Interest on the principal balance under our senior credit facility accrues, at our option, at either (a) the greater of Wachovia’s prime lending rate or the Federal Funds rate; plus¹/2 % plus a margin spread of 100 to 175 basis points based upon the sum of our quarterly average excess availability plus excess cash for the immediately preceding fiscal quarter, at the time of borrowing or (b) the rate quoted by Wachovia as the average monthly Eurodollar Rate for 1-month Eurodollar deposits plus a margin spread of with 200 to 275 basis points based upon the sum of our quarterly average excess availability plus excess cash for the immediately preceding fiscal quarter, at the time of borrowing.

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Security. As security for the indebtedness under the senior credit facility, we granted the lenders a first priority security interest in substantially all of our existing and future assets other than our trademark portfolio and real estate owned, including, without limitation, accounts receivable, inventory, deposit accounts, general intangibles, equipment and capital stock or membership interests, as the case may be, of certain subsidiaries.

Letter of Credit Facilities

As of May 2, 2009, we maintained two U.S. dollar letter of credit facilities totaling $51.8 million, one letter of credit facility totaling $3.2 million utilized by our Canadian joint venture, and one letter of credit facility totaling $0.9 million utilized by our United Kingdom subsidiary. Each letter of credit is secured primarily by the consignment of merchandise in transit under that letter of credit and certain subordinated liens on our assets. During the first quarter of fiscal 2010, one credit line totaling an estimated $30.0 million dollars was cancelled. As of May 2, 2009, there was $47.8 million available under the existing letter of credit facilities.

$150 Million Senior Subordinated Notes Payable

In fiscal 2004, we issued $150 million 8⁷/₈% senior subordinated notes, due September 15, 2013. The proceeds of this offering were used to redeem its then outstanding 12¹ / 4 % senior subordinated notes and to pay down the outstanding balance of the senior credit facility at that time. The proceeds to us were $146.8 million yielding an effective interest rate of 9.1%.

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, redeem or repurchase capital stock, make certain investments, or sell assets. We are currently in compliance with all of the covenants in this indenture. We are prohibited from paying cash dividends under these covenants. 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 mortgage resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

Real Estate Mortgage Loans

Our main administrative office, warehouse and distribution facility is a 240,000 square foot facility in Miami, Florida. The facility was partially financed with an $11.6 million real estate mortgage loan. The real estate mortgage loan contains certain covenants. We are not aware of any non-compliance with any of our covenants under the real estate mortgage. We could be materially harmed if we violate any covenants because the lender under the real estate mortgage loan could declare all amounts outstanding thereunder to be immediately due and payable, which we may not be able to satisfy. In addition, a violation could constitute a cross-default under our senior credit facility, the letter of credit facilities and indenture relating to our senior subordinated notes resulting in all our of debt obligations becoming immediately due and payable, which we may not be able to satisfy. Interest is fixed at 7.123%. In August 2008, we executed a maturity extension of the real estate mortgage loan until July 1, 2010. At May 2, 2009, the balance of the real estate mortgage loan totaled $10.9 million, of which $190,000 is due within one year.

In October 2005, we acquired three administrative office units in a building in Beijing, China. The aggregate purchase price was $2.3 million, including closing costs. These purchases were partially financed with three variable interest mortgage loans totaling $1.2 million dollars in the aggregate. During March 2008 we paid off the three variable interest mortgage loans.

In June 2006, the Company entered into a mortgage loan for $15 million secured by its Tampa facility. The loan is due on June 7, 2016. Principal and interest of $297,000 are due quarterly based on a 20 year amortization with the outstanding principal due at maturity. Interest is set at 6.25% for the first five years, at which point it will be reset based on the terms and conditions of the promissory note. At May 2, 2009, the balance of the real estate mortgage loan totaled $14.4 million, of which $312,000 is due within one year.

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Off-Balance Sheet Arrangements

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

Effects of Inflation and Foreign Currency Fluctuations

We do not believe that inflation or foreign currency fluctuations significantly affected our results of operations for the three months ended May 2, 2009.

Item 3: Quantitative and Qualitative Disclosures about Market Risks

The market risk inherent in our financial statements represents the potential changes in the fair value, earnings or cash flows arising from changes in interest rates. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposure, including interest rate. Currently we have no derivative financial contracts.

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. Based upon this evaluation, our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 2, 2009 in timely alerting them to material information required to be included in our periodic SEC filings, and that information required to be disclosed by us in these periodic filings was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in our internal control over financial reporting during the quarter ended May 2, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

(c) Purchase of Equity Securities by the Issuer and Affiliated Purchasers.

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The following table provides information with respect to our purchases of Perry Ellis International common stock during the first quarter of fiscal 2010:

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
February 1, 2009 to February 28, 2009	418,000	$	4.19	418,000	$	2,563,000
March 1, 2009 to April 4, 2009	—		—	—	$	2,563,000
April 5, 2009 to May 2, 2009	—		—	—	$	2,563,000
Total shares repurchased as of May 2, 2009	418,000	$	4.19	418,000	$	2,563,000

(1) During November 2007, our Board of Directors authorized us to purchase, from time to time and as market and business conditions warrant, up to $20 million of our common stock for cash in the open market or in privately negotiated transactions over a 12-month period. In September 2008, the Board of Directors extended the stock repurchase program for the next twelve months. Although the Board of Directors allocated a maximum of $20 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.

ITEM 6. Exhibits

Index to Exhibits

Exhibit Number	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.

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SIGNATURE

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

	Perry Ellis International, Inc.
June 5, 2009	By:	/S/ ANITA BRITT
		Anita Britt, Chief Financial Officer
		(Principal Financial Officer)

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Exhibit Index

Exhibit Number	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.

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