Perry Ellis International (PERY) 10-Q 2016 Q3 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 October 31, 2015

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 15,723,089 (as of December 2, 2015).

PERRY ELLIS INTERNATIONAL, INC.

INDEX

	PAGE
PART I: FINANCIAL INFORMATION
Item 1:
Condensed Consolidated Balance Sheets (Unaudited) as of October 31, 2015 and January 31, 2015		1
Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended October  31, 2015 and November 1, 2014		2
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine months ended October 31, 2015 and November 1, 2014		3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended October  31, 2015 and November 1, 2014		4
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3:
Quantitative and Qualitative Disclosures About Market Risk		34
Item 4:
Controls and Procedures		34
PART II: OTHER INFORMATION		35
Item 1:
Legal Proceedings		35
Item 6:
Exhibits		36

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share data)

	October 31, 2015			January 31, 2015
ASSETS
Current Assets:
Cash and cash equivalents	$	26,016		$	43,547
Accounts receivable, net		130,453			137,432
Inventories		145,301			183,734
Investments, at fair value		10,291			19,996
Deferred income taxes		694			725
Prepaid income taxes		2,743			6,384
Prepaid expenses and other current assets		7,892			7,124
Total current assets		323,390			398,942
Property and equipment, net		67,040			64,633
Other intangible assets, net		206,333			210,201
Goodwill		6,022			6,022
Other assets		3,879			5,191
TOTAL	$	606,664		$	684,989
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	62,946		$	117,789
Accrued expenses and other liabilities		25,594			22,355
Accrued interest payable		536			4,045
Unearned revenues		4,143			4,856
Deferred pension obligation		8,514			8,930
Deferred income taxes		172			797
Total current liabilities		101,905			158,772
Senior subordinated notes payable, net		50,000			150,000
Senior credit facility		60,621			—
Real estate mortgages		21,517			22,109
Unearned revenues and other long-term liabilities		15,223			15,009
Deferred income taxes		40,290			37,082
Total long-term liabilities		187,651			224,200
Total liabilities		289,556			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; 15,789,519 shares issued and outstanding as of October 31, 2015 and 16,128,775 shares issued and outstanding as of January 31, 2015		158			161
Additional paid-in-capital		149,418			161,336
Retained earnings		179,505			169,102
Accumulated other comprehensive loss		(11,973	)		(12,852	)
Total		317,108			317,747
Treasury stock at cost; no shares as of October 31, 2015 and 770,753 shares as of January 31, 2015		—			(15,730	)
Total equity		317,108			302,017
TOTAL	$	606,664		$	684,989

See Notes to Unaudited Condensed Consolidated Financial Statements

1

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)

	Three Months Ended					Nine Months Ended
	October 31, 2015		November 1, 2014			October 31, 2015			November 1, 2014
Revenues:
Net sales	$	196,447	$	203,267		$	659,342		$	649,193
Royalty income		8,992		8,173			25,810			23,093
Total revenues		205,439		211,440			685,152			672,286
Cost of sales		132,144		141,133			445,815			443,850
Gross profit		73,295		70,307			239,337			228,436
Operating expenses:
Selling, general and administrative expenses		64,869		64,477			202,731			201,045
Depreciation and amortization		3,383		3,008			10,151			8,976
Total operating expenses		68,252		67,485			212,882			210,021
(Loss) gain on sale of long-lived assets		—		—			(697	)		885
Operating income		5,043		2,822			25,758			19,300
Costs of early extinguishment of debt		—		—			5,121			—
Interest expense		1,853		3,517			7,423			10,838
Net income (loss) before income taxes		3,190		(695	)		13,214			8,462
Income tax provision (benefit)		917		(258	)		2,811			2,740
Net income (loss)	$	2,273	$	(437	)	$	10,403		$	5,722
Net income (loss) per share:
Basic	$	0.15	$	(0.03	)	$	0.70		$	0.38
Diluted	$	0.15	$	(0.03	)	$	0.68		$	0.38
Weighted average number of shares outstanding
Basic		15,148		14,954			14,948			14,881
Diluted		15,465		14,954			15,344			15,246

See Notes to Unaudited Condensed Consolidated Financial Statements

2

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(amounts in thousands)

	Three Months Ended						Nine Months Ended
	October 31, 2015			November 1, 2014			October 31, 2015			November 1, 2014
Net income (loss)	$	2,273		$	(437	)	$	10,403		$	5,722
Other Comprehensive (loss) income:
Foreign currency translation adjustments, net		(609	)		(1,228	)		482			(591	)
Unrealized gain on pension liability, net of tax (1)		135			80			405			239
Unrealized gain on investments		(1	)		14			(8	)		29
Total other comprehensive (loss) income		(475	)		(1,134	)		879			(323	)
Comprehensive income (loss)	$	1,798		$	(1,571	)	$	11,282		$	5,399

⁽¹⁾ Unrealized gain on pension liability for the three months ended October 31, 2015 and November 1, 2014 is net of tax in the amount of $0 and $50, respectively. Unrealized gain on pension liability for the nine months ended October 31, 2015 and November 1, 2014 is net of tax in the amount of $0 and $151, respectively. See footnote 12 to the consolidated financial statements for further information.

See Notes to Unaudited Condensed Consolidated Financial Statements

3

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

	Nine Months Ended
	October 31, 2015			November 1, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,403		$	5,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,632			9,541
Provision for bad debts		435			360
Amortization of debt issue cost		369			483
Amortization of premiums and discounts		124			320
Amortization of unrealized loss on pension liability		405			390
Costs on early extinguishment of debt		1,158			—
Deferred income taxes		2,614			1,764
Loss (gain) on sale of long-lived assets		697			(885	)
Share-based compensation		3,641			4,424
Changes in operating assets and liabilities:
Accounts receivable, net		6,507			16,614
Inventories		38,380			50,420
Prepaid income taxes		3,606			44
Prepaid expenses and other current assets		(762	)		(538	)
Other assets		111			(313	)
Deferred pension obligation		(416	)		(2,221	)
Accounts payable and accrued expenses		(54,759	)		(50,297	)
Accrued interest payable		(3,509	)		(2,986	)
Unearned revenues and other liabilities		(998	)		991
Net cash provided by operating activities		18,638			33,833
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(9,837	)		(12,525	)
Purchase of investments		(8,230	)		(27,331	)
Proceeds from investment maturities		17,845			19,844
Proceeds on sale of intangible assets		2,500			—
Proceeds from note receivable		250			250
Net cash provided by (used in) investing activities		2,528			(19,762	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility		330,644			220,166
Payments on senior credit facility		(270,023	)		(228,328	)
Payments on senior subordinated notes		(100,000	)		—
Purchase of treasury stock		—			(2,222	)
Payments on real estate mortgages		(615	)		(593	)
Payments on capital leases		(137	)		(150	)
Deferred financing fees		(574	)		—
Proceeds from exercise of stock options		1,408			360
Tax benefit from exercise of equity instruments		—			(134	)
Net cash used in financing activities		(39,297	)		(10,901	)
Effect of exchange rate changes on cash and cash equivalents		600			243
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(17,531	)		3,413
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		43,547			26,989
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	26,016		$	30,402

Continued

4

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

	Nine Months Ended
	October 31, 2015		November 1, 2014
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	10,439	$	13,021
Income taxes	$	507	$	616
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Accrued purchases of property and equipment	$	1,684	$	17
Note receivable on sale of intangible asset	$	—	$	1,250

See Notes to Unaudited Condensed Consolidated Financial Statements

5

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, 2015, filed with the Securities and Exchange Commission on April 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 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 is 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, 2017. 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 adoption of ASU No. 2014-12 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position

6

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis”, which change 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 adoption of ASU No. 2015-02 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.

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.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”, which requires inventory measured using any method other than last-in, first out (“LIFO”) or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Under this ASU, subsequent measurement of inventory using the LIFO and retail inventory method is unchanged. ASU 2015-11 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. Early application is permitted. The adoption of ASU No. 2015-11 is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.

3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of:

	October 31, 2015			January 31, 2015
	(in thousands)
Trade accounts	$	144,670		$	150,515
Royalties		7,331			6,662
Other receivables		1,054			1,034
Total		153,055			158,211
Less: allowances		(22,602	)		(20,779	)
Total	$	130,453		$	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:

	October 31, 2015		January 31, 2015
	(in thousands)
Finished goods	$	144,972	$	183,468
Raw materials and in process		329		266
Total	$	145,301	$	183,734

7

5. INVESTMENTS

The Company’s investments include marketable securities and certificates of deposit at October 31, 2015 and 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 $7.3 million with maturity dates within one year. 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 October 31, 2015:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Marketable securities	$	3,030	$	1	$	—		$	3,031
Certificates of deposit		7,262		1		(3	)		7,260
Total investments	$	10,292	$	2	$	(3	)	$	10,291

Investments consisted of the following as of January 31, 2015:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Marketable securities	$	12,247	$	9	$	—		$	12,256
Certificates of deposit		7,742		1		(3	)		7,740
Total investments	$	19,989	$	10	$	(3	)	$	19,996

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

	October 31, 2015			January 31, 2015
	(in thousands)
Furniture, fixtures and equipment	$	86,174		$	79,225
Buildings and building improvements		22,431			19,719
Vehicles		560			569
Leasehold improvements		48,568			47,807
Land		9,488			9,488
Total		167,221			156,808
Less: accumulated depreciation and amortization		(100,181	)		(92,175	)
Total	$	67,040		$	64,633

8

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

	October 31, 2015			January 31, 2015
	(in thousands)
Furniture, fixtures and equipment	$	810		$	888
Less: accumulated depreciation and amortization		(114	)		(791	)
Total	$	696		$	97

For the three months ended October 31, 2015 and November 1, 2014, depreciation and amortization expense relating to property and equipment amounted to $3.4 million and $3.1 million, respectively. For the nine months ended October 31, 2015 and November 1, 2014, depreciation and amortization expense relating to property and equipment amounted to $10.0 million and $8.9 million, respectively. 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 and $205.5 million at October 31, 2015 and January 31, 2015.

On 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 price was $2.5 million, which was collected during the first quarter of fiscal 2016. In connection with this transaction, the Company recorded a loss of ($0.7) million in the licensing segment.

On August 1, 2014, the Company entered into 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. The first payment was due within four days of the completion date and has been paid. The second payment has also been received. The remaining three payments are to be paid annually commencing on August 1, 2016 with the final payment to be made on August 1, 2018. As a result of this transaction, the Company recorded a gain of $0.9 million in the licensing segment.

Other

Other intangible assets represent as of:

	October 31, 2015			January 31, 2015
	(in thousands)
Customer lists	$	8,450		$	8,450
Less: accumulated amortization		(4,453	)		(3,782	)
Total	$	3,997		$	4,668

For the three months ended October 31, 2015 and November 1, 2014, amortization expense relating to customer lists amounted to $0.3 million and $0.2 million, respectively, for each period. For the nine months ended October 31, 2015 and November 1, 2014, amortization expense relating to customer lists amounted to $0.7 million, respectively, 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 October 31, 2015, will be approximately $0.9 million a year from fiscal 2016 through fiscal 2017, approximately $0.8 million a year from fiscal 2018 through fiscal 2019, approximately $0.7 million for fiscal 2020 and approximately $0.5 million for fiscal 2021.

9

8. LETTER OF CREDIT FACILITIES

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

	October 31, 2015			January 31, 2015
	(in thousands)
Total letter of credit facilities	$	30,307		$	45,301
Outstanding letters of credit		(11,395	)		(11,595	)
Total credit available	$	18,912		$	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 $4.1 million and $4.4 million for the three months ended October 31, 2015 and November 1, 2014, respectively, and $11.1 million and $12.2 million for the nine months ended October 31, 2015 and November 1, 2014, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

10. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares of outstanding common stock. The calculation of diluted net income (loss) 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 (loss) 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 income (loss) per share:

	Three Months Ended					Nine Months Ended
	October 31, 2015		November 1, 2014			October 31, 2015		November 1, 2014
	(in thousands, except per share data)
Numerator:
Net income (loss)	$	2,273	$	(437	)	$	10,403	$	5,722
Denominator:
Basic-weighted average shares		15,148		14,954			14,948		14,881
Dilutive effect: equity awards		317		—			396		365
Diluted-weighted average shares		15,465		14,954			15,344		15,246
Basic income (loss) per share	$	0.15	$	(0.03	)	$	0.70	$	0.38
Diluted income (loss) per share	$	0.15	$	(0.03	)	$	0.68	$	0.38
Antidilutive effect:(1)		530		1,778			693		886

⁽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 (loss) per share because their effects were antidilutive for the respective periods.

10

11. EQUITY

The following table reflects the changes in equity:

	Changes in Equity
	(in thousands)
Equity at January 31, 2015	$	302,017
Comprehensive income		11,282
Share transactions under employee equity compensation plans		3,809
Equity at October 31, 2015	$	317,108
Equity at February 1, 2014	$	347,533
Comprehensive income		5,399
Share transactions under employee equity compensation plans		4,362
Purchase of treasury stock		(2,222	)
Equity at November 1, 2014	$	355,072

During the second quarter of fiscal 2016, the Company retired 770,753 shares of treasury stock recorded at a cost of approximately $15.7 million. Accordingly, during the second quarter of fiscal 2016, the Company reduced common stock and additional paid in capital by $7,000 and $15.7 million, respectively.

During the three months ended November 1, 2014, the Company repurchased shares of its common stock at a cost of $2.2 million.

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

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

	Unrealized (Loss) Gain on Pension Liability			Foreign Currency Translation Adjustments, Net			Unrealized (Loss) Gain on Investments			Total
	(in thousands)
Balance, January 31, 2015	$	(8,085	)	$	(4,774	)	$	7		$	(12,852	)
Other comprehensive loss (income) before reclassifications		—			482			(8	)		474
Amounts reclassified from accumulated other comprehensive loss		405			—			—			405
Balance, October 31, 2015	$	(7,680	)	$	(4,292	)	$	(1	)	$	(11,973	)

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A summary of the impact on the condensed consolidated statements of operations line items is as follows:

	Three Months Ended
	October 31, 2015		November 1, 2014
	(in thousands)
Amortization of defined benefit pension items
Actuarial gains	$	135	$	130		Selling, general and administrative expenses
Tax provision		—		(50	)	Income tax provision
Total, net of tax	$	135	$	80
	Nine Months Ended
	October 31, 2015		November 1, 2014
	(in thousands)
Amortization of defined benefit pension items
Actuarial gains	$	405	$	390		Selling, general and administrative expenses
Tax provision		—		(151	)	Income tax provision
Total, net of tax	$	405	$	239

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 2015 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 2016, depending on each state’s particular statute of limitation. As of October 31, 2015, the fiscal 2011, 2012 and 2013 U.S. federal income tax returns are under examination as well as various state, local, and foreign income tax returns by various taxing authorities.

The Company has a $1.0 million liability recorded for unrecognized tax benefits as of January 31, 2015, which includes interest and penalties of $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 nine months ended October 31, 2015, the total amount of unrecognized tax benefits decreased by approximately $81,000 and increased by $29,000, respectively. The change to the total amount of the unrecognized tax benefits for the three and nine months ended October 31, 2015 included a decrease in interest and penalties of approximately $29,000 and $2,000, respectively.

The Company finalized amounts due to New York City as a corollary to the recently resolved New York State examination during the three months ended October 31, 2015. Within the next twelve months the accepted look back period associated with various state and local tax jurisdictions will close. This event could result in a reduction of the unrecognized tax benefit of up to approximately $47,000. The Company does not currently anticipate a resolution within the next twelve months for any of the other remaining unrecognized tax benefits as of October 31, 2015. The statute of limitations related to the Company’s fiscal 2011, 2012, and 2013 U.S. federal tax years has been extended as part of the examination and will 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, whose utilization is not restricted by factors beyond the Company’s control. The establishment 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 through the nine months ended October 31, 2015, by itself that does not represent sufficient positive evidence of deferred tax asset realizability to warrant removing the valuation allowances established against the U.S. deferred tax assets. Deferred tax assets without valuation allowances remain in certain foreign tax jurisdictions, where supported by the evidence.

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14. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES

In 2002, the Company adopted the 2002 Stock Option Plan (the “2002 Plan”). The 2002 Plan was amended in 2003 to increase the number of shares reserved for issuance thereunder, among other changes. As amended, the 2002 Plan allowed the Company to grant Options to purchase up to an aggregate of 1,500,000 shares of the Company’s common stock. In 2005, the Company adopted the 2005 Long-Term Incentive Compensation Plan (the “2005 Plan”). The 2005 Plan allowed the Company to grant Options and other awards to purchase or receive up to an aggregate of 2,250,000 shares of the Company’s common stock, reduced by any awards outstanding under the 2002 Plan. On March 13, 2008, the Board of Directors unanimously adopted an amendment and restatement of the 2005 Plan that increased the number of shares available for grants by an additional 2,250,000 shares to an aggregate of 4,750,000 shares of common stock. On March 17, 2011, the Board of Directors unanimously adopted the second amendment and restatement of the 2005 Plan, which increased the number of shares available for grants by an additional 500,000 shares to an aggregate of 5,250,000 shares of common stock. On May 20, 2015, the Board of Directors unanimously adopted, subject to shareholder approval at the annual meeting, the Perry Ellis International, Inc. 2015 Long Term Incentive Compensation Plan, which is an amendment and restatement of the 2005 Plan (the “2015 Plan, and collectively with the 2002 and 2005 Plans, as amended, the “Stock Plan”). The amendment was approved by the shareholders at the Company’s 2015 annual meeting.

The 2015 Plan extends the existing term until July 17, 2025 as well as increases the number of shares of common stock reserved for issuance by an additional 1,000,000 shares to an aggregate of 6,250,000 shares.

The Stock Plan is designed to serve as an incentive for attracting and retaining qualified and competent employees, officers, directors, consultants, and other persons who provide services to the Company.

The 2015 Plan provides for the grants of Incentive Stock Options and Nonstatutory Stock Options. An Incentive Stock Option is an option to purchase common stock, which meets the requirements set forth under Section 422 of the Internal Revenue Code of 1986, as amended (“Section 422”). A Nonstatutory Stock Option is an option to purchase common stock, which meets the requirements of the 2015 Plan, but does not meet the definition of an “incentive stock option” under Section 422.

The 2015 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), which is comprised of two or more non-employee directors. Subject to the terms of the 2015 Plan, the Committee determines the participants, the allotment of shares to participants, and the term of the options. The Committee also determines the exercise price and certain other terms of the options; provided, however that the per share exercise price of options granted under the 2015 Plan may not be less than the fair market value of the common stock on the date of grant, and in the case of an Incentive Stock Option granted to a 10% shareholder, the per share exercise price will not be less than 110% of the fair market value of the common stock on the date of grant.

Under the 2015 Plan, restricted stock awards are granted subject to restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, or as otherwise provided in the 2015 Plan, covering a period of time specified by the Committee. The terms of any restricted stock awards granted under the 2015 Plan are set forth in a written award agreement, which contains provisions determined by the Committee that are not inconsistent with the 2015 Plan. The restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Committee may determine at the date of grant or thereafter. Except to the extent restricted under the terms of the 2015 Plan and any award agreement relating to a restricted stock award, a participant granted restricted stock shall have all of the rights of a shareholder, including the right to vote the restricted stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Committee). During the Restriction Period (as defined in the 2015 Plan), the restricted stock may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered by the participant.

During the second quarter of fiscal 2016, the Company granted an aggregate of 8,130 SARs, to be settled in shares of common stock to two new directors. The SARs have an exercise price of $23.38 and generally vest over a three-year period and have a seven-year term, at an estimated value, based on theBlack-Scholes Option Pricing Model, of approximately $0.1 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

During the first and second quarters of fiscal 2016, the Company granted an aggregate of 73,489 and 141,613 shares of restricted stock to certain key employees, which vest primarily over a three-year period, at an estimated value of $1.8 million and $3.5 million, respectively. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

13

Also, during the second quarter of fiscal 2016, the Company awarded to five directors an aggregate of 12,840 shares of restricted stock. The restricted stock awarded vests primarily over a three-year period, at an estimated value of $0.3 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

In April 2015, a total of 91,083 shares of restricted stock vested, of which 27,325 shares were withheld to cover the employees’ statutory income tax requirements. The estimated value of the withheld shares was $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, Original Penguin, Laundry by Shelly Segal, Ben Hogan, Jantzen, John Henry, Gotcha, Farah, Pro Player and Manhattan.

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

	Three Months Ended						Nine Months Ended
	October 31,			November 1,			October 31,			November 1,
	2015			2014			2015			2014
	(in thousands)
Revenues:
Men’s Sportswear and Swim	$	141,512		$	145,732		$	490,453		$	487,906
Women’s Sportswear		33,421			36,721			102,126			97,448
Direct-to-Consumer		21,514			20,814			66,763			63,839
Licensing		8,992			8,173			25,810			23,093
Total revenues	$	205,439		$	211,440		$	685,152		$	672,286
Depreciation and amortization:
Men’s Sportswear and Swim	$	1,771		$	1,606		$	5,509		$	4,804
Women’s Sportswear		589			487			1,655			1,444
Direct-to-Consumer		976			880			2,851			2,615
Licensing		47			35			136			113
Total depreciation and amortization	$	3,383		$	3,008		$	10,151		$	8,976
Operating income:
Men’s Sportswear and Swim	$	2,392		$	(2,091	)	$	14,544		$	7,163
Women’s Sportswear		(109	)		1,324			222			(249	)
Direct-to-Consumer		(4,038	)		(2,937	)		(8,051	)		(5,915	)
Licensing(1)		6,798			6,526			19,043			18,301
Total operating income	$	5,043		$	2,822		$	25,758		$	19,300
Costs on early extinguishment of debt		—			—			5,121			—
Total interest expense		1,853			3,517			7,423			10,838
Total net income (loss) before income taxes	$	3,190		$	(695	)	$	13,214		$	8,462

⁽¹⁾ Operating income for the licensing segment for the nine months ended October 31, 2015, includes a loss on sale of long-lived assets in the amount of $0.7 million. Operating income for the licensing segment for the nine months ended November 1, 2014 includes a gain on sale of long-lived assets in the amount of $0.9 million. See footnote 7 to the consolidated financial statements for further information.

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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 three and nine months ended fiscal 2016 and 2015:

	Three Months Ended						Nine Months Ended
	October 31,			November 1,			October 31,			November 1,
	2015			2014			2015			2014
	(in thousands)
Service cost	$	63		$	63		$	189		$	189
Interest cost		337			433			1,011			1,299
Expected return on plan assets		(658	)		(508	)		(1,974	)		(1,524	)
Amortization of net loss		135			130			405			390
Net periodic benefit cost	$	(123	)	$	118		$	(369	)	$	354

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 October 31, 2015, The Company had outstanding borrowings of $60.6 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.

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18. SENIOR SUBORDINATED NOTES PAYABLE

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

On April 6, 2015, the Company elected to call for the partial redemption of $100 million of its $150 million 7 ⁷⁄₈% senior subordinated notes due 2019 and a notice of redemption was sent to all registered holders of the senior subordinated 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 the Company’s ability and the ability of its 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. The Company is not aware of any non-compliance with any of its covenants in this indenture. The Company could be materially harmed if it violated any covenants because the indenture’s trustee could declare the outstanding notes, together with accrued interest, to be immediately due and payable, which the Company 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 the Company’s debt obligations becoming immediately due and payable, which it may not be able to satisfy.

19. FAIR VALUE MEASUREMENTS

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

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 October 31, 2015 and January 31, 2015, respectively. The carrying values of the real estate mortgages at October 31, 2015 and January 31, 2015, approximate their fair values since the interest rates approximate market.

Senior credit facility. (classified within Level 2 of the valuation hierarchy) - 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 7 ⁷⁄₈% senior subordinated notes payable were approximately $50.0 million and $150.0 million at October 31, 2015 and January 31, 2015, respectively. The fair value of the 7 ⁷⁄₈% senior subordinated notes payable was approximately $51.7 and $157.0 million as of October 31, 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.

20. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in Joseph T. Cook v. Perry Ellis International, Inc. and Oscar Feldenkreis, Case No. 15-cv-08290 (U.S. District Court, Southern District of New York), involving claims of unlawful employment practices, including unlawful discrimination and retaliation, which was filed on October 21, 2015 by an employee in the New York offices. The plaintiff seeks an unspecified amount of damages. The Company believes that the allegations are without merit and intends to vigorously defend against them.

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21. 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 October 31, 2015 and January 31, 2015 and for the three and nine months ended October 31, 2015 and November 1, 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.

17

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

AS OF OCTOBER 31, 2015

(amounts in thousands)

	Parent Only		Guarantors		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	2,532	$	23,484	$	—		$	26,016
Accounts receivable, net		—		104,425		26,028		—			130,453
Intercompany receivable, net		79,334		—		—		(79,334	)		—
Inventories		—		123,145		22,156		—			145,301
Investment, at fair value		—		—		10,291		—			10,291
Deferred income taxes		—		—		694		—			694
Prepaid income taxes		2,726		—		—		17			2,743
Prepaid expenses and other current assets		—		6,766		1,126		—			7,892
Total current assets		82,060		236,868		83,779		(79,317	)		323,390
Property and equipment, net		—		62,750		4,290		—			67,040
Other intangible assets, net		—		172,695		33,638		—			206,333
Goodwill		—		6,022		—		—			6,022
Investment in subsidiaries		285,117		—		—		(285,117	)		—
Other assets		467		2,281		1,131		—			3,879
TOTAL	$	367,644	$	480,616	$	122,838	$	(364,434	)	$	606,664
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	—	$	56,192	$	6,754	$	—		$	62,946
Accrued expenses and other liabilities		—		20,865		4,729		—			25,594
Accrued interest payable		536		—		—		—			536
Income taxes payable		—		451		1,228		(1,679	)		—
Unearned revenues		—		2,725		1,418		—			4,143
Deferred pension obligation		—		8,433		81		—			8,514
Deferred income taxes		—		172		—		—			172
Intercompany payable, net		—		62,709		21,528		(84,237	)		—
Total current liabilities		536		151,547		35,738		(85,916	)		101,905
Senior subordinated notes payable, net		50,000		—		—		—			50,000
Senior credit facility		—		60,621		—		—			60,621
Real estate mortgages		—		21,517		—		—			21,517
Unearned revenues and other long-term liabilities		—		14,749		474		—			15,223
Deferred income taxes		—		38,591		3		1,696			40,290
Total long-term liabilities		50,000		135,478		477		1,696			187,651
Total liabilities		50,536		287,025		36,215		(84,220	)		289,556
Total equity		317,108		193,591		86,623		(280,214	)		317,108
TOTAL	$	367,644	$	480,616	$	122,838	$	(364,434	)	$	606,664

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JANUARY 31, 2015

(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

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED OCTOBER 31, 2015

(amounts in thousands)

	Parent Only			Guarantors		Non- Guarantors			Eliminations			Consolidated
Revenues:
Net sales	$	—		$	174,315	$	22,132		$	—		$	196,447
Royalty income		—			5,495		3,497			—			8,992
Total revenues		—			179,810		25,629			—			205,439
Cost of sales		—			118,154		13,990			—			132,144
Gross profit		—			61,656		11,639			—			73,295
Operating expenses:
Selling, general and administrative expenses		—			55,570		9,299			—			64,869
Depreciation and amortization		—			3,096		287			—			3,383
Total operating expenses		—			58,666		9,586			—			68,252
Operating income		—			2,990		2,053			—			5,043
Interest expense, net		—			1,857		(4	)		—			1,853
Net income before income taxes		—			1,133		2,057			—			3,190
Income tax provision		—			344		573			—			917
Equity in earnings of subsidiaries, net		2,273			—		—			(2,273	)		—
Net income		2,273			789		1,484			(2,273	)		2,273
Other comprehensive (loss) income		(475	)		135		(610	)		475			(475	)
Comprehensive income	$	1,798		$	924	$	874		$	(1,798	)	$	1,798

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

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

FOR THE THREE MONTHS ENDED NOVEMBER 1, 2014

(amounts in thousands)

	Parent Only			Guarantors			Non- Guarantors			Eliminations		Consolidated
Revenues:
Net sales	$	—		$	182,512		$	20,755		$	—	$	203,267
Royalty income		—			4,995			3,178			—		8,173
Total revenues		—			187,507			23,933			—		211,440
Cost of sales		—			128,438			12,695			—		141,133
Gross profit		—			59,069			11,238			—		70,307
Operating expenses:
Selling, general and administrative expenses		—			55,639			8,838			—		64,477
Depreciation and amortization		—			2,735			273			—		3,008
Total operating expenses		—			58,374			9,111			—		67,485
Operating income		—			695			2,127			—		2,822
Interest expense		—			3,531			(14	)		—		3,517
Net income (loss) before income taxes		—			(2,836	)		2,141			—		(695	)
Income tax (benefit) provision		—			(1,320	)		1,062			—		(258	)
Equity in earnings of subsidiaries, net		(437	)		—			—			437		—
Net (loss) income		(437	)		(1,516	)		1,079			437		(437	)
Other comprehensive (loss) income		(1,134	)		80			(1,214	)		1,134		(1,134	)
Comprehensive loss	$	(1,571	)	$	(1,436	)	$	(135	)	$	1,571	$	(1,571	)

21

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE NINE MONTHS ENDED OCTOBER 31, 2015

(amounts in thousands)

	Parent Only		Guarantors			Non- Guarantors		Eliminations			Consolidated
Revenues:
Net sales	$	—	$	586,515		$	72,827	$	—		$	659,342
Royalty income		—		15,693			10,117		—			25,810
Total revenues		—		602,208			82,944		—			685,152
Cost of sales		—		399,813			46,002		—			445,815
Gross profit		—		202,395			36,942		—			239,337
Operating expenses:
Selling, general and administrative expenses		—		172,690			30,041		—			202,731
Depreciation and amortization		—		9,258			893		—			10,151
Total operating expenses		—		181,948			30,934		—			212,882
Loss on sale of long-lived assets		—		(697	)		—		—			(697	)
Operating income		—		19,750			6,008		—			25,758
Costs of early extinguishment of debt		—		5,121			—		—			5,121
Interest expense		—		7,363			60		—			7,423
Net income before income taxes		—		7,266			5,948		—			13,214
Income tax provision		—		908			1,903		—			2,811
Equity in earnings of subsidiaries, net		10,403		—			—		(10,403	)		—
Net income		10,403		6,358			4,045		(10,403	)		10,403
Other comprehensive income		879		405			474		(879	)		879
Comprehensive income	$	11,282	$	6,763		$	4,519	$	(11,282	)	$	11,282

22

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE NINE MONTHS ENDED NOVEMBER 1, 2014

(amounts in thousands)

	Parent Only			Guarantors		Non- Guarantors			Eliminations			Consolidated
Revenues:
Net sales	$	—		$	581,632	$	67,561		$	—		$	649,193
Royalty income		—			14,085		9,008			—			23,093
Total revenues		—			595,717		76,569			—			672,286
Cost of sales		—			400,997		42,853			—			443,850
Gross profit		—			194,720		33,716			—			228,436
Operating expenses:
Selling, general and administrative expenses		—			173,069		27,976			—			201,045
Depreciation and amortization		—			8,256		720			—			8,976
Total operating expenses		—			181,325		28,696			—			210,021
Gain on sale of long-lived assets		—			—		885			—			885
Operating income		—			13,395		5,905			—			19,300
Interest expense		—			10,831		7			—			10,838
Net income before income taxes		—			2,564		5,898			—			8,462
Income tax provision		—			1,281		1,459			—			2,740
Equity in earnings of subsidiaries, net		5,722			—		—			(5,722	)		—
Net income		5,722			1,283		4,439			(5,722	)		5,722
Other comprehensive (loss) income		(323	)		239		(562	)		323			(323	)
Comprehensive income	$	5,399		$	1,522	$	3,877		$	(5,399	)	$	5,399

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED OCTOBER 31, 2015

(amounts in thousands)

	Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated
NET CASH PROVIDED BY OPERATING ACTIVITIES:	$	382		$	15,691		$	2,565		$	—		$	18,638
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		—			(8,913	)		(924	)		—			(9,837	)
Purchase of investments		—			—			(8,230	)		—			(8,230	)
Proceeds from investment maturities		—			—			17,845			—			17,845
Proceeds on sale of intangible assets		—			2,500			—			—			2,500
Proceeds from note receivable		—			—			250			—			250
Intercompany transactions		97,610			—			—			(97,610	)		—
Net cash provided by (used in) investing activities		97,610			(6,413	)		8,941			(97,610	)		2,528
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on senior subordinated notes		(100,000	)		—			—			—			(100,000	)
Borrowings from senior credit facility		—			330,644			—			—			330,644
Payments on senior credit facility		—			(270,023	)		—			—			(270,023	)
Payments on real estate mortgages		—			(615	)		—			—			(615	)
Payments on capital leases		—			(137	)		—			—			(137	)
Deferred financing fees		—			(574	)		—			—			(574	)
Proceeds from exercise of stock options		1,408			—			—			—			1,408
Intercompany transactions		—			(96,096	)		(2,114	)		98,210			—
Net cash used in financing activities		(98,592	)		(36,801	)		(2,114	)		98,210			(39,297	)
Effect of exchange rate changes on cash and cash equivalents		600			—			600			(600	)		600
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		—			(27,523	)		9,992			—			(17,531	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—			30,055			13,492			—			43,547
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	—		$	2,532		$	23,484			—		$	26,016

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED NOVEMBER 1, 2014

(amounts in thousands)

	Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:	$	(3,859	)	$	33,000		$	1,693		$	2,999		$	33,833
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		—			(11,860	)		(665	)		—			(12,525	)
Purchase of investments		—			—			(27,331	)		—			(27,331	)
Proceeds from investment maturities		—			—			19,844			—			19,844
Proceeds from note receivable		—			—			250			—			250
Intercompany transactions		5,612			—			—			(5,612	)		—
Net cash provided by (used in) investing activities		5,612			(11,860	)		(7,902	)		(5,612	)		(19,762	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility		—			220,166			—			—			220,166
Payments on senior credit facility		—			(228,328	)		—			—			(228,328	)
Payments on real estate mortgages		—			(593	)		—			—			(593	)
Purchase of treasury stock		(2,222	)		—			—			—			(2,222	)
Payments on capital leases		—			(150	)		—			—			(150	)
Proceeds from exercise of stock options		360			—			—			—			360
Tax benefit from exercise of equity instruments		(134	)		—			—			—			(134	)
Intercompany transactions		—			(3,039	)		(2,816	)		5,855			—
Net cash (used in) provided by financing activities		(1,996	)		(11,944	)		(2,816	)		5,855			(10,901	)
Effect of exchange rate changes on cash and cash equivalents		243			—			243			(243	)		243
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			9,196			(8,782	)		2,999			3,413
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—			—			29,988			(2,999	)		26,989
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	—		$	9,196		$	21,206		$	—		$	30,402

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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, 2015, filed with the Securities and Exchange Commission on April 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,” “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,

25

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

• 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 January 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 nine months ended October 31, 2015 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, 2015.

26

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						Nine Months Ended
	October 31, 2015			November 1, 2014			October 31, 2015			November 1, 2014
	(in thousands)
Revenues by segment:
Men’s Sportswear and Swim	$	141,512		$	145,732		$	490,453		$	487,906
Women’s Sportswear		33,421			36,721			102,126			97,448
Direct-to-Consumer		21,514			20,814			66,763			63,839
Licensing		8,992			8,173			25,810			23,093
Total revenues	$	205,439		$	211,440		$	685,152		$	672,286
	Three Months Ended						Nine Months Ended
	October 31, 2015			November 1, 2014			October 31, 2015			November 1, 2014
	(in thousands)
Reconciliation of operating income to EBITDA
Operating (loss) income by segment:
Men’s Sportswear and Swim	$	2,392		$	(2,091	)	$	14,544		$	7,163
Women’s Sportswear		(109	)		1,324			222			(249	)
Direct-to-Consumer		(4,038	)		(2,937	)		(8,051	)		(5,915	)
Licensing		6,798			6,526			19,043			18,301
Total operating income	$	5,043		$	2,822		$	25,758		$	19,300
Add:
Depreciation and amortization
Men’s Sportswear and Swim	$	1,771		$	1,606		$	5,509		$	4,804
Women’s Sportswear		589			487			1,655			1,444
Direct-to-Consumer		976			880			2,851			2,615
Licensing		47			35			136			113
Total depreciation and amortization	$	3,383		$	3,008		$	10,151		$	8,976
EBITDA by segment:
Men’s Sportswear and Swim	$	4,163		$	(485	)	$	20,053		$	11,967
Women’s Sportswear		480			1,811			1,877			1,195
Direct-to-Consumer		(3,062	)		(2,057	)		(5,200	)		(3,300	)
Licensing		6,845			6,561			19,179			18,414
Total EBITDA	$	8,426		$	5,830		$	35,909		$	28,276
EBITDA margin by segment
Men’s Sportswear and Swim		2.9	%		(0.3	%)		4.1	%		2.5	%
Women’s Sportswear		1.4	%		4.9	%		1.8	%		1.2	%
Direct-to-Consumer		(14.2	%)		(9.9	%)		(7.8	%)		(5.2	%)
Licensing		76.1	%		80.3	%		74.3	%		79.7	%
Total EBITDA margin		4.1	%		2.8	%		5.2	%		4.2	%

EBITDA consists of earnings before interest, depreciation and amortization, costs on early extinguishment of debt 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 nine month periods ended October 31, 2015 of the fiscal year ending January 30, 2016 (“fiscal 2016”) compared with the three and nine month periods ended November 1, 2014 of the fiscal year ended January 31, 2015 (“fiscal 2015”).

27

Results of Operations - three and nine months ended October 31, 2015 compared to the three and nine months ended November 1, 2014.

Net sales. Men’s Sportswear and Swim net sales for the three months ended October 31, 2015 were $141.5 million, a decrease of $4.2 million, or 2.9%, from $145.7 million for the three months ended November 1, 2014. The net sales decrease was attributed to the exit of private and retailer exclusive branded products, partially offset by strength in Perry Ellis, Original Penguin and golf lifestyle apparel.

Men’s Sportswear and Swim net sales for the nine months ended October 31, 2015 were $490.5 million, an increase of $2.6 million, or 0.5%, from $487.9 million for the nine months ended November 1, 2014. The net sales increase was attributed primarily to increases in the Perry Ellis and Original Penguin collections and golf lifestyle apparel, partially offset by decreases in our mid-tier sportswear as we reduced penetration of our exclusive branded products.

Women’s Sportswear net sales for the three months ended October 31, 2015 were $33.4 million, a decrease of $3.3 million, or 9.0%, from $36.7 million for the three months ended November 1, 2014. The net sales decrease was attributed to the sale of C&C California, which occurred during the first quarter of fiscal 2016. The decrease was partially offset by increased sales in Rafaella.

Women’s Sportswear net sales for the nine months ended November 1, 2014 were $102.1 million, an increase of $4.7 million, or 4.8%, from $97.4 million for the nine months ended November 1, 2014. The net sales increase was primarily due to increases in our contemporary Laundry by Shelli Segal dresses and Rafaella sportswear, driven by strong performance at retail. These increases were partially offset by the sale of C&C California in the first quarter.

Direct-to-Consumer net sales for the three months ended October 31, 2015 were $21.5 million, an increase of $0.7 million, or 3.4%, from $20.8 million for the three months ended November 1, 2014. The net sales increase was attributed to a 28.1% increases in e-commerce comparable sales over the same period last year, as well as a comparable store sales increase of 1% in Perry Ellis retail stores. This increase was partially offset by a decrease of comparable same store sales of 13.1% in Original Penguin retail stores.

Direct-to-Consumer net sales for the nine months ended November 1, 2014 were $66.8 million, an increase of $3.0 million, or 4.7%, from $63.8 million for the nine months ended November 1, 2014. The increase was driven by e-commerce, which posted a 34.6% increase in comparable sales, while retail store sales were slightly down.

Royalty income. Royalty income for the three months ended October 31, 2015 was $9.0 million, an increase of $0.8 million, or 9.8%, from $8.2 million for the three months ended November 1, 2014. The net sales increase was attributed to new licenses signed during fiscal 2015 and through the first part of fiscal 2016 as well as strong performance in existing licenses for our core brands.

Royalty income for the nine months ended October 31, 2015 was $25.8 million, an increase of $2.7 million, or 11.7%, from $23.1 million for the nine months ended November 1, 2014. Royalty income increases were attributed to increases in our Perry Ellis, Original Penguin and Laundry businesses as well as the new licenses signed during fiscal 2015 and through the first part of fiscal 2016.

Gross profit. Gross profit was $73.3 million for the three months ended October 31, 2015, an increase of $3.0 million, or 4.3%, from $70.3 million for the three months ended November 1, 2014. During the three months ended October 31, 2015, we continued to focus and emphasize higher margin channels and geographies. This expansion was realized across our core domestic collections principally in Perry Ellis, Original Penguin and golf lifestyle, as well as through our growth of higher margin licensing and direct to consumer revenues.

Gross profit was $239.3 million for the nine months ended October 31, 2015, an increase of $10.9 million, or 4.8%, from $228.4 million for the nine months ended November 1, 2014. This increase is attributed to the sales mix 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 35.7% for the three months ended October 31, 2015, as compared to 33.3% for the three months ended November 1, 2014 which represents an expansion of 240 basis points. The increase was primarily attributed to the factors described above as well as cost savings associated with consolidation in our foreign sourcing offices.

28

For the nine months ended October 31, 2015, gross profit margins were 34.9% as a percentage of total revenue as compared to 34.0% for the nine months ended November 1, 2014, an increase of 90 basis points. This increase was primarily associated with expansion across our licensing and core domestic collections; partially offset by the exit of the Elite component of our Nike licensed business, the inventory liquidation of divested C&C California, as well as the consolidation of our foreign sourcing offices.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended October 31, 2015 were $64.9 million, an increase of $0.4 million, or 0.6%, from $64.5 million for the three months ended November 1, 2014. The increase reflects our continued investment in our growth strategies related to international, licensing and direct-to-consumer. These increases were partially offset by $400,000 in cost savings this quarter as a result of the initiatives implemented during fiscal 2015.

Selling, general and administrative expenses for the nine months ended October 31, 2015 were $202.7 million, an increase of $1.7 million, or 0.8%, from $201.0 million for the nine months ended November 1, 2014. The increase reflects costs primarily related to the activist campaign as well as restructuring costs related to exited businesses and exit costs associated with the consolidation of our N.Y. corporate office space. We benefitted favorably from reduced headcount and tighter expense control across our infrastructure.

EBITDA. Men’s Sportswear and Swim EBITDA margin for the three months ended October 31, 2015 increased 320 basis points to 2.9%, from (0.3)% for the three months ended November 1, 2014. The EBITDA margin increase was driven principally by the expansion in gross margin in our Perry Ellis and Original Penguin collection businesses. Additionally during fiscal 2015, EBITDA margin was negatively impacted by the reduced leverage due to the decrease in net sales during the period.

Men’s Sportswear and Swim EBITDA margin for the nine months ended October 31, 2015 increased 160 basis points to 4.1%, from 2.5% for the nine months ended November 1, 2014. The EBITDA margin increase was driven principally by the expansion in gross margin in our Perry Ellis and Original Penguin collection businesses. We also realized favorable leverage in selling, general and administrative expenses, most notably in employee related expenses, which was partially offset by the planned increased infrastructure expenditures in this segment, as well as exit costs associated with the Elite component of our licensed Nike business.

Women’s Sportswear EBITDA margin for the three months ended October 31, 2015 decreased 350 basis points to 1.4%, from 4.9% for the three months ended November 1, 2014. Women’s Sportswear EBITDA margin for the nine months ended October 31, 2015 increased 60 basis points to 1.8% from 1.2% for the nine months ended November 1, 2014. The EBITDA margin for the nine months ended October 31, 2015 was favorably impacted by the expansion in the Rafaella collection business coupled with favorable leverage in selling, general and administrative expenses, most notably in employee expenses and other overhead. This was partially offset by exit costs associated with C&C California.

Direct-to-Consumer EBITDA margin for the three months ended October 31, 2015 decreased 430 basis points to (14.2%), from (9.9%) for the three months ended November 1, 2014. Direct-to-Consumer EBITDA margin for the nine months ended October 31, 2015 decreased 260 basis points to (7.8%), from (5.2%) for the nine months ended November 1, 2014. The decrease was primarily due to an increase in occupancy costs attributable to renewal contracts coupled with additional costs associated with freight and professional fees.

Licensing EBITDA margin for the three months ended October 31, 2015 decreased 420 basis points to 76.1%, from 80.3% for the three months ended November 1, 2014. The decrease is primarily due to the unfavorable leverage attributed to increased employee costs. Licensing EBITDA margin for the nine months ended October 31, 2015 decreased to 74.3%, from 79.7% for the nine months ended November 1, 2014. During the nine months ended October 31, 2015, we realized a loss on the sale of the C&C California brand while in the prior year we realized a gain in the nine months ended November 1, 2014 from the sale of the Jantzen rights described below.

Depreciation and amortization. Depreciation and amortization for the three months ended October 31, 2015, was $3.4 million, an increase of $0.4 million, or 13.3%, from $3.0 million for the three months ended November 1, 2014. Depreciation and amortization for the nine months ended October 31, 2015, was $10.2 million, an increase of $1.2 million, or 13.3%, from $9.0 million for the nine months ended November 1, 2014. The increase is attributed to depreciation related to our capital expenditures and leaseholds, primarily in the men’s sportswear and swim segment, as well as the direct-to-consumer segment.

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(Loss) gain on sale of long-lived assets. During the first quarter of fiscal 2016, we entered into an agreement to sell the intellectual property of our C&C California brand to a third party. As a result of this transaction, we recorded a loss of ($0.7) million in the licensing segment. During the second quarter of fiscal 2015, we entered into a sales agreement, in the amount of $1.3 million, for the sale of the Australian, Fiji and New Zealand trademark rights with respect to Jantzen. As a result of this transaction, we recorded a gain of $0.9 million in the licensing segment.

Cost on early extinguishment of debt.On April 6, 2015, we called for partial redemption $100 million of our $150 million outstanding 7 ⁷⁄₈% Senior Subordinated Notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, we completed the redemption of $100 million of our senior subordinated notes. We incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption premium and the write-off of note issuance costs.

Interest expense. Interest expense for the three months ended October 31, 2015, was $1.9 million, a decrease of $1.6 million, or 45.7%, from $3.5 million for the three months ended November 1, 2014. Interest expense for the nine months ended October 31, 2015 was $7.4 million, a decrease of $3.4 million, or 31.5%, from $10.8 million for the nine months ended November 1, 2014. The decrease was primarily attributable to a decrease in interest resulting from the partial redemption of $100 million of our senior subordinated notes. This decrease was partially offset by a higher average amount borrowed on our credit facility as compared to the comparable period of the prior year. The increase in the credit facility was due to its use for the redemption of the notes as discussed above.

Income taxes. The income tax expense for the three months ended October 31, 2015, was $0.9 million, an increase of $1.2 million, as compared to a benefit of $0.3 million for the three months ended November 1, 2014. For the three months ended October 31, 2015, our effective tax rate was 28.7% as compared to 37.1% for the three months ended November 1, 2014. The income tax expense for the nine months ended October 31, 2015, was $2.8 million, an increase of $0.1 million, as compared to $2.7 million for the nine months ended November 1, 2014. For the nine months ended October 31, 2015, our effective tax rate was 21.3% as compared to 32.4% for the nine months ended November 1, 2014. The overall change in the effective tax rate is attributed to the current year impact of the valuation allowance on domestic taxes and a change in the ratio of income between domestic and foreign operations, of which the domestic operations are taxed at higher statutory tax rates.

Net (loss) income. Net income (loss) for the three months ended October 31, 2015 was $2.3 million, an improvement of $2.7 million, as compared to ($0.4) million for the three months ended November 1, 2014. Net income for the nine months ended October 31, 2015 was $10.4 million, an increase of $4.7 million, or 82.5%, as compared to $5.7 million for the nine months ended November 1, 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, and capital expenditures. We believe that our working capital requirements will increase for next year as we continue to expand internationally. As of October 31, 2015, our total working capital was $221.5 million as compared to $240.2 million as of January 31, 2015 and $277.2 million as of November 1, 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 and capital expenditure needs over the next year. We also believe that our real estate assets, which had a net book value of $25.0 million at October 31, 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 October 31, 2015, we had mortgage loans on these properties totaling $22.3 million.

We consider the undistributed earnings of our foreign subsidiaries as of October 31, 2015, to be indefinitely reinvested and, accordingly, no United States income taxes have been provided thereon. As of

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October 31, 2015, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $23.5 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 by operating activities was $18.6 million for the nine months ended October 31, 2015, as compared to cash provided by operating activities of $33.8 million for the nine months ended November 1, 2014.

The cash provided by operating activities for the nine months ended October 31, 2015, is primarily attributable to a decrease in accounts receivable of $6.5 million, a decreased inventory of $38.4 million due to improved inventory management, as well as a reduction in prepaid taxes of 3.6 million. This was partially offset by a decrease in accounts payable and accrued expenses of $54.8 million as well as decreased accrued interest payable of $3.5 million. For the nine months ended October 31, 2015, our inventory turnover ratio increased to 3.7 as compared to 3.3 for the comparable period in fiscal 2015.

The cash provided by operating activities for the nine months ended November 1, 2014, is primarily attributable to a decrease in accounts receivable of $16.6 million and a decrease in inventory of $50.4 million associated with improved inventory management. This was partially offset by decreases in accounts payable and accrued expenses of $50.3 million deferred pension of $2.2 million and accrued interest payable of $3.0 million. For the nine months ended November 1, 2014, our inventory turnover ratio decreased slightly to 3.3 as compared to 3.7 for the comparable period in fiscal 2014. While the turnover decreased, inventory levels declined as noted above resulting from tighter inventory management.

Net cash provided by investing activities was $2.5 million for the nine months ended October 31, 2015, as compared to cash used in investing activities of $19.8 million for the nine months ended November 1, 2014. The net cash provided by investing activities during the first nine months of fiscal 2016 primarily reflects the proceeds from the maturities of investments in the amount of $17.8 million, the proceeds on the sale of the C&C California brand in the amount of $2.5 million and the proceeds from notes receivable associated with the sale of the Australian, Fiji and New Zealand Jantzen trademark rights in the amount of $0.3 million; partially offset by the purchase of investments of $8.2 million and the purchase of property and equipment of $9.8 million primarily for leasehold improvements and store fixtures. We anticipate capital expenditures during fiscal 2016 of $14.0 million to $16.0 million in technology, retail stores and other expenditures. The net cash used during the first nine months of fiscal 2015 primarily reflects the purchase of investments of $27.3 million and the purchase of property and equipment of $12.5 million, primarily for leasehold improvements and store fixtures; which was partially offset by proceeds from maturities of investments in the amount of $19.8 million and the proceeds from notes receivable associated with the sale of the Australian, Fiji and New Zealand Jantzen trademark rights in the amount of $0.3 million.

Net cash used in financing activities was $39.3 million for the nine months ended October 31, 2015, as compared to $10.9 million for the nine months ended November 1, 2014. The net cash used during the first nine months of fiscal 2016 primarily reflects payments for the partial redemption on our senior subordinated notes of $100 million, payments of $0.6 million on our mortgage loans, payments of deferred financing fees on the senior credit facility of $0.6 million and payments on capital leases of $0.1 million; partially offset by net borrowings on our senior credit facility of $60.6 million and the proceeds from exercises of stock options of $1.4 million. We financed the redemption of the subordinated notes through our senior credit facility. The net cash used during the first nine months of fiscal 2015 primarily reflects net payments on our senior credit facility of $8.2 million, purchases of treasury stock of $2.2 million, payments on real estate mortgages of $0.6 million and payments on capital leases of $0.2 million; partially offset by proceeds from exercises of stock options of $0.4 million.

Our Board of Directors has authorized us to purchase, from time to time and as market and business conditions warrant, up to $70 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2016. Although our Board of Directors allocated a maximum of $70 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.

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During the second quarter of fiscal 2016, we retired 770,753 shares of treasury stock recorded at a cost of approximately $15.7 million. Accordingly, during the second quarter of fiscal 2016, we reduced common stock and additional paid in capital by $7,000 and $15.7 million, respectively.

During fiscal 2015, we repurchased shares of our common stock at a cost of $8.8 million. There have been no open market purchases during the first nine months of fiscal 2016. Total purchases under the plan, through October 31, 2015, were approximately $51.7 million. As of October 31, 2015, there were no treasury shares outstanding and as of January 31, 2015, there were 770,753 shares of treasury stock outstanding at a cost of approximately $15.7 million.

Acquisitions

None.

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

In March 2011, we issued $150 million 7 ⁷⁄₈% senior subordinated notes, due April 1, 2019. The proceeds of this offering were used to retire the $150 million 8 ⁷⁄₈% senior subordinated notes due September 15, 2013 and to repay a portion of the outstanding balance on our 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 partial redemption $100 million of our $150 million outstanding 7 ⁷⁄₈% 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, we completed the redemption of $100 million of our senior subordinated notes. We incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption premium and 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 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 $200 million. The Credit Facility has been extended through April 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 October 31, 2015, we had borrowings of $60.6 million under the Credit Facility. At January 31, 2015, we had no outstanding borrowings 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

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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 October 31, 2015, we maintained one U.S. dollar letter of credit facility totaling $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. At October 31, 2015 and January 31, 2015, there was $18.9 million and $33.7 million, respectively, available under the existing letter of credit facilities.

Real Estate Mortgage Loans

In July 2010, we paid off our 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 3.9% 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 October 31, 2015, the balance of the real estate mortgage loan totaled $11.1 million, net of discount, of which $354,000 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 October 31, 2015, the balance of the real estate mortgage loan totaled $11.2 million, net of discount, of which approximately $456,000 is due within one year.

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The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of the 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 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,” as defined by applicable GAAP and SEC rules.

Effects of Inflation and Foreign Currency Fluctuations

We do not believe that inflation or foreign currency fluctuations significantly affected our results of operations for the three and nine months ended October 31, 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

Evaluation of Disclosures 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 October 31, 2015 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.

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Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f), during the quarter ended October  31, 2015 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

We were 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 was pleaded but not certified as a class action. The parties reached a settlement on August 12, 2015. The settlement amount was provided for in the Company’s results of operations for fiscal 2015.

We are a defendant in Joseph T. Cook v. Perry Ellis International, Inc. and Oscar Feldenkreis, Case No. 15-cv-08290 (U.S. District Court, Southern District of New York), involving claims of unlawful employment practices, including unlawful discrimination and retaliation, which was filed on October 21, 2015 by an employee in our New York offices. The plaintiff seeks an unspecified amount of damages. We believe that the allegations are without merit and intend to vigorously defend against them.

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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.

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SIGNATURE

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

	Perry Ellis International, Inc.
December 8, 2015	By:	/S/ ANITA BRITT
	Anita Britt, Chief Financial Officer
	(Principal Financial Officer)

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Exhibit Index

Exhibit Number	Exhibit Description
31.1	Certification of Principal Executive Officer pursuant to Rule13a-14(a)/15d-14(a)
31.2	Certification of Principal Financial Officer pursuant to Rule13a-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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