VINCE HOLDING CORP., 10-K filed on 3/27/2015
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Jan. 31, 2015
Mar. 20, 2015
Aug. 2, 2014
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Jan. 31, 2015 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
VNCE 
 
 
Entity Registrant Name
VINCE HOLDING CORP. 
 
 
Entity Central Index Key
0001579157 
 
 
Current Fiscal Year End Date
--01-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
36,748,245 
 
Entity Public Float
 
 
$ 553.1 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jan. 31, 2015
Feb. 1, 2014
Current assets:
 
 
Cash and cash equivalents
$ 112 
$ 21,484 
Trade receivables, net
33,797 
40,198 
Inventories, net
37,419 
33,956 
Prepaid expenses and other current assets
9,812 
8,093 
Total current assets
81,140 
103,731 
Property, plant and equipment:
 
 
Building and improvements
27,645 
15,355 
Machinery and equipment
5,384 
2,439 
Capitalized software
1,341 
630 
Construction in process
3,369 
1,200 
Total property, plant and equipment
37,739 
19,624 
Less: accumulated depreciation and amortization
(9,390)
(6,009)
Property, plant and equipment, net
28,349 
13,615 
Intangible assets, net
109,644 
110,243 
Goodwill
63,746 
63,746 
Deferred income taxes and other assets
99,319 
123,007 
Total assets
382,198 
414,342 
Current liabilities:
 
 
Accounts payable
29,118 
23,847 
Accrued salaries and employee benefits
7,380 
5,425 
Other accrued expenses
27,992 
9,061 
Total current liabilities
64,490 
38,333 
Long-term debt
88,000 
170,000 
Deferred rent
11,676 
3,443 
Other liabilities
146,063 
169,015 
Commitments and contingencies (Note 13)
   
   
Stockholders' equity:
 
 
Common stock at $0.01 par value (100,000,000 shares authorized, 36,748,245 and 36,723,727 shares issued and outstanding at January 31, 2015 and February 1, 2014, respectively)
367 
367 
Additional paid-in capital
1,011,244 
1,008,549 
Accumulated deficit
(939,577)
(975,300)
Accumulated other comprehensive loss
(65)
(65)
Total stockholders' equity
71,969 
33,551 
Total liabilities and stockholders' equity
$ 382,198 
$ 414,342 
Consolidated Balance Sheets (Parenthetical) (USD $)
Jan. 31, 2015
Feb. 1, 2014
Nov. 27, 2013
Nov. 21, 2013
Statement of Financial Position [Abstract]
 
 
 
 
Common stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
 
Common stock, shares authorized
100,000,000 
100,000,000 
 
 
Common stock, shares issued
36,748,245 
36,723,727 
 
10,000,000 
Common stock, shares outstanding
36,748,245 
36,723,727 
 
 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Jan. 31, 2015
Feb. 1, 2014
Feb. 2, 2013
Income Statement [Abstract]
 
 
 
Net sales
$ 340,396 
$ 288,170 
$ 240,352 
Cost of products sold
173,567 
155,154 
132,156 
Gross profit
166,829 
133,016 
108,196 
Selling, general and administrative expenses
96,579 
83,663 
67,260 
Income from operations
70,250 
49,353 
40,936 
Interest expense, net
9,698 
18,011 
68,684 
Other expense, net
835 
679 
769 
Income (loss) before income taxes
59,717 
30,663 
(28,517)
Provision for income taxes
23,994 
7,268 
1,178 
Net income (loss) from continuing operations
35,723 
23,395 
(29,695)
Net loss from discontinued operations, net of tax
 
(50,815)
(78,014)
Net income (loss)
$ 35,723 
$ (27,420)
$ (107,709)
Basic earnings (loss) per share:
 
 
 
Basic earnings (loss) per share from continuing operations
$ 0.97 
$ 0.83 
$ (1.13)
Basic loss per share from discontinued operations
 
$ (1.81)
$ (2.98)
Basic earnings (loss) per share
$ 0.97 
$ (0.98)
$ (4.11)
Diluted earnings (loss) per share:
 
 
 
Diluted earnings (loss) per share from continuing operations
$ 0.93 
$ 0.83 
$ (1.13)
Diluted loss per share from discontinued operations
 
$ (1.81)
$ (2.98)
Diluted earnings (loss) per share
$ 0.93 
$ (0.98)
$ (4.11)
Weighted average shares outstanding:
 
 
 
Basic
36,730,490 
28,119,794 
26,211,130 
Diluted
38,244,906 
28,272,925 
26,211,130 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2015
Feb. 1, 2014
Feb. 2, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
Net income (loss)
$ 35,723 
$ (27,420)
$ (107,709)
Foreign currency translation adjustment
 
(3)
Comprehensive income (loss)
$ 35,723 
$ (27,419)
$ (107,712)
Consolidated Statements of Stockholders' Equity (Deficit) (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Loss [Member]
Beginning Balance at Jan. 28, 2012
$ (743,021)
$ 262 
$ 96,951 
$ (840,171)
$ (63)
Beginning Balance, shares at Jan. 28, 2012
 
26,211,130 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
Net income (loss)
(107,709)
 
 
(107,709)
 
Foreign currency translation adjustment
(3)
 
 
 
(3)
Share-based compensation expense
367 
 
367 
 
 
Capital contribution from stockholders
289,101 
 
289,101 
 
 
Ending Balance at Feb. 02, 2013
(561,265)
262 
386,419 
(947,880)
(66)
Beginning Balance, shares at Feb. 02, 2013
 
26,211,130 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
Net income (loss)
(27,420)
 
 
(27,420)
 
Foreign currency translation adjustment
 
 
 
Common stock issuance, net of certain costs
186,000 
100 
185,900 
 
 
Common stock issuance, net of certain costs, shares
 
10,000,000 
 
 
 
Share-based compensation expense
898 
 
898 
 
 
Exercise of stock options
42 
37 
 
 
Exercise of stock options, shares
 
512,597 
 
 
 
Capital contribution from stockholders
407,527 
 
407,527 
 
 
Recognition of certain deferred tax assets, net
127,833 
 
127,833 
 
 
Recognition of tax receivable agreement obligation
(173,146)
 
(173,146)
 
 
Separation of non-Vince businesses and settlement of Kellwood Note Receivable
73,081 
 
73,081 
 
 
Ending Balance at Feb. 01, 2014
33,551 
367 
1,008,549 
(975,300)
(65)
Ending Balance, shares at Feb. 01, 2014
36,723,727 
36,723,727 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
Net income (loss)
35,723 
 
 
35,723 
 
Share-based compensation expense
1,896 
 
1,896 
 
 
Exercise of stock options
175 
 
175 
 
 
Exercise of stock options, shares
22,018 
22,018 
 
 
 
Restricted stock unit vesting
Restricted stock unit vesting, shares
 
2,500 
 
 
 
Tax receivable agreement obligation adjustment
624 
 
624 
 
 
Ending Balance at Jan. 31, 2015
$ 71,969 
$ 367 
$ 1,011,244 
$ (939,577)
$ (65)
Ending Balance, shares at Jan. 31, 2015
36,748,245 
36,748,245 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2015
Feb. 1, 2014
Feb. 2, 2013
Operating activities
 
 
 
Net income (loss)
$ 35,723 
$ (27,420)
$ (107,709)
Less: Net loss from discontinued operations
 
(50,815)
(78,014)
Add (deduct) items not affecting operating cash flows:
 
 
 
Depreciation
4,668 
2,186 
1,411 
Amortization of intangible assets
599 
599 
598 
Amortization of deferred financing costs
1,532 
178 
 
Amortization of deferred rent
3,045 
465 
426 
Deferred income taxes
23,248 
7,225 
1,147 
Share-based compensation expense
1,896 
347 
 
Capitalized PIK Interest
 
15,883 
68,684 
Loss on disposal of property, plant and equipment
 
262 
 
Changes in assets and liabilities:
 
 
 
Receivable, net
6,401 
(6,265)
(7,459)
Inventories, net
(3,463)
(15,069)
(8,360)
Prepaid expenses and other current assets
2,809 
1,681 
(2,455)
Accounts payable and accrued expenses
3,066 
3,235 
17,208 
Other assets and liabilities
742 
(156)
(131)
Net cash provided by operating activities-continuing operations
80,266 
33,966 
41,374 
Net cash used in operating activities-discontinued operations
 
(54,667)
(67,408)
Net cash provided by/(used in) operating activities
80,266 
(20,701)
(26,034)
Investing activities
 
 
 
Payments for capital expenditures
(19,699)
(10,073)
(1,821)
Payments for contingent purchase price
 
 
(806)
Net cash used in investing activities-continuing operations
(19,699)
(10,073)
(2,627)
Net cash (used in)/provided by investing activities-discontinued operations
 
(5,936)
20,088 
Net cash (used in)/provided by investing activities
(19,699)
(16,009)
17,461 
Financing activities
 
 
 
Proceeds from borrowings under the Revolving Credit Facility
50,500 
 
 
Payments for Revolving Credit Facility
(27,500)
 
 
Proceeds from borrowings under the Term Loan Facility
 
175,000 
 
Payments for Term Loan Facility
(105,000)
(5,000)
 
Payment for Kellwood Note Receivable
 
(341,500)
 
Fees paid for Term Loan Facility and Revolving Credit Facility
(114)
(5,146)
 
Proceeds from common stock issuance, net of certain transaction costs
 
186,000 
 
Stock option exercise
175 
42 
 
Net cash (used in)/provided by financing activities-continuing operations
(81,939)
9,396 
 
Net cash provided by financing activities-discontinued operations
 
46,917 
8,615 
Net cash (used in)/provided by financing activities
(81,939)
56,313 
8,615 
(Decrease) increase in cash and cash equivalents
(21,372)
19,603 
42 
Cash and cash equivalents, beginning of period
21,484 
1,881 
1,839 
Cash and cash equivalents, end of period
112 
21,484 
1,881 
Less: Cash and cash equivalents of discontinued operations, end of period
 
 
(1,564)
Cash and cash equivalents of continuing operations, end of period
112 
21,484 
317 
Supplemental Disclosures of Cash Flow Information
 
 
 
Cash payments on TRA obligation
3,199 
 
 
Cash payments for interest
8,737 
1,018 
 
Cash payments for income taxes, net of refunds
88 
31 
18 
Supplemental Disclosures of Non-Cash Investing and Financing Activities
 
 
 
Capital expenditures in accounts payable
452 
222 
160 
Forgiveness of principal and capitalized and accrued interest on related-party debt
 
(407,527)
(289,101)
Capital contribution from stockholder
 
407,527 
289,101 
Supplemental Disclosures of Non-Cash Investing and Financing Activities, discontinued operations
 
 
 
Accrued adjustment to sale proceeds from disposed business
 
 
221 
Discontinued Operations [Member]
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 
 
Cash payments for interest
 
20,644 
30,454 
Cash payments for income taxes, net of refunds
 
$ 566 
$ 882 
Description of Business and Summary of Significant Accounting Policies
Description of Business and Summary of Significant Accounting Policies

Note 1. Description of Business and Summary of Significant Accounting Policies

On November 27, 2013, Vince Holding Corp. (“VHC”), previously known as Apparel Holding Corp., closed an initial public offering of its common stock and completed a series of restructuring transactions through which (i) Kellwood Holding, LLC acquired the non-Vince businesses, which include Kellwood Company, LLC, from the Company and (ii) the Company continues to own and operate the Vince business, which includes Vince, LLC.

The historical financial information presented herein as of January 31, 2015 includes only the Vince businesses and all historical financial information prior to November 27, 2013 includes the Vince business as continuing operations and the non-Vince businesses as a component of discontinued operations.

(A) Description of Business: Vince is a leading contemporary fashion brand best known for modern effortless style and everyday luxury essentials. Established in 2002, the brand now offers a wide range of women’s, men’s and children’s apparel, women’s and men’s footwear, and handbags. We reach our customers through a variety of channels, specifically through premier wholesale department stores and specialty stores in the United States (“U.S.”) and select international markets, as well as through our branded retail locations and our website. We design our products in the U.S. and source the vast majority of our products from contract manufacturers outside the U.S., primarily in Asia and South America. Products are manufactured to meet our product specifications and labor standards.

(B) Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The amounts and disclosures included in the notes to the consolidated financial statements, unless otherwise indicated, are presented on a continuing operations basis. In the opinion of management, the financial statements contain all adjustments (consisting solely of normal recurring adjustments) and disclosures necessary to make the information presented therein not misleading. As used in this report, unless the context requires otherwise, “our,” “us” and “we” refer to VHC and its consolidated subsidiaries.

Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation. The reclassification had no impact on previously reported net income or stockholders’ equity.

(C) Fiscal Year: VHC operates on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52 or 53-week period ending on the Saturday closest to January 31 of the following year.

 

    References to “fiscal year 2014” or “fiscal 2014” refer to the fiscal year ended January 31, 2015;

 

    References to “fiscal year 2013” or “fiscal 2013” refer to the fiscal year ended February 1, 2014;

 

    References to “fiscal year 2012” or “fiscal 2012” refer to the fiscal year ended February 2, 2013.

Fiscal years 2014 and 2013 consisted of a 52-week period and fiscal year 2012 consisted of a 53-week period.

 

(D) Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements which affect revenues and expenses during the period reported. Estimates are adjusted when necessary to reflect actual experience. Significant estimates and assumptions may affect many items in the financial statements. Actual results could differ from estimates and assumptions in amounts that may be material to the consolidated financial statements.

Significant estimates inherent in the preparation of the consolidated financial statements include accounts receivable allowances, customer returns, the realizability of inventory, reserves for contingencies, useful lives and impairments of long-lived tangible and intangible assets, accounting for income taxes and related uncertain tax positions and valuation of share-based compensation, among others.

(E) Cash and cash equivalents: All demand deposits and highly liquid short-term deposits with original maturities of three months or less maintained under cash management activities are considered cash equivalents. The effect of foreign currency exchange rate fluctuations on cash and cash equivalents was not significant for fiscal 2014, fiscal 2013, or fiscal 2012.

(F) Accounts Receivable and Concentration of Credit Risk: We maintain an allowance for accounts receivable estimated to be uncollectible. The activity in this allowance for continuing operations is summarized as follows (in thousands).

 

     2014      2013      2012  

Balance, beginning of year

   $ 353       $ 279       $ 450   

Provisions for bad debt expense

     168         249         314   

Bad debts written off

     (142      (175      (485
  

 

 

    

 

 

    

 

 

 

Balance, end of year

$ 379    $ 353    $ 279   
  

 

 

    

 

 

    

 

 

 

The provision for bad debts is included in selling, general and administrative expense. Substantially all of our trade receivables are derived from sales to retailers and are recorded at the invoiced amount and do not bear interest. We perform ongoing credit evaluations of our wholesale partners’ financial condition and require collateral as deemed necessary. Account balances are charged off against the allowance when we believe the receivable will not be collected.

Accounts receivable are recorded net of allowances for expected future chargebacks and margin support from wholesale partners. It is the nature of the apparel and fashion industry that suppliers like us face significant pressure from customers in the retail industry to provide allowances to compensate for wholesale partner margin shortfalls. This pressure often takes the form of customers requiring us to provide price concessions on prior shipments as a prerequisite for obtaining future orders. Pressure for these concessions is largely determined by overall retail sales performance and, more specifically, the performance of our products at retail. To the extent our wholesale partners have more of our goods on hand at the end of the season, there will be greater pressure for us to grant markdown concessions on prior shipments. Our accounts receivable balances are reported net of expected allowances for these matters based on the historical level of concessions required and our estimates of the level of markdowns and allowances that will be required in the coming season in order to collect the receivables. We evaluate the allowance balances on a continual basis and adjust them as necessary to reflect changes in anticipated allowance activity. We also provide an allowance for sales returns based on historical return rates.

In fiscal 2014, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales represented 23.2%, 13.2% and 12.3% of fiscal 2014 net sales. In fiscal 2013, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales represented 19.8%, 12.8% and 12.8% of fiscal 2013 net sales. In fiscal 2012, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales represented 21.4%, 15.5% and 14.3% of fiscal 2012 net sales.

In fiscal 2014 accounts receivable from four wholesale partners each accounted for more than ten percent of our gross accounts receivable in continuing operations. These receivables represented 24.5%, 13.8%, 12.7% and 11.4% of fiscal 2014 gross accounts receivable. In fiscal 2013, accounts receivable from three wholesale partners each accounted for more than ten percent of our gross accounts receivable in continuing operations. These receivables represented 25.7%, 24.8% and 13.4% of fiscal 2013 gross accounts receivable.

(G) Inventories: Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. The cost of inventory includes manufacturing or purchase cost as well as sourcing, transportation, duty and other processing costs associated with acquiring, importing and preparing inventory for sale. Inventory costs are included in cost of products sold at the time of their sale. Product development costs are expensed in selling, general and administrative expense when incurred. Inventory values are reduced to net realizable value when there are factors indicating that certain inventories will not be sold on terms sufficient to recover their cost.

Inventories of continuing operations consist of the following (in thousands).

 

     January 31,
2015
     February 1,
2014
 

Finished goods

   $ 37,395       $ 32,946   

Work in process

     —           98   

Raw materials

     24         912   
  

 

 

    

 

 

 

Total inventories, net

  37,419      33,956   
  

 

 

    

 

 

 

Net of reserves of:

$ 6,471    $ 3,929   
  

 

 

    

 

 

 

(H) Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line method over estimated useful lives of 3 to 10 years for furniture, fixtures, and computer equipment. Leasehold improvements are amortized on the straight-line basis over the shorter of their estimated useful lives or the remaining lease term, excluding renewal terms. Capitalized software is amortized on the straight-line basis over the estimated economic useful life of the software, generally three to five years. Depreciation expense related to continuing operations was $4,668, $2,186 and $1,411 for fiscal 2014, 2013 and 2012, respectively.

(I) Impairment of Long-lived Assets: We review long-lived assets with a finite life for existence of facts and circumstances which indicate that the useful life is shorter than previously estimated or the carrying amount may not be recoverable from future operations based on undiscounted expected future cash flows. Impairment losses are then recognized in operating results to the extent discounted expected future cash flows are less than the carrying value of the asset. There were no impairment charges for continuing operations related to long-lived assets recorded in fiscal 2014, fiscal 2013 or fiscal 2012.

(J) Goodwill and Other Intangible Assets: Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually and in an interim period if a triggering event occurs. We completed our annual impairment testing on our goodwill and indefinite-lived intangible assets during the fourth quarters of fiscal 2014, fiscal 2013 and fiscal 2012. Goodwill is not allocated to our operating segments in the measure of segment assets regularly reported to and used by management, however goodwill is allocated to operating segments (goodwill reporting units) for the sole purpose of the annual impairment test for goodwill.

Goodwill represents the excess of the cost of acquired businesses over the fair market value of the identifiable net assets. Indefinite-lived intangible assets are primarily company-owned trademarks. As the acquisition by Kellwood Company of the net assets of Vince occurred prior to the current requirements of ASC Topic 805 Business Combinations, the additional purchase consideration paid to the former owners of Vince subsequent to the acquisition date was recorded as an addition to the purchase price, and therefore goodwill, once determined.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to the Intangibles-Goodwill and Other topic of Accounting Standards Codification (“ASC”). Under this amendment, an entity may elect to perform a qualitative impairment assessment for goodwill. If adverse qualitative trends are identified during the qualitative assessment that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is required. “Step one” of this quantitative impairment test requires that the fair value of the reporting unit be estimated and compared to its carrying amount. If the carrying amount exceeds the estimated fair value of the asset, “step two” of the impairment test is performed to calculate the impairment loss. An impairment loss is recognized to the extent the carrying amount of the reporting unit exceeds the implied fair value.

An entity may pass on performing the qualitative assessment for a reporting unit and directly perform “step one” of the assessment. This determination can be made on an asset by asset basis, and an entity may resume performing a qualitative assessment in subsequent periods. This amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this amendment during fiscal year 2012.

In fiscal 2014, 2013 and fiscal 2012, we performed a qualitative assessment on the goodwill and determined that it was not more likely than not that the carrying value of the reporting unit was greater than the fair value. As such, we were not required to perform “step two” of the impairment test.

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite Lived Assets for Impairment (“ASU 2012-02”). Under this amendment, an entity may elect to perform a qualitative impairment assessment for indefinite-lived intangible assets similar to the goodwill impairment testing guidance discussed above.

An entity may pass on performing the qualitative assessment for an indefinite-lived intangible asset and directly perform “step one” of the assessment. This determination can be made on an asset by asset basis, and an entity may resume performing a qualitative assessment in subsequent periods. The amendment is effective for annual and interim impairment tests for indefinite-lived intangible assets performed for fiscal years beginning after September 15, 2012. We early adopted this amendment during fiscal 2012.

In fiscal 2014, 2013 and fiscal 2012, we elected to perform a qualitative assessment on indefinite-lived intangible assets and determined that it was not more likely than not that the carrying value of the assets exceeded the fair value, as such we were not required to perform “step two” of the impairment test.

Determining the fair value of goodwill and other intangible assets is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and operating margins, discount rates and future market conditions, among others. It is possible that estimates of future operating results could change adversely and impact the evaluation of the recoverability of the carrying value of goodwill and intangible assets and that the effect of such changes could be material.

Definite-lived intangible assets are comprised of customer relationships and are being amortized on a straight-line basis over their useful lives of 20 years.

See Note 4 for more information on the details surrounding goodwill and intangible assets.

 

(K) Deferred Financing Costs: Deferred financing costs, such as underwriting, financial advisory, professional fees, and other similar fees are capitalized and recognized in interest expense over the contractual life of the related debt instrument using the straight-line method, as this method results in recognition of interest expense that is materially consistent with that of the effective interest method.

(L) Deferred Rent and Deferred Lease Incentives: We lease various office spaces, showrooms and retail stores. Many of these operating leases contain predetermined fixed escalations of the minimum rentals during the original term of the lease. For these leases, we recognize the related rental expense on a straight-line basis over the life of the lease and record the difference between the amount charged to operations and amounts paid as deferred rent. Certain of our retail store leases contain provisions for contingent rent, typically a percentage of retail sales once a predetermined threshold has been met. These amounts are expensed as incurred. Additionally, we received lease incentives in certain leases. These allowances have been deferred and are amortized on a straight-line basis over the life of the lease as a reduction of rent expense.

(M) Revenue Recognition: Sales are recognized when goods are shipped in accordance with customer orders for our wholesale business and e-commerce businesses, and at the time of sale to the consumer for our retail business. The estimated amounts of sales discounts, returns and allowances are accounted for as reductions of sales when the associated sale occurs. These estimated amounts are adjusted periodically based on changes in facts and circumstances when the changes become known to us. Accrued discounts, returns and allowances are included as an offset to accounts receivable in the Consolidated Balance Sheets for our wholesale business. The activity in the accrued discounts, returns and allowances account for continuing operations is summarized as follows (in thousands).

 

     2014      2013      2012  

Balance, beginning of year

   $ 9,265       $ 7,179       $ 4,347   

Provision

     54,467         39,171         29,400   

Utilization

     (47,634      (37,085      (26,568
  

 

 

    

 

 

    

 

 

 

Balance, end of year

$ 16,098    $ 9,265    $ 7,179   
  

 

 

    

 

 

    

 

 

 

For our wholesale business, amounts billed to customers for shipping and handling costs are not significant. Our stated terms are FOB shipping point. There is no stated obligation to customers after shipment, other than specifically set forth allowances or discounts that are accrued at the time of sale. The rights of inspection or acceptance contained in certain sales agreements are limited to whether the goods received by our wholesale partners are in conformance with the order specifications.

(N) Cost of Products Sold: Our cost of products sold and gross margins may not necessarily be comparable to that of other entities as a result of different practices in categorizing costs. The primary components of our cost of products sold are as follows:

 

    the cost of purchased merchandise, including raw materials;

 

    the cost of inbound transportation, including freight;

 

    the cost of our production and sourcing departments;

 

    other processing costs associated with acquiring and preparing the inventory for sale as charged by Kellwood Company, LLC as part of the Shared Services Agreement; and

 

    shrink and valuation reserves.

(O) Marketing and Advertising: We provide cooperative advertising allowances to certain of our customers. These allowances are accounted for as reductions in sales as discussed in “Revenue Recognition” above. Production expense related to company-directed advertising is deferred until the first time at which the advertisement runs. Communication expense related to company-directed advertising is expensed as incurred. Marketing and advertising expense recorded in selling, general and administrative expenses for continuing operations was $7,427, $4,858, and $2,591 in fiscal 2014, 2013 and 2012, respectively. At January 31, 2015 and February 1, 2014, deferred production expenses associated with company-directed advertising were $643 and $305, respectively.

(P) Income Taxes: We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities at enacted rates. We determine the appropriateness of valuation allowances in accordance with the “more likely than not” recognition criteria. We recognize tax positions in the Consolidated Balance Sheets as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with tax authorities assuming full knowledge of the position and all relevant facts. Accrued interest and penalties related to unrecognized tax benefits are included in income taxes in the Consolidated Statements of Operations.

(Q) Earnings Per Share: Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted net income (loss) per share is calculated similarly, but includes potential dilution from the exercise of stock options for which future service is required as a condition to deliver the underlying stock.

(R) Recent Accounting Pronouncements

In January 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items—Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The standard primarily involves presentation and disclosure and, therefore, is not expected to have a material impact on our financial position and results of operations.

The IPO and Restructuring Transactions
The IPO and Restructuring Transactions

Note 2. The IPO and Restructuring Transactions

Initial Public Offering

On November 27, 2013, VHC completed an initial public offering (“IPO”) of 10,000,000 shares of VHC common stock at a public offering price of $20.00 per share. The selling stockholders in the offering sold an additional 1,500,000 shares of VHC common stock to the underwriters in the IPO. Shares of the Company’s common stock are listed on the New York Stock Exchange under the ticker symbol “VNCE”. VHC received net proceeds of $177,000, after deducting underwriting discounts, commissions and offering expenses from its sale of shares in the IPO. The Company retained approximately $5,000 of such proceeds for general corporate purposes and used the remaining net proceeds, together with net borrowings under the Term Loan Facility (described under Note 7 “Long-Term Debt) to repay a promissory note (“the Kellwood Note Receivable”) issued to Kellwood Company, LLC in connection with the Restructuring Transactions (described below) which occurred immediately prior to the consummation of the IPO. Proceeds from the repayment of the Kellwood Note Receivable were used to repay or discharge certain existing debt of Kellwood Company.

In connection with the IPO and the Restructuring Transactions described below, we separated the Vince and non-Vince businesses on November 27, 2013. Any and all debt obligations outstanding at the time of the transactions either remain with Kellwood Intermediate Holding, LLC and its subsidiaries (i.e. the non-Vince businesses) and/or were discharged, repurchased or refinanced. See information below for a summary of the Company’s Revolving Credit Facility and Term Loan Facility.

Stock split

In connection with the IPO, VHC’s board of directors approved the conversion of all non-voting common stock into voting common stock on a one for one basis, and a 28.5177 for one split of its common stock. Accordingly, all references to share and per share information in all periods presented have been adjusted to reflect the stock split. The par value per share of common stock was changed to $0.01 per share.

Restructuring Transactions

The following transactions were consummated as part of the Restructuring Transactions:

 

    Affiliates of Sun Capital contributed certain indebtedness under the Sun Term Loan Agreements as a capital contribution to Vince Holding Corp. (the “Additional Sun Capital Contribution”);

 

    Vince Holding Corp. contributed such indebtedness to Kellwood Company as a capital contribution, at which time such indebtedness was cancelled;

 

    Vince Intermediate Holding, LLC was formed and became a direct subsidiary of Vince Holding Corp.;

 

    Kellwood Company, LLC (which was converted from Kellwood Company in connection with the Restructuring Transactions) was contributed to Vince Intermediate Holding, LLC;

 

    Vince Holding Corp. and Vince Intermediate Holding, LLC entered into the Transfer Agreement with Kellwood Company, LLC;

 

    Kellwood Company, LLC distributed 100% of Vince, LLC’s membership interests to Vince Intermediate Holding, LLC, who issued the Kellwood Note Receivable to Kellwood Company, LLC. Proceeds from the repayment of the Kellwood Note Receivable were used to, among other things, repay, discharge or repurchase indebtedness of Kellwood Company, LLC;

 

    Kellwood Holding, LLC was formed by Vince Intermediate Holding, LLC and Vince Intermediate Holding, LLC, through a series of steps, contributed 100% of the membership interests of Kellwood Company, LLC to Kellwood Intermediate Holding, LLC (which was formed as a wholly-owned subsidiary of Kellwood Holding, LLC);

 

    100% of the membership interests of Kellwood Holding, LLC were distributed to the Pre-IPO Stockholders;

 

    Revolving Credit Facility—Vince, LLC entered into a new senior secured revolving credit facility. Bank of America, N.A. (“BofA”) serves as administrative agent under this new facility. This revolving credit facility provides for a revolving line of credit of up to $50,000;

 

    Term Loan Facility—Vince, LLC and Vince Intermediate Holding, LLC entered into a new $175,000 senior secured term loan credit facility with the lenders party thereto, BofA, as administrative agent, J.P. Morgan Chase Bank and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers;

 

    Shared Services Agreement—Vince, LLC entered into the Shared Services Agreement with Kellwood Company, LLC pursuant to which Kellwood Company, LLC provides support services to Vince, LLC in various operational areas including, among other things, distribution, logistics, information technology, accounts payable, credit and collections, and payroll and benefits;

 

    Tax Receivable Agreement—The Company entered into the Tax Receivable Agreement with its stockholders immediately prior to the consummation of the Restructuring Transactions (the “Pre-IPO Stockholders”). The Tax Receivable Agreement provides for payments to the Pre-IPO Stockholders in an amount equal to 85% of the aggregate reduction in taxes payable realized by the Company and its subsidiaries from the utilization of certain tax benefits (including net operating losses and tax credits generated prior to the IPO and certain section 197 intangible deductions); and

 

    The conversion of all of our issued and outstanding non-voting common stock into common stock on a one-for-one basis and the subsequent stock split of our common stock on a 28.5177 for one basis, at which time Apparel Holding Corp. became Vince Holding Corp.

As a result of the IPO and Restructuring Transactions, the non-Vince businesses were separated from the Vince business, and the Pre-IPO Stockholders (through their ownership of Kellwood Holding, LLC) retained the full ownership and control of the non-Vince businesses. The Vince business is now the sole operating business of Vince Holding Corp., with the Pre-IPO stockholders retaining approximately a 68% ownership (calculated immediately after consummation of the IPO).

Immediately after the consummation of the IPO and as described below, Vince Holding Corp. contributed the net proceeds from the IPO to Vince Intermediate Holding, LLC. Vince Intermediate Holding, LLC used such proceeds, less approximately $5,000 retained for general corporate purposes, and approximately $169,500 of net borrowings under its Term Loan Facility to immediately repay the Kellwood Note Receivable. There was no outstanding balance on the Kellwood Note Receivable after giving effect to such repayment. Proceeds from the repayment of the Kellwood Note Receivable were used to (i) repay, discharge or repurchase indebtedness of Kellwood Company, LLC in connection with the closing of the IPO (including approximately $9,100 of accrued and unpaid interest on such indebtedness), and (ii) pay (A) the restructuring fee payable to Sun Capital Management and (B) the debt recovery bonus payable to our Chief Executive Officer, all after giving effect to the Additional Sun Capital Contribution. The Kellwood Note Receivable did not include amounts outstanding under the Wells Fargo Facility. Kellwood Company, LLC refinanced the Wells Fargo Facility in connection with the consummation of the IPO. Neither Vince Holding Corp. nor Vince, LLC guarantee or are a borrower party to the refinanced credit facility.

Kellwood Company, LLC used the proceeds from the repayment of the Kellwood Note Receivable to, after giving effect to the Additional Sun Capital Contribution, (i) repay, at closing, all indebtedness outstanding under (A) the Cerberus Term Loan and (B) the Sun Term Loan Agreements, (ii) redeem at par all of the 12.875% Notes, pursuant to an unconditional redemption notice issued at the closing of the IPO, plus, with respect to clauses (i) and (ii), fees, expenses and accrued and unpaid interest thereon, (iii) pay a restructuring fee equal to $3,300 to Sun Capital Management pursuant to the Management Services Agreement, and (iv) pay a debt recovery bonus to our Chief Executive Officer.

 

In addition, Kellwood Company conducted a tender offer for all of its outstanding 7.625% Notes, at par plus accrued and unpaid interest thereon, using proceeds from the repayment of the Kellwood Note Receivable. On November 27, 2013, in connection with the closing of the IPO and as an early settlement of the tender offer, Kellwood Company, LLC accepted for purchase (and cancelled) approximately $33,474 in aggregate principal amount of the 7.625% Notes. On December 12, 2013, as part of the final settlement of the tender offer, Kellwood Company, LLC accepted for purchase (and cancelled) an additional $4,670 in aggregate principal amount of the 7.625% Notes. After giving effect to these settlements, approximately $48,808 of the 7.625% Notes remain issued and outstanding; provided, that neither VHC, nor Vince Intermediate nor Vince, LLC are a guarantor or obligor of such notes.

In addition, Kellwood Company, LLC refinanced the Wells Fargo Facility (as defined below), to among other things, remove Vince, LLC as an obligor thereunder.

After completion of these various transactions (including the Additional Sun Capital Contribution) and payments and application of the net proceeds from the repayment of the Kellwood Note Receivable, Vince, LLC’s obligations under the Wells Fargo Facility, the Cerberus Term Loan, the Sun Term Loan Agreements and the 12.875% Notes were terminated or discharged. Neither VHC, nor Vince Intermediate Holding, LLC nor Vince, LLC is a guarantor or obligor of the 7.625% Notes or the refinanced Wells Fargo Facility. Thereafter, VHC is not responsible for the obligations described above and the only outstanding obligations of Vince Holding Corp. and its subsidiaries immediately after the consummation of the IPO is $175,000 outstanding under our new Term Loan Facility.

Discontinued Operations
Discontinued Operations

Note 3. Discontinued Operations

On November 27, 2013, in connection with the IPO and Restructuring Transactions, we separated the Vince and non-Vince businesses whereby the non-Vince business is now owned by Kellwood Holding, LLC, of which 100% of the membership interests are owned by the Pre-IPO Stockholders. In connection with the Restructuring Transactions, the Company issued the Kellwood Note Receivable to Kellwood Company, LLC, in the amount of $341,500, which was immediately repaid with proceeds from the IPO and borrowings under the new term loan facility. There was no remaining balance on the Kellwood Note Receivable after such repayment. Proceeds from the repayment of the Kellwood Note Receivable were used by Kellwood to (i) repay, discharge or repurchase indebtedness of Kellwood Company, LLC (including approximately $9,100 of accrued and unpaid interest on such indebtedness), and (ii) pay (A) the restructuring fee payable to Sun Capital Management and (B) the debt recovery bonus payable to our Chief Executive Officer.

As the Company and Kellwood Holding, LLC are under the common control of affiliates of Sun Capital, this separation transaction resulted in a $73,081 adjustment to additional paid in capital on our Consolidated Balance Sheet at February 1, 2014.

As a result of the separation with the non-Vince businesses, the financial results of the non-Vince businesses, through the separation date of November 27, 2013, are now included in results from discontinued operations. The non-Vince businesses continue to operate as a stand-alone company. Due to differences in the basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of the non-Vince businesses included within discontinued operations of the Company may not be indicative of actual financial results of the non-Vince businesses as a stand-alone company.

On November 27, 2013, we entered into a Shared Services agreement with Kellwood pursuant to which Kellwood provides support services in various operational areas as further discussed in Note 15. Other than the payments for services provided under this agreement, we do not expect any future cash flows related to the non-Vince business.

 

The results of the non-Vince businesses included in discontinued operations (through the separation of the non-Vince businesses on November 27, 2013) for the fiscal years ended February 1, 2014 and February 2, 2013 are summarized in the following table (in thousands).

 

     Fiscal Year  
     2013     2012  

Net sales

   $ 400,848      $ 514,806   

Cost of products sold

     313,620        409,763   
  

 

 

   

 

 

 

Gross profit

  87,228      105,043   

Selling, general and administrative expenses

  98,016      132,871   

Restructuring, environmental and other charges

  1,628      5,732   

Impairment of long-lived assets

  1,399      6,497   

Change in fair value of contingent consideration

  1,473      (7,162

Interest expense, net

  46,677      55,316   

Other expense, net

  498      (9,776
  

 

 

   

 

 

 

Loss before income taxes

  (62,463   (78,435

Income taxes

  (11,648   (421
  

 

 

   

 

 

 

Net loss from discontinued operations, net of taxes

$ (50,815 $ (78,014
  

 

 

   

 

 

 

Effective tax rate

  18.6   0.5
  

 

 

   

 

 

 

The fiscal 2013 effective tax rate for discontinued operations differs from the U.S. statutory rate of 35% primarily due to the release of valuation allowance. The release in valuation allowance is primarily due to the allocation of the disallowed tax loss on the sale of a trademark to intangible assets with indefinite lives resulting in fewer deferred tax liabilities that cannot be offset against deferred tax assets for valuation allowance purposes.

The fiscal 2012 effective tax rate for discontinued operations differ from the U.S. statutory rate of 35% primarily due to a full valuation allowance on current year deferred tax assets offset in part by state taxes.

At February 1, 2014, there are no remaining assets or liabilities of the non-Vince businesses reflected in the consolidated balance sheet.

Financing arrangements of the non-Vince business

Short-term borrowings represent borrowings under the Wells Fargo Facility (as defined herein), as amended. On October 19, 2011 Kellwood Company and certain of its domestic subsidiaries, as borrowers, entered into a credit agreement with Wells Fargo Bank, National Association, as agent, and lenders from time to time (the “Wells Fargo Facility”). The Wells Fargo Facility provided a non-amortizing senior revolving credit facility with aggregate lending commitments of $160,000, of which $5,000 was permanently extinguished during fiscal 2012. The amount which the borrowers could borrow was determined on the basis of a borrowing base formula, and borrowings were secured by a first-priority security interest in substantially all of the assets of the borrowers, including the assets of Vince, LLC. Borrowings bore interest at a rate per annum equal to an applicable margin (generally 1.25%-1.75% per annum at the borrowers’ election, LIBOR or a Base Rate (as defined in the Wells Fargo Facility)). On November 27, 2013, in connection with the consummation of the IPO and Restructuring Transactions, the Wells Fargo Facility was amended and restated in accordance with its terms. After such amendment and restatement, neither VHC nor any of its subsidiaries have any obligations thereunder.

Cerberus Term Loan

On October 19, 2011, Kellwood Company and certain of its domestic subsidiaries, as borrowers (the “Cerberus Borrowers”), entered into a term loan agreement (the “Term Loan Agreement”), as amended, with Cerberus Business Finance, LLC (the “Agent”), as agent and the lenders from time to time party thereto. The Term Loan Agreement provided the Cerberus Borrowers with a non-amortizing secured Cerberus Term Loan in an aggregate amount of $55,000 (the “Cerberus Term Loan”), of which $10,000 was repaid during fiscal 2012. All borrowings under the Cerberus Term Loan bore interest at a rate per annum equal to an applicable margin (10.25%-11.25% per annum for LIBOR Rate Loans (as defined in the Term Loan Agreement) and 7.75%-8.75% for Reference Rate Loans (as defined in the Term Loan Agreement)) plus, at the Cerberus Borrowers’ election, LIBOR or a Reference Rate as defined in the Term Loan Agreement. The agreement also provided for a portion of such interest equal to 1% per annum to be paid-in-kind and added to the principal amount of such term loans. The Cerberus Term Loan was secured by a security interest in substantially all of the assets of the Cerberus Borrowers, including Vince, LLC. On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, the Cerberus Term Loan was repaid with the proceeds from the repayment of the Kellwood Note Receivable, as such neither VHC nor any of its subsidiaries have any obligations thereunder.

Sun Term Loan Agreements

Since fiscal year 2009, Kellwood Company and certain of its domestic subsidiaries, as borrowers (the “Sun Term Loan Borrowers”), entered into various term loan agreements (“Sun Term Loan Agreements”) with affiliates of Sun Capital, as lenders, and Sun Kellwood Finance, as collateral agent. The Sun Term Loan Agreements were secured by a security interest in substantially all of the assets of the Sun Term Loan Borrowers, which included the assets of Vince, LLC, which security interest was contractually subordinated to the security interests of the lenders under the Wells Fargo Facility and the Cerberus Term Loan. These term loans bore interest at a rate per annum of 5.0%-6.0% paid-in-kind and added to the principal amounts of such term loans. On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, the Sun Term Loan Agreements were discharged through (i) the application of the Kellwood Note Receivable proceeds and (ii) capital contributions by Sun Capital affiliates, as such neither VHC nor any of its subsidiaries have any obligations thereunder.

12.875% Notes

Interest on the 12.875% 2009 Debentures due December 31, 2014 of Kellwood Company (the “12.875% Notes”) was paid (a) in cash at a rate of 7.875% per annum payable in January and July; and (b) in the form of PIK interest at a rate of 5.0% per annum (“PIK Interest”) payable either by increasing the principal amount of the outstanding 12.875% Notes, or by issuing additional 12.875% Notes with a principal amount equal to the PIK Interest accrued for the interest period. The 12.875% Notes were guaranteed by various of Kellwood Company’s subsidiaries on a secured basis (including the assets of Vince, LLC), which security interest was contractually subordinated to security interests of lenders under the Wells Fargo Facility, the Cerberus Term Loan and the Sun Term Loan Agreements. On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, the 12.875% Notes were redeemed with proceeds from the repayment of the Kellwood Note Receivable, at which time VHC and all subsidiaries were released as a guarantor and the obligations under the indenture were satisfied and discharged.

7.625% Notes

Interest on the 7.625% 1997 Debentures due October 15, 2017 of Kellwood Company (the “7.625% Notes”) was payable in cash at a rate of 7.625% per annum in April and October. On November 27, 2013, in connection with the closing of the IPO and as an early settlement of the tender offer, Kellwood Company, LLC accepted for purchase (and cancelled) approximately $33,474 in aggregate principal amount of the 7.625% Notes. On December 12, 2013, as part of the final settlement of the tender offer, Kellwood Company, LLC accepted for purchase (and cancelled) an additional $4,670 in aggregate principal amount of the 7.625% Notes. After giving effect to these settlements, approximately $48,809 of the 7.625% Notes remain issued and outstanding; provided, that neither VHC nor its subsidiaries are a guarantor or obligor of such notes.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

Note 4. Goodwill and Intangible Assets

Goodwill balances and changes therein subsequent to the February 2, 2013 Consolidated Balance Sheet are as follows (in thousands).

 

     Gross Goodwill      Accumulated
Impairment
     Net Goodwill  

Balance as of February 2, 2013

   $ 110,688       $ (46,942    $ 63,746   
  

 

 

    

 

 

    

 

 

 

Balance as of February 1, 2014

$ 110,688    $ (46,942 $ 63,746   
  

 

 

    

 

 

    

 

 

 

Balance as of January 31, 2015

$ 110,688    $ (46,942 $ 63,746   
  

 

 

    

 

 

    

 

 

 

Identifiable intangible assets summary (in thousands):

 

     Gross Amount      Accumulated
 Amortization 
     Net Book
Value
 

Balance as of February 1, 2014:

        

Amortizable intangible assets:

        

Customer relationships

   $ 11,970       $ (3,577    $ 8,393   

Indefinite-lived intangible assets:

        

Trademarks

     101,850         —           101,850   
  

 

 

    

 

 

    

 

 

 

Total intangible assets

$ 113,820    $ (3,577 $ 110,243   
  

 

 

    

 

 

    

 

 

 
     Gross Amount      Accumulated
 Amortization 
     Net Book
Value
 

Balance as of January 31, 2015:

        

Amortizable intangible assets:

        

Customer relationships

   $ 11,970       $ (4,176    $ 7,794   

Indefinite-lived intangible assets:

        

Trademarks

     101,850         —           101,850   
  

 

 

    

 

 

    

 

 

 

Total intangible assets

$ 113,820    $ (4,176 $ 109,644   
  

 

 

    

 

 

    

 

 

 

Amortization of identifiable intangible assets was $599, $599 and $598 for fiscal 2014, 2013 and 2012, respectively, which is included in selling, general and administrative expenses on the Consolidated Statements of Operations. Amortization expense for each of the fiscal years 2015 to 2019 is expected to be as follows (in thousands).

 

     Future
Amortization
 

2015

   $ 598   

2016

     598   

2017

     598   

2018

     598   

2019

     598   
  

 

 

 

Total next 5 fiscal years

$ 2,990   
  

 

 

 

Identifiable indefinite-lived intangible assets represent the Vince trademark. No impairments of the Vince trademark were recorded as a result of our annual asset impairment tests during fiscal years 2014, 2013 or 2012. In fiscal 2014, 2013 and 2012, we performed the qualitative assessment on the Vince Trademark as allowed by theIntangible—Goodwill and Other Topic of ASC and determined that it was not more likely than not that the carrying value exceeded the fair value of the asset.

 

Additionally, there were no impairments recorded as a result of our annual goodwill impairment test during fiscal 2014, 2013 or 2012. In fiscal 2014, 2013 and 2012, we used a qualitative analysis to assess the goodwill and determined that it was not more likely than not that the fair value was less than the carrying value, as allowed by the Intangible—Goodwill and Other Topic of ASC.

Fair Value
Fair Value

Note 5. Fair Value

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This guidance outlines a valuation framework, creates a fair value hierarchy to increase the consistency and comparability of fair value measurements, and details the disclosures that are required for items measured at fair value. Financial assets and liabilities are to be measured using inputs from three levels of the fair value hierarchy as follows:

 

Level 1— quoted market prices in active markets for identical assets or liabilities
Level 2— observable market-based inputs (quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active) or inputs that are corroborated by observable market data
Level 3— significant unobservable inputs that reflect our assumptions and are not substantially supported by market data

The Company did not have any non-financial assets or non-financial liabilities recognized at fair value on a recurring basis at January 31, 2015 or February 1, 2014. At January 31, 2015 and February 1, 2014, the Company believes that the carrying value of cash and cash equivalents, receivables and accounts payable approximates fair value, due to the short maturity of these instruments. As the Company’s debt obligation as of January 31, 2015 is at variable rates, there is no significant difference between the fair value and carrying value of the Company’s debt.

The Company’s non-financial assets, which primarily consist of goodwill, intangible assets, and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at their carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and intangible assets), non-financial assets are assessed for impairment, if applicable, written down to (and recorded at) fair value.

Financing Arrangements
Financing Arrangements

Note 6. Financing Arrangements

Revolving Credit Facility

On November 27, 2013, Vince, LLC entered into the Revolving Credit Facility in connection with the closing of the IPO and Restructuring Transactions. Bank of America, N.A. (“BofA”) serves as administrative agent for this facility. The Revolving Credit Facility provides for a revolving line of credit of up to $50,000 and matures on November 27, 2018. The Revolving Credit Facility also provides for a letter of credit sublimit of $25,000 (plus any increase in aggregate commitments) and for an increase in aggregate commitments of up to $20,000. Vince, LLC is the borrower and VHC and Vince Intermediate Holding, LLC (“Vince Intermediate”) are the guarantors under the new Revolving Credit Facility. Interest is payable on the loans under the Revolving Credit Facility, at either the LIBOR or the Base Rate, in each case, with applicable margins subject to a pricing grid based on an excess availability calculation. The “Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (i) the rate of interest in effect for such day as publicly announced from time to time by BofA as its prime rate; (ii) the Federal Funds Rate for such day, plus 0.50%; and (iii) the LIBOR Rate for a one month interest period as determined on such day, plus 1.0%. During the continuance of an event of default and at the election of the required lender, interest will accrue at a rate of 2% in excess of the applicable non-default rate.

 

The Revolving Credit Facility contains a requirement that, at any point when “Excess Availability” is less than the greater of (i) 15% percent of the loan cap or (ii) $7,500, and continuing until Excess Availability exceeds the greater of such amounts for 30 consecutive days, during which time, Vince must maintain a consolidated EBITDA (as defined in the Revolving Credit Facility) equal to or greater than $20,000. We have not been subject to this maintenance requirement since Excess Availability has been greater than the required minimum.

The Revolving Credit Facility contains representations and warranties, other covenants and events of default that are customary for this type of financing, including limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year. The Revolving Credit Facility generally permits dividends in the absence of any event of default (including any event of default arising from the contemplated dividend), so long as (i) after giving pro forma effect to the contemplated dividend, for the following six months Excess Availability will be at least the greater of 20% of the aggregate lending commitments and $7,500 and (ii) after giving pro forma effect to the contemplated dividend, the “Consolidated Fixed Charge Coverage Ratio” for the 12 months preceding such dividend shall be greater than or equal to 1.1 to 1.0 (provided that the Consolidated Fixed Charge Coverage Ratio may be less than 1.1 to 1.0 if, after giving pro forma effect to the contemplated dividend, Excess Availability for the six fiscal months following the dividend is at least the greater of 35% of the aggregate lending commitments and $10,000).

As of January 31, 2015, the availability under the $50,000 Revolving Credit Facility was $19,353. As of January 31, 2015, there was $23,000 of borrowings outstanding and $7,647 of letters of credit outstanding under the Revolving Credit Facility. The weighted average interest rate for borrowings outstanding

Long-Term Debt
Long-Term Debt

Note 7. Long-Term Debt

Long-term debt consisted of the following as of, January 31, 2015 and February 1, 2014 (in thousands).

 

     January 31,
2015
     February 1,
2014
 

Term Loan Facility

   $ 65,000       $ 170,000   

Revolving Credit Facility

     23,000         —     
  

 

 

    

 

 

 

Total long-term debt

$ 88,000    $ 170,000   
  

 

 

    

 

 

 

Term Loan Facility

On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, Vince, LLC and Vince Intermediate entered into the $175,000 Term Loan Facility with the lenders party thereto, BofA, as administrative agent, JPMorgan Chase Bank and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers, and Cantor Fitzgerald as documentation agent. The Term Loan Facility will mature on November 27, 2019. On November 27, 2013, net proceeds from the Term Loan Facility were used, at closing, to repay the Kellwood Note Receivable.

The Term Loan Facility also provides for an incremental facility of up to the greater of $50,000 and an amount that would result in the consolidated net total secured leverage ratio not exceeding 3.00 to 1.00, in addition to certain other rights to refinance or repurchase portions of the term loan. The Term Loan Facility is subject to quarterly amortization of principal equal to 0.25% of the original aggregate principal amount of the Term Loan Facility, with the balance payable at final maturity. Interest is payable on loans under the Term Loan Facility at a rate of either (i) the Eurodollar rate (subject to a 1.00% floor) plus an applicable margin of 4.75% to 5.00% based on a leverage ratio or (ii) the base rate applicable margin of 3.75% to 4.00% based on a leverage ratio. During the continuance of a payment or bankruptcy event of default, interest will accrue (i) on the overdue principal amount of any loan at a rate of 2% in excess of the rate otherwise applicable to such loan and (ii) on any overdue interest or any other outstanding overdue amount at a rate of 2% in excess of the nondefault interest rate then applicable to base rate loans.

The Term Loan Facility contains a requirement that Vince, LLC and Vince Intermediate maintain a “Consolidated Net Total Leverage Ratio” as of the last day of any period of four fiscal quarters not to exceed 3.75 to 1.00 for the fiscal quarters ending February 1, 2014 through November 1, 2014, 3.50 to 1.00 for the fiscal quarters ending January 31, 2015 through October 31, 2015, and 3.25 to 1.00 for the fiscal quarter ending January 30, 2016 and each fiscal quarter thereafter. In addition, the Term Loan Facility contains customary representations and warranties, other covenants, and events of default, including but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year, and distributions and dividends. The Term Loan Facility generally permits dividends to the extent that no default or event of default is continuing or would result from the contemplated dividend and the pro forma Consolidated Net Total Leverage Ratio after giving effect to such contemplated dividend is at least 0.25 lower than the maximum Consolidated Net Total Leverage Ratio for such quarter. All obligations under the Term Loan Facility are guaranteed by VHC and any future material domestic restricted subsidiaries of Vince, LLC and secured by a lien on substantially all of the assets of VHC, Vince, LLC and Vince Intermediate and any future material domestic restricted subsidiaries. We are in compliance with applicable financial covenants.

Through January 31, 2015, on an inception to date basis, the Company has made voluntary prepayments totaling $110,000 in the aggregate on the original $175,000 Term Loan Facility entered into on November 27, 2013. Of the $110,000 aggregate voluntary prepayments made to date, $105,000 was paid during fiscal 2014. The voluntary prepayments of $105,000 made during the current fiscal year were partially funded by $23,000 of net borrowings under the Revolving Credit Facility. As of January 31, 2015 the Company had $65,000 of debt outstanding under the Term Loan Facility.

Sun Promissory Notes

On May 2, 2008, VHC entered into a $225,000 Senior Subordinated Promissory Note and a $75,000 Senior Subordinated Promissory Note with Sun Kellwood Finance, LLC (“Sun Kellwood Finance”), an affiliate of Sun Capital Partners, Inc. We collectively refer to these notes as our “Sun Promissory Notes”. The unpaid principal balance of the notes accrue interest at 15% per annum until the maturity date of October 15, 2011, at which point any unpaid principal balance of the notes shall accrue interest at a rate of 17% per annum until the notes are paid in full. All interest which is not paid in cash on or before the last day of each calendar month are deemed paid in kind and added to the principal balance of the notes unless an election is made otherwise.

On July 19, 2012, Vince Holding Corp. amended the Sun Promissory Notes to extend the maturity date to October 15, 2016 and reduce the interest rate to 12% per annum until maturity, at which point any unpaid principal balance of the notes shall accrue interest at a rate of 14% per annum until the notes are paid in full.

On December 28, 2012, Sun Kellwood Finance, LLC (“Sun Capital Finance”) waived all interest capitalized and accrued under the notes prior to July 19, 2012. As both parties were under the common control of affiliates of Sun Capital Partners, Inc. (“Sun Capital”), this transaction resulted in a capital contribution of $270,852 which was recorded as an adjustment to additional paid in capital on our Consolidated Balance Sheet as of February 2, 2013.

 

On June 18, 2013, Sun Kellwood Finance assigned all title and interest in the Sun Promissory Notes to Sun Cardinal, LLC (“Sun Cardinal”). Immediately following the assignment, Sun Cardinal contributed all outstanding principal and interest due under these notes as of June 18, 2013 to the capital of VHC. As both parties were under common control of affiliates of Sun Capital at such time, this transaction resulted in a capital contribution of $334,595, which was recorded as an adjustment to VHC’s additional paid in capital on the Consolidated Balance Sheet as of February 1, 2014.

Sun Capital Loan Agreement

VHC was party to a Loan Authorization Agreement, originally dated February 13, 2008, by and between VHC (as the successor entity to Cardinal Integrated, LLC), SCSF Kellwood Finance, LLC (“SCSF Finance”) and Sun Kellwood Finance (as successors to Bank of Montreal) for a $72,000 line of credit, and $69,485 principal balance, which we refer to as the “Sun Capital Loan Agreement”. Under the terms of this agreement, as amended from time to time, interest accrued at a rate equal to the rate per annum announced by the Bank of Montreal, Chicago, Illinois, from time to time as its prime commercial rate, or equivalent, for U.S. dollar loans to borrowers located in the U.S. plus 2%. Interest on the loan was due by the last day of each fiscal quarter and is payable either in immediately available funds on each interest payment date or by adding such interest to the unpaid principal balance of the loan on each interest payment date. The original maturity date of the loan was August 6, 2009. On July 19, 2012, the maturity date of the loan was extended to August 6, 2014.

On December 28, 2012, Sun Kellwood Finance and SCSF Finance waived all interest capitalized and accrued under the loan authorization agreement prior to July 19, 2012. As all parties were under the common control of affiliates of Sun Capital, this transaction resulted in a capital contribution of $18,249, which was recorded as an adjustment to additional paid in capital on our Consolidated Balance Sheet as of February 2, 2013.

On June 18, 2013, Sun Kellwood Finance and SCSF Finance assigned all title and interest in the note under the Sun Capital Loan Agreement to Sun Cardinal. Immediately following the assignment, Sun Cardinal contributed all outstanding principal and interest due under this note as of June 18, 2013 to the capital of VHC. As all parties were under common control of affiliates of Sun Capital at such time, this transaction resulted in a capital contribution of $72,932, which was recorded as an adjustment to VHC’s additional paid in capital on the Consolidated Balance Sheet as of February 1, 2014.

Leases
Leases

Note 8. Leases

We lease substantially all of our office and showroom space, retail stores and certain machinery and equipment under operating leases having remaining terms up to eleven years, excluding renewal terms. Most of our real estate leases contain covenants that require us to pay real estate taxes, insurance, and other executory costs. Certain of these leases require contingent rent payments, kick-out clauses and/or opt-out clauses, based on the operating results of the retail operations utilizing the leased premises. Rent under leases with scheduled rent changes or lease concessions are recorded on a straight-line basis over the lease term. Rent expense under all operating leases was $16,161, $10,467 and $7,448 for 2014, 2013 and 2012, respectively.

The future minimum lease payments under operating leases at January 31, 2015 were as follows (in thousands):

 

     Minimum
Lease
Payments
 

2015

   $ 15,593   

2016

     17,877   

2017

     17,912   

2018

     17,655   

2019

     17,514   

Thereafter

     63,516   
  

 

 

 

Total minimum lease payments

$ 150,067   
  

 

 

Share-Based Compensation
Share-Based Compensation

Note 9. Share-Based Compensation

Prior to November 27, 2013, Vince Holding Corp. did not have convertible equity or convertible debt securities, any of which could result in share-based compensation expense. In connection with the IPO, which closed on November 27, 2013, and the separation of the Vince and non-Vince businesses, VHC assumed Kellwood Company’s remaining obligations under the 2010 Stock Option Plan of Kellwood Company (the “2010 Option Plan”) and all Kellwood Company stock options previously issued to Vince employees under such plan became options to acquire shares of VHC common stock. Additionally, VHC assumed Kellwood Company’s obligations with respect to the vested Kellwood Company stock options previously issued to Kellwood Company employees, which options were cancelled in exchange for shares of VHC common stock. Accordingly, option information presented below for previously issued Kellwood Company stock options under the 2010 Option Plan has been adjusted to account for the split of the Company’s common stock and applicable conversion to options to acquire shares of Vince Holding Corp. common stock.

Employee Stock Plans

2010 Option Plan

Kellwood Company had convertible equity securities that result in recognition of share-based compensation expense. On June 30, 2010, the board of directors approved the 2010 Stock Option Plan. On November 21, 2013 and as discussed above, VHC assumed Kellwood Company’s remaining obligations under the 2010 Option Plan; provided, that none of the issued and outstanding options (after giving effect to such assumption and the stock split effected as part of the Restructuring Transactions) were exercisable until the consummation of the IPO. Additionally, prior to the consummation of the IPO and after giving effect to the assumption described in this paragraph, VHC and the Vince employees to whom options had been previously granted under the 2010 Option Plan, amended the related grant agreements to eliminate, effective as of the consummation of the IPO, restrictions on the exercisability of the subject employees vested options.

Prior to the IPO, the 2010 Option Plan, as amended, provided for the grant of options to acquire up to 2,752,155 shares of Kellwood Company common stock. The options granted pursuant to the 2010 Option Plan (i) vest in five equal installments on the first, second, third, fourth, and fifth anniversary of the grant date, subject to the employee’s continued employment and, (ii) expire on the earlier of the tenth anniversary of the grant date or upon termination of employment. We will not grant any future awards under the 2010 Option Plan. Future awards shall be granted under the Vince 2013 Incentive Plan described further below.

Vince 2013 Incentive Plan

In connection with the IPO, the Company adopted the Vince 2013 Incentive Plan, which provides for grants of stock options, stock appreciation rights, restricted stock and other stock-based awards. The aggregate number of shares of common stock which may be issued or used for reference purposes under the Vince 2013 Incentive Plan or with respect to which awards may be granted may not exceed 3,400,000 shares. The shares available for issuance under the Vince 2013 Incentive Plan may be, in whole or in part, either authorized and unissued shares of our common stock or shares of common stock held in or acquired for our treasury. In general, if awards under the Vince 2013 Incentive Plan are for any reason cancelled, or expire or terminate unexercised, the shares covered by such award may again be available for the grant of awards under the Vince 2013 Incentive Plan. As of January 31, 2015, there were 2,514,959 shares under the Vince 2013 Incentive Plan available for future grants. Options granted pursuant to the Vince 2013 Incentive Plan (i) vest in equal installments over three or four years or at 33 1/3% per year beginning in year two, over four years, subject to the employees’ continued employment and (ii) expire on the earlier of the tenth anniversary of the grant date or upon termination as outlined in the Vince 2013 Incentive Plan.

 

Stock Options

A summary of stock option activity for fiscal 2014 is as follows:

 

     Stock Options     Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
(years)
     Aggregate
Intrinsic
Value
 

Outstanding at February 1, 2014

     2,289,530      $ 8.26         8.8      

Granted

     577,437      $ 32.82         

Exercised

     (22,018   $ 7.99         

Forfeited or expired

     (118,780   $ 14.88         
  

 

 

         

Outstanding at January 31, 2015

  2,726,169    $ 13.18      8.2    $ 33,367   
  

 

 

         

Vested or expected to vest at January 31, 2015

  2,726,169    $ 13.18      8.2    $ 33,367   

Vested and exercisable at January 31, 2015

  653,861    $ 6.35      7.5    $ 11,181   

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal 2014 and the exercise price, multiplied by the number of such in-the-money options) that would have been received by the option holders had all options holders exercised their options on January 31, 2015. This amount changes based on the fair market value of the Company’s common stock. Total intrinsic value of options exercised during fiscal 2014 (based on the differences between the Company’s stock price on the respective exercise date and the respective exercise price, multiplied by the number of respective options exercised) was $620.

The Company’s weighted average assumptions used to estimate the fair value of stock options granted on November 21, 2013 in connection with our IPO and the options granted during fiscal 2014 were estimated using a Black-Scholes option valuation model and were as follows. Expected term of 4.5 years, expected volatility of 51.1%, risk-free interest rate of 1.4% and expected dividend yield of 0.0%. Due to the limited trading history of the Company’s common stock, the volatility and expected term assumptions used were based on averages from a peer group of publicly traded retailers. The risk-free interest rate was based upon the U.S. Treasury five year yield curve. Based on these assumptions used, the weighted average grant date fair value for options granted during fiscal 2014 and for the options granted on November 21, 2013 in connection with our IPO was $14.13 per share and $8.82 per share, respectively.

The fair value of stock options granted in fiscal 2012 through October 2013 was determined at the grant date using a Black-Scholes option valuation model, which requires us to make several significant assumptions including risk-free interest rate, volatility, expected term, and discount factors for shareholders in a privately-held company. The estimated term of 6.5 years for these options was developed using a simplified method permitted by SEC Staff Accounting Bulletin Topic 14: Share-Based Payment, available for companies with “plain-vanilla” options and have limited historical exercise data. Our selected volatility rate of 55.0% was estimated using both: (i) volatility reported by companies comparable to Kellwood Company with publicly-traded stock, and (ii) calculated volatility of companies comparable to Kellwood Company with publicly-traded stock using historical stock prices. We applied a cumulative discount factor to the price per share of 36.25% to adjust for the lack of marketability of the shares, as well as the impact of the shares representing a minority interest in a privately-held company. Our estimates were developed using market data for companies comparable to Kellwood Company and empirical studies regarding the impact on the value of private-company shares resulting from transfer restrictions. Finally, the risk-free rate of 0.85% is based upon the U.S. Treasury five year yield curve.

At January 31, 2015 there was $11,504 of unrecognized compensation costs related to stock options that will be recognized over a remaining weighted average period of 3.3 years.

 

Restricted Stock Units

A summary of restricted stock unit activity for fiscal 2014 is as follows:

 

     Restricted
Stock
Units
     Weighted
Average
Grant Date
Fair Value
 

Nonvested restricted stock units at February 1, 2014

     7,500       $ 20.00   

Granted

     7,384       $ 30.47   

Vested

     (2,500    $ 20.00   

Forfeited

     —           —     
  

 

 

    

Nonvested restricted stock units at January 31, 2015

  12,384    $ 26.24   
  

 

 

    

The fair value of restricted stock units is based on the market price of the Company’s stock on the date of the grant and is amortized to compensation expense on a straight-line basis over the requisite service period, which is generally over a three year vesting period, subject to continued service and applicable conditions of the Vince 2013 Incentive Plan.

At January 31, 2015 there was $289 of unrecognized compensation costs related to restricted stock units that will be recognized over a remaining weighted average period of 2.4 years.

Share-Based Compensation Expense

Share-based compensation expense is recognized over the requisite service period of the each share-based payment award and the expense is included as a component of selling, general and administrative expenses in the Consolidated Statements of Operations. During fiscal 2014 we recognized share-based compensation expense of $1,896 and a related tax benefit of approximately $758. During fiscal 2013, from our IPO through the end of the fiscal year, we recognized share-based compensation expense of $347 and a related tax benefit of approximately $139. During fiscal year 2013, from the beginning of the fiscal year through our IPO date, and in fiscal 2012 we recognized share-based compensation expense of $551 and $367, respectively, which was included in net loss from discontinued operations as such expense was a component of the non-Vince businesses which were separated from the Vince business on November 27, 2013. In addition, as a result of the deferred tax valuation allowance during these periods, the Company did not recognize the related tax benefit on the share-based compensation expense.

Stockholders' Equity
Stockholders' Equity

Note 10. Stockholders’ Equity

Common Stock:

We currently have authorized for issuance 100,000,000 shares of our Voting Common Stock, par value of $0.01 per share. As of January 31, 2015 and February 1, 2014 we had 36,748,245 and 36,723,727 shares issued and outstanding, respectively (after giving effect to the conversion of all our issued and outstanding non-voting common stock into common stock on a one-for-one basis and the subsequent split of our common stock on a one for 28.5177 basis, as part of the Restructuring Transactions).

Secondary Offering of Common Stock:

In July 2014, certain selling stockholders of VHC, including affiliates of Sun Capital (the “Selling Stockholders”), sold 4,975,254 shares of VHC’s common stock at a public offering price of $34.50 per share in a secondary public offering (the “Secondary Offering”). The total shares sold include 648,946 shares sold by the Selling Stockholders pursuant to the exercise by the underwriters of their option to purchase additional shares. The Company did not receive any proceeds from the Secondary Offering. Immediately following the Secondary Offering, affiliates of Sun Capital beneficially owned 54.6% of VHC’s issued and outstanding common stock. The Company incurred approximately $571 of expenses in connection with the Secondary Offering during fiscal 2014.

Dividends:

We have not paid dividends, and our current ability to pay such dividends is restricted by the terms of our debt agreements. Our future dividend policy will be determined on a yearly basis and will depend on earnings, financial condition, capital requirements, and certain other factors. We do not expect to declare dividends with respect to our common stock in the foreseeable future.

Earnings Per Share
Earnings Per Share

Note 11. Earnings Per Share

All share information presented below and herein has been adjusted to reflect the stock split approved by VHC’s board of directors as of November 27, 2013. The fiscal year ended February 1, 2014 includes the impact of 10,000,000 shares issued by the Company on November 21, 2013. As fiscal year ended February 2, 2013 included a net loss, there were no dilutive securities as the impact would have been anti-dilutive.

The following is a reconciliation of weighted average basic shares to weighted average diluted shares outstanding:

 

     Fiscal Year Ended  
     January 31,
2015
     February 1,
2014
     February 2,
2013
 

Weighted-average shares—basic

     36,730,490         28,119,794         26,211,130   

Effect of dilutive equity securities

     1,514,416         153,131         —     
  

 

 

    

 

 

    

 

 

 

Weighted-average shares—diluted

  38,244,906      28,272,925      26,211,130   
  

 

 

    

 

 

    

 

 

 

For the fiscal year ended January 31, 2015, 123,959 options to purchase common stock were excluded from the computation of weighted average shares for diluted earnings per share since the related exercises prices exceeded the average market price of the Company’s common stock and such inclusion would be anti-dilutive. There were no antidilutive securities in the fiscal year ended February 1, 2014 and February 2, 2013.

Income Taxes
Income Taxes

Note 12. Income Taxes

The provision for income taxes for continuing operations consists of the following (in thousands):

 

     2014      2013      2012  

Current:

        

Domestic:

        

Federal

   $ 759       $ —         $ —     

State

     344         43         31   

Foreign

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total current

  1,103      43      31   

Deferred:

Domestic:

Federal

  20,416      6,333      1,030   

State

  2,475      905      124   

Foreign

  —        (13   (7
  

 

 

    

 

 

    

 

 

 

Total deferred

  22,891      7,225      1,147   
  

 

 

    

 

 

    

 

 

 

Total provision for income taxes

$ 23,994    $ 7,268    $ 1,178   
  

 

 

    

 

 

    

 

 

 

 

The sources of income (loss) for continuing operations before provision for income taxes are from the United States for all years. We file U.S. federal income tax returns and income tax returns in various state and local jurisdictions.

Current income taxes are the amounts payable under the respective tax laws and regulations on each year’s earnings. A reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:

 

     2014     2013     2012  

Statutory federal rate

     35.0     35.0     (35.0 )% 

State taxes, net of federal benefit

     5.7     9.5     7.4

Nondeductible interest

     0.0     18.1     84.3

Nondeductible transaction costs

     0.0     6.7     0.0

Valuation allowance

     (0.7 )%      (45.5 )%      (52.7 )% 

Other

     0.2     (0.1 )%      0.1
  

 

 

   

 

 

   

 

 

 

Total

  40.2   23.7   4.1
  

 

 

   

 

 

   

 

 

 

Deferred income tax assets and liabilities for continuing operations consisted of the following (in thousands):

 

     January 31,
2015
     February 1,
2014
 

Deferred tax assets:

     

Depreciation and amortization

   $ 29,935       $ 44,742   

Employee related costs

     3,503         2,048   

Allowance for asset valuations

     3,172         2,454   

Accrued expenses

     3,933         1,589   

Net operating losses

     65,111         80,936   

Tax credits

     888         —     

Other

     90         1,067   
  

 

 

    

 

 

 

Total deferred tax assets

  106,632      132,836   

Less: valuation allowances

  (1,074   (1,843
  

 

 

    

 

 

 

Net deferred tax assets

  105,558      130,993   
  

 

 

    

 

 

 

Deferred tax liabilities:

Cancellation of debt income

  (8,876   (11,095

Other

  (493   —     
  

 

 

    

 

 

 

Total deferred tax liabilities

  (9,369   (11,095
  

 

 

    

 

 

 

Net deferred tax assets

$ 96,189    $ 119,898   
  

 

 

    

 

 

 

Included in:

Prepaid expenses and other current assets

$ 4,015    $ 4,476   

Deferred income taxes and other assets

  92,174      115,422   
  

 

 

    

 

 

 

Net deferred income tax assets

$ 96,189    $ 119,898   
  

 

 

    

 

 

 

As of January 31, 2015, various federal and state net operating losses were available for carryforward to offset future taxable income. Substantially all of these net operating losses will expire between 2030 and 2034. The valuation allowance of $1,074 at January 31, 2015 and $1,843 at February 1, 2014, reflects management’s assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the inability to generate sufficient state taxable income. Adjustments to the valuation allowance are made when there is a change in management’s assessment of the amount of deferred tax assets that are realizable.

 

Net operating losses as of January 31, 2015 presented above do not include fiscal 2014 and 2013 deductions related to stock options that exceeded expenses previously recognized for financial reporting purposes since they have not yet reduced income taxes payable. The excess deduction will reduce income taxes payable and increase additional paid in capital by $2,675 when ultimately deducted in a future year.

As discussed in Note 2, we completed an IPO during fiscal 2013. The completion of the IPO and Restructuring Transactions resulted in the non-Vince businesses being separated from the Vince business. As a result, the Company determined that the full valuation allowance on the U.S. net deferred tax assets was no longer necessary. Since the IPO and Restructuring Transactions occurred between related parties and were considered one integrated transaction along with the establishment of the Tax Receivable Agreement liability, the offset of the release of the valuation allowance was recorded as an adjustment to additional paid-in capital on our Consolidated Balance Sheet at February 1, 2014 in accordance with ASC 740-20-45-11(g). The total valuation allowance on deferred tax assets for continuing operations decreased on a net basis by $769 in the fiscal year ended January 31, 2015 and decreased by $62,924 in the fiscal year ended February 1, 2014.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):

 

     2014      2013      2012  

Beginning balance

   $ 3,693       $ 9,378       $ 11,057   

Increases for tax positions in current year

     2,397         3,743         2,199   

Increases for tax positions in prior years

     135         356         52   

Decreases for tax positions in prior years

     (1,738      (4,186      (102

Settlements

     —           (3,022      (2,105

Lapse in statute of limitations

     —           (102      (1,723

Restructuring Transactions

     —           (2,474      —     
  

 

 

    

 

 

    

 

 

 

Ending balance

$ 4,487    $ 3,693    $ 9,378   
  

 

 

    

 

 

    

 

 

 

As of January 31, 2015 and February 1, 2014, unrecognized tax benefits in the amount of $2,195 (net of tax) and $2,155 (net of tax), respectively, would impact our effective tax rate if recognized. It is reasonably possible that within the next 12 months certain temporary unrecognized tax benefits could fully reverse. Should this occur, our unrecognized tax benefits could be reduced by up to $2,054.

We include accrued interest and penalties on underpayments of income taxes in our income tax provision. As of January 31, 2015 and February 1, 2014, we did not have any interest and penalties accrued on our Consolidated Balance Sheets. Net interest and penalty provisions (benefit) of $0, $(232) and $600 were recognized in our Consolidated Statements of Operations for the years ended January 31, 2015, February 1, 2014 and February 2, 2013, respectively. Interest is computed on the difference between the tax position recognized net of any unrecognized tax benefits and the amount previously taken or expected to be taken in our tax returns.

All amounts above related to unrecognized tax benefits include continuing and discontinued operations until the separation of the Vince and non-Vince businesses on November 27, 2013, and the Vince business after such date.

With limited exceptions, we are no longer subject to examination for U.S. federal and state income tax for 2007 and prior.

Commitments and Contingencies
Commitments and Contingencies

Note 13. Commitments and Contingencies

We are currently party to various legal proceedings. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse impact on our financial position or results of operations or cash flows, litigation is subject to inherent uncertainties.

Segment and Geographical Financial Information
Segment and Geographical Financial Information

Note 14. Segment and Geographical Financial Information

We operate and manage our business by distribution channel and have identified two reportable segments, as further described below. We considered both similar and dissimilar economic characteristics, internal reporting and management structures, as well as products, customers, and supply chain logistics to identify the following reportable segments:

 

    Wholesale segment—consists of our operations to distribute products to premier department stores and specialty stores in the United States and select international markets.

 

    Direct-to-consumer segment—consists of our operations to distribute products directly to the consumer through our branded full-price specialty retail stores, outlet stores, and e-commerce platform.

The accounting policies of our segments are consistent with those described in Note 1 to the Consolidated Financial Statements. Unallocated corporate expenses are comprised of selling, general, and administrative expenses attributable to corporate and administrative activities, and other charges that are not directly attributable to our operating segments. Unallocated corporate assets are comprised of capitalized deferred financing costs, the carrying values of our goodwill and unamortized trademark, debt and deferred tax assets, and other assets that will be utilized to generate revenue for both of our reportable segments.

Our wholesale segment sells apparel to our direct-to-consumer segment at cost. The wholesale intercompany sales of $22,595, $16,916, and $9,907 have been excluded from the net sales totals presented below for fiscal 2014, fiscal 2013, and fiscal 2012, respectively. Furthermore, as intercompany sales are sold at cost, no intercompany profit is reflected in operating income presented below.

Summary information for our operating segments is presented below (in thousands).

 

     Fiscal Year  
     2014      2013      2012  

Net Sales:

        

Wholesale

   $ 259,418       $ 229,114       $ 203,107   

Direct-to-consumer

     80,978         59,056         37,245   
  

 

 

    

 

 

    

 

 

 

Total net sales

$ 340,396    $ 288,170    $ 240,352   
  

 

 

    

 

 

    

 

 

 

Operating Income:

Wholesale

$ 100,623    $ 81,822    $ 72,913   

Direct-to-consumer

  14,556      10,435      4,465   
  

 

 

    

 

 

    

 

 

 

Subtotal

  115,179      92,257      77,378   

Unallocated expenses

  (44,929   (42,904   (36,442
  

 

 

    

 

 

    

 

 

 

Total operating income

$ 70,250    $ 49,353    $ 40,936   
  

 

 

    

 

 

    

 

 

 

Depreciation & Amortization:

Wholesale

$ 1,962    $ 1,204    $ 915   

Direct-to-consumer

  2,950      1,581      1,094   

Unallocated corporate

  355      —        —     
  

 

 

    

 

 

    

 

 

 

Total depreciation & amortization

$ 5,267    $ 2,785    $ 2,009   
  

 

 

    

 

 

    

 

 

 

Capital Expenditures:

Wholesale

$ 2,076    $ 1,832    $ 459   

Direct-to-consumer

  8,117      8,241      1,362   

Unallocated corporate

  9,506      —        —     
  

 

 

    

 

 

    

 

 

 

Total capital expenditure

$ 19,699    $ 10,073    $ 1,821   
  

 

 

    

 

 

    

 

 

 

 

     January 31,
2015
     February 1,
2014
 

Total Assets:

     

Wholesale

   $ 70,635       $ 78,122   

Direct-to-consumer

     33,793         24,169   

Unallocated corporate

     277,770         312,051   
  

 

 

    

 

 

 

Total assets

$ 382,198    $ 414,342   
  

 

 

    

 

 

 

 

Sales results are presented on a geographic basis below, in thousands. We predominately operate within the U.S. and sell our products in 45 countries either directly to premier department and specialty stores, or through distribution relationships with highly-regarded international partners with exclusive rights to certain territories. Sales are presented based on customer location. Substantially all long-lived assets, including property, plant and equipment and fixtures installed at our retailer sites, are located in the U.S.

 

     Fiscal Year  
     2014      2013      2012  

Net Sales:

        

Domestic

   $ 310,179       $ 265,622       $ 221,632   

International

     30,217         22,548         18,720   
  

 

 

    

 

 

    

 

 

 

Total net sales

$ 340,396    $ 288,170    $ 240,352   
  

 

 

    

 

 

    

 

 

Related Party Transactions
Related Party Transactions

Note 15. Related Party Transactions

Shared Services Agreement

On November 27, 2013, Vince, LLC entered into the Shared Services Agreement with Kellwood pursuant to which Kellwood provides support services in various operational areas including, among other things, e-commerce operations, distribution, logistics, information technology, accounts payable, credit and collections and payroll and benefits.

The Shared Services Agreement may be modified or supplemented to include new services under terms and conditions to be mutually agreed upon in good faith by the parties. The fees for all services received by Vince, LLC from Kellwood, including any new services mutually agreed upon by the parties, will be at cost. Such costs shall be the full amount of any and all actual and direct out-of-pocket expenses (including base salary and wages but without providing for any margin of profit or allocation of depreciation or amortization expense) incurred by the service provider or its affiliates in connection with the provision of the services.

We may terminate any or all of the services at any time for any reason (with or without cause) upon giving Kellwood the required advance notice for termination for that particular service. Additionally, the provision of the following services, which are services which require a term as a matter of law and services which are based on a third-party agreement with a set term, shall terminate automatically upon the related date specified on the schedules to the Shared Services Agreement: Building Services NY; Tax; and Compensation & Benefits. If no specific notice requirement has been provided, 90 days prior written notice shall be required to be given. Upon the termination of certain services, Kellwood may no longer be in a position to provide certain other related services. Kellwood must notify us within 10 days following our request to terminate any services if they will no longer be able to provide other related services. Assuming we proceed with our request to terminate the original services, such related services shall also be terminated in connection with such termination.

We are invoiced by Kellwood monthly for these amounts and generally be required to pay within 15 business days of receiving such invoice. The payments will be trued-up and can be disputed once each fiscal quarter. As of January 31, 2015, we have recorded $753 in other accrued expenses to recognize amounts payable to Kellwood under the Shared Services Agreement.

Tax Receivable Agreement

Vince Holding Corp. entered into the Tax Receivable Agreement with the Pre-IPO Stockholders on November 27, 2013. We and our former subsidiaries generated certain tax benefits (including NOLs and tax credits) prior to the Restructuring Transactions consummated in connection with our IPO and will generate certain section 197 intangible deductions (the “Pre-IPO Tax Benefits”), which would reduce the actual liability for taxes that we might otherwise be required to pay. The Tax Receivable Agreement provides for payments to the Pre-IPO Stockholders in an amount equal to 85% of the aggregate reduction in taxes payable realized by us and our subsidiaries from the utilization of the Pre-IPO Tax Benefits (the “Net Tax Benefit”).

For purposes of the Tax Receivable Agreement, the Net Tax Benefit equals (i) with respect to a taxable year, the excess, if any, of (A) our liability for taxes using the same methods, elections, conventions and similar practices used on the relevant company return assuming there were no Pre-IPO Tax Benefits over (B) our actual liability for taxes for such taxable year (the “Realized Tax Benefit”), plus (ii) for each prior taxable year, the excess, if any, of the Realized Tax Benefit reflected on an amended schedule applicable to such prior taxable year over the Realized Tax Benefit reflected on the original tax benefit schedule for such prior taxable year, minus (iii) for each prior taxable year, the excess, if any, of the Realized Tax Benefit reflected on the original tax benefit schedule for such prior taxable year over the Realized Tax Benefit reflected on the amended schedule for such prior taxable year; provided, however, that to extent any of the adjustments described in clauses (ii) and (iii) were reflected in the calculation of the tax benefit payment for any subsequent taxable year, such adjustments shall not be taken into account in determining the Net Tax Benefit for any subsequent taxable year.

While the Tax Receivable Agreement is designed with the objective of causing our annual cash costs attributable to federal, state and local income taxes (without regard to our continuing 15% interest in the Pre-IPO Tax Benefits) to be the same as that which we would have paid had we not had the Pre-IPO Tax Benefits available to offset our federal, state and local taxable income, there are circumstances in which this may not be the case. In particular, the Tax Receivable Agreement provides that any payments by us thereunder shall not be refundable. In that regard, the payment obligations under the Tax Receivable Agreement differ from a payment of a federal income tax liability in that a tax refund would not be available to us under the Tax Receivable Agreement even if we were to incur a net operating loss for federal income tax purposes in a future tax year. Similarly, the Pre-IPO Stockholders will not reimburse us for any payments previously made if any tax benefits relating to such payments are subsequently disallowed, although the amount of any such tax benefits subsequently disallowed will reduce future payments (if any) otherwise owed to such Pre-IPO Stockholders. In addition, depending on the amount and timing of our future earnings (if any) and on other factors including the effect of any limitations imposed on our ability to use the Pre-IPO Tax Benefits, it is possible that all payments required under the Tax Receivable Agreement could become due within a relatively short period of time following consummation of our IPO.

If we had not entered into the Tax Receivable Agreement, we would be entitled to realize the full economic benefit of the Pre-IPO Tax Benefits to the extent allowed by federal, state and local law. The Tax Receivable Agreement is designed with the objective of causing our annual cash costs attributable to federal, state and local income taxes (without regard to our continuing 15% interest in the Pre-IPO Tax Benefits) to be the same as we would have paid had we not had the Pre-IPO Tax Benefits available to offset our federal, state and local taxable income. As a result, stockholders who purchased shares in the IPO are not entitled to the economic benefit of the Pre-IPO Tax Benefits that would have been available if the Tax Receivable Agreement were not in effect, except to the extent of our continuing 15% interest in the Pre-IPO Benefits.

Additionally, the payments we make to the Pre-IPO Stockholders under the Tax Receivable Agreement are not expected to give rise to any incidental tax benefits to us, such as deductions or an adjustment to the basis of our assets.

An affiliate of Sun Capital may elect to terminate the Tax Receivable Agreement upon the occurrence of a Change of Control (as defined below). In connection with any such termination, we are obligated to pay the present value (calculated at a rate per annum equal to LIBOR plus 200 basis points as of such date) of all remaining Net Tax Benefit payments that would be required to be paid to the Pre-IPO Stockholders from such termination date, applying the valuation assumptions set forth in the Tax Receivable Agreement (the “Early Termination Period”). “Change of control,” as defined in the Tax Receivable Agreement shall mean an event or series of events by which (i) Vince Holding Corp. shall cease directly or indirectly to own 100% of the capital stock of Vince, LLC; (ii) any “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than one or more permitted investors, shall be the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of capital stock having more, directly or indirectly, than 35% of the total voting power of all outstanding capital stock of Vince Holding Corp. in the election of directors, unless at such time the permitted investors are direct or indirect “beneficial owners” (as so defined) of capital stock of Vince Holding Corp. having a greater percentage of the total voting power of all outstanding capital stock of Vince Holding Corp. in the election of directors than that owned by each other “person” or “group” described above; (iii) for any reason whatsoever, a majority of the board of directors of Vince Holding Corp. shall not be continuing directors; or (iv) a “Change of Control” (or comparable term) shall occur under (x) any term loan or revolving credit facility of Vince Holding Corp. or its subsidiaries or (y) any unsecured, senior, senior subordinated or subordinated indebtedness of Vince Holding Corp. or its subsidiaries, if, in each case, the outstanding principal amount thereof is in excess of $15,000. We may also terminate the Tax Receivable Agreement by paying the Early Termination Payment to the Pre-IPO Stockholders. Additionally, the Tax Receivable Agreement provides that in the event that we breach any material obligations under the Tax Receivable Agreement by operation of law as a result of the rejection of the Tax Receivable Agreement in a case commenced under the Bankruptcy Code, then the Early Termination Payment plus other outstanding amounts under the Tax Receivable Agreement shall become due and payable.

The Tax Receivable Agreement will terminate upon the earlier of (i) the date all such tax benefits have been utilized or expired, (ii) the last day of the tax year including the tenth anniversary of the IPO Restructuring Transactions and (iii) the mutual agreement of the parties thereto, unless earlier terminated in accordance with the terms thereof.

As of January 31, 2015, our obligation under the Tax Receivable Agreement was $168,932, which has a remaining term of nine years. The obligation was originally recorded in connection with the IPO as an adjustment to additional paid-in capital on our Consolidated Balance Sheet. Approximately $22,869 is recorded as a component of other accrued expenses and $146,063 as other liabilities on our Consolidated Balance Sheet as of January 31, 2015. During fiscal year 2014, we adjusted the obligation under the Tax Receivable Agreement in connection with the filing of our 2013 income tax returns. The return to provision adjustment resulted in a net reduction of $818 to the pre-IPO deferred tax assets and a net reduction of $1,442 to the liability under the Tax Receivable Agreement with the corresponding net increase of $624 accounted for as an adjustment to additional paid in-capital. In addition, we made our first tax benefit payment with respect to the 2013 taxable year of $3,199 including accrued interest which was paid during the fourth quarter of fiscal 2014. The tax benefit payment with respect to the 2014 taxable year totaling approximately $22,869 plus accrued interest is expected to be paid in the fourth quarter of 2015.

Transfer Agreement

On November 27, 2013, Kellwood and Vince Intermediate Holding, LLC entered into a transfer agreement (the “Transfer Agreement”). Pursuant to the terms of the Transfer Agreement, the following transactions occurred:

 

    Kellwood distributed the Vince, LLC equity interests to Vince Intermediate Holding, LLC in exchange for a $341,500 promissory note issued by Vince Intermediate Holding, LLC (the “Kellwood Note Receivable”).

 

   

Vince Intermediate Holding, LLC immediately repaid the Kellwood Note Receivable in full using approximately $172,000 of net proceeds from the IPO along with $169,500 of net borrowings under the new Term Loan Facility. Using the proceeds from the repayment of the Kellwood Note Receivable, after giving effect to the contribution of $70,100 of indebtedness under the Sun Term Loan Agreements to the capital of Vince Holding Corp. by affiliates of Sun Capital, Kellwood repaid and discharged the indebtedness outstanding under its revolving credit facility and the Sun Term Loan Agreements, and redeemed all of its issued and outstanding 12.875% Notes. Kellwood also redeemed $38,100 aggregate principal amount of its 7.125% Notes, at par pursuant to a tender offer. In addition, Kellwood also used such proceeds to pay certain restructuring fees to Sun Capital Management. Kellwood also paid a debt recovery bonus of $6,000 to our Chief Executive Officer.

 

    Kellwood refinanced its Wells Fargo Facility to, among other things, release Vince, LLC as a guarantor or obligor thereunder.

In accordance with the terms of the Transfer Agreement, Kellwood has agreed to indemnify us for any losses which we may suffer, sustain or become subject to, relating to the Kellwood business or in connection with any contract contributed to us by Kellwood which is not by its terms permitted to be assigned. Kellwood has also agreed to indemnify us for any losses associated with its failure to satisfy its obligations under the Transfer Agreement with respect to the repayment, repurchase, discharge or refinancing of certain of its indebtedness, as described in the immediately prior paragraph (including with respect to the removal of Vince, LLC as an obligor or guarantor under its refinanced revolving credit facility). Additionally, Vince Intermediate Holding, LLC has agreed to indemnify Kellwood against any losses which Kellwood may suffer, sustain or become subject to relating to the Vince business. The parties also agreed, upon the request of either the other party to, without further consideration, execute and deliver, or cause to be executed and delivered, such other instruments of conveyance, transfer, assignment and confirmation, and shall take or cause to be taken, such further or other actions as the other party may deem necessary or desirable to carry out the intent and purpose of the Transfer Agreement and give effect to the transactions contemplated thereby.

Kellwood Note Receivable

Vince Intermediate Holding, LLC issued the Kellwood Note Receivable in the aggregate principal amount of $341,500 to Kellwood Company, LLC on November 27, 2013, immediately prior to the consummation of our IPO. Vince Intermediate Holding, LLC repaid the Kellwood Note Receivable on the same day, using net proceeds from our IPO and net borrowings under the Term Loan Facility. No interest accrued under the Kellwood Note Receivable as the Kellwood Note Receivable was repaid on the date of issuance.

Debt Recovery Bonus to Our Chief Executive Officer

Our CEO received a debt recovery bonus of $6,000 (which included $440 of a prior unpaid debt recovery bonus) in connection with the repayment of certain Kellwood indebtedness, calculated as 4.4% of the related debt recovery, on November 27, 2013. Kellwood used proceeds from the repayment of the Kellwood Note Receivable to pay this bonus to our CEO at the closing of our IPO.

Earnout Agreement

In connection with the acquisition of the Vince business, Kellwood entered into an earnout agreement with CRL Group (former owners of the Vince business) providing for contingent earnout payments as additional consideration for the purchase of substantially all of the assets and properties of CRL Group (the “Earnout Agreement”). The Earnout Agreement provides for the payment of contingent annual earnout payments to CRL Group for five periods between 2007 and 2011, with the contingent amounts earned based on the amount of net sales and gross margin in each such period. The Earnout Agreement also provides for a cumulative contingent payment based on the amount of net sales during the Earnout Agreement period. Kellwood made payments under the Earnout Agreement of $806 during fiscal 2012 and no payments were made during fiscal 2014 and fiscal 2013.

Certain Indebtedness to Affiliates of Sun Capital

We had substantial indebtedness owed to affiliates of Sun Capital after giving effect to the acquisition of Kellwood Company by affiliates of Sun Capital Partners, Inc. in February 2008 under the Sun Promissory Notes and Sun Capital Loan Agreement (as defined in Note 7). Subsequent to 2008, Kellwood Company made borrowings under the Sun Term Loan Agreements (as defined in Note 3) to fund negative cash flows of the non-Vince business. All amounts owed by Vince Holding Corp. under these agreements were discharged as of February 1, 2014, as further discussed below.

On December 28, 2012, Sun Kellwood Finance waived all interest capitalized and accrued under the Sun Promissory notes prior to July 19, 2012. Additionally, Sun Kellwood Finance and SCSF Finance waived all interest capitalized and accrued under the Sun Capital Loan Agreement prior to July 19, 2012. As all parties were under the common control of affiliates of Sun Capital, both transactions resulted in capital contributions of $270,852 and $18,249 for the Sun Promissory Notes and Sun Capital Loan Agreement, respectively. The capital contributions were recorded as adjustments to additional paid in capital on our Consolidated Balance Sheet as of February 2, 2013. These transactions had no significant income tax consequences. The remaining principal and capitalized PIK interest owed under these agreements of $391,434 were reported within long-term debt on the Consolidated Balance Sheet as of February 2, 2013.

On June 18, 2013, Sun Kellwood Finance and SCSF Finance assigned all title and interest in both the Sun Promissory Notes and note under our Sun Capital Loan Agreement to Sun Cardinal, LLC. Immediately following the assignment of these notes, Sun Cardinal contributed all outstanding principal and interest due under these notes as of June 18, 2013 to the capital of Vince Holding Corp. As all parties were under the common control of Sun Capital at such time, these transactions were recorded in the second quarter of fiscal 2013 as increases to Vince Holding Corp.’s additional paid in capital in the amounts of $334,595 and $72,932 for the Sun Promissory Notes and Sun Capital Loan Agreement, respectively. As a result, Vince Holding Corp. has been discharged of all obligations under both agreements. See Note 7. Immediately prior to the Restructuring Transactions, affiliates of Sun Capital contributed $38,683 of principal under the Sun Term Loan Agreements to the capital of Kellwood Company.

On November 27, 2013, subsequent to the closing of the IPO and in connection with the Restructuring Transactions, all remaining debt obligations to affiliates of Sun Capital under the Sun Term Loan Agreements were retained by Kellwood Company, amounting to $83,355 (including accrued interest). Kellwood Company immediately discharged all obligations under these agreements through the application of a portion of the Kellwood Note Receivable proceeds. See Note 3.

Management Services Agreement

In connection with the acquisition of Kellwood Company by affiliates of Sun Capital in 2008, Sun Capital Partners Management V, LLC, an affiliate of Sun Capital, entered into the Management Services Agreement (the “Management Services Agreement”) with Kellwood Company. Under this agreement, Sun Capital Management provided Kellwood Company with consulting and advisory services, including services relating to financing alternatives, financial reporting, accounting and management information systems. In exchange, Kellwood Company reimbursed Sun Capital Management for reasonable out-of-pocket expenses incurred in connection with providing consulting and advisory services, additional and customary and reasonable fees for management consulting services provided in connection with corporate events, and also paid an annual management fee equal to $2,200 which was prepaid in equal quarterly installments, a portion of which was charged to the Vince business. We reported $79, $404 and $779 for management fees to Sun Capital in other expense, net, in the Consolidated Statements of Operations for fiscal 2014, fiscal 2013, and fiscal 2012, respectively. The remaining fees charged to the non-Vince businesses of $1,537, and $1,668 are included within net loss from discontinued operations in the Consolidated Statements of Operations for fiscal 2013 and fiscal 2012, respectively.

Upon the consummation of certain corporate events involving Kellwood Company or its direct or indirect subsidiaries, Kellwood Company was required to pay Sun Capital Management a transaction fee in an amount equal to 1% of the aggregate consideration paid to or by Kellwood Company and any of its direct or indirect subsidiaries or stockholders. We incurred no material transaction fees payable to Sun Capital Management during all periods presented on the Consolidated Statement of Operations.

 

On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, VHC was released from the terms of the Management Services Agreement between Kellwood Company and Sun Capital Management.

Sun Capital Consulting Agreement

On November 27, 2013, we entered into an agreement with Sun Capital Management to (i) reimburse Sun Capital Management or any of its affiliates providing consulting services under the agreement for out-of-pocket expenses incurred in providing consulting services to us and (ii) provide Sun Capital Management with customary indemnification for any such services.

The agreement is scheduled to terminate on the tenth anniversary of our IPO (i.e. November 27, 2023). Under the consulting agreement, we have no obligation to pay Sun Capital Management or any of its affiliates any consulting fees other than those which are approved by a majority of our directors that are not affiliated with Sun Capital. To the extent such fees are approved in the future, we will be obligated to pay such fees in addition to reimbursing Sun Capital Management or any of its affiliates that provide us services under the consulting agreement for all reasonable out-of-pocket fees and expenses incurred by such party in connection with the provision of consulting services under the consulting agreement and any related matters. Reimbursement of such expenses shall not be conditioned upon the approval of a majority of our directors that are not affiliated with Sun Capital Management, and shall be payable in addition to any fees that such directors may approve.

Neither Sun Capital Management nor any of its affiliates are liable to us or our affiliates, security holders or creditors for (1) any liabilities arising out of, related to, caused by, based upon or in connection with the performance of services under the consulting agreement, unless such liability is proven to have resulted directly and primarily from the willful misconduct or gross negligence of such person or (2) pursuing any outside activities or opportunities that may conflict with our best interests, which outside activities we consent to and approve under the consulting agreement, and which opportunities neither Sun Capital Management nor any of its affiliates will have any duty to inform us of. In no event will the aggregate of any liabilities of Sun Capital Management or any of its affiliates exceed the aggregate of any fees paid under the consulting agreement.

In addition, we are required to indemnify Sun Capital Management, its affiliates and any successor by operation of law against any and all liabilities, whether or not arising out of or related to such party’s performance of services under the consulting agreement, except to the extent proven to result directly and primarily from such person’s willful misconduct or gross negligence. We are also required to defend such parties in any lawsuits which may be brought against such parties and advance expenses in connection therewith. In the case of affiliates of Sun Capital Management that have rights to indemnification and advancement from affiliates of Sun Capital, we agree to be the indemnitor of first resort, to be liable for the full amounts of payments of indemnification required by any organizational document of such entity or any agreement to which such entity is a party, and that we will not make any claims against any affiliates of Sun Capital Partners for contribution, subrogation, exoneration or reimbursement for which they are liable under any organizational documents or agreement. Sun Capital Management may, in its sole discretion, elect to terminate the consulting agreement at any time. We may elect to terminate the consulting agreement if SCSF Cardinal, Sun Cardinal or any of their respective affiliates’ aggregate ownership of our equity securities falls below 30%.

Indemnification Agreements

We entered into indemnification agreements with each of our executive officers and directors on November 27, 2013. The indemnification agreements provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the DGCL.

 

Amended and Restated Certificate of Incorporation

Our amended and restated certificate of incorporation provides that for so long as affiliates of Sun Capital own 30% or more of our outstanding shares of common stock, Sun Cardinal, a Sun Capital affiliate, has the right to designate a majority of our board of directors. For so long as Sun Cardinal has the right to designate a majority of our board of directors, the directors designated by Sun Cardinal are expected to constitute a majority of each committee of our board of directors (other than the Audit Committee), and the chairman of each of the committees (other than the Audit Committee) is expected to be a director serving on the committee who is selected by affiliates of Sun Capital, provided that, at such time as we are not a “controlled company” under the NYSE corporate governance standards, our committee membership will comply with all applicable requirements of those standards and a majority of our board of directors will be “independent directors,” as defined under the rules of the NYSE, subject to any applicable phase in requirements.

Quarterly Financial Information
Quarterly Financial Information

Note 16. Quarterly Financial Information (unaudited)

Summarized quarterly financial results for fiscal 2014 and fiscal 2013 (in thousands, except per share data):

 

    First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 

Fiscal 2014:

       

Net sales

  $ 53,452      $ 89,326      $ 102,947      $ 94,671   

Gross profit

    26,411        44,014        50,648        45,756   

Net income from continuing operations

    1,384        10,501        13,311        10,527   

Net loss from discontinued operations, net of tax

    —          —          —          —     

Net income

    1,384        10,501        13,311        10,527   

Basic earnings per share (1):

       

Basic earnings per share from continuing operations

  $ 0.04      $ 0.29      $ 0.36      $ 0.29   

Basic loss per share from discontinued operations

  $ —        $ —        $ —        $ —     

Diluted earnings per share (1):

       

Diluted earnings per share from continuing operations

  $ 0.04      $ 0.27      $ 0.35      $ 0.28   

Diluted loss per share from discontinued operations

  $ —        $ —        $ —        $ —     

Fiscal 2013:

       

Net sales

  $ 40,363      $ 74,294      $ 85,755      $ 87,758   

Gross profit

    17,513        33,638        41,723        40,142   

Net (loss) income from continuing operations

    (9,779     8,395        16,468        8,311   

Net loss from discontinued operations, net of tax

    (5,330     (18,929     (18,827     (7,729

Net (loss) income

    (15,109     (10,534     (2,359     582   

Basic earnings (loss) per share (1):

       

Basic (loss) earnings per share from continuing operations

  $ (0.37   $ 0.32      $ 0.63      $ 0.24   

Basic loss per share from discontinued operations

  $ (0.21   $ (0.72   $ (0.72   $ (0.22

Diluted earnings (loss) per share (1):

       

Diluted (loss) earnings per share from continuing operations

  $ (0.37   $ 0.32      $ 0.62      $ 0.24   

Diluted loss per share from discontinued operations

  $ (0.21   $ (0.72   $ (0.71   $ (0.22

 

(1) The sum of the quarterly earnings per share may not equal the full-year amount as the computation of weighted-average number of shares outstanding for each quarter and the full-year are performed independently.
Schedule II Valuation and Qualifying Accounts
Schedule II Valuation and Qualifying Accounts

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

 

     Beginning of
Period
    Expenses
Charges, net
of Reversals
    Deductions
and Write-offs
net of
Recoveries
    End of
Period
 

Sales Allowances

        

Fiscal 2014

   $ (9,265   $ (54,467   $ 47,634      $ (16,098

Fiscal 2013

     (7,179     (39,171     37,085        (9,265

Fiscal 2012

     (4,347     (29,400     26,568        (7,179

Allowance for Doubtful Accounts

        

Fiscal 2014

     (353     (168     142        (379

Fiscal 2013

     (279     (249     175        (353

Fiscal 2012

     (450     (314     485        (279

Valuation Allowances on Deferred Income Taxes

        

Fiscal 2014

     (1,843     —          769        (1,074

Fiscal 2013

     (64,767     (78,855     141,779  (a)      (1,843

Fiscal 2012

   $ (49,933   $ (28,362   $ 13,528      $ (64,767

 

(a) The reduction in the Valuation Allowance on Deferred Income Taxes recorded in Fiscal 2013 includes $127,833 that was recognized as in increase to additional paid-in capital in Stockholders’ Equity.
Description of Business and Summary of Significant Accounting Policies (Policies)
(A) Description of Business: Vince is a leading contemporary fashion brand best known for modern effortless style and everyday luxury essentials. Established in 2002, the brand now offers a wide range of women’s, men’s and children’s apparel, women’s and men’s footwear, and handbags. We reach our customers through a variety of channels, specifically through premier wholesale department stores and specialty stores in the United States (“U.S.”) and select international markets, as well as through our branded retail locations and our website. We design our products in the U.S. and source the vast majority of our products from contract manufacturers outside the U.S., primarily in Asia and South America. Products are manufactured to meet our product specifications and labor standards.

(B) Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The amounts and disclosures included in the notes to the consolidated financial statements, unless otherwise indicated, are presented on a continuing operations basis. In the opinion of management, the financial statements contain all adjustments (consisting solely of normal recurring adjustments) and disclosures necessary to make the information presented therein not misleading. As used in this report, unless the context requires otherwise, “our,” “us” and “we” refer to VHC and its consolidated subsidiaries.

Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation. The reclassification had no impact on previously reported net income or stockholders’ equity.

(C) Fiscal Year: VHC operates on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52 or 53-week period ending on the Saturday closest to January 31 of the following year.

 

    References to “fiscal year 2014” or “fiscal 2014” refer to the fiscal year ended January 31, 2015;

 

    References to “fiscal year 2013” or “fiscal 2013” refer to the fiscal year ended February 1, 2014;

 

    References to “fiscal year 2012” or “fiscal 2012” refer to the fiscal year ended February 2, 2013.

Fiscal years 2014 and 2013 consisted of a 52-week period and fiscal year 2012 consisted of a 53-week period.

(D) Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements which affect revenues and expenses during the period reported. Estimates are adjusted when necessary to reflect actual experience. Significant estimates and assumptions may affect many items in the financial statements. Actual results could differ from estimates and assumptions in amounts that may be material to the consolidated financial statements.

Significant estimates inherent in the preparation of the consolidated financial statements include accounts receivable allowances, customer returns, the realizability of inventory, reserves for contingencies, useful lives and impairments of long-lived tangible and intangible assets, accounting for income taxes and related uncertain tax positions and valuation of share-based compensation, among others.

(E) Cash and cash equivalents: All demand deposits and highly liquid short-term deposits with original maturities of three months or less maintained under cash management activities are considered cash equivalents. The effect of foreign currency exchange rate fluctuations on cash and cash equivalents was not significant for fiscal 2014, fiscal 2013, or fiscal 2012.

(F) Accounts Receivable and Concentration of Credit Risk: We maintain an allowance for accounts receivable estimated to be uncollectible. The activity in this allowance for continuing operations is summarized as follows (in thousands).

 

     2014      2013      2012  

Balance, beginning of year

   $ 353       $ 279       $ 450   

Provisions for bad debt expense

     168         249         314   

Bad debts written off

     (142      (175      (485
  

 

 

    

 

 

    

 

 

 

Balance, end of year

$ 379    $ 353    $ 279   
  

 

 

    

 

 

    

 

 

 

The provision for bad debts is included in selling, general and administrative expense. Substantially all of our trade receivables are derived from sales to retailers and are recorded at the invoiced amount and do not bear interest. We perform ongoing credit evaluations of our wholesale partners’ financial condition and require collateral as deemed necessary. Account balances are charged off against the allowance when we believe the receivable will not be collected.

Accounts receivable are recorded net of allowances for expected future chargebacks and margin support from wholesale partners. It is the nature of the apparel and fashion industry that suppliers like us face significant pressure from customers in the retail industry to provide allowances to compensate for wholesale partner margin shortfalls. This pressure often takes the form of customers requiring us to provide price concessions on prior shipments as a prerequisite for obtaining future orders. Pressure for these concessions is largely determined by overall retail sales performance and, more specifically, the performance of our products at retail. To the extent our wholesale partners have more of our goods on hand at the end of the season, there will be greater pressure for us to grant markdown concessions on prior shipments. Our accounts receivable balances are reported net of expected allowances for these matters based on the historical level of concessions required and our estimates of the level of markdowns and allowances that will be required in the coming season in order to collect the receivables. We evaluate the allowance balances on a continual basis and adjust them as necessary to reflect changes in anticipated allowance activity. We also provide an allowance for sales returns based on historical return rates.

In fiscal 2014, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales represented 23.2%, 13.2% and 12.3% of fiscal 2014 net sales. In fiscal 2013, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales represented 19.8%, 12.8% and 12.8% of fiscal 2013 net sales. In fiscal 2012, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales represented 21.4%, 15.5% and 14.3% of fiscal 2012 net sales.

In fiscal 2014 accounts receivable from four wholesale partners each accounted for more than ten percent of our gross accounts receivable in continuing operations. These receivables represented 24.5%, 13.8%, 12.7% and 11.4% of fiscal 2014 gross accounts receivable. In fiscal 2013, accounts receivable from three wholesale partners each accounted for more than ten percent of our gross accounts receivable in continuing operations. These receivables represented 25.7%, 24.8% and 13.4% of fiscal 2013 gross accounts receivable.

(G) Inventories: Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. The cost of inventory includes manufacturing or purchase cost as well as sourcing, transportation, duty and other processing costs associated with acquiring, importing and preparing inventory for sale. Inventory costs are included in cost of products sold at the time of their sale. Product development costs are expensed in selling, general and administrative expense when incurred. Inventory values are reduced to net realizable value when there are factors indicating that certain inventories will not be sold on terms sufficient to recover their cost.

Inventories of continuing operations consist of the following (in thousands).

 

     January 31,
2015
     February 1,
2014
 

Finished goods

   $ 37,395       $ 32,946   

Work in process

     —           98   

Raw materials

     24         912   
  

 

 

    

 

 

 

Total inventories, net

  37,419      33,956   
  

 

 

    

 

 

 

Net of reserves of:

$ 6,471    $ 3,929   
  

 

 

    

 

 

 

(H) Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line method over estimated useful lives of 3 to 10 years for furniture, fixtures, and computer equipment. Leasehold improvements are amortized on the straight-line basis over the shorter of their estimated useful lives or the remaining lease term, excluding renewal terms. Capitalized software is amortized on the straight-line basis over the estimated economic useful life of the software, generally three to five years. Depreciation expense related to continuing operations was $4,668, $2,186 and $1,411 for fiscal 2014, 2013 and 2012, respectively.

(I) Impairment of Long-lived Assets: We review long-lived assets with a finite life for existence of facts and circumstances which indicate that the useful life is shorter than previously estimated or the carrying amount may not be recoverable from future operations based on undiscounted expected future cash flows. Impairment losses are then recognized in operating results to the extent discounted expected future cash flows are less than the carrying value of the asset. There were no impairment charges for continuing operations related to long-lived assets recorded in fiscal 2014, fiscal 2013 or fiscal 2012.

(J) Goodwill and Other Intangible Assets: Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually and in an interim period if a triggering event occurs. We completed our annual impairment testing on our goodwill and indefinite-lived intangible assets during the fourth quarters of fiscal 2014, fiscal 2013 and fiscal 2012. Goodwill is not allocated to our operating segments in the measure of segment assets regularly reported to and used by management, however goodwill is allocated to operating segments (goodwill reporting units) for the sole purpose of the annual impairment test for goodwill.

Goodwill represents the excess of the cost of acquired businesses over the fair market value of the identifiable net assets. Indefinite-lived intangible assets are primarily company-owned trademarks. As the acquisition by Kellwood Company of the net assets of Vince occurred prior to the current requirements of ASC Topic 805 Business Combinations, the additional purchase consideration paid to the former owners of Vince subsequent to the acquisition date was recorded as an addition to the purchase price, and therefore goodwill, once determined.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to the Intangibles-Goodwill and Other topic of Accounting Standards Codification (“ASC”). Under this amendment, an entity may elect to perform a qualitative impairment assessment for goodwill. If adverse qualitative trends are identified during the qualitative assessment that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is required. “Step one” of this quantitative impairment test requires that the fair value of the reporting unit be estimated and compared to its carrying amount. If the carrying amount exceeds the estimated fair value of the asset, “step two” of the impairment test is performed to calculate the impairment loss. An impairment loss is recognized to the extent the carrying amount of the reporting unit exceeds the implied fair value.

An entity may pass on performing the qualitative assessment for a reporting unit and directly perform “step one” of the assessment. This determination can be made on an asset by asset basis, and an entity may resume performing a qualitative assessment in subsequent periods. This amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this amendment during fiscal year 2012.

In fiscal 2014, 2013 and fiscal 2012, we performed a qualitative assessment on the goodwill and determined that it was not more likely than not that the carrying value of the reporting unit was greater than the fair value. As such, we were not required to perform “step two” of the impairment test.

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite Lived Assets for Impairment (“ASU 2012-02”). Under this amendment, an entity may elect to perform a qualitative impairment assessment for indefinite-lived intangible assets similar to the goodwill impairment testing guidance discussed above.

An entity may pass on performing the qualitative assessment for an indefinite-lived intangible asset and directly perform “step one” of the assessment. This determination can be made on an asset by asset basis, and an entity may resume performing a qualitative assessment in subsequent periods. The amendment is effective for annual and interim impairment tests for indefinite-lived intangible assets performed for fiscal years beginning after September 15, 2012. We early adopted this amendment during fiscal 2012.

In fiscal 2014, 2013 and fiscal 2012, we elected to perform a qualitative assessment on indefinite-lived intangible assets and determined that it was not more likely than not that the carrying value of the assets exceeded the fair value, as such we were not required to perform “step two” of the impairment test.

Determining the fair value of goodwill and other intangible assets is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and operating margins, discount rates and future market conditions, among others. It is possible that estimates of future operating results could change adversely and impact the evaluation of the recoverability of the carrying value of goodwill and intangible assets and that the effect of such changes could be material.

Definite-lived intangible assets are comprised of customer relationships and are being amortized on a straight-line basis over their useful lives of 20 years.

See Note 4 for more information on the details surrounding goodwill and intangible assets.

(K) Deferred Financing Costs: Deferred financing costs, such as underwriting, financial advisory, professional fees, and other similar fees are capitalized and recognized in interest expense over the contractual life of the related debt instrument using the straight-line method, as this method results in recognition of interest expense that is materially consistent with that of the effective interest method.

(L) Deferred Rent and Deferred Lease Incentives: We lease various office spaces, showrooms and retail stores. Many of these operating leases contain predetermined fixed escalations of the minimum rentals during the original term of the lease. For these leases, we recognize the related rental expense on a straight-line basis over the life of the lease and record the difference between the amount charged to operations and amounts paid as deferred rent. Certain of our retail store leases contain provisions for contingent rent, typically a percentage of retail sales once a predetermined threshold has been met. These amounts are expensed as incurred. Additionally, we received lease incentives in certain leases. These allowances have been deferred and are amortized on a straight-line basis over the life of the lease as a reduction of rent expense.

(M) Revenue Recognition: Sales are recognized when goods are shipped in accordance with customer orders for our wholesale business and e-commerce businesses, and at the time of sale to the consumer for our retail business. The estimated amounts of sales discounts, returns and allowances are accounted for as reductions of sales when the associated sale occurs. These estimated amounts are adjusted periodically based on changes in facts and circumstances when the changes become known to us. Accrued discounts, returns and allowances are included as an offset to accounts receivable in the Consolidated Balance Sheets for our wholesale business. The activity in the accrued discounts, returns and allowances account for continuing operations is summarized as follows (in thousands).

 

     2014      2013      2012  

Balance, beginning of year

   $ 9,265       $ 7,179       $ 4,347   

Provision

     54,467         39,171         29,400   

Utilization

     (47,634      (37,085      (26,568
  

 

 

    

 

 

    

 

 

 

Balance, end of year

$ 16,098    $ 9,265    $ 7,179   
  

 

 

    

 

 

    

 

 

 

For our wholesale business, amounts billed to customers for shipping and handling costs are not significant. Our stated terms are FOB shipping point. There is no stated obligation to customers after shipment, other than specifically set forth allowances or discounts that are accrued at the time of sale. The rights of inspection or acceptance contained in certain sales agreements are limited to whether the goods received by our wholesale partners are in conformance with the order specifications.

(N) Cost of Products Sold: Our cost of products sold and gross margins may not necessarily be comparable to that of other entities as a result of different practices in categorizing costs. The primary components of our cost of products sold are as follows:

 

    the cost of purchased merchandise, including raw materials;

 

    the cost of inbound transportation, including freight;

 

    the cost of our production and sourcing departments;

 

    other processing costs associated with acquiring and preparing the inventory for sale as charged by Kellwood Company, LLC as part of the Shared Services Agreement; and

 

    shrink and valuation reserves.

(O) Marketing and Advertising: We provide cooperative advertising allowances to certain of our customers. These allowances are accounted for as reductions in sales as discussed in “Revenue Recognition” above. Production expense related to company-directed advertising is deferred until the first time at which the advertisement runs. Communication expense related to company-directed advertising is expensed as incurred. Marketing and advertising expense recorded in selling, general and administrative expenses for continuing operations was $7,427, $4,858, and $2,591 in fiscal 2014, 2013 and 2012, respectively. At January 31, 2015 and February 1, 2014, deferred production expenses associated with company-directed advertising were $643 and $305, respectively.

(P) Income Taxes: We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities at enacted rates. We determine the appropriateness of valuation allowances in accordance with the “more likely than not” recognition criteria. We recognize tax positions in the Consolidated Balance Sheets as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with tax authorities assuming full knowledge of the position and all relevant facts. Accrued interest and penalties related to unrecognized tax benefits are included in income taxes in the Consolidated Statements of Operations.

(Q) Earnings Per Share: Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted net income (loss) per share is calculated similarly, but includes potential dilution from the exercise of stock options for which future service is required as a condition to deliver the underlying stock.

(R) Recent Accounting Pronouncements

In January 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items—Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The standard primarily involves presentation and disclosure and, therefore, is not expected to have a material impact on our financial position and results of operations.

Description of Business and Summary of Significant Accounting Policies (Tables)

We maintain an allowance for accounts receivable estimated to be uncollectible. The activity in this allowance for continuing operations is summarized as follows (in thousands).

 

     2014      2013      2012  

Balance, beginning of year

   $ 353       $ 279       $ 450   

Provisions for bad debt expense

     168         249         314   

Bad debts written off

     (142      (175      (485
  

 

 

    

 

 

    

 

 

 

Balance, end of year

$ 379    $ 353    $ 279   
  

 

 

    

 

 

    

 

 

 

Inventories of continuing operations consist of the following (in thousands).

 

     January 31,
2015
     February 1,
2014
 

Finished goods

   $ 37,395       $ 32,946   

Work in process

     —           98   

Raw materials

     24         912   
  

 

 

    

 

 

 

Total inventories, net

  37,419      33,956   
  

 

 

    

 

 

 

Net of reserves of:

$ 6,471    $ 3,929   
  

 

 

    

 

 

 

The activity in the accrued discounts, returns and allowances account for continuing operations is summarized as follows (in thousands).

 

     2014      2013      2012  

Balance, beginning of year

   $ 9,265       $ 7,179       $ 4,347   

Provision

     54,467         39,171         29,400   

Utilization

     (47,634      (37,085      (26,568
  

 

 

    

 

 

    

 

 

 

Balance, end of year

$ 16,098    $ 9,265    $ 7,179   
  

 

 

    

 

 

    

 

 

 
Discontinued Operations (Tables)
Schedule of Results of Non-Vince Businesses Included in Discontinued Operations

The results of the non-Vince businesses included in discontinued operations (through the separation of the non-Vince businesses on November 27, 2013) for the fiscal years ended February 1, 2014 and February 2, 2013 are summarized in the following table (in thousands).

 

     Fiscal Year  
     2013     2012  

Net sales

   $ 400,848      $ 514,806   

Cost of products sold

     313,620        409,763   
  

 

 

   

 

 

 

Gross profit

  87,228      105,043   

Selling, general and administrative expenses

  98,016      132,871   

Restructuring, environmental and other charges

  1,628      5,732   

Impairment of long-lived assets

  1,399      6,497   

Change in fair value of contingent consideration

  1,473      (7,162

Interest expense, net

  46,677      55,316   

Other expense, net

  498      (9,776
  

 

 

   

 

 

 

Loss before income taxes

  (62,463   (78,435

Income taxes

  (11,648   (421
  

 

 

   

 

 

 

Net loss from discontinued operations, net of taxes

$ (50,815 $ (78,014
  

 

 

   

 

 

 

Effective tax rate

  18.6   0.5
  

 

 

   

 

 

 
Goodwill and Intangible Assets (Tables)

Goodwill balances and changes therein subsequent to the February 2, 2013 Consolidated Balance Sheet are as follows (in thousands).

 

     Gross Goodwill      Accumulated
Impairment
     Net Goodwill  

Balance as of February 2, 2013

   $ 110,688       $ (46,942    $ 63,746   
  

 

 

    

 

 

    

 

 

 

Balance as of February 1, 2014

$ 110,688    $ (46,942 $ 63,746   
  

 

 

    

 

 

    

 

 

 

Balance as of January 31, 2015

$ 110,688    $ (46,942 $ 63,746   
  

 

 

    

 

 

    

 

 

 

Identifiable intangible assets summary (in thousands):

 

     Gross Amount      Accumulated
 Amortization 
     Net Book
Value
 

Balance as of February 1, 2014:

        

Amortizable intangible assets:

        

Customer relationships

   $ 11,970       $ (3,577    $ 8,393   

Indefinite-lived intangible assets:

        

Trademarks

     101,850         —           101,850   
  

 

 

    

 

 

    

 

 

 

Total intangible assets

$ 113,820    $ (3,577 $ 110,243   
  

 

 

    

 

 

    

 

 

 
     Gross Amount      Accumulated
Amortization 
     Net Book
Value
 

Balance as of January 31, 2015:

        

Amortizable intangible assets:

        

Customer relationships

   $ 11,970       $ (4,176    $ 7,794   

Indefinite-lived intangible assets:

        

Trademarks

     101,850         —           101,850   
  

 

 

    

 

 

    

 

 

 

Total intangible assets

$ 113,820    $ (4,176 $ 109,644   
  

 

 

    

 

 

    

 

 

 

Amortization of identifiable intangible assets was $599, $599 and $598 for fiscal 2014, 2013 and 2012, respectively, which is included in selling, general and administrative expenses on the Consolidated Statements of Operations. Amortization expense for each of the fiscal years 2015 to 2019 is expected to be as follows (in thousands).

 

     Future
Amortization
 

2015

   $ 598   

2016

     598   

2017

     598   

2018

     598   

2019

     598   
  

 

 

 

Total next 5 fiscal years

$ 2,990   
  

 

 

 
Long-Term Debt (Tables)
Summary of Long-Term Debt

Long-term debt consisted of the following as of, January 31, 2015 and February 1, 2014 (in thousands).

 

     January 31,
2015
     February 1,
2014
 

Term Loan Facility

   $ 65,000       $ 170,000   

Revolving Credit Facility

     23,000         —     
  

 

 

    

 

 

 

Total long-term debt

$ 88,000    $ 170,000   
  

 

 

    

 

 

 
Leases (Tables)
Future Minimum Lease Payments under Operating Leases

The future minimum lease payments under operating leases at January 31, 2015 were as follows (in thousands):

 

     Minimum
Lease
Payments
 

2015

   $ 15,593   

2016

     17,877   

2017

     17,912   

2018

     17,655   

2019

     17,514   

Thereafter

     63,516   
  

 

 

 

Total minimum lease payments

$ 150,067   
  

 

 

Share-Based Compensation (Tables)

A summary of stock option activity for fiscal 2014 is as follows:

 

     Stock Options     Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
(years)
     Aggregate
Intrinsic
Value
 

Outstanding at February 1, 2014

     2,289,530      $ 8.26         8.8      

Granted

     577,437      $ 32.82         

Exercised

     (22,018   $ 7.99         

Forfeited or expired

     (118,780   $ 14.88         
  

 

 

         

Outstanding at January 31, 2015

  2,726,169    $ 13.18      8.2    $ 33,367   
  

 

 

         

Vested or expected to vest at January 31, 2015

  2,726,169    $ 13.18      8.2    $ 33,367   

Vested and exercisable at January 31, 2015

  653,861    $ 6.35      7.5    $ 11,181   

A summary of restricted stock unit activity for fiscal 2014 is as follows:

 

     Restricted
Stock
Units
     Weighted
Average
Grant Date
Fair Value
 

Nonvested restricted stock units at February 1, 2014

     7,500       $ 20.00   

Granted

     7,384       $ 30.47   

Vested

     (2,500    $ 20.00   

Forfeited

     —           —     
  

 

 

    

Nonvested restricted stock units at January 31, 2015

  12,384    $ 26.24   
  

 

 

    
Earnings Per Share (Tables)
Schedule of Reconciliation of Weighted Average Basic Shares to Weighted Average Diluted Shares Outstanding

The following is a reconciliation of weighted average basic shares to weighted average diluted shares outstanding:

 

     Fiscal Year Ended  
     January 31,
2015
     February 1,
2014
     February 2,
2013
 

Weighted-average shares—basic

     36,730,490         28,119,794         26,211,130   

Effect of dilutive equity securities

     1,514,416         153,131         —     
  

 

 

    

 

 

    

 

 

 

Weighted-average shares—diluted

  38,244,906      28,272,925      26,211,130   
  

 

 

    

 

 

    

 

 

 
Income Taxes (Tables)

The provision for income taxes for continuing operations consists of the following (in thousands):

 

     2014      2013      2012  

Current:

        

Domestic:

        

Federal

   $ 759       $ —         $ —     

State

     344         43         31   

Foreign

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total current

  1,103      43      31   

Deferred:

Domestic:

Federal

  20,416      6,333      1,030   

State

  2,475      905      124   

Foreign

  —        (13   (7
  

 

 

    

 

 

    

 

 

 

Total deferred

  22,891      7,225      1,147   
  

 

 

    

 

 

    

 

 

 

Total provision for income taxes

$ 23,994    $ 7,268    $ 1,178   
  

 

 

    

 

 

    

 

 

 

A reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:

 

     2014     2013     2012  

Statutory federal rate

     35.0     35.0     (35.0 )% 

State taxes, net of federal benefit

     5.7     9.5     7.4

Nondeductible interest

     0.0     18.1     84.3

Nondeductible transaction costs

     0.0     6.7     0.0

Valuation allowance

     (0.7 )%      (45.5 )%      (52.7 )% 

Other

     0.2     (0.1 )%      0.1
  

 

 

   

 

 

   

 

 

 

Total

  40.2   23.7   4.1
  

 

 

   

 

 

   

 

 

 

Deferred income tax assets and liabilities for continuing operations consisted of the following (in thousands):

 

     January 31,
2015
     February 1,
2014
 

Deferred tax assets:

     

Depreciation and amortization

   $ 29,935       $ 44,742   

Employee related costs

     3,503         2,048   

Allowance for asset valuations

     3,172         2,454   

Accrued expenses

     3,933         1,589   

Net operating losses

     65,111         80,936   

Tax credits

     888         —     

Other

     90         1,067   
  

 

 

    

 

 

 

Total deferred tax assets

  106,632      132,836   

Less: valuation allowances

  (1,074   (1,843
  

 

 

    

 

 

 

Net deferred tax assets

  105,558      130,993   
  

 

 

    

 

 

 

Deferred tax liabilities:

Cancellation of debt income

  (8,876   (11,095

Other

  (493   —     
  

 

 

    

 

 

 

Total deferred tax liabilities

  (9,369   (11,095
  

 

 

    

 

 

 

Net deferred tax assets

$ 96,189    $ 119,898   
  

 

 

    

 

 

 

Included in:

Prepaid expenses and other current assets

$ 4,015    $ 4,476   

Deferred income taxes and other assets

  92,174      115,422   
  

 

 

    

 

 

 

Net deferred income tax assets

$ 96,189    $ 119,898   
  

 

 

    

 

 

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):

 

     2014      2013      2012  

Beginning balance

   $ 3,693       $ 9,378       $ 11,057   

Increases for tax positions in current year

     2,397         3,743         2,199   

Increases for tax positions in prior years

     135         356         52   

Decreases for tax positions in prior years

     (1,738      (4,186      (102

Settlements

     —           (3,022      (2,105

Lapse in statute of limitations

     —           (102      (1,723

Restructuring Transactions

     —           (2,474      —     
  

 

 

    

 

 

    

 

 

 

Ending balance

$ 4,487    $ 3,693    $ 9,378   
  

 

 

    

 

 

    

 

 

 
Segment and Geographical Financial Information (Tables)

Summary information for our operating segments is presented below (in thousands).

 

     Fiscal Year  
     2014      2013      2012  

Net Sales:

        

Wholesale

   $ 259,418       $ 229,114       $ 203,107   

Direct-to-consumer

     80,978         59,056         37,245   
  

 

 

    

 

 

    

 

 

 

Total net sales

$ 340,396    $ 288,170    $ 240,352   
  

 

 

    

 

 

    

 

 

 

Operating Income:

Wholesale

$ 100,623    $ 81,822    $ 72,913   

Direct-to-consumer

  14,556      10,435      4,465   
  

 

 

    

 

 

    

 

 

 

Subtotal

  115,179      92,257      77,378   

Unallocated expenses

  (44,929   (42,904   (36,442
  

 

 

    

 

 

    

 

 

 

Total operating income

$ 70,250    $ 49,353    $ 40,936   
  

 

 

    

 

 

    

 

 

 

Depreciation & Amortization:

Wholesale

$ 1,962    $ 1,204    $ 915   

Direct-to-consumer

  2,950      1,581      1,094   

Unallocated corporate

  355      —        —     
  

 

 

    

 

 

    

 

 

 

Total depreciation & amortization

$ 5,267    $ 2,785    $ 2,009   
  

 

 

    

 

 

    

 

 

 

Capital Expenditures:

Wholesale

$ 2,076    $ 1,832    $ 459   

Direct-to-consumer

  8,117      8,241      1,362   

Unallocated corporate

  9,506      —        —     
  

 

 

    

 

 

    

 

 

 

Total capital expenditure

$ 19,699    $ 10,073    $ 1,821   
  

 

 

    

 

 

    

 

 

     January 31,
2015
     February 1,
2014
 

Total Assets:

     

Wholesale

   $ 70,635       $ 78,122   

Direct-to-consumer

     33,793         24,169   

Unallocated corporate

     277,770         312,051   
  

 

 

    

 

 

 

Total assets

$ 382,198    $ 414,342   
  

 

 

    

 

 

 

Sales results are presented on a geographic basis below, in thousands.  

     Fiscal Year  
     2014      2013      2012  

Net Sales:

        

Domestic

   $ 310,179       $ 265,622       $ 221,632   

International

     30,217         22,548         18,720   
  

 

 

    

 

 

    

 

 

 

Total net sales

$ 340,396    $ 288,170    $ 240,352   
  

 

 

    

 

 

    

 

 

 
Quarterly Financial Information (Tables)
Summary of Quarterly Financial Results

Summarized quarterly financial results for fiscal 2014 and fiscal 2013 (in thousands, except per share data):

 

    First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 

Fiscal 2014:

       

Net sales

  $ 53,452      $ 89,326      $ 102,947      $ 94,671   

Gross profit

    26,411        44,014        50,648        45,756   

Net income from continuing operations

    1,384        10,501        13,311        10,527   

Net loss from discontinued operations, net of tax

    —          —          —          —     

Net income

    1,384        10,501        13,311        10,527   

Basic earnings per share (1):

       

Basic earnings per share from continuing operations

  $ 0.04      $ 0.29      $ 0.36      $ 0.29   

Basic loss per share from discontinued operations

  $ —        $ —        $ —        $ —     

Diluted earnings per share (1):

       

Diluted earnings per share from continuing operations

  $ 0.04      $ 0.27      $ 0.35      $ 0.28   

Diluted loss per share from discontinued operations

  $ —        $ —        $ —        $ —     

Fiscal 2013:

       

Net sales

  $ 40,363      $ 74,294      $ 85,755      $ 87,758   

Gross profit

    17,513        33,638        41,723        40,142   

Net (loss) income from continuing operations

    (9,779     8,395        16,468        8,311   

Net loss from discontinued operations, net of tax

    (5,330     (18,929     (18,827     (7,729

Net (loss) income

    (15,109     (10,534     (2,359     582   

Basic earnings (loss) per share (1):

       

Basic (loss) earnings per share from continuing operations

  $ (0.37   $ 0.32      $ 0.63      $ 0.24   

Basic loss per share from discontinued operations

  $ (0.21   $ (0.72   $ (0.72   $ (0.22

Diluted earnings (loss) per share (1):

       

Diluted (loss) earnings per share from continuing operations

  $ (0.37   $ 0.32      $ 0.62      $ 0.24   

Diluted loss per share from discontinued operations

  $ (0.21   $ (0.72   $ (0.71   $ (0.22

 

(1) The sum of the quarterly earnings per share may not equal the full-year amount as the computation of weighted-average number of shares outstanding for each quarter and the full-year are performed independently.
Description of Business and Summary of Significant Accounting Policies - Summary of Allowance for Accounts Receivable Estimated to be Uncollectible for Continuing Operations (Detail) (Allowance for Doubtful Accounts [Member], USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2015
Feb. 1, 2014
Feb. 2, 2013
Allowance for Doubtful Accounts [Member]
 
 
 
Accounts, Notes, Loans and Financing Receivable [Line Items]
 
 
 
Balance, beginning of year
$ 353 
$ 279 
$ 450 
Provisions for bad debt expense
168 
249 
314 
Bad debts written off
(142)
(175)
(485)
Balance, end of year
$ 379 
$ 353 
$ 279 
Description of Business and Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
12 Months Ended
Jan. 31, 2015
Customer
Feb. 1, 2014
Feb. 2, 2013
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Number of wholesale partners each accounted for more than ten percent of net sales
 
 
Depreciation expense
$ 4,668,000 
$ 2,186,000 
$ 1,411,000 
Impairment charges relating to long-lived assets
Marketing and advertising expense
7,427,000 
4,858,000 
2,591,000 
Deferred production expenses associated with company-directed advertising
$ 643,000 
$ 305,000 
 
Income tax benefit recognition criteria percentage
50.00% 
 
 
Minimum [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Estimated economic useful life of capitalized software
3 years 
 
 
Maximum [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Estimated economic useful life of capitalized software
5 years 
 
 
Customer Relationships [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Estimated economic useful life of intangibles
20 years 
 
 
Furniture, Fixtures and Computer Equipment [Member] |
Minimum [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Estimated useful lives of property, plant and equipment
3 years 
 
 
Furniture, Fixtures and Computer Equipment [Member] |
Maximum [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Estimated useful lives of property, plant and equipment
10 years 
 
 
Customer Concentration Risk [Member] |
Sales [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
10.00% 
10.00% 
10.00% 
Customer Concentration Risk [Member] |
Accounts Receivable [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
10.00% 
10.00% 
 
Wholesale Partner One [Member] |
Customer Concentration Risk [Member] |
Sales [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
23.20% 
19.80% 
21.40% 
Wholesale Partner One [Member] |
Customer Concentration Risk [Member] |
Accounts Receivable [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
24.50% 
25.70% 
 
Wholesale Partner Two [Member] |
Customer Concentration Risk [Member] |
Sales [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
13.20% 
12.80% 
15.50% 
Wholesale Partner Two [Member] |
Customer Concentration Risk [Member] |
Accounts Receivable [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
13.80% 
24.80% 
 
Wholesale Partner Three [Member] |
Customer Concentration Risk [Member] |
Sales [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
12.30% 
12.80% 
14.30% 
Wholesale Partner Three [Member] |
Customer Concentration Risk [Member] |
Accounts Receivable [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
12.70% 
13.40% 
 
Wholesale Partner Four [Member] |
Customer Concentration Risk [Member] |
Accounts Receivable [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
11.40% 
 
 
Description of Business and Summary of Significant Accounting Policies - Schedule of Inventories of Continuing Operations (Detail) (USD $)
In Thousands, unless otherwise specified
Jan. 31, 2015
Feb. 1, 2014
Inventory Disclosure [Abstract]
 
 
Finished goods
$ 37,395 
$ 32,946 
Work in process
 
98 
Raw materials
24 
912 
Total inventories, net
37,419 
33,956 
Net of reserves of:
$ 6,471 
$ 3,929 
Description of Business and Summary of Significant Accounting Policies - Summary of Accrued Discounts, Returns and Allowances (Detail) (Sales Allowances [Member], USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2015
Feb. 1, 2014
Feb. 2, 2013
Sales Allowances [Member]
 
 
 
Valuation and Qualifying Accounts Disclosure [Line Items]
 
 
 
Balance, beginning of year
$ 9,265 
$ 7,179 
$ 4,347 
Provision
54,467 
39,171 
29,400 
Utilization
(47,634)
(37,085)
(26,568)
Balance, end of year
$ 16,098 
$ 9,265 
$ 7,179 
The IPO and Restructuring Transactions - Additional Information (Detail) (USD $)
0 Months Ended 12 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended
Nov. 27, 2013
Jan. 31, 2015
Feb. 1, 2014
Nov. 27, 2013
Nov. 21, 2013
Nov. 27, 2013
Sun Capital Partners Management [Member]
Jan. 31, 2015
7.625% Notes [Member]
Dec. 12, 2013
7.625% Notes [Member]
Nov. 27, 2013
7.625% Notes [Member]
Jan. 31, 2015
Revolving Credit Facility [Member]
Nov. 27, 2013
Revolving Credit Facility [Member]
Jan. 31, 2015
Term Loan Facility [Member]
Nov. 27, 2013
Term Loan Facility [Member]
Nov. 27, 2013
12.875% Notes [Member]
Nov. 27, 2013
Initial Public Offering [Member]
Nov. 27, 2013
Initial Public Offering [Member]
Nov. 27, 2013
Over Allotment Option [Member]
Nov. 27, 2013
Kellwood [Member]
Nov. 27, 2013
Kellwood [Member]
Nov. 27, 2013
Vince, LLC [Member]
Nov. 27, 2013
Sun Capital [Member]
Subsidiary, Sale of Stock [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued
 
36,748,245 
36,723,727 
 
10,000,000 
 
 
 
 
 
 
 
 
 
 
10,000,000 
 
 
 
 
 
Common stock price per share
 
$ 0.01 
$ 0.01 
$ 0.01 
 
 
 
 
 
 
 
 
 
 
 
$ 20.00 
 
 
 
 
 
Shares sold by selling shareholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,500,000 
 
 
 
 
Proceeds from initial public offering
$ 172,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 177,000,000 
 
 
 
 
 
 
Proceeds retained by company for general corporate purposes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,000,000 
 
 
5,000,000 
 
 
 
Stock split ratio
28.5177 
28.5177 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of membership interests distributed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100.00% 
 
100.00% 
 
Credit facility, maximum borrowing capacity
 
 
 
 
 
 
 
 
 
50,000,000 
50,000,000 
 
175,000,000 
 
 
 
 
 
 
 
 
Aggregate taxes payable reduction percentage
85.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ownership percentage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68.00% 
Net borrowings under new Term Loan Facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
169,500,000 
 
 
Accrued and unpaid interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,100,000 
 
 
 
Outstanding balance on Note Receivable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt instrument, interest rate
 
 
 
 
 
 
7.625% 
 
 
 
 
 
 
12.875% 
 
 
 
 
 
 
 
Transaction fee
 
 
 
 
 
3,300,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase (and cancelled) in aggregate principal amount
 
 
 
 
 
 
 
4,670,000 
33,474,000 
 
 
 
 
 
 
 
 
 
 
 
 
Aggregate principal amount outstanding
 
 
 
 
 
 
 
48,808,000