VINCE HOLDING CORP., 10-K filed on 4/4/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Feb. 1, 2014
Mar. 28, 2014
Aug. 2, 2013
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Feb. 01, 2014 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
VNCE 
 
 
Entity Registrant Name
VINCE HOLDING CORP. 
 
 
Entity Central Index Key
0001579157 
 
 
Current Fiscal Year End Date
--02-01 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
36,723,727 
 
Entity Public Float
 
 
$ 0 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Feb. 1, 2014
Feb. 2, 2013
Current assets:
 
 
Cash and cash equivalents
$ 21,484 
$ 317 
Trade receivables, net
40,198 
33,933 
Inventories, net
33,956 
18,887 
Prepaid expenses and other current assets
8,093 
5,298 
Current assets of discontinued operations
   
141,357 
Total current assets
103,731 
199,792 
Property, plant and equipment:
 
 
Building and improvements
15,355 
9,373 
Machinery and equipment
2,439 
1,449 
Capitalized software
630 
51 
Construction in process
1,200 
219 
Total property, plant and equipment
19,624 
11,092 
Less accumulated depreciation and amortization
(6,009)
(4,104)
Property, plant and equipment, net
13,615 
6,988 
Intangible assets, net
110,243 
110,842 
Goodwill
63,746 
63,746 
Deferred income taxes and other assets
123,007 
1,281 
Long-term assets of discontinued operations
   
59,475 
Total assets
414,342 
442,124 
Current liabilities:
 
 
Accounts payable
23,847 
18,478 
Accrued salaries and employee benefits
5,425 
11,151 
Other accrued expenses
9,061 
1,276 
Current liabilities of discontinued operations
   
159,141 
Total current liabilities
38,333 
190,046 
Long-term debt
170,000 
391,434 
Deferred income taxes and other
3,443 
14,556 
Other liabilities
169,015 
   
Long-term liabilities of discontinued operations
   
407,353 
Commitments and contingencies (Note 13)
   
   
Stockholders' equity (deficit):
 
 
Common Stock at $0.01 par value (100,000,000 shares authorized, 36,723,727 and 26,211,130 issued and outstanding, respectively)
367 
262 
Additional paid in capital
1,008,549 
386,419 
Accumulated deficit
(975,300)
(947,880)
Accumulated other comprehensive loss
(65)
(66)
Total stockholders' equity (deficit)
33,551 
(561,265)
Total liabilities and stockholders' equity (deficit)
$ 414,342 
$ 442,124 
Consolidated Balance Sheets (Parenthetical) (USD $)
Feb. 1, 2014
Nov. 27, 2013
Nov. 21, 2013
Feb. 2, 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
36,723,727 
 
10,000,000 
26,211,130 
Common stock, shares outstanding
36,723,727 
 
 
26,211,130 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Feb. 1, 2014
Feb. 2, 2013
Jan. 28, 2012
Income Statement [Abstract]
 
 
 
Net sales
$ 288,170 
$ 240,352 
$ 175,255 
Cost of products sold
155,154 
132,156 
89,545 
Gross profit
133,016 
108,196 
85,710 
Selling, general and administrative expenses
83,663 
67,260 
42,793 
Income from operations
49,353 
40,936 
42,917 
Interest expense, net
18,011 
68,684 
81,364 
Other expense, net
679 
769 
478 
Income (loss) before provision for income taxes
30,663 
(28,517)
(38,925)
Provision for income taxes
7,268 
1,178 
2,997 
Net income (loss) from continuing operations
23,395 
(29,695)
(41,922)
Net loss from discontinued operations, net of tax
(50,815)
(78,014)
(105,944)
Net loss
$ (27,420)
$ (107,709)
$ (147,866)
Net income (loss) per share-basic:
 
 
 
Net income (loss) from continuing operations
$ 0.83 
$ (1.13)
$ (1.60)
Net loss from discontinued operations
$ (1.81)
$ (2.98)
$ (4.04)
Net loss
$ (0.98)
$ (4.11)
$ (5.64)
Net income (loss) per share-diluted:
 
 
 
Net income (loss) from continuing operations
$ 0.83 
$ (1.13)
$ (1.60)
Net loss from discontinued operations
$ (1.81)
$ (2.98)
$ (4.04)
Net loss
$ (0.98)
$ (4.11)
$ (5.64)
Weighted average shares outstanding:
 
 
 
Basic
28,119,794 
26,211,130 
26,211,130 
Diluted
28,272,925 
26,211,130 
26,211,130 
Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Feb. 1, 2014
Feb. 2, 2013
Jan. 28, 2012
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net loss
$ (27,420)
$ (107,709)
$ (147,866)
Foreign currency translation adjustment
(3)
(1)
Comprehensive loss
$ (27,419)
$ (107,712)
$ (147,867)
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. 29, 2011
$ (595,219)
$ 262 
$ 96,886 
$ (692,305)
$ (62)
Beginning Balance, shares at Jan. 29, 2011
 
26,211,130 
 
 
 
Comprehensive loss:
 
 
 
 
 
Net loss
(147,866)
   
   
(147,866)
   
Foreign currency translation adjustment
(1)
   
   
   
(1)
Share-based compensation expense
65 
   
65 
   
   
Ending Balance at Jan. 28, 2012
(743,021)
262 
96,951 
(840,171)
(63)
Ending Balance, shares at Jan. 28, 2012
 
26,211,130 
 
 
 
Comprehensive loss:
 
 
 
 
 
Net loss
(107,709)
   
   
(107,709)
   
Foreign currency translation adjustment
(3)
   
   
   
(3)
Share-based compensation expense
367 
   
367 
   
   
Capital contribution from stockholder
289,101 
   
289,101 
   
   
Ending Balance at Feb. 02, 2013
(561,265)
262 
386,419 
(947,880)
(66)
Ending Balance, shares at Feb. 02, 2013
26,211,130 
26,211,130 
 
 
 
Comprehensive loss:
 
 
 
 
 
Net loss
(27,420)
   
   
(27,420)
   
Foreign currency translation adjustment
   
   
   
Issuance of 10,000,000 shares of common stock, net of certain costs incurred
186,000 
100 
185,900 
   
   
Issuance of shares of common stock
10,000,000 
10,000,000 
 
 
 
Share-based compensation expense
898 
   
898 
   
   
Exercise and settlement of stock options
42 
37 
   
   
Exercise and settlement of stock options, shares
 
512,597 
 
 
 
Capital contribution from stockholder
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 
 
 
 
Consolidated Statements of Stockholders' Equity (Deficit) (Parenthetical)
12 Months Ended
Feb. 1, 2014
Statement Of Stockholders Equity [Abstract]
 
Issuance of shares of common stock
10,000,000 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Feb. 1, 2014
Feb. 2, 2013
Jan. 28, 2012
Operating activities
 
 
 
Net loss
$ (27,420)
$ (107,709)
$ (147,866)
Loss from discontinued operations
(50,815)
(78,014)
(105,944)
Add (deduct) items not affecting operating cash flows:
 
 
 
Depreciation
2,186 
1,411 
1,102 
Amortization of intangible assets
599 
598 
599 
Amortization of deferred financing costs
178 
 
 
Deferred income taxes
7,225 
1,147 
2,979 
Share-based compensation expense
347 
 
 
Capitalized PIK Interest
15,883 
68,684 
81,363 
Loss on disposal of property, plant and equipment
262 
 
Changes in assets and liabilities:
 
 
 
Receivables, net
(6,265)
(7,459)
(12,174)
Inventories, net
(15,069)
(8,360)
(2,592)
Prepaid expenses and other current assets
1,681 
(2,455)
(490)
Accounts payable and accrued expenses
3,235 
17,208 
2,937 
Other assets and liabilities
309 
295 
291 
Net cash provided by operating activities-continuing operations
33,966 
41,374 
32,101 
Net cash used in operating activities-discontinued operations
(54,667)
(67,408)
(70,355)
Net cash used in operating activities
(20,701)
(26,034)
(38,254)
Investing activities
 
 
 
Payments for capital expenditures
(10,073)
(1,821)
(1,450)
Payments for contingent purchase price
 
(806)
(58,465)
Net cash used in investing activities-continuing operations
(10,073)
(2,627)
(59,915)
Net cash (used in)/provided by investing activities-discontinued operations
(5,936)
20,088 
(9,637)
Net cash (used in)/provided by investing activities
(16,009)
17,461 
(69,552)
Financing activities
 
 
 
Proceeds from borrowings under the Term Loan Facility
175,000 
 
 
Payment for Term Loan Facility
(5,000)
 
 
Payment for Kellwood Note Receivable
(341,500)
 
 
Fees paid for Term Loan Facility and Revolving Credit Facility
(5,146)
 
 
Proceeds from common stock issuance, net of certain transaction costs
186,000 
 
 
Stock option exercises
42 
 
 
Net cash provided by financing activities-continuing operations
9,396 
 
 
Net cash provided by financing activities-discontinued operations
46,917 
8,615 
104,451 
Net cash provided by financing activities
56,313 
8,615 
104,451 
Increase (decrease) cash and cash equivalents
19,603 
42 
(3,355)
Cash and cash equivalents, beginning of period
1,881 
1,839 
5,194 
Cash and cash equivalents, end of period
21,484 
1,881 
1,839 
Less cash and cash equivalents of discontinued operations, end of period
 
(1,564)
(1,403)
Cash and cash equivalents of continuing operations, end of period
21,484 
317 
436 
Supplemental Disclosures of Non-Cash Investing and Financing Activities, continuing operations
 
 
 
Capital expenditures in accounts payable
222 
160 
27 
Accrued purchase consideration for acquisitions
 
 
806 
Forgiveness of principal and capitalized 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 
 
Continuing Operations [Member]
 
 
 
Financing activities
 
 
 
Cash payments for interest
1,018 
 
 
Cash payments for income taxes, net of refunds
31 
18 
15 
Discontinued Operations [Member]
 
 
 
Financing activities
 
 
 
Cash payments for interest
20,644 
30,454 
23,665 
Cash payments for income taxes, net of refunds
$ 566 
$ 882 
$ 1,030 
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 February 1, 2014 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 prominent, high-growth contemporary fashion brand known for modern, effortless style and everyday luxury essentials. 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.

(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 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;

 

    References to “fiscal year 2011” or “fiscal 2011” refer to the fiscal year ended January 28, 2012.

Fiscal years 2013 and 2011 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 2013, fiscal 2012, or fiscal 2011.

(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).

 

     2013     2012     2011  

Balance, beginning of year

   $ 279      $ 450      $ 244   

Provisions for bad debt expense

     249        314        319   

Bad debts written off

     (175     (485     (113
  

 

 

   

 

 

   

 

 

 

Balance, end of year

   $ 353      $ 279      $ 450   
  

 

 

   

 

 

   

 

 

 

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 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 2011, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales represented 15.1%, 14.9% and 13.9% of fiscal 2011 net sales.

In fiscal 2013 accounts receivable from three wholesale partners 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. In fiscal 2012, accounts receivable from three wholesale partners accounted for more than ten percent of our gross accounts receivable in continuing operations. These receivables represented 21.4%, 13.5% and 13.5% of fiscal 2012 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).

 

     February 1,
2014
     February 2,
2013
 

Finished goods

   $ 32,946       $ 18,443   

Work in process

     98         229   

Raw materials

     912         215   
  

 

 

    

 

 

 

Total inventories

   $ 33,956       $ 18,887   
  

 

 

    

 

 

 

Net of reserves of:

   $ 3,929       $ 1,247   
  

 

 

    

 

 

 

(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 $2,186, $1,411 and $1,102 for fiscal 2013, 2012 and 2011, 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 2013, fiscal 2012 or fiscal 2011.

(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 2013, fiscal 2012 and fiscal 2011.

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 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. In fiscal 2011, we performed “step one” of the impairment test for goodwill rather than electing early adoption of the guidance noted above due to the additional capitalized contingent purchase price. We estimated the fair value of the reporting unit based on an income approach, which uses discounted cash flow assumptions. The implied fair value of the reporting unit exceeded the book 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 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. In fiscal 2011, we performed “step one” of the impairment test for indefinite-lived intangible assets. We estimated the fair value of the indefinite-lived assets primarily based on a relief from royalty model, which uses revenue projections, royalty rates and discount rates to estimate fair value. The implied fair value of the assets exceeded the book 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 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).

 

     2013     2012     2011  

Balance, beginning of year

   $ 7,179      $ 4,347      $ 2,540   

Provision

     39,171        29,400        17,916   

Utilization

     (37,085     (26,568     (16,109
  

 

 

   

 

 

   

 

 

 

Balance, end of year

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

 

 

   

 

 

   

 

 

 

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) 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 $4,858, $2,591, and $3,609 in fiscal 2013, 2012 and 2011, respectively. There were not significant amounts of deferred production expenses associated with company-directed advertising at February 1, 2014 or February 2, 2013.

(O) 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.

(P) 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.

 

(Q) New Accounting Standards:

Proposed Amendments to Current Accounting Standards

The FASB is currently working on amendments to existing accounting standards governing a number of areas including, but not limited to, accounting for leases. In May 2013, the FASB issued a new exposure draft, “Leases” (the “Exposure Draft”), which would replace the existing guidance in ASC topic 840, “Leases”. Under the Exposure Draft, among other changes in practice, a lessee’s rights and obligations under most leases, including existing and new arrangements, would be recognized as assets and liabilities, respectively, on the balance sheet. Other significant provisions of the Exposure Draft include (i) defining the “lease term” to include the noncancellable period together with the periods for which there is a significant economic incentive for the lessee to extend or not terminate the lease; (ii) requiring that the initial lease liability to be recorded on the balance sheet contemplates only those variable lease payments that depend on an index or that are in substance “fixed”, and (iii) a dual approach for determining whether lease expense is recognized on a straight-line or accelerated basis, depending on whether the lessee is expected to consume more than an insignificant portion of the leased asset’s economic benefits. The comment period for the Exposure Draft ended on September 13, 2013. The FASB is considering the feedback received and plans to redeliberate all significant issues to determine next steps. If and when effective, this proposed standard will likely have a significant impact on the Company’s consolidated financial statements as we continue to expand our direct-to-consumer segment and open new stores. However, as the standard-setting process is still ongoing, the Company is unable at this time to determine the impact this proposed change in accounting would have on its consolidated financial statements.

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 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 initial public offering. 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 estimated offering expenses from its sale of shares in the initial public offering. 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 to repay a promissory note (“the Kellwood Note Receivable”) issued to Kellwood Company, LLC in connection with the Restructuring Transactions 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 noted above 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 was 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, 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 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, February 2, 2013 and January 28, 2012 are summarized in the following table (in thousands).

 

     Fiscal Year  
     2013     2012     2011  

Net sales

   $ 400,848      $ 514,806      $ 550,790   

Cost of products sold

     313,620        409,763        446,494   
  

 

 

   

 

 

   

 

 

 

Gross profit

     87,228        105,043        104,296   

Selling, general and administrative expenses

     98,016        132,871        141,248   

Restructuring, environmental and other charges

     1,628        5,732        3,139   

Impairment of long-lived assets (excluding goodwill)

     1,399        6,497        8,418   

Impairment of goodwill

     —          —          11,046   

Change in fair value of contingent consideration

     1,473        (7,162     (1,578

Interest expense, net

     46,677        55,316        46,256   

Other expense (income), net

     498        (9,776     1,448   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (62,463     (78,435     (105,681

Income taxes

     (11,648     (421     263   
  

 

 

   

 

 

   

 

 

 

Net loss from discontinued operations, net of tax

   $ (50,815   $ (78,014   $ (105,944
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     18.6     0.5     (0.2 )% 

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 and fiscal 2011 effective tax rates 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. At February 2, 2013, the major components of assets and liabilities of discontinued operations were as follows (in thousands):

 

     February 2, 2013  

Current assets

  

Cash

   $ 1,564   

Receivables, net

     77,918   

Inventories, net

     56,698   

Prepaid expenses and other current assets

     5,177   
  

 

 

 

Total current assets

     141,357   

Property, net

     11,016   

Goodwill

     2,130   

Other intangible assets, net

     38,895   

Other assets

     7,434   
  

 

 

 

Total assets

   $ 200,832   
  

 

 

 

Current liabilities

  

Short-term borrowings

   $ 79,783   

Accounts payable

     53,682   

Other current liabilities

     25,676   
  

 

 

 

Total current liabilities

     159,141   

Long-term debt

     370,318   

Deferred income taxes

     1,946   

Other liabilities

     35,089   
  

 

 

 

Total liabilities

   $ 566,494   
  

 

 

 

Financing arrangements of the non-Vince business

Short-term borrowings represent borrowings under the Credit Agreement (as defined herein), as amended. On October 19, 2011 Kellwood Company and certain of its domestic subsidiaries, as borrowers, entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as agent, and lenders from time to time. The Credit Agreement 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 Credit Agreement)). On November 27, 2013, in connection with the consummation of the IPO and Restructuring Transactions, the Credit Agreement 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.

 

Long-term debt, net of applicable discounts or premiums, consisted of the following at February 2, 2013 (in thousands):

 

     February 2,
2013
 

Cerberus Term Loan Agreement

   $ 45,431   

Sun Term Loan Agreements

     107,244   

12.875% 2009 Debentures due December 31, 2014

     139,378   

7.625% 1997 Debentures due October 15, 2017

     78,054   

3.5% 2004 Convertible Debentures due June 15, 2034

     211   
  

 

 

 

Total long-term debt of discontinued operations

   $ 370,318   
  

 

 

 

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 Credit Agreement 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 Credit Agreement, 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”) is 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 January 28, 2012 Consolidated Balance Sheet are as follows (in thousands).

 

     Gross Goodwill      Accumulated
Impairment
    Net Goodwill  

Balance as of January 28, 2012

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

 

 

    

 

 

   

 

 

 

Balance as of February 2, 2013

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

 

 

    

 

 

   

 

 

 

Balance as of February 1, 2014

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

 

 

    

 

 

   

 

 

 

Identifiable intangible assets summary (in thousands):

 

     Gross Amount      Accumulated
Amortization
    Net Book
Value
 

Balance as of February 2, 2013:

       

Amortizable intangible assets:

       

Customer relationships

   $ 11,970       $ (2,978   $ 8,992   

Indefinite-lived intangible assets:

       

Trademark

     101,850         —          101,850   
  

 

 

    

 

 

   

 

 

 

Total intangible assets

   $ 113,820       $ (2,978   $ 110,842   
  

 

 

    

 

 

   

 

 

 

 

     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:

       

Trademark

     101,850         —          101,850   
  

 

 

    

 

 

   

 

 

 

Total intangible assets

   $ 113,820       $ (3,577   $ 110,243   
  

 

 

    

 

 

   

 

 

 

 

Amortization of identifiable intangible assets was $599, $598 and $599 for fiscal 2013, 2012 and 2011, respectively, which is included in selling, general and administrative expenses on the Consolidated Statements of Operations. Amortization expense for each of the fiscal years 2014 to 2018 is expected to be as follows (in thousands).

 

     Future
Amortization
 

2014

   $ 598   

2015

     598   

2016

     598   

2017

     598   

2018

     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 2013, 2012 or 2011. In fiscal 2013 and 2012, we performed the qualitative assessment on the Vince Trademark as allowed by the Intangible—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. In fiscal 2011 the fair value of the trademark was determined utilizing the relief from royalty method. The relief from royalty method calculates fair value using a royalty savings method, which measures the value by estimating cost savings. Key assumptions include revenue projections, royalty rates and discount rates for the business.

Additionally, there were no impairments recorded as a result of our annual goodwill impairment test during fiscal 2013, 2012 or 2011. In fiscal 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. In fiscal 2011, we utilized an income approach to estimate the fair value of Vince and no impairment to goodwill was recorded as a result.

In connection with the Kellwood Company acquisition of certain net assets from CRL Group, LLC in 2006, owner of the Vince® brand and trademark, additional cash purchase consideration was paid based upon achievement of certain specified financial performance targets for each of the five full years after the acquisition (2007 through 2011) and the cumulative performance from 2007 to 2011. The additional consideration earned in fiscal 2011 was $51,134. We paid $50,328 of the fiscal 2011 consideration during the fourth quarter of fiscal 2011 and paid the remaining consideration during the second quarter of fiscal 2012. The fiscal 2010 additional cash consideration was paid during first quarter of fiscal 2011.

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 February 1, 2014 or February 2, 2013. At February 1, 2014 and February 2, 2013, 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 February 1, 2014 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 a new senior secured 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 new 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 related credit agreement) equal to or greater than $20,000.

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 February 1, 2014, the maximum capacity on the Revolving Credit Facility was $50,000 and there were $4,452 of letters of credit outstanding. No borrowings have been made to date.

Long-Term Debt
Long-Term Debt

Note 7. Long-Term Debt

Long-term debt consisted of the following as of, February 1, 2014 and February 2, 2013 (in thousands).

 

     February 1,
2014
     February 2,
2013
 

Sun Promissory Notes

   $ —         $ 319,926   

Sun Capital Loan Agreement

     —           71,508   

Term Loan Facility

     170,000         —     
  

 

 

    

 

 

 

Total long-term debt

   $ 170,000       $ 391,434   
  

 

 

    

 

 

 

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 a new $175,000 senior secured term loan credit 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 new term loan facility will mature on November 27, 2019. On November 27, 2013, net proceeds from the new term loan facility were used, at closing, to repay the promissory note issued by Vince Intermediate to Kellwood Company immediately prior to the consummation of the IPO as part of the Restructuring Transactions.

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 5.00% or (ii) the base rate (subject to a 2.00% floor) plus 3.00%. 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 3.75:1.00 for the fiscal quarters ending February 1, 2014 through November 1, 2014, 3.50:1.0 for the fiscal quarters ending January 31, 2015 through October 31, 2015, and 3.25:1.00 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.

In January 2014 the Company made a voluntary pre-payment of $5,000 on the Term Loan Facility. As of February 1, 2014 the Company had $170,000 of debt outstanding.

 

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 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 $10,467, $7,448 and $5,567 for 2013, 2012 and 2011, respectively.

The future minimum lease payments under operating leases at February 1, 2014 were as follows (in thousands):

 

2014

   $ 10,124   

2015

     11,258   

2016

     11,307   

2017

     11,108   

2018

     10,325   

Thereafter

     40,720   
  

 

 

 

Total minimum lease payments

   $ 94,842   
  

 

 

Share-Based Compensation
Share-Based Compensation

Note 9. Share-Based Compensation

For the financial periods presented herein through 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 by the company for cause. We will not grant any future awards under the 2010 Option Plan. Future awards shall be granted under the Vince 2013 Incentive Plan.

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 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 February 1, 2014, there were 3,036,043 shares under the Vince 2013 Incentive Plan available for future grants. Options granted pursuant to this plan during fiscal 2013 (i) vest in equal installments over 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.

A summary of stock option activity for fiscal 2013 is as follows:

 

     Options     Weighted
Average
Exercise Price
     Weighted Average
Remaining
Contractual
Term (years)
 

Outstanding at February 2, 2013

     1,978,943      $ 4.09         7.0   

Granted

     1,092,991      $ 11.15      

Exercised

     (518,982   $ 0.27      

Forfeited or expired

     (263,422   $ 4.68      
  

 

 

      

Outstanding at February 1, 2014

     2,289,530      $ 8.26         8.8   
  

 

 

      

Vested or expected to vest at February 1, 2014

     2,289,530      $ 8.26      
  

 

 

      

Exercisable at February 1, 2014

     318,464      $ 5.89      
  

 

 

      

The Company’s weighted average assumptions used to estimate the fair value, using a Black-Scholes model, of stock options granted in connection with our initial public offering in fiscal 2013 were as follows: Expected term of 4.5 years, expected volatility of 51.1%, risk-free interest rate of 1.38% and expected dividend yield of 0.0%. This resulted in a weighted average grant date fair value of $8.82 per share.

The fair value of stock options granted in fiscal 2012 through October 2013 was determined at the grant date using a Black-Scholes 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.

 

The fair value of stock options granted in fiscal 2011 was determined at the grant date using a probability-weighted expected return method model, which requires us to make several significant assumptions including long-term EBITDA growth rates, future enterprise value, discount rates, and timing and probability of a future liquidity event. This methodology was selected based on our capital structure and forecasted operational performance at the time of the valuation. Prior to 2012, our estimates of future enterprise value for Kellwood Company as compared to the value of Kellwood Company’s debt obligations precluded us from using a closed-form model (including a Black-Scholes formula) to estimate the fair value of our stock options. Due to more favorable operating results in fiscal 2012, we believe that the Black-Scholes formula provides a more refined estimate of the value of our stock options, in consideration of our current capital structure and estimates of future operating performance. A change in option-pricing model is not considered a change in accounting principle.

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 the vesting period. In November 2013 the Company granted 7,500 restricted stock units with a grant date fair value of $20.00 per share which will vest over three years, subject to continued service and applicable conditions of the Vince 2013 Incentive Plan.

During fiscal 2013, from our IPO through the end of the fiscal year, we recognized share-based compensation expense of $347 included in selling, general and administrative expenses in the Consolidated Statement of Operations for the fiscal year ended February 1, 2014. During fiscal 2013, from the beginning of our fiscal year through our IPO in November 2013, and in fiscal 2012 and 2011 we recognized share-based compensation expense of $551, $367 and $65, 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.

At February 1, 2014 there was $5,710 of unrecognized compensation costs that will be recognized over a remaining weighted average period of 3.8 years. The aggregate intrinsic value of stock options outstanding as of February 1, 2014 is $34,578 and is based on the amount by which the market price, at the end of the period, of the underlying share exceeds the exercise price of the stock option.

Stockholders' Equity
Stockholders' Equity

Note 10. Stockholders’ Equity

We currently have authorized for issuance 100,000,000 shares of our Voting Common Stock, par value of $0.01 per share. As of February 1, 2014 and February 2, 2013 we had 36,723,727 and 26,211,130 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).

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

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

 

     Fiscal Year Ended  
     February 1,
2014
     February 2,
2013
     January 28,
2012
 

Weighted-average shares—basic

     28,119,794         26,211,130         26,211,130   

Effect of dilutive equity securities

     153,131         —          —    
  

 

 

    

 

 

    

 

 

 

Weighted-average shares—diluted

     28,272,925         26,211,130         26,211,130   
  

 

 

    

 

 

    

 

 

 

 

All share information presented above 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 years ended February 2, 2013 and January 28, 2012 included net loss, there were no dilutive securities as the impact would have been anti-dilutive.

Income Taxes
Income Taxes

Note 12. Income Taxes

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

 

     2013     2012     2011  

Current:

      

Domestic:

      

Federal

   $ —        $ —        $ —     

State

     43        31        18   

Foreign

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total current

     43        31        18   

Deferred:

      

Domestic:

      

Federal

     6,333        1,030        2,451   

State

     905        124        364   

Foreign

     (13     (7     164   
  

 

 

   

 

 

   

 

 

 

Total deferred

     7,225        1,147        2,979   
  

 

 

   

 

 

   

 

 

 

Total provision for income taxes

   $ 7,268      $ 1,178      $ 2,997   
  

 

 

   

 

 

   

 

 

 

The sources of (loss) income for continuing operations before provision for income taxes are from the United States for all years.

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:

 

     2013     2012     2011  

Statutory rate

     35.0     (35.0 %)      (35.0 %) 

State taxes, net of federal benefit

     9.5     7.4     5.8

Nondeductible interest

     18.1     84.3     73.2

Nondeductible transaction costs

     6.7     0.0     0.0

Valuation allowances

     (45.5 %)      (52.7 %)      (36.5 %) 

Other

     (0.1 %)      0.1     0.2
  

 

 

   

 

 

   

 

 

 

Total

     23.7     4.1     7.7
  

 

 

   

 

 

   

 

 

 

 

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

 

     February 1, 2014     February 2, 2013  

Deferred tax assets:

    

Depreciation and amortization

   $ 44,742      $ 3,672   

Employee related costs

     2,048        3,394   

Allowance for asset valuations

     2,454        1,495   

Accrued expenses

     1,589        1,124   

Net operating losses

     80,936        67,392   

Other

     1,067        14   
  

 

 

   

 

 

 

Total deferred tax assets

     132,836        77,091   

Less: Valuation allowances

     (1,843     (64,767
  

 

 

   

 

 

 

Net deferred tax assets

     130,993        12,324   
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Depreciation and amortization

     —          (11,670

Cancellation of debt income

     (11,095     (12,142
  

 

 

   

 

 

 

Total deferred tax liabilities

     (11,095     (23,812
  

 

 

   

 

 

 

Net deferred tax assets (liabilities)

   $ 119,898      $ (11,488
  

 

 

   

 

 

 

Included in:

    

Prepaid expenses and other current assets

   $ 4,476      $ —     

Deferred income taxes and other assets

     115,422        —     

Deferred income taxes and other

     —          (11,488
  

 

 

   

 

 

 

Net deferred income tax assets (liabilities)

   $ 119,898      $ (11,488
  

 

 

   

 

 

 

As of February 1, 2014, 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 2029 and 2034. A full valuation allowance was placed on the U.S. net deferred tax assets in a prior year due to the fact that at the time there was not sufficient positive evidence to outweigh the existing negative evidence that we would be able to utilize these net operating loss carryforwards, primarily our combined historical pretax losses from continuing and discontinued operations. In addition, a deemed change of ownership occurred in fiscal 2008 under Section 382 of the U.S. tax code resulting in $112,258 of net operating losses, as well as certain built in losses, to be subject to an annual limitation of $0. Since the realization of these benefits is remote, the associated deferred tax assets have been written down to zero and are therefore not presented in the information included in the above summary of deferred income taxes.

Net operating losses as of February 1, 2014 presented above do not include fiscal 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 $2,434 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 $62,924 in the fiscal year ended February 1, 2014 and increased by $14,834 in the fiscal year ended February 2, 2013.

 

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

 

     2013     2012     2011  

Beginning balance

   $ 9,378      $ 11,057      $ 16,296   

Increases for tax positions in current year

     3,743        2,199        1,098   

Increases for tax positions in prior years

     356        52        159   

Decreases for tax positions in prior years

     (4,186     (102     (5,500

Settlements

     (3,022     (2,105     (937

Lapse in statute of limitations

     (102     (1,723     (59

Restructuring Transactions

     (2,474     —          —     
  

 

 

   

 

 

   

 

 

 

Ending balance

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

 

 

   

 

 

   

 

 

 

As of February 1, 2014 and February 2, 2013, unrecognized tax benefits in the amount of $2,155 and $5,305 (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 $1,343.

We include accrued interest and penalties on underpayments of income taxes in our income tax provision. As of February 1, 2014 and February 2, 2013, we had interest and penalties accrued on our Consolidated Balance Sheets in the amount of $0 and $3,898, respectively. Net interest and penalty provisions (benefit) of $(232), $600 and $1,401 were recognized in our Consolidated Statements of Operations for the years ended February 1, 2014, February 2, 2013 and January 28, 2012, 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. 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 $16,916, $9,907, and $6,027 have been excluded from the net sales totals presented below for fiscal 2013, fiscal 2012, and fiscal 2011, 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  
     2013     2012     2011  

Net Sales

      

Wholesale

   $ 229,114      $ 203,107      $ 151,921   

Direct-to-consumer

     59,056        37,245        23,334   
  

 

 

   

 

 

   

 

 

 

Total net sales

   $ 288,170      $ 240,352      $ 175,255   
  

 

 

   

 

 

   

 

 

 

Operating Income

      

Wholesale

   $ 81,822      $ 72,913      $ 62,635   

Direct-to-consumer

     10,435        4,465        559   
  

 

 

   

 

 

   

 

 

 

Subtotal

     92,957        77,378        63,194   

Unallocated expenses

     (42,904     (36,442     (20,277
  

 

 

   

 

 

   

 

 

 

Total operating income

   $ 49,353      $ 40,936        42,917   
  

 

 

   

 

 

   

 

 

 

Capital Expenditures

      

Wholesale

   $ 1,832      $ 459      $ 146   

Direct-to-consumer

     8,241        1,362        1,304   
  

 

 

   

 

 

   

 

 

 

Total capital expenditures

   $ 10,073      $ 1,821      $ 1,450   
  

 

 

   

 

 

   

 

 

 

 

     February 1, 2014      February 2, 2013  

Total Assets

     

Wholesale

   $ 78,122       $ 60,627   

Direct-to-consumer

     24,169         14,679   

Unallocated corporate

     312,051         165,986   

Discontinued operations

     —           200,832   
  

 

 

    

 

 

 

Total assets

   $ 414,342       $ 442,124   
  

 

 

    

 

 

 

Sales results are presented on a geographic basis below, in thousands. We predominately operate within the U.S. and sell our products in 47 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.

 

     2013      2012      2011  

Domestic

   $ 265,622       $ 221,632       $ 159,932   

International

     22,548         18,720         15,323   
  

 

 

    

 

 

    

 

 

 

Total net sales

   $ 288,170       $ 240,352       $ 175,255   
  

 

 

    

 

 

    

 

 

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 February 1, 2014, we have recorded $873 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 have generated certain tax benefits (including NOLs and tax credits) prior to the restructuring transactions consummated in connection with our initial public offering 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 initial public offering.

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) Apparel 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 February 1, 2014 we have recorded $173,146 to recognize our obligation under the Tax Receivable Agreement, which has a term of ten years, and was recorded as an adjustment to additional paid-in capital on our Consolidated Balance Sheet as of February 1, 2014. Approximately $4,131 is recorded as a component of other accrued expenses and $169,015 as other liabilities on our Consolidated Balance Sheet as of February 1, 2014.

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 such net proceeds 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 revolving credit 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 initial public offering. Vince Intermediate Holding, LLC repaid the Kellwood Note Receivable on the same day, using net proceeds from our initial public offering 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 initial public offering.

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”). Rea Laccone, our founder and former Chief Executive Officer, is a member of the CRL Group. 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, and $58,456 during fiscal 2012 and fiscal 2011, respectively. No amounts were paid to Ms. Laccone under the Earnout Agreement for 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 $404, $779 and $478 for management fees to Sun Capital in other expense, net, in the Consolidated Statements of Operations for fiscal 2013, fiscal 2012, and fiscal 2011, respectively. The remaining fees charged to the non-Vince businesses of $1,537, $1,668, and $1,949 are included within net loss from discontinued operations in the Consolidated Statements of Operations for fiscal 2013, fiscal 2012, and fiscal 2011, 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. We reported $926 for outstanding transaction fees within Long-term liabilities of discontinued operations on the Consolidated Balance Sheet as of February 2, 2013.

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 initial public offering (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, securityholders 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.

Subsequent Event
Subsequent Event

Note 16. Subsequent Event

On March 27, 2014 the Company made a voluntary pre-payment of $5,000 on the Term Loan Facility.

Quarterly Financial Information
Quarterly Financial Information

Note 17. Quarterly Financial Information (unaudited)

Summarized quarterly financial results for fiscal 2013 and fiscal 2012 (in thousands, except per share data):

 

     First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 

Fiscal 2013:

        

Net sales

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

Gross profit

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

Net income (loss) 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 income (loss)

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

Net income (loss) per share-basic(1):

        

Continuing operations

   $ (0.37   $ 0.32      $ 0.63      $ 0.24   

Discontinued operations

   $ (0.20   $ (0.72   $ (0.72   $ (0.22

Net income (loss) per share-diluted(1):

        

Continuing operations

   $ (0.37   $ 0.32      $ 0.62      $ 0.24   

Discontinued operations

   $ (0.20   $ (0.72   $ (0.72   $ (0.22

Fiscal 2012(2):

        

Net sales

   $ 33,376      $ 57,155      $ 76,990      $ 72,831   

Gross profit

     14,777        25,635        35,118        32,666   

Net income (loss) from continuing operations

     (23,244     (13,373     5,702        1,220   

Net loss from discontinued operations, net of tax

     (23,911     (20,679     (20,597     (12,827

Net loss

     (47,155     (34,052     (14,895     (11,607

Net income (loss) per share-basic(1):

        

Continuing operations

   $ (0.89   $ (0.51   $ 0.22      $ 0.05   

Discontinued operations

   $ (0.91   $ (0.79   $ (0.79   $ (0.49

Net income (loss) per share-diluted(1):

        

Continuing operations

   $ (0.89   $ (0.51   $ 0.22      $ 0.05   

Discontinued operations

   $ (0.91   $ (0.79   $ (0.79   $ (0.49

 

(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.
(2) Fiscal 2012 consisted of 53 weeks, with the additional week included in the Fourth Quarter of Fiscal 2012.
Schedule II Valuation and Qualifying Accounts
Schedule II Valuation and Qualifying Accounts

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

 

Description

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

Sales Allowances

        

Fiscal 2013

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

Fiscal 2012

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

Fiscal 2011

     (2,540     (17,916     16,109        (4,347

Allowance for Doubtful Accounts

        

Fiscal 2013

     (279     (249     175        (353

Fiscal 2012

     (450     (314     485        (279

Fiscal 2011

     (244     (319     113        (450

Valuation Allowance on Deferred Income Taxes

        

Fiscal 2013

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

Fiscal 2012

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

Fiscal 2011

     (32,280     (31,961     14,308        (49,933

 

(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 prominent, high-growth contemporary fashion brand known for modern, effortless style and everyday luxury essentials. 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.

(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 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;

 

    References to “fiscal year 2011” or “fiscal 2011” refer to the fiscal year ended January 28, 2012.

Fiscal years 2013 and 2011 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 2013, fiscal 2012, or fiscal 2011.

(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).

 

     2013     2012     2011  

Balance, beginning of year

   $ 279      $ 450      $ 244   

Provisions for bad debt expense

     249        314        319   

Bad debts written off

     (175     (485     (113
  

 

 

   

 

 

   

 

 

 

Balance, end of year

   $ 353      $ 279      $ 450   
  

 

 

   

 

 

   

 

 

 

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 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 2011, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales represented 15.1%, 14.9% and 13.9% of fiscal 2011 net sales.

In fiscal 2013 accounts receivable from three wholesale partners 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. In fiscal 2012, accounts receivable from three wholesale partners accounted for more than ten percent of our gross accounts receivable in continuing operations. These receivables represented 21.4%, 13.5% and 13.5% of fiscal 2012 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).

 

     February 1,
2014
     February 2,
2013
 

Finished goods

   $ 32,946       $ 18,443   

Work in process

     98         229   

Raw materials

     912         215   
  

 

 

    

 

 

 

Total inventories

   $ 33,956       $ 18,887   
  

 

 

    

 

 

 

Net of reserves of:

   $ 3,929       $ 1,247   
  

 

 

    

 

 

 

(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 $2,186, $1,411 and $1,102 for fiscal 2013, 2012 and 2011, 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 2013, fiscal 2012 or fiscal 2011.

(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 2013, fiscal 2012 and fiscal 2011.

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 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. In fiscal 2011, we performed “step one” of the impairment test for goodwill rather than electing early adoption of the guidance noted above due to the additional capitalized contingent purchase price. We estimated the fair value of the reporting unit based on an income approach, which uses discounted cash flow assumptions. The implied fair value of the reporting unit exceeded the book 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 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. In fiscal 2011, we performed “step one” of the impairment test for indefinite-lived intangible assets. We estimated the fair value of the indefinite-lived assets primarily based on a relief from royalty model, which uses revenue projections, royalty rates and discount rates to estimate fair value. The implied fair value of the assets exceeded the book 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 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).

 

     2013     2012     2011  

Balance, beginning of year

   $ 7,179      $ 4,347      $ 2,540   

Provision

     39,171        29,400        17,916   

Utilization

     (37,085     (26,568     (16,109
  

 

 

   

 

 

   

 

 

 

Balance, end of year

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

 

 

   

 

 

   

 

 

 

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) 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 $4,858, $2,591, and $3,609 in fiscal 2013, 2012 and 2011, respectively. There were not significant amounts of deferred production expenses associated with company-directed advertising at February 1, 2014 or February 2, 2013.

(O) 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.

(P) 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.

(Q) New Accounting Standards:

Proposed Amendments to Current Accounting Standards

The FASB is currently working on amendments to existing accounting standards governing a number of areas including, but not limited to, accounting for leases. In May 2013, the FASB issued a new exposure draft, “Leases” (the “Exposure Draft”), which would replace the existing guidance in ASC topic 840, “Leases”. Under the Exposure Draft, among other changes in practice, a lessee’s rights and obligations under most leases, including existing and new arrangements, would be recognized as assets and liabilities, respectively, on the balance sheet. Other significant provisions of the Exposure Draft include (i) defining the “lease term” to include the noncancellable period together with the periods for which there is a significant economic incentive for the lessee to extend or not terminate the lease; (ii) requiring that the initial lease liability to be recorded on the balance sheet contemplates only those variable lease payments that depend on an index or that are in substance “fixed”, and (iii) a dual approach for determining whether lease expense is recognized on a straight-line or accelerated basis, depending on whether the lessee is expected to consume more than an insignificant portion of the leased asset’s economic benefits. The comment period for the Exposure Draft ended on September 13, 2013. The FASB is considering the feedback received and plans to redeliberate all significant issues to determine next steps. If and when effective, this proposed standard will likely have a significant impact on the Company’s consolidated financial statements as we continue to expand our direct-to-consumer segment and open new stores. However, as the standard-setting process is still ongoing, the Company is unable at this time to determine the impact this proposed change in accounting would have on its consolidated financial statements.

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).

 

     2013     2012     2011  

Balance, beginning of year

   $ 279      $ 450      $ 244   

Provisions for bad debt expense

     249        314        319   

Bad debts written off

     (175     (485     (113
  

 

 

   

 

 

   

 

 

 

Balance, end of year

   $ 353      $ 279      $ 450   
  

 

 

   

 

 

   

 

 

 

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

 

     February 1,
2014
     February 2,
2013
 

Finished goods

   $ 32,946       $ 18,443   

Work in process

     98         229   

Raw materials

     912         215   
  

 

 

    

 

 

 

Total inventories

   $ 33,956       $ 18,887   
  

 

 

    

 

 

 

Net of reserves of:

   $ 3,929       $ 1,247   
  

 

 

    

 

 

 

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

 

     2013     2012     2011  

Balance, beginning of year

   $ 7,179      $ 4,347      $ 2,540   

Provision

     39,171        29,400        17,916   

Utilization

     (37,085     (26,568     (16,109
  

 

 

   

 

 

   

 

 

 

Balance, end of year

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

 

 

   

 

 

   

 

 

 
Discontinued Operations (Tables)

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, February 2, 2013 and January 28, 2012 are summarized in the following table (in thousands).

 

     Fiscal Year  
     2013     2012     2011  

Net sales

   $ 400,848      $ 514,806      $ 550,790   

Cost of products sold

     313,620        409,763        446,494   
  

 

 

   

 

 

   

 

 

 

Gross profit

     87,228        105,043        104,296   

Selling, general and administrative expenses

     98,016        132,871        141,248   

Restructuring, environmental and other charges

     1,628        5,732        3,139   

Impairment of long-lived assets (excluding goodwill)

     1,399        6,497        8,418   

Impairment of goodwill

     —          —          11,046   

Change in fair value of contingent consideration

     1,473        (7,162     (1,578

Interest expense, net

     46,677        55,316        46,256   

Other expense (income), net

     498        (9,776     1,448   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (62,463     (78,435     (105,681

Income taxes

     (11,648     (421     263   
  

 

 

   

 

 

   

 

 

 

Net loss from discontinued operations, net of tax

   $ (50,815   $ (78,014   $ (105,944
  

 

 

   

 

 

   

 

 

 

At February 2, 2013, the major components of assets and liabilities of discontinued operations were as follows (in thousands):

 

     February 2, 2013  

Current assets

  

Cash

   $ 1,564   

Receivables, net

     77,918   

Inventories, net

     56,698   

Prepaid expenses and other current assets

     5,177   
  

 

 

 

Total current assets

     141,357   

Property, net

     11,016   

Goodwill

     2,130   

Other intangible assets, net

     38,895   

Other assets

     7,434   
  

 

 

 

Total assets

   $ 200,832   
  

 

 

 

Current liabilities

  

Short-term borrowings

   $ 79,783   

Accounts payable

     53,682   

Other current liabilities

     25,676   
  

 

 

 

Total current liabilities

     159,141   

Long-term debt

     370,318   

Deferred income taxes

     1,946   

Other liabilities

     35,089   
  

 

 

 

Total liabilities

   $ 566,494   
  

 

 

Long-term debt, net of applicable discounts or premiums, consisted of the following at February 2, 2013 (in thousands):

 

     February 2,
2013
 

Cerberus Term Loan Agreement

   $ 45,431   

Sun Term Loan Agreements

     107,244   

12.875% 2009 Debentures due December 31, 2014

     139,378   

7.625% 1997 Debentures due October 15, 2017

     78,054   

3.5% 2004 Convertible Debentures due June 15, 2034

     211   
  

 

 

 

Total long-term debt of discontinued operations

   $ 370,318   
  

 

 

 
Goodwill and Intangible Assets (Tables)

Goodwill balances and changes therein subsequent to the January 28, 2012 Consolidated Balance Sheet are as follows (in thousands).

 

     Gross Goodwill      Accumulated
Impairment
    Net Goodwill  

Balance as of January 28, 2012

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

 

 

    

 

 

   

 

 

 

Balance as of February 2, 2013

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

 

 

    

 

 

   

 

 

 

Balance as of February 1, 2014

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

 

 

    

 

 

   

 

 

 

Identifiable intangible assets summary (in thousands):

 

     Gross Amount      Accumulated
Amortization
    Net Book
Value
 

Balance as of February 2, 2013:

       

Amortizable intangible assets:

       

Customer relationships

   $ 11,970       $ (2,978   $ 8,992   

Indefinite-lived intangible assets:

       

Trademark

     101,850         —          101,850   
  

 

 

    

 

 

   

 

 

 

Total intangible assets

   $ 113,820       $ (2,978   $ 110,842   
  

 

 

    

 

 

   

 

 

 

 

     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:

       

Trademark

     101,850         —          101,850   
  

 

 

    

 

 

   

 

 

 

Total intangible assets

   $ 113,820       $ (3,577   $ 110,243   
  

 

 

    

 

 

   

 

 

 

Amortization of identifiable intangible assets was $599, $598 and $599 for fiscal 2013, 2012 and 2011, respectively, which is included in selling, general and administrative expenses on the Consolidated Statements of Operations. Amortization expense for each of the fiscal years 2014 to 2018 is expected to be as follows (in thousands).

 

     Future
Amortization
 

2014

   $ 598   

2015

     598   

2016

     598   

2017

     598   

2018

     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, February 1, 2014 and February 2, 2013 (in thousands).

 

     February 1,
2014
     February 2,
2013
 

Sun Promissory Notes

   $ —         $ 319,926   

Sun Capital Loan Agreement

     —           71,508   

Term Loan Facility

     170,000         —     
  

 

 

    

 

 

 

Total long-term debt

   $ 170,000       $ 391,434   
  

 

 

    

 

 

 
Leases (Tables)
Future Minimum Lease Payments under Operating Leases

The future minimum lease payments under operating leases at February 1, 2014 were as follows (in thousands):

 

2014

   $ 10,124   

2015

     11,258   

2016

     11,307   

2017

     11,108   

2018

     10,325   

Thereafter

     40,720   
  

 

 

 

Total minimum lease payments

   $ 94,842   
  

 

 

 
Share-Based Compensation (Tables)
Summary of Stock Option Activity

A summary of stock option activity for fiscal 2013 is as follows:

 

     Options     Weighted
Average
Exercise Price
     Weighted Average
Remaining
Contractual
Term (years)
 

Outstanding at February 2, 2013

     1,978,943      $ 4.09         7.0   

Granted

     1,092,991      $ 11.15      

Exercised

     (518,982   $ 0.27      

Forfeited or expired

     (263,422   $ 4.68      
  

 

 

      

Outstanding at February 1, 2014

     2,289,530      $ 8.26         8.8   
  

 

 

      

Vested or expected to vest at February 1, 2014

     2,289,530      $ 8.26      
  

 

 

      

Exercisable at February 1, 2014

     318,464      $ 5.89      
  

 

 

      
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  
     February 1,
2014
     February 2,
2013
     January 28,
2012
 

Weighted-average shares—basic

     28,119,794         26,211,130         26,211,130   

Effect of dilutive equity securities

     153,131         —          —    
  

 

 

    

 

 

    

 

 

 

Weighted-average shares—diluted

     28,272,925         26,211,130         26,211,130   
  

 

 

    

 

 

    

 

 

 
Income Taxes (Tables)

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

 

     2013     2012     2011  

Current:

      

Domestic:

      

Federal

   $ —        $ —        $ —     

State

     43        31        18   

Foreign

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total current

     43        31        18   

Deferred:

      

Domestic:

      

Federal

     6,333        1,030        2,451   

State

     905        124        364   

Foreign

     (13     (7     164   
  

 

 

   

 

 

   

 

 

 

Total deferred

     7,225        1,147        2,979   
  

 

 

   

 

 

   

 

 

 

Total provision for income taxes

   $ 7,268      $ 1,178      $ 2,997   
  

 

 

   

 

 

   

 

 

 

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

 

     2013     2012     2011  

Statutory rate

     35.0     (35.0 %)      (35.0 %) 

State taxes, net of federal benefit

     9.5     7.4     5.8

Nondeductible interest

     18.1     84.3     73.2

Nondeductible transaction costs

     6.7     0.0     0.0

Valuation allowances

     (45.5 %)      (52.7 %)      (36.5 %) 

Other

     (0.1 %)      0.1     0.2
  

 

 

   

 

 

   

 

 

 

Total

     23.7     4.1     7.7
  

 

 

   

 

 

   

 

 

 

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

 

     February 1, 2014     February 2, 2013  

Deferred tax assets:

    

Depreciation and amortization

   $ 44,742      $ 3,672   

Employee related costs

     2,048        3,394   

Allowance for asset valuations

     2,454        1,495   

Accrued expenses

     1,589        1,124   

Net operating losses

     80,936        67,392   

Other

     1,067        14   
  

 

 

   

 

 

 

Total deferred tax assets

     132,836        77,091   

Less: Valuation allowances

     (1,843     (64,767
  

 

 

   

 

 

 

Net deferred tax assets

     130,993        12,324   
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Depreciation and amortization

     —          (11,670

Cancellation of debt income

     (11,095     (12,142
  

 

 

   

 

 

 

Total deferred tax liabilities

     (11,095     (23,812
  

 

 

   

 

 

 

Net deferred tax assets (liabilities)

   $ 119,898      $ (11,488
  

 

 

   

 

 

 

Included in:

    

Prepaid expenses and other current assets

   $ 4,476      $ —     

Deferred income taxes and other assets

     115,422        —     

Deferred income taxes and other

     —          (11,488
  

 

 

   

 

 

 

Net deferred income tax assets (liabilities)

   $ 119,898      $ (11,488
  

 

 

   

 

 

 

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

 

     2013     2012     2011  

Beginning balance

   $ 9,378      $ 11,057      $ 16,296   

Increases for tax positions in current year

     3,743        2,199        1,098   

Increases for tax positions in prior years

     356        52        159   

Decreases for tax positions in prior years

     (4,186     (102     (5,500

Settlements

     (3,022     (2,105     (937

Lapse in statute of limitations

     (102     (1,723     (59

Restructuring Transactions

     (2,474     —          —     
  

 

 

   

 

 

   

 

 

 

Ending balance

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

 

 

   

 

 

   

 

 

 
Segment and Geographical Financial Information (Tables)

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

 

     Fiscal Year  
     2013     2012     2011  

Net Sales

      

Wholesale

   $ 229,114      $ 203,107      $ 151,921   

Direct-to-consumer

     59,056        37,245        23,334   
  

 

 

   

 

 

   

 

 

 

Total net sales

   $ 288,170      $ 240,352      $ 175,255   
  

 

 

   

 

 

   

 

 

 

Operating Income

      

Wholesale

   $ 81,822      $ 72,913      $ 62,635   

Direct-to-consumer

     10,435        4,465        559   
  

 

 

   

 

 

   

 

 

 

Subtotal

     92,957        77,378        63,194   

Unallocated expenses

     (42,904     (36,442     (20,277
  

 

 

   

 

 

   

 

 

 

Total operating income

   $ 49,353      $ 40,936        42,917   
  

 

 

   

 

 

   

 

 

 

Capital Expenditures

      

Wholesale

   $ 1,832      $ 459      $ 146   

Direct-to-consumer

     8,241        1,362        1,304   
  

 

 

   

 

 

   

 

 

 

Total capital expenditures

   $ 10,073      $ 1,821      $ 1,450   
  

 

 

   

 

 

   

 

 

 
     February 1, 2014      February 2, 2013  

Total Assets

     

Wholesale

   $ 78,122       $ 60,627   

Direct-to-consumer

     24,169         14,679   

Unallocated corporate

     312,051         165,986   

Discontinued operations

     —           200,832   
  

 

 

    

 

 

 

Total assets

   $ 414,342       $ 442,124   
  

 

 

    

 

 

 

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

     2013      2012      2011  

Domestic

   $ 265,622       $ 221,632       $ 159,932   

International

     22,548         18,720         15,323   
  

 

 

    

 

 

    

 

 

 

Total net sales

   $ 288,170       $ 240,352       $ 175,255   
  

 

 

    

 

 

    

 

 

 
Quarterly Financial Information (Tables)
Summary of Quarterly Financial Results

Summarized quarterly financial results for fiscal 2013 and fiscal 2012 (in thousands, except per share data):

 

     First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 

Fiscal 2013:

        

Net sales

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

Gross profit

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

Net income (loss) 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 income (loss)

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

Net income (loss) per share-basic(1):

        

Continuing operations

   $ (0.37   $ 0.32      $ 0.63      $ 0.24   

Discontinued operations

   $ (0.20   $ (0.72   $ (0.72   $ (0.22

Net income (loss) per share-diluted(1):

        

Continuing operations

   $ (0.37   $ 0.32      $ 0.62      $ 0.24   

Discontinued operations

   $ (0.20   $ (0.72   $ (0.72   $ (0.22

Fiscal 2012(2):

        

Net sales

   $ 33,376      $ 57,155      $ 76,990      $ 72,831   

Gross profit

     14,777        25,635        35,118        32,666   

Net income (loss) from continuing operations

     (23,244     (13,373     5,702        1,220   

Net loss from discontinued operations, net of tax

     (23,911     (20,679     (20,597     (12,827

Net loss

     (47,155     (34,052     (14,895     (11,607

Net income (loss) per share-basic(1):

        

Continuing operations

   $ (0.89   $ (0.51   $ 0.22      $ 0.05   

Discontinued operations

   $ (0.91   $ (0.79   $ (0.79   $ (0.49

Net income (loss) per share-diluted(1):

        

Continuing operations

   $ (0.89   $ (0.51   $ 0.22      $ 0.05   

Discontinued operations

   $ (0.91   $ (0.79   $ (0.79   $ (0.49

 

(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.
(2) Fiscal 2012 consisted of 53 weeks, with the additional week included in the Fourth Quarter of Fiscal 2012
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
Feb. 1, 2014
Feb. 2, 2013
Jan. 28, 2012
Allowance for Doubtful Accounts [Member]
 
 
 
Accounts, Notes, Loans and Financing Receivable [Line Items]
 
 
 
Balance, beginning of year
$ 279 
$ 450 
$ 244 
Provisions for bad debt expense
249 
314 
319 
Bad debts written off
(175)
(485)
(113)
Balance, end of year
$ 353 
$ 279 
$ 450 
Description of Business and Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Feb. 1, 2014
Customer
Feb. 2, 2013
Jan. 28, 2012
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
$ 2,186 
$ 1,411 
$ 1,102 
Impairment charges relating to long-lived assets
Marketing and advertising expense
$ 4,858 
$ 2,591 
$ 3,609 
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 
 
 
Sales [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
10.00% 
10.00% 
10.00% 
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] |
Sales [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
19.80% 
21.40% 
15.10% 
Wholesale Partner One [Member] |
Accounts Receivable [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
25.70% 
21.40% 
 
Wholesale Partner Two [Member] |
Sales [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
12.80% 
15.50% 
14.90% 
Wholesale Partner Two [Member] |
Accounts Receivable [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
24.80% 
13.50% 
 
Wholesale Partner Three [Member] |
Sales [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
12.80% 
14.30% 
13.90% 
Wholesale Partner Three [Member] |
Accounts Receivable [Member]
 
 
 
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
 
 
 
Percentage accounted from major customers
13.40% 
13.50% 
 
Description of Business and Summary of Significant Accounting Policies - Schedule of Inventories of Continuing Operations (Detail) (USD $)
In Thousands, unless otherwise specified
Feb. 1, 2014
Feb. 2, 2013
Inventory Disclosure [Abstract]
 
 
Finished goods
$ 32,946 
$ 18,443 
Work in process
98 
229 
Raw materials
912 
215 
Total inventories
33,956 
18,887 
Net of reserves of:
$ 3,929 
$ 1,247 
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
Feb. 1, 2014
Feb. 2, 2013
Jan. 28, 2012
Sales Allowances [Member]
 
 
 
Valuation and Qualifying Accounts Disclosure [Line Items]
 
 
 
Balance, beginning of year
$ 7,179 
$ 4,347 
$ 2,540 
Provision
39,171 
29,400 
17,916 
Utilization
(37,085)
(26,568)
(16,109)
Balance, end of year
$ 9,265 
$ 7,179 
$ 4,347 
The IPO and Restructuring Transactions - Additional Information (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified
0 Months Ended 12 Months Ended 0 Months Ended 0 Months Ended
Nov. 27, 2013
Feb. 1, 2014
Nov. 21, 2013
Feb. 2, 2013
Nov. 27, 2013
Initial Public Offering [Member]
Nov. 27, 2013
Sun Capital Management [Member]
Feb. 1, 2014
Revolving Credit Facility [Member]
Nov. 27, 2013
Revolving Credit Facility [Member]
Nov. 27, 2013
Term Loan Facility [Member]
Feb. 1, 2014
7.625% 1997 Debentures due October 15, 2017 [Member]
Dec. 12, 2013
7.625% 1997 Debentures due October 15, 2017 [Member]
Nov. 27, 2013
7.625% 1997 Debentures due October 15, 2017 [Member]
Nov. 27, 2013
12.875% Notes [Member]
Nov. 27, 2013
Vince, LLC [Member]
Nov. 27, 2013
Kellwood [Member]
Feb. 1, 2014
Kellwood [Member]
7.625% 1997 Debentures due October 15, 2017 [Member]
Dec. 12, 2013
Kellwood [Member]
7.625% 1997 Debentures due October 15, 2017 [Member]
Nov. 27, 2013
Kellwood [Member]
7.625% 1997 Debentures due October 15, 2017 [Member]
Subsidiary, Sale of Stock [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued
 
36,723,727 
10,000,000 
26,211,130 
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 
 
 
 
$ 177,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds retained by company for general corporate purposes
 
 
 
 
5,000 
 
 
 
 
 
 
 
 
 
5,000 
 
 
 
Stock split ratio
28.5177 
28.5177 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of membership interests distributed
 
 
 
 
 
 
 
 
 
 
 
 
 
100.00% 
100.00% 
 
 
 
Credit facility, maximum borrowing capacity
 
 
 
 
 
 
50,000 
50,000 
175,000 
 
 
 
 
 
 
 
 
 
Aggregate taxes payable reduction percentage
85.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ownership percentage
68.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net borrowings under new Term Loan Facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
169,500 
 
 
 
Accrued and unpaid interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,100 
 
 
 
Debt instrument, interest rate
 
 
 
 
 
 
 
 
 
7.625% 
 
 
12.875%