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Note 1. Description of Business and Basis of Presentation
The historical financial information presented herein as of November 2, 2013 and all periods presented include both the non-Vince and Vince businesses, unless otherwise indicated, for Vince Holding Corp. (“VHC” or the “Company”) previously known as Apparel Holding Corp.
On November 27, 2013, 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.
(A) Description of Business: VHC, together with its wholly-owned subsidiaries as of November 2, 2013, design, merchandise and sell a growing collection of premier fashion brands across a broad range of consumer lifestyles, and recreational apparel and products aimed to improve the consumer outdoor experience. We market branded as well as private label products and market to all channels of distribution with product specific to the particular channel. Some of our fashion brands include Vince, Rebecca Taylor, David Meister, My Michelle and XOXO, along with numerous private label businesses for major retailers. We market products under many brands, some of which we own, and others that are under licensing agreements. The majority of our products are sourced from contract manufacturers, primarily in the Eastern Hemisphere. Products are manufactured to meet our product specifications and labor standards.
(B) Basis of Presentation: The accompanying condensed 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”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with VHC’s audited financial statements for the fiscal year ended February 2, 2013.
The condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries as of November 2, 2013. All intercompany accounts and transactions have been eliminated. The amounts and disclosures included in the notes to the condensed 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. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or the fiscal year as a whole.
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Note 2. The IPO and Restructuring Transactions
As discussed in Note 1, there were a series of transactions completed on November 27, 2013. The following is a brief summary:
• | Initial Public Offering (IPO) of 10,000,000 shares of VHC common stock at a public offering price of $20.00 per share. In connection with the IPO the underwriters exercised in full their option to purchase an additional 1,500,000 shares of VHC common stock from affiliates of Sun Capital Partners, Inc. (the “Selling Shareholders”). Shares of the Company’s common stock are listed on the New York Stock Exchange under the ticker symbol “VNCE”. |
• | Certain restructuring transactions (“Restructuring Transactions”) were completed, 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 |
Note the above Restructuring Transactions 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 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 new revolving credit facility and new term loan facility.
• | 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 million. |
• | Term Loan Facility—Vince, LLC and Vince Intermediate Holding, LLC entered into a new $175 million 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). |
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Note 3. Impairment, Restructuring, Environmental Remediation and Other Charges
For the three and nine months ended November 2, 2013 and October 27, 2012, the costs related to impairment of long-lived assets and restructuring, environmental remediation and other charges recorded in continuing and discontinued operations were as follows:
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Three months ended November 2, 2013 |
$ | 1,001 | $ | 56 | $ | 1,057 | ||||||
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Nine months ended November 2, 2013 |
$ | 1,828 | $ | 998 | $ | 2,826 | ||||||
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Three months ended October 27, 2012 |
$ | 565 | $ | 6,556 | $ | 7,121 | ||||||
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Nine months ended October 27, 2012 |
$ | 3,546 | $ | 6,777 | $ | 10,323 | ||||||
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For the three and nine months ended November 2, 2013 and October 27, 2012, the costs related to impairment of long-lived assets and restructuring, environmental remediation and other charges were recorded as follows:
Three Months Ended November 2, 2013 | ||||||||||||
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Restructuring, environmental remediation and other charges |
$ | 68 | $ | 56 | $ | 124 | ||||||
Impairment of long-lived assets |
933 | — | 933 | |||||||||
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Total pretax cost |
$ | 1,001 | $ | 56 | $ | 1,057 | ||||||
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After tax cost |
$ | 1,001 | $ | 56 | $ | 1,057 | ||||||
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Nine Months Ended November 2, 2013 | ||||||||||||
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Restructuring, environmental remediation and other charges |
$ | 895 | $ | 564 | $ | 1,459 | ||||||
Impairment of long-lived assets |
933 | 434 | 1,367 | |||||||||
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Total pretax cost |
$ | 1,828 | $ | 998 | $ | 2,826 | ||||||
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After tax cost |
$ | 1,828 | $ | 998 | $ | 2,826 | ||||||
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Three Months Ended October 27, 2012 | ||||||||||||
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Restructuring, environmental remediation and other charges |
$ | 557 | $ | 2,223 | $ | 2,780 | ||||||
Impairment of long-lived assets |
8 | 4,333 | 4,341 | |||||||||
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Total pretax cost |
$ | 565 | $ | 6,556 | $ | 7,121 | ||||||
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After tax cost |
$ | 565 | $ | 6,556 | $ | 7,121 | ||||||
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Nine Months Ended October 27, 2012 | ||||||||||||
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Restructuring, environmental remediation and other charges |
$ | 2,821 | $ | 2,444 | $ | 5,265 | ||||||
Impairment of long-lived assets |
725 | 4,333 | 5,058 | |||||||||
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Total pretax cost |
$ | 3,546 | $ | 6,777 | $ | 10,323 | ||||||
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After tax cost |
$ | 3,546 | $ | 6,777 | $ | 10,323 | ||||||
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During the first nine months of fiscal 2013, we recognized an impairment charge of $933 related to trademark and customer relationships as a result of our decision to cease procurement of product for one of our brands within our ARP segment (part of the non-Vince businesses). During the first nine months of fiscal 2012, we recognized an impairment charge of $725 related to the decline in market value of our exited facility in Trenton, Tennessee. We also recognized $755 in charges during the nine months ended October 27, 2012 to adjust our accrual for environmental remediation costs related to a former metal fabrication plant. Other noteworthy restructuring activities in continuing operations for the first nine months of fiscal 2013 and fiscal 2012 included various efforts to create a more efficient operational and organizational structure in our support operations and women’s wear businesses.
The following table represents a rollforward of contractual obligations, employee severance and termination benefits, impairment of long-lived assets and restructuring, environmental remediation and other charges recorded in continuing operations for the first nine months of fiscal 2013:
Contractual obligations |
Employee severance and termination benefits |
Impairment of long-lived assets |
Restructuring, Environmental remediation and other charges |
Total | ||||||||||||||||
Accrual as of February 2, 2013 |
$ | 148 | $ | 438 | $ | — | $ | 12,069 | $ | 12,655 | ||||||||||
Provision |
40 | 520 | 933 | 335 | 1,828 | |||||||||||||||
Non-cash utilization |
— | — | (933 | ) | — | (933 | ) | |||||||||||||
Utilization |
(121 | ) | (877 | ) | — | (507 | ) | (1,505 | ) | |||||||||||
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Accrual as of November 2, 2013 |
$ | 67 | $ | 81 | $ | — | $ | 11,897 | $ | 12,045 | ||||||||||
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The following table represents a rollforward of contractual obligations, employee severance and termination benefits, impairment of long-lived assets and restructuring, environmental remediation and other charges recorded in discontinued operations for the first nine months of fiscal 2013:
Contractual obligations |
Employee severance and termination benefits |
Impairment of long-lived assets |
Restructuring, Environmental remediation and other charges |
Total | ||||||||||||||||
Accrual as of February 2, 2013 |
$ | 1,218 | $ | 60 | $ | — | $ | 287 | $ | 1,565 | ||||||||||
Provision |
263 | 271 | 434 | 30 | 998 | |||||||||||||||
Non-cash utilization |
— | — | (434 | ) | — | (434 | ) | |||||||||||||
Utilization |
(1,291 | ) | (244 | ) | — | (316 | ) | (1,851 | ) | |||||||||||
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Accrual as of November 2, 2013 |
$ | 190 | $ | 87 | $ | — | $ | 1 | $ | 278 | ||||||||||
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Note 4. Discontinued Operations
During the second quarter of fiscal 2013, we divested the Zobha business (a non-Vince business) in order to focus resources on larger contemporary and Juniors brands. As a result of the divestiture, we realized a total loss of $1,269 within net (loss) income from discontinued operations on the Condensed Consolidated Statements of Operations for the nine months ended November 2, 2013. The total loss includes charges to adjust inventory values to the lower of cost or market, impairment charges to write down obsolete assets, employee termination costs, and accrued rent commitments and other costs associated with the exit of our leased office and retail spaces. We anticipate future cash outflows related to employee termination and non-cancellable lease payments for Zobha of approximately $262, which are primarily payable through fiscal 2014.
Due to diminishing prospects in the urban market, we decided to exit the Phat Farm and Baby Phat (collectively, “Phat Fashions”) businesses (both of which are non-Vince businesses) during fiscal 2012. We sold the Phat Farm trademark to a former licensee during the second quarter of fiscal 2012, and subsequently sold the Baby Phat trademark to the same party on March 20, 2013, exiting the Phat Fashions licensing business. The Phat Fashions licensing business was reported as discontinued operations during the first quarter of fiscal 2013. In conjunction with the sale of the Baby Phat trademark, we shut down the Baby Phat wholesale operations which produced apparel under the Baby Phat juniors license during the fourth quarter of fiscal 2012. We anticipate net cash outflows related to the Phat Fashions businesses of less than $500.
On December 31, 2012, we sold the equity interests of Royal Robbins, LLC, and certain assets and liabilities of the Royal Robbins Canadian operations (a non-Vince business) to an unrelated third party. At the closing of the sale, and pursuant to the terms of the purchase agreement, $500 of the proceeds were deposited to a restricted escrow account, and $221 was withheld by the buyer as consideration for a working capital adjustment to the purchase price. Both the receivable from the buyer and escrow fund are reported in current assets of discontinued operations on the Condensed Consolidated Balance Sheet as of February 2, 2013. These amounts were received in the first quarter of fiscal 2013.
During the second quarter of fiscal 2012, we decided to exit our Lamb & Flag and BLK DNM businesses (both of which are non-Vince businesses). This decision resulted from the determination that our greenfield startup brands are not aligned with our current strategic initiatives, as they require significant cash outlays and only offer long-term payback. On May 31, 2012, we sold substantially all the assets and liabilities of our BLK DNM operations resulting in a loss of $1,874 included within net (loss) income from discontinued operations on the Condensed Consolidated Statement of Operations for the nine months ended October 27, 2012. The loss recorded includes disposal costs for legal fees and non-cancellable contract obligations. We completed the shutdown of the Lamb & Flag business during the third quarter of fiscal 2012.
Operating results for the discontinued operations, including all charges incurred during the periods presented for impairment of long-lived assets and restructuring and other charges as described in Note 3 to the Condensed Consolidated Financial Statements, are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
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Net sales |
$ | 59 | $ | 12,242 | $ | 1,156 | $ | 40,825 | ||||||||
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Restructuring and other charges |
$ | 56 | $ | 2,223 | $ | 564 | $ | 2,444 | ||||||||
Impairment of long-lived assets (excluding goodwill) |
— | 4,333 | 434 | 4,333 | ||||||||||||
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(Loss) income before income taxes |
$ | 94 | $ | (6,560 | ) | $ | (2,589 | ) | $ | (11,150 | ) | |||||
Provision (benefit) for income taxes |
— | 100 | (11,913 | ) | 308 | |||||||||||
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Net (loss) income |
$ | 94 | $ | (6,660 | ) | $ | 9,324 | $ | (11,458 | ) | ||||||
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Effective tax rate |
N.M. | (1.5 | %) | N.M. | (2.8 | %) | ||||||||||
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The effective tax rate for the first nine months of fiscal 2013 differs from the U.S. statutory rate of 35% primarily due to a release of valuation allowance. The release in valuation allowance is primarily due to the allocation of the disallowed tax loss on the sale of the Baby Phat 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 effective tax rate for discontinued operations for the first nine months of fiscal 2012 differs from the U.S. statutory rate of 35% primarily due to an increase in the valuation allowance offset in part by state taxes.
Summarized assets and liabilities of discontinued operations are as follows:
November 2, 2013 | February 2, 2013 | |||||||
Receivables, net |
$ | 74 | $ | 2,535 | ||||
Other receivables |
— | 12 | ||||||
Inventories |
— | 1,529 | ||||||
Prepaid expenses and other current assets |
2 | 614 | ||||||
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Current assets of discontinued operations |
$ | 76 | $ | 4,690 | ||||
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Property, plant and equipment, net |
$ | — | $ | 167 | ||||
Intangible assets, net |
— | 3,450 | ||||||
Other assets |
101 | 79 | ||||||
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Long-term assets of discontinued operations |
$ | 101 | $ | 3,696 | ||||
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Accounts payable |
$ | 92 | $ | 903 | ||||
Accrued salaries and employee benefits |
39 | 233 | ||||||
Other accrued expenses |
1,030 | 2,601 | ||||||
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Current liabilities of discontinued operations |
$ | 1,161 | $ | 3,737 | ||||
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Deferred income taxes and other |
$ | 2,412 | $ | 2,416 | ||||
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Long-term liabilities of discontinued operations |
$ | 2,412 | $ | 2,416 | ||||
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Current liabilities of discontinued operations as of November 2, 2013 are primarily related to amounts owed for non-cancellable contract payments for the Phat Fashions and Zobha businesses, which are part of the non-Vince businesses. Current assets as of February 2, 2013 primarily consist of the outstanding sale proceeds for Royal Robbins, net receivables from the Baby Phat wholesale operations prior to completion of its shutdown in the fourth quarter of fiscal 2012, net receivables from the Phat Fashions business prior to the sale of the Baby Phat trademark in the first quarter of fiscal 2013 and net receivables and inventory of the Zobha operations. Current liabilities of discontinued operations as of February 2, 2013 are primarily related to unpaid disposal costs related to the sale of Royal Robbins, a non-Vince business, non-cancellable contract termination costs to exit the Lamb & Flag business and Baby Phat wholesale operations, accrued liabilities associated with the Phat Fashions business, and the final make-whole payment of the non-Vince businesses of $485 to PVH Corp. related to the early termination of our Calvin Klein license agreements.
Cash flows from discontinued operations are combined with cash flows from continuing operations under Operating Activities, Investing Activities and Financing Activities in the Condensed Consolidated Statements of Cash Flows. As of November 2, 2013, we expect to have future net cash outflows related to our discontinued operations of approximately $1,100, which is primarily payable through fiscal 2014.
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Note 5. Goodwill and Intangible Assets
Goodwill balances by segment and changes therein subsequent to the February 2, 2013 Condensed Consolidated Balance Sheet are as follows:
Vince | ARP | Juniors | Moderate | Other | Total | |||||||||||||||||||
Balance as of February 2, 2013 |
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Goodwill |
$ | 110,688 | $ | — | $ | 6,395 | $ | 8,859 | $ | 13,478 | $ | 139,420 | ||||||||||||
Accumulated impairment losses |
(46,942 | ) | — | (6,395 | ) | (8,859 | ) | (11,348 | ) | (73,544 | ) | |||||||||||||
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Net goodwill |
$ | 63,746 | $ | — | $ | — | $ | — | $ | 2,130 | $ | 65,876 | ||||||||||||
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Balance as of November 2, 2013 |
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Goodwill |
$ | 110,688 | $ | — | $ | 6,395 | $ | 8,859 | $ | 13,478 | $ | 139,420 | ||||||||||||
Accumulated impairment losses |
(46,942 | ) | — | (6,395 | ) | (8,859 | ) | (11,348 | ) | (73,544 | ) | |||||||||||||
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Net goodwill |
$ | 63,746 | $ | — | $ | — | $ | — | $ | 2,130 | $ | 65,876 | ||||||||||||
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Identifiable intangible assets of continuing operations are as follows:
Gross Amount | Accumulated Amortization |
Net Book Value |
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Balance as of November 2, 2013: |
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Amortizable intangible assets: |
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Customer relationships |
$ | 27,796 | $ | (8,193 | ) | $ | 19,603 | |||||
Indefinite-lived intangible assets: |
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Trademarks |
124,347 | — | 124,347 | |||||||||
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Total intangible assets |
$ | 152,143 | $ | (8,193 | ) | $ | 143,950 | |||||
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Gross Amount | Accumulated Amortization |
Net Book Value |
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Balance as of February 2, 2013: |
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Amortizable intangible assets: |
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Customer relationships |
$ | 28,363 | $ | (6,877 | ) | $ | 21,486 | |||||
Indefinite-lived intangible assets: |
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Trademarks |
124,735 | — | 124,735 | |||||||||
Domain Name |
66 | — | 66 | |||||||||
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Total intangible assets |
$ | 153,164 | $ | (6,877 | ) | $ | 146,287 | |||||
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Amortization of identifiable intangible assets for continuing operations was $474 and $1,424 for three and nine months ended November 2, 2013, respectively, and was $475 and $1,425 for the three and nine months ended October 27, 2012, respectively. The estimated amortization expense for identifiable intangible assets is expected to be $1,871 for each fiscal year for the next five fiscal years.
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Note 6. Fair Value
Accounting Standards Codification (“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 following table presents our liabilities measured at fair value on a recurring basis and are categorized using the fair value hierarchy. We do not measure any assets at fair value on a recurring basis.
Fair Value Measurements as of November 2, 2013 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) |
Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
Liabilities at fair value: |
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Contingent consideration for acquisition—Rebecca Taylor |
$ | — | $ | — | $ | 4,911 | $ | 4,911 | ||||||||
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Total liabilities at fair value |
$ | — | $ | — | $ | 4,911 | $ | 4,911 | ||||||||
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Fair Value Measurements as of February 2, 2013 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) |
Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
Liabilities at fair value: |
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Contingent consideration for acquisition—Rebecca Taylor |
$ | — | $ | — | $ | 4,209 | $ | 4,209 | ||||||||
Contingent consideration for acquisition—Zobha |
— | — | 54 | 54 | ||||||||||||
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Total liabilities at fair value |
$ | — | $ | — | $ | 4,263 | $ | 4,263 | ||||||||
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Changes in Level 3 liabilities for the nine months ended November 2, 2013 were as follows:
Rebecca Taylor Contingent Consideration |
Zobha Contingent Consideration |
Total | ||||||||||
Balance as of February 2, 2013 |
$ | 4,209 | $ | 54 | $ | 4,263 | ||||||
Payments |
— | — | — | |||||||||
(Gains) losses recognized in earnings (1) |
702 | (54 | ) | 648 | ||||||||
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Balance as of November 2, 2013 |
$ | 4,911 | $ | — | $ | 4,911 | ||||||
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Changes in Level 3 liabilities for the nine months ended October 27, 2012 were as follows:
Rebecca Taylor Contingent Consideration |
Zobha Contingent Consideration |
Total | ||||||||||
Balance as of January 28, 2012 |
$ | 10,881 | $ | 585 | $ | 11,466 | ||||||
Payments |
(1,928 | ) | — | (1,928 | ) | |||||||
(Gains) losses recognized in earnings (1) |
(2,995 | ) | — | (2,995 | ) | |||||||
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Balance as of October 27, 2012 |
$ | 5,958 | $ | 585 | $ | 6,543 | ||||||
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(1) | In the first nine months of fiscal 2012, a gain of ($4,507) was recognized within change in fair value of contingent consideration on our Condensed Consolidated Statements of Operations. We recorded offsetting charges to interest expense of $1,512 in the first nine months of fiscal 2012 for the accretion of our contingent consideration obligations. We recorded additional interest expense of $702 in the nine months ended November 2, 2013 for the accretion of our contingent consideration obligations. We also recorded an additional gain of ($54) within change in fair value of contingent consideration for the nine months ended November 2, 2013 due to a decrease in the fair value of our Zobha contingent consideration. |
The recorded amounts of cash, receivables, accounts payable and short-term debt approximate their fair values at November 2, 2013 and February 2, 2013 due to the short maturity of these instruments. The estimated fair value of our long-term debt, including the current portion of long-term debt, at November 2, 2013 is $410,817, compared to the recorded amount of $391,067 as of the same date. The estimated fair value of our long-term debt, including both variable-rate and fixed-rate debt, at February 2, 2013 is $737,365, compared to the recorded amount of $761,752 as of the same date. These estimated fair values utilize quoted prices obtained through independent pricing sources for the same or similar types of borrowing arrangements.
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Note 7. Financing Arrangements
Wells Fargo Facility
On October 19, 2011, Kellwood Company and certain of its domestic subsidiaries, as borrowers (the “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 provides the Borrowers with a non-amortizing senior revolving credit facility with aggregate lending commitments of $160,000 (the “Wells Fargo Facility”), reduced to $155,000 by the December 31, 2012 Amendment described below. The Wells Fargo Facility terminates at the earliest to occur of (a) October 19, 2016, (b) 90 days prior to the scheduled December 31, 2014, maturity date of the 12.875% Notes (as defined in Note 8, Long-term debt, to the Condensed Consolidated Financial Statements) (including any extension effective on or prior to such 90th day prior to such scheduled maturity date) or (c) 90 days prior to the scheduled maturity date of the Cerberus Term Loan (as defined below) (including any extension effective on or prior to such 90th day prior to such scheduled maturity date). The amount which the Borrowers may borrow from time to time under the Wells Fargo Facility is determined on the basis of a borrowing base formula that is a percentage of Kellwood Company and subsidiaries accounts receivable and inventory that meet eligibility criteria specified in the Credit Agreement, but in no case more than the aggregate lending commitments of the participating lenders. All borrowings under the Wells Fargo Facility bear interest at a rate per annum equal to an applicable margin (ranging from 2.5%-3.0% per annum for LIBOR Revolver Loans (as defined in the Credit Agreement) and 1.25%-1.75% for Base Rate Loans (as defined in the Credit Agreement) based on average availability under the Credit Agreement) plus, at the Borrowers’ election, LIBOR or a Base Rate as defined in the Credit Agreement. In addition to paying interest, the Borrowers will pay a periodic commitment fee to the lenders under the Credit Agreement based on the amount of unused availability under the borrowing base formula. The Wells Fargo Facility is secured by a first-priority security interest in substantially all of the assets of the Borrowers, principally consisting of accounts receivable, inventory, and intellectual property. The Credit Agreement contains certain customary representations, warranties, provisions and restrictions. The Credit Agreement requires that the Borrowers maintain a fixed charge coverage ratio of at least 1:1 during any Covenant Testing Period (as defined in the Credit Agreement) which is triggered when excess availability is below 12.5% of the aggregate commitments under the Wells Fargo Facility (the “Covenant Testing Trigger Date”). The fixed charge ratio is defined as the ratio of Consolidated EBITDA (as defined in the Credit Agreement) (with certain addbacks as defined in the Credit Agreement for certain restructuring charges, startup losses in newly developed brands, costs incurred in certain acquisitions, management fees, as well as certain other costs and charges) minus capital expenditures and certain distributions; to fixed charges, defined as consolidated net interest expense paid or payable in cash, scheduled principal payments on debt in cash and certain earnout payments paid in cash up to a certain amount, calculated over the trailing four fiscal quarters. If the covenants are not met, a cash dominion period will go into effect whereby the agent has the ability to direct the disposition of the balances in controlled deposit accounts. The cash dominion period will expire when availability is over 12.5% of the aggregate commitments under the Wells Fargo Facility for a period of 90 consecutive days.
On March 23, 2012, the Credit Agreement was amended to modify the Covenant Testing Period such that it is now triggered when excess availability is below $5,000 and triggered the cash dominion period, as defined in the Credit Agreement. This amendment was entered into in consideration for a guaranty of payment of obligations under the Credit Agreement and a $20,000 letter of credit to the benefit of Wells Fargo Bank, National Association, as agent, issued by an affiliate of Sun Capital Partners, Inc.
On April 20, 2012, the Credit Agreement was amended to extend the modification to the Covenant Testing Period to be in effect until March 21, 2014 unless the guaranty described above is no longer in effect or the full face amount of the letter of credit described above is no longer available to be drawn. The guaranty will be released, the letter of credit returned and the trigger for the Covenant Testing Period will return to the pre-amendment level when availability is above $35,000 for 90 consecutive days and is projected to remain above $25,000 through the remaining term of the Credit Agreement. This amendment also provided for the consent of the Wells Fargo Facility lenders to the additional loans under the Sun Term Loan Agreements (as defined in Note 8).
On December 31, 2012, the Credit Agreement was amended to obtain consent to the sale of the Royal Robbins business, to release Royal Robbins as a Borrower and/or Obligor under the Credit Agreement, and to release the agent’s lien on the assets of Royal Robbins. Additionally, the first $10,000 of the net cash proceeds arising from the cash purchase price paid at closing (excluding any escrow amount) were to be applied to the Cerberus Term Loan (as defined in Note 8, Long-term debt, to the Condensed Consolidated Financial Statements) and the remaining portion to be remitted to the Wells Fargo Facility. This amendment also resulted in a permanent reduction to availability of $5,000.
At November 2, 2013, the maximum capacity on the Wells Fargo Facility was $150,860 and there were borrowings outstanding and letters of credit outstanding of $122,291 and $12,770, respectively. At February 2, 2013, the maximum capacity on the Wells Fargo Facility was $110,838 and there were borrowings outstanding and letters of credit outstanding of $79,783 and $13,304, respectively. At November 2, 2013 and February 2, 2013 availability under the Wells Fargo Facility was $15,799 and $17,751, respectively. Kellwood Company was in compliance with all provisions as of all periods presented.
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 giving effect to such amendment and restatement, neither VHC nor any of its subsidiaries have any obligations thereunder.
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. This revolving credit facility provides for a revolving line of credit of up to $50 million and matures on November 27, 2018. The revolving credit facility also provides for a letter of credit sublimit of $25 million (plus any increase in aggregate commitments) and for an increase in aggregate commitments of up to $20 million. Vince, LLC is the borrower and the 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) $7.5 million, 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 million.
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 $7.5 million 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 million).
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 million 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 million 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 the VHC, Vince, LLC and Vince Intermediate and any future material domestic restricted subsidiaries.
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Note 8. Long-Term Debt
Long-term debt, net of applicable discounts or premiums, consisted of the following at November 2, 2013 and February 2, 2013 (both prior to the IPO and Restructuring Transactions):
November 2, 2013 |
February 2, 2013 |
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Sun Promissory Notes |
$ | — | $ | 319,926 | ||||
Sun Capital Loan Agreement |
— | 71,508 | ||||||
Cerberus Term Loan |
45,778 | 45,431 | ||||||
Term A Obligations |
18,569 | 17,252 | ||||||
Term B Obligations |
29,609 | 27,507 | ||||||
Term C Obligations |
19,316 | 17,945 | ||||||
Term D Obligations |
12,481 | 11,595 | ||||||
Term E Obligations |
6,115 | 5,601 | ||||||
Term F Obligations |
29,857 | 27,344 | ||||||
Term G Obligations |
5,205 | — | ||||||
12.875% 2009 Debentures due December 31, 2014 |
144,464 | 139,378 | ||||||
7.625% 1997 Debentures due October 15, 2017 |
79,459 | 78,054 | ||||||
3.5% 2004 Convertible Debentures due June 15, 2034 |
214 | 211 | ||||||
Less: Current portion of long-term debt |
(166,929 | ) | — | |||||
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Total long-term debt |
$ | 224,138 | $ | 761,752 | ||||
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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 Condensed 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 Condensed Consolidated Balance Sheet at November 2, 2013.
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 Condensed 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 Condensed Consolidated Balance Sheet at November 2, 2013.
Cerberus Term Loan Agreement
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”) with Cerberus Business Finance, LLC (the “Agent”), as agent and the lenders from time to time party thereto. The Term Loan Agreement provided the Borrowers with a non-amortizing secured Cerberus Term Loan in an aggregate amount of $55,000 (the “Cerberus Term Loan”). The Cerberus Term Loan terminated at the earliest to occur of (a) October 19, 2015, (b) the date on which the Wells Fargo Facility (as defined above in Note 7, Financing Arrangements, to the Consolidated Financial Statements) has been paid in full and all commitments thereunder have been terminated or (c) 60 days prior to the scheduled December 31, 2014, maturity date of our 12.875% Notes (including any extensions thereof agreed to after October 19, 2011). All borrowings under the Cerberus Term Loan bore interest, from the date of the agreement until the effective date of the amendment described below at a rate per annum equal to an applicable margin (10.25% per annum for LIBOR Rate Loans (as defined in the Term Loan Agreement) and 7.75% 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 Cerberus Term Loan was secured by a security interest in substantially all of the assets of the Borrowers, principally consisting of accounts receivable, inventory and intellectual property, which security interest was contractually subordinated to security interests of the lenders under the Credit Agreement. The Term Loan Agreement contained certain customary representations, warranties, provisions and restrictions. The Term Loan Agreement required that the Borrowers maintain a fixed charge coverage ratio as of each fiscal quarter end prior to the effective date of the amendment described below of at least 1:1. The fixed charge ratio was defined as the ratio of Consolidated EBITDA (as defined in the December 31 amendment to the Term Loan Agreement as described below ) (with certain addbacks as defined in the amended Term Loan Agreement for certain restructuring charges, startup losses in newly developed brands, costs incurred in certain acquisitions, as well as certain other costs and charges) minus capital expenditures and certain distributions and management fees; to fixed charges, defined as consolidated net interest expense paid or payable in cash, scheduled principal payments on debt in cash and certain earnout payments paid in cash, excluding earnout payments related to the Vince brand for the 2011 fiscal year, up to a certain amount, calculated over the trailing four fiscal quarters. The Term Loan Agreement also required that the Cerberus Borrowers maintained a leverage ratio as defined in the Term Loan Agreement and ranging from 2.85:1-4.25:1 during the life of the Cerberus Term Loan prior to the effective date of the amendment described below. The leverage ratio was defined as the ratio of indebtedness secured by a lien on any collateral (including the debt under the Credit Agreement and Cerberus Term Loan, but excluding the debt under the Sun Term Loan Agreements (as defined below) and the 12.875% Notes), divided by Consolidated EBITDA (as defined in the December 31 amendment to the Cerberus Term Loan described below) for the trailing four fiscal quarters.
On January 26, 2012, Kellwood Company obtained a waiver to the Cerberus Term Loan until the end of the first quarter of fiscal 2012 (the “Waiver Period”), as it anticipated not being in compliance with the fixed charge coverage ratio and the leverage ratio covenants as of January 28, 2012. In conjunction with this waiver, Kellwood Company paid the Agent a $75 waiver fee and an affiliate of Sun Capital provided the Agent with a $10,000 letter of credit. The waiver required the parties to the Cerberus Term Loan to work in good faith during the Waiver Period to amend the financial covenants set forth in the Cerberus Term Loan at levels mutually acceptable to all parties.
On April 20, 2012 Kellwood Company entered into Consent and Amendment No. 1 to the Cerberus Term Loan. This amendment provided for the consent of the Cerberus Term Loan lenders to the additional term loans under the Sun Term Loan Agreement (as defined below), the release of the $10,000 letter of credit noted above and the delivery of audited fiscal 2011 financial statements within 97 days of fiscal year-end. This amendment increased the applicable margins for borrowings under the Cerberus Term Loan which bore interest from and after the effective date of the amendment at a rate per annum equal to an applicable margin (ranging from 10.75%-11.25% per annum for LIBOR Rate Loans (as defined in the Cerberus Term Loan) and 8.25%-8.75% for Reference Rate Loans (as defined in the Cerberus Term Loan) based on leverage and income tests under the Cerberus Term Loan) plus, at the Cerberus Borrowers’ election, LIBOR or a Reference Rate as defined in the Cerberus Term Loan. The amendment 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 amendment also modified the financial covenant levels required to be maintained by the Cerberus Borrowers beginning with the second quarter of fiscal 2012 for each financial covenant. The Cerberus Term Loan, as amended, required that the Borrowers maintain a fixed charge coverage ratio as of each fiscal quarter end (beginning with the second quarter of fiscal 2012) ranging from 0.14:1-1.28:1 during the life of the Cerberus Term Loan. The Cerberus Term Loan, as amended, also required that the Cerberus Borrowers maintain a leverage ratio as defined in the Cerberus Term Loan and ranging from 2.44:1-7.77:1 during the life of the Cerberus Term Loan (beginning with the second quarter of fiscal 2012). The minimum fixed charge coverage ratios for the second, third and fourth quarters of fiscal 2012 were 0.14:1, 0.41:1 and 0.67:1, respectively. The minimum fixed charge coverage ratios for fiscal 2013 were 0.89:1, 1.24:1, 1.28:1, and 1.22:1 for the first through fourth quarters, respectively. The maximum leverage ratios for fiscal 2013 were 3.47:1, 358:1, 3.08:1, and 2.44:1 for the first through fourth quarters, respectively. At November 2, 2013 Kellwood Company was in compliance with all provisions of the amended Cerberus Term Loan.
On December 31, 2012, Kellwood Company amended the Cerberus Term Loan to obtain consent to the sale of the Royal Robbins business, to release Royal Robbins, LLC as a Borrower and/or Obligor under the Cerberus Term Loan, and to release the agent’s lien on the assets of Royal Robbins. This amendment required the prepayment of the obligations under the Cerberus Term Loan in an amount not less than $10,000 from a portion of the proceeds from the sale of Royal Robbins with the remaining funds to be remitted to the Wells Fargo Facility. This amendment also redefined the definition Consolidated EBITDA to allow for certain additional addbacks.
On May 3, 2013, Kellwood Company amended the Cerberus Term Loan in anticipation of not being in compliance with the fixed charge coverage ratio covenant during the 2013 fiscal year. This amendment modified the definition of the fixed charge coverage ratio to allow us to exclude certain types of capital expenditures in the calculation of the minimum fixed charge coverage ratio for the second, third, and fourth quarters of fiscal 2013, not to exceed $7,500 in total. Additionally, this amendment modified the minimum fixed charge coverage ratios for the second, third, and fourth quarters of fiscal 2013 to be 1.10:1, 1.175:1, and 1.25:1, respectively. On June 28, 2013, Cerberus and Kellwood Company entered into a consent to the Cerberus Term Loan with respect to Vince Holding Corp.’s incurrence of the Term G Loan under the Sun Term Loan B/C/D/E/F/G Agreement.
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, the Cerberus Term Loan was repaid with a portion of the proceeds from the repayment of the Kellwood Note Receivable.
Term A/B/C/D/E/F/G Obligations
On October 19, 2011, Kellwood Company and certain of its domestic subsidiaries, as borrowers (the “Sun Term Loan Borrowers”), affiliates of Sun Capital, as lenders, and Sun Kellwood Finance, as collateral agent, entered into (a) the Amended and Restated Term A Loan Agreement (the “Term A Loan Agreement”) and (b) the Third Amended and Restated Term Loan (the “Term B/C/D Loan Agreement”, and together with the Term A Loan Agreement, the “Sun Term Loan Agreements”).
The Term A Loan Agreement served to amend and restate in its entirety the Term Loan dated July 23, 2009, as previously amended (the “Prior Term A Agreement”) pursuant to which the lenders made certain Term A loans with an original principal amount of $12,168, the proceeds of which were used by the Sun Term Loan Borrowers to fund payment of the principal amounts outstanding, plus accrued and unpaid interest on the 7.875% 1999 Debentures due July 15, 2009 that were not tendered as part of the exchange offer for the 12.875% Notes.
The Term B/C/D Loan Agreement served to amend and restate in its entirety the Second Amended and Restated Term Loan dated as of August 5, 2011 (as amended, amended and restated, supplemented or otherwise modified from time to time prior to the date hereof, the “Prior Term B/C/D Agreement”) pursuant to which the lenders made certain (i) Term B loans with an original principal amount of $22,393 issued on January 4, 2011, the proceeds of which were used by the Sun Term Loan Borrowers solely to finance the acquisition of Rebecca Taylor, (ii) Term C loans with an original principal amount of $14,900 issued on March 18, 2011, the proceeds of which were used to fund working capital, capital expenditures and other general corporate purposes of the Sun Term Loan Borrowers and (iii) Term D loans with an original principal amount of $10,000 issued on August 5, 2011, the proceeds of which were used to fund all or any part of the purchase price or cost of design, construction, installation or improvement or lease of property (real or personal), plant or equipment (whether through the direct acquisition of such assets or the acquisition of capital stock of any person owning such assets) used in the business of the Sun Term Loan Borrowers.
The primary reason for entering into the Sun Term Loan Agreements was to conform the major non-economic terms of such agreements, including the representations, warranties and covenants, to those of the Credit Agreement and the Cerberus Term Loan. The Sun Term Loan Agreements were also amended to provide a termination date of the earlier of (i) January 19, 2017 or (ii) the date on which the Cerberus Term Loan has been terminated; provided that, if the Cerberus Term Loan was extended, the stated maturity date set forth in (i) above shall be extended by a period of the same duration. The Sun Term Loan Agreements were amended such that the Sun Term Loan Agreements bear interest at 10% per annum (or 12% per annum in the case of the Term E loans, the Term F loans and the Term G loans described below) that will be added to the principal amounts of the Sun Term Loans. If the availability under the Credit Agreement is not less than $45,000, Kellwood Company was permitted to pay interest at a rate of 5% per annum in cash with respect to the Term A, B, C and D Loans and at a rate of 6% per annum in cash with respect to the Term E, F, and G Loans. The Sun Term Loan Agreements were secured by a security interest in substantially all of the assets of the Sun Term Loan Borrowers, which security interest was contractually subordinated to the security interests of the lenders under the Credit Agreement and the Cerberus Term Loan. The Sun Term Loan Agreements contained certain customary representations, warranties, provisions and restrictions substantially similar to the Credit Agreement and Cerberus Term Loan.
On April 20, 2012, Kellwood Company entered into an amendment and restatement of each of the Sun Term Loan Agreements. The Term B/C/D Loan Agreement was amended and restated in order to (i) provide for new Term E loans with an original principal amount of $5,100, the proceeds of which were used to finance costs and expenses and earnout payments in respect of certain acquisitions consummated by the Borrowers prior to the date of the Term E loans, (ii) provide for new Term F loans with an original principal amount of $24,900, the proceeds of which were used to fund working capital, capital expenditures and other general corporate purposes of the Sun Term Loan Borrowers, and (iii) to conform to the changes made to the Credit Agreement and the Cerberus Term Loan. The primary reason for entering into the amendment and restatement of the Term A Loan Agreement was to conform to the changes made to the Credit Agreement, the Cerberus Term Loan and the Term B/C/D Loan Agreement. On June 28, 2013, Kellwood Company entered into an amendment and restatement of the Sun Term Loan B/C/D/E/F Agreement in order to (i) provide for new Term G loans with an original principal amount of $5,000, the proceeds of which were used to fund working capital, capital expenditures and other general corporate purposes of the Sun Term Loan Borrowers and (ii) to conform to the changes made to the Credit Agreement and the Cerberus Term Loan. The Term E loans, the Term F loans and the Term G loans bore interest at 12% per annum that was added to the principal amounts of such loans. If the availability under the Credit Agreement was not less than $45,000, Kellwood Company was permitted to pay interest at a rate of 6% per annum in cash. No cash interest has been paid on the Sun Term Loan Agreements.
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 a portion of the Kellwood Note Receivable proceeds and (ii) capital contributions by Sun Capital affiliates.
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% 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, 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. The 12.875% Notes contained certain customary provisions that, among other things, limited the ability to incur additional indebtedness, make certain restricted payments, dispose of assets or redeem or repurchase capital stock or prepay subordinated indebtedness.
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, the 12.875% Notes were redeemed with a portion of the proceeds from the repayment of the Kellwood Note Receivable, at which time Vince, LLC was released as a guarantor of such indebtedness and the obligations under the related 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 April and October.
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, Kellwood Company commenced a tender offer for the 7.625% Notes. A portion of the proceeds from the repayment of the Kellwood Note Receivable were used to fund the tender offer, as discussed below.
Principal amounts of the notes payable and long-term debt outstanding at November 2, 2013 include the following:
Outstanding Principal |
Capitalized PIK Interest |
Total | Less: Discount |
Amount per Consolidated Balance Sheet |
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Cerberus Term Loan |
$ | 45,000 | $ | 778 | $ | 45,778 | $ | — | $ | 45,778 | ||||||||||
Term A Obligations |
12,168 | 6,401 | 18,569 | — | 18,569 | |||||||||||||||
Term B Obligations |
22,393 | 7,216 | 29,609 | — | 29,609 | |||||||||||||||
Term C Obligations |
14,900 | 4,416 | 19,316 | — | 19,316 | |||||||||||||||
Term D Obligations |
10,000 | 2,481 | 12,481 | — | 12,481 | |||||||||||||||
Term E Obligations |
5,100 | 1,015 | 6,115 | — | 6,115 | |||||||||||||||
Term F Obligations |
24,900 | 4,957 | 29,857 | — | 29,857 | |||||||||||||||
Term G Obligations |
5,000 | 205 | 5,205 | — | 5,205 | |||||||||||||||
12.875% Notes |
120,590 | 26,178 | 146,768 | (2,304 | ) | 144,464 | ||||||||||||||
7.625% Notes |
86,953 | — | 86,953 | (7,494 | ) | 79,459 | ||||||||||||||
83.5% 2004 Convertible Debentures due June 15, 2034 |
200 | 14 | 214 | 214 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Subtotal |
$ | 347,204 | $ | 53,661 | $ | 400,865 | $ | (9,798 | ) | 391,067 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Less: Current portion of long-term debt |
(166,929 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Total long-term debt outstanding |
$ | 224,138 | ||||||||||||||||||
|
|
Principal amounts of the notes payable and long-term debt outstanding at February 2, 2013 include the following:
Outstanding Principal |
Capitalized PIK Interest |
Total | Less: Discount |
Amount per Consolidated Balance Sheet |
||||||||||||||||
Sun Promissory Notes |
$ | 300,000 | $ | 19,926 | $ | 319,926 | $ | — | $ | 319,926 | ||||||||||
Sun Capital Loan Agreement |
69,485 | 2,023 | 71,508 | — | 71,508 | |||||||||||||||
Cerberus Term Loan |
45,000 | 431 | 45,431 | — | 45,431 | |||||||||||||||
Term A Obligations |
12,168 | 5,084 | 17,252 | — | 17,252 | |||||||||||||||
Term B Obligations |
22,393 | 5,114 | 27,507 | — | 27,507 | |||||||||||||||
Term C Obligations |
14,900 | 3,045 | 17,945 | — | 17,945 | |||||||||||||||
Term D Obligations |
10,000 | 1,595 | 11,595 | — | 11,595 | |||||||||||||||
Term E Obligations |
5,100 | 501 | 5,601 | — | 5,601 | |||||||||||||||
Term F Obligations |
24,900 | 2,444 | 27,344 | — | 27,344 | |||||||||||||||
12.875% Notes |
120,590 | 22,598 | 143,188 | (3,810 | ) | 139,378 | ||||||||||||||
7.625% Notes |
86,953 | — | 86,953 | (8,899 | ) | 78,054 | ||||||||||||||
3.5% 2004 Convertible Debentures due June 15, 2034 |
200 | 11 | 211 | — | 211 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term debt outstanding |
$ | 711,689 | $ | 62,772 | $ | 774,461 | $ | (12,709 | ) | $ | 761,752 | |||||||||
|
|
|
|
|
|
|
|
|
|
As discussed above and in connection with the IPO and the Restructuring Transactions, Kellwood Company, LLC refinanced, repaid or discharged or repurchased all indebtedness outstanding under the Cerberus Term Loan, the Sun Term Loan Agreements and the 12.875% Notes. Kellwood Company, LLC also amended and restated the Wells Fargo Facility on November 27, 2013 in order to, among other things, remove Vince, LLC as a guarantor of the related obligations. Additionally, Kellwood Company, LLC has completed a tender offer for all of the issued and outstanding 7.625% Notes. After giving effect to the final settlement of the tender offer on December 12, 2013, approximately $48.8 million in aggregate principal amount of the 7.625% Notes remain outstanding. Neither VHC, nor Vince Intermediate nor Vince, LLC are a guarantor or obligor of the 7.625% Notes.
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Note 9. Inventory
Inventories of continuing operations consist of the following:
November 2, 2013 |
February 2, 2013 |
|||||||
Finished goods |
$ | 90,022 | $ | 71,588 | ||||
Work in process |
482 | 1,085 | ||||||
Raw materials |
2,041 | 1,383 | ||||||
|
|
|
|
|||||
Total inventories, net |
$ | 92,545 | $ | 74,056 | ||||
|
|
|
|
|
Note 12. Commitments and Contingencies
Environmental Considerations
We are subject to a variety of environmental laws and regulations governing discharges to air and water, the handling, storage and disposal of hazardous or solid waste materials and the remediation of contamination associated with releases of hazardous substances, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980.
During the second quarter of fiscal 2012, Kellwood Company, a former subsidiary that was separated from VHC in the Restructuring Transactions, entered into a Consent Decree with the United States Environmental Protection Agency (“EPA”) and Missouri Department of Natural Resources (“MDNR”) to conduct cleanup initiatives for the decontamination of soil and groundwater located near a former metal fabrication plant in New Haven, MO. The agreement became effective August 24, 2012, and was entered into as settlement of a lawsuit filed against Kellwood Company by the EPA and MDNR. The lawsuit alleged that Kellwood Company inappropriately disposed of tetrachloroethylene (“PCE”) an industrial degreaser used to clean metal rods for tent poles, on the surrounding grounds and sewer system of a plant operated by American Recreation Products, a wholly owned subsidiary of Kellwood Company, between 1973 and 1985. Effective October 15, 2012, in accordance with the terms of the agreement, we posted a letter of credit payable to the EPA in the amount of $5,920 as a performance guarantee for the estimated cost of remediation work.
As of November 2, 2013 and February 2, 2013, we have recorded $9,610 and $9,604, respectively, for estimated capital costs and ongoing remedial activities at the New Haven site. This represents our best estimate of the discounted value of the total obligation using a discount rate of 3.0% for ongoing remediation activities, and rates ranging from 0.1% to 1.0% for activities expected to be completed during the next five years; provided that after giving effect to the Restructuring Transactions, VHC will have no ongoing obligations with respect to such site. We have projected undiscounted cash flows of $12,881, after adjusting for a 2.65% inflation rate. Our recorded liability differs from the performance guarantee required by the EPA primarily due to management’s use of a lower discount rate, as well as assumption of additional costs not reflected in the EPA’s estimate of remediation work. These additional costs include voluntary corrective actions implemented by Kellwood, as well as EPA oversight fees.
On November 27, 2013, in connection with the IPO and Restructuring Transactions, the non-Vince businesses, which include Kellwood Company, LLC, was separated from the Vince business, which includes Vince, LLC. The obligations associated with the environmental remediation described above were retained by Kellwood Company, LLC. VHC has no obligation associated with this matter.
Although we believe we are currently in material compliance with all of the various regulations applicable to our business, there can be no assurance that requirements will not change in the future or that we will not incur significant costs to comply with such requirements. We are currently not aware of any environmental matters which may have a material impact on our financial position, results of operations, or liquidity.
Tax Settlements
During the nine months ended November 2, 2013, Kellwood Company settled an ongoing income tax case with a local jurisdiction for a total of $6,616 (including interest). We began making payments on the settlement amount during the third quarter of 2013, which will be paid over a three year period and subject to interest of 7.5%. As of November 2, 2013, we had $1,769 of the settlement liability recorded within other accrued expenses for the short-term portion due. The remaining amount of our obligation is recorded within deferred income taxes and other.
On November 27, 2013, in connection with the IPO and Restructuring Transactions, the non-Vince businesses, which include Kellwood Company, LLC, was separated from the Vince business, which includes Vince, LLC. The obligations associated with the tax settlements described above were retained by Kellwood Company, LLC. VHC has no obligation associated with these settlements.
Litigation
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, results of operations or cash flows, litigation is subject to inherent uncertainties.
Contingent Consideration for Certain Acquisitions
The Company has a deferred purchase price component related to the Rebecca Taylor acquisition. The amount of this contingent consideration will be determined based on the operating results of this business and the others factors outlined in the related contingent consideration agreement. After giving effect to the Restructuring Transactions, VHC has no obligation with respect to this contingent purchase price.
|
Note 13. Segment Financial Information
Prior to giving effect to the IPO and the Restructuring Transactions, VHC operated and managed its business by brand and has identified four reportable segments, as further described below:
• | Vince segment—consists of the specialty retail, wholesale, e-commerce, and licensing operations of our high-growth contemporary Vince brand. |
• | American Recreational Products (“ARP”) segment—consists of our outdoor recreational equipment and apparel operations. |
• | Juniors segment—consists of a collection of denim, dresses, and sportswear labels sold through wholesale distribution to retailers. |
• | Moderate segment—consists of our moderately priced career and casual lifestyle brands sold through wholesale distribution to retailers. |
After giving effect to the IPO and Restructuring Transactions which were consummated on November 27, 2013, VHC’s operations consist solely of those constituting the Vince segment.
Performance results of our remaining operating segments have been combined in Other, as none of these brands individually meet the quantitative thresholds for disclosure as a reportable segment. Segment performance is evaluated based on Adjusted EBITDA, defined as net earnings from continuing operations before interest expense, provision for income taxes, depreciation, amortization, long-lived asset impairment losses, fair value adjustments to contingent consideration obligations, restructuring charges, environmental remediation costs, gain on acquisitions, gain on debt extinguishment, and other non-recurring charges. Although impairment losses and adjustments to contingent consideration liabilities relate to specific brands, they are excluded from the Adjusted EBITDA of our operating segments as these measures can fluctuate significantly year over year and are not considered to be primary measures of segment performance.
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. There were no inter-segment sales or transfers for the periods presented below. Summary information for our operating segments is presented below:
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
|||||||||||||
Net Sales |
||||||||||||||||
Vince |
$ | 85,755 | $ | 76,990 | $ | 200,412 | $ | 167,521 | ||||||||
ARP |
21,919 | 21,236 | 73,191 | 73,531 | ||||||||||||
Juniors |
52,959 | 47,112 | 163,534 | 136,962 | ||||||||||||
Moderate |
23,354 | 23,915 | 55,536 | 62,424 | ||||||||||||
Other |
29,961 | 34,102 | 85,242 | 82,362 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
$ | 213,948 | $ | 203,355 | $ | 577,915 | $ | 522,800 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
||||||||||||||||
Vince |
$ | 18,157 | $ | 15,905 | $ | 35,648 | $ | 29,486 | ||||||||
ARP |
(1,464 | ) | (2,205 | ) | (1,992 | ) | (2,413 | ) | ||||||||
Juniors |
2,852 | 4,553 | 12,236 | 7,666 | ||||||||||||
Moderate |
1,339 | 2,749 | 2,171 | 1,746 | ||||||||||||
Other |
1,847 | 4,216 | 5,639 | 6,963 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Segment adjusted EBITDA |
22,731 | 25,218 | 53,702 | 43,448 | ||||||||||||
Unallocated corporate expense |
(6,454 | ) | (7,420 | ) | (21,603 | ) | (23,334 | ) | ||||||||
Interest expense, net |
(14,762 | ) | (23,773 | ) | (58,433 | ) | (97,924 | ) | ||||||||
Depreciation |
(1,478 | ) | (1,278 | ) | (4,100 | ) | (4,183 | ) | ||||||||
Amortization of intangible assets |
(474 | ) | (475 | ) | (1,424 | ) | (1,425 | ) | ||||||||
Restructuring, environmental and other charges |
(68 | ) | (557 | ) | (895 | ) | (2,821 | ) | ||||||||
Impairment of long-lived assets (excluding goodwill) |
(933 | ) | (8 | ) | (933 | ) | (725 | ) | ||||||||
Change in fair value of contingent consideration |
— | — | 54 | 4,507 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from continuing operations before income taxes |
$ | (1,438 | ) | $ | (8,293 | ) | $ | (33,632 | ) | $ | (82,457 | ) | ||||
|
|
|
|
|
|
|
|
November 2, 2013 | February 2, 2013 | |||||||
Total Assets |
||||||||
Vince |
$ | 271,288 | $ | 241,008 | ||||
ARP |
53,235 | 61,781 | ||||||
Juniors |
60,315 | 49,453 | ||||||
Moderate |
22,364 | 15,316 | ||||||
Other |
48,525 | 49,777 | ||||||
|
|
|
|
|||||
Total assets of segments |
455,727 | 417,335 | ||||||
Unallocated corporate |
14,347 | 16,403 | ||||||
Discontinued operations |
177 | 8,386 | ||||||
|
|
|
|
|||||
Total assets |
$ | 470,251 | $ | 442,124 | ||||
|
|
|
|
|
Note 14. Related Party Transactions
Vince Earnout Agreement
In connection with the acquisition of the Vince business, Kellwood Company entered into an agreement with CRL Group providing for contingent earnout payments as additional cash purchase consideration based upon the achievement of specified performance targets. Rea Laccone, former Chief Executive Officer and Chief Creative Officer of the Vince brand, is a member of the CRL Group. The agreement provided for the payment of contingent annual earnout payments to CRL Group for five periods between 2007 and 2011, as well as a cumulative contingent payment at the end of the agreement period. All consideration was recorded as an adjustment to the goodwill balance of our Vince segment in the fiscal year it was earned. See Note 5 to the Condensed Consolidated Financial Statements for a rollforward of goodwill balances by segment.
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. Our debt obligations to affiliates of Sun Capital under the Sun Promissory Notes, Sun Capital Loan Agreement, and Sun Term Loan Agreements (as defined in Note 8, Long-term debt, to Condensed Consolidated Financial Statements) totaled $121,152 and $498,678 as of November 2, 2013 and February 2, 2013, respectively. These obligations were reported within long-term debt on the Condensed Consolidated Balance Sheets as of the respective periods and are comprised of both principal and capitalized PIK interest. See Note 8 for additional discussion on the terms of each agreement.
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.
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. See Note 8 to the Condensed Consolidated Financial Statements.
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, debt obligations to affiliates of Sun Capital under the Sun Promissory Notes, Sun Capital Loan Agreement, and Sun Term Loan Agreements were discharged through (i) the application of a portion of the Kellwood Note Receivable proceeds and (ii) capital contributions by Sun Capital affiliates.
Management Fees and other Sun Capital arrangements
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 a 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. We reported $1,810 and $1,850 for management fees to Sun Capital in other expense, net, in the Condensed Consolidated Statements of Operations for the first nine months of fiscal 2013 and fiscal 2012, respectively.
Upon the consummation of certain corporate events involving Kellwood Company or its direct or indirect subsidiaries, Kellwood Company was required to pay Sun Capital Management a transaction fee in an amount equal to 1% of the aggregate consideration paid to or by Kellwood Company and any of its direct or indirect subsidiaries or stockholders. We incurred no material transaction fees payable to Sun Capital Management during all periods presented on the Condensed Consolidated Statement of Operations. We reported $971 and $926 for outstanding transaction fees within deferred income taxes and other on the Condensed Consolidated Balance Sheets as of November 2, 2013 and February 2, 2013, respectively.
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, Sun Capital Management was paid a restructuring fee of $3,300. Additionally, VHC entered into an agreement with Sun Capital Management to reimburse Sun Capital Management or any of its affiliates providing consulting services under the agreement for out-of-pocket expenses incurred providing consulting services in lieu of a management services agreement.
Debt Recovery Bonus
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, Kellwood Company paid a debt recovery bonus of $6,000 to our Chief Executive Officer in accordance with the terms of her employment agreement.
Shared Services Agreement
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, 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 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).
|
Note 15. Subsequent Events
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. VHC received net proceeds of $177 million, after deducting underwriting discounts, commissions and estimated offering expenses from its sale of shares in the initial public offering. The Company retained approximately $5 million of such proceeds for general corporate purposes and used the remaining net proceeds, together with net borrowings under the new 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.
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 IPO 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; |
• | Vince Holding Corp. entered into the Tax Receivable Agreement with the Pre-IPO Stockholders; |
• | Vince, LLC entered into the Shared Services Agreement with Kellwood Company, LLC; 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 $5 million retained for general corporate purposes, and approximately $169.5 million of net borrowings under its new term loan 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 $9.1 million 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 $3.3 million 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 $33.5 million 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 approximately $4.7 million in aggregate principal amount of the 7.625% Notes. After giving effect to these settlements, approximately $48.8 million 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, LLC is a guarantor or obligor of the 7.625% Notes. 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 million outstanding under our new term loan facility.
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(A) Description of Business: VHC, together with its wholly-owned subsidiaries as of November 2, 2013, design, merchandise and sell a growing collection of premier fashion brands across a broad range of consumer lifestyles, and recreational apparel and products aimed to improve the consumer outdoor experience. We market branded as well as private label products and market to all channels of distribution with product specific to the particular channel. Some of our fashion brands include Vince, Rebecca Taylor, David Meister, My Michelle and XOXO, along with numerous private label businesses for major retailers. We market products under many brands, some of which we own, and others that are under licensing agreements. The majority of our products are sourced from contract manufacturers, primarily in the Eastern Hemisphere. Products are manufactured to meet our product specifications and labor standards.
(B) Basis of Presentation: The accompanying condensed 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”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with VHC’s audited financial statements for the fiscal year ended February 2, 2013.
|
For the three and nine months ended November 2, 2013 and October 27, 2012, the costs related to impairment of long-lived assets and restructuring, environmental remediation and other charges recorded in continuing and discontinued operations were as follows:
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Three months ended November 2, 2013 |
$ | 1,001 | $ | 56 | $ | 1,057 | ||||||
|
|
|
|
|
|
|||||||
Nine months ended November 2, 2013 |
$ | 1,828 | $ | 998 | $ | 2,826 | ||||||
|
|
|
|
|
|
|||||||
Three months ended October 27, 2012 |
$ | 565 | $ | 6,556 | $ | 7,121 | ||||||
|
|
|
|
|
|
|||||||
Nine months ended October 27, 2012 |
$ | 3,546 | $ | 6,777 | $ | 10,323 | ||||||
|
|
|
|
|
|
For the three and nine months ended November 2, 2013 and October 27, 2012, the costs related to impairment of long-lived assets and restructuring, environmental remediation and other charges were recorded as follows:
Three Months Ended November 2, 2013 | ||||||||||||
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Restructuring, environmental remediation and other charges |
$ | 68 | $ | 56 | $ | 124 | ||||||
Impairment of long-lived assets |
933 | — | 933 | |||||||||
|
|
|
|
|
|
|||||||
Total pretax cost |
$ | 1,001 | $ | 56 | $ | 1,057 | ||||||
|
|
|
|
|
|
|||||||
After tax cost |
$ | 1,001 | $ | 56 | $ | 1,057 | ||||||
|
|
|
|
|
|
Nine Months Ended November 2, 2013 | ||||||||||||
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Restructuring, environmental remediation and other charges |
$ | 895 | $ | 564 | $ | 1,459 | ||||||
Impairment of long-lived assets |
933 | 434 | 1,367 | |||||||||
|
|
|
|
|
|
|||||||
Total pretax cost |
$ | 1,828 | $ | 998 | $ | 2,826 | ||||||
|
|
|
|
|
|
|||||||
After tax cost |
$ | 1,828 | $ | 998 | $ | 2,826 | ||||||
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|
|
|
|
|
Three Months Ended October 27, 2012 | ||||||||||||
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Restructuring, environmental remediation and other charges |
$ | 557 | $ | 2,223 | $ | 2,780 | ||||||
Impairment of long-lived assets |
8 | 4,333 | 4,341 | |||||||||
|
|
|
|
|
|
|||||||
Total pretax cost |
$ | 565 | $ | 6,556 | $ | 7,121 | ||||||
|
|
|
|
|
|
|||||||
After tax cost |
$ | 565 | $ | 6,556 | $ | 7,121 | ||||||
|
|
|
|
|
|
Nine Months Ended October 27, 2012 | ||||||||||||
Continuing Operations |
Discontinued Operations |
Total | ||||||||||
Restructuring, environmental remediation and other charges |
$ | 2,821 | $ | 2,444 | $ | 5,265 | ||||||
Impairment of long-lived assets |
725 | 4,333 | 5,058 | |||||||||
|
|
|
|
|
|
|||||||
Total pretax cost |
$ | 3,546 | $ | 6,777 | $ | 10,323 | ||||||
|
|
|
|
|
|
|||||||
After tax cost |
$ | 3,546 | $ | 6,777 | $ | 10,323 | ||||||
|
|
|
|
|
|
The following table represents a rollforward of contractual obligations, employee severance and termination benefits, impairment of long-lived assets and restructuring, environmental remediation and other charges recorded in continuing operations for the first nine months of fiscal 2013:
Contractual obligations |
Employee severance and termination benefits |
Impairment of long-lived assets |
Restructuring, Environmental remediation and other charges |
Total | ||||||||||||||||
Accrual as of February 2, 2013 |
$ | 148 | $ | 438 | $ | — | $ | 12,069 | $ | 12,655 | ||||||||||
Provision |
40 | 520 | 933 | 335 | 1,828 | |||||||||||||||
Non-cash utilization |
— | — | (933 | ) | — | (933 | ) | |||||||||||||
Utilization |
(121 | ) | (877 | ) | — | (507 | ) | (1,505 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Accrual as of November 2, 2013 |
$ | 67 | $ | 81 | $ | — | $ | 11,897 | $ | 12,045 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table represents a rollforward of contractual obligations, employee severance and termination benefits, impairment of long-lived assets and restructuring, environmental remediation and other charges recorded in discontinued operations for the first nine months of fiscal 2013:
Contractual obligations |
Employee severance and termination benefits |
Impairment of long-lived assets |
Restructuring, Environmental remediation and other charges |
Total | ||||||||||||||||
Accrual as of February 2, 2013 |
$ | 1,218 | $ | 60 | $ | — | $ | 287 | $ | 1,565 | ||||||||||
Provision |
263 | 271 | 434 | 30 | 998 | |||||||||||||||
Non-cash utilization |
— | — | (434 | ) | — | (434 | ) | |||||||||||||
Utilization |
(1,291 | ) | (244 | ) | — | (316 | ) | (1,851 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Accrual as of November 2, 2013 |
$ | 190 | $ | 87 | $ | — | $ | 1 | $ | 278 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
Operating results for the discontinued operations, including all charges incurred during the periods presented for impairment of long-lived assets and restructuring and other charges as described in Note 3 to the Condensed Consolidated Financial Statements, are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
|||||||||||||
Net sales |
$ | 59 | $ | 12,242 | $ | 1,156 | $ | 40,825 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Restructuring and other charges |
$ | 56 | $ | 2,223 | $ | 564 | $ | 2,444 | ||||||||
Impairment of long-lived assets (excluding goodwill) |
— | 4,333 | 434 | 4,333 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(Loss) income before income taxes |
$ | 94 | $ | (6,560 | ) | $ | (2,589 | ) | $ | (11,150 | ) | |||||
Provision (benefit) for income taxes |
— | 100 | (11,913 | ) | 308 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (loss) income |
$ | 94 | $ | (6,660 | ) | $ | 9,324 | $ | (11,458 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Effective tax rate |
N.M. | (1.5 | %) | N.M. | (2.8 | %) | ||||||||||
|
|
|
|
|
|
|
|
Summarized assets and liabilities of discontinued operations are as follows:
November 2, 2013 | February 2, 2013 | |||||||
Receivables, net |
$ | 74 | $ | 2,535 | ||||
Other receivables |
— | 12 | ||||||
Inventories |
— | 1,529 | ||||||
Prepaid expenses and other current assets |
2 | 614 | ||||||
|
|
|
|
|||||
Current assets of discontinued operations |
$ | 76 | $ | 4,690 | ||||
|
|
|
|
|||||
Property, plant and equipment, net |
$ | — | $ | 167 | ||||
Intangible assets, net |
— | 3,450 | ||||||
Other assets |
101 | 79 | ||||||
|
|
|
|
|||||
Long-term assets of discontinued operations |
$ | 101 | $ | 3,696 | ||||
|
|
|
|
|||||
Accounts payable |
$ | 92 | $ | 903 | ||||
Accrued salaries and employee benefits |
39 | 233 | ||||||
Other accrued expenses |
1,030 | 2,601 | ||||||
|
|
|
|
|||||
Current liabilities of discontinued operations |
$ | 1,161 | $ | 3,737 | ||||
|
|
|
|
|||||
Deferred income taxes and other |
$ | 2,412 | $ | 2,416 | ||||
|
|
|
|
|||||
Long-term liabilities of discontinued operations |
$ | 2,412 | $ | 2,416 | ||||
|
|
|
|
|
Goodwill balances by segment and changes therein subsequent to the February 2, 2013 Condensed Consolidated Balance Sheet are as follows:
Vince | ARP | Juniors | Moderate | Other | Total | |||||||||||||||||||
Balance as of February 2, 2013 |
||||||||||||||||||||||||
Goodwill |
$ | 110,688 | $ | — | $ | 6,395 | $ | 8,859 | $ | 13,478 | $ | 139,420 | ||||||||||||
Accumulated impairment losses |
(46,942 | ) | — | (6,395 | ) | (8,859 | ) | (11,348 | ) | (73,544 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net goodwill |
$ | 63,746 | $ | — | $ | — | $ | — | $ | 2,130 | $ | 65,876 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of November 2, 2013 |
||||||||||||||||||||||||
Goodwill |
$ | 110,688 | $ | — | $ | 6,395 | $ | 8,859 | $ | 13,478 | $ | 139,420 | ||||||||||||
Accumulated impairment losses |
(46,942 | ) | — | (6,395 | ) | (8,859 | ) | (11,348 | ) | (73,544 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net goodwill |
$ | 63,746 | $ | — | $ | — | $ | — | $ | 2,130 | $ | 65,876 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets of continuing operations are as follows:
Gross Amount | Accumulated Amortization |
Net Book Value |
||||||||||
Balance as of November 2, 2013: |
||||||||||||
Amortizable intangible assets: |
||||||||||||
Customer relationships |
$ | 27,796 | $ | (8,193 | ) | $ | 19,603 | |||||
Indefinite-lived intangible assets: |
||||||||||||
Trademarks |
124,347 | — | 124,347 | |||||||||
|
|
|
|
|
|
|||||||
Total intangible assets |
$ | 152,143 | $ | (8,193 | ) | $ | 143,950 | |||||
|
|
|
|
|
|
Gross Amount | Accumulated Amortization |
Net Book Value |
||||||||||
Balance as of February 2, 2013: |
||||||||||||
Amortizable intangible assets: |
||||||||||||
Customer relationships |
$ | 28,363 | $ | (6,877 | ) | $ | 21,486 | |||||
Indefinite-lived intangible assets: |
||||||||||||
Trademarks |
124,735 | — | 124,735 | |||||||||
Domain Name |
66 | — | 66 | |||||||||
|
|
|
|
|
|
|||||||
Total intangible assets |
$ | 153,164 | $ | (6,877 | ) | $ | 146,287 | |||||
|
|
|
|
|
|
|
The following table presents our liabilities measured at fair value on a recurring basis and are categorized using the fair value hierarchy. We do not measure any assets at fair value on a recurring basis.
Fair Value Measurements as of November 2, 2013 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) |
Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
Liabilities at fair value: |
||||||||||||||||
Contingent consideration for acquisition—Rebecca Taylor |
$ | — | $ | — | $ | 4,911 | $ | 4,911 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | — | $ | — | $ | 4,911 | $ | 4,911 | ||||||||
|
|
|
|
|
|
|
|
Fair Value Measurements as of February 2, 2013 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) |
Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
Liabilities at fair value: |
||||||||||||||||
Contingent consideration for acquisition—Rebecca Taylor |
$ | — | $ | — | $ | 4,209 | $ | 4,209 | ||||||||
Contingent consideration for acquisition—Zobha |
— | — | 54 | 54 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | — | $ | — | $ | 4,263 | $ | 4,263 | ||||||||
|
|
|
|
|
|
|
|
Changes in Level 3 liabilities for the nine months ended November 2, 2013 were as follows:
Rebecca Taylor Contingent Consideration |
Zobha Contingent Consideration |
Total | ||||||||||
Balance as of February 2, 2013 |
$ | 4,209 | $ | 54 | $ | 4,263 | ||||||
Payments |
— | — | — | |||||||||
(Gains) losses recognized in earnings (1) |
702 | (54 | ) | 648 | ||||||||
|
|
|
|
|
|
|||||||
Balance as of November 2, 2013 |
$ | 4,911 | $ | — | $ | 4,911 | ||||||
|
|
|
|
|
|
Changes in Level 3 liabilities for the nine months ended October 27, 2012 were as follows:
Rebecca Taylor Contingent Consideration |
Zobha Contingent Consideration |
Total | ||||||||||
Balance as of January 28, 2012 |
$ | 10,881 | $ | 585 | $ | 11,466 | ||||||
Payments |
(1,928 | ) | — | (1,928 | ) | |||||||
(Gains) losses recognized in earnings (1) |
(2,995 | ) | — | (2,995 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance as of October 27, 2012 |
$ | 5,958 | $ | 585 | $ | 6,543 | ||||||
|
|
|
|
|
|
(1) | In the first nine months of fiscal 2012, a gain of ($4,507) was recognized within change in fair value of contingent consideration on our Condensed Consolidated Statements of Operations. We recorded offsetting charges to interest expense of $1,512 in the first nine months of fiscal 2012 for the accretion of our contingent consideration obligations. We recorded additional interest expense of $702 in the nine months ended November 2, 2013 for the accretion of our contingent consideration obligations. We also recorded an additional gain of ($54) within change in fair value of contingent consideration for the nine months ended November 2, 2013 due to a decrease in the fair value of our Zobha contingent consideration. |
|
Long-term debt, net of applicable discounts or premiums, consisted of the following at November 2, 2013 and February 2, 2013 (both prior to the IPO and Restructuring Transactions):
November 2, 2013 |
February 2, 2013 |
|||||||
Sun Promissory Notes |
$ | — | $ | 319,926 | ||||
Sun Capital Loan Agreement |
— | 71,508 | ||||||
Cerberus Term Loan |
45,778 | 45,431 | ||||||
Term A Obligations |
18,569 | 17,252 | ||||||
Term B Obligations |
29,609 | 27,507 | ||||||
Term C Obligations |
19,316 | 17,945 | ||||||
Term D Obligations |
12,481 | 11,595 | ||||||
Term E Obligations |
6,115 | 5,601 | ||||||
Term F Obligations |
29,857 | 27,344 | ||||||
Term G Obligations |
5,205 | — | ||||||
12.875% 2009 Debentures due December 31, 2014 |
144,464 | 139,378 | ||||||
7.625% 1997 Debentures due October 15, 2017 |
79,459 | 78,054 | ||||||
3.5% 2004 Convertible Debentures due June 15, 2034 |
214 | 211 | ||||||
Less: Current portion of long-term debt |
(166,929 | ) | — | |||||
|
|
|
|
|||||
Total long-term debt |
$ | 224,138 | $ | 761,752 | ||||
|
|
|
|
Principal amounts of the notes payable and long-term debt outstanding at November 2, 2013 include the following:
Outstanding Principal |
Capitalized PIK Interest |
Total | Less: Discount |
Amount per Consolidated Balance Sheet |
||||||||||||||||
Cerberus Term Loan |
$ | 45,000 | $ | 778 | $ | 45,778 | $ | — | $ | 45,778 | ||||||||||
Term A Obligations |
12,168 | 6,401 | 18,569 | — | 18,569 | |||||||||||||||
Term B Obligations |
22,393 | 7,216 | 29,609 | — | 29,609 | |||||||||||||||
Term C Obligations |
14,900 | 4,416 | 19,316 | — | 19,316 | |||||||||||||||
Term D Obligations |
10,000 | 2,481 | 12,481 | — | 12,481 | |||||||||||||||
Term E Obligations |
5,100 | 1,015 | 6,115 | — | 6,115 | |||||||||||||||
Term F Obligations |
24,900 | 4,957 | 29,857 | — | 29,857 | |||||||||||||||
Term G Obligations |
5,000 | 205 | 5,205 | — | 5,205 | |||||||||||||||
12.875% Notes |
120,590 | 26,178 | 146,768 | (2,304 | ) | 144,464 | ||||||||||||||
7.625% Notes |
86,953 | — | 86,953 | (7,494 | ) | 79,459 | ||||||||||||||
83.5% 2004 Convertible Debentures due June 15, 2034 |
200 | 14 | 214 | 214 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Subtotal |
$ | 347,204 | $ | 53,661 | $ | 400,865 | $ | (9,798 | ) | 391,067 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Less: Current portion of long-term debt |
(166,929 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Total long-term debt outstanding |
$ | 224,138 | ||||||||||||||||||
|
|
Principal amounts of the notes payable and long-term debt outstanding at February 2, 2013 include the following:
Outstanding Principal |
Capitalized PIK Interest |
Total | Less: Discount |
Amount per Consolidated Balance Sheet |
||||||||||||||||
Sun Promissory Notes |
$ | 300,000 | $ | 19,926 | $ | 319,926 | $ | — | $ | 319,926 | ||||||||||
Sun Capital Loan Agreement |
69,485 | 2,023 | 71,508 | — | 71,508 | |||||||||||||||
Cerberus Term Loan |
45,000 | 431 | 45,431 | — | 45,431 | |||||||||||||||
Term A Obligations |
12,168 | 5,084 | 17,252 | — | 17,252 | |||||||||||||||
Term B Obligations |
22,393 | 5,114 | 27,507 | — | 27,507 | |||||||||||||||
Term C Obligations |
14,900 | 3,045 | 17,945 | — | 17,945 | |||||||||||||||
Term D Obligations |
10,000 | 1,595 | 11,595 | — | 11,595 | |||||||||||||||
Term E Obligations |
5,100 | 501 | 5,601 | — | 5,601 | |||||||||||||||
Term F Obligations |
24,900 | 2,444 | 27,344 | — | 27,344 | |||||||||||||||
12.875% Notes |
120,590 | 22,598 | 143,188 | (3,810 | ) | 139,378 | ||||||||||||||
7.625% Notes |
86,953 | — | 86,953 | (8,899 | ) | 78,054 | ||||||||||||||
3.5% 2004 Convertible Debentures due June 15, 2034 |
200 | 11 | 211 | — | 211 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term debt outstanding |
$ | 711,689 | $ | 62,772 | $ | 774,461 | $ | (12,709 | ) | $ | 761,752 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
Inventories of continuing operations consist of the following:
November 2, 2013 |
February 2, 2013 |
|||||||
Finished goods |
$ | 90,022 | $ | 71,588 | ||||
Work in process |
482 | 1,085 | ||||||
Raw materials |
2,041 | 1,383 | ||||||
|
|
|
|
|||||
Total inventories, net |
$ | 92,545 | $ | 74,056 | ||||
|
|
|
|
|
Summary information for our operating segments is presented below:
Three Months Ended | Nine Months Ended | |||||||||||||||
November 2, 2013 |
October 27, 2012 |
November 2, 2013 |
October 27, 2012 |
|||||||||||||
Net Sales |
||||||||||||||||
Vince |
$ | 85,755 | $ | 76,990 | $ | 200,412 | $ | 167,521 | ||||||||
ARP |
21,919 | 21,236 | 73,191 | 73,531 | ||||||||||||
Juniors |
52,959 | 47,112 | 163,534 | 136,962 | ||||||||||||
Moderate |
23,354 | 23,915 | 55,536 | 62,424 | ||||||||||||
Other |
29,961 | 34,102 | 85,242 | 82,362 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
$ | 213,948 | $ | 203,355 | $ | 577,915 | $ | 522,800 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
||||||||||||||||
Vince |
$ | 18,157 | $ | 15,905 | $ | 35,648 | $ | 29,486 | ||||||||
ARP |
(1,464 | ) | (2,205 | ) | (1,992 | ) | (2,413 | ) | ||||||||
Juniors |
2,852 | 4,553 | 12,236 | 7,666 | ||||||||||||
Moderate |
1,339 | 2,749 | 2,171 | 1,746 | ||||||||||||
Other |
1,847 | 4,216 | 5,639 | 6,963 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Segment adjusted EBITDA |
22,731 | 25,218 | 53,702 | 43,448 | ||||||||||||
Unallocated corporate expense |
(6,454 | ) | (7,420 | ) | (21,603 | ) | (23,334 | ) | ||||||||
Interest expense, net |
(14,762 | ) | (23,773 | ) | (58,433 | ) | (97,924 | ) | ||||||||
Depreciation |
(1,478 | ) | (1,278 | ) | (4,100 | ) | (4,183 | ) | ||||||||
Amortization of intangible assets |
(474 | ) | (475 | ) | (1,424 | ) | (1,425 | ) | ||||||||
Restructuring, environmental and other charges |
(68 | ) | (557 | ) | (895 | ) | (2,821 | ) | ||||||||
Impairment of long-lived assets (excluding goodwill) |
(933 | ) | (8 | ) | (933 | ) | (725 | ) | ||||||||
Change in fair value of contingent consideration |
— | — | 54 | 4,507 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from continuing operations before income taxes |
$ | (1,438 | ) | $ | (8,293 | ) | $ | (33,632 | ) | $ | (82,457 | ) | ||||
|
|
|
|
|
|
|
|
November 2, 2013 | February 2, 2013 | |||||||
Total Assets |
||||||||
Vince |
$ | 271,288 | $ | 241,008 | ||||
ARP |
53,235 | 61,781 | ||||||
Juniors |
60,315 | 49,453 | ||||||
Moderate |
22,364 | 15,316 | ||||||
Other |
48,525 | 49,777 | ||||||
|
|
|
|
|||||
Total assets of segments |
455,727 | 417,335 | ||||||
Unallocated corporate |
14,347 | 16,403 | ||||||
Discontinued operations |
177 | 8,386 | ||||||
|
|
|
|
|||||
Total assets |
$ | 470,251 | $ | 442,124 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|