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|
|
Note 1. Description of Business and Basis of Presentation
On November 27, 2013, Vince Holding Corp. (“VHC” or the “Company”), previously known as Apparel Holding Corp., closed an initial public offering (“IPO”) of its common stock and completed a series of restructuring transactions (the “Restructuring Transactions”) through which (i) Kellwood Holding, LLC acquired the non-Vince businesses, which include Kellwood Company, LLC (“Kellwood Company” or “Kellwood”), from the Company and (ii) the Company continues to own and operate the Vince business, which includes Vince, LLC. Prior to the IPO and the Restructuring Transactions, VHC was a diversified apparel company operating a broad portfolio of fashion brands, which included the Vince business and other businesses. As a result of the IPO and Restructuring Transactions, the non-Vince businesses were separated from the Vince business, and the stockholders immediately prior to the consummation of the Restructuring Transactions (the “Pre-IPO Stockholders”) retained full ownership and control of the non-Vince businesses through their ownership of Kellwood Holding, LLC. The Vince business is now the sole operating business of Vince Holding Corp.
In this interim report on Form 10-Q, “Kellwood” refers, as applicable and unless otherwise defined, to any of (i) Kellwood Company, (ii) Kellwood Company, LLC (a limited liability company to which Kellwood Company converted at the time of the Restructuring Transactions related to our IPO) or (iii) the operations of the non-Vince businesses after giving effect to our IPO and the related Restructuring Transactions.
(A) Description of Business: Vince is a leading contemporary fashion brand best known for modern effortless style and everyday luxury essentials. Established in 2002, the brand now offers a wide range of women’s, men’s and children’s apparel, women’s and men’s footwear, and handbags. We reach our customers through a variety of channels, specifically through premier wholesale department stores and specialty stores in the United States (“U.S.”) and select international markets, as well as through our branded retail locations and our website. We design our products in the U.S. and source the vast majority of our products from contract manufacturers outside the U.S., primarily in Asia and South America. Products are manufactured to meet our product specifications and labor standards.
(B) Basis of Presentation: The accompanying 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 January 31, 2015, as set forth in the 2014 Annual Report on Form 10-K.
The condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries as of May 2, 2015. 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. As used in this report, unless the context requires otherwise, “our,” “us,” “we” and the “Company” refer to VHC and its consolidated subsidiaries.
|
Note 2. Goodwill and Intangible Assets
Goodwill balances and changes therein subsequent to the January 31, 2015 condensed consolidated balance sheet are as follows (in thousands):
|
|
Gross Goodwill |
|
|
Accumulated Impairment |
|
|
Net Goodwill |
|
|||
Balance as of January 31, 2015 |
|
$ |
110,688 |
|
|
$ |
(46,942 |
) |
|
$ |
63,746 |
|
Balance as of May 2, 2015 |
|
$ |
110,688 |
|
|
$ |
(46,942 |
) |
|
$ |
63,746 |
|
Identifiable intangible assets summary (in thousands):
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|||
Balance as of January 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
11,970 |
|
|
$ |
(4,176 |
) |
|
$ |
7,794 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
101,850 |
|
|
|
— |
|
|
|
101,850 |
|
Total intangible assets |
|
$ |
113,820 |
|
|
$ |
(4,176 |
) |
|
$ |
109,644 |
|
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|||
Balance as of May 2, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
11,970 |
|
|
$ |
(4,326 |
) |
|
$ |
7,644 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
101,850 |
|
|
|
— |
|
|
|
101,850 |
|
Total intangible assets |
|
$ |
113,820 |
|
|
$ |
(4,326 |
) |
|
$ |
109,494 |
|
Amortization of identifiable intangible assets was $150 for the three months ended May 2, 2015 and May 3, 2014. The estimated amortization expense for identifiable intangible assets is expected to be $598 for each fiscal year for the next five fiscal years.
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Note 3. 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 |
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|
|
Level 2 — observable market-based inputs (quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active) or inputs that are corroborated by observable market data |
|
|
|
Level 3 — significant unobservable inputs that reflect our assumptions and are not substantially supported by market data |
The Company did not have any non-financial assets or non-financial liabilities recognized at fair value on a recurring basis at May 2, 2015 or January 31, 2015. At May 2, 2015 and January 31, 2015, the Company believes that the carrying value of cash and cash equivalents, receivables and accounts payable approximates fair value, due to the short maturity of these items. As the Company’s debt obligations as of May 2, 2015 are at variable rates, there is no significant difference between the fair value and carrying value of the Company’s debt.
The Company’s non-financial assets, which primarily consist of goodwill, intangible assets, and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at their carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite lived intangible assets), non-financial assets are assessed for impairment and, if applicable, written down to (and recorded at) fair value.
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Note 4. Financing Arrangements
Revolving Credit Facility
On November 27, 2013, Vince, LLC entered into a senior secured revolving credit facility (the “Revolving Credit Facility”) in connection with the closing of the IPO and Restructuring Transactions. Bank of America, N.A. (“BofA”) serves as administrative agent for this facility. The Revolving Credit Facility provides for a revolving line of credit of up to $50,000 and matures on November 27, 2018. The Revolving Credit Facility also provides for a letter of credit sublimit of $25,000 (plus any increase in aggregate commitments) and for an increase in aggregate commitments of up to $20,000. Vince, LLC is the borrower and VHC and Vince Intermediate Holding, LLC, a direct subsidiary of VHC and the direct parent company of Vince, LLC (“Vince Intermediate”), are the guarantors under the Revolving Credit Facility. Interest is payable on the loans under the Revolving Credit Facility at either the LIBOR or the Base Rate, in each case, with applicable margins subject to a pricing grid based on an excess availability calculation. The “Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (i) the rate of interest in effect for such day as publicly announced from time to time by BofA as its prime rate; (ii) the Federal Funds Rate for such day, plus 0.50%; and (iii) the LIBOR Rate for a one month interest period as determined on such day, plus 1.0%. During the continuance of an event of default and at the election of the required lender, interest will accrue at a rate of 2% in excess of the applicable non-default rate.
The Revolving Credit Facility contains a requirement that, at any point when “Excess Availability” is less than the greater of (i) 15% percent of the loan cap or (ii) $7,500, and continuing until Excess Availability exceeds the greater of such amounts for 30 consecutive days, during which time, Vince, LLC must maintain a consolidated EBITDA (as defined in the Revolving Credit Facility) equal to or greater than $20,000. We have not been subject to this maintenance requirement since Excess Availability has been greater than the required minimum.
The Revolving Credit Facility contains representations and warranties, other covenants and events of default that are customary for this type of financing, including limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year. The Revolving Credit Facility generally permits dividends in the absence of any event of default (including any event of default arising from the contemplated dividend), so long as (i) after giving pro forma effect to the contemplated dividend, for the following six months Excess Availability will be at least the greater of 20% of the aggregate lending commitments and $7,500 and (ii) after giving pro forma effect to the contemplated dividend, the “Consolidated Fixed Charge Coverage Ratio” for the 12 months preceding such dividend shall be greater than or equal to 1.1 to 1.0 (provided that the Consolidated Fixed Charge Coverage Ratio may be less than 1.1 to 1.0 if, after giving pro forma effect to the contemplated dividend, Excess Availability for the six fiscal months following the dividend is at least the greater of 35% of the aggregate lending commitments and $10,000).
As of May 2, 2015, the availability under the Revolving Credit Facility was $22,200 and there were $20,578 of borrowings outstanding and $7,222 of letters of credit outstanding under the Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the Revolving Credit Facility as of May 2, 2015 was 1.6%. As of January 31, 2015, there was $23,000 of borrowings outstanding and $7,647 of letters of credit outstanding under the Revolving Credit Facility.
On June 3, 2015, Vince, LLC entered into a first amendment to the Revolving Credit Facility which increased the borrowing capacity of the facility and extended the maturity date. Refer to Note 13, Subsequent Events, to the condensed consolidated financial statements for further information.
|
Note 5. Long-Term Debt
Long-term debt consisted of the following as of May 2, 2015 and January 31, 2015 (in thousands).
|
|
May 2, 2015 |
|
|
January 31, 2015 |
|
||
Term Loan Facility |
|
$ |
62,500 |
|
|
$ |
65,000 |
|
Revolving Credit Facility |
|
|
20,578 |
|
|
|
23,000 |
|
Total long-term debt principal |
|
$ |
83,078 |
|
|
$ |
88,000 |
|
Less: Deferred financing costs (1) |
|
|
3,318 |
|
|
|
3,550 |
|
Total long-term debt |
|
$ |
79,760 |
|
|
$ |
84,450 |
|
(1) |
Pursuant to new accounting guidance issued by the Financial Accounting Standards Board in April 2015, entities are no longer required to present deferred financing costs as a deferred asset. The guidance is effective for our fiscal year beginning in 2016, however, the Company has early adopted this accounting standard update effective as of February 1, 2015 and accordingly adjusted the January 31, 2015 comparative balance sheet to conform to the new classification presentation. There was no other impact on the financial statements related to the adoption other than the reclassification change on the condensed consolidated balance sheet. Refer to Note 10, Recent Accounting Pronouncements, for further information regarding the accounting standard update. |
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 $175,000 senior secured term loan facility (the “Term Loan Facility”) with the lenders party thereto, BofA, as administrative agent, JPMorgan Chase Bank and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers, and Cantor Fitzgerald as documentation agent. The Term Loan Facility will mature on November 27, 2019. On November 27, 2013, net proceeds from the Term Loan Facility were used, at closing, to repay 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.
The Term Loan Facility also provides for an incremental facility of up to the greater of $50,000 and an amount that would result in the consolidated net total secured leverage ratio not exceeding 3.00 to 1.00, in addition to certain other rights to refinance or repurchase portions of the term loan. The Term Loan Facility is subject to quarterly amortization of principal equal to 0.25% of the original aggregate principal amount of the Term Loan Facility, with the balance payable at final maturity. Interest is payable on loans under the Term Loan Facility at a rate of either (i) the Eurodollar rate (subject to a 1.00% floor) plus an applicable margin of 4.75% to 5.00% based on a leverage ratio or (ii) the base rate applicable margin of 3.75% to 4.00% based on a leverage ratio. During the continuance of a payment or bankruptcy event of default, interest will accrue (i) on the overdue principal amount of any loan at a rate of 2% in excess of the rate otherwise applicable to such loan and (ii) on any overdue interest or any other outstanding overdue amount at a rate of 2% in excess of the nondefault interest rate then applicable to base rate loans.
The Term Loan Facility contains a requirement that Vince, LLC and Vince Intermediate maintain a “Consolidated Net Total Leverage Ratio” as of the last day of any period of four fiscal quarters not to exceed 3.75 to 1.00 for the fiscal quarters ending February 1, 2014 through November 1, 2014, 3.50 to 1.00 for the fiscal quarters ending January 31, 2015 through October 31, 2015, and 3.25 to 1.00 for the fiscal quarter ending January 30, 2016 and each fiscal quarter thereafter. In addition, the Term Loan Facility contains customary representations and warranties, other covenants, and events of default, including but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year, and distributions and dividends. The Term Loan Facility generally permits dividends to the extent that no default or event of default is continuing or would result from the contemplated dividend and the pro forma Consolidated Net Total Leverage Ratio after giving effect to such contemplated dividend is at least 0.25 lower than the maximum Consolidated Net Total Leverage Ratio for such quarter. All obligations under the Term Loan Facility are guaranteed by VHC and any future material domestic restricted subsidiaries of Vince, LLC and secured by a lien on substantially all of the assets of VHC, Vince, LLC and Vince Intermediate and any future material domestic restricted subsidiaries. We are in compliance with applicable financial covenants.
Through May 2, 2015, on an inception to date basis, the Company has made voluntary prepayments totaling $112,500 in the aggregate on the original $175,000 Term Loan Facility entered into on November 27, 2013. Of the $112,500 of aggregate voluntary prepayments made to date, $2,500 was paid during the three months ended May 2, 2015. As of May 2, 2015, the Company had $62,500 of debt outstanding under the Term Loan Facility.
|
Note 6. Inventory
Inventories consist of the following:
|
|
May 2, 2015 |
|
|
|
January 31, 2015 |
|
||
Finished goods |
|
$ |
41,212 |
|
|
|
$ |
37,395 |
|
Raw materials |
|
|
— |
|
|
|
|
24 |
|
Total inventories, net |
|
|
41,212 |
|
|
|
|
37,419 |
|
Net of reserves of: |
|
$ |
8,958 |
|
|
|
$ |
6,471 |
|
|
Note 9. Commitments and Contingencies
We are currently party to various legal proceedings. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse impact on our financial position or results of operations or cash flows, litigation is subject to inherent uncertainties.
|
Note 10. Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-03, “Interest-Imputation of Interest.” The standard requires deferred financing costs to be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts, instead of being presented as a deferred asset in the balance sheet. ASU 2015-03 does not change the recognition and measurement guidance for deferred financing costs. Once adopted, entities are required to apply the new guidance retrospectively to all prior periods presented. ASU 2015-03 is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years and early application is permitted. The Company has elected to early adopt the standard, effective February 1, 2015. Accordingly, the condensed consolidated balance sheets as of May 2, 2015 and January 31, 2015 reflect the deferred financing costs as a direct deduction from the carrying amount of our long-term debt. Refer to Note 5, Long-Term Debt, for further information.
|
Note 11. Segment Financial Information
We operate and manage our business by distribution channel and have identified two reportable segments, as further described below. We considered both similar and dissimilar economic characteristics, internal reporting and management structures, as well as products, customers, and supply chain logistics to identify the following reportable segments:
|
Wholesale segment—consists of our operations to distribute products to premier department stores and specialty stores in the United States and select international markets; and |
|
Direct-to-consumer segment—consists of our operations to distribute products directly to the consumer through our branded full-price specialty retail stores, outlet stores, and e-commerce platform. |
The accounting policies of our segments are consistent with those described in Note 1 to the audited Consolidated Financial Statements of VHC for the fiscal year ended January 31, 2015 included in the 2014 Annual Report on Form 10K. Unallocated corporate expenses are comprised of selling, general, and administrative expenses attributable to corporate and administrative activities, and other charges that are not directly attributable to our operating segments. Unallocated corporate assets are comprised of the carrying values of our goodwill and unamortized trademark, deferred tax assets, and other assets that will be utilized to generate revenue for both of our reportable segments.
Our wholesale segment sells apparel to our direct-to-consumer segment at cost. The wholesale intercompany sales of $5,816 and $2,030 have been excluded from the net sales totals presented below for the three months ended May 2, 2015 and May 3, 2014, respectively. Furthermore, as intercompany sales are sold at cost, no intercompany profit is reflected in operating income presented below.
Summary information for our operating segments is presented below (in thousands).
|
|
Three Months Ended |
|
|||||
|
|
May 2, |
|
|
May 3, |
|
||
|
|
2015 |
|
|
2014 |
|
||
Net Sales: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
38,287 |
|
|
$ |
37,322 |
|
Direct-to-consumer |
|
|
21,555 |
|
|
|
16,130 |
|
Total net sales |
|
$ |
59,842 |
|
|
$ |
53,452 |
|
Operating Income: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
14,277 |
|
|
$ |
13,078 |
|
Direct-to-consumer |
|
|
2,371 |
|
|
|
2,477 |
|
Subtotal |
|
|
16,648 |
|
|
|
15,555 |
|
Unallocated expenses |
|
|
(11,547 |
) |
|
|
(10,348 |
) |
Total operating income |
|
$ |
5,101 |
|
|
$ |
5,207 |
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
732 |
|
|
$ |
90 |
|
Direct-to-consumer |
|
|
2,901 |
|
|
|
1,115 |
|
Unallocated corporate |
|
|
2,627 |
|
|
|
133 |
|
Total capital expenditure |
|
$ |
6,260 |
|
|
$ |
1,338 |
|
|
|
May 2, 2015 |
|
|
January 31, 2015 |
|
||
Total Assets: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
58,500 |
|
|
$ |
70,635 |
|
Direct-to-consumer |
|
|
35,685 |
|
|
|
33,793 |
|
Unallocated corporate |
|
|
274,956 |
|
|
|
274,220 |
|
Total assets |
|
$ |
369,141 |
|
|
$ |
378,648 |
|
|
Note 12. Related Party Transactions
Shared Services Agreement
In connection with the consummation of our IPO on November 27, 2013, Vince, LLC entered into a Shared Services Agreement pursuant to which Kellwood provides support services in various operational areas, including, among other things, e-commerce operations, distribution, logistics, information technology, accounts payable, credit and collections and payroll and benefits. Since the IPO, we have been working on transitioning certain back office functions performed by Kellwood under the Shared Services Agreement. Among these functions that have transitioned to Vince are certain accounting related functions as well as benefits administration. We have also been working on developing our own information technology infrastructure and are now in the process of implementing our own enterprise resource planning (“ERP”) system. We have engaged with a new e-commerce platform provider and migrated the human resource recruitment system. The new ERP system is planned to be completed and functional by the end of fiscal year 2015, however, until such time, we will continue to utilize the Kellwood information technology infrastructure under the Shared Services Agreement.
We are invoiced by Kellwood monthly for the services provided under the Shared Services Agreement and generally are required to pay within 15 business days of receiving such invoice. The payments will be trued-up and can be disputed once each fiscal quarter is completed. As of May 2, 2015, we have recorded $1,460 in other accrued expenses to recognize amounts payable to Kellwood under the Shared Services Agreement.
Tax Receivable Agreement
VHC entered into a Tax Receivable Agreement with the Pre-IPO Stockholders on November 27, 2013. We and our former subsidiaries have generated certain tax benefits (including NOLs and tax credits) prior to the Restructuring Transactions consummated in connection with our IPO and will generate certain section 197 intangible deductions (the “Pre-IPO Tax Benefits”), which would reduce the actual liability for taxes that we might otherwise be required to pay. The Tax Receivable Agreement provides for payments to the Pre-IPO Stockholders in an amount equal to 85% of the aggregate reduction in taxes payable realized by us and our subsidiaries from the utilization of the Pre-IPO Tax Benefits (the “Net Tax Benefit”).
For purposes of the Tax Receivable Agreement, the Net Tax Benefit equals (i) with respect to a taxable year, the excess, if any, of (A) our liability for taxes using the same methods, elections, conventions and similar practices used on the relevant company return assuming there were no Pre-IPO Tax Benefits over (B) our actual liability for taxes for such taxable year (the “Realized Tax Benefit”), plus (ii) for each prior taxable year, the excess, if any, of the Realized Tax Benefit reflected on an amended schedule applicable to such prior taxable year over the Realized Tax Benefit reflected on the original tax benefit schedule for such prior taxable year, minus (iii) for each prior taxable year, the excess, if any, of the Realized Tax Benefit reflected on the original tax benefit schedule for such prior taxable year over the Realized Tax Benefit reflected on the amended schedule for such prior taxable year; provided, however, that to the extent any of the adjustments described in clauses (ii) and (iii) were reflected in the calculation of the tax benefit payment for any subsequent taxable year, such adjustments shall not be taken into account in determining the Net Tax Benefit for any subsequent taxable year.
As of May 2, 2015 we had an obligation of $168,964 under the Tax Receivable Agreement, which has a remaining term of nine years. Approximately $22,818 is included as a component of other accrued expenses and $146,146 is included as other liabilities on our condensed consolidated balance sheet as of May 2, 2015. The tax benefit payment with respect to the 2014 taxable year totaling approximately $22,818 plus accrued interest is expected to be paid in the fourth quarter of fiscal 2015.
Sun Capital Consulting Agreement
On November 27, 2013, we entered into an agreement with Sun Capital Management to (i) reimburse Sun Capital Management or any of its affiliates providing consulting services under the agreement for out-of-pocket expenses incurred in providing consulting services to us and (ii) provide Sun Capital Management with customary indemnification for any such services.
During the three months ended May 2, 2015, we paid Sun Capital Management approximately $7 for reimbursement of expenses under the Sun Capital Consulting Agreement.
|
Note 13. Subsequent Events
On May 29, 2015, the Company made a voluntary pre-payment of $2,500 on the Term Loan Facility.
On June 3, 2015, Vince, LLC entered into a first amendment to the Revolving Credit Facility. The amendment, among other things, amended the line of credit from $50,000 to $80,000 subject to a loan cap of $70,000 so long as debt obligations remain outstanding under our existing Term Loan Facility (as defined in Note 5) and extended the maturity date of the Revolving Credit Facility from November 27, 2018 to June 3, 2020.
|
(A) Description of Business: Vince is a leading contemporary fashion brand best known for modern effortless style and everyday luxury essentials. Established in 2002, the brand now offers a wide range of women’s, men’s and children’s apparel, women’s and men’s footwear, and handbags. We reach our customers through a variety of channels, specifically through premier wholesale department stores and specialty stores in the United States (“U.S.”) and select international markets, as well as through our branded retail locations and our website. We design our products in the U.S. and source the vast majority of our products from contract manufacturers outside the U.S., primarily in Asia and South America. Products are manufactured to meet our product specifications and labor standards.
(B) Basis of Presentation: The accompanying 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 January 31, 2015, as set forth in the 2014 Annual Report on Form 10-K.
The condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries as of May 2, 2015. 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. As used in this report, unless the context requires otherwise, “our,” “us,” “we” and the “Company” refer to VHC and its consolidated subsidiaries.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-03, “Interest-Imputation of Interest.” The standard requires deferred financing costs to be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts, instead of being presented as a deferred asset in the balance sheet. ASU 2015-03 does not change the recognition and measurement guidance for deferred financing costs. Once adopted, entities are required to apply the new guidance retrospectively to all prior periods presented. ASU 2015-03 is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years and early application is permitted. The Company has elected to early adopt the standard, effective February 1, 2015. Accordingly, the condensed consolidated balance sheets as of May 2, 2015 and January 31, 2015 reflect the deferred financing costs as a direct deduction from the carrying amount of our long-term debt. Refer to Note 5, Long-Term Debt, for further information.
|
Goodwill balances and changes therein subsequent to the January 31, 2015 condensed consolidated balance sheet are as follows (in thousands):
|
|
Gross Goodwill |
|
|
Accumulated Impairment |
|
|
Net Goodwill |
|
|||
Balance as of January 31, 2015 |
|
$ |
110,688 |
|
|
$ |
(46,942 |
) |
|
$ |
63,746 |
|
Balance as of May 2, 2015 |
|
$ |
110,688 |
|
|
$ |
(46,942 |
) |
|
$ |
63,746 |
|
Identifiable intangible assets summary (in thousands):
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|||
Balance as of January 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
11,970 |
|
|
$ |
(4,176 |
) |
|
$ |
7,794 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
101,850 |
|
|
|
— |
|
|
|
101,850 |
|
Total intangible assets |
|
$ |
113,820 |
|
|
$ |
(4,176 |
) |
|
$ |
109,644 |
|
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|||
Balance as of May 2, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
11,970 |
|
|
$ |
(4,326 |
) |
|
$ |
7,644 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
101,850 |
|
|
|
— |
|
|
|
101,850 |
|
Total intangible assets |
|
$ |
113,820 |
|
|
$ |
(4,326 |
) |
|
$ |
109,494 |
|
|
Long-term debt consisted of the following as of May 2, 2015 and January 31, 2015 (in thousands).
|
|
May 2, 2015 |
|
|
January 31, 2015 |
|
||
Term Loan Facility |
|
$ |
62,500 |
|
|
$ |
65,000 |
|
Revolving Credit Facility |
|
|
20,578 |
|
|
|
23,000 |
|
Total long-term debt principal |
|
$ |
83,078 |
|
|
$ |
88,000 |
|
Less: Deferred financing costs (1) |
|
|
3,318 |
|
|
|
3,550 |
|
Total long-term debt |
|
$ |
79,760 |
|
|
$ |
84,450 |
|
(1) |
Pursuant to new accounting guidance issued by the Financial Accounting Standards Board in April 2015, entities are no longer required to present deferred financing costs as a deferred asset. The guidance is effective for our fiscal year beginning in 2016, however, the Company has early adopted this accounting standard update effective as of February 1, 2015 and accordingly adjusted the January 31, 2015 comparative balance sheet to conform to the new classification presentation. There was no other impact on the financial statements related to the adoption other than the reclassification change on the condensed consolidated balance sheet. Refer to Note 10, Recent Accounting Pronouncements, for further information regarding the accounting standard update. |
|
Inventories consist of the following:
|
|
May 2, 2015 |
|
|
|
January 31, 2015 |
|
||
Finished goods |
|
$ |
41,212 |
|
|
|
$ |
37,395 |
|
Raw materials |
|
|
— |
|
|
|
|
24 |
|
Total inventories, net |
|
|
41,212 |
|
|
|
|
37,419 |
|
Net of reserves of: |
|
$ |
8,958 |
|
|
|
$ |
6,471 |
|
|
Summary information for our operating segments is presented below (in thousands).
|
|
Three Months Ended |
|
|||||
|
|
May 2, |
|
|
May 3, |
|
||
|
|
2015 |
|
|
2014 |
|
||
Net Sales: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
38,287 |
|
|
$ |
37,322 |
|
Direct-to-consumer |
|
|
21,555 |
|
|
|
16,130 |
|
Total net sales |
|
$ |
59,842 |
|
|
$ |
53,452 |
|
Operating Income: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
14,277 |
|
|
$ |
13,078 |
|
Direct-to-consumer |
|
|
2,371 |
|
|
|
2,477 |
|
Subtotal |
|
|
16,648 |
|
|
|
15,555 |
|
Unallocated expenses |
|
|
(11,547 |
) |
|
|
(10,348 |
) |
Total operating income |
|
$ |
5,101 |
|
|
$ |
5,207 |
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
732 |
|
|
$ |
90 |
|
Direct-to-consumer |
|
|
2,901 |
|
|
|
1,115 |
|
Unallocated corporate |
|
|
2,627 |
|
|
|
133 |
|
Total capital expenditure |
|
$ |
6,260 |
|
|
$ |
1,338 |
|
|
|
May 2, 2015 |
|
|
January 31, 2015 |
|
||
Total Assets: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
58,500 |
|
|
$ |
70,635 |
|
Direct-to-consumer |
|
|
35,685 |
|
|
|
33,793 |
|
Unallocated corporate |
|
|
274,956 |
|
|
|
274,220 |
|
Total assets |
|
$ |
369,141 |
|
|
$ |
378,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|