VINCE HOLDING CORP., 10-K filed on 4/25/2018
Annual Report
v3.8.0.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Feb. 03, 2018
Mar. 30, 2018
Jul. 29, 2017
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Feb. 03, 2018    
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Trading Symbol VNCE    
Entity Registrant Name VINCE HOLDING CORP.    
Entity Central Index Key 0001579157    
Current Fiscal Year End Date --02-03    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Non-accelerated Filer    
Entity Common Stock, Shares Outstanding   11,616,500  
Entity Public Float     $ 12.2
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Feb. 03, 2018
Jan. 28, 2017
Current assets:    
Cash and cash equivalents $ 5,372 $ 20,978
Trade receivables, net 20,760 10,336
Inventories, net 48,921 38,529
Prepaid expenses and other current assets 6,521 4,768
Total current assets 81,574 74,611
Property and equipment, net 31,608 42,945
Intangible assets, net 77,099 77,698
Goodwill 41,435 41,435
Deferred income taxes 379  
Other assets 2,439 2,791
Total assets 234,534 239,480
Current liabilities:    
Accounts payable 22,556 37,022
Accrued salaries and employee benefits 6,715 3,427
Other accrued expenses 7,906 9,992
Current portion of long-term debt 8,000  
Total current liabilities 45,177 50,441
Long-term debt 40,682 48,298
Deferred rent 15,633 16,892
Other liabilities 58,273 137,830
Commitments and contingencies (Note 5)
Stockholders' equity (deficit):    
Common stock at $0.01 par value (100,000,000 shares authorized, 11,616,500 and 4,942,760 shares issued and outstanding at February 3, 2018 and January 28, 2017, respectively) 116 49
Additional paid-in capital 1,113,342 1,083,172
Accumulated deficit (1,038,624) (1,097,137)
Accumulated other comprehensive loss (65) (65)
Total stockholders' equity (deficit) 74,769 (13,981)
Total liabilities and stockholders' equity (deficit) $ 234,534 $ 239,480
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Feb. 03, 2018
Oct. 23, 2017
Oct. 22, 2017
Sep. 06, 2017
Sep. 05, 2017
Jan. 28, 2017
Statement Of Financial Position [Abstract]            
Common stock, par value $ 0.01         $ 0.01
Common stock, shares authorized 100,000,000 100,000,000 250,000,000 250,000,000 100,000,000 100,000,000
Common stock, shares issued 11,616,500         4,942,760
Common stock, shares outstanding 11,616,500         4,942,760
v3.8.0.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Feb. 03, 2018
Jan. 28, 2017
Jan. 30, 2016
Income Statement [Abstract]      
Net sales $ 272,582 $ 268,199 $ 302,457
Cost of products sold 150,793 145,380 169,941
Gross profit 121,789 122,819 132,516
Impairment of goodwill and indefinite-lived intangible asset   53,061  
Selling, general and administrative expenses 140,106 134,430 116,790
(Loss) income from operations (18,317) (64,672) 15,726
Interest expense, net 5,540 3,932 5,680
Other (income) expense, net (81,882) 329 1,733
Income (loss) before income taxes 58,025 (68,933) 8,313
(Benefit) provision for income taxes (572) 93,726 3,214
Net income (loss) $ 58,597 $ (162,659) $ 5,099
Earnings (loss) per share:      
Basic earnings (loss) per share $ 7.70 $ (35.04) $ 1.39
Diluted earnings (loss) per share $ 7.70 $ (35.04) $ 1.36
Weighted average shares outstanding:      
Basic 7,605,822 4,642,053 3,677,043
Diluted 7,608,427 4,642,053 3,752,922
v3.8.0.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Feb. 03, 2018
Jan. 28, 2017
Jan. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]      
Net income (loss) $ 58,597 $ (162,659) $ 5,099
Comprehensive income (loss) $ 58,597 $ (162,659) $ 5,099
v3.8.0.1
Consolidated Statements of Stockholders' Equity (Deficit) - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Loss [Member]
Beginning Balance at Jan. 31, 2015 $ 71,969 $ 37 $ 1,011,574 $ (939,577) $ (65)
Beginning Balance, shares at Jan. 31, 2015   3,674,824      
Comprehensive income (loss):          
Net income (loss) 5,099     5,099  
Share-based compensation expense 1,259   1,259    
Exercise of stock options 175   175    
Exercise of stock options, shares   2,620      
Restricted stock unit vestings 0 $ 0 0 0 0
Restricted stock unit vestings, shares   497      
Ending Balance at Jan. 30, 2016 78,502 $ 37 1,013,008 (934,478) (65)
Ending Balance, shares at Jan. 30, 2016   3,677,941      
Comprehensive income (loss):          
Net income (loss) (162,659)     (162,659)  
Common stock issuance, net of certain costs 64,110 $ 12 64,098    
Common stock issuance, net of certain costs, shares   1,181,818      
Share-based compensation expense 1,344   1,344    
Exercise of stock options and issuance of common stock under employee stock purchase plan 4,722   4,722    
Exercise of stock options and issuance of common stock under employee stock purchase plan, shares   81,543      
Restricted stock unit vestings 0 $ 0 0 0 0
Restricted stock unit vestings, shares   1,458      
Ending Balance at Jan. 28, 2017 $ (13,981) $ 49 1,083,172 (1,097,137) (65)
Ending Balance, shares at Jan. 28, 2017 4,942,760 4,942,760      
Comprehensive income (loss):          
Net income (loss) $ 58,597     58,597  
Common stock issuance, net of certain costs 28,973 $ 67 28,906    
Common stock issuance, net of certain costs, shares   6,666,666      
Share-based compensation expense 1,138   1,138    
Exercise of stock options and issuance of common stock under employee stock purchase plan 42   42    
Exercise of stock options and issuance of common stock under employee stock purchase plan, shares   4,244      
Restricted stock unit vestings 0 $ 0 0 0 0
Restricted stock unit vestings, shares   3,137      
Shares cancelled as a result of the reverse stock split   (307)      
Cumulative effect of the adoption of new accounting pronouncement     84 (84)  
Ending Balance at Feb. 03, 2018 $ 74,769 $ 116 $ 1,113,342 $ (1,038,624) $ (65)
Ending Balance, shares at Feb. 03, 2018 11,616,500 11,616,500      
v3.8.0.1
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Feb. 03, 2018
Jan. 28, 2017
Jan. 30, 2016
Operating activities      
Net income (loss) $ 58,597,000 $ (162,659,000) $ 5,099,000
Add (deduct) items not affecting operating cash flows:      
Impairment of goodwill and indefinite-lived intangible asset   53,061,000  
Depreciation and amortization 10,098,000 8,684,000 8,350,000
Adjustment to Tax Receivable Agreement obligation (82,002,000)    
Impairment of property and equipment 5,111,000 2,082,000 0
Provision for inventories 810,000 839,000 16,263,000
Deferred rent (1,269,000) 413,000 1,723,000
Deferred income taxes (379,000) 93,444,000 2,745,000
Share-based compensation expense 1,138,000 1,344,000 1,259,000
Other 1,240,000 701,000 1,634,000
Changes in assets and liabilities:      
Receivables, net (10,280,000) (936,000) 24,397,000
Inventories (11,202,000) (2,792,000) (15,420,000)
Prepaid expenses and other current assets (1,753,000) 598,000 3,441,000
Accounts payable and accrued expenses (9,785,000) (24,414,000) 1,044,000
Other assets and liabilities (711,000) (25,000) 1,093,000
Net cash (used in) provided by operating activities (40,387,000) (29,660,000) 51,628,000
Investing activities      
Payments for capital expenditures (3,379,000) (14,287,000) (17,591,000)
Net cash used in investing activities (3,379,000) (14,287,000) (17,591,000)
Financing activities      
Proceeds from borrowings under the Revolving Credit Facility 421,403,000 181,367,000 115,127,000
Repayment of borrowings under the Revolving Credit Facility (409,703,000) (191,167,000) (123,127,000)
Repayment of borrowings under the Term Loan Facility (12,000,000)   (20,000,000)
Proceeds from common stock issuance, net of transaction costs 28,973,000 63,773,000  
Proceeds from stock option exercises and issuance of common stock under employee stock purchase plan 42,000 4,722,000 175,000
Financing fees (555,000)   (94,000)
Net cash provided by (used in) financing activities 28,160,000 58,695,000 (27,919,000)
(Decrease) increase in cash and cash equivalents (15,606,000) 14,748,000 6,118,000
Cash and cash equivalents, beginning of period 20,978,000 6,230,000 112,000
Cash and cash equivalents, end of period 5,372,000 20,978,000 6,230,000
Supplemental Disclosures of Cash Flow Information      
Cash payments on Tax Receivable Agreement obligation   29,700,000  
Cash payments for interest 4,682,000 2,952,000 3,838,000
Cash payments for income taxes, net of refunds (239,000) 330,000 1,491,000
Supplemental Disclosures of Non-Cash Investing and Financing Activities      
Capital expenditures in accounts payable and accrued liabilities $ 20,000 $ 1,054,000 $ 309,000
v3.8.0.1
Description of Business and Summary of Significant Accounting Policies
12 Months Ended
Feb. 03, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Description of Business and Summary of Significant Accounting Policies

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

On November 27, 2013, Vince Holding Corp. (“VHC” 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 Kellwood Holding, LLC acquired the non-Vince businesses, which included Kellwood Company, LLC (“Kellwood Company” or Kellwood”), from the Company. 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. 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”) (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 VHC.

On November 18, 2016, Kellwood Intermediate Holding, LLC and Kellwood Company, LLC entered into a Unit Purchase Agreement with Sino Acquisition, LLC (the “Kellwood Purchaser”) whereby the Kellwood Purchaser agreed to purchase all of the outstanding equity interests of Kellwood Company, LLC. Prior to the closing, Kellwood Intermediate Holding, LLC and Kellwood Company, LLC conducted a pre-closing reorganization pursuant to which certain assets of Kellwood Company, LLC were distributed to a newly formed subsidiary of Kellwood Intermediate Holding, LLC, St. Louis Transition, LLC (“St. Louis, LLC”). The transaction closed on December 21, 2016 (the “Kellwood Sale”).

(A) Description of Business: Established in 2002, Vince is a global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day. The collections are inspired by the brand’s California origins and embody a feeling of warm and effortless style. Vince designs uncomplicated yet refined pieces that approach dressing with a sense of ease.  Known for its range of luxury products, Vince offers wide array of women’s and men’s ready-to-wear, shoes, and capsule collection of handbags, and home for a global lifestyle. The Company reaches its customers through a variety of channels, specifically through major wholesale department stores and specialty stores in the United States (“U.S.”) and select international markets, as well as through the Company’s branded retail locations and the Company’s website. The Company designs products in the U.S. and sources the vast majority of products from contract manufacturers outside the U.S., primarily in Asia. Products are manufactured to meet the Company’s product specifications and labor standards.

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

The consolidated financial statements include the Company’s accounts and the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 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.

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

 

References to “fiscal year 2017” or “fiscal 2017” refer to the fiscal year ended February 3, 2018;

 

References to “fiscal year 2016” or “fiscal 2016” refer to the fiscal year ended January 28, 2017; and

 

References to “fiscal year 2015” or “fiscal 2015” refer to the fiscal year ended January 30, 2016.

Fiscal 2017 consisted of a 53-week period. Fiscal years 2016 and 2015 consisted of a 52-week period.

(D) Reverse Stock Split: At the close of business on October 23, 2017, the Company effected a 1-for-10 reverse stock split (the “Reverse Stock Split”). The Company’s common stock began trading on a split-adjusted basis when the market opened on October 24, 2017. Pursuant to the Reverse Stock Split, every 10 shares of the Company’s issued and outstanding common stock were automatically converted into one share of common stock. No fractional shares were issued if, as a result of the Reverse Stock Split, a stockholder would otherwise have been entitled to a fractional share. Instead, each stockholder was entitled to receive a cash payment based on a pre-split cash in lieu rate of $0.48, which was the average closing price per share on the New York Stock Exchange for the five consecutive trading days immediately preceding October 23, 2017.

The number of authorized shares of common stock has also been reduced from 250,000,000 to 100,000,000. The Company had increased the number of authorized shares from 100,000,000 to 250,000,000 on September 6, 2017 in connection with the closing of the 2017 Rights Offering and related 2017 Investment Agreement (each as defined below) on September 8, 2017.

The accompanying financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise noted. The calculation of basic and diluted net earnings (loss) per share, as presented in the consolidated statements of operations, have been determined based on a retroactive adjustment of weighted average shares outstanding for all periods presented. To reflect the reverse stock split on shareholders’ equity, the Company reclassified an amount equal to the par value of the reduced shares from the common stock par value account to the additional paid in capital account, resulting in no net impact to shareholders' equity on the Consolidated Balance Sheets.

(E) Sources and Uses of Liquidity:  The Company’s sources of liquidity are cash and cash equivalents, cash flows from operations, if any, borrowings available under the Revolving Credit Facility and the Company’s ability to access capital markets. The Company’s primary cash needs are funding working capital requirements, meeting debt service requirements, paying amounts due under the Tax Receivable Agreement and capital expenditures for new stores and related leasehold improvements.

During the last three fiscal years the Company has experienced a decline in operating profitability and in fiscal 2016 and 2017 used cash flows generated from financing activities to fund a portion of its operating cash needs. For the fiscal year ended January 28, 2017 considering the historical sales performance of the Company, actions of lenders and certain vendors, and the difficulties to project the current retail environment, management had concluded that then existing conditions in the business raised substantial doubt about the Company’s ability to meet its financial obligations, specifically to comply with the Consolidated Net Total Leverage Ratio under its Term Loan Facility, and therefore disclosed such conclusion in its Annual Report on Form 10-K for the fiscal year ended January 28, 2017. During fiscal 2017, management fully executed the actions below in order to address and relieve the substantial doubt referenced above and to satisfy the Company’s liquidity needs:

 

In June 2017, the Company entered into a Term Loan Amendment which, among other things, (i) waives the Consolidated Net Total Leverage Ratio (as defined in the Term Loan Facility) covenant for the test periods from July 2017 through and including April 2019; and (ii) requires, beginning with the payment due on or around January 2018, the Company to pay a quarterly amortization payment of $3,000 for such fiscal quarter and $2,000 for each fiscal quarter thereafter, provided that there is not less than $15,000 of “availability” under the Revolving Credit Facility on a pro forma basis immediately before and after giving effect to such amortization payment. See Note 4 “Long-Term Debt and Financing Arrangements” for additional details.

 

 

In June 2017, the Company entered into an amendment to the Revolving Credit Facility which included increasing the borrowing base under the Revolving Credit Facility, thereby increasing availability under this facility. See Note 4 “Long-Term Debt and Financing Arrangements” for additional details.

 

In July 2017, Vince, LLC (“Vince”), an indirect wholly-owned subsidiary of the Company, entered into an agreement with Rebecca Taylor, Inc. (“Rebecca Taylor”) relating to the purchase and resale of certain Vince branded finished goods in order to address recent demands from certain vendors for accelerated payment terms or prepayments as a condition to delivering finished goods to the Company. Using the proceeds that were received from the 2017 Rights Offering and related 2017 Investment Agreement, the Company settled any previously outstanding balances and has returned to normal terms with its key inventory vendors. Additionally, the Company has not utilized the sourcing agreement with Rebecca Taylor since September 2017, and management does not intend to utilize this agreement in the future. See Note 12 “Related Party Transactions” for additional details.

 

 

In August 2017, the Company entered into an Investment Agreement (the “2017 Investment Agreement”) with Sun Cardinal, LLC and SCSF Cardinal, LLC (collectively, the “Sun Cardinal Investors”) and the Company commenced a rights offering (the “2017 Rights Offering”). See Note 12 “Related Party Transactions” for additional details.

 

Management executed cost reduction initiatives in fiscal 2017 in order to improve the Company’s financial performance. The Company entered into limited distribution arrangements with Nordstrom, Inc. and Neiman Marcus Group LTD, which took effect in late fiscal 2017, in order to rationalize its department store distribution strategy which is intended to improve profitability in the Wholesale segment in the future and enable management to focus on other areas of growth for the brand, particularly in the Direct-to-consumer segment. The Company also expanded its product offerings during the fourth quarter of fiscal 2017 with the launch of its capsule home collection and the re-launch of its handbag collection. Management expects that the majority of the benefit from these cost savings and other strategic initiatives will be fully realized in fiscal 2018.

The Company believes these actions will generate sufficient liquidity to fund its working capital and capital expenditure needs, meet its Tax Receivable Agreement obligations, and satisfy its debt maturities and covenants under the Term Loan Facility and Revolving Credit Facility for the next twelve months. While we believe based upon our actions to date that we will have sufficient liquidity for the next twelve months, there can be no assurances in the future that we will be able to generate sufficient cash flow from operations to meet our liquidity needs. The Company’s ability to continue to meet its obligations is dependent on its ability to generate positive cash flow from a combination of initiatives and failure to successfully implement these initiatives could have a material adverse effect on the Company’s liquidity and operations in which case the Company would need to implement alternative plans, such as attempting to obtain other financing, in an effort to satisfy our liquidity needs.

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

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

(G) Cash and cash equivalents:  All demand deposits and highly liquid short-term deposits with original maturities of three months or less are considered cash equivalents.

(H) Accounts Receivable and Concentration of Credit Risk: The Company maintains an allowance for accounts receivable estimated to be uncollectible. The provision for bad debts is included in selling, general and administrative expense. Substantially all of the Company’s trade receivables are derived from sales to retailers and are recorded at the invoiced amount and do not bear interest. The Company performs ongoing credit evaluations of its wholesale partners’ financial condition and requires collateral as deemed necessary. The past due status of a receivable is based on its contractual terms. Account balances are charged off against the allowance when it is probable the receivable will not be collected.

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

In fiscal 2017, sales to one wholesale partner accounted for more than ten percent of the Company’s net sales. These sales represented 21.9% of fiscal 2017 net sales. In fiscal 2016, sales to three wholesale partners each accounted for more than ten percent of the Company’s net sales. These sales represented 19.6%, 14.4% and 10.8% of fiscal 2016 net sales. In fiscal 2015, sales to three wholesale partners each accounted for more than ten percent of the Company’s net sales. These sales represented 18.3%, 13.8% and 10.8% of fiscal 2015 net sales.

Two wholesale partners each represented greater than ten percent of the Company’s gross accounts receivable balance as of February 3, 2018, with a corresponding aggregate total of 49.4% of such balance. Three wholesale partners each represented greater than ten percent of the Company’s gross accounts receivable balance as of January 28, 2017, with a corresponding aggregate total of 57.5% of such balance.

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

Inventories consisted of the following:

 

 

 

February 3,

 

 

January 28,

 

(in thousands)

 

2018

 

 

2017

 

Finished goods

 

$

50,900

 

 

$

40,771

 

Less: reserves

 

 

(1,979

)

 

 

(2,242

)

Total inventories, net

 

$

48,921

 

 

$

38,529

 

 

(J) Property and Equipment: Property and equipment are stated at cost. Depreciation is computed on the straight-line method over estimated useful lives of three to seven years for furniture, fixtures, and equipment. Leasehold improvements are depreciated on the straight-line basis over the shorter of their estimated useful lives or the lease term, excluding renewal terms. Capitalized software is depreciated on the straight-line basis over the estimated economic useful life of the software, generally three to seven years. Maintenance and repair costs are charged to earnings while expenditures for major renewals and improvements are capitalized. Upon the disposition of property and equipment, the accumulated depreciation is deducted from the original cost and any gain or loss is reflected in current earnings. Property and equipment consisted of the following:

 

 

 

February 3,

 

 

January 28,

 

(in thousands)

 

2018

 

 

2017

 

Leasehold improvements

 

$

37,307

 

 

$

41,214

 

Furniture, fixtures and equipment

 

 

11,985

 

 

 

12,267

 

Capitalized software

 

 

11,239

 

 

 

10,862

 

Construction in process

 

 

71

 

 

 

236

 

Total property and equipment

 

 

60,602

 

 

 

64,579

 

Less: accumulated depreciation

 

 

(28,994

)

 

 

(21,634

)

Property and equipment, net

 

$

31,608

 

 

$

42,945

 

 

Depreciation expense was $8,480, $7,070 and $6,426 for fiscal 2017, fiscal 2016 and fiscal 2015, respectively.

(K) Impairment of Long-lived Assets: The Company reviews long-lived assets with a finite life for existence of facts and circumstances which indicate that the useful life is shorter than previously estimated or that the carrying amount of such assets may not be recoverable from future operations based on undiscounted expected future cash flows. Impairment losses are then recognized in operating results to the extent discounted expected future cash flows are less than the carrying value of the asset. The long-lived asset impairment test is dependent on a number of factors, including estimates of future growth, profitability and cash flows, discount rates and other variables. During fiscal 2017 and fiscal 2016, the Company recorded non-cash asset impairment charges of $5,111 and $2,082 within Selling, general and administrative expenses in the Consolidated Statements of Operations, related to the impairment of certain retail stores with asset carrying values that were determined not to be recoverable and exceeded fair value. There were no significant impairment charges related to long-lived assets recorded in fiscal 2015.

(L) Goodwill and Other Intangible Assets: Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually and in an interim period if a triggering event occurs. The Company completed its annual impairment testing on its goodwill and indefinite-lived intangible asset during the fourth quarters of fiscal 2017, fiscal 2016 and fiscal 2015. Goodwill is not allocated to the Company’s operating segments in the measure of segment assets regularly reported to and used by management, however goodwill is allocated to operating segments (goodwill reporting units) for the purpose of the annual impairment test for goodwill.

Goodwill represents the excess of the cost of acquired businesses over the fair market value of the identifiable net assets. The indefinite-lived intangible asset is the Vince tradename.

An entity may elect to perform a qualitative impairment assessment for goodwill and indefinite-lived intangible assets. If adverse qualitative trends are identified during the qualitative assessment that indicate that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount, a quantitative impairment test is required. “Step one” of the quantitative impairment test for goodwill requires an entity to determine the fair value of each reporting unit and compare such fair value to the respective carrying amount. If the estimated fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired, and the Company is not required to perform further testing. In accordance with new accounting guidance adopted on January 29, 2017, if the carrying amount of the reporting unit exceeds its estimated fair value, an impairment loss is recorded for the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Prior to the adoption of the new accounting guidance, if the carrying amount of the reporting unit exceeded its estimated fair value, “step two” of the impairment test was performed in order to determine the amount of the impairment loss. “Step two” of the goodwill impairment test included valuing the tangible and intangible assets of the impaired reporting unit based on the fair value determined in “step one” and calculating the fair value of the impaired reporting unit's goodwill based upon the residual of the summed identified tangible and intangible assets and liabilities. The goodwill impairment test is dependent on a number of factors, including estimates of future growth, profitability and cash flows, discount rates and other variables. The Company bases its estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates.  

The Company estimates the fair value of the tradename intangible asset using a discounted cash flow valuation analysis, which is based on the “relief from royalty” methodology.  This methodology assumes that in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. The relief from royalty approach is dependent on a number of factors, including estimates of future growth, royalty rates in the category of intellectual property, discount rates and other variables.  The Company bases its fair value estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The Company recognizes an impairment loss when the estimated fair value of the tradename intangible asset is less than the carrying value.

An entity may pass on performing the qualitative assessment for a reporting unit or indefinite-lived intangible asset and directly perform the quantitative assessment. This determination can be made on an asset by asset basis, and an entity may resume performing a qualitative assessment in subsequent periods.

In fiscal 2017, the Company elected to perform a quantitative impairment test on goodwill. The results of the quantitative test did not result in any impairment of goodwill, which amounted to $41,435 as of February 3, 2018, because the fair value of the Company’s Wholesale reporting unit exceeded its carrying value by approximately 35%. Significant assumptions utilized in the discounted cash flow analysis included a discount rate of 15.0%. Significant assumptions utilized in a market-based approach were market multiples ranging from 1.10x to 1.16x.

In fiscal 2016, a quantitative impairment test on goodwill determined that the fair value of the Direct-to-consumer reporting unit was below its carrying value. During fiscal 2016, the sales results within the Direct-to-consumer reporting unit were impacted by continued declines in average order values as well as declines in the number of transactions due to lower conversion rates and reduced traffic and as a result, the Direct-to-consumer reporting unit did not meet expectations resulting in lower current and expected future cash flows. The Company estimated the fair value of its Direct-to-consumer reporting unit using both the income and market valuation approaches, with a weighting of 80% and 20%, respectively. “Step one” of the assessment determined that the fair value of the Direct-to-consumer reporting unit was below the carrying amount by approximately 40%.  Accordingly, “step two” of the assessment was performed, which compared the implied fair value of the goodwill to the carrying value of such goodwill by performing a hypothetical purchase price allocation using the fair value of the reporting unit determined in “step one”. Based on the results from “step two,” the Company recorded a goodwill impairment charge of $22,311, to write-off all of the goodwill in the Direct-to-consumer reporting unit. The charge was recorded in Impairment of goodwill and indefinite-lived intangible asset in the Consolidated Statements of Operations, during the fourth quarter of fiscal 2016. Additionally, the results of “step one” of the assessment determined that the fair value of the Wholesale reporting unit exceeded its carrying amount by approximately 40% and therefore did not result in any impairment of goodwill. However, further declines in the net sales or operating results of the Wholesale reporting unit may result in a partial or full impairment of its goodwill, which amounted to $41,435 as of January 28, 2017. Significant assumptions utilized in the discounted cash flow analysis included a discount rate of 16.0%. Significant assumptions utilized in a market-based approach were market multiples ranging from 0.50x to 0.90x for the Company’s reporting units.

In fiscal 2015, the Company elected to perform a quantitative impairment test on goodwill. The results of the quantitative test did not result in any impairment of goodwill because the fair values of each of the Company’s reporting units exceeded their respective carrying values. As such, the Company was not required to perform “step two” of the impairment test.

In fiscal 2017, the Company elected to perform a quantitative assessment on its tradename intangible asset. The results of the quantitative test did not result in any impairment because the fair value of the Company’s tradename intangible asset exceeded its carrying value. The estimate of fair value of the tradename intangible asset was determined using a discounted cash flow valuation analysis, which was based on the “relief from royalty” methodology. Discount rate assumptions were based on an assessment of the risk inherent in the projected future cash flows generated by the intangible asset. Also subject to judgment are assumptions about royalty rates, which were based on the estimated rates at which similar tradenames are being licensed in the marketplace.

In fiscal 2016, a quantitative assessment of the Company’s tradename intangible asset determined that the fair value of its tradename intangible asset was below its carrying value. During fiscal 2016, the Company’s sales results did not meet expectations resulting in lower current and expected future cash flows. The Company estimated the fair value of its tradename intangible asset using a discounted cash flow valuation analysis, which is based on the “relief from royalty” methodology and determined that the fair value of the tradename intangible asset was below the carrying amount by approximately 30%. Accordingly, the Company recorded an impairment charge for its tradename intangible asset of $30,750, which was recorded in Impairment of goodwill and indefinite-lived intangible asset in the Consolidated Statements of Operations, during the fourth quarter of fiscal 2016. 

In fiscal 2015, the Company elected to perform a quantitative assessment on its tradename intangible asset. The results of the quantitative test did not result in any impairment because the fair value of the Company’s tradename intangible asset exceeded its carrying value.

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

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

See Note 2 “Goodwill and Intangible Assets” for more information on the details surrounding goodwill and intangible assets.

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

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

(O) Revenue Recognition: Sales are recognized when goods are shipped in accordance with customer orders for the Company’s wholesale business, upon receipt by the customer for the Company’s e-commerce business, and at the time of sale to the consumer for the Company’s retail business. Revenue associated with gift cards is recognized upon redemption. For the Company’s wholesale business, amounts billed to customers for shipping and handling costs are not significant. There is no stated obligation to customers after shipment, other than specifically set forth allowances or discounts that are accrued at the time of sale. The rights of inspection or acceptance contained in certain sales agreements are limited to whether the goods received by the Company’s wholesale partners are in conformance with the order specifications.

Estimated amounts of sales discounts, returns and allowances are accounted for as reductions of sales when the associated sale occurs. These estimated amounts are adjusted periodically based on changes in facts and circumstances when the changes become known. Accrued discounts, returns and allowances are included as an offset to accounts receivable in the Consolidated Balance Sheets for the Company’s wholesale business.  

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

 

the cost of purchased merchandise, including raw materials;

 

the cost of inbound transportation, including freight;

 

the cost of the Company’s production and sourcing departments;

 

other processing costs associated with acquiring and preparing the inventory for sale; and

 

shrink and valuation reserves.

(Q) Marketing and Advertising: The Company provides cooperative advertising allowances to certain of its customers. These allowances are accounted for as reductions in sales as discussed in “Revenue Recognition” above. Production expense related to company-directed advertising is deferred until the first time at which the advertisement runs. All other expenses related to company-directed advertising are expensed as incurred. Marketing and advertising expense recorded in selling, general and administrative expenses was $8,939, $8,156 and $9,177 in fiscal 2017, fiscal 2016 and fiscal 2015, respectively. At February 3, 2018 and January 28, 2017, deferred production expenses associated with company-directed advertising were $415 and $182, respectively.

(R) Share-Based Compensation: New, modified and unvested share-based payment transactions with employees, such as stock options and restricted stock units, are measured at fair value and recognized as compensation expense over the requisite service period and is included as a component of Selling, general and administrative expenses in the Consolidated Statements of Operations. Additionally, share-based awards granted to non-employees are expensed over the period in which the related services are rendered at their fair value, using the Black Scholes Pricing Model to determine fair value. Forfeitures are accounted for as they occur.  

(S) Income Taxes: The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities at enacted rates. The Company assesses the likelihood of the realization of deferred tax assets and adjusts the carrying amount of these deferred tax assets by a valuation allowance to the extent the Company believes it more likely than not that all or a portion of the deferred tax assets will not be realized. Many factors are considered when assessing the likelihood of future realization of deferred tax assets, including recent earnings results within taxing jurisdictions, expectations of future taxable income, the carryforward periods available and other relevant factors. Changes in the required valuation allowance are recorded in income in the period such determination is made. The Company recognizes tax positions in the Consolidated Balance Sheets as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with tax authorities assuming full knowledge of the position and all relevant facts. Accrued interest and penalties related to unrecognized tax benefits are included in income taxes in the Consolidated Statements of Operations.

(T) Earnings Per Share: Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Except when the effect would be anti-dilutive, diluted earnings per share is calculated based on the weighted average number of shares of common stock outstanding plus the dilutive effect of share-based awards calculated under the treasury stock method.

(U) Recent Accounting Pronouncements:

Recently Adopted Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify the accounting for goodwill impairment. The guidance removes “step two” of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is effective for interim and annual impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this guidance on January 29, 2017.

In March 2016, the FASB issued guidance regarding share-based compensation, to simplify the accounting for share-based payment transactions, including accounting for forfeitures, income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for interim and annual periods beginning after December 15, 2016. The Company adopted the new guidance on January 29, 2017. Upon adoption, excess tax benefits and deficiencies from share-based compensation are recognized as income tax expense or benefit in the statement of operations as discrete items in the reporting period in which they occur, regardless of whether the benefit reduces taxes payable in the current period. As a result of the adoption of this guidance, the Company recognized an increase of $2,350 to deferred tax assets related to net operating loss carryforwards for the excess tax benefits related to share-based compensation and also recognized an increase of an equal amount in the valuation allowance against such increase of deferred tax assets. As permitted by the new guidance, the Company elected to account for forfeitures as they occur which resulted in an increase of $84 to the accumulated deficit within the Consolidated Balance Sheet. The remaining provisions of the new guidance did not have a material effect on the Company’s consolidated financial statements.  

In November 2015, the FASB issued new guidance on the balance sheet classification of deferred taxes, which requires entities to classify deferred tax assets and liabilities as noncurrent in the consolidated balance sheet. Prior to this new guidance, deferred tax assets and liabilities were classified as current or noncurrent amounts in the consolidated balance sheet. This guidance is effective for financial statements issued for interim and annual periods beginning after December 15, 2016. The Company adopted the new guidance on January 29, 2017 and, as a result of the full valuation allowance previously recorded against the Company’s deferred tax assets, it did not have a material effect on the Company’s Consolidated Balance Sheet.

In July 2015, the FASB issued new guidance on accounting for inventory, which requires entities to measure inventory at the lower of cost and net realizable value. This guidance is effective for interim and annual periods beginning on or after December 15, 2016. The Company adopted the new guidance on January 29, 2017 and it did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In May 2017, the FASB issued guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for interim and annual periods beginning after December 15, 2017. The Company will apply this accounting guidance prospectively to any share-based payment awards modified on or after its February 4, 2018 effective date.

In November 2016, the FASB issued guidance that requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017 using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. This new guidance is not expected to have a material impact on the Company’s Consolidated Statement of Cash Flows.

In August 2016, the FASB issued guidance which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017 and must be applied using a retrospective transition method to each period presented. The Company is evaluating the impact of the adoption of this guidance but does not expect it to have a material impact on its Consolidated Statement of Cash Flows.

In February 2016, the FASB issued a new lease accounting standard, which requires lessees to recognize right-of-use lease assets and lease liabilities on the balance sheet for those leases currently classified as operating leases. The guidance requires a modified retrospective transition approach, with application in all comparative periods presented. The guidance is effective for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.

In May 2014, the FASB issued new guidance on revenue recognition accounting, which requires entities to recognize revenue when promised goods or services are transferred to customers and in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Since its issuance, the FASB has amended several aspects of the new guidance. In August 2015, the FASB elected to defer the effective dates for this guidance, which is now effective for interim and annual periods beginning on or after December 15, 2017. The Company’s assessment efforts included reviewing current accounting policies, processes and arrangements to identify potential differences that could arise from the application of the new guidance. The Company adopted the new guidance in first quarter of 2018, using the modified retrospective approach, and will expand its consolidated financial statement disclosures to comply with the new guidance. The Company determined the adoption of the new guidance will not have a material impact on its consolidated financial statements except for balance sheet reclassifications of sales return reserves which will be recorded in the first quarter of 2018 as a separate asset and liability versus the current net presentation and increased footnote disclosures.

v3.8.0.1
Goodwill and Intangible Assets
12 Months Ended
Feb. 03, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

Note 2. Goodwill and Intangible Assets

Net goodwill balances and changes therein by segment were as follows:

 

(in thousands)

 

Wholesale

 

 

Direct-to-consumer

 

 

Total Net Goodwill

 

Balance as of January 30, 2016

 

$

41,435

 

 

$

22,311

 

 

$

63,746

 

Impairment charge

 

 

 

 

 

(22,311

)

 

 

(22,311

)

Balance as of January 28, 2017

 

 

41,435

 

 

 

 

 

 

41,435

 

Balance as of February 3, 2018

 

$

41,435

 

 

$

 

 

$

41,435

 

 

The total carrying amount of goodwill was net of accumulated impairments of $69,253, $69,253 and $46,942 as of February 3, 2018, January 28, 2017 and January 30, 2016, respectively. During the fourth quarter of fiscal 2016, the Company recorded a $22,311 goodwill impairment charge as a result of the Company’s annual goodwill impairment test. See Note 1 “Description of Business and Summary of Significant Accounting Policies – (L) Goodwill and Other Intangible Assets” for additional details. There were no impairments recorded as a result of the Company’s annual goodwill impairment test performed during fiscal 2017 and fiscal 2015.

The following tables present a summary of identifiable intangible assets:

 

(in thousands)

 

Gross Amount

 

 

Accumulated Amortization

 

 

Accumulated Impairments

 

 

Net Book Value

 

Balance as of February 3, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

11,970

 

 

$

(5,971

)

 

$

 

 

$

5,999

 

Indefinite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename

 

 

101,850

 

 

 

 

 

 

(30,750

)

 

 

71,100

 

Total intangible assets

 

$

113,820

 

 

$

(5,971

)

 

$

(30,750

)

 

$

77,099

 

 

(in thousands)

 

Gross Amount

 

 

Accumulated Amortization

 

 

Accumulated Impairments

 

 

Net Book Value

 

Balance as of January 28, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

11,970

 

 

$

(5,372

)

 

$

 

 

$

6,598

 

Indefinite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename

 

 

101,850

 

 

 

 

 

 

(30,750

)

 

 

71,100

 

Total intangible assets

 

$

113,820

 

 

$

(5,372

)

 

$

(30,750

)

 

$

77,698

 

 

During the fourth quarter of fiscal 2016, the Company recorded a $30,750 impairment charge as a result of the Company’s quantitative assessment on its tradename intangible asset. See Note 1 “Description of Business and Summary of Significant Accounting Policies – (L) Goodwill and Other Intangible Assets” for additional details. No impairments of the Vince tradename were recorded as a result of the Company’s annual asset impairment tests performed during fiscal 2017 and fiscal 2015.

Amortization of identifiable intangible assets was $599, $598 and $598 for fiscal 2017, fiscal 2016 and fiscal 2015, respectively, which is included in Selling, general and administrative expenses on the Consolidated Statements of Operations. Amortization expense for each of the fiscal years 2018 to 2022 is expected to be as follows:

 

 

 

Future

 

(in thousands)

 

Amortization

 

2018

 

$

598

 

2019

 

 

598

 

2020

 

 

598

 

2021

 

 

598

 

2022

 

 

598

 

Total next 5 fiscal years

 

$

2,990

 

 

v3.8.0.1
Fair Value Measurements
12 Months Ended
Feb. 03, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 3. Fair Value Measurements

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 the Company’s assumptions and are not substantially supported by market data

 

The Company did not have any non-financial assets or non-financial liabilities recognized at fair value on a recurring basis at February 3, 2018 or January 28, 2017. At February 3, 2018 and January 28, 2017, the Company believes that the carrying values of cash and cash equivalents, receivables and accounts payable approximate fair value, due to the short-term maturity of these instruments. The Company’s debt obligations with a carrying value of $49,900 as of February 3, 2018 are at variable interest rates and management estimates that the fair value of the Company’s outstanding debt obligations was approximately $42,000 based upon quoted prices in markets that are not active, which is considered a Level 2 input.

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 values. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and intangible assets), non-financial assets are assessed for impairment, and if applicable, written down to (and recorded at) fair value.

The following tables present the non-financial assets the Company measured at fair value on a non-recurring basis in fiscal 2017 and fiscal 2016, based on such fair value hierarchy:

 

 

 

Net Carrying

Value as of

 

 

Fair Value Measured and Recorded at Reporting Date Using:

 

 

Total Losses - Year Ended

 

 

(in thousands)

 

February 3, 2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

February 3, 2018

 

 

Property and equipment

 

$

493

 

 

$

 

 

$

 

 

$

493

 

 

$

5,111

 

(1)

 

 

 

Net Carrying

Value as of

 

 

Fair Value Measured and Recorded at Reporting Date Using:

 

 

Total Losses - Year Ended

 

 

(in thousands)

 

January 28, 2017

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

January 28, 2017

 

 

Property and equipment

 

$

1,042

 

 

$

 

 

$

 

 

$

1,042

 

 

$

2,082

 

(1)

Goodwill

 

 

41,435

 

 

 

 

 

 

 

 

 

41,435

 

 

 

22,311

 

(2)

Tradename

 

 

71,100

 

 

 

 

 

 

 

 

 

71,100

 

 

 

30,750

 

(2)

 

(1) Recorded within Selling, general and administrative expenses on the Consolidated Statements of Operations. See Note 1 “Description of Business and Summary of Significant Accounting Policies – (K) Impairment of Long-lived Assets” for additional information.

(2) Recorded within Impairment of goodwill and indefinite-lived intangible asset on the Consolidated Statements of Operations. See Note 1 “Description of Business and Summary of Significant Accounting Policies (L) Goodwill and Other Intangible Assets” for additional details.

v3.8.0.1
Long-Term Debt and Financing Arrangements
12 Months Ended
Feb. 03, 2018
Debt Disclosure [Abstract]  
Long-Term Debt and Financing Arrangements

Note 4. Long-Term Debt and Financing Arrangements

Long-term debt consisted of the following:

 

 

 

February 3,

 

 

January 28,

 

(in thousands)

 

2018

 

 

2017

 

Term Loan Facility

 

$

33,000

 

 

$

45,000

 

Revolving Credit Facility

 

 

16,900

 

 

 

5,200

 

Total debt principal

 

 

49,900

 

 

 

50,200

 

Less: current portion of long-term debt

 

 

8,000

 

 

 

 

Less: deferred financing costs

 

 

1,218

 

 

 

1,902

 

Total long-term debt

 

$

40,682

 

 

$

48,298

 

 

Term Loan Facility

On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, Vince, LLC and Vince Intermediate Holding, LLC, a direct subsidiary of VHC and the direct parent company of Vince, LLC (“Vince Intermediate”), entered into a $175,000 senior secured term loan facility (as amended from time to time, the “Term Loan Facility”) with the lenders party thereto, Bank of America, N.A. (“BofA”) as administrative agent, JP Morgan 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. Vince, LLC and Vince Intermediate are borrowers (together, the “Borrowers”) and VHC is a guarantor under the Term Loan Facility.

On June 30, 2017, the Borrowers entered into a Waiver, Consent and First Amendment (the “Term Loan Amendment”) which, among other things, (i) waives the Consolidated Net Total Leverage Ratio (as defined in the Term Loan Facility) covenant (as described below) for the test periods from July 2017 through and including April 2019; (ii) requires the Borrowers, beginning with the payment due on or around January 2018, to pay a quarterly amortization payment of $3,000 for such fiscal quarter and $2,000 for each fiscal quarter thereafter, provided that there is not less than $15,000 of “availability” under the Revolving Credit Facility on a pro forma basis immediately before and after giving effect to such amortization payment; (iii) prohibits the Company from making any payments on the Tax Receivable Agreement (see Note 12 “Related Party Transactions” for further information) before the first amortization payment referenced above is made or if the Borrowers are not current on any of the foregoing amortization payments; (iv) increases the applicable margin by 2.0% per annum on all term loan borrowings; (v) requires the Borrowers to pay a fee to consenting term lenders equal to 0.5% of the outstanding principal amount of such lender’s term loans as of the effective date of the Term Loan Amendment; (vi) eliminates the Borrower’s ability to designate subsidiaries as unrestricted and to make certain payments, restricted payments and investments with certain funds considered “available excess amount” (as defined in the Term Loan Facility); (vii) eliminates the uncommitted incremental facility; and (viii) limits certain intercompany transactions between a loan party and a non-loan party subsidiary. If the Company is unable to make the full amortization payment specified in (ii) above on any of the scheduled amortization payment dates, the Company may defer such payment for up to two fiscal quarters after such payment was due. Any subsequent payments made will first be applied to any previously outstanding amounts. If the Company is unable to make the amortization payment after the permitted two fiscal quarter deferral, it may obtain a note from a third-party to repay such amount.  The note must meet certain terms and conditions as set forth in the Term Loan Amendment. The Term Loan Amendment became effective on September 8, 2017 when the Company received $30,000 of gross proceeds in connection with the 2017 Rights Offering and related 2017 Investment Agreement (see Note 12 “Related Party Transactions” for further details) and used a portion of such proceeds to repay $9,000 in principal amount under the Term Loan Facility.

Effective with the Term Loan Amendment, 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 7.00% or (ii) the base rate applicable margin of 6.00%. 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 non-default interest rate then applicable to base rate loans. The Term Loan Facility requires Vince, LLC and Vince Intermediate to make mandatory prepayments upon the occurrence of certain events, including additional debt issuances, common and preferred stock issuances, certain asset sales, and annual payments of 50% of excess cash flow, subject to reductions to 25% and 0% if Vince, LLC and Vince Intermediate maintain a Consolidated Net Total Leverage Ratio of 2.50 to 1.00 and 2.00 to 1.00, respectively, and subject to reductions for voluntary prepayments made during such fiscal year.

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 3.25 to 1.00. The Term Loan Facility permits Vince Holding Corp. to make a Specified Equity Contribution, as defined under the Agreement, to the Borrowers in order to increase, dollar for dollar, Consolidated EBITDA for such fiscal quarter for the purposes of determining compliance with this covenant at the end of such fiscal quarter and applicable subsequent periods provided that (a) in each four fiscal quarter period there shall be at least two fiscal quarters in which no Specified Equity Contribution is made; (b) no more than five Specified Equity Contributions shall be made in the aggregate during the term of the Agreement; and (c) the amount of any Specified Equity Contribution shall be no greater than the amount required to cause the Company to be in compliance with this covenant. During April 2017, the Company utilized $6,241 of the funds held by Vince Holding Corp. to make a Specified Equity Contribution in connection with the calculation of the Consolidated Net Total Leverage Ratio as of January 28, 2017. In addition, during May and June 2017, the Company utilized $11,831 of the funds held by Vince Holding Corp. to make Specified Equity Contributions in connection with the calculation of the Consolidated Net Total Leverage Ratio as of April 29, 2017. As discussed above, the Term Loan Amendment waives the Consolidated Net Total Leverage Ratio covenant for the test periods from July 2017 through and including April 2019.

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 the Company’s 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 in an amount not to exceed the excess available amount, as defined in the loan agreement. 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. As of February 3, 2018, after giving effect to the waiver described above, the Company was in compliance with applicable covenants.

Through February 3, 2018, on an inception to date basis, the Company has made repayments totaling $142,000 in the aggregate on the original $175,000 Term Loan Facility entered into on November 27, 2013, with $12,000 of such repayments made during fiscal 2017. As of February 3, 2018, the Company had $33,000 of debt outstanding under the Term Loan Facility.

Revolving Credit Facility

On November 27, 2013, Vince, LLC entered into a $50,000 senior secured revolving credit facility (as amended from time to time, the “Revolving Credit Facility”) with BofA as administrative agent. Vince, LLC is the borrower and VHC and Vince Intermediate are the guarantors under the Revolving Credit Facility. On June 3, 2015, Vince LLC entered into a first amendment to the Revolving Credit Facility, that among other things, increased the aggregate commitments under the facility from $50,000 to $80,000, subject to a loan cap which is the lesser of (i) the Borrowing Base, as defined in the loan agreement, (ii) the aggregate commitments, or (iii) $70,000 until debt obligations under the Company’s Term Loan Facility have been paid in full, and extended the maturity date from November 27, 2018 to June 3, 2020.

On June 22, 2017, Vince, LLC entered into a second amendment to the Revolving Credit Facility, which among other things, increased availability under the borrowing base by (i) including in the borrowing base up to $5,000 of cash at Vince Holding Corp. so long as such cash is in a deposit account subject to “control” by the agent, (ii) temporarily increasing the concentration limit for accounts due from a specified wholesale partner through July 31, 2017 and (iii) pursuant to a side letter, dated June 22, 2017, entered into between Vince LLC and BofA (the “LC Side Letter”), including in the borrowing base certain letters of credit (the “Specified LCs” as described under “Bank of Montreal Facility” below), issued for the benefit of BofA as credit support for the obligations outstanding under the Revolving Credit Facility. The LC Side Letter terminated when the Specified LCs were released, as described below. In addition, the second amendment changed the financial maintenance covenant in the Revolving Credit Facility from a springing minimum EBITDA covenant to a minimum excess availability covenant that must be satisfied at all times. The new financial maintenance covenant requires the loan parties to have excess availability of not less than the greater of 12.5% of the adjusted loan cap then in effect and $5,000. The second amendment also (x) increased the applicable margin on all borrowings of revolving loans by 0.5% per annum and (y) temporarily lowered the thresholds for what constituted a trigger event through August 15, 2017, such that a trigger event meant the greater of 12.5% of the adjusted loan cap then in effect and $5,000.  Following August 15, 2017, the trigger event means the greater of 15% of the adjusted loan cap then in effect and $6,000. The second amendment also changed the maturity date to the earlier of (a) June 3, 2020 (or a later date as applicable if the lender participates in any extension series) and (b) 120 days prior to the then scheduled maturity date of the Term Loan Facility to the extent that there are outstanding obligations under the Term Loan Facility on such date.  

The Revolving Credit Facility also provides for a letter of credit sublimit of $25,000 (plus any increase in aggregate commitments) and an accordion option that allows for an increase in aggregate commitments up to $20,000. Effective with the second amendment, interest is payable on the loans under the Revolving Credit Facility at either the LIBOR or the Base Rate, in each case, plus an applicable margin of 1.75% to 2.25% for LIBOR loans or 0.75% to 1.75% for Base Rate loans, and in each case subject to a pricing grid based on an average daily 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 also 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 the Company’s 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 adjusted loan cap and $10,000 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 1.0 to 1.0 (provided that the Consolidated Fixed Charge Coverage Ratio may be less than 1.0 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 adjusted loan cap and $15,000).  As of February 3, 2018, the Company was in compliance with applicable financial covenants. The second amendment replaced and superseded all side letters previously entered into between Vince, LLC and BofA.

On March 28, 2018, Vince, LLC entered into a third amendment to the Revolving Credit Facility. See Note 14 “Subsequent Event” for additional details.

As of February 3, 2018, $38,560 was available under the Revolving Credit Facility, net of the amended loan cap, and there were $16,900 of borrowings outstanding and $8,260 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 February 3, 2018 was 3.7%.

As of January 28, 2017, $27,157 was available under the Revolving Credit Facility, net of the amended loan cap, and there were $5,200 of borrowings outstanding and $7,474 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 January 28, 2017 was 4.3%.

Bank of Montreal Facility

On June 22, 2017, Vince, LLC entered into a credit facility agreement with the Bank of Montreal to issue the Specified LCs (the “BMO LC Line”), as discussed under the Revolving Credit Facility above. The BMO LC Line was guaranteed by Sun Capital Fund V, L.P., an affiliate of Sun Capital Partners, Inc. The initial BMO LC Line was issued in the amount of $5,000. The maximum draw amount for all Specified LCs was $10,000. The BMO LC Line was unsecured but may have been secured subject to the terms of an intercreditor agreement between BofA and Bank of Montreal. BofA was permitted to draw on the Specified LCs upon the occurrence of certain events specified therein. In the event BofA drew on the Specified LCs upon the occurrence of a draw event, the loan would have been subject to certain customary terms and conditions pursuant to the applicable loan authorization document. The BMO LC Line also could have been released upon request by Vince, LLC so long as the Company had received at least $30,000 of cash proceeds from the 2017 Rights Offering, $15,000 of which must have been used to repay the principal amount of the outstanding loans under the Revolving Credit Facility (without permanent reduction of commitments) or the Excess Availability would have been greater than $10,000 after giving pro forma effect to the 2017 Rights Offering proceeds. The undrawn portion of the face amount of the Specified LCs was subject to a standard 3% annual fee. On October 31, 2017, at the request of the Company, the BMO LC Line was released upon satisfaction of the above release conditions.

v3.8.0.1
Commitments and Contingencies
12 Months Ended
Feb. 03, 2018
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 5. Commitments and Contingencies

Leases

The Company leases its office, showroom space and retail stores under operating leases which have remaining terms up to ten years, excluding renewal terms. Most of the Company’s real estate leases contain covenants that require the Company to pay real estate taxes, insurance, and other executory costs. Certain of these leases require contingent rent payments or contain kick-out clauses and/or opt-out clauses, based on the operating results of the retail operations utilizing the leased premises. Rent under leases with scheduled rent changes or lease concessions are recorded on a straight-line basis over the lease term. Rent expense under all operating leases was $22,575, $23,545 and $20,015 for fiscal 2017, fiscal 2016 and fiscal 2015, respectively, the majority of which is recorded within selling, general and administrative expenses.

The future minimum lease payments under operating leases at February 3, 2018 were as follows:

 

 

 

Minimum Lease

 

(in thousands)

 

Payments

 

Fiscal 2018

 

$

21,122

 

Fiscal 2019

 

 

21,291

 

Fiscal 2020

 

 

19,819

 

Fiscal 2021

 

 

18,588

 

Fiscal 2022

 

 

16,506

 

Thereafter

 

 

36,194

 

Total minimum lease payments

 

$

133,520

 

 

Other Contractual Cash Obligations

At February 3, 2018, the Company’s other contractual cash obligations of $43,466 consisted primarily of inventory purchase obligations and service contracts.

Litigation

The Company is a party to legal proceedings, compliance matters, environmental as well as wage and hour and other labor claims that arise in the ordinary course of its business. Although the outcome of such items cannot be determined with certainty, management believes that the ultimate outcome of these items, individually and in the aggregate, will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.

v3.8.0.1
Share-Based Compensation
12 Months Ended
Feb. 03, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

Note 6. Share-Based Compensation

Employee Stock Plans

Vince 2013 Incentive Plan

In connection with the IPO, the Company adopted the Vince 2013 Incentive Plan, which provides for grants of stock options, stock appreciation rights, restricted stock and other stock-based awards. The aggregate number of shares of common stock which may be issued or used for reference purposes under the Vince 2013 Incentive Plan or with respect to which awards may be granted may not exceed 340,000 shares, as adjusted to reflect the Reverse Stock Split. The shares available for issuance under the Vince 2013 Incentive Plan may be, in whole or in part, either authorized and unissued shares of the Company’s common stock or shares of common stock held in or acquired for the Company’s treasury. In general, if awards under the Vince 2013 Incentive Plan are cancelled for any reason, or expire or terminate unexercised, the shares covered by such award may again be available for the grant of awards under the Vince 2013 Incentive Plan. As of February 3, 2018, there were 150,563 shares under the Vince 2013 Incentive Plan available for future grants. Options granted pursuant to the Vince 2013 Incentive Plan typically vest in equal installments over four years, subject to the employees’ continued employment and expire on the earlier of the tenth anniversary of the grant date or upon termination as outlined in the Vince 2013 Incentive Plan. Restricted stock units granted vest in equal installments over a three-year period or vest in equal installments over four years, subject to the employees’ continued employment.

The consultancy agreements with the non-employee consultants ended in February 2017 and as a result, 17,659 shares were forfeited. In May 2017, the remaining 29,432 previously vested shares expired.

Employee Stock Purchase Plan

The Company maintains an employee stock purchase plan (“ESPP”) for its employees. Under the ESPP, all eligible employees may contribute up to 10% of their base compensation, up to a maximum contribution of $10 per year. The purchase price of the stock is 90% of the fair market value, with purchases executed on a quarterly basis. The plan is defined as compensatory, and accordingly, a charge for compensation expense is recorded to selling, general and administrative expense for the difference between the fair market value and the discounted purchase price of the Company’s Stock. During fiscal 2017 and fiscal 2016, 4,244 and 788 shares of common stock, respectively, were issued under the ESPP. As of February 3, 2018, there were 94,979 shares available for future issuance under the ESPP, as adjusted to reflect the Reverse Stock Split.

Stock Options

A summary of stock option activity for both employees and non-employees for fiscal 2017 is as follows:

 

 

 

Stock Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (years)

 

 

Aggregate Intrinsic Value

(in thousands)

 

Outstanding at January 28, 2017

 

 

225,812

 

 

$

45.27

 

 

 

8.9

 

 

$

 

Granted

 

 

19,150

 

 

$

9.90

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Forfeited or expired

 

 

(74,205

)

 

$

43.15

 

 

 

 

 

 

 

 

 

Outstanding at February 3, 2018

 

 

170,757

 

 

$

42.23

 

 

 

8.1

 

 

$

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable at February 3, 2018

 

 

79,253

 

 

$

45.00

 

 

 

7.9

 

 

$

 

 

Of the above outstanding shares, 91,504 are expected to vest.

As permitted by new accounting guidance that became effective for the Company on January 29, 2017, the Company has elected to account for forfeitures as they occur, which resulted in an increase of $84 to accumulated deficit within the Consolidated Balance Sheet.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal 2017 and the exercise price, multiplied by the number of such in-the-money options) that would have been received by the option holders had all options holders exercised their options on February 3, 2018. This amount changes based on the fair market value of the Company’s common stock. Total intrinsic value of options exercised during fiscal 2017, fiscal 2016 and fiscal 2015 (based on the differences between the Company’s stock price on the respective exercise date and the respective exercise price, multiplied by the number of respective options exercised) was $0, $640 and $316, respectively.

The Company’s weighted average assumptions used to estimate the fair value of stock options granted during fiscal 2017, fiscal 2016 and fiscal 2015 were estimated using a Black-Scholes option valuation model. Due to the limited trading history of the Company’s common stock, the volatility and expected term assumptions used were based on averages from a peer group of publicly traded retailers. The risk-free interest rate was based upon the U.S. Treasury yield curve in effect at the grant date.

 

 

 

Fiscal Year

 

 

 

2017

 

 

2016

 

 

2015

 

Weighted-average expected volatility

 

 

39.4

%

 

 

42.6

%

 

 

46.0

%

Expected term (in years)

 

4.7 years

 

 

4.2 years

 

 

4.5 years

 

Risk-free interest rate

 

 

1.9

%

 

 

1.1

%

 

 

1.4

%

Expected dividend yield

 

%

 

 

%

 

 

%

 

 

Based on these assumptions used, the weighted average grant date fair value for options granted to employees during fiscal 2017, fiscal 2016 and fiscal 2015 was $3.57 per share, $12.21 per share and $17.48 per share, respectively. The weighted average grant date fair value for options granted to non-employees in fiscal 2015 was $14.46 per share.

At February 3, 2018, there was $1,034 of unrecognized compensation costs related to stock options granted to employees that will be recognized over a remaining weighted average period of 1.5 years.

Restricted Stock Units

A summary of restricted stock unit activity for fiscal 2017 is as follows:

 

 

 

Restricted Stock Units

 

 

Weighted Average Grant Date Fair Value

 

Nonvested restricted stock units at January 28, 2017

 

 

10,771

 

 

$

65.52

 

Granted

 

 

7,500

 

 

$

6.00

 

Vested

 

 

(3,575

)

 

$

77.50

 

Forfeited

 

 

(1,460

)

 

$

59.80

 

Nonvested restricted stock units at February 3, 2018

 

 

13,236

 

 

$

29.19

 

 

The weighted average grant date fair value for restricted stock units granted during fiscal 2016 and fiscal 2015 was $57.98 and $72.74, respectively. The total fair value of restricted stock units vested during fiscal 2017, fiscal 2016 and fiscal 2015 was $277, $191 and $125, respectively.

At February 3, 2018, there was $267 of unrecognized compensation costs related to restricted stock units that will be recognized over a remaining weighted average period of 1.3 years.

Share-Based Compensation Expense

During fiscal 2017, the Company recognized share-based compensation expense of $1,138 and a related tax benefit of $0. During fiscal 2016, the Company recognized share-based compensation expense of $1,344, including $348 of expense related to non-employees, and a related tax benefit of $0. During fiscal 2015, the Company recognized share-based compensation expense of $1,259, including $160 of expense related to non-employees, and a related tax benefit of $504, including $64 of tax benefit related to non-employees.

v3.8.0.1
Defined Contribution Plan
12 Months Ended
Feb. 03, 2018
Compensation And Retirement Disclosure [Abstract]  
Defined Contribution Plan

Note 7. Defined Contribution Plan

On May 1, 2015, the Company adopted the Vince Holding Corp. 401(k) Plan (“401k Plan”), which is a defined contribution plan covering all U.S.-based employees. Employees who meet certain eligibility requirements may participate in this program by contributing between 1% and 100% of annual compensation to the 401k Plan, subject to IRS limitations. The Company may make matching contributions in an amount equal to 50% of employee contributions up to 3% of eligible compensation. Prior to the adoption of the 401k Plan, employees of the Company participated in the Kellwood Company Retirement Savings Plan administered by Kellwood Holding, LLC. The annual expense incurred by the Company for defined contribution plans was $544, $405 and $426 in fiscal 2017, fiscal 2016 and fiscal 2015, respectively.

v3.8.0.1
Stockholders' Equity
12 Months Ended
Feb. 03, 2018
Equity [Abstract]  
Stockholders' Equity

Note 8. Stockholders’ Equity

Common Stock

The Company currently has authorized for issuance 100,000,000 shares of its voting common stock, par value of $0.01 per share. The Company had increased the number of authorized shares of its voting common stock from 100,000,000 to 250,000,000 on September 6, 2017 in connection with the closing of the 2017 Rights Offering and related 2017 Investment Agreement on September 8, 2017. On October 23, 2017, the Company decreased the number of authorized shares of its voting common stock from 250,000,000 to 100,000,000.

As of February 3, 2018 and January 28, 2017, the Company had 11,616,500 and 4,942,760 shares issued and outstanding, respectively.

Reverse Stock Split

At the close of business on October 23, 2017, the Company effected a 1-for-10 Reverse Stock Split. The Company’s common stock began trading on a split-adjusted basis when the market opened on October 24, 2017. Pursuant to the Reverse Stock Split, every 10 shares of the Company’s issued and outstanding common stock were automatically converted into one share of common stock. No fractional shares were issued if, as a result of the Reverse Stock Split, a stockholder would otherwise have been entitled to a fractional share. Instead, each stockholder was entitled to receive a cash payment based on a pre-split cash in lieu rate of $0.48, which was the average closing price per share on the New York Stock Exchange for the five consecutive trading days immediately preceding October 23, 2017.

2017 Rights Offering

On September 8, 2017, the Company issued an aggregate of 6,666,666 shares in conjunction with the completed 2017 Rights Offering and 2017 Investment Agreement. See Note 12 “Related Party Transactions” for additional information.

2016 Rights Offering

On April 22, 2016, the Company issued an aggregate of 1,181,818 shares in conjunction with the completed 2016 Rights Offering and 2016 Investment Agreement. See Note 12 “Related Party Transactions” for additional information.

Dividends

The Company has not paid dividends, and the Company’s current ability to pay such dividends is restricted by the terms of its debt agreements. The Company’s future dividend policy will be determined on a yearly basis and will depend on earnings, financial condition, capital requirements, and certain other factors. The Company does not expect to declare dividends with respect to its common stock in the foreseeable future.

v3.8.0.1
Earnings Per Share
12 Months Ended
Feb. 03, 2018
Earnings Per Share [Abstract]  
Earnings Per Share

Note 9. Earnings Per Share

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

 

 

 

Fiscal Year

 

 

 

2017

 

 

2016

 

 

2015

 

Weighted-average shares—basic

 

 

7,605,822

 

 

 

4,642,053

 

 

 

3,677,043

 

Effect of dilutive equity securities

 

 

2,605

 

 

 

 

 

 

75,879

 

Weighted-average shares—diluted

 

 

7,608,427

 

 

 

4,642,053

 

 

 

3,752,922

 

 

Because the Company incurred a net loss for the fiscal year ended January 28, 2017, weighted-average basic shares and weighted-average diluted shares outstanding are equal for the period.

For the fiscal years ended February 3, 2018, January 28, 2017 and January 30, 2016, 190,363, 171,913 and 73,230 options to purchase common stock, respectively, were excluded from the computation of weighted average shares for diluted earnings per share since the related exercise prices exceeded the average market price of the Company’s common stock and such inclusion would be anti-dilutive.

On September 8, 2017, the Company issued an aggregate of 6,666,666 shares in conjunction with the completed 2017 Rights Offering and 2017 Investment Agreement. See Note 12 “Related Party Transactions” for additional information. On April 22, 2016, the Company issued an aggregate of 1,181,818 shares in conjunction with the completed 2016 Rights Offering and 2016 Investment Agreement. See Note 12 “Related Party Transactions” for additional information.

v3.8.0.1
Income Taxes
12 Months Ended
Feb. 03, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

Note 10. Income Taxes

 

On December 22, 2017, U.S. tax reform legislation known as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA makes substantial changes to U.S. tax law, including a reduction in the corporate tax rate, a limitation on deductibility of interest expense, a limitation on the use of net operating losses to offset future taxable income, and the allowance of immediate expensing of capital expenditures. The Company has estimated the impact of the TCJA incorporating assumptions made based upon its current interpretation of the TCJA in accordance with SEC Staff issued Staff Accounting Bulletin No. 118 (“SAB 118”). Given the timing of the enactment of the TCJA on December 22, 2017, the SEC issued guidance under SAB 118 directing taxpayers to consider the impact of the new legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effects resulting from the change in law. The Company has recognized the provisional tax impacts related to revaluation of its deferred tax assets, and included those amounts in the consolidated financial statements for the year ended February 3, 2018. The actual impact of the TCJA may differ from the Company’s estimates due to, among other things, further refinement of its calculations, changes in interpretations and assumptions made, guidance that may be issued and actions the Company may take as a result of the TCJA. The Company expects the accounting to be completed within the one year measurement period, as allowed under SAB 118.

 

As a result of the enactment of the Tax Cuts and Jobs Act in the U.S., the Company recognized a net income tax benefit of $379 from the valuation allowance release associated with minimum tax credits which can be utilized and/or refunded in the future. The reduction in deferred tax assets due to the rate change from 35% to 21% of $43,655 was offset with a corresponding decrease in valuation allowance of $43,655.

The provision for income taxes consisted of the following:

 

 

Fiscal Year

 

(in thousands)

2017

 

 

2016

 

 

2015

 

Current:

 

 

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

 

 

Federal

$

(295

)

 

$

 

 

$

(53

)

State

 

32

 

 

 

207

 

 

 

522

 

Foreign

 

70

 

 

 

75

 

 

 

 

Total current

 

(193

)

 

 

282

 

 

 

469

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

 

 

Federal

 

(379

)

 

 

83,323

 

 

 

2,994

 

State

 

 

 

 

10,121

 

 

 

(249

)

Total deferred

 

(379

)

 

 

93,444

 

 

 

2,745

 

Total provision for income taxes

$

(572

)

 

$

93,726

 

 

$

3,214

 

 

The sources of income (loss) before provision for income taxes are from the United States and the Company’s French branch. The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions.

Current income taxes are the amounts payable under the respective tax laws and regulations on each year’s earnings. Deferred income tax assets and liabilities represent the tax effects of revenues, costs and expenses, which are recognized for tax purposes in different periods from those used for financial statement purposes.

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

 

 

Fiscal Year

 

 

2017

 

 

2016

 

 

2015

 

Statutory federal rate

 

33.7

%

 

 

35.0

%

 

 

35.0

%

State taxes, net of federal benefit

 

(4.3

)%

 

 

5.5

%

 

 

6.5

%

Nondeductible Tax Receivable Agreement adjustment (1)

 

(47.6

)%

 

 

0.4

%

 

 

4.1

%

Valuation allowance

 

19.0

%

 

 

(176.8

)%

 

 

(0.5

)%

Return to provision adjustment

 

(0.9

)%

 

 

(0.1

)%

 

 

(2.4

)%

Impact of TCJA and other changes in tax law

 

(0.5

)%

 

—%

 

 

 

(3.2

)%

Rate Differential on Foreign Income

 

0.1

%

 

—%

 

 

—%

 

Other

 

(0.5

)%

 

—%

 

 

 

(0.8

)%

Total

 

(1.0

)%

 

 

(136.0

)%

 

 

38.7

%

 

 

(1)

Non-deductible Tax Receivable Agreement liability revaluation due to TCJA and change in levels of projected pre-tax income. See “Tax Receivable Agreement” under Note 12 “Related Party Transactions” for additional information.

Deferred income tax assets and liabilities consisted of the following:

 

 

February 3,

 

 

January 28,

 

(in thousands)

2018

 

 

2017

 

Deferred tax assets:

 

 

 

 

 

 

 

Depreciation and amortization

$

13,317

 

 

$

28,353

 

Employee related costs

 

2,001

 

 

 

2,361

 

Allowance for asset valuations

 

2,441

 

 

 

4,817

 

Accrued expenses

 

4,725

 

 

 

7,349

 

Net operating losses

 

71,122

 

 

 

83,670

 

Tax credits

 

498

 

 

 

812

 

Other

 

490

 

 

 

489

 

Total deferred tax assets

 

94,594

 

 

 

127,851

 

Less: valuation allowances

 

(92,590

)

 

 

(122,860

)

Net deferred tax assets

 

2,004

 

 

 

4,991

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Cancellation of debt income

 

(1,473

)

 

 

(4,607

)

Other