VINCE HOLDING CORP., 10-K filed on 4/12/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Feb. 02, 2019
Mar. 29, 2019
Aug. 04, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Feb. 02, 2019    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol VNCE    
Entity Registrant Name VINCE HOLDING CORP.    
Entity Central Index Key 0001579157    
Current Fiscal Year End Date --02-02    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Non-accelerated Filer    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   11,622,994  
Entity Public Float     $ 55.1
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Feb. 02, 2019
Feb. 03, 2018
Current assets:    
Cash and cash equivalents $ 118 $ 5,372
Trade receivables, net 28,896 20,760
Inventories, net 53,271 48,921
Prepaid expenses and other current assets 6,317 6,521
Total current assets 88,602 81,574
Property and equipment, net 25,156 31,608
Intangible assets, net 76,501 77,099
Goodwill 41,435 41,435
Deferred income taxes 203 379
Other assets 3,034 2,439
Total assets 234,931 234,534
Current liabilities:    
Accounts payable 28,787 22,556
Accrued salaries and employee benefits 5,510 6,715
Other accrued expenses 8,535 7,906
Current portion of long-term debt 2,750 8,000
Total current liabilities 45,582 45,177
Long-term debt 42,340 40,682
Deferred rent 14,636 15,633
Other liabilities 58,273 58,273
Commitments and contingencies (Note 5)
Stockholders' equity:    
Common stock at $0.01 par value (100,000,000 shares authorized, 11,622,994 and 11,616,500 shares issued and outstanding at February 2, 2019 and February 3, 2018, respectively) 116 116
Additional paid-in capital 1,114,695 1,113,342
Accumulated deficit (1,040,646) (1,038,624)
Accumulated other comprehensive loss (65) (65)
Total stockholders' equity 74,100 74,769
Total liabilities and stockholders' equity $ 234,931 $ 234,534
v3.19.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Feb. 02, 2019
Feb. 03, 2018
Oct. 23, 2017
Oct. 22, 2017
Sep. 06, 2017
Sep. 05, 2017
Statement Of Financial Position [Abstract]            
Common stock, par value $ 0.01 $ 0.01        
Common stock, shares authorized 100,000,000 100,000,000 100,000,000 250,000,000 250,000,000 100,000,000
Common stock, shares issued 11,622,994 11,616,500        
Common stock, shares outstanding 11,622,994 11,616,500        
v3.19.1
Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Income Statement [Abstract]      
Net sales $ 278,951 $ 272,582 $ 268,199
Cost of products sold 148,226 150,793 145,380
Gross profit 130,725 121,789 122,819
Impairment of goodwill and indefinite-lived intangible asset     53,061
Selling, general and administrative expenses 126,586 140,106 134,430
Income (loss) from operations 4,139 (18,317) (64,672)
Interest expense, net 5,882 5,540 3,932
Other expense (income), net 225 (81,882) 329
(Loss) income before income taxes (1,968) 58,025 (68,933)
Provision (benefit) for income taxes 54 (572) 93,726
Net (loss) income and comprehensive (loss) income $ (2,022) $ 58,597 $ (162,659)
Earnings (loss) per share:      
Basic (loss) earnings per share $ (0.17) $ 7.70 $ (35.04)
Diluted (loss) earnings per share $ (0.17) $ 7.70 $ (35.04)
Weighted average shares outstanding:      
Basic 11,619,828 7,605,822 4,642,053
Diluted 11,619,828 7,608,427 4,642,053
v3.19.1
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. 30, 2016 $ 78,502 $ 37 $ 1,013,008 $ (934,478) $ (65)
Beginning 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      
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      
Comprehensive income (loss):          
Net income (loss) $ (2,022)     (2,022)  
Share-based compensation expense 1,335   1,335    
Exercise of stock options and issuance of common stock under employee stock purchase plan 18   18    
Exercise of stock options and issuance of common stock under employee stock purchase plan, shares   1,654      
Restricted stock unit vestings 0 $ 0 0 0 0
Restricted stock unit vestings, shares   4,840      
Ending Balance at Feb. 02, 2019 $ 74,100 $ 116 $ 1,114,695 $ (1,040,646) $ (65)
Ending Balance, shares at Feb. 02, 2019 11,622,994 11,622,994      
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Operating activities      
Net (loss) income $ (2,022) $ 58,597 $ (162,659)
Add (deduct) items not affecting operating cash flows:      
Impairment of goodwill and indefinite-lived intangible asset     53,061
Depreciation and amortization 8,138 10,098 8,684
Adjustment to Tax Receivable Agreement obligation   (82,002)  
Impairment of property and equipment 1,684 5,111 2,082
Loss on disposal of property and equipment 293    
Deferred rent (1,286) (1,269) 413
Deferred income taxes 176 (379) 93,444
Share-based compensation expense 1,335 1,138 1,344
Loss on debt extinguishment 816    
Amortization of deferred financing cost 660 1,239 483
Other   1 218
Changes in assets and liabilities:      
Receivables, net (8,136) (10,280) (936)
Inventories (4,350) (10,392) (1,953)
Prepaid expenses and other current assets 633 (1,738) 544
Accounts payable and accrued expenses 5,634 (9,785) (24,414)
Other assets and liabilities   (711) (25)
Net cash provided by (used in) operating activities 3,575 (40,372) (29,714)
Investing activities      
Payments for capital expenditures (3,070) (3,379) (14,287)
Net cash used in investing activities (3,070) (3,379) (14,287)
Financing activities      
Proceeds from (repayment of) borrowings under the Revolving Credit Facilities 2,116 11,700 (9,800)
Proceeds from borrowings under the Term Loan Facilities 27,500    
Repayment of borrowings under the Term Loan Facilities (33,000) (12,000)  
Proceeds from common stock issuance, net of transaction costs   28,973 63,773
Proceeds from stock option exercises and issuance of common stock under employee stock purchase plan 18 42 4,722
Financing fees (2,455) (555)  
Net cash (used in) provided by financing activities (5,821) 28,160 58,695
(Decrease) increase in cash, cash equivalents, and restricted cash (5,316) (15,591) 14,694
Cash, cash equivalents, and restricted cash, beginning of period 5,445 21,036 6,342
Cash, cash equivalents, and restricted cash, end of period 129 5,445 21,036
Supplemental Disclosures of Cash Flow Information      
Cash payments on Tax Receivable Agreement obligation 351   29,700
Cash payments for interest 4,482 4,682 2,952
Cash payments for income taxes, net of refunds (9) (239) 330
Supplemental Disclosures of Non-Cash Investing and Financing Activities      
Capital expenditures in accounts payable and accrued liabilities $ 41 $ 20 $ 1,054
v3.19.1
Description of Business and Summary of Significant Accounting Policies
12 Months Ended
Feb. 02, 2019
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 women’s and men’s ready-to-wear and footwear, as well as capsule collection of handbags, fragrance and home for a global lifestyle. Vince products are sold in prestige locations worldwide. 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 as of February 2, 2019. 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 for a fair statement.

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

(C) Fiscal Year: 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 2018” or “fiscal 2018” refer to the fiscal year ended February 2, 2019;

 

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

 

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

Fiscal 2017 consisted of a 53-week period. Fiscal years 2018 and 2016 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 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 2018 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.

(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 2018, sales to two wholesale partner accounted for more than ten percent of the Company’s net sales. These sales represented 33.7% of fiscal 2018 net sales. 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.

Three wholesale partners each represented greater than ten percent of the Company’s gross accounts receivable balance as of February 2, 2019, with a corresponding aggregate total of 67.0% of such balance. Three 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.

(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 finished goods. As of February 2, 2019 and February 3, 2018, finished goods, net of reserves were $53,271 and $48,921, respectively.  

(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 2,

 

 

February 3,

 

(in thousands)

 

2019

 

 

2018

 

Leasehold improvements

 

$

36,284

 

 

$

37,307

 

Furniture, fixtures and equipment

 

 

11,447

 

 

 

11,985

 

Capitalized software

 

 

10,677

 

 

 

11,239

 

Construction in process

 

 

124

 

 

 

71

 

Total property and equipment

 

 

58,532

 

 

 

60,602

 

Less: accumulated depreciation

 

 

(33,376

)

 

 

(28,994

)

Property and equipment, net

 

$

25,156

 

 

$

31,608

 

 

Depreciation expense was $7,379, $8,480 and $7,070 for fiscal 2018, fiscal 2017 and fiscal 2016, 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 2018, fiscal 2017 and fiscal 2016, the Company recorded non-cash asset impairment charges of $1,684, $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.

 

(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 2018, fiscal 2017 and fiscal 2016. 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 2018, the Company elected to perform a qualitative impairment test on goodwill and concluded that it is more likely than not that the fair value of the Company’s Wholesale reporting unit exceeds its carrying value and the goodwill is not impaired.

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, 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 2018, the Company elected to perform a qualitative impairment test on its tradename intangible asset and concluded that it is more likely than not that the fair value of the Company’s tradename intangible asset exceeds its carrying value and the tradename intangible asset is not impaired.

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. 

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:  The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs upon the transfer of control in accordance with the contractual terms and conditions of the sale. Sales are recognized when the control of the goods are transferred to the customer 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. See Note 11 “Segment Information” for disaggregated revenue amounts by segment.

 

Revenue associated with gift cards is recognized upon redemption and unredeemed balances are considered contract liability and recorded within other accrued expenses, which are subject to escheatment within the jurisdictions in which it operates. As of February 2, 2019 and February 3, 2018, contract liability was $1,361 and $1,229, respectively. In fiscal 2018, the Company recognized $331 of revenue that was previously included in contract liability as of February 3, 2018.

 

Amounts billed to customers for shipping and handling costs are not material.  Such shipping and handling costs are accounted for as a fulfillment cost and are included in cost of products sold. Sales taxes that are collected by the Company from a customer are excluded from revenue.    

 

Sales are measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. Variable consideration mainly includes discounts, chargebacks, markdown allowances, cooperative advertising programs, and sales returns. Estimated amounts of discounts, chargebacks, markdown allowances, cooperative advertising programs, and sales returns 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. On the Company’s consolidated balance sheet, reserves for sales returns are included within other accrued liabilities, and the value of inventory associated with reserves for sales returns are included in prepaid expenses and other current assets. The Company continues to estimate the amount of sales returns based on known trends and historical return rates.  

 

The following table summarizes the impacts of adopting Topic 606 on the Company’s consolidated balance sheet as of February 2, 2019.

 

 

 

Impact of changes in accounting standard

 

 

 

As

 

 

 

 

 

 

Balances without

 

(in thousands)

 

reported

 

 

Adjustments

 

 

adoption of Topic 606

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables, net

 

 

28,896

 

 

 

(1,524

)

 

 

27,372

 

Prepaid expenses and other current assets

 

 

6,317

 

 

 

(1,410

)

 

 

4,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses

 

 

8,535

 

 

 

(2,934

)

 

 

5,601

 

(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 $10,628, $8,939 and $8,156 in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. At February 2, 2019 and February 3, 2018, deferred production expenses associated with company-directed advertising were $635 and $415, 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 November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of cash flows (Topic 230): Restricted cash”. This guidance 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 Company adopted this guidance in the first quarter of fiscal 2018 using the retrospective transition method to each period presented. The Company’s restricted cash is reserved for payments for claims for its insurance program, which is included in prepaid expenses and other current assets on the Company’s consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the consolidated statement of cash flows.

 

 

February 2,

 

 

February 3,

 

 

 

(in thousands)

2019

 

 

2018

 

 

 

Cash and cash equivalents

$

118

 

 

$

5,372

 

 

 

Restricted cash

11

 

 

73

 

 

 

Total Cash, cash equivalents, and restricted cash

$

129

 

 

$

5,445

 

 

 

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”.  This guidance on revenue recognition accounting 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. The Company adopted this guidance in the first quarter of fiscal 2018 using the modified retrospective cumulative effect transition method. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The impact to the financial statements of this adoption are primarily related to balance sheet reclassification, including amounts associated with the change in balance sheet classification of the sales returns reserves, with no material impact to the statement of operations and comprehensive loss as the Company’s existing revenue recognition policies are in line with the new guidance. Please refer to (O) Revenue Recognition for detailed discussion.

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.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02: “Leases (Topic 842)”, a new lease accounting standard. The guidance requires lessees to recognize right-of-use lease assets and lease liabilities on the balance sheet for those leases currently classified as operating leases. In July 2018, the FASB issued ASU 2018-11: “Leases (Topic 842): Targeted improvements” which provides companies with an additional transition method to apply the new guidance at the adoption date instead of the earliest period presented in the financial statements. The Company expects to utilize this transition method upon adoption. The Company is currently compiling an inventory of lease arrangements in order to determine the impact the new guidance will have on the consolidated financial statements and disclosures. The Company has selected new lease accounting software in preparation for the standard's additional reporting requirements. The Company continues to evaluate the impact of adopting this guidance on the consolidated financial statements.  Based on the assessment to date, the Company expects that the adoption of the guidance will result in a material increase in lease-related assets and liabilities recognized in the Company’s Consolidated Balance Sheets, but the Company is unable to quantify the impact at this time.

v3.19.1
Goodwill and Intangible Assets
12 Months Ended
Feb. 02, 2019
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 28, 2017

 

$

41,435

 

 

$

 

 

$

41,435

 

Balance as of February 3, 2018

 

 

41,435

 

 

 

 

 

 

41,435

 

Balance as of February 2, 2019

 

$

41,435

 

 

$

 

 

$

41,435

 

 

The total carrying amount of goodwill was net of accumulated impairments of $69,253, $69,253 and $69,253 as of February 2, 2019, February 3, 2018 and January 28, 2017, 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 2018 and fiscal 2017.

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 2, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

11,970

 

 

$

(6,569

)

 

$

 

 

$

5,401

 

Indefinite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename

 

 

101,850

 

 

 

 

 

 

(30,750

)

 

 

71,100

 

Total intangible assets

 

$

113,820

 

 

$

(6,569

)

 

$

(30,750

)

 

$

76,501

 

 

(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

 

 

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 2018 and fiscal 2017.

Amortization of identifiable intangible assets was $598, $599 and $598 for fiscal 2018, fiscal 2017 and fiscal 2016, respectively, which is included in Selling, general and administrative expenses on the Consolidated Statements of Operations. Amortization expense for each of the fiscal years 2019 to 2023 is expected to be as follows:

 

 

 

Future

 

(in thousands)

 

Amortization

 

2019

 

$

598

 

2020

 

 

598

 

2021

 

 

598

 

2022

 

 

598

 

2023

 

 

598

 

Total next 5 fiscal years

 

$

2,990

 

 

v3.19.1
Fair Value Measurements
12 Months Ended
Feb. 02, 2019
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 2, 2019 or February 3, 2018. At February 2, 2019 and February 3, 2018, 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 $46,516 as of February 2, 2019 are at variable interest rates. The carrying value of the Company’s 2018 Revolving Credit Facility approximates fair value as the stated interest rate approximates market rate currently available to the Company, which is considered a Level 2 input. The fair value of the Company’s 2018 Term Loan Facility was approximately $27,000 as of February 2, 2019 based upon an estimated market value calculation that factors principal, time to maturity, interest rate, and current cost of debt, which is considered a Level 3 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 2018 and fiscal 2017, 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 2, 2019

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

February 2, 2019

 

 

Property and equipment

 

$

56

 

 

$

 

 

$

 

 

$

56

 

 

$

1,684

 

(1)

 

 

 

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)

 

(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.

 

v3.19.1
Long-Term Debt and Financing Arrangements
12 Months Ended
Feb. 02, 2019
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 2,

 

 

February 3,

 

(in thousands)

 

2019

 

 

2018

 

Term Loan Facilities

 

$

27,500

 

 

$

33,000

 

Revolving Credit Facilities

 

 

19,016

 

 

 

16,900

 

Total debt principal

 

 

46,516

 

 

 

49,900

 

Less: current portion of long-term debt

 

 

2,750

 

 

 

8,000

 

Less: deferred financing costs

 

 

1,426

 

 

 

1,218

 

Total long-term debt

 

$

42,340

 

 

$

40,682

 

 

2018 Term Loan Facility

 

On August 21, 2018, Vince, LLC entered into a $27,500 senior secured term loan facility (the “2018 Term Loan Facility”) pursuant to a credit agreement by and among Vince, LLC, as the borrower, VHC and Vince Intermediate Holdings, LLC, a direct subsidiary of VHC and the direct parent company of Vince, LLC (“Vince Intermediate”), as guarantors, Crystal Financial, LLC, as administrative agent and collateral agent, and the other lenders from time to time party thereto. The 2018 Term Loan Facility is subject to quarterly amortization of principal equal to 2.5% of the original aggregate principal amount of the 2018 Term Loan Facility, with the balance payable at final maturity. Interest is payable on loans under the 2018 Term Loan Facility at a rate equal to the 90-day LIBOR rate (subject to a 0% floor) plus applicable margins subject to a pricing grid based on a minimum Consolidated EBITDA (as defined in the credit agreement for the 2018 Term Loan Facility) calculation. During the continuance of certain specified events of default, interest will accrue on the outstanding amount of any loan at a rate of 2.0% in excess of the rate otherwise applicable to such amount. The 2018 Term Loan Facility matures on the earlier of August 21, 2023 and the maturity date of the 2018 Revolving Credit Facility (as defined below).

 

The 2018 Term Loan Facility contains a requirement that Vince, LLC maintain a Consolidated Fixed Charge Coverage Ratio (as defined in the credit agreement for the 2018 Term Loan Facility) as of the last day of any period of four fiscal quarters not to exceed 0.85:1.00 for the fiscal quarter ended November 3, 2018, 1.00:1.00 for the fiscal quarter ended February 2, 2019, 1.20:1.00 for the fiscal quarter ending May 4, 2019, 1.35:1.00 for the fiscal quarter ending August 3, 2019, 1.50:1.00 for the fiscal quarters ending November 2, 2019 and February 1, 2020 and 1.75:1.00 for the fiscal quarter ending May 2, 2020 and each fiscal quarter thereafter. In addition, the 2018 Term Loan Facility contains customary representations and warranties, other covenants, and events of default, including but not limited to, covenants with respect to limitations on the incurrence of additional indebtedness, liens, burdensome agreements, 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 2018 Term Loan Facility generally permits dividends to the extent that no default or event of default is continuing or would result from a contemplated dividend, so long as (i) after giving pro forma effect to the contemplated dividend and for the following six months Excess Availability will be at least the greater of 20.0% of the Loan Cap (as defined in the credit agreement for the 2018 Term Loan Facility) and $10,000, (ii) after giving pro forma effect to the contemplated dividend, the Consolidated Fixed Charge Coverage Ratio for the 12 months preceding such dividend will 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 25.0% of the Loan Cap and $12,500), and (iii) the pro forma Fixed Charge Coverage Ratio after giving effect to such contemplated dividend is no less than the minimum Consolidated Fixed Charge Coverage Ratio for such quarter. In addition, the 2018 Term Loan Facility is subject to a Borrowing Base (as defined in the credit agreement of the 2018 Term Loan Facility) which can, under certain conditions, result in the imposition of a reserve under the 2018 Revolving Credit Facility. As of February 2, 2019, the Company was in compliance with applicable covenants.

 

The 2018 Term Loan Facility also contains an Excess Cash Flow (as defined in the credit agreement for the 2018 Term Loan Facility) sweep requirement in which Vince, LLC remits 50% of Excess Cash Flow reduced on a dollar-for-dollar basis by any voluntary prepayments of the 2018 Term Loan Facility or the 2018 Revolving Credit Facility (to the extent accompanied by a permanent reduction in commitments) during such fiscal year or after the fiscal year but prior to the date of the excess cash flow payment, to be applied to the outstanding principal balance commencing 10 business days after the filing of the Company’s Annual Report on Form 10-K starting from fiscal year ending February 1, 2020.

Through February 2, 2019, on an inception to date basis, the Company had not made any repayments on the 2018 Term Loan Facility.

Scheduled maturities of the 2018 Term Loan Facility are as follows:

 

 

2018 Term Loan

 

(in thousands)

 

Maturities

 

Fiscal 2019

 

$

2,750

 

Fiscal 2020

 

 

2,750

 

Fiscal 2021

 

 

2,750

 

Fiscal 2022

 

 

2,750

 

Fiscal 2023

 

 

16,500

 

      Total

 

$

27,500

 

 

2018 Revolving Credit Facility

 

On August 21, 2018, Vince, LLC entered into an $80,000 senior secured revolving credit facility (the “2018 Revolving Credit Facility”) pursuant to a credit agreement by and among Vince, LLC, as the borrower, VHC and Vince Intermediate, as guarantors, Citizens Bank, N.A. (“Citizens”), as administrative agent and collateral agent, and the other lenders from time to time party thereto. The 2018 Revolving Credit Facility provides for a revolving line of credit of up to $80,000, subject to a Loan Cap, which is the lesser of (i) the Borrowing Base as defined in the credit agreement for the 2018 Revolving Credit Facility and (ii) the aggregate commitments, as well as a letter of credit sublimit of $25,000. It also provides for an increase in aggregate commitments of up to $20,000. The 2018 Revolving Credit Facility matures on the earlier of August 21, 2023 and the maturity date of the 2018 Term Loan Facility. On August 21, 2018, Vince, LLC incurred $39,555 of borrowings, prior to which $66,271 was available, given the Loan Cap as of such date.  

 

Interest is payable on the loans under the 2018 Revolving Credit Facility at either the LIBOR or the Base Rate, in each case, with applicable margins subject to a pricing grid based on an 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 Citizens as its prime rate; (ii) the Federal Funds Rate for such day, plus 0.5%; and (iii) the LIBOR Rate for a one month interest period as determined on such day, plus 1.00%. During the continuance of certain specified events of default, at the election of Citizens, interest will accrue at a rate of 2.0% in excess of the applicable non-default rate.

 

The 2018 Revolving Credit Facility contains a requirement that, at any point when Excess Availability (as defined in the credit agreement for the 2018 Revolving Credit Facility) is less than 10.0% of the loan cap and continuing until Excess Availability exceeds the greater of such amounts for 30 consecutive days, Vince must maintain during that time a Consolidated Fixed Charge Coverage Ratio (as defined in the credit agreement for the 2018 Revolving Credit Facility) equal to or greater than 1.0 to 1.0 measured as of the last day of each fiscal month during such period.

 

The 2018 Revolving Credit Facility contains representations and warranties, other covenants and events of default that are customary for this type of financing, including covenants with respect to limitations on the incurrence of additional indebtedness, liens, burdensome agreements, 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 2018 Revolving Credit Facility generally permits dividends in the absence of any event of default (including any event of default arising from a contemplated dividend), so long as (i) after giving pro forma effect to the contemplated dividend and for the following six months Excess Availability will be at least the greater of 20.0% of the Loan Cap and $10 million and (ii) after giving pro forma effect to the contemplated dividend, the Consolidated Fixed Charge Coverage Ratio for the 12 months preceding such dividend will 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 25.0% of the Loan Cap and $12,500). As of February 2, 2019, the Company was in compliance with applicable covenants.

As of February 2, 2019, $36,850 was available under the 2018 Revolving Credit Facility, net of the loan cap, and there were $19,016 of borrowings outstanding and $6,013 of letters of credit outstanding under the 2018 Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the 2018 Revolving Credit Facility as of February 2, 2019 was 4.4%.

 

2013 Term Loan Facility

On November 27, 2013, Vince, LLC and Vince Intermediate entered into a $175,000 senior secured term loan facility (as amended from time to time, the “2013 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 2013 Term Loan Facility would have matured on November 27, 2019. Vince, LLC and Vince Intermediate were borrowers and VHC was a guarantor under the 2013 Term Loan Facility.

On August 21, 2018, the Company refinanced the 2013 Term Loan Facility by entering into the 2018 Term Loan Facility and the 2018 Revolving Credit Facility. All outstanding amounts under the 2013 Term Loan Facility of $29,146, including interest, were repaid in full and the 2013 Term Loan Facility was terminated.

2013 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 “2013 Revolving Credit Facility”) with BofA as administrative agent. Vince, LLC was the borrower and VHC and Vince Intermediate were the guarantors under the 2013 Revolving Credit Facility. On June 3, 2015, Vince, LLC entered into a first amendment to the 2013 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 was 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 2013 Term Loan Facility have been paid in full, and extended the maturity date from November 27, 2018 to June 3, 2020.

           On August 21, 2018, the Company refinanced the 2013 Revolving Credit Facility by entering into the 2018 Term Loan Facility and the 2018 Revolving Credit Facility. All outstanding amounts under the 2013 Term Loan Facility of $40,689, including interest, were repaid in full and the 2013 Revolving Credit Facility was terminated.

Bank of Montreal Facility

On June 22, 2017, Vince, LLC entered into a credit facility agreement (the “BMO LC line” as defined therein) with the Bank of Montreal to issue the Specified LCs for the benefit of BofA as credit support for the obligations outstanding under the 2013 Revolving Credit Facility with BofA. The BMO LC Line was guaranteed by Sun Capital Fund V, L.P., an affiliate of Sun Capital Partners. 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 Specified LCs were never drawn upon and on October 31, 2017, at the request of the Company and upon the satisfaction of certain release conditions, the BMO LC Line was released.

v3.19.1
Commitments and Contingencies
12 Months Ended
Feb. 02, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 5. Commitments and Contingencies

Leases

The Company leases its office spaces, showrooms 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 $23,312, $22,575 and $23,545 for fiscal 2018, fiscal 2017 and fiscal 2016, respectively, which is recorded within selling, general and administrative expenses.

The future minimum lease payments under operating leases at February 2, 2019 were as follows:

 

 

 

Minimum Lease

 

(in thousands)

 

Payments

 

Fiscal 2019

 

$

21,512

 

Fiscal 2020

 

 

19,997

 

Fiscal 2021

 

 

18,935

 

Fiscal 2022

 

 

17,056

 

Fiscal 2023

 

 

15,251

 

Thereafter

 

 

24,140

 

Total minimum lease payments

 

$

116,891

 

 

Other Contractual Cash Obligations

At February 2, 2019, the Company’s other contractual cash obligations of $31,475 consisted primarily of inventory purchase obligations and service contracts.

Litigation

On September 7, 2018, a complaint was filed in the United States District Court for the Eastern District of New York by certain stockholders (collectively, the “Plaintiff”), naming the Company as well as Brendan Hoffman, the Company’s Chief Executive Officer, David Stefko, the Company’s Executive Vice President, Chief Financial Officer, one of the Company’s directors, certain of the Company’s former officers and directors, and Sun Capital Partners, Inc. and certain of its affiliates, as defendants. The complaint generally alleges that the Company and the named parties made false and/or misleading statements and/or failed to disclose matters relating to the transition of the Company’s ERP systems from Kellwood. The complaint brings causes of action for violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated under the Exchange Act against the Company and the named parties and for violations of Section 20(a) of the Exchange Act against the individual parties, Sun Capital Partners, Inc. and its affiliates.  The complaint seeks unspecified monetary damages and unspecified costs and fees. On January 28, 2019, in response to our motion to dismiss the original complaint, the Plaintiff filed an amended complaint, naming the same defendants as parties and asserting the same causes of action as those stated in the original complaint.

The Company currently believes that the likelihood of an unfavorable judgment arising from this matter is remote based on the information currently available and that the ultimate resolution of this matter will not have a material adverse effect on the Company’s business in a future period. However, given the inherent unpredictability of litigation and the fact that this litigation is still in its very early stages, the Company is unable to predict with certainty the outcome of this litigation or reasonably estimate a possible loss or range of loss, if any, associated with this litigation at this time. In addition, the Company will be required to expend resources to defend this matter.

  Additionally, 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.

v3.19.1
Share-Based Compensation
12 Months Ended
Feb. 02, 2019
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. In May 2018, the Company filed a Registration Statement on Form S-8 to register an additional 660,000 shares of common stock available for issuance under the Vince 2013 Incentive Plan. 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 1,000,000 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 2, 2019, there were 485,282 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 (“RSUs”) granted vest in equal installments over a three-year period or vest in equal installments over four years, subject to the employees’ continued employment, except for RSUs issued under the exchange offer described below and RSUs issued for certain executive officers which vest 100% upon the occurrence of certain change in control events and will expire if they do not vest within two years of grant, as defined under the applicable grant agreement.

On April 26, 2018, the Company commenced a tender offer to exchange certain options to purchase shares of its common stock, whether vested or unvested, from eligible employees and executive officers for replacement restricted stock units (“Replacement RSUs”) granted under the Vince 2013 Incentive Plan (the “Option Exchange”). Employees and executive officers of the Company on the date of offer commencement and those who remained an employee or executive officer of the Company through the expiration date of the offer and held at least one option as of the commencement of the offer that was granted under the Vince 2013 Incentive Plan were eligible to participate.  The exchange ratio of this offer was a 1-to-1.7857 basis (one stock option exchanged for every 1.7857 Replacement RSUs). This tender offer expired on 11:59 p.m. Eastern Time on May 24, 2018 (the “Offer Expiration Date”). The Replacement RSUs were granted on the business day immediately following the Offer Expiration Date.  As a result of the Option Exchange, 149,819 stock options were cancelled and 267,538 Replacement RSUs were granted with a grant date fair value of $9.15 per unit. All Replacement RSUs vest pursuant to the following schedule: 10% on April 19, 2019; 20% on April 17, 2020; 25% on April 16, 2021; and 45% on April 15, 2022, subject to the holder’s remaining continuously employed with the Company through each such applicable vesting date. Replacement RSUs have the new vesting schedule regardless of whether the surrendered eligible options were partially vested at the time it was exchanged. The purpose of this exchange was to foster retention, motivate our key contributors, and better align the interests of our employees and stockholders to maximize stockholder value.

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 2018 and fiscal 2017, 1,654 and 4,244 shares of common stock, respectively, were issued under the ESPP. As of February 2, 2019, there were 93,325 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 2018 is as follows:

 

 

 

Stock Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (years)

 

 

Aggregate Intrinsic Value

(in thousands)

 

Outstanding at February 3, 2018

 

 

170,757

 

 

$

42.23

 

 

 

8.1

 

 

$

32

 

Granted

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Forfeited or expired1

 

 

(170,553

)

 

$

42.23

 

 

 

 

 

 

 

 

 

Outstanding at February 2, 2019

 

 

204

 

 

$

31.71

 

 

 

6.7

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable at February 2, 2019

 

 

154

 

 

$

38.87

 

 

 

6.7

 

 

$

 

1 Includes 149,819 options that were exchanged as part of the Option Exchange.

 

Of the above outstanding shares, 50 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 option holders exercised their options on February 3, 2018. This amount changes based on the fair market value of the Company’s common stock. No stock options were exercised in fiscal 2018. Total intrinsic value of options exercised during fiscal 2017 and fiscal 2016 (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 $640 and $316, respectively.

The Company’s weighted average assumptions used to estimate the fair value of stock options granted during fiscal 2017 and fiscal 2016 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. No stock options were granted in fiscal 2018.

 

 

 

Fiscal Year

 

 

 

2017

 

 

2016

 

Weighted-average expected volatility

 

 

42.6

%

 

 

46.0

%

Expected term (in years)

 

4.2 years

 

 

4.5 years

 

Risk-free interest rate

 

 

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 and fiscal 2016 was $3.57 per share and $12.21 per share, respectively.

Restricted Stock Units

A summary of restricted stock unit activity for fiscal 2018 is as follows:

 

 

 

Restricted Stock Units

 

 

Weighted Average Grant Date Fair Value

 

Non-vested restricted stock units at February 3, 2018

 

 

13,236

 

 

$

29.19

 

Granted2

 

 

544,601

 

 

$

8.97

 

Vested

 

 

(5,112

)

 

$

34.99

 

Forfeited

 

 

(48,495

)

 

$

9.49

 

Non-vested restricted stock units at February 2, 2019

 

 

504,230

 

 

$

9.19

 

2 Includes 267,538 units that were granted as part of the Option Exchange.

 

The weighted average grant date fair value for restricted stock units granted during fiscal 2016 was $57.98. The total fair value of restricted stock units vested during fiscal 2018, fiscal 2017 and fiscal 2016 was $179, $277 and $191, respectively.

At February 2, 2019, there was $4,269 of unrecognized compensation costs related to restricted stock units that will be recognized over a remaining weighted average period of 1.8 years.

Share-Based Compensation Expense

During fiscal 2018, the Company recognized share-based compensation expense of $1,335 and a related tax benefit of $0. 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.

v3.19.1
Defined Contribution Plan
12 Months Ended
Feb. 02, 2019
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 $460, $544 and $405 in fiscal 2018, fiscal 2017 and fiscal 2016, respectively.

v3.19.1
Stockholders' Equity
12 Months Ended
Feb. 02, 2019
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 investment agreement (the “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 2, 2019 and February 3, 2018, the Company had 11,622,994 and 11,616,500 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 related investment agreement (the “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.

v3.19.1
Earnings Per Share
12 Months Ended
Feb. 02, 2019
Earnings Per Share [Abstract]  
Earnings Per Share

Note 9. 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 (loss) 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.

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

 

 

 

Fiscal Year

 

 

 

2018

 

 

2017

 

 

2016

 

Weighted-average shares—basic

 

 

11,619,828

 

 

 

7,605,822

 

 

 

4,642,053

 

Effect of dilutive equity securities

 

 

 

 

 

2,605

 

 

 

 

Weighted-average shares—diluted

 

 

11,619,828

 

 

 

7,608,427

 

 

 

4,642,053

 

 

Because the Company incurred a net loss for the fiscal years ended February 2, 2019 and January 28, 2017, weighted-average basic shares and weighted-average diluted shares outstanding are equal for the periods.

For the fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017, 115,280, 190,363 and 171,913 weighted average shares of share-based compensation, respectively, were excluded from the computation of weighted average shares for diluted earnings per share, as their effect would have been anti-dilutive.

v3.19.1
Income Taxes
12 Months Ended
Feb. 02, 2019
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 made 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 fiscal year ended February 3, 2018. The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the Tax Act in 2017 and throughout 2018. At December 31, 2018, we have completed our accounting for all the enactment-date income tax effects of the Tax Act. Effective for tax years beginning after January 1, 2018, interest expense is limited based on adjusted taxable income and executive compensation is limited for both performance and non-performance based components. Any disallowed interest can be carried forward indefinitely, while the executive compensation limitation results in a permanent adjustment.

The provision for income taxes consisted of the following:

 

 

Fiscal Year

 

(in thousands)

2018

 

 

2017

 

 

2016

 

Current:

 

 

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

 

 

Federal

$

 

 

$

(295

)

 

$

 

State

 

12

 

 

 

32

 

 

 

207

 

Foreign

 

69

 

 

 

70

 

 

 

75

 

Total current

 

81

 

 

 

(193

)

 

 

282

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

 

 

Federal

 

(27

)

 

 

(379

)

 

 

83,323

 

State

 

 

 

 

 

 

 

10,121

 

Total deferred

 

(27

)

 

 

(379

)

 

 

93,444

 

Total provision for income taxes

$

54

 

 

$

(572

)

 

$

93,726

 

 

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

 

 

2018

 

 

2017

 

 

2016

 

Statutory federal rate

 

21.0

%

 

 

33.7

%

 

 

35.0

%

State taxes, net of federal benefit

 

(51.7

)%

 

 

(4.3

)%

 

 

5.5

%

Non-deductible Tax Receivable Agreement adjustment (1)

—%

 

 

 

(47.6

)%

 

 

0.4

%

Valuation allowance

 

(53.2

)%

 

 

19.0

%

 

 

(176.8

)%

Return to provision adjustment

 

95.5

%

 

 

(0.9

)%

 

 

(0.1

)%

Impact of TCJA and other changes in tax law

—%

 

 

 

(0.5

)%

 

—%

 

Non-deductible Officers Compensation

 

(9.4

)%

 

—%

 

 

—%

 

Rate Differential on Foreign Income

 

   (2.8

)%

 

 

0.1

%

 

—%

 

Other

 

(2.1

)%

 

 

(0.5

)%

 

—%

 

Total

 

(2.7

)%

 

 

(1.0

)%

 

 

(136.0

)%

 

 

(1)

Non-deductible Tax Receivable Agreement liability revaluation in fiscal 2017 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 2,

 

 

February 3,

 

(in thousands)

2019

 

 

2018

 

Deferred tax assets:

 

 

 

 

 

 

 

Depreciation and amortization

$

4,235

 

 

$

13,317

 

Employee related costs

 

2,028

 

 

 

2,001

 

Allowance for asset valuations

 

806

 

 

 

2,441

 

Accrued expenses

 

422

 

 

 

225

 

Deferred rent

 

4,233

 

 

 

4,500