UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 2, 2020

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36212

 

VINCE HOLDING CORP.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

75-3264870

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

500 5th Avenue—20th Floor

New York, New York 10110

(Address of principal executive offices) (Zip code)

(212) 944-2600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value per share

 

VNCE

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large accelerated filer

 

  

Accelerated filer

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

  

Emerging growth company

 

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of June 30, 2020, the registrant had 11,790,672 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


VINCE HOLDING CORP. AND SUBSIDIARIES

TABLE OF CONTENTS 

 

 

Page

Number

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Condensed Consolidated Financial Statements:

4

 

 

 

 

a)

Unaudited Condensed Consolidated Balance Sheets at May 2, 2020 and February 1, 2020

4

 

 

 

 

b)

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended May 2, 2020 and May 4, 2019

5

 

 

 

 

 

c)

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended May 2, 2020 and May 4, 2019

6

 

 

 

 

 

d)

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended May 2, 2020 and May 4, 2019

7

 

 

 

 

e)

Notes to Unaudited Condensed Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

32

 

 

 

Item 4.

Controls and Procedures

32

 

 

PART II. OTHER INFORMATION

34

 

 

 

Item 1.

Legal Proceedings

34

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

Item 3.

Defaults Upon Senior Securities

35

 

 

 

Item 4.

Mine Safety Disclosures

35

 

 

 

Item 5.

Other Information

35

 

 

 

Item 6.

Exhibits

36

 

 

 

 


 

RELIANCE OF SECURITIES AND EXCHANGE COMMISSION ORDER

Vince Holding Corp. (the “Company”) is relying on the Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions From the Reporting and Proxy Delivery Requirements for Public Companies, dated March 25, 2020 (Release No. 34-88465) to delay the filing of this Quarterly Report due to circumstances related to the novel coronavirus (COVID-19) pandemic as disclosed in the Company’s Current Report on Form 8-K filed with the Security Exchange Commissions (the “SEC”) on June 9, 2020. The Company was unable to file this Quarterly Report in a timely manner because COVID-19 caused significant disruptions to the Company’s business and operations, including furloughs of a significant portion of our corporate associates. The Company’s management and staff needed to devote significant time and attention to assess the impact of COVID-19 on the Company’s operations and financial position and to develop operational and financial plans to address those matters. As a result, the Company’s resources, which were already been significantly reduced after the furloughs, were diverted from completing certain tasks necessary to file the Quarterly Report in a timely manner.

 

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, and any statements incorporated by reference herein, contains forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are indicated by words or phrases such as “may,” “will,” “should,” “believe,” “expect,” “seek,” “anticipate,” “intend,” “estimate,” “plan,” “target,” “project,” “forecast,” “envision” and other similar phrases. Although we believe the assumptions and expectations reflected in these forward-looking statements are reasonable, these assumptions and expectations may not prove to be correct and we may not achieve the results or benefits anticipated. These forward-looking statements are not guarantees of actual results, and our actual results may differ materially from those suggested in the forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, including, without limitation: the impact of the novel coronavirus (COVID-19) pandemic on our business, results of operations and liquidity; our ability to continue having the liquidity necessary to service our debt, meet contractual payment obligations, and fund our operations; changes in global economics and credit and financial markets; the expected effects of the acquisition of Rebecca Taylor, Inc. and Parker Holdings, LLC, (collectively the “Acquired Businesses”) on the Company; our ability to integrate the Acquired Businesses with the Company, including our ability to retain customers, suppliers and key employees; our ability to realize the benefits of our strategic initiatives; our ability to maintain our larger wholesale partners; the loss of certain of our wholesale partners; our ability to make lease payments when due; the execution and management of our retail store growth plans; our ability to expand our product offerings into new product categories, including the ability to find suitable licensing partners; our ability to remediate the identified material weakness in our internal control over financial reporting; our ability to optimize our systems, processes and functions; our ability to mitigate system security risk issues, such as cyber or malware attacks, as well as other major system failures; our ability to comply with privacy-related obligations; our ability to comply with domestic and international laws, regulations and orders; changes in laws and regulations; our ability to ensure the proper operation of the distribution facilities by third-party logistics providers; our ability to anticipate and/or react to changes in customer demand and attract new customers, including in connection with making inventory commitments; our ability to remain competitive in the areas of merchandise quality, price, breadth of selection and customer service; our ability to keep a strong brand image; our ability to attract and retain key personnel; our ability to protect our trademarks in the U.S. and internationally; the execution and management of our international expansion, including our ability to promote our brand and merchandise outside the U.S. and find suitable partners in certain geographies; our current and future licensing arrangements; the extent of our foreign sourcing; fluctuations in the price, availability and quality of raw materials; commodity, raw material and other cost increases; our reliance on independent manufacturers; seasonal and quarterly variations in our revenue and income; further impairment of our goodwill and indefinite-lived intangible assets; competition; other tax matters; and other factors as set forth from time to time in our Securities and Exchange Commission filings, including those described in this report on Form 10-Q and our Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 11, 2020 (the “2019 Annual Report on Form 10-K”) under the heading “Item 1A—Risk Factors.” We intend these forward-looking statements to speak only as of the date of this report on Form 10-Q and do not undertake to update or revise them as more information becomes available, except as required by law.

 

 

 

 

3


 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

VINCE HOLDING CORP. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data, unaudited)

 

 

 

May 2,

 

 

February 1,

 

 

 

2020

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,654

 

 

$

466

 

Trade receivables, net

 

 

16,523

 

 

 

40,660

 

Inventories, net

 

 

67,337

 

 

 

66,393

 

Prepaid expenses and other current assets

 

 

4,061

 

 

 

6,725

 

Total current assets

 

 

114,575

 

 

 

114,244

 

Property and equipment, net

 

 

19,901

 

 

 

25,274

 

Operating lease right-of-use assets, net

 

 

81,991

 

 

 

94,632

 

Intangible assets, net

 

 

76,982

 

 

 

81,533

 

Goodwill

 

 

31,973

 

 

 

41,435

 

Deferred income taxes

 

 

 

 

 

102

 

Other assets

 

 

5,386

 

 

 

5,082

 

Total assets

 

$

330,808

 

 

$

362,302

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

31,647

 

 

$

43,075

 

Accrued salaries and employee benefits

 

 

9,361

 

 

 

9,620

 

Other accrued expenses

 

 

13,056

 

 

 

14,194

 

Short-term lease liabilities

 

 

20,882

 

 

 

20,638

 

Current portion of long-term debt

 

 

2,750

 

 

 

2,750

 

Total current liabilities

 

 

77,696

 

 

 

90,277

 

Long-term debt

 

 

84,647

 

 

 

48,680

 

Long-term lease liabilities

 

 

85,380

 

 

 

90,211

 

Other liabilities

 

 

187

 

 

 

2,354

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock at $0.01 par value (100,000,000 shares authorized, 11,769,682 and 11,680,593 shares issued and outstanding at May 2, 2020 and February 1, 2020, respectively)

 

 

118

 

 

 

117

 

Additional paid-in capital

 

 

1,137,483

 

 

 

1,137,147

 

Accumulated deficit

 

 

(1,054,559

)

 

 

(1,006,381

)

Accumulated other comprehensive loss

 

 

(144

)

 

 

(103

)

Total stockholders' equity

 

 

82,898

 

 

 

130,780

 

Total liabilities and stockholders' equity

 

$

330,808

 

 

$

362,302

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

4


VINCE HOLDING CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data, unaudited)

 

 

 

Three Months Ended

 

 

 

May 2,

 

 

May 4,

 

 

 

2020

 

 

2019*

 

Net sales

 

$

39,018

 

 

$

74,017

 

Cost of products sold

 

 

23,018

 

 

 

36,125

 

Gross profit

 

 

16,000

 

 

 

37,892

 

Impairment of goodwill and intangible assets

 

 

13,848

 

 

 

 

Impairment of long-lived assets

 

 

13,026

 

 

 

 

Selling, general and administrative expenses

 

 

38,544

 

 

 

44,123

 

Loss from operations

 

 

(49,418

)

 

 

(6,231

)

Interest expense, net

 

 

1,025

 

 

 

1,359

 

Other (Income) expense, net

 

 

(2,307

)

 

 

110

 

Loss before income taxes

 

 

(48,136

)

 

 

(7,700

)

Provision for income taxes

 

 

42

 

 

 

47

 

Net loss

 

$

(48,178

)

 

$

(7,747

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(41

)

 

 

(7

)

Comprehensive loss

 

$

(48,219

)

 

$

(7,754

)

 

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

 

Basic loss per share

 

$

(4.12

)

 

$

(0.67

)

Diluted loss per share

 

$

(4.12

)

 

$

(0.67

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

11,693,959

 

 

 

11,629,836

 

Diluted

 

 

11,693,959

 

 

 

11,629,836

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

* Amounts reflect the retrospective combination of the entities. See Note 11 “Related Party Transactions” for additional details.

 


 

5


VINCE HOLDING CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data, unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares Outstanding

 

 

 

 

Par Value

 

 

 

 

Additional Paid-In Capital

 

 

 

 

Accumulated Deficit

 

 

 

 

Accumulated Other Comprehensive Loss

 

 

 

 

Total Stockholders' Equity

 

Balance as of February 1, 2020

 

 

11,680,593

 

 

 

 

$

117

 

 

 

 

$

1,137,147

 

 

 

 

$

(1,006,381

)

 

 

 

$

(103

)

 

 

 

$

130,780

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48,178

)

 

 

 

 

 

 

 

 

 

(48,178

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41

)

 

 

 

 

(41

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

541

 

Restricted stock unit vestings

 

 

127,613

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Tax withholdings related to restricted stock vesting

 

 

(38,524

)

 

 

 

 

 

 

 

 

 

(205

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(205

)

Balance as of May 2, 2020

 

 

11,769,682

 

 

 

 

$

118

 

 

 

 

$

1,137,483

 

 

 

 

$

(1,054,559

)

 

 

 

$

(144

)

 

 

 

$

82,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares Outstanding

 

 

 

 

Par Value

 

 

 

 

Additional Paid-In Capital

 

 

 

 

Accumulated Deficit

 

 

 

 

Accumulated Other Comprehensive Loss

 

 

 

 

Total Stockholders' Equity

 

Balance as of February 2, 2019*

 

 

11,622,994

 

 

 

 

$

116

 

 

 

 

$

1,135,401

 

 

 

 

$

(1,036,188

)

 

 

 

$

(83

)

 

 

 

$

99,246

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,747

)

 

 

 

 

 

 

 

 

 

(7,747

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

(7

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

427

 

Cumulative effect of accounting change from adoption of ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(589

)

 

 

 

 

 

 

 

 

 

(589

)

Restricted stock unit vestings

 

 

64,572

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Tax withholdings related to restricted stock vesting

 

 

(23,066

)

 

 

 

 

 

 

 

 

 

(301

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(301

)

Balance as of May 4, 2019*

 

 

11,664,500

 

 

 

 

$

117

 

 

 

 

$

1,135,527

 

 

 

 

$

(1,044,524

)

 

 

 

$

(90

)

 

 

 

$

91,030

 

 

See notes to unaudited condensed consolidated financial statements.

* Amounts reflect the retrospective combination of the entities. See Note 11 “Related Party Transactions” for additional details.

 

 

6


VINCE HOLDING CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019*

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(48,178

)

 

$

(7,747

)

Add (deduct) items not affecting operating cash flows:

 

 

 

 

 

 

 

 

Adjustment to Tax Receivable Agreement Liability

 

 

(2,320

)

 

 

 

Impairment of goodwill and intangible assets

 

 

13,848

 

 

 

 

Impairment of long-lived assets

 

 

13,026

 

 

 

 

Depreciation and amortization

 

 

1,998

 

 

 

2,733

 

Provision for bad debt

 

 

1,585

 

 

 

54

 

Amortization of deferred financing costs

 

 

133

 

 

 

142

 

Deferred income taxes

 

 

102

 

 

 

 

Share-based compensation expense

 

 

541

 

 

 

427

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

22,553

 

 

 

14,715

 

Inventories

 

 

(959

)

 

 

5,611

 

Prepaid expenses and other current assets

 

 

2,657

 

 

 

(585

)

Accounts payable and accrued expenses

 

 

(13,136

)

 

 

(11,292

)

Other assets and liabilities

 

 

(630

)

 

 

(592

)

Net cash (used in) provided by operating activities

 

 

(8,780

)

 

 

3,466

 

Investing activities

 

 

 

 

 

 

 

 

Payments for capital expenditures

 

 

(695

)

 

 

(720

)

Net cash used in investing activities

 

 

(695

)

 

 

(720

)

Financing activities

 

 

 

 

 

 

 

 

Net proceeds from (repayment of) borrowings under the Revolving Credit Facilities

 

 

35,877

 

 

 

(222

)

Net (repayment of) proceeds from borrowings under the Acquired Businesses Revolving Credit Facilities

 

 

 

 

 

(725

)

Repayment of borrowings under the Term Loan Facilities

 

 

 

 

 

(688

)

Tax withholdings related to restricted stock vesting

 

 

(205

)

 

 

(301

)

Proceeds from stock option exercises, restricted stock vesting, and issuance of common stock under employee stock purchase plan

 

 

1

 

 

 

1

 

Financing fees

 

 

 

 

 

(1

)

Net cash provided by (used in) financing activities

 

 

35,673

 

 

 

(1,936

)

Increase in cash, cash equivalents, and restricted cash

 

 

26,198

 

 

 

810

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(12

)

 

 

(3

)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

646

 

 

 

361

 

Cash, cash equivalents, and restricted cash, end of period

 

 

26,832

 

 

 

1,168

 

Less: restricted cash at end of period

 

 

178

 

 

 

152

 

Cash and cash equivalents per balance sheet at end of period

 

$

26,654

 

 

$

1,016

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash payments for interest

 

 

951

 

 

 

1,165

 

Cash payments for income taxes, net of refunds

 

 

(10

)

 

 

5

 

Supplemental Disclosures of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Capital expenditures in accounts payable and accrued liabilities

 

 

765

 

 

 

126

 

 

See notes to unaudited condensed consolidated financial statements.

 

* Amounts reflect the retrospective combination of the entities. See Note 11 “Related Party Transactions” for additional details.

 

 

 

7


VINCE HOLDING CORP. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands except share and per share data)

Note 1. Description of Business and Basis of Presentation

On November 27, 2013, Vince Holding Corp. (“VHC” or the “Company”), previously known as Apparel Holding Corp., closed an initial public offering (“IPO”) of its common stock and completed a series of restructuring transactions (the “Restructuring Transactions”) through which 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”).

On November 3, 2019, Vince, LLC, an indirectly wholly owned subsidiary of VHC, completed its acquisition (the “Acquisition”) of 100% of the equity interests of Rebecca Taylor, Inc. and Parker Holding, LLC (collectively, the “Acquired Businesses”) from Contemporary Lifestyle Group, LLC (“CLG”). The Acquired Businesses represented all of the operations of CLG. Because the Acquisition was a transaction between commonly controlled entities, accounting principles generally accepted in the United States of America (“GAAP”) requires the retrospective combination of the entities for all periods presented as if the combination had been in effect since the inception of common control. Accordingly, the Company’s unaudited financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including for the three months ended May 4, 2019, reflect the retrospective combination of the entities as if the combination had been in effect since inception of common control. See Note 11 “Related Party Transactions” for further information.

(A) Description of Business: The Company is a global contemporary group, consisting of three brands: Vince, Rebecca Taylor, and Parker. Vince, established in 2002, is a leading global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day effortless style. Rebecca Taylor, founded in 1996 in New York City, is a high-end women’s contemporary lifestyle brand inspired by beauty in the everyday. Parker, founded in 2008 in New York City, is a contemporary women’s fashion brand that is trend focused. 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 websites. 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 condensed consolidated financial statements have been prepared in conformity with GAAP and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with VHC’s audited financial statements for the fiscal year ended February 1, 2020, as set forth in the 2019 Annual Report on Form 10-K.

The condensed consolidated financial statements include the Company’s accounts and the accounts of the Company’s wholly-owned subsidiaries as of May 2, 2020. All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) and disclosures necessary for a fair statement. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or the fiscal year as a whole.

As noted above, the Company’s unaudited financial statements included in this Quarterly Report, including for the three months ended May 4, 2019, reflect the retrospective combination of the entities as if the combination had been in effect since inception of common control. See Note 11 “Related Party Transactions” for further information.

 

8


(C) Use of Estimates The preparation of 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.  

The Company considered the novel coronavirus (“COVID-19”) related impacts to its estimates including the impairment of property and equipment and operating lease right-of-use (“ROU”) assets, the impairment of goodwill and intangible assets, accounts receivable and inventory valuation, the liability associated with our tax receivable agreement, and the assessment of our liquidity. These estimates may change as the current situation evolves or new events occur.  

(D) COVID 19: The spread of COVID-19, which was declared a pandemic by the World Health Organization in March 2020, has caused state and municipal public officials to mandate jurisdiction-wide curfews, including “shelter-in-place” and closures of most non-essential businesses as well as other measures to mitigate the spread of the virus.

In light of the COVID-19 pandemic, we have taken various measures to improve our liquidity as described below.  Based on these measures and our current expectations, we believe that our sources of liquidity will generate sufficient cash flows to meet our obligations during the next twelve months from the date these financial statements are issued.

 

The following summarizes the various measures we have implemented and continue to implement as well as the impacts from the COVID-19 pandemic during and subsequent to the three months ended May 2, 2020.  

 

 

While we continued to serve our customers through our online e-commerce websites during the period in which we were forced to shut down all of our domestic and international retail locations alongside other retailers, including our wholesale partners, the store closures resulted in a sharp decline in our revenue and ability to generate cash flows from operations.  We began reopening stores during May 2020 and nearly all of the Company’s stores have since reopened in a limited capacity in accordance with state and local regulations related to the COVID-19 pandemic and have not been impacted by any re-closure orders or regulations.

 

As a result of store closures and the decline in projected cash flows, the Company recognized a non-cash impairment charge related to property and equipment and operating lease ROU assets to adjust the carrying amounts of certain store locations to their estimated fair value.  During the three months ended May 2, 2020, the Company recorded an impairment of property and equipment and operating lease ROU assets of $4,470 and $8,556, respectively. The impairment charges are recorded within impairment of long-lived assets on the condensed consolidated statement of operations and comprehensive loss.  There were no such impairment charges recorded for the three months ended May 4, 2019.

 

The Company incurred a non-cash impairment charge on goodwill and intangible assets as a result of the decline in long-term projections due to COVID-19.  See Note 2, “Goodwill and Intangible Assets” for additional information;

 

We entered into amendments to our 2018 Term Loan Facility as well as our 2018 Revolving Credit Facility to provide additional liquidity and amend certain financial covenants to allow increased operational flexibility.  See Note 12, “Subsequent Events”;

 

Furloughed all of our retail store associates as well as a significant portion of our corporate associates during the period of store closures and reinstated a limited number of associates commensurate to the store re-openings as well as other business needs;

 

Temporarily reduced retained employee salaries and board retainer fees;

 

Engaged in active discussions with landlords to address the current operating environment, including amendments to existing lease terms;

 

Executed other operational initiatives to carefully manage our investments across all key areas, including aligning inventory levels with anticipated demand and reevaluating non-critical capital build-out and other investments and activities; and

 

Streamlined our expense structure in all areas such as marketing, distribution, and product development to align with the business environment and sales opportunities.

In addition, affiliates of Sun Capital, who own approximately 72% of the outstanding shares of the Company’s common stock (see Note 11 “Related Party Transactions” for further discussion regarding our relationship with Sun Capital) have committed through July 31, 2021 to provide financial support to the Company of up to $8,000 upon the occurrence of certain events and conditions.

 

9


COVID-19 pandemic remains highly volatile and continues to evolve on a daily basis, which could negatively affect the outcome of the measures intended to address its impact and/or our current expectations of the Company’s future business performance.  Factors such as continued temporary closures and/or reclosures of our stores, distribution centers and corporate facilities as well as those of our wholesale partners; declines and changes in consumer behavior including traffic, spending and demand and resulting build-up of excess inventory; supply chain disruptions; our and our business partners’ ability to access capital sources and maintain compliance with credit facilities; as well as our ability to collect receivables and diversion of corporate resources from key business activities and compliance efforts could continue to adversely affect the Company’s business, financial condition, cash flow, liquidity and results of operations.

 (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 (as defined below) and the Company’s ability to access capital markets. The Company’s primary cash needs are funding working capital requirements, meeting debt service requirements, and capital expenditures for new stores and related leasehold improvements.

(F) 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 10 “Segment Financial 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 May 2, 2020 and February 1, 2020, contract liability was $1,560 and $1,585, respectively.  For the three months ended May 2, 2020, the Company recognized  $68 of revenue that was previously included in contract liability as of February 1, 2020.

(G) Recent Accounting Pronouncements: Except as noted below, the Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting pronouncements that may have a material impact on its Consolidated Financial Statements, based on current information.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13: "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The ASU requires an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. Under the new guidance, each reporting entity should estimate an allowance for expected credit losses, which is intended to result in more timely recognition of losses. The new standard applies to trade receivables arising from revenue transactions. Under ASC 606, revenue is recognized when, among other criteria, it is probable that an entity will collect the consideration it is entitled to when goods or services are transferred to a customer. When trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. This guidance is effective for smaller reporting companies for annual periods beginning after December 15, 2022, including the interim periods in the year. Early adoption is permitted.  Management is currently evaluating the impact of this ASU on the consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15: “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. The ASU is intended to align the requirements for capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract with the existing guidance for internal-use software. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The guidance provides flexibility in adoption, allowing for either retrospective adjustment or prospective adjustment for all implementation costs incurred after the date of adoption. We do not expect that the adoption of this ASU will have a material impact on our Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12: “Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes.” The guidance simplifies the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other areas of ASC 740. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. Management is currently evaluating the impact of this ASU on the consolidated financial statements.

 

 

10


 

Note 2. Goodwill and Intangible Assets

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

 

(in thousands)

 

Vince Wholesale

 

 

Vince

Direct-to-consumer

 

 

Rebecca Taylor and Parker

 

 

Total Net Goodwill

 

Balance as of February 1, 2020

 

$

41,435

 

 

$

 

 

$

 

 

$

41,435

 

Impairment charges

 

 

(9,462

)

 

 

 

 

 

 

 

 

(9,462

)

Balance as of May 2, 2020

 

$

31,973

 

 

$

 

 

$

 

 

$

31,973

 

 

The total carrying amount of goodwill is net of accumulated impairments of $101,845.

During the first quarter of fiscal 2020, the Company determined that a triggering event had occurred as a result of changes to the Company’s long-term projections driven by the impacts of COVID-19.  The Company performed an interim quantitative impairment assessment of goodwill and intangible assets.

The Company determined the fair value of the Vince wholesale reportable segment using a combination of the market and income approach. Step one of the assessment determined that the fair value was below the carrying amount by $9,462, and as a result the Company recorded a goodwill impairment charge of $9,462 within Impairment of goodwill and intangible assets on the condensed consolidated statement of operations and comprehensive loss for the three months ended May 2, 2020.  There were no impairment charges for the three months ended May 4, 2019.

The following tables present a summary of identifiable intangible assets:

 

(in thousands)

 

Gross Amount

 

 

Accumulated Amortization

 

 

Accumulated Impairments

 

 

Net Book Value

 

Balance as of May 2, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

31,355

 

 

$

(20,589

)

 

$

(6,115

)

 

$

4,651

 

Tradenames

 

 

13,100

 

 

 

(42

)

 

 

(12,527

)

 

 

531

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradenames

 

 

110,986

 

 

 

 

 

 

(39,186

)

 

 

71,800

 

Total intangible assets

 

$

155,441

 

 

$

(20,631

)

 

$

(57,828

)

 

$

76,982

 

 

(in thousands)

 

Gross Amount

 

 

Accumulated Amortization

 

 

Accumulated Impairments

 

 

Net Book Value

 

Balance as of February 1, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

31,355

 

 

$

(20,437

)

 

$

(6,115

)

 

$

4,803

 

Tradenames

 

 

13,100

 

 

 

(29

)

 

 

(12,527

)

 

 

544

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradenames

 

 

110,986

 

 

 

 

 

 

(34,800

)

 

 

76,186

 

Total intangible assets

 

$

155,441

 

 

$

(20,466

)

 

$

(53,442

)

 

$

81,533

 

 

The Company estimated the fair value of the Vince and Rebecca Taylor tradename indefinite-lived intangible assets using the relief from royalty method and determined that the fair value of the Vince and Rebecca Taylor tradenames were below their carrying amounts. Significant assumptions utilized in these analyses included projected revenue growth rates, royalty rates and discount rates.  Accordingly, the Company recorded an impairment charge for the Vince and Rebecca Taylor tradename indefinite-lived intangible assets of $4,386, which was recorded within Impairment of goodwill and intangible assets on the condensed consolidated statement of operations and comprehensive loss for the three months ended May 2, 2020. There were no such impairment charges for the three months ended May 4, 2019.

 

Amortization of identifiable intangible assets was $165 and $635 for the three months ended May 2, 2020 and May 4, 2019, respectively. The estimated amortization expense for identifiable intangible assets is $655 for each fiscal year for the next five fiscal years.

 

 

 

11


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 May 2, 2020 or February 1, 2020. At May 2, 2020 and February 1, 2020, the Company believes that the carrying value of cash and cash equivalents, receivables, and accounts payable approximates fair value, due to the short-term maturity of these instruments. The Company’s debt obligations with a carrying value of $88,350 as of May 2, 2020 are at variable interest rates. The carrying value of the Company’s 2018 Revolving Credit Facility (as defined below) approximates fair value as the stated interest rate approximates market rates currently available to the Company, which are considered Level 2 inputs. The fair value of the Company’s 2018 Term Loan Facility (as defined below) was approximately $26,000 as of May 2, 2020 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, operating lease ROU 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 indefinite-lived intangible assets), non-financial assets are assessed for impairment and, if applicable, written down to (and recorded at) fair value.

The fair value of property and equipment and ROU assets was determined using a discounted cash-flow model that utilized Level 3 inputs. The measurement of fair value of these assets is considered a Level 3 valuation based on certain unobservable inputs including projected cash flows and estimates that would be used by market participants in valuing these or similar assets.  The Company makes estimates regarding future operating results based on its experience and knowledge of market factors in which the retail location is located. The Company’s retail locations are reviewed for impairment at the retail location level, which is the lowest level at which individual cash flows can be identified.

The following tables present the non-financial assets the Company measured at fair value on a non-recurring basis for the three months ended May 2, 2020, based on such fair value hierarchy:

 

 

 

Net Carrying

Value as of

 

 

Fair Value Measured and Recorded at Reporting Date Using:

 

 

Total Losses - Three Months Ended

 

 

(in thousands)

 

May 2, 2020

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

May 2, 2020

 

 

Property and equipment

 

$

8,434

 

 

$

 

 

$

 

 

$

8,434

 

 

$

4,470

 

(1)

Goodwill

 

 

31,973

 

 

 

 

 

 

 

 

 

31,973

 

 

 

9,462

 

(2)

Tradenames - Indefinite-lived

 

 

71,800

 

 

 

 

 

 

 

 

 

71,800

 

 

 

4,386

 

(2)

ROU Assets

 

 

65,443

 

 

 

 

 

 

 

 

 

65,443

 

 

 

8,556

 

(1)

(1) Recorded within Impairment of long-lived assets on the Condensed Consolidated Statements of Operations and Comprehensive Loss. See Note 1 “Description of Business and Summary of Significant Accounting Policies – (D) COVID-19” for additional information.

(2) Recorded within Impairment of goodwill and intangible assets on the Condensed Consolidated Statements of Operations and Comprehensive Loss. See Note 1 “Description of Business and Summary of Significant Accounting Policies – (D) COVID-19” for additional information.

 

 

 

12


Note 4. Long-Term Debt and Financing Arrangements

Long-term debt consisted of the following:

 

 

 

May 2,

 

 

February 1,

 

(in thousands)

 

2020

 

 

2020

 

Long-term debt:

 

 

 

 

 

 

 

 

Term Loan Facilities

 

$

24,750

 

 

$

24,750

 

Revolving Credit Facilities

 

 

63,600

 

 

 

27,723

 

Total debt principal

 

 

88,350

 

 

 

52,473

 

Less: current portion of long-term debt

 

 

2,750

 

 

 

2,750

 

Less: deferred financing costs

 

 

953

 

 

 

1,043

 

Total long-term debt

 

$

84,647

 

 

$

48,680

 

 

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 ended 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 May 2, 2020, 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. There was no such payment due for fiscal year ended February 1, 2020.  

On March 30, 2020, Vince, LLC entered into the Limited Waiver and Amendment (the “Second Term Loan Amendment”) to the 2018 Term Loan Facility. The Second Term Loan Amendment postponed the amortization payment due on April 1, 2020, with 50%

 

13


of such payment to be paid on July 1, 2020 and the remainder to be paid on October 1, 2020 and modifies certain reporting obligations.

 

Through May 2, 2020, on an inception to date basis, the Company had made repayments totaling $2,750 in the aggregate on the 2018 Term Loan Facility. As of May 2, 2020, the Company had $24,750 of debt outstanding under the 2018 Term Loan Facility.

 

Subsequent to May 2, 2020, the Company entered into an amendment for the 2018 Term Loan Facility. See Note 12 “Subsequent Events” for additional information.

 

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 May 2, 2020, the Company was in compliance with applicable covenants.  

 

On November 1, 2019, Vince, LLC entered into First Amendment (the “First Revolver Amendment”) to the 2018 Revolving Credit Facility, which provides the borrower the ability to elect the Daily LIBOR Rate in lieu of the Base Rate to be applied to the borrowings upon applicable notice.  The “Daily LIBOR Rate” means a rate equal to the Adjusted LIBOR Rate in effect on such day for deposits for a one day period, provided that, upon notice and not more than once every 90 days, such rate may be substituted for a one week or one month period for the Adjusted LIBOR Rate for a one day period.

 

On November 4, 2019, Vince, LLC entered into the Second Amendment (the “Second Revolver Amendment”) to the credit agreement of the 2018 Revolving Credit Facility. The Second Revolver Amendment increased the aggregate commitments under the 2018 Revolving Credit Facility by $20,000 to $100,000. Pursuant to the terms of the Second Revolver Amendment, the Acquired Businesses became guarantors under the 2018 Revolving Credit Facility and jointly and severally liable for the obligations thereunder. Simultaneously, Vince, LLC entered into a Joinder Amendment to the credit agreement of the 2018 Term Loan Facility whereby the

 

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Acquired Businesses became guarantors under the 2018 Term Loan Facility and jointly and severally liable for the obligations thereunder.

Subsequent to May 2, 2020, the Company entered into an amendment for the 2018 Revolving Credit Facility. See Note 15 “Subsequent Events” for additional information.

As of May 2, 2020, $972 was available under the 2018 Revolving Credit Facility, net of the loan cap, and there were $63,600 of borrowings outstanding and $7,055 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 May 2, 2020 was 1.8%.

As of June 8, 2020, the date the Company entered into an amendment for the 2018 Revolving Credit Facility, $25,777 was available, net of the loan cap, and there were $38,800 of borrowings and $5,108 of letters of credit outstanding.  The Company used cash on hand to repay borrowings under the 2018 Revolving Credit Facility.

 

Acquired Businesses Short-Term Borrowings

 

On July 23, 2014, Parker Lifestyle, LLC, as borrower, and Sun Capital Partners V, L.P., as guarantor, entered into a Loan Authorization Agreement with BMO Harris Bank N.A., as lender, for a revolving credit facility.  On December 21, 2016, that facility was amended to include Rebecca Taylor, Inc. The maximum credit line was $25,000 (the "BMO Obligations") subject to a maximum credit limit, which required that the sum of (i) the aggregate principal amounts of loans outstanding, (ii) the aggregate undrawn stated

amount of letters of credit issued under the credit facility, and (iii) the aggregate amount of any unreimbursed draws under any letters of credit issued, shall not exceed the credit limit.  Any letters of credit issued under the BMO Obligations credit facility were subject to the same maximum credit line. On November 3, 2019, in conjunction with the acquisition of the Acquired Businesses, $19,099, plus accrued interest, of the cash consideration was used to pay-off the outstanding debt obligation under this facility. On November 3, 2019, at the request of the Company and upon the satisfaction of certain release conditions, the BMO Obligations were released.

 

Note 5. Inventory

Inventories consisted of finished goods. As of May 2, 2020 and February 1, 2020, finished goods, net of reserves were $67,337 and $66,393, respectively.

 

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. 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 May 2, 2020, there were 282,117 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.

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 the three months ended May 2, 2020, no shares of common stock were issued under the ESPP. During the three months ended May 4, 2019, no shares of common stock were issued under the ESPP. As of May 2, 2020, there were 91,135 shares available for future issuance under the ESPP.

 

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Stock Options

A summary of stock option activity for both employees and non-employees for the three months ended May 2, 2020 is as follows:

 

 

 

Stock Options