Quarterly Report


Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended April 30, 2016

or

 

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

For the transition period from                         to                        

Commission File Number 001-34842

 

 

Gordmans Stores, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   26-3171987

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1926 South 67 Street,

Omaha, Nebraska 68106

(Address of principal executive offices) (Zip Code)

(402) 691-4000

(Registrant’s telephone number, including area code)

 

 

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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Stock, $0.001 par value, outstanding as of June 6, 2016: 19,626,568 shares

 

 

 


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

INDEX

 

PART I

 

FINANCIAL INFORMATION

     3   

ITEM 1.

 

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

     3   

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     14   

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     22   

ITEM 4.

 

CONTROLS AND PROCEDURES

     22   

PART II

 

OTHER INFORMATION

     23   

ITEM 1.

 

LEGAL PROCEEDINGS

     23   

ITEM 1A.

 

RISK FACTORS

     23   

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     23   

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

     23   

ITEM 4.

 

RESERVED

     23   

ITEM 5.

 

OTHER INFORMATION

     23   

ITEM 6.

 

EXHIBITS

     24   

SIGNATURES

     25   

 

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Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in 000’s except per share data)

(Unaudited)

 

     13 Weeks
Ended
April 30,
2016
    13 Weeks
Ended
May 2,
2015
 

Net sales

   $ 142,180      $ 145,940   

License fees from leased departments

     2,228        2,433   

Cost of sales

     (82,392     (83,405
  

 

 

   

 

 

 

Gross profit

     62,016        64,968   

Selling, general and administrative expenses

     (63,887     (63,318
  

 

 

   

 

 

 

Income / (loss) from operations

     (1,871     1,650   

Interest expense, net

     (785     (1,036
  

 

 

   

 

 

 

Income / (loss) before taxes

     (2,656     614   

Income tax (expense) / benefit

     1,036        (240
  

 

 

   

 

 

 

Net income / (loss)

   $ (1,620   $ 374   
  

 

 

   

 

 

 

Basic earnings / (loss) per share

   $ (0.08   $ 0.02   

Diluted earnings / (loss) per share

   $ (0.08   $ 0.02   

Basic weighted average shares outstanding

     19,429        19,368   

Diluted weighted average shares outstanding

     19,429        19,528   

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in 000’s except share and per share data)

(Unaudited)

 

     April 30,
2016
    January 30,
2016
    May 2,
2015
 

ASSETS

      

CURRENT ASSETS:

      

Cash and cash equivalents

   $ 8,517      $ 6,969      $ 8,691   

Accounts receivable

     3,972        3,896        4,144   

Landlord receivable

     3,521        3,805        4,490   

Income taxes receivable

     3,079        2,746        8,323   

Merchandise inventories

     102,736        106,566        105,789   

Deferred income taxes

     5,077        5,077        2,896   

Prepaid expenses and other current assets

     9,955        8,096        9,725   
  

 

 

   

 

 

   

 

 

 

Total current assets

     136,857        137,155        144,058   

PROPERTY AND EQUIPMENT, net

     89,484        86,375        89,124   

INTANGIBLE ASSETS, net

     1,820        1,820        1,820   

OTHER ASSETS, net

     3,845        3,822        3,614   
  

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

   $ 232,006      $ 229,172      $ 238,616   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

CURRENT LIABILITIES:

      

Accounts payable

   $ 64,664      $ 66,393      $ 76,856   

Accrued expenses

     27,997        30,151        30,552   

Current portion of long-term debt, net

     26,641        18,390        14,991   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     119,302        114,934        122,399   
  

 

 

   

 

 

   

 

 

 

NONCURRENT LIABILITIES:

      

Long-term debt, less current portion, net

     26,909        27,345        26,573   

Deferred rent

     34,703        33,522        34,609   

Deferred income taxes

     17,490        18,130        15,636   

Other liabilities

     322        347        262   
  

 

 

   

 

 

   

 

 

 

Total noncurrent liabilities

     79,424        79,344        77,080   
  

 

 

   

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

      

STOCKHOLDERS’ EQUITY:

      

Preferred stock — $0.001 par value, 5,000,000 shares authorized, none issued and outstanding as of April 30, 2016, January 30, 2016 and May 2, 2015

     —         —         —    

Common stock — $0.001 par value, 50,000,000 shares authorized, 20,041,776 issued and 19,633,143 outstanding at April 30, 2016, 20,090,881 issued and 19,682,248 outstanding as of January 30, 2016, 19,995,306 issued and 19,586,673 outstanding as of May 2, 2015

     20        20        20   

Additional paid-in capital

     54,563        54,601        54,146   

Accumulated deficit

     (21,303     (19,727     (15,029
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     33,280        34,894        39,137   
  

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 232,006      $ 229,172      $ 238,616   
  

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in 000’s except share data)

(Unaudited)

 

     Shares of
Common
Stock
    Common
Stock
     Additional
Paid-In
Capital
    Accumulated
Deficit
    Total  

BALANCE, January 31, 2015

     19,576,623      $ 20       $ 53,870      $ (15,403   $ 38,487   

Share-based compensation expense, net of forfeitures

     —          —           256        —          256   

Issuance of restricted stock, net of forfeitures

     6,900        —           —          —          —     

Exercise of stock options

     3,150        —           19        —          19   

Tax benefit on stock options exercised

     —          —           1        —          1   

Net income

     —          —           —          374        374   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, May 2, 2015

     19,586,673      $ 20       $ 54,146      $ (15,029   $ 39,137   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, January 30, 2016

     19,682,248      $ 20       $ 54,601      $ (19,727   $ 34,894   

Share-based compensation expense, net of forfeitures

     —         —           74        —          74   

Issuance of restricted stock, net of forfeitures

     (49,105     —           —          —          —     

Forfeiture of dividends payable on unvested restricted stock

     —         —           —          44        44   

Deferred tax asset shortfall related to share-based compensation expense

     —         —           (112     —          (112

Net loss

     —         —           —          (1,620     (1,620
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, April 30, 2016

     19,633,143      $ 20       $ 54,563      $ (21,303   $ 33,280   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in 000’s)

(Unaudited)

 

     13 Weeks
Ended
April 30,
2016
    13 Weeks
Ended
May 2,
2015
 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income / (loss)

   $ (1,620   $ 374   

Adjustments to reconcile net income / (loss) to net cash provided by operating activities:

    

Depreciation and amortization expense

     4,420        4,016   

Amortization of deferred financing fees

     67        199   

Loss on retirement / sale of property and equipment

     —          23   

Deferred income taxes

     (640     —     

Share-based compensation expense, net of forfeitures

     74        256   

Deferred tax asset shortfall related to share-based compensation expense

     (112     —    

Net changes in operating assets and liabilities:

    

Accounts, landlord and income taxes receivable

     (125     (2,943

Merchandise inventories

     3,830        (11,319

Prepaid expenses and other current assets

     (1,859     (1,190

Other assets

     (23     116   

Accounts payable

     (1,729     12,507   

Deferred rent

     1,181        (772

Accrued expenses and other liabilities

     (1,533     (743
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,931        524   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of property and equipment

     (8,920     (2,543

Proceeds from sale-leaseback transactions

     789        804   
  

 

 

   

 

 

 

Net cash used in investing activities

     (8,131     (1,739
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Borrowings on revolving line of credit

     59,900        52,600   

Repayments on revolving line of credit

     (51,690     (49,801

Payment of long-term debt

     (462     (321

Payment of debt issuance costs

     —          (225

Proceeds from the exercise of stock options

     —          19   
  

 

 

   

 

 

 

Net cash provided by financing activities

     7,748        2,272   
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     1,548        1,057   

CASH AND CASH EQUIVALENTS, Beginning of period

     6,969        7,634   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, End of period

   $ 8,517      $ 8,691   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share Data and Per Share Amounts)

(Unaudited)

A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – The condensed consolidated financial statements include the accounts of Gordmans Stores, Inc. (the “Company”) and its subsidiaries, Gordmans Intermediate Holding Corp., Gordmans, Inc., Gordmans Management Company, Inc., Gordmans Distribution Company, Inc. and Gordmans LLC. All intercompany transactions and balances have been eliminated in consolidation. The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends on the Saturday nearest January 31. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of January 30, 2016 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly our financial position and results of operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature.

Summary of Significant Accounting Policies – The accounting policies followed by the Company are reflected in the notes to the consolidated financial statements for the fiscal year ended January 30, 2016, included in our fiscal year 2015 Annual Report on Form 10-K, filed with the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended January 30, 2016. Due to the seasonality of our business, the results of operations for any quarter are not necessarily indicative of the operating results for the full fiscal year. In addition, quarterly results of operations can vary based upon the timing and amount of net sales and costs associated with the opening of new stores.

Adoption of New Accounting Principles – During the three months ended April 30, 2016, the Company adopted Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs , which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and is effective retrospectively for all years reported. The following table summarizes the effects of this new guidance on amounts previously reported in our condensed consolidated balance sheets at the periods ended:

 

     January 30, 2016      May 2, 2015  
     As Reported      Adjustment     As Adjusted      As Reported      Adjustment     As Adjusted  

Other assets

   $ 4,902       $ (1,080   $ 3,822       $ 5,818       $ (2,204   $ 3,614   

Total assets

     230,252         (1,080     229,172         240,820         (2,204     238,616   

Current portion of long-term debt

     18,850         (460     18,390         15,405         (414     14,991   

Total current liabilities

     115,394         (460     114,934         122,813         (414     122,399   

Long-term debt, less current portion

     27,965         (620     27,345         28,363         (1,790     26,573   

Total noncurrent liabilities

     79,964         (620     79,344         78,870         (1,790     77,080   

Total liabilities and stockholders’ equity

     230,252         (1,080     229,172         240,820         (2,204     238,616   

Recently Issued Accounting Pronouncements – In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-04, Extinguishments of Liabilities , to provide specific guidance for the derecognition of prepaid store-valued product liabilities. ASU 2016-04 is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2017. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-04 on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation , to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-09 on the consolidated financial statements.

 

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Table of Contents

B. DESCRIPTION OF THE BUSINESS

Gordmans Stores, Inc. operated 103 everyday value price department stores under the trade name “Gordmans” located in 22 states as of April 30, 2016. Gordmans offers a wide merchandise assortment including apparel and footwear for men, women and children, accessories, fragrances and home fashions for up to 60% off department and specialty store regular prices every day in a fun, easy-to-shop environment. We also operate an eCommerce site which provides a broad selection of merchandise in a convenient, user-friendly digital platform.

The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company has determined that its Chief Executive Officer is the Chief Operating Decision Maker. The Company has one reportable segment. The Company’s operations include activities related to retail stores. The Company opened one new store during the thirteen weeks ended April 30, 2016 and opened two new stores during the thirteen weeks ended May 2, 2015.

The following table reflects the percentage of revenues by major merchandising category:

 

     13 Weeks
Ended
April 30,
2016
    13 Weeks
Ended
May 2,
2015
 

Apparel

     57.0     57.9

Home Fashions

     26.8        25.8   

Accessories (including fragrances)

     16.2        16.3   
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

C. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

 

     April 30,
2016
     January 30,
2016
     May 2,
2015
 

Leasehold improvements

   $ 14,219       $ 14,034       $ 12,404   

Furniture, fixtures and equipment

     90,075         89,481         83,496   

Computer software

     28,796         28,606         25,338   

Capitalized leases

     1,091         2,402         2,402   

Construction in progress

     10,878         4,320         5,780   
  

 

 

    

 

 

    

 

 

 
     145,059         138,843         129,420   

Less accumulated depreciation and amortization

     (55,575      (52,468      (40,296
  

 

 

    

 

 

    

 

 

 
   $ 89,484       $ 86,375       $ 89,124   
  

 

 

    

 

 

    

 

 

 

D. DEBT OBLIGATIONS

Revolving Line of Credit Facility – Gordmans, Inc. (the “Borrower”), a wholly owned subsidiary of the Company, has an $80.0 million revolving line of credit facility dated February 20, 2009, as amended effective June 29, 2015, with Wells Fargo Bank, National Association (“Wells Fargo”), as the arranger and administrative agent for the lenders. The revolving line of credit facility may be increased by $20.0 million. The agreement expires June 28, 2020, at which time all outstanding indebtedness under the agreement becomes due and payable.

The June 29, 2015 amendment established a $30.0 million secured term loan facility provided by Wells Fargo, Pathlight Capital LLC and Gordon Brothers Finance Company, as discussed below. The amendment changed the 1% early termination fee applicable to the revolving line of credit facility such that the fee is payable if the facility is terminated prior to November 14, 2016 and extended the maturity date of the revolving line of credit facility from August 27, 2018 to June 28, 2020. The amendment also eliminated the seasonal borrowing periods during which periods the applicable interest rate increased by 75 basis points and advance rates under the borrowing base were increased by 5.0%, amended the minimum excess availability covenant, and amended certain negative and affirmative covenant requirements.

The Company had $25.2 million of borrowings outstanding under the revolving line of credit facility as of April 30, 2016, which is included in the current portion of long-term debt as the Company intends to repay the outstanding borrowings within the next twelve months. The Company had $17.0 million and $13.8 million of borrowings outstanding under the revolving line of credit facility as of January 30, 2016 and May 2, 2015, respectively. Average borrowings during the thirteen week periods ended April 30, 2016 and May 2, 2015, were $20.6 million and $11.7 million, respectively.

 

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Table of Contents

Borrowings under this facility bear interest at various rates, with two rate options at the discretion of management as follows: (1) for base rate advances, borrowings bear interest at the prime rate plus 1.00% when average excess availability is less than or equal to $40.0 million and the prime rate plus 0.75% when average excess availability is greater than $40.0 million, and (2) for LIBOR rate advances, borrowings bear interest at the LIBOR rate plus 2.00% when average excess availability is less than or equal to $40.0 million and the LIBOR rate plus 1.75% when average excess availability is greater than $40.0 million. The Company is required to maintain minimum excess availability under the revolving line of credit facility of at least $20.0 million, the calculation of which now includes up to $3.0 million of unrestricted cash. The Company had $48.2 million, $56.3 million and $59.5 million available to borrow at April 30, 2016, January 30, 2016 and May 2, 2015, respectively. Borrowings under this facility totaling $10.2 million bore interest at a rate of 4.25% under the base rate option and $15.0 million bore interest at a rate of 2.19% under the LIBOR option at April 30, 2016. Borrowings under this facility bore interest at a rate of 4.25% under the base rate option January 30, 2016 which compares to the Cerberus line of credit facility interest rate of 3.75% at May 2, 2015. The Company had outstanding letters of credit included in the borrowing base totaling approximately $6.5 million, $6.7 million and $6.7 million as of April 30, 2016, January 30, 2016 and May 2, 2015, respectively.

An unused line fee is payable quarterly in an amount equal to 0.25% of the sum of the average daily unused revolver amount during the immediately preceding month plus the average daily balance of the letter of credit usage during the immediately preceding month. An administrative agent fee is also payable under the facility on an annual basis. Borrowings are secured by the Company’s inventory, accounts receivable and all other personal property, except as specifically excluded in the agreement. The revolving line of credit facility has a first lien on all collateral other than term loan priority collateral, as defined in the June 29, 2015 amendment, and a second lien on the term loan priority collateral, as defined in the June 29, 2015 amendment.

Term Loan Facility – The Borrower entered into a $45.0 million senior term loan on August 27, 2013, as amended November 14, 2014, with Cerberus Business Finance, LLC (“Cerberus”) to partially fund the $69.9 million special cash dividend declared in August 2013. This senior term loan with Cerberus was extinguished in full on June 29, 2015 with the proceeds from the new $30.0 million secured term loan facility established by the June 29, 2015 amendment discussed above.

The new secured term loan facility matures on the same date as the revolving line of credit facility and has principal payments of $0.4 million due on a quarterly basis beginning in October 2015 through the maturity date, with the remaining principal due on the maturity date of June 28, 2020. The Company may repay at any time all or a portion of the outstanding principal amount of the new secured term loan facility, subject to a prepayment premium equal to 3.0% in the first year, 1.5% in the second year, 0.5% in the third year and 0.0% thereafter. The term loan facility carries an interest rate equal to the LIBOR rate plus 6.25% with a floor of 1.0%. The interest rate on the new secured term loan facility was 7.25% at April 30, 2016 and January 30, 2016 which compares to the Cerberus senior term loan interest rate of 9.5% at May 2, 2015. The secured term loan facility includes a borrowing base in addition to the revolving loan borrowing base. The secured term loan facility is secured by the same collateral as the revolving line of credit facility but has a priority lien on real estate, fixtures, equipment, intellectual property and books, records, permits, licenses, insurance and proceeds thereof and a second lien on the revolving priority collateral, as defined in the June 29, 2015 amendment.

The Cerberus senior term loan had a maturity date of August 27, 2018, with payments of $0.3 million due on a quarterly basis from October 2014 through October 2015 and payments of $0.4 million due on a quarterly basis beginning in January 2016 through the maturity date, with the remaining principal due on the maturity date. The Cerberus senior term loan was secured on a second lien basis by the Company’s inventory, accounts receivable and all other personal property, except as specifically excluded in the agreement. In connection with the extinguishment of the Cerberus senior term loan, the Company wrote off deferred financing fees of $1.7 million and paid a prepayment penalty of $0.3 million, which was equal to 1.0% of the outstanding principal balance at the time of the loan extinguishment. These expenses are recorded as loss on extinguishment of debt in the condensed consolidated statement of operations during the second quarter of fiscal year 2015.

Among other provisions, the Company’s debt agreement with Wells Fargo contains customary affirmative and negative covenants, including a negative covenant that restricts the level and form of indebtedness entered into by the Company or its wholly owned subsidiaries. Exceptions to this covenant include borrowings under our $30.0 million senior term loan and, subject to certain conditions, indebtedness not to exceed $10.0 million in the aggregate in connection with all acquisitions occurring after February 20, 2009. The revolving line of credit facility also includes a negative covenant that restricts dividends and other upstream distributions by the Company and its subsidiaries to the extent the Company does not meet minimum excess availability thresholds. Exceptions to this covenant include dividends or other upstream distributions: (i) by subsidiaries of Gordmans, Inc. to Gordmans, Inc. and its other subsidiaries, (ii) that consist of repurchases of stock of employees in an amount not to exceed $0.5 million in any fiscal year, (iii) that consist of the payment of taxes on behalf of any employee, officer or director of the Company for vested restricted stock of the Company owned by such employee, officer or director, (iv) to the Company to pay federal, state and local income taxes and franchise taxes solely arising out of the consolidated operations of the Company and its subsidiaries, (v) to the Company to pay certain reasonable directors’ fees and out-of-pocket expenses, reasonable and customary indemnities to directors, officers and employees and other expenses in connection with ordinary corporate governance, overhead, legal and accounting and maintenance and (vi) dividends so long as no event of default exists, projected excess availability for the next twelve months is greater than $35.0 million and 30% of the loan cap and the fixed charge coverage ratio is greater than 1.0 to 1.0 on a historical and projected basis. The agreement also includes a negative covenant that restricts subsidiaries of the Company from making any loans to the Company. Should the Company default on scheduled repayment of the secured term loan facility, Wells Fargo may make any outstanding obligations under the agreement immediately due and payable. As of April 30, 2016, the Company was in compliance with all of its debt covenants.

 

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Long-term Debt – Long-term debt consists of the following:

 

     April 30,
2016
     January 30,
2016
     May 2,
2015
 

Revolving line of credit facility

   $ 25,210       $ 17,000       $ 13,833   

Term loan

     28,740         29,160         29,157   

Capital lease obligations

     613         655         778   
  

 

 

    

 

 

    

 

 

 

Total long-term debt

     54,563         46,815         43,768   

Less unamortized debt issuance costs

     (1,013      (1,080      (2,204
  

 

 

    

 

 

    

 

 

 

Total long-term debt, net

     53,550         45,735         41,564   

Less current portion of long-term debt, net

     (26,641      (18,390      (14,991
  

 

 

    

 

 

    

 

 

 

Long-term debt, less current portion, net

   $ 26,909       $ 27,345       $ 26,573   
  

 

 

    

 

 

    

 

 

 

At April 30, 2016, annual maturities of long-term debt during the next five fiscal years and thereafter were as follows:

 

Remainder of 2016

   $ 1,388   

2017

     1,856   

2018

     1,863   

2019

     1,806   

2020

     47,650   
  

 

 

 

Total long-term debt

   $ 54,563   
  

 

 

 

The Company had $25.2 million of borrowings outstanding under the revolving line of credit facility as of April 30, 2016, which is included in the current portion of long-term debt as the Company intends to repay the outstanding borrowings within the next twelve months. The Company had $17.0 million and $13.8 million of borrowings outstanding under the revolving line of credit facility as of January 30, 2016 and May 2, 2015, respectively.

Financial Instruments – Based on the borrowing rates currently available to the Company for debt with similar terms and the variable interest rate of the senior term loan, which has not significantly changed since the agreement was signed in June 2015, the fair value of the senior term loan approximates its carrying amount at April 30, 2016. For all other financial instruments including cash and cash equivalents, receivables, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the short maturity of those instruments.

Based on the borrowing rates currently available to the Company for debt with similar terms and the variable interest rate of the term loan dated June 29, 2015, the fair value of the term loan approximates its carrying amount of at April 30, 2016. Fair value approximates the carrying value of the outstanding balance on the revolving line of credit facility due to both the short-term nature of these borrowings and the variable interest rates of this agreement. For all other financial instruments including cash and cash equivalents, receivables, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the short maturity of those instruments.

E. LEASES

The Company has entered into short and long term operating lease agreements. These leases relate to retail store locations, the distribution centers and the corporate headquarters. The leases expire on various dates through the year 2029 with most of the leases containing renewal options. Leases for retail store locations typically have base lease terms of 10 years with one or more renewal periods, usually for five years. Certain retail store leases contain provisions for additional rent based on varying percentages of net sales. Leases for the second distribution center and the corporate headquarters have base lease terms of 15 years with multiple renewal periods. In fiscal 2014, the Company entered into capital lease arrangements for computer hardware and related software with a lease term of 5 years.

 

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Future minimum lease payments, by year, under operating leases and future obligations under non-cancelable leases, by year, as of April 30, 2016 are as follows:

 

     Operating
Leases
     Capital
Leases
 

Remainder of 2016

   $ 43,149       $ 144   

2017

     57,156         192   

2018

     52,448         192   

2019

     47,511         126   

2020

     41,591         —     

After 2021

     116,109         —    
  

 

 

    

 

 

 

Total minimum lease payments

   $ 357,964         654   
  

 

 

    

Less: capital lease amount representing interest

        (41
     

 

 

 

Present value of minimum lease payments

        613   

Less: current maturities of capital lease obligations

        (171
     

 

 

 

Noncurrent maturities of capital lease obligations

      $ 442   
     

 

 

 

F. SHARE BASED COMPENSATION

The Gordmans Stores, Inc. 2010 Omnibus Incentive Compensation Plan (the “2010 Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents and other share-based awards. Directors, officers and other associates of the Company and its subsidiaries, as well as others performing consulting or advisory services, are eligible for grants under the 2010 Plan. As of April 30, 2016, an aggregate of 4,573,086 shares of the Company’s common stock were reserved under the 2010 Plan, subject to adjustments for stock splits and other actions affecting the Company’s common stock.

There were 1,822,610 shares of common stock available for future grants under the 2010 Plan at April 30, 2016.

Restricted Stock – A summary of restricted stock activity during the thirty-nine weeks ended April 30, 2016 is set forth in the table below:

 

     Number
of
Shares
     Weighted Average
Grant Date
Fair Value
 

Non-vested, January 30, 2016

     254,230       $ 5.91   

Granted

     1,250         2.50   

Forfeited

     (50,355      7.63   

Vested

     (1,725      4.05   
  

 

 

    

Non-vested, April 30, 2016

     203,400       $ 5.48   
  

 

 

    

Restricted stock vests at rates of 20% per year over five years, 25% per year over four years or 33 1 / 3 % per year over three years, as applicable. Unrecognized compensation expense on the restricted stock was $0.8 million at April 30, 2016, which is expected to be recognized over a period of 1.9 years.

Performance Shares – The Board of Directors granted performance shares in fiscal year 2015 to be awarded in the form of common stock to officers and other associates of the Company if certain market condition criteria are achieved. The performance shares vest at the end of fiscal year 2017 if certain criteria are achieved provided the participant is then employed by the Company. Vesting of these potentially issuable shares are dependent upon the Company’s total shareholder return for the three-year measurement period compared to a pre-determined group of retail peer competitors. If the Company’s total shareholder return is at the high end of the pre-determined group of retail peer competitors, the maximum amount of shares available to be issued pursuant to this award is 200% of the performance shares which are non-vested on April 30, 2016. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the Company’s total shareholder return compared to the peer performance at the end of fiscal year 2017.

 

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The Company used the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant. The Monte Carlo valuation also estimated the number of performance shares that would be awarded which is reflected in the fair value on the grant date. The Monte Carlo valuation assumed 159.9% of the performance shares granted would be awarded at the end of fiscal year 2017 based upon the estimated Company’s total shareholder return relative to peer performance. Unrecognized compensation expense on the performance shares was $0.5 million at April 30, 2016, which is expected to be recognized over a period of 1.75 years.

A summary of performance share activity during the thirty-nine weeks ended April 30, 2016 is set forth in the table below:

 

     Number
of
Shares
 

Non-vested, January 30, 2016

     89,600   

Granted

     —    

Forfeited

     (10,500
  

 

 

 

Non-vested, April 30, 2016

     79,100   
  

 

 

 

Stock Options - A summary of stock option activity during the thirty-nine weeks ended April 30, 2016 is set forth in the table below:

 

     Number      Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
(in Years)
     Aggregate
Intrinsic
Value (1)
 

Outstanding, January 30, 2016

     1,698,538       $ 6.90         

Granted

     27,500         2.50         

Exercised

     —           —           

Forfeited

     (274,385      8.50         
  

 

 

          

Outstanding, April 30, 2016

     1,451,653         6.76         7.9       $ —    

Exercisable, April 30, 2016

     437,569         9.79         6.4         —    

Exercisable or expected to vest as of April 30, 2016

     1,159,581         6.83         7.7         —    

 

(1) The aggregate intrinsic value for stock options is the difference between the current market value of the Company’s stock as of April 30, 2016 and the option strike price. The stock price at April 30, 2016 was $2.31, which was below the weighted average exercise price for options exercisable at April 30, 2016.

There were no stock option exercises during the thirteen weeks ended April 30, 2016. The Company received $19 thousand of proceeds from the exercise of stock options during the thirteen weeks ended May 2, 2015, which is reflected as a financing cash inflow in the condensed consolidated statement of cash flows. The aggregate intrinsic value of stock options exercised during the thirteen weeks ended May 2, 2015 was $6 thousand.

The weighted average assumptions used by the Company in applying the Black-Scholes valuation model for option grants during the thirty-nine weeks ended April 30, 2016 are illustrated in the following table:

 

     13 Weeks
Ended
April 30, 2016
 

Risk-free interest rate

     2.0

Dividend yield

     2.0

Expected volatility

     46.0

Expected life (years)

     6.25   

Weighted average fair value of options granted

   $ 0.94   

Stock options have ten-year contractual terms and vest at rates of either 20% per year over five years or 25% per year over four years as applicable. None of the stock options outstanding at April 30, 2016 were subject to performance or market-based vesting conditions. As of April 30, 2016, the unrecognized compensation expense on stock options was $1.2 million, which is expected to be recognized over a weighted average period of 1.3 years.

 

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Share-based compensation expense was $0.1 million and $0.3 million for the thirteen week periods ended April 30, 2016 and May 2, 2015, respectively. For the thirteen week period ended April 30, 2016, the company recorded a share-based compensation benefit of $0.2 million related to the forfeitures of unvested share-based awards.

G. EARNINGS / (LOSS) PER SHARE

The following is a reconciliation of the outstanding shares utilized in the computation of earnings / (loss) per share:

 

     13 Weeks
Ended
April 30,
2016
     13 Weeks
Ended
May 2,
2015
 

Basic weighted average shares outstanding

     19,428,965         19,367,960   

Dilutive effect of non-vested stock and stock options

     —          160,090   
  

 

 

    

 

 

 

Diluted weighted average shares outstanding

     19,428,965         19,528,050   
  

 

 

    

 

 

 

The anti-dilutive effect of 1,451,351 and 664,375 stock options has been excluded from diluted weighted average shares outstanding for the thirteen week periods ended April 30, 2016 and May 2, 2015, respectively.

H. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth non-cash investing activities and other cash flow information:

 

     13 Weeks
Ended
April 30,
2016
     13 Weeks
Ended
May 2,
2015
 

Non-cash investing and financing activities:

     

Purchases of property and equipment in accrued expenses at the end of the period

   $ 1,835       $ 3,700   

Sales of property and equipment pursuant to sale-leaseback accounting

     —          4,968   

Dividends payable forfeited on unvested restricted stock

     44         —    

Other cash flow information:

     

Cash paid for interest

     716         891   

Cash paid for income taxes

     56         39   

Sales of property and equipment pursuant to sale-leaseback accounting represents the amount of structural assets sold to the landlord at the completion of construction for which the Company was deemed the owner during the construction period, pursuant to sale-leaseback accounting, and for which no cash was received upon transfer of ownership.

I. RELATED PARTY DISCLOSURE

The Company has a services agreement with Sun Capital Partners Management V, LLC (“Sun Capital Management”), an affiliate of private equity firm Sun Capital Partners, Inc. (“Sun Capital”) to (1) reimburse Sun Capital Management for out-of-pocket expenses incurred in providing consulting services to the Company and (2) provide Sun Capital Management with customary indemnification for any such services. The Company incurred expenses of $20 thousand and $15 thousand to Sun Capital Management under the terms of the services agreement for the thirteen week periods ended April 30, 2016 and May 2, 2015, respectively. Additionally, the Company purchased merchandise inventories of $0.4 million and $0.3 million in the normal course of business from merchandise vendors which are Sun Capital affiliates during the thirteen week periods ended April 30, 2016 and May 2, 2015, respectively.

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, or strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including the factors described in “Item 1A – Risk Factors” in our fiscal year 2015 Annual Report on Form 10-K.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other Securities and Exchange Commission (“SEC”) filings and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties. The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

The following discussion and analysis should be read in conjunction with our fiscal year 2015 Annual Report on Form 10-K and the unaudited condensed consolidated financial statements and the related notes thereto included in Item 1. Consolidated Financial Statements of this Quarterly Report.

Executive Overview

Gordmans is an everyday value price department store featuring a large selection of brands, fashions and styles at up to 60% off department and specialty store prices every day in a fun, easy-to-shop environment. Our merchandise assortment includes apparel and footwear for men, women and children, accessories (including fragrances) and home fashions. The origins of Gordmans date back to 1915, and as of April 30, 2016, we operated 103 stores in 22 states situated in a variety of shopping center developments, including lifestyle centers, power centers and enclosed regional shopping malls. We also operate an eCommerce site which provides a broad selection of merchandise in a convenient, user-friendly digital platform.

We opened one new store during the thirteen weeks ended April 30, 2016 and two new stores during the thirteen weeks ended May 2, 2015.

In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales and comparable store sales and other individual store performance factors, gross profit and selling, general and administrative expenses.

Net Sales . Net sales reflect our revenues from the sale of our merchandise less returns and discounts, eCommerce shipping revenue and excludes sales tax. Net sales include comparable store sales and non-comparable store sales.

Comparable Store Sales . Comparable store sales include retail stores that were open at least 16 months as of the end of the reporting period and eCommerce sales. Comparable store sales include stores that were relocated or remodeled and exclude stores that were closed. Comparable store sales are assessed on both an owned and licensed basis, which includes the impact to growth in comparable sales of departments where we own the inventory or departments which are licensed to a third party. We also review the average sale per transaction, comparable store transactions, store traffic and sales conversion rates. Comparable store sales are an important indicator of current operating performance, with higher comparable store sales helping us to leverage our fixed expenses and positively impacting our operating results.

 

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Gross Profit . Gross profit is equal to our net sales minus cost of sales, plus license fee income generated from sales of footwear and maternity apparel in our leased departments. The license agreement related to our maternity business expired in March 2016 and was not renewed. Cost of sales includes the direct cost of purchased merchandise, inbound freight to our distribution centers, inventory shrinkage and inventory write-downs. Gross profit margin measures gross profit as a percentage of our net sales. Our gross profit may not be comparable to other retailers, as some companies include all of the costs related to their distribution network in cost of sales while others, like us, exclude a portion of these costs from cost of sales and include those costs in selling, general and administrative expenses. Our gross profit margin is a function of initial markup less shrink and markdowns, with higher initial markup and lower markdowns positively impacting our operating results.

Selling, General and Administrative Expenses . Selling, general and administrative expenses include all operating costs not included in cost of sales. These expenses include payroll and other expenses related to operations at our corporate office, store and eCommerce expenses, occupancy costs, certain distribution and warehousing costs for retail stores and eCommerce, pre-opening and closing expenses, depreciation and amortization and advertising expenses. Our ability to manage store level and certain other operating expenses directly impacts our operating results.

Overview

The net loss for the thirteen weeks ended April 30, 2016 was $1.6 million as compared to a net income of $0.4 million for the thirteen weeks ended May 2, 2015. Below are highlights of our financial results for the thirteen weeks ended April 30, 2016.

 

    Net sales decreased 2.6% for the thirteen weeks ended April 30, 2016 as compared to the thirteen weeks ended May 2, 2015. Lower net sales were driven by a decrease in comparable store sales impacted by lower traffic during the thirteen weeks ended April 30, 2016, partially offset by an increase in the average sale per transaction and an increase in non-comparable stores during the thirteen weeks ended April 30, 2016. Comparable store sales on an owned basis decreased 5.0% for the thirteen weeks ended April 30, 2016 as compared a decrease of 1.7% for the thirteen weeks ended May 2, 2015.

 

    Gross profit margin decreased 90 basis points in the thirteen weeks ended April 30, 2016 as compared to the thirteen weeks ended May 2, 2015, primarily as a result of higher merchandise inventory markdowns.

 

    Selling, general and administrative expenses increased 150 basis points to 44.9% of net sales for the thirteen weeks ended April 30, 2016 compared to 43.4% of net sales for the thirteen weeks ended May 2, 2015. As a percent of net sales, selling, general and administrative expenses increased 150 basis points due to expenses related to the addition of eCommerce which was launched in mid-2015, an increase in professional fees primarily due to the Company’s engagement of an outside party to assist in identifying expense savings opportunities and increased depreciation expense, partially offset by decreases in distribution and corporate expense, as well as store payroll.

Basis of Presentation and Results of Operations

The consolidated financial statements include the accounts of Gordmans Stores, Inc. and its subsidiaries, Gordmans Intermediate Holding Corp., Gordmans, Inc., Gordmans Management Company, Inc., Gordmans Distribution Company, Inc. and Gordmans LLC. All intercompany transactions and balances have been eliminated in consolidation. We utilize a typical retail 52-53 week fiscal year whereby the fiscal year ends on the Saturday nearest January 31. Fiscal years 2016 and 2015 represent fifty-two week years ending January 28, 2017 and ended January 30, 2016, respectively. All references to fiscal years are to the calendar year in which the fiscal year begins. The thirteen weeks ended April 30, 2016 and the thirteen weeks ended May 2, 2015 represent the first quarters of fiscal 2016 and fiscal 2015, respectively.

The table below sets forth the consolidated statements of operations data for the periods presented (in thousands):

 

     13 Weeks
Ended
April 30,
2016
     13 Weeks
Ended
May 2,
2015
 

Statements of Operations Data:

     

Net sales

   $ 142,180       $ 145,940   

License fees from leased departments

     2,228         2,433   

Cost of sales

     (82,392      (83,405
  

 

 

    

 

 

 

Gross profit

     62,016         64,968   

Selling, general and administrative expenses

     (63,887      (63,318
  

 

 

    

 

 

 

Income / (loss) from operations

     (1,871      1,650   

Interest expense, net

     (785      (1,036
  

 

 

    

 

 

 

Income / (loss) before taxes

     (2,656      614   

Income tax (expense) / benefit

     1,036         (240
  

 

 

    

 

 

 

Net income / (loss)

   $ (1,620    $ 374   
  

 

 

    

 

 

 

 

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The table below sets forth the components of the consolidated statements of operations as a percentage of net sales:

 

     13 Weeks
Ended
April 30,
2016 (1)
    13 Weeks
Ended
May 2,
2015 (1)
 

Net sales

     100.0     100.0

License fees from leased departments

     1.6        1.7   

Cost of sales

     (57.9     (57.2
  

 

 

   

 

 

 

Gross profit

     43.6        44.5   

Selling, general and administrative expenses

     (44.9     (43.4
  

 

 

   

 

 

 

Income / (loss) from operations

     (1.3     1.1   

Interest expense, net

     (0.6     (0.7
  

 

 

   

 

 

 

Income / (loss) before taxes

     (1.9     0.4   

Income tax (expense) / benefit

     0.7        (0.2
  

 

 

   

 

 

 

Net income / (loss)

     (1.1 )%      0.3
  

 

 

   

 

 

 

 

(1)   Percentages may not foot due to rounding.

Thirteen Weeks Ended April 30, 2016 Compared to Thirteen Weeks Ended May 2, 2015

Net Sales

Net sales for the thirteen weeks ended April 30, 2016 decreased $3.8 million, or 2.6%, to $142.2 million as compared to $145.9 million for the thirteen weeks ended May 2, 2015. This decrease was primarily the result of a $7.2 million decrease in comparable store sales, partially offset by a $3.4 million increase in non-comparable store sales due to the opening of five net new stores in fiscal 2015, two of which opened in the first quarter of fiscal 2015. Owned comparable store sales decreased 5.0% during the thirteen weeks ended April 30, 2016. The comparable store sales decrease was primarily due to a high-single digit decrease in comparable transactions resulting from a decrease in guest traffic, partially offset by a low single digit increase in the average sale per transaction. From a major merchandising category perspective, Apparel and Accessories (including fragrances) experienced mid-single digit comparable store sales decreases and Home Fashions experienced a low-single digit comparable store sales decrease for the thirteen weeks ended April 30, 2016 compared to the thirteen weeks ended May 2, 2015. Additionally, first quarter 2016 includes net sales from our eCommerce operations which were launched at the end of the second quarter of fiscal 2015.

License Fees from Leased Departments

License fee income related to sales of merchandise in leased departments for the thirteen weeks ended April 30, 2016 decreased $0.2 million, or 8.4%, to $2.2 million as compared to $2.4 million for the thirteen weeks ended May 2, 2015, primarily due to the decrease in maternity license fees as our license agreement related to our maternity business expired in March 2016 and was not renewed.

Gross Profit

Gross profit, which includes license fees from leased departments, for the thirteen weeks ended April 30, 2016 decreased $3.0 million, or 4.5%, to $62.0 million as compared to $65.0 million for the thirteen weeks ended May 2, 2015. Gross profit margin decreased 90 basis points to 43.6% of net sales as compared to 44.5% of net sales for the first quarter of 2015. The 90 basis point decrease in gross profit was due primarily to higher merchandise inventory markdowns.

Selling, General and Administrative Expenses

Selling, general and administrative expenses during the thirteen weeks ended April 30, 2016 increased $0.6 million, or 0.9%, to $63.9 million as compared to $63.3 million for the thirteen weeks ended May 2, 2015. As a percentage of net sales, selling, general and administrative expenses were 44.9% for the thirteen weeks ended April 30, 2016 compared to 43.4% for the thirteen weeks ended May 2, 2015, a 150 basis point increase.

Store expenses increased $1.0 million in the thirteen weeks ended April 30, 2016 as compared to the thirteen weeks ended May 2, 2015 primarily due to expenses associated with the launch of eCommerce operations in mid-2015, the opening of five net new stores in fiscal 2015 and higher health and worker’s compensation insurance costs, partially offset by decreased store payroll in existing stores due to lower sales. Store expenses were 140 basis points higher in the first quarter of fiscal 2016 compared to the first quarter of fiscal 2015, primarily due the launch of eCommerce operations in mid-2015 and the deleveraging of fixed asset costs associated with the comparable store sales decline, partially offset by a reduction in store payroll expense.

 

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Table of Contents

Depreciation and amortization expenses increased $0.4 million, or 30 basis points as a percentage of net sales, in the thirteen weeks ended April 30, 2016 as compared to the thirteen weeks ended May 2, 2015 due to increased investment in technology, including the launch of eCommerce operations in mid-2015.

Corporate expenses increased $0.1 million, or 20 basis points, in the thirteen weeks ended April 30, 2016 as compared to the thirteen weeks ended May 2, 2015, primarily due higher professional service fees of $0.7 million related to the Company’s engagement of an outside party to assist in identifying expense savings opportunities and an increase of $0.2 million in investments in upgrading our information technology systems during the first quarter of fiscal 2016. These increases were partially offset by a decrease of $0.2 million in corporate payroll, a $0.2 million decrease in recruiting and relocation expense and a $0.3 million decrease in other professional consulting services during the first quarter of fiscal 2016.

Advertising expenses increased $0.1 million in the thirteen weeks ended April 30, 2016 as compared to the thirteen weeks ended May 2, 2015 due primarily to an increase in television advertising expenses, partially offset by a decrease in direct mail and preprint expenses during the thirteen weeks ended April 30, 2016.

Pre-opening and closing expenses decreased $0.5 million, or 20 basis points as a percentage of net sales, in the thirteen weeks ended April 30, 2016 due to the opening of one new store in the first quarter of fiscal 2016 compared to the opening of two new stores during the first quarter 2015. No stores were closed during the first quarter of fiscal 2016 and 2015, respectively.

Distribution center expenses decreased $0.5 million, or 20 basis points as a percentage of net sales, in the thirteen weeks ended April 30, 2016 primarily due to lower processing, payroll, and delivery costs as a result of lower inventory receipts and operational efficiencies obtained during the first quarter of fiscal year 2016 compared to the first quarter of fiscal year 2015.

Interest Expense, Net

Interest expense, net for the thirteen weeks ended April 30, 2016 decreased $0.2 million to $0.8 million compared to $1.0 million for the thirteen weeks ended May 2, 2015 due primarily to a 225 basis point reduction in the interest rate on the refinanced term loan during the second quarter of fiscal 2015, partially offset by higher borrowings on the revolving line of credit facility.

Income / (Loss) before Taxes

The net loss before taxes for the thirteen weeks ended April 30, 2016 was $2.7 million compared to income before taxes of $0.6 million for the thirteen weeks ended May 2, 2015. As a percentage of net sales, the net loss before taxes was 1.9% for the first quarter of fiscal 2016 compared to income before taxes of 0.4% for the first quarter of fiscal 2015.

Income Tax (Expense) / Benefit

The income tax benefit for the thirteen weeks ended April 30, 2016 was $1.0 million compared to income tax expense of $0.2 million for the thirteen weeks ended May 2, 2015. The effective income tax rate for the first quarter of fiscal 2016 was 39.0% compared to the effective income tax rate of 39.1% for the first quarter of fiscal 2015. The effective rate differed from the federal enacted rate of 35% primarily due to state taxes, net of federal benefits.

Net Income / (Loss)

The net loss for the thirteen weeks ended April 30, 2016 was $1.6 million compared to net income of $0.4 million for the thirteen weeks ended May 2, 2015.

Seasonality

Our business is subject to seasonal fluctuations, which are typical of retailers that carry a similar merchandise offering. A disproportionate amount of our sales and net income are realized during the fourth fiscal quarter, which includes the holiday selling season. In fiscal years 2015, 2014 and 2013, respectively, 31.7%, 32.1%, and 32.3% of our net sales were generated in the fourth quarter. Our business is also subject, at certain times, to calendar shifts, which may occur during key selling periods close to holidays such as Easter, Thanksgiving and Christmas and regional fluctuations for events such as sales tax holidays.

 

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Liquidity and Capital Resources

Our primary ongoing cash requirements are for operating expenses, inventory, new store capital investment, investments in our information technology (including our eCommerce operations which were launched in mid-2015 and the replacement of our existing point-of-sale system beginning in 2016), capital expenditures for existing store improvements and investments in our distribution centers, as well as debt service. Our typical investment in a new store is approximately $1.2 million, which represents pre-opening expenses of $0.3 million and inventory of $0.9 million (of which $0.3 million is typically financed through trade payables). The fixed assets and leasehold improvements associated with a new store opening of approximately $1.2 million have typically been financed by landlords through favorable tenant improvement allowances. Our primary sources of funds for our business activities are cash from operations, borrowings under our revolving line of credit facility, tenant improvement allowances and the use of operating leases for new stores.

Our working capital at April 30, 2016 decreased $4.7 million, or 21.0%, to $17.6 million compared to working capital of $22.2 million at January 30, 2016. Working capital was $21.6 million at May 2, 2015. The decrease in working capital from January 30, 2016 to April 30, 2016 primarily relates to higher borrowings on our line of credit facility.

Total long-term debt, net increased from $45.7 million at January 30, 2016 to $53.6 million at April 30, 2016 primarily due to higher borrowings on our line of credit facility at April 30, 2016 as compared to January 30, 2016. On August 26, 2013, the Company entered into a five year, $45.0 million senior term loan with Cerberus Business Finance, LLC (“Cerberus”) as amended on November 14, 2014, to fund a portion of the $69.9 million special cash dividend payment declared in 2013. The remainder of the special cash dividend payment was funded by cash from operations. The Company paid down $15.0 million of principal on the senior term loan on November 17, 2014. On June 29, 2015, this senior term loan was extinguished in full with proceeds from a new $30.0 million secured term loan facility provided by Wells Fargo Bank, National Association (“Wells Fargo”), as arranger and administrative agent for the lenders, pursuant to the Joinder and Eighth Amendment to Loan, Guaranty and Security Agreement (“Eighth Amendment”) dated June 29, 2015. The majority of the secured term loan principal is due on the maturity date of June 28, 2020, with quarterly principal payments of $0.4 million through the maturity date. Principal payments on our secured term loan will be funded with cash from operations and, if necessary, borrowings under our $80.0 million revolving line of credit facility.

The Company paid a prepayment premium of $0.3 million related to the Cerberus senior term loan early extinguishment during the second quarter of fiscal 2015, which was equal to 1.0% of the outstanding principal balance at the time of the payoff of the Cerberus senior term loan. The revolving line of credit facility with Well Fargo, as amended on June 29, 2015 with the Eighth Amendment, contains a provision for a 1.0% early termination fee payable if the facility is terminated prior to November 14, 2016. The June 29, 2015 amendment also extended the maturity date of the revolving line of credit facility from August 27, 2018 to June 28, 2020.

The Eighth Amendment to the debt agreement with Wells Fargo changed the minimum excess availability requirements and certain negative and affirmative covenant requirements. The amendment established a term loan borrowing base to govern the term loan facility in addition to the revolving loan borrowing base that currently governs the revolving line of credit facility. We were in compliance with all of our debt covenants as of April 30, 2016.

There were $25.2 million of borrowings outstanding under our revolving line of credit facility at April 30, 2016, as compared to $17.0 million of borrowings outstanding under our revolving line of credit facility at January 30, 2016 and $13.8 million of borrowings outstanding under our revolving line of credit facility at May 2, 2015. Cash and cash equivalents were $8.5 million, $7.0 million and $8.7 million at April 30, 2016, January 30, 2016 and May 2, 2015, respectively. Net cash provided by operating activities was $1.9 million during the thirteen weeks ended April 30, 2016 compared to $0.5 million during the thirteen weeks ended May 2, 2015. Average borrowings under our revolving line of credit facility increased to $20.6 million for the thirteen weeks ended April 30, 2016 from $11.7 million in thirteen weeks ended May 2, 2015. The largest amount borrowed at one time during the thirteen weeks ended April 30, 2016 was $25.8 million compared to $15.4 million during the thirteen weeks ended May 2, 2015. Availability under our revolving line of credit facility was $48.2 million at April 30, 2016 compared to $56.3 million at January 30, 2016 and $59.5 million at May 2, 2015. Stockholders’ equity was $33.3 million as of April 30, 2016 compared to $34.9 million as of January 30, 2016 and $39.1 million as of May 2, 2015.

During the course of our seasonal business cycle, working capital is needed to support inventory for existing stores, particularly during peak selling seasons. Historically, our working capital needs are lowest in the first quarter and peak late in the third quarter or early in the fourth quarter in anticipation of the holiday selling season. Management believes that the net cash provided by operating activities, bank borrowings, vendor trade terms, tenant improvement allowances and the use of operating leases for new stores will be sufficient to fund anticipated current and long-term capital expenditures and working capital requirements.

Capital Expenditures

Net capital expenditures during the thirteen weeks ended April 30, 2016 and May 2, 2015 were $8.1 million and $1.7 million, respectively. The increase in net capital expenditures during the thirteen weeks ended April 30, 2016 is primarily related to the increased investment in technology including the new point of sales system and timing of new store capital expenditures.

 

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We lease all of our store locations. In certain cases, we negotiate leases whereby we take responsibility for construction of a new store during the construction period and are reimbursed for our costs from the landlord. When this situation occurs, we report the construction costs as part of our capital expenditures and, as reimbursements for structural assets, such as the building shell, are received from the landlord for construction costs where we are the accounting owner during the construction period, we report the proceeds received from the landlord as proceeds from sale-leaseback transactions.

Cash Flow Analysis

A summary of operating, investing, and financing activities are shown in the following table (in thousands):

 

     13 Weeks
Ended
April 30,
2016
     13 Weeks
Ended
May 2,
2015
 

Cash flows provided by operating activities

   $ 1,931       $ 524   

Cash flows used in investing activities

     (8,131      (1,739

Cash flows provided by financing activities

     7,748         2,272   
  

 

 

    

 

 

 

Increase in cash and cash equivalents

     1,548         1,057   

Cash and cash equivalents at beginning of period

     6,969         7,634   
  

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ 8,517       $ 8,691   
  

 

 

    

 

 

 

Cash Flows from Operating Activities

Net cash provided by operating activities in the thirteen weeks ended April 30, 2016 was $1.9 million, which included a net loss of $1.6 million and noncash charges of $3.8 million comprised of depreciation and amortization expense of $4.4 million, share-based compensation expense of $0.1 million, amortization of deferred financing fees of $0.1 million, offset by changes in deferred income taxes of $0.6 million and $0.1 million associated with the deferred asset shortfall related to share-based compensation expense. Net cash provided by operating activities in the thirteen weeks ended April 30, 2015 was favorably impacted by a decrease in merchandise inventories of $3.8 million primarily related to lower in-transit inventory and an increase in deferred rent primarily related to new stores of $1.2 million. These increases in operating cash flows for the thirteen weeks ended April 30, 2016 were partially offset by an increase in prepaid and other assets of $1.9 million due to timing of software licensing agreement renewals as well as new store growth, a decrease in accounts payable of $1.7 million related to lower inventory receipts, a decrease in accrued expenses and other liabilities of $1.5 million primarily related to timing of holiday advertising payments during the first quarter of fiscal 2016, and an increase in accounts, landlord and income tax receivable of $0.1 million for the thirteen weeks ended April 30, 2016 as compared to the thirteen weeks ended May 2, 2015.

Net cash provided by operating activities in the thirteen weeks ended May 2, 2015 was $0.5 million, which included net income of $0.4 million and noncash charges of $4.5 million comprised of depreciation and amortization expense of $4.0 million, share-based compensation expense of $0.3 million, amortization of deferred financing fees of $0.2 million and loss on retirement of property and equipment of $23 thousand. Net cash provided by operating activities in the thirteen weeks ended May 2, 2015 was favorably impacted by an increase in accounts payable of $12.5 million related to higher merchandise inventory receipts in the first quarter of fiscal 2015 attributable to seasonality and new store growth. Net cash provided by operating activities in the thirteen weeks ended May 2, 2015 was also favorably impacted by a $0.1 million decrease in other assets. These increases in operating cash flows for the thirteen weeks ended May 2, 2015 were partially offset by an $11.3 million increase in merchandise inventories primarily related to the two new stores that opened during the first quarter of fiscal 2015 and the new stores opened in the second and third quarters of fiscal 2014, an increase in prepaid and other current assets of $1.2 million primarily due to the timing of insurance renewals and new store growth, a decrease in deferred rent related to new stores of $0.8 million and a decrease in accrued expenses and other liabilities of $0.7 million due to lower seasonal balance of the gift card liability at May 2, 2015 as compared to January 30, 2015.

Cash Flows from Investing Activities

Net cash used in investing activities in the thirteen weeks ended April 30, 2016 and May 2, 2015 was $8.1 million and $1.7 million, respectively. Cash of $8.9 million and $2.5 million was used for purchases of property and equipment during the thirteen weeks ended April 30, 2016 and May 2, 2015, respectively. The increase in cash used in investing activities of $6.4 million is primarily due to timing differences on new store capital expenditures impacted by sale-leaseback accounting as well as increased investment in the new point-of-sale system.

 

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Proceeds from sale-leaseback transactions were $0.8 million for both the thirteen weeks ended April 30, 2016 and May 2, 2015, respectively, where the Company was deemed the accounting owner of the structural property additions during the new store construction period pursuant to the underlying lease agreement.

Cash Flows from Financing Activities

Net cash provided by financing activities was $7.7 million during the thirteen weeks ended April 30, 2016, as compared to net cash provided by financing activities of $2.3 million during the thirteen weeks ended May 2, 2015. Borrowings and repayments on our revolving line of credit facility were $59.9 million and $51.7 million, respectively, during the thirteen weeks ended April 30, 2016, compared to $52.6 million and $49.8 million, respectively, during the thirteen weeks ended May 2, 2015. Cash of $0.5 million was also used during the thirteen weeks ended April 30, 2016 for payments on our secured term loan and on capital lease and financing agreements compared to $0.3 million during the thirteen weeks ended May 2, 2015. Accrued debt issue costs of $0.2 million were paid during the thirteen weeks ended May 2, 2015 related to the $45.0 million Cerberus senior term loan.

Existing Credit Facilities

Gordmans, Inc. is the borrower under a loan, guaranty and security agreement dated as of February 20, 2009, as amended June 29, 2015, with Wells Fargo Bank, National Association as agent and a lender and with certain other lender parties thereto from time to time. Gordmans Stores, Inc., Gordmans Intermediate Holdings Corp., Gordmans Distribution Company, Inc., Gordmans Management Company, Inc. and Gordmans LLC are all guarantors under the loan agreement. The description which follows includes the terms of the Eighth Amendment to the loan agreement, which became effective June 29, 2015 (the “Eighth Amendment”).

The loan, guaranty and security agreement provides for an $80.0 million revolving line of credit facility, subject to increase by the Company up to $100.0 million. Our revolving line of credit facility is available for working capital and other general corporate purposes and is scheduled to expire on June 28, 2020. At April 30, 2016, we had $25.2 million of borrowings outstanding under our revolving line of credit facility as compared to outstanding borrowings of $17.0 million at January 30, 2016 and $13.8 million at May 2, 2015. The availability of our revolving line of credit facility is subject to a borrowing base, which is comprised of eligible credit card receivables and the liquidation value of eligible landed inventory, eligible distribution center inventory and eligible in-transit inventory. The Company is required to maintain minimum excess availability under the revolving line of credit facility of at least $20.0 million, the calculation of which now includes up to $3.0 million of unrestricted cash. Excess availability under our revolving line of credit facility was $51.2 million at April 30, 2016 and included letters of credit issued with an aggregate face amount of $6.5 million. There were borrowings under the facility of an aggregate of $59.9 million during the first quarter of fiscal 2016 and repayments of $51.7 million during the first quarter of fiscal 2016.

Interest is payable on borrowings under our revolving line of credit facility monthly at a rate equal to LIBOR or the base rate as selected by management, plus an applicable margin which ranges from 0.75% to 2.00% set quarterly dependent upon the whether excess availability is less than or greater than $40.0 million. Borrowings under this facility of $10.2 million bore interest at a rate of 4.25% under the base rate option and $15.0 million bore interest at a rate of 2.19% under the LIBOR option at April 30, 2016.

An unused line fee is payable quarterly in an amount equal to 0.25% of the sum of the average daily unused revolver amount during the immediately preceding month plus the average daily balance of the letter of credit usage during the immediately preceding month. An administrative agent fee is also payable under the facility on an annual basis.

The revolving line of credit facility has a first lien on all collateral other than term loan priority collateral and a second lien on the term loan priority collateral, as defined in the Eighth Amendment.

On August 27, 2013, Gordmans, Inc. entered into a $45.0 million senior term loan, as amended November 14, 2014, with Cerberus Business Finance, LLC. This senior term loan with Cerberus was extinguished in full on June 29, 2015 with the proceeds from the new $30.0 secured term loan established by the Eighth Amendment.

The new secured term loan matures on the same date as the revolving line of credit facility and has principal payments of $0.4 million due on a quarterly basis beginning in October 2015 through the maturity date, with the remaining principal due on the maturity date of June 28, 2020. The Company may repay at any time all or a portion of the outstanding principal amount of the secured term loan facility, subject to a prepayment premium equal to 3.0% in the first year, 1.5% in the second year, 0.5% in the third year and 0.0% thereafter. The term loan carries an interest rate equal to the LIBOR rate plus 6.25% with a floor of 1.0%. The interest rate on the term loan was 7.25% at April 30, 2016 and January 30, 2016 which compares to an interest rate of 9.5% on the Cerberus senior term loan on May 2, 2015. The term loan is secured by the same collateral as the revolving line of credit facility but has a priority lien on real estate, fixtures, equipment, intellectual property and books, records, permits, licenses, insurance, in each case related to term loan priority collateral, and proceeds thereof and a second lien on the revolving priority collateral, as defined in the Eighth Amendment.

 

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Among other provisions, the Company’s loan agreement with Wells Fargo contains customary affirmative and negative covenants, including a negative covenant that restricts the level and form of indebtedness entered into by the Company or its wholly owned subsidiaries. Exceptions to this covenant include borrowings under our $30.0 million senior term loan and, subject to certain conditions, indebtedness not to exceed $10.0 million in the aggregate in connection with all acquisitions occurring after February 20, 2009. Our revolving line of credit facility also includes a negative covenant that restricts dividends and other upstream distributions by the Company and its subsidiaries to the extent the Company does not meet minimum excess availability thresholds. Exceptions to this covenant include dividends or other upstream distributions: (i) by subsidiaries of Gordmans, Inc. to Gordmans, Inc. and its other subsidiaries, (ii) that consist of repurchases of stock of employees in an amount not to exceed $0.5 million in any fiscal year, (iii) that consist of the payment of taxes on behalf of any employee, officer or director of the Company for vested restricted stock of the Company owned by such employee, officer or director, (iv) to the Company to pay federal, state and local income taxes and franchise taxes solely arising out of the consolidated operations of the Company and its subsidiaries, (v) to the Company to pay certain reasonable directors’ fees and out-of-pocket expenses, reasonable and customary indemnities to directors, officers and employees and other expenses in connection with the ordinary corporate governance, overhead, legal and accounting and maintenance and (vi) dividends so long no event of default exists, projected excess availability for the next twelve months is greater than $35.0 million and 30% of the loan cap and the fixed charge coverage ratio is greater than 1.0 to 1.0 on a historical and projected basis. The agreement also includes a negative covenant that restricts subsidiaries of the Company from making any loans to the Company. Should the Company default on scheduled repayment of the secured term loan facility, Wells Fargo may make any outstanding obligations under the agreement immediately due and payable.

As of April 30, 2016, the Company was in compliance with all of its debt covenants and expects to be in compliance with all of its debt covenants for measurement periods occurring through the remainder of fiscal 2016.

We also entered into two financing arrangements to purchase computer hardware and software during fiscal 2014. The Company’s remaining obligation under the financing arrangements was $0.6 million at April 30, 2016.

Contractual Obligations and Off-Balance-Sheet Arrangements

As noted in the table which follows, the Company has contractual obligations and commitments as of April 30, 2016 that may affect the financial condition of the Company. However, management believes there is no known trend, demand, commitment, event, or uncertainty that is reasonably likely to occur which would have a material effect on the Company’s financial condition, results of operations, or cash flows. Other than the letters of credit set forth in the table below, the Company had no off-balance-sheet arrangements as of April 30, 2016. Letters of credit are entered into with certain vendors and Wells Fargo Bank, N.A. with terms that are financially and operationally beneficial to both parties primarily related to certain vendor financing partners and insurance providers for self-insurance reserves.

The following table summarizes our contractual obligations and commitments as of April 30, 2016 (in thousands):

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 

Contractual Obligations:

              

Capital leases (1)

   $ 654       $ 144       $ 384       $ 126       $ —    

Operating leases (2)(3)

     357,964         43,149         109,604         89,102         116,109   

Senior term loan (4)

     36,527         2,834         7,183         26,510         —    

Revolving line of credit

     25,210         —          —          25,210         —    

Letters of credit

     6,545         6,545         —          —           —    

Purchase orders (5)

     117,697         117,697         —          —           —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 544,597       $ 170,369       $ 117,171       $ 140,948       $ 116,109   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Includes principal and interest payments on capital lease obligations.
(2)   Certain retail store leases contain provisions for additional rent based on varying percentages of sales when sales reach certain thresholds, but are not included in operating lease obligations.
(3)   Real estate taxes, common area maintenance and insurance are expenses considered additional rent that can vary from year to year, but are not included in operating lease obligations. These expenses represented approximately 37% of lease expense for our retail stores in the thirteen weeks ended April 30, 2016.
(4)   Includes $28.7 million of principal payments and $7.8 million of interest payments on the senior term loan. Interest is calculated using the interest rate of 7.25% at April 30, 2016.
(5)   Purchase orders consist of open purchase orders for merchandise, net of receipts already received on those orders. Amounts committed under open purchase orders for merchandise are cancelable without penalty prior to a date that precedes the vendors’ scheduled shipment date.

 

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Critical Accounting Policies and Estimates

We have determined that our most critical accounting policies are those related to revenue recognition, merchandise inventories, property and equipment, long-lived assets, operating leases, self-insurance, share-based compensation and income taxes. There have been no significant changes to critical accounting policies discussed in our fiscal year 2015 Annual Report on Form 10-K except for the adoption of ASU 2015-03 Simplifying the Presentation of Debt Issuance Costs , which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. We continue to monitor our accounting policies to ensure proper application of current rules and regulations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk primarily through borrowings under our revolving line of credit facility and through outstanding borrowings on our secured term loan, both of which bear interest at variable rates.

Borrowings under our revolving line of credit facility bear interest at various rates, with two rate options at the discretion of management as follows: (1) for base rate advances, borrowings bear interest at the prime rate plus 1.00% when average excess availability is less than or equal to $40.0 million and the prime rate plus 0.75% when average excess availability is greater than $40.0 million, and (2) for LIBOR rate advances, borrowings bear interest at the LIBOR rate plus 2.00% when average excess availability is less than or equal to $40.0 million and the LIBOR rate plus 1.75% when average excess availability is greater than $40.0 million. Borrowings and repayments under our revolving line of credit facility may not exceed the lesser of a calculated borrowing base or $80.0 million. Borrowings and repayments under our revolving line of credit facility during the thirteen weeks ended April 30, 2016 were $59.9 million and $51.7 million respectively, with $25.8 million being the largest amount borrowed at one time during the thirteen weeks ended April 30, 2016. Borrowings outstanding under the revolving line of credit facility were $25.2 million at April 30, 2016. Average borrowings during the first quarter of fiscal 2016 were $20.6 million. We performed a sensitivity analysis assuming a hypothetical 100 basis point movement in interest rates applied to the average daily borrowings of our revolving line of credit facility. As of April 30, 2016, the analysis indicated that such a movement would result in an increase to interest expense of approximately $0.2 million per year.

Borrowings under our term loan bear interest at an interest rate equal to the LIBOR rate plus 6.25% with a floor of 1.00% (7.25% at April 30, 2016). We performed a sensitivity analysis assuming a hypothetical 100 basis point increase in the interest rate applied to the average amount outstanding on the term loan. As of April 30, 2016, the analysis indicated that such a movement would result in an increase to interest expense of approximately $0.3 million per year.

ITEM 4. CONTROLS AND PROCEDURES

The required certifications of our Chief Executive Officer and Chief Financial Officer are included as exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures, internal control over financial reporting and changes in internal control over financial reporting referred to in those certifications. Those certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.

Evaluation of Disclosure Controls and Procedure

Under the supervision and with the participation of management, including our Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer (Principal Financial Officer), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 30, 2016 to ensure that information we are required to disclose in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

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Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal claims and proceedings which arise in the ordinary course of our business, including employment related claims, involving routine claims incidental to our business. Although the outcome of these routine claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these claims will have a material adverse effect on our results of operations, financial condition or cash flow.

ITEM 1A. RISK FACTORS

Our risk factors have not changed materially from those disclosed in our fiscal year 2015 Annual Report on Form 10-K. The risk factors disclosed in our Annual Report on Form 10-K, in addition to the other information set forth in this Quarterly Report, could materially affect our business, financial condition or results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM  4. RESERVED

ITEM 5. OTHER INFORMATION

None

 

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ITEM 6. EXHIBITS

The following exhibits are filed or furnished with this Quarterly Report:

EXHIBIT INDEX

 

Exhibit

Number

  

Description

  10.1    Limited Waiver Agreement By and Between Gordmans, Inc. and Geoffrey B. Ayoub, dated as of April 6, 2016
  10.2    Offer Letter, dated as of April 19, 2016, by and between the Company and Michael F. Ricart.
  10.3    Michael F. Ricart Severance Agreement Letter, dated May 9, 2016.
  31.1    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.CAL    XBRL Taxonomy Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Label Linkbase Document.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: June 8, 2016

 

GORDMANS STORES, INC.
By:  

/s/ ANDREW T. HALL

  Andrew T. Hall
 

President, Chief Executive Officer and Secretary

(Principal Executive Officer)

By:  

/s/ JAMES B. BROWN

  James B. Brown
  Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
 

(Principal Financial Officer and

Principal Accounting Officer)

 

25

Exhibit 10.1

Limited Waiver

This Limited Waiver is granted by Gordmans, Inc. (“Gordmans”) to Geoff Ayoub (“Ayoub”) to assist Ayoub in continuing with his career following his separation from employment by Gordmans.

During his employment by Gordmans, Ayoub executed a Non-Qualified Stock Option Agreement (the “Agreement”), a copy of which is attached hereto and marked Exhibit A.

At Ayoub’s request, Gordmans hereby waives Paragraph 7 of the Agreement related to his non-compete obligations so that he may work for Burlington Coat Factory. Should Ayoub separate employment from Burlington Coat Factory within six (6) months of his separation with Gordmans, the terms of Paragraph 7 shall apply. In exchange for Gordmans waiving such a provision, Ayoub agrees that the Option granted under the Agreement shall not remain exercisable for the ninety (90) day period stated in Paragraph 4(c) of the Agreement but shall instead terminate and expire as of the effective date of his separation from employment. Gordmans does not waive any other provision of the Agreement.

This Limited Waiver does not waive or release Ayoub from any other contractual, statutory or common law duties Ayoub may have to Gordmans, including but not limited to duties to protect Gordmans proprietary information and/or trade secrets.

 

Signed:

 

/s/ Geoffrey B. Ayoub

Title:

 

SVP of Planning, Allocation & Analysis

Date:

 

April 6, 2016

Signed:

 

/s/ Roger L. Glenn

Title:

 

SVP of Human Resources

Date:

 

April 6, 2016


Exhibit A – Form of NQ Stock Option Agreement

NON-QUALIFIED STOCK OPTION AGREEMENT

PURSUANT TO THE

GORDMANS STORES, INC. 2010 OMNIBUS INCENTIVE COMPENSATION PLAN

* * * * *

Participant:

Grant Date:

Per Share Exercise Price:

Number of Shares subject to this Option:

* * * * *

THIS NON-QUALIFIED STOCK OPTION AWARD AGREEMENT (this “ Agreement ”), dated as of the Grant Date specified above, is entered into by and between Gordmans Stores, Inc., a Delaware corporation (the “ Company ”), and the Participant specified above, pursuant to the Gordmans Stores, Inc. 2010 Omnibus Incentive Compensation Plan, as in effect and as amended from time to time (the “ Plan ”), which is administered by the Committee; and

WHEREAS, it has been determined under the Plan that it would be in the best interest of the Company to grant the non-qualified stock option provided for herein to the Participant.

NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:

1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. No part of the Option granted hereby is intended to qualify as an “incentive stock option” under Section 422 of the Code.

 

2


2. Grant of Option . The Company hereby grants to the Participant, as of the Grant Date specified above, a non-qualified stock option (this “ Option ”) to acquire from the Company at the Per Share Exercise Price specified above, the aggregate number of shares of Common Stock specified above (the “ Option Shares ”). Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participant’s interest in the Company for any reason. The Participant shall have no rights as a stockholder with respect to any shares of Common Stock covered by this Option unless and until the Participant has become the holder of record of the shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement.

3. Vesting and Exercise .

(a) Vesting . The Option shall vest in annual increments of 25% of the total number of Option Shares, on DATE, DATE, DATE and DATE; provided the Participant is then employed by the Company and/or one of its Subsidiaries or Affiliates. There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participant’s continued service with the Company or any of its Subsidiaries on each applicable vesting date.

(b) Certain Terminations . Any unvested portion of this Option shall immediately become vested upon a Termination due to (i) the Participant’s death or (ii) the Participant’s Disability.

(c) Change in Control . Any unvested portion of this Option shall immediately become vested upon a Change in Control; provided the Participant is continuously employed by the Company or its Subsidiaries through such date.

(d) Effect of Detrimental Activity . The provisions of Section 6.4(c) of the Plan regarding Detrimental Activity shall apply to the Option.

(e) Expiration . Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, all portions of this Option (whether vested or not vested) shall expire and shall no longer be exercisable after the expiration of ten (10) years from the Grant Date.

(f) Change in Eligibility. In the event of the Participant’s transfer to another position in the Company which is either ineligible for this Option or is eligible to participate in the Plan at a lower level, the unvested Option received at the higher level position may be forfeited.

4. Termination . Subject to the terms of the Plan and this Agreement, the Option, to the extent vested at the time of the Participant’s Termination, shall remain exercisable as follows:

(a) Termination due to Death or Disability . In the event of the Participant’s Termination by reason of death or Disability, the vested portion of this Option shall remain exercisable until the earlier of (i) one year from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3 hereof.

 

3


(b) Termination Without Cause . In the event of the Participant’s involuntary Termination by the Company without Cause, the vested portion of this Option shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3 hereof.

(c) Voluntary Termination . In the event of the Participant’s voluntary Termination, the vested portion of this Option shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3 hereof.

(d) Termination for Cause. In the event of the Participant’s Termination by the Company for Cause, the Option granted hereunder (whether or not vested) shall terminate and expire upon such Termination.

(e) Treatment of Unvested Option upon Termination . Any portion of this Option that is not vested as of the date of the Participant’s Termination for any reason shall terminate and expire as of the date of such Termination.

5. Method of Exercise and Payment . Subject to Section 9 hereof, to the extent that the Option has become vested and exercisable with respect to a number of shares of Common Stock as provided herein, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein and in accordance with Sections 6.4(c) and 6.4(d) of the Plan, including, without limitation, by the delivery of any form of exercise notice as may be required by the Committee and payment in full of the Per Share Exercise Price multiplied by the number of shares of Common Stock underlying the portion of the Option exercised.

6. Non-transferability .  The Option, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its sole discretion, permit the Option to be Transferred to a Family Member for no value, provided that such Transfer shall only be valid upon execution of a written instrument in form and substance acceptable to the Committee in its sole discretion evidencing such Transfer and the transferee’s acceptance thereof signed by the Participant and the transferee, and provided, further, that the Option may not be subsequently Transferred otherwise than by will or by the laws of descent and distribution or to another Family Member (as permitted by the Committee in its sole discretion) in accordance with the terms of the Plan and this Agreement, and shall remain subject to the terms of the Plan and this Agreement. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way the Option, or the levy of any execution, attachment or similar legal process upon the Option, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.

 

4


7. Non-Competition Covenant. In consideration of the Option being granted herein, the Participant agrees that during the Participant’s service as an employee of the Company or its Affiliates and for the six-month period thereafter, the Participant shall not, directly or indirectly, engage in, or serve as a principal, partner, joint venturer, member, manager, trustee, agent, stockholder, director, officer or employee of, or advisor to, or in any other capacity, or in any manner, own, control, manage, operate, or otherwise participate, invest, or have any interest in, or be connected with, any person, firm or entity that engages in any activity which competes directly or indirectly with any business of the Company or its Subsidiaries (collectively, the “ Company Business ”) anywhere in the U.S. or any other country in which the Company Business was conducted or related sales were effected during the preceding two (2) years. This Section 7 will not apply and will not be enforced by the Company with respect to post-Termination activity by the Participant that occurs in California or in any other state in which this prohibition is not enforceable under applicable law.

8. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law principles thereof.

9. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participant’s FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Option and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable upon exercise of the Option.

10. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.

11. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Chief Financial Officer of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.

12. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participant’s employment or service at any time, for any reason and with or without cause.

 

5


13. Transfer of Personal Data .   The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Option awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.

14. Compliance with Laws . The issuance of this Option (and the Shares upon exercise of this Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, as amended, the 1934 Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue this Option or any of the Shares pursuant to this Agreement if any such issuance would violate any such requirements.

15. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, the Option is intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.

16. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except as provided by Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.

17. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.

18. Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.

19. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.

20. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

 

6


21. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of the Option made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Option awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participant’s ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.

IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.

 

GORDMANS STORES, INC.
By:  

 

Name:  

 

Title:  
PARTICIPANT

 

Name:  

 

Social Security Number:  

 

 

7

Exhibit 10.2

 

LOGO

April 19, 2016

Michael F. Ricart

Naperville, IL 60565

Dear Mike:

It gives me great pleasure to confirm in writing the offer of employment that we have discussed. I am extremely excited at the prospect of partnering with you, and believe that your leadership style, demonstrated retail acumen and broad experience are a tremendous fit with our Company’s culture, our senior management group and stores team. As importantly, I believe that Gordmans offers you the opportunity to optimize your tremendous skills and potential, immediately and well into the future. Here are the specifics of our offer:

Start Date : May 2, 2016

Position : SVP Stores

Supervisor : Andy Hall, President & CEO

Salary: You will receive a biweekly base salary of $11,730.77 (26 biweekly periods per year) which, when annualized, would equate to $305,000.00. Paydays are every other Friday.

Annual Bonus: You will be eligible to participate in the Incentive Compensation Program for Officers according to the terms of that program. The annual bonus target for your position, assuming the performance thresholds are reached, is approximately 45% of eligible earnings for the fiscal year, with a maximum of 90%. You must be employed on the date that the bonus is paid in order to receive the bonus.

Signing Bonus: Gordmans will pay you within your first two weeks of employment a sign-on bonus in the amount of $40,000, less applicable taxes and withholdings. Should you voluntarily resign your position with Gordmans, you agree that you will reimburse the Company for the entire amount of the bonus if your resignation occurs in the first 12 months of employment, 75% if a resignation occurs between 13 and 24 months, and 50% repayment if a resignation occurs between 25 and 36 months. You authorize Gordmans to deduct any reimbursement obligation you may have from any amounts Gordmans owes to you, and if such deduction does not satisfy your reimbursement obligation, you will immediately pay Gordmans the difference.

Equity Participation: During our scheduled Annual Long Term Incentive (LTI) review period in June of 2016, you will be granted equity instruments valued at 60% of your base salary. These instruments will be a combination of performance shares (20%), restricted stock (20%) and stock options (60%) to acquire shares of the Company’s common stock, pursuant to a Performance Share Agreement, Restricted Stock Agreement and a Non-Qualified Stock Option Agreement issued under the 2010 Omnibus Incentive Compensation Plan. All equity programs are subject to a minimum share price with the review and approval of the Board of Directors.


Relocation: Your eligible expenses in relocation from Illinois to Omaha will be reimbursed in accordance with company policy. The details of this policy are explained more fully in the separate documents titled Relocation Repayment Agreement and Gordmans Relocation Policy. Gordmans will cover a maximum of $90,000.00 in eligible expenses up to one year from your start date.

Benefits: During the 60-day waiting period for benefits, Gordmans will subsidize any COBRA healthcare payments that you may be making to your previous employer such that your net cost is no more than you would pay as an active participant under our healthcare plan. Note that officers are eligible for four weeks of vacation each year. A complete listing of benefits and eligibility requirements will be provided.

Performance Review: Your performance will be formally evaluated at the end of each fiscal year against the objectives agreed to by you and your supervisor. Your salary will be adjusted annually according to the degree of attainment of those objectives. You will receive a pro-rated performance review (based on length of service) on or about May 1, 2017 and annually thereafter.

Miscellaneous:   Please be advised that the offer is contingent upon the favorable outcome of a background check. Also please be advised that your employment is for an indefinite period and is terminable at the will of either the Company or you, with or without cause at any time, subject only to such limitations as may be imposed by law. This offer of employment is also contingent on you not being subject to any restrictive covenants which would impact your ability to perform the services contemplated (or you having delivered us an effective waiver thereof). By signing below, you are confirming to us that you are not presently subject to or otherwise bound by a non-compete, non-solicit, confidentiality or similar restriction with any person with respect to any prior or existing employment, investment or other relationship.

Separation of Employment: Our relationship will be based on mutual respect and consent, and therefore will continue only as long as both parties find the relationship to be satisfactory. Accordingly, you are free to terminate your employment with proper notice whenever you feel it would be in your best interest to do so. By the same token, Gordmans reserves the right to terminate employment whenever, in its discretion, it feels necessary to do so. This is known as employment “at-will.” If, however, your employment is terminated by Gordmans without “cause”, then, subject to execution of a release of claims against us, you will receive salary continuation up to the earlier of (a) the period of time equal to the number of months you were employed by Gordmans, not to exceed six months, and (b) the date on which you are employed by a third party. Additionally, you will receive continued medical and dental coverage during this period. If termination occurs for Cause, you will not be entitled to any compensation whatsoever from Gordmans beyond the last day worked. “Cause” for termination of employment is defined, in the reasonable opinion of the President & CEO of the Company, as (i) willful or deliberate misconduct as an employee of the Company; (ii) misappropriation or misuse of the Company’s trade secrets or proprietary information, including the disclosure of confidential information to others; (iii) any act of embezzlement or fraud against the Company or its customers or vendors, or dishonesty; (iv) any conduct which is or may be injurious to the Company (including its reputation), its customers, or its vendors; (v) any immoral or illegal conduct; and (v) negligence which manifests culpability, wrongful intent, evil design, or substantial disregard of Gordmans’ interests or of your duties and obligations. You will not be entitled to any severance or payment beyond your last day worked if you terminate your employment with Gordmans.


Business Ethics/Conflict of Interest: Please carefully read the enclosed Business Ethics/Conflict of Interest policy and sign the Handbook Acknowledgement. This offer of employment, and your continuing employment, is conditional upon the absence of any conflicts of interest as defined in our policy.

Compliance with Law:   This letter is intended to comply with applicable law. Without limiting the foregoing, this letter is intended to comply with the requirements of section 409A of the Internal Revenue Code (“409A”), and, specifically, with the separation pay and short term deferral exceptions of 409A. Notwithstanding anything in the letter to the contrary, separation pay may only be made upon a “separation from service” under 409A and only in a manner permitted by 409A. For purposes of 409A, the right to a series of installment payments under this letter shall be treated as a right to a series of separate payments. In no event may you, directly or indirectly, designate the calendar year of a payment. All reimbursements and in-kind benefits provided in this letter shall be made or provided in accordance with the requirements of 409A (including, where applicable, the reimbursement rules set forth in the regulations issued under 409A). If you are a “specified employee” of a publicly traded corporation on your termination date (as determined by the Company in accordance with 409A), to the extent required by 409A, separation pay due under this letter will be delayed for a period of six months. Any separation pay that is postponed because of 409A will be paid to you (or, if you die, your beneficiary) within 30 days after the end of the six-month delay period.

Identity/Employment Eligibility: This offer of employment is contingent on your ability to provide appropriate original documentation verifying your identity and eligibility to work in the United States as required by The Immigration Reform and Control Act. The attached “List of Acceptable Documents” outlines the documentation that we are required to review. Please bring one document from List A OR one document from List B AND one document from List C on your first day of employment. Should you be unable to provide the necessary documents within the government mandated 72 hours, your employment may be terminated.

This letter contains all the specifics of our offer and any changes must be in writing and signed by Gordmans. Please indicate your formal acceptance of this offer of employment with Gordmans by returning a signed copy of this letter to me as soon as possible. Please scan the signed letter and acknowledgement to Roger Glenn.

Mike, if you have any questions about the specifics of this offer, please don’t hesitate to call me. We are very confident that your talents and experience will enable you to make a significant positive impact on the Gordmans shopping experience as well as the work experience. Once again, I am extremely enthusiastic about the prospect of working together, as is our entire management team, and greatly appreciate your giving this offer every consideration.

Best regards,

/s/ Andy Hall

ACCEPTED AND AGREED:

 

Signature  

/s/ Michael F. Ricart

  Date  

5/9/2016

 

Exhibit 10.3

Gordmans Stores, Inc.

1926 South 67 th Street

Omaha, NE 68106

May 9, 2016

Michael F Ricart

SVP Stores

1926 South 67 th Street

Omaha, NE 68106

Dear Mike:

As we discussed, Gordmans Stores, Inc. (the “Company”) hereby provides to you the separation benefit described below.

If your employment is terminated by the Company without “cause” (as such term is defined in the Company’s [stock option plan/omnibus incentive plan]), then subject to the execution of a satisfactory release by you, you will receive:

 

    Salary continuation (payable in accordance with the Company’s payroll practice as in effect at the time of your termination) until the earlier of (x) the period of time equal to the number of months you were employed by the Company, not to exceed six months and (y) the date on which you are employed by a third party (the “Salary Continuation Period”); and

 

    Continued medical and dental coverage in accordance with the Company’s plans that are then in place until the end of the Salary Continuation Period (maximum of six months) or, at the Company’s option, cash payments in the amount of such coverage in order for you to make COBRA elections or coverage under another medical and/or dental plan.

You shall immediately notify the Company in writing when you have accepted employment with a third party. Your salary continuation and other benefits will start being paid (or provided) to you following your execution of a satisfactory release. Such release must be executed within 60 days (or such shorter period specified in the release) following your termination. Upon any termination, you shall have a duty to mitigate damages and costs to the Company.

This letter is intended to comply with applicable law. Without limiting the foregoing, this letter is intended to comply with the requirements of section 409A of the Internal Revenue Code (“409A”), and, specifically, with the separation pay and short term deferral exceptions of 409A. Notwithstanding anything in the letter to the contrary, separation pay may only be made upon a “separation from service” under 409A and only in a manner permitted by 409A. For purposes of 409A, the right to a series of installment payments under this letter shall be treated as a right to a series of separate payments. In no event may you, directly or indirectly, designate the calendar year of a payment. All reimbursements and in-kind benefits provided in this letter shall be made or provided in accordance with the requirements of 409A (including, where applicable, the reimbursement rules set forth in the regulations issued under 409A). If you are a “specified employee” of the Company on your termination date (as determined by the Company in accordance with 409A), to the extent required by 409A, separation pay that is due under this letter will be delayed for a period of six months. Any separation pay that is postponed because of 409A will be paid to you (or, if you die, your beneficiary) within 30 days after the end of the six-month delay period.


May 9, 2016

Page 2

 

The separation benefits set forth herein constitute the entire agreement between the Company and you pertaining to the subject matter hereof and supersedes all prior understandings, negotiations and discussions, whether oral or written, with regard thereto.

Best regards,

/s/ Andy Hall

Andy Hall

President and CEO

Acknowledged:

 

/s/ Michael F. Ricart 5/9/2016

Officer Name

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew T. Hall, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Gordmans Stores, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: June 8, 2016

 

/s/ ANDREW T. HALL

Andrew T. Hall
President, Chief Executive Officer and Secretary
(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James B. Brown, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Gordmans Stores, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: June 8, 2016

 

/s/ JAMES B. BROWN

James B. Brown
Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary

(Principal Financial Officer and

Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Gordmans Stores, Inc. (the “Company”) for the quarterly period ended April 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew T. Hall, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ ANDREW T. HALL

Andrew T. Hall
President, Chief Executive Officer and Secretary
(Principal Executive Officer)
June 8, 2016

This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Gordmans Stores, Inc. (the “Company”) for the quarterly period ended April 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James B. Brown, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ JAMES B. BROWN

James B. Brown
Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary

(Principal Financial Officer and

Principal Accounting Officer)

June 8, 2016

This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.