Tumi Holdings, Inc. - FORM 10-Q

Attached files

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EX-32.2 - PRINCIPAL FINANCIAL OFFICER CERTIFICATION - Tumi Holdings, Inc.	tumi10qex322.htm
EX-31.2 - PRINCIPAL FINANCIAL OFFICER CERTIFICATION - Tumi Holdings, Inc.	tumi10qex312.htm
EX-31.1 - PRINCIPAL EXECUTIVE OFFICER CERTIFICATION - Tumi Holdings, Inc.	tumi10qex311.htm
EX-32.1 - PRINCIPAL EXECUTIVE OFFICER CERTIFICATION - Tumi Holdings, Inc.	tumi10qex321.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________

FORM 10-Q

_______________________________________________________



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

For the quarterly period ended June 24, 2012



¨	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: 001-35495

_______________________________________________________

Tumi Holdings, Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________



Delaware		04-3799139
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1001 Durham Ave., South Plainfield, NJ		07080
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (908) 756-4400

_______________________________________________________

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 ý 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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	ý	Smaller reporting company	¨

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

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



Class		August 7, 2012
Common Stock, $0.01 Par Value		67,866,667 shares

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TUMI HOLDINGS, INC.

TABLE OF CONTENTS



		Page

	PART I – FINANCIAL INFORMATION

ITEM 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets as of June 24, 2012 (unaudited) and December 31, 2011	2

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 24, 2012 (unaudited) and June 26, 2011 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 24, 2012 (unaudited) and June 26, 2011 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 24, 2012 (unaudited) and June 26, 2011 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	33

ITEM 4.	Controls and Procedures	33

	PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	35

ITEM 1A.	Risk Factors	35

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

ITEM 6.	Exhibits	36

SIGNATURE

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Tumi Holdings, Inc.’s (“Tumi”) current views with respect to, among other things, future events and performance. These statements may discuss our net sales, gross margin, operating expenses, operating income, net income, cash flow, financial condition, impairments, expenditures, growth, strategies, plans, achievements, dividends, capital structure, organizational structure, future store openings, market opportunities and general market and industry conditions. Tumi generally identifies forward-looking statements by words such as “anticipate,” “estimate,” “expect,” “intend,” “project,” “plan,” “predict,” “believe,” “seek,” “continue,” “outlook,” “may,” “might,” “will,” “should,” “can have,” “likely” or the negative version of these words or comparable words. Forward-looking statements are based on beliefs and assumptions made by management using currently available information. These statements are only predictions and are not guarantees of future performance, actions or events. Forward-looking statements are subject to risks and uncertainties. If one or more of these risks or uncertainties materialize, or if management’s underlying beliefs and assumptions prove to be incorrect, actual results may differ materially from those contemplated by a forward-looking statement. These risks and uncertainties include those set forth in Tumi’s filings with the Securities and Exchange Commission (the “SEC”), including its Quarterly Report on Form 10-Q for the quarter ended March 25, 2012, filed with the SEC on May 23, 2012. Forward-looking statements speak only as of the date on which they are made. Tumi expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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PART I – FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

TUMI HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)



	June 24, 2012		December 31, 2011
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	20,822	$	32,735
Accounts receivable, less allowance for doubtful accounts of approximately $492 and $462 at June 24, 2012 and December 31, 2011, respectively	25,840		22,833
Other receivables	1,793		1,724
Inventories	71,428		60,456
Prepaid expenses and other current assets	3,835		3,056
Prepaid income taxes	5,693		—
Deferred offering costs	—		1,996
Deferred tax assets, current	2,218		2,218
Total current assets	131,629		125,018
Property, plant and equipment, net	39,718		36,500
Deferred tax assets, noncurrent	2,046		2,046
Joint venture investment	2,793		2,122
Goodwill	142,773		142,773
Intangible assets, net	131,082		131,219
Deferred financing costs, net of accumulated amortization of $2,676 and $2,539 at June 24, 2012 and December 31, 2011, respectively	784		920
Other assets	4,840		5,743
Total assets	$	455,665	$	446,341

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (continued)

(In thousands, except share and per share data)



	June 24, 2012			December 31, 2011
	(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	36,231		$	27,308
Accrued expenses	23,499			26,683
Current portion of long-term debt	—			12,000
Income taxes payable	—			4,324
Total current liabilities	59,730			70,315
Revolving credit facility	58,000			—
Long-term debt	—			52,000
Other long-term liabilities	6,684			6,257
Mandatorily redeemable preferred stock and preferred equity interests	—			251,429
Deferred tax liabilities	47,623			47,623
Total liabilities	172,037			427,624
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Common stock—$0.01 par value; 350,000,000 shares authorized, 68,144,473 issued and 67,866,667 shares outstanding as of June 24, 2012; 52,536,252 authorized and issued and 52,536,224 shares outstanding as of December 31, 2011	681			525
Preferred stock—$0.01 par value; 75,000,000 shares authorized and no shares issued or outstanding as of June 24, 2012; no shares authorized, issued or outstanding as of December 31, 2011	—			—
Additional paid-in capital	308,667			48,968
Treasury stock, at cost	(4,874		)	(174		)
Accumulated deficit	(20,235		)	(29,617		)
Accumulated other comprehensive loss	(611		)	(985		)
Total stockholders’ equity	283,628			18,717
Total liabilities and stockholders’ equity	$	455,665		$	446,341

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)



	Three Months Ended						Six Months Ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
	(unaudited)						(unaudited)
Net sales	$	95,823		$	78,676		$	175,844		$	144,593
Cost of sales	41,130			35,114			75,746			63,893
Gross margin	54,693			43,562			100,098			80,700
OPERATING EXPENSES
Selling	6,092			4,985			11,080			9,306
Marketing	3,574			2,749			6,314			5,723
Retail operations	19,187			16,006			36,336			30,460
General and administrative	13,806			6,238			21,058			12,244
Total operating expenses	42,659			29,978			74,788			57,733
Operating income	12,034			13,584			25,310			22,967
OTHER (EXPENSES) INCOME
Interest expense	(350		)	(735		)	(867		)	(1,516		)
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests	(1,606		)	(5,715		)	(7,892		)	(11,429		)
Earnings from joint venture investment	407			255			671			282
Foreign exchange (losses) gains	(684		)	(155		)	(695		)	211
Other non-operating income	55			85			227			99
Total other expenses	(2,178		)	(6,265		)	(8,556		)	(12,353		)
Income before income taxes	9,856			7,319			16,754			10,614
Provision for income taxes	3,371			5,019			7,372			8,397
Net income	$	6,485		$	2,300		$	9,382		$	2,217
Weighted average common shares outstanding:
Basic	63,838,736			52,536,224			58,380,136			52,536,224
Diluted	63,838,825			52,536,224			58,380,182			52,536,224
Basic earnings per common share	$	0.10		$	0.04		$	0.16		$	0.04
Diluted earnings per common share	$	0.10		$	0.04		$	0.16		$	0.04

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)



	Three Months Ended						Six Months Ended
	June 24, 2012			June 26, 2011			June 24, 2012		June 26, 2011
	(unaudited)						(unaudited)
Net income	$	6,485		$	2,300		$	9,382	$	2,217
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment, net of tax	(171		)	(16		)	374		865
Comprehensive income	$	6,314		$	2,284		$	9,756	$	3,082

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)



	Six Months Ended
	June 24, 2012			June 26, 2011
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,382		$	2,217
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	5,296			4,984
Stock compensation expense	12			—
Amortization of deferred financing costs	136			417
Allowance for doubtful accounts	30			9
Joint venture earnings	(671		)	(282		)
Loss on disposal of fixed assets	389			—
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests	7,892			11,429
Other non-cash charges	946			(477		)
Changes in operating assets and liabilities
Accounts receivable	(3,184		)	(1,662		)
Other receivables	(96		)	139
Inventories	(11,155		)	1,049
Prepaid expenses and other current assets	(786		)	(737		)
Other assets	801			1,226
Prepaid income taxes	(5,693		)	—
Accounts payable	6,205			(1,583		)
Accrued expenses	(1,993		)	(2,558		)
Income taxes payable	(4,324		)	(3,617		)
Other liabilities	434			180
Total adjustments	(5,761		)	8,517
Net cash provided by operating activities	3,621			10,734
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(8,284		)	(4,951		)
Net cash used in investing activities	(8,284		)	(4,951		)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (continued)

(In thousands)



	Six Months Ended
	June 24, 2012			June 26, 2011
	(unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments received on stockholder loans	$	—		$	76
Payments of long-term debt	(4,000		)	(3,000		)
Payments on revolving credit facility	(2,000		)	—
Proceeds from issuance of common stock, net of underwriters’ discounts and commissions	264,091			—
Payment for repurchase of preferred shares and preferred equity interests	(259,321		)	—
Repurchase of common stock	(4,700		)	—
Payments for offering costs	(1,260		)	—
Net cash used in financing activities	(7,190		)	(2,924		)
Effect of exchange rate changes on cash	(60		)	177
Net increase (decrease) in cash and cash equivalents	(11,913		)	3,036
Cash and cash equivalents at beginning of period	32,735			19,209
Cash and cash equivalents at end of period	$	20,822		$	22,245
Supplemental disclosures of cash flow information:
Noncash investing activity—property, plant and equipment obligations	$	3,794		$	1,406
Noncash financing activity—offering costs obligations	$	2,850		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)


1.	BASIS OF PRESENTATION AND ORGANIZATION

Nature of Operations

Tumi Holdings, Inc. (together with its subsidiaries, the “Company”) is a leading designer, producer and marketer of a comprehensive line of travel and business products and accessories in multiple categories. Prior to the Company’s initial public offering (the “IPO”) in April 2012, the Company also included its controlled affiliate, Tumi II, LLC (the “LLC”). In connection with the IPO, the LLC was merged with and into Tumi Holdings, Inc., with Tumi Holdings, Inc. continuing as the surviving corporation. The Company’s product offerings include travel bags, business cases, totes, handbags, business and travel accessories and small leather goods. The Company designs its products for, and markets its products to, sophisticated professionals, frequent travelers and brand-conscious individuals who enjoy the premium status and durability of Tumi products. The Company sells its products through a network of company-owned retail stores and outlet stores, partner stores, concessions, shop-in-shops, specialty luggage shops, high-end department stores and e-commerce distribution channels. The Company has approximately 1,600 points of distribution in over 70 countries, and its global distribution network is enhanced by the use of its three logistics facilities located in the United States, Europe and Asia. The Company designs its products in its U.S. design studios and selectively collaborates with well-known, international industrial and fashion designers for limited edition product lines. Production is sourced globally through a network of suppliers based in Asia, many of which are longtime suppliers, and the Caribbean.

Initial Public Offering

In April 2012, the Company completed its IPO of 15,608,221 shares of common stock sold by the Company and 5,988,624 shares of common stock sold by the selling stockholders (inclusive of 2,816,980 shares of common stock from the full exercise of the overallotment option of shares granted to the underwriters). The initial public offering price of the shares sold in the IPO was $18.00 per share. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The total proceeds to the Company, net of underwriters’ discounts and commissions, were approximately $264.1 million. The Company used the net proceeds received from the IPO to repurchase all of its preferred stock and preferred equity interests and 277,778 shares of its common stock owned by funds managed by, or entities affiliated with, Doughty Hanson & Co. Managers Limited (collectively, “Doughty Hanson”), the Company’s majority stockholder. The IPO costs incurred were charged against the net proceeds of the IPO and recorded in stockholders’ equity during the second quarter of 2012.

In connection with the IPO, the Company also:


•	effected a 101.200929-for-1 common stock split effective April 4, 2012 and a subsequent 1.037857-for-1 common stock split effective April 19, 2012;


•	merged the LLC with and into Tumi Holdings, Inc., with Tumi Holdings, Inc. continuing as the surviving corporation, and cancelled all common interests in the LLC;


•	increased its authorized shares of common stock to 350,000,000 and authorized 75,000,000 shares of preferred stock;


•	entered into an amended and restated credit facility effective April 4, 2012;


•	paid a special cash bonus of $5,511,693 to its CEO, which was expensed by the Company in the second quarter of 2012; and


•	adopted its 2012 Long-Term Incentive Plan (the “2012 Plan”).

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s prospectus filed with the SEC pursuant to Rule 424(b) (the “Prospectus”) under the Securities Act of 1933 (the “Securities Act”) on April 20, 2012.

The condensed consolidated balance sheet as of December 31, 2011 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by US GAAP.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations for the full year 2012 or any future period.

Reporting Periods

The Company’s unaudited interim condensed consolidated financial statement reporting periods are based on the first month of each fiscal quarter including five Sundays and the second and third months of each fiscal quarter including four Sundays, except for the fourth quarter which always ends on December 31. Accordingly, the three-month reporting periods for the unaudited interim condensed consolidated financial statements included herein commenced on March 26, 2012 and March 28, 2011 and ended on June 24, 2012 and June 26, 2011, respectively. The six-month reporting periods for the unaudited interim condensed consolidated financial statements included herein commenced on January 1, 2012 and 2011 and ended on June 24, 2012 and June 26, 2011, respectively.

Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation of goodwill and intangibles, allowance for doubtful accounts, adjustments for slow moving and obsolete inventory, accrued warranties, realization of deferred tax assets and useful lives of assets. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

As of June 24, 2012, the total balances in U.S. bank accounts over the Federal Deposit Insurance Company limit then in effect was approximately $5,015,000. The total balance in international bank accounts at June 24, 2012 was approximately $4,423,000.

Stock Compensation

Stock compensation represents the cost related to stock options granted to employees under the 2012 Plan. The Company measures stock compensation cost at the grant date based on the estimated fair value of the award and recognizes the cost on a straight-line basis (net of estimated forfeitures) over the vesting period. The Company estimates the fair value of stock options using the Black-Scholes valuation model. All stock compensation costs are recorded in cost of sales or the various operating expense lines in the condensed consolidated statements of operations based on the employee’s respective function. See Note 16 for further details regarding the Company’s stock option activity.

Fair Value Measurements

The Company applies the Financial Accounting Standards Board’s (the “FASB”) guidance for “Fair Value Measurements.” Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. The hierarchy of those valuation approaches is broken down into three levels based on the reliability of inputs as follows:

Level 1—

Inputs that are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.

Level 2—

Inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)


Level 3—	Inputs that are unobservable for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company’s non-financial assets measured at fair value on a non-recurring basis include goodwill, intangible assets and property, plant and equipment. To measure fair value for such assets, the Company uses techniques including discounted expected future cash flows (“DCF”) (Level 3 input). A DCF analysis calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit or asset and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the DCF analysis require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and the Company’s variable interest rate credit facility (See Note 9, Credit Facility) were reasonable estimates of their fair value as of June 24, 2012. If measured at fair value in the financial statements, the Company’s variable interest rate current credit facility would be classified as Level 2 in the fair value hierarchy.


2.	RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2011, the FASB issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the “highest and best use” concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. The fair value disclosure requirements were also amended. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The Company adopted the amended guidance effective January 1, 2012 and it did not have a material effect on its condensed consolidated financial statements.

In September 2011, the FASB issued guidance that simplified how entities test for goodwill impairment. This guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted. The Company adopted the amended guidance effective January 1, 2012 and it did not have a material effect on its condensed consolidated financial statements.

In July 2012, the FASB issued new accounting guidance on indefinite-lived intangible assets. The new guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount and recognize an impairment loss, if any, to the extent the carrying value exceeds the fair value. The guidance is effective for the Company for annual and, if any, interim impairment tests in its fiscal year ending December, 31, 2013, with early adoption permitted. The Company believes that the adoption of this guidance will not have a material impact on its consolidated financial statements.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)


3.	STOCKHOLDERS’ EQUITY

Activity for the six months ended June 24, 2012 in the accounts of Stockholders’ Equity is summarized below:



	Common Stock
	Shares	Par Value		Additional Paid- in Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	(In thousands, except share data)
Balance as of January 1, 2012	52,536,252	$	525	$	48,968		$	(174	)	$	(29,617	)	$	(985	)	$	18,717
Net income	—	—		—			—			9,382			—			9,382
Issuance of common stock, net of underwriters’ discounts and commissions	15,608,221	156		263,935			—			—			—			264,091
Offering costs—other	—	—		(4,248		)	—			—			—			(4,248		)
Stock compensation		—		12			—			—			—			12
Repurchase of common stock	—	—		—			(4,700		)	—			—			(4,700		)
Foreign currency translation adjustment, net of tax	—	—		—			—			—			374			374
Balance as of June 24, 2012	68,144,473	$	681	$	308,667		$	(4,874	)	$	(20,235	)	$	(611	)	$	283,628

As of June 24, 2012, the Company held 277,806 shares of common stock in treasury.

The balance in accumulated other comprehensive income (loss) consists only of foreign currency translation adjustments.

Stock Splits

In connection with the IPO, the Company’s Board of Directors approved a 101.200929-for-1 common stock split and a subsequent 1.037857-for-1 common stock split, which were effective April 4, 2012 and April 19, 2012, respectively.

All common share and per share amounts in the condensed consolidated financial statements have been adjusted retrospectively for all periods presented to reflect the 101.200929-for-1 and 1.037857-for-1 common stock splits. As no change was made to the par value of the common shares, the Company retrospectively reclassified a total of $520,000 from additional paid-in capital to common stock as of December 31, 2011. Of the $520,000, $501,000 was reflected in the consolidated financial statements included in the Prospectus.

4. INVENTORIES

Inventories consist of the following:



	June 24, 2012		December 31, 2011
	(In thousands)
Raw materials	$	281	$	242
Finished goods	71,147		60,214
Total inventories	$	71,428	$	60,456

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)


5.	PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consists of the following:



		June 24, 2012			December 31, 2011
		(In thousands)
	Useful Life
Land	—	$	485		$	485
Buildings and improvements	25 years	3,429			3,429
Leasehold and store enhancements	5 to 10 years	66,219			62,079
Furniture, computers and equipment	3 to 5 years	15,330			14,185
Capitalized software	5 years	2,128			2,128
Fixtures, dies and autos	3 to 5 years	19,245			17,603
Construction in progress		3,649			3,553
		110,485			103,462
Less accumulated depreciation and amortization		(70,767		)	(66,962		)
		$	39,718		$	36,500

Depreciation and amortization expense on property, plant and equipment was $2,618,000 and $5,159,000 for the three and six months ended June 24, 2012, respectively, and $2,449,000 and $4,848,000 for the three and six months ended June 26, 2011, respectively.


6.	JOINT VENTURE INVESTMENT

Tumi Japan

In June 2003, the Company entered into a Joint Venture Agreement with ACE Co., Ltd. (“Ace”) and Itochu Corporation (“Itochu”) to form the Tumi Japan Joint Venture (“Tumi Japan”). The purpose of Tumi Japan is to sell, promote and distribute the Company’s products in Japan. This investment is accounted for under the equity method.

Sales to Itochu were $2,193,000 and $4,910,000 for the three and six months ended June 24, 2012, respectively, and $2,058,000 and $4,501,000 for the three and six months ended June 26, 2011, respectively. As of June 24, 2012, the Company had accounts receivable due from Itochu of $1,483,000.


7.	GOODWILL AND OTHER INTANGIBLE ASSETS

The balance of goodwill and the classification by segment has not changed from December 31, 2011. For the six months ended June 24, 2012, there were no changes to intangible assets other than amortization expense recorded of $137,000.


8.	ACCRUED WARRANTIES

The Company provides its customers with a product warranty subsequent to the sale of its products. The Company recognizes estimated costs associated with the limited warranty at the time of sale of its products. The warranty reserve is based on historical experience. The activity in the warranty reserve account was as follows:



	Six Months Ended
	June 24, 2012
	(In thousands)
Liability, beginning of period	$	6,212
Provision for warranties	1,589
Warranty claims	(1,322		)
Liability, end of period	$	6,479

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)


9.	CREDIT FACILITY

Amended and Restated Credit Facility

In connection with the IPO, on April 4, 2012, Tumi, Inc. and Tumi Stores, Inc. (the “Borrowers”) entered into an amended and restated credit facility (the “Amended Credit Facility”), with Wells Fargo Bank National Association (“Wells Fargo”) as lender and collateral agent.

On April 4, 2012, the Company’s then-current term loan facility had $60,000,000 outstanding. Based on the Company's calculated leverage ratio at the time, the facility bore interest at either the market LIBOR rate plus 175 basis points or the prime rate plus 75 basis points. The Company’s revolving credit facility had no balance outstanding on its total capacity of $10,000,000. However, the Company had utilized $250,000 under the revolving facility for letters of credit.

The Amended Credit Facility consolidated the term loan facility and the revolving credit facility provided in the Company’s former credit facility into a single $70 million senior secured revolving credit facility with Wells Fargo as the sole lender, and extends the maturity of the facility until April 4, 2017. The Amended Credit Facility includes a letter of credit sublimit not to exceed the undrawn amount of the revolving commitments.

Borrowings under the Amended Credit Facility bear interest at a per annum rate equal to, at the Borrowers’ option, the one, two, three or six month (or such other period as Wells Fargo may agree) LIBOR rate plus a margin of 1.00% or 1.25%, or a base rate (the greater of (i) Wells Fargo’s prime rate in effect on such day and (ii) the federal funds rate plus 1/2 of 1.00%) plus a margin of zero or 0.25%. The Borrowers are required to pay an undrawn commitment fee equal to 0.15% or 0.20% of the undrawn portion of the commitments under the Amended Credit Facility, as well as customary letter of credit fees. The margin added to LIBOR, or the base rate, as well as the amount of the commitment fee, depends on Tumi, Inc.’s leverage at the time. Interest is payable monthly, bi-monthly or quarterly on LIBOR rate loans depending on the interest period for each LIBOR rate loan, or quarterly on base rate loans.

As of June 24, 2012, the Company had $58,000,000 outstanding under the Amended Credit Facility. As of June 24, 2012, the facility bore interest at the market LIBOR rate (0.25%) plus 100 basis points. Letters of credit outstanding at June 24, 2012 totaled $250,000 under the facility and, accordingly, the unused portion of the facility was $11,750,000.

All obligations under the Amended Credit Facility are required to be guaranteed by each of the Borrowers’ material domestic subsidiaries, subject to certain exclusions. The obligations under the Amended Credit Facility are secured by substantially all of the Borrowers’ assets and, if applicable, those of the Borrowers’ subsidiary guarantors. Currently the Borrowers do not have any subsidiary guarantors.

The Amended Credit Facility contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults under material debt, certain events of bankruptcy and insolvency, defaults based on certain judgments, failure of any material provision of any loan document to be in full force and effect, change of control, and certain ERISA defaults. If an event of default were to occur and continue, amounts due under the Amended Credit Facility could be accelerated and the commitments to extend credit thereunder terminated, and the rights and remedies of Wells Fargo under the Amended Credit Facility available under the applicable loan documents could be exercised, including rights with respect to the collateral securing the obligations under the Amended Credit Facility.

The Company reviewed the terms of the Amended Credit Facility and is satisfied that all conditions have been met, pursuant to the FASB’s guidance, to treat the transaction as a debt modification, which requires the Company to expense third party fees and add the related fees paid to Wells Fargo to the existing debt issuance costs.

Debt Covenants

The Amended Credit Facility contains customary covenants, including, but not limited to, limitations on the ability of the Borrowers and their subsidiaries to incur additional debt and liens, dispose of assets, and make certain investments and restricted payments, including the prepayment of certain debt and cash dividends. In addition, the Amended Credit Facility contains financial covenants requiring that the Borrowers maintain (a) a minimum ratio of consolidated adjusted EBITDA to consolidated cash interest expense (as such terms are defined in the Amended Credit Facility) of not less than 4.00 to 1.00 and (b) a maximum ratio of consolidated total debt to consolidated adjusted EBITDA of no greater than 2.25 to 1.00. The Company was in compliance in all material respects with all such covenants as of June 24, 2012.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)


10.	COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, including proceedings to protect our intellectual property rights. As part of our monitoring program for our intellectual property rights, from time to time we file lawsuits in the U.S. and abroad for acts of trademark counterfeiting, trademark infringement, trademark dilution, patent infringement or breach of other state or foreign laws. These actions often result in seizure of counterfeit merchandise and negotiated settlements with defendants. Defendants sometimes raise the invalidity or unenforceability of our proprietary rights as affirmative defenses or counterclaims. In the opinion of management, based upon advice of legal counsel, the likelihood is remote that the impact of any pending proceedings, either individually or in the aggregate, would be material to the Company’s consolidated financial position, results of operations or cash flows.

Bonus Agreement

Pursuant to an amended and restated letter agreement dated July 8, 2009, the Company’s Chief Executive Officer (“CEO”) was entitled to receive a special bonus in connection with the completion of a qualified sale event or initial public offering that resulted in an enterprise value of the Company of $600,000,000 or greater. Based on the enterprise value of the Company at the time of the IPO, the special bonus was paid and expensed in April 2012 in the amount of $5,511,693.


11.	INCOME TAXES

Income tax expense in 2012 is recognized based on the Company’s estimated annual effective tax rate which is based upon the tax rate expected for the full calendar year applied to the pre-tax income of the interim period. The Company’s consolidated effective tax rate in respect of continuing operations for the three and six months ended June 24, 2012 was 34.2% and 44.0%, respectively, and 68.6% and 79.1% for the three and six months ended June 26, 2011, respectively,


12.	MANDATORILY REDEEMABLE PREFERRED STOCK AND PREFERRED EQUITY INTERESTS

As of December 31, 2011 there were 77,500 shares of mandatorily redeemable Series A preferred stock authorized with a par value of $0.01 per share, of which 77,500 were issued and outstanding with a subscription price of $77,500,000. In addition, there were 50,000 preferred equity interest units with a subscription price of $50,000,000. All of the mandatorily redeemable preferred stock and preferred equity interests were issued during 2004 in connection with an acquisition. The mandatorily redeemable preferred stock and preferred equity interests had identical rights and preferences and accrued dividends at the rate of 10% which were compounded annually and cumulative.

Accumulated preferred dividends as of December 31, 2011 were $123,929,000.

In connection with the IPO in April 2012, the Company repurchased all of its preferred stock and preferred equity interests. The mandatorily redeemable preferred stock and preferred equity interests repurchased totaled $259,321,000 comprised of $157,627,000 of Series A preferred stock, inclusive of $80,127,000 of accrued dividends, and $101,694,000 of preferred equity interests, inclusive of $51,694,000 of accrued dividends.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)


13.	EARNINGS PER SHARE

The following table summarizes the calculation of basic and diluted earnings per common share for the three and six months ended June 24, 2012 and June 26, 2011:



	Three Months Ended				Six Months Ended
	June 24, 2012		June 26, 2011		June 24, 2012		June 26, 2011
	(In thousands, except share and per share data)				(In thousands, except share and per share data)
Basic earnings per common share:
Numerator:
Net income	$	6,485	$	2,300	$	9,382	$	2,217
Denominator:
Basic weighted average common shares outstanding	63,838,736		52,536,224		58,380,136		52,536,224
Basic earnings per common share	$	0.10	$	0.04	$	0.16	$	0.04

Diluted earnings per common share:
Numerator:
Net income	$	6,485	$	2,300	$	9,382	$	2,217
Denominator:
Number of shares used in basic calculation	63,838,736		52,536,224		58,380,136		52,536,224
Weighted average dilutive effect of employee stock options	89		—		46		—
Diluted weighted average common shares outstanding	63,838,825		52,536,224		58,380,182		52,536,224
Diluted earnings per common share	$	0.10	$	0.04	$	0.16	$	0.04


14.	SEGMENT INFORMATION

Segment Results

The table below presents information for net sales, operating income and depreciation and amortization by segment for the three and six months ended June 24, 2012 and June 26, 2011:



	Direct-to- Consumer North America		Direct-to- Consumer International			Indirect-to- Consumer North America		Indirect-to- Consumer International		Non-Allocated Corporate Expenses			Consolidated Totals
	(In thousands)
Three Months Ended June 24, 2012
Net sales	$	41,914	$	3,896		$	23,639	$	26,374	$	—		$	95,823
Operating income (loss)	$	13,556	$	(107	)	$	8,626	$	8,230	$	(18,271	)	$	12,034
Depreciation and amortization	$	1,442	$	190		$	212	$	523	$	320		$	2,687
Three Months Ended June 26, 2011
Net sales	$	33,957	$	3,862		$	19,166	$	21,691	$	—		$	78,676
Operating income (loss)	$	10,145	$	276		$	6,311	$	6,349	$	(9,497	)	$	13,584
Depreciation and amortization	$	1,345	$	292		$	121	$	468	$	300		$	2,526

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)



	Direct-to- Consumer North America		Direct-to- Consumer International			Indirect-to- Consumer North America		Indirect-to- Consumer International		Non-Allocated Corporate Expenses			Consolidated Totals
	(In thousands)
Six Months Ended June 24, 2012
Net sales	$	76,302	$	7,125		$	40,695	$	51,722	$	—		$	175,844
Operating income (loss)	$	22,811	$	(397	)	$	15,118	$	16,324	$	(28,546	)	$	25,310
Depreciation and amortization	$	2,784	$	419		$	381	$	1,076	$	636		$	5,296
Six Months Ended June 26, 2011
Net sales	$	60,083	$	7,245		$	35,899	$	41,366	$	—		$	144,593
Operating income (loss)	$	16,590	$	396		$	12,362	$	12,292	$	(18,673	)	$	22,967
Depreciation and amortization	$	2,644	$	606		$	232	$	903	$	599		$	4,984


15.	CONCENTRATION OF RISK

Credit Risk

The Company’s accounts receivable are comprised primarily of large balances due from a small number of major customers, principally large department and specialty luggage stores dispersed throughout the United States. Failure of one of the major customers to pay its balance could have a significant impact on the financial position, results of operations and cash flows of the Company. Five of the Company’s largest customers in the aggregate accounted for 18.3% and 18.6% of consolidated trade accounts receivable at June 24, 2012 and December 31, 2011, respectively. These five customers accounted for 11.0% and 11.3% of consolidated net sales for the three and six months ended June 24, 2012, respectively, and 13.3% and 12.4% for the three and six months ended June 26, 2011, respectively.

Supplier Risk

The Company’s product offerings are enhanced by custom raw materials that have specific technical requirements. The Company has selected a limited number of key suppliers with the capability to support these manufacturing requirements and manufactures the majority of its products in Asia. Although alternatives in the supply chain exist, a change in suppliers could cause a delay in manufacturing and have a short-term adverse effect on operating results. Additionally, purchases from these key suppliers are denominated in U.S. dollars. Foreign currency risk associated with these supply arrangements is shared with these suppliers. Five of the Company’s largest suppliers accounted for 47.2% and 50.1% of accounts payable at June 24, 2012 and December 31, 2011, respectively. These five suppliers accounted for 64.2% and 70.9% of total product purchases for the three and six months ended June 24, 2012, respectively, and 83.6% and 76.0% for the three and six months ended June 26, 2011, respectively.


16.	STOCK COMPENSATION PLANS AND AWARDS

2012 Long-Term Incentive Plan

In connection with the IPO, the Company adopted the 2012 Plan effective April 18, 2012, which has a term of 10 years. The Company’s compensation committee will generally designate those employees, consultants and non-employee directors eligible to participate in the 2012 Plan. Subject to adjustment in the event of a merger, recapitalization, stock split, reorganization or similar transaction, 6,786,667 shares, or the share limit, are reserved for issuance in connection with awards granted under the 2012 Plan. Any unexercised, unconverted or undistributed portion of any award that is not paid in connection with the settlement of an award or is forfeited without the issuance of shares shall again be available for grant under the 2012 Plan. Options and stock appreciation rights under the 2012 Plan have a maximum term of 10 years.

The 2012 Plan provides for the grant of stock options (including nonqualified stock options and incentive stock options), restricted stock, restricted stock units, performance awards (which include, but are not limited to, cash bonuses), dividend equivalents, stock payment awards, stock appreciation rights, and other incentive awards. The exercise price of an option or stock appreciation price must be equal to or greater than the fair market value of the Company’s common stock on the date of grant.

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. Due to the limited trading history of the Company’s common stock, the volatility assumption used was based on the weighted average historical stock prices of a peer group which is representative of the Company’s size and industry. The Company considers estimates for employee termination and the period of time the options are expected to be outstanding for the option term assumption within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The following table presents the weighted-average assumptions used to estimate the fair value of the options granted during the periods presented:



	June 24, 2012
Weighted- average volatility	45.90	%
Expected dividend yield	—	%
Expected term (in years)	6
Risk-free rate	1.14	%

The following table shows the total compensation cost charged against income for stock compensation plans and the related tax benefits recognized in the income statement for the periods indicated:



	Three Months Ended				Six Months Ended
	June 24, 2012		June 26, 2011		June 24, 2012		June 26, 2011
	(In thousands)				(In thousands)
Stock compensation expense	$	12	$	—	$	12	$	—
Income tax benefit related to stock compensation	$	4	$	—	$	5	$	—

A summary of option activity under the 2012 Plan as of June 24, 2012 and changes during the six months then ended is presented below:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding - December 31, 2011	—	—
Granted	12,466	$	18.00
Exercised	—	—
Canceled or expired	—	—
Outstanding - June 24, 2012	12,466	$	18.00	5.82	$	—
Options vested and expected to vest as of June 24, 2012	12,466	$	18.00	5.82	$	—
Options vested and exercisable as of June 24, 2012	—	—			$	—

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TUMI HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(unaudited)

A summary of the status of nonvested shares as of June 24, 2012 and changes during the six months then ended is presented below:



	Number of Shares	Weighted-Average Grant-Date Fair Value
Nonvested - December 31, 2011	—	$	—
Granted	12,466	$	8.02
Vested	—	$	—
Forfeited	—	$	—
Nonvested - June 24, 2012	12,466	$	8.02

As of June 24, 2012, there was $87,778 of total unrecognized compensation cost related to nonvested stock compensation arrangements granted under the 2012 Plan. Such cost is expected to be recognized over a weighted-average period of 1.82 years.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with Tumi Holdings, Inc.’s (together with its subsidiaries, “Tumi”, the “Company”, “we”, “us”, and “our”) condensed consolidated financial statements and notes thereto included elsewhere in this document. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. See “Cautionary Note Regarding Forward-Looking Statements” for further information regarding forward-looking statements.

The reporting periods for our unaudited quarterly financial information are based on the first month of each fiscal quarter including five Sundays and the second and third months of each fiscal quarter including four Sundays, with the fourth fiscal quarter always ending on December 31. Accordingly, the three-month reporting periods for the unaudited interim condensed consolidated financial statements included herein commenced on March 26, 2012 and March 28, 2011 and ended on June 24, 2012 and June 26, 2011, respectively. The six-month reporting periods for the unaudited interim condensed consolidated financial statements included herein commenced on January 1, 2012 and 2011 and ended on June 24, 2012 and June 26, 2011, respectively. Historical results are not necessarily indicative of the results expected for any future period.

Executive Overview

We are a high-growth, global, premium lifestyle brand whose products offer superior quality, durability and innovative design. We offer a comprehensive line of travel and business products and accessories in multiple categories. We design our products for, and market our products to, sophisticated professionals, frequent travelers and brand-conscious individuals who enjoy the premium status of Tumi products. We sell our products through a network of company-owned retail stores and outlet stores, partner stores, concessions, shop-in-shops, specialty luggage shops, high-end department stores and e-commerce distribution channels. We have approximately 1,600 points of distribution in over 70 countries, and our global distribution network is enhanced by the use of our three logistics facilities located in the United States, Europe and Asia. We design our products in our U.S. design studios and selectively collaborate with well-known, international industrial and fashion designers for limited edition product lines. Production is sourced globally through a network of suppliers based in Asia, many of which are longtime suppliers, and the Caribbean.

In April 2012, we completed our IPO, at which time we sold a total of 15,608,221 shares of our common stock and certain of our stockholders sold a total of 5,988,624 shares of common stock (inclusive of 2,816,980 shares of common stock from the full exercise of the overallotment option of shares granted to the underwriters). The initial public offering price of the shares sold in the offering was $18.00 per share. We did not receive any proceeds from the sale of shares by the selling stockholders. The total proceeds to us, net of underwriters’ discounts and commissions, were approximately $264.1 million. We used the net proceeds received from the IPO to repurchase all of our preferred stock and preferred equity interests and 277,778 shares of our common stock owned by Doughty Hanson, our majority stockholder.

We have expanded our global presence by successfully implementing our growth strategies, which have included opening additional company-owned stores and increasing wholesale points of distribution. Our net sales have grown from $78.7 million and $144.6 million in the three and six months ended June 26, 2011, respectively, to $95.8 million and $175.8 million in the three and six months ended June 24, 2012, respectively. This increase in net sales resulted primarily from an increase in the number of our company-owned stores, as well as an increase in average net sales per square foot in company-owned stores, and continuous growth in our international wholesale sales. Our ability to expand our points of distribution and to grow our net sales in existing stores has been driven by increasing demand for our products, as well as growing recognition of the Tumi brand. We have recently increased our focus on our women’s line and on our online presence.

In recent years, the travel products industry has seen a trend in consumer preferences towards lighter-weight luggage and travel accessories, as well as merchandise that makes mobile computing and communication more convenient. In light of these trends, Tumi has developed products that fulfill those identified needs, such as our Vapor and Super Leger lines, as well as a variety of mobile electronic accessories designed for frequent travelers. We have seen an increase in the relative percentage of our net sales derived from our accessories line, our premium product line and our core product line in recent years.

In addition, we recently launched our Dror line. The Dror line for Tumi is a collaborative collection of travel, business and day bags that integrates the concepts of “transformation”, in which items change their shape and/or purpose, with Tumi’s heritage of design innovation and quality.

We believe there is a significant opportunity to continue to expand Tumi’s store base globally, and we plan to add new company-owned and partner stores in upscale malls and prestige street venues. We had 7 and 11 new company-owned store openings in the three and six months ended June 24, 2012, respectively. We expect to open 8 to 16 company-owned stores in

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North America and Western Europe in each of the next three years, with the majority being full-price stores, while also expanding our online presence.

We believe we have the capacity to increase our Indirect-to-Consumer net sales, both in North America and internationally. In particular, we plan to continue to grow in key Asian markets, particularly China. We also plan to increase the number of wholesale doors in key European markets including Germany, France and the United Kingdom, and to expand wholesale distribution in Central and South America, while also expanding our product portfolio offered in existing wholesale doors. In North America, we expect to grow net sales by increasing our wholesale door presence, expanding our accessories business in department stores, increasing the variety of products available to third party e-commerce providers, and increasing penetration of the Canadian market through department stores, specialty stores, e-commerce sales and new distribution partners.

We generally expect the payback of our investment in a new company-owned store to occur in less than two and a half years. We also believe we can increase our average net sales per square foot by continuing to improve store efficiency and continue to increase our overall net sales by capitalizing on our flexible distribution model. For example, in 2010, we converted certain company-owned stores in the Asia-Pacific region into wholesale distribution points in order to improve our operational effectiveness and profitability in that market. In particular, this enabled us to incentivize our local distributors to accelerate store development in a manner that would optimize net sales. We will continue to look for ways to improve our capital efficiency in both current and new markets in the future.

Growth Strategy

The key elements of our growth strategy are:

•

Expand our store base. We believe there continues to be significant opportunity for us to expand our company-owned retail store network in North America and internationally. We plan to add new stores in upscale mall market locations and prestige street venues where we are currently underrepresented. In addition, we selectively target the affluent and business markets in small and mid-sized cities where there is demonstrated foot traffic and an established Tumi consumer base that is not being sufficiently served by multi-brand travel goods and accessories retailers. We also believe there is further opportunity to develop company-owned outlet stores in premium outlet malls where we currently do not have a presence. Our store-opening strategy focuses on opening profitable company-owned retail and outlet locations.

•

Expand wholesale distribution globally. We currently sell products in approximately 1,500 wholesale doors in over 70 countries. We plan to continue expanding wholesale distribution globally, with a focus on key markets in Asia (including mainland China, India, Japan and Korea), Eastern Europe and Central and South America. As part of this strategy, we will continue to develop relationships with wholesale distributors in these attractive geographies (in both new and existing markets), increase wholesale and distribution opportunities and expand into additional airport locations worldwide. We expect this distribution expansion will take several forms as appropriate for the specific market opportunity, including Tumi shop-in-shops, Tumi-defined corners within existing wholesale accounts or concession and consignment arrangements.

•

Continue to increase our brand awareness. We seek to increase our brand awareness among our targeted consumer base through retail and wholesale distribution expansion, select marketing initiatives, new product lines and brand extensions. In the wholesale distribution channel, we target distribution expansion by increasing the number of our partner stores where we can control the consumer experience. We will continue to focus on in-store marketing, and we plan to effectively utilize our website, social networking sites and other online forms of communication to build consumer knowledge of the Tumi brand. We believe increasing brand awareness will lead to greater foot traffic in our current locations, enable us to continue increasing our loyal consumer base and ultimately contribute to enhanced growth and profitability.

•

Broaden the appeal of our products through new product introductions. We seek to design products that are innovative, functional and stylish. We anticipate introducing new products in lighter weight and durable materials, colors which appeal to women and men, premium products with a classic or contemporary design, as well as stylish and durable products at more accessible price points for our younger consumer, such as our T-Tech line. We also plan to continue to introduce new products to our successful brand extension lines.

•

Improve our store operations. We continue to focus on improving store efficiency, including through our retail performance maximization program (the “RPM program”) which was implemented in 2009. The RPM program emphasizes training and staff development programs and the effective use of visual merchandising and fixtures. Our goal is to continue to increase net sales per store by increasing conversion rates and units and dollars per transaction, while enhancing the consumer experience.

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•

Expand our e-business. Our e-commerce business consists of our websites and our wholesale sales to third-party e-commerce websites. This online presence is an extension of our brand and points of distribution, serving both as an informational resource and a complementary sales channel for our consumers. We expect net sales from this channel to continue to grow as consumers become more aware of our e-commerce capabilities and we continue to expand our online transactional presence into new markets.

Key Performance Indicators

Key performance indicators that we use to manage our business and evaluate our financial results and operating performance include adjusted EBITDA and average net sales per square foot. Adjusted EBITDA provides us with a measure of our financial performance that we use to evaluate profitability. In addition, we have historically used, and continue to use, adjusted EBITDA in determining our incentive compensation. Average net sales per square foot, which relates to company-owned stores only, provides us with a measure to evaluate our store sales trends and to assess the operational performance of our stores.

Adjusted EBITDA and net income before preferred dividend expense (non-cash) are non-GAAP financial measures. Adjusted EBITDA is defined as net income plus dividend expense on mandatorily redeemable preferred stock and preferred equity interests, interest expense, provision for income taxes, depreciation and amortization, loss on disposal of fixed assets and other specified non-cash charges. Net income before preferred dividend expense (non-cash) is defined as net income plus dividend expense on mandatorily redeemable preferred stock and preferred equity interests. Adjusted EBITDA and net income before preferred dividend expense (non-cash) are not measures of operating income or operating performance presented in accordance with US GAAP.

Adjusted EBITDA and net income before preferred dividend expense (non-cash) are important supplemental measures of our internal reporting, including for our board of directors and management, and is a key measure we use to evaluate profitability and operating performance. Our current incentive compensation plan is based on the attainment of certain adjusted EBITDA objectives. Additionally, adjusted EBITDA and net income before preferred dividend expense (non-cash), when viewed in conjunction with our condensed consolidated financial statements, provide investors and other users of our financial information consistency and comparability with our past financial performance, facilitate period-to-period comparisons of operating performance and facilitate comparisons with other companies. We use these metrics in conjunction with US GAAP operating performance measures as part of our overall assessment of our performance.

Undue reliance should not be placed on these measures as our only measures of operating performance. Adjusted EBITDA and net income before preferred dividend expense (non-cash) have limitations as analytical tools. When assessing our operating performance, investors should not consider adjusted EBITDA and net income before preferred dividend expense (non-cash) in isolation or as a substitute for net income.

Adjusted EBITDA increased by approximately $2.0 million, or 7%, to $31.0 million for the six months ended June 24, 2012 from $29.0 million for the six months ended June 26, 2011. This increase was primarily due to higher net sales and gross margin dollars partially offset by an increase in operating expenses, including a non-recurring charge of $5.5 million for the special cash bonus paid to the CEO in connection with the successful completion of the IPO.

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A reconciliation of net income to net income before preferred dividend expense (non-cash) and adjusted EBITDA is presented below:



	Six Months Ended
	June 24, 2012			June 26, 2011
	(In thousands)
Net income	$	9,382		$	2,217
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests	7,892			11,429
Net income before preferred dividend expense (non-cash)	17,274			13,646
Interest expense	867			1,516
Provision for income taxes	7,372			8,397
Depreciation and amortization	5,296			4,984
Loss on disposal of fixed assets	389			—
Other	(190		)	439
Adjusted EBITDA	$	31,008		$	28,982

Average net sales per square foot is calculated using net sales for the last twelve months for all stores opened for the full twelve months. Average net sales per square foot increased by approximately $42, or 4%, to $1,014 as of June 24, 2012 from $972 as of December 31, 2011. This increase was primarily due to higher store traffic and new product introductions.

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Results of Operations

The following tables set forth condensed consolidated operating results and other operating data for the periods indicated:

Operating results



	Three Months Ended						Six Months Ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
	(In thousands)						(In thousands)
Net sales	$	95,823		$	78,676		$	175,844		$	144,593
Cost of sales	41,130			35,114			75,746			63,893
Gross margin	54,693			43,562			100,098			80,700
OPERATING EXPENSES
Selling	6,092			4,985			11,080			9,306
Marketing	3,574			2,749			6,314			5,723
Retail operations	19,187			16,006			36,336			30,460
General and administrative	13,806			6,238			21,058			12,244
Total operating expenses	42,659			29,978			74,788			57,733
Operating income	12,034			13,584			25,310			22,967
OTHER (EXPENSES) INCOME
Interest expense	(350		)	(735		)	(867		)	(1,516		)
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests	(1,606		)	(5,715		)	(7,892		)	(11,429		)
Earnings from joint venture investment	407			255			671			282
Foreign exchange (losses) gains	(684		)	(155		)	(695		)	211
Other non-operating income	55			85			227			99
Total other expenses	(2,178		)	(6,265		)	(8,556		)	(12,353		)
Income before income taxes	9,856			7,319			16,754			10,614
Provision for income taxes	3,371			5,019			7,372			8,397
Net income	$	6,485		$	2,300		$	9,382		$	2,217

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Percentage of net sales



	Three Months Ended				Six Months Ended
	June 24, 2012		June 26, 2011		June 24, 2012		June 26, 2011
Net sales	100	%	100	%	100	%	100	%
Cost of sales	43	%	45	%	43	%	44	%
Gross margin	57	%	55	%	57	%	56	%
OPERATING EXPENSES
Selling	7	%	6	%	6	%	6	%
Marketing	4	%	4	%	4	%	4	%
Retail operations	20	%	20	%	21	%	21	%
General and administrative	14	%	8	%	12	%	9	%
Total operating expenses	45	%	38	%	43	%	40	%
Operating income	12	%	17	%	14	%	16	%
OTHER (EXPENSES) INCOME
Interest expense	0	%	(1	)%	0	%	(1	)%
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests	(2	)%	(7	)%	(5	)%	(8	)%
Earnings from joint venture investment	0	%	0	%	0	%	0	%
Foreign exchange (losses) gains	0	%	0	%	0	%	0	%
Other non-operating income	0	%	0	%	0	%	0	%
Total other expenses	(2	)%	(8	)%	(5	)%	(9	)%
Income before income taxes	10	%	9	%	9	%	7	%
Provision for income taxes	4	%	6	%	4	%	6	%
Net income	6	%	3	%	5	%	1	%

The following table summarizes the number of company-owned stores open at the beginning and end of the six months ended June 24, 2012:



	Six Months Ended
	June 24, 2012
Number of stores open at beginning of period	97
Stores added	11
Stores closed	(2	)
Number of stores open at end of period	106

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Three months ended June 24, 2012 compared with the three months ended June 26, 2011

Net Sales

The following table presents net sales by operating segment for the three months ended June 24, 2012 compared with the three months ended June 26, 2011:



	Three Months Ended June 24, 2012		Three Months Ended June 26, 2011		% Change
	(In thousands)
Direct-to-Consumer North America	$	41,914	$	33,957	23	%
Direct-to-Consumer International	3,896		3,862		1	%
Indirect-to-Consumer North America	23,639		19,166		23	%
Indirect-to-Consumer International	26,374		21,691		22	%
Total	$	95,823	$	78,676	22	%

Net sales increased $17.1 million, or 22%, to $95.8 million for the three months ended June 24, 2012 from $78.7 million for the three months ended June 26, 2011. Positive customer response to new product introductions has had a favorable effect on net sales. During the second quarter of 2012, the Company introduced the Dror line, which was well received, as well as seasonal colors of hard-sided luggage and several new mobile device covers. Net sales have increased across all of our operating segments for the three months ended June 24, 2012 as compared with the three months ended June 26, 2011, as store traffic patterns have remained strong and wholesale customers have responded positively to new product introductions. We have continued to grow our own e-commerce websites and our wholesale customers’ e-commerce websites also showed positive results.

Net sales attributable to the Direct-to-Consumer North America segment increased 23% for the three months ended June 24, 2012 as compared with the three months ended June 26, 2011, with our North American comparable store sales up 4.7% in full price stores, up 14.1% in outlet stores and up 16.2% in our e-commerce website. Overall, including our e-commerce website, North America comparable store sales were up 8.4% for the period. We had seven new store openings in the second quarter of 2012. Net sales attributable to the Direct-to-Consumer International segment increased 1% for the three months ended June 24, 2012 as compared with the three months ended June 26, 2011, with comparable store sales up 1.3% (12.5% in local currency). Our international e-commerce websites were up 59.2% (79.4% in local currency). Overall, including our e-commerce websites, our international comparable store sales were up 4.5% (16.2% in local currency) for the period. This increase in Direct-to-Consumer International net sales was negatively impacted by the European sovereign debt crisis, which has dampened European consumer confidence. Additionally, during the first fiscal quarter of 2012, we replaced European retail store management and have seen this change in leadership have a positive impact on this segment.

Net sales attributable to the Indirect-to-Consumer North America segment increased 23% and net sales attributable to the Indirect-to-Consumer International segment increased 22% for the three months ended June 24, 2012 as compared with the three months ended June 26, 2011. The Indirect-to-Consumer North America net sales have been favorably impacted by strong sales through our wholesale customers’ e-commerce websites as well as the aforementioned positive response to new product introductions. Our Indirect-to-Consumer International net sales have been favorably impacted by positive reaction to new product introductions and some new market inroads, particularly in Asia.

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Operating income

The following table presents operating income (loss) by operating segment for the three months ended June 24, 2012 compared with the three months ended June 26, 2011:



	Three Months Ended June 24, 2012			Three Months Ended June 26, 2011			% Change
	(In thousands)
Direct-to-Consumer North America	$	13,556		$	10,145		34	%
Direct-to-Consumer International	(107		)	276			(139	)%
Indirect-to-Consumer North America	8,626			6,311			37	%
Indirect-to-Consumer International	8,230			6,349			30	%
Non-allocated corporate expenses	(18,271		)	(9,497		)	(92	)%
Total	$	12,034		$	13,584		(11	)%

Operating income decreased $1.6 million, or 11%, to $12.0 million for the three months ended June 24, 2012 from $13.6 million for the three months ended June 26, 2011. Included in non-allocated corporate expenses for the three months ended June 24, 2012 is a pre-tax charge of $5.5 million related to the special cash bonus paid to the CEO in connection with the successful completion of the IPO (see Note 1 for further information regarding our IPO). Excluding this non-recurring pre-tax charge, operating income improved 29% in the period. This improvement was a result of higher revenues and improved gross margins partially offset by higher operating expenses. All operating segments, with the exception of Direct-to-Consumer International, improved as compared with the comparable prior year period. Our operating segments have benefited from positive reaction to new product introductions, new store openings in the Direct-to-Consumer North America segment, and continued strong growth in the Asia Pacific region, as well as strong Indirect-to-Consumer net sales in the Europe, Middle East and Africa region. Operating expenses have increased principally due to higher retail operations expenses related to the cost of new store openings, as well as the aforementioned non-recurring charge of $5.5 million for the special cash bonus paid to the CEO. Non-allocated corporate expenses represent expenses and income not identifiable to a particular operating segment and rather represent core corporate expenses such as corporate marketing, design, general and administrative expenses, after sales service costs, shipping and warehousing, human resources related to corporate overhead, finance, legal and professional fees and other costs. As we expand our business and incur additional expenses associated with being a public company, we believe general and administrative expenses will increase in dollar amount and may increase as a percentage of revenues in 2012 and in future periods.

Other income and expenses

Other income and expenses decreased $4.1 million, or 65%, to $2.2 million for the three months ended June 24, 2012 from $6.3 million for the three months ended June 26, 2011. Total other expenses includes dividend expense on mandatorily redeemable preferred stock and preferred equity interests, a non-cash charge. The decrease was primarily attributable to a reduction of dividend expense due to the repurchase of all of our mandatorily redeemable preferred stock and preferred equity interests in connection with the IPO in the second quarter of 2012. Excluding this one item, total other expenses remained consistent at approximately $0.5 million for the three months ended June 24, 2012 and June 26, 2011.

Income tax expense

Provision for income taxes decreased $1.6 million, or 33%, to $3.4 million in the three months ended June 24, 2012 from $5.0 million in the three months ended June 26, 2011, due principally to a lower effective tax rate. The lower effective tax rate was due to the impact that the consummation of our IPO had on our annual effective tax rate.

Net income

Net income increased $4.2 million to $6.5 million for the three months ended June 24, 2012 from $2.3 million for the three months ended June 26, 2011. The increase in net income was due mainly to the increase in net sales and gross margin dollars as well as the reduction in dividend expense, offset by the aforementioned special bonus to the CEO.

Basic and diluted weighted average shares outstanding for the three months ended June 24, 2012 and June 26, 2011 were 63.8 million and 52.5 million shares, respectively. Basic and diluted EPS was $0.10 per share for the three months ended June 24, 2012 versus $0.04 per share for the three months ended June 26, 2011.

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Net income before dividend expense on mandatorily redeemable preferred stock and preferred equity interests was $8.1 million and $8.0 million for the three months ended June 24, 2012 and June 26, 2011, respectively. Basic and diluted EPS before dividend expense on mandatorily redeemable preferred stock and preferred equity interests was $0.13 per share and $0.15 per share for the three months ended June 24, 2012 and June 26, 2011, respectively.

Six months ended June 24, 2012 compared with the six months ended June 26, 2011

Net Sales

The following table presents net sales by operating segment for the six months ended June 24, 2012 compared with the six months ended June 26, 2011:



	Six Months Ended June 24, 2012		Six Months Ended June 26, 2011		% Change
	(In thousands)
Direct-to-Consumer North America	$	76,302	$	60,083	27	%
Direct-to-Consumer International	7,125		7,245		(2	)%
Indirect-to-Consumer North America	40,695		35,899		13	%
Indirect-to-Consumer International	51,722		41,366		25	%
Total	$	175,844	$	144,593	22	%

Net sales increased $31.2 million, or 22%, to $175.8 million for the six months ended June 24, 2012 from $144.6 million for the six months ended June 26, 2011. Positive customer response to new product introductions, including the Dror line, new store openings and strong comparable store sales growth have had a positive effect on net sales. Net sales have increased across all but one of our operating segments for the six months ended June 24, 2012 as compared with the six months ended June 26, 2011, as store traffic patterns have improved and wholesale customers have responded positively to new product introductions. We have continued to grow our own e-commerce websites and our wholesale customers’ e-commerce websites also showed positive results.

Net sales attributable to the Direct-to-Consumer North America segment increased 27% for the six months ended June 24, 2012 as compared with the six months ended June 26, 2011, with our North American comparable store sales up 8.0% in full price stores, up 13.8% in outlet stores and up 30.3% in our e-commerce website. Overall, including our e-commerce website, North America comparable store sales increased 12.1% for the period. There were eleven new store openings during the first half of 2012 (offset by 2 store closings), all of which have been performing on target. Net sales attributable to the Direct-to-Consumer International segment experienced a 2% decrease for the six months ended June 24, 2012 as compared with the six months ended June 26, 2011, with comparable store sales down 1.5% (up 6.3% in local currency). Our international e-commerce websites were up 44.4% (55.7% in local currency). Overall, including our e-commerce websites, our international comparable store sales were up 1.7% (9.7% in local currency) for the period. The overall decrease in Direct-to-Consumer International net sales was attributable mainly to the European sovereign debt crisis, which has dampened European consumer confidence, as well as the unfavorable foreign currency exchange effect of the Euro. During the first fiscal quarter of 2012, we replaced European retail store management and we have seen this change in leadership have a positive impact on this segment.

Net sales attributable to the Indirect-to-Consumer North America segment increased 13% and net sales attributable to the Indirect-to-Consumer International segment increased 25% for the six months ended June 24, 2012 as compared with the six months ended June 26, 2011. The Indirect-to-Consumer North America net sales have been favorably impacted by strong sales through our wholesale customers’ e-commerce websites as well as the aforementioned positive response to new product introductions. Our Indirect-to-Consumer International net sales have been favorably impacted by positive reaction to new product introductions and some new market inroads, particularly in Asia.

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Operating income

The following table presents operating income (loss) by operating segment for the six months ended June 24, 2012 compared with the six months ended June 26, 2011:



	Six Months Ended June 24, 2012			Six Months Ended June 26, 2011			% Change
	(In thousands)
Direct-to-Consumer North America	$	22,811		$	16,590		37	%
Direct-to-Consumer International	(397		)	396			(200	)%
Indirect-to-Consumer North America	15,118			12,362			22	%
Indirect-to-Consumer International	16,324			12,292			33	%
Non-allocated corporate expenses	(28,546		)	(18,673		)	(53	)%
Total	$	25,310		$	22,967		10	%

Operating income increased $2.3 million, or 10%, to $25.3 million for the six months ended June 24, 2012 from $23.0 million for the six months ended June 26, 2011. Included in non-allocated corporate expenses for the six months ended June 24, 2012 is a pre-tax charge of $5.5 million related to the special cash bonus paid to the CEO in connection with the successful completion of the IPO (see Note 1 for further information regarding our IPO). Excluding this non-recurring pre-tax charge, operating income improved 34% for the period. This improvement was a result of higher revenues and improved gross margins partially offset by higher operating expenses. All operating segments, with the exception of Direct-to-Consumer International, improved as compared with the comparable prior year period. Our operating segments have benefited from positive reaction to new product introductions, new store openings in the Direct-to-Consumer North America segment, and continued strong growth in the Asia Pacific region, as well as strong Indirect-to-Consumer net sales in the Europe, Middle East and Africa region. Operating expenses have increased principally due to higher retail operations expenses related to the cost of new store openings, as well as the aforementioned non-recurring charge of $5.5 million for the special cash bonus paid to the CEO. Non-allocated corporate expenses represent expenses and income not identifiable to a particular operating segment and rather represent core corporate expenses such as corporate marketing, design, general and administrative expenses, after sales service costs, shipping and warehousing, human resources related to corporate overhead, finance, legal and professional fees and other costs.

Other income and expenses

Other income and expenses decreased $3.8 million, or 31%, to $8.6 million for the six months ended June 24, 2012 from $12.4 million for the six months ended June 26, 2011. Total other expenses include dividend expense on mandatorily redeemable preferred stock and preferred equity interests, a non-cash charge. The decrease was primarily attributable to a reduction of dividend expense due to the repurchase of all of our mandatorily redeemable preferred stock and preferred equity interests in connection with the IPO in the second quarter of 2012. Excluding this one item, total other expenses decreased $0.3 million, or 28%, to $0.7 million for the six months ended June 24, 2012 from $1.0 million for the six months ended June 26, 2011.

Income tax expense

Provision for income taxes decreased $1.0 million, or 12%, to $7.4 million in the six months ended June 24, 2012 from $8.4 million in the six months ended June 26, 2011, due principally to a lower effective tax rate in the second quarter of 2012. The lower effective tax rate was due primarily to the impact that the consummation of our IPO had on our annual effective tax rate.

Net income

Net income increased $7.2 million to $9.4 million for the six months ended June 24, 2012 from $2.2 million for the six months ended June 26, 2011. The increase in net income was due mainly to the increase in net sales and gross margin dollars as well as the reduction in dividend expense, offset by the aforementioned special bonus to the CEO.

Basic and diluted weighted average shares outstanding for the six months ended June 24, 2012 and June 26, 2011 were 58.4 million and 52.5 million shares, respectively. Basic and diluted EPS was $0.16 per share for the six months ended June 24, 2012 versus $0.04 per share for the six months ended June 26, 2011.

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Net income before dividend expense on mandatorily redeemable preferred stock and preferred equity interests was $17.3 million and $13.6 million for the six months ended June 24, 2012 and June 26, 2011, respectively. Basic and diluted EPS before dividend expense on mandatorily redeemable preferred stock and preferred equity interests was $0.30 per share and $0.26 per share for the six months ended June 24, 2012 and June 26, 2011, respectively.

Seasonality

Our business is seasonal in nature and, as a result, our net sales and working capital requirements fluctuate from quarter to quarter. Our fourth quarter is a significant period for our results of operations due to increased Direct-to-Consumer sales during the holiday season in North America and Europe. We expect inventory levels, along with an increase in accounts payable and accrued expenses, to reach their highest levels in anticipation of the increased net sales during this period. In 2011, fourth quarter net sales represented approximately 32% of our total annual net sales. Operating income in the same period represented 42% of our total annual operating income. The first half of 2011 accounted for approximately 44% of net sales and 38% of operating income for the year ended December 31, 2011.

Liquidity and Capital Resources

Historically, our primary source of liquidity has been cash flows from operations. Our long-term credit facility has not historically been used to finance our capital requirements, but instead represents remaining refinanced acquisition indebtedness originally incurred when Doughty Hanson and certain members of management at that time acquired the Company in 2004. We have from time to time drawn down on our revolving line of credit as short-term liquidity needs arise. We use our cash flows from operations to fund our store development activities.

We believe we have sufficient working capital and liquidity to support our operations for at least the next twelve months.

Cash and cash equivalents

As of June 24, 2012, we had cash and cash equivalents of $20.8 million. A summary of our cash flows provided by and used in operating, investing and financing activities is presented below.

Cash flows from operating activities

Cash flows from operating activities consisted primarily of net income adjusted for certain non-cash items, including depreciation and amortization, dividend expense on mandatorily redeemable preferred stock and preferred equity interests and other non-cash charges. Our cash flows from operations are largely dependent on sales to consumers and wholesale customers, which are in turn dependent on consumer confidence, store traffic, conversion, business travel and general economic conditions. We believe we have the ability to conserve liquidity when economic conditions become less favorable through any number of strategies including curtailment of store expansion plans and cutting discretionary spending.

We generated cash flows from operations of $3.6 million during the six months ended June 24, 2012, compared to $10.7 million during the six months ended June 26, 2011. The principal reason for this decrease was our investment in inventory during the first six months of 2012 to satisfy demand for new product introductions as well as the aforementioned special cash bonus paid to the CEO.

Investing activities

Cash flows used for investing activities consisted primarily of capital expenditures for store expansion plans, store renovations, store openings, information technology infrastructure and product tooling costs.

Cash used for capital expenditures was $8.3 million and $5.0 million for the six months ended June 24, 2012 and June 26, 2011, respectively. The increase was due principally to additional store openings in the first six months of 2012.

Financing activities

Cash used in financing activities was $7.2 million for the six months ended June 24, 2012 compared to $2.9 million for the six months ended June 26, 2011. The increase was mainly attributable to additional repayments of bank debt and transactions related to the IPO.

Amended and restated credit facility

In connection with the IPO, on April 4, 2012, Tumi, Inc. and Tumi Stores, Inc., the Borrowers, entered into the Amended Credit Facility, with Wells Fargo as lender and collateral agent.

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The Amended Credit Facility also contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults under material debt, certain events of bankruptcy and insolvency, defaults based on certain judgments, failure of any material provision of any loan document to be in full force and effect, change of control, and certain ERISA defaults. If an event of default were to occur and continue, amounts due under the Amended Credit Facility could be accelerated and the commitments to extend credit thereunder terminated, and the rights and remedies of Wells Fargo under the Amended Credit Facility available under the applicable loan documents could be exercised, including rights with respect to the collateral securing the obligations under the Amended Credit Facility.

The foregoing summaries of certain provisions of the Amended Credit Facility do not purport to be complete and are qualified in their entirety by reference to the full text of the Amended Credit Facility.

Contractual Obligations

As previously disclosed, in connection with our IPO in April 2012, we entered into the Amended Credit Facility as well as repurchased all of our mandatorily redeemable preferred stock and preferred equity interests. There have been no other material changes to the contractual obligations table included in Tumi's Quarterly Report on Form 10-Q for the quarter ended March 25, 2012, filed with the SEC on May 23, 2012.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with US GAAP. The preparation of these financial statements requires estimates and judgments that affect the reported amounts of our assets, liabilities, net sales and operating expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions we believe to be reasonable given the circumstances and we evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

We believe that our critical accounting policies and estimates require us to make difficult, subjective or complex

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judgments about matters that are inherently uncertain. The following reflect the significant estimates and judgments used in the preparation of our consolidated financial statements.

Revenue recognition

Revenue is generated from the sale of our products and is classified as “net sales” in our consolidated statements of operations. We recognize revenue in our Direct-to-Consumer segment when inventory is received by customers and the related title passes. In our Indirect-to-Consumer segment revenue is recognized when inventory is received by wholesale customers, at which point title passes. Provisions for discounts, rebates to customers and returns are recorded as a reduction of net sales in the same period as the related sale. Revenue associated with gift cards is recognized upon redemption. Determining our provision for discounts, rebates and returns requires significant judgment based on historical information and estimates of future activity.

Accounts receivable and allowance for doubtful accounts

We determine our allowance for doubtful accounts for accounts receivable by considering a number of factors including the length of time trade receivables are past due, our previous loss history, our customer’s current ability to pay its obligation and the condition of the general economy and the industry as a whole. Unanticipated events and circumstances may occur that affect the accuracy or validity of such assumptions, estimates or actual results.

Inventories

Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. Inventory includes material, labor, overhead, freight, and duty and is adjusted for allowances for slow moving and obsolete inventory. Slow moving and obsolete inventory is determined through an evaluation of both historical usage and expected future demand.

Income taxes

We utilize the asset and liability method of accounting for income taxes, under which deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in net income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

We apply the provisions of the FASB’s guidance relating to uncertain tax positions. We utilize the two step process to determine the amount of recognized tax benefit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

Goodwill and intangible assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including intangible assets.

Indefinite-lived intangible assets consist of brand/trade name. Brand/trade name and goodwill are not being amortized in accordance with the provisions of the FASB’s guidance, which requires these assets to be tested for impairment, annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our annual impairment testing date is the first day of our fourth quarter.

We use techniques including DCF (Level 3 input) to test goodwill and indefinite lived intangible assets for impairment. A DCF analysis calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit or asset and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the DCF require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. Although we believe the historical assumptions and estimates we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.

We did not recognize any impairment of goodwill or indefinite lived intangible assets in the six months ended June 24, 2012.

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Warranties

We provide our customers with a product warranty subsequent to the sale of our products. We recognize estimated costs associated with the limited warranty at the time of sale of our products. The warranty reserve is based on historical experience and estimated future costs.

Accounting standards applicable to emerging growth companies

The Jumpstart Our Business Startups Act (the “JOBS Act”) contains provisions that relax certain requirements for “emerging growth companies,” which includes us. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will not be required to (i) comply with any new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies under Section 102(b)(1) of the JOBS Act (unless we elect to do so for any accounting standard issued after we became a public company), (ii) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (iii) comply with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, or (iv) comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise.

As noted above, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. We intend to take advantage of such extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

Recently Issued Accounting Pronouncements

In July 2012, the FASB issued new accounting guidance on indefinite-lived intangible assets. The new guidance provides an entity the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount and recognize an impairment loss, if any, to the extent the carrying value exceeds its fair value. The guidance is effective for the Company for annual and, if any, interim impairment tests in its fiscal year ending December, 31, 2013, with early adoption permitted. The Company believes that the adoption of this guidance will not have a material impact on its consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not currently hold or issue financial instruments for trading purposes, although we have in the past entered into interest rate hedges for the purposes of limiting our exposure to fluctuations in interest rates.

Foreign currency exchange risk

Although the majority of our international net sales are billed and collected in U.S. dollars, our European sales are billed and collected in Euros, and we are therefore subject to risk associated with exchange rate fluctuations. During the three and six months ended June 24, 2012, we recorded losses related to the exchange rate fluctuation effect on remittances from our European affiliates and other transactions relating to our international operations of $684,000 and $695,000, respectively. During the three and six months ended June 26, 2011, we recorded a loss of $155,000 and gain of $211,000, respectively, related to the exchange rate fluctuation effect on those remittances and transactions. Because a portion of our net sales (approximately 10%) are denominated in Euros, exchange rate fluctuations can have an impact on our reported net sales. For example, if the U.S. dollar strengthens against the Euro, this could have a negative effect on our European operating results when those results are translated into U.S. dollars. Any hypothetical loss in net sales could be partially or completely offset by lower cost of sales and lower selling expenses and general and administrative expenses that are denominated in Euros.

Substantially all of our purchases from our foreign suppliers are denominated in U.S. dollars. A precipitous decline in the value of the U.S. dollar could cause our foreign suppliers to seek price increases on the goods they supply to us. This could impact our gross margin if market conditions prevent us from passing those costs on to consumers. We do not currently use the derivative markets to hedge foreign currency fluctuations but may in the future consider entering into derivative financial instruments to mitigate losses associated with these risks. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.

Interest rate risk

In connection with the IPO in April 2012, our subsidiaries, Tumi, Inc. and Tumi Stores, Inc., amended our former credit facility by entering into the Amended Credit Facility, with Wells Fargo as lender and as collateral agent, consolidating the term loan facility and the revolving credit facility previously provided in our former credit facility into a single $70 million senior secured revolving credit facility. Under the Amended Credit Facility, borrowings bear interest payable quarterly or, in the case of loans subject to the LIBOR rate, monthly, bi-monthly or quarterly depending on the interest period for such loans. Borrowings under the Amended Credit Facility bear interest at a per annum rate equal to, at our option, the one, two, three or six-month (or such other period as Wells Fargo may agree) LIBOR rate plus a margin of 1.00% or 1.25%, or a base rate plus a margin of zero or 0.25%. The margin added to LIBOR, or the base rate, depends on our leverage at the time.

Because the Amended Credit Facility bears interest at a variable rate, we are exposed to market risks relating to changes in interest rates if we have a meaningfully large outstanding balance. As of June 24, 2012, the facility bore interest at the market LIBOR rate (0.25%) plus 100 basis points. We will carefully monitor the interest rates on our borrowings under the Amended Credit Facility.

We do not currently have any interest rate hedging activities in place, but may in the future engage in hedging activities, based on, among other things, market conditions. A 10% increase in the applicable interest rate would not have or would not have had a material effect on interest expense to us under the Amended Credit Facility.

Inflation

Inflationary factors such as increases in the cost of sales, including raw materials costs and transportation costs, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain our gross margin levels and our current levels of selling expenses and general and administrative expenses as a percentage of net sales if the sale prices of our products do not increase with any increase in cost of sales.


ITEM 4.	CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such

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date, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS


ITEM 1A.	RISK FACTORS

There have been no material changes in the risk factors disclosed by the Company in its Quarterly Report on Form 10-Q for the quarter ended March 25, 2012, filed with the SEC on May 23, 2012.


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

Purchases of Equity Securities by the Company

We used the net proceeds from our IPO to repurchase our preferred stock and preferred equity interests and 277,778 shares of our common stock owned by Doughty Hanson, our majority shareholder. These were the only purchases of our own equity securities we made in the quarter ended June 24, 2012. They are described in the following tables.



Period	Total Number of Common Shares Purchased	Average Price Paid per Common Share		Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Common Shares that May Yet Be Purchased Under the Plans or Programs (1)
March 26, 2012 through April 29, 2012	277,778	$	16.92	—	—
April 30, 2012 through May 27, 2012	0	—		—	—
May 28, 2012 through June 24, 2012	0	—		—	—
Total	277,778	$	16.92	—	—

Period	Total Number of Series A Preferred Shares Purchased	Average Price Paid per Series A Preferred Share		Total Number of Series A Preferred Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Series A Preferred Shares that May Yet Be Purchased Under the Plans or Programs (1)
March 26, 2012 through April 29, 2012	77,500	$	2,033.89	—	—
April 30, 2012 through May 27, 2012	0	—		—	—
May 28, 2012 through June 24, 2012	0	—		—	—
Total	77,500	$	2,033.89	—	—

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Period	Total Number of Preferred Equity Interest Units Purchased	Average Price Paid per Preferred Equity Interest Unit		Total Number of Preferred Equity Interest Units Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Preferred Equity Interest Units that May Yet Be Purchased Under the Plans or Programs (1)
March 26, 2012 through April 29, 2012	50,000	$	2,033.89	—	—
April 30, 2012 through May 27, 2012	—	—		—	—
May 28, 2012 through June 24, 2012	—	—		—	—
Total	50,000	$	2,033.89	—	—

(1) The Company does not have a repurchase plan or program.


ITEM 6.	EXHIBITS

The list of exhibits is set forth under “Exhibit Index” at the end of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

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SIGNATURE

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 this 7^th day of August.



	/s/ Jerome Griffith
	Jerome Griffith
	Chief Executive Officer, President and Director

	/s/ Michael J. Mardy
	Michael J. Mardy
	Chief Financial Officer, Executive Vice President and Director

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EXHIBIT INDEX



Exhibit Number		Description

31.1		Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Tumi Holdings, Inc. - FORM 10-Q - August 7, 2012

Attached files

Tumi Holdings, Inc. Reports