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EX-32.1 - PRINCIPAL EXECUTIVE OFFICER CERTIFICATION - Tumi Holdings, Inc.exhibit321-peocertificatio.htm
EX-23.1 - CONSENT OF GRANT THORNTON LLP - Tumi Holdings, Inc.exhibit231-consentofgrantt.htm
EX-31.1 - PRINCIPAL EXECUTIVE OFFICER CERTIFICATION - Tumi Holdings, Inc.exhibit311-peocertificatio.htm
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EX-23.3 - CONSENT OF KELTON RESEARCH, LLC - Tumi Holdings, Inc.exhibit233consentofkeltonr.htm
EX-23.2 - CONSENT OF NORTHSTAR RESEARCH PARTNERS - Tumi Holdings, Inc.exhibit232consentofnorthst.htm
EX-21.1 - LIST OF SUBSIDIARIES - Tumi Holdings, Inc.ex211listofsubsidiaries2014.htm
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EX-32.2 - PRINCIPAL FINANCIAL OFFICER CERTIFICATION - Tumi Holdings, Inc.exhibit322-pfocertificatio.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________________
FORM 10-K 
_______________________________________________________
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
o
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 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
  
Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value
  
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý  No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨   No  ý
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
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
ý
Accelerated filer
¨
Non-accelerated filer
¨
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
The aggregate market value of the outstanding shares of common stock held by non-affiliates of Tumi Holdings, Inc. at June 29, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, was $992,719,653 based on the closing price on the New York Stock Exchange on that date. For purposes of the foregoing calculation only, all directors and officers of the registrant and persons or entities that control, are controlled by, or are under common control of the registrant have been deemed affiliates.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
  
February 26, 2015
Common Stock, $0.01 Par Value
  
67,868,867 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the “Definitive Proxy Statement”) to be filed with the Securities and Exchange Commission relative to the Company’s 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.




TABLE OF CONTENTS
 
 
Page
PART I.
PART II.
PART III.
PART IV.














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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. Forward-looking statements reflect our current views with respect to, among other things, future events and performance. These statements may discuss, among other things, 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. We generally identify 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 under “Risk Factors.” For example, if general economic conditions and the availability of opportunities in the marketplace that complement our store strategy ultimately differ from those anticipated by management, the actual pace of our future store openings may differ materially from the pace contemplated by a forward-looking statement. Forward-looking statements speak only as of the date on which they are made. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable securities laws and regulations.

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PART I

ITEM 1. BUSINESS

Unless the context requires otherwise, the words “Tumi,” “the Company,” “we,” “us” and “our” in this Annual Report on Form 10-K refer to Tumi Holdings, Inc. and its subsidiaries. Unless otherwise specified in this Annual Report on Form 10-K, all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars.
Overview
We are a leading, growing, global, premium lifestyle brand whose products offer superior quality, durability, functionality and innovative design. We have grown at a compound annual growth rate of 20% in net sales and 23% in operating income from 2010 through 2014. We offer a comprehensive line of travel and business products and accessories in multiple categories, building on our strong heritage of producing high-end performance travel goods and business cases. 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 have a significant and loyal consumer base with our typical consumer owning multiple Tumi products.
As of December 31, 2014, we distribute our products globally in over 75 countries through approximately 1,800 points of distribution. We sell our products through a network of company-owned full-price stores and outlet stores, partner stores, concessions, shop-in-shops, specialty luggage shops, high-end department stores and e-commerce distribution channels. This multi-channel approach focuses on points of distribution that foster and enhance the Tumi brand. Our retail stores represent our core approach to brand-enhancing distribution, with locations in premium retail venues throughout the world including New York, Beverly Hills, San Francisco, Chicago, Paris, London, Rome, Tokyo, Munich, Moscow, Hong Kong, Shanghai, Beijing, Milan and Barcelona. 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, Italy and the Caribbean. Our global distribution network is enhanced by the use of our three logistics facilities in the United States, Europe and Asia.
We evaluate operating performance based on net sales and operating income in four operating segments: (i) Direct-to-Consumer North America; (ii) Indirect-to-Consumer North America; (iii) Direct-to-Consumer International; and (iv) Indirect-to-Consumer International. See Note 15 to our audited consolidated financial statements for additional information regarding our operating segments and revenues and long-lived assets by geographic region.
Our Competitive Strengths
 
Premium lifestyle brand.    We are a leading premium lifestyle brand and our products are frequently purchased by sophisticated professionals and frequent travelers. The strength of our brand is built on our heritage as a producer of high-end performance luggage, business cases and accessories. We have developed a loyal consumer base that we believe values the superior quality, performance, functionality and durability of our products, as well as the status and reputation of the Tumi brand. We believe the Tumi brand maintains its premium position and pricing as a result of our meticulous approach to product development that combines superior quality and durability with functional and innovative design. We are committed to five founding principles; excellence in design, functional superiority, technical innovation, unparalleled quality and world-class customer service. Our continued focus on our founding principles allows us to both reinforce our reputation for high quality products and strengthen our brand awareness.
 
Successful multi-channel global distribution model.    Our diverse geographic presence enables us to distribute our products globally through multiple flexible distribution channels, each with favorable economics. We have positioned our various distribution channels in geographies that we believe offer significant future growth potential. This has enabled us to enhance our brand, increase our margins and self-fund our expansion while limiting our exposure to economic and business dislocations in any single geography or distribution channel. We implement targeted region-specific approaches to opening additional doors in our various markets:
 
 
In North America and Western Europe, we focus on expanding our sales by opening company-owned retail locations, expanding our e-commerce business and expanding our Indirect-to-Consumer distribution channels.
 
 
In Asia, Eastern Europe and Central and South America, we focus on expansion in the Indirect-to-Consumer channel and increasing brand presence while maintaining maximum flexibility in our cost structure. We limit our capital investment in these regions by selecting distribution and wholesale partners that are experienced in working with premium brands, understand local real estate considerations and appreciate local demographics. We may consider pursuing a more direct sales model in certain markets in the future.


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As of December 31, 2014, we have approximately 1,800 global points of distribution, an increase of approximately 50% since 2006. In that time, we have more than tripled the number of company-owned retail locations and partner stores globally, expanded into several new geographical markets, more than tripled our net sales from outside North America, increased our door presence in international airports and expanded our online presence and sales.
 
Technical and design innovation.    Our products are created to achieve superior levels of design, performance and style. We are committed to innovation and design quality, and foster this commitment in many ways, including strategic investments in cutting edge tools, dies and materials. Our ongoing focus on improving the form and function of our products has enabled us to design innovative products that anticipate and address consumer needs and design trends on both functional and stylistic levels. We have introduced several proprietary luggage components and systems such as several patented luggage expansion systems and the Fusion Z ballistic nylon material. Our proprietary designs and product features are protected by over 325 design or mechanical patents, with over 40 additional patent applications pending. Rigorous materials and product testing in the U.S. and Asia further contribute to product quality and compliance with environmental standards. We regularly update our collections and collaborate with various designers on limited edition collections to provide consumers with new and distinctive product offerings. In the past several years, we have received numerous industry awards for innovation and design excellence.
 
Exceptional consumer loyalty.    We experience exceptional brand loyalty from our consumers, which we believe emanates from our longstanding commitment to functionality, quality, durability and customer service, which includes both excellent pre-sale customer service, as well as a global network of stores and service centers that provide exceptional after-purchase service. According to recent attitude and usage surveys, which we commissioned and which were conducted by Kelton Research, LLC and Northstar Research Partners in 2014 and 2013, respectively, customer satisfaction and brand perception continue to receive high ratings from participants. The 2013 study reinforced consumer loyalty and satisfaction with a very high net promoter rating, which measures the likelihood that a brand owner would recommend Tumi to another. Tumi’s net promoter score was on par with renowned industry leaders and was ranked #1 among competitor brands. Consistent with the prior year, the 2014 study found that Tumi owners are increasingly likely to recommend the brand to others, and Tumi product ownership has increased, particularly among younger consumers.
 
Strong revenue and operating income growth.    Our flexible and scalable operating model has allowed us to achieve a high level of self-funded growth without compromising our ability to efficiently manage our operating expenses. From 2010 to 2014, we achieved strong compound annual growth of 20% in net sales and 23% in operating income. We had a strong operating margin of 18% in 2014, 2013 and 2012. Our business generated strong cash flows from operations of $60.5 million, $63.2 million and $48.4 million in 2014, 2013 and 2012, respectively.
 
Experienced management team.    The senior management team has an average of 30 years of experience in the retail and the consumer packaged goods industries. This team has a demonstrable track record of delivering strong growth and increased profitability. The members of our team are all recognized leaders in their respective areas of expertise, as well as highly trained and educated professionals. Their experiences with leading retail and consumer packaged goods organizations have enabled us to deliver strong performance and growth, including during business cycle downturns.

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 as well as open our own travel retail stores. 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 additional premium outlet malls where we currently do not have a presence. Our store-opening strategy focuses on opening profitable company-owned retail locations, as well as retail locations that enhance our brand image. We have opened 80 company-owned stores since January 1, 2010 (8 stores in 2010, 11 stores in 2011, 19 stores in 2012, 17 stores in 2013 and 25 stores in 2014), bringing our total to 152 company-owned stores. While we may be unable to successfully open new company-owned stores according to plan, we have identified several locations for new company-owned stores and believe we have a market opportunity to continue to expand our company-owned store base over the long term. Additionally, we are beginning to evaluate the potential of pursuing a more direct sales model in Asia.

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Expand wholesale distribution globally.    We currently sell products in approximately 1,700 wholesale doors in over 75 countries. We plan to continue expanding wholesale distribution globally, with a focus on key markets in Asia (including mainland China, India, Japan and South 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) and increase wholesale and distribution opportunities as well as 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 selective licensing in 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 websites, 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. We also plan to continue to introduce new products to our successful brand extension lines, including eyewear, belts, outerwear and other accessories.
 
Improve our store operations.    Our average net sales per square foot in company-owned stores has increased from $821 in 2010 to $1,082 in 2014. We continue to focus on improving store efficiency, including through our retail performance maximization, or 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 sales per store by increasing conversion rates and units and dollars per transaction while enhancing the consumer experience.
 
Expand our e-business.    Our e-commerce business consists of our websites and certain of our wholesale customers’ 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. E-commerce sales grew by 31% during 2014 compared with 2013 and represented approximately13% of our net sales during 2014. We expect 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. In addition, we transitioned our North America web store to a more insourced model during the fourth quarter of 2014 and intend to transition our international web stores to a more insourced model during 2015. We believe this will improve our websites’ functionality and efficiency in the future. In addition, we plan to expand into more European countries.

Brand and Products
Our brand
We are a leading, growing, global, premium lifestyle brand which offers a variety of travel and business products and accessories in multiple categories. We position ourselves as a prestige brand at the top tier of the luggage and leather goods market and command a price premium compared with similar products in the travel and business cases categories.
We were an early user of ballistic nylon in the consumer market for travel and business goods. Prior to this innovative use for garment bags and business cases, ballistic nylon was used by law enforcement agencies for SWAT gear and cargo bags. The first items we introduced, garment bags and business cases, were made of a distinct soft construction that gave consumers a practical and functional alternative to hard constructed suitcases, attachés and leather briefcases. As short-trip business travel increased, our original designs became popular because of their lightweight and practical design, superior functionality and reliable durability.
While some of our original designs are still used today, we have been quick to adapt and update our product offerings to include new designs and features that address consumers’ changing needs, from luggage on wheels to portable laptop cases. The

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durability and practicality of our products, our innovative designs and our outstanding after-sales service have given our brand a reputation for design excellence, superior quality and leadership in the travel and business cases categories.
Today, we are committed to five founding principles: excellence in design, functional superiority, technical innovation, unparalleled quality and world-class customer service. We have become a brand of choice for frequent travelers, celebrities, world leaders, professional athletes and other discerning consumers who we believe look for the best brand and products.
Our products
Our products fall into three major categories: travel, business and accessories:
 
Travel products.    Travel products comprised approximately 43%, 44% and 45% of our net sales in 2014, 2013 and 2012, respectively. This category consists of wheeled travel products, the majority of which are classified as “carry-on” styles and packing cases, as well as soft styles without wheels such as satchels, garment bags, boarding totes and cross-body bags.
 
Business cases.    Business cases comprised approximately 43%, 42% and 41% of our net sales in 2014, 2013 and 2012, respectively. Primarily consisting of soft business cases, this category also includes wheeled business cases, backpacks, messenger bags, day bags and totes.
 
Accessories.    Accessories comprised approximately 14% of our net sales in each of 2014, 2013 and 2012. This broad category includes a wide array of lower priced and often daily use items, with wallets and card cases being the most popular items purchased. Additional accessory categories include agendas and planners, passport cases, mobile covers, umbrellas and travel accessories such as electric current adapters, key fobs, packing accessories, toiletry kits and foldable travel totes. Accessories also encompass brand extensions that address the lifestyle aspect of our brand, including belts, outerwear and, most recently, sunglasses and eyewear. We believe we can grow our accessories business by adding new materials and styles, new assortments of products and expanding wholesale distribution. We also believe this category can be instrumental in reaching new consumers as well as providing additional sales to existing customers.
We offer products from each of these three major categories in the following key product lines:
 
Core.    Products targeted at business professionals and frequent travelers primarily concerned with practicality, durability and functionality.
 
Premium.    Products targeted at high-income consumers looking for more distinctive products using the highest quality materials.
 
Trend/sport.    Products targeted at younger consumers that are early adopters seeking bold, modern designs.
 
Women.    Products targeted at female consumers looking for business and travel items that are high quality and durable, yet more feminine and stylish.
Within each of our core, premium and trend/sport lines we offer products that are targeted to appeal to both men and women. Products in our women’s line are designed to appeal specifically to female consumers. They are designed with an eye for the business woman who travels and whose needs blend functionality, durability, practicality and style.
Our full-price product line is comprised of an average of 900 stock keeping units, or SKUs. Approximately 30% of these SKUs rotate on a seasonal basis to address color trends for women’s products, spur impulse purchases for holiday and gift giving, remain current with electronic accessories and inject excitement and continual interest in our retail stores.
We also have a separate collection of travel products, business cases and accessories designed for our outlet channel, or DFO. Our DFO products target highly price-sensitive consumers. Our profitable outlet channel not only offers DFO products, but also liquidates discontinued styles and colors from our full-price collections.
Our products are constructed using a variety of materials depending on the specific collection and functional need. We primarily use nylon and other synthetic materials in a variety of weights and finishes, polycarbonate for lightweight luggage and a wide assortment of leathers.
Sales
As of December 31, 2014, we distribute our products globally in over 75 countries through approximately 1,800 points of distribution. We utilize multiple channels, including company-owned retail and outlet stores, partner stores, third-party wholesale, e-commerce and special markets channels. Such varied distribution allows our brand to fully service existing consumers and showcase the Tumi lifestyle, while also introducing our brand to potential new consumers. We focus on

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exercising strict control over our distribution channels in order to maintain and develop the brand’s premium image. In 2014, the Direct-to-Consumer North America channel accounted for approximately 46% of our net sales and the Direct-to-Consumer International channel accounted for approximately 5% of our net sales, while the Indirect-to-Consumer North America channel accounted for approximately 21% of our net sales and the Indirect-to-Consumer International channel accounted for approximately 28% of our net sales. In 2014, approximately 67% of our net sales were attributable to the North America region, approximately 17% were attributable to the Asia-Pacific region, approximately 15% were attributable to the Europe, Middle East and Africa, or EMEA, region and approximately 1% were attributable to the Central and South America region.
Direct-to-Consumer
Full-price stores.    This channel consists of full-price company-owned stores, which present only Tumi-branded products. Such stores allow the consumer to experience our full range of products and the lifestyle experience of our brand and enable us to test new products and brand extensions. As of December 31, 2014, we had 111 full-price company-owned stores around the world (99 in North America and 12 in Europe) in a variety of locations including high-end shopping districts, high-traffic neighborhoods, shopping malls and airports. These company-owned stores also serve as customer service points that perform or arrange for repairs, which further enhances our reputation for world-class customer service. A new company-owned store often leads to overall growth within a market and we have historically experienced little or no cannibalization of other distribution channels when we have opened new company-owned stores in a particular area served by other channels. We focus on opening company-owned stores in a manner that maximizes sales productivity and enhances the consumer experience. Our average company-owned store size, including outlet stores, is 1,591 square feet with an average of 1,080 square feet of selling space. Our company-owned stores, including outlet stores, had an average net sales of $1,082 per square foot for the year ended December 31, 2014.
Outlet stores.    As of December 31, 2014, we operated 41 branded outlet stores in premium outlet malls in the U.S., the United Kingdom, France, Germany, Spain, Italy and the Netherlands, which sell our DFO products. Our outlet channel also provides a brand-enhancing environment for the disposition of our discontinued products. They also serve as a point-of-entry into the brand for new consumers interested in the quality of Tumi that want to test the product at a lower price point for its quality and value proposition.
We believe there is a significant opportunity to grow our store base as we believe both the North American and international markets can support additional company-owned full-price and outlet stores. We opened 25 stores in 2014 and expect to continue to open company-owned stores in the foreseeable future.
E-commerce.    Our direct-to-consumer e-commerce websites operate in North America, the United Kingdom, and Germany. Our online platform and virtual stores are extensions of our brand and points of distribution, serving as informational resources, an important marketing tool and showcase of the brand. During the year ended December 31, 2014, our websites had over twelve million visits with an average of five pages viewed per visit, a conversion rate of approximately 1% and an average order size of approximately $300.
Indirect-to-Consumer
Wholesale.    In the wholesale setting, we sell to high-end department stores, luggage, travel and business specialty stores, Tumi-branded boutiques, shop-in-shops and duty-free airport retailers. As of December 31, 2014, including partner stores, we had approximately 700 wholesale points of distribution in North America and approximately 1,000 wholesale points of distribution internationally. We continue to focus on point-of-sale efficiency and operations and were able to increase average net sales per door from 2013 to 2014. We have demonstrated that we can increase our wholesale volume through improved assortment management, new product initiatives, careful product presentation, such as branded shop-in-shops, and marketing. By moderating direct investments, streamlining our support and sales activities and improving brand management techniques, we have evolved our wholesale business into a profitable channel with sustainable growth opportunities.
Partner stores.    As of December 31, 2014, we had approximately 150 partner stores, which are operated by local distributors or retailers, carry only Tumi products, have the same appearance as company-owned full-price stores and are governed by strict operating guidelines that we dictate. These stores provide us with a capital efficient format for reaching the global consumer, while maintaining our ability to control the quality of the consumer experience. We partner with numerous distributors and have arrangements to operate partner stores in North America, Australia, Brazil, China, Ecuador, Finland, Greece, Hong Kong and Macau, India, Indonesia, South Korea, various countries in the Middle East, the Philippines, Russia, Singapore and Malaysia, South Africa, Taiwan, Thailand, Turkey, the Ukraine, Ireland and Vietnam. Our distributor in the United Kingdom has rights to distribute our products to wholesale customers in the United Kingdom, with the exception of airport stores in that territory. We monitor our relationships with our partner store operators very closely, requiring stringent

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adherence to Tumi standards of branding and marketing. In Japan, we operate our business through a joint venture, Tumi Japan, which is responsible for developing the Japanese market through a jointly-developed business plan and is actively growing the brand in retail and department stores.
E-commerce.    We sell to third-party e-commerce sites such as Amazon.com and Zappos.com, as well as the e-commerce sites of certain of our wholesale customers, including those of major department stores such as Neiman Marcus, Saks Fifth Avenue and Nordstrom. The Tumi Japan joint venture also operates an e-commerce site. Additionally, we sell selectively through a few membership websites such as Rue La La, Gilt and Vente Privée. We use these websites primarily for disposition of excess inventory, but also to strategically reach younger female consumers, a consumer group we believe offers significant growth opportunity.
Special markets.    Our business-to-business channel targets corporations and incentive marketers for corporate gifts, sales-incentive programs and loyalty and membership rewards programs.
Sales personnel
Our sales personnel are responsible for developing the wholesale channels, principally premium department and specialty stores, while ensuring our company-owned and partner stores are maintained and operated according to our guidelines. All company-owned and partner stores are overseen by account executives who regularly visit these locations to ensure that each store environment is brand-enhancing. We have sales offices in New York, Paris, Milan, Hong Kong and Tokyo with employees responsible for covering local accounts and assisting with presentation, training and inventory management within various regions. Our sales force sells directly to consumers and accounts in North America, Japan and Western Europe. Distributors that manage and run our partner stores sell directly to wholesale accounts in the United Kingdom, Russia, Greece, Turkey, South Africa, the Middle East, Australia, Central and South America and the Asia-Pacific region(excluding Japan).
Training
Our in-store training program for retail associates is designed to support an increase in conversion rates in our stores and emphasizes product training, enhanced selling technique awareness, store manager training, and staff development. The program consists of both an online training regimen and in-person training sessions on customer service and improving the consumer experience.
Senior members of our management team receive training on management and organizational effectiveness as part of their development.
Marketing
Approximately 3% to 5% of our net sales is spent on marketing. Our marketing strategy seeks to deliver a dynamic and consistent brand message, attract new consumers, increase purchase frequency and provide valuable information to existing and new consumers. Product introductions are the primary marketing vehicle for our brand. New products are developed to ensure the brand remains current with industry trends, remains competitive by addressing changes in airline regulations and consumer preferences, provides additional designs and functionality to improve the user experience and is ultimately perceived as durable, stylish and current.
Inspiration for new products comes from a variety of sources, including trend and forecasting services, consumer questionnaires and surveys, direct feedback from retail stores, market or trade feedback from wholesale accounts and through monitoring of our competition. Our product management team regularly analyzes sales trends and gathers store and market feedback. A core part of our marketing strategy consists of quarterly innovation meetings held by the product management team to provide direction and business needs or opportunities to the design team.
The development cycle varies according to product, with timelines ranging from 9 to 18 months. Approximately the first two-thirds of the development cycle is devoted to product design, development, sampling and corrections, while the remaining portion of the development cycle is devoted to production, including material procurement, manufacturing and shipping.
We introduce new products to the wholesale market three times a year during “market weeks” in the fall, holiday and spring. These market weeks provide forecasting and product planning information to the sourcing and planning teams. New products are launched on a seasonal basis in our branded full-price channels in order to continue the flow of new products to stores and to help increase repeat traffic and more frequent purchasing. Most of our products are sold in all of our distribution channels.

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Advertising and Promotion
We employ an internal team of professionals that market our brand through visual merchandising, public relations, social media, digital marketing, content creation and distribution, and consumer relationship management.
Visual merchandising.    With approximately 300 company-owned and partner stores around the world as of December 31, 2014, our store fronts are our primary vehicle to communicate product launches, drive retail store traffic and engage the consumer. Window campaigns, which coincide with product launches, are designed by the corporate visual merchandising team with the help from time to time of external agencies specializing in window design and visual merchandising. These agencies are responsible for the sourcing, production and shipping of the window themes around the world. The campaigns change every four to six weeks depending on the product launch period. The visual merchandising team is also responsible for the interior merchandising of our stores, provides direction for product placement and rotation, orders props and display tools to help improve the lifestyle presentation of the merchandise, and generally enhances our stores’ appearance and environment to be more appealing and enticing to the consumer.
Public relations.    We employ public relations specialists and agencies around the world to help generate press coverage for our brand. The focus is on product placement in editorial sections of fashion, lifestyle, shopping and travel publications. Additionally, the agencies will seed business stories to the publications to secure coverage of new store openings, brand-growth strategies or new collaborations and brand partnerships. Our public relations strategy is directed by the brand’s corporate team and executed in local markets by individual agencies.
Social media.    In addition to traditional print media, social media is becoming an area of increased focus. Blogs, bloggers and social networking websites are becoming increasingly important to reach design and trend influencers, consumers and the press. Marketing campaigns are developed to have strong social media content, including video segments, in order to increase brand followers on Facebook, Instagram, Twitter and YouTube directly via our websites, as well as through strategic partnerships where there is an opportunity to leverage other brands’ or companies’ fan-bases. We encourage consumer engagement in social media and also use social media to both communicate and elevate the brand’s reputation for superior quality and world-class customer service.
Digital Marketing. Digital marketing is primarily employed for driving consumer traffic and conversion on the tumi.com global websites. Digital marketing includes e-mail marketing, paid search, search engine optimization, consumer re-targeting marketing and affiliate marketing. These are all activated for Tumi aware customers who are actively shopping online for Tumi products. Tumi uses a combination of in-house talent as well as a digital marketing agency to execute these initiatives.    
Consumer relationship management.    Consumer relationship management is a growing priority at Tumi, as we have an omni-channel customer who expects to have a channel agnostic relationship with the Tumi brand. With a database of over two million names, the mission of our consumer relations team is to expand the database and increase purchase frequency, thereby optimizing the overall lifetime dollar value of each consumer. While privacy concerns and government regulations have made it more difficult to obtain consumer names in traditional retail formats, direct mail, e-mail, and customer service and relationship programs in individual stores present an opportunity to grow our consumer database. We are also working closely with department stores to target consumers and build a database of those who purchase Tumi products in third-party locations. We believe our consumers tend to be loyal collectors of our products, and we believe there are significant opportunities to increase repeat purchases and introduce existing consumers to new product categories.
Product Design and Development
Our products are priced at a premium when compared to many other travel and accessories brands. In order to command such a premium, products are developed to achieve superior levels of design, quality and performance. Our continuing product evolution and industry leadership position is driven by our commitment to innovation, a key principle for a performance and product-driven company. We believe each of our products’ success is the direct outcome of our ongoing product development efforts, including strategic investments in cutting edge tools and dies, which we believe result in superior merchandise that emphasizes quality, function, performance and design. For example, we have introduced several proprietary luggage components and systems such as a patented luggage expansion system and the Fusion Z ballistic nylon material. In the past several years, we have received numerous industry awards. As of December 31, 2014, we maintain a team of over 15 in-house design professionals and utilize outside industrial design resources when appropriate. Materials testing in the U.S. and Asia ensures quality as well as compliance with environmental standards. Annually, we make significant investments in tools and materials in order to improve the form and function of our products. Our expenditures for product design and development were $6.9 million, $5.8 million and $4.5 million for the years ended December 31, 2014, 2013 and 2012, respectively.

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Intellectual Property.    Our proprietary designs are protected by over 325 design or mechanical patents, with over 40 additional patents pending. We are in control of the intellectual property used in connection with the design, production, marketing and distribution of our products, both in North America and internationally. We own and maintain worldwide registrations for trademarks in relevant classes of products in most of the countries in which we sell our products. We police our trademarks and pursue infringers both domestically and internationally. We also strategically pursue counterfeiters domestically and internationally through leads generated internally, as well as through our network of business partners around the world. Our material trademarks will remain in existence for as long as we continue to use and renew them on their expiration dates. Our material mechanical and design patents generally have a duration of 20 years and 14 years, respectively, from the date they become effective. The expiration of any of these patents is not expected to have a material adverse effect on our business.
Our product design and development efforts have resulted in the following notable product achievements and innovations:
 
1999 Tracer program.    Individually-coded products that authenticate an item as a genuine Tumi product and facilitate the return of lost baggage.
 
2000 Fusion Z nylon.    Now synonymous with the Tumi name, we reengineered ballistic nylon and fused it with advanced coating technology to create a fabric that is at least 50% more abrasion-resistant than its closest competitor.
 
2001 Omega closure system.    We modernized the zipper with a distinct closure system that significantly reduced the risk of damage to the most vulnerable and abused part of the bag.
 
2003 Gen 4.0 briefs.    We introduced the next generation of our classic business cases which deliver enhanced features and functions, continuing our reputation for design excellence. This collection has 6 associated patents.
 
2004 T3 bags.    From the top of the asymmetrical aluminum telescoping handle to the bottom of the aggressively automotive-styled wheels, these bags deliver a cutting edge profile and have won several design and consumer-recognition awards. This collection has 26 associated patents.
 
2006 Tumi+Ducati.    An extension of the T3 collection designed as part of a sponsorship deal with the Ducati race team, this line combines two performance brands.
 
2006 LXT.    We launched a premium line of luggage and related accessories with higher price points and innovative designs with increased functionality and performance.
 
2007 Townhouse.    This collection was a premium travel and business collection made of ballistic nylon and Italian leather and was awarded 10 design patents.
 
2010 Vapor.    We are significantly ahead of the market with the introduction of a high-performance alloy of ABS (Acrylo Nitrile Butadiene Styrene) and polycarbonate cases built around three principles: lightweight, fluid movement and superior design. A Vapor collaboration with the artist Crash resulted in commercial success and one patent awarded.

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2010 Bravo.    We expanded our offerings for the younger consumer with a collection that was granted 2 patents.
 
2011 Lexus LFA.    The two-piece luggage line was offered in select markets for the Lexus LFA car. The travel cases, styled using components directly related to the appearance of the car, were made from aluminum and carbon fiber-like materials.
 
2012 Tumi+Dror.    A collaborative collection with the international designer Dror Benshetrit which includes travel and business cases and day bags. The collection offers easy transformation in shape and size for added functionality. Winner of the 2013 “Red Dot” product design competition for best product design in the Fashion, Lifestyle and Accessories category.
 
2012 Tegra-Lite. An exceptionally lightweight, yet highly durable travel collection made from Tegris, a material exclusive to Tumi in the travel category. Tegris was developed by Milliken, for use as body armor, race car wind deflectors and football pads used by the NFL. This high-tech polypropylene material offers exceptional durability and protection, while lightweight. The Tegra-Lite collection utilizes the Tumi patented Dura-Fold construction technique created by the Tumi design team.
 
2013 Ticon.    A collection of bags and wallets that features the Tumi ID Lock. This special lining in credit card slots and bag pockets shields electronically coded personal data on credit cards and passports from RFID scanners increasingly used by thieves to steal personal security information.
 
2013 Anna Sui for Tumi.  A collection of feminine travel items and day bags inspired by the whimsical floral designs from noted fashion designer Anna Sui. This unique and limited collection created public relations value as well as helped drive more female consumers into the brand.
 
2013 Astor.  This new collection updated the Townhouse collection, our most premium assortment originally launched in 2007. Updated styling and materials created a more sophisticated and premium priced collection positioned approximately 80-100% higher than the core Tumi products.
 
2014 Alpha collection relaunches.   Tumi’s most famous black ballistic travel collection (Alpha) was updated in the first quarter of 2014 with over 30 upgrades and improvements from the prior version. This collection brings the ultimate in Tumi functionality to the next level of convenience and weight savings with 14 patented design elements that build on Tumi’s reputation for outstanding quality, functional superiority and technical innovation.
 
2014 Tegra-Lite Max. The next incarnation of Tegra-Lite. This premier travel assortment incorporates elements that showcase both technical innovation and design intelligence, our most fully functional hardside case. The Tegra-Lite Max collection has key advancements including an exterior U-Zip Pocket, expansion capabilities, double 360 degree wheels, and a new Durafold construction.
 
2014 CFX. A collection of beautifully made high performance, soft travel bags and accessories. Constructed from the most advanced soft carbon fiber, CFX, is symbolic of Tumi’s heritage of design excellence pushing the boundaries of technical innovation.

Sourcing, Manufacturing and Logistics
We outsource the manufacture and assembly of all our products, but manage the entire manufacturing process including product design and approval. Our manufacturing team of over 90 full-time employees as of December 31, 2014, located mainly in Asia with a few in the U.S., is responsible for managing contractor relationships, logistics, production oversight, quality control and certain elements of new product development. Additionally, we often specify and procure proprietary raw materials and supervise product assembly and shipping to our distribution facilities. By maintaining both centralized and local control over product development, sourcing and distribution, we believe we are able to protect our proprietary designs and distinct components and ensure that consumers will continue to differentiate our products from those of our competitors.
In 2001 and 2002, we moved all of our manufacturing, assembly and procurement functions to Asia. In doing so, we established a cost-effective manufacturing model in which independent contractors produce our products based on our proprietary designs. This provides a flexible and quality-assured production base which allows us to bring our broad range of products to market rapidly and efficiently. Additionally, we have had long-term relationships of over 10 years with many of our contract manufacturers.
We source all of our manufacturing and assembly functions at over 20 third-party Asian manufacturers in China, Vietnam and Thailand. In 2010, we began to manufacture in the Dominican Republic as a sourcing diversification strategy which takes advantage of Caribbean free trade arrangements. This western hemisphere diversification strategy enables a shortened time to market in instances where product sales might otherwise require the utilization of costly airfreight to efficiently serve consumer demand.

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We dual source many of our raw materials and finished goods, which helps maintain competitive pricing and reduces supply chain risk. Raw materials include, among others, ballistic nylon fabric, plastic injected molded parts, nylon and stainless steel zipper systems, aluminum handle tubing systems, leather, polycarbonate sheeting materials, high quality waxed linen, high quality textiles and other high tensile strength materials used in the construction of our products. These materials are readily available from several manufacturers located around the globe. We purchase our finished goods on open accounts from our suppliers and have arrangements with them which require payment between 30 to 45 days after shipment.
Our sourcing organization is cost-effective and is a critical competitive advantage in our manufacturing process. Our foreign sourcing expertise allows us to maximize production flexibility and create high-quality products while minimizing our investment in working capital and capital expenditures. We have product development offices in Taiwan and Hong Kong and production staff in Shenzhen, China as well as quality assurance staff located at all key factories. Responsibilities have shifted from the U.S. to our Asia staff so that information is closer to the factory, which keeps overhead cost increases at a minimum as we continue to grow.
We manage our working capital closely. We are able to collect trade receivables from our Indirect-to-Consumer accounts within 45 days on average. Our Direct-to-Consumer retail network generates cash as sales are made. Terms for our Indirect-to-Consumer North America accounts range from 30 to 60 days from point of shipment, although a group of accounts pay cash in advance or pay via credit card. Terms for our Indirect-to-Consumer International accounts range from 30 to 90 days. From time to time, we have increased our inventory levels to meet new product launches or promotions, but have financed these increases through internally generated funds. Similarly, our company-owned store expansion efforts are financed through internally generated funds. Large increases in inventory levels have been transitory and infrequent. We manage our trade payables carefully and through longstanding relationships with our suppliers.
Our main domestic distribution facility is a company-owned 364,265 square foot operations center in Vidalia, Georgia. The Vidalia facility operates within a free-trade zone established in connection with the port of Savannah, Georgia. Additionally, we have expanded our German warehousing capabilities to serve our European operations and contracted with a third-party warehousing facility in Thailand to better serve our expanding international operations. During 2013, we secured additional warehouse space in Thailand to accommodate the robust growth in demand for our goods throughout Asia.
Our operating and application systems facilitate the global planning, sales and distribution of our products to our consumers. In 2002, we replaced our then existing software with an enterprise-wide installation of the SAP Enterprise Resource Planning system, or SAP. Today, our systems link the North American, European and Asian businesses, which results in concise information flow. SAP also provides a technological platform for our future revenue and supply chain growth initiatives. We have an integrated supply chain operation which allows seamless communication, consistency of data and real-time information to and from our Asian operations and sourcing team.
Warranty and Repair
The quality and craftsmanship that goes into our products is a critical component of our brand’s appeal. We believe that our after-sales service sets us apart from our competition and contributes to our extremely loyal consumer base. To maintain the highest standards for our after-sales service, we invest several million dollars annually in after-sales service and maintain service facilities around the world. In addition, many basic repairs are completed at the retail store level. In North America, all major repair operations are processed in our Vidalia, Georgia facility where, as of December 31, 2014, 59 highly-trained technicians are capable of repairing or reconstructing a Tumi product, if needed. We also maintain a repair facility in our German customer service center and several contract repair service centers in the UK, Asia and the Middle East. The repair and after-sales service organizations provide valuable data to our designers and engineers which enhances our product component and construction evaluation and improvement.
Our warranty policy provides for one year of worry-free service as well as an additional warranty against manufacturers’ defects or flaws in construction for between two and five years, depending on the product line. We maintain a toll-free hotline connected to after-sales service representatives who evaluate each consumer’s needs on a case-by-case basis. Their mission is to always satisfy the consumer to ensure continued loyalty to our brand. Additionally, we maintain a loaner bag program for consumers who need a repair in the instance they are on-the-go. Details of our warranty policy are provided on our website. Consumers are encouraged to register their bags to ensure a complete record is maintained and easily located in the Tumi tracer program. After-sales service is a critical component of our brand strategy.

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Our Corporate History
Tumi was founded in 1975 by a former Peace Corps volunteer. Tumi began by importing leather bags from South America. In 1983, Tumi created what is now known as the iconic Tumi product line of black ballistic travel bags and business cases.
In 2004, Tumi was acquired by Doughty Hanson. Tumi Holdings, Inc. was incorporated in September 2004 in Delaware in connection with the acquisition.
On April 19, 2012, the Company’s common stock began trading on the New York Stock Exchange, or NYSE, under the symbol “TUMI.”
Available Information
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports available through our website, free of charge, as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission. Our Internet address is http://www.tumi.com. The contents of our website are not part of this annual report on Form 10-K, and our Internet address is included in this document as an inactive textual reference only. 
Competition
We have a variety of competitors in the categories and geographic regions in which we operate. We believe that all of our products are in similar positions with respect to the number of competitors they face and the level of competition within each product category. Depending on the product category involved, we compete on the basis of a combination of design, quality, function, price point, distribution and brand positioning.
Our biggest global competitor in the travel goods category is Rimowa, a German company. We also compete with Samsonite in the EMEA and Asia-Pacific regions. In the premium luggage and business cases category, we compete with Bally, Burberry, Dunhill, Ferragamo, Gucci, Louis Vuitton, Montblanc, Porsche and Prada. In the business case category, we also compete with smaller brands in specific markets. In the U.S., our main competitors are Victorinox and Briggs and Riley. In the EMEA region, our key competitors are Mandarina Duck and Piquadro. In the Asia-Pacific region, competition is fragmented. In Japan, our two key competitors are Porter and Ace Brand. We also compete with Coach across the business cases and accessories categories.
We believe that our primary competitive advantages are favorable consumer recognition of our brand amongst our targeted demographic, exceptional quality and durability, consumer loyalty, product development expertise and widespread presence in premium venues through our multi-channel distribution. We may face new competitors and increased competition from existing competitors as we expand into new markets and increase our presence in existing markets.
Employees
As of December 31, 2014, we employed 1,484 people, including both full-time and part-time employees. Of these employees, 696 were engaged in North American retail selling positions, 228 were employed in the EMEA region (including retail), 99 were engaged in product development, quality control and sourcing in Asia, 231 were employed at our distribution center in Vidalia, Georgia and 230 were engaged globally in corporate support and administrative functions. None of our employees are represented by a union. We believe that relations with our employees are satisfactory and we have never encountered a strike or significant work stoppage.
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 2014 and 2013, fourth quarter net sales represented approximately 31% and 32% of our total annual net sales. Operating income in the same periods represented approximately 40% and 37% of our total annual operating income, respectively.
See “Risks Related to Our Business—Our results of operations are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of our common stock.”

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Government Regulation
Many of our imported products are subject to existing or potential duties, tariffs or quotas that may limit the quantity of products that we may import into the U.S. and other countries or impact the cost of such products. To date, we have not been restricted by quotas in the operation of our business, and customs duties have not comprised a material portion of the total cost of sales. In addition, we are subject to foreign governmental regulation and trade restrictions, including retaliation against prohibited foreign practices, with respect to our product sourcing and international sales operations. We are also subject to environmental laws and regulations, including restrictions on the use of certain materials in our products. For example, the California Safe Drinking Water and Toxic Enforcement Act of 1986, or Proposition 65, requires us to meet strict lead specifications in our products. The Consumer Product Safety Improvement Act of 2008 bans the sale of certain products containing lead in excess of certain maximum standards, and imposes other restrictions and requirements, including importing, testing and labeling requirements. In the European Union, we must comply with Directive 2002/95/EC, Restriction on Use of Hazardous Substances, or RoHS, which sets forth strict rules regarding defined limits on the amount of certain hazardous substances, including lead, mercury and cadmium, in products put on the European market. Finally, the European Union’s regulatory system known as Registration, Evaluation and Authorization of Chemicals, or REACH, requires us to register any chemicals we import and evaluate their potential impact on human health and the environment. Under RoHS and REACH, significant market restrictions could be imposed on the current and future uses of chemical products that we or our third-party suppliers use as raw materials or that we sell as finished products in the European Union.


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ITEM 1A. RISK FACTORS
Risks Related to Our Business
Our business is sensitive to consumer spending and general economic conditions.
Consumer purchases of discretionary premium items, which include all our products, may be adversely affected by economic conditions such as employment levels, wage and salary levels, trends in consumer confidence and spending, reductions in consumer net worth, interest rates, inflation, the availability of consumer credit and taxation policies. Consumer purchases in general may decline during recessions, periods of prolonged declines in the equity markets or housing markets and periods when disposable income and perceptions of consumer wealth are lower, and these risks may be exacerbated for us due to our focus on discretionary premium items. A downturn in the global economy, or in a regional economy in which we have significant sales, could have a material, deleterious effect on consumer purchases of our products, our results of operations and our financial position, and a downturn adversely affecting our affluent consumer base or travelers could have a disproportionate impact on our business. In particular, there continues to be volatility in the European markets and there are no assurances that the European or global economy will continue to recover. If the European or global economy weakens or deteriorates, there will likely be a negative effect on our net sales in Europe and globally unless and until economic conditions in that region improve and the prospects of national debt defaults in Europe decline. Further or future downturns may adversely affect traffic at our stores and other retail locations, and at the retail locations of our wholesale customers, and could materially and adversely affect our results of operations, financial position and growth strategy.
A decrease in travel levels could negatively impact sales of our travel goods.
Sales of travel goods, which comprised approximately 43% of our net sales in 2014, are significantly dependent on travel as a driver of consumer demand. The growing “wealth effect” in emerging markets and the growth in low-cost airlines in both developed and emerging economies, among other factors, have contributed to increased travel levels and increased spending on travel goods over the past ten years, which has in turn contributed to our growth. A significant portion of our consumers travel by air, and many of our products are targeted at travelers in general and at air travelers in particular. The travel industry is highly susceptible to certain kinds of events that can depress travel generally and accordingly depress demand for travel and travel-related products, including outbreaks of contagious disease, natural disasters, acts of war, terrorist attacks or other catastrophic events. Additionally, adverse changes in global economic conditions can have a negative effect on business and leisure travel. If the travel industry is impacted, either globally or in any region in which we have significant operations, by events that depress travel levels, sales of our travel goods could decline significantly, which could have a material adverse effect on our results of operations and financial position.
We rely on independent manufacturers and suppliers.
We outsource the manufacture and assembly of all our products to companies located in Asia and the Caribbean. We do not control our independent manufacturers and suppliers or their labor and other business practices. Violations of labor, environmental or other laws by an independent manufacturer or supplier, or divergence of an independent manufacturer’s or supplier’s labor or other practices from those generally accepted as ethical or appropriate in the U.S., could disrupt the shipments of our products or draw negative publicity for us, thereby diminishing the value of our brand, reducing demand for our products and adversely affecting our net income. Additionally, since we do not manufacture our products, we are subject to risks associated with inventory and product quality-control.
Further, we have not historically entered into written manufacturing contracts with our manufacturers. Identifying a suitable manufacturer is an involved process that requires us to become satisfied with the prospective manufacturer’s quality control, responsiveness and service capabilities, financial stability and labor practices. While we have business continuity and contingency plans for alternative sourcing, we may be unable, in the event of a significant disruption in our sourcing, to locate alternative manufacturers or suppliers of comparable quality at an acceptable price, or at all, which could result in product shortages or decreases in product quality, and adversely affect our net sales, gross margin, net income, customer relationships and our reputation.
We depend on the strength of the Tumi brand.
We currently derive substantially all of our net sales from sales of Tumi branded products. The reputation and integrity of the Tumi brand are essential to the success of our business. We believe that our consumers value the status and reputation of the Tumi brand, and the superior quality, performance, functionality and durability that our brand represents. Maintaining and enhancing the status and reputation of the Tumi brand image are also important to expanding our consumer base. Our continued success and growth depend on our ability to protect and promote the Tumi brand, which, in turn, depends on factors such as the quality, performance, functionality and durability of our products, the image of our company-owned and partner stores, our

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communication activities, including advertising and public relations, and our management of the consumer experience, including direct interfaces through customer service and warranty repairs. We may need to make substantial investments in these areas in order to maintain and enhance our brand, and such investments may not be successful. Additionally, to the extent our third-party distributors fail to comply with our operating guidelines, we may not be successful in protecting our brand image and controlling our store appearance. Product defects, product recalls, counterfeit products, significant discounts by wholesalers, ineffective marketing and local labor practices are among the potential threats to the strength of our brand. To protect our brand’s status, we may need to make substantial expenditures to mitigate the impact of such threats. In addition, if we fail to continue to innovate so that our products are no longer deemed to achieve superior levels of function, quality and design, or to otherwise be sufficiently distinguishable from our competitors’ products, or if we fail to manage the growth of our store base in a way that protects the high-end nature of our brand, the value of the Tumi brand may be diluted, and we may not be able to maintain our premium position and pricing or sales volumes, which could adversely affect our financial performance and business. In addition, we believe that maintaining and enhancing our brand image in new markets where we have limited brand recognition is important to expanding our consumer base. If we are unable to maintain or enhance our brand in new markets, then our growth strategy could be adversely affected.
We may be unable to successfully open new store locations in a timely and profitable manner which could harm our results of operations and our growth strategy.
From January 1, 2010 through December 31, 2014, we increased our number of company-owned stores from 84 to 152. Our growth strategy depends, in part, on our ability to continue to successfully open and operate new company-owned stores. Such ability depends on many factors, some of which are not in our control, including our ability to:
 
identify and obtain suitable store locations;
 
negotiate acceptable lease terms, including desired tenant improvement allowances;
 
hire, train, and retain qualified store personnel and field management;
 
assimilate new store personnel and field management into our corporate culture;
 
design stores that appeal to the markets in which they are located;
 
source sufficient inventory levels; and
 
successfully integrate new stores into our existing operations and information technology systems.
Our growth strategy includes plans to open new company-owned stores in or near areas where we have existing stores. To the extent we open new stores in markets where we already have stores, we may experience reduced net sales in those existing stores. The success of new store openings may also be affected by our ability to initiate marketing efforts in advance of or after opening our first store in a particular region. Additionally, in opening new company-owned stores, we incur start-up costs and early-stage operating expenses, which may be higher than we expect. New stores may post initial losses and often have lower margins during their early years of operations, which could strain our resources and adversely impact our results of operations. It often takes several years for a new company-owned store to achieve margins comparable with our more mature company-owned stores. Our new company-owned stores may not be received as well as our existing stores and may not meet our financial targets or generate the same profit levels as our existing stores within the time periods that we estimate, or at all. The amount of net sales for any store during its first year of operation is highly dependent on economic conditions in the store’s particular geography, competition and other factors that make it difficult to predict net sales on a store-level basis. If our stores fail to achieve, or are unable to sustain, acceptable net sales and profitability levels, our business may be materially harmed and we may incur significant costs associated with closing or relocating our stores. Further, as we open new company-owned stores, our operations will become more complex, and managing them will become more challenging. We cannot anticipate all of the demands that our growth strategy will impose on our business. If we fail to successfully open and operate new company-owned stores and address the increased demands of our growth strategy on our business, our financial performance and growth strategy may be adversely affected.
The cost of raw materials, labor or freight could lead to an increase in our cost of sales and cause our results of operations to suffer.
Increasing costs for raw materials (due to limited availability or otherwise), labor or freight could make our sourcing processes more costly and negatively affect our gross margin and profitability. Labor costs at many of our independent manufacturers’ sites have been increasing and it is unlikely that these increases will abate. Wage and price inflation in our source countries could cause unanticipated price increases which may be significant. Such price increases by our independent manufacturers could be rapid in the absence of written manufacturing contracts. Energy costs have fluctuated dramatically in the past and may fluctuate in the future. Rising energy costs may increase our costs of transporting our products for distribution, our utility costs in our offices and company-owned stores and the costs of products that we source from

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independent suppliers. Further, many of our products are made of materials, such as ballistic nylon, high impact plastics, plastic-injected molded parts and lightweight high tensile strength metals, that are either petroleum-based or require energy to construct and transport. Our independent suppliers and manufacturers may attempt to pass any cost increases on to us, and our relationships with them may be harmed or lost if we refuse to pay such increases, which could lead to product shortages. If we pay such increases, we may not be able to offset them through increases in our pricing and other means, which could adversely affect our ability to maintain our targeted gross margins. If we attempt to pass the increases on to consumers, our sales may be adversely affected.
Failure to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure the brand and negatively affect sales.
Our trademarks, copyrights, patents, designs and other intellectual property rights are important to our success and our competitive position. We devote significant resources to the registration and protection of our trademarks and patents. In spite of our efforts, counterfeiting and design copies still occur. If we are unsuccessful in challenging the usurpation of these rights by third parties, this could adversely affect our future sales, financial condition, and results of operations. Our efforts to enforce our intellectual property rights are often met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. Unplanned increases in legal fees and other costs associated with protecting our intellectual property rights could result in higher operating expenses. Additionally, legal regimes outside the United States, particularly those in Asia, including China, may not always protect intellectual property rights to the same degree as U.S. laws, or the time required to enforce our intellectual property rights under these legal regimes may be lengthy and delay recovery.
We face risks associated with operating in international markets.
We operate in a global marketplace with approximately 33% of our 2014 net sales from operations outside North America. In addition, international sales growth is a key element of our growth strategy. We are subject to risks associated with our international operations, including:
 
foreign currency exchange rates;
 
economic or governmental instability in foreign markets in which we operate or in those countries from which we source our merchandise;
 
delays or legal uncertainty (including with respect to enforcement of intellectual property rights) in countries with less developed legal systems in which we operate;
 
increases in the cost of transporting goods globally;
 
acts of war, terrorist attacks, outbreaks of contagious disease and other events over which we have no control; and
 
changes in foreign or domestic legal and regulatory requirements resulting in the imposition of new or more onerous trade restrictions, tariffs, duties, taxes, embargoes, exchange or other government controls.
Any of these risks could have an adverse impact on our results of operations, financial position or growth strategy.
Furthermore, some of our international operations are conducted in parts of the world that experience corruption to some degree. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance (including with respect to the U.S. Foreign Corrupt Practices Act and the United Kingdom Bribery Act 2010), our employees, distributors and wholesalers could take actions that violate applicable anti-corruption laws or regulations. Violations of these laws, or allegations of such violations, could have an adverse impact on our reputation, our results of operations or our financial position.
We are exposed to risks from exchange rate fluctuations.
We incur substantially all our cost of sales in U.S. dollars, but some of our net sales are collected in currencies other than the U.S. dollar. We set the retail prices for our products in foreign countries at periodic intervals. If there is a significant weakening of the exchange rate in the local currency in which our net sales are generated after we set retail prices for our products in that country, our anticipated gross margins would be reduced. Conversely, if there is a significant strengthening of the exchange rate after we set retail prices, the retail prices of our products in that country may be viewed by consumers as comparatively expensive and local demand for our products may decrease until we reset our retail prices for our products in that country. In addition, foreign exchange movements may also negatively affect the relative purchasing power of foreign tourists and result in declines in travel volumes or their willingness to purchase discretionary premium goods, such as our products, while traveling, which would adversely affect our net sales.
Substantially all of our purchases from our foreign suppliers are denominated in U.S. dollars. A precipitous or prolonged decline in the value of the U.S. dollar could cause our foreign suppliers to seek price increases on the goods they

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supply us, which would adversely affect our gross margins 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.
Our consolidated financial statements are reported in U.S. dollars. We are exposed to foreign currency exchange rate fluctuations from translating certain of our foreign branch offices and subsidiaries’ financial statements. Consequently, fluctuations in the value of local currencies in which we derive significant net sales may impact the U.S. dollar amounts reflected in our financial statements. As a result, these U.S. dollar amounts may obscure underlying financial trends that would be apparent in financial statements prepared on a constant currency basis.
Our results of operations are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of our common stock.
Our quarterly results of operations may fluctuate significantly as a result of a variety of factors, including:
 
the timing of new store openings;
 
net sales and operating profit contributed by new stores;
 
changes in the number of our points of distribution;
 
increases or decreases in comparable-store sales;
 
shifts in the timing of holidays;
 
changes in our merchandise mix; and
 
the timing of new product introductions.
A significant portion of our net revenues and operating cash flows have historically been realized during November and December each year, primarily due to increased retail activity during the holiday seasons, and therefore the fourth quarter factors more significantly into our results for the fiscal year. In 2014, fourth quarter net sales and operating income represented 31% and 40%, respectively, of our annual net sales and operating income. Any disruption in our ability to process, produce and fill customer orders in the fourth quarter could have a negative effect on our quarterly and annual operating results. Additionally, any disruption in our business operations or other factors that could lead to a material shortfall compared with our expectations for the fourth quarter could result in a significant shortfall in net sales and operating cash flows for the full year.
The growth of our business depends on the successful execution of our growth strategy, including our efforts to expand internationally and grow our e-commerce business.
Our current growth strategy depends on our ability to continue to expand geographically in a number of international regions including Asia, Europe and South America. We plan to enter into additional distribution agreements with our partners to open additional points of distribution. These distribution arrangements are contingent upon our partners’ ability to help expand distribution points and open Tumi free-standing shops in defined territories. If our partners do not perform as we expect we may be required to seek new partners, and the delay this would cause could limit our ability to maintain our growth rate. In addition, we recently expanded into India and Brazil, but barriers to trade, including high tariffs, may depress our earnings potential in those and other markets. Further, the implementation of higher tariffs, quotas or other restrictive trade policies in any international regions in which we operate or seek to operate could adversely affect our ability to maintain our existing, or commence new, international operations, which could have an adverse impact on our growth strategy. We have only recently begun to focus and expand our operations in countries in the Asia-Pacific and Latin American regions, and in many of them we face established competitors. Countries in these regions often have different operational characteristics from the regions in which we are more established, including employment and labor, transportation, logistics, real estate, and local reporting or legal requirements. Further, consumer demand behavior, as well as tastes and purchasing trends, may differ in these countries and, as a result, sales of our products may not be, or may take time to become, successful, and gross margins on those net sales may not be in line with what we currently experience. Our ability to execute our international growth strategy in countries where we have recently begun to focus our operations, or where we are not yet established, depends on our ability to identify, and maintain successful relationships with, local distribution and wholesale partners that have experience working with premium brands, understand local real estate considerations and appreciate regional market demographics, and we may not be able to identify and agree on terms with, or to successfully maintain relationships with, such partners. In those countries, we also face significant competition to attract and retain experienced and talented employees. If our international expansion plans are unsuccessful, our growth strategy and our financial results could be materially adversely affected.
From time to time, we consider selling our products internationally through a direct sales channel, rather than through distributors. Selling products directly offers certain advantages, such as control over the product selection and brand presentation. However, directly owning such operations requires greater investment of time and resources on our part. There can be no assurance that if we seek to sell our products directly, that we will be successful in securing adequate retail space,

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attract and retain necessary personnel or obtain any required local licenses. In addition, for countries in which we have appointed an exclusive distributor, recapturing these distribution rights may require us to negotiate a transition with our distributor. There can be no assurance that such a transition can be agreed to on terms that would be acceptable to us, or that any such transition, if undertaken, will result in better financial results than had been achieved by us under the prior distribution model.
In addition, expansion of our company-owned and partner retail store networks in North America is a key part of our growth strategy. If we are unable to successfully identify and expand our presence in new locations in North America, our growth strategy could be adversely affected. Other important components of our growth strategy include increasing our brand awareness, improving our store operations, and continuing the success of existing products and the successful design and introduction of new products. Our ability to create new products and sustain existing products is in part contingent on our ability to successfully anticipate and respond to changing consumer preferences. The failure to increase our brand awareness while retaining our brand’s premium image, to improve our store operations, or to develop and launch new products successfully could adversely affect our growth strategy. Further, we intend to expand our e-commerce business, which may reduce sales through other retail and outlet distribution channels.
If we are unable to respond effectively to changes in market trends and consumer preferences, our market share, net sales and profitability could be adversely affected.
The success of our business in each of the regions in which we operate depends on our ability to identify the key product and market trends in those regions and then to design and bring to market, in a timely manner, products that satisfy the current preferences of a broad range of consumers in each respective region (either by enhancing existing products or by developing new product offerings). Consumer preferences differ across and within each of our operating regions, and shift over time in response to changing aesthetics, means of travel and economic circumstances. We believe that our success in developing innovative products that meet our consumers’ functional needs is an important factor in maintaining and sustaining our image as a premium brand and our ability to charge premium prices. We may not be able to anticipate or respond to changes in consumer preferences in one or more of our operating regions, and, even if we do anticipate and respond to such changes, we may not be able to bring to market in a timely manner enhanced or new products that meet these changing preferences. If we fail to anticipate or respond to changes in consumer preferences or fail to bring to market, in a timely manner, products that satisfy new preferences, our market share and our net sales and profitability could be adversely affected.
We may be unable to appeal to new consumers while maintaining the loyalty of our core consumers.
Part of our growth strategy is to introduce new consumers, including younger consumers, to the Tumi brand. If we are unable to attract new consumers, including younger consumers, our business and results of operations may be adversely affected as our core consumers’ age increases and levels of travel and purchasing frequency decrease. Initiatives and strategies intended to position our brand to appeal to new and younger consumers may not appeal to our core consumers, and may diminish the appeal of our brand to our core consumers, resulting in reduced core consumer loyalty. If we are unable to successfully appeal to new and younger consumers while maintaining our brand’s premium image with our core consumers, our net sales and our brand image may be adversely affected.
Rapid deterioration of our wholesale customer base could erode our profitability.
Our Indirect-to-Consumer operating segments comprised approximately 49% of our net sales and 54% of our segments’ total operating income in 2014, while our Direct-to-Consumer operating segments comprised approximately 51% of our net sales and 46% of our segments’ total operating income in 2014. Many of our wholesale customers are family-run enterprises that have limited access to capital and undefined succession plans. If these customers reduce or cease operations or close prematurely, we may not be able to replace distribution with our own stores or with other wholesale customers, or we may need to make substantial investments to replace any such lost distribution, and such investments may not be successful. The erosion of our wholesale customer base could have an adverse impact on our cash resources, our gross margins and our overall profitability, adversely impacting our growth plan.
Fluctuations in our tax obligations and effective tax rate may have a negative effect on our operating results.
We are subject to income taxes in the United States and certain foreign jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for uncertain tax provisions in multiple tax jurisdictions. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Further, our effective tax rate in a given financial period may be materially impacted by changes in mix and level of earnings or by changes to existing

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accounting rules or regulations. In addition, tax legislation enacted in the future could negatively impact our current or future tax structure and effective tax rates.
If we are required to write down goodwill or other intangible assets, our results of operations and financial condition would be adversely affected.
Under generally accepted accounting principles, or GAAP, if we determine goodwill or other intangible assets are impaired, we will be required to write down these assets and record a non-cash impairment charge. As of December 31, 2014, we had goodwill of $142.8 million and other intangible assets of $130.4 million recorded in connection with our acquisition by Doughty Hanson in 2004. Other intangible assets, net consist primarily of brand/trade name, lease value and customer relationships.
Determining whether an impairment exists and the amount of the potential impairment involve quantitative data and qualitative criteria that are based on estimates and assumptions requiring significant management judgment. Future events or new information may change management’s valuation of an intangible asset in a short amount of time. The timing and amount of impairment charges recorded in our statements of operations and write-downs recorded in our consolidated balance sheets could vary if management’s conclusions were different. Any impairment of goodwill or other intangible assets could have a material adverse effect on our results of operations and financial position. See Note 1 to our audited consolidated financial statements for additional information regarding impairment testing.
Our business could suffer if we are unable to maintain our network of sales and distribution channels or manage our inventory effectively.
We employ a multi-channel distribution strategy and make use of a variety of distribution channels, including full-price retail stores, outlet stores, our websites, partner stores, other wholesale distributors such as department stores and third-party e-commerce websites. The effectiveness of our multi-channel strategy depends on our ability to manage our inventory and our distribution processes effectively so as to ensure that our products are available in sufficient quantities at various points of sale and thereby prevent lost sales. If we are not able to maintain our sales and distribution channels, either because of untimely deliveries or otherwise, or if we are not able to effectively manage our inventory, we could experience a decline in net sales, as well as excess inventories for some products and missed opportunities for other products. In addition, the failure to deliver our products to certain wholesale distributors in accordance with our delivery schedules could damage our relationship with these distributors and may impair our ability to use the distribution channels provided by such distributors. Consequently, our net sales, profitability and the implementation of our growth strategy could be adversely affected.
We plan to use cash provided by operating activities to fund our expanding business and execute our growth strategy and may require additional capital, which may not be available to us.
Our business relies on net cash provided by our operating activities as our primary source of liquidity, and historically all of our growth activities have been funded using operating cash flows. To support our business and execute our growth strategy as planned, we will need to continue to generate significant amounts of cash from operations, including funds to pay our lease obligations, build out new store space, purchase inventory, pay personnel, invest further in our infrastructure and facilities, invest in research and development, and pay for the costs associated with operating as a public company. If our business does not generate cash flow from operating activities sufficient to fund these activities, and if sufficient funds are not otherwise available to us from our credit facility, we will need to seek additional capital, through debt or equity financings, to fund our growth. Conditions in the credit markets (such as availability of finance and fluctuations in interest rates) may make it difficult for us to obtain such financing on attractive terms or even at all. Additional debt financing that we may undertake, including in connection with our credit facility, may be expensive and might impose on us covenants that restrict our operations and strategic initiatives, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our capital stock, make investments and engage in merger, consolidation and asset sale transactions. Equity financings may be on terms that are dilutive or potentially dilutive to our stockholders. The holders of new securities may also have rights, preferences or privileges that are senior to those of existing holders of common stock. If new sources of financing are required, but are unattractive, insufficient or unavailable, then we will be required to modify our growth and operating plans based on available funding, if any, which would inhibit our growth and could harm our business.
Indebtedness may restrict our current and future operations.
The agreement governing our credit facility contains, and our future debt instruments may contain, covenants that restrict our operations, including limitations on our ability to: grant liens; incur additional debt (including guarantees); pay dividends or distributions on or redeem or repurchase capital stock; prepay or repurchase certain debt; make investments; and consolidate or merge into, or sell substantially all of our assets to, another person or entity. Any of these restrictions could limit our ability to plan for and react quickly to changing economic, industry and competitive conditions, impair our liquidity and

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capital resources, and otherwise restrict our business operations. Our ability to comply with these restrictions may be affected by events beyond our control.
As of December 31, 2014, we had no borrowings under our amended and restated credit facility and available credit of $69.7 million. Any future indebtedness could have important consequences to the Company, including:
 
limiting our ability to borrow additional amounts to fund working capital, capital expenditures, execution of our business strategy and other purposes;
 
requiring us to dedicate a portion of our cash flow from operations to pay principal and interest on our debt, which would reduce the funds available to us for other purposes, including funding future expansion; and
 
exposing us to risks inherent in interest rate fluctuations because our borrowings under our amended and restated credit facility are expected to be at variable rates of interest, which could result in higher interest expenses in the event of increases in interest rates.

Our extended supply chain requires long lead times and relies heavily on manufacturers in Asia.
We rely heavily on manufacturers in Asia which requires long lead times to get goods to markets. The long lead times often require us to carry extra inventory to avoid out-of-stocks. In the event of a decline in demand for our products, due to general economic conditions or other factors, we may be forced to liquidate this extra inventory at low margins or at a loss. In addition, as a result of these long lead times, design decisions are required to be made several months or as early as a year and a half before the goods are delivered. Consumers’ tastes can change between the time a product is designed and the time it takes to get to market. If the designs are not popular with consumers, it could also result in the need to liquidate the inventories at low margins or at a loss, which would adversely affect our results of operations.
We may be unable to maintain the appropriate balance between the autonomy of our regional markets and centralized management.
Our management strategy is based on giving a high degree of autonomy to our regional management teams in order to ensure that those management teams are in touch with developments in their respective regions. For instance, each of the regions in which we operate requires a different product mix, sales strategy, price point and relationship with distributors and vendors. Additionally, key management functions, including finance, treasury, sourcing initiatives, advertising, legal and coordination of the regions, are managed centrally. We may not always be able to maintain the appropriate balance between regional autonomy and central management. If we favor too much regional autonomy, we risk conflicting or inconsistent brand messages between different regions, which could damage our brand and increase costs. Additionally, if we are unable to maintain sufficient oversight of our partner stores, decisions could be made locally that we regard as not being in our
overall best interests, which could necessitate the diversion of management resources, result in the inability to capitalize on certain opportunities and/or cause damage to our brand. On the other hand, if we shift too much toward central management, we risk bringing to market products that are not in line with the tastes and preferences of each region, which could negatively affect our market share and net sales in such regions. In either instance, a failure to maintain the appropriate balance between regional autonomy and central management could adversely affect our business, net sales and profitability.
We depend on existing members of management and key employees to implement key elements in our strategy for growth, and the failure to retain them or to attract appropriately qualified new personnel could affect our ability to implement our growth strategy successfully.
The successful implementation of our growth strategy depends in part on our ability to retain our experienced management team and key employees and on our ability to attract appropriately qualified new personnel. For instance, our chief executive officer has extensive experience running branded consumer as well as retail-oriented businesses and our chief financial officer has extensive financial and operational experience in consumer packaged goods, manufacturing and distribution services. The loss of any key member of our management team or other key employees could hinder or delay our ability to implement our growth strategy effectively. Further, if we are unable to attract appropriately qualified new personnel as we expand, we may not be successful in implementing our growth strategy. In either instance, our profitability and financial performance could be adversely affected.
We face strong competition in all of our product lines and markets, and we may not be able to successfully grow or retain market share in key targeted growth markets and product categories.
We face intense competition in all of the product lines and markets in which we operate from many competitors who compete with us on an international, regional or local level. Our strategy for future growth relies in part on growth in particular countries as well as in particular product categories, and we expect to continue to face strong competition from both global and regional competitors in all of our key growth markets and product categories. The Tumi brand, which is a key to our ability to

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compete successfully in our established markets and product categories, has less recognition in many of our targeted growth markets and product categories. We may be unable to establish our brand, or successfully compete once established, in these new markets and product lines. If we fail to compete effectively against our international or regionally focused competitors, we may be unable to expand our market share in our key growth markets or in key product categories, and we may be unable to retain our existing market share in key growth markets or in those markets in which we have traditionally had a strong presence. Failure to protect our market share on a regional level or to grow our market share in key growth markets and product categories could have a material adverse effect on our overall market share and on our net sales and profitability.
Our warehouse and distribution operations are critical to our success and any disruption from either man-made or natural disasters could negatively impact our operations.
We operate three distribution centers in the United States, Germany and Thailand (where we have our third-party logistics facility), all of which are critical to our ability to distribute our products on a timely basis. Damage or disruption to any of these warehouse locations could adversely affect our ability to fulfill orders for our products and thereby have a deleterious effect on our financial results. For example, in the past, our distribution facility in Thailand was impacted by flooding due to severe weather in that area and our German warehouse was impacted by severe winter weather. In both cases our ability to operate was mitigated by the availability of our Vidalia, Georgia facility, which serves as a master distribution facility and is critical to our continued operations. If the Vidalia facility were to experience a disruption of service, our financial results and financial condition would be negatively impacted.
We typically do not employ traditional advertising channels, and if we fail to adequately market our brand through product introductions and other means of promotion, our business could be adversely affected.
In 2014, we spent approximately 3% of our net sales on advertising and promotion expenses. Our marketing strategy depends on our ability to promote our brand’s message by using store window campaigns, product placements in editorial sections, social media to promote new product introductions in a cost effective manner, the use of catalog mailings and, from time to time, the use of newspapers and magazines. We typically do not employ traditional advertising channels such as billboards, television and radio. If our marketing efforts are not successful at attracting new consumers and increasing purchasing frequency by our existing consumers, there may be no cost-effective marketing channels available to us for the promotion of our brand. If we increase our spending on advertising, or initiate spending on traditional advertising, our expenses will rise, and our advertising efforts may not be successful. In addition, if we are unable to successfully and cost-effectively employ advertising channels to promote our brand to new consumers and new markets, our growth strategy may be adversely affected.
We are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs.
We lease substantially all our facilities and company-owned store locations and lease-related expense is a significant component of our operating expenses, accounting for $35.9 million in 2014. We typically occupy our stores under operating leases with terms of up to ten years. We have been able to negotiate favorable rental rates in the past due in part to the state of the economy; however, in an improving commercial real estate market, we expect rates to increase upon renewal in the near term. Many of our leases have early cancellation clauses, which permit the lease to be terminated by us or the landlord if certain sales levels are not met in specific periods or if the shopping center does not meet specified occupancy standards. In addition to future minimum lease payments, some of our store leases provide for the payment of common area maintenance charges, real property insurance and real estate taxes. Many of our lease agreements have escalating rent provisions over the initial term and any extensions. As we grow our store base, our lease expense and our cash outlays for rent under lease agreements will increase. Our substantial operating lease obligations could have significant negative consequences, including:
 
requiring that a substantial portion of our available cash be applied to pay our rental obligations (including rent deposits), thus reducing cash available for other purposes;
 
increasing our vulnerability to general adverse economic and industry conditions;
 
limiting our flexibility in planning for or reacting to changes in our business or industry; and
 
limiting our ability to obtain additional financing.
Any of these consequences could place us at a disadvantage with respect to our competitors. We depend on cash flow from operating activities to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities to fund these lease expenses and needs, we may not be able to service our lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which would harm our business.

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Additional sites that we lease may be subject to long-term non-cancellable leases if we are unable to negotiate our current standard lease terms. In the past five years, we have closed 12 stores. If an existing or future store is not profitable and we decide to close it, then we may nonetheless be committed to perform our obligations under the applicable lease, including paying the base rent for the balance of the lease term. Moreover, even if a lease has an early cancellation clause, we may not satisfy the contractual requirements for early cancellation under the lease. Our inability to enter new leases or renew existing leases on acceptable terms or be released from our obligations under leases for stores that we close would, in any such case, affect us adversely.
Certain legal proceedings, regulatory matters and accounting changes could adversely impact our results of operations and financial condition.
We are subject, from time to time, to various claims arising out of our business operations, which may include or relate to alleged breach of contract claims, intellectual property and other related claims, credit card fraud, security breaches in certain of our retail store information systems, employment issues, consumer matters and other actions. Additionally, we may from time to time be subject to new or revised laws, regulations and regulatory actions both in the U.S. and in other countries where we conduct business operations, which could have an adverse impact on our results of operations.
Our involvement in any legal proceeding or regulatory matter would cause us to incur legal and other costs and, if we were found to have violated any laws or regulations, we could be required to pay fines, damages and other costs, perhaps in material amounts. Regardless of eventual costs, these matters could have a material adverse effect on our business by exposing us to negative publicity, reputational damage, harm to customer relationships, or diversion of personnel and management resources.
In addition, we are subject to changes in accounting rules and interpretations. The Financial Accounting Standards Board, or the FASB, is currently in the process of amending a number of existing accounting standards governing a variety of areas. Certain of these proposed standards, particularly the proposed standard governing accounting for leases, if and when effective, would likely have a material impact on our consolidated financial statements. See Note 2 to the accompanying audited consolidated financial statements for further discussion of recently issued accounting pronouncements.
Failure to protect confidential information of our consumers and our network against security breaches or failure to comply with privacy and security laws and regulations could damage our reputation, brand and business.
Our e-commerce websites and our company-owned stores are currently a source of Direct-to-Consumer sales, and serve as a marketing tool for the Tumi brand. A significant challenge to Direct-to-Consumer sales and communications, including the operation of our websites, is the secure transmission of confidential information over public networks. Our failure to prevent security breaches could damage our reputation and brand and substantially harm our business and results of operations. On our websites, a majority of the sales are billed to our consumers’ credit card accounts directly, orders are shipped to a consumer’s address, and consumers log on using their email address. In such transactions, maintaining complete security for the transmission of confidential information on our websites, such as consumers’ credit card numbers and expiration dates, personal information and billing addresses, is essential to maintaining consumer confidence. In addition, we hold certain private information about our consumers, such as their names, addresses, phone numbers and browsing and purchasing records.
We rely on encryption and authentication technology licensed from third parties to effect the secure transmission of confidential information, including credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the technology used by us to protect consumer transaction data. In addition, any party who is able to illicitly obtain a user’s password could potentially access the user’s transaction data or personal information. We may not be able to prevent third parties, such as hackers or criminal organizations, from stealing information provided by our consumers to us through our websites or otherwise. In addition, our third-party merchants and delivery service providers may violate their confidentiality obligations and disclose information about our consumers. Any compromise of our security or material violation of a non-disclosure obligation could damage our reputation and brand and expose us to a risk of loss or litigation and possible liability, which would substantially harm our business and results of operations. In addition, anyone who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations.
We may have technical problems with information technology systems, particularly our ordering and inventory management systems, on which we rely to manage our business efficiently and effectively.
As a global, multi-channel business, we rely on a number of information technology systems in order to manage our business efficiently and effectively. We use the SAP Enterprise Resource Planning system across all of our North American, European and Asian operations to manage inventory and sourcing effectively. Logistical problems, such as technical faults with ordering systems or the failure to manage inventory effectively, may result in delays in delivery that could result in fines from

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certain wholesale customers, or lost sales, which if material or substantial over a period of time, may adversely affect our net sales and damage our reputation.
Replacements of our core information technology platforms may prove disruptive.
As a result of rapid growth in the number of our store locations and complexity of our business, we have been reviewing the adequacy of certain core information technology platforms used to run our business. While we believe that our main enterprise resource planning system is robust enough to support our business requirements for the foreseeable future, other systems may need to be substantially upgraded or replaced. In the future, it may be necessary to replace or upgrade core information technology platforms such as our enterprise resource planning platform or store point-of-sale system, our inventory forecasting and replenishment system, our state tax reporting system and our web-based sales system, among others. Unanticipated costs and unsuccessful execution of these upgrades may, among other things, disrupt our ability to effectively manage inventory and sourcing and harm our business, financial condition and results of operations.
Replacement and upgrade of our e-commerce platform to a new platform may encounter difficulties or delays.
During 2014, we transitioned our North American web services to an internally managed model. In 2015 we plan to insource our international websites and expand into more European countries. As part of this initiative, we are replacing and upgrading our e-commerce platform. Unanticipated difficulties and costs related to this project, or unsuccessful or delayed execution of the project, may disrupt our operations, reduce customer satisfaction with their online experience, damage our brand and reputation or have an adverse effect on our financial condition and results of operations.
Union attempts to organize our employees could negatively affect our business.
None of our employees are currently represented by a union or workers’ council. As we grow our business and enter different regions, unions may attempt to organize all or a portion of our employee base at certain of our owned stores and other facilities, or within certain regions. These efforts could result in work stoppages or other disruptions and could cause management to divert time and resources from other aspects of our business.

We may incur additional healthcare costs arising from federal healthcare reform legislation.

In March 2010, the federal government enacted the Patient Protection and Affordable Care Act (the “PPACA”) and the Health Care and Education Affordability Reconciliation Act of 2010 (together with the PPACA, the “Healthcare Reform Laws”), and the constitutionality of the PPACA was upheld by the United States Supreme Court in 2012. The Healthcare Reform Laws will increase the level of regulatory complexity for companies that offer healthcare benefits to their employees and will impact employers and businesses differently depending on the size of the organization. The changes required by this legislation could cause us to incur additional healthcare and other costs. Additionally, many provisions of the Healthcare Reform Laws did not go into effect immediately and may be subject to further clarification through future regulation. Therefore, the ultimate extent and cost of these changes cannot be determined at this time and are being evaluated and updated as related regulations and interpretations of the Healthcare Reform Laws become available.

Compliance with government regulations regarding the use of “conflict minerals” may result in increased costs and risks to the Company.

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”), the Securities and Exchange Commission (the “SEC”) has promulgated disclosure requirements regarding the use of certain minerals, which are mined from the Democratic Republic of Congo and adjoining countries, known as conflict minerals. We will have to publicly disclose whether we manufacture (as defined in the Act) any products that contain conflict minerals and could incur significant costs related to implementing a process that will meet the mandates of the Act.  Additionally, customers typically rely on us to provide critical data regarding the parts they purchase, including conflict mineral information. Our material sourcing is broad-based and multi-tiered, and we may not be able to easily verify the origins for conflict minerals used in the products we sell. We have many suppliers and each provides conflict mineral information in a different manner, if at all. Accordingly, because the supply chain is complex, we may face reputational challenges if we are unable to sufficiently verify the origins of conflict minerals used in our products. Additionally, customers may demand that the products they purchase be free of conflict minerals. This may limit the number of suppliers that can provide products in sufficient quantities to meet customer demand or at competitive prices.

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Risks Related to Ownership of Our Common Stock
Our stock price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment as a result.
You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our common stock could continue to be subject to potential significant fluctuations in response to the factors described in this “Risk Factors” section and other factors, many of which are beyond our control. Among the factors that could affect our stock price are:
 
actual or anticipated variations in our quarterly and annual operating results or those of companies perceived to be similar to us;
 
weather conditions, particularly during holiday shopping periods;
 
changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors, or differences between our actual results and those expected by investors and securities analysts;
 
fluctuations in the market valuations of companies perceived by investors to be comparable to us;
 
the public’s response to our, or our competitors’, filings with the SEC or announcements regarding new products or services, enhancements, significant contracts, acquisitions, strategic investments, litigation, restructurings or other significant matters;
 
speculation about our business in the press or the investment community;
 
future sales of our common stock;
 
actions by our competitors;
 
additions or departures of members of our senior management or other key personnel; and
 
the passage of legislation or other regulatory developments affecting us or our industry.
In addition, the securities markets have experienced significant price and volume fluctuations that have affected and continue to affect the market price of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence, interest rate changes, or international currency fluctuations, may negatively affect the market price of our common stock.
If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend and a distraction to management.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that equity research analysts publish about us and our business. The price of our common stock could decline if one or more securities analysts downgrade our common stock or if those analysts issue a sell recommendation or other unfavorable commentary or cease publishing reports about us or our business. If one or more of the analysts who elect to cover us downgrade our common stock, our stock price could decline rapidly. If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our common stock price and trading volume to decline.
We do not intend to pay cash dividends on our common stock.
We have never paid cash dividends on our common stock. We intend to retain all of our earnings, if any, for the foreseeable future to finance the operation and expansion of our business and for general corporate purposes and do not anticipate paying cash dividends. Any future determination to pay dividends will be at the discretion of our board of directors, subject to compliance with applicable law and any contractual provisions, including under the agreement governing our amended credit facility and any other agreements governing indebtedness we may incur, and will depend on, among other factors, our results of operations, financial condition, capital requirements and other factors that our board of directors deems relevant. As a result, you should expect to receive a return on your investment in our common stock only if the market price of the stock increases, which may never occur.


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Doughty Hanson may exert influence over us and our significant corporate decisions.
As of December 31, 2014, Doughty Hanson owned approximately 13.4% of our outstanding common stock and controlled approximately 13.4% of the outstanding voting power of our common stock. For so long as Doughty Hanson owns a significant portion of our common stock, Doughty Hanson will be able to exert significant voting influence over us and our significant corporate decisions.
We are a party to a director nomination agreement that grants certain Doughty Hanson entities the right to designate nominees to our board of directors provided certain ownership requirements are met. Currently one Doughty Hanson nominee is serving on our board of directors.
Our amended and restated certificate of incorporation provides that Doughty Hanson has no obligation to offer us corporate opportunities.
Doughty Hanson and the member(s) of our board of directors who are affiliated with Doughty Hanson, by the terms of our amended and restated certificate of incorporation, are not required to offer us any transaction opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is expressly offered to them solely in their capacity as our directors. We, by the terms of our amended and restated certificate of incorporation, expressly renounce any interest in any such corporate opportunity to the extent permitted under applicable law, even if the opportunity is one that we would reasonably be deemed to have pursued if given the opportunity to do so. Our amended and restated certificate of incorporation cannot be amended to eliminate our renunciation of any such corporate opportunity arising prior to the date of any such amendment. Doughty Hanson is in the business of making investments in portfolio companies and may from time to time acquire and hold interests in businesses that compete with us. Doughty Hanson has no obligation to refrain from acquiring competing businesses. Any competition could intensify if an affiliate or subsidiary of Doughty Hanson were to enter into or acquire a business similar to ours.
Future sales, or the perception of future sales, of our common stock may depress the price of our common stock.
We may issue additional shares of our common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market by us or our existing stockholders, or the perception that such sales could occur. In addition, we filed a registration statement on Form S-8 under the Securities Act to register 6,786,667 shares of our common stock for issuance under the 2012 Long-Term Incentive Plan, or the 2012 Plan (of which 2,200 shares have been issued). As a result, any shares or other equity awards issued under the 2012 Plan, subject to any vesting requirements, will be freely tradable in the public market.
Provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.
Provisions of our amended and restated certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include, among others: a classified board of directors; a prohibition on the ability of stockholders to remove directors without cause; advance notice requirements for stockholder proposals and director nominations; a prohibition on the ability of stockholders generally to call special meetings; the inability of stockholders generally to act by written consent; the ability of our board of directors to make, alter or repeal our bylaws without stockholder approval; and the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.


26


ITEM 2. PROPERTIES
The following table sets forth the location, use and size of Tumi’s distribution, corporate and product development facilities as of December 31, 2014. We lease substantially all of our facilities with the leases expiring at various times through 2024, subject to renewal options.
Location
 
Use
 
Approximate Square Footage
 
Vidalia, Georgia
 
Distribution and consumer service
 
364,265

(1)
South Plainfield, New Jersey
 
Corporate, sourcing and product development
 
47,905

 
Neuenrade, Germany
 
Distribution and operations
 
32,851

(2)
Unna, Germany
 
Distribution and operations
 
102,300

(2)
New York, New York
 
Showroom, design and marketing
 
19,492

 
Shenzhen and Dongguan, China
 
Sourcing, lab and repair
 
13,055

 
Hong Kong
 
Sourcing
 
10,532

 
(1)
We own one property in Vidalia, Georgia with approximately 364,265 square feet of space. This facility is subject to a security lien in accordance with our amended and restated credit facility.
(2)
During 2014, we moved to an expanded warehouse facility in Western Europe while continuing to operate our existing warehouse in transition. Our lease in Neuenrade, Germany expires during the first quarter of 2015.
In addition, we lease spaces in France, Taiwan, and Thailand for sales and sourcing offices and lab and distribution functions, as well as a satellite warehouse in Vidalia, Georgia. We also employ the services of a third-party logistics firm in Thailand to aid distribution in Asia.
As of December 31, 2014, we also leased locations for 99 North American company-owned full price retail stores, 34 North American company-owned outlet stores and 19 company-owned international retail stores, with an aggregate total square footage of 248,168. These leases expire at various times through 2027. In addition, we occasionally lease off-site storage units for some of our retail locations.
We consider these properties to be in generally good condition and believe that our facilities are adequate for the current operating requirements of our business and that additional space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS
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, challenges to our intellectual property rights or assertions of such rights by others. As part of our monitoring program for our intellectual property rights, from time to time we pursue legal action 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. We currently have no material legal proceedings pending.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


27


PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol “TUMI.” On February 25, 2015, the closing price of our common stock as reported by the NYSE was $22.80. As of February 25, 2015, we had 22 stockholders of record.
The following table sets forth, for the periods indicated, the high and low sales prices of our common stock as reported by the New York Stock Exchange:
Period
 
High
 
Low
For the first fiscal quarter of 2013 (January 1, 2013 to March 31, 2013)
 
$
24.76

 
$
19.44

For the second fiscal quarter of 2013 (April 1, 2013 to June 30, 2013)
 
$
25.58

 
$
20.63

For the third fiscal quarter of 2013 (July 1, 2013 to September 29, 2013)
 
$
26.24

 
$
19.90

For the fourth fiscal quarter of 2013 (September 30, 2013 to December 31, 2013)
 
$
24.43

 
$
18.66

For the first fiscal quarter of 2014 (January 1, 2014 to March 30, 2014)
 
$
24.71

 
$
19.27

For the second fiscal quarter of 2014 (March 31, 2014 to June 29, 2014)
 
$
23.29

 
$
17.55

For the third fiscal quarter of 2014 (June 30, 2014 to September 28, 2014)
 
$
23.75

 
$
19.25

For the fourth fiscal quarter of 2014 (September 29, 2014 to December 31, 2014)
 
$
24.31

 
$
18.77


Dividend Policy
We have never declared or paid any cash dividends on our common stock and do not intend to pay cash dividends on our common stock for the foreseeable future. We anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business and for general corporate purposes. The payment of dividends in the future, if any, will be at the discretion of our board of directors and will depend on such factors as earnings levels, capital requirements, contractual restrictions, including restrictive covenants contained in our amended and restated credit facility, our overall financial condition and any other factors deemed relevant by our board of directors.

28


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial information set forth below at December 31, 2014 and 2013 and for each of the years ended December 31, 2014, 2013 and 2012 has been derived from our audited consolidated financial statements included elsewhere in this report. The selected historical consolidated financial information at December 31, 2012, 2011 and 2010 and for each of the years ended December 31, 2011 and 2010 has been derived from our audited consolidated financial statements not included elsewhere in this report. The historical results presented below are not necessarily indicative of the results to be expected for any future period. You should read the following information together with “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and notes thereto appearing elsewhere in this report.
 
 
For the years ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(In thousands, except share and per share data)
Income Statement Data:
 
 
 
 
 
 
 
 
 
Net sales
$
527,194

 
$
467,438

 
$
398,551

 
$
329,968

 
$
252,803

Cost of sales
221,227

 
198,593

 
170,092

 
140,954

 
106,533

Gross margin
305,967

 
268,845

 
228,459

 
189,014

 
146,270

Operating expenses:
 
 
 
 
 
 
 
 
 
Selling
36,447

 
28,875

 
24,929

 
21,957

 
16,865

Marketing
16,528

 
17,373

 
13,713

 
13,377

 
7,779

Retail operations
115,763

 
98,720

 
81,379

 
67,465

 
57,526

General and administrative(1)
43,799

 
37,514

 
36,762

 
25,782

 
23,474

Total operating expenses
212,537

 
182,482

 
156,783

 
128,581

 
105,644

Operating income
93,430

 
86,363

 
71,676

 
60,433

 
40,626

Other income (expenses):
 
 
 
 
 
 
 
 
 
Interest expense
(477
)
 
(733
)
 
(1,392
)
 
(2,423
)
 
(4,753
)
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests

 

 
(7,892
)
 
(22,857
)
 
(20,779
)
Earnings from joint venture investment
279

 
184

 
845

 
587

 
529

Foreign exchange gains (losses)
475

 
388

 
(287
)
 
(61
)
 
(975
)
Other non-operating income (expenses)
132

 
(94
)
 
554

 
267

 
(167
)
Total other income (expenses)
409

 
(255
)
 
(8,172
)
 
(24,487
)
 
(26,145
)
Income before taxes
93,839

 
86,108

 
63,504

 
35,946

 
14,481

Provision for income taxes
35,830

 
31,549

 
26,721

 
19,354

 
14,377

Net income
$
58,009

 
$
54,559

 
$
36,783

 
$
16,592

 
$
104

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic(2)
67,867,529

 
67,866,667

 
63,304,838

 
52,536,224

 
52,536,224

Diluted(2)
67,878,340

 
67,870,688

 
63,304,948

 
52,536,224

 
52,536,224

Basic earnings per common share(2)
$
0.85

 
$
0.80

 
$
0.58

 
$
0.32

 
$

Diluted earnings per common share(2)
$
0.85

 
$
0.80

 
$
0.58

 
$
0.32

 
$


29


 
For the years ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
 
Other Financial and Operational Data:
 
 
 
 
 
 
 
 
 
Depreciation and amortization (in thousands)
$
18,156

 
$
14,187

 
$
11,504

 
$
10,089

 
$
9,788

Number of company-owned stores (at period end)
152

 
130

 
114

 
97

 
86

Average net sales per square foot(3)
$
1,082

 
$
1,088

 
$
1,051

 
$
972

 
$
821

Comparable store sales growth (for period)(4)
 
 
 
 
 
 
 
 
 
North America full-price
3.7
%
 
0.2
%
 
6.8
%
 
22.2
%
 
30.5
 %
North America outlet
7.8
%
 
10.5
%
 
15.3
%
 
17.2
%
 
21.4
 %
North America e-commerce
27.1
%
 
19.9
%
 
33.5
%
 
34.0
%
 
16.5
 %
International, excluding e-commerce (in Euros)
16.8
%
 
12.9
%
 
15.4
%
 
10.8
%
 
22.0
 %
International e-commerce (in Euros)
30.9
%
 
10.4
%
 
55.9
%
 
58.8
%
 
(18.1
)%
Consolidated Balance Sheet Data (at period end; in thousands):
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
52,796

 
$
37,613

 
$
36,737

 
$
32,735

 
$
19,209

Working capital(5)
$
68,719

 
$
53,362

 
$
44,536

 
$
33,968

 
$
25,058

Total assets
$
562,830

 
$
506,487

 
$
469,241

 
$
446,341

 
$
408,990

Long-term debt (including current portion)
$

 
$
8,000

 
$
45,000

 
$
64,000

 
$
76,000

Mandatorily redeemable preferred stock and preferred equity interests
$

 
$

 
$

 
$
251,429

 
$
228,572

Total liabilities
$
135,947

 
$
138,489

 
$
158,156

 
$
427,624

 
$
407,299

Total stockholders’ equity
$
426,883

 
$
367,998

 
$
311,085

 
$
18,717

 
$
1,691

 
(1)
General and administrative expenses includes warranty and repair costs, product design and development costs, shipping and distribution costs, amortization of customer list and other general operating expenses. Included in 2012 is the special cash bonus paid to the CEO in connection with the IPO of $5.5 million.
(2)
Gives effect to the 1-to-2,000 reverse common stock split effected in March 2010, the 101.200929-for-1 common stock split effected on April 4, 2012 and the 1.037857-for-1 common stock split effected April 19, 2012.
(3)
Represents company-owned stores only. 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.
(4)
Comparable store sales are calculated based on our company-owned stores that have been open for at least a full calendar year as of the end of our annual reporting period. For example, a store opened in October 2014 will not impact the comparable store comparison until January 1, 2016. Additionally, temporary store closings, store expansions and store relocations are excluded from the comparable store base under most circumstances.
(5)
Working capital is defined as current assets (excluding cash and cash equivalents) less current liabilities (excluding current portion of long-term debt).


30


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with “Selected Consolidated Financial Data” and our audited consolidated financial statements and notes thereto included elsewhere in this report. 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. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. We generally identify 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. Factors that can cause actual results to differ materially from those reflected in the forward-looking statements include, among others, those discussed in “Risk Factors” and elsewhere in this report. We urge you not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable securities laws and regulations. Historical results are not necessarily indicative of the results expected for any future period.
Executive Overview
We are a leading, growing, 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 full-price 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 1,800 points of distribution in over 75 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 option granted to the underwriters to purchase additional shares from certain of the selling stockholders). 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.
Subsequent to our IPO, we completed secondary offerings in November 2012, April 2013 and September 2014. These offerings, however, did not have any effect on the number of shares outstanding, as all shares in such offerings were sold by existing stockholders.
Since 2010, 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 $252.8 million in 2010 to $527.2 million in 2014, representing a compound annual growth rate of 20%. This increase in net sales resulted primarily from an increase in the number of our company-owned stores from 84 as of January 1, 2010 to 152 as of December 31, 2014, as well as an increase in average net sales per square foot in company-owned stores from $821 for the year ended December 31, 2010 to $1,082 for the year ended December 31, 2014, and continuous growth in our e-commerce business and 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, which we estimate has grown from representing approximately 10% of our net sales in 2010 to approximately 13% of our net sales in 2014, and on increasing our overall online presence, for which net sales grew approximately 31% from 2013 to 2014. Since 2010, Direct-to-Consumer e-commerce net sales per fiscal year have ranged from 12% to 15% of total Direct-to-Consumer net sales.
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, we have developed products that fulfill those identified needs, such as our Vapor and Tegra-Lite lines. We have also developed a variety of mobile electronic accessories designed for frequent travelers. We estimate that the accessories category represents approximately 14% of our net sales in 2014. Additionally, we have seen an increase in the relative

31


percentage of our net sales derived from our premium product line and updates of our core product line, and a decrease in the relative percentage of our net sales derived from our legacy core product line in recent years.
We believe there is a significant opportunity to continue to expand our store base globally, and we plan to add new company-owned and partner stores in upscale malls and prestige street venues. We opened 25 new company-owned stores in the year ended December 31, 2014. We currently expect to continue to open company-owned stores in the foreseeable future. Most of the locations we have identified for new company-owned stores are for full-price stores, while the remaining locations are for outlet stores. We also believe there are opportunities to open additional stores in airport locations, as well as luxury casinos.
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. Currently, more than 20% of our net sales in the Asia-Pacific region are to greater China, with Japan and South Korea being the next largest contributors. Additionally, Indirect-to-Consumer net sales in the Asia-Pacific region have more than doubled in the past five years. 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. We believe there is also significant opportunity to open additional points of distribution in airport locations in many of these regions. 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. Since 2010, Indirect-to-Consumer net sales have increased in EMEA, the Asia-Pacific region, North America and Central and South America.
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. Our new product development efforts help drive store traffic while our retail performance maximization program and associate training efforts contribute to improved store efficiency. We also believe we can continue to increase our net sales by capitalizing on our flexible distribution model. We will continue to look for ways to improve our capital efficiency in both current and new markets in the future.
One-time charges
Pursuant to an amended and restated letter agreement dated July 8, 2009, Jerome Griffith, our Chief Executive Officer, President and Director, was entitled to receive a one-time special bonus upon the consummation of a qualified sale event or initial public offering that resulted in an enterprise value of our company of $600.0 million or greater. Mr. Griffith received a special bonus payment of $5.5 million (pre-tax) in connection with the IPO. We recorded this compensation expense during the second quarter of 2012, which thereby reduced operating income and net income. In addition, the Company incurred $0.6, $0.5 and $0.2 million in one-time costs associated with our secondary offerings completed in November 2012, April 2013, and September 2014 respectively, which included legal and accounting costs and various other fees associated with these offerings.
Pursuant to the Company’s agreement with its web services provider, the Company served an early termination notice to said provider in the second quarter of 2013 and accrued a $1,500,000 (pre-tax) early termination fee pursuant to the terms of this agreement. This amount was paid in December 2013. The original agreement was scheduled to expire on December 31, 2015. The Company transitioned its North America web store during the fourth quarter of 2014 and intends to transition its international web stores to a more insourced model during 2015. The Company intends to continue to use the third-party provider’s services for its international web stores until such time.
Key Performance Indicators
A key performance indicator that we use to manage our business and evaluate our financial results and operating performance is average net sales per square foot. 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. This measure is supplemented by a number of non-financial operating metrics related to store performance, which provide benchmarks against which to evaluate store efficiencies but are not considered by management to be reliable financial metrics. Undue reliance should not be placed on this measure as our only measure of operating performance.
Average net sales per square foot decreased by approximately $6, or less than 1%, to $1,082 for the year ended December 31, 2014 from $1,088 for the year ended December 31, 2013. This decrease was primarily due to the effect of the relocation of certain highly productive stores and their related exclusion from the square footage base, as well as the addition of certain large but less mature stores to the square footage base during 2014.

32


Average net sales per square foot increased by approximately $37, or 4%, to $1,088 for the year ended December 31, 2013 from $1,051 for the year ended December 31, 2012. This increase was primarily due to higher store traffic and new product introductions, as well as improved store efficiency.
In previous years, we considered adjusted EBITDA and net income before preferred dividend expense (non-cash) to be key performance indicators that we used to manage our business. Management no longer uses this information to evaluate profitability or operating performance, and therefore, these metrics are not included in this report.
Our Operating Segments
We evaluate operating performance based on net sales and operating income in four operating segments.
Direct-to-Consumer North America
As of December 31, 2014, we sold our products directly to consumers through a network of 133 company-owned retail stores consisting of full-price stores and outlet stores strategically positioned in high-end retail malls or street venues. We also sell our products directly to consumers through our e-commerce website.
Direct-to-Consumer International
As of December 31, 2014, we sold directly to consumers through a network of 19 company-owned full-price and outlet stores in high-end street venues and select malls in international locations. We also sell our products directly to consumers through our two international e-commerce websites.
Indirect-to-Consumer North America
As of December 31, 2014, we sold to wholesale customers in North America through approximately 700 doors, including specialty luggage retailers, prestige department stores and business-to-business channels. Many of our wholesale customers also operate their own e-commerce websites through which they sell our products. Our products are also sold in partner stores, operated by local distributors or retailers, that carry only Tumi products and are governed by strict operating guidelines that we dictate.
Indirect-to-Consumer International
As of December 31, 2014, we sold our products to international wholesale customers through approximately 1,000 doors, approximately 54% of which are in the EMEA region, 41% of which are in the Asia-Pacific region, and 5% of which are in Central and South America. We have distribution channels in Australia, China, Europe, Hong Kong, the Middle East, South Africa, Japan, South Korea, Southeast Asia and Taiwan, among others. Our products are also sold in partner stores, operated by local distributors or retailers, that carry only Tumi products and are governed by strict operating guidelines that we dictate. We also operate concessions in department stores throughout Europe and the Middle East. Many of our wholesale customers also operate their own e-commerce websites through which they sell our products.
Certain corporate expenses are not specifically allocated to individual operating segments, such as product design and development, certain general and administrative, certain marketing, shipping, warehouse and other expenses.
For an explanation of the financial statement components discussed in this section, see “—Financial Statement Components” and Note 1 to our audited consolidated financial statements.

33


Results of Operations
The following table sets forth consolidated operating results and other operating data for the periods indicated:
Operating results
 
For the years ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
Net sales
$
527,194

 
$
467,438

 
$
398,551

Cost of sales
221,227

 
198,593

 
170,092

Gross margin
305,967

 
268,845

 
228,459

Operating expenses
 
 
 
 
 
Selling
36,447

 
28,875

 
24,929

Marketing
16,528

 
17,373

 
13,713

Retail operations
115,763

 
98,720

 
81,379

General and administrative
43,799

 
37,514

 
36,762

Total operating expenses
212,537

 
182,482

 
156,783

Operating income
93,430

 
86,363

 
71,676

Other income (expenses)
 
 
 
 
 
Interest expense
(477
)
 
(733
)
 
(1,392
)
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests

 

 
(7,892
)
Earnings from joint venture investment
279

 
184

 
845

Foreign exchange gains (losses)
475

 
388

 
(287
)
Other non-operating income (expenses)
132

 
(94
)
 
554

Total other income (expenses)
409

 
(255
)
 
(8,172
)
Income before income taxes
93,839

 
86,108

 
63,504

Provision for income taxes
35,830

 
31,549

 
26,721

Net income
$
58,009

 
$
54,559

 
$
36,783










34


Percentage of net sales
 
For the years ended December 31,
 
2014
 
2013
 
2012
Net sales
100
%
 
100
%
 
100
 %
Cost of sales
42
%
 
42
%
 
43
 %
Gross margin
58
%
 
58
%
 
57
 %
Operating expenses
 
 
 
 
 
Selling
7
%
 
6
%
 
6
 %
Marketing
3
%
 
4
%
 
3
 %
Retail operations
22
%
 
21
%
 
21
 %
General and administrative
8
%
 
8
%
 
9
 %
Total operating expenses
40
%
 
39
%
 
39
 %
Operating income
18
%
 
18
%
 
18
 %
Other income (expenses)
 
 
 
 
 
Interest expense
%
 
%
 
 %
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests
%
 
%
 
(2
)%
Earnings from joint venture investment
%
 
%
 
 %
Foreign exchange gains (losses)
%
 
%
 
 %
Other non-operating income (expenses)
%
 
%
 
 %
Total other income (expenses)
%
 
%
 
(2
)%
Income before income taxes
18
%
 
18
%
 
16
 %
Provision for income taxes
7
%
 
7
%
 
7
 %
Net income
11
%
 
12
%
 
9
 %
____________________________________________
*The percentages in the above table may not foot due to rounding.

The following table summarizes the number of company-owned stores open at the beginning and the end of the periods indicated:
 
 
For the years ended December 31,
 
2014
 
2013
 
2012
Number of stores open at beginning of period
130

 
114

 
97

Stores opened
25

 
17

 
19

Stores closed
(3
)
 
(1
)
 
(2
)
Number of stores open at end of period
152

 
130

 
114


35


Year ended December 31, 2014 compared with the year ended December 31, 2013
Net sales
The following table presents net sales by operating segment for the year ended December 31, 2014 compared with the year ended December 31, 2013.
 
 
2014
 
2013
 
% Change
 
(dollars in thousands)
 
 
Direct-to-Consumer North America
$
243,142

 
$
209,214

 
16
%
Direct-to-Consumer International
28,265

 
22,408

 
26
%
Indirect-to-Consumer North America
111,191

 
107,303

 
4
%
Indirect-to-Consumer International
144,596

 
128,513

 
13
%
Total
$
527,194

 
$
467,438

 
13
%

Net sales increased $59.8 million, or 13%, to $527.2 million in 2014 from $467.4 million in 2013. Net sales increased across all of our operating segments for the year ended December 31, 2014 as compared with the year ended December 31, 2013. Net sales increased due principally to an increase in volume resulting from new store openings, positive overall comparable store sales from existing stores, increased sales growth from our wholesale customers in the EMEA and Asia-Pacific regions, continued growth in both Direct-to-Consumer and Indirect-to-Consumer e-commerce and continued consumer acceptance of our lighter weight product and new product introductions. During the year ended December 31, 2014, we successfully re-launched our Alpha Travel Collection (Alpha 2), re-launched our Voyageur collection, launched our Tegra-lite Max collection and introduced seasonal colors which continue to receive positive consumer acceptance. Overall, store traffic patterns improved slightly during the year, particularly in outlets. While there were no significant price increases on existing products during the period, we did slightly raise price points on Alpha 2. The effect on net sales was immaterial. As previously disclosed, weaker than expected first quarter wholesale sales in Asia and North America had a moderating effect on these positive factors. We believe that the inclement weather in the first quarter of 2014 in certain North American markets also had a negative effect on sales. Additionally, there were 25 new company-owned store openings, 2 store relocations, 8 store renovations and 3 store closures during the year ended December 31, 2014. New stores opened during the year contributed approximately 18% of the overall sales growth from the year ended December 31, 2013 to the year ended December 31, 2014.
Net sales attributable to the Direct-to-Consumer North America segment experienced a 16% increase for the year ended December 31, 2014 as compared with the year ended December 31, 2013. North America full-price comparable store sales increased 4%, North America outlet comparable store sales increased 8% and our North America e-commerce sales increased 27%. Overall, including our e-commerce website, North America comparable store sales increased 9% for the period. Additionally, of the new stores opened during 2014, 21 were in the North America segment and contributed to approximately 23% of the net sales growth in the Direct-to-Consumer North America segment from the year ended December 31, 2013 to the year ended December 31, 2014.
Net sales attributable to the Direct-to-Consumer International segment experienced a 26% increase for the year ended December 31, 2014 as compared with the year ended December 31, 2013, with international full-price comparable store sales up 5% in US dollars and in Euros and international outlet comparable store sales up 29% in US dollars and in Euros. Our international e-commerce sales were up 31% in US dollars and in Euros. Overall, including our e-commerce websites, our international comparable store sales were up 18% in US dollars and in Euros for the period. Of the new stores opened during 2014, 4 were in Western Europe and contributed to approximately 47% of the Direct-to-Consumer International net sales growth from the year ended December 31, 2013 to the year ended December 31, 2014.
Overall, including e-commerce, comparable store sales for all Direct-to-Consumer channels increased 10% globally for the year ended December 31, 2014 as compared with the year ended December 31, 2013.     
Net sales attributable to the Indirect-to-Consumer North America segment increased 4% for the year ended December 31, 2014 as compared with the year ended December 31, 2013. 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 enthusiasm around our lightweight products and additions to our collections. This was partially offset by our decision to limit our special markets business in an effort to reduce the incidences of product diversion and trans-shipping abuses that have become a more common occurrence in Asia, particularly in Japan and South Korea, where the Tumi brand is becoming increasingly popular. Certain special markets customers have been a source of unauthorized product diversion in the past. While difficult to assess the financial impact of trans-shipping, we believe that it is damaging to the brand image in these emerging markets. In addition, Indirect-to-Consumer North America net sales were adversely affected by markdowns related to

36


the discontinuation of the T-Tech brand and certain older SKUs in the fourth quarter of 2014, as well as a more promotional marketplace in our department store business during the holiday season. The Company also reduced certain less productive points of distribution as part of a continuing strategy to enhance brand image and presentation.
Net sales attributable to the Indirect-to-Consumer International segment increased 13% for the year ended December 31, 2014 as compared with the year ended December 31, 2013. Our Indirect-to-Consumer International net sales have been favorably impacted by strong performance in the Asia and EMEA regions and increased points of distribution in the Asia region, aided by positive reaction to new product introductions.
Operating income
The following table presents operating income (loss) by operating segment for the year ended December 31, 2014 compared with the year ended December 31, 2013.
 
 
2014
 
2013
 
% Change
 
(dollars in thousands)
Direct-to-Consumer North America
$
69,871

 
$
62,485

 
12
 %
Direct-to-Consumer International
2,793

 
2,941

 
(5
)%
Indirect-to-Consumer North America
41,213

 
40,637

 
1
 %
Indirect-to-Consumer International
45,291

 
39,829

 
14
 %
Non-allocated corporate expenses
(65,738
)
 
(59,529
)
 
(10
)%
Total
$
93,430

 
$
86,363

 
8
 %

Operating income increased $7.1 million, or 8%, to $93.4 million in 2014 from $86.4 million in 2013. Overall, our operating income has benefited from continued volume related growth, store openings in the Direct-to-Consumer segments, strong performance in the Asia and EMEA regions and strong sales through our wholesale customers’ e-commerce websites. During 2014, we continued to invest in the Company’s logistics capabilities, design resources, product management, IT infrastructure and human resource base.

Operating income attributable to the Direct-to-Consumer North America segment experienced a 12% increase for the year ended December 31, 2014 as compared with the year ended December 31, 2013. This was primarily due to growth in our comparable stores and growth from stores opened during 2013, partially offset by new store expenses as well as renovations in 2014. Historically, company-owned store operating margins generally strengthen after their first year of operation. In addition, we had strong growth in our e-commerce sales, partially offset by the incremental investment of approximately $2.2 million required to support the transition of our web stores to a more insourced model, which we expect to improve functionality and efficiency.

Operating income attributable to the Direct-to-Consumer International segment experienced a 5% decrease for the year ended December 31, 2014 as compared with the year ended December 31, 2013. This decrease was principally related to the pre-opening expenses and start-up costs for our new flagship store on Regent Street in London, as well as our new store in Marseille, France, both of which opened in the second quarter of 2014.

Operating income attributable to the Indirect-to-Consumer North America segment experienced a 1% increase for the year ended December 31, 2014 as compared with the year ended December 31, 2013. This was primarily due to the mix of sales in the channel. Operating margin was positively impacted by strong sales through our wholesale customers’ e-commerce websites. Sales in our specialty stores and special markets business were down during the year ended December 31, 2014, both of which are generally strong from a margin perspective.

Operating income attributable to the Indirect-to-Consumer International segment experienced a 14% increase for the year ended December 31, 2014 as compared with the year ended December 31, 2013. This increase was primarily due to an increase in gross margin dollars resulting from strong sales growth during the year, partially offset by additional investment in personnel and infrastructure in Asia of approximately $0.7 million.
Non-allocated corporate expenses increased 10% for the year ended December 31, 2014 as compared with the year ended December 31, 2013. This increase was primarily due to the addition of several designers, creative talent and product management personnel to help support our existing product lines and to aid in the development of our expanded product line. These aforementioned investments resulted in approximately $2.2 million of additional cost in the the year ended December 31, 2014. We have also invested approximately $1.5 million in our legal and finance resources, as well as related

37


outside service fees to help accommodate our growth, and $1.0 million in our after sales service capabilities. In addition, we invested in our logistics capabilities in Western Europe by moving to an expanded warehouse facility to serve our growing business in the EMEA region, while continuing to operate our existing warehouse in transition, which resulted in incremental costs of approximately $0.4 million during the year ended December 31, 2014.
Operating margin remained consistent at 18% for the years ended December 31, 2014 and 2013, as the previously mentioned investments in our human resource base and our insourced web stores, which launched during the fourth quarter of 2014, as well as retail operations expense for new stores and the wrap effect of stores opened in 2014, offset some of our fixed cost leverage. During the year ended December 31, 2013, we incurred $0.5 million of offering costs associated with the secondary offering completed in April 2013 and the aforementioned $1.5 million termination fee to our website e-services provider in order to move to a more insourced model. Excluding the aforementioned termination fee and offering costs from the year ended December 31, 2013, operating income would have been $88.3 million and operating margin would have been 19%.
Other income and expense
Total other income, net increased $0.7 million, or 260%, to income of $0.4 million in 2014 from expense of $0.3 million in 2013. The overall increase was attributable to a reduction of interest expense due to the full repayment of debt in the second quarter of 2014.
Income tax expense
Provision for income taxes increased $4.3 million, or 14%, to $35.8 million in 2014 from $31.5 million in 2013, due principally to higher income before taxes, as well as a higher effective tax rate for the year ended December 31, 2014. The change in the effective tax rate was largely driven by the change in apportionment percentages for state purposes for the year ended December 31, 2014. Additionally, in 2013 we received the benefit of a $0.4 million reversal of an unrecognized tax benefit.
Net income
Net income increased $3.5 million, or 6%, to $58.0 million in 2014 from $54.6 million in 2013. This increase was due largely to the increase in net sales and gross margin dollars, partially offset by the aforementioned higher operating expenses which reflect the incremental personnel and professional services investment required to support the transition of our web stores to a more insourced model, as well as higher retail operations expenses related to new stores opened in 2014.
Basic and diluted weighted average shares outstanding for the years ended December 31, 2014 and 2013 were 67.9 million shares. Basic and diluted EPS was $0.85 per common share for the year ended December 31, 2014 versus $0.80 per common share for the year ended December 31, 2013.
Adjusting for the aforementioned one-time expenses for the year ended December 31, 2013 ($1.5 million termination fee, or $0.9 million after tax, and $0.5 million offering costs, or $0.3 million after tax), net income for the year ended December 31, 2014 would have increased $2.2 million, or 4%. Basic and diluted EPS adjusted for the aforementioned one-time costs would have been $0.82 per common share for the year ended December 31, 2013.
Year ended December 31, 2013 compared with year ended December 31, 2012
Net sales
The following table presents net sales by operating segment for the year ended December 31, 2013 compared with the year ended December 31, 2012.
 
 
2013
 
2012
 
% Change
 
(dollars in thousands)
Direct-to-Consumer North America
$
209,214

 
$
180,291

 
16
%
Direct-to-Consumer International
22,408

 
17,879

 
25
%
Indirect-to-Consumer North America
107,303

 
97,801

 
10
%
Indirect-to-Consumer International
128,513

 
102,580

 
25
%
Total
$
467,438

 
$
398,551

 
17
%

38


Net sales increased $68.9 million, or 17%, to $467.4 million in 2013 from $398.6 million in 2012. Net sales increased across all of our operating segments for the year ended December 31, 2013 as compared with the year ended December 31, 2012. Sales increased due principally to an increase in volume resulting from new store openings, positive overall comparable store sales from existing stores, continued wholesale expansion outside the United States, continued growth in both Direct-to-Consumer and Indirect-to-Consumer e-commerce and continued consumer acceptance of our lighter weight products. There were 17 new company-owned store openings during 2013 (offset by 1 store closing). Overall, store traffic patterns remained stable during 2013. There were no material price increases during the period. We continued to grow our own e-commerce websites and our wholesale customers’ e-commerce websites also have shown positive results. Additionally, during 2013, there were new colors of Tegra-Lite introduced, a successful designer collaboration on a women’s collection with Anna Sui, and the introduction of Ticon, a collection designed to protect against identity theft. In the women’s line, both the Carlyle and Voyager collections also introduced seasonal colors to which consumers appeared to respond positively. While the net effect of these new colors (net of cannibalization) were not material, these seem to have been met with consumer enthusiasm. New stores opened during the year contributed approximately 12% of the overall sales growth from the year ended December 31, 2012 to the year ended December 31, 2013.
Net sales attributable to the Direct-to-Consumer North America segment experienced a 16% increase for the year ended December 31, 2013 as compared with the year ended December 31, 2012. North America full-price comparable store sales increased less than 1%, North America outlet comparable store sales increased 11% and our North America e-commerce sales increased 20%. Overall, including our e-commerce website, North America comparable store sales increased 6% for the period. Additionally, of the new stores opened during 2013, 16 were in the North America segment and contributed to approximately 26% of the net sales growth in the Direct-to-Consumer North America segment from the year ended December 31, 2012 to the year ended December 31, 2013.
Net sales attributable to the Direct-to-Consumer International segment experienced a 25% increase for the year ended December 31, 2013 as compared with the year ended December 31, 2012, with international full-price comparable store sales up 9% (6% in Euros) and international outlet comparable store sales up 30% (25% in Euros). Our international e-commerce sales were up 14% (10% in Euros). Overall, including our e-commerce websites, our international comparable store sales were up 16% (13% in Euros) for the period. Improvement in store traffic patterns and macroeconomic conditions in the EMEA region helped contribute to this increase. Additionally, of the new stores opened during 2013, one was in Western Europe and contributed to approximately 12% of the Direct-to-Consumer International net sales growth from the year ended December 31, 2012 to the year ended December 31, 2013.
Overall, including e-commerce, comparable store sales for all Direct-to-Consumer channels increased 7% globally for the year ended December 31, 2013 as compared with the year ended December 31, 2012.     
Net sales attributable to the Indirect-to-Consumer North America segment increased 10% and net sales attributable to the Indirect-to-Consumer International segment increased 25% for the year ended December 31, 2013 as compared with the year ended December 31, 2012. The Indirect-to-Consumer North America net sales were favorably impacted by strong sales through our wholesale customers’ e-commerce websites as well as the aforementioned enthusiasm around our lightweight products and additions to our collections. This was partially offset by our decision to limit our special markets business in an effort to limit the incidences of product diversion and trans-shipping abuses that have become a more common occurrence in Asia, particularly in Japan and South Korea, where the Tumi brand is becoming increasingly popular. Certain special markets customers have been a source of unauthorized product diversion in the past. Our Indirect-to-Consumer International net sales have been favorably impacted by strong performance in Asia related to the opening of new wholesale points of distribution and in the EMEA region, aided by positive reaction to our lightweight collections.
Operating income
The following table presents operating income by operating segment for the year ended December 31, 2013 compared with the year ended December 31, 2012.
 
 
2013
 
2012
 
% Change
 
(dollars in thousands)
Direct-to-Consumer North America
$
62,485

 
$
57,208

 
9
 %
Direct-to-Consumer International
2,941

 
964

 
205
 %
Indirect-to-Consumer North America
40,637

 
37,038

 
10
 %
Indirect-to-Consumer International
39,829

 
29,658

 
34
 %
Non-allocated corporate expenses
(59,529
)
 
(53,192
)
 
(12
)%
Total
$
86,363

 
$
71,676

 
20
 %

39



Operating income increased $14.7 million, or 20%, to $86.4 million in 2013 from $71.7 million in 2012. This improvement was a result of higher revenues and improved gross margin dollars partially offset by higher operating expenses.

Operating income attributable to the Direct-to-Consumer North America segment increased $5.3 million, or 9%, to $62.5 million for the year ended December 31, 2013 from $57.2 million for the year ended December 31, 2012. This was primarily due to growth in e-commerce net sales by 20% and growth from stores opened during the prior year, partially offset by higher retail operations expenses related to new stores opened in 2013. Historically, company-owned store operating margins generally strengthen after their first year of operation.
    
Operating income attributable to the Direct-to-Consumer International segment increased $1.9 million, or 205%, to $2.9 million for the year ended December 31, 2013 from $1.0 million for the year ended December 31, 2012. This increase was primarily driven by the growth in our comparable stores, partially offset by higher retail operations expenses related to the new store opened in Western Europe during the year ended December 31, 2013. Sales in this segment grew 25% as compared with the prior year, with comparable store sales up 16%.

Operating income attributable to the Indirect-to-Consumer North America segment increased $3.6 million, or 10%, to $40.6 million for the year ended December 31, 2013 from $37.0 million for the year ended December 31, 2012, primarily due to continued sales growth of 10% in this segment, partially offset by approximately $0.3 million for the addition of key account executives.

Operating income attributable to the Indirect-to-Consumer International segment increased $10.2 million, or 34%, to $39.8 million for the year ended December 31, 2013 from $29.7 million for the year ended December 31, 2012. This increase was primarily due to an increase in gross margin dollars, partially offset by additional investments in marketing of approximately $0.7 million in the segment and additional investment in our human resource base of approximately $0.6 million.

Non-allocated corporate expenses represent expenses and income not attributable to a particular operating segment and include 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. Non-allocated corporate expenses increased $6.3 million, or 12%, to $59.5 million for the year ended December 31, 2013 from $53.2 million for the year ended December 31, 2012. The increase reflected the addition of several designers, creative talent and product management personnel to help support our existing product lines and to aid in the development of our expanded product line. These aforementioned investments resulted in approximately $1.4 million of additional cost for the year ended December 31, 2013. We increased marketing spending by approximately $2.5 million, as well as increased spending by approximately $0.5 million to expand our after sales service capabilities. We also increased our human resource base, which resulted in approximately $2.3 million of additional cost. In addition, during the year ended December 31, 2013, we incurred $0.5 million of offering costs associated with the secondary offering completed in April 2013 and a $1.5 million termination fee associated with a change in our website e-services provider in order to move to a more insourced model. During the year ended December 31, 2012, we incurred a $5.5 million one-time special bonus paid to the Chief Executive Office (“CEO”) in connection with the successful completion of the IPO and $0.6 million of offering costs associated with the secondary offering completed in November 2012 (see Note 1 of our audited consolidated financial statements for further information regarding our IPO and secondary offerings).

Operating margin remained consistent at 18% for the years ended December 31, 2013 and 2012. However, excluding the aforementioned termination fee and offering costs from the year ended December 31, 2013 and excluding the special cash bonus paid to the CEO and offering costs from the year ended December 31, 2012, operating margin would have decreased from 20% for the year ended December 31, 2012 to 19% for the year ended December 31, 2013. In late 2013 we began preparing for the re-launch of our Alpha Travel Collection in the first quarter of 2014 through an after-Christmas holiday promotion. This transition had a marginally negative effect on our 2013 operating margin.
Other income and expense
Total other expenses decreased $7.9 million, or 97%, to $0.3 million in 2013 from $8.2 million in 2012. The overall decrease in other expenses was 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 our IPO in the second quarter of 2012. Excluding this one item, total other expenses remained consistent at $0.3 million.


40


Income tax expense
Provision for income taxes increased $4.8 million, or 18%, to $31.5 million in 2013 from $26.7 million in 2012, due principally to higher income before taxes, partially offset by a $0.4 million reversal of an unrecognized tax benefit. The effective tax rate was favorably impacted by the reduction of non-deductible dividend expense due to the repurchase of all of our mandatorily redeemable preferred stock and preferred equity interests in connection with our IPO in the second quarter of 2012.
Net income
Net income increased $17.8 million, or 48%, to $54.6 million in 2013 from $36.8 million in 2012. The increase in net income was due mainly to the increase in net sales and gross margin dollars as well as the aforementioned reduction in dividend expense on mandatorily redeemable preferred stock and preferred equity interests.
Basic and diluted weighted average shares outstanding for the years ended December 31, 2013 and 2012 were 67.9 million shares and 63.3 million, respectively. Basic and diluted EPS was $0.80 per common share for the year ended December 31, 2013 versus $0.58 per common share for the year ended December 31, 2012.
Net income before dividend expense on mandatorily redeemable preferred stock and preferred equity interests was $54.6 million and $44.7 million for the years ended December 31, 2013 and 2012, respectively. Basic and diluted EPS before dividend expense on mandatorily redeemable preferred stock and preferred equity interests was $0.80 per common share and $0.71 per common share for the years ended December 31, 2013 and 2012, respectively.
In addition, adjusting for dividend expense and the aforementioned one-time expenses in both periods ($1.5 million termination fee, or $0.9 million after tax, and $0.5 million offering costs, or $0.3 million after tax, for the year ended December 31, 2013 and $5.5 million special cash bonus paid to the CEO, or $3.1 million after tax, and $0.6 million offering costs, or $0.4 after tax, for the year ended December 31, 2012) net income in 2013 would have increased approximately $7.6 million, or 16%, to $55.8 million from $48.2 million in 2012. Basic and diluted EPS before dividend expense on mandatorily redeemable preferred stock and preferred equity interests adjusted for the aforementioned one-time costs in both periods would have been $0.82 and $0.76 per common share for the years ended December 31, 2013 and 2012, 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 2014 and 2013, fourth quarter net sales represented approximately 31% and 32% of our total annual net sales. Operating income in the same periods represented approximately 40% and 37% of our total annual operating income, respectively.
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 was used to refinance 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.
    
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.
We believe we have sufficient working capital and liquidity to support our operations for at least the next twelve months.
Cash and cash equivalents
At December 31, 2014, 2013 and 2012, we had cash and cash equivalents of $52.8 million, $37.6 million and $36.7 million, respectively. A summary of our cash flows provided by and used in operating, investing and financing activities is presented below.

41


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, share-based compensation expense, dividend expense on mandatorily redeemable preferred stock and preferred equity interests, loss on disposal of fixed assets 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 $60.5 million and $63.2 million during the years ended December 31, 2014 and December 31, 2013, respectively. The principal reason for the decrease was the prepayments made for our estimated income taxes.
We generated cash flows from operations of $63.2 million and $48.4 million during the years ended December 31, 2013 and 2012, respectively. The principal reason for this increase was the improvement in net income.
Investing activities
Cash flows used for investing activities consisted of capital expenditures for store expansion plans, store renovations, store openings, store relocations, information technology infrastructure, distribution infrastructure and product tooling costs.
Cash used for capital expenditures was $36.6 million and $25.4 million for the years ended December 31, 2014 and 2013, respectively. The increase was due principally to the investment in our insourced web platform and stores opened or renovated during 2014 as well as stores expected to open in the first quarter of 2015.
Cash used for capital expenditures was $25.4 million and $21.3 million for the years ended December 31, 2013 and 2012, respectively. The increase was due principally to the investment in a new point of sale system, store openings, and the completion of our warehouse expansion project.
Financing activities
Cash flows used for financing activities was $8.0 million and $37.0 million for the years ended December 31, 2014 and 2013, respectively. The decrease was mainly attributable to lower repayments of bank debt during the year ended December 31, 2014, during which the balance outstanding was paid in full.
Cash flows used for financing activities was $37.0 million and $23.2 million for the years ended December 31, 2013 and 2012, respectively. The increase was mainly attributable to the pay down of the revolving credit facility during 2013.
Amended and restated credit facility
On April 4, 2012, Tumi, Inc. and Tumi Stores, Inc., each a direct or indirect wholly-owned subsidiary of the Company (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.
The Amended Credit Facility consolidated the term loan facility and the revolving credit facility previously provided in the Company’s former debt facility with Wells Fargo into a single $70,000,000 senior secured revolving credit facility, with Wells Fargo as the sole lender, and extended the maturity of the facility until April 4, 2017. The Amended Credit Facility included a letter of credit sublimit not to exceed the undrawn amount of the revolving commitments.
On August 29, 2013, the Amended Credit Facility was amended to reduce the letter of credit sublimit to $5,000,000.
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 the LIBOR, or base rate, as well as the amount of the commitment fee, depends on the Company’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.

42


As of December 31, 2014 the Company had no balance outstanding under the Amended Credit Facility. As of December 31, 2013, the balance outstanding on the facility was $8,000,000 and bore interest at the market LIBOR rate of 0.17% plus 100 basis points. Letters of credit totaling $286,000 were outstanding under the facility at both December 31, 2014 and 2013 and, accordingly, the unused portion of the facility was $69,714,000 and $61,714,000, respectively. The fee for the unused portion of the facility was $104,000 and $70,000 for the years ended December 31, 2014 and 2013, respectively.
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 would 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
The following table represents our obligations and commitments to make future payments under contracts, such as lease agreements and debt obligations, and under contingent commitments as of December 31, 2014:
 
 
Payments due by period
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
 
Total
 
(in millions)
Minimum lease payments(1)
$
28.3

 
$
49.9

 
$
43.6

 
$
76.0

 
$
197.8

Purchase obligations(2)
51.9

 

 

 

 
51.9

Total
$
80.2

 
$
49.9

 
$
43.6

 
$
76.0

 
$
249.7


(1)
Our store leases generally have initial lease terms of 10 years and include renewal options upon substantially the same terms and conditions as the original lease. We had no material construction commitments for leasehold improvements at December 31, 2014, 2013 and 2012, respectively.
(2)
Purchase obligations represent an estimate of open purchase orders and contractual obligations in the ordinary course of business for which the Company has not received the goods or services. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services.
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 audited consolidated financial statements which have been prepared in accordance with 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 judgments about matters that are inherently uncertain. See Note 1 to our audited consolidated financial statements, which are included elsewhere in this report, for a complete discussion of our significant accounting policies. The following reflect the significant estimates and judgments used in the preparation of our consolidated financial statements.

43


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 segments, revenue is recognized when inventory is in possession of our wholesale customers or their appointed carriers, at which point the related 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 recorded using 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. Goodwill and brand/trade name 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. No impairment was recognized in the years ended December 31, 2014, 2013 and 2012.
The quantitative goodwill impairment test, if necessary, is a two-step process. Under the first of two steps, the Company compares the fair value of a reporting unit to its carrying amount, including goodwill, to identify a potential impairment. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for such reporting unit and the enterprise must perform step two of the impairment test to measure the impairment, if any. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation: the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill.
The Company uses techniques including discounted expected future cash flows (Level 3 input), or DCF, to test goodwill. Indefinite-lived intangible assets are tested for impairment through an income approach known as the relief from royalty method. A discounted cash flow analysis calculates the fair value by estimating the after-tax cash flows attributable to a

44


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 DCF and the relief from royalty method require the exercise of significant judgment including judgment about appropriate royalty rates, discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. Although the Company believes the historical assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.
The Company’s reporting units for the purpose of goodwill impairment testing are our reportable business segments: (i) Direct-to-Consumer North America, (ii) Indirect-to-Consumer North America, (iii) Direct-to-Consumer International and (iv) Indirect-to-Consumer International. The reporting units were determined in accordance with the guidance on reportable segments in FASB ASC 280-10-50-1. There is no discrete financial information available to the Company for its operations below our reportable business segments.
Warranties
    
We provide our customers with a product warranty subsequent to the sale of our products. Our warranty policy provides for one year of worry-free service as well as an additional warranty against manufacturers’ defects or flaws in construction for between two and five years, depending on the product line. 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.

Recently Issued Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward exists.” This amended guidance requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carry forward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. The new guidance is effective prospectively for fiscal years and interim periods beginning after December 15, 2013, with early adoption permitted. The Company adopted the amended guidance effective January 1, 2014 and it did not have a material effect on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, but does not expect the impact to be material.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (Topic 718)”. ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is evaluating the potential impacts of the new standard on its existing share-based compensation plans, but does not expect the impact to be material.
Financial Statement Components
Net sales
Net sales consists of revenue from the sale of products, less returns, discounts and allowances and other offsets to net sales. In our Direct-to-Consumer segments, revenue is recognized when a consumer purchase occurs and the consumer receives the merchandise. In our Indirect-to-Consumer segments, revenue is recognized when inventory is in possession of our wholesale customers or their appointed carriers, at which point the risk and related title passes. Provisions for discounts, rebates to consumers 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. Revenue from gift cards and the amount of revenue recognized for gift cards not redeemed (“breakage”) is immaterial to our results of operations. Amounts billed to customers for delivery costs are classified as a component of net sales, and any other related delivery costs are classified as a component of cost of sales. Sales and value

45


added tax collected from consumers and remitted to governmental authorities are accounted for on a net basis and are excluded from net sales on our consolidated results of operations.
Comparable store sales are calculated based on our company-owned stores that have been open for at least a full calendar year as of the end of our annual reporting period. For example, a store opened in October 2014 will not impact the comparable store comparison until January 1, 2016. Additionally, temporary store closings, store expansions and store relocations are excluded from the comparable store base under most circumstances. There may be variations in the way in which some of our competitors and other retailers calculate comparable or “same store” sales. As a result, data in this Annual Report on Form 10-K regarding our comparable store sales may not be comparable with similar data made available by other companies.
Cost of sales
Cost of sales includes the cost of finished goods purchased from our suppliers plus the cost of freight to deliver the product to our distribution centers, packaging and related duties and applicable overhead incurred to bring the merchandise to its condition for sale. Gross margin is defined as net sales less the cost of sales.
Operating expenses
Operating expenses consist of selling, marketing, retail operations and general and administrative expenses.
Selling.    Selling expenses consist of wholesale-related salaries, benefits, commissions, incentive programs, concession fees, travel and entertainment, meetings and seminars and other selling costs and expenses, in each case related to our global wholesale business.
Marketing.    Marketing expenses consist of in-store and consumer advertising, marketing-related salaries and benefits, travel and entertainment, lease-required advertising, consumer catalogs, market research and other consulting costs and expenses related to marketing.
Retail operations.    Retail operations expenses include occupancy and staffing costs associated with our company-owned stores, store depreciation expense, operator fees for our e-commerce websites, depreciation on point-of-sale fixtures, travel and entertainment, meetings and seminars, insurance and other related administrative costs and expenses.
General and administrative.    General and administrative expenses consist of product development costs related to tools, dies, design and travel; shipping and distribution costs; costs associated with running our global distribution network such as occupancy and employment expenses; costs associated with warranty and after-sales service such as employee and repair-related expenses and warranty claims; employee-related costs associated with our executive, finance, information technology, legal and human resource functions; costs associated with our corporate headquarters and product showrooms; and legal, tax and accounting fees.
Operating income
Operating income consists of gross margin less operating expenses, and excludes other income and expenses (i.e., non-operating income and expenses).
Other income (expenses)
Interest expense.    Interest expense consists of interest payments made pursuant to our amended and restated credit facility and our former credit and guaranty agreement with, among others, Wells Fargo, as well as amortization of deferred financing costs, net of minimal interest income.
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests. Dividend expense on mandatorily redeemable preferred stock and preferred equity interests consists solely of non-cash accrued preferred dividends on our mandatorily redeemable preferred stock and preferred equity interests. These amounts had not been paid but were due upon redemption.
Earnings from joint venture investment.    Earnings from joint venture investment relate exclusively to Tumi Japan, a joint venture (corporation) in which we hold a 50% interest and which sells Tumi products in 14 retail stores and to various high-end wholesale customers in Japan.
Foreign exchange gains (losses).    Foreign currency exposures arise in our branch offices and subsidiaries in Europe where transactions are denominated in a currency other than the U.S. dollar. Gains and losses such as those resulting from the

46


settlement of receivables and payables denominated in foreign currency are included in the earnings of the current period in “foreign exchange gains (losses).” We are also exposed to foreign currency exchange rate fluctuations with respect to our European operations as a result of its U.S. dollar-denominated historical rate intercompany loan balance. We believe that exposure to adverse changes in exchange rates associated with revenues and expenses of our foreign branch offices and subsidiaries are immaterial to our consolidated financial statements. Gains and losses arising from currency exchange rate fluctuations on intercompany transactions deemed to be long-term in nature remain in other comprehensive income.
Other non-operating income (expenses).    Other non-operating income (expenses) includes all other non-operating income and expenses.
Provision for income taxes
We record income tax expenses related to federal, state, local and foreign income.

ITEM 7A. 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 foreign currency exchange rates and interest 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 2014 and 2013, we recorded gains related to the exchange rate fluctuation effect on remittances from our European affiliates and other transactions relating to our international operations of $475,000 and $388,000, respectively. We recorded a $287,000 loss in 2012 related to the exchange rate fluctuation effect on those remittances. Because a portion of our net sales (approximately 10% in each of 2014, 2013 and 2012) 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 selling expenses and general and administrative expenses that are generated 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, on April 4, 2012, Tumi, Inc. and Tumi Stores, Inc., entered into the Amended Credit Facility, with Wells Fargo as lender and as collateral agent. The Amended Credit Facility consolidated the term loan facility and the revolving credit facility previously provided in our former debt facility into a single $70,000,000 senior secured revolving credit facility. See “—Liquidity and Capital Resources—Amended and restated credit facility.”
Amended 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 will 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 the LIBOR, or base rate, will depend on our leverage at the time. Accordingly, under the Amended Credit Facility, we continue to be exposed to market risk from changes in the underlying variable interest rates, which affect our cost of borrowings. We carefully monitor the interest rates on our borrowings under the Amended Credit Facility. As of December 31, 2014, we had no balance outstanding under the Amended Credit Facility.
We do not currently have any interest rate hedging activities in place, but we may in the future engage in hedging activities, based on, among other things, market conditions. We do not, and do not intend to, engage in the practice of trading derivative securities for profit. A 10% increase in the applicable interest rate would not have had a material effect on interest expense to us under the Amended Credit Facility.

47


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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See “Index to Consolidated Financial Statements,” which is located on page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our CEO and Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosure. We recognize that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving desired control objectives. Judgment is required when designing and evaluating the cost-benefit relationship of potential controls and procedures.

As of the end of the period covered by this report, with the supervision and participation of management, including our CEO and CFO, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and CFO have concluded that, as of December 31, 2014, our disclosure controls and procedures were effective at the reasonable assurance level.

Internal Control over Financial Reporting

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) of the Exchange Act). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board regarding the preparation and fair presentation of published financial statements. Management evaluated the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework in 2013. Management, under the supervision and with the participation of the Company’s CEO and CFO, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 and concluded that it is effective.
    
Grant Thornton LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting and has issued an attestation report as of December 31, 2014, which appears on page F-3 of this report.

Changes in Internal Control over Financial Reporting

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


48


ITEM 9B. OTHER INFORMATION

None.

49


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to the portions of the Definitive Proxy Statement entitled “Proposal No.1—Election of Directors,” “Board of Directors, Executive Officers and Corporate Governance—Committees of the Board of Directors,” “Board of Directors, Executive Officers and Corporate Governance—Section 16(a) Beneficial Ownership Reporting Compliance” and “Board of Directors, Executive Officers and Corporate Governance—Executive Officers.”
During the fourth quarter of fiscal year 2014, we made no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors as described in our most recent proxy statement.
    
We have a Code of Business Conduct and Ethics, which is applicable to all employees of the Company. We have a separate Code of Ethics for Principal Executive and Senior Financial Officers, which contains provisions specifically applicable to our principal executive officer, principal financial officer, principal accounting officer and controller (or persons performing similar functions). The Code of Business Conduct and Ethics and the Code of Ethics for Principal Executive and Senior Financial Officers are available on our website at www.tumi.com (under the Investor Relations—Governance section). We intend to disclose any amendments to these codes, or any waivers of their requirements on our website.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the portions of the Definitive Proxy Statement entitled “Board of Directors, Executive Officers and Corporate Governance—Director Compensation,” “Board of Directors, Executive Officers and Corporate Governance—Compensation Committee Interlocks and Insider Participation” and “Compensation Discussion and Analysis” (including “Report of the Compensation Committee” and all other applicable subsections and executive compensation tables included therein).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding the security ownership of certain beneficial owners and management is incorporated by reference to the portion of the Definitive Proxy Statement entitled “Beneficial Ownership of the Company’s Common Stock.”
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information regarding the Company’s equity compensation plans as of December 31, 2014:
Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(3)
 
 
(a)
 
(b)
 
(c)
Equity compensation plans approved by security holders
 
1,110,511(1)

 
21.35(2)

 
5,673,956

Equity compensation plans not approved by security holders
 

 
$

 

Total
 
1,110,511

 
$
21.35

 
5,673,956

(1) Includes 10,680 service-based RSUs and 130,113 performance-based RSUs which do not have an exercise price.
(2) Includes weighted-average exercise price for stock options only.
(3) Includes the number of shares remaining available for future awards under our 2012 Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Incorporated by reference to the portions of the Definitive Proxy Statement entitled “Board of Directors, Executive Officers and Corporate Governance—Director Independence” and “Certain Related Party Transactions.”


50


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference to the portions of the Definitive Proxy Statement entitled “Fees paid to Grant Thornton LLP” and “Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors.”

51


PART IV


ITEM 15. – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a)
Financial Statements and Financial Statement Schedules
See “Index to Consolidated Financial Statements” located on page F-1 of this report.
 
(b)
Exhibits. See the exhibit index included herein.


52


EXHIBIT INDEX
3.1
Amended and Restated Certificate of Incorporation, effective as of April 24, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 25, 2012)
3.2
Amended and Restated Bylaws, effective as of April 24, 2012 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 25, 2012)
4.1
Form of specimen common stock certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 4 to the Registration Statement on Form S-1 (File No. 333-178466) filed on April 3, 2012)
10.1a
Amended and restated subscription and stockholders agreement, dated as of November 15, 2004, by and among the Company, certain investors, the managers and Doughty Hanson & Co Managers Limited (incorporated by reference to Exhibit 10.1 the Registration Statement on Form S-1 (File No. 333-178466) filed on December 13, 2011)
10.1b
Amendment No. 1 to amended and restated subscription and stockholders agreement, dated April 24, 2012 (incorporated by reference to Exhibit 10.1b to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 25, 2012)
10.2a
Registration rights agreement, dated as of November 17, 2004, by and among the Company, Doughty Hanson & Co IV Nominees One Limited, Doughty Hanson & Co IV Nominees Two Limited, Doughty Hanson & Co IV Nominees Three Limited, Doughty Hanson & Co IV Nominees Four Limited and the other stockholders named therein (incorporated by reference to Exhibit 10.2a to the Registration Statement on Form S-1 (File No. 333-178466) filed on December 13, 2011)
10.2b
Amended and restated registration rights agreement, dated as of April 24, 2012, by and among the Company, Doughty Hanson & Co IV Nominees One Limited, Doughty Hanson & Co IV Nominees Two Limited, Doughty Hanson & Co IV Nominees Three Limited, Doughty Hanson & Co IV Nominees Four Limited and the other stockholders named therein (incorporated by reference to Exhibit 10.2b to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 25, 2012)
10.3a
Credit and guaranty agreement, dated as of October 29, 2010, among Tumi, Inc. and Tumi Stores, Inc., as borrowers, certain subsidiaries of Tumi, Inc., as guarantors, Wells Fargo Bank, National Association, as administrative agent, collateral agent, swing line lender and issuing bank, Capital One, N.A., as syndication agent, Sovereign Bank and Citizens Bank of Pennsylvania, each as a documentation agent and Wells Fargo Securities, LLC and Capital One, N.A., as joint lead arrangers and joint bookrunner (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1 (File No. 333-178466) filed on December 13, 2011)
10.3b
Amended and restated credit and guaranty agreement, dated as of April 4, 2012, among Tumi, Inc. and Tumi Stores, Inc., as borrowers, certain subsidiaries of Tumi, Inc., as guarantors, and Wells Fargo Bank, National Association, as lender and collateral agent (incorporated by reference to Exhibit 10.3b of Amendment No. 5 to the Registration Statement on Form S-1 (File No. 333-178466) filed on April 9, 2012)
10.4
Amended and restated letter agreement dated July 8, 2009 between Tumi, Inc. and Jerome Griffith (incorporated by reference to Exhibit 10.4 of Amendment No. 4 to the Registration Statement on Form S-1 (File No. 333-178466) filed on April 3, 2012)+
10.5
Employment agreement, dated December 22, 2008, between Tumi, Inc. and Jerome Griffith (incorporated by reference to Exhibit 10.5 of Amendment No. 4 to the Registration Statement on Form S-1 (File No. 333-178466) filed on April 3, 2012)+
10.6
Employment agreement, dated November 17, 2004, between Tumi, Inc. and Michael Mardy (incorporated by reference to Exhibit 10.6 of Amendment No. 4 to the Registration Statement on Form S-1 (File No. 333-178466) filed on April 3, 2012)+
10.7
Employment agreement, dated November 17, 2004, between Tumi, Inc. and Alan Krantzler (incorporated by reference to Exhibit 10.7 of Amendment No. 4 to the Registration Statement on Form S-1 (File No. 333-178466) filed on April 3, 2012)+
10.8
Employment agreement, dated May 15, 2006, between Tumi, Inc. and Steven Hurwitz (incorporated by reference to Exhibit 10.8 of Amendment No. 5 to the Registration Statement on Form S-1 (File No. 333-178466) filed on April 9, 2012)+

53


10.10
Director nomination agreement between the Company and Doughty Hanson & Co Managers Limited (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 25, 2012)
10.11
Form of indemnification agreement among the Company and its directors and executive officers (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 25, 2012)+
10.12
Tumi Holdings, Inc. 2012 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013)+
10.13
Tumi Holdings, Inc. 2012 Long-Term Incentive Plan form of stock option agreement for Employees (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013)+
10.14
Tumi Holdings, Inc. 2012 Long-Term Incentive Plan form of stock option agreement for Directors (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 29, 2013)+
10.15
Amended offer letter, dated October 12, 2011, from Tumi, Inc. to Adam Levy (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013)+
10.16
Offer letter, dated December 2, 2013, from Tumi Holdings, Inc. to Peter L. Gray (incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013)+
10.17
Tumi Holdings, Inc. 2012 Long-Term Incentive Plan form of restricted stock unit agreement for time-based awards (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2014)+
10.18
Tumi Holdings, Inc. 2012 Long-Term Incentive Plan form of restricted stock unit agreement for performance-based awards (incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014)+
10.19
Tumi Holdings, Inc. 2012 Long-Term Incentive Plan form of restricted stock unit agreement for Directors (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2014)+
10.20
Director Compensation Plan (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2014)+
21.1
List of subsidiaries
23.1*
Consent of Grant Thornton LLP
23.2*
Consent of Northstar Research Partners
23.3*
Consent of Kelton Research, LLC
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
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
____________________
*    Filed herewith.
**    Furnished herewith.
+    Management contract, compensatory plan or arrangement filed in response to Item 15(a)(3) of the Instructions to Form 10-K.

54


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
 
 
 
TUMI HOLDINGS, INC.
 
 
 
 
 
Dated:
February 27, 2015
By:
/s/ Jerome S. Griffith
 
 
 
Jerome S. Griffith
 
 
 
Chief Executive Officer, President and Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Name
 
Title
 
Date
 
 
 
 
 
/s/ Jerome S. Griffith
 
 
 
Jerome S. Griffith
 
Chief Executive Officer and President (Principal Executive Officer) and Director
 
February 27, 2015
/s/ Michael J. Mardy
 
 
 
 
Michael J. Mardy
 
Chief Financial Officer and Executive Vice President (Principal Financial Officer) and Director
 
February 27, 2015
/s/ David J. Riley
 
 
 
 
David J. Riley
 
Chief Accounting Officer and Senior Vice President, Finance (Principal Accounting Officer)
 
February 27, 2015
/s/ Joseph R. Gromek
 
 
 
 
Joseph R. Gromek
 
Chairman of the Board
 
February 27, 2015
/s/ Claire M. Bennett
 
 
 
 
Claire M. Bennett
 
Director
 
February 27, 2015
/s/ Christopher J. L. Fielding
 
 
 
 
Christopher J. L. Fielding
 
Director
 
February 27, 2015
/s/ Thomas H. Johnson
 
 
 
 
Thomas H. Johnson
 
Director
 
February 27, 2015
/s/ Alexander W. Smith
 
 
 
 
Alexander W. Smith
 
Director
 
February 27, 2015


55


TUMI HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 



F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Tumi Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Tumi Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tumi Holdings, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2015 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
New York, New York
February 27, 2015

F-2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Tumi Holdings, Inc.

We have audited the internal control over financial reporting of Tumi Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2014, and our report dated February 27, 2015 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
New York, New York
February 27, 2015


F-3


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
 
 
At December 31,
 
2014
 
2013
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
52,796

 
$
37,613

Accounts receivable, less allowance for doubtful accounts of approximately $580 and $477 at December 31, 2014 and 2013, respectively
31,890

 
28,992

Other receivables
3,003

 
2,914

Inventories, net
89,231

 
79,969

Prepaid expenses and other current assets
8,315

 
6,878

Deferred tax assets, current  
7,298

 
5,347

Total current assets
192,533

 
161,713

Property, plant and equipment, net  
79,067

 
60,871

Deferred tax assets, noncurrent
4,608

 
2,124

Joint venture investment
2,156

 
1,960

Goodwill  
142,773

 
142,773

Intangible assets, net
130,414

 
130,673

Deferred financing costs, net of accumulated amortization of $3,087 and $2,923 at December 31, 2014 and 2013, respectively
372

 
536

Other assets  
10,907

 
5,837

Total assets
$
562,830

 
$
506,487


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

F-4


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
(In thousands, except share and per share data)
 
 
At December 31,
 
2014
 
2013
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
33,898

 
$
33,938

Accrued expenses
34,786

 
32,120

Income taxes payable
2,334

 
4,680

Total current liabilities
71,018

 
70,738

 
 
 
 
Revolving credit facility

 
8,000

Other long-term liabilities
11,407

 
8,556

Deferred tax liabilities
53,522

 
51,195

Total liabilities
135,947

 
138,489

 
 
 
 
Commitments and contingencies


 


 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
Common stock—$0.01 par value; 350,000,000 shares authorized, 68,146,673 shares issued and 67,868,867 shares outstanding as of December 31, 2014; 68,144,473 shares issued and 67,866,667 shares outstanding as of December 31, 2013
681

 
681

Preferred stock—$0.01 par value; 75,000,000 shares authorized and no shares issued or outstanding as of December 31, 2014 and 2013

 

Additional paid-in capital
314,217

 
310,554

Treasury stock, at cost
(4,874
)
 
(4,874
)
Retained earnings
119,734

 
61,725

Accumulated other comprehensive loss
(2,875
)
 
(88
)
Total stockholders’ equity
426,883

 
367,998

Total liabilities and stockholders’ equity
$
562,830

 
$
506,487


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

F-5


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share data)
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Net sales
$
527,194

 
$
467,438

 
$
398,551

Cost of sales
221,227

 
198,593

 
170,092

Gross margin
305,967

 
268,845

 
228,459

OPERATING EXPENSES
 
 
 
 
 
Selling
36,447

 
28,875

 
24,929

Marketing
16,528

 
17,373

 
13,713

Retail operations
115,763

 
98,720

 
81,379

General and administrative
43,799

 
37,514

 
36,762

Total operating expenses
212,537

 
182,482

 
156,783

Operating income
93,430

 
86,363

 
71,676

OTHER INCOME (EXPENSES)
 
 
 
 
 
Interest expense
(477
)
 
(733
)
 
(1,392
)
Dividend expense on mandatorily redeemable preferred stock and preferred equity interests

 

 
(7,892
)
Earnings from joint venture investment
279

 
184

 
845

Foreign exchange gains (losses)
475

 
388

 
(287
)
Other non-operating income (expenses)
132

 
(94
)
 
554

Total other income (expenses)
409

 
(255
)
 
(8,172
)
Income before income taxes
93,839

 
86,108

 
63,504

Provision for income taxes
35,830

 
31,549

 
26,721

Net income
$
58,009

 
$
54,559

 
$
36,783

Weighted average common shares outstanding:
 
 
 
 
 
Basic
67,867,529

 
67,866,667

 
63,304,838

Diluted
67,878,340

 
67,870,688

 
63,304,948

Basic earnings per common share
$
0.85

 
$
0.80

 
$
0.58

Diluted earnings per common share
$
0.85

 
$
0.80

 
$
0.58


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

F-6


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Net income
$
58,009

 
$
54,559

 
$
36,783

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
Foreign currency translation adjustment, net of tax
(2,787
)
 
345

 
552

Comprehensive income
$
55,222

 
$
54,904

 
$
37,335


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

F-7


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity
(In thousands, except share data)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Total
 
Shares
 
Par
Value
 
Additional
Paid-in Capital
 
Treasury
Stock
 
Retained Earnings (Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Loss
Balance as of January 1, 2012
52,536,252

 
$
525

 
$
48,968

 
$
(174
)
 
$
(29,617
)
 
$
(985
)
 
$
18,717

Net income

 

 

 

 
36,783

 

 
36,783

Issuance of common stock, net of underwriters’ discounts and commissions
15,608,221

 
156

 
263,935

 

 

 

 
264,091

Offering costs—other

 

 
(4,410
)
 

 

 

 
(4,410
)
Share-based compensation

 

 
42

 

 

 

 
42

Repurchase of common stock

 

 

 
(4,700
)
 

 

 
(4,700
)
Short swing profit recovery

 

 
10

 

 

 

 
10

Foreign currency translation adjustment, net of tax

 

 

 

 

 
552

 
552

Balance as of December 31,
2012
68,144,473

 
681

 
308,545

 
(4,874
)
 
7,166

 
(433
)
 
311,085

Net income

 

 

 

 
54,559

 

 
54,559

Share-based compensation

 

 
2,009

 

 

 

 
2,009

Foreign currency translation adjustment, net of tax

 

 

 

 

 
345

 
345

Balance as of December 31, 2013
68,144,473

 
681

 
310,554

 
(4,874
)
 
61,725

 
(88
)
 
367,998

Net income

 

 

 

 
58,009

 

 
58,009

Share-based compensation

 

 
3,618

 

 

 

 
3,618

Options exercised
2,200

 

 
45

 

 

 

 
45

Foreign currency translation adjustment, net of tax

 

 

 

 

 
(2,787
)
 
(2,787
)
Balance as of December 31, 2014
68,146,673

 
$
681

 
$
314,217

 
$
(4,874
)
 
$
119,734

 
$
(2,875
)
 
$
426,883


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

F-8


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
Net income
$
58,009

 
$
54,559

 
$
36,783

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
 
Deferred income tax benefit
(86
)
 
483

 
(698
)
Depreciation and amortization
18,156

 
14,187

 
11,504

Share-based compensation expense
3,618

 
2,009

 
42

Amortization of deferred financing costs
164

 
165

 
218

Allowance for doubtful accounts
(103
)
 
137

 
(122
)
Earnings from joint venture
(279
)
 
(184
)
 
(845
)
Loss on disposal of fixed assets
1,096

 
261

 
422

Dividend expense on mandatorily redeemable preferred stock and preferred equity interests

 

 
7,892

Other non-cash charges
350

 
482

 
742

Changes in operating assets and liabilities
 
 
 
 
 
Accounts receivable
(5,328
)
 
(7,882
)
 
1,638

Other receivables
(220
)
 
(1,213
)
 
70

Inventories
(10,843
)
 
(8,773
)
 
(10,290
)
Prepaid expenses and other current assets
(1,566
)
 
(3,606
)
 
(167
)
Other assets
(6,070
)
 
(861
)
 
1,005

Prepaid income taxes
2,334

 
384

 
(384
)
Accounts payable
91

 
6,525

 
50

Accrued expenses
2,830

 
606

 
3,914

Income tax payable
(4,565
)
 
4,680

 
(4,336
)
Other liabilities
2,946

 
1,257

 
1,002

Total adjustments
2,525

 
8,657

 
11,657

Net cash provided by operating activities
60,534

 
63,216

 
48,440

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
Capital expenditures
(36,576
)
 
(25,440
)
 
(21,286
)
Net cash used in investing activities
(36,576
)
 
(25,440
)
 
(21,286
)

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

F-9


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In thousands)
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
Payments on revolving credit facility
$
(8,000
)
 
$
(37,000
)
 
$
(19,000
)
Options exercised
45

 

 

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 initial public offering costs

 

 
(4,272
)
Short swing profit recovery

 

 
10

Net cash used in financing activities
(7,955
)
 
(37,000
)
 
(23,192
)
Effect of exchange rate changes on cash
(820
)
 
100

 
40

Net increase in cash and cash equivalents
15,183

 
876

 
4,002

Cash and cash equivalents at beginning of period
37,613

 
36,737

 
32,735

Cash and cash equivalents at end of period
$
52,796

 
$
37,613

 
$
36,737

Supplemental disclosures of cash flow information:
 
 
 
 
 
Cash paid for interest
$
117

 
$
320

 
$
885

Cash paid for income taxes
$
38,021

 
$
26,441

 
$
31,947

Supplemental disclosure of noncash investing activities:
 
 
 
 
 
Accrued capital expenditures
$
2,117

 
$
2,231

 
$
668


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

F-10


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 
1.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
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 full-price 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 1,800 points of distribution in over 75 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.
The Company’s business is seasonal in nature and, as a result, net sales and working capital requirements fluctuate from quarter to quarter. The Company’s fourth quarter is a significant period with regard to the results of operations due to increased Direct-to-Consumer sales during the holiday season in North America and Europe. During the fourth quarter, the Company expects inventory levels, accounts payable and accrued expenses to increase commensurate with net sales.
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 certain of the Company’s stockholders (inclusive of 2,816,980 shares of common stock from the full exercise of the option granted to the underwriters to purchase additional shares from certain of the selling stockholders). 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 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 one-time special 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”).
Registered Secondary Offerings of the Company’s Common Stock
In November 2012, the Company completed a secondary offering of common stock sold by certain of the Company’s stockholders. The selling stockholders, which included certain of the Company’s officers, sold 11,375,975 shares of our common stock in the offering (inclusive of 1,275,975 shares of common stock from the partial exercise of the option granted to the underwriters to purchase additional shares from certain of the selling stockholders). The Company did not receive any proceeds from the sale of shares by the selling stockholders. The offering expenses incurred by the Company were approximately $634,000, which included legal and accounting costs and various other fees associated with the offering.

F-11


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

In April 2013, the Company completed an additional secondary offering of common stock sold by certain of the Company’s stockholders.  The selling stockholders, which included certain of the Company’s officers, sold 11,661,000 shares of our common stock in the offering (inclusive of 1,521,000 shares of common stock from the full exercise of the option granted to the underwriters to purchase additional shares from certain of the selling stockholders). The Company did not receive any proceeds from the sale of shares by the selling stockholders. The offering expenses incurred by the Company were approximately $477,000, which included legal and accounting costs and various other fees associated with the offering.
In September 2014, the Company completed an additional secondary offering of common stock sold by certain of the Company’s stockholders.  The selling stockholders, comprised of funds managed by, or affiliated with, Doughty Hanson sold 8,000,000 shares of our common stock in the offering. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The offering expenses incurred by the Company were approximately $196,000, which included legal and accounting costs and various other fees associated with the offering.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Tumi Holdings, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
The Company uses the equity method of accounting for its joint venture investment, which is 50% owned, as the Company has the ability to exercise significant influence over the operating and financial policies of the joint venture but does not control the joint venture. The Company’s share of the earnings or losses of the joint venture is included in the Consolidated Statements of Operations as “Earnings from Joint Venture Investment.”
Segment Reporting
The Company became subject to and adopted the provisions of the Financial Accounting Standards Board’s (the “FASB”) guidance for segment reporting in 2011. Segment information has been provided on the basis of the Company’s four reportable segments for all periods presented (see Note 15—Segment Information), which are: (i) Direct-to-Consumer North America; (ii) Indirect-to-Consumer North America; (iii) Direct-to-Consumer International; and (iv) Indirect-to-Consumer International.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, income tax uncertainties, the valuation of share-based compensation and related forfeiture rates, and useful lives of assets. Actual results could differ materially from those estimates.
Reclassification
Certain prior period amounts have been reclassified to conform to the current year presentation.
Revenue Recognition
Revenue is generated from the sale of the Company’s products and is classified as “Net Sales” in the Company’s Consolidated Statements of Operations. The Company recognizes revenue in its Direct-to-Consumer segment when inventory is received by the customer and the related title passes. In the Company’s Indirect-to-Consumer segment, revenue is recognized when inventory is in possession of the wholesale customers or their appointed carriers, at which point the related title passes. Provisions for discounts, rebates to customers and returns are recorded as a reduction of revenue in the same period as the related sales. Revenue associated with gift cards is recognized upon redemption. Revenue from gift cards and the amount of revenue recognized for gift cards not redeemed (“breakage”) is immaterial to these consolidated financial statements. Amounts billed to customers for delivery costs are classified as a component of net sales and the related delivery costs are classified as a component of cost of sales. Sales and value added tax collected from customers and remitted to governmental authorities are accounted for on a net basis and are excluded from net sales in the Consolidated Statements of Operations.

F-12


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Cash and Cash Equivalents
The Company’s cash and cash equivalents are defined as cash and short-term highly liquid investments with an original maturity of three months or less from the date of purchase. The Company’s cash and cash equivalents consist of cash in banks as of December 31, 2014 and 2013.
Effective January 1, 2013, funds held in “noninterest-bearing transaction accounts” are aggregated with any interest-bearing accounts, and the combined total is insured up to a maximum of $250,000. The term “noninterest-bearing transaction account” includes a traditional checking account or demand deposit account on which the insured depository institution pays no interest. The total excess of the bank account balances over the Federal Deposit Insurance Corporation (“ FDIC”) limit effective at each period end was approximately $46,300,000 and $26,590,000 at December 31, 2014 and 2013, respectively. The total cash in international bank accounts, which is not covered under the FDIC, was approximately $6,245,000 and $10,720,000 at December 31, 2014 and 2013, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
Credit is extended to customers based on evaluation of a customer’s financial condition. Generally, collateral is not required. Accounts receivable are due within 30 days to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due.
The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade receivables are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
The following table summarizes the activity in the allowance for doubtful accounts for the years ended December 31, 2014, 2013 and 2012:
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
 
 
(In thousands)
 
 
Balance, beginning of year
$
(477
)
 
$
(340
)
 
$
(462
)
Provision charged to expense
(119
)
 
(271
)
 
34

Amounts written off
16

 
134

 
88

Balance, end of year
$
(580
)
 
$
(477
)
 
$
(340
)

Inventories
Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventory includes material, labor, overhead, freight, and duty and is adjusted for slow-moving and obsolete inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of their estimated useful lives or the terms of the respective leases. Repairs and maintenance costs are expensed as incurred; major renewals or betterments are capitalized.
Long-Lived Assets
The Company reviews long-lived assets, such as property, plant and equipment and certain identifiable intangibles with finite lives, for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Some factors the Company considers important which could trigger an impairment review include: (i) significant underperformance compared to expected historical or projected future operating results; (ii) significant changes in

F-13


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

the Company’s use of the acquired assets or the strategy for its overall business; and (iii) significant negative industry or economic trends. No impairment was recognized during the years ended December 31, 2014, 2013 and 2012.
Deferred Financing Costs
The net balance of the costs incurred for obtaining debt financing was $372,000 and $536,000 as of December 31, 2014 and 2013, respectively. The Company amortizes deferred financing costs to interest expense over the lives of the related financing agreements. During the years ended December 31, 2014, 2013 and 2012, respectively, $164,000, $165,000 and $218,000 was amortized to interest expense.
Offering Costs
In 2011, the Company commenced the process for its initial public offering of the shares of its common stock. The specific incremental costs directly attributable to the offering were initially deferred and recorded as “Deferred Offering Costs” in the consolidated balance sheet as of December 31, 2011. The offering was completed in April 2012 and the deferred offering costs were charged against the net proceeds of the IPO and recorded in stockholders’ equity during the second quarter of 2012.
In November 2012, April 2013 and September 2014, the Company completed secondary offerings of common stock sold by certain of the Company’s stockholders. The Company did not issue or sell any shares in the offerings or receive any proceeds from the sale of shares and the offering expenses incurred were expensed directly to operating expenses.
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. Goodwill and brand/trade name 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. The Company’s annual impairment testing date is the first day of its fourth quarter. No impairment was recognized in the years ended December 31, 2014, 2013 and 2012.
The quantitative goodwill impairment test, if necessary, is a two-step process. Under the first of two steps, the Company compares the fair value of a reporting unit to its carrying amount, including goodwill, to identify a potential impairment. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for such reporting unit and the enterprise must perform step two of the impairment test to measure the impairment, if any. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation: the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill.
The Company uses techniques including discounted expected future cash flows (Level 3 input), or DCF, to test goodwill. Indefinite-lived intangible assets are tested for impairment through an income approach known as the relief from royalty method. A discounted cash flow 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 DCF and the relief from royalty method require the exercise of significant judgment including judgment about appropriate royalty rates, discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. Although the Company believes the historical assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.
The Company’s reporting units for the purpose of goodwill impairment testing are the reportable business segments: (i) Direct-to-Consumer North America, (ii) Indirect-to-Consumer North America, (iii) Direct-to-Consumer International and (iv) Indirect-to-Consumer International. The reporting units were determined in accordance with the guidance on reportable segments in FASB ASC 280-10-50-1. There is no discrete financial information available to the Company for its operations below its reportable business segments.

Share-Based Compensation
Share-based compensation represents the cost related to equity awards granted to employees under the 2012 Plan. The Company measures share-based 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

F-14


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

value of stock options using the Black-Scholes valuation model. All share-based compensation costs are recorded in cost of sales or the various operating expense lines in the consolidated statements of operations based on the employee’s respective function (see Note 17—Share-Based Compensation Plans and Awards).
Performance-based RSUs are awards denominated in units that are settled in shares of the Company’s common stock upon vesting. The vesting of these units is subject to the employee’s continuing employment and the Company’s achievement of certain performance goals during the applicable vesting period. The fair value of performance-based RSUs is based on the fair value of the Company’s common stock on the date of grant. Expense for performance-based RSUs is recognized over the employees’ requisite service period when the attainment of the performance goal is deemed probable.

Service-based RSUs have been granted to the Board of Directors and generally vest over a one-year period, subject to the director’s continuing service on the Board of Directors. The fair value of service-based RSUs is based on the fair value of the Company’s common stock on the date of grant.
Fair Value Measurements
The Company applies the FASB’s 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.
 
 
 
 
 
 
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 which are subject to nonrecurring fair value measurements include goodwill, intangible assets and property, plant and equipment. These assets are recorded at carrying value. However, whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (or at least annually for goodwill and indefinite-lived intangible assets), such assets are assessed for impairment and, if applicable, written down to and recorded at fair value. To measure fair value for such assets, the Company uses techniques including DCF.
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable, were reasonable estimates of their fair value as of December 31, 2014 and 2013. The Company’s variable interest rate credit facility (See Note 8—Credit Facilities) was paid in full during 2014. As of December 31, 2013 the carrying amount was a reasonable estimate of its fair value. If measured at fair value in the financial statements, the Company’s variable interest rate credit facility would be classified as Level 2 in the fair value hierarchy.
Income Taxes
The Company utilizes 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 income in the period that includes the enactment date. A

F-15


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

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.
The Company applies the FASB’s provisions for uncertain tax positions. The Company utilizes 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. The Company recognizes interest and penalties associated with uncertain tax positions as a component of income tax expense.
Foreign Currency Translation
The financial statements of the Company’s branch offices and subsidiaries in Europe are measured using a currency other than the U.S. dollar.
Assets and liabilities recorded in functional currencies other than U.S. dollars are translated into U.S. dollars at the year-end rate of exchange. Revenues and expenses are translated at the average exchange rates for the year. The resulting translation adjustments are charged or credited to other comprehensive income.
Realized foreign currency transaction gains and losses on transactions denominated in currencies other than the functional currency, such as those resulting from the settlement of receivables and payables denominated in foreign currency, are included in the earnings of the current period in “Foreign Exchange Gains (Losses).”
Unrealized gains and losses on intercompany foreign currency transactions that are of a long-term investment nature (that is settlement is not planned or anticipated in the foreseeable future) are recorded in other comprehensive income. Unrealized gains and losses on intercompany foreign currency transactions for which settlement is anticipated are included in the determination of net income. During the year ended December 31, 2014, the Company deemed $36,500,000 of intercompany receivables from its German subsidiary to be permanently invested. Accordingly, these amounts have been reclassified to contributed capital, reflecting the permanent nature of the investment.
Advertising Costs
The Company expenses advertising costs as incurred. Total advertising expenses, excluding cooperative advertising costs, included in operating expenses in the accompanying Consolidated Statements of Operations were approximately $7,935,000, $8,502,000 and $6,443,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
Cooperative Advertising Costs
The Company accounts for certain advertising costs in accordance with the FASB’s guidance for “Customer Payments and Incentives,” ASC Topic 605-50. This standard provides guidance with respect to the statement of operations classification of and the accounting for recognition and measurement of consideration given by a vendor to a customer, which includes sales incentive offers labeled as discounts, coupons, rebates and free products or services as well as arrangements labeled as slotting fees, cooperative advertising and buy downs. As per the FASB’s guidance, the Company records cooperative advertising costs in marketing expenses, as it receives a “separately identifiable benefit in exchange for the consideration.” Additionally, the Company is able to establish the fair value of the cooperative advertising costs from the information obtained from the retailer. Based on this information, the Company has determined that the amount of consideration paid does not exceed the fair value of the benefit received. The Company recognized cooperative advertising expense of approximately $3,148,000, $3,234,000 and $2,619,000 as a marketing expense in the accompanying Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012, respectively.
Store Preopening Expenses
Costs incurred prior to the opening of a new store are expensed as incurred.
Warranties
The Company provides its customers with a product warranty subsequent to the sale of its products. The Company’s warranty policy provides for one year of worry-free service as well as an additional warranty against manufacturers’ defects or flaws in construction for between two and five years, depending on the product line. 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.

F-16


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Treasury Stock
In the past, the Company has repurchased treasury stock. These treasury stock transactions have been recorded using the cost method.
Dividend Expense on Mandatorily Redeemable Preferred Stock and Preferred Equity Interests
Dividends accrued on the Company’s mandatorily redeemable preferred stock and preferred equity interests (see Note 12—Mandatorily Redeemable Preferred Stock and Preferred Equity Interests) are presented in other income (expenses) in the consolidated statements of operations for the year ended December 31, 2012. All of the Company’s preferred stock and preferred equity interests were repurchased at carrying value (inclusive of all accrued dividends) in connection with our IPO in April 2012.
Earnings per Common Share
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average common shares outstanding for the period. Diluted earnings per common share is computed on the basis of the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.

2.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward exists.” This amended guidance requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carry forward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. The new guidance is effective prospectively for fiscal years and interim periods beginning after December 15, 2013, with early adoption permitted. The Company adopted the amended guidance effective January 1, 2014 and it did not have a material effect on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, but does not expect the impact to be material.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (Topic 718)”. ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is evaluating the potential impacts of the new standard on its existing share-based compensation plans, but does not expect the impact to be material.


F-17


3.
INVENTORIES, NET
Inventories, net consist of the following:
 
At December 31,
 
2014
 
2013
 
(In thousands)
Raw materials
$
318

 
$
367

Finished goods
88,913

 
79,602

Total inventories, net
$
89,231

 
$
79,969

 

F-18


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

4.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
 
 
 
At December 31,
 
 
 
2014
 
2013
 
 
 
(In thousands)
 
Useful Life
 
 
 
 
Land
 
$
485

 
$
485

Buildings and improvements
25 years
 
5,395

 
5,066

Leasehold and store enhancements
5 to 10 years
 
102,168

 
87,917

Furniture, computers and equipment
3 to 5 years
 
18,673

 
17,011

Capitalized software
5 years
 
9,908

 
5,443

Fixtures, dies and autos
3 to 5 years
 
19,994

 
17,196

Construction in progress
 
 
5,590

 
5,926

 
 
 
162,213

 
139,044

Less accumulated depreciation and amortization
 
 
(83,146
)
 
(78,173
)
 
 
 
$
79,067

 
$
60,871


Depreciation and amortization expense on property, plant and equipment was $17,897,000, $13,914,000 and $11,231,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
 
5.
JOINT VENTURE
Tumi Japan
In June 2003, the Company entered into a Joint Venture Agreement (“JV Agreement”) with ACE Co., Ltd. (“Ace”) and Itochu Corporation (“Itochu”) to form the Tumi Japan Joint Venture (“Tumi Japan”) and contributed $213,000 at inception. The purpose of Tumi Japan is to sell, promote and distribute the Company’s products in Japan. As of December 31, 2014 and 2013, the Company owned 50% of Tumi Japan.
This investment is accounted for under the equity method. The Company’s share of undistributed earnings from the joint venture, which is included in retained earnings, was a cumulative gain of approximately $1,800,000 as of December 31, 2014.
Pursuant to the JV Agreement, the Company has the option but not the obligation to purchase an additional interest in Tumi Japan up to an ownership percentage of 66% after the tenth year of the existence of Tumi Japan. The amount to be paid per share is based on a predetermined formula according to the agreement and is payable in Japanese yen.
Sales to Itochu during the years ended December 31, 2014, 2013 and 2012 were $15,698,000, $13,779,000, and $11,260,000, respectively. As of December 31, 2014 and 2013, the Company had accounts receivable due from Itochu of $1,870,000 and $1,069,000, respectively.
 

F-19


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

6.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and intangible assets consisted of the following at December 31:
 
Range of Lives
(Years)
 
2014
 
2013
 
 
 
(In thousands)
Goodwill
Indefinite
 
$
142,773

 
$
142,773

Intangible assets
 
 
 
 
 
Brand/trade name 
Indefinite
 
$
130,400

 
$
130,400

Customer relationships
10
 
1,100

 
1,100

Lease value
8
 
1,359

 
1,359

 
 
 
2,459

 
2,459

Less accumulated amortization
 
 
(2,445
)
 
(2,186
)
 
 
 
14

 
273

Intangible assets, net
 
 
$
130,414

 
$
130,673


Substantially all of the Company’s goodwill and intangible assets relate to an acquisition in 2004.
The range of lives of the intangible assets was determined by management, which at times will engage an independent third-party appraisal firm to assist in considering the determination of the lives of intangible assets.
The estimated aggregate amortization and retail operations expense as of December 31, 2014 was as follows:
Year Ending December 31,
Customers
Relationships
 
Lease
Value
 
Total
 
(In thousands)
2015

 
14

 
14

 
$

 
$
14

 
$
14


Amortization expense of the customer relationships, included in general and administrative expense, was $96,000 in the year ended December 31, 2014 and $110,000 in each of the years ended December 31, 2013 and 2012. Included in retail operations expense was $163,000 of amortization expense for the lease value in each of the years ended December 31, 2014, 2013 and 2012.
The Company’s goodwill by segment was as follows as of December 31:
 
2014
 
2013
 
(In thousands)
Direct-to-Consumer North America
$
48,779

 
$
48,779

Direct-to-Consumer International
6,682

 
6,682

Indirect-to-Consumer North America
22,719

 
22,719

Indirect-to-Consumer International
64,593

 
64,593

Goodwill
$
142,773

 
$
142,773


There is no accumulated impairment of goodwill for any period presented.
 

F-20


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

7.
ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued Expenses
Accrued expenses as of December 31 consisted of the following:
 
 
At December 31,
 
2014
 
2013
 
(In thousands)
Warranty
$
8,033

 
$
7,339

Fixed asset purchases
5,762

 
5,128

Severance
681

 
761

Incentive compensation
2,945

 
3,550

Marketing
2,674

 
2,770

Professional fees
920

 
862

Sales tax
3,588

 
2,375

Payroll costs
1,015

 
1,314

Other
9,168

 
8,021

 
$
34,786

 
$
32,120

Other Long-Term Liabilities
Other long-term liabilities as of December 31, 2014 and 2013 consisted of deferred rent and a liability for uncertain tax positions.
Accrued Warranties
The activity in the warranty reserve account was as follows:
 
At December 31,
 
2014
 
2013
 
2012
 
(In thousands)
Liability, beginning of period
$
7,339

 
$
6,807

 
$
6,212

Provision for warranties
3,820

 
3,381

 
3,273

Warranty claims
(3,126
)
 
(2,849
)
 
(2,678
)
Liability, end of period
$
8,033

 
$
7,339

 
$
6,807

 
8.
CREDIT FACILITIES

Amended and Restated Credit Facility
On April 4, 2012, Tumi, Inc. and Tumi Stores, Inc., each a direct or indirect wholly-owned subsidiary of the Company (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.
The Amended Credit Facility consolidated the term loan facility and the revolving credit facility previously provided in the Company’s former debt facility with Wells Fargo into a single $70,000,000 senior secured revolving credit facility, with Wells Fargo as the sole lender, and extended the maturity of the facility until April 4, 2017. The Amended Credit Facility included a letter of credit sublimit not to exceed the undrawn amount of the revolving commitments.
On August 29, 2013, the Amended Credit Facility was amended to reduce the letter of credit sublimit to $5,000,000.
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

F-21


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

undrawn portion of the commitments under the Amended Credit Facility, as well as customary letter of credit fees. The margin added to the LIBOR, or base rate, as well as the amount of the commitment fee, depends on the Company’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 December 31, 2014 the Company had no balance outstanding under the Amended Credit Facility. As of December 31, 2013, the balance outstanding on the facility was $8,000,000 and bore interest at the market LIBOR rate of 0.17% plus 100 basis points. Letters of credit totaling $286,000 were outstanding under the facility at both December 31, 2014 and 2013 and, accordingly, the unused portion of the facility was $69,714,000 and $61,714,000, respectively. The fee for the unused portion of the facility was $104,000 and $70,000 for the years ended December 31, 2014 and 2013, respectively.
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 would 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 was satisfied that all conditions were met, pursuant to the FASB’s guidance, to treat the transaction as a debt modification, which required 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 December 31, 2014.
Long-Term Debt
Long-term debt as of the indicated dates consisted of the following:
 
At December 31,
 
2014
 
2013
 
(In thousands)
Amended Credit Facility: Revolver loan payable April 4, 2017, including interest at a LIBOR rate (0.17% at December 31, 2013) plus 1.00% at December 31, 2013.
$

 
$
8,000

 
$

 
$
8,000



9.
COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain office, distribution and retail facilities. The lease agreements, which expire at various dates through 2027, are subject, in some cases, to renewal options and provide for the payment of taxes, insurance and maintenance. Certain leases contain escalation clauses resulting from the pass-through of increases in operating costs, property taxes and the effect on costs from changes in consumer price indices. Certain rentals are also contingent upon factors such as sales. Rent-free

F-22

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


periods and scheduled rent increases are recorded as components of rent expense on a straight-line basis over the related terms of such leases. Contingent rentals are recognized when the achievement of the target (i.e., sales levels) which triggers the related payment is considered probable. Such expenses were not material for the years ended December 31, 2014, 2013 and 2012.
Future minimum lease payments under all non-cancellable operating leases with initial or remaining terms in excess of one year as of December 31, 2014 were as follows:
 
At December 31, 2014
 
(In thousands)
 
2015
$
28,266

2016
25,719

2017
24,165

2018
22,673

2019
21,005

Thereafter
75,991

 
$
197,819


Rent expense under all operating leases for the Company was approximately $35,865,000, $28,765,000 and $23,146,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
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. The Company is not currently a party to any legal proceedings, the adverse outcome of which, in management’s opinion, would have a material adverse effect on 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.
Web Service Provider Agreement
Pursuant to the Company’s agreement with its web services provider, the Company served an early termination notice to said provider in the second quarter of 2013 and accrued a $1,500,000 (pre-tax) early termination fee pursuant to the terms of this agreement. This amount was paid in December 2013. The original agreement was scheduled to expire on December 31, 2015. The Company transitioned its North America web store during the fourth quarter of 2014 and intends to transition its international web stores to a more insourced model during 2015. The Company intends to use its third-party provider’s services for international web stores until such time.

10.
INCOME TAXES
The components of United States and foreign income from operations before income taxes were as follows:
 
For the Years Ended December 31,
 
2014

2013

2012
 
(In thousands)
United States
$
89,022

 
$
81,554

 
$
63,001

Foreign
4,817

 
4,554

 
503

Total income before income taxes
$
93,839

 
$
86,108

 
$
63,504


F-23


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


The provision for income taxes is as follows:
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
Current provision
 
 
 
 
 
Federal
$
29,288

 
$
27,515

 
$
22,745

State
4,846

 
3,340

 
3,392

Foreign
1,782

 
211

 
1,282

Total current provision
35,916

 
31,066

 
27,419

Deferred
 
 
 
 
 
Federal
(145
)
 
1,124

 
(335
)
State
38

 
(565
)
 
(317
)
Foreign
21

 
(76
)
 
(46
)
Total deferred provision
(86
)
 
483

 
(698
)
Total provision for income taxes
$
35,830

 
$
31,549

 
$
26,721


The differences between income taxes based on the statutory U.S. federal income tax rate of 35% and the Company’s effective income tax rate are provided in the following reconciliation:
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
Statutory federal income tax
$
32,844

 
$
30,138

 
$
22,226

Dividend expense on mandatorily redeemable preferred stock and preferred equity interests

 

 
2,762

State and local net of federal benefit
3,174

 
1,694

 
1,789

Other
(188
)
 
(283
)
 
(56
)
Total provision for income taxes
$
35,830

 
$
31,549

 
$
26,721



F-24


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The major components of deferred income taxes were as follows:
 
 
At December 31,
 
2014
 
2013
 
(In thousands)
Deferred tax assets
 
 
 
Net operating loss—foreign
$
1,633

 
$
2,067

Warranty reserves
3,000

 
2,725

Rent expense
2,336

 
1,968

Other comprehensive income
2,073

 
51

Inventory reserves
912

 
819

Other
668

 
586

Depreciation
156

 
114

Accrued expenses
525

 
473

Allowance for doubtful accounts
217

 
177

Share-based compensation
2,116

 
746

Valuation allowance
(1,730
)
 
(2,255
)
Total deferred tax assets, net
11,906

 
7,471

Deferred tax liabilities
 
 
 
Intangibles
(48,712
)
 
(48,536
)
Depreciation
(4,810
)
 
(2,659
)
Total deferred tax liabilities, net
(53,522
)
 
(51,195
)
Total deferred tax balance
$
(41,616
)
 
$
(43,724
)
Amounts included in the consolidated balance sheet:
 
 
 
Deferred tax assets, current
$
7,298

 
$
5,347

Deferred tax asset, noncurrent
4,608

 
2,124

Deferred tax liabilities
(53,522
)
 
(51,195
)
Total
$
(41,616
)
 
$
(43,724
)

Approximately $48,707,000 and $48,467,000 of deferred tax liabilities were recognized as of December 31, 2014 and 2013, respectively, to reflect the potential future tax liability relating to the $131,500,000 of identifiable intangible assets arising out of the purchase price valuation adjustment in 2004. Approximately $2,073,000 of deferred tax assets as of December 31, 2014 related to unrealized gains recorded in other comprehensive income.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets relating to a particular jurisdiction is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible in that jurisdiction.
Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, with the exception of certain foreign net operating losses and deferred tax assets.
At December 31, 2014 and 2013, there were approximately $5,040,000 and $6,958,000 of gross foreign net operating loss carryforwards, respectively. The majority of these net operating loss carryforwards have an unlimited carryforward period. A valuation allowance of $1,633,000 and $2,067,000 was recorded at December 31, 2014 and 2013, respectively, related to the foreign net operating losses. It is anticipated that these will not be utilized due to continuing losses in these jurisdictions.
The Company has elected to treat all of its foreign subsidiaries as disregarded entities for U.S. income tax purposes. Accordingly, the taxable income of the Company’s foreign subsidiaries is taxed currently in the U.S. and no deferred tax liability exists in regards to the unrepatriated earnings of the subsidiaries.

F-25


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The Company applies the FASB’s provisions for uncertain tax positions. The Company utilizes 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. The Company recognizes interest and penalties associated with certain tax positions as a component of income tax expense.
For years prior to 2011, the federal statute of limitations is closed. There is currently an audit of the 2012 Federal tax return. The outcome of this audit is undetermined. The Company files income tax returns in various states and most of the states remain open to examination for a period of 3 to 4 years from date of filing. The Company files tax returns in all of the foreign jurisdictions that it has a permanent establishment and the tax filings remain subject to examination for 4 to 5 years.
The Company recognizes interest and penalties associated with uncertain tax positions as a component of income tax expense. The Company had approximately $193,000 and $173,000 for the payment of interest and penalties accrued at December 31, 2014 and 2013, respectively. The Company recorded estimated tax related penalty and interest expense in the statement of operations of approximately $20,000, $17,000 and $79,000 during the years ended December 31, 2014, 2013 and 2012, respectively. The total liability for unrecognized tax benefit, inclusive of interest and penalties, at December 31, 2014 and 2013 amounted to approximately $537,000 and $517,000, respectively. The amount of unrecognized tax benefit that, if recognized, would affect the effective tax rate at December 31, 2014 and 2013 was $344,000.
The Company does not expect that there will be a material impact on the amount of unrecognized tax benefit in the next 12 months.
The following table indicates the changes to the Company’s uncertain tax positions for the period and years ended December 31, 2014, 2013 and 2012:
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
Balance, beginning of year
$
344

 
$
747

 
$
658

Additions based on tax positions related to the current year

 

 
95

Reductions based on tax positions related to prior years

 
(403
)
 

Expiration of statute of limitations

 

 
(6
)
Balance, end of year
$
344

 
$
344

 
$
747


As of December 31, 2014 and December 31, 2013, $344,000 of the above amount was included in other long-term liabilities in the consolidated balance sheet.

11.
EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit-sharing and savings plan (the “Plan”). Under the Plan, eligible employees could contribute up to 60% of their compensation not to exceed $17,500 (subject to future adjustment) during calendar years 2014 and 2013 and $17,000 during calendar year 2012. In December 2003, the Company elected to adopt a safe harbor contribution plan amendment, effective January 1, 2004, whereby safe harbor contributions may be made to eligible participants in the 401(k) profit sharing and savings plan. By making a safe harbor matching contribution, the Company’s Plan was no longer subject to certain regulatory testing, thereby enabling all participants to make tax-deferred contributions up to the maximum allowable amount.
The Company has a voluntary safe harbor contribution match up to 100% of the employee’s contribution on the first 3% of their compensation and 50% of the employee’s contribution on the next 2% of eligible compensation. Employer contributions expensed for the Plan amounted to approximately $1,061,000, $885,000 and $788,000 for the years ended December 31, 2014, 2013 and 2012, respectively. Participants are at all times fully vested in their contributions; the Company’s safe harbor contribution is fully vested immediately.
Profit-sharing contributions vest over a 5 year period in accordance with the Plan’s vesting schedules. No contributions were made during 2014, 2013 or 2012.
 


F-26


12.
MANDATORILY REDEEMABLE PREFERRED STOCK AND PREFERRED EQUITY INTERESTS
In connection with the IPO in April 2012, the Company repurchased all of its mandatorily redeemable Series A preferred stock, par value $0.01, and all of its preferred equity interest units. This included 77,500 shares of Series A preferred stock, with a subscription price of $77,500,000, and 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% compounded annually and were cumulative.
The mandatorily redeemable preferred stock and preferred equity interests repurchased in 2012 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.

13.
STOCKHOLDERS’ EQUITY
As of December 31, 2014 and 2013, there were 350,000,000 shares of common stock authorized, with a par value of $0.01, of which 67,868,867 and 67,866,667 shares, net of treasury stock, were outstanding, respectively. Common stock represents 100% of the ownership and voting control of Tumi Holdings, Inc. and does not accrue dividends.
In connection with the IPO, 75,000,000 shares of preferred stock were authorized, with a par value of $0.01, of which no shares were issued or outstanding as of December 31, 2014 and 2013.
As of December 31, 2014 and 2013, the Company held 277,806 shares of common stock in treasury.
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 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.
Accumulated Other Comprehensive Loss
The balance in accumulated other comprehensive loss consists only of foreign currency translation adjustments, net of tax.

 

F-27


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

14.
EARNINGS PER SHARE
The following table summarizes the calculation of basic and diluted earnings per common share (adjusted for the stock splits described in Note 13Stockholders’ Equity) for the years ended December 31, 2014, 2013 and 2012.
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands, except share and per share data)
Basic earnings per common share
 
 
 
 
 
Numerator:
 
 
 
 
 
 Net income
$
58,009

 
$
54,559

 
$
36,783

Denominator:
 
 
 
 
 
Basic weighted average common shares outstanding
67,867,529

 
67,866,667

 
63,304,838

Basic earnings per common share
$
0.85

 
$
0.80

 
$
0.58

 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
Numerator:
 
 
 
 
 
 Net income
$
58,009

 
$
54,559

 
$
36,783

Denominator:
 
 
 
 
 
Number of shares used in basic calculation
67,867,529

 
67,866,667

 
63,304,838

Weighted average dilutive effect of employee stock options
10,811

 
4,021

 
110

  Diluted weighted average common shares outstanding
67,878,340

 
67,870,688

 
63,304,948

    Diluted earnings per common share
$
0.85

 
$
0.80

 
$
0.58


The Company excluded 310,291 and 8,328 weighted average stock options for the years ended December 31, 2014 and 2013, respectively, from the calculation of diluted earnings per common share because the exercise prices of these stock options were greater than or equal to the average market price of the common shares. These options could be included in the calculation in the future if the average market value of the common shares increases and is greater than the exercise price of these options. The Company included all outstanding weighted average stock options with exercise prices less than the average market price of the common shares in the calculation of the weighted average dilutive effect of employee stock options, but a weighted average of 5,419 and 446,090 of these stock options for the years ended December 31, 2014 and 2013, respectively, did not have any impact on the dilutive effect of employee stock options in the preceding table, as they were determined to be antidilutive when the treasury stock method was applied. In addition, as of December 31, 2014, there were 130,113 performance-based restricted stock units that were excluded from the computation of diluted earnings per share because these units have not yet been earned in accordance with the vesting conditions of the plan. No service-based restricted stock units were excluded from the computation of diluted earnings per share for the year ended December 31, 2014, as none were antidilutive. There were no performance-based or service-based restricted stock units issued prior to 2014.

15.
SEGMENT INFORMATION
The Company sells its products globally to consumers through both direct and indirect channels and manages its business through four operating segments: Direct-to-Consumer North America, Direct-to-Consumer International, Indirect-to-Consumer North America and Indirect-to-Consumer International. The Company’s Chief Executive Officer and Chief Financial Officer are its chief operating decision makers (the “CODM’s”) as defined in the FASB’s guidance relating to segment reporting. The CODM’s evaluate net sales and operating income of the Company’s segments to allocate resources and evaluate performance. Operating income of the Company’s segments is measured on net sales, less cost of goods sold and direct expenses of each segment and certain operating expenses allocated to each segment. Expenses not specifically allocated to the individual segments include costs such as product design and development, certain general and administrative, shipping, warehouse and other expenses. The CODM’s do not receive information related to total assets by segment. Although the Company’s products fall into three major categories: travel, business and accessories, the Company’s classification of individual product codes into these categories is fluid and dynamic; while the Company collects gross sales data, the Company does not collect financial information to derive net sales (including discounts and allowances) and markdowns by product category in sufficient detail to report such data in its financial statements in the aggregate or by segment.

F-28


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Following is a description of our segments:
Direct-to-Consumer North America
The Company’s Direct-to-Consumer North America segment sells the Company’s products directly to consumers through a network of company-owned retail stores consisting of full-price stores and outlet stores strategically positioned in high-end retail malls or street venues. In addition, sales of the Company’s products to consumers through our e-commerce website are included in this segment.
Indirect-to-Consumer North America
The Company sells to wholesale customers, including specialty luggage retailers, prestige department stores and business to business channels. Many of the Company’s wholesale customers also operate their own e-commerce websites through which they sell the Company’s products. The Company also sells its products in partner stores, which are operated by local distributors or retailers, that carry only Tumi products and are governed by strict operating guidelines that the Company dictates.
Direct-to-Consumer International
The Company sells directly to consumers through a network of company-owned full-price and outlet stores in high-end street venues and select malls in international locations. The Company also sells its products directly to consumers through our e-commerce website.
Indirect-to-Consumer International
The Company sells its products through wholesale distribution channels in Europe, the Middle East and Africa, the Asia-Pacific region and Central and South America. The Company also sells its products in partner stores, operated by local distributors or retailers, that carry only Tumi products and are governed by strict operating guidelines that the Company dictates. In addition, the Company operates concessions in department stores throughout Europe and the Middle East. Many of the Company’s wholesale customers also operate their own e-commerce websites through which they sell the Company’s products.
Segment Results
The tables below present information for net sales, operating income, total assets and depreciation and amortization by segment for the years ended December 31, 2014, 2013 and 2012:
 
 
Direct-to-
Consumer
North
America
 
Direct-to-
Consumer
International
 
Indirect-to-
Consumer
North
America
 
Indirect-to-
Consumer
International
 
Unallocated
Amounts
 
Consolidated
Totals
 
(In thousands)
Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
243,142


$
28,265


$
111,191


$
144,596


$

 
$
527,194

Operating income
$
69,871


$
2,793


$
41,213


$
45,291


$
(65,738
)
 
$
93,430

Total assets
$
69,208


$
19,862


$
17,669


$
24,927


$
431,164

 
$
562,830

Depreciation and amortization
$
8,477


$
1,459


$
1,808


$
4,041


$
2,371

 
$
18,156

Year Ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
209,214

 
$
22,408

 
$
107,303

 
$
128,513

 
$

 
$
467,438

Operating income
$
62,485

 
$
2,941

 
$
40,637

 
$
39,829

 
$
(59,529
)
 
$
86,363

Total assets
$
55,236

 
$
10,624

 
$
15,158

 
$
24,416

 
$
401,053

 
$
506,487

Depreciation and amortization
$
6,944

 
$
740

 
$
1,315

 
$
3,367

 
$
1,821

 
$
14,187

Year Ended December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
180,291

 
$
17,879

 
$
97,801

 
$
102,580

 
$

 
$
398,551

Operating income
$
57,208

 
$
964

 
$
37,038

 
$
29,658

 
$
(53,192
)
 
$
71,676

Total assets
$
40,986

 
$
8,583

 
$
15,859

 
$
15,747

 
$
388,066

 
$
469,241

Depreciation and amortization
$
5,889

 
$
940

 
$
851

 
$
2,384

 
$
1,440

 
$
11,504



F-29


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Geographic Area Information
Net sales by major geographic region is based on the location of the customer. Net sales by geographic region for the years ended December 31, 2014, 2013 and 2012 were as follows:
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
United States
$
347,379

 
$
309,557

 
$
273,688

China
22,209

 
23,103

 
18,730

Other International(1)
157,606

 
134,778

 
106,133

Total
$
527,194

 
$
467,438

 
$
398,551

 
(1)
Other International consists of numerous countries, none of which represents more than 5% of net sales for any year presented.
    
Property, plant and equipment, net by country of domicile as of December 31, 2014, 2013 and 2012 were as follows:
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
United States
$
57,679

 
$
45,479

 
$
33,906

Germany
4,097

 
4,185

 
4,179

China
2,999

 
2,456

 
3,120

Other International(2)
14,292

 
8,751

 
5,799

Total
$
79,067

 
$
60,871

 
$
47,004

 
(2)
Other International consists of numerous countries, none of which represents more than 5% of property, plant and equipment, net, for any year presented.

16.
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 distribution partners in the Asia-Pacific region and 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 26.2% and 18.5% of consolidated trade accounts receivable at December 31, 2014 and 2013, respectively. These five customers accounted for 11.9%, 10.8% and 11.1% of consolidated net sales for the years ended December 31, 2014, 2013 and 2012, 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 41.9% of accounts payable at December 31, 2014 and 2013, respectively. These five suppliers accounted for 81.3%, 77.6% and 71.9% of total product purchases for the years ended December 31, 2014, 2013 and 2012, respectively.
 

F-30

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


17.
SHARE-BASED COMPENSATION PLANS AND AWARDS
2012 Long-Term Incentive Plan
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 individuals 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.

The following table shows the total compensation cost charged against income for share-based compensation plans and the related tax benefits recognized in the income statement for the periods indicated:
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
Share-based compensation expense
$
3,618

 
$
2,009

 
$
42

Income tax benefit related to share-based compensation
$
1,382

 
$
736

 
$
18

Stock Options
 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:

 
December 31, 2014
 
December 31, 2013
Weighted- average volatility
44.78
%
 
45.90
%
Expected dividend yield
%
 
%
Expected term (in years)
6

 
6

Risk-free rate
1.79
%
 
1.13
%


F-31

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


A summary of option activity under the 2012 Plan as of December 31, 2014 and changes during the twelve months then ended is presented below:
 
Number of Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
Outstanding - December 31, 2013
643,044

 
$
20.76

 
 
 
 
Granted
338,114

 
$
22.44

 
 
 
 
Exercised
(2,200
)
 
20.45

 
 
 
 
Forfeited or expired
(9,240
)
 
$
20.45

 
 
 
 
Outstanding - December 31, 2014
969,718

 
$
21.35

 
8.49
 
$
2,312,920

Options vested and expected to vest as of December 31, 2014
929,191

 
$
21.34

 
8.49
 
$
2,222,698

Options vested and exercisable as of December 31, 2014
227,162

 
$
20.90

 
8.18
 
$
644,082


The weighted-average grant-date fair value of options granted during the years 2014 and 2013 was $10.05 and $9.27, respectively.

The total intrinsic value of options exercised during 2014 was $6,424. The total cash received from option exercises was $44,990 in 2014, and the cash tax benefit realized for the tax deductions from these option exercises was approximately $2,400. No options were exercised during the year ended December 31, 2013.

As of December 31, 2014, there was $4,089,000 of total unrecognized compensation cost related to nonvested stock options. Such cost is expected to be recognized over a weighted average period of 2.72 years. The total fair value of options vested during the year ended December 31, 2014 was $2,064,000.
Performance-Based Restricted Stock Units

In 2014, the Company began granting performance-based restricted stock units (“RSUs”) to key executives, as well as certain of its other employees. Performance-based RSUs are awards denominated in units that are settled in shares of the Company’s common stock upon vesting. The vesting of these units is subject to the employee’s continuing employment and the Company’s achievement of certain performance goals during the applicable vesting period. The fair value of performance-based RSUs is based on the fair value of the Company’s common stock on the date of grant. Expense for performance-based RSUs is recognized over the employees’ requisite service period when the attainment of the performance goal is deemed probable.

A summary of the status of performance-based RSUs as of December 31, 2014 and changes during the twelve months then ended is presented below:

 
 
Number of Shares
 
Weighted-Average Grant-Date Fair Value
Nonvested - December 31, 2013
 

 
$

Granted
 
139,384

 
$
22.74

Vested
 

 
$

Forfeited
 
(9,271
)
 
$
22.95

Nonvested - December 31, 2014
 
130,113

 
$
22.73


As of December 31, 2014, there was $1,941,000 of total unrecognized compensation cost related to nonvested performance-based RSUs. Such cost is expected to be recognized over a weighted-average period of 2.19 years. There were no performance-based RSUs granted prior to 2014.

F-32

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Service-Based Restricted Stock Units

In 2014, the Company began granting service-based RSUs to certain non-employee directors. These service-based RSUs generally vest over a one-year period, subject to the director’s continuing service on the Board of Directors. The fair value of service-based RSUs is based on the fair value of the Company’s common stock on the date of grant.

A summary of the status of service-based RSUs as of December 31, 2014 and changes during the twelve months then ended is presented below:
 
 
Number of Units
 
Weighted Average Grant-Date Fair Value
Nonvested - December 31, 2013
 

 
$

Granted
 
10,680

 
$
18.72

Vested
 

 
$

Forfeited
 

 
$

Nonvested - December 31, 2014
 
10,680

 
$
18.72


As of December 31, 2014, there was $74,000 of total unrecognized compensation cost related to nonvested service-based RSUs. Such cost is expected to be recognized over a weighted average period of 0.37 years. There were no service-based RSUs granted prior to 2014.
 



F-33

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


18. RELATED PARTY TRANSACTIONS
In connection with our IPO, in April 2012 we entered into an amended and restated registration rights agreement with Doughty Hanson & Co IV Nominees One Limited, Doughty Hanson & Co IV Nominees Two Limited, Doughty Hanson & Co IV Nominees Three Limited, Doughty Hanson & Co IV Nominees Four Limited, Officers Nominees Limited, Stockwell Fund, L.P., Brederode International s.à.r.l., HVB Capital Partners AG and certain former stockholders and Jerome Griffith. Jerome Griffith is a party to the agreement only with respect to the piggyback registration rights described below. Pursuant to this registration rights agreement, subject to certain exceptions, holders of a majority of the then registrable common stock collectively have the right to require us to register for public sale under the Securities Act all shares of common stock that it requests be registered. The registration rights agreement limits the requests for registrations pursuant to a fully marketed underwritten offering to three requests per 365-day period, provided that such request covers at least that number of shares with an anticipated gross offering price of $25,000,000. In addition, whenever we propose to file a registration statement under the Securities Act (other than a registration on Form S-4 or Form S-8), we are required to give notice of such registration to all parties to the registration rights agreement that hold registrable securities. Such notified persons have piggyback registration rights providing them the right to have us include their shares of common stock in any such registration, subject to the provisions of the registration rights agreement. All expenses of such registrations (including both demand and piggyback registrations), other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications, will be paid by us.
Pursuant to the Company’s obligation under the amended and restated registration rights agreement, the Company incurred $634,000, $477,000 and $196,000 in connection with the November 2012, April 2013 and September 2014 secondary offerings of the Company’s common stock described in Note 1—Summary of Significant Accounting Policies, respectively.

19. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
The following tables set forth unaudited selected quarterly financial data for the years ended December 31, 2014 and 2013. In the opinion of management, the following selected quarterly information includes all adjustments, consisting solely of normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This quarterly data is not necessarily indicative of our operating results for any future period.

 
For the Three Months Ended
 
March 30,
2014
 
June 29,
2014
 
September 28,
2014
 
December 31,
2014
 
(In thousands, except share and per share data)
Net sales
$
108,602

 
$
124,582

 
$
130,195

 
$
163,815

Year over year growth %(1)
6
%
 
15
%
 
20
%
 
11
%
Gross margin
$
63,083

 
$
72,102

 
$
76,307

 
$
94,475

Selling, general and administrative expenses
$
49,702

 
$
52,246

 
$
53,040

 
$
57,549

Operating income
$
13,381

 
$
19,856

 
$
23,267

 
$
36,926

Net income
$
8,153

 
$
12,219

 
$
13,917

 
$
23,720

Basic weighted average common shares outstanding
67,866,667

 
67,866,667

 
67,867,852

 
67,868,867

Diluted weighted average common shares outstanding
67,867,852

 
67,872,947

 
67,876,522

 
67,895,249

Basic earnings per common share
$
0.12

 
$
0.18

 
$
0.21

 
$
0.35

Diluted earnings per common share
$
0.12

 
$
0.18

 
$
0.21

 
$
0.35



F-34


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

 
For the Three Months Ended
 
March 31,
2013
 
June 30,
2013
 
September 29,
2013
 
December 31,
2013
 
(In thousands, except per share data)
Net sales
$
102,925

 
$
108,189

 
$
108,910

 
$
147,414

Year over year growth %(1)
29
%
 
13
%
 
14
%
 
16
%
Gross margin
$
58,013

 
$
62,310

 
$
63,992

 
$
84,530

Selling, general and administrative expenses
$
40,399

 
$
44,452

 
$
45,466

 
$
52,165

Operating income
$
17,614

 
$
17,858

 
$
18,526

 
$
32,365

Net (loss) income
$
10,535

 
$
11,194

 
$
12,055

 
$
20,775

Basic weighted average common shares outstanding
67,866,667

 
67,866,667

 
67,866,667

 
67,866,667

Diluted weighted average common shares outstanding
67,867,790

 
67,868,475

 
67,875,729

 
67,870,726

Basic earnings per common share
$
0.16

 
$
0.16

 
$
0.18

 
$
0.31

Diluted earnings per common share
$
0.16

 
$
0.16

 
$
0.18

 
$
0.31


(1)
Year-over-year growth % compares net sales for a particular period with net sales for the comparable prior year interim period.



F-35