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EXCEL - IDEA: XBRL DOCUMENT - Tumi Holdings, Inc.Financial_Report.xls
EX-10.1 - EMPLOYMENT AGREEMENT - PETER L. GRAY - Tumi Holdings, Inc.exhibit101-employmentagree.htm
EX-31.1 - PRINCIPAL EXECUTIVE OFFICER CERTIFICATION - Tumi Holdings, Inc.tumi10qex311-q12015.htm
EX-10.2 - EMPLOYMENT AGREEMENT DAVID J. RILEY - Tumi Holdings, Inc.exhibit102-employmentagree.htm
EX-31.2 - PRINCIPAL FINANCIAL OFFICER CERTIFICATION - Tumi Holdings, Inc.tumi10qex312-q12015.htm
EX-32.2 - PRINCIPAL FINANCIAL OFFICER CERTIFICATION - Tumi Holdings, Inc.tumi10qex322-q12015.htm
EX-32.1 - PRINCIPAL EXECUTIVE OFFICER CERTIFICATION - Tumi Holdings, Inc.tumi10qex321-q12015.htm
EX-10.3 - OFFER LETTER - DAVID J. RILEY - Tumi Holdings, Inc.exhibit103-offerletterdr.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________________
FORM 10-Q 
_______________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number: 001-35495 
_______________________________________________________
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)
(908) 756-4400
(Registrant’s telephone number, including area code)  
______________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
o
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
May 7, 2015
Common Stock, $0.01 Par Value
 
67,868,867 shares



TUMI HOLDINGS, INC.
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
 
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 6.
 
 
 



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Tumi Holdings, Inc.’s (“Tumi”) current views with respect to, among other things, future events and performance. These statements may discuss, 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. Tumi generally identifies forward-looking statements by words such as “anticipate,” “estimate,” “expect,” “intend,” “project,” “plan,” “predict,” “believe,” “seek,” “continue,” “outlook,” “may,” “might,” “will,” “should,” “can have,” “likely” or the negative version of these words or comparable words. Forward-looking statements are based on beliefs and assumptions made by management using currently available information. These statements are only predictions and are not guarantees of future performance, actions or events. Forward-looking statements are subject to risks and uncertainties. If one or more of these risks or uncertainties materialize, or if management’s underlying beliefs and assumptions prove to be incorrect, actual results may differ materially from those contemplated by a forward-looking statement. These risks and uncertainties include those set forth under the heading “Risk Factors” in Tumi’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015. 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. Tumi expressly disclaims 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.


1


PART I – FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
 
 
March 29,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
56,365

 
$
52,796

Accounts receivable, less allowance for doubtful accounts of approximately $572 and $580 at March 29, 2015 and December 31, 2014, respectively
24,384

 
31,890

Other receivables
2,565

 
3,003

Inventories, net
90,449

 
89,231

Prepaid expenses and other current assets
5,584

 
8,315

Deferred tax assets, current
7,298

 
7,298

Total current assets
186,645

 
192,533

Property, plant and equipment, net
78,881

 
79,067

Deferred tax assets, noncurrent
5,907

 
4,608

Joint venture investment
2,395

 
2,156

Goodwill
142,773

 
142,773

Intangible assets, net
130,400

 
130,414

Deferred financing costs, net of accumulated amortization of $3,128 and $3,087 at March 29, 2015 and December 31, 2014, respectively
331

 
372

Other assets
9,793

 
10,907

Total assets
$
557,125

 
$
562,830


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


2


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(In thousands, except share and per share data)
 
 
March 29,
2015
 
December 31,
2014
 
(unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
28,302

 
$
33,898

Accrued expenses
31,167

 
34,786

Income taxes payable
1,082

 
2,334

Total current liabilities
60,551

 
71,018

 
 
 
 
Other long-term liabilities
11,306

 
11,407

Deferred tax liabilities
53,522

 
53,522

Total liabilities
125,379

 
135,947

 
 
 
 
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 March 29, 2015 and December 31, 2014
681

 
681

Preferred stock—$0.01 par value; 75,000,000 shares authorized and no shares issued or outstanding as of March 29, 2015 and December 31, 2014

 

Additional paid-in capital
315,571

 
314,217

Treasury stock, at cost; 277,806 shares as of March 29, 2015 and December 31, 2014
(4,874
)
 
(4,874
)
Retained earnings
126,108

 
119,734

Accumulated other comprehensive loss
(5,740
)
 
(2,875
)
Total stockholders’ equity
431,746

 
426,883

Total liabilities and stockholders’ equity
$
557,125

 
$
562,830


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

3


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
 
 
Three Months Ended
 
March 29,
2015
 
March 30,
2014
 
(unaudited)
Net sales
$
110,461

 
$
108,602

Cost of sales
45,190

 
45,519

Gross margin
65,271

 
63,083

OPERATING EXPENSES

 
 
Selling
8,636

 
8,267

Marketing
3,827

 
4,355

Retail operations
29,718

 
26,106

General and administrative
13,527

 
10,974

Total operating expenses
55,708

 
49,702

Operating income
9,563

 
13,381

OTHER INCOME (EXPENSES)

 
 
Interest expense
(105
)
 
(129
)
Earnings from joint venture investment
212

 
147

Foreign exchange gains (losses)
318

 
(98
)
Other non-operating expenses
(182
)
 
(277
)
Total other income (expenses)
243

 
(357
)
Income before income taxes
9,806

 
13,024

Provision for income taxes
3,432

 
4,871

Net income
$
6,374

 
$
8,153

Weighted average common shares outstanding:

 
 
Basic
67,868,867

 
67,866,667

Diluted
67,918,438

 
67,867,852

Basic earnings per common share
$
0.09

 
$
0.12

Diluted earnings per common share
$
0.09

 
$
0.12


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

4


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
 
 
Three Months Ended
 
March 29,
2015
 
March 30,
2014
 
(unaudited)
Net income
$
6,374

 
$
8,153

OTHER COMPREHENSIVE INCOME
 
 
 
Foreign currency translation adjustment, net of tax
(2,865
)
 
3

Comprehensive income
$
3,509

 
$
8,156


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

5


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
 
 
Three Months Ended
 
March 29,
2015
 
March 30,
2014
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
6,374

 
$
8,153

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
5,034

 
3,920

Share-based compensation expense
1,354

 
952

Amortization of deferred financing costs
41

 
41

Allowance for doubtful accounts
(8
)
 
(2
)
Earnings from joint venture
(212
)
 
(147
)
Loss on disposal of fixed assets
113

 
231

Other non-cash charges
210

 
(387
)
Changes in operating assets and liabilities
 
 
 
Accounts receivable
7,598

 
(420
)
Other receivables
345

 
(1,027
)
Inventories
(2,645
)
 
(3,842
)
Prepaid expenses and other current assets
2,618

 
(1,820
)
Other assets
(94
)
 
(5,042
)
Accounts payable
(5,515
)
 
(442
)
Accrued expenses
(2,055
)
 
(5,722
)
Income taxes payable
(1,117
)
 
(531
)
Other liabilities
(25
)
 
490

Total adjustments
5,642

 
(13,748
)
Net cash provided by operating activities
12,016

 
(5,595
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(8,124
)
 
(8,188
)
Net cash used in investing activities
(8,124
)
 
(8,188
)

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

6


TUMI HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
(In thousands)
 
 
Three Months Ended
 
March 29,
2015
 
March 30,
2014
 
(unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
 
Payments on revolving credit facility
$

 
$
(6,000
)
Net cash used in financing activities

 
(6,000
)
Effect of exchange rate changes on cash
(323
)
 
(8
)
Net decrease in cash and cash equivalents
3,569

 
(19,791
)
Cash and cash equivalents at beginning of period
52,796

 
37,613

Cash and cash equivalents at end of period
$
56,365

 
$
17,822


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

7

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)


1.
BASIS OF PRESENTATION AND ORGANIZATION
Nature of Operations
Tumi Holdings, Inc. (together with its subsidiaries, the “Company”) is a leading designer, producer and marketer of a comprehensive line of travel and business products and accessories in multiple categories. 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.
Registered Secondary Offering of the Company’s Common Stock
In September 2014, the Company completed a 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015.
The condensed consolidated balance sheet as of December 31, 2014 included herein was derived from the audited financial statements as of that date.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations for the full year 2015 or any future period.
Reporting Periods
The reporting periods for the Company’s unaudited interim quarterly financial information are based on the first month of each fiscal quarter including five Sundays and the second and third months of each fiscal quarter including four Sundays, with the fourth quarter always ending on December 31. Accordingly, the three-month reporting periods for the unaudited interim condensed consolidated financial statements included herein commenced on January 1, 2015 and January 1, 2014 and ended on March 29, 2015 and March 30, 2014, respectively.

8

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation of goodwill and intangibles, allowance for doubtful accounts, adjustments for slow-moving and obsolete inventory, accrued warranties, realization of deferred tax assets, 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.
Cash and Cash Equivalents
As of March 29, 2015, the total balance in U.S. bank accounts over the Federal Deposit Insurance Company limit then in effect was approximately $51,412,000. The total balance in international bank accounts at March 29, 2015, which is not covered under the FDIC, was approximately $5,068,000.
Fair Value Measurements
The Company applies the Financial Accounting Standards Board’s (the “FASB”) guidance for “Fair Value Measurements.” Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. The hierarchy of those valuation approaches is broken down into three levels based on the reliability of inputs as follows:
Level 1—
Inputs that are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.
Level 2—
Inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.
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 discounted expected future cash flows (“DCF”) (a Level 3 input). A DCF analysis calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit or asset and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in a DCF analysis require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows.
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable were reasonable estimates of their fair value as of March 29, 2015.


9

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

2.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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 condensed 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.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30)” which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts or premiums. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is currently in the process of evaluating the impact of adoption of the ASU on its condensed consolidated financial statements, but does not expect the impact to be material.

3.
STOCKHOLDERS’ EQUITY
Activity for the three months ended March 29, 2015 in the accounts of Stockholders’ Equity is summarized below:

 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Par
Value
 
Additional
Paid-
in Capital
 
Treasury
Stock
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
(In thousands, except share data)
Balance as of January 1, 2015
68,146,673

 
$
681

 
$
314,217

 
$
(4,874
)
 
$
119,734

 
$
(2,875
)
 
$
426,883

Net income

 

 

 

 
6,374

 

 
6,374

Share-based compensation

 

 
1,354

 

 

 

 
1,354

Foreign currency translation adjustment, net of tax

 

 

 

 

 
(2,865
)
 
(2,865
)
Balance as of March 29, 2015
68,146,673

 
$
681

 
$
315,571

 
$
(4,874
)
 
$
126,108

 
$
(5,740
)
 
$
431,746


As of March 29, 2015 and December 31, 2014, the Company held 277,806 shares of common stock in treasury.
The balance in accumulated other comprehensive loss consists only of foreign currency translation adjustments, net of tax. 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. Unrealized gains and losses on these transactions are recorded in other comprehensive income.

10

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

4. INVENTORIES, NET
Inventories, net consist of the following:
 
March 29,
2015
 
December 31,
2014
 
(In thousands)
Raw materials
$
310

 
$
318

Finished goods
90,139

 
88,913

Total inventories, net
$
90,449

 
$
89,231


5.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
 
 
 
March 29,
2015
 
December 31,
2014
 
 
 
(In thousands)
 
Useful Life
 
 
 
 
Land
 
$
485

 
$
485

Buildings and improvements
25 years
 
5,404

 
5,395

Leasehold and store enhancements
1 to 10 years
 
102,065

 
102,168

Furniture, computers and equipment
3 to 5 years
 
18,619

 
18,673

Capitalized software
5 years
 
10,264

 
9,908

Fixtures, dies and autos
3 to 5 years
 
21,423

 
19,994

Construction in progress
 
 
6,598

 
5,590

 
 
 
164,858

 
162,213

Less accumulated depreciation and amortization
 
 
(85,977
)
 
(83,146
)
 
 
 
$
78,881

 
$
79,067


Depreciation and amortization expense on property, plant and equipment was $5,020,000 and $3,852,000 for the three months ended March 29, 2015 and March 30, 2014, respectively.

6.
JOINT VENTURE
Tumi Japan
In June 2003, the Company entered into a Joint Venture Agreement with ACE Co., Ltd. (“Ace”) and Itochu Corporation (“Itochu”) to form the Tumi Japan Joint Venture (“Tumi Japan”). The purpose of Tumi Japan is to sell, promote and distribute the Company’s products in Japan. This investment is accounted for under the equity method.
Sales to Itochu were $3,277,000 and $2,634,000 for the three months ended March 29, 2015 and March 30, 2014, respectively. The Company had accounts receivable due from Itochu of $724,000 and $1,870,000 as of March 29, 2015 and December 31, 2014, respectively.

7.
GOODWILL AND OTHER INTANGIBLE ASSETS
The balance of goodwill and the classification by segment has not changed from December 31, 2014. For the three months ended March 29, 2015, there were no changes to intangible assets other than amortization expense recorded of $14,000.

11

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

8.
ACCRUED WARRANTIES
The Company provides its customers with a product warranty subsequent to the sale of its 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. The Company recognizes estimated costs associated with the limited warranty at the time of sale of its products. The warranty reserve, which is included in accrued expenses, is based on historical experience. The activity in the warranty reserve account was as follows:
 
 
Three Months Ended
 
March 29, 2015
 
March 30, 2014
 
(In thousands)
Liability, beginning of period
$
8,033

 
$
7,339

Provision for warranties
961

 
919

Warranty claims
(847
)
 
(795
)
Liability, end of period
$
8,147

 
$
7,463

 

9.
CREDIT FACILITY

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 credit facility 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.
As of March 29, 2015 and December 31, 2014, the Company had no balance outstanding under the Amended Credit Facility. Letters of credit outstanding at March 29, 2015 and December 31, 2014 totaled $286,000 under the Amended Credit Facility and, accordingly, the unused portion of the Amended Credit Facility was $69,714,000. The fee for the unused portion of the Amended Credit Facility was $26,000 and $25,000 for the three months ended March 29, 2015 and March 30, 2014, 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

12

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

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.
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 with all such covenants as of March 29, 2015

10.
COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, including proceedings to protect our intellectual property rights. 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.
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 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 three months ended March 29, 2015 and March 30, 2014, respectively.
Purchase Obligations
The Company has 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.

11.
INCOME TAXES
Income tax expense for the three months ended March 29, 2015 is recognized based on the Company’s estimated annual effective tax rate, which is based upon the tax rate expected for the full calendar year applied to the pre-tax income of the interim period. The Company’s consolidated effective tax rate was 35.0% and 37.4% for the three months ended March 29, 2015 and March 30, 2014, respectively.
The change in the effective tax rate was primarily driven by the Company's Asian sourcing operations. As of January 1, 2015, the Company has considered earnings from its Asian sourcing operations to be invested indefinitely.  As such, U.S. taxes will not be provided for with respect to approximately $7.0 million of anticipated earnings in 2015.  These earnings would become subject to income tax if they were to be remitted as dividends to the U.S.  Determination of the amount of unrecognized deferred U.S. income tax liability on these unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation.


13

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

12.
EARNINGS PER SHARE
The following table summarizes the calculation of basic and diluted earnings per common share for the three months ended March 29, 2015 and March 30, 2014:
 
Three Months Ended
 
March 29, 2015
 
March 30, 2014
 
(In thousands, except share and per share data)
Basic earnings per common share:
 
 
 
Numerator:
 
 
 
Net income
$
6,374

 
$
8,153

Denominator:
 
 
 
Basic weighted average common shares outstanding
67,868,867

 
67,866,667

Basic earnings per common share
$
0.09

 
$
0.12

 
 
 
 
Diluted earnings per common share:
 
 
 
Numerator:
 
 
 
Net income
$
6,374

 
$
8,153

Denominator:
 
 
 
Number of shares used in basic calculation
67,868,867

 
67,866,667

Weighted average dilutive effect of employee stock options and restricted stock units
49,571

 
1,185

Diluted weighted average common shares outstanding
67,918,438

 
67,867,852

Diluted earnings per common share
$
0.09

 
$
0.12


The Company excluded 478,239 and 156,857 outstanding weighted average stock options for the three months ended March 29, 2015 and March 30, 2014, 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 41,747 and 555,935 of these stock options for the three months ended March 29, 2015 and March 30, 2014, 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 March 29, 2015 and March 30, 2014, there were 179,657 and 122,208 performance-based restricted stock units, respectively, 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.

13.
SEGMENT INFORMATION
Segment Results
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. Although the Company’s products fall into three major categories: travel, business cases 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.

14

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

The table below presents information for net sales, operating income and depreciation and amortization by segment for the three months ended March 29, 2015 and March 30, 2014:
 
 
Direct-to-
Consumer
North
America
 
Direct-to-
Consumer
International
 
Indirect-to-
Consumer
North
America
 
Indirect-to-
Consumer
International
 
Non-Allocated
Corporate
Expenses
 
Consolidated
Totals
 
(In thousands)
Three Months Ended March 29, 2015
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
52,002

 
$
6,499

 
$
22,236

 
$
29,724

 
$

 
$
110,461

Operating income (loss)
$
10,834

 
$
145

 
$
8,645

 
$
8,933

 
$
(18,994
)
 
$
9,563

Depreciation and amortization
$
2,569

 
$
441

 
$
463

 
$
956

 
$
605

 
$
5,034

Three Months Ended March 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
50,047

 
$
4,959

 
$
22,289

 
$
31,307

 
$

 
$
108,602

Operating income (loss)
$
12,384

 
$
(344
)
 
$
8,678

 
$
9,140

 
$
(16,477
)
 
$
13,381

Depreciation and amortization
$
1,927

 
$
219

 
$
409

 
$
843

 
$
522

 
$
3,920

 
14.
CONCENTRATION OF RISK
Credit Risk
The Company’s accounts receivable include 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 major customer to pay its balance could have a significant impact on the financial position, results of operations and cash flows of the Company. Five of the Company’s largest customers in the aggregate accounted for 18.1% and 26.2% of consolidated trade accounts receivable at March 29, 2015 and December 31, 2014, respectively. These five customers accounted for 11.9% and 12.5% of consolidated net sales for the three months ended March 29, 2015 and March 30, 2014, 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 45.1% and 47.2% of accounts payable at March 29, 2015 and December 31, 2014, respectively. These five suppliers accounted for 83.4% and 84.3% of total product purchases for the three months ended March 29, 2015 and March 30, 2014, respectively.

15.
SHARE-BASED COMPENSATION PLANS AND AWARDS
2012 Long-Term Incentive Plan
The Company adopted the 2012 Long-Term Incentive Plan (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

15

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

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 potential future tax benefits recognized in the income statement for the periods indicated:
 
Three Months Ended
 
March 29,
2015
 
March 30,
2014
 
(In thousands)
Share-based compensation expense
$
1,354

 
$
952

Income tax benefit related to share-based compensation
$
501

 
$
356

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:
 
Three Months Ended
 
March 29, 2015
 
March 30, 2014
Weighted average volatility
43.55
%
 
45.02
%
Expected dividend yield
%
 
%
Expected term (in years)
6

 
6

Risk-free rate
1.73
%
 
1.77
%

16

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

A summary of option activity under the 2012 Plan as of March 29, 2015 and changes during the three months then ended is presented below:
 
Number of Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
Outstanding - December 31, 2014
969,718

 
$
21.35

 

 

Granted
342,006

 
$
23.25

 

 

Exercised

 
$

 

 

Forfeited or expired
(32,494
)
 
$
21.85

 

 

Outstanding - March 29, 2015
1,279,230

 
$
21.84

 
8.69
 
$
2,694,975

Options vested and expected to vest as of March 29, 2015
1,219,406

 
$
21.82

 
8.67
 
$
2,595,142

Options vested and exercisable as of March 29, 2015
420,325

 
$
21.25

 
8.12
 
$
1,134,731


The weighted average grant-date fair value of options granted during the three months ended March 29, 2015 and March 30, 2014 was $10.16 and $10.31, respectively.

As of March 29, 2015, there was $6,134,000 of total unrecognized compensation cost related to nonvested stock options. Such cost is expected to be recognized over a weighted average period of 2.60 years. The total fair value of options vested during the three months ended March 29, 2015 was $1,870,000.
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 March 29, 2015 and changes during the three months then ended is presented below:
 
 
Number of Units
 
Weighted Average Grant-Date Fair Value
Nonvested - December 31, 2014
 
130,113

 
$
22.73

Granted
 
66,117

 
$
23.25

Vested
 

 
$

Forfeited
 
(16,573
)
 
$
22.95

Nonvested - March 29, 2015
 
179,657

 
$
22.90


As of March 29, 2015, there was $2,987,000 of total unrecognized compensation cost related to nonvested performance-based RSUs. Such cost is expected to be recognized over a weighted average period of 2.32 years.
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. In 2015, the Company began granting service-based RSUs to key executives, as well as certain of its other employees. These service-based RSUs generally vest over a three-year period, subject to the employee's continuing service.The fair value of service-based RSUs is based on the fair value of the Company’s common stock on the date of grant.


17

TUMI HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(unaudited)

A summary of the status of service-based RSUs as of March 29, 2015 and changes during the three months then ended is presented below:
 
 
Number of Units
 
Weighted Average Grant-Date Fair Value
Nonvested - December 31, 2014
 
10,680

 
$
18.72

Granted
 
66,117

 
$
23.25

Vested
 

 
$

Forfeited
 

 
$

Nonvested - March 29, 2015
 
76,797

 
$
22.62


As of March 29, 2015, there was $1,209,000 of total unrecognized compensation cost related to nonvested service-based RSUs. Such cost is expected to be recognized over a weighted average period of 2.54 years.


18


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Tumi Holdings, Inc.’s (together with its subsidiaries, “Tumi”, the “Company”, “we”, “us”, and “our”) condensed consolidated financial statements and notes thereto included elsewhere in this 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. See “Cautionary Note Regarding Forward-Looking Statements” for further information regarding 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 Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015. 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.
The reporting periods for our unaudited quarterly financial information are based on the first month of each fiscal quarter including five Sundays and the second and third months of each fiscal quarter including four Sundays, with the fourth fiscal quarter always ending on December 31. Accordingly, the three-month reporting periods for the unaudited interim condensed consolidated financial statements included herein commenced on January 1, 2015 and January 1, 2014 and ended on March 29, 2015 and March 30, 2014, respectively.
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.
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 increased from $108.6 million in the three months ended March 30, 2014 to $110.5 million in the three months ended March 29, 2015. The increase in net sales was due principally to an increase in volume resulting from new store openings since the first quarter of 2014. 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 also increased our focus on our women’s line and on our online presence.
In recent years, the travel products industry has seen a trend in consumer preferences towards lighter weight luggage and travel accessories, as well as merchandise that makes mobile computing and communication more convenient. In light of these trends, we have developed products that fulfill those identified needs, such as our Vapor and Tegra-Lite lines, as well as a variety of mobile electronic accessories designed for frequent travelers. We have seen an increase in the relative percentage of our net sales derived from our accessories line, our premium product line and updates of our core product line, and a decrease in the relative percentage of our new 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 prestigious street venues. We had 3 new company-owned store openings in the quarter ended March 29, 2015. We currently expect to continue to open company-owned stores in the foreseeable future, with the majority being full-price stores, while also expanding our online presence.
We believe we have the capacity to increase our Indirect-to-Consumer net sales, both in North America and internationally. We plan to continue to grow in key Asian markets, particularly China. We also plan to increase the number of wholesale doors in key European markets, including Germany, France and the United Kingdom, and to expand wholesale distribution in Central and South America, while also expanding our product portfolio offered in existing wholesale doors. We

19


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.
We generally expect the payback of our investment in a new company-owned store to occur in less than two and a half years. We also believe we can increase our average net sales per square foot by continuing to improve store efficiency and increase our overall 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.
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 prestigious 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 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 83 company-owned stores since January 1, 2010 (8 stores in 2010, 11 stores in 2011, 19 stores in 2012, 17 stores in 2013, 25 stores in 2014 and 3 stores in the three months ended March 29, 2015), bringing our total to 155 company-owned stores as of March 29, 2015. 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.
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 website, social networking sites and other online forms of communication to build consumer knowledge of the Tumi brand. We believe increasing brand awareness will lead to greater foot traffic in our current locations, enable us to continue expanding 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. We continue to focus on improving store efficiency, primarily through our retail performance maximization program (the “RPM program”) which was implemented in 2009. The RPM program emphasizes training and staff development programs and the effective use of visual merchandising and fixtures. Our goal is to continue to increase net sales per store by increasing conversion rates and units and dollars per transaction, while enhancing the consumer experience.

20


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. 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 presence into new markets. In addition, we transitioned our North American web store to a more insourced model during the fourth quarter of 2014 and our international web stores to a more insourced model during the first quarter of 2015. We believe this will improve our websites' functionality and efficiency in the future. In addition, we plan to expand into more European countries.

Key Performance Indicator and Non-GAAP Measures

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 is calculated using net sales for the last twelve months for all stores open for the full twelve months. Average net sales per square foot decreased by approximately $7, or 1%, to $1,075 as of March 29, 2015 from $1,082 as of December 31, 2014. This decrease was primarily due to weaker sales during the first quarter of 2015 as we did not anniversary our legacy Alpha promotion and concurrent introduction of our re-launched Alpha Travel Collection (Alpha 2), both which benefited sales during the first quarter of 2014. In addition, weaker traffic trends in our Direct-to-Consumer North America segment and the impact of the strengthening U.S. dollar on our Europe, Middle East and Africa ("EMEA") wholesale and retail businesses also had a negative effect on sales.

In addition, during the first quarter of 2015, management used non-GAAP financial measures operating income before costs associated with the cost reduction program and net income before costs associated with the cost reduction program to measure our financial performance and evaluate our profitability. Operating income before costs associated with the cost reduction program and net income before costs associated with the cost reduction program are non-GAAP financial measures. Operating income before costs associated with the cost reduction program is defined as operating income plus the costs associated with the cost reduction program. Net income before costs associated with the cost reduction program is defined as net income plus the costs associated with the cost reduction program.  Operating income before costs associated with the cost reduction program and net income before costs associated with the cost reduction program are not measures of operating income or operating performance presented in accordance with U.S. GAAP.

Operating income before costs associated with the cost reduction program and net income before costs associated with the cost reduction program are important supplemental measures of our internal reporting, including for our board of directors and management, and are key measures we use to evaluate profitability and operating performance. Additionally, operating income before costs associated with the cost reduction program and net income before costs associated with the cost reduction program, when viewed in conjunction with our condensed consolidated financial statements, provide investors and other users of our financial information consistency and comparability with our past financial performance, facilitate period-to-period comparisons of operating performance and facilitate comparisons with other companies. We use these metrics in conjunction with U.S. GAAP operating performance measures as part of our overall assessment of our performance. U.S. GAAP measures of performance remain our primary means of assessing our overall financial results.

In addition, the Company also periodically refers to growth rates on a “constant currency” basis so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of the Company's business performance. Constant currency net sales results are calculated by translating current period net sales in local currency using the prior year's currency conversion rate. This consistent approach is based on the pricing currency for each country which is typically the functional currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates. “Constant currency” measured net sales is not a measure of net sales presented in accordance with U.S. GAAP.

Undue reliance should not be placed on these measures as our only measures of operating performance. Operating income before costs associated with the cost reduction program, net income before costs associated with the cost reduction program, and constant currency measured net sales have limitations as analytical tools. When assessing our operating

21


performance, investors should not consider operating income before costs associated with the cost reduction program, net income before costs associated with the cost reduction program and constant currency measured net sales in isolation or as substitutes for operating income, net income or net sales, respectively.

A reconciliation of net income to net income before costs associated with the cost reduction program, of operating income to operating income before costs associated with the cost reduction program and of net sales to net sales on a constant currency basis is presented below:
Reconciliation of Operating Income to Operating Income Before Costs Associated with the Cost Reduction Program
(In millions)
 
 
Three Months Ended
 
 
March 29, 2015
 
March 30, 2014
Operating Income
 
$
9.6

 
$
13.4

Operating expenses in conjunction with the cost reduction program
 
2.5

 

Operating income before costs associated with the cost reduction program1
 
$
12.1

 
$
13.4

__________________________________________
1 The totals in the table may not foot due to rounding.

Reconciliation of Net Income to Net Income Before Costs Associated with the Cost Reduction Program
(In millions, except per share data)
 
 
Three Months Ended
 
 
March 29, 2015
 
March 30, 2014
Net Income
 
$
6.4

 
$
8.2

Diluted GAAP earnings per share 1

 
$
0.09

 
$
0.12

Operating expenses in conjunction with the cost reduction program (after tax)
 
1.6

 

Net income before costs associated with the cost reduction program 2

 
$
8.0

 
$
8.2

Diluted earnings per share before costs associated with the cost reduction program1

 
$
0.12

 
$
0.12

_________________________________________________________________
1 Diluted EPS calculated using 67.9 million shares for both Q1 2015 and Q1 2014.
2 The totals in the table may not foot due to rounding.

Reconciliation of Net Sales to Net Sales on a Constant Currency Basis
(In thousands)
 
Three Months Ended
 
 
 
March 29, 2015
 
March 30, 2014
 
Change
GAAP Net Sales
$
110,461

 
$
108,602

 
$
1,859

GAAP Net Sales growth
1.7
%
 
 
 
 
Impact of changes in exchange rates1
$
3,094

 
 
 
 
Net Sales on constant currency basis
$
113,555

 
$
108,602

 
$
4,953

Net Sales growth on constant currency basis
4.6
%
 
 
 
 
_________________________________________________________________
1To present this information, current period results for sales in currencies other than U.S. dollars are converted into U.S. dollars at the prior year’s currency conversion rate.


22


Results of Operations
The following tables set forth condensed consolidated operating results and other operating data for the periods indicated:
Operating results
 
Three Months Ended
 
March 29, 2015
 
March 30, 2014
 
(In thousands)
Net sales
$
110,461

 
$
108,602

Cost of sales
45,190

 
45,519

Gross margin
65,271

 
63,083

OPERATING EXPENSES
 
 
 
Selling
8,636

 
8,267

Marketing
3,827

 
4,355

Retail operations
29,718

 
26,106

General and administrative
13,527

 
10,974

Total operating expenses
55,708

 
49,702

Operating income
9,563

 
13,381

OTHER INCOME (EXPENSES)
 
 
 
Interest expense
(105
)
 
(129
)
Earnings from joint venture investment
212

 
147

Foreign exchange gains (losses)
318

 
(98
)
Other non-operating expenses
(182
)
 
(277
)
Total other income (expenses)
243

 
(357
)
Income before income taxes
9,806

 
13,024

Provision for income taxes
3,432

 
4,871

Net income
$
6,374

 
$
8,153


23


Percentage of Net Sales*
 
Three Months Ended
 
March 29, 2015
 
March 30, 2014
Net sales
100
 %
 
100
 %
Cost of sales
41
 %
 
42
 %
Gross margin
59
 %
 
58
 %
OPERATING EXPENSES
 
 
 
Selling
8
 %
 
8
 %
Marketing
3
 %
 
4
 %
Retail operations
27
 %
 
24
 %
General and administrative
12
 %
 
10
 %
Total operating expenses
50
 %
 
46
 %
Operating income
9
 %
 
12
 %
OTHER INCOME (EXPENSES)
 
 
 
Interest expense
 %
 
 %
Earnings from joint venture investment
 %
 
 %
Foreign exchange gains (losses)
 %
 
 %
Other non-operating expenses
 %
 
 %
Total other income (expenses)
 %
 
 %
Income before income taxes
9
 %
 
12
 %
Provision for income taxes
3
 %
 
4
 %
Net income
6
 %
 
8
 %
___________________________________________________
*The percentages in the table may not foot due to rounding.

The following table summarizes the number of company-owned stores open at the beginning and end of the three months ended March 29, 2015:
 
Three Months Ended
 
March 29, 2015
Number of stores open at beginning of period
152

Stores opened
3

Stores closed

Number of stores open at end of period
155


24


Three months ended March 29, 2015 compared with the three months ended March 30, 2014
Net Sales
The following table presents net sales by operating segment for the three months ended March 29, 2015 compared with the three months ended March 30, 2014:
 
Three Months Ended March 29, 2015
 
Three Months Ended March 30, 2014
 
%
Change
 
(In thousands)
 
 
Direct-to-Consumer North America
$
52,002

 
$
50,047

 
4
 %
Direct-to-Consumer International
6,499

 
4,959

 
31
 %
Indirect-to-Consumer North America
22,236

 
22,289

 
<1%

Indirect-to-Consumer International
29,724

 
31,307

 
(5
)%
Total
$
110,461

 
$
108,602

 
2
 %

Net sales increased $1.9 million, or 2%, to $110.5 million for the three months ended March 29, 2015 from $108.6 million for the three months ended March 30, 2014. On a constant currency basis, net sales would have increased 5%. Net sales were negatively impacted during the first quarter as we did not anniversary our legacy Alpha promotion and concurrent introduction of our re-launched Alpha Travel Collection (Alpha 2), both which benefited sales during the first quarter of 2014. In addition, weaker traffic trends in our Direct-to-Consumer North America segment and the impact of the strengthening U.S. dollar on our Europe, Middle East and Africa ("EMEA") wholesale and retail businesses also had a negative effect on sales. There were no significant product launches or price increases during the quarter. However, there was positive response to our continued roll out of our Voyageur collection which re-launched during the fourth quarter of 2014, as well as our premium product collection. Additionally, there were 3 new company-owned store openings and 1 store relocation during the three months ended March 29, 2015. There were 27 new stores opened since the first quarter of 2014, which contributed to over 100% of the overall sales growth experienced from the three months ended March 30, 2014 to the three months ended March 29, 2015. This increase was partially offset by negative comparable store sales in the quarter ended March 29, 2015.
Net sales attributable to the Direct-to-Consumer North America segment experienced a 4% increase for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014. Of the 27 new stores opened since the first quarter of 2014, 21 were in the North America segment and comprised over 100% of the net sales growth experienced in the Direct-to-Consumer North America segment from the three months ended March 30, 2014 to the three months ended March 29, 2015. This increase was largely offset by a decrease in comparable store sales due in part to a decline in our overall traffic patterns. During the first quarter of 2014, we re-launched our Alpha 2 collection while liquidating our legacy Alpha products, which drove traffic to our full-price stores as well as conversion on our e-commerce platform. 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. Overall, North America comparable store sales decreased 4.9% for the period. North America full-price comparable store sales decreased 5.3%, North America outlet comparable store sales increased 1.1% and our North America e-commerce sales decreased 14.1%.
Net sales attributable to the Direct-to-Consumer International segment experienced a 31% increase for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014. Of the 27 new stores opened since the first quarter of 2014, 6 were in Western Europe and comprised approximately 88% of the net sales growth experienced in the Direct-to-Consumer International segment from the three months ended March 30, 2014 to the three months ended March 29, 2015. This increase was partially offset by a decrease in comparable store sales during the quarter ended March 29, 2015, which was due to the translation effect the strengthening of the U.S. dollar had on our sales denominated in Euros. Overall, our international comparable store sales decreased 1.5% (increased 19.6% in Euros) for the period. Our international full-price comparable store sales were down 9.8% (up 9.5% in Euros) and outlet comparable store sales were up 8.4% (31.6% in Euros). Our international e-commerce sales decreased 2.5% (increased 18% in Euros).
Overall, comparable store sales for all Direct-to-Consumer channels decreased 4.6% globally for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014.     
Net sales attributable to the Indirect-to-Consumer North America segment decreased less than 1% for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014. Our Indirect-to-Consumer North America net sales have been negatively impacted 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

25


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, we experienced weaker sales within our Canadian wholesale business on which we believe the strengthening U.S. dollar has had a dampening effect on the replenishment orders of our wholesalers.
Net sales attributable to the Indirect-to-Consumer International segment decreased 5% for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014. Our Indirect-to-Consumer International net sales have been negatively impacted by the adverse effect the strengthening U.S. dollar has had on our wholesale business within the EMEA region, as well as the geopolitical tensions within Russia. In addition, in our Asia-Pacific region, sales to mainland China were negatively impacted by the Chinese government's policies to curb consumerism.
Operating income
The following table presents operating income (loss) by segment for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014:
 
Three Months Ended March 29, 2015
 
Three Months Ended March 30, 2014
 
%
Change
 
(In thousands)
 
 
Direct-to-Consumer North America
$
10,834

 
$
12,384

 
(13
)%
Direct-to-Consumer International
145

 
(344
)
 
*NM

Indirect-to-Consumer North America
8,645

 
8,678

 
<1%

Indirect-to-Consumer International
8,933

 
9,140

 
(2
)%
Non-allocated corporate expenses
(18,994
)
 
(16,477
)
 
(15
)%
Total
$
9,563

 
$
13,381

 
(29
)%
______________
*Not meaningful

Operating income decreased $3.8 million, or 29%, to $9.6 million for the three months ended March 29, 2015 from $13.4 million for the three months ended March 30, 2014. Our operating segments have benefited from continued growth, principally volume related, and store openings in the Direct-to-Consumer segments, partially offset by negative comparable store sales. Operating expenses have increased due to higher retail operations expenses related to the cost of new store openings in 2015 and the wrap effect (expenses for opened stores for which there were limited or no expenses in the comparable prior period) of stores opened in the last three quarters of 2014. Historically, company-owned store operating margins generally strengthen after their first year of operation. Additionally, our higher operating expenses for the quarter ended March 29, 2015 include additional costs resulting from our decision to eliminate redundancies, streamline processes, and leverage fixed costs within certain selling, general and administrative functions. In this regard, the Company reduced headcount and incurred related severance and termination costs in the amount of approximately $2.5 million during the first quarter of 2015.

Operating income attributable to the Direct-to-Consumer North America segment experienced a 13% decrease for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014. This was primarily due to a decline in comparable store sales, as well as the aforementioned increase in retail operations expenses related to the cost of new store openings since the first quarter of 2014.

Operating income attributable to the Direct-to-Consumer International segment increased to $0.1 million for the three months ended March 29, 2015 from a loss of $0.3 million for the three months ended March 30, 2014. This was primarily due to the sales growth from new stores opened since the first quarter of 2014. In addition, during the first quarter of 2014 we incurred pre-opening expenses and start-up costs for our flagship store on Regent Street in London, which opened in the second quarter of 2014.

Operating income attributable to the Indirect-to-Consumer North America segment experienced a decrease of less than 1% for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014. This was primarily due to the decline in sales growth in this segment, particularly impacted by softer sales in our specialty stores and special markets business, as well as our Canadian wholesale business.

Operating income attributable to the Indirect-to-Consumer International segment experienced a 2% decrease for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014. This decrease was primarily due to

26


weaker sales during the quarter ended March 29, 2015, largely due to the adverse impact of the strengthening U.S. dollar on our wholesale business in the EMEA region, partially offset by a more favorable mix of sales within the segment.
Non-allocated corporate expenses represent expenses not attributable to a particular operating segment, and consist of core corporate expenses such as corporate marketing, design, general and administrative expenses, after sales service costs, shipping and warehousing, human resources related to corporate overhead, finance, legal and professional fees and other costs. As we expand our business, we believe general and administrative expenses will increase in dollar amount in future periods, although we expect to leverage these expenses against sales as the business grows. Non-allocated corporate expenses increased 15% for the three months ended March 29, 2015 as compared with the three months ended March 30, 2014. This increase was primarily due to our decision to eliminate redundancies, streamline processes, and leverage fixed costs within certain selling, general and administrative functions. Of these aforementioned severance and termination costs, approximately $1.9 million were included in non-allocated corporate expenses in the three months ended March 29, 2015.
Operating margin was 9% for the three months ended March 29, 2015 compared to 12% for the three months ended March 30, 2014, as the previously mentioned severance and termination costs related to our cost reduction program, as well as retail operations expense for new stores and the wrap effect (expenses for stores for which there were little or no expenses in the comparable prior period) of stores opened since the first quarter of 2014, offset some of our fixed cost leverage. Operating income before costs associated with the cost reduction program would have been $12.1 million, and on this basis, non-GAAP operating income margin would have been 11% in the first quarter of 2015.
Other income and expenses
Other income and expenses, net increased $0.6 million to income of $0.2 million for the three months ended March 29, 2015 from expense of $0.4 million for the three months ended March 30, 2014. This was mainly driven by foreign exchange gains during the quarter ended March 29, 2015.
Income tax expense
Provision for income taxes decreased $1.4 million, or 30%, to $3.4 million in the three months ended March 29, 2015 from $4.9 million in the three months ended March 30, 2014, due primarily to lower income before taxes, as well as a lower effective tax rate for the quarter ended March 29, 2015. The change in the effective tax rate was largely driven by the Company’s tax planning relating to its Asian sourcing operations.
Net income
Net income decreased $1.8 million to $6.4 million for the three months ended March 29, 2015 from $8.2 million for the three months ended March 30, 2014. This decrease was due mainly to the aforementioned severance and termination costs related to our cost reduction program, as well as retail operations expense for new stores and the wrap effect (expenses for stores for which there were little or no expenses in the comparable prior period) of stores opened since the first quarter of 2014.
Basic and diluted weighted average shares outstanding were 67.9 million shares for the three months ended March 29, 2015 and March 30, 2014. Basic and diluted EPS was $0.09 per common share for the three months ended March 29, 2015 versus $0.12 per common share for the three months ended March 30, 2014.
Net income before costs associated with the cost reduction program would have been $8.0 million, and on this basis, non-GAAP basic and diluted EPS would have been $0.12 per common share for the three months ended March 29, 2015.
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. In 2014, fourth quarter net sales represented approximately 31% of our total annual net sales. Operating income in the same period represented 40% of our total annual operating income. During the fourth quarter, the Company expects inventory levels, accounts payable and accrued expenses to increase commensurate with net sales.

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

27


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
As of March 29, 2015, we had cash and cash equivalents of $56.4 million. A summary of our cash flows provided by and used in operating, investing and financing activities is presented below.
Cash flows from operating activities
Cash flows from operating activities consisted primarily of net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation expense, 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 $12.0 million during the three months ended March 29, 2015, compared to cash flows used for operations of $5.6 million during the three months ended March 30, 2014. The principal reason for this increase was increased cash collections of accounts receivable during the current quarter compared to the same quarter last year.
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 $8.1 million and $8.2 million for the three months ended March 29, 2015 and March 30, 2014, respectively.
Financing activities
We did not use cash for any financing activities during the three months ended March 29, 2015. For the three months ended March 30, 2014, we used $6.0 million for the repayment of bank debt. During the second quarter of 2014, the balance outstanding on our bank debt was paid in full.
Amended and restated credit facility
On April 4, 2012, Tumi, Inc. and Tumi Stores, Inc., the Borrowers, entered into the Amended Credit Facility, with Wells Fargo as lender and collateral agent.
On April 4, 2012, we had $60,000,000 outstanding on our then-current term loan facility and no balance outstanding on our revolving credit facility for which the total capacity was $10,000,000. We had, however, utilized $250,000 under the revolving facility for letters of credit. Based on our calculated leverage ratio at the time, the facility bore interest at either the market LIBOR rate plus 175 basis points or the prime rate plus 75 basis points.
The Amended Credit Facility consolidated the term loan facility and the revolving credit facility previously provided in our former credit facility 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

28


a base rate (the greater of (i) Wells Fargo’s prime rate in effect on such day and (ii) the federal funds rate plus 1/2 of 1.00%) plus a margin of zero or 0.25%. The Borrowers are required to pay an undrawn commitment fee equal to 0.15% or 0.20% of the undrawn portion of the commitments under the Amended Credit Facility, as well as customary letter of credit fees. The margin added to LIBOR, or the base rate, as well as the amount of the commitment fee, depends on Tumi, Inc.’s leverage at the time. Interest is payable monthly, bi-monthly or quarterly on LIBOR rate loans depending on the interest period for each LIBOR rate loan, or quarterly on base rate loans.
As of March 29, 2015 and December 31, 2014, the Company had no balance outstanding under the Amended Credit Facility. Letters of credit outstanding at March 29, 2015 and December 31, 2014 totaled $286,000 under the Amended Credit Facility and, accordingly, the unused portion of the Amended Credit Facility was $69,714,000. The fee for the unused portion of the Amended Credit Facility was $26,000 and $25,000 for the three months ended March 29, 2015 and March 30, 2014, 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 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 Borrowers were in compliance with all such covenants as of March 29, 2015.
The Amended Credit Facility also contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults under material debt, certain events of bankruptcy and insolvency, defaults based on certain judgments, failure of any material provision of any loan document to be in full force and effect, change of control, and certain ERISA defaults. If an event of default were to occur and continue, amounts due under the Amended Credit Facility could be accelerated and the commitments to extend credit thereunder terminated, and the rights and remedies of Wells Fargo under the Amended Credit Facility available under the applicable loan documents could be exercised, including rights with respect to the collateral securing the obligations under the Amended Credit Facility.
The foregoing summaries of certain provisions of the Amended Credit Facility do not purport to be complete and are qualified in their entirety by reference to the full text of the Amended Credit Facility, which is incorporated by reference as exhibit 10.3b to our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015.

Contractual Obligations
There have been no material changes to the contractual obligations table included in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015.

Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.

Critical Accounting Policies and Estimates
There have been no material changes to the description of our critical accounting policies and estimates included in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC on February 27, 2015.

Recently Issued Accounting Pronouncements

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,

29


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 condensed 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.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30)” which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts or premiums. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is currently in the process of evaluating the impact of adoption of the ASU on its condensed consolidated financial statements, but does not expect the impact to be material.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risk required by this item have not changed materially from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015. For a discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015.

ITEM 4.
CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

30


PART II – OTHER INFORMATION
 
ITEM 1.
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. 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.

ITEM 1A.
RISK FACTORS
There have been no material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015.

ITEM 6.
EXHIBITS
The list of exhibits is set forth under “Exhibit Index” at the end of this Quarterly Report on Form 10-Q and is incorporated herein by reference.
 


31


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
TUMI HOLDINGS, INC.
 
 
 
May 7, 2015
 
/s/ Michael J. Mardy
Date
 
Michael J. Mardy
 
 
Chief Financial Officer and Executive Vice President
 
 
(Principal Financial Officer)
 


32


EXHIBIT INDEX

Exhibit
Number
 
Description
 
 
10.1*
 
Employment Agreement, dated March 11, 2015, between Peter L. Gray and Tumi, Inc.
10.2*
 
Employment Agreement, dated March 11, 2015, between David J. Riley and Tumi, Inc.
10.3*
 
Offer letter, dated May 23, 2015, from Tumi Holdings, Inc. to David J. Riley
31.1
 
Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to 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 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.