10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on June 13, 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 2019
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: 001‑35720
(Exact name of registrant as specified in its charter)
|
Delaware |
|
45‑3052669 |
|
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
|
|
|
|
15 Koch Road, Suite K |
|
94925 |
|
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (415) 924‑1005
Securities registered pursuant to Section 12(b) of the Act:
|
Common Stock, $0.0001 par value |
|
RH |
New York Stock Exchange, Inc. |
|
(Title of each class) |
(Trading symbol) |
(Name of each exchange on which registered) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
|
Large accelerated filer |
|
☒ |
|
Accelerated filer |
|
☐ |
|
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☐ |
|
Emerging growth company |
||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
As of June 7, 2019, 18,363,482 shares of registrant’s common stock were outstanding.
RH
2
RH
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
|
|
|
May 4, |
|
February 2, |
||
|
|
|
2019 |
|
2019 |
||
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
37,550 |
|
$ |
5,803 |
|
Restricted cash |
|
|
65,000 |
|
|
— |
|
Accounts receivable—net |
|
|
48,882 |
|
|
40,224 |
|
Merchandise inventories |
|
|
530,190 |
|
|
531,947 |
|
Asset held for sale |
|
|
21,795 |
|
|
21,795 |
|
Prepaid expense and other current assets |
|
|
118,648 |
|
|
104,198 |
|
Total current assets |
|
|
822,065 |
|
|
703,967 |
|
Property and equipment—net |
|
|
954,142 |
|
|
952,957 |
|
Operating lease right-of-use assets |
|
|
432,212 |
|
|
440,504 |
|
Goodwill |
|
|
124,349 |
|
|
124,379 |
|
Tradenames, trademarks and domain names |
|
|
86,022 |
|
|
86,022 |
|
Deferred tax assets |
|
|
35,752 |
|
|
35,603 |
|
Other non-current assets |
|
|
91,290 |
|
|
79,586 |
|
Total assets |
|
$ |
2,545,832 |
|
$ |
2,423,018 |
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
289,146 |
|
$ |
320,497 |
|
Deferred revenue and customer deposits |
|
|
174,252 |
|
|
152,595 |
|
Convertible senior notes due 2019—net |
|
|
347,918 |
|
|
343,789 |
|
Operating lease liabilities |
|
|
56,601 |
|
|
66,249 |
|
Other current liabilities |
|
|
143,693 |
|
|
109,456 |
|
Total current liabilities |
|
|
1,011,610 |
|
|
992,586 |
|
Asset based credit facility |
|
|
— |
|
|
57,500 |
|
FILO term loan—net |
|
|
119,065 |
|
|
— |
|
Second lien term loan—net |
|
|
197,140 |
|
|
— |
|
Equipment promissory notes—net |
|
|
40,208 |
|
|
— |
|
Convertible senior notes due 2020—net |
|
|
275,884 |
|
|
271,157 |
|
Convertible senior notes due 2023—net |
|
|
253,424 |
|
|
249,151 |
|
Non-current operating lease liabilities |
|
|
427,961 |
|
|
437,557 |
|
Non-current finance lease liabilities |
|
|
436,228 |
|
|
421,245 |
|
Other non-current obligations |
|
|
31,685 |
|
|
32,512 |
|
Total liabilities |
|
|
2,793,205 |
|
|
2,461,708 |
|
Commitments and contingencies (Note 15) |
|
|
— |
|
|
— |
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of May 4, 2019 and February 2, 2019 |
|
|
— |
|
|
— |
|
Common stock, $0.0001 par value per share, 180,000,000 shares authorized, 20,528,012 shares issued and 18,357,816 shares outstanding as of May 4, 2019; 20,480,613 shares issued and 20,477,813 shares outstanding as of February 2, 2019 |
|
|
2 |
|
|
2 |
|
Additional paid-in capital |
|
|
362,986 |
|
|
356,422 |
|
Accumulated other comprehensive loss |
|
|
(3,270) |
|
|
(2,333) |
|
Accumulated deficit |
|
|
(356,816) |
|
|
(392,538) |
|
Treasury stock—at cost, 2,170,196 shares as of May 4, 2019 and 2,800 shares as of February 2, 2019 |
|
|
(250,275) |
|
|
(243) |
|
Total stockholders’ deficit |
|
|
(247,373) |
|
|
(38,690) |
|
Total liabilities and stockholders’ deficit |
|
$ |
2,545,832 |
|
$ |
2,423,018 |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
3
RH
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
Three Months Ended |
||||
|
|
|
May 4, |
|
May 5, |
||
|
|
|
2019 |
|
2018 |
||
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
598,421 |
|
$ |
557,406 |
|
Cost of goods sold |
|
|
365,607 |
|
|
348,073 |
|
Gross profit |
|
|
232,814 |
|
|
209,333 |
|
Selling, general and administrative expenses |
|
|
164,181 |
|
|
161,186 |
|
Income from operations |
|
|
68,633 |
|
|
48,147 |
|
Interest expense—net |
|
|
21,118 |
|
|
15,098 |
|
Income before income taxes |
|
|
47,515 |
|
|
33,049 |
|
Income tax expense |
|
|
11,793 |
|
|
7,588 |
|
Net income |
|
$ |
35,722 |
|
$ |
25,461 |
|
Weighted-average shares used in computing basic net income per share |
|
|
19,976,858 |
|
|
21,545,025 |
|
Basic net income per share |
|
$ |
1.79 |
|
$ |
1.18 |
|
Weighted-average shares used in computing diluted net income per share |
|
|
24,933,987 |
|
|
25,230,228 |
|
Diluted net income per share |
|
$ |
1.43 |
|
$ |
1.01 |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
4
RH
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
|
Three Months Ended |
||||
|
|
|
May 4, |
|
May 5, |
||
|
|
|
2019 |
|
2018 |
||
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,722 |
|
$ |
25,461 |
|
Net gains (losses) from foreign currency translation |
|
|
(937) |
|
|
(1,264) |
|
Total comprehensive income |
|
$ |
34,785 |
|
$ |
24,197 |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
5
RH
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
Retained |
|
|
|
|
|
|
Total |
|||
|
|
|
|
|
|
|
|
Additional |
|
Other |
|
Earnings |
|
|
|
|
|
|
Stockholders’ |
||||
|
|
|
Common Stock |
|
Paid-In |
|
Comprehensive |
|
(Accumulated |
|
Treasury Stock |
|
Equity |
||||||||||
|
|
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Deficit) |
|
Shares |
|
Amount |
|
(Deficit) |
||||||
|
Balances—February 3, 2018 |
|
21,517,338 |
|
$ |
2 |
|
$ |
840,765 |
|
$ |
(171) |
|
$ |
151,575 |
|
22,220,132 |
|
$ |
(1,000,326) |
|
$ |
(8,155) |
|
Stock-based compensation |
|
— |
|
|
— |
|
|
7,891 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
7,891 |
|
Vested and delivered restricted stock units |
|
20,110 |
|
|
— |
|
|
(351) |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(351) |
|
Exercise of stock options |
|
77,549 |
|
|
— |
|
|
2,923 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
2,923 |
|
Repurchases of common stock |
|
(2,800) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
2,800 |
|
|
(243) |
|
|
(243) |
|
Impact of Topic 606 adoption |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(21,036) |
|
— |
|
|
— |
|
|
(21,036) |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
25,461 |
|
— |
|
|
— |
|
|
25,461 |
|
Net gains (losses) from foreign currency translation |
|
— |
|
|
— |
|
|
— |
|
|
(1,264) |
|
|
— |
|
— |
|
|
— |
|
|
(1,264) |
|
Balances—May 5, 2018 |
|
21,612,197 |
|
$ |
2 |
|
$ |
851,228 |
|
$ |
(1,435) |
|
$ |
156,000 |
|
22,222,932 |
|
$ |
(1,000,569) |
|
$ |
5,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances—February 2, 2019 |
|
20,477,813 |
|
$ |
2 |
|
$ |
356,422 |
|
$ |
(2,333) |
|
$ |
(392,538) |
|
2,800 |
|
$ |
(243) |
|
$ |
(38,690) |
|
Stock-based compensation |
|
— |
|
|
— |
|
|
5,588 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
5,588 |
|
Vested and delivered restricted stock units |
|
21,241 |
|
|
— |
|
|
(250) |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(250) |
|
Exercise of stock options |
|
26,158 |
|
|
— |
|
|
1,226 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
1,226 |
|
Repurchases of common stock |
|
(2,167,396) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
2,167,396 |
|
|
(250,032) |
|
|
(250,032) |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
35,722 |
|
— |
|
|
— |
|
|
35,722 |
|
Net gains (losses) from foreign currency translation |
|
— |
|
|
— |
|
|
— |
|
|
(937) |
|
|
— |
|
— |
|
|
— |
|
|
(937) |
|
Balances—May 4, 2019 |
|
18,357,816 |
|
$ |
2 |
|
$ |
362,986 |
|
$ |
(3,270) |
|
$ |
(356,816) |
|
2,170,196 |
|
$ |
(250,275) |
|
$ |
(247,373) |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements
6
RH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
Three Months Ended |
||||
|
|
|
May 4, |
|
May 5, |
||
|
|
|
2019 |
|
2018 |
||
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income |
|
$ |
35,722 |
|
$ |
25,461 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
27,189 |
|
|
22,745 |
|
Non-cash amortization of operating lease right-of-use asset |
|
|
16,279 |
|
|
17,040 |
|
Amortization of debt discount |
|
|
12,377 |
|
|
7,881 |
|
Stock-based compensation expense |
|
|
5,695 |
|
|
7,997 |
|
Finance leases interest expense |
|
|
5,514 |
|
|
3,092 |
|
Product recalls |
|
|
(1,786) |
|
|
— |
|
Net non-cash charges resulting from inventory step-up |
|
|
— |
|
|
190 |
|
Other non-cash interest expense |
|
|
1,089 |
|
|
786 |
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
(7,218) |
|
|
(6,943) |
|
Merchandise inventories |
|
|
1,653 |
|
|
(4,032) |
|
Prepaid expense and other assets |
|
|
(17,846) |
|
|
(31,496) |
|
Landlord assets under construction |
|
|
(4,542) |
|
|
(18,648) |
|
Accounts payable and accrued expenses |
|
|
(38,595) |
|
|
(46,664) |
|
Deferred revenue and customer deposits |
|
|
21,641 |
|
|
28,159 |
|
Other current liabilities |
|
|
15,231 |
|
|
12,191 |
|
Current and non-current operating lease liability |
|
|
(27,131) |
|
|
(16,589) |
|
Other non-current obligations |
|
|
(6,448) |
|
|
(4,404) |
|
Net cash provided by (used in) operating activities |
|
|
38,824 |
|
|
(3,234) |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Capital expenditures |
|
|
(7,916) |
|
|
(17,674) |
|
Net cash used in investing activities |
|
|
(7,916) |
|
|
(17,674) |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Borrowing under asset based credit facility |
|
|
94,000 |
|
|
334,000 |
|
Repayments under asset based credit facility |
|
|
(151,500) |
|
|
(314,970) |
|
Borrowings under term loans |
|
|
320,000 |
|
|
— |
|
Borrowing under equipment security notes |
|
|
60,000 |
|
|
— |
|
Repayments under promissory and equipment security notes |
|
|
(983) |
|
|
(1,491) |
|
Debt issuance costs |
|
|
(4,499) |
|
|
— |
|
Principal payments under finance leases |
|
|
(2,129) |
|
|
(1,776) |
|
Repurchases of common stock—including commissions |
|
|
(250,032) |
|
|
— |
|
Proceeds from exercise of stock options |
|
|
1,226 |
|
|
2,923 |
|
Tax withholdings related to issuance of stock-based awards |
|
|
(250) |
|
|
(351) |
|
Net cash provided by financing activities |
|
|
65,833 |
|
|
18,335 |
|
Effects of foreign currency exchange rate translation |
|
|
6 |
|
|
(62) |
|
Net increase (decrease) in cash and cash equivalents and restricted cash equivalents |
|
|
96,747 |
|
|
(2,635) |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
Beginning of period—cash and cash equivalents |
|
|
5,803 |
|
|
17,907 |
|
Beginning of period—restricted cash equivalents (construction related deposits) |
|
|
— |
|
|
7,407 |
|
Beginning of period—cash and cash equivalents and restricted cash equivalents |
|
$ |
5,803 |
|
$ |
25,314 |
|
|
|
|
|
|
|
|
|
End of period—cash and cash equivalents |
|
|
37,550 |
|
|
20,796 |
|
End of period—restricted cash |
|
|
65,000 |
|
|
— |
|
End of period—restricted cash equivalents (construction related deposits) |
|
|
— |
|
|
1,883 |
|
End of period—cash and cash equivalents, restricted cash and restricted cash equivalents |
|
$ |
102,550 |
|
$ |
22,679 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
Property and equipment additions in accounts payable and accrued expenses at period-end |
|
$ |
8,529 |
|
$ |
4,926 |
|
Landlord asset additions in accounts payable and accrued expenses at period-end |
|
|
19,481 |
|
|
13,635 |
|
Landlord asset additions from unpaid construction related deposits |
|
|
2,056 |
|
|
2,650 |
|
Issuance of non-current notes payable related to share repurchases from former employees |
|
|
— |
|
|
243 |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
7
RH
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—THE COMPANY
Nature of Business
RH, a Delaware corporation, together with its subsidiaries (collectively, the “Company”), is a luxury home furnishings retailer that offers a growing number of categories including furniture, lighting, textiles, bathware, décor, outdoor and garden, and child and teen furnishings. These products are sold through the Company’s stores, catalogs and websites.
As of May 4, 2019, the Company operated a total of 70 RH Galleries and 40 RH outlet stores in 32 states, the District of Columbia and Canada, as well as 15 Waterworks showrooms throughout the United States and in the U.K., and had sourcing operations in Shanghai and Hong Kong.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared from the Company’s records and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments, and revisions due to the adoption of the new lease accounting standard described in Note 2—Recently Issued Accounting Standards, necessary to fairly state the Company’s financial position as of May 4, 2019, and the results of operations for the three months ended May 4, 2019 and May 5, 2018. The Company’s current fiscal year, which consists of 52 weeks, ends on February 1, 2020 (“fiscal 2019”).
Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted for purposes of these interim condensed consolidated financial statements.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10‑K for the fiscal year ended February 2, 2019 (the “2018 Form 10‑K”). Certain prior year amounts have been adjusted to conform to the current period presentation due to the adoption of the new lease accounting standard. Refer to Note 2—Recently Issued Accounting Standards.
The results of operations for the three months ended May 4, 2019 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.
Revisions
As previously disclosed in our Annual Report on Form 10-K as of and for the year ended February 2, 2019, during the third quarter of fiscal 2018, management determined that the Company had incorrectly reported the impact during the fiscal year ended February 3, 2018 of retiring its common stock in accordance with Accounting Standards Codification (“ASC”) 505—Equity, which resulted in the Company revising its previously issued financial statements as of and for the year ended February 3, 2018. The common stock being retired was related to shares repurchased under the Company’s equity plans. This error resulted in an overstatement of additional paid-in capital of $19.5 million, from $870.8 million as reported to $851.2 million as revised, and an overstatement of treasury stock of $19.5 million, from $1,020.1 million as reported to $1,000.6 million as revised, on the condensed consolidated balance sheet as of May 5, 2018. There was no impact on the condensed consolidated statements of income or condensed cash flows related to this misstatement. Although this error was not considered to be material to any of the previously issued financial statements, the Company has revised the accompanying unaudited interim financial statements to reflect the correction of this error.
8
During the adoption process of the new lease accounting standard (refer to Note 2—Recently Issued Accounting Standards), the Company identified a lease agreement that was incorrectly accounted for as an impaired lease under ASC 420—Exit or Disposal Cost Obligations in fiscal 2017 and the first quarter of fiscal 2018. This error resulted in an overstatement of net income of $1.4 million and $0.9 million for the year ended February 3, 2018 and the three months ended May 5, 2018, respectively. This error also resulted in an overstatement of retained earnings as of February 3, 2018 of $1.4 million, from $152.4 million as reported to $151.0 million as revised, and as of May 5, 2018 of $2.3 million, from $159.4 million as reported to $157.1 million as revised, prior to the impact of the modified retrospective application of the new lease accounting standard as further discussed in Note 2. In addition, as of February 2, 2019, this error resulted in an understatement of other non-current obligations of $3.3 million, an overstatement of other current liabilities of $1.0 million and understatement of accumulated deficit of $2.3 million, from $376.8 million as reported to $379.1 million as revised. Although these errors are not considered to be material to any of the previously issued financial statements, the Company has revised the accompanying unaudited interim financial statements to reflect the correction of these errors.
In addition, during the adoption process of the new lease accounting standard, the Company identified an error in its previously reported consolidated statement of cash flows for the quarterly and annual periods in fiscal 2018. This error resulted in an understatement of $9.2 million of net cash provided by operating activities and an understatement of $9.2 million of net cash used in investing activities for each reporting period in fiscal 2018. There was no impact on the condensed consolidated balance sheets, condensed consolidated statements of income or the condensed consolidated statement of stockholders’ equity (deficit) related to this error. Although these errors are not considered to be material to any of the previously issued financial statements, the Company has revised the accompanying unaudited interim financial statements to reflect the correction of these errors.
The following are selected line items from the Company’s condensed consolidated statements of cash flows illustrating the effect of the corrections, prior to the adoption of the modified retrospective application of the new lease accounting standard (in thousands):
|
|
|
Three Months Ended May 5, 2018 |
|||||||
|
|
|
As Reported |
|
Adjustment |
|
As Revised |
|||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Change in accounts payable and accrued expenses |
|
$ |
(57,215) |
|
$ |
9,201 |
|
$ |
(48,014) |
|
Net cash provided by operating activities |
|
|
7,756 |
|
|
9,201 |
|
|
16,957 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(27,121) |
|
|
(9,201) |
|
|
(36,322) |
|
Net cash used in investing activities |
|
|
(27,121) |
|
|
(9,201) |
|
|
(36,322) |
|
|
|
Six Months Ended August 4, 2018 |
|||||||
|
|
|
As Reported |
|
Adjustment |
|
As Revised |
|||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Change in accounts payable and accrued expenses |
|
$ |
(42,717) |
|
$ |
9,201 |
|
$ |
(33,516) |
|
Net cash provided by operating activities |
|
|
70,229 |
|
|
9,201 |
|
|
79,430 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(61,212) |
|
|
(9,201) |
|
|
(70,413) |
|
Net cash used in investing activities |
|
|
(61,212) |
|
|
(9,201) |
|
|
(70,413) |
|
|
|
Nine Months Ended November 3, 2018 |
|||||||
|
|
|
As Reported |
|
Adjustment |
|
As Revised |
|||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Change in accounts payable and accrued expenses |
|
$ |
(23,601) |
|
$ |
9,201 |
|
$ |
(14,400) |
|
Net cash provided by operating activities |
|
|
127,592 |
|
|
9,201 |
|
|
136,793 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(104,403) |
|
|
(9,201) |
|
|
(113,604) |
|
Net cash used in investing activities |
|
|
(104,403) |
|
|
(9,201) |
|
|
(113,604) |
9
|
|
|
Fiscal Year Ended February 2, 2019 |
|||||||
|
|
|
As Reported |
|
Adjustment |
|
As Revised |
|||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Change in accounts payable and accrued expenses |
|
$ |
(452) |
|
$ |
9,201 |
|
$ |
8,749 |
|
Net cash provided by operating activities |
|
|
300,556 |
|
|
9,201 |
|
|
309,757 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(136,736) |
|
|
(9,201) |
|
|
(145,937) |
|
Net cash used in investing activities |
|
|
(136,736) |
|
|
(9,201) |
|
|
(145,937) |
NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting for Leases
In February 2016, the FASB issued Accounting Standards Update 2016‑02—Leases, which requires a lessee to distinguish all leases as operating leases or finance leases and recognize all leases on the balance sheet as a right-of-use asset with a corresponding lease liability representing the present value of lease payments. The standard also requires a lessee to recognize a single lease cost for operating leases, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. The lease cost for finance leases includes both principal and interest components, and is higher than the corresponding cash payment at the beginning of the lease term and declines over the lease term as the liability is reduced. In July 2018, the FASB issued Accounting Standards Update 2018‑10—Codification Improvements to Topic 842 (Leases), and Accounting Standards Update 2018‑11—Leases (Topic 842)—Targeted Improvements, which (i) narrows amendments to clarify how to apply certain aspects of the new lease standard, (ii) provides entities with an additional transition method to adopt the new standard, and (iii) provides lessors with a practical expedient for separating components of a contract. Accounting Standards Update 2016-02, Accounting Standards Update 2018-10 and Accounting Standards Update 2018-11 are collectively referred to as the “ASUs.”
The Company adopted the ASUs as of February 3, 2019 using a modified retrospective approach. Under this adoption method, the results of prior comparative periods are presented with an adjustment to opening retained earnings of the earliest comparative period presented. In addition, the Company elected to adopt the package of transition practical expedients, which permitted the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs. The Company adopted the policy election to not separate lease and non-lease components for certain asset classes (such as real estate leases), as well as the short-term lease policy election offered under the ASUs whereby the Company does not recognize right of use assets and lease liabilities for leases with terms of 12 months or less. The Company did not apply the hindsight practical expedient upon adoption.
As a result of the adoption of the ASUs, the Company recorded an increase to the fiscal 2017 (earliest comparative period) opening retained earnings balance of $4.0 million, inclusive of the tax impact.
10
The following table presents the impact of adopting the ASUs, as well as the correction of an immaterial error as discussed in Note 1—The Company, on the Company’s consolidated balance sheet (in thousands):
|
|
|
February 2, 2019 |
|||||||
|
|
|
As Reported |
|
Adjustments and Other (1) |
|
As Adjusted and Revised |
|||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,803 |
|
$ |
— |
|
$ |
5,803 |
|
Accounts receivable—net |
|
|
40,224 |
|
|
— |
|
|
40,224 |
|
Merchandise inventories |
|
|
531,947 |
|
|
— |
|
|
531,947 |
|
Asset held for sale |
|
|
— |
|
|
21,795 |
(2) |
|
21,795 |
|
Prepaid expense and other current assets |
|
|
104,719 |
|
|
(521) |
(3) |
|
104,198 |
|
Total current assets |
|
|
682,693 |
|
|
21,274 |
|
|
703,967 |
|
Property and equipment—net |
|
|
863,562 |
|
|
89,395 |
(4) |
|
952,957 |
|
Operating lease right-of-use assets |
|
|
— |
|
|
440,504 |
(5) |
|
440,504 |
|
Goodwill |
|
|
124,379 |
|
|
— |
|
|
124,379 |
|
Tradenames, trademarks and domain names |
|
|
86,022 |
|
|
— |
|
|
86,022 |
|
Deferred tax assets |
|
|
30,033 |
|
|
5,570 |
(6) |
|
35,603 |
|
Other non-current assets |
|
|
19,345 |
|
|
60,241 |
(7) |
|
79,586 |
|
Total assets |
|
$ |
1,806,034 |
|
$ |
616,984 |
|
$ |
2,423,018 |
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
320,441 |
|
$ |
56 |
(8) |
$ |
320,497 |
|
Deferred revenue and customer deposits |
|
|
152,595 |
|
|
— |
|
|
152,595 |
|
Convertible senior notes due 2019—net |
|
|
343,789 |
|
|
— |
|
|
343,789 |
|
Operating lease liabilities |
|
|
— |
|
|
66,249 |
(5) |
|
66,249 |
|
Other current liabilities |
|
|
101,347 |
|
|
8,109 |
(1)(9) |
|
109,456 |
|
Total current liabilities |
|
|
918,172 |
|
|
74,414 |
|
|
992,586 |
|
Asset based credit facility |
|
|
57,500 |
|
|
— |
|
|
57,500 |
|
Convertible senior notes due 2020—net |
|
|
271,157 |
|
|
— |
|
|
271,157 |
|
Convertible senior notes due 2023—net |
|
|
249,151 |
|
|
— |
|
|
249,151 |
|
Financing obligations under build-to-suit lease transactions |
|
|
228,928 |
|
|
(228,928) |
(10) |
|
— |
|
Deferred rent and lease incentives |
|
|
53,742 |
|
|
(53,742) |
(10) |
|
— |
|
Non-current operating lease liabilities |
|
|
— |
|
|
437,557 |
(5) |
|
437,557 |
|
Non-current finance lease liabilities |
|
|
— |
|
|
421,245 |
(9) |
|
421,245 |
|
Other non-current obligations |
|
|
50,346 |
|
|
(17,834) |
(1)(11) |
|
32,512 |
|
Total liabilities |
|
|
1,828,996 |
|
|
632,712 |
|
|
2,461,708 |
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
— |
|
|
— |
|
|
— |
|
Common stock |
|
|
2 |
|
|
— |
|
|
2 |
|
Additional paid-in capital |
|
|
356,422 |
|
|
— |
|
|
356,422 |
|
Accumulated other comprehensive loss |
|
|
(2,333) |
|
|
— |
|
|
(2,333) |
|
Accumulated deficit |
|
|
(376,810) |
|
|
(15,728) |
(1)(12) |
|
(392,538) |
|
Treasury stock |
|
|
(243) |
|
|
— |
|
|
(243) |
|
Total stockholders’ deficit |
|
|
(22,962) |
|
|
(15,728) |
|
|
(38,690) |
|
Total liabilities and stockholders’ deficit |
|
$ |
1,806,034 |
|
$ |
616,984 |
|
$ |
2,423,018 |
|
(1) |
During the adoption process of the ASUs, the Company identified a lease agreement that was incorrectly accounted for as an impaired lease under ASC 420—Exit or Disposal Cost Obligations in fiscal 2017 and the first quarter of fiscal 2018. Refer to “Revisions” within Note 1—The Company. |
|
(2) |
Represents recognition of asset held for sale under a sale-leaseback transaction. |
|
(3) |
Represents reclassification of prepaid rent to operating lease liabilities and other current liabilities (for finance leases). |
|
(4) |
Represents (i) recognition of finance lease right-of-use assets, partially offset by (ii) derecognition of non-Company owned properties that were capitalized under previously existing build-to-suit accounting policies, (iii) reclassification of construction in progress assets determined to be landlord assets to other non-current assets and (iv) reclassification of initial direct costs related to operating leases to operating lease right-of-use assets. |
|
(5) |
Represents recognition of operating lease right-of-use assets and corresponding current and non-current lease liabilities. The operating lease right-of-use asset also includes the reclassification of deferred rent and unamortized lease incentives related to operating leases and the reclassification of initial direct costs from property and equipment—net. |
11
|
(6) |
Represents recognition of net deferred tax assets related to the adoption of the ASUs. |
|
(7) |
Primarily represents reclassification from property and equipment—net of construction in progress assets determined to be landlord assets for which the lease has not yet commenced. |
|
(8) |
Represents a reclassification of an accrual for real estate taxes. |
|
(9) |
Represents recognition of the current and non-current finance lease liabilities. The other current liabilities line item also includes the reclassification of current obligations associated with leases previously reported as capital leases to finance lease liabilities. |
|
(10) |
Represents (i) derecognition of liabilities related to non-Company owned properties that were consolidated under previously existing build-to-suit accounting policies and (ii) reclassification of deferred rent and unamortized lease incentives to operating lease right-of-use assets upon adoption of the ASUs. |
|
(11) |
Represents (i) derecognition of the net lease loss liabilities as such balances were reclassified to operating lease right-of-use assets and operating current and non-current liabilities and (ii) the reclassification of non-current obligations associated with leases previously reported as capital leases to finance lease liabilities. |
|
(12) |
Represents a decrease to the consolidated net income for fiscal 2017 and fiscal 2018, as well as an increase of $4.0 million to beginning fiscal 2017 retained earnings related to the adoption of the ASUs. |
Refer to Note 7—Leases for discussion of the Company’s revised accounting policy for leases.
Cloud Computing
In August 2018, the FASB issued Accounting Standards Update 2018‑15—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which amends Accounting Standards Update 2015‑05—Customers Accounting for Fees in a Cloud Computing Agreement. The amendments in this ASU more closely align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of this new accounting standard will have on its consolidated financial statements.
NOTE 3—PREPAID EXPENSE AND OTHER ASSETS
Prepaid expense and other current assets consist of the following (in thousands):
|
|
|
May 4, |
|
February 2, |
||
|
|
|
2019 |
|
2019 |
||
|
|
|
|
|
|
|
|
|
Insurance recovery receivable (1) |
|
$ |
60,073 |
|
$ |
50,000 |
|
Capitalized catalog costs |
|
|
17,948 |
|
|
16,178 |
|
Vendor deposits |
|
|
13,873 |
|
|
11,836 |
|
Right of return asset for merchandise |
|
|
6,063 |
|
|
5,883 |
|
Federal and state tax receivable |
|
|
— |
|
|
4,862 |
|
Prepaid expense and other current assets |
||||||