10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on June 5, 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
(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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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
As of May 29, 2020,
RH
INDEX TO FORM 10-Q
2
PART I
Item 1. Financial Statements
RH
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
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May 2, |
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February 1, |
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2020 |
2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable—net |
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Merchandise inventories |
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Prepaid expense and other current assets |
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Total current assets |
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Property and equipment—net |
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Operating lease right-of-use assets |
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Goodwill |
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Tradenames, trademarks and domain names |
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Deferred tax assets |
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Other non-current assets |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
$ |
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$ |
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Deferred revenue and customer deposits |
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Convertible senior notes due 2020—net |
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Operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Asset based credit facility |
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— |
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Equipment promissory notes—net |
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Convertible senior notes due 2023—net |
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Convertible senior notes due 2024—net |
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Non-current operating lease liabilities |
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Non-current finance lease liabilities |
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Other non-current obligations |
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Total liabilities |
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Commitments and contingencies (Note 15) |
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Stockholders’ equity: |
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Preferred stock—$ |
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Common stock—$ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Treasury stock—at cost, |
( |
— |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
3
RH
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended |
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May 2, |
May 4, |
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2020 |
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2019 |
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Net revenues |
$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Selling, general and administrative expenses |
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Income from operations |
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Other expenses |
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Interest expense—net |
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Tradename impairment |
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— |
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Total other expenses |
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Income (loss) before income taxes |
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( |
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Income tax expense (benefit) |
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( |
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Net income (loss) |
$ |
( |
$ |
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Weighted-average shares used in computing |
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Basic net income (loss) per share |
$ |
( |
$ |
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Weighted-average shares used in computing |
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Diluted net income (loss) per share |
$ |
( |
$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
4
RH
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
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Three Months Ended |
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May 2, |
May 4, |
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2020 |
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2019 |
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Net income (loss) |
$ |
( |
$ |
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Net losses from foreign currency translation |
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( |
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( |
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Total comprehensive income (loss) |
$ |
( |
$ |
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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)
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Accumulated |
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Retained |
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Total |
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Additional |
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Other |
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Earnings |
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Stockholders’ |
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Common Stock |
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Paid-In |
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Comprehensive |
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(Accumulated |
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Treasury Stock |
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Equity |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Deficit) |
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Shares |
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Amount |
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(Deficit) |
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Balances—February 2, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Vested and delivered restricted stock |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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Repurchases of common stock |
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( |
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— |
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— |
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— |
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— |
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( |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Net losses from foreign currency |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Balances—May 4, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
Balances—February 1, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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— |
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$ |
— |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Vested and delivered restricted stock units |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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Repurchases of common stock |
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( |
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— |
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— |
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— |
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— |
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( |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Net losses from foreign currency translation |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Balances—May 2, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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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)
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Three Months Ended |
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May 2, |
May 4, |
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2020 |
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2019 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) |
$ |
( |
$ |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Non-cash operating lease cost |
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Tradename impairment |
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— |
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Asset impairments |
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— |
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Amortization of debt discount |
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Stock-based compensation expense |
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Non-cash finance lease interest expense |
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Product recalls |
— |
( |
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Other non-cash interest expense |
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Change in assets and liabilities: |
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Accounts receivable |
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( |
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Merchandise inventories |
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( |
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Prepaid expense and other assets |
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( |
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( |
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Landlord assets under construction—net of tenant allowances |
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( |
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( |
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Accounts payable and accrued expenses |
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( |
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( |
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Deferred revenue and customer deposits |
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Other current liabilities |
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Current and non-current operating lease liabilities |
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( |
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( |
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Other non-current obligations |
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( |
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( |
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Net cash provided by (used in) operating activities |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Borrowings under asset based credit facility |
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Repayments under asset based credit facility |
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( |
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( |
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Borrowings under term loans |
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— |
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Borrowings under promissory and equipment security notes |
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— |
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Repayments under promissory and equipment security notes |
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( |
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( |
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Debt issuance costs |
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— |
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( |
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Principal payments under finance leases |
( |
( |
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Repurchases of common stock—including commissions |
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— |
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( |
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Proceeds from exercise of stock options |
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Tax withholdings related to issuance of stock-based awards |
( |
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( |
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Net cash provided by financing activities |
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Effects of foreign currency exchange rate translation |
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( |
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Net increase (decrease) in cash and cash equivalents and restricted cash |
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( |
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Cash, cash equivalents and restricted cash |
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Beginning of period—cash and cash equivalents |
$ |
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$ |
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End of period—cash and cash equivalents |
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End of period—restricted cash |
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— |
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End of period—cash, cash equivalents and restricted cash |
$ |
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$ |
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Non-cash transactions: |
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Property and equipment additions in accounts payable and accrued expenses at period-end |
$ |
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$ |
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Landlord asset additions in accounts payable and accrued expenses at period-end |
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Landlord asset additions from unpaid construction related deposits |
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Issuance of non-current notes payable related to share repurchases from former employees |
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— |
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, “we,” “us,” “our” or 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 our stores, catalogs and websites.
As of May 2, 2020, we operated a total of
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, necessary to fairly state our financial position as of May 2, 2020, and the results of operations for the three months ended May 2, 2020 and May 4, 2019. Our current fiscal year, which consists of 52 weeks, ends on January 30, 2021 (“fiscal 2020”).
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.
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material to the condensed consolidated financial statements.
We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of COVID-19 using information that is reasonably available to us at this time. The accounting estimates and other matters we have assessed include, but were not limited to, sales return reserve, inventory reserve, allowance for doubtful accounts, goodwill, intangible and other long-lived assets. Our current assessment of these estimates are included in our condensed consolidated financial statements as of and for the three months ended May 2, 2020. As additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our condensed consolidated financial statements in future reporting periods.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (the “2019 Form 10-K”).
The results of operations for the three months ended May 2, 2020 presented herein are not necessarily indicative of the results to be expected for the full fiscal year. Our business, like the businesses of retailers generally, is subject to uncertainty surrounding the financial impact of the novel coronavirus disease as discussed in Recent Developments—COVID-19 below.
8
Recent Developments—COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic. The initial wave of the COVID-19 outbreak caused disruption to our business operations, as we temporarily closed all of our retail locations on March 17, 2020 in response to the public health crisis. While our retail locations were substantially closed at the end of the first fiscal quarter on May 2, 2020, since that date we have been able to reopen a large number of our stores based on local market circumstances including the gradual lifting of restrictions on business operations, including shelter-in-place rules. During the time that our Gallery locations were closed, we continued to serve our customers in those market areas virtually through our Gallery representatives and designers, as well as our online capabilities.
As of June 3, 2020, we had reopened
We have historically relied on cash flows from operations, net cash proceeds from the issuance of convertible senior notes, as well as borrowings under credit facilities as primary sources of liquidity. When our retail locations were closed as a result of the COVID-19 outbreak, we took immediate action to assure that our liquidity needs would not be materially affected, including our ability to fund our business operations, as well as to make debt repayments when due, such as the $
We have utilized, and expect to continue to utilize, our asset based credit facility, and we may pursue other sources of capital that may include other forms of external financing, in order to increase our cash position and preserve financial flexibility in response to the uncertainty in the United States and global markets resulting from COVID-19. Refer to Note 8—Convertible Senior Notes and Note 9—Credit Facilities for further information on the terms and conditions of our outstanding debt agreements. We had
9
NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS
Cloud Computing
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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).
We
Current Expected Credit Losses
In June 2016, the FASB issued Accounting Standards Update 2016-13—Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments and also issued subsequent amendments to the initial guidance through ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02 and ASU 2020-03 (collectively, the “ASUs”). The ASUs amend the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology to result in more timely recognition of losses. The guidance in the ASUs applies to financial assets measured at amortized cost basis, such as receivables that result from revenue transactions.
Accounts receivable consist primarily of receivables from our credit card processors for sales transactions, receivables related to our contract business and other miscellaneous receivables. Accounts receivable is presented net of allowance for doubtful accounts as a result of the assessment of the collectability of customer accounts, which is recorded by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts was $
We
the ASUs as of February 2, 2020 using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings. We did not recognize a cumulative-effect adjustment upon adoption as the adoption of the ASUs did not have a material effect on our condensed consolidated financial statements.Income Taxes
In December 2019, the FASB issued Accounting Standards Update 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU impacts various topic areas within ASC 740, including accounting for taxes under hybrid tax regimes, accounting for increases in goodwill, allocation of tax amounts to separate company financial statements within a group that files a consolidated tax return, intra period tax allocation, interim period accounting, and accounting for ownership changes in investments, among other minor codification improvements. The guidance in this ASU becomes effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We will adopt this standard in the first fiscal quarter of 2021 and are currently evaluating the effects that the adoption of this ASU will have on our consolidated financial statements.
10
NOTE 3—PREPAID EXPENSE AND OTHER ASSETS
Prepaid expense and other current assets consist of the following (in thousands):
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May 2, |
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February 1, |
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2020 |
2020 |
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Prepaid expense and other current assets |
$ |
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$ |
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Capitalized catalog costs |
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Vendor deposits |
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Right of return asset for merchandise |
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Total prepaid expense and other current assets |
$ |
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$ |
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Other non-current assets consist of the following (in thousands):
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May 2, |
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February 1, |
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2020 |
2020 |
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Landlord assets under construction |
$ |
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$ |
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Deposits on asset under construction |
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Promissory note receivable, including interest |
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Other deposits |
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Deferred financing fees |
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Other non-current assets |
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Total other non-current assets |
$ |
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$ |
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NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND DOMAIN NAMES
The following sets forth the goodwill, tradenames, trademarks and domain names activity for the RH Segment and Waterworks (See Note 16—Segment Reporting), for the three months ended May 2, 2020 (in thousands):
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Foreign |
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February 1, |
Currency |
May 2, |
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2020 |
Impairment (1) |
Translation |
2020 |
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RH Segment |
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Goodwill |
$ |
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$ |
— |
$ |
( |
$ |
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Tradenames, trademarks and domain names |
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— |
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— |
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Waterworks (1) |
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Tradename (2) |
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( |
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— |
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(1) |
Waterworks reporting unit goodwill of $ |
(2) |
Presented net of an impairment charge of $ |
Waterworks Tradename Impairment
During the first fiscal quarter of 2020, as a result of the COVID-19 health crisis and related Showroom closures and slowdown in construction activity, management updated the long-term financial projections for the Waterworks reporting unit which resulted in a significant decrease in forecasted revenues and profitability. We performed an interim impairment test on the Waterworks tradename and the estimated future cash flows of the Waterworks reporting unit indicated the fair value of the tradename asset was below its carrying amount. We determined fair value utilizing a discounted cash flow methodology under the relief-from-royalty method. Significant assumptions under this method include forecasted net revenues and the estimated royalty rate, expressed as a percentage of revenues, in addition to the
11
discount rate based on the weighted-average cost of capital. Based on the impairment test performed, we concluded that the Waterworks reporting unit tradename was impaired as of May 2, 2020.
As a result, we recognized a $
NOTE 5—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following (in thousands):
|
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May 2, |
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February 1, |
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2020 |
2020 |
||||
Accounts payable |
$ |
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$ |
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Accrued compensation |
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Accrued freight and duty |
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Accrued sales taxes |
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||
Accrued occupancy |
|
|
|
|
||
Accrued catalog costs |
|
|
|
|
||
Accrued professional fees |
|
|
|
|
||
Other accrued expenses |
|
|
|
|
||
Total accounts payable and accrued expenses |
$ |
|
$ |
|
Other current liabilities consist of the following (in thousands):
|
|
May 2, |
|
February 1, |
||
|
2020 |
2020 |
||||
Promissory notes on asset under construction |
$ |
|
$ |
|
||
Unredeemed gift card and merchandise credit liability |
|
|
|
|
||
Current portion of equipment promissory notes |
|
|
|
|||
Allowance for sales returns |
|
|
||||
Finance lease liabilities |
|
|
||||
Federal and state taxes payable |
|
|
|
|
||
Product recall reserve |
|
|
|
|
||
Other current liabilities |
|
|
|
|
||
Total other current liabilities |
$ |
|
$ |
|
Contract Liabilities
We defer revenue associated with merchandise delivered via the home-delivery channel. We expect that substantially all of the deferred revenue, customer deposits and deferred membership fees as of May 2, 2020 will be recognized within the next six months as the performance obligations are satisfied.
In addition, we defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards and merchandise credits. During the three months ended May 2, 2020 and May 4, 2019, we recorded $
12
NOTE 6—OTHER NON-CURRENT OBLIGATIONS
Other non-current obligations consist of the following (in thousands):
|
|
May 2, |
|
February 1, |
||
|
2020 |
2020 |
||||
Notes payable for share repurchases |
$ |
|
$ |
|
||
Rollover units and profit interests (1) |
|
|
|
|
||
Unrecognized tax benefits |
|
|
|
|
||
Other non-current obligations |
|
|
|
|
||
Total other non-current obligations |
$ |
|
$ |
|
(1) | Represents rollover units and profit interests associated with the acquisition of Waterworks. Refer to Note 14—Stock-Based Compensation. |
.
NOTE 7—LEASES
|
Three Months Ended |
||||||
May 2, |
|
May 4, |
|||||
|
|
2020 |
|
2019 |
|||
Operating lease cost (1) |
|
$ |
|
$ |
|
||
Finance lease costs |
|||||||
Amortization of leased assets (1) |
|
|
|||||
Interest on lease liabilities (2) |
|
|
|||||
Variable lease costs (3) |
|
|
|||||
Sublease income (4) |
( |
( |
|||||
Total lease costs—net |
$ |
|
$ |
|
(1) | Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the condensed consolidated statements of operations based on our accounting policy. Refer to Note 3—Significant Accounting Policies in the 2019 Form 10-K. |
(2) | Included in interest expense—net on the condensed consolidated statements of operations. |
(3) | Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent based on a percentage of retail sales over contractual levels of $ |
(4) | Included in selling, general and administrative expenses on the condensed consolidated statements of operations. |
13
Lease right-of-use assets and lease liabilities consist of the following (in thousands):
May 2, |
February 1, |
|||||||
2020 |
2020 |
|||||||
Balance Sheet Classification |
||||||||
Assets |
||||||||
Operating leases |
$ |
|
$ |
|
||||
Finance leases (1)(2) |
|
|
||||||
Total lease right-of-use assets |
$ |
|
$ |
|
||||
Liabilities |
||||||||
Current (3) |
||||||||
Operating leases |
$ |
|
$ |
|
||||
Finance leases |
|
|
||||||
Total lease liabilities—current |
|
|
||||||
Non-current |
||||||||
Operating leases |
|
|
||||||
Finance leases |
|
|
||||||
Total lease liabilities—non-current |
|
|
||||||
Total lease liabilities |
$ |
|
$ |
|
(1) | Finance lease right-of-use assets include capitalized amounts related to our completed construction activities to design and build leased assets, which are reclassified from other non-current assets upon lease commencement. |
(2) | Finance lease right-of-use assets are recorded net of accumulated amortization of $ |
(3) | Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months. |
The maturities of lease liabilities are as follows as of May 2, 2020 (in thousands):
Fiscal year |
Operating |
Finance |
Total |
||||||
Remainder of fiscal 2020 |
$ |
|
$ |
|
$ |
|
|||
2021 |
|
|
|
||||||
2022 |
|
|
|
||||||
2023 |
|
|
|
||||||
2024 |
|
|
|
||||||
2025 |
|
|
|
||||||
Thereafter |
|
|
|
||||||
Total lease payments (1)(2) |
|
|
|
||||||
Less—imputed interest (3) |
( |
( |
( |
||||||
Present value of lease liabilities |
$ |
|
$ |
|
$ |
|
(1) | Total lease payments include future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. Total lease payments exclude $ |
(2) |
Excludes future commitments under |
(3) | Calculated using the incremental borrowing rate for each lease at lease commencement. |
14
Supplemental information related to leases consists of the following:
Three Months Ended |
|||||||
May 2, |
May 4, |
||||||
2020 |
|
2019 |
|||||
Weighted-average remaining lease term (years) |
|||||||
Operating leases |
|||||||
Finance leases |
|||||||
Weighted-average discount rate |
|||||||
Operating leases |
|||||||
Finance leases |
Three Months Ended |
|||||||
May 2, |
May 4, |
||||||
2020 |
|
2019 |
|||||
Cash paid for amounts included in the measurement of lease liabilities |
|||||||
Operating cash flows from operating leases |
$ |
( |
$ |
( |
|||
Operating cash flows from finance leases |
( |
( |
|||||
Financing cash flows from finance leases |
( |
( |
|||||
Total cash outflows from leases |
$ |
( |
$ |
( |
|||
Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations (non-cash) |
|||||||
Operating leases |
$ |
|
$ |
|
|||
Finance leases |
|
|
Long-lived Asset Impairment
During the three months ended May 2, 2020, we recognized long-lived asset impairment charges of $
NOTE 8—CONVERTIBLE SENIOR NOTES
$350 million 0.00% Convertible Senior Notes due 2024
In September 2019, we issued in a private offering $
15
amount in excess of $
The initial conversion rate applicable to the 2024 Notes is
Prior to June 15, 2024, the 2024 Notes are convertible only under the following circumstances: (1) during any calendar quarter commencing after December 31, 2019, if, for at least
We may not redeem the 2024 Notes; however, upon the occurrence of a fundamental change (as defined in the indenture governing the notes), holders may require us to purchase all or a portion of their 2024 Notes for cash at a price equal to 100% of the principal amount of the 2024 Notes to be purchased plus any accrued and unpaid special interest to, but excluding, the fundamental change purchase date.
Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the 2024 Notes, we separated the 2024 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2024 Notes and the fair value of the liability component of the 2024 Notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) will be amortized to interest expense using an effective interest rate of
Debt issuance costs related to the 2024 Notes were comprised of discounts upon original issuance of $
Discounts and third party offering costs attributable to the liability component are recorded as a contra-liability and are presented net against the convertible senior notes due 2024 balance on the condensed consolidated balance
16
sheets. During the three months ended May 2, 2020 we recorded $
The carrying value of the 2024 Notes, excluding the discounts upon original issuance and third party offering costs, is as follows (in thousands):
|
|
May 2, |
|
February 1, |
||
|
2020 |
2020 |
||||
Liability component |
|
|
|
|
||
Principal |
$ |
|
$ |
|
||
Less: Debt discount |
|
( |
|
( |
||
Net carrying amount |
$ |
|
$ |
|
||
Equity component (1) |
$ |
|
$ |
|
(1) | Included in additional paid-in capital on the condensed consolidated balance sheets. |
We recorded interest expense of $
2024 Notes—Convertible Bond Hedge and Warrant Transactions
In connection with the offering of the 2024 Notes and exercise of the overallotment option in September 2019, we entered into convertible note hedge transactions whereby we have the option to purchase a total of approximately
We recorded a deferred tax liability of $
$335 million 0.00% Convertible Senior Notes due 2023
In June 2018, we issued in a private offering $
17
there may be issued, or by which there may be secured or evidenced, any indebtedness of the Company or any of its significant subsidiaries for money borrowed, if that event of default (i) constitutes the failure to pay when due indebtedness in the aggregate principal amount in excess of $
Prior to March 15, 2023, the 2023 Notes are convertible only under the following circumstances: (1) during any calendar quarter commencing after September 30, 2018, if, for at least
We may not redeem the 2023 Notes; however, upon the occurrence of a fundamental change (as defined in the indenture governing the notes), holders may require us to purchase all or a portion of their 2023 Notes for cash at a price equal to
Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the 2023 Notes, we separated the 2023 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2023 Notes and the fair value of the liability component of the 2023 Notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) will be amortized to interest expense using an effective interest rate of
Debt issuance costs related to the 2023 Notes were comprised of discounts upon original issuance of $
Discounts and third party offering costs attributable to the liability component are recorded as a contra-liability and are presented net against the convertible senior notes due 2023 balance on the condensed consolidated balance
18
sheets. During both the three months ended May 2, 2020 and May 4, 2019, we recorded $
The carrying values of the 2023 Notes, excluding the discounts upon original issuance and third party offering costs, are as follows (in thousands):
|
|
May 2, |
|
February 1, |
||
|
2020 |
2020 |
||||
Liability component |
|
|
|
|
||
Principal |
$ |
|
$ |
|
||
Less: Debt discount |
|
( |
|
( |
||
Net carrying amount |
$ |
|
$ |
|
||
Equity component (1) |
$ |
|
$ |
|
(1) | Included in additional paid-in capital on the condensed consolidated balance sheets. |
We recorded interest expense of $
2023 Notes—Convertible Bond Hedge and Warrant Transactions
In connection with the offering of the 2023 Notes and exercise of the overallotment option in June 2018,