rh_Current_Folio_10Q

Table of Contents

 

 

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


Picture 2

(Exact name of registrant as specified in its charter)


 

 

 

 

Delaware

    

45‑3052669

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

15 Koch Road, Suite K
Corte Madera, CA

 

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.

 

 

 

Table of Contents

RH

INDEX TO FORM 10‑Q

 

 

 

 

 

 

    

 

    

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION 

Item 1. 

 

Financial Statements

 

3

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of May 4, 2019 and February 2, 2019

 

3

 

 

Condensed Consolidated Statements of Income (Unaudited) for the three months ended May 4, 2019 and May 5, 2018

 

4

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended May 4, 2019 and May 5, 2018

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) for the three months ended May 4, 2019 and May 5, 2018

 

6

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended May 4, 2019 and May 5, 2018

 

7

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

Item 2. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

Item 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

 

63

Item 4. 

 

Controls and Procedures

 

65

 

 

 

 

 

PART II. OTHER INFORMATION 

Item 1. 

 

Legal Proceedings

 

66

Item 1A. 

 

Risk Factors

 

66

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

69

Item 3. 

 

Defaults Upon Senior Securities

 

69

Item 4. 

 

Mine Safety Disclosures

 

69

Item 5. 

 

Other Information

 

69

Item 6. 

 

Exhibits

 

70

Signatures 

 

71

 

 

2

Table of Contents

PART I

Item 1. Financial Statements

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

Table of Contents

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

Table of Contents

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

Table of Contents

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

Table of Contents

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

Table of Contents

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”) 505Equity, 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

Table of Contents

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

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Table of Contents

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 equipmentnet.

11

Table of Contents

(6)

Represents recognition of net deferred tax assets related to the adoption of the ASUs.