dxlg-10q_20180804.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 August 4, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Commission File Number: 01-34219

 

DESTINATION XL GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

04-2623104

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

555 Turnpike Street

Canton, MA

02021

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (781) 828-9300

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      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 the 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

 

  (Do not check if a small reporting company)

  

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 August 17, 2018, the registrant had 49,182,862 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

 

August 4, 2018

 

 

February 3, 2018

 

 

 

(Fiscal 2018)

 

 

(Fiscal 2017)

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,216

 

 

$

5,362

 

Accounts receivable

 

 

2,264

 

 

 

3,046

 

Inventories

 

 

102,912

 

 

 

103,332

 

Prepaid expenses and other current assets

 

 

11,584

 

 

 

9,927

 

Total current assets

 

 

122,976

 

 

 

121,667

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization

 

 

103,877

 

 

 

111,032

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

Intangible assets

 

 

1,637

 

 

 

1,821

 

Other assets

 

 

5,750

 

 

 

5,885

 

Total assets

 

$

234,240

 

 

$

240,405

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

-

 

 

$

1,392

 

Current portion of deferred gain on sale-leaseback

 

 

1,465

 

 

 

1,465

 

Accounts payable

 

 

32,426

 

 

 

33,987

 

Accrued expenses and other current liabilities

 

 

24,857

 

 

 

25,585

 

Borrowings under credit facility

 

 

46,430

 

 

 

47,385

 

Total current liabilities

 

 

105,178

 

 

 

109,814

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

14,729

 

 

 

10,669

 

Deferred rent and lease incentives

 

 

34,020

 

 

 

35,718

 

Deferred gain on sale-leaseback, net of current portion

 

 

9,525

 

 

 

10,258

 

Other long-term liabilities

 

 

3,599

 

 

 

3,960

 

Total long-term liabilities

 

 

61,873

 

 

 

60,605

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares  authorized, none issued

 

 

 

 

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized,  61,905,534 and  61,485,882 shares issued at August 4, 2018 and February 3, 2018, respectively

 

 

619

 

 

 

615

 

Additional paid-in capital

 

 

309,007

 

 

 

307,557

 

Treasury stock at cost, 12,755,873 shares at August 4, 2018 and February 3, 2018

 

 

(92,658

)

 

 

(92,658

)

Accumulated deficit

 

 

(143,580

)

 

 

(139,285

)

Accumulated other comprehensive loss

 

 

(6,199

)

 

 

(6,243

)

Total stockholders' equity

 

 

67,189

 

 

 

69,986

 

Total liabilities and stockholders' equity

 

$

234,240

 

 

$

240,405

 

 

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

 

 

2


DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

August 4, 2018

 

 

July 29, 2017

 

 

August 4, 2018

 

 

July 29, 2017

 

 

 

(Fiscal 2018)

 

 

(Fiscal 2017)

 

 

(Fiscal 2018)

 

 

(Fiscal 2017)

 

 

 

 

 

Sales

 

$

122,206

 

 

$

121,125

 

 

$

235,537

 

 

$

228,754

 

Cost of goods sold including occupancy costs

 

 

65,681

 

 

 

65,308

 

 

 

128,324

 

 

 

124,249

 

Gross profit

 

 

56,525

 

 

 

55,817

 

 

 

107,213

 

 

 

104,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

47,795

 

 

 

49,068

 

 

 

93,385

 

 

 

95,236

 

Corporate restructuring

 

 

1,570

 

 

 

 

 

 

1,570

 

 

 

 

Impairment of assets

 

 

 

 

 

1,718

 

 

 

 

 

 

1,718

 

Depreciation and amortization

 

 

7,382

 

 

 

7,903

 

 

 

14,706

 

 

 

15,657

 

Total expenses

 

 

56,747

 

 

 

58,689

 

 

 

109,661

 

 

 

112,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(222

)

 

 

(2,872

)

 

 

(2,448

)

 

 

(8,106

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(958

)

 

 

(824

)

 

 

(1,844

)

 

 

(1,626

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

 

(1,180

)

 

 

(3,696

)

 

 

(4,292

)

 

 

(9,732

)

Provision for income taxes

 

 

5

 

 

 

35

 

 

 

3

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,185

)

 

$

(3,731

)

 

$

(4,295

)

 

$

(9,796

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.02

)

 

$

(0.08

)

 

$

(0.09

)

 

$

(0.20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

49,060

 

 

 

48,556

 

 

 

48,926

 

 

 

49,146

 

Diluted

 

 

49,060

 

 

 

48,556

 

 

 

48,926

 

 

 

49,146

 

 

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

 

 

 

3


DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

 

August 4, 2018

 

 

July 29, 2017

 

 

August 4, 2018

 

 

July 29, 2017

 

 

 

 

(Fiscal 2018)

 

 

(Fiscal 2017)

 

 

(Fiscal 2018)

 

 

(Fiscal 2017)

 

 

Net loss

 

$

(1,185

)

 

$

(3,731

)

 

$

(4,295

)

 

$

(9,796

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(94

)

 

 

177

 

 

 

(239

)

 

 

216

 

 

Pension plans

 

 

156

 

 

 

206

 

 

 

330

 

 

 

421

 

 

Other comprehensive income before taxes

 

 

62

 

 

 

383

 

 

 

91

 

 

 

637

 

 

Tax provision related to items of other comprehensive income

 

 

(21

)

 

 

 

 

 

(47

)

 

 

 

 

Other comprehensive income, net of tax

 

 

41

 

 

 

383

 

 

 

44

 

 

 

637

 

 

Comprehensive loss

 

$

(1,144

)

 

$

(3,348

)

 

$

(4,251

)

 

$

(9,159

)

 

 

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

 

 

 

4


DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Shares

 

 

Amounts

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at February 3, 2018

 

 

61,486

 

 

$

615

 

 

$

307,557

 

 

 

(12,755

)

 

$

(92,658

)

 

$

(139,285

)

 

$

(6,243

)

 

$

69,986

 

Board of Directors compensation

 

 

95

 

 

 

1

 

 

 

283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

284

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

789

 

Restricted stock units granted for achievement of performance-based compensation, reclass from liability to equity (Note 4)

 

 

 

 

 

 

 

 

 

 

381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

381

 

Restricted stock units exercised

 

 

322

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of restricted stock, net of issuances

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred stock vested

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension plan, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

245

 

 

 

245

 

Foreign currency, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(201

)

 

 

(201

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,295

)

 

 

 

 

 

 

(4,295

)

Balance at August 4, 2018

 

 

61,905

 

 

$

619

 

 

$

309,007

 

 

 

(12,755

)

 

$

(92,658

)

 

$

(143,580

)

 

$

(6,199

)

 

$

67,189

 

 

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

 

 

 

5


DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Six Months Ended

 

 

 

August 4, 2018

 

 

July 29, 2017

 

 

 

(Fiscal 2018)

 

 

(Fiscal 2017)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(4,295

)

 

$

(9,796

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Amortization of deferred gain on sale-leaseback

 

 

(733

)

 

 

(732

)

Amortization of deferred debt issuance costs

 

 

101

 

 

 

138

 

Write-off of deferred debt issuance costs

 

 

186

 

 

 

 

Depreciation and amortization

 

 

14,706

 

 

 

15,657

 

Impairment of assets

 

 

 

 

 

1,718

 

Stock compensation expense

 

 

789

 

 

 

840

 

Board of Directors stock compensation

 

 

284

 

 

 

286

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

782

 

 

 

1,567

 

Inventories

 

 

420

 

 

 

5,112

 

Prepaid expenses and other current assets

 

 

(1,657

)

 

 

(1,134

)

Other assets

 

 

135

 

 

 

14

 

Accounts payable

 

 

(1,561

)

 

 

509

 

Deferred rent and lease incentives

 

 

(1,698

)

 

 

1,384

 

Accrued expenses and other liabilities

 

 

(666

)

 

 

(1,214

)

Net cash provided by operating activities

 

 

6,793

 

 

 

14,349

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment, net

 

 

(7,365

)

 

 

(13,775

)

Net cash used for investing activities

 

 

(7,365

)

 

 

(13,775

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repurchase of common stock

 

 

 

 

 

(4,681

)

Costs associated with new credit facility

 

 

(553

)

 

 

 

Proceeds from the issuance of long-term debt

 

 

15,000

 

 

 

 

Principal payments on long-term debt

 

 

(12,251

)

 

 

(4,208

)

Net borrowings under credit facility

 

 

(770

)

 

 

9,290

 

Net cash provided by financing activities

 

 

1,426

 

 

 

401

 

Net increase in cash and cash equivalents

 

 

854

 

 

 

975

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

5,362

 

 

 

5,572

 

End of period

 

$

6,216

 

 

$

6,547

 

 

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

 

 

 

6


DESTINATION XL GROUP, INC.

Notes to Consolidated Financial Statements

 

 

1. Basis of Presentation

In the opinion of management of Destination XL Group, Inc., a Delaware corporation (formerly known as Casual Male Retail Group, Inc. and, collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the fiscal year ended February 3, 2018 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 23, 2018.

The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2018 is a 52-week period ending on February 2, 2019 and fiscal 2017 was a 53-week period ended on February 3, 2018.

Segment Information

The Company reports its operations as one reportable segment, Big & Tall Men’s Apparel, which consists of two principal operating segments: its retail business and its direct business. The Company considers its operating segments to be similar in terms of economic characteristics, production processes and operations, and has therefore aggregated them into a single reporting segment, consistent with its omni-channel business approach. The direct operating segment includes the operating results and assets for LivingXL® and ShoesXL®.

 

Reclassification

In the second quarter of fiscal 2017, the Company incurred an impairment charge of $1.7 million for the write-off of certain store assets. This amount was previously included in “Depreciation and Amortization” in the Consolidated Statements of Operations for the second quarter and first six months of fiscal 2017 but was reclassified to “Impairment of Assets” in the Consolidated Statement of Operations for the fiscal year ended February 3, 2018. The prior year comparison in the Consolidated Statements of Operations for the second quarter and first six months of fiscal 2018 reflect this reclassification.

Intangibles

At August 4, 2018, the “Casual Male” trademark had a carrying value of $0.1 million and is considered a definite-lived asset. The Company is amortizing the remaining carrying value on an accelerated basis, consistent with projected cash flows through fiscal 2018, its estimated remaining useful life.

The Company’s “Rochester” trademark is considered an indefinite-lived intangible asset and has a carrying value of $1.5 million. During the six months ended August 4, 2018, no event or circumstance occurred which would cause a reduction in the fair value of the Company’s reporting units, requiring interim testing of the Company’s “Rochester” trademark.

 

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

7


The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

The fair value of long-term debt is classified within Level 2 of the valuation hierarchy. At August 4, 2018, the fair value approximated the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities.

The fair value of indefinite-lived assets, which consists of the Company’s “Rochester” trademark, is measured on a non-recurring basis in connection with the Company’s annual impairment test. The fair value of the trademark is determined using a projected discounted cash flow analysis based on unobservable inputs and is classified within Level 3 of the valuation hierarchy. See Intangibles above.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.

 

Accumulated Other Comprehensive Income (Loss) - (“AOCI”)

Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income and reclassifications from AOCI for the three and six months ended August 4, 2018 and July 29, 2017, respectively, were as follows:

 

 

 

August 4, 2018

 

 

July 29, 2017

 

For the three months ended:

 

(in thousands)

 

 

 

Pension

Plans

 

 

Foreign

Currency

 

 

Total

 

 

Pension

Plans

 

 

Foreign

Currency

 

 

Total

 

Balance at beginning of the quarter

 

$

(5,711

)

 

$

(529

)

 

$

(6,240

)

 

$

(5,022

)

 

$

(742

)

 

$

(5,764

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before

   reclassifications, net of taxes

 

 

58

 

 

 

(75

)

 

 

(17

)

 

 

25

 

 

 

177

 

 

 

202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated other

   comprehensive income, net of taxes  (1)

 

 

58

 

 

 

 

 

 

58

 

 

 

181

 

 

 

 

 

 

181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) for the period

 

 

116

 

 

 

(75

)

 

 

41

 

 

 

206

 

 

 

177

 

 

 

383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of quarter

 

$

(5,595

)

 

$

(604

)

 

$

(6,199

)

 

$

(4,816

)

 

$

(565

)

 

$

(5,381

)

 

 

 

August 4, 2018

 

 

July 29, 2017

 

For the six months ended:

 

(in thousands)

 

 

 

Pension

Plans

 

 

Foreign

Currency

 

 

Total

 

 

Pension

Plans

 

 

Foreign

Currency

 

 

Total

 

Balance at beginning of fiscal year

 

$

(5,840

)

 

$

(403

)

 

$

(6,243

)

 

$

(5,237

)

 

$

(781

)

 

$

(6,018

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before

   reclassifications, net of taxes

 

 

115

 

 

 

(201

)

 

 

(86

)

 

 

85

 

 

 

216

 

 

 

301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated other

   comprehensive income, net of taxes  (1)

 

 

130

 

 

 

 

 

 

130

 

 

 

336

 

 

 

 

 

 

336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) for the period

 

 

245

 

 

 

(201

)

 

 

44

 

 

 

421

 

 

 

216

 

 

 

637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of quarter

 

$

(5,595

)

 

$

(604

)

 

$

(6,199

)

 

$

(4,816

)

 

$

(565

)

 

$

(5,381

)

 

(1)

Includes the amortization of the unrecognized loss on pension plans, which was charged to “Selling, General and Administrative” Expense on the Consolidated Statements of Operations for all periods presented. The amortization of the unrecognized loss,

8


 

before tax, was $79,000 and $177,000 for the three and six months ended August 4, 2018, respectively, and $181,000 and $336,000 for the three and six months ended July 29, 2017, respectively. The tax effect for the three and six months ended August 4, 2018 was $21,000 and $47,000, respectively.  There was no tax effect for the three and six months ended July 29, 2017.  

 

Stock-based Compensation

All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the Consolidated Statements of Operations based on their fair values and vesting periods. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). The Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards that will ultimately vest requires significant judgment. Actual results and future changes in estimates may differ from the Company’s current estimates.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds.

There was no material impairment of long-lived assets in the second quarter and first six months of fiscal 2018.  In the second quarter of fiscal 2017, the Company recorded an impairment charge of $1.7 million related to the write-down of property and equipment.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the accounting guidance on revenue recognition. The amendments in this ASU are intended to provide a framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity is required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. To assess the impact of ASU 2014-09, the Company reviewed its current accounting policies and practices, identified all material revenue streams, assessed the impact of the ASU on its material revenue streams and identified potential differences with current policies and practices. The Company adopted this standard on February 4, 2018, with no material impact on the Company’s Consolidated Financial Statements, using the modified retrospective approach. Further disclosures related to the adoption of this standard are provided below in Note 2, Revenue Recognition.

In March 2016, the FASB issued ASU 2016-04, “Liabilities—Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products,” which amends exempting gift cards and other prepaid stored-value products from the guidance on extinguishing financial liabilities. Rather, they will be subject to breakage accounting consistent with the new revenue guidance in Topic 606. However, the exemption only applies to breakage liabilities that are not subject to unclaimed property laws or that are attached to segregated bank accounts (e.g., consumer debit cards).  The Company adopted this pronouncement as of February 4, 2018.  The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which reduces the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230.  The Company adopted this pronouncement as of February 4, 2018.  The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory,” which reduces the existing diversity in practice in how income tax consequences of an intra-entity transfer of an asset other than inventory should be recognized. The amendments in ASU 2016-16 require an entity to recognize such income tax consequences when the intra-entity transfer occurs rather than waiting until such time as the asset has been sold to an outside party.  The Company adopted this pronouncement as of February 4, 2018.  The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

9


In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718)”