Notes to Consolidated Financial Statements
February 2, 2019
1. Organization and Basis of Presentation of Financial Statements
RTW Retailwinds, Inc., formerly known as New York & Company, Inc., (together with its subsidiaries, the
"Company") is a specialty women's omni-channel and digitally enabled retailer with a powerful multi-brand lifestyle platform providing curated fashion solutions that are versatile, on-trend, and
stylish at a great value. The specialty retailer, first incorporated in 1918, has grown to now operate 411 retail and outlet locations in 35 states while also growing a substantial eCommerce business.
The company's portfolio includes branded merchandise from New York & Company, Fashion to Figure, and collaborations with Eva Mendes, Gabrielle Union and Kate Hudson. The Company's branded
merchandise is sold exclusively at its retail locations and online at
www.nyandcompany.com
,
www.nyandcompanycloset.com
, www.
fashiontofigure.com
, and
www.happyxnature.com
. The target customers for the Company's merchandise are women between the ages of 25 and 49.
The
Company's fiscal year is a 52- or 53-week year that ends on the Saturday closest to January 31. The accompanying consolidated financial statements include the accounts of the
Company for the 52-weeks ended February 2, 2019 ("fiscal year 2018"), 53-weeks ended February 3, 2018 ("fiscal year 2017"), and 52-weeks ended January 28, 2017 ("fiscal year
2016"). All significant intercompany balances and transactions have been eliminated in consolidation.
The
Company identifies its operating segments according to how its business activities are managed and evaluated. Its operating segments have been aggregated and are reported as one
reportable segment based on the similar nature of products sold, production process, distribution process, target customers and economic characteristics. All of the Company's revenues are generated in
the United States.
2. Summary of Significant Accounting Policies
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with
Customers (Topic 606)" ("Topic 606"), which supersedes the revenue recognition requirements in FASB Accounting Standards Codification™ ("ASC") Topic 605, "Revenue Recognition"
("Topic 605") and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which an
entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 as of February 4, 2018 using the modified retrospective method with a cumulative
adjustment to the opening retained earnings balance. Please refer to Note 3, "Revenue Recognition" for further information regarding the adoption of Topic 606.
In
February 2016, the FASB issued ASU 2016-02, "Leases" ("ASU 2016-02"), which is a comprehensive new lease standard that amends various aspects of existing accounting guidance for
leases. The core principle of ASU 2016-02 will require lessees to present the assets and liabilities that arise from leases on their balance sheets. ASU 2016-02 is effective for annual periods
beginning after December 15, 2018, and interim periods within those fiscal years and requires modified retrospective adoption. Early adoption is permitted.
The
Company will adopt ASU 2016-02 as of February 3, 2019 (the first day of fiscal year 2019) using the transition option to recognize a cumulative adjustment to the opening
retained earnings balance and without adjustment to prior periods. As permitted under the guidance, the Company has
55
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
2. Summary of Significant Accounting Policies (Continued)
elected
the package of transition practical expedients which allows the Company to carryforward its identification of contracts that are or contain leases, its historical lease classification, and
indirect costs for existing leases. However, it has not elected to apply the hindsight practical expedient. The Company has gathered all of its existing contracts that meet the definition of a lease
under ASU 2016-02, and it has concluded that the Company's long-term real estate leases will drive the significant impact to the Company's consolidated balance sheet. The Company expects to recognize
right-of-use assets of approximately $235 million to $245 million, and related lease liabilities of approximately $265 million to $275 million on its consolidated balance
sheet upon the adoption of ASU 2016-02. The right-of-use assets recognized are based on the present values of the lease liabilities adjusted for deferred rent liabilities and unamortized landlord
allowances. In addition, the Company expects to record an adjustment to the opening retained earnings balance for the impairment of certain right-of-use assets. The Company still anticipates that the
adoption of ASU 2016-02 will not have a material impact on the
Company's results of operations, excluding the impact of any future right-of-use asset impairments under ASC 360.
In
February 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income" ("ASU 2018-02"), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs
Act of 2017. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The
Company does not expect the adoption of ASU 2018-02 to have a material impact on the Company's financial position or results of operations.
In
March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit
Cost" ("ASU 2017-07"), which requires: (i) the disaggregation of the service cost component from the other components of net benefit costs in the income statement; (ii) provides
explicit guidance on the presentation of the service cost component and the other components of net benefit cost in the income statement; and (iii) allows only the service cost component of net
benefit cost to be eligible for capitalization. ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years, and
requires retrospective adoption. The Company adopted ASU 2017-07 on February 4, 2018 prospectively, as the Company deemed the impact of prior period reclassifications to be immaterial. The
impact on fiscal year 2017 and fiscal year 2016 would have resulted in a net decrease of "Selling, general, and administrative expenses" and an increase in "Operating income" on the Company's
condensed consolidated statements of operations by $79,000 and $0.2 million, respectively. The adoption of ASU 2017-07 did not have a material impact on the Company's financial position or
results of operations.
Revenue Recognition
Substantially all of the Company's sales, including eCommerce sales, are single performance obligation arrangements for retail sale transactions
for which the transaction price is equivalent to the stated price of the product or service, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit
contract with the customer to deliver a product or service at the
56
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
2. Summary of Significant Accounting Policies (Continued)
point
of sale. Revenue from the sale of merchandise at the Company's stores is recognized at the time the customer takes possession of the related merchandise and the purchases are paid for. Revenue,
including shipping fees billed to customers, from the sale of merchandise at the Company's eCommerce stores is recognized when the merchandise is shipped to the customer and the purchases are paid
for. Revenue for gift cards and merchandise credits is recognized at redemption. Prior to their redemption, gift cards and merchandise credits are recorded as a liability. Discounts and promotional
coupons offered to customers are accounted for as a reduction of sales revenue at the time the coupons are tendered by the customer. For sales incentives that provide customers with a coupon for a
discount on future purchases, the Company defers a portion of the revenue at the time the coupon is earned using the standalone selling price method, until the coupon is redeemed or expired. Sales
taxes collected from customers are excluded from revenues.
The
Company reserves for sales returns on a gross basis through a separate right of return asset and liability with reductions in sales and cost of goods sold based upon historical
merchandise returns experience and current sales levels.
The
Company issues gift cards and merchandise credits which do not contain provisions for expiration or inactivity fees. The portion of the dollar value of gift cards and merchandise
credits that ultimately is not used by customers to make purchases is known as breakage and will be recognized as revenue if the Company determines it is not required to escheat such amounts to
government agencies under state escheatment laws. The Company recognizes gift card and merchandise credit breakage as revenue as each is redeemed based on their respective historical breakage rate.
The Company determined the breakage rates for gift cards and merchandise credits based on their respective historical redemption patterns. The Company recognizes revenue on the remaining unredeemed
gift cards and merchandise credits based on determining that the likelihood of redemption is remote and that there is no legal obligation to escheat the unredeemed amounts to relevant jurisdictions.
Runway
Rewards is the Company's points-based customer loyalty program, in which customers earn points based on purchases. When customers reach predetermined point thresholds, earned
points are converted to rewards that can be redeemed for discounts on future purchases of Company merchandise. Under the Runway Rewards program, points earned expire after 12 months if the
point threshold for a reward is not attained. Issued rewards expire after approximately 60 days if they are not redeemed. As rewards are being earned the Company defers a portion of the revenue
equal to the estimated sales value of the reward that is expected to be redeemed using the standalone selling price method. Revenue is recognized as rewards are redeemed or expire. The Company
determines the estimated redemption rate based on the historical experience of rewards being earned and redeemed.
The
Company also recognizes revenue in connection with its private label credit card agreement with Comenity Bank, a bank subsidiary of Alliance Data Systems Corporation ("ADS") (the
"ADS Agreement"). Pursuant to the terms of the ADS Agreement, ADS has the exclusive right to provide private label credit cards to its customers through April 30, 2026. The Company's private
label credit
card is issued to the Company's customers for use exclusively at the Company's stores and eCommerce websites, and credit is extended to such customers by Comenity Bank on a non-recourse basis to the
Company. Upon execution of the ADS Agreement on July 14, 2016, the Company was entitled to $40 million in signing bonuses. The signing bonuses were payable in two installments, of which
$17.5 million was received on July 28, 2016, and $22.5 million was received on January 10, 2017. Upon
57
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
2. Summary of Significant Accounting Policies (Continued)
execution
of the ADS Agreement, the Company recorded $40.0 million of deferred revenue, which is being amortized on a straight-line basis over the 10-year term of the ADS Agreement. The
Company's primary performance obligation under the ADS agreement is licensing its brand to ADS for marketing the Company's private label credit card. In addition, the Company's performance obligations
include certain operating procedures related to its private label credit card. Over the term of the ADS Agreement, the Company receives royalty payments based on a percentage of private label credit
card sales, which the Company recognizes as revenue as it is earned.
Please
refer to Note 3, "Revenue Recognition" for additional information.
Fair Value Measurements and Financial Instruments
The Company measures fair value in accordance with ASC 820 Topic, "Fair Value Measurements" ("ASC 820"). ASC 820 establishes a three-level fair
value hierarchy that requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair
value are as follows:
|
|
|
|
|
Level 1:
|
|
Observable inputs such as quoted prices in active markets;
|
Level 2:
|
|
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
Level 3:
|
|
Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions.
|
The
Company's financial instruments consist of cash and cash equivalents, short-term trade receivables, accounts payable, and long-term debt. The carrying values on the balance sheet for
cash and cash equivalents, short-term trade receivables and accounts payable approximate their fair values due to the short-term maturities of such items. At February 3, 2018 the carrying
amount of long-term debt approximated its fair value due to the variable interest rate it carried. At February 2, 2019 the Company had no long-term debt outstanding.
Cash and Cash Equivalents
Cash and cash equivalents include all cash in banks, cash on-hand, and all short-term investments with an original maturity of three months or
less when purchased.
Inventories
Inventories are valued at the lower of average cost or market, on a weighted average cost basis, using the retail method. The estimated market
value of inventory is determined based on an analysis of historical sales trends of individual product categories, the impact of market trends and economic conditions, and a forecast of future demand,
as well as plans to sell through inventory. The Company records a charge to cost of goods sold, buying and occupancy costs for all inventory on-hand when a permanent retail price reduction is
reflected in its stores. The Company also records inventory loss adjustments for shrink and obsolete and excess inventory which are based on historical results and management's operating projections.
58
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
2. Summary of Significant Accounting Policies (Continued)
Deferred Rent
The Company recognizes fixed minimum rent expense on non-cancelable leases on a straight-line basis over the term of each individual lease
including the build-out period. The difference between recognized rental expense and amounts payable under the lease is recorded as a deferred lease liability. In addition, the Company recognizes
landlord allowances as a deferred lease liability, which is amortized over the term of the related lease as a reduction to rent expense. For contingent rent expense based upon sales, the Company
estimates annual contingent rent expense and recognizes a portion each month based on actual sales. At February 2, 2019 and February 3, 2018, the deferred lease liability was
$25.1 million and $27.2 million, respectively, and is reported as "Deferred rent" on the consolidated balance sheets.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for new properties and improvements are capitalized, while the cost of repair and
maintenance is charged to expense. Depreciation of property and equipment is provided on a straight-line basis over the estimated useful lives of the assets.
The
estimated useful lives of property and equipment, for financial statement purposes, are as follows:
|
|
|
|
|
Depreciable Fixed Assets
|
|
Useful Life
|
|
Land
|
|
—
|
|
Store fixtures and equipment
|
|
3 - 10 years
|
|
Office furniture, fixtures and equipment
|
|
3 - 15 years
|
|
Software
|
|
5 years
|
|
Leasehold improvements
|
|
Lesser of the useful life or the term of the lease
|
Cost of Goods Sold, Buying and Occupancy Costs
Cost of goods sold, buying and occupancy costs is comprised of direct inventory costs for merchandise sold, distribution costs, shipping costs,
payroll and related costs for the Company's design, sourcing, production, merchandising, planning and allocation personnel, and store occupancy and related costs.
Share-Based Compensation
The Company accounts for all share-based payments in accordance with FASB ASC Topic 718, "Compensation—Stock Compensation" ("ASC
718"). For further information related to share-based compensation, please refer to Note 9, "Share-Based Compensation."
Marketing
Marketing costs, which consist primarily of direct mail and point-of-sale ("POS") advertising costs, are expensed at the time the promotion is
mailed or first appears in the store. For the following
59
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
2. Summary of Significant Accounting Policies (Continued)
periods,
marketing costs reported in "Selling, general and administrative expenses" on the consolidated statements of operations were as follows:
|
|
|
|
|
|
|
Fiscal Year
|
|
(Amounts
in thousands)
|
|
|
2018
|
|
$
|
39,536
|
|
|
2017
|
|
$
|
39,357
|
|
|
2016
|
|
$
|
35,991
|
|
At
February 2, 2019 and February 3, 2018, marketing costs reported in "Prepaid expenses" on the consolidated balance sheets amounted to $1.7 million and
$1.1 million, respectively.
Pre-Opening Expenses
Costs, such as advertising and payroll costs, incurred prior to the opening of a new store are expensed as incurred.
Store Supplies
The initial inventory and subsequent shipments of supplies for new stores, including, but not limited to, hangers, signage, packaging and POS
supplies, are expensed as used.
Deferred Financing Costs
Costs related to the issuance of debt are presented as a direct deduction from the carrying amount of the related debt liability in the
consolidated balance sheets and amortized as interest expense over the term of the related debt. Debt issuance costs related to the Company's revolving credit facility are capitalized as "Other
assets" in the consolidated balance sheets and amortized as interest expense over the term of the credit facility. At February 2, 2019 and February 3, 2018, net deferred financing costs
were $20,000 and $0.3 million, respectively.
Interest Expense
Interest expense, net of interest income, includes interest primarily related to the Company's long-term debt, amortization of deferred
financing costs, and revolving credit facility.
Impairment of Long-lived Assets
The Company evaluates the impairment of long-lived assets in accordance with ASC Topic 360, "Property, Plant and Equipment." Long-lived assets
are evaluated for recoverability whenever events or changes in circumstances indicate that an asset may have been impaired. The evaluation is performed at the individual store level, which is the
lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. In evaluating long-lived assets for recoverability, the Company
estimates the future cash flows at the individual store level that are expected to result from the use of each store's assets based on historical experience, omni-channel strategy, knowledge and
market data assumptions. If the sum of the expected future undiscounted cash
60
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
2. Summary of Significant Accounting Policies (Continued)
flows
is less than the carrying amount of the long-lived assets, an impairment loss, equal to the excess of the carrying amount over the fair value of the assets, is recognized.
Intangible Assets
The Company follows ASU 2012-02, "Testing Indefinite—Lived Intangible Assets for Impairment," which amends FASB ASC Topic 350,
"Intangibles—Goodwill and Other" to permit an entity to first assess qualitative factors to determine if it is more likely than not that an indefinite—lived intangible asset is
impaired and whether it is necessary to perform the impairment test of comparing the carrying amount with the recoverable amount of the indefinite—lived intangible asset.
The
Company's intangible assets relate to the New York & Company trademarks, which were initially valued at $14.8 million, and the Fashion to Figure trademarks and customer
list acquired on February 2, 2018, which were valued at $1.4 million and $0.8 million, respectively. The New York & Company trademarks were initially valued using the
"relief from royalty method" and were determined to have indefinite lives. The value of the Fashion to Figure trademarks and customer list represents the Company's cost to acquire such assets on
February 2, 2018. The Company has determined the Fashion to Figure trademarks to have indefinite lives, and the customer list to have a useful life of five years over which time the value of
the customer list will be amortized into "Selling, general and administrative expenses" on the consolidated statement of operations.
The
Company assesses trademarks for impairment annually as of December 31, or more frequently if an event occurs or circumstances change that would more likely than not reduce the
fair value of trademarks below their carrying value. The Company's fiscal year 2018, fiscal year 2017, and fiscal year 2016 impairment tests resulted in a fair value that significantly exceeded the
carrying amount of the Company's trademarks. In addition to assessing qualitative factors that could impact the fair value of the New York & Company and Fashion to Figure trademarks, the
Company performed a sensitivity analysis on the key assumptions used in the trademark impairment analysis and has determined that a significant, negative change in the assumptions would not impact the
Company's conclusion that no impairment was required.
Income Taxes
Income taxes are calculated in accordance with ASC Topic 740, "Income Taxes" ("ASC 740"), which requires the use of the liability method.
Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Inherent in the
measurement of deferred balances are certain judgments and interpretations of enacted tax laws and published guidance with respect to applicability to the Company's operations. A valuation allowance
is established against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provisions in ASC 740 related to accounting for
uncertain tax positions prescribe a comprehensive model of how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken
or expects to take on a tax return. Under these provisions, the Company recognizes a tax benefit when a tax position is more likely than not to be sustained upon examination, based solely on its
technical merits. The Company measures the recognized tax benefit as the largest amount of tax benefit that has greater than a 50% likelihood of being realized upon the
61
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
2. Summary of Significant Accounting Policies (Continued)
ultimate
settlement with a taxing authority. The Company reverses a previously recognized tax benefit if it determines that the tax position no longer meets the more-likely-than-not threshold of being
sustained. The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense. For further information related to deferred tax assets and the related valuation
allowance, as well as information on the Tax Cuts and Jobs Act of 2017, please refer to Note 12, "Income Taxes," in the Notes to Consolidated Financial Statements appearing elsewhere in this
Annual Report on Form 10-K.
Comprehensive Income (Loss)
Comprehensive income (loss) is calculated in accordance with ASC Topic 220, "Comprehensive Income." Comprehensive income (loss) includes net
income (loss) and other comprehensive income (loss). The tax effect of other comprehensive income (loss) is offset by corresponding adjustments to the valuation allowance against deferred tax assets.
The Company reports the components of other comprehensive income (loss) and accumulated other comprehensive loss in the consolidated financial statements included in this Annual Report on
Form 10-K.
Earnings (Loss) Per Share
Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding
for the period. Except when the effect would be anti-dilutive, diluted earnings (loss) per share are calculated based on the weighted average number of outstanding shares of common stock plus the
dilutive effect of share-based awards calculated under the treasury stock method. A reconciliation between basic and diluted earnings (loss) per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
|
(Amounts in thousands, except per
share amounts)
|
|
|
Net earnings (loss)
|
|
$
|
4,230
|
|
$
|
5,675
|
|
$
|
(17,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
63,825
|
|
|
63,273
|
|
|
63,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.07
|
|
$
|
0.09
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
63,825
|
|
|
63,273
|
|
|
63,356
|
|
|
Plus impact of share-based awards
|
|
|
2,088
|
|
|
781
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
65,913
|
|
|
64,054
|
|
|
63,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.06
|
|
$
|
0.09
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
2. Summary of Significant Accounting Policies (Continued)
The
calculation of diluted earnings (loss) per share for fiscal year 2018, fiscal year 2017, and fiscal year 2016 excludes the share-based awards listed in the following table due to
their anti-dilutive effect, as determined under the treasury stock method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
|
(Amounts in thousands)
|
|
|
Stock options
|
|
|
3
|
|
|
146
|
|
|
334
|
|
|
Stock appreciation rights(1)
|
|
|
490
|
|
|
5,091
|
|
|
6,869
|
|
|
Restricted stock and units
|
|
|
164
|
|
|
165
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total anti-dilutive shares
|
|
|
657
|
|
|
5,402
|
|
|
7,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Each
stock appreciation right ("SAR") referred to above represents the right to receive a payment measured by the increase in the fair market value of one share of
common stock from the date of grant of the SAR to the date of exercise of the SAR. Upon exercise, the SARs will be settled in the Company's common stock.
3. Revenue Recognition
On February 4, 2018, the Company adopted Topic 606 using the modified retrospective method applied to all contracts not completed as of the date of adoption. Results for reporting
periods beginning February 4, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting
under Topic 605.
On
February 4, 2018, the Company recorded a net increase to the opening "Retained deficit" balance of $5.9 million with an offsetting adjustment to "Accrued expenses" due
to the cumulative impact of adopting Topic 606. The cumulative effect adjustment related primarily to the Company's Runway Rewards program.
Runway
Rewards is the Company's points-based customer loyalty program, in which customers earn points based on purchases. When customers reach predetermined point thresholds, earned
points are converted to rewards that can be redeemed for discounts on future purchases of Company merchandise. Previously under Topic 605, the Company recognized revenue for the full sale amount at
the time of sale; however, the Company would accrue the estimated cost of points and rewards earned and outstanding until they were redeemed or expired, which is referred to as the incremental cost
method. Under Topic 606, the Company no longer accrues the estimated cost of points and rewards earned and outstanding. Instead, it defers a portion of the revenue at the time of sale using the
standalone selling price method, as described in Topic 606, until the points and rewards are redeemed or expire. On the date of adoption of Topic 606, the Company established a current liability for
deferred revenue equal to the estimated sales value of points and rewards earned and outstanding that were expected to be redeemed, with an offsetting adjustment to the opening balance of "Retained
deficit."
63
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
3. Revenue Recognition (Continued)
In
accordance with the new revenue standard requirements, the disclosure of the initial impact of adoption on the Company's consolidated balance sheet on February 4, 2018 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2018
(As reported)
|
|
Effect of
Topic 606
Adoption
|
|
February 4, 2018
(As amended)
|
|
|
|
(Amounts in thousands)
|
|
|
Accrued expenses
|
|
$
|
70,677
|
|
$
|
5,883
|
|
$
|
76,560
|
|
|
Retained deficit
|
|
$
|
(90,797
|
)
|
$
|
(5,883
|
)
|
$
|
(96,680
|
)
|
There
was no impact to the Company's consolidated statement of operations on the date of adoption of Topic 606.
In
accordance with the new revenue standard requirements, the disclosure of the impact of adoption on the Company's consolidated balance sheet as of February 2, 2019 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 2, 2019
|
|
|
|
Balances
Without
Adoption of
ASC 606
|
|
Effect of
Topic 606
Adoption
|
|
As Reported
|
|
|
|
(Amounts in thousands)
|
|
|
Accrued expenses
|
|
$
|
63,323
|
|
$
|
5,262
|
|
$
|
68,585
|
|
|
Retained deficit
|
|
$
|
(87,188
|
)
|
$
|
(5,262
|
)
|
$
|
(92,450
|
)
|
In
accordance with the new revenue standard requirements, the disclosure of the impact of adoption on the Company's consolidated statements of operations during fiscal year 2018 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
|
|
|
|
Balances
Without
Adoption of
ASC 606
|
|
Effect of
Topic 606
Adoption
|
|
As Reported
|
|
|
|
(Amounts in thousands)
|
|
|
Net sales
|
|
$
|
892,281
|
|
$
|
943
|
|
$
|
893,224
|
|
|
Cost of goods sold, buying and occupancy costs
|
|
$
|
613,890
|
|
$
|
322
|
|
$
|
614,212
|
|
|
Gross profit
|
|
$
|
278,391
|
|
$
|
621
|
|
$
|
279,012
|
|
|
Operating income
|
|
$
|
5,850
|
|
$
|
621
|
|
$
|
6,471
|
|
As
a result of the adoption of Topic 606, the Company could experience a shift in revenues and gross profit between fiscal quarters in the future, depending on the timing and level of
rewards earned and redeemed by customers.
64
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
3. Revenue Recognition (Continued)
Contract Liabilities
Deferred revenue related to the Company's gift cards and merchandise credits outstanding was $12.2 million and $13.6 million as of
February 2, 2019 and February 3, 2018, respectively, which is included in "Accrued expenses" on the Company's consolidated balance sheets. During fiscal year 2018, the Company recognized
approximately $7.1 million of revenue that was included in the deferred revenue liability for gift cards and merchandise credits at February 3, 2018. During fiscal year 2018, fiscal year
2017, and fiscal year 2016 the Company recorded breakage revenue for gift cards and merchandise credits of $0.8 million, $0.6 million, and $0.7 million, respectively.
Deferred
revenue related to the Company's Runway Rewards program and other sales incentive programs, including the impact of Topic 606 adoption, was $6.4 million and
$7.3 million as of February 2, 2019 and February 3, 2018, respectively. At February 2, 2019, the $6.4 million deferred revenue liability for loyalty programs is
included in "Accrued expenses" on the Company's consolidated balance sheet. During fiscal year 2018, the net impact of rewards earned, redeemed and expired under these programs was a
$0.9 million increase in revenue.
Deferred
revenue related to the ADS Agreement was $29.0 million at February 2, 2019, of which $25.0 million is included in "Other liabilities" and
$4.0 million is included in "Accrued expenses" on the consolidated balance sheet. As of February 3, 2018, deferred revenue related to the ADS Agreement was $33.0 million, of which
$29.0 million is included in "Other liabilities" and $4.0 million is included in "Accrued expenses" on the consolidated balance sheet. During fiscal year 2018, fiscal year 2017, and
fiscal year 2016, the Company recognized revenue of $23.7 million, $24.8 million, and $11.0 million, respectively, from royalties and the amortization of signing bonuses in
connection with the ADS Agreement.
4. Significant Risks and Uncertainties
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company's management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and judgments, including those related to inventories, long-lived assets, intangible assets, and income taxes. Management bases its estimates and judgments on
historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
Concentration of Risk
The Company is subject to concentration of credit risk relating to cash, primarily store depository accounts, which are maintained with major
financial institutions. The Company monitors the relative credit standing of these financial institutions and other entities and limits the amount of credit exposure with any one entity. The Company
also monitors the creditworthiness of the entities to which it grants credit terms in the normal course of business.
65
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
4. Significant Risks and Uncertainties (Continued)
The
Company's largest country sources are China, Vietnam and Indonesia, which represented approximately 95% of merchandise purchases in fiscal year 2018. The Company utilized two major
apparel agents, which together represented approximately 67% of the Company's merchandise purchases during fiscal year 2018; however, no individual factory represented more than 9% of the Company's
merchandise purchases. The Company expects to continue to utilize two major apparel agents for a large portion of its merchandise in fiscal year 2019, while maintaining a broad factory base, in order
to reduce costs, maximize production and logistics assistance, and increase speed to market.
5. Proprietary Credit Card
The Company has a credit card processing agreement with ADS, referred to elsewhere in these Notes as the ADS Agreement, which provides the services of the Company's proprietary credit
card program. ADS owns the credit card accounts, with no recourse from the Company. The Company's receivable due from ADS at any time represents the standard processing time of approximately three
days. The amount due at February 2, 2019 and February 3, 2018 was $1.5 million and $1.9 million, respectively. The Company does not have any off-balance sheet arrangements
with credit exposure.
6. Property and Equipment
Property and equipment at February 2, 2019 and February 3, 2018 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
|
|
|
(Amounts in thousands)
|
|
|
Land
|
|
$
|
117
|
|
$
|
117
|
|
|
Store fixtures and equipment
|
|
|
152,246
|
|
|
160,489
|
|
|
Office furniture, fixtures, and equipment
|
|
|
25,478
|
|
|
24,515
|
|
|
Leasehold improvements
|
|
|
139,101
|
|
|
146,260
|
|
|
Software
|
|
|
68,109
|
|
|
63,625
|
|
|
Construction in progress
|
|
|
2,716
|
|
|
1,705
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
387,767
|
|
|
396,711
|
|
|
Less accumulated depreciation
|
|
|
323,976
|
|
|
318,805
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
63,791
|
|
$
|
77,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in furniture, fixtures, and equipment above is $9.4 million of assets recorded under capital leases as of February 2, 2019 and February 3, 2018.
Depreciation
expense amounted to $21.0 million, $21.7 million, and $22.8 million for fiscal year 2018, fiscal year 2017, and fiscal year 2016, respectively.
The
Company classifies long-lived store assets within level 3 of the fair value hierarchy as defined in ASC 820. The Company reported $1.6 million, $1.0 million, and
$1.2 million of non-cash impairment charges related to underperforming store assets in fiscal year 2018, fiscal year 2017, and fiscal year 2016, respectively, in "Selling, general and
administrative expenses" on the Company's consolidated statements of operations.
66
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
7. Commitments and Contingencies
The Company leases retail business locations, office and warehouse facilities, and automotive equipment under various non-cancelable operating leases expiring in various years through
2031. As of February 2, 2019, approximately 70% of its store leases could be terminated by the Company within two years, and approximately 90% of the Company's store leases could be terminated
by the Company within five years. Leases on retail business locations typically specify minimum rentals plus common area maintenance ("CAM") charges, real estate taxes, other landlord charges and
possible additional rentals based upon percentages of sales.
The
Company leases office space for its corporate headquarters at 330 West 34
th
Street, New York, New York. The lease for the corporate headquarters expires in 2030.
A
summary of rent expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
|
(Amounts in thousands)
|
|
|
Fixed minimum rentals
|
|
$
|
72,716
|
|
$
|
77,667
|
|
$
|
83,043
|
|
|
Contingent rentals
|
|
|
6,221
|
|
|
4,793
|
|
|
3,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total store rentals
|
|
|
78,937
|
|
|
82,460
|
|
|
86,680
|
|
|
Office space rentals
|
|
|
9,533
|
|
|
9,533
|
|
|
9,544
|
|
|
Equipment rentals
|
|
|
825
|
|
|
713
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental expense
|
|
$
|
89,295
|
|
$
|
92,706
|
|
$
|
97,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease rental income
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of February 2, 2019, the aggregate minimum rent commitments under non-cancelable operating leases and capital leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Capital Leases
|
|
|
Fiscal Year
|
|
Fixed Minimum
Rent
|
|
Principal
|
|
Interest
|
|
Total
Payment
|
|
|
|
(Amounts in thousands)
|
|
|
2019
|
|
$
|
68,071
|
|
$
|
1,856
|
|
$
|
105
|
|
$
|
1,961
|
|
|
2020
|
|
|
50,744
|
|
|
1,318
|
|
|
47
|
|
|
1,365
|
|
|
2021
|
|
|
43,185
|
|
|
471
|
|
|
13
|
|
|
484
|
|
|
2022
|
|
|
37,236
|
|
|
126
|
|
|
2
|
|
|
128
|
|
|
2023
|
|
|
34,706
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Thereafter
|
|
|
113,064
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
347,006
|
|
$
|
3,771
|
|
$
|
167
|
|
$
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
minimum lease payments on operating leases above do not include CAM charges, real estate taxes or other landlord charges, which are also required contractual obligations under the
Company's store and office operating leases. In many of the Company's leases, CAM charges are not fixed and can fluctuate from year to year. During fiscal year 2018, CAM charges and real estate taxes
were $37.3 million and other landlord charges were $2.6 million.
67
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
7. Commitments and Contingencies (Continued)
As
of February 2, 2019, the Company had open purchase commitments of $87.9 million for inventory and $0.2 million for store construction.
Legal Proceedings
On February 10, 2017, the Company received an unfavorable judgment related to a trademark infringement case, which the Company is still
in the process of challenging. In connection with this ongoing dispute, the Company recorded a $6.2 million expense accrual during the fourth quarter of fiscal year 2016, which is reported in
"Selling, general and administrative expenses" on the consolidated statement of operations. During fiscal year 2017, the Company recorded a $2.8 million reversal of a portion of this legal
expense accrual, as a result of an amended judgement reducing the initial damages awarded in the trademark infringement dispute.
There
are various claims, lawsuits and pending actions against the Company arising in the normal course of the Company's business. It is the opinion of management that the ultimate
resolution of these matters will not have a material effect on the Company's financial condition, results of operations or cash flows.
8. Employee Benefit Plans
Savings and Retirement Plans
The Company contributes to a defined contribution savings and retirement plan (the "SARP") qualifying under section 401(k) of the
Internal Revenue Code. Participation in the Company's SARP is available to all associates, if not covered by the pension plan discussed below, who have completed 1,000 or more hours of service with
the Company during certain twelve-month periods and have attained the age of 21. Participants are able to contribute up to 100% of their pay to the SARP, subject to Internal Revenue Service ("IRS")
limits. The Company matches 100% of the employee's contribution up to a maximum of 4% of the employee's eligible pay. The Company match is immediately vested.
The
Company's costs under this plan were as follows:
|
|
|
|
|
|
|
Fiscal Year
|
|
(Amounts
in thousands)
|
|
|
2018
|
|
$
|
1,384
|
|
|
2017
|
|
$
|
1,593
|
|
|
2016
|
|
$
|
1,639
|
|
Pension Plan
The Company sponsors a single employer defined benefit pension plan ("plan") covering substantially all union employees. Employees covered by
collective bargaining agreements are primarily non-management store associates, representing approximately 7% of the Company's workforce at February 2, 2019. The plan provides retirement
benefits for union employees who have attained the age of 21 and complete 1,000 or more hours of service in any calendar year following the date of employment. The plan provides benefits based on
length of service. The Company's funding policy for
68
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
8. Employee Benefit Plans (Continued)
the
pension plan is to contribute annually the amount necessary to provide for benefits based on accrued service and to contribute at least the minimum required by ERISA rules. The Company expects to
contribute approximately $0.7 million to the plan during fiscal year 2019. The Company's pension plan weighted average asset allocation, by asset category, is as follows:
|
|
|
|
|
|
|
|
|
|
Asset Category
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
|
Equity securities
|
|
|
70
|
%
|
|
69
|
%
|
|
Fixed income
|
|
|
26
|
%
|
|
29
|
%
|
|
Cash and cash equivalents
|
|
|
4
|
%
|
|
2
|
%
|
The
Company's investment policy generally targets 65% to 70% in equity securities and 30% to 35% in fixed income.
The
fair values of the pension plan assets at February 2, 2019, utilizing the fair value hierarchy in accordance with ASC 820, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
February 2,
2019
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
|
(Amounts in thousands)
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. common stocks
|
|
$
|
3,980
|
|
$
|
3,980
|
|
$
|
—
|
|
$
|
—
|
|
|
International common stocks
|
|
|
608
|
|
|
—
|
|
|
608
|
|
|
—
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency bonds
|
|
|
874
|
|
|
—
|
|
|
874
|
|
|
—
|
|
|
U.S. corporate bonds
|
|
|
817
|
|
|
—
|
|
|
817
|
|
|
—
|
|
|
U.S. mortgage-backed securities
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
252
|
|
|
245
|
|
|
7
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,549
|
|
$
|
4,225
|
|
$
|
2,324
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
8. Employee Benefit Plans (Continued)
The
fair values of the pension plan assets at February 3, 2018, utilizing the fair value hierarchy in accordance with ASC 820, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
February 3,
2018
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
|
(Amounts in thousands)
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. common stocks
|
|
$
|
4,281
|
|
$
|
4,281
|
|
$
|
—
|
|
$
|
—
|
|
|
International common stocks
|
|
|
676
|
|
|
—
|
|
|
676
|
|
|
—
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency bonds
|
|
|
983
|
|
|
—
|
|
|
983
|
|
|
—
|
|
|
U.S. corporate bonds
|
|
|
1,050
|
|
|
—
|
|
|
1,050
|
|
|
—
|
|
|
U.S. mortgage-backed securities
|
|
|
21
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
171
|
|
|
165
|
|
|
6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,182
|
|
$
|
4,446
|
|
$
|
2,736
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
consideration of the fund's investment goals, demographics, time horizon available for investment and the overall risk tolerance of the board of trustees (consisting of two union
trustees and two employer trustees) a long-term investment objective of long-term income and growth has been adopted for the fund's assets. This is a risk-averse balanced approach that seeks long-term
growth in capital along with significant current income.
The
following weighted average assumptions were used to determine benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
|
Discount rate
|
|
|
4.00
|
%
|
|
3.70
|
%
|
The
following weighted average assumptions were used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
Discount rate
|
|
|
3.70
|
%
|
|
3.90
|
%
|
|
4.00
|
%
|
|
Long-term rate of return on assets
|
|
|
8.00
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
70
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
8. Employee Benefit Plans (Continued)
The
measurement dates for fiscal year 2018 and fiscal year 2017 are January 31, 2019 and January 31, 2018, respectively, for the determination of benefit obligations. The
following table provides information for the pension plan:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
|
|
(Amounts in thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of period
|
|
$
|
8,425
|
|
$
|
8,517
|
|
|
Service cost
|
|
|
386
|
|
|
337
|
|
|
Interest
|
|
|
305
|
|
|
325
|
|
|
Actuarial gain
|
|
|
(519
|
)
|
|
(92
|
)
|
|
Benefits paid
|
|
|
(610
|
)
|
|
(662
|
)
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of period
|
|
$
|
7,987
|
|
$
|
8,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of period
|
|
$
|
7,182
|
|
$
|
6,569
|
|
|
Actual (loss) gain on plan assets
|
|
|
(486
|
)
|
|
958
|
|
|
Benefits paid
|
|
|
(610
|
)
|
|
(662
|
)
|
|
Employer contributions
|
|
|
462
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of period
|
|
$
|
6,548
|
|
$
|
7,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(1,439
|
)
|
$
|
(1,243
|
)
|
|
Unrecognized net actuarial loss
|
|
|
2,176
|
|
|
1,803
|
|
|
Unrecognized prior service credit
|
|
|
(113
|
)
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
624
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Accrued pension liability
|
|
$
|
(1,439
|
)
|
$
|
(1,243
|
)
|
|
Accumulated other comprehensive loss
|
|
|
2,063
|
|
|
1,675
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
624
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
February 2, 2019 and February 3, 2018, the Company reported a minimum pension liability of $1.4 million and $1.2 million, respectively, due to the
underfunded status of the plan. The minimum pension liability is reported in "Other liabilities" on the consolidated balance sheets. Included in
accumulated other comprehensive loss at February 2, 2019 is a net loss of $0.2 million that is expected to be recognized in net periodic benefit cost during fiscal year 2019.
71
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
8. Employee Benefit Plans (Continued)
Net periodic benefit cost includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
|
(Amounts in thousands)
|
|
|
Service cost
|
|
$
|
386
|
|
$
|
337
|
|
$
|
337
|
|
|
Interest cost
|
|
|
305
|
|
|
325
|
|
|
344
|
|
|
Expected return on plan assets
|
|
|
(562
|
)
|
|
(506
|
)
|
|
(494
|
)
|
|
Amortization of unrecognized losses
|
|
|
156
|
|
|
275
|
|
|
386
|
|
|
Amortization of prior service credit
|
|
|
(15
|
)
|
|
(15
|
)
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
270
|
|
$
|
416
|
|
$
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following schedule shows the expected benefit payments over the next 10 years:
|
|
|
|
|
|
|
Fiscal Year
|
|
(Amounts
in thousands)
|
|
|
2019
|
|
$
|
702
|
|
|
2020
|
|
|
676
|
|
|
2021
|
|
|
660
|
|
|
2022
|
|
|
621
|
|
|
2023
|
|
|
593
|
|
|
2024-2028
|
|
|
2,510
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Share-Based Compensation
The Company's board of directors and stockholders approved the New York & Company, Inc. 2006 Long-Term Incentive Plan (the "2006 Plan") on May 3, 2006, and
June 21, 2006, respectively. From time to time, the Company's stockholders approve amendments to the 2006 Plan to increase the number of shares reserved for issuance, among other matters. The
aggregate number of shares of the Company's common stock that may be issued under the New York & Company, Inc. Amended and Restated 2006 Long-Term Incentive Plan (the "Amended and
Restated 2006 Plan") is 12,668,496 shares, and the maximum number of shares which may be used for awards other than stock options or stock appreciation rights ("SARs") is 7,750,000 shares. These
shares may be in whole or in part authorized and unissued or held by the Company as treasury shares.
Under
the Amended and Restated 2006 Plan, the Company is able to grant share-based awards to its executives, consultants, directors, or other key employees. Options and SARs generally
have a maximum term of up to 10 years. Upon grant of share-based awards, the compensation committee of the Company's board of directors will determine the exercise price, if applicable, and the
term and conditions of any award pursuant to the Amended and Restated 2006 Plan. The exercise price of an incentive stock option and a SAR; however, may not be less than 100% of the fair market value
of a share of common stock on the date of grant. The exercise price of an incentive stock option awarded to a person who owns stock constituting more than 10% of the total combined voting power of all
classes
72
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
9. Share-Based Compensation (Continued)
of
stock of the Company may not be less than 110% of the fair market value on such date and the option must be exercised within five years of the date of grant. The aggregate fair market value of
common stock for which an incentive stock option is exercisable for the first time during any calendar year, under all equity incentive plans of the Company, may not exceed $0.1 million. Upon
the exercise of a SAR, a participant will receive a number of shares of the Company's common stock equal in value to the excess of the fair market value of a share of common stock over the exercise
price per share,
multiplied by the number of shares in respect of which the SAR is exercised. Vesting provisions, including performance targets, for all share-based awards are determined by the compensation committee
of the Company's board of directors before or at the date of grant; however, subject to certain restrictions, all outstanding share-based awards may vest upon a sale of the Company. At
February 2, 2019, shares that are not currently outstanding and are available for issuance amounted to 4,131,871.
A
summary of the Company's options and SARs outstanding as of February 2, 2019 and activity for fiscal year 2018 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(Amounts in
thousands)
|
|
|
|
|
|
(Amounts in
thousands)
|
|
|
Outstanding, beginning of period
|
|
|
3,781
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
Granted
|
|
|
832
|
|
|
4.84
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(801
|
)
|
|
1.59
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(398
|
)
|
|
3.14
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(21
|
)
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period(1)
|
|
|
3,393
|
|
$
|
2.36
|
|
|
6.3
|
|
$
|
3,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period
|
|
|
2,185
|
|
$
|
1.67
|
|
|
4.9
|
|
$
|
3,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
non-vested SARs outstanding at February 2, 2019 vest subject to the passage of time through fiscal year 2022. There were no stock options outstanding at
February 2, 2019.
Aggregate
intrinsic value for both outstanding and exercisable SARs, in the table above, represents the total pre-tax intrinsic value (the difference between the Company's closing stock
price on the last trading day of fiscal year 2018 and the exercise price, multiplied by the number of in-the-money SARs) that would have been received by the SAR holders had all SAR holders exercised
their SARs on February 2, 2019. This amount changes based on the fair market value of the Company's common stock. Total intrinsic value of options and SARs exercised for fiscal year 2018,
fiscal year 2017, and fiscal year 2016 (based on the difference between the Company's stock price on the respective exercise date and the respective exercise price, multiplied by the number of
respective options and SARs exercised) was approximately $1.1 million, $0.2 million, and $0.1 million, respectively.
73
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
9. Share-Based Compensation (Continued)
In
accordance with ASC 718, the fair value of each option and SAR granted is estimated on the date granted using the Black-Scholes option-pricing model for all employees and non-employee
board members. The weighted average fair value for options and SARs granted during fiscal year 2018, fiscal year 2017, and fiscal year 2016 was $2.43, $0.63, and $0.98, respectively. The total fair
value of share-based awards that vested during fiscal year 2018, fiscal year 2017, and fiscal year 2016 was $2.7 million, $3.3 million, and $4.3 million, respectively.
The
following weighted average assumptions were used to value stock options and SARs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
Expected volatility
|
|
|
62.5
|
%
|
|
54.0
|
%
|
|
54.6
|
%
|
|
Expected life
|
|
|
4.1 years
|
|
|
4.6 years
|
|
|
4.3 years
|
|
|
Risk-free interest rate
|
|
|
2.8
|
%
|
|
2.0
|
%
|
|
1.19
|
%
|
|
Expected dividend yield
|
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
The
risk-free interest rate used to value stock options and SARs is based on the U.S. Treasury yield curve in effect at the time of grant with maturity dates that coincide with the
expected life of the options and SARs. The expected life represents the weighted average period the stock options and SARs are expected to remain outstanding and is based primarily on industry
averages due to the Company's limited historical data for employee exercises. The Company's assumption for volatility is based on its historical volatility calculated on the grant date of an award for
a period of time that coincides with the expected life of the options.
The
following table summarizes the restricted stock and unit awards outstanding at February 2, 2019 and activity for fiscal year 2018:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date Fair Value
|
|
|
|
(Amounts in
thousands)
|
|
|
|
|
Non-vested at February 3, 2018
|
|
|
726
|
|
$
|
1.94
|
|
|
Granted
|
|
|
1,250
|
|
|
4.35
|
|
|
Vested
|
|
|
(498
|
)
|
|
2.65
|
|
|
Forfeited
|
|
|
(231
|
)
|
|
2.49
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at February 2, 2019
|
|
|
1,247
|
|
$
|
3.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
fair value of restricted stock and units is based on the closing stock price of an unrestricted share of the Company's common stock on the grant date. Each vested stock unit is
convertible into one share of the Company's common stock. Of the non-vested shares outstanding at February 2, 2019, including restricted stock and units, 749,694 shares vest subject to the
passage of time through fiscal year 2022, and 497,150 shares vest subject to the Company achieving fiscal year earnings targets for fiscal years 2019 through 2023.
74
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
9. Share-Based Compensation (Continued)
The
following table summarizes the performance-based awards activity for the last three fiscal years:
|
|
|
|
|
|
|
Performance-based Awards
|
|
# of shares
|
|
|
|
(Amounts in
thousands)
|
|
|
Non-vested at January 30, 2016
|
|
|
—
|
|
|
Granted
|
|
|
300,000
|
|
|
Vested
|
|
|
—
|
|
|
Forfeited
|
|
|
300,000
|
|
|
|
|
|
|
|
|
Non-vested at January 28, 2017
|
|
|
—
|
|
|
|
|
|
|
|
|
Granted
|
|
|
95,149
|
|
|
Vested
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
Non-vested at February 3, 2018
|
|
|
95,149
|
|
|
|
|
|
|
|
|
Granted
|
|
|
497,150
|
|
|
Vested
|
|
|
95,149
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
Non-vested at February 2, 2019
|
|
|
497,150
|
|
|
|
|
|
|
|
Total
share-based compensation expense attributable to all share-based awards was $2.3 million, $2.2 million, and $3.4 million in fiscal year 2018, fiscal year 2017,
and fiscal year 2016, respectively. The Company recognizes share-based compensation expense in the consolidated statements of operations over the requisite service period for each share-based payment
award adjusted for actual forfeitures as they occur. For performance-based awards, share-based compensation expense is reduced based on the Company's estimate of forfeitures resulting from the
performance target not being achieved. The Company recognized a tax benefit in the consolidated statements of operations related to share-based compensation expense of $0.5 million,
$0.5 million, and $1.3 million in fiscal year 2018, fiscal year 2017, and fiscal year 2016, respectively. The tax benefit recognized in fiscal year 2018, fiscal year 2017, and fiscal
year 2016 consolidated statements of operations was offset by corresponding adjustments to the valuation allowance against deferred tax assets. The Company recognized $29,000 and $0.4 million
of excess tax benefits in the consolidated statements of operations related to share-based awards during fiscal year 2018 and fiscal year 2017, respectively. The Company did not recognize an excess
tax benefit related to share-based awards during fiscal year 2016 due to the deferred tax valuation allowance. For further information related to the deferred tax valuation allowance, please refer to
Note 12, "Income Taxes." Unamortized share-based compensation expense at February 2, 2019 was $3.6 million and will be recognized in the consolidated statements of operations over
a weighted average period of 1.9 years.
75
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
10. Accrued Expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
|
|
|
(Amounts in thousands)
|
|
|
Gift cards and merchandise credits
|
|
$
|
12,206
|
|
$
|
13,648
|
|
|
Sourcing and distribution
|
|
|
11,419
|
|
|
11,705
|
|
|
Compensation and benefits
|
|
|
8,587
|
|
|
11,322
|
|
|
Loyalty rewards programs
|
|
|
6,389
|
|
|
1,448
|
|
|
Other taxes
|
|
|
4,195
|
|
|
5,854
|
|
|
Deferred revenue—ADS Agreement
|
|
|
4,000
|
|
|
4,000
|
|
|
Legal settlement and fees
|
|
|
3,805
|
|
|
3,574
|
|
|
Other accrued expenses
|
|
|
17,984
|
|
|
19,126
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
68,585
|
|
$
|
70,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Long-Term Debt and Credit Facilities
On October 24, 2014, Lerner New York, Inc., Lernco, Inc. and Lerner New York Outlet, LLC, wholly-owned indirect subsidiaries of RTW Retailwinds, Inc.,
entered into a Fourth Amended and Restated Loan and Security Agreement (the "Loan Agreement") with Wells Fargo Bank, National Association, as Agent and Term Loan Agent and the lender party thereto.
The obligations under the Loan Agreement are guaranteed by RTW Retailwinds, Inc. and its other subsidiaries.
The
Loan Agreement consists of a revolving credit facility that provides the Company with up to $100 million of credit, consisting of a $75 million revolving credit
facility (which includes a sub-facility for issuance of letters of credit up to $45 million) with a fully committed accordion option that allows the Company to increase the revolving credit
facility up to $100 million or decrease it to a minimum of $60 million, subject to certain restrictions. On April 5, 2018, the Company used cash on-hand to prepay in full the
$11.5 million outstanding balance of a $15 million, 5-year term loan under the Loan Agreement. The Company can no longer borrow funds under this Term Loan.
Under
the terms of the Loan Agreement, the interest rates applicable to Revolving Loans are, at the Company's option, either at a floating rate equal to the Adjusted Eurodollar Rate plus
a margin of between 1.50% and 1.75% per year for Eurodollar Rate Loans or a floating rate equal to the Prime Rate plus a margin of between 0.50% and 0.75% per year for Prime Rate Loans, depending upon
the Company's Average Compliance Excess Availability. The Company pays to the lender under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of between
0.75% and 0.875% per year and on standby letters of credit at a rate of between 1.50% and 1.75% per year, depending upon the Company's Average Compliance Excess Availability, plus a monthly fee on a
proportion of the unused commitments under the revolving credit facility at a rate of 0.25% per year.
The
maximum borrowing availability under the Company's revolving credit facility is determined by a monthly borrowing base calculation based on applying specified advance rates against
inventory and certain other eligible assets. As of February 2, 2019, the Company had availability under its revolving credit facility of $35.0 million, net of letters of credit
outstanding of $11.9 million, as compared to
76
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
11. Long-Term Debt and Credit Facilities (Continued)
availability
of $38.1 million, net of letters of credit outstanding of $12.5 million, as of February 3, 2018. Included in the $11.9 million of letters of credit outstanding
at February 2, 2019 are $0.1 million of trade letters of credit and $11.8 million of standby letters of credit primarily related to the Company's corporate headquarters and
certain insurance contracts. Standby letters of credit related to the Company's corporate headquarters are scheduled to be reduced by $2.0 million annually, which began in October 2017, for a
total reduction of $6.0 million by October 2019.
Under
the terms of the Loan Agreement, the Company is subject to a Minimum Excess Availability covenant of $7.5 million. The Loan Agreement contains other covenants and
conditions, including restrictions on the Company's ability to pay dividends on its common stock, incur additional indebtedness and to prepay, redeem, defease or purchase other indebtedness. Subject
to such restrictions, the Company may incur more indebtedness for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes.
The
lender has been granted a pledge of the common stock of Lerner New York Holding, Inc. and certain of its subsidiaries, and a first priority security interest in substantially
all other tangible and intangible assets of RTW Retailwinds, Inc. and its subsidiaries, as collateral for the Company's obligations under the Loan Agreement. In addition, RTW
Retailwinds, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the obligations under the Loan Agreement, and such guarantees are joint and several.
12. Income Taxes
Income tax expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
|
(Amounts in thousands)
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Deferred
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
State and Local:
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
2,815
|
|
|
438
|
|
|
673
|
|
|
Deferred
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,815
|
|
$
|
438
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
12. Income Taxes (Continued)
The components of items giving rise to the net deferred income tax assets (liabilities) recognized in the Company's consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
|
|
|
Non-current
|
|
Non-current
|
|
|
|
(Amounts in thousands)
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
21,107
|
|
$
|
21,201
|
|
|
Inventory
|
|
|
790
|
|
|
772
|
|
|
Fixed assets and intangible assets
|
|
|
3,290
|
|
|
5,587
|
|
|
Net operating loss
|
|
|
25,021
|
|
|
22,190
|
|
|
Other assets
|
|
|
9,057
|
|
|
8,843
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
59,265
|
|
|
58,593
|
|
|
Valuation allowance
|
|
|
(55,980
|
)
|
|
(55,390
|
)
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
$
|
3,285
|
|
$
|
3,203
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid costs
|
|
$
|
(3,285
|
)
|
$
|
(3,203
|
)
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
$
|
(3,285
|
)
|
$
|
(3,203
|
)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law making significant changes to the Internal Revenue Code. Changes including among other
items, a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%. Although the Tax Act was generally effective January 1, 2018, GAAP required recognition of
the tax effects of new legislation during the reporting period that included the enactment date, which was December 22, 2017. As a result of the lower corporate tax rate enacted as part of the
Tax Act, the Company reduced deferred tax assets by $20.9 million during fiscal year 2017. The reduction in deferred tax assets during fiscal year 2017 was offset by a corresponding reduction
in the valuation allowance resulting in no net impact to tax expense.
The
Company continues to maintain a valuation allowance against its deferred tax assets until the Company believes it is more likely than not that these assets will be realized in the
future. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the more-likely-than-not standard under ASC 740, the valuation allowance
would be reversed accordingly in the period that such determination is made.
As
of February 2, 2019, the Company had $719.4 million of various state net operating loss carryforwards and $52.7 million of federal net operating loss
carryforwards.
78
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
12. Income Taxes (Continued)
The
state net operating loss carryforwards are reported on a pre-apportioned basis that applies to various states with varying tax laws and expiration dates. Below is a summary of the
Company's loss carryforwards and when they expire:
|
|
|
|
|
|
|
|
|
|
|
Tax Year Ended
|
|
State NOL
Carryover
(Amounts in
thousands)
|
|
The Earliest
Expiration
Starts at the
Beginning of
Fiscal Year
|
|
Years
Remaining
|
|
2/3/2007
|
|
$
|
4,914
|
|
|
FY2012
|
|
8
|
|
2/2/2008
|
|
|
50,698
|
|
|
FY2013
|
|
9
|
|
1/31/2009
|
|
|
48,738
|
|
|
FY2014
|
|
10
|
|
1/30/2010
|
|
|
67,229
|
|
|
FY2015
|
|
11
|
|
1/29/2011
|
|
|
78,728
|
|
|
FY2016
|
|
12
|
|
1/28/2012
|
|
|
66,164
|
|
|
FY2017
|
|
13
|
|
2/2/2013
|
|
|
30,185
|
|
|
FY2018
|
|
14
|
|
2/1/2014
|
|
|
44,850
|
|
|
FY2019
|
|
15
|
|
1/31/2015
|
|
|
76,337
|
|
|
FY2020
|
|
1 to 16
|
|
1/30/2016
|
|
|
64,619
|
|
|
FY2021
|
|
2 to 17
|
|
1/28/2017
|
|
|
65,389
|
|
|
FY2022
|
|
3 to 18
|
|
2/3/2018
|
|
|
47,635
|
|
|
FY2023
|
|
4 to 19
|
|
2/2/2019.
|
|
|
73,890
|
|
|
FY2024
|
|
5 to 20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
719,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Year Ended
|
|
Federal NOL
Carryover
(Amounts in
thousands)
|
|
The Earliest
Expiration
Starts at the
Beginning of
Fiscal Year
|
|
Years
Remaining
|
|
|
1/28/2012
|
|
$
|
17,261
|
|
|
FY2032
|
|
|
13
|
|
|
1/31/2015
|
|
|
21,549
|
|
|
FY2035
|
|
|
16
|
|
|
1/30/2016
|
|
|
10,018
|
|
|
FY2036
|
|
|
17
|
|
|
1/28/2017
|
|
|
3,866
|
|
|
FY2037
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
12. Income Taxes (Continued)
A
reconciliation of the statutory federal income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
|
(Amounts in thousands)
|
|
|
Statutory federal tax (21%—2018, 33.75%—2017, 35%—2016)
|
|
$
|
1,480
|
|
$
|
2,063
|
|
$
|
(5,816
|
)
|
|
State and local income taxes, net of federal income tax benefit
|
|
|
(981
|
)
|
|
(4,256
|
)
|
|
(1,002
|
)
|
|
Federal tax credit
|
|
|
(515
|
)
|
|
(460
|
)
|
|
(380
|
)
|
|
Basis adjustment
|
|
|
—
|
|
|
—
|
|
|
151
|
|
|
Permanent difference
|
|
|
146
|
|
|
225
|
|
|
218
|
|
|
Excess tax benefits on share-based compensation
|
|
|
29
|
|
|
419
|
|
|
—
|
|
|
Executive compensation limitation
|
|
|
654
|
|
|
—
|
|
|
—
|
|
|
Reserve for uncertain tax position
|
|
|
518
|
|
|
—
|
|
|
—
|
|
|
State audit settlement
|
|
|
1,643
|
|
|
—
|
|
|
—
|
|
|
Alternative minimum tax
|
|
|
—
|
|
|
813
|
|
|
—
|
|
|
Valuation allowance
|
|
|
(886
|
)
|
|
(19,157
|
)
|
|
6,619
|
|
|
Tax Cuts and Jobs Act of 2017
|
|
|
—
|
|
|
20,905
|
|
|
—
|
|
|
True-ups
|
|
|
717
|
|
|
(366
|
)
|
|
—
|
|
|
Other, net
|
|
|
10
|
|
|
252
|
|
|
883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
2,815
|
|
$
|
438
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax
examinations for tax years through 2014. With limited exception, the Company is no longer subject to state and local income tax examinations for tax years through 2014.
A
reconciliation of the beginning and ending amounts of unrecognized tax benefits in accordance with ASC 740 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2018
|
|
Fiscal Year
2017
|
|
Fiscal Year
2016
|
|
|
|
(Amounts in thousands)
|
|
|
Unrecognized tax benefits at beginning of period
|
|
$
|
1,951
|
|
$
|
1,824
|
|
$
|
4,696
|
|
|
Additions based on tax positions related to the current year
|
|
|
10
|
|
|
27
|
|
|
25
|
|
|
Additions for tax positions of prior years
|
|
|
809
|
|
|
100
|
|
|
263
|
|
|
Reductions for tax positions of prior years
|
|
|
(184
|
)
|
|
—
|
|
|
(3,159
|
)
|
|
Settlements
|
|
|
(215
|
)
|
|
—
|
|
|
—
|
|
|
Reductions for lapse of statute of limitations
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at end of period
|
|
$
|
2,371
|
|
$
|
1,951
|
|
$
|
1,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal year 2018, the Company recorded a $0.1 million net
benefit for
80
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
12. Income Taxes (Continued)
interest
and penalties in the consolidated statements of operations. During fiscal year 2017 and fiscal year 2016, the Company recorded interest and penalties in the consolidated statements of
operations of
$0.1 million and $0.2 million, respectively. At February 2, 2019 and February 3, 2018, the Company had accrued $0.8 million, for the potential payment of interest
and penalties. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next twelve months. Of the total $2.4 million of
unrecognized tax benefits at February 2, 2019, approximately $1.8 million, if recognized, would affect the Company's effective tax rate.
13. Stockholders' Equity
During fiscal year 2018, the Company did not repurchase any shares of its common stock. During fiscal year 2017, the Company repurchased 354,554
shares of its common stock for a total cost of approximately $0.6 million, including commission.
The Company has not declared or paid any dividends on its common stock since the acquisition of the Company by Irving Place Capital in November
2002. The Company currently expects to retain any future earnings for use in the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future.
The Company's ability to pay dividends on its common stock is limited by the covenants of its credit facility and may be further restricted by the terms of any of its future debt or preferred
securities.
The Company is authorized to issue 5,000,000 shares of preferred stock, $0.001 par value. At February 2, 2019 and February 3,
2018, there were no shares of preferred stock outstanding.
14. Quarterly Results (Unaudited)
The following tables set forth the Company's quarterly consolidated statements of operations data for the last eight fiscal quarters and such information expressed as a percentage of net
sales. This unaudited quarterly information has been prepared on the same basis as the annual audited financial
81
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
14. Quarterly Results (Unaudited) (Continued)
statements
and includes all necessary adjustments, consisting only of normal recurring adjustments that the Company considers necessary to present fairly the financial information for the quarters
presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
Quarter ended
|
|
Fiscal Year 2017
Quarter ended
|
|
|
Statements of Operations data
|
|
May 5,
2018
|
|
August 4,
2018
|
|
November 3,
2018
|
|
February 2,
2019
|
|
April 29,
2017
|
|
July 29,
2017
|
|
October 28,
2017
|
|
February 3,
2018
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Net sales
|
|
$
|
218,829
|
|
$
|
216,370
|
|
$
|
210,758
|
|
$
|
247,267
|
|
$
|
209,857
|
|
$
|
224,116
|
|
$
|
214,182
|
|
$
|
278,713
|
|
|
Gross profit
|
|
$
|
69,961
|
|
$
|
69,374
|
|
$
|
68,375
|
|
$
|
71,302
|
|
$
|
64,422
|
|
$
|
68,561
|
|
$
|
67,598
|
|
$
|
82,246
|
|
|
Operating income (loss)
|
|
$
|
3,475
|
|
$
|
3,057
|
|
$
|
1,573
|
|
$
|
(1,634
|
)
|
$
|
(3,852
|
)
|
$
|
5,156
|
|
$
|
618
|
|
$
|
5,006
|
|
|
Net income (loss)
|
|
$
|
3,086
|
|
$
|
3,067
|
|
$
|
1,725
|
|
$
|
(3,648
|
)
|
$
|
(4,247
|
)
|
$
|
4,823
|
|
$
|
352
|
|
$
|
4,747
|
|
|
Basic earnings (loss) per share of common stock
|
|
$
|
0.05
|
|
$
|
0.05
|
|
$
|
0.03
|
|
$
|
(0.06
|
)
|
$
|
(0.07
|
)
|
$
|
0.08
|
|
$
|
0.01
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share of common stock
|
|
$
|
0.05
|
|
$
|
0.05
|
|
$
|
0.03
|
|
$
|
(0.06
|
)
|
$
|
(0.07
|
)
|
$
|
0.08
|
|
$
|
0.01
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock.
|
|
|
63,527
|
|
|
63,749
|
|
|
63,940
|
|
|
64,084
|
|
|
63,181
|
|
|
63,216
|
|
|
63,242
|
|
|
63,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
65,404
|
|
|
66,244
|
|
|
66,289
|
|
|
64,084
|
|
|
63,181
|
|
|
63,664
|
|
|
64,099
|
|
|
64,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
Quarter ended
|
|
Fiscal Year 2017
Quarter ended
|
|
|
(as a % of net sales)
|
|
May 5,
2018
|
|
August 4,
2018
|
|
November 3,
2018
|
|
February 2,
2019
|
|
April 29,
2017
|
|
July 29,
2017
|
|
October 28,
2017
|
|
February 3,
2018
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Gross profit
|
|
|
32.0
|
%
|
|
32.1
|
%
|
|
32.4
|
%
|
|
28.8
|
%
|
|
30.7
|
%
|
|
30.6
|
%
|
|
31.6
|
%
|
|
29.5
|
%
|
|
Operating income (loss)
|
|
|
1.6
|
%
|
|
1.4
|
%
|
|
0.7
|
%
|
|
(0.7
|
)%
|
|
(1.8
|
)%
|
|
2.3
|
%
|
|
0.3
|
%
|
|
1.8
|
%
|
|
Net income (loss)
|
|
|
1.4
|
%
|
|
1.4
|
%
|
|
0.8
|
%
|
|
(1.5
|
)%
|
|
(2.0
|
)%
|
|
2.2
|
%
|
|
0.2
|
%
|
|
1.7
|
%
|
The
Company recorded the following charges in "Selling, general and administrative expenses," unless noted otherwise, on the consolidated statements of operations during fiscal year 2018
that affect comparability:
-
•
-
First quarter ended May 5, 2018 includes $0.4 million of certain severance expense and $0.1 million of legal settlement
fees. In addition, the Company recorded $0.3 million of certain severance expense in "Cost of goods sold, buying and occupancy costs."
-
•
-
Second quarter ended August 4, 2018 includes $0.4 million of legal settlement fees and $0.2 million of consulting fees
incurred in connection with Project Excellence. Project Excellence is the Company's ongoing business re-engineering program which consists of a continuous analysis of business processes and
organizational structure in an effort to improve sales productivity and operating efficiencies, as well as to reduce the Company's overall cost structure.
-
•
-
Third quarter ended November 3, 2018 includes $0.4 million of consulting fees incurred in connection with Project Excellence and
$0.4 million of expenses associated with the Company's registration statement, name change, and certain legal expenses.
-
•
-
Fourth quarter ended February 2, 2019 includes $1.5 million of executive severance expense.
82
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
February 2, 2019
14. Quarterly Results (Unaudited) (Continued)
The
Company recorded the following charges in "Selling, general and administrative expenses," unless noted otherwise, on the consolidated statements of operations during fiscal year 2017
that affect comparability:
-
•
-
First quarter ended April 29, 2017 includes $0.6 million of consulting fees incurred in connection with Project Excellence and
$0.5 million of legal expenses related to an ongoing trademark infringement case. In addition, the Company recorded $0.5 million of certain severance expense in "Cost of goods sold,
buying and occupancy costs."
-
•
-
Second quarter ended July 29, 2017 includes $0.5 million of consulting fees incurred in connection with Project Excellence,
$0.4 million of certain executive relocation expense, and a $2.6 million net legal accrual reversal primarily related to an ongoing trademark infringement case.
-
•
-
Third quarter ended October 28, 2017 includes $0.6 million of certain severance expense, $0.1 million of consulting fees
incurred in connection with Project Excellence, and $0.1 million of legal settlement fees. In addition, the Company recorded a $0.2 million reversal of certain severance expense in "Cost
of goods sold, buying and occupancy costs."
-
•
-
Fourth quarter ended February 3, 2018 includes $0.3 million of consulting fees incurred in connection with Project Excellence.
83
Table of Contents