Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended August 3, 2019 and August 4, 2018
(Unaudited)
Note A: Summary of Significant Accounting Policies
Basis of presentation. The accompanying unaudited interim condensed consolidated financial statements have been prepared from the records of Ross Stores, Inc. and subsidiaries (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company’s financial position as of August 3, 2019 and August 4, 2018, the results of operations, comprehensive income, and stockholders' equity for the three and six month periods ended August 3, 2019 and August 4, 2018, and cash flows for the six month periods ended August 3, 2019 and August 4, 2018. The Condensed Consolidated Balance Sheet as of February 2, 2019, presented herein, has been derived from the Company’s audited consolidated financial statements for the fiscal year then ended.
Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, contained in the Company’s Annual Report on Form 10-K for the year ended February 2, 2019.
The results of operations, comprehensive income, and stockholders' equity for the three and six month periods ended August 3, 2019 and August 4, 2018 and cash flows for the six month periods ended August 3, 2019 and August 4, 2018 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.
Recently adopted accounting standards. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Accounting Standards Codification "ASC" 842), which along with subsequent amendments, supersedes the lease accounting requirements in ASC 840, Leases. The updated guidance requires balance sheet recognition for all leases with lease terms greater than one year including a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
The Company adopted ASC 842 as of February 3, 2019 (the "effective date"), using the optional transition method on a modified retrospective basis. The Company did not elect the transitional package of practical expedients or the use of hindsight upon adoption of the ASC. The Company elected to not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or less, and to account for lease and non-lease components as a single lease component. Upon adoption, the Company recorded lease liabilities based on the present value of the remaining minimum rental payments, using discount rates as of the effective date, of $2.9 billion, and the corresponding right-of-use assets of $2.9 billion. The Company also recorded a cumulative-effect adjustment to decrease beginning retained earnings of $19.6 million, primarily related to the write-off of previously capitalized initial direct costs that are no longer capitalized under ASC 842, partially offset by the write-off of the deferred gain on a previous sale-leaseback transaction that meets the sale definition under ASC 842. Reporting periods beginning on or after February 3, 2019 are presented under ASC 842, while prior period amounts and disclosures were not adjusted and continue to be reported under ASC 840. ASC 842 did not have a significant impact to the Company’s condensed consolidated statements of earnings or to the condensed consolidated statements of cash flows.
Significant accounting policies. Except for the updates to accounting policies for leases as a result of adopting ASC 842 described below, there have been no significant changes to the accounting policies followed by the Company as described in Note A to the audited consolidated financial statements for the fiscal year ended February 2, 2019.
Leases. As the Company’s leases generally do not provide an implicit discount rate, the Company uses the estimated collateralized incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. The Company does not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or less, and accounts for lease and non-lease components as a single lease component. The Company's lease portfolio is comprised of operating leases with the lease cost recorded on a straight-line basis over the lease term.
Prior to the adoption of ASC 842, when a lease contained “rent holidays” or required fixed escalations of the minimum lease payments, the Company recorded rental expense on a straight-line basis over the term of the lease and the difference between the average rental amount was charged to expense and the amount payable under the lease was recorded as deferred rent. The Company began recording rent expense on the lease possession date. Tenant improvement allowances were amortized over the lease term. Changes in deferred rent and tenant improvement allowances were included as a component of operating activities in the Condensed Consolidated Statements of Cash Flows.
Revenue recognition. The following sales mix table disaggregates revenue by merchandise category for the three and six month periods ended August 3, 2019 and August 4, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
August 3, 2019
|
|
|
August 4, 2018
|
|
|
August 3, 2019
|
|
|
August 4, 2018
|
|
Ladies
|
27
|
%
|
|
28
|
%
|
|
27
|
%
|
|
28
|
%
|
Home Accents and Bed and Bath
|
23
|
%
|
|
24
|
%
|
|
24
|
%
|
|
24
|
%
|
Shoes
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
Men's
|
15
|
%
|
|
14
|
%
|
|
14
|
%
|
|
13
|
%
|
Accessories, Lingerie, Fine Jewelry, and Fragrances
|
13
|
%
|
|
12
|
%
|
|
13
|
%
|
|
13
|
%
|
Children's
|
8
|
%
|
|
8
|
%
|
|
8
|
%
|
|
8
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Cash, restricted cash, and restricted investments. Restricted cash, cash equivalents, and investments serve as collateral for certain insurance obligations of the Company. These restricted funds are invested in bank deposits, money market mutual funds, U.S. Government and agency securities, and corporate securities and cannot be withdrawn from the Company’s account without the prior written consent of the secured parties. The classification between current and long-term is based on the timing of expected payments of the insurance obligations.
The following table provides a reconciliation of cash, cash equivalents, restricted cash and equivalents in the Condensed Consolidated Balance Sheets that reconcile to the amounts shown on the Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
($000)
|
August 3, 2019
|
|
|
February 2, 2019
|
|
|
August 4, 2018
|
|
Cash and cash equivalents
|
$
|
1,382,025
|
|
|
$
|
1,412,912
|
|
|
$
|
1,386,935
|
|
Restricted cash and cash equivalents included in:
|
|
|
|
|
|
Prepaid expenses and other
|
11,048
|
|
|
11,402
|
|
|
8,961
|
|
Other long-term assets
|
50,328
|
|
|
53,765
|
|
|
53,635
|
|
Total restricted cash and cash equivalents
|
61,376
|
|
|
65,167
|
|
|
62,596
|
|
Total cash, cash equivalents, and restricted cash and equivalents
|
$
|
1,443,401
|
|
|
$
|
1,478,079
|
|
|
$
|
1,449,531
|
|
In addition to the restricted cash and equivalents in the table above, the Company had restricted investments included in the Condensed Consolidated Balance Sheets as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
($000)
|
August 3, 2019
|
|
|
February 2, 2019
|
|
|
August 4, 2018
|
|
Prepaid expenses and other
|
$
|
—
|
|
|
$
|
400
|
|
|
$
|
2,812
|
|
Total restricted investments
|
$
|
—
|
|
|
$
|
400
|
|
|
$
|
2,812
|
|
Property and equipment. As of August 3, 2019 and August 4, 2018, the Company had $13.0 million and $10.0 million, respectively, of property and equipment purchased but not yet paid. These purchases are included in Property and Equipment, Accounts payable, and Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.
Cash dividends. Dividends included in the Condensed Consolidated Statements of Cash Flows reflect cash dividends paid during the periods shown. Dividends per share reported on the Condensed Consolidated Statements of Earnings reflect cash dividends declared during the periods shown.
The Company’s Board of Directors declared a cash dividend of $0.255 per common share in March and May 2019, and $0.225 per common share in March, May, August, and November 2018, respectively.
In August 2019, the Company’s Board of Directors declared a cash dividend of $0.255 per common share, payable on September 30, 2019.
Litigation, claims, and assessments. Like many retailers, the Company has been named in class action lawsuits, primarily in California, alleging violation of wage and hour/employment laws and consumer protection laws. Class action litigation remains pending as of August 3, 2019.
The Company is also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed against the Company may include commercial, product and product safety, consumer, intellectual property, environmental, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that the Company violated federal, state, and/or local laws. Actions against the Company are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.
In the opinion of management, the resolution of pending class action litigation and other currently pending legal and regulatory proceedings will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
Recently issued accounting standards. The Company considers the applicability and impact of all ASUs issued by the FASB. For the three and six month periods ended August 3, 2019, the ASUs issued by the FASB were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's condensed consolidated financial results.
Reclassifications. Certain items related to income taxes in the prior year’s condensed consolidated statements of cash flows have been reclassified to conform to the current year's presentation.
Note B: Fair Value Measurements
The carrying value of cash and cash equivalents, short- and long-term investments, restricted cash and cash equivalents, restricted investments, accounts receivable, other long-term assets, accounts payable, and other long-term liabilities approximates their estimated fair value.
Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The inputs used to measure fair value include: Level 1, observable inputs such as quoted prices in active markets; Level 2, inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, unobservable inputs in which little or no market data exists. This fair value hierarchy requires the Company to develop its own assumptions and maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Corporate, U.S. government and agency, and mortgage-backed securities are classified within Level 1 or Level 2 because these securities are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
There were no transfers between Level 1 and Level 2 categories during the three and six month periods ended August 3, 2019. The fair value of the Company’s financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($000)
|
|
August 3, 2019
|
|
|
February 2, 2019
|
|
|
August 4, 2018
|
|
Cash and cash equivalents (Level 1)
|
|
$
|
1,382,025
|
|
|
$
|
1,412,912
|
|
|
$
|
1,386,935
|
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents (Level 1)
|
|
$
|
61,376
|
|
|
$
|
65,167
|
|
|
$
|
62,596
|
|
|
|
|
|
|
|
|
Investments (Level 2)
|
|
$
|
8
|
|
|
$
|
125
|
|
|
$
|
709
|
|
|
|
|
|
|
|
|
Restricted investments (Level 2)
|
|
$
|
—
|
|
|
$
|
400
|
|
|
$
|
2,812
|
|
The underlying assets in the Company’s non-qualified deferred compensation program as of August 3, 2019, February 2, 2019, and August 4, 2018 (included in Other long-term assets and in Other long-term liabilities) primarily consist of participant-directed money market, stable value, stock, and bond funds. The fair value measurement for funds with quoted market prices in active markets (Level 1) and for funds without quoted market prices in active markets (Level 2) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
($000)
|
August 3, 2019
|
|
|
February 2, 2019
|
|
|
August 4, 2018
|
|
Level 1
|
$
|
126,377
|
|
|
$
|
114,181
|
|
|
$
|
117,274
|
|
Level 2
|
7,411
|
|
|
10,377
|
|
|
11,836
|
|
Total
|
$
|
133,788
|
|
|
$
|
124,558
|
|
|
$
|
129,110
|
|
Note C: Stock-Based Compensation
Stock-based compensation. For the three and six month periods ended August 3, 2019 and August 4, 2018, the Company recognized stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
($000)
|
August 3, 2019
|
|
|
August 4, 2018
|
|
|
|
August 3, 2019
|
|
|
August 4, 2018
|
|
Restricted stock
|
$
|
14,909
|
|
|
$
|
12,428
|
|
|
|
$
|
24,358
|
|
|
$
|
23,936
|
|
Performance awards
|
9,025
|
|
|
10,487
|
|
|
|
18,329
|
|
|
21,911
|
|
Employee stock purchase plan
|
990
|
|
|
905
|
|
|
|
1,926
|
|
|
1,733
|
|
Total
|
$
|
24,924
|
|
|
$
|
23,820
|
|
|
|
$
|
44,613
|
|
|
$
|
47,580
|
|
Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Earnings for the three and six month periods ended August 3, 2019 and August 4, 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Statements of Earnings Classification ($000)
|
August 3, 2019
|
|
|
August 4, 2018
|
|
|
August 3, 2019
|
|
|
August 4, 2018
|
|
Cost of goods sold
|
$
|
13,812
|
|
|
$
|
11,011
|
|
|
$
|
26,934
|
|
|
$
|
22,047
|
|
Selling, general and administrative
|
11,112
|
|
|
12,809
|
|
|
17,679
|
|
|
25,533
|
|
Total
|
$
|
24,924
|
|
|
$
|
23,820
|
|
|
$
|
44,613
|
|
|
$
|
47,580
|
|
The tax benefits related to stock-based compensation expense for the three and six month periods ended August 3, 2019 were $5.0 million and $8.7 million, respectively. The tax benefits related to stock-based compensation expense for the three and six month periods ended August 4, 2018 were $5.0 million and $9.9 million, respectively.
Restricted stock awards. The Company grants shares of restricted stock to directors, officers, and key employees. The market value of shares of restricted stock at the date of grant is amortized to expense over the vesting period of generally three to five years.
During the three and six month periods ended August 3, 2019 and August 4, 2018, shares purchased by the Company for tax withholding totaled 14,627 and 570,624, and 78,151 and 661,379, respectively, and are considered treasury shares which are available for reissuance.
Performance share awards. The Company has a performance share award program for senior executives. A performance share award represents a right to receive shares of restricted stock on a specified settlement date based on the Company’s attainment of a profitability-based performance goal during the performance period, which is the Company’s fiscal year. If attained, the restricted stock then vests over a service period, generally two to three years from the date the performance award was granted.
As of August 3, 2019, shares related to unvested restricted stock and performance share awards totaled 4.3 million shares. A summary of restricted stock and performance share award activity for the six month period ended August 3, 2019, is presented below:
|
|
|
|
|
|
|
|
(000, except per share data)
|
Number of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
Unvested at February 2, 2019
|
5,130
|
|
|
$
|
62.50
|
|
Awarded
|
1,052
|
|
|
91.26
|
|
Released
|
(1,609
|
)
|
|
52.53
|
|
Forfeited
|
(310
|
)
|
|
70.17
|
|
Unvested at August 3, 2019
|
4,263
|
|
|
$
|
72.80
|
|
The unamortized compensation expense at August 3, 2019, was $165.2 million, which is expected to be recognized over a weighted-average remaining period of 2.3 years. The unamortized compensation expense at August 4, 2018, was $148.3 million, which was expected to be recognized over a weighted-average remaining period of 2.2 years.
Employee stock purchase plan. Under the Employee Stock Purchase Plan (“ESPP”), eligible employees participating in the quarterly offering period can choose to have up to the lesser of 10% of their annual base earnings or the IRS annual share purchase limit of $25,000 in aggregate market value to purchase the Company’s common stock. The purchase price of the stock is 85% of the closing market price on the date of purchase. Purchases occur on a quarterly basis (on the last trading day of each calendar quarter). The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date.
Note D: Earnings Per Share
The Company computes and reports both basic earnings per share ("EPS") and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards, including unexercised stock options, and unvested shares of both performance and non-performance based awards of restricted stock.
For the three and six month periods ended August 3, 2019, approximately 10,500 and 5,300 weighted average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the periods presented. For the three month period ended August 4, 2018, no weighted average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the period presented. For the six month period ended August 4, 2018, approximately 730 weighted average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the period presented.
The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
Shares in (000s)
|
Basic EPS
|
|
|
Effect of
dilutive
common stock
equivalents
|
|
|
Diluted
EPS
|
|
|
|
Basic EPS
|
|
|
Effect of
dilutive
common
stock
equivalents
|
|
|
Diluted
EPS
|
|
August 3, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
359,794
|
|
|
2,280
|
|
|
362,074
|
|
|
|
361,439
|
|
|
2,568
|
|
|
364,007
|
|
Amount
|
$
|
1.15
|
|
|
$
|
(0.01
|
)
|
|
$
|
1.14
|
|
|
|
$
|
2.31
|
|
|
$
|
(0.02
|
)
|
|
$
|
2.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 4, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
371,031
|
|
|
2,686
|
|
|
373,717
|
|
|
|
372,414
|
|
|
2,922
|
|
|
375,336
|
|
Amount
|
$
|
1.05
|
|
|
$
|
(0.01
|
)
|
|
$
|
1.04
|
|
|
|
$
|
2.17
|
|
|
$
|
(0.02
|
)
|
|
$
|
2.15
|
|
Note E: Leases
The Company currently leases all but two of its store locations with original, non-cancelable terms that in general range from three to ten years. Store leases typically contain provisions for three to four renewal options of five years each. The exercise of lease renewal options is at the sole discretion of the Company. Most store leases also provide for minimum annual rentals and for payment of variable lease costs. In addition, some store leases also have provisions for additional rent based on a percentage of sales (“percentage rent”) and others include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company does not have any financing leases.
The Company leases five warehouses, and has four third-party warehousing arrangements. All of these contain renewal provisions, except for the third-party warehouse in Fort Mill, South Carolina. The following table summarizes the location and expiration date of the Company’s leased warehouses:
|
|
|
|
Location
|
|
Lease Expiration Date
|
Leased Warehouses
|
|
|
Carlisle, Pennsylvania
|
|
2020
|
Carlisle, Pennsylvania
|
|
2021
|
Fort Mill, South Carolina
|
|
2024
|
Rock Hill, South Carolina
|
|
2028
|
Shafter, California
|
|
2029
|
|
|
|
Third-Party Warehouses
|
|
|
Fort Mill, South Carolina
|
|
2020
|
Moreno Valley, California
|
|
2023
|
Moreno Valley, California
|
|
2029
|
Shafter, California
|
|
2020
|
The Company leases approximately 103,000 and 5,000 square feet of office space for its Los Angeles and Boston buying offices, respectively. The lease term for these facilities expire in 2022 and 2020, respectively, and contain renewal provisions. In addition, the Company has a ground lease related to its New York buying office.
The following table presents operating lease costs included in the Condensed Consolidated Statement of Earnings for the three and six month periods ended August 3, 2019:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Six Months Ended
|
($000)
|
|
August 3, 2019
|
|
August 3, 2019
|
|
Operating lease cost 1
|
|
$
|
159,648
|
|
$
|
315,214
|
|
Variable lease costs 2
|
|
43,872
|
|
86,786
|
|
Net lease cost 3
|
|
$
|
203,520
|
|
$
|
402,000
|
|
|
|
|
|
1 Net of sublease income which was immaterial.
|
|
|
|
2 Includes property and rent taxes, insurance, common area maintenance, and percentage rent.
|
|
3 Excludes short-term lease costs which were immaterial.
|
|
|
|
The maturity of operating lease liabilities, including the ground lease related to the New York buying office as of August 3, 2019, are as follows:
|
|
|
|
|
|
($000)
|
|
Operating Leases 1
|
|
2020
|
|
$
|
593,543
|
|
2021
|
|
600,160
|
|
2022
|
|
521,350
|
|
2023
|
|
438,964
|
|
2024
|
|
338,686
|
|
Thereafter
|
|
1,631,666
|
|
Total lease payments
|
|
4,124,369
|
|
Less: interest
|
|
1,078,298
|
|
Present value of lease liabilities
|
|
$
|
3,046,071
|
|
Less: current operating lease liabilities
|
|
549,841
|
|
Non-current operating lease liabilities
|
|
$
|
2,496,230
|
|
|
|
|
1 Operating lease payments exclude $211.9 million of minimum lease payments for leases signed that have not yet commenced.
|
At August 3, 2019, the weighted-average remaining lease term and the weighted average discount rate for operating leases is 11.0 years and 3.6%, respectively. The weighted-average remaining lease term and the weighted average discount rate, excluding the long-term ground lease related to the New York buying office, were 6.2 years and 3.3%, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities was $153.6 million and $301.8 million, respectively, for the three and six month periods ended August 3, 2019 and is included in Net cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.
Operating lease assets obtained in exchange for new operating lease liabilities (includes new leases and remeasurements or modifications of existing leases) during the three and six month periods ended August 3, 2019 were $127.6 million and $335.4 million, respectively.
In accordance with ASC 840, the aggregate undiscounted future minimum annual lease payments under leases, including the ground lease related to the New York buying office, in effect at February 2, 2019 were as follows:
|
|
|
|
|
|
($000)
|
|
Total operating leases
|
2019
|
|
$
|
555,812
|
|
2020
|
|
580,712
|
|
2021
|
|
499,678
|
|
2022
|
|
424,695
|
|
2023
|
|
339,340
|
|
Thereafter
|
|
1,575,673
|
|
Total minimum lease payments
|
|
$
|
3,975,910
|
|
Note F: Debt
Senior notes. Unsecured senior debt, net of unamortized discounts and debt issuance costs, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($000)
|
|
August 3, 2019
|
|
|
February 2, 2019
|
|
|
August 4, 2018
|
|
6.38% Series A Senior Notes due 2018
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
84,989
|
|
6.53% Series B Senior Notes due 2021
|
|
64,953
|
|
|
64,942
|
|
|
64,933
|
|
3.375% Senior Notes due 2024
|
|
247,712
|
|
|
247,498
|
|
|
247,284
|
|
Total long-term debt
|
|
$
|
312,665
|
|
|
$
|
312,440
|
|
|
$
|
397,206
|
|
Less: current portion
|
|
—
|
|
|
—
|
|
|
84,989
|
|
Total due beyond one year
|
|
$
|
312,665
|
|
|
$
|
312,440
|
|
|
$
|
312,217
|
|
As of August 3, 2019, the Company had outstanding unsecured 3.375% Senior Notes due September 2024 (the “2024 Notes”) with an aggregate principal amount of $250 million. Interest on the 2024 Notes is payable semi-annually.
As of August 3, 2019, the Company also had outstanding Series B unsecured Senior Notes in the aggregate principal amount of $65 million held by various institutional investors. The Series B notes are due in December 2021, and bear interest at 6.53%. Borrowings under these Senior Notes are subject to certain financial covenants, including interest coverage and other financial ratios. As of August 3, 2019, the Company was in compliance with these covenants.
On December 13, 2018, the Company repaid at maturity the $85 million principal amount of the Series A 6.38% unsecured Senior Notes.
As of August 3, 2019, February 2, 2019, and August 4, 2018, total unamortized discount and debt issuance costs were $2.3 million, $2.6 million, and $2.8 million, respectively, and were classified as a reduction of Long-term debt.
The 2024 Notes, and the Series B Senior Notes are subject to prepayment penalties for early payment of principal.
The aggregate fair value of the two outstanding series of Senior Notes was approximately $332 million and $316 million, as of August 3, 2019 and February 2, 2019, respectively, compared to $403 million for the then three outstanding series of Senior Notes as of August 4, 2018. The fair value is estimated by obtaining comparable market quotes which are considered to be Level 1 inputs under the fair value measurements and disclosures guidance.
The table below shows the components of interest expense and income for the three and six month periods ended August 3, 2019 and August 4, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
($000)
|
August 3, 2019
|
|
|
August 4, 2018
|
|
|
August 3, 2019
|
|
|
August 4, 2018
|
|
Interest expense on long-term debt
|
$
|
3,283
|
|
|
$
|
4,646
|
|
|
$
|
6,566
|
|
|
$
|
9,291
|
|
Other interest expense
|
227
|
|
|
233
|
|
|
540
|
|
|
535
|
|
Capitalized interest
|
(1,118
|
)
|
|
(634
|
)
|
|
(1,883
|
)
|
|
(1,132
|
)
|
Interest income
|
(7,174
|
)
|
|
(5,638
|
)
|
|
(15,640
|
)
|
|
(10,590
|
)
|
Interest income, net
|
$
|
(4,782
|
)
|
|
$
|
(1,393
|
)
|
|
$
|
(10,417
|
)
|
|
$
|
(1,896
|
)
|
Revolving credit facility. In July 2019, the Company entered into a new $800 million unsecured revolving credit facility, which replaced the Company’s previous $600 million unsecured revolving credit facility. This new credit facility expires in July 2024, and contains a $300 million sublimit for issuance of standby letters of credit. The facility also contains an option allowing the Company to increase the size of its credit facility by up to an additional $300 million, with the agreement of the lenders. Interest on any borrowings under this facility is based on LIBOR (or an alternate benchmark rate, if LIBOR is no longer available) plus an applicable margin (currently 75 basis points) and is payable quarterly and upon maturity. The revolving credit facility may be extended, at the Company's option, for up to two additional one-year periods, subject to customary conditions. As of August 3, 2019, the Company had no borrowings or standby letters of credit outstanding under this facility and the $800 million credit facility remains in place and available.
The revolving credit facility is subject to a financial leverage ratio covenant. As of August 3, 2019, the Company was in compliance with this covenant.
Note G: Taxes on Earnings
As of August 3, 2019, February 2, 2019, and August 4, 2018, the reserves for unrecognized tax benefits were $88.4 million, $78.8 million, and $130.8 million, inclusive of $14.9 million, $13.0 million, and $25.4 million of related interest and penalties, respectively. In November 2018, the Company resolved uncertain tax positions related to fiscal 2015 with the Internal Revenue Service. As a result, the Company recognized a decrease in reserves for tax positions in prior periods of $52.4 million, inclusive of $12.6 million of related reserves for interest and penalties. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $70.5 million would impact the Company’s effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes.
It is reasonably possible that certain state tax matters may be concluded or statutes of limitations may lapse during the next 12 months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $8.6 million.
The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2015 through 2018. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2014 through 2018. Certain state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the consolidated financial statements.