Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Stage Stores, Inc. and its subsidiary (“we,” “us” or “our”) have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Those adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods have been made. Results of operations for such interim periods are not necessarily indicative of the results of operations for a full year due to seasonality and other factors. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto filed with our Annual Report on Form 10-K for the year ended
January 28, 2017
(“Form 10-K”).
References to a particular year are to our fiscal year, which is the 52- or 53-week period ending on the Saturday closest to January 31st of the following calendar year. For example, a reference to “2017” is a reference to the fiscal year ending February 3, 2018, and “2016” is a reference to the fiscal year ended January 28, 2017. Fiscal years 2017 and 2016 are comprised of 53 weeks and 52 weeks, respectively. References to the “
three months ended
October 28, 2017
” and “
three months ended
October 29, 2016
” are for the respective 13-week fiscal quarters. References to the “
nine months ended
October 28, 2017
” and “
nine months ended
October 29, 2016
” are for the respective 39-week fiscal periods.
On April 7, 2017, we acquired select assets of Gordmans Stores, Inc. and its subsidiaries through a bankruptcy auction (“Gordmans Acquisition”). The results of the Gordmans branded stores that we operated from April 7, 2017 through
October 28, 2017
are included in our condensed consolidated statement of operations for the
nine months ended
October 28, 2017
(see Note 8).
Recently Adopted Accounting Pronouncements
. In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which modifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and the option to estimate expected forfeitures or recognize forfeitures as they occur. We adopted this standard on a prospective basis in first quarter of 2017. Under the new standard, excess income tax benefits and deficiencies related to awards that vest or settle are recognized in the provision for income taxes as a discrete event in the period in which they occur, which may create significant volatility in the provision for income taxes and earnings. Historically, these amounts were reflected within additional paid-in capital on the balance sheet. In addition, upon adoption excess tax benefits are reflected within operating activities in the statements of cash flows, whereas historically these amounts were reflected as a financing activity. Cash paid to tax authorities on an employee’s behalf for withheld shares continues to be classified as a financing activity in the statement of cash flows. We made a policy election to recognize forfeitures as they occur. For the three and
nine months ended
October 28, 2017
, we recognized excess tax deficiencies of
$0.1 million
and
$2.1 million
, respectively, in the provision for income taxes. The adoption of the other requirements of this guidance did not have a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which provides guidance on certain specific cash flow issues including proceeds received from the settlement of insurance claims. This guidance requires cash proceeds received from the settlement of insurance claims to be classified on the statement of cash flows on the basis of the related insurance coverage (that is, the nature of the loss). The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted and is to be applied retrospectively. We adopted this guidance in the first quarter of 2017. The adoption of ASU 2016-15 did not have a material impact on our condensed consolidated statements of cash flows.
Recent Accounting Pronouncements Not Yet Adopted
. In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes most existing revenue recognition guidance in GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects what the entity expects to be entitled to in exchange for those goods or services. The guidance establishes a five-step revenue recognition model, which includes (i) identifying the contract with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. The guidance also requires additional disclosures to describe the nature, timing and uncertainty of revenue and cash flows from contracts with customers. ASU 2014-09 may be applied retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized in retained earnings at the date of adoption. The new revenue standard will be effective for us in the first quarter of fiscal 2018, which begins on February 4, 2018, and we plan to apply the full retrospective method of adoption. We do not expect the adoption to have a material impact on our financial condition, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842)
. The guidance in this ASU supersedes the leasing guidance in
Topic 840
,
Leases
. The new standard requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. We plan to make a policy election that will keep leases with an initial term of 12 months or less off of the balance sheet and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a financing or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. As a result, lessees will be required to put most leases on their balance sheets while recognizing expense on their income statements in a manner similar to current accounting. In addition, this guidance requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. The new standard will be effective for us in the first quarter of fiscal 2019, which begins on February 3, 2019. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We continue to evaluate the impact that the adoption of this ASU will have on our consolidated financial statements and disclosures, including the effect of certain optional practical expedients permitted under the transition guidance. Based on our assessment to date, we expect the adoption of ASU 2016-02 will result in a significant increase in lease-related assets and liabilities on our consolidated balance sheets. The ultimate impact of adopting the new standard will depend on our lease portfolio as of the adoption date.
In March 2017, the FASB issued ASU 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, which requires the service cost component of net periodic benefit cost to be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period. If a subtotal for operating income is shown on the income statement, then the other components of the net periodic benefit cost must be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. The new standard also requires disclosure of the line item(s) in the income statement that include net periodic benefit costs. Additionally, only the service cost component of the net periodic benefit cost is eligible for capitalization. We plan to adopt ASU 2017-07 in the first quarter of fiscal 2018, which begins on February 4, 2018. The change in presentation of service cost must be applied retrospectively, while the capitalization of service cost must be applied on a prospective basis. The pension plan that we sponsor is frozen, and therefore, service costs no longer accrue under the plan. Upon adoption, we will recognize net periodic pension costs in selling, general and administrative expenses, consistent with our current presentation, and we will disclose this in the notes to the financial statements.
NOTE 2 - STOCK-BASED COMPENSATION
Stock-based compensation expense by type of grant for each period presented was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
Restricted stock units
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
310
|
|
|
$
|
—
|
|
Non-vested stock
|
1,300
|
|
|
1,362
|
|
|
4,203
|
|
|
5,311
|
|
Performance shares
|
579
|
|
|
(569
|
)
|
|
1,988
|
|
|
2,034
|
|
Total compensation expense
|
1,987
|
|
|
793
|
|
|
6,501
|
|
|
7,345
|
|
Related tax benefit
|
(747
|
)
|
|
(298
|
)
|
|
(2,444
|
)
|
|
(2,762
|
)
|
Stock-based compensation expense, net of tax
|
$
|
1,240
|
|
|
$
|
495
|
|
|
$
|
4,057
|
|
|
$
|
4,583
|
|
As of
October 28, 2017
, we have unrecognized compensation cost of
$12.6 million
related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of
2.1 years
.
Stock Appreciation Rights (“SARs”)
Prior to 2012, we granted SARs to our employees, which generally vested
25%
annually over a
four
-year period from the grant date. Outstanding SARs expire, if not exercised or forfeited, within
seven years
from the grant date. Exercised SARs are settled by the
issuance of common stock in an amount equal to the increase in share price of our common stock between the grant date and the exercise date
.
The following table summarizes SARs activity for the
nine months ended
October 28, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Rights
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value
(in thousands)
|
Outstanding, vested and exercisable at January 28, 2017
|
|
177,900
|
|
|
$
|
17.69
|
|
|
|
|
|
Expired
|
|
(65,000
|
)
|
|
16.29
|
|
|
|
|
|
Outstanding, vested and exercisable at October 28, 2017
|
|
112,900
|
|
|
$
|
18.50
|
|
|
0.4
|
|
$
|
—
|
|
Restricted Stock Units (“RSUs”)
We grant RSUs to our employees, which vest
25%
annually over a
four
-year period from the grant date.
Each vested RSU is settled in cash in an amount equal to the fair market value of one share of our common stock on the vesting date, not to exceed five times the per share fair market value of our common stock on the grant date
. Unvested RSUs have the right to receive a dividend equivalent payment equal to cash dividends paid on our common stock. RSUs are accounted for as a liability in accordance with accounting guidance for cash settled stock awards. The liability for RSUs is remeasured based on the closing share price of our common stock at each reporting period until the award vests. Compensation expense is recognized ratably over the vesting period and adjusted with changes in the fair value of the liability.
The following table summarizes RSU activity for the
nine months ended
October 28, 2017
:
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Number of Units
|
|
Weighted
Average Grant
Date Fair Value
|
Outstanding at January 28, 2017
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
1,321,250
|
|
|
2.14
|
|
Forfeited
|
|
(37,500
|
)
|
|
2.09
|
|
Outstanding at October 28, 2017
|
|
1,283,750
|
|
|
2.14
|
|
Non-vested Stock
We grant shares of non-vested stock to our employees and non-employee directors. Non-vested stock awarded to employees vests
25%
annually over a
four
-year period from the grant date. Non-vested stock awarded to non-employee directors cliff vests after
one year
. At the end of the vesting period, non-vested stock converts
one-for-one to common stock
. Certain non-vested stock awards have shareholder rights, including the right to vote and to receive dividends. The fair value of non-vested stock awards with dividend rights is based on the closing share price of our common stock on the grant date. The fair value of non-vested stock awards that do not have dividend rights is discounted for the present value of expected dividends during the vesting period. Compensation expense is recognized ratably over the vesting period.
The following table summarizes non-vested stock activity for the
nine months ended
October 28, 2017
:
|
|
|
|
|
|
|
|
|
Non-vested Stock
|
|
Number of Shares
|
|
Weighted
Average Grant
Date Fair Value
|
Outstanding at January 28, 2017
|
|
1,596,410
|
|
|
$
|
10.22
|
|
Granted
|
|
668,371
|
|
|
2.21
|
|
Vested
|
|
(562,122
|
)
|
|
11.22
|
|
Forfeited
|
|
(47,130
|
)
|
|
9.39
|
|
Outstanding at October 28, 2017
|
|
1,655,529
|
|
|
6.67
|
|
The weighted-average grant date fair value for non-vested stock granted during the
nine months ended
October 28, 2017
and
October 29, 2016
was
$2.21
and
$6.78
, respectively. The aggregate intrinsic value of non-vested stock that vested during the
nine months ended
October 28, 2017
and
October 29, 2016
, was
$1.2 million
and
$2.7 million
, respectively. The payment of the employees’ tax liability for a portion of the vested shares was satisfied by withholding shares with a fair value equal to the tax liability. As a result, the actual number of shares issued during
nine months ended
October 28, 2017
was
453,677
.
Performance Shares
We grant performance shares as a means of rewarding management for our long-term performance based on total shareholder return relative to a specific group of companies over a
three
-year performance cycle. Performance shares cliff vest following a
three
-year performance cycle, and if earned are settled in shares of our common stock. The actual number of shares of our common stock that may be earned and issued ranges from
zero
to a maximum of twice the number of target shares outstanding on the vesting date. Grant recipients do not have any shareholder rights on unvested or unearned shares. The fair value of performance shares is estimated using a Monte Carlo simulation, based on the expected term of the award, a risk-free rate, expected dividends, expected volatility, and share price of our common stock and the specified peer group. The expected term is estimated based on the vesting period of the awards, the risk-free rate is based on the yield on U.S. Treasury securities matching the vesting period, and the volatility is based on the historical volatility over the expected term. Compensation expense is recorded ratably over the corresponding vesting period.
The following table summarizes information about the performance shares that were outstanding at
October 28, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Granted
|
|
Target Shares
Outstanding at January 28, 2017
|
|
Target Shares Granted
|
|
Target Shares Vested
|
|
Target Shares Forfeited
|
|
Target Shares
Outstanding at October 28, 2017
|
|
Weighted Average
Grant Date Fair Value Per Share
|
2015
|
|
158,490
|
|
|
—
|
|
|
—
|
|
|
(4,444
|
)
|
|
154,046
|
|
|
$
|
28.33
|
|
2016
|
|
330,233
|
|
|
—
|
|
|
—
|
|
|
(8,527
|
)
|
|
321,706
|
|
|
8.69
|
|
2017
|
|
—
|
|
|
600,000
|
|
|
—
|
|
|
—
|
|
|
600,000
|
|
|
1.80
|
|
Total
|
|
488,723
|
|
|
600,000
|
|
|
—
|
|
|
(12,971
|
)
|
|
1,075,752
|
|
|
7.65
|
|
The weighted-average grant date fair value for performance shares granted during the
nine months ended
October 28, 2017
and
October 29, 2016
was
$1.80
and
$8.69
, respectively. No performance shares vested during the
nine months ended
October 28, 2017
and
October 29, 2016
, respectively.
NOTE 3 - DEBT OBLIGATIONS
Debt obligations for each period presented consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
October 28, 2017
|
|
January 28, 2017
|
Revolving Credit Facility
|
$
|
267,159
|
|
|
$
|
159,702
|
|
Finance obligations
|
1,849
|
|
|
2,708
|
|
Other financing
|
2,986
|
|
|
7,753
|
|
Total debt obligations
|
271,994
|
|
|
170,163
|
|
Less: Current portion of debt obligations
|
3,025
|
|
|
6,414
|
|
Long-term debt obligations
|
$
|
268,969
|
|
|
$
|
163,749
|
|
We have a
$400.0 million
senior secured revolving credit facility (“Revolving Credit Facility”) with a seasonal increase to
$450.0 million
and a
$25.0 million
letter of credit sublimit. The Revolving Credit Facility matures on
December 16, 2021
.
We use the Revolving Credit Facility to provide financing for working capital and general corporate purposes, as well as to finance capital expenditures and to support our letter of credit requirements. Borrowings are limited to the availability under a borrowing base that is determined principally on eligible inventory as defined by the Revolving Credit Facility agreement. Inventory, cash and cash equivalents are pledged as collateral. The daily interest rates are determined by a prime rate or LIBOR, plus an applicable margin, as set forth in the Revolving Credit Facility agreement. For the
nine months ended
October 28, 2017
, the weighted average interest rate on outstanding borrowings and the average daily borrowings were
2.62%
and
$221.7 million
, respectively.
Letters of credit issued under the Revolving Credit Facility support certain merchandise purchases and collateralize retained risks and deductibles under various insurance programs. At
October 28, 2017
, outstanding letters of credit totaled approximately
$7.3 million
. These letters of credit expire within
12 months
of issuance, but may be renewed. Excess availability under the Revolving Credit Facility at
October 28, 2017
was
$157.4 million
.
The Revolving Credit Facility agreement contains covenants which, among other things, restrict, based on required levels of excess availability, (i) the amount of additional debt or capital lease obligations, (ii) the payment of dividends to
$30 million
in a fiscal year, and (iii) the repurchase of common stock under certain circumstances. The agreement also contains a fixed charge coverage ratio covenant in the event excess availability is below a defined threshold or an event of default has occurred. At
October 28, 2017
, we were in compliance with all of the debt covenants of the Revolving Credit Facility agreement and we expect to remain in compliance.
NOTE 4 - EARNINGS PER SHARE
The following tables show the computation of basic and diluted loss per common share for each period presented (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
Basic:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(17,722
|
)
|
|
$
|
(15,634
|
)
|
|
$
|
(42,967
|
)
|
|
$
|
(31,053
|
)
|
Less: Allocation of earnings to participating securities
|
(66
|
)
|
|
—
|
|
|
(268
|
)
|
|
—
|
|
Net loss allocated to common shares
|
(17,788
|
)
|
|
(15,634
|
)
|
|
(43,235
|
)
|
|
(31,053
|
)
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
27,602
|
|
|
27,155
|
|
|
27,468
|
|
|
27,066
|
|
Basic loss per share
|
$
|
(0.64
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(1.57
|
)
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
Diluted:
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(17,722
|
)
|
|
$
|
(15,634
|
)
|
|
$
|
(42,967
|
)
|
|
$
|
(31,053
|
)
|
Less: Allocation of earnings to participating securities
|
(66
|
)
|
|
—
|
|
|
(268
|
)
|
|
—
|
|
Net loss allocated to common shares
|
(17,788
|
)
|
|
(15,634
|
)
|
|
(43,235
|
)
|
|
(31,053
|
)
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
27,602
|
|
|
27,155
|
|
|
27,468
|
|
|
27,066
|
|
Add: Dilutive effect of stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
27,602
|
|
|
27,155
|
|
|
27,468
|
|
|
27,066
|
|
Diluted loss per share
|
$
|
(0.64
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(1.57
|
)
|
|
$
|
(1.15
|
)
|
The number of shares attributable to SARs and non-vested stock grants that would have been considered dilutive securities, but were excluded from the calculation of diluted loss per common share because the effect was anti-dilutive were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
Number of anti-dilutive shares due to net loss for the period
|
—
|
|
|
20
|
|
|
—
|
|
|
42
|
|
Number of anti-dilutive SARs due to exercise price greater than average market price of our common stock
|
113
|
|
|
187
|
|
|
129
|
|
|
198
|
|
NOTE 5 - STOCKHOLDERS’ EQUITY
On
November 16, 2017
, our Board of Directors (“Board”) declared a quarterly cash dividend of
$0.05
per share of common stock, payable on
December 13, 2017
to shareholders of record at the close of business on
November 28, 2017
.
NOTE 6 - PENSION PLAN
We sponsor a frozen defined benefit pension plan. The components of net periodic pension cost were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
Employer service cost
|
$
|
123
|
|
|
$
|
85
|
|
|
$
|
368
|
|
|
$
|
255
|
|
Interest cost on pension benefit obligation
|
363
|
|
|
400
|
|
|
1,090
|
|
|
1,198
|
|
Expected return on plan assets
|
(407
|
)
|
|
(437
|
)
|
|
(1,222
|
)
|
|
(1,312
|
)
|
Amortization of net loss
|
213
|
|
|
225
|
|
|
637
|
|
|
673
|
|
Pension settlement charge
|
374
|
|
|
—
|
|
|
374
|
|
|
—
|
|
Net periodic pension cost
|
$
|
666
|
|
|
$
|
273
|
|
|
$
|
1,247
|
|
|
$
|
814
|
|
During the three and
nine months ended
October 28, 2017
, we recognized a non-cash pension settlement charge of
$0.4 million
as a result of lump sum distributions exceeding interest cost for 2017. This settlement was included in selling, general and administrative expenses in our condensed consolidated statements of operation.
Our funding policy is to make contributions to maintain the minimum funding requirements for our pension obligations in accordance with the Employee Retirement Income Security Act. We may elect to contribute additional amounts to maintain a level of funding to minimize the Pension Benefit Guaranty Corporation premium costs or to cover the short-term liquidity needs of the plan in order to maintain current invested positions. We contributed
$0.7 million
during the
nine months ended
October 28, 2017
, and we expect to contribute an additional
$0.2 million
in 2017.
NOTE 7 - FAIR VALUE MEASUREMENTS
We recognize or disclose the fair value of our financial and non-financial assets and liabilities on a recurring and non-recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we assume the highest and best use of the asset by market participants in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability.
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and base the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
|
|
|
Level 1 –
|
Quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2 –
|
Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
Level 3 –
|
Inputs that are both unobservable and significant to the overall fair value measurement reflect our estimates of assumptions that market participants would use in pricing the asset or liability.
|
Financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2017
|
|
Balance
|
|
Quoted Prices in Active Markets for Identical Instruments
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Other assets:
|
|
|
|
|
|
|
|
Securities held in grantor trust for deferred
compensation plans
(a)(b)
|
$
|
18,750
|
|
|
$
|
18,750
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
Balance
|
|
Quoted Prices in Active Markets for Identical Instruments
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
Securities held in grantor trust for deferred
compensation plans
(a)(b)
|
$
|
18,094
|
|
|
$
|
18,094
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(a)
The liability for the amount due to participants corresponding in value to the securities held in the grantor trust is recorded in other long-term liabilities.
(b)
Using the market approach, the fair values of these items represent quoted market prices multiplied by the quantities held. Net gains and losses related to the changes in fair value in the assets and liabilities under the various deferred compensation plans are recorded in selling, general and administrative expenses and were nil
for the
nine months ended
October 28, 2017
and for the fiscal year ended
January 28, 2017
.
Non-financial assets measured at fair value on a nonrecurring basis were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2017
|
|
Balance
|
|
Quoted Prices in Active Markets for Identical Instruments
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Store property, equipment and leasehold improvements
(a)
|
$
|
229
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
Balance
|
|
Quoted Prices in Active Markets for Identical Instruments
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Store property, equipment and leasehold improvements
(a)
|
$
|
8,795
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,795
|
|
(a)
Using an undiscounted cash flow model, we evaluate the cash flow trends of our stores at least annually and when events or changes in circumstances, such as a store closure, indicate that property, equipment and leasehold improvements may not be fully recoverable. When a store’s projected undiscounted cash flows indicate its carrying value may not be recoverable, we use a discounted cash flow model, with a
10%
discount rate, to estimate the fair value of the underlying long-lived assets. An impairment write-down is recorded if the carrying value of a long-lived asset exceeds its fair value. Key assumptions in estimating future cash flows include, among other things, expected future operating performance, including expected closure date and lease term, and changes in economic conditions. We believe estimated future cash flows are sufficient to support the carrying value of our long-lived assets. Significant changes in the key assumptions used in our cash flow projections may result in additional asset impairments. For the
nine months ended
October 28, 2017
and fiscal year 2016, we recognized impairment charges of
$0.2 million
and
$19.9 million
respectively. Impairment charges are recorded in cost of sales and related buying, occupancy and distribution expenses.
Due to the short-term nature of cash and cash equivalents, payables and short-term debt obligations, the carrying value approximates the fair value of these instruments. In addition, we believe that the Revolving Credit Facility obligation approximates its fair value because interest rates are adjusted daily based on current market rates.
NOTE 8 - GORDMANS ACQUISITION
On
April 7, 2017
, we acquired select assets of
Gordmans Stores, Inc.
and its subsidiaries (collectively, the “Sellers”) through a bankruptcy auction. The terms of the transaction agreement required us to take assignment of a minimum of
50
of the Sellers’ store leases, with rights to take assignment of the leases for an additional
seven
stores and a distribution center. We also acquired all of the Sellers’ inventory, furniture, fixtures and equipment at the
57
store locations and distribution center, as well as the trademarks and other intellectual property of the Sellers.
The Gordmans branded stores, which we intend to operate as an off-price concept, add scale to our business, while allowing us to leverage strategic synergies and our current infrastructure. The acquisition also brings beneficial geographic and customer diversification.
The purchase price for the inventory and other assets acquired from the Sellers was approximately
$36.1 million
, all of which was paid by the end of the second quarter 2017 using existing cash and availability under the Revolving Credit Facility. We took assignment of
55
of the
57
store locations and the distribution center. We also entered into new leases for three former Gordmans store locations, of which, two were opened in the second quarter 2017 and one opened in August 2017.
The estimated fair values of the assets acquired at the acquisition date were as follows (in thousands):
|
|
|
|
|
|
April 7, 2017
|
Inventory
|
$
|
31,770
|
|
Property, plant and equipment and other assets
|
4,374
|
|
Total
|
$
|
36,144
|
|
Acquisition and integration related costs were recognized in selling, general and administrative expenses and were as follows for each period presented (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 28, 2017
|
Business acquisition costs
|
$
|
(39
|
)
|
|
$
|
9,169
|
|
Net sales included in our condensed consolidated statements of operations from the GORDMANS branded stores that we operated beginning on April 7, 2017, were as follows for each period presented (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 28, 2017
|
Net sales
|
$
|
61,774
|
|
|
$
|
133,591
|
|
Pro forma net sales and earnings for the three and nine months ended October 28, 2017 and October 29, 2016 are not presented due to the impracticability in substantiating this information as the Gordmans Acquisition was limited to select assets and assignment of leases acquired through a bankruptcy auction. Furthermore, the results of operations may have been impacted by the Sellers’ liquidation and may not be indicative of future performance.