RTW Retailwinds, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Nine months
ended
November 3, 2018
|
|
Nine months
ended
October 28, 2017
|
|
Operating activities
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,878
|
|
$
|
928
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,833
|
|
|
16,354
|
|
Loss from impairment charges
|
|
|
486
|
|
|
611
|
|
Amortization of intangible assets
|
|
|
234
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
49
|
|
|
142
|
|
Write-off of unamortized deferred financing costs
|
|
|
239
|
|
|
|
|
Share-based compensation expense
|
|
|
1,997
|
|
|
1,756
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,981
|
)
|
|
(4,455
|
)
|
Income taxes receivable
|
|
|
60
|
|
|
29
|
|
Inventories, net
|
|
|
(37,088
|
)
|
|
(47,560
|
)
|
Prepaid expenses
|
|
|
(447
|
)
|
|
1,098
|
|
Accounts payable
|
|
|
37,142
|
|
|
37,351
|
|
Accrued expenses
|
|
|
(10,202
|
)
|
|
(7,872
|
)
|
Income taxes payable
|
|
|
(12
|
)
|
|
(174
|
)
|
Deferred rent
|
|
|
(1,594
|
)
|
|
(1,847
|
)
|
Other assets and liabilities
|
|
|
(3,131
|
)
|
|
(4,978
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
9,463
|
|
|
(8,617
|
)
|
Investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(3,705
|
)
|
|
(7,794
|
)
|
Insurance recoveries
|
|
|
375
|
|
|
50
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,330
|
)
|
|
(7,744
|
)
|
Financing activities
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(11,750
|
)
|
|
(750
|
)
|
Principal payment on capital lease obligations
|
|
|
(1,320
|
)
|
|
(1,199
|
)
|
Shares withheld for payment of employee payroll taxes
|
|
|
(309
|
)
|
|
(202
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
(622
|
)
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(13,379
|
)
|
|
(2,773
|
)
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(7,246
|
)
|
|
(19,134
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
90,908
|
|
|
88,369
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
83,662
|
|
$
|
69,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary non-cash investing activities
|
|
|
|
|
|
|
|
Non-cash capital lease transactions
|
|
$
|
|
|
$
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements
November 3, 2018
(Unaudited)
1. Organization and Basis of Presentation
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 roughly 428 retail and outlet locations in 36 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.
fashiontofigure.com
, and
www.nyandcompanycloset.com
. The
target customers for the Company's merchandise are women between the ages of 25 and 49.
The
condensed consolidated financial statements as of November 3, 2018 and October 28, 2017 and for the 13 weeks ("three months") and 26 weeks ("nine months")
ended November 3, 2018 and October 28, 2017 are unaudited and are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC").
Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the 53-week fiscal year
ended February 3, 2018 ("fiscal year 2017"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 17, 2018. The 52-week fiscal year ending
February 2, 2019 is referred to herein as "fiscal year 2018." The Company's fiscal year is a 52- or 53-week year that ends on the Saturday closest to January 31.
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. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present
fairly the financial condition, results of operations and cash flows for the interim periods. All significant intercompany balances and transactions have been eliminated in consolidation.
Due
to seasonal variations in the retail industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.
Certain
totals that appear in this Quarterly Report on Form 10-Q may not equal the sum of the components due to rounding.
2. New 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" 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
5
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
2. New Accounting Pronouncements (Continued)
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 on
February 3, 2019 using the transition option to recognize a cumulative adjustment to the opening retained earnings balance and without adjustment to prior periods. 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 real estate leases will drive the significant impact to the Company's
consolidated balance sheet. The Company is going through the process of determining its policy elections and its application of practical expedients as they pertain to the adoption of ASU 2016-02.
While the Company continues to evaluate the impact of the adoption of this new standard on the Company's financial position and results of operations, the Company expects that the adoption of ASU
2016-02 will result in a significant increase to its long-term assets and liabilities on the consolidated balance sheet.
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 prospectively adopted ASU 2017-07 on February 4, 2018, as the Company deemed the impact of prior period reclassifications to be immaterial. The
impact on the three months ended October 28, 2017 would have resulted in a net increase of "Selling, general, and administrative expenses" and a decrease in "Operating income" on the Company's
condensed consolidated statements of operations by $52,000. The impact on the nine months ended October 28, 2017 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 $60,000.
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
6
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
3. Revenue Recognition (Continued)
impact
of adopting Topic 606. The cumulative effect adjustment related primarily to the Company's private label credit card loyalty program (the "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 are expected to be redeemed, with an offsetting adjustment to the opening balance of "Retained
deficit."
In
accordance with the new revenue standard requirements, the disclosure of the 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 condensed 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 November 3, 2018 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of November 3, 2018
|
|
|
|
Balances
Without
Adoption of
ASC 606
|
|
Effect of
Topic 606
Adoption
|
|
As Reported
|
|
|
|
(Amounts in thousands)
|
|
Accrued expenses
|
|
$
|
65,964
|
|
$
|
523
|
|
$
|
66,487
|
|
Retained deficit
|
|
$
|
(88,279
|
)
|
$
|
(523
|
)
|
$
|
(88,802
|
)
|
7
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
3. Revenue Recognition (Continued)
In
accordance with the new revenue standard requirements, the disclosure of the impact of adoption on the Company's condensed consolidated statements of operations during the three and
nine months ended November 3, 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 3, 2018
|
|
Nine months ended November 3, 2018
|
|
|
|
Balances
Without
Adoption of
ASC 606
|
|
Effect of
Topic 606
Adoption
|
|
As Reported
|
|
Balances
Without
Adoption of
ASC 606
|
|
Effect of
Topic 606
Adoption
|
|
As Reported
|
|
|
|
(Amounts in thousands)
|
|
Net sales
|
|
$
|
211,144
|
|
$
|
(386
|
)
|
$
|
210,758
|
|
$
|
646,383
|
|
$
|
(426
|
)
|
$
|
645,957
|
|
Cost of goods sold, buying and occupancy costs
|
|
$
|
142,355
|
|
$
|
28
|
|
$
|
142,383
|
|
$
|
438,150
|
|
$
|
97
|
|
$
|
438,247
|
|
Gross profit
|
|
$
|
68,789
|
|
$
|
(414
|
)
|
$
|
68,375
|
|
$
|
208,233
|
|
$
|
(523
|
)
|
$
|
207,710
|
|
Operating income
|
|
$
|
1,987
|
|
$
|
(414
|
)
|
$
|
1,573
|
|
$
|
8,628
|
|
$
|
(523
|
)
|
$
|
8,105
|
|
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.
Revenue Recognition Accounting Policies
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 store 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 over a two-year redemption period based on their
respective historical breakage rate. The Company considers the likelihood of redemption remote beyond a two-year redemption period, at which point any unrecognized breakage is recognized as revenue.
The Company
8
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
3. Revenue Recognition (Continued)
determined
the redemption period and the breakage rates for gift cards and merchandise credits based on their respective historical redemption patterns.
Under
the Company's Runway Rewards program, points earned expire within 12 months if the point threshold for a reward is not attained. Issued rewards expire within 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. 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 a $40 million signing bonus, which was recorded as deferred revenue, and is being amortized on a
straight-line basis over the 10-year term of the ADS agreement. In addition, 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.
Contract Liabilities
Deferred revenue related to the Company's gift cards and merchandise credits outstanding was $12.1 million and $13.6 million as of
November 3, 2018 and February 3, 2018, respectively, which is included in "Accrued expenses" on the Company's condensed consolidated balance sheets. During the nine months ended
November 3, 2018, the Company recognized approximately $5.1 million of revenue that was included in the deferred revenue liability for gift cards and merchandise credits at
February 3, 2018.
Deferred
revenue related to the Company's Runway Rewards program and other sales incentive programs, including the impact of Topic 606 adoption, was $7.8 million and
$7.3 million as of
November 3, 2018 and February 3, 2018, respectively. At November 3, 2018, the $7.8 million deferred revenue liability for loyalty programs is included in "Accrued expenses"
on the Company's condensed consolidated balance sheet. During the three and nine months ended November 3, 2018, the net impact of rewards earned, redeemed and expired under these programs was a
$0.3 million and $0.4 million deferral of revenue, respectively.
Deferred
revenue related to the ADS Agreement was $30.0 million at November 3, 2018, of which $26.0 million is included in "Other liabilities" and
$4.0 million is included in "Accrued expenses" on the condensed 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 condensed consolidated balance sheet. During the
three months ended November 3, 2018 and October 28, 2017, the Company recognized revenue of
9
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
3. Revenue Recognition (Continued)
$6.0 million
and $6.1 million, respectively, from royalties and the amortization of signing bonuses in connection with the ADS Agreement. During the nine months ended November 3,
2018 and October 28, 2017, the Company recognized revenue of $17.6 million and $17.7 million, respectively, from royalties and the amortization of signing bonuses in connection
with the ADS Agreement.
4. Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. Except when the effect would be
anti-dilutive, diluted earnings 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 per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
November 3, 2018
|
|
Three months
ended
October 28, 2017
|
|
Nine months
ended
November 3, 2018
|
|
Nine months
ended
October 28, 2017
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
Net income
|
|
$
|
1,725
|
|
$
|
352
|
|
$
|
7,878
|
|
$
|
928
|
|
Basic earnings per share
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
63,940
|
|
|
63,242
|
|
|
63,738
|
|
|
63,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.03
|
|
$
|
0.01
|
|
$
|
0.12
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
63,940
|
|
|
63,242
|
|
|
63,738
|
|
|
63,213
|
|
Plus impact of share-based awards
|
|
|
2,349
|
|
|
857
|
|
|
2,241
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
66,289
|
|
|
64,099
|
|
|
65,979
|
|
|
63,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.03
|
|
$
|
0.01
|
|
$
|
0.12
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
4. Earnings Per Share (Continued)
The calculation of diluted earnings per share for the three and nine months ended November 3, 2018 and October 28, 2017 excludes the share-based awards listed in the
following table due to their anti-dilutive effect as determined under the treasury stock method:
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|
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|
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Three months
ended
November 3, 2018
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|
Three months
ended
October 28, 2017
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|
Nine months
ended
November 3, 2018
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|
Nine months
ended
October 28, 2017
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|
|
|
(Amounts in thousands)
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|
Stock options
|
|
|
|
|
|
13
|
|
|
4
|
|
|
190
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|
Stock appreciation rights(1)
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|
|
846
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|
|
2,880
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|
|
339
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|
|
6,208
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Restricted stock and units
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|
|
313
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|
|
92
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|
|
113
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|
|
208
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total anti-dilutive shares
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|
|
1,159
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|
|
2,985
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|
|
456
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|
|
6,606
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|
|
|
|
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|
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|
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|
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-
(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 stock.
5. 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 November 3, 2018. The collective bargaining agreement with the Local 1102 unit of the
Retail, Wholesale and Department Store Union AFL-CIO is in effect through January 31, 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 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. Net periodic benefit cost includes the following components:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
November 3, 2018
|
|
Three months
ended
October 28, 2017
|
|
Nine months
ended
November 3, 2018
|
|
Nine months
ended
October 28, 2017
|
|
|
|
(Amounts in thousands)
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|
Service cost
|
|
$
|
97
|
|
$
|
84
|
|
$
|
290
|
|
$
|
252
|
|
Interest cost
|
|
|
76
|
|
|
72
|
|
|
229
|
|
|
244
|
|
Expected return on plan assets
|
|
|
(140
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)
|
|
(134
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)
|
|
(421
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)
|
|
(379
|
)
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Amortization of unrecognized losses
|
|
|
39
|
|
|
13
|
|
|
117
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|
|
206
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|
Amortization of prior service credit
|
|
|
(4
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)
|
|
(3
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)
|
|
(12
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)
|
|
(11
|
)
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|
|
|
|
|
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|
|
|
|
|
|
|
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Net periodic benefit cost
|
|
$
|
68
|
|
$
|
32
|
|
$
|
203
|
|
$
|
312
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|
|
|
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11
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
5. Pension Plan (Continued)
In
accordance with FASB ASC Topic 220, "Comprehensive Income," comprehensive income reported on the Company's condensed consolidated statements of comprehensive income includes net
income and other comprehensive income. For the Company, other comprehensive income consists of the reclassification of unrecognized losses and prior service credits related to the Company's minimum
pension liability. The total amount of unrecognized losses and prior service credits reclassified out of "Accumulated other comprehensive loss" on the condensed consolidated balance sheets and into
"Selling, general, and administrative expenses" on the Company's condensed consolidated statements of operations for the three months ended November 3, 2018 and October 28, 2017 was
approximately $35,000 and $10,000, respectively, and for the nine months ended November 3, 2018 and October 28, 2017 was approximately $105,000 and $195,000, respectively. As of
February 3, 2018, the Company reported a minimum pension liability of $1.2 million due to the underfunded status of the plan. The minimum pension liability is reported in "Other
liabilities" on the condensed consolidated balance sheets.
6. Income Taxes
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 2013.
At
February 3, 2018, the Company reported a total liability for unrecognized tax benefits of $2.0 million, including interest and penalties. There have been no material
changes during the nine months ended November 3, 2018. Of the total $2.0 million of unrecognized tax benefits at February 3, 2018, approximately $1.6 million, if
recognized, would impact the Company's effective tax rate. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next
12 months.
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 Topic 740, "Income Taxes," the
valuation allowance would be reversed accordingly in the period that such determination is made. As of November 3, 2018, the Company's valuation allowance against its deferred tax assets was
$55.1 million.
7. 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 expires on October 24, 2019.
12
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
7. Long-Term Debt and Credit Facilities (Continued)
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 an
$11.5 million outstanding balance of a $15 million, 5-year term loan under the Loan Agreement.
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 November 3, 2018, the Company had availability under its revolving credit facility of $59.9 million, net of letters of credit
outstanding of $13.0 million, as compared to availability of $38.1 million, net of letters of credit outstanding of $12.5 million, as of February 3, 2018, and availability
of $59.4 million, net of letters of credit outstanding of $14.7 million, as of October 28, 2017. The $13.0 million of letters of credit outstanding at November 3,
2018 includes $11.9 million of standby letters of credit primarily related to the Company's new 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.
13
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
November 3, 2018
(Unaudited)
7. Long-Term Debt and Credit Facilities (Continued)
As
of November 3, 2018, February 3, 2018, and October 28, 2017, the Company had $4.4 million, $5.8 million, and $6.2 million of capital lease
obligations outstanding, respectively. The Company's capital lease obligations are generally required to be repaid ratably over a five-year term beginning on the respective lease commencement date.
8. Fair Value Measurements
The Company measures fair value in accordance with FASB ASC Topic 820, "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 in prior periods. The carrying values on the
balance sheets 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. The carrying amount of
long-term debt on the balance sheets approximates its fair value due to the variable interest rate it carries.
The
Company classifies long-lived store assets within Level 3 of the fair value hierarchy. 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 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. During the nine months ended November 3, 2018, the Company recorded
$0.5 million of non-cash impairment charges related to underperforming store assets in "Selling, general and administrative expenses" on the Company's condensed consolidated statement of
operations. There were no asset impairment charges recorded during the three months ended November 3, 2018. During the three and nine months ended October 28, 2017, the Company recorded
$0.1 million and $0.6 million, respectively, of non-cash impairment charges related to underperforming store assets in "Selling, general and administrative expenses" on the Company's
condensed consolidated statement of operations.
14
Table of Contents