The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 2020
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Destination XL Group, Inc. (collectively with its subsidiaries referred to as the “Company”) is the largest specialty retailer in the United States of big & tall men’s clothing and shoes. The Company operates under the trade names of Destination XL®, DXL®, DXL Men’s Apparel, DXL Outlets®, Casual Male XL® and Casual Male XL Outlets. At February 1, 2020, the Company operated 228 DXL stores, 50 Casual Male XL, 28 Casual Male XL outlets and 17 DXL outlets located throughout the United States, including two stores in Canada and an e-commerce site at www.dxl.com. In fiscal 2018, the Company launched a wholesale segment focused on product development and distribution relationships with key retailers.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts, transactions and profits are eliminated.
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from estimates.
Subsequent Events
All appropriate subsequent event disclosures, if any, have been made in these Notes to the Consolidated Financial Statements.
Segment Reporting
The Company has historically had two principal operating segments: its stores and direct businesses. The Company considers these two operating segments to be similar in terms of economic characteristics, production processes and operations, and has therefore aggregated them into one reportable segment, retail segment, consistent with its omni-channel business approach. In fiscal 2018, the Company launched a wholesale segment, which the Company considers a third operating segment. However, due to the immateriality of the wholesale segment’s revenues, profits and assets its operating results are aggregated with the retail segment for all periods.
Reclassification
In fiscal 2018, the Company reported its total costs associated with its Corporate restructuring and CEO transition costs of $4.3 million, on a combined basis on the Consolidated Statement of Operations. For comparability with fiscal 2019 presentation, Corporate restructuring and CEO transition costs for fiscal 2018 have been reported separately on the Consolidated Statement of Operations.
Fiscal Year
The Company’s fiscal year is a 52-week or 53-week period ending on the Saturday closest to January 31. Fiscal 2019 and Fiscal 2018 were 52-week periods, which ended on February 1, 2020 and February 2, 2019, respectively. Fiscal 2017 was a 53-week period, which ended on February 3, 2018.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term investments, which have a maturity of ninety days or less when acquired. Included in cash equivalents are credit card and debit card receivables from banks, which generally settle within two to four business days.
45
Accounts Receivable
Accounts receivable primarily includes amounts due for rebates from certain vendors and amounts due from wholesale customers. For fiscal 2019, fiscal 2018 and fiscal 2017, the Company did not incur any losses on its accounts receivable.
Fair Value of Financial Instruments
ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.
The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.
The fair value of long-term debt is classified with Level 2 of the valuation hierarchy. At February 1, 2020, long-term debt approximated the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities. See Note D, “Debt Obligations,” for more discussion.
The fair value of the “dxl.com” domain name, an indefinite-lived intangible asset, is measured on a non-recurring basis in connection with the Company’s annual impairment test and is classified within Level 3 of the valuation hierarchy. At February 1, 2020, the fair value of the Company’s “dxl.com” domain name was determined to approximate carrying value. See Intangibles below.
Stores that have indicators of impairment and fail the recoverability test (based on undiscounted cash flows) are measured for impairment by comparing the fair value of the assets against their carrying value. Fair value of the assets is estimated using a projected discounted cash flow analysis and is classified within Level 3 of the valuation hierarchy. See Impairment of Long-Lived Assets below.
Inventories
All inventories are valued at the lower of cost or market, using a weighted-average cost method.
Property and Equipment
Property and equipment are stated at cost. Major additions and improvements are capitalized while repairs and maintenance are charged to expense as incurred. Upon retirement or other disposition, the cost and related accumulated depreciation of the assets are removed from the accounts and the resulting gain or loss, if any, is reflected in the results of operations. Depreciation is computed on the straight-line method over the assets’ estimated useful lives as follows:
Furniture and fixtures
|
|
Five to ten years
|
Equipment
|
|
Five to ten years
|
Leasehold improvements
|
|
Lesser of useful lives or related lease term
|
Hardware and software
|
|
Three to seven years
|
46
Intangibles
Domain Name
In fiscal 2018, the Company purchased the rights to the domain “dxl.com”, at a purchase price of $1.0 million, plus transaction costs of $150,000. The Company determined that this domain has an indefinite useful life and, therefore, is not being amortized. At each reporting period, management analyzes current events and circumstances to determine whether the indefinite life classification continues to be valid. In the fourth quarter of fiscal 2019, the domain name was tested for potential impairment and the Company concluded that the domain name was not impaired.
Trademarks and Customer Lists
The Company’s “Casual Male” trademark and customer lists were classified as finite-lived assets and were fully amortized at the end of fiscal 2018. Amortization expense for fiscal 2018 and fiscal 2017 was $0.3 million and $0.4 million, respectively.
In the fourth quarter of fiscal 2018, the Company decided to close its five Rochester Clothing stores in fiscal 2019 and, as a result, determined that its “Rochester” trademark was impaired because the projected future cash flows were insufficient to support the carrying value of the “Rochester” trademark. As a result, the Company recorded an impairment charge of $1.5 million in the fourth quarter of fiscal 2018 to fully write-off the “Rochester” trademark.
Pre-opening Costs
The Company expenses all pre-opening costs for its stores as incurred.
Advertising Costs
The Company expenses in-store advertising costs as incurred. Television advertising costs are expensed in the period in which the advertising is first aired. Direct response advertising costs, if any, are deferred and amortized over the period of expected direct marketing revenues, which is less than one year. There were no deferred direct response costs at February 1, 2020 and February 2, 2019. Advertising expense, which is included in selling, general and administrative expenses, was $22.9 million, $24.4 million and $29.5 million for fiscal 2019, 2018 and 2017, respectively.
Revenue Recognition
The Company’s accounting policies with respect to revenue recognition are discussed in Note B, “Revenue Recognition.”
Foreign Currency Translation
At February 1, 2020, the Company had two stores located in Toronto, Canada. Assets and liabilities for these stores are translated into U.S. dollars at the exchange rates in effect at each balance sheet date. Stockholders’ equity is translated at applicable historical exchange rates. Income, expense and cash flow items are translated at average exchange rates during the period. Resulting translation adjustments are reported as a separate component of stockholders’ equity.
During the third quarter of fiscal 2019, the Company closed its Rochester Clothing store in London, England. In connection with exiting its operations in England, the Company recognized the associated accumulated foreign currency translation adjustment of $0.8 million as an expense in fiscal 2019. See “Accumulated Other Comprehensive Income (Loss) – (“AOCI”)” below.
47
Accumulated Other Comprehensive Income (Loss) – (“AOCI”)
Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income (loss) and reclassifications from AOCI for fiscal 2019, fiscal 2018 and fiscal 2017 are as follows:
|
Fiscal 2019
|
|
|
Fiscal 2018
|
|
|
Fiscal 2017
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Plans
|
|
|
Foreign
Currency
|
|
|
Total
|
|
|
Pension
Plans
|
|
|
Foreign
Currency
|
|
|
Total
|
|
|
Pension
Plans
|
|
|
Foreign
Currency
|
|
|
Total
|
|
Balance at beginning of fiscal year
|
$
|
(5,521
|
)
|
|
$
|
(662
|
)
|
|
$
|
(6,183
|
)
|
|
$
|
(5,840
|
)
|
|
$
|
(403
|
)
|
|
$
|
(6,243
|
)
|
|
$
|
(5,237
|
)
|
|
$
|
(781
|
)
|
|
$
|
(6,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
before reclassifications, net of taxes
|
|
(1,597
|
)
|
|
|
(83
|
)
|
|
|
(1,680
|
)
|
|
|
(746
|
)
|
|
|
(264
|
)
|
|
|
(1,010
|
)
|
|
|
820
|
|
|
|
393
|
|
|
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of accumulated foreign currency translation adjustment (1)
|
|
|
|
|
|
792
|
|
|
|
792
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated
other comprehensive income (loss),
net of taxes (2)
|
|
640
|
|
|
|
—
|
|
|
|
640
|
|
|
|
352
|
|
|
|
—
|
|
|
|
352
|
|
|
|
670
|
|
|
|
—
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
(loss) for the period
|
|
(957
|
)
|
|
|
709
|
|
|
|
(248
|
)
|
|
|
(394
|
)
|
|
|
(264
|
)
|
|
|
(658
|
)
|
|
|
1,490
|
|
|
|
393
|
|
|
|
1,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurement and reclassification of stranded tax effect (3)
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
713
|
|
|
|
5
|
|
|
|
718
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to reclassify intraperiod tax allocation to accumulated deficit (Note F)
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,093
|
)
|
|
|
(15
|
)
|
|
|
(2,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year
|
$
|
(6,478
|
)
|
|
$
|
47
|
|
|
$
|
(6,431
|
)
|
|
$
|
(5,521
|
)
|
|
$
|
(662
|
)
|
|
$
|
(6,183
|
)
|
|
$
|
(5,840
|
)
|
|
$
|
(403
|
)
|
|
$
|
(6,243
|
)
|
(1)
|
In connection with the Company’s closing of its Rochester Clothing store in London, England and exiting its London operations, the Company recognized the accumulated foreign currency translation adjustment as an expense and it has been included in “Exit costs associated with London operations” on the Consolidated Statement of Operations for fiscal 2019.
|
(2)
|
Includes the amortization of the unrecognized (gain)/loss on pension plans, which was charged to “Selling, General and Administrative” expense on the Consolidated Statements of Operations for all periods presented. The amortization of the unrecognized loss, before tax, was $640,000, $352,000 and $670,000 for fiscal 2019, fiscal 2018 and fiscal 2017, respectively. There was no corresponding tax benefit.
|
(3)
|
Represents the reclassification to retained earnings of the tax benefit associated with comprehensive income earned, adjusted for the effects of ASU 2018-02 which allowed for the reclassification to retained earnings of stranded tax effect as a result of the 2017 Tax Act.
|
Income Taxes
Deferred income taxes are provided to recognize the effect of temporary differences between tax and financial statement reporting. Such taxes are provided for using enacted tax rates expected to be in place when such temporary differences are realized. A valuation allowance is recorded to reduce deferred tax assets if it is determined that it is more likely than not that the full deferred tax asset would not be realized. If it is subsequently determined that a deferred tax asset will more likely than not be realized, a credit to earnings is recorded to reduce the allowance.
ASC Topic 740, Income Taxes (“ASC 740”) clarifies a company’s accounting for uncertain income tax positions that are recognized in its financial statements and also provides guidance on a company’s de-recognition of uncertain positions, financial statement classification, accounting for interest and penalties, accounting for interim periods, and disclosure requirements. In accordance with ASC 740, the Company will recognize the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense in its Consolidated Statement of Operations. The Company has not accrued or paid interest or penalties in amounts that were material to its results of operations for fiscal 2019, fiscal 2018 and fiscal 2017.
48
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through fiscal 2001, with remaining fiscal years subject to income tax examination by federal tax authorities.
Net Loss Per Share
Basic earnings per share are computed by dividing net loss by the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share is determined by giving effect to unvested shares of restricted stock and the exercise of stock options using the treasury stock method. The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:
|
|
FISCAL YEARS ENDED
|
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
February 3, 2018
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
outstanding
|
|
|
49,992
|
|
|
|
49,163
|
|
|
|
48,888
|
|
Common stock equivalents – stock options,
restricted stock and restricted stock units (RSUs) (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Diluted weighted average common shares
outstanding
|
|
|
49,992
|
|
|
|
49,163
|
|
|
|
48,888
|
|
|
(1)
|
Common stock equivalents, in thousands, of 408 shares, 497 shares and 134 shares for February 1, 2020, February 2, 2019 and February 3, 2018, respectively, were excluded due to the net loss.
|
The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each year because the exercise price of such options was greater than the average market price per share of common stock for the respective periods or because the unearned compensation associated with either stock options, RSUs, restricted or deferred stock had an anti-dilutive effect.
|
|
FISCAL YEARS ENDED
|
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
February 3, 2018
|
|
(in thousands, except exercise prices)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options (time-vested)
|
|
|
755
|
|
|
|
942
|
|
|
|
1,196
|
|
RSUs (time-vested)
|
|
|
560
|
|
|
|
754
|
|
|
|
732
|
|
Restricted and deferred stock
|
|
|
114
|
|
|
|
75
|
|
|
|
63
|
|
Range of exercise prices of such options
|
|
$1.85 - $7.02
|
|
|
$2.25 - $7.02
|
|
|
$1.85-$7.52
|
|
Excluded from the computation of basic and diluted earnings per share for fiscal 2019 were 720,000 shares of unvested performance stock units. These performance-based awards will be included in the computation of basic and diluted earnings per share if, and when, the respective performance targets are achieved. In addition, 295,604 shares and 204,040 shares of deferred stock for fiscal 2019 and fiscal 2018, respectively, were excluded from basic earnings per share and 30,000 shares of unvested time-based restricted shares in fiscal 2018. Unvested shares of deferred stock and unvested restricted shares are excluded until such shares vest.
Shares of unvested restricted stock are not considered outstanding for basic earnings per share purposes until vested, but are considered issued and outstanding. A share of unvested restricted stock has all of the rights of a holder of the Company’s common stock, including, but not limited to, the right to vote and the right to receive dividends, which rights are forfeited if the restricted stock is forfeited. Outstanding shares of deferred stock are not considered issued and outstanding until the vesting date of the deferral period.
Stock-based Compensation
ASC Topic 718, Compensation – Stock Compensation, requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the vesting
49
period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment. Actual results, and future changes in estimates, may differ from the Company’s current estimates.
The Company recognized total stock-based compensation expense, with no tax effect, of $1.9 million, $2.0 million and $1.6 million for fiscal 2019, fiscal 2018 and fiscal 2017, respectively.
The total stock-based compensation cost related to time-vested awards not yet recognized as of February 1, 2020 was approximately $2.6 million and will be expensed over a weighted average remaining life of approximately 29 months.
The total grant-date fair value of awards vested was $3.0 million, $2.0 million and $1.8 million for fiscal 2019, 2018 and 2017, respectively.
Any excess tax benefits resulting from the exercise of stock options or the release of restricted shares are recognized as a component of income tax expense.
Valuation Assumptions for Stock Options
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 2018 and 2017 set forth below. There were no grants of stock options in fiscal 2019.
Fiscal years ended:
|
|
February 2, 2019
|
|
|
February 3, 2018
|
|
Expected volatility
|
|
48.9% - 57.1%
|
|
|
49.9%
|
|
Risk-free interest rate
|
|
2.55% -2.63%
|
|
|
1.44%
|
|
Expected life (in years)
|
|
3.0 - 4.5
|
|
|
3.0
|
|
Dividend rate
|
|
|
—
|
|
|
|
—
|
|
Weighted average fair value of options granted
|
|
$
|
1.06
|
|
|
$
|
0.65
|
|
Expected volatilities are based on historical volatilities of the Company’s common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds. The Company recorded impairment charges of $0.9 million, $4.6 million and $4.1 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively.
Impairment charges primarily relate to the write-down of property and equipment for stores where the carrying value exceeded fair value. However, the impairment charge for fiscal 2019 also included approximately $0.7 million for the write-down of certain right-of-use assets, fiscal 2018 included the write-off of its “Rochester” trademark of $1.5 million and the impairment charge for fiscal 2017 included the write-off of approximately $1.9 million associated with technology projects that were abandoned.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU is a comprehensive new standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It requires lessees to recognize lease assets and lease liabilities for most leases, including those leases previously classified as operating leases under GAAP. The ASU retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. ASU 2016-02 requires a modified retrospective transition for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842): Targeted Improvements” that allows entities to recognize a
50
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption.
The Company adopted ASU 2016-02 on February 3, 2019 on a modified retrospective basis and applied the new standard to all leases through a cumulative-effect adjustment to beginning accumulated deficit. As a result, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for the respective periods.
On February 3, 2019, the Company recognized leases, primarily related to its stores and corporate headquarters, on its Consolidated Balance Sheet, as right-of use assets of $214.1 million with corresponding lease liabilities of $254.5 million and eliminated certain existing lease-related asset and liabilities as a net adjustment to the right-of-use assets. In connection with this adoption, the Company recorded a transition adjustment, which was a net credit of $5.3 million to opening accumulated deficit. This adjustment reflected the net of (i) the recognition of the Company’s deferred gain from a sale-leaseback of $10.3 million, (ii) the write-off of initial direct costs of $1.2 million and (iii) the recognition of impairments, upon adoption, on certain right-of-use assets totaling $3.8 million. The new standard had a material impact on the Consolidated Balance Sheet as a result of the recognition of the right-of-use assets, the corresponding lease obligations and the net credit to accumulated deficit of $5.3 million. Because the Company recognized the outstanding deferred gain from a sale-leaseback of $10.3 million, with the adoption of the new standard, results of operations will not have the future benefit of approximately $1.5 million, which was the annual amortization being recognized over the initial 20-year term of the sale-leaseback of the Company’s corporate office. The adoption of the new standard had no material impact on Consolidated Statement of Cash Flows.
The following is a discussion of the Company’s lease policy under the new lease accounting standard:
The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs and any lease incentives are included in the value of those right-of use assets. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, based on information available at the lease measurement date to determine the present value of future payments.
The Company’s store leases typically contain options that permit renewals for additional periods of up to five years each. In general, for store leases with an initial term of 10 years or more, the options to extend are not considered reasonably certain at lease commencement. For stores leases with an initial term of 5 years, the Company evaluates each lease independently and, only when the Company considers it reasonably certain that it will exercise an option to extend, will the associated payment of that option be included in the measurement of the right-of-use asset and lease liability. Renewal options are not included in the lease term for automobile and equipment leases because they are not considered reasonably certain of being exercised at lease commencement. Renewal options were not considered for the Company’s corporate headquarters and distribution center lease, which was entered into in 2006 and was for an initial 20-year term. At the end of the initial term, the Company will have the opportunity to extend this lease for six additional successive periods of five years. The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate. The Company also made an accounting policy election that the recognition requirement of ASC 842 will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term.
For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, and are expensed as incurred as variable lease costs. Other store leases contain one periodic fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities. Tenant allowances are included as an offset to the right-of-use asset and amortized as reductions to rent expense over the associated lease term.
See Note E ‘‘Leases’’ for additional information.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.” This guidance amends several aspects of the measurement of credit losses on financial instruments, including trade receivables. Topic 326 replaces the existing incurred credit loss model with an impairment model (known as the current expected credit loss ("CECL") model), which is based on expected losses rather than incurred losses. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will adopt ASU 2016-13 in the first quarter of fiscal 2020 and it is not expected to have a material effect on the Company’s Consolidated Financial Statements.
51
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance modifies the disclosure requirements on fair value measurements in Topic 820 by removing disclosures regarding transfers between Level 1 and Level 2 of the fair value hierarchy, by modifying the measurement uncertainty disclosure, and by requiring additional disclosures for Level 3 fair value measurements, among others. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will adopt ASU 2018-13 in the first quarter of fiscal 2020 and it is not expected to have a material effect on the Company’s Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, while also clarifying and amending existing guidance, including interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is considering early adoption of ASU No. 2019-12 and it is not expected to have a material effect on the Company’s Consolidated Financial Statements.
No other new accounting pronouncements, issued or effective during fiscal 2019, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.
B. REVENUE RECOGNITION
On February 4, 2018, the Company adopted Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective approach for all contracts not completed as of the date of adoption. Results for the reporting periods beginning on February 4, 2018 are presented under ASC 606, while prior period amounts continue to be reported in accordance with ASC 605, Revenue Recognition. There was no material impact to the Company’s Consolidated Financial Statements as a result of adopting ASC 606.
The Company operates as a retailer of big and tall men’s clothing, which includes stores, direct and wholesale. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. Direct sales are defined as sales that originate online, including those initiated online at the store level, on its website or on third-party marketplaces. Wholesale sales are defined as sales made to wholesale customers pursuant to the terms of each customer’s contract with the Company. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included as part of accrued expenses on the Consolidated Balance Sheets.
|
-
|
Revenue from the Company’s store operations is recorded upon purchase of merchandise by customers, net of an allowance for sales returns, which is estimated based upon historical experience.
|
|
-
|
Revenue from the Company’s direct operations is recognized at the time a customer order is delivered, net of an allowance for sales returns, which is estimated based upon historical experience.
|
|
-
|
Revenue from the Company’s wholesale operations is recognized at the time the wholesale customer takes physical receipt of the merchandise, net of any identified discounts in accordance with each individual order. An allowance for chargebacks will be established once the Company has sufficient historical experience. For the fiscal 2019 and fiscal 2018, chargebacks were immaterial.
|
Unredeemed Loyalty Coupons. The Company offers a free loyalty program to its customers for which points accumulate based on the purchase of merchandise. Over 90% of the Company’s customers participate in the loyalty program. Under ASC 606, these loyalty points provide the customer with a material right and a distinct performance obligation with revenue deferred and recognized when the points are redeemed or expired. The cycle of earning and redeeming loyalty points is generally under one year in duration. The loyalty accrual, net of breakage, was $1.0 million and $1.0 million at February 1, 2020 and February 2, 2019, respectively.
Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers. Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates, and credit vouchers for which redemption is remote, which is referred to as "breakage". Breakage is recognized over two years in proportion to historical redemption trends and is recorded as sales in the Consolidated Statements of Operations. The gift card liability, net of breakage, was $2.7 million and $2.4 million at February 1, 2020 and February 2, 2019, respectively.
Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold including occupancy costs, in the Consolidated Statements of Operations.
52
Disaggregation of Revenue
As noted above under Segment Information in Note A, the Company’s business at February 1, 2020 consists of one reportable segment, its retail segment. Substantially all of the Company’s revenue is generated from its stores and direct businesses. The operating results from the wholesale segment have been aggregated with this reportable segment for all periods, but the revenues are separately reported below. Accordingly, the Company has determined that the following sales channels depict the nature, amount, timing, and uncertainty of how revenue and cash flows are affected by economic factors for each of the following fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
February 1, 2020
|
|
|
|
|
February 2, 2019
|
|
|
|
|
February 3, 2018
|
|
|
|
|
Store sales
|
|
$
|
354,929
|
|
76.9%
|
|
$
|
369,200
|
|
78.4%
|
|
$
|
369,422
|
|
79.0%
|
|
Direct sales
|
|
|
106,585
|
|
23.1%
|
|
|
101,714
|
|
21.6%
|
|
|
98,069
|
|
21.0%
|
|
Retail segment
|
|
|
461,514
|
|
100.0%
|
|
|
470,914
|
|
100.0%
|
|
|
467,491
|
|
100.0%
|
|
Wholesale segment
|
|
|
12,524
|
|
|
|
|
|
2,842
|
|
|
|
|
|
485
|
|
|
|
|
Total sales
|
|
$
|
474,038
|
|
|
|
|
$
|
473,756
|
|
|
|
|
$
|
467,976
|
|
|
|
|
C. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at the dates indicated:
(in thousands)
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Furniture and fixtures
|
|
$
|
77,197
|
|
|
$
|
76,809
|
|
Equipment
|
|
|
23,102
|
|
|
|
22,141
|
|
Leasehold improvements
|
|
|
117,694
|
|
|
|
119,314
|
|
Hardware and software
|
|
|
94,489
|
|
|
|
89,688
|
|
Construction in progress
|
|
|
5,525
|
|
|
|
6,078
|
|
|
|
|
318,007
|
|
|
|
314,030
|
|
Less: accumulated depreciation
|
|
|
239,728
|
|
|
|
221,505
|
|
Total property and equipment
|
|
$
|
78,279
|
|
|
$
|
92,525
|
|
Depreciation expense for fiscal 2019, 2018 and 2017 was $24.6 million, $28.4 million and $30.7 million, respectively.
D. DEBT OBLIGATIONS
Credit Agreement with Bank of America, N.A.
On May 24, 2018, the Company entered into the Seventh Amended and Restated Credit Agreement with Bank of America, N.A., as agent, providing for a secured $140.0 million credit facility. On May 31, 2019, the Credit Facility was amended to expand the definition of its borrowing base to include certain receivables, as defined in the First Amendment. On September 5, 2019, the Company entered into the Second Amendment to the Credit Facility (the “Second Amendment”). The Second Amendment was requested by the Company to improve its excess availability over the next two years and impacts only the $15.0 million “first-in, last out” (FILO) term facility (the “FILO loan”), which is discussed below under long-term debt. The Second Amendment also waived a technical occurrence of an event of default under the credit facility arising from the Company’s disposition of certain immaterial trademark registrations (as amended, the “Credit Facility”).
The Credit Facility provides maximum committed borrowings of $125.0 million in revolver loans, with the ability, pursuant to an accordion feature, to increase the Credit Facility by an additional $50.0 million upon the request of the Company and the agreement of the lender(s) participating in the increase (the “Revolving Facility”). The Revolving Facility provides for a sublimit of $20.0 million for commercial and standby letter of credits and up to $15.0 million for swingline loans.
The Company’s ability to borrow under the Revolving Facility (the “Loan Cap”) is determined using an availability formula based on eligible assets. Pursuant to the Second Amendment, the Credit Facility requires the Company to maintain a minimum consolidated fixed charge coverage ratio of 1.0:1.0 if its excess availability under the Credit Facility fails to be equal to or greater than the greater of 12.5 % of the Loan Cap and $7.5 million. After May 24, 2021 and through the maturity date, the percentage of the Loan Cap of 12.5% will be reduced to 10%. The maturity date of the Credit Facility is May 24, 2023. The Company’s obligations under the Credit Facility are secured by a lien on substantially all of its assets.
53
Borrowings made pursuant to the Revolving Facility bear interest, calculated under either the Federal Funds rate or the LIBOR rate, at a rate equal to the following: (a) the Federal Funds rate plus a varying percentage based on the Company’s excess availability, of either 0.25% or 0.50%, or (b) the LIBOR rate (the Company being able to select interest periods of 1 week, 1 month, 2 months, 3 months or 6 months) plus a varying percentage based on the Company’s excess availability, of either 1.25% or 1.50 %. The Company is also subject to an unused line fee of 0.25%.
At February 1, 2020, the Company had outstanding borrowings under the Revolving Facility of $39.6 million, before unamortized debt issuance costs of $0.3 million. Outstanding standby letters of credit were $2.8 million and outstanding documentary letters of credit were $1.4 million. Unused excess availability at February 1, 2020 was $48.5 million. Average monthly borrowings outstanding under the Revolving Facility during fiscal 2019 were $57.5 million, resulting in an average unused excess availability of approximately $41.0 million.
At February 1, 2020, the Company’s prime-based interest rate was 5.00%. At February 1, 2020, the Company had approximately $33.0 million of its outstanding borrowings in LIBOR-based contracts with an interest rate of 2.81%. The LIBOR-based contracts expired on February 3, 2020. When a LIBOR-based borrowing expires, the borrowings revert back to prime-based borrowings unless the Company enters into a new LIBOR-based borrowing arrangement.
The fair value of the amount outstanding under the Revolving Facility at February 1, 2020 approximated the carrying value.
Long-Term Debt
Components of long-term debt are as follows:
(in thousands)
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
FILO loan
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
Less: unamortized debt issuance costs
|
|
|
(187
|
)
|
|
|
(243
|
)
|
Total long-term debt
|
|
|
14,813
|
|
|
|
14,757
|
|
Less: current portion of long-term debt
|
|
|
—
|
|
|
|
—
|
|
Long-term debt, net of current portion
|
|
$
|
14,813
|
|
|
$
|
14,757
|
|
FILO Loan
The total borrowing capacity under the FILO loan is based on a borrowing base, generally defined as a specified percentage of the value of eligible accounts, including certain trade names, that step down over time, plus a specified percentage of the value of eligible inventory that steps down over time. The Second Amendment to the Credit Facility extended these advance rates by approximately a year before they begin to step down. As of May 24, 2019, the FILO loan can be repaid, in whole or in part, subject to certain payment conditions. The term loan expires on May 24, 2023, if not repaid in full prior to that date.
As a result of extending the advance rates under the FILO loan, the applicable margin rates for borrowings are increased by approximately 50 basis points temporarily through May 24, 2021, at which time the margin rates will revert back to the original terms. Accordingly, borrowings made under the FILO loan will bear interest, calculated under either the Federal Funds rate or the LIBOR rate, at a rate equal to the following: (a) the Federal Funds rate plus a carrying percentage based on the Company’s excess availability, of either 2.25% or 2.50% until May 24, 2021 or 1.75% or 2.00% after May 24, 2021 or (b) the LIBOR rate (the Company being able to select interest periods of 1 week, 1 month, 2 months, 3 months or 6 months) plus a varying percentage based on the Company’s excess availability of either 3.25% or 3.50% until May 24, 2021, or 2.75% or 3.00% after May 24, 2021. At February 1, 2020, the outstanding balance of $15.0 million was in a 1-month LIBOR-based contract with an interest rate of 4.92%. The LIBOR-based contract expired on February 17, 2020. When a LIBOR-based contract expires, the Company can enter into a new LIBOR-based borrowing arrangement.
The Company paid interest and fees totaling $3.3 million, $3.0 million and $3.2 million for fiscal 2019, 2018 and 2017, respectively.
E. LEASES
The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under operating leases. The store leases typically have initial terms of 5 years to 10 years, with options that usually permit renewal for additional five-year periods. The initial term of the lease for the corporate headquarters was for 20 years, with the opportunity to extend for six additional successive periods of five years, beginning in fiscal 2026. The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years. The Company is generally obligated for the cost of
54
property taxes, insurance and common area maintenance fees relating to its leases, which are considered variable lease costs and are expensed as incurred.
Lease costs related to store locations are included in cost of goods sold including occupancy costs on the Consolidated Statement of Operations and expenses and lease costs related to the corporate headquarters, automobile and equipment leases are included in selling, general and administrative expenses on the Consolidated Statement of Operations.
The following table is a summary of the Company’s components of lease cost for fiscal 2019:
|
|
|
Fiscal 2019
|
|
(in thousands)
|
|
|
|
|
|
Operating lease cost
|
|
|
$
|
53,051
|
|
Short-term lease costs (1)
|
|
|
|
—
|
|
Variable lease costs(2)
|
|
|
|
16,248
|
|
Total lease costs
|
|
|
$
|
69,299
|
|
|
(1)
|
For fiscal 2019, the Company had no short-term lease costs.
|
|
(2)
|
Variable lease costs include the cost of property taxes, insurance and common area maintenance fees related to its leases.
|
Supplemental cash flow information related to leases for fiscal 2019 is as follows:
(in thousands)
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
58,046
|
|
Non-cash operating activities:
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease liabilities
|
|
$
|
5,401
|
|
Supplemental balance sheet information related to leases as of February 1, 2020 is as follows:
Operating leases:
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
5.4 yrs.
|
|
Weighted average discount rate
|
|
|
|
7.10
|
%
|
The table below reconciles the undiscounted cash flows for each of the next five years and total of the remaining years to the operating lease liabilities recorded on the Consolidated Balance Sheet as of February 1, 2020:
(in thousands)
|
|
|
|
|
2020
|
|
$
|
55,360
|
|
2021
|
|
|
54,385
|
|
2022
|
|
|
49,154
|
|
2023
|
|
|
41,069
|
|
2024
|
|
|
30,788
|
|
Thereafter
|
|
|
38,274
|
|
Total minimum lease payments
|
|
$
|
269,030
|
|
Less: amount of lease payments representing interest
|
|
|
45,803
|
|
Present value of future minimum lease payments
|
|
$
|
223,227
|
|
Less: current obligations under leases
|
|
|
41,176
|
|
Noncurrent lease obligations
|
|
$
|
182,051
|
|
As previously disclosed in the Company's Consolidated Financial Statements for the year ending February 2, 2019, future minimum lease payments for noncancelable operating leases, under the previous lease accounting standard, were as follows at February 2, 2019:
55
(in thousands)
|
|
|
|
|
2019
|
|
$
|
57,364
|
|
2020
|
|
|
52,699
|
|
2021
|
|
|
50,380
|
|
2022
|
|
|
45,061
|
|
2023
|
|
|
36,605
|
|
Thereafter
|
|
|
56,638
|
|
Total minimum lease payments
|
|
$
|
298,747
|
|
F. INCOME TAXES
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under ASC Topic 740, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The accounting regulation requires current recognition of net deferred tax assets to the extent it is more likely than not such net assets will be realized. To the extent that the Company believes its net deferred tax assets will not be realized, a valuation allowance must be recorded against those assets.
At the end of fiscal 2013, the Company entered a three-year cumulative loss and based on all positive and negative evidence at February 1, 2014, the Company established a full valuation allowance against its net deferred tax assets. While the Company has projected it will return to profitability, generate taxable income and ultimately emerge from a three-year cumulative loss, based on operating results for fiscal 2019 and the Company’s forecast for fiscal 2020, the Company believes that a full allowance remains appropriate at this time. Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income in the near term.
As of February 1, 2020, for federal income tax purposes, the Company has net operating loss carryforwards of $141.5 million, which will expire from fiscal 2022 through fiscal 2036 and net operating loss carryforwards of $24.3 million that are not subject to expiration. For state income tax purposes, the Company has $93.5 million of net operating losses that are available to offset future taxable income, the majority of which will expire from fiscal 2020 through fiscal 2039. Additionally, the Company has $3.1 million of net operating loss carryforwards related to the Company’s operations in Canada, which will expire from fiscal 2025 through fiscal 2039.
The utilization of net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and tax credit carryforwards, which may be used in future years.
In fiscal 2017, as part of the 2017 Tax Act, the corporate alternative minimum tax (“AMT”) was repealed and the Company’s AMT credit of $2.1 million, net of the applicable sequestration rate, became refundable. Accordingly, in fiscal 2017, the Company reversed its valuation allowance against the AMT credit, recognized an income tax benefit for $2.1 million and established a receivable of $2.1 million, which will be realized over the next four fiscal years. Late in fiscal 2018, the IRS issued an announcement that federal sequestration rules would not apply to certain AMT refunds, accordingly, the Company recognized an additional income tax benefit of $0.2 million in fiscal 2018. At February 1, 2020, the balance of the AMT receivable is $1.1 million.
In fiscal 2017, the Company reclassified approximately $2.1 million to accumulated deficit from accumulated other comprehensive income (loss) due to intraperiod tax allocations. Approximately $1.4 million of this pertained to years prior to fiscal 2017.
56
The components of the net deferred tax assets as of February 1, 2020 and February 2, 2019 were as follows (in thousands):
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Deferred tax assets, net:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
40,921
|
|
|
$
|
39,804
|
|
Gain on sale-leaseback
|
|
|
—
|
|
|
|
2,657
|
|
Accrued expenses and other
|
|
|
1,630
|
|
|
|
2,813
|
|
Operating lease liabilities
|
|
|
57,419
|
|
|
|
1,598
|
|
Goodwill and intangibles
|
|
|
236
|
|
|
|
510
|
|
Unrecognized loss on pension and pension expense
|
|
|
2,156
|
|
|
|
1,897
|
|
Inventory reserves
|
|
|
960
|
|
|
|
1,414
|
|
Foreign tax credit carryforward
|
|
|
486
|
|
|
|
766
|
|
Federal wage tax credit carryforward
|
|
|
824
|
|
|
|
824
|
|
Unrecognized loss on foreign exchange
|
|
|
—
|
|
|
|
186
|
|
State tax credits
|
|
|
147
|
|
|
|
147
|
|
Operating lease right-of-use assets
|
|
|
(48,018
|
)
|
|
|
—
|
|
Property and equipment
|
|
|
(9,205
|
)
|
|
|
(4,073
|
)
|
Subtotal
|
|
$
|
47,556
|
|
|
$
|
48,543
|
|
Valuation allowance
|
|
|
(47,556
|
)
|
|
|
(48,543
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
For fiscal 2019, the Company had total deferred tax assets of $104.8 million, total deferred tax liabilities of $57.2 million and a valuation allowance of $47.6 million.
The provision (benefit) for income taxes consisted of the following:
|
|
FISCAL YEARS ENDED
|
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
February 3, 2018
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
(151
|
)
|
|
$
|
—
|
|
State
|
|
|
97
|
|
|
|
93
|
|
|
$
|
(109
|
)
|
Foreign
|
|
|
8
|
|
|
|
8
|
|
|
|
(100
|
)
|
|
|
|
105
|
|
|
|
(50
|
)
|
|
|
(209
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,339
|
)
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
(24
|
)
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,363
|
)
|
Total provision (benefit)
|
|
$
|
105
|
|
|
$
|
(50
|
)
|
|
$
|
(2,572
|
)
|
57
The following is a reconciliation between the statutory and effective income tax rates in dollars for the provision (benefit) for income tax:
|
|
FISCAL YEARS ENDED
|
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
February 3, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax at the statutory rate (1)
|
|
$
|
(1,615
|
)
|
|
$
|
(2,852
|
)
|
|
$
|
(7,215
|
)
|
State income and other taxes, net of federal tax benefit
|
|
|
77
|
|
|
|
66
|
|
|
|
(407
|
)
|
Federal rate change on deferred assets (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
22,796
|
|
Federal rate change on valuation allowance (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
(22,796
|
)
|
Section 162(m) limitation
|
|
|
541
|
|
|
|
183
|
|
|
|
45
|
|
Permanent items
|
|
|
277
|
|
|
|
170
|
|
|
|
518
|
|
Expiration of capital loss carryforward
|
|
|
—
|
|
|
|
1,618
|
|
|
|
—
|
|
Charge for valuation allowance (3)
|
|
|
850
|
|
|
|
992
|
|
|
|
7,249
|
|
Refundable AMT credit
|
|
|
—
|
|
|
|
(151
|
)
|
|
|
(2,141
|
)
|
Other, net
|
|
|
(25
|
)
|
|
|
(76
|
)
|
|
|
(621
|
)
|
Total provision (benefit)
|
|
$
|
105
|
|
|
$
|
(50
|
)
|
|
$
|
(2,572
|
)
|
(1)
|
The federal income tax at the statutory rate for fiscal 2017 reflects a blended rate of 33.72%, based on the statutory rate decreasing from 35% to 21% on January 1, 2018. The statutory rate for fiscal 2018 and fiscal 2019 is 21%.
|
(2)
|
This represents the federal rate change impact as of the end of fiscal 2017. The rate change impact on deferred assets and valuation allowance as a result of the 2017 Tax Act was $22.8 million.
|
(3)
|
The change in valuation allowance is impacted by the adoption of ASC 842 in the tax-effected amount of $1.4 million.
|
As discussed in Note A, the Company’s financial statements reflect the expected future tax consequences of uncertain tax positions that the Company has taken or expects to take on a tax return, based solely on the technical merits of the tax position. The liability for unrecognized tax benefits at February 1, 2020 and February 2, 2019 was approximately $2.0 million and was associated with a prior tax position related to exiting the Company’s direct business in Europe during fiscal 2013. The amount of unrecognized tax benefits has been presented as a reduction in the reported amounts of the Company’s federal and state net operating losses carryforwards. No penalties or interest have been accrued on this liability because the carryforwards have not yet been utilized. The reversal of this liability would result in a tax benefit being recognized in the period in which the Company determines the liability is no longer necessary.
For fiscal 2019, 2018 and 2017, the Company made tax payments of $0.1 million in each fiscal year.
G. COMMITMENTS AND CONTINGENCIES
At February 1, 2020, the Company was obligated under operating leases covering store and office space, automobiles and certain equipment for future minimum rentals. See Note E, “Leases” for the schedule of future remaining lease obligations. In addition to its lease obligations, the Company is also contractually committed pursuant to a merchandise purchase obligation to meet minimum purchases of $10.0 million in each fiscal year through fiscal 2023.
H. LONG-TERM INCENTIVE PLANS
The following is a summary of the Company’s Long-Term Incentive Plan (“LTIP”). All equity awards granted under these long-term incentive plans were issued from the Company’s stockholder approved 2016 Incentive Compensation Plan. See Note I, “Stock Compensation Plans.”
2017-2018 LTIP
In the first quarter of fiscal 2019, the Compensation Committee of the Board of Directors (the “Compensation Committee”) approved a 25% payout of its performance targets for the 2017-2018 LTIP, resulting in awards totaling $0.5 million, with a grant date of March 19, 2019. On that date, the Company granted 150,299 RSUs, which vested, net of any forfeitures, on August 31, 2019. In conjunction with the grant of the RSUs, the Company reclassified $0.3 million of the liability accrual from “Accrued expenses and other current liabilities” to “Additional paid-in capital” in fiscal 2019. See the Consolidated Statement of Changes in Stockholders’ Equity. In
58
addition to the performance awards, the Company has been recognizing stock-based compensation of approximately $2.0 million for its time-based awards, which is being expensed over thirty-six months, through April 1, 2020.
2018-2020 LTIP and 2019-2021 LTIP
At the end of fiscal 2019, the Company has two active LTIPs: 2018-2020 LTIP and 2019-2021 LTIP. Each participant in the plan participates based on that participant’s “Target Cash Value” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her LTIP percentage. Under each LTIP, 50% of each participant’s Target Cash Value is subject to time-based vesting and 50% is subject to performance-based vesting. All time-based awards under the 2018-2020 LTIP were restricted stock units (RSUs). For the 2019-2021 LTIP, 50% of the time-based awards granted were RSUs and 50% were cash.
In June 2018, the Company amended its LTIP to, among other things, extend the performance period for awards to three years, beginning with grants in fiscal 2018. Performance targets for the 2018-2020 LTIP and the 2019-2021 LTIP were established and approved by the Compensation Committee on October 24, 2018 and August 7, 2019, respectively. Awards for any achievement of performance targets will not be granted until the performance targets are achieved and then will be subject to additional vesting through August 31, 2021 and August 31, 2022, respectively. The time-based awards under the 2018-2020 LTIP and the 2019-2021 LTIP vest in four equal installments through April 1, 2022 and April 1, 2023, respectively. Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2018-2020 LTIP is estimated to be approximately $3.8 million. Approximately half of the compensation expense relates to the time-vested RSUs, which is being expensed straight-line over 41 months. Through the end of fiscal 2019, the Company has accrued $0.2 million for performance awards under the 2018-2020 LTIP. For the 2019-2021 LTIP, assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense is estimated to be approximately $3.9 million. Approximately half of the compensation relates to time-based awards, 50% RSUs and 50% cash, which is being expensed straight-line over 44 months. There was no accrual at February 1, 2020 for performance awards under the 2019-2021 LTIP.
I. STOCK COMPENSATION PLANS
The Company has one active stock-based compensation plan: the 2016 Incentive Compensation Plan (the “2016 Plan”). The initial share reserve under the 2016 Plan was 5,725,538 shares of our common stock. A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduced the outstanding reserve by a fixed ratio of 1.9 shares for every share granted. On August 8, 2019, the Company’s shareholders approved an amendment to increase the share reserve by an additional 2,800,000 shares. At February 1, 2020, the Company had 3,949,513 shares available under the 2016 Plan.
In accordance with the terms of the 2016 Plan, any shares outstanding under the previous 2006 Incentive Compensation Plan (the “2006 Plan”) at August 4, 2016 that subsequently terminate, expire or are cancelled for any reason without having been exercised or paid are added back and become available for issuance under the 2016 Plan, with stock options being added back on a one-for-one basis and full-value awards being added back on a 1 to 1.9 basis. At February 1, 2020, there are 720,572 stock options that remain outstanding under the 2006 Plan.
The 2016 Plan is administered by the Compensation Committee. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant. Except with respect to 5% of the shares available for awards under the 2016 Plan, no award will become exercisable or otherwise forfeitable unless such award has been outstanding for a minimum period of one year from its date of grant.
During the fiscal 2019, the Company granted 96,153 RSUs as an Inducement Award outside of the Company’s 2016 Plan.
59
Stock Option Activity
The following tables summarize the stock option activity under the Company’s 2006 Plan and 2016 Plan, on an aggregate basis, for fiscal 2019:
|
|
Number of
Shares
|
|
|
Weighted-average
exercise price
per option
|
|
|
Weighted-average
remaining
contractual term
|
|
Aggregate
intrinsic value
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at beginning of year
|
|
|
957,400
|
|
|
$
|
4.50
|
|
|
|
|
$
|
16,878
|
|
Options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
—
|
|
Options canceled or expired
|
|
|
(202,567
|
)
|
|
$
|
3.23
|
|
|
|
|
|
—
|
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at end of year
|
|
|
754,833
|
|
|
$
|
4.84
|
|
|
2.6 years
|
|
|
—
|
|
Options exercisable at end of year
|
|
|
749,833
|
|
|
$
|
4.86
|
|
|
2.5 years
|
|
|
—
|
|
Vested and expected to vest at end of year
|
|
|
754,833
|
|
|
$
|
4.84
|
|
|
2.6 years
|
|
|
—
|
|
Non-Vested Share Activity
The following table summarizes activity for non-vested shares under the Company’s 2006 Plan, 2016 Plan and Inducement Awards, on an aggregate basis, for fiscal 2019:
|
|
Restricted
shares
|
|
|
RSUs (1)
|
|
|
Deferred
shares (2)
|
|
|
Fully-vested
shares (3)
|
|
|
Performance Share Units (4)
|
|
|
Total number
of shares
|
|
|
Weighted-average
grant-date
fair value
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding non-vested shares at beginning of year
|
|
|
30,000
|
|
|
|
1,372,628
|
|
|
|
204,040
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,606,668
|
|
|
$
|
2.93
|
|
Shares granted
|
|
|
—
|
|
|
|
1,400,480
|
|
|
|
104,727
|
|
|
|
159,070
|
|
|
|
720,000
|
|
|
|
2,384,277
|
|
|
$
|
1.73
|
|
Shares vested/issued
|
|
|
(10,000
|
)
|
|
|
(977,439
|
)
|
|
|
(13,163
|
)
|
|
|
(159,070
|
)
|
|
|
—
|
|
|
|
(1,159,672
|
)
|
|
$
|
2.87
|
|
Shares canceled
|
|
|
(20,000
|
)
|
|
|
(374,866
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(394,866
|
)
|
|
$
|
1.89
|
|
Outstanding non-vested shares at end of year
|
|
|
—
|
|
|
|
1,420,803
|
|
|
|
295,604
|
|
|
|
—
|
|
|
|
720,000
|
|
|
|
2,436,407
|
|
|
$
|
1.95
|
|
Vested and expected to vest at end of year
|
|
|
—
|
|
|
|
1,420,803
|
|
|
|
295,604
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,716,407
|
|
|
|
|
|
(1)
|
During fiscal 2019, the Company granted 150,299 RSUs in connection with the partial achievement of performance targets under the 2017-2018 LTIP, see Note H, Long-Term Incentives Plans. In addition, the Company granted 464,358 time-based RSUs as new hire awards. The remainder of the RSUs granted related to time-based awards granted under the Company’s LTIPs. As a result of net share settlement, of the 977,439 RSUs which vested during fiscal 2019, only 866,418 shares of common stock were issued.
|
(2)
|
The 104,727 shares of deferred stock, with a grant-date fair value of approximately $197,504, represent compensation to certain directors in lieu of cash, in accordance with their irrevocable elections. The shares of deferred stock vest three years from the date of grant or at separation of service, based on the irrevocable election of each director.
|
(3)
|
The 159,070 shares of stock, with a grant-date fair value of approximately $299,987 to certain directors as compensation in lieu of cash, in accordance with their irrevocable elections. Directors are required to elect 50% of their quarterly retainer in equity. Any shares in excess of the minimum required election are issued from the Fourth Amended and Restated Non-Employee Director Stock Purchase Plan (the “Non-Employee Director Compensation Plan”).
|
(4)
|
On February 19, 2019, the Company granted 720,000 shares of performance stock units (“PSUs”), with a fair value of $1.0 million, to Mr. Kanter. The PSUs vest in installments when the following milestones are met: one-third of the PSUs vest when the trailing 90-day volume-weighted average closing stock price (“VWAP”) is $4.00, one-third of the PSUs vest when the VWAP is $6.00 and one-third when the VWAP is $8.00. All PSUs will expire on April 1, 2023 if no performance metric is achieved. The $1.0 million is being expensed over the respective derived service periods of each tranche of 16 months, 25 months and 30 months, respectively. The respective grant-date fair value and derived service periods assigned to the PSUs were determined using a Monte Carlo model based on: the Company’s historical volatility of 55.9%, a term of 4.1 years, stock price on the date of grant of $2.50 per share, a risk-free rate of 2.5% and a cost of equity of 9.5%.
|
Total unrecognized stock compensation of $2.6 million at February 1, 2020 is expected to be recognized over a weighted-average period of 29 months.
60
Non-Employee Director Compensation Plan
In January 2010, the Company established a Non-Employee Director Stock Purchase Plan to provide a convenient method for its non-employee directors to acquire shares of the Company’s common stock at fair market value by voluntarily electing to receive shares of common stock in lieu of cash for service as a director. The substance of this plan is now encompassed within the Company’s Fourth Amended and Restated Non-Employee Director Compensation Plan.
Non-employee directors are required to take 50% of their annual retainer, which is paid quarterly, in equity. Any shares of common stock, deferred stock or stock options issued to a director as part of this 50% requirement are issued from the 2016 Plan. Only discretionary elections of shares of common stock will be issued from the Non-Employee Director Compensation Plan.
The following shares of common stock, with the respective fair value, were issued to its non-employee directors as compensation for fiscal 2019, fiscal 2018 and fiscal 2017:
|
|
Number of shares of
common stock issued
|
|
|
Fair value of
common stock issued
|
|
Fiscal 2019
|
|
|
37,113
|
|
|
$
|
69,991
|
|
Fiscal 2018
|
|
|
48,896
|
|
|
$
|
107,605
|
|
Fiscal 2017
|
|
|
42,450
|
|
|
$
|
96,856
|
|
J. RELATED PARTIES
Seymour Holtzman and Jewelcor Management, Inc.
Seymour Holtzman currently serves as a director of the Company’s Board of Directors (the “Board”). From August 2014 through January 2019, Mr. Holtzman served as the Company’s Executive Chairman of the Board and as its Chairman of the Board from April 2000 to August 2014. Mr. Holtzman is the chairman, chief executive officer and president and, together with his wife, indirectly, the majority shareholder of Jewelcor Management, Inc. (“JMI”) and is the beneficial holder of approximately 9.5% of the outstanding common stock of the Company at February 1, 2020.
In August 2014, the Company and Mr. Holtzman entered into an Employment and Chairman Compensation Agreement (the “Compensation Agreement”), pursuant to which Mr. Holtzman was entitled to receive annual compensation of $372,500 for his services as Executive Chairman and $24,000 for his services as an employee of the Company, reporting to the Board. In May 2017, the Compensation Agreement was amended to reduce his compensation as Executive Chairman to $200,000. Effective August 9, 2018, the Compensation Agreement was further amended to reduce his annual compensation as Executive Chairman to $176,000 and to provide written notification to Mr. Holtzman that the Company would not be extending the term of the Compensation Agreement and, as a result, the Compensation Agreement will terminate on August 7, 2020.
On January 24, 2019, the Board voted to adopt an independent Board chairman structure and elected John Kyees as the Company’s new independent, non-executive Chairman, replacing Mr. Holtzman. Mr. Holtzman continues to serve as a director of the Company, and will continue to receive his annual compensation of $176,000 as a director and an annual base salary of $24,000 for his services as an employee of the Company through August 7, 2020.
K. EMPLOYEE BENEFIT PLANS
The Company accounts for its employee benefit plans in accordance with ASC Topic 715, Compensation – Retirement Benefits. ASC Topic 715 requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur.
These amounts will be subsequently recognized as net periodic pension cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of accumulated other comprehensive income (loss). The amortization of the unrecognized loss included in accumulated other comprehensive income (loss) and expected to be recognized in net periodic pension cost in fiscal 2020 is approximately $658,000.
61
Noncontributory Pension Plan
In connection with the Casual Male acquisition in May 2002, the Company assumed the assets and liabilities of the Casual Male Noncontributory Pension Plan “Casual Male Corp. Retirement Plan”, which was previously known as the J. Baker, Inc. Qualified Plan (the “Pension Plan”). Casual Male Corp. froze all future benefits under this plan on May 1, 1997.
The following table sets forth the Pension Plan’s funded status at February 1, 2020 and February 2, 2019:
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
|
in thousands
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
14,975
|
|
|
$
|
16,284
|
|
Benefits and expenses paid
|
|
|
(869
|
)
|
|
|
(809
|
)
|
Interest costs
|
|
|
581
|
|
|
|
580
|
|
Settlements
|
|
|
(490
|
)
|
|
|
(509
|
)
|
Actuarial (gain) loss
|
|
|
2,020
|
|
|
|
(571
|
)
|
Balance at end of year
|
|
$
|
16,217
|
|
|
$
|
14,975
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
11,365
|
|
|
$
|
12,855
|
|
Actual return on plan assets
|
|
|
1,057
|
|
|
|
(743
|
)
|
Employer contributions
|
|
|
420
|
|
|
|
571
|
|
Settlements
|
|
|
(490
|
)
|
|
|
(509
|
)
|
Benefits and expenses paid
|
|
|
(869
|
)
|
|
|
(809
|
)
|
Balance at end of period
|
|
$
|
11,483
|
|
|
$
|
11,365
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
16,217
|
|
|
$
|
14,975
|
|
Fair value of plan assets
|
|
|
11,483
|
|
|
|
11,365
|
|
Unfunded status
|
|
$
|
(4,734
|
)
|
|
$
|
(3,610
|
)
|
|
|
|
|
|
|
|
|
|
Balance sheet classification:
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
$
|
4,734
|
|
|
$
|
3,610
|
|
Total plan expense and other amounts recognized in accumulated other comprehensive loss for the years ended February 1, 2020, February 2, 2019 and February 3, 2018 include the following components:
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
February 3, 2018
|
|
Net pension cost:
|
|
(in thousands)
|
|
Interest cost on projected benefit obligation
|
|
$
|
581
|
|
|
$
|
580
|
|
|
$
|
641
|
|
Expected return on plan assets
|
|
|
(724
|
)
|
|
|
(890
|
)
|
|
|
(813
|
)
|
Amortization of unrecognized loss
|
|
|
784
|
|
|
|
662
|
|
|
|
842
|
|
Net pension cost
|
|
$
|
641
|
|
|
$
|
352
|
|
|
$
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes recognized in other comprehensive loss,
before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized losses at the beginning of the year
|
|
$
|
6,303
|
|
|
$
|
5,903
|
|
|
$
|
7,280
|
|
Net periodic pension cost
|
|
|
(641
|
)
|
|
|
(352
|
)
|
|
|
(670
|
)
|
Employer contribution
|
|
|
420
|
|
|
|
571
|
|
|
|
586
|
|
Change in plan assets and benefit obligations
|
|
|
1,124
|
|
|
|
181
|
|
|
|
(1,293
|
)
|
Unrecognized losses at the end of year
|
|
$
|
7,206
|
|
|
$
|
6,303
|
|
|
$
|
5,903
|
|
The Company’s contribution for fiscal 2020 is estimated to be approximately $606,000.
62
Assumptions used to determine the benefit obligations as of February 1, 2020 and February 2, 2019 include a discount rate of 2.72% for fiscal 2019 and 3.98% for fiscal 2018. Assumptions used to determine the net periodic benefit cost for the years ended February 1, 2020, February 2, 2019 and February 3, 2018 included a discount rate of 3.98% for fiscal 2019, 3.68% for fiscal 2018 and 4.00% for fiscal 2017.
The expected long-term rate of return for plan assets was assumed to be 6.50% for both fiscal 2019 and fiscal 2018. The expected long-term rate of return assumption was developed considering historical and future expectations for returns for each asset class.
Estimated Future Benefit Payments
The estimated future benefits for the next ten fiscal years are as follows:
|
|
Total
|
|
FISCAL YEAR
|
|
(in thousands)
|
|
2020
|
|
$
|
889
|
|
2021
|
|
|
904
|
|
2022
|
|
|
925
|
|
2023
|
|
|
945
|
|
2024
|
|
|
952
|
|
2025-2029
|
|
|
4,757
|
|
Plan Assets
The fair values of the Company’s noncontributory defined benefit retirement plan assets at the end of fiscal 2019 and fiscal 2018, by asset category, were as follows:
|
|
Fair Value Measurement
|
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
(in thousands)
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant Unobservable
Inputs (Level 3)
|
|
|
Total
|
|
|
Quoted Prices in Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant
Observable
Inputs (Level 2)
|
|
|
Significant Unobservable
Inputs (Level 3)
|
|
|
Total
|
|
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equity
|
|
$
|
4,157
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
4,157
|
|
|
$
|
4,247
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
4,247
|
|
International Equity
|
|
|
3,132
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,132
|
|
|
|
3,144
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,144
|
|
Bond
|
|
|
3,754
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,754
|
|
|
|
3,722
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,722
|
|
Cash
|
|
|
440
|
|
|
|
—
|
|
|
|
—
|
|
|
|
440
|
|
|
|
252
|
|
|
|
—
|
|
|
|
—
|
|
|
|
252
|
|
Total
|
|
$
|
11,483
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,483
|
|
|
$
|
11,365
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,365
|
|
The Company’s target asset allocation for fiscal 2020 and its asset allocation at February 1, 2020 and February 2, 2019 were as follows, by asset category:
|
|
Target Allocation
|
|
|
Percentage of plan assets at
|
|
|
|
Fiscal 2020
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
65.0
|
%
|
|
|
63.5
|
%
|
|
|
65.0
|
%
|
Debt securities
|
|
|
33.0
|
%
|
|
|
32.7
|
%
|
|
|
32.7
|
%
|
Cash
|
|
|
2.0
|
%
|
|
|
3.8
|
%
|
|
|
2.2
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
The target policy is set to maximize returns with consideration to the long-term nature of the obligations and maintaining a lower level of overall volatility through the allocation of fixed income. The asset allocation is reviewed throughout the year for adherence to the target policy and is rebalanced periodically towards the target weights.
63
Supplemental Executive Retirement Plan
In connection with the Casual Male acquisition, the Company also assumed the liability of the Casual Male Supplemental Retirement Plan (the “SERP”).
The following table sets forth the SERP’s funded status at February 1, 2020 and February 2, 2019:
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
507
|
|
|
$
|
530
|
|
Benefits and expenses paid
|
|
|
(33
|
)
|
|
|
(33
|
)
|
Interest costs
|
|
|
19
|
|
|
|
19
|
|
Actuarial (gain) loss
|
|
|
54
|
|
|
|
(9
|
)
|
Balance at end of year
|
|
$
|
547
|
|
|
$
|
507
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
Employer contributions
|
|
|
33
|
|
|
|
33
|
|
Benefits and expenses paid
|
|
|
(33
|
)
|
|
|
(33
|
)
|
Balance at end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
547
|
|
|
$
|
507
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
547
|
|
|
$
|
507
|
|
Fair value of plan assets
|
|
|
—
|
|
|
|
—
|
|
Unfunded Status
|
|
$
|
(547
|
)
|
|
$
|
(507
|
)
|
|
|
|
|
|
|
|
|
|
Balance sheet classification:
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
$
|
547
|
|
|
$
|
507
|
|
Other changes recognized in other comprehensive loss, before taxes (in thousands):
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
February 3, 2018
|
|
|
|
in thousands
|
|
Other changes recognized in other comprehensive loss,
before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized losses at the beginning of the year
|
|
$
|
28
|
|
|
$
|
37
|
|
|
$
|
157
|
|
Net periodic pension cost
|
|
|
(19
|
)
|
|
|
(19
|
)
|
|
|
(30
|
)
|
Employer contribution
|
|
|
33
|
|
|
|
33
|
|
|
|
32
|
|
Change in benefit obligations
|
|
|
40
|
|
|
|
(23
|
)
|
|
|
(122
|
)
|
Unrecognized losses at the end of year
|
|
$
|
82
|
|
|
$
|
28
|
|
|
$
|
37
|
|
Assumptions used to determine the benefit obligations as of February 1, 2020 and February 2, 2019 included a discount rate of 2.59% for fiscal 2019 and 3.87% for fiscal 2018. Assumptions used to determine the net periodic benefit cost for the years ended February 1, 2020, February 2, 2019 and February 3, 2018 included a discount rate of 3.87% for fiscal 2019, 3.60% for fiscal 2018 and 4.00% for fiscal 2017.
64
Defined Contribution Plan
The Company has one defined contribution plan, the Destination XL Group, Inc. 401(k) Savings Plan (the “401(k) Plan”). Under the 401(k) Plan, the Company offers a qualified automatic contribution arrangement (“QACA”) with the Company matching 100% of the first 1% of deferred compensation and 50% of the next 5% (with a maximum contribution of 3.5% of eligible compensation). As of January 1, 2015, employees who are 21 years of age or older are eligible to make deferrals after 6 months of employment and are eligible to receive a Company match after one year of employment and 1,000 hours.
In the second quarter of fiscal 2018, in connection with the Company’s cost reduction initiatives, as discussed in Note L, Corporate Restructuring, the Board ratified and approved the recommendation of the Company’s management team to suspend employer contributions to the 401(k) Plan, for the period from July 1, 2018 until December 31, 2019. Effective January 1, 2020, the 401(k) Plan resumed its QACA status, as described above.
The Company recognized $0.3 million, $0.9 million and $2.3 million of expense under the 401(k) Plan in fiscal 2019, 2018 and 2017, respectively.
L. CORPORATE RESTRUCTURING
In the second quarter of fiscal 2018, the Company committed to a corporate restructuring plan to accelerate the Company's path to profitability by better aligning its expense structure with its revenues. The Company eliminated 56 positions, which represented approximately 15% of its corporate work force, or 2% of its total work force, in connection with the restructuring. On May 16, 2018, 36 employees were notified of their termination, with the remaining 20 positions representing open positions that were not filled. The Company offered cash severance benefits to the eligible affected employees. Each affected employee’s eligibility for these severance benefits was contingent upon such employee’s execution (and no revocation) of a separation agreement, which included a general release of claims against the Company.
The Company incurred an aggregate charge of approximately $1.9 million during the fiscal year ending February 2, 2019 for employee severance and one-time termination benefits, as well as other employee-related costs associated with the corporate restructuring. Approximately $1.6 million of the $1.9 million were cash expenditures. At February 1, 2020, no accrued liability remained.
M. CEO SEARCH AND TRANSITION COSTS
In connection with David Levin’s retirement and the appointment of Harvey Kanter as the Company’s President and Chief Executive Officer, the Company incurred certain transition costs in fiscal 2018 and fiscal 2019. The Company and Mr. Levin entered into a Transition Agreement dated March 20, 2018, as amended (the “Transition Agreement”) that detailed Mr. Levin’s future retirement and related successor issues. Mr. Levin resigned as an officer and director of the Company on January 1, 2019. Under the Transition Agreement, he was entitled to receive his base salary, AIP bonus and LTIP compensation through December 31, 2019. Because no successor had been appointed as of December 31, 2018, the Company and Mr. Levin entered into a Letter Agreement, whereby Mr. Levin served as Acting CEO until April 1, 2019 when Mr. Kanter assumed the position of President and Chief Executive Officer of the Company.
In connection with the CEO transition, the Company incurred a total charge of approximately $2.4 million in fiscal 2018. The $2.4 million charge related to amounts payable to Mr. Levin under his Transition Agreement, CEO search costs and the acceleration of stock-based compensation of approximately $0.5 million, related to his time-based equity awards. In fiscal 2019, the Company incurred additional charges of approximately $0.7 million for CEO search costs, Acting CEO consulting costs, AIP incentive accrual for Mr. Levin, housing allowance and legal fees.
In addition, in accordance with the terms of the transition agreement between the Company and Mr. Levin, the Company is accruing, based on management’s current estimates, future cash payments that Mr. Levin will be entitled to under the 2018-2020 LTIP, if and when such targets are achieved.
N. EXIT COSTS ASSOCIATED WITH LONDON OPERATIONS
During the third quarter of fiscal 2019, the Company closed its Rochester Clothing store located in London, England. In connection with this store closure, the Company incurred a charge of approximately $1.7 million, which included a non-cash charge of $0.8 million related to the recognition of the accumulated foreign currency translation adjustment. The remainder of the charge primarily related to lease termination and inventory liquidation costs.
65
O. SELECTED QUARTERLY DATA (UNAUDITED)
(Certain columns may not foot due to rounding.)
|
|
FIRST
QUARTER
|
|
|
SECOND
QUARTER
|
|
|
THIRD
QUARTER
|
|
|
FOURTH
QUARTER
|
|
|
FULL
YEAR
|
|
|
|
(In Thousands, Except Per Share Data)
|
|
FISCAL YEAR 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
112,973
|
|
|
$
|
123,245
|
|
|
$
|
106,581
|
|
|
$
|
131,239
|
|
|
$
|
474,038
|
|
Gross profit
|
|
|
49,413
|
|
|
|
54,569
|
|
|
|
43,805
|
|
|
|
56,414
|
|
|
|
204,201
|
|
Operating income (loss)
|
|
|
(2,238
|
)
|
|
|
881
|
|
|
|
(6,369
|
)
|
|
|
3,332
|
|
|
|
(4,394
|
)
|
Income (loss) before taxes
|
|
|
(3,102
|
)
|
|
|
30
|
|
|
|
(7,239
|
)
|
|
|
2,620
|
|
|
|
(7,691
|
)
|
Income tax provision (benefit)
|
|
|
(21
|
)
|
|
|
(8
|
)
|
|
|
(49
|
)
|
|
|
183
|
|
|
|
105
|
|
Net income (loss)
|
|
$
|
(3,081
|
)
|
|
$
|
38
|
|
|
$
|
(7,190
|
)
|
|
$
|
2,437
|
|
|
$
|
(7,796
|
)
|
Income (loss) per share – basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
113,331
|
|
|
$
|
122,206
|
|
|
$
|
107,069
|
|
|
$
|
131,150
|
|
|
$
|
473,756
|
|
Gross profit
|
|
|
50,688
|
|
|
|
56,525
|
|
|
|
47,060
|
|
|
|
57,016
|
|
|
|
211,289
|
|
Operating loss
|
|
|
(2,226
|
)
|
|
|
(222
|
)
|
|
|
(1,229
|
)
|
|
|
(6,441
|
)
|
|
|
(10,119
|
)
|
Loss before taxes
|
|
|
(3,112
|
)
|
|
|
(1,180
|
)
|
|
|
(2,027
|
)
|
|
|
(7,261
|
)
|
|
|
(13,581
|
)
|
Income tax provision (benefit)
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
(22
|
)
|
|
|
(31
|
)
|
|
|
(50
|
)
|
Net loss
|
|
$
|
(3,110
|
)
|
|
$
|
(1,185
|
)
|
|
$
|
(2,005
|
)
|
|
$
|
(7,230
|
)
|
|
|
(13,531
|
)
|
Loss per share – basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.28
|
)
|
The Company’s fiscal quarters are based on a retail cycle of 13 weeks. Historically, and consistent with the retail industry, the Company has experienced seasonal fluctuations as it relates to its operating income and net income. Traditionally, a significant portion of the Company’s operating income and net income is generated in the fourth quarter, as a result of the holiday selling season.
P. SUBSEQUENT EVENT
Towards the end of December 2019, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. Subsequent to the end of fiscal 2019, and in response to this pandemic, on March 17, 2020, the Company temporarily closed all of its retail locations through at least March 28, 2020. The Company’s direct business through www.dxl.com remains operational. The Company’s current contingency plans include the reduction of operating expenses, capital expenditure spending, and the cancellation of inventory receipts in an effort to preserve liquidity. Although it is not possible to reliably estimate the length or severity of this outbreak and hence its financial impact, any prolonged closing of the Company’s retail stores and/or its distribution center would result in a loss of sales and profits and other material adverse effects.
66