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Basis of Presentation (Policies)

9 Months Ended

May 02, 2020

Basis of Consolidation These unaudited interim condensed consolidated financial statements present all the assets, liabilities, revenues, expenses and cash flows of entities in which the Company has a controlling financial interest and is determined to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

Fiscal Period

Fiscal 2020 will end on August 1, 2020 and will be a 52-week period. Fiscal year 2019 ended on August 3, 2019 and was a 52-week period. The three and nine months ended May 2, 2020 and May 4, 2019 were 13 and 39-week periods, respectively.

Interim Financial Statements

These interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and are unaudited. In the opinion of management, such condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the condensed consolidated financial condition, results of operations, comprehensive income, cash flows and equity of the Company for the interim periods presented. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted from this report as permitted by the SEC’s rules and regulations. However, the Company believes that the disclosures herein are adequate to ensure that the information is fairly presented.

The condensed consolidated balance sheet data as of August 3, 2019 is derived from the audited consolidated financial statements included in the Company’s Fiscal 2019 10-K, which should be read in conjunction with these interim financial statements. Reference is made to the Fiscal 2019 10-K for a complete set of financial statements.

Common Stock Split

On December 19, 2019, the Company announced that the Board of Directors (the “Board”) has approved a reverse stock split of the Company’s common stock at a ratio of 1-for-20. Refer to Note 15 for additional information. As a result, the applicable equity and shares information related to prior periods has been restated to reflect this reverse stock split.

New Accounting Pronouncements, Policy

Recently Issued Accounting Standards

Recently adopted standards

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases” (“ASC 842”). The guidance requires the lessee to recognize the assets and liabilities for the rights and obligations created by leases with terms of 12 months or more. The guidance is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted. The guidance may be applied retrospectively to

each period presented or with the cumulative effect recognized as of the initial date of application. The Company adopted this ASU as of the beginning of Fiscal 2020 with the cumulative effect recognized at adoption.

As a result of this standard, the Company has recognized approximately $637.6 million of right-of-use assets and approximately $837.0 million of lease liabilities (current and long-term combined) on its condensed consolidated balance sheet as of May 2, 2020. The right-of-use lease liability for operating leases is based on the net present value of future minimum lease payments. The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as favorable leases, straight-line rent liability, purchased lease rights and landlord allowances and a cumulative effect adjustment that decreased opening Accumulated deficit by approximately $11.5 million for transition impairments related to previously impaired leased locations. As a result, prior periods have not been restated.

The Company determines if an arrangement is a lease at inception and on the lease commencement date, the Company recognizes an asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term.

As the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on a third-party analysis, which is updated periodically. That analysis concluded that the Company’s incremental borrowing rate upon adoption ranged from 24-30%, depending on the term. For leases existing before the adoption of the new lease accounting standard, the Company used its incremental borrowing rate as of the date of adoption, determined using the remaining lease term as of the date of adoption. For leases commencing on or after the adoption of the new lease accounting standard, the incremental borrowing rate is determined using the remaining lease term as of the lease commencement date.

The Company elected the package of practical expedients included in this guidance, which allows us (i) to not reassess whether any expired or existing contracts contain leases; (ii) to not reassess the lease classification for any expired or existing leases; (iii) to account for a lease and non-lease component as a single component for both its real estate and non-real estate leases; and (iv) to not reassess the initial direct costs for existing leases.

The measurement of lease right-of-use assets and liabilities includes amounts related to:

•Lease payments made prior to the lease commencement date;

•Incentives from landlords received by the Company for signing a lease, including construction allowances or deferred lease credits paid to the Company by landlords towards construction and tenant improvement costs, which are presented as a reduction to the right-of-use asset recorded;

•Fixed payments related to lease components, such as rent escalation payments scheduled at the lease commencement date; and

•Fixed payments related to nonlease components, such as taxes, insurance, and maintenance costs.

The measurement of lease right-of-use assets and liabilities excludes amounts related to:

•Variable payments related to lease components, such as contingent rent payments made by the Company based on performance, the expense of which is recognized in the period incurred in the condensed consolidated statements of operations;

•Variable payments related to nonlease components, such as taxes, insurance, and maintenance costs, the expense of which is recognized in the period incurred in the condensed consolidated statements of operations; and

•Leases with an initial term of 12 months or less, the expense of which is recognized in the period incurred in the condensed consolidated statements of operations.

Certain of the Company’s leases include options to extend the lease or to terminate the lease. The Company assesses these leases and, depending on the facts and circumstances, may or may not include these options in the measurement of the Company’s lease right-of-use assets and liabilities. Generally, the Company’s options to extend its leases are at the Company’s sole discretion and at the time of lease commencement are not reasonably certain of being exercised. There may be instances in which a lease is being renewed on a month-to-month basis and, in these instances, the Company will recognize lease expense in the period incurred in the condensed consolidated statements of operations until a new agreement has been executed.

Amortization and interest expense related to lease right-of-use assets and liabilities are generally calculated on a straight-line basis over the lease term. Amortization and interest expense related to previously impaired lease right-of-use assets are calculated on a front-loaded amortization pattern resulting in higher single lease expense in earlier periods. Depending on the

nature of the lease, amortization and interest expense is recorded in either Buying, distribution, and occupancy expense or in Selling, general and administrative expense in the condensed consolidated statements of operations.

The Company’s lease right-of-use assets are assessed for indicators of impairment at least quarterly. The results of any such impairments are disclosed in Note 13.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, the Company does not have any finance leases, any material sublease arrangements or any material leases where the Company is considered the lessor.

The following table provides the impact of adoption of ASU 2016-02 on the Company’s condensed consolidated balance sheet:


	August 3, 2019 (as reported under ASC 840)		Impact of adoption of ASC 842		August 3, 2019 (as reported under ASC 842)
	(millions)
Assets
Prepaid expenses and other current assets	$	242.3	$	(33.6)	$	208.7
Current assets related to discontinued operations	98.2		(7.6)		90.6
Other intangible assets, net	276.6		(8.4)		268.2
Operating lease right-of-use asset	—		744.4		744.4
Non-current assets related to discontinued operations	11.5		131.5		143.0

Liabilities and Shareholders’ Equity
Current portion of lease liabilities	—		141.3		141.3
Current liabilities related to discontinued operations	94.7		37.8		132.5
Lease-related liabilities	204.6		(204.6)		—
Long-term lease liabilities	—		769.1		769.1
Non-current liabilities related to discontinued operations	35.5		94.2		129.7
Accumulated deficit	(935.9)		(11.5)		(947.4)

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The new standard simplifies the accounting for income taxes by removing exceptions:

•to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income);

•to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

•to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and

•to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

In addition, the standard does not require that an entity allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, however, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority. The standard does require that an entity:

•recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax;

•evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; and

•reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

ASU 2019-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company has elected to early adopt ASU 2019-12. By early adopting, ASU 2019-12 becomes effective as of the beginning of Fiscal 2020, however, there is no cumulative effect to be recognized with the early adoption. As a result of the ASU 2019-12 adoption, the Company did not recognize income tax expense on the income from discontinued operations related to Dressbarn for the three and nine months ended May 2, 2020.

Recently issued standards

Intangible Assets

In August 2018, the FASB issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods. Early adoption is permitted for annual or interim periods. This ASU requires that implementation costs incurred in a hosting arrangement that is a service contract be assessed in accordance with the existing guidance in Subtopic 350-40, “Internal-Use Software.” Accordingly, costs incurred during the preliminary project stage must be expensed as incurred, while costs incurred during the application development stage must be capitalized. Capitalized implementation costs associated with a hosting arrangement that is a service contract must be expensed over the term of the hosting arrangement. Additionally, the new guidance requires that the expense of these capitalized costs be presented in the same line item in the statement of income as the fees associated with the hosting element of the arrangement. While the Company is in the process of determining the impact of the adoption of this guidance on its consolidated financial statements, the Company does not anticipate that the guidance will have a significant impact on its consolidated financial statements upon adoption of the new standard in Fiscal 2021.