0000028917-19-000462.txt : 20191211 0000028917-19-000462.hdr.sgml : 20191211 20191211161714 ACCESSION NUMBER: 0000028917-19-000462 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 62 CONFORMED PERIOD OF REPORT: 20191102 FILED AS OF DATE: 20191211 DATE AS OF CHANGE: 20191211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DILLARD'S, INC. CENTRAL INDEX KEY: 0000028917 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 710388071 STATE OF INCORPORATION: AR FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06140 FILM NUMBER: 191279970 BUSINESS ADDRESS: STREET 1: 1600 CANTRELL RD CITY: LITTLE ROCK STATE: AR ZIP: 72201 BUSINESS PHONE: 5013765200 MAIL ADDRESS: STREET 1: 1600 CANTRELL ROAD CITY: LITTLE ROCK STATE: AR ZIP: 72201 FORMER COMPANY: FORMER CONFORMED NAME: DILLARDS INC DATE OF NAME CHANGE: 19980622 FORMER COMPANY: FORMER CONFORMED NAME: DILLARD DEPARTMENT STORES INC DATE OF NAME CHANGE: 19920703 10-Q 1 dds-110219x10q.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
(Mark One)
 
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended November 2, 2019
 
or
 
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     .
 
Commission File Number:  1-6140

DILLARD’S, INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
71-0388071
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation or organization)
 
Identification No.)
 
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS  72201
(Address of principal executive offices)
(Zip Code)
 
(501) 376-5200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol
Name of each exchange on which registered
Class A Common Stock
DDS
New York Stock Exchange

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
ý Yes  ☐ No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  
ý Yes  ☐ No
 


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
Non-accelerated filer 
 
 
 
Smaller reporting company
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes  ý No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
CLASS A COMMON STOCK as of November 30, 2019     20,690,507
CLASS B COMMON STOCK as of November 30, 2019       4,010,401

 
 
 
 
 




Index
 
DILLARD’S, INC.
 
 
 
Page
 
 
Number
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of November 2, 2019, February 2, 2019 and November 3, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
 

3


DILLARD’S, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
 
 
November 2,
2019
 
February 2,
2019
 
November 3,
2018
Assets
 
 

 
 

 
 

Current assets:
 
 

 
 

 
 

Cash and cash equivalents
 
$
79,065

 
$
123,509

 
$
78,156

Restricted cash
 
8,467

 

 

Accounts receivable
 
48,241

 
49,853

 
66,532

Merchandise inventories
 
1,969,980

 
1,528,417

 
2,043,669

Federal and state income taxes
 

 

 
23,757

Other current assets
 
74,231

 
68,753

 
75,870

 
 
 
 
 
 
 
Total current assets
 
2,179,984

 
1,770,532

 
2,287,984

 
 
 
 
 
 
 
Property and equipment (net of accumulated depreciation and amortization of $2,358,469, $2,227,860 and $2,693,924, respectively)
 
1,494,454

 
1,586,733

 
1,621,332

Operating lease assets
 
48,600

 

 

Other assets
 
77,025

 
74,104

 
77,285

 
 
 
 
 
 
 
Total assets
 
$
3,800,063

 
$
3,431,369

 
$
3,986,601

 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 

 
 

 
 

Current liabilities:
 
 

 
 

 
 

Trade accounts payable and accrued expenses
 
$
1,211,446

 
$
921,205

 
$
1,340,767

Current portion of finance lease liabilities
 
1,148

 
1,214

 
1,187

Current portion of operating lease liabilities

 
15,250

 

 


Other short-term borrowings
 
98,600

 

 
191,100

Federal and state income taxes
 
4,505

 
11,116

 

 
 
 
 
 
 
 
Total current liabilities
 
1,330,949

 
933,535

 
1,533,054

 
 
 
 
 
 
 
Long-term debt
 
365,674

 
365,569

 
365,534

Finance lease liabilities
 
1,029

 
1,666

 
1,980

Operating lease liabilities
 
32,958

 

 


Other liabilities
 
243,258

 
238,731

 
241,694

Deferred income taxes
 
13,812

 
13,487

 
19,063

Subordinated debentures
 
200,000

 
200,000

 
200,000

Commitments and contingencies
 


 


 


Stockholders’ equity:
 
 

 
 

 
 

Common stock
 
1,239

 
1,239

 
1,239

Additional paid-in capital
 
949,846

 
948,835

 
947,125

Accumulated other comprehensive loss
 
(12,809
)
 
(12,809
)
 
(17,685
)
Retained earnings
 
4,492,511

 
4,458,006

 
4,375,479

Less treasury stock, at cost
 
(3,818,404
)
 
(3,716,890
)
 
(3,680,882
)
 
 
 
 
 
 
 
Total stockholders’ equity
 
1,612,383

 
1,678,381

 
1,625,276

 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
 
$
3,800,063

 
$
3,431,369

 
$
3,986,601



See notes to condensed consolidated financial statements.


4


DILLARD’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net sales
 
$
1,388,310

 
$
1,419,213

 
$
4,280,614

 
$
4,345,498

Service charges and other income
 
35,349

 
35,752

 
99,825

 
101,594

 
 
 
 
 
 
 
 
 
 
 
1,423,659

 
1,454,965

 
4,380,439

 
4,447,092

 
 
 
 
 
 
 
 
 
Cost of sales
 
926,782

 
954,937

 
2,886,563

 
2,875,855

Selling, general and administrative expenses
 
418,149

 
418,896

 
1,232,434

 
1,233,128

Depreciation and amortization
 
56,143

 
55,762

 
162,890

 
167,986

Rentals
 
5,927

 
6,578

 
18,254

 
19,683

Interest and debt expense, net
 
11,536

 
12,104

 
35,021

 
40,447

Other expense
 
1,916

 
1,915

 
5,750

 
5,745

Loss (gain) on disposal of assets
 
304

 
(2
)
 
(11,996
)
 
63

 
 


 
 
 
 
 
 
Income before income taxes
 
2,902

 
4,775

 
51,523

 
104,185

Income taxes (benefit)
 
(2,560
)
 
(2,650
)
 
8,130

 
19,080

 
 
 
 
 
 
 
 
 
Net income
 
$
5,462

 
$
7,425

 
$
43,393

 
$
85,105

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 
 

 
 

Basic and diluted
 
$
0.22

 
$
0.27

 
$
1.69

 
$
3.08

 
See notes to condensed consolidated financial statements.

5


DILLARD’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net income
 
$
5,462

 
$
7,425

 
$
43,393

 
$
85,105

Other comprehensive income:
 
 

 
 

 
 

 
 

Amortization of retirement plan and other retiree benefit adjustments (net of tax of $0, $32, $0, and $95, respectively)
 

 
100

 

 
301

 
 
 
 
 
 
 
 
 
Comprehensive income
 
$
5,462

 
$
7,525

 
$
43,393

 
$
85,406


See notes to condensed consolidated financial statements.


6



DILLARD’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In Thousands, Except Share and Per Share Data)
 
Three Months Ended November 2, 2019
 
 
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
 
Common Stock
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
 
 
Total
Balance, August 3, 2019
$
1,239

 
$
949,846

 
$
(12,809
)
 
$
4,490,759

 
$
(3,783,191
)
 
$
1,645,844

Net income

 

 

 
5,462

 

 
5,462

Purchase of 600,479 shares of treasury stock

 

 

 

 
(35,213
)
 
(35,213
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.15 per share

 

 

 
(3,710
)
 

 
(3,710
)
Balance, November 2, 2019
$
1,239

 
$
949,846

 
$
(12,809
)
 
$
4,492,511

 
$
(3,818,404
)
 
$
1,612,383


 
Three Months Ended November 3, 2018
 
 
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
 
Common Stock
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
 
 
Total
Balance, August 4, 2018
$
1,239

 
$
947,125

 
$
(17,785
)
 
$
4,370,780

 
$
(3,626,885
)
 
$
1,674,474

Net income

 

 

 
7,425

 

 
7,425

Other comprehensive income

 

 
100

 

 

 
100

Purchase of 721,807 shares of treasury stock

 

 

 

 
(53,997
)
 
(53,997
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.10 per share

 

 

 
(2,726
)
 

 
(2,726
)
Balance, November 3, 2018
$
1,239

 
$
947,125

 
$
(17,685
)
 
$
4,375,479

 
$
(3,680,882
)
 
$
1,625,276


 
Nine Months Ended November 2, 2019
 
 
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
 
Common Stock
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
 
 
Total
Balance, February 2, 2019
$
1,239

 
$
948,835

 
$
(12,809
)
 
$
4,458,006

 
$
(3,716,890
)
 
$
1,678,381

Net income

 

 

 
43,393

 

 
43,393

Issuance of 17,600 shares under equity plans

 
1,011

 

 

 

 
1,011

Purchase of 1,665,222 shares of treasury stock

 

 

 

 
(101,514
)
 
(101,514
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 


Common stock, $0.35 per share

 

 

 
(8,888
)
 

 
(8,888
)
Balance, November 2, 2019
$
1,239


$
949,846


$
(12,809
)

$
4,492,511


$
(3,818,404
)
 
$
1,612,383



7


 
Nine Months Ended November 3, 2018
 
 
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
 
Common Stock
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
 
 
 
Total
Balance, February 3, 2018
$
1,239

 
$
946,147

 
$
(15,444
)
 
$
4,365,219

 
$
(3,589,006
)
 
$
1,708,155

Net income

 

 

 
85,105

 

 
85,105

Cumulative effect adjustment related to ASU 2016-16 and 2018-02

 

 
(2,542
)
 
(66,574
)
 

 
(69,116
)
Other comprehensive income

 

 
301

 

 

 
301

Issuance of 12,800 shares under equity plans

 
978

 

 

 

 
978

Purchase of 1,239,610 shares of treasury stock

 

 

 

 
(91,876
)
 
(91,876
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.30 per share

 

 

 
(8,271
)
 

 
(8,271
)
Balance, November 3, 2018
$
1,239

 
$
947,125

 
$
(17,685
)
 
$
4,375,479

 
$
(3,680,882
)
 
$
1,625,276



See notes to condensed consolidated financial statements.


8


DILLARD’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
 
 
 
Nine Months Ended
 
 
November 2,
2019
 
November 3,
2018
Operating activities:
 
 

 
 

Net income
 
$
43,393

 
$
85,105

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization of property and other deferred cost
 
164,373

 
169,412

(Gain) loss on disposal of assets
 
(11,996
)
 
63

Proceeds from insurance
 
397

 

Changes in operating assets and liabilities:
 
 

 
 

Decrease (increase) in accounts receivable
 
1,612

 
(28,095
)
Increase in merchandise inventories
 
(441,563
)
 
(580,108
)
Increase in other current assets
 
(2,015
)
 
(24,533
)
Increase in other assets
 
(8,404
)
 
(8,666
)
Increase in trade accounts payable and accrued expenses and other liabilities
 
286,322

 
512,459

Decrease in income taxes
 
(9,135
)
 
(55,978
)
 
 
 
 
 
Net cash provided by operating activities
 
22,984

 
69,659

 
 
 
 
 
Investing activities:
 
 

 
 

Purchases of property and equipment
 
(70,915
)
 
(114,202
)
Proceeds from disposal of assets
 
22,031

 
1,958

Proceeds from insurance
 

 
1,961

Distribution from joint venture
 
1,350

 
2,690

 
 
 
 
 
Net cash used in investing activities
 
(47,534
)
 
(107,593
)
 
 
 
 
 
Financing activities:
 
 

 
 

Principal payments on long-term debt and finance lease liabilities
 
(703
)
 
(161,779
)
Increase in short-term borrowings
 
98,600

 
191,100

Cash dividends paid
 
(7,810
)
 
(8,383
)
Purchase of treasury stock
 
(101,514
)
 
(91,876
)
 
 
 
 
 
Net cash used in financing activities
 
(11,427
)
 
(70,938
)
 
 
 
 
 
Decrease in cash, cash equivalents and restricted cash
 
(35,977
)
 
(108,872
)
Cash, cash equivalents and restricted cash, beginning of period
 
123,509

 
187,028

 
 
 
 
 
Cash, cash equivalents and restricted cash, end of period
 
$
87,532

 
$
78,156

 
 
 
 
 
Non-cash transactions:
 
 

 
 

Accrued capital expenditures
 
$
9,573

 
$
5,189

Accrued purchases of treasury stock
 

 
2,000

Stock awards
 
1,011

 
978

Lease assets obtained in exchange for new operating lease liabilities
 
4,601

 



See notes to condensed consolidated financial statements.

9


DILLARD’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1.         Basis of Presentation
 
The accompanying unaudited interim condensed consolidated financial statements of Dillard’s, Inc. (the “Company”) have been prepared in accordance with the rules of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and nine months ended November 2, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending February 1, 2020 due to, among other factors, the seasonal nature of the business.
 
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019 filed with the SEC on March 29, 2019.

Restricted Cash - Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.

(in thousands)
 
November 2,
2019
 
November 3,
2018
Cash and cash equivalents
 
$
79,065

 
$
78,156

Restricted cash
 
8,467

 

Total cash, cash equivalents and restricted cash
 
$
87,532

 
$
78,156


Reclassifications—Certain items have been reclassified from their prior year classifications to conform to the current year presentation. These reclassifications had no effect on net income or stockholders' equity as previously reported.
Note 2.  Accounting Standards
 
Recently Adopted Accounting Pronouncements

Leases: Amendments to the FASB Accounting Standards Codification
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification, to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under these amendments, lessees are required to recognize lease assets and lease liabilities for leases classified as operating leases under Accounting Standards Codification 840, Leases ("ASC 840"). Subsequent to the issuance of ASU No. 2016-02, the FASB issued additional amendments related to ASU No. 2016-02: (1) ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842; (2) ASU No. 2018-10: Codification Improvements to Topic 842, Leases; and (3) ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. We refer to this ASU and related amendments as the "new standard" or "ASU No. 2016-02." We adopted the requirements of the new standard as of February 3, 2019. See Note 13, Leases.






10


Recently Issued Accounting Pronouncements

Defined Benefit Plans: Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, to improve the effectiveness of disclosures in the notes to financial statements for employers that sponsor defined benefit pension plans. ASU No. 2018-14 is effective for financial statements issued for fiscal years ending after December 15, 2020, and early adoption is permitted. The Company plans to adopt ASU No. 2018-14 during the fourth quarter of 2019. The impact of this update on its notes to financial statements is not expected to be material.
Note 3. Significant Accounting Policies Updates
Operating Leases—The Company leases retail stores, office space and equipment under operating leases. The Company records right-of-use assets and operating lease liabilities for operating leases with lease terms exceeding twelve months. The right-of-use assets are adjusted for lease incentives, including construction allowances, and prepaid rent. The Company recognizes minimum rent expense on a straight-line basis over the lease term. Many leases contain contingent rent provisions. Contingent rent is expensed as incurred.
The lease term used for lease evaluation includes renewal option periods only in instances in which the exercise of the option period is reasonably certain.
Revenue Recognition—The Company's retail operations segment recognizes merchandise revenue at the point of sale. Allowance for sales returns and a return asset are recorded as components of net sales in the period in which the related sales are recorded. Sales taxes collected from customers are excluded from revenue and are recorded in trade accounts payable and accrued expenses until remitted to the taxing authorities.
Wells Fargo Bank, N.A. ("Wells Fargo") owns and manages Dillard's private label cards under a 10-year agreement ("Wells Fargo Alliance"). Pursuant to the Wells Fargo Alliance, we receive on-going cash compensation from Wells Fargo based upon the portfolio's earnings. The compensation received from the portfolio is determined monthly and has no recourse provisions. The amount the Company receives is dependent on the level of sales on Wells Fargo accounts, the level of balances carried on Wells Fargo accounts by Wells Fargo customers, payment rates on Wells Fargo accounts, finance charge rates and other fees on Wells Fargo accounts, the level of credit losses for the Wells Fargo accounts as well as Wells Fargo's ability to extend credit to our customers. The Company's share of income under the Wells Fargo Alliance is included as a component of service charges and other income. We participate in the marketing of the private label cards, which includes the cost of customer reward programs. Through the reward programs, customers earn points that are redeemable for discounts on future purchases. The Company defers a portion of its net sales upon the sale of merchandise to its customer reward program members that is recognized in net sales when the reward is redeemed or expired at a future date.
Revenue from CDI Contractors, LLC ("CDI"), the Company's general contracting construction company, construction contracts is generally measured based on the ratio of costs incurred to total estimated contract costs (the "cost-to-cost method"). The length of each contract varies but is typically nine to eighteen months. The progress towards completion is determined by relating the actual costs of work performed to date to the current estimated total costs of the respective contracts. When the estimate on a contract indicates a loss, the entire loss is recorded in the current period.
Note 4.  Business Segments
 
The Company operates in two reportable segments:  the operation of retail department stores (“retail operations”) and a general contracting construction company (“construction”).
 
For the Company’s retail operations, the Company determined its operating segments on a store by store basis.  Each store’s operating performance has been aggregated into one reportable segment.  The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products and distribution methods. Revenues from external customers are derived from merchandise sales, and the Company does not rely on any major customers as a source of revenue. Across all stores, the Company operates one store format under the Dillard’s name where each store offers the same general mix of merchandise with similar categories and similar customers.  The Company believes that disaggregating its operating segments would not provide meaningful additional information.



11


The following table summarizes the percentage of net sales by segment and major product line:
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
Retail operations segment
 
 

 
 

 
 
 
 
Cosmetics
 
14
%
 
13
%
 
13
%
 
14
%
Ladies’ apparel
 
23

 
23

 
24

 
24

Ladies’ accessories and lingerie
 
14

 
13

 
15

 
14

Juniors’ and children’s apparel
 
10

 
10

 
10

 
9

Men’s apparel and accessories
 
17

 
17

 
17

 
17

Shoes
 
15

 
16

 
15

 
15

Home and furniture
 
3

 
3

 
3

 
3

 
 
96

 
95


97


96

Construction segment
 
4

 
5

 
3

 
4

Total
 
100
%

100
%

100
%

100
%




12


The following tables summarize certain segment information, including the reconciliation of those items to the Company’s consolidated operations: 
(in thousands of dollars)

Retail
Operations

Construction

Consolidated
Three Months Ended November 2, 2019:
 
 

 
 


 

Net sales from external customers
 
$
1,334,205

 
$
54,105


$
1,388,310

Gross profit
 
460,549

 
979


461,528

Depreciation and amortization
 
55,963

 
180


56,143

Interest and debt expense (income), net
 
11,562

 
(26
)

11,536

Income before income taxes
 
2,223

 
679


2,902

Total assets
 
3,753,211

 
46,852


3,800,063

 
 
 
 
 
 
 
Three Months Ended November 3 2018:
 
 
 
 



Net sales from external customers
 
$
1,341,845

 
$
77,368


$
1,419,213

Gross profit
 
461,476

 
2,800


464,276

Depreciation and amortization
 
55,605

 
157


55,762

Interest and debt expense (income), net
 
12,117

 
(13
)

12,104

Income before income taxes
 
3,463

 
1,312


4,775

Total assets
 
3,918,065

 
68,536


3,986,601

 
 
 
 
 
 
 
Nine Months Ended November 2, 2019:
 
 
 
 



Net sales from external customers
 
$
4,132,890

 
$
147,724


$
4,280,614

Gross profit
 
1,392,057

 
1,994


1,394,051

Depreciation and amortization
 
162,364

 
526


162,890

Interest and debt expense (income), net
 
35,104

 
(83
)

35,021

Income (loss) before income taxes
 
52,023

 
(500
)

51,523

Total assets
 
3,753,211

 
46,852


3,800,063

 
 
 
 
 
 
 
Nine Months Ended November 3, 2018
 
 
 
 



Net sales from external customers
 
$
4,161,992

 
$
183,506


$
4,345,498

Gross profit
 
1,463,251

 
6,392


1,469,643

Depreciation and amortization
 
167,513

 
473


167,986

Interest and debt expense (income), net
 
40,480

 
(33
)

40,447

Income before income taxes
 
102,385

 
1,800


104,185

Total assets
 
3,918,065

 
68,536


3,986,601


 
Intersegment construction revenues of $8.2 million and $9.3 million for the three months ended November 2, 2019 and November 3, 2018, respectively, and $22.8 million and $21.4 million for the nine months ended November 2, 2019 and November 3, 2018, respectively, were eliminated during consolidation and have been excluded from net sales for the respective periods.

The retail operations segment gives rise to contract liabilities through the loyalty program and through the issuances of gift cards. The loyalty program liability and a portion of the gift card liability is included in trade accounts payable and accrued expenses, and a portion of the gift card liability is included in other liabilities on the condensed consolidated balance sheets. Our retail operations segment contract liabilities are as follows:

Retail
 
 
(in thousands of dollars)
 
November 2,
2019
 
February 2,
2019
 
November 3,
2018
 
February 3,
2018
Contract liabilities
 
$
60,742

 
$
72,852

 
$
56,704

 
$
73,059




13



During the nine months ended November 2, 2019 and November 3, 2018, the Company recorded $45.2 million and $47.1 million, respectively, in revenue that was previously included in the retail operations contract liability balances of $72.9 million and $73.1 million, at February 2, 2019 and February 3, 2018, respectively.
Construction contracts give rise to accounts receivable, contract assets and contract liabilities. We record accounts receivable based on amounts billed to customers. We also record costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) in other current assets and trade accounts payable and accrued expenses in the condensed consolidated balance sheets, respectively. The amounts included in the condensed consolidated balance sheets are as follows:
Construction
 
 
 
 
(in thousands of dollars)
 
November 2,
2019
 
February 2,
2019
 
November 3,
2018
 
February 3,
2018
Accounts receivable
 
$
33,154

 
$
31,867

 
$
51,603

 
$
20,136

Costs and estimated earnings in excess of billings on uncompleted contracts
 
2,479

 
1,165

 
1,823

 
1,213

Billings in excess of costs and estimated earnings on uncompleted contracts
 
6,800

 
7,414

 
6,774

 
5,503


During the nine months ended November 2, 2019 and November 3, 2018, the Company recorded $7.1 million and $4.8 million, respectively, in revenue that was previously included in billings in excess of costs and estimated earnings on uncompleted contracts of $7.4 million and $5.5 million at February 2, 2019 and February 3, 2018, respectively.
The remaining performance obligations related to executed construction contracts totaled $71.9 million, $143.9 million and $318.6 million at November 2, 2019, February 2, 2019 and November 3, 2018, respectively.
Note 5. Earnings Per Share Data
 
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data). 
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net income
 
$
5,462

 
$
7,425

 
$
43,393

 
$
85,105

 
 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding
 
24,913

 
27,309

 
25,604

 
27,588

 
 
 
 
 
 
 
 
 
Basic and diluted earnings per share
 
$
0.22

 
$
0.27

 
$
1.69

 
$
3.08

 
The Company maintains a capital structure in which common stock is the only equity security issued and outstanding, and there were no shares of preferred stock, stock options, other dilutive securities or potentially dilutive securities issued or outstanding during the three and nine months ended November 2, 2019 and November 3, 2018.
 
Note 6.  Commitments and Contingencies
 
Various legal proceedings, in the form of lawsuits and claims, which occur in the normal course of business, are pending against the Company and its subsidiaries.  In the opinion of management, disposition of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, cash flows or results of operations.
 
At November 2, 2019, letters of credit totaling $20.6 million were issued under the Company’s revolving credit facility.


14


Note 7.  Benefit Plans
 
The Company has an unfunded, nonqualified defined benefit plan (“Pension Plan”) for its officers.  The Pension Plan is noncontributory and provides benefits based on years of service and compensation during employment.  The Company determines pension expense using an actuarial cost method to estimate the total benefits ultimately payable to officers and allocates this cost to service periods.  The actuarial assumptions used to calculate pension costs are reviewed annually.  The Company contributed $1.4 million and $4.1 million to the Pension Plan during the three and nine months ended November 2, 2019, respectively, and expects to make additional contributions to the Pension Plan of approximately $1.4 million during the remainder of fiscal 2019.
 
The components of net periodic benefit costs are as follows (in thousands): 
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Components of net periodic benefit costs:
 
 

 
 

 
 

 
 

Service cost
 
$
906

 
$
922

 
$
2,716

 
$
2,766

Interest cost
 
1,916

 
1,783

 
5,750

 
5,349

Net actuarial loss
 

 
132

 

 
396

Net periodic benefit costs
 
$
2,822

 
$
2,837

 
$
8,466

 
$
8,511

The service cost component of net periodic benefit costs is included in selling, general and administrative expenses, and the interest cost and net actuarial loss components are included in other expense. 

Note 8.  Revolving Credit Agreement
 
At November 2, 2019, the Company maintained an unsecured revolving credit facility that provides a borrowing capacity of $800 million with a $200 million expansion option and matures on August 9, 2022 (“credit agreement”). The credit agreement is available to the Company for general corporate purposes including, among other uses, working capital financing, the issuance of letters of credit, capital expenditures and, subject to certain restrictions, the repayment of existing indebtedness and share repurchases. The Company pays a variable rate of interest on borrowings under the credit agreement and a commitment fee to the participating banks based on the Company's debt rating. The rate of interest on borrowings is LIBOR plus 1.375%, and the commitment fee for unused borrowings is 0.20% per annum.  

At November 2, 2019, $98.6 million in borrowings were outstanding, and letters of credit totaling $20.6 million were issued under the credit agreement leaving unutilized availability under the facility of $680.8 million.

To be in compliance with the financial covenants of the credit agreement, the Company's total leverage ratio cannot exceed 3.5 to 1.0, and the coverage ratio cannot be less than 2.5 to 1.0, as defined in the credit agreement. At November 2, 2019, the Company was in compliance with all financial covenants related to the credit agreement.

Note 9.  Stock Repurchase Program
 
In March 2018, the Company's Board of Directors authorized the Company to repurchase up to $500 million of the Company’s Class A Common Stock pursuant to an open-ended stock repurchase plan (the "March 2018 Plan"). The March 2018 Plan authorization permits the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 or through privately negotiated transactions.  The March 2018 plan has no expiration date.

The following is a summary of share repurchase activity for the periods indicated (in thousands, except per share data):
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Cost of shares repurchased
 
$
35,213

 
$
53,997

 
$
101,514

 
$
91,876

Number of shares repurchased
 
600

 
722

 
1,665

 
1,240

Average price per share
 
$
58.64

 
$
74.81

 
$
60.96

 
$
74.12




15


All repurchases of the Company’s Class A Common Stock above were made at the market price at the trade date.  Accordingly, all amounts paid to reacquire these shares were allocated to treasury stock. As of November 2, 2019, $305.4 million of authorization remained under the March 2018 Plan.

Note 10.  Income Taxes

During the three and nine months ended November 2, 2019, income taxes differed from what would be computed using the statutory federal tax rate primarily due to the effects of federal tax credits and state and local income taxes which included tax benefits recognized of approximately $2.8 million for amended state income tax return filings and related decreases to accrued state income taxes.

During the three and nine months ended November 3, 2018, income taxes differed from what would be computed using the statutory federal tax rate primarily due to tax benefits recognized of approximately $1.5 million for an update to the provisional amounts previously recorded related to the Tax Cuts and Jobs Act of 2017 (“the Act”); additional prior year federal tax credits of approximately $1.4 million; and current year federal tax credits partially offset by the effect of state and local income tax expense.

Note 11. Reclassifications from Accumulated Other Comprehensive Loss (“AOCL”)
 
Reclassifications from AOCL are summarized as follows (in thousands): 
 
 
Amount Reclassified from AOCL
 
 
 
Three Months Ended
 
Nine Months Ended
Affected Line Item in the Statement Where Net Income Is Presented
Details about AOCL Components
 
November 2, 2019
 
November 3, 2018
 
November 2,
2019
 
November 3,
2018
Defined benefit pension plan items
 
 

 
 

 
 

 
 

 
Amortization of actuarial losses
 
$

 
$
132

 
$

 
$
396

Total before tax (1)
 
 

 
32

 

 
95

Income tax expense
 
 
$

 
$
100

 
$

 
$
301

Total net of tax

For fiscal year 2019, there is no amortization of the net loss in AOCL as the net loss did not exceed 10% of the projected benefit obligation.
_______________________________
(1)        This item is included in the computation of net periodic pension cost.  See Note 7, Benefit Plans, for additional information. 

Note 12. Changes in Accumulated Other Comprehensive Loss
 
Changes in AOCL by component (net of tax) are summarized as follows (in thousands): 
 
 
Defined Benefit Pension Plan Items
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 2, 2019
 
November 3, 2018
 
November 2,
2019
 
November 3,
2018
Beginning balance
 
$
12,809

 
$
17,785

 
$
12,809

 
$
15,444

 
 
 
 
 
 
 
 
 
Amounts reclassified from AOCL
 

 
(100
)
 

 
(301
)
Reclassification due to the adoption of ASU No. 2018-02
 

 

 

 
2,542

 
 
 
 
 
 
 
 
 
Ending balance
 
$
12,809

 
$
17,685

 
$
12,809


$
17,685


 

16


Note 13. Leases

We adopted the requirements of ASU No. 2016-02 as of February 3, 2019, utilizing the optional effective date transition method allowing the application of the new standard at the adoption date with comparative periods presented in accordance with ASC 840, Leases. At adoption, we made the following practical expedient policy elections:
We applied the new standard using the package of practical expedients permitted under the transition guidance, which allowed us to not reassess:
Whether any expired or existing contracts are or contain leases;
Lease classification for any expired or existing leases, which allowed us to carry forward the historical lease classifications; and
Indirect costs for any existing leases.
We elected the practical expedient that allowed us to use hindsight in determining the lease term.
We elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements.
We elected the accounting policy to not recognize a right-of-use asset and operating lease liability for leases with an initial term of twelve months or less. The Company records lease expense for short term leases on a straight-line basis over the lease term in rentals on the condensed consolidated statements of operations.

We elected the accounting policy to account for lease components (e.g. fixed rent payments) separately from non-lease components (e.g. common area maintenance costs).

The Company leases retail stores, office space and equipment under operating leases. The majority of these operating leases were impacted by the adoption of the new standard. At adoption, we recorded right-of-use operating lease assets and operating lease liabilities totaling $57.0 million and $56.2 million, respectively. As of November 2, 2019, right-of-use operating lease assets, which are recorded in operating lease assets in the condensed consolidated balance sheets, totaled $48.6 million, and operating lease liabilities, which are recorded in current portion of operating lease liabilities and operating lease liabilities, totaled $48.2 million. The impact of the adoption of the new standard was immaterial to our condensed consolidated statements of income, condensed consolidated statements of cash flows and condensed consolidated statements of stockholders' equity.
In determining our operating lease assets and operating lease liabilities, we applied an incremental borrowing rate to the minimum lease payments within each lease agreement. ASU No. 2016-02 requires the use of the rate implicit in the lease whenever that rate is readily determinable; furthermore, if the implicit rate is not readily determinable, a lessee may use its incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. To estimate our specific incremental borrowing rates that align with applicable lease terms, we utilized a model consistent with the credit quality of our outstanding debt instruments.
Renewal options from two to 20 years exist on the majority of leased properties. The Company has sole discretion in exercising the lease renewal options. We do not recognize operating lease assets or operating lease liabilities for renewal periods unless it has been determined that we are reasonably certain of renewing the lease at inception. The depreciable life of operating lease assets and related leasehold improvements is limited by the expected lease term.
Contingent rentals on certain leases are based on a percentage of annual sales in excess of specified amounts. Other contingent rentals are based entirely on a percentage of sales. The Company's operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.






17


The following table summarizes the Company's operating and finance leases:
(in thousands of dollars)
Classification - Condensed Consolidated Balance Sheets
 
November 2, 2019
 
February 2, 2019(a)
 
November 3, 2018(a)
Assets
 
 
 
 
 
 
 
Finance lease assets
Property and equipment, net (b)
 
$
776

 
$
1,093

 
$
1,213

Operating lease assets
Operating lease assets
 
48,600

 

 

Total leased assets
 
 
$
49,376


$
1,093


$
1,213

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Current
 
 
 
 
 
 
 
     Finance
Current portion of finance lease liabilities
 
$
1,148

 
$
1,214

 
$
1,187

     Operating
Current portion of operating lease liabilities
 
15,250

 

 

Noncurrent
 
 
 
 
 
 
 
     Finance
Finance lease liabilities
 
1,029

 
1,666

 
1,980

     Operating
Operating lease liabilities
 
32,958