Company Quick10K Filing
Stage Stores
Price2.08 EPS-3
Shares29 P/E-1
MCap60 P/FCF-1
Net Debt339 EBIT-74
TEV399 TEV/EBIT-5
TTM 2019-11-02, in MM, except price, ratios
10-Q 2019-11-02 Filed 2019-12-12
10-Q 2019-08-03 Filed 2019-09-12
10-Q 2019-05-04 Filed 2019-06-13
10-K 2019-02-02 Filed 2019-04-05
10-Q 2018-11-03 Filed 2018-12-12
10-Q 2018-08-04 Filed 2018-09-13
10-Q 2018-05-05 Filed 2018-06-14
10-K 2018-02-03 Filed 2018-04-10
10-Q 2017-10-28 Filed 2017-12-07
10-Q 2017-07-29 Filed 2017-09-07
10-Q 2017-04-29 Filed 2017-06-08
10-K 2017-01-28 Filed 2017-04-04
10-Q 2016-10-29 Filed 2016-12-08
10-Q 2016-07-30 Filed 2016-09-08
10-Q 2016-04-30 Filed 2016-06-06
10-K 2016-01-30 Filed 2016-03-30
10-Q 2015-10-31 Filed 2015-12-10
10-Q 2015-08-01 Filed 2015-09-10
10-Q 2015-05-02 Filed 2015-06-11
10-K 2015-01-31 Filed 2015-04-01
10-Q 2014-11-01 Filed 2014-12-11
10-Q 2014-08-02 Filed 2014-09-11
10-Q 2014-05-03 Filed 2014-06-10
10-K 2014-02-01 Filed 2014-04-02
10-Q 2013-08-03 Filed 2013-09-12
10-Q 2013-05-04 Filed 2013-06-13
10-K 2013-02-02 Filed 2013-04-03
10-Q 2012-10-27 Filed 2012-12-06
10-Q 2012-07-28 Filed 2012-09-06
10-Q 2012-04-28 Filed 2012-06-07
10-K 2012-01-28 Filed 2012-03-28
10-Q 2011-10-29 Filed 2011-12-07
10-Q 2011-07-30 Filed 2011-09-07
10-Q 2011-04-30 Filed 2011-06-09
10-K 2011-01-29 Filed 2011-03-30
10-Q 2010-10-30 Filed 2010-12-09
10-Q 2010-07-31 Filed 2010-09-08
10-Q 2010-05-01 Filed 2010-06-09
10-K 2010-01-30 Filed 2010-03-30
8-K 2020-05-10
8-K 2020-04-30
8-K 2020-04-10
8-K 2020-03-27
8-K 2020-03-12
8-K 2020-01-13
8-K 2020-01-13
8-K 2019-11-21
8-K 2019-11-21
8-K 2019-11-07
8-K 2019-10-23
8-K 2019-10-03
8-K 2019-09-25
8-K 2019-09-17
8-K 2019-08-22
8-K 2019-08-08
8-K 2019-07-29
8-K 2019-07-23
8-K 2019-06-24
8-K 2019-06-20
8-K 2019-05-31
8-K 2019-05-23
8-K 2019-05-09
8-K 2019-04-04
8-K 2019-03-28
8-K 2019-03-07
8-K 2019-02-21
8-K 2019-02-04
8-K 2019-01-28
8-K 2019-01-14
8-K 2019-01-11
8-K 2019-01-02
8-K 2018-11-20
8-K 2018-11-08
8-K 2018-09-04
8-K 2018-08-23
8-K 2018-08-09
8-K 2018-08-08
8-K 2018-08-08
8-K 2018-08-03
8-K 2018-06-07
8-K 2018-06-06
8-K 2018-05-10
8-K 2018-03-19
8-K 2018-03-08
8-K 2018-02-27
8-K 2018-02-22
8-K 2018-02-03
8-K 2018-01-08
8-K 2018-01-02

SSI 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Fair Value Measurements
Note 3 - Property, Equipment and Leasehold Improvements
Note 4 - Debt Obligations
Note 5 - Revenue
Note 6 - Leases
Note 7 - Stock - Based Compensation
Note 8 - Pension Plan
Note 9 - Earnings per Share
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex311q32019.htm
EX-31.2 ex312q32019.htm
EX-32 ex32q32019.htm

Stage Stores Earnings 2019-11-02

Balance SheetIncome StatementCash Flow
1.21.00.70.50.20.02012201420172020
Assets, Equity
0.60.50.30.20.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.10.0-0.0-0.12012201420172020
Ops, Inv, Fin

Document
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Certain store leases provide for contingent rent payments based on a percentage of retail sales over contractual levels. Some of our leases include variable payments for maintenance, taxes and insurance.24000005500000Settles in cash ranging from zero to a maximum of twice the number of target units awarded multiplied by the fair market value of one share of our common stock on the vesting date.Converts to common stock (unless otherwise determined by our Board of Directors, or its Compensation Committee) ranging from zero to a maximum of twice the number of granted shares outstanding on the vesting date.517500051750005175000Non-cash pension settlement charges were recognized as a result of lump sum distributions exceeding interest cost for the nine months ended November 2, 2019 and November 3, 2018, respectively.Includes adjustments related to deferred revenue, estimated sales returns, breakage income, shipping and miscellaneous revenues, which are not allocated to merchandise categories.Related to the adoption of the new lease accounting standard. 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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 1-14035

Stage Stores, Inc.
(Exact name of registrant as specified in its charter)
Nevada
 
91-1826900
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
2425 West Loop South
 
77027
Houston,
Texas
 
(Zip Code)
(Address of principal executive offices)
 
 

(800) 579-2302
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock ($0.01 par value)
SSI
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.  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). 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. (Check one):
Large accelerated filer
 
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 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 No

As of December 4, 2019, there were 28,911,336 shares of the registrant’s common stock outstanding.



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
Page No.
Item 1.
 
 
 
 
 
November 2, 2019, February 2, 2019 and November 3, 2018
 
 
 
 
Three and Nine Months Ended November 2, 2019 and November 3, 2018
 
 
 
 
Nine Months Ended November 2, 2019 and November 3, 2018
 
 
 
 
Three and Nine Months Ended November 2, 2019 and November 3, 2018
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
 
 





PART I – FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
Stage Stores, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par value)
(Unaudited)
 
 
 
 
 
 
 
November 2, 2019
 
February 2, 2019
 
November 3, 2018
ASSETS
 
 
 
 
 
Cash and cash equivalents
$
26,268

 
$
15,830

 
$
25,825

Merchandise inventories, net
581,495

 
424,555

 
602,283

Prepaid expenses and other current assets
43,754

 
52,518

 
47,181

Total current assets
651,517

 
492,903

 
675,289

 
 
 
 
 
 
Property, equipment and leasehold improvements, net of accumulated depreciation of $778,376, $733,366 and $736,014, respectively
181,716

 
224,803

 
229,942

Operating lease assets
319,036

 

 

Intangible assets
1,900

 
2,225

 
17,135

Other non-current assets, net
19,544

 
24,230

 
23,152

Total assets
$
1,173,713

 
$
744,161

 
$
945,518

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

 
 
Accounts payable
$
176,304

 
$
106,825

 
$
190,070

Current portion of debt obligations
5,000

 
4,812

 
3,555

Current portion of operating lease liabilities
75,709

 

 

Accrued expenses and other current liabilities
86,767

 
65,715

 
80,320

Total current liabilities
343,780


177,352

 
273,945

 
 
 
 
 
 
Long-term debt obligations
360,123

 
250,294

 
345,840

Long-term operating lease liabilities
275,604

 

 

Other long-term liabilities
30,703

 
61,990

 
62,809

Total liabilities
1,010,210


489,636

 
682,594

 
 
 
 
 
 
Commitments and contingencies


 


 



 

 
 

 
 
Common stock, par value $0.01, 100,000 shares authorized, 34,076, 33,469 and 33,458 shares issued, respectively
341

 
335

 
335

Additional paid-in capital
426,606

 
423,535

 
422,539

Treasury stock, at cost, 5,175 shares, respectively
(44,444
)
 
(43,579
)
 
(43,527
)
Accumulated other comprehensive loss
(6,566
)
 
(5,857
)
 
(5,731
)
Accumulated deficit
(212,434
)
 
(119,909
)
 
(110,692
)
Total stockholders' equity
163,503

 
254,525

 
262,924

Total liabilities and stockholders' equity
$
1,173,713


$
744,161

 
$
945,518

 
 
 
 
 
 
 


The accompanying notes are an integral part of these condensed consolidated financial statements.
4


Stage Stores, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
Net sales
$
399,302

 
$
347,100

 
$
1,094,888

 
$
1,060,623

Credit income
15,678

 
13,324

 
42,774

 
43,143

Total revenues
414,980

 
360,424

 
1,137,662

 
1,103,766

Cost of sales and related buying, occupancy and distribution expenses
315,494

 
278,665

 
888,297

 
847,213

Selling, general and administrative expenses
111,180

 
109,774

 
324,066

 
327,965

Interest expense
4,070

 
3,350

 
12,187

 
8,253

Loss before income tax
(15,764
)

(31,365
)
 
(86,888
)

(79,665
)
Income tax expense (benefit)
150

 
(12
)
 
450

 
288

Net loss
$
(15,914
)

$
(31,353
)
 
$
(87,338
)

$
(79,953
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Amortization of employee benefit related costs, net of tax of $0, respectively
$
186

 
$
85

 
$
558

 
$
439

Pension settlement charges, net of tax of $0, respectively
270

 
411

 
270

 
411

Employee benefit related adjustment, net of tax of $0, respectively
(1,537
)
 
(1,404
)
 
(1,537
)
 
(1,404
)
Total other comprehensive loss
(1,081
)

(908
)
 
(709
)

(554
)
Comprehensive loss
$
(16,995
)

$
(32,261
)
 
$
(88,047
)

$
(80,507
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.55
)
 
$
(1.11
)
 
$
(3.04
)
 
$
(2.85
)
Diluted
$
(0.55
)
 
$
(1.11
)
 
$
(3.04
)
 
$
(2.85
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
28,886

 
28,261

 
28,706

 
28,059

Diluted
28,886

 
28,261

 
28,706

 
28,059

 
 
 
 
 
 
 
 



The accompanying notes are an integral part of these condensed consolidated financial statements.
5


Stage Stores, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
Nine Months Ended
 
November 2, 2019
 
November 3, 2018
Cash flows from operating activities:
 
 
 
Net loss
$
(87,338
)
 
$
(79,953
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation and amortization of long-lived assets
45,144

 
44,135

Impairment of long-lived assets
11,295

 
1,070

Gain on retirements of property, equipment and leasehold improvements
(302
)
 
(505
)
Non-cash operating lease expense
52,617

 

Stock-based compensation expense
2,276

 
3,854

Dividends charged to compensation expense
21

 

Amortization of debt issuance costs
512

 
248

Deferred compensation obligation
865

 
229

Amortization of employee benefit related costs and pension settlement charges
828

 
850

Construction allowances from landlords
4,833

 
757

Other changes in operating assets and liabilities:
 

 
 

Increase in merchandise inventories
(156,940
)
 
(163,906
)
Decrease in other assets
15,111

 
4,910

Decrease in operating lease liabilities
(56,234
)
 

Increase in accounts payable and other liabilities
90,402

 
51,394

Net cash used in operating activities
(76,910
)

(136,917
)
 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property, equipment and leasehold improvements
(25,145
)
 
(21,793
)
Proceeds from insurance and disposal of assets
2,887

 
2,349

Net cash used in investing activities
(22,258
)

(19,444
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from revolving credit facility borrowings
419,397

 
481,384

Payments of revolving credit facility borrowings
(305,818
)
 
(338,100
)
Proceeds from long-term debt obligation

 
25,000

Payments of long-term debt obligations
(3,008
)
 
(2,224
)
Payments of debt issuance costs
(36
)
 
(358
)
Payments for stock related compensation
(929
)
 
(424
)
Cash dividends paid

 
(4,342
)
Net cash provided by financing activities
109,606


160,936

Net increase in cash and cash equivalents
10,438


4,575

 
 
 
 
Cash and cash equivalents:
 

 
 

Beginning of period
15,830

 
21,250

End of period
$
26,268


$
25,825

 
 
 
 
Supplemental disclosures including non-cash investing and financing activities:
 

 
 

Interest paid
$
11,652

 
$
8,097

Income taxes paid (refunded)
$
417

 
$
(11
)
Unpaid liabilities for capital expenditures
$
3,255

 
$
3,624

 
 
 
 


The accompanying notes are an integral part of these condensed consolidated financial statements.
6


Stage Stores, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
(Unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Total
Balance at August 3, 2019
34,052

 
$
341

 
$
425,033

 
(5,175
)
 
$
(43,546
)
 
$
(5,485
)
 
$
(196,520
)
 
$
179,823

Net loss

 

 

 

 

 

 
(15,914
)
 
(15,914
)
Other comprehensive loss

 

 

 

 

 
(1,081
)
 

 
(1,081
)
Deferred compensation

 

 
898

 

 
(898
)
 

 

 

Issuance of equity awards, net
24

 

 

 

 

 

 

 

Tax withholdings paid for net settlement of stock awards

 

 
(16
)
 

 

 

 

 
(16
)
Stock-based compensation expense

 

 
691

 

 

 

 

 
691

Balance at November 2, 2019
34,076

 
$
341

 
$
426,606

 
(5,175
)
 
$
(44,444
)
 
$
(6,566
)
 
$
(212,434
)
 
$
163,503

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Total
Balance at August 4, 2018
33,418

 
$
334

 
$
421,621

 
(5,175
)
 
$
(43,388
)
 
$
(4,823
)
 
$
(77,909
)
 
$
295,835

Net loss

 

 

 

 

 

 
(31,353
)
 
(31,353
)
Other comprehensive loss

 

 

 

 

 
(908
)
 

 
(908
)
Dividends on common stock, $0.05 per share

 

 

 

 

 

 
(1,430
)
 
(1,430
)
Deferred compensation

 

 
139

 

 
(139
)
 

 

 

Issuance of equity awards, net
40

 
1

 
(1
)
 

 

 

 

 

Tax withholdings paid for net settlement of stock awards

 

 
(25
)
 

 

 

 

 
(25
)
Stock-based compensation expense

 

 
805

 

 

 

 

 
805

Balance at November 3, 2018
33,458

 
$
335

 
$
422,539

 
(5,175
)
 
$
(43,527
)
 
$
(5,731
)
 
$
(110,692
)
 
$
262,924

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7


Stage Stores, Inc.
Condensed Consolidated Statements of Stockholders’ Equity - continued
(in thousands, except per share amounts)
(Unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Total
Balance at February 2, 2019
33,469

 
$
335

 
$
423,535

 
(5,175
)
 
$
(43,579
)
 
$
(5,857
)
 
$
(119,909
)
 
$
254,525

Cumulative-effect adjustment (a)

 

 

 

 

 

 
(5,208
)
 
(5,208
)
Net loss

 

 

 

 

 

 
(87,338
)
 
(87,338
)
Other comprehensive loss

 

 

 

 

 
(709
)
 

 
(709
)
Deferred compensation

 

 
865

 

 
(865
)
 

 

 

Issuance of equity awards, net
607

 
6

 
(6
)
 

 

 

 

 

Tax withholdings paid for net settlement of stock awards

 

 
(64
)
 

 

 

 

 
(64
)
Stock-based compensation expense

 

 
2,276

 

 

 

 

 
2,276

Dividends on forfeited stock awards charged to compensation expense

 

 

 

 

 

 
21

 
21

Balance at November 2, 2019
34,076

 
$
341

 
$
426,606

 
(5,175
)
 
$
(44,444
)
 
$
(6,566
)
 
$
(212,434
)
 
$
163,503

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Related to the adoption of the new lease accounting standard. See Note 1 for further disclosures regarding the adoption impact.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Total
Balance at February 3, 2018
32,806

 
$
328

 
$
418,658

 
(5,175
)
 
$
(43,298
)
 
$
(5,177
)
 
$
(26,397
)
 
$
344,114

Net loss

 

 

 

 

 

 
(79,953
)
 
(79,953
)
Other comprehensive loss

 

 

 

 

 
(554
)
 

 
(554
)
Dividends on common stock, $0.15 per share

 

 

 

 

 

 
(4,342
)
 
(4,342
)
Deferred compensation

 

 
229

 

 
(229
)
 

 

 

Issuance of equity awards, net
652

 
7

 
(7
)
 

 

 

 

 

Tax withholdings paid for net settlement of stock awards

 

 
(195
)
 

 

 

 

 
(195
)
Stock-based compensation expense

 

 
3,854

 

 

 

 

 
3,854

Balance at November 3, 2018
33,458

 
$
335

 
$
422,539

 
(5,175
)
 
$
(43,527
)
 
$
(5,731
)
 
$
(110,692
)
 
$
262,924

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
8


Stage Stores, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1 - BASIS OF PRESENTATION
    
The accompanying condensed consolidated financial statements of Stage Stores, Inc. and its subsidiary (“we,” “us” or “our”) have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Those adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods have been made. Results of operations for such interim periods are not necessarily indicative of the results of operations for a full year due to seasonality and other factors. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto filed with our Annual Report on Form 10-K for the year ended February 2, 2019 (“Form 10-K”).    

We are a retailer of trend-right, moderately priced, name-brand apparel, accessories, cosmetics, footwear and home goods. As of November 2, 2019, we operated in 42 states through 617 BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES and STAGE department stores and 158 GORDMANS off-price stores, as well as an e-commerce website (www.stage.com). Our department stores are predominantly located in small towns and rural communities. Our off-price stores are predominantly located in smaller and mid-sized markets in the Midwest. In September 2019, we announced our plan to convert substantially all of our department stores to off-price beginning in February 2020. By the end of the third quarter of fiscal year 2020, we expect to be operating approximately 700 predominantly small-market, Gordmans stores, offering off-price values and broad assortments of name-brand merchandise in a fun, scarcity driven, treasure hunt experience.

References to a particular year are to our fiscal year, which is the 52- or 53-week period ending on the Saturday closest to January 31st of the following calendar year.  For example, a reference to “2019” is a reference to the fiscal year ending February 1, 2020, and “2018” is a reference to the fiscal year ended February 2, 2019. Fiscal years 2019 and 2018 are comprised of 52 weeks. References to the “three months ended November 2, 2019” and “three months ended November 3, 2018” are for the respective 13-week fiscal quarters. References to quarters relate to our fiscal quarters. References to the “nine months ended November 2, 2019” and “nine months ended November 3, 2018” are for the respective 39-week fiscal periods.

Recently Adopted Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (“ASU”) 2016-02, Leases (Topic 842), and subsequently issued related ASUs, which were incorporated into Topic 842. Under the new standard, lessees are required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the later of the lease commencement date and the date of adoption. The guidance also requires qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. We adopted the new standard on February 3, 2019, the first day of fiscal 2019.

Transition elections:

We elected to apply the effective date transition method as of the February 3, 2019 adoption date. Comparative periods prior to the adoption of the new standard have not been restated and are reported under the legacy guidance in Accounting Standards Codification (“ASC”) Topic 840, Leases.
We elected the package of practical expedients in the transition guidance, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.
We elected not to use the practical expedient of using hindsight to determine the lease term and in assessing impairment of the right-of-use assets.


9


Accounting policy elections:

We elected the short-term lease exemption for leases that have a lease term of twelve months or less. For leases that qualify for the short-term exemption, we will not recognize a right-of-use asset or liability and will recognize those lease expenses on a straight-line basis over the lease term.
We elected to not separate lease and non-lease components for all of our current lease classes.

The adoption of the standard resulted in the recognition of operating lease assets and liabilities of $344.2 million and $375.8 million, respectively, as of February 3, 2019. Included in the measurement of the operating lease assets and liabilities is the reclassification of balances historically recorded as deferred rent and deferred rent tenant allowances. We also recognized a cumulative effect charge of $5.2 million, net of tax, to the opening accumulated deficit balance. This adjustment reflects $5.8 million in depreciation of leasehold improvements associated with conforming the asset useful life to the remaining lease life as of the transition date. It also reflects $0.6 million associated with the derecognition of lease obligations that had been classified as finance obligations under the former failed sale-leaseback guidance applied to build-to-suit arrangements. Under the new standard, these leases are classified as operating leases. The adoption of the standard did not have a material impact on our results of operations or cash flows. In addition, our bank covenants under our Credit Facility were not affected by the adoption of the standard. See Note 6 for further disclosures regarding leases.

Recent Accounting Pronouncements Not Yet Adopted.    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, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The new standard will be effective for us in the first quarter of fiscal 2020, with early adoption permitted. The provisions of ASU 2018-13 applicable to us should be applied prospectively. We expect ASU 2018-13 to impact our disclosures by eliminating the disclosure of valuation processes for Level 3 fair value measurements, and adding disclosure of quantitative information, such as the range and weighted average, of significant unobservable inputs used to develop Level 3 fair value measurements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), which aligns the requirements for capitalizing implementation costs in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires disclosure of the nature of hosting arrangements that are service contracts. The new standard will be effective for us in the first quarter of fiscal 2020, with early adoption permitted. Upon adoption, we plan to apply the provisions of ASU 2018-15 prospectively. We expect the adoption to result in the recognition of prepaid expenses or other non-current assets that will be expensed over the contract term, whereas prior to adoption, these costs are recognized as long-lived assets and depreciated over the assets’ useful life. We do not expect the adoption to have a material impact on our financial condition, results of operations or cash flows.


10



NOTE 2 - FAIR VALUE MEASUREMENTS

We recognize or disclose the fair value of our financial and non-financial assets and liabilities on a recurring and non-recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we assume the highest and best use of the asset by market participants in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability.

We applied the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 –
Quoted prices in active markets for identical assets or liabilities.
 
 
Level 2 –
Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
 
Level 3 –
Inputs that are both unobservable and significant to the overall fair value measurement reflect our estimates of assumptions that market participants would use in pricing the asset or liability.
         


11



Financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
 
November 2, 2019
 
Balance
 
Quoted Prices in Active Markets for Identical Instruments
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Other assets:
 
 
 
 
 
 
 
Securities held in grantor trust for deferred
c