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1. Business and basis of presentation
On January 29, 2017, Ulta Salon, Cosmetics & Fragrance, Inc. implemented a holding company reorganization pursuant to which Ulta Beauty, Inc., which was incorporated as a Delaware corporation in December 2016, became the successor to Ulta Salon, Cosmetics & Fragrance, Inc., the former publicly traded company and now a wholly owned subsidiary of Ulta Beauty, Inc. As used in these notes and throughout this Quarterly Report on Form 10-Q, all references to “we,” “us,” “our,” “Ulta Beauty” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries.
The Company was originally founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. The stores also feature full-service salons. As of April 29, 2017, the Company operated 990 stores in 48 states and the District of Columbia, as shown in the table below.
Location |
Number of stores |
|||
Alabama |
17 | |||
Alaska |
3 | |||
Arizona |
25 | |||
Arkansas |
7 | |||
California |
124 | |||
Colorado |
20 | |||
Connecticut |
12 | |||
Delaware |
3 | |||
District of Columbia |
1 | |||
Florida |
66 | |||
Georgia |
29 | |||
Idaho |
7 | |||
Illinois |
47 | |||
Indiana |
18 | |||
Iowa |
8 | |||
Kansas |
9 | |||
Kentucky |
10 | |||
Louisiana |
16 | |||
Maine |
3 | |||
Maryland |
16 | |||
Massachusetts |
15 | |||
Michigan |
43 | |||
Minnesota |
13 | |||
Mississippi |
9 | |||
Missouri |
17 | |||
Montana |
5 | |||
Nebraska |
5 | |||
Nevada |
14 | |||
New Hampshire |
7 | |||
New Jersey |
25 | |||
New Mexico |
6 | |||
New York |
36 | |||
North Carolina |
28 | |||
North Dakota |
3 | |||
Ohio |
38 | |||
Oklahoma |
16 | |||
Oregon |
11 | |||
Pennsylvania |
37 | |||
Rhode Island |
2 | |||
South Carolina |
15 | |||
South Dakota |
2 | |||
Tennessee |
19 | |||
Texas |
97 | |||
Utah |
12 | |||
Virginia |
25 | |||
Washington |
23 | |||
West Virginia |
6 | |||
Wisconsin |
18 | |||
Wyoming |
2 | |||
|
|
|||
Total |
990 |
The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and the U.S. Securities and Exchange Commission’s Article 10, Regulation S-X. These consolidated financial statements were prepared on a consolidated basis to include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions and unrealized profit were eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to fairly state the financial position and results of operations and cash flows for the interim periods presented.
The Company’s business is subject to seasonal fluctuation. Significant portions of the Company’s net sales and net income are realized during the fourth quarter of the fiscal year due to the holiday selling season. The results for the 13 weeks ended April 29, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending February 3, 2018, or for any other future interim period or for any future year.
These interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 28, 2017. All amounts are stated in thousands, with the exception of per share amounts and number of stores.
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2. Summary of significant accounting policies
Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the financial statements in the Company’s Annual Report on Form 10-K for the year ended January 28, 2017. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Financial Statements” in the Annual Report.
Fiscal quarter
The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s first quarters in fiscal 2017 and 2016 ended on April 29, 2017 and April 30, 2016, respectively.
Share-based compensation
The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line method over the requisite service period for awards expected to vest. The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:
13 Weeks Ended | ||||||||
April 29, 2017 | April 30, 2016 | |||||||
Volatility rate |
31.0 | % | 35.0 | % | ||||
Average risk-free interest rate |
1.6 | % | 1.2 | % | ||||
Average expected life (in years) |
3.5 | 3.5 | ||||||
Dividend yield |
None | None |
The Company granted 103 and 105 stock options during the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. The compensation cost that has been charged against operating income for stock option grants was $2,142 and $1,983 for the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. The weighted-average grant date fair value of these options was $70.12 and $52.55, respectively. At April 29, 2017, there was approximately $24,899 of unrecognized compensation expense related to unvested stock options.
The Company issued 35 and 41 restricted stock units during the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. The compensation cost that has been charged against operating income for restricted stock units was $2,099 and $1,561 for the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. At April 29, 2017, there was approximately $19,299 of unrecognized compensation expense related to restricted stock units.
The Company issued 21 and 24 performance-based restricted stock units during the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. The compensation cost that has been charged against operating income for performance-based restricted stock units was $1,250 and $478 for the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. At April 29, 2017, there was approximately $13,016 of unrecognized compensation expense related to performance-based restricted stock units.
Recent accounting pronouncements not yet adopted
Revenue Recognition from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification Topic 606 (ASU 2014-09). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that the Company will recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606), which delayed the effective date of ASU 2014-09 by one year. With the deferral, the revenue recognition standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods, with early adoption permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08) which further clarifies how to implement revenue recognition guidance related to determining whether an entity is a principal or an agent in a revenue transaction. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10) which further clarifies the aspects of (a) identifying performance obligations and (b) the licensing implementation guidance. The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. These standards allow for either full retrospective or modified retrospective adoption.
The Company is currently evaluating the overall impact that ASU 2014-09 and its related amendments will have on our consolidated financial statements. The Company will adopt the new guidance in fiscal 2018, and anticipates using the modified retrospective method. The Company formed a project team to review our current accounting policies and practices, assess the effect of the standard on our revenue transactions and identify potential differences. ASU 2014-09 is expected to impact the recognition timing or classification of revenues and expenses for our sales refund reserve (by grossing up the balance sheet to record a refund obligation and right of return asset instead of recognizing revenue net of returns), gift card breakage (by including breakage within net sales instead of selling, general and administrative expenses under the proportional model), and loyalty program accounting (by using the deferred revenue method instead of the incremental cost method), however, the Company does not expect a significant impact to pretax income upon adoption. In addition, the Company is in the process of evaluating changes to our business processes and controls to support recognition and disclosure under the new standard.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard will change the way all leases of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and recognize an associated financing lease liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases under current GAAP as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and have the option to use certain relief. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods. Early adoption is permitted.
The Company has made a decision to early adopt the new standard in fiscal 2018. The Company has formed a project team to review our current accounting policies and practices and assess the effect of the standard on our consolidated financial statements. The team has completed a preliminary assessment of the potential impact of adopting ASU 2016-02 on our consolidated financial statements. The adoption of ASU 2016-02 will have a material impact on the Company’s financial position, however the Company does not believe adoption of this standard will have a material impact on the Company’s consolidated results of operations or cash flows.
Liabilities – Extinguishments of Liabilities
In March 2016, the FASB issued ASU 2016-04, Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored – Value Products. This update entitles a company to derecognize amounts related to expected breakage to the extent that it is probable a significant reversal of the recognized breakage amount will not subsequently occur. ASU 2016-04 should be applied either using a modified retrospective transition method or retrospectively. ASU 2016-04 is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The adoption of ASU 2016-04 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). ASU 2016-15 provides classification guidance on certain cash receipts and cash payments, including, but not limited to, debt prepayment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of bank-owned life insurance policies and distributions received from equity method investees. The adoption of ASU 2016-15 requires a retrospective transition method applied to each period presented. ASU 2016-15 is effective for annual periods and interim periods beginning after December 15, 2017, and early adoption is permitted. The adoption of ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force), which amends ASU Topic 230. ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer be required to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those years and early adoption is permitted. Entities are required to apply the guidance retrospectively. The adoption of ASU 2016-18 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Recently adopted accounting pronouncements
Compensation – Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance will change how companies account for certain aspects of share-based payments to employees. Companies will have to recognize all income tax effects of awards in the income statement when the awards vest or are settled, and additional paid-in capital pools will be eliminated. The guidance on employer’s accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing, and two practical expedients for non-public entities have been added. ASU 2016-09 was effective for annual and interim reporting periods beginning after December 15, 2016.
The Company adopted the new guidance prospectively in the first quarter of fiscal 2017. The adoption resulted in a $7,734 decrease in the first quarter 2017 provision for income taxes due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. The extent of excess tax benefits or deficiencies is subject to variation in the Company’s stock price and timing/extent of restricted stock units vesting and employee stock option exercises. Additionally, our consolidated statements of cash flows now present such tax benefits or deficiencies as an operating activity on a prospective basis. Based on the adoption methodology applied, the statement of cash flows classification of prior periods has not been adjusted. The Company did not change its accounting principles relative to elements of this standard and continued its existing practice of estimating the number of awards that will be forfeited.
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3. Commitments and contingencies
Leases – The Company leases retail stores, distribution and office facilities, and certain equipment. Original non-cancelable lease terms range from three to ten years, and store leases generally contain renewal options for additional years. Total rent expense under operating leases was $56,784 and $49,159 for the 13 weeks ended April 29, 2017 and April 30, 2016, respectively.
General litigation – The Company is involved in various legal proceedings that are incidental to the conduct of our business. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company’s results of operations, consolidated financial position or liquidity.
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4. Notes payable
In 2011, the Company entered into an Amended and Restated Loan and Security Agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder, Wells Fargo Capital Finance LLC as a Lender, J.P. Morgan Securities LLC as a Lender, JP Morgan Chase Bank, N.A. as a Lender and PNC Bank, National Association, as a Lender, which has been amended multiple times since 2011 (as amended, the Loan Agreement). The Loan Agreement currently matures in December 2018, provides maximum revolving loans equal to the lesser of $200,000 or a percentage of eligible owned inventory, contains a $10,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $50,000, subject to consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a minimum amount of excess borrowing availability at all times. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the facility. Outstanding borrowings will bear interest at the prime rate or London Interbank Offered Rate plus 1.50% and the unused line fee is 0.20%.
As of April 29, 2017, January 28, 2017 and April 30, 2016, the Company had no borrowings outstanding under the credit facility and the Company was in compliance with all terms and covenants of the agreement.
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5. Fair Value Measurements
The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their estimated fair values due to the short maturities of these instruments.
Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows:
• | Level 1 – observable inputs such as quoted prices for identical instruments in active markets. |
• | Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data. |
• | Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions. |
As of April 29, 2017, January 28, 2017 and April 30, 2016, the Company held financial liabilities of $13,259, $10,474 and $10,191, respectively, related to its non-qualified deferred compensation plan. The liabilities have been categorized as Level 2 as they are based on third-party reported values which are based primarily on quoted market prices of underlying assets of the funds within the plan.
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6. Investments
The Company’s short-term investments as of April 29, 2017, January 28, 2017 and April 30, 2016 consist of $150,000, $30,000 and $130,000, respectively, in certificates of deposit. These short-term investments are carried at cost, which approximates fair value and are recorded in the Consolidated Balance Sheets in Short-term investments. The contractual maturity of the Company’s investments was less than twelve months at April 29, 2017.
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Fiscal quarter
The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s first quarters in fiscal 2017 and 2016 ended on April 29, 2017 and April 30, 2016, respectively.
Share-based compensation
The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line method over the requisite service period for awards expected to vest. The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:
13 Weeks Ended | ||||||||
April 29, 2017 | April 30, 2016 | |||||||
Volatility rate |
31.0 | % | 35.0 | % | ||||
Average risk-free interest rate |
1.6 | % | 1.2 | % | ||||
Average expected life (in years) |
3.5 | 3.5 | ||||||
Dividend yield |
None | None |
The Company granted 103 and 105 stock options during the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. The compensation cost that has been charged against operating income for stock option grants was $2,142 and $1,983 for the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. The weighted-average grant date fair value of these options was $70.12 and $52.55, respectively. At April 29, 2017, there was approximately $24,899 of unrecognized compensation expense related to unvested stock options.
The Company issued 35 and 41 restricted stock units during the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. The compensation cost that has been charged against operating income for restricted stock units was $2,099 and $1,561 for the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. At April 29, 2017, there was approximately $19,299 of unrecognized compensation expense related to restricted stock units.
The Company issued 21 and 24 performance-based restricted stock units during the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. The compensation cost that has been charged against operating income for performance-based restricted stock units was $1,250 and $478 for the 13 weeks ended April 29, 2017 and April 30, 2016, respectively. At April 29, 2017, there was approximately $13,016 of unrecognized compensation expense related to performance-based restricted stock units.
Recent accounting pronouncements not yet adopted
Revenue Recognition from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification Topic 606 (ASU 2014-09). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that the Company will recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606), which delayed the effective date of ASU 2014-09 by one year. With the deferral, the revenue recognition standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods, with early adoption permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08) which further clarifies how to implement revenue recognition guidance related to determining whether an entity is a principal or an agent in a revenue transaction. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10) which further clarifies the aspects of (a) identifying performance obligations and (b) the licensing implementation guidance. The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. These standards allow for either full retrospective or modified retrospective adoption.
The Company is currently evaluating the overall impact that ASU 2014-09 and its related amendments will have on our consolidated financial statements. The Company will adopt the new guidance in fiscal 2018, and anticipates using the modified retrospective method. The Company formed a project team to review our current accounting policies and practices, assess the effect of the standard on our revenue transactions and identify potential differences. ASU 2014-09 is expected to impact the recognition timing or classification of revenues and expenses for our sales refund reserve (by grossing up the balance sheet to record a refund obligation and right of return asset instead of recognizing revenue net of returns), gift card breakage (by including breakage within net sales instead of selling, general and administrative expenses under the proportional model), and loyalty program accounting (by using the deferred revenue method instead of the incremental cost method), however, the Company does not expect a significant impact to pretax income upon adoption. In addition, the Company is in the process of evaluating changes to our business processes and controls to support recognition and disclosure under the new standard.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard will change the way all leases of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and recognize an associated financing lease liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases under current GAAP as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and have the option to use certain relief. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods. Early adoption is permitted.
The Company has made a decision to early adopt the new standard in fiscal 2018. The Company has formed a project team to review our current accounting policies and practices and assess the effect of the standard on our consolidated financial statements. The team has completed a preliminary assessment of the potential impact of adopting ASU 2016-02 on our consolidated financial statements. The adoption of ASU 2016-02 will have a material impact on the Company’s financial position, however the Company does not believe adoption of this standard will have a material impact on the Company’s consolidated results of operations or cash flows.
Liabilities – Extinguishments of Liabilities
In March 2016, the FASB issued ASU 2016-04, Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored – Value Products. This update entitles a company to derecognize amounts related to expected breakage to the extent that it is probable a significant reversal of the recognized breakage amount will not subsequently occur. ASU 2016-04 should be applied either using a modified retrospective transition method or retrospectively. ASU 2016-04 is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The adoption of ASU 2016-04 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). ASU 2016-15 provides classification guidance on certain cash receipts and cash payments, including, but not limited to, debt prepayment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of bank-owned life insurance policies and distributions received from equity method investees. The adoption of ASU 2016-15 requires a retrospective transition method applied to each period presented. ASU 2016-15 is effective for annual periods and interim periods beginning after December 15, 2017, and early adoption is permitted. The adoption of ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force), which amends ASU Topic 230. ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer be required to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those years and early adoption is permitted. Entities are required to apply the guidance retrospectively. The adoption of ASU 2016-18 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Recently adopted accounting pronouncements
Compensation – Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance will change how companies account for certain aspects of share-based payments to employees. Companies will have to recognize all income tax effects of awards in the income statement when the awards vest or are settled, and additional paid-in capital pools will be eliminated. The guidance on employer’s accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing, and two practical expedients for non-public entities have been added. ASU 2016-09 was effective for annual and interim reporting periods beginning after December 15, 2016.
The Company adopted the new guidance prospectively in the first quarter of fiscal 2017. The adoption resulted in a $7,734 decrease in the first quarter 2017 provision for income taxes due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. The extent of excess tax benefits or deficiencies is subject to variation in the Company’s stock price and timing/extent of restricted stock units vesting and employee stock option exercises. Additionally, our consolidated statements of cash flows now present such tax benefits or deficiencies as an operating activity on a prospective basis. Based on the adoption methodology applied, the statement of cash flows classification of prior periods has not been adjusted. The Company did not change its accounting principles relative to elements of this standard and continued its existing practice of estimating the number of awards that will be forfeited.
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As of April 29, 2017, the Company operated 990 stores in 48 states and the District of Columbia, as shown in the table below.
Location |
Number of stores |
|||
Alabama |
17 | |||
Alaska |
3 | |||
Arizona |
25 | |||
Arkansas |
7 | |||
California |
124 | |||
Colorado |
20 | |||
Connecticut |
12 | |||
Delaware |
3 | |||
District of Columbia |
1 | |||
Florida |
66 | |||
Georgia |
29 | |||
Idaho |
7 | |||
Illinois |
47 | |||
Indiana |
18 | |||
Iowa |
8 | |||
Kansas |
9 | |||
Kentucky |
10 | |||
Louisiana |
16 | |||
Maine |
3 | |||
Maryland |
16 | |||
Massachusetts |
15 | |||
Michigan |
43 | |||
Minnesota |
13 | |||
Mississippi |
9 | |||
Missouri |
17 | |||
Montana |
5 | |||
Nebraska |
5 | |||
Nevada |
14 | |||
New Hampshire |
7 | |||
New Jersey |
25 | |||
New Mexico |
6 | |||
New York |
36 | |||
North Carolina |
28 | |||
North Dakota |
3 | |||
Ohio |
38 | |||
Oklahoma |
16 | |||
Oregon |
11 | |||
Pennsylvania |
37 | |||
Rhode Island |
2 | |||
South Carolina |
15 | |||
South Dakota |
2 | |||
Tennessee |
19 | |||
Texas |
97 | |||
Utah |
12 | |||
Virginia |
25 | |||
Washington |
23 | |||
West Virginia |
6 | |||
Wisconsin |
18 | |||
Wyoming |
2 | |||
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Total |
990 |
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The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:
13 Weeks Ended | ||||||||
April 29, 2017 | April 30, 2016 | |||||||
Volatility rate |
31.0 | % | 35.0 | % | ||||
Average risk-free interest rate |
1.6 | % | 1.2 | % | ||||
Average expected life (in years) |
3.5 | 3.5 | ||||||
Dividend yield |
None | None |
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