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Table of Contents

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 August 3, 2019
 
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 0-23071
______________________________________________________
 THE CHILDRENS PLACE, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
31-1241495
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification Number)
 
 
 
500 Plaza Drive
 
 
Secaucus, New Jersey
 
07094
(Address of Principal Executive Offices)
 
(Zip Code)

(201) 558-2400
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.10 par value
Trading Symbol: PLCE
Name of each exchange on which registered: Nasdaq Global Select Market
___________________________________________
 
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 x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
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 x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
 
Emerging growth company o
 
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.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x
 
The number of shares outstanding of the registrant’s common stock with a par value of $0.10 per share, as of August 23, 2019 was 15,570,960 shares.


Table of Contents

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
 
QUARTERLY REPORT ON FORM 10-Q
 
FOR THE PERIOD ENDED AUGUST 3, 2019
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.
CONSOLIDATED FINANCIAL STATEMENTS
 
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
August 3,
2019
 
February 2,
2019
 
August 4,
2018
 
(unaudited)
 
 
 
(unaudited)
 
(in thousands, except par value)
ASSETS
 

 
 

 
 

Current assets:
 

 
 

 
 

Cash and cash equivalents
$
65,357

 
$
69,136

 
$
106,405

Accounts receivable
39,638

 
35,123

 
47,622

Inventories
386,174

 
303,466

 
366,461

Prepaid expenses and other current assets
30,258

 
27,670

 
53,224

Total current assets
521,427

 
435,395

 
573,712

Long-term assets:
 

 
 

 
 

Property and equipment, net
248,777

 
260,357

 
257,055

Right-of-use assets
430,145

 

 

Tradenames, net
73,456

 

 

Deferred income taxes
15,590

 
17,750

 
8,484

Other assets
14,142

 
13,544

 
15,093

Total assets
$
1,303,537

 
$
727,046

 
$
854,344

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 
 

LIABILITIES:
 

 
 

 
 

Current liabilities:
 

 
 

 
 

Revolving loan
$
196,352

 
$
48,861

 
$
89,335

Accounts payable
236,619

 
194,786

 
250,184

Current lease liabilities
127,695

 

 

Income taxes payable
5,068

 
997

 
4,545

Accrued expenses and other current liabilities
108,463

 
86,755

 
103,244

Total current liabilities
674,197

 
331,399

 
447,308

Long-term liabilities:
 

 
 

 
 

Deferred rent liabilities

 
44,329

 
47,928

Long-term lease liabilities
341,828

 

 

Other tax liabilities
5,043

 
5,080

 
3,922

Income taxes payable
18,939

 
18,939

 
19,074

Other long-term liabilities
14,274

 
12,862

 
12,989

Total liabilities
1,054,281

 
412,609

 
531,221

COMMITMENTS AND CONTINGENCIES
 

 
 

 
 

STOCKHOLDERS’ EQUITY:
 

 
 

 
 

Preferred stock, $1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding

 

 

Common stock, $0.10 par value, 100,000 shares authorized; 15,720, 15,873 and 16,489 issued; 15,671, 15,827 and 16,442 outstanding
1,572

 
1,588

 
1,649

Additional paid-in capital
149,140

 
146,991

 
138,342

Treasury stock, at cost (49, 47 and 47 shares)
(2,816
)
 
(2,685
)
 
(2,560
)
Deferred compensation
2,816

 
2,685

 
2,560

Accumulated other comprehensive loss
(15,245
)
 
(14,934
)
 
(15,449
)
Retained earnings
113,789

 
180,792

 
198,581

Total stockholders’ equity
249,256

 
314,437

 
323,123

Total liabilities and stockholders’ equity
$
1,303,537

 
$
727,046

 
$
854,344

See accompanying notes to these consolidated financial statements.

1

Table of Contents

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
 
(In thousands, except earnings per share)
Net sales
$
420,470

 
$
448,718

 
$
832,851

 
$
885,031

Cost of sales (exclusive of depreciation and amortization)
281,624

 
293,912

 
542,030

 
570,034

Gross profit
138,846

 
154,806

 
290,821

 
314,997

Selling, general, and administrative expenses
116,417

 
124,210

 
244,423

 
242,680

Depreciation and amortization
18,472

 
16,595

 
37,056

 
34,001

Asset impairment charges
121

 
3,979

 
469

 
5,236

Operating income
3,836

 
10,022

 
8,873

 
33,080

Interest expense
(2,321
)
 
(1,035
)
 
(4,120
)
 
(1,697
)
Interest income
43

 
89

 
131

 
454

Income before provision for income taxes
1,558

 
9,076

 
4,884

 
31,837

Provision (benefit) for income taxes
35

 
1,590

 
(1,128
)
 
(7,186
)
Net income
$
1,523

 
$
7,486

 
$
6,012

 
$
39,023

 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.45

 
$
0.38

 
$
2.32

Diluted
$
0.10

 
$
0.45

 
$
0.38

 
$
2.27

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
15,818

 
16,636

 
15,832

 
16,819

Diluted
15,859

 
16,715

 
15,983

 
17,225

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.56

 
$
0.50

 
$
1.12

 
$
1.00

 
See accompanying notes to these consolidated financial statements.


2

Table of Contents

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)



 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
August 3, 2019
 
August 4, 2018
 
August 3, 2019
 
August 4, 2018
 
(In thousands)
Net income
$
1,523

 
$
7,486

 
$
6,012

 
$
39,023

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
286

 
(1,488
)
 
(397
)
 
(2,694
)
Change in fair value of cash flow hedges, net of income taxes
11

 
49

 
86

 
76

Total comprehensive income
$
1,820

 
$
6,047

 
$
5,701

 
$
36,405

 
See accompanying notes to these consolidated financial statements.


3

Table of Contents

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Other
 
 
 
 
 
Total
 
 
Common Stock
 
Paid-In
 
Deferred
 
Retained
 
Comprehensive
 
Treasury Stock
 
Stockholders'
(in thousands, except dividends per share)
 
Shares
 
Amount
 
Capital
 
Compensation
 
Earnings
 
Loss
 
Shares
 
Value
 
Equity
BALANCE, February 3, 2018
 
17,257

 
$
1,726

 
$
258,501

 
$
2,436

 
$
226,303

 
$
(12,831
)
 
(46
)
 
$
(2,436
)
 

$473,699

Vesting of stock awards
 
458

 
46

 
(70
)
 
 
 
 
 
 
 
 
 
 
 
(24
)
Stock-based compensation
 
 
 
 
 
8,801

 
 
 
 
 
 
 
 
 
 
 
8,801

Capitalized stock-based compensation
 
 
 
 
 
85

 
 
 
 
 
 
 
 
 
 
 
85

Purchase and retirement of shares
 
(306
)
 
(31
)
 
(25,000
)
 
 
 
(37,217
)
 
 
 
(757
)
 
(100,000
)
 
(162,248
)
Dividends declared ($0.50 per share)
 
 
 
 
 
 
 
 
 
(8,409
)
 
 
 
 
 
 
 
(8,409
)
Unvested dividends
 
 
 
 
 
358

 
 
 
(358
)
 
 
 
 
 
 
 

ASC Topic 606 Adjustment
 
 
 
 
 
 
 
 
 
875

 
 
 
 
 
 
 
875

Change in cumulative translation
 adjustment
 
 
 
 
 
 
 
 
 
 
 
(1,206
)
 
 
 
 
 
(1,206
)
Change in fair value of cash flow
 hedges, net of income taxes
 
 
 
 
 
 
 
 
 
 
 
27

 
 
 
 
 
27

Deferral of common stock into
 deferred compensation plan
 
 
 
 
 
 
 
62

 
 
 
 
 

 
(62
)
 

Net income
 
 
 
 
 
 
 
 
 
31,537

 
 
 
 
 
 
 
31,537

BALANCE, May 5, 2018
 
17,409

 
$
1,741

 
$
242,675

 
$
2,498

 
$
212,731

 
$
(14,010
)
 
(803
)
 
$
(102,498
)
 
$
343,137

Vesting of stock awards
 
244

 
24

 
(4
)
 
 
 
 
 
 
 
 
 
 
 
20

Stock-based compensation
 
 
 
 
 
7,416

 
 
 
 
 
 
 
 
 
 
 
7,416

Capitalized stock-based compensation
 
 
 
 
 
91

 
 
 
 
 
 
 
 
 
 
 
91

Purchase and retirement of shares
 
(1,167
)
 
(116
)
 
(112,197
)
 
 
 
(12,966
)
 
 
 
757

 
100,000

 
(25,279
)
Dividends declared ($0.50 per share)
 
 
 
 
 
 
 
 
 
(8,309
)
 
 
 
 
 
 
 
(8,309
)
Unvested dividends
 
 
 
 
 
361

 
 
 
(361
)
 
 
 
 
 
 
 

Change in cumulative translation
 adjustment
 
 
 
 
 
 
 
 
 
 
 
(1,488
)
 
 
 
 
 
(1,488
)
Change in fair value of cash flow
 hedges, net of income taxes
 
 
 
 
 
 
 
 
 
 
 
49

 
 
 
 
 
49

Deferral of common stock into
 deferred compensation plan
 
 
 
 
 
 
 
62

 
 
 
 
 

 
(62
)
 

Net income
 
 
 
 
 
 
 
 
 
7,486

 
 
 
 
 
 
 
7,486

BALANCE, August 4, 2018
 
16,486

 
$
1,649

 
$
138,342

 
$
2,560

 
$
198,581

 
$
(15,449
)
 
(46
)
 
$
(2,560
)
 
$
323,123

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, February 2, 2019
 
15,873

 
$
1,588

 
$
146,991

 
$
2,685

 
$
180,792

 
$
(14,934
)
 
(47
)
 
$
(2,685
)
 
$
314,437

Vesting of stock awards
 
403

 
40

 
(4
)
 
 
 
 
 
 
 
 
 
 
 
36

Stock-based compensation
 
 
 
 
 
7,759

 
 
 
 
 
 
 
 
 
 
 
7,759

Purchase and retirement of shares
 
(363
)
 
(36
)
 
(5,526
)
 
 
 
(29,581
)
 
 
 
 
 
 
 
(35,143
)
Dividends declared ($0.56 per share)
 
 
 
 
 
 
 
 
 
(8,930
)
 
 
 
 
 
 
 
(8,930
)
Unvested dividends
 
 
 
 
 
215

 
 
 
(215
)
 
 
 
 
 
 
 

ASC Topic 842 Adjustment
 
 
 
 
 
 
 
 
 
(1,667
)
 
 
 
 
 
 
 
(1,667
)
Change in cumulative translation
 adjustment
 
 
 
 
 
 
 
 
 
 
 
(683
)
 
 
 
 
 
(683
)
Change in fair value of cash flow
 hedges, net of income taxes
 
 
 
 
 
 
 
 
 
 
 
75

 
 
 
 
 
75

Deferral of common stock into
 deferred compensation plan
 
 
 
 
 
 
 
62

 
 
 
 
 
(1
)
 
(62
)
 

Net income
 
 
 
 
 
 
 
 
 
4,490

 
 
 
 
 
 
 
4,490

BALANCE, May 4, 2019
 
15,913

 
$
1,592

 
$
149,435

 
$
2,747

 
$
144,889

 
$
(15,542
)
 
(48
)
 
$
(2,747
)
 
$
280,374

Vesting of stock awards
 
63

 
6

 
(1
)
 
 
 
 
 
 
 
 
 
 
 
5

Stock-based compensation
 
 
 
 
 
3,512

 
 
 
 
 
 
 
 
 
 
 
3,512

Purchase and retirement of shares
 
(257
)
 
(26
)
 
(4,131
)
 
 
 
(23,428
)
 
 
 
 
 
 
 
(27,585
)
Dividends declared ($0.56 per share)
 
 
 
 
 
 
 
 
 
(8,869
)
 
 
 
 
 
 
 
(8,869
)
Unvested dividends
 
 
 
 
 
325

 
 
 
(325
)
 
 
 
 
 
 
 

Change in cumulative translation
 adjustment
 
 
 
 
 
 
 
 
 
 
 
286

 
 
 
 
 
286

Change in fair value of cash flow
 hedges, net of income taxes
 
 
 
 
 
 
 
 
 
 
 
11

 
 
 
 
 
11

Deferral of common stock into
 deferred compensation plan
 
 
 
 
 
 
 
69

 
 
 
 
 
(1
)
 
(69
)
 

Net income
 
 
 
 
 
 
 
 
 
1,523

 
 
 
 
 
 
 
1,523

BALANCE, August 3, 2019
 
15,719

 
$
1,572

 
$
149,140

 
$
2,816

 
$
113,789

 
$
(15,245
)
 
(49
)
 
$
(2,816
)
 
$
249,256


4

Table of Contents


THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Twenty-six Weeks Ended
 
August 3,
2019
 
August 4,
2018
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income
$
6,012

 
$
39,023

Reconciliation of net income to net cash provided by operating activities:
 

 
 

Non-cash portion of operating lease expense
66,387

 

Depreciation and amortization
37,056

 
34,001

Stock-based compensation
11,273

 
16,217

Deferred taxes
2,132

 
4,031

Asset impairment charges
469

 
5,236

Other
544

 
184

Changes in operating assets and liabilities:
 
 
 
Inventories
(82,807
)
 
(43,151
)
Accounts receivable and other assets
(2,197
)
 
(23,851
)
Prepaid expenses and other current assets
10,521

 
(2,005
)
Income taxes payable, net of prepayments
(3,290
)
 
(22,509
)
Accounts payable and other current liabilities
59,301

 
11,254

Other long-term liabilities
(82,106
)
 
(7,119
)
Net cash provided by operating activities
23,295

 
11,311

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(21,840
)
 
(27,846
)
Acquisition of assets
(76,000
)
 

Proceeds from sale of short-term investments

 
15,000

Change in deferred compensation plan
372

 
(469
)
Net cash used in investing activities
(97,468
)
 
(13,315
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repurchase of common stock, including shares surrendered for tax withholdings and transaction costs
(60,386
)
 
(187,522
)
Payment of dividends
(17,799
)
 
(16,718
)
Borrowings under revolving loan
519,757

 
486,270

Repayments under revolving loan
(372,266
)
 
(418,395
)
Net cash provided by (used in) financing activities
69,306

 
(136,365
)
Effect of exchange rate changes on cash and cash equivalents
1,088

 
255

Net decrease in cash and cash equivalents
(3,779
)
 
(138,114
)
Cash and cash equivalents, beginning of period
69,136

 
244,519

Cash and cash equivalents, end of period
$
65,357

 
$
106,405

 
See accompanying notes to these consolidated financial statements.

5

Table of Contents

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Twenty-six Weeks Ended
 
August 3,
2019
 
August 4,
2018
 
(In thousands)
OTHER CASH FLOW INFORMATION:
 

 
 

Net cash paid (refunded) during the period for income taxes
$
(671
)
 
$
12,661

Cash paid during the period for interest
2,608

 
1,391

Increase (decrease) in accrued purchases of property and equipment
(359
)
 
9,212

 
See accompanying notes to these consolidated financial statements.


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THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
BASIS OF PRESENTATION
Description of Business
The Children's Place, Inc. and subsidiaries (the “Company”) is the largest pure-play children's specialty apparel retailer in North America. The Company provides apparel, footwear, accessories, and other items for children. The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell trend right, high-quality merchandise at value prices, the substantial majority of which is under its proprietary “The Children's Place”, "Place", and "Baby Place" brand names.
The Company classifies its business into two segments: The Children’s Place U.S. and The Children’s Place International.  Included in The Children’s Place U.S. segment are the Company's U.S. and Puerto Rico-based stores and revenue from its U.S.- based wholesale business. Included in The Children's Place International segment are its Canadian-based stores, revenue from the Company's Canada wholesale business, as well as revenue from international franchisees. Each segment includes an e-commerce business located at www.childrensplace.com.
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Accordingly, certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of August 3, 2019 and August 4, 2018 and the results of its consolidated operations for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018 and cash flows for the twenty-six weeks ended August 3, 2019 and August 4, 2018 and stockholders' equity for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018. The consolidated financial position as of February 2, 2019 was derived from audited financial statements.  Due to the seasonal nature of the Company’s business, the results of operations for the twenty-six weeks ended August 3, 2019 and August 4, 2018 are not necessarily indicative of operating results for a full fiscal year.  These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019.
Terms that are commonly used in the Company’s notes to consolidated financial statements are defined as follows:
Second Quarter 2019 — The thirteen weeks ended August 3, 2019
Second Quarter 2018 — The thirteen weeks ended August 4, 2018
Year-To-Date 2019 — The twenty-six weeks ended August 3, 2019
Year-To-Date 2018 — The twenty-six weeks ended August 4, 2018
FASB — Financial Accounting Standards Board
SEC — U.S. Securities and Exchange Commission
U.S. GAAP — Generally Accepted Accounting Principles in the United States
FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC registrants
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly‑owned subsidiaries. Intercompany balances and transactions have been eliminated. FASB ASC 810--Consolidation is considered when determining whether an entity is subject to consolidation.
Fiscal Year
The Company's fiscal year is a 52-week or 53-week period ending on the Saturday on or nearest to January 31.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and amounts of revenues and expenses reported during the period. Actual results could differ from the

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assumptions used and estimates made by management, which could have a material impact on the Company's financial position or results of operations. Significant estimates inherent in the preparation of the consolidated financial statements include: reserves for the realizability of inventory; reserves for litigation and other contingencies; useful lives and impairments of long-lived assets; fair value measurements; accounting for income taxes and related uncertain tax positions; insurance reserves; valuation of stock-based compensation awards and related estimated forfeiture rates, among others.
Reclassifications
Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.
Leases
The Company adopted Accounting Standards Update No. 2016-02 "Leases" ("Topic 842") as of the beginning of fiscal 2019 using the modified retrospective transition method. Topic 842 requires that all leases greater than 12 months be recorded on the balance sheet as a right-of-use asset with a corresponding liability.
See Note 3 "Leases" for further details on the Company's adoption of Topic 842.
Inventories
Inventories, which consist primarily of finished goods, are stated at the lower of cost or net realizable value, with cost determined on an average cost basis. The Company capitalizes certain supply chain costs in inventory and these costs are reflected within cost of sales as the inventories are sold. Inventory shrinkage is estimated in interim periods based upon the historical results of physical inventory counts in the context of current year facts and circumstances.
Impairment of Long-Lived Assets
The Company periodically reviews its long-lived assets when events indicate that their carrying value may not be recoverable. Such events include historical trends or projected trend of cash flow losses or a future expectation that the Company will sell or dispose of an asset significantly before the end of its previously estimated useful life. In reviewing for impairment, the Company groups its long-lived assets at the lowest possible level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
The Company reviews all stores that have reached comparable sales status, or sooner if circumstances should dictate, on at least an annual basis. The Company believes waiting this period of time allows a store to reach a maturity level where a more comprehensive analysis of financial performance can be performed. For each store that shows indications of operating losses, the Company projects future cash flows over the remaining life of the lease and compares the total undiscounted cash flows to the net book value of the related long-lived assets. If the undiscounted cash flows are less than the related net book value of the long-lived assets, they are written down to their fair market value. The Company primarily determines fair market value to be the discounted future cash flows directly associated with those assets. In evaluating future cash flows, the Company considers external and internal factors. External factors comprise the local environment in which the store resides, including mall traffic and competition and their effect on sales trends. Internal factors include the Company's ability to gauge the fashion taste of its customers, control variable costs such as cost of sales and payroll and, in certain cases, its ability to renegotiate lease costs.
Stock-based Compensation
The Company generally grants time vesting stock awards ("Deferred Awards") and performance-based stock awards ("Performance Awards") to employees at management levels.  The Company also grants Deferred Awards to its non-employee directors.  Deferred Awards are granted in the form of a defined number of restricted stock units that require each recipient to complete a service period. Deferred Awards generally vest ratably over three years, except for those granted to non-employee directors, which generally vest after one year. Performance Awards are granted in the form of restricted stock units which have performance criteria that must be achieved for the awards to vest (the "Target Shares") in addition to a service period requirement. For Performance Awards issued during fiscal 2017 (the “2017 Performance Awards”), an employee may earn from 0% to 200% of their Target Shares based on the achievement of cumulative adjusted earnings per share achieved for the applicable performance period, which is generally three years, adjusted operating margin expansion achieved for the performance period, and adjusted return on invested capital ("adjusted ROIC") achieved as of the end of the performance period. The 2017 Performance Awards cliff vest, if earned, after completion of the performance period. The fair value of the 2017 Performance Awards granted is based on the closing price of our common stock on the grant date. For Performance Awards issued during fiscal 2018 and 2019 (the “2018 and 2019 Performance Awards”), an employee may earn from 0% to 250% of their Target Shares based on cumulative adjusted earnings per share achieved for the applicable performance period, which is generally three years, adjusted operating margin expansion achieved for the performance period, adjusted ROIC achieved as of the end of the performance period, and the ranking of our adjusted ROIC relative to that of companies in our peer group as of the end of the performance period. The 2018 and 2019 Performance Awards cliff vest, if earned, after

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completion of the performance period. The fair value of the 2018 and 2019 Performance Awards granted is based on the closing price of our common stock on the grant date.
Stock-based compensation expense is recognized ratably over the related service period reduced for estimated forfeitures of those awards not expected to vest due to employee turnover. Stock-based compensation expense, as it relates to Performance Awards, is also adjusted based on the Company's estimate of adjusted earnings per share and adjusted operating margin expansion and adjusted return on invested capital and ranking of our adjusted return on investment capital relative to that of companies in our peer group as they occur.
Deferred Compensation Plan
The Company has a deferred compensation plan (the “Deferred Compensation Plan”), which is a nonqualified plan, for eligible senior level employees.  Under the plan, participants may elect to defer up to 80% of his or her base salary and/or up to 100% of his or her bonus to be earned for the year following the year in which the deferral election is made.  The Deferred Compensation Plan also permits members of the Board of Directors to elect to defer payment of all or a portion of their retainer and other fees to be earned for the year following the year in which a deferral election is made.  In addition, eligible employees and directors of the Company may also elect to defer payment of any shares of Company stock that is earned with respect to stock-based awards.  Directors may elect to have all or a certain portion of their fees earned for their service on the Board invested in shares of the Company’s common stock.  Such elections are irrevocable.  The Company is not required to contribute to the Deferred Compensation Plan, but at its sole discretion, can make additional contributions on behalf of the participants. Deferred amounts are not subject to forfeiture and are deemed invested among investment funds offered under the Deferred Compensation Plan, as directed by each participant.  Payments of deferred amounts (as adjusted for earnings and losses) are payable following separation from service or at a date or dates elected by the participant at the time the deferral is elected.  Payments of deferred amounts are generally made in either a lump sum or in annual installments over a period not exceeding 15 years.  All deferred amounts are payable in the form in which they were made, except for board fees invested in shares of the Company's common stock, which will be settled in shares of Company common stock.  Earlier distributions are not permitted except in the case of an unforeseen hardship.
The Company has established a rabbi trust that serves as an investment to shadow the Deferred Compensation Plan liability. The assets of the rabbi trust are general assets of the Company and, as such, would be subject to the claims of creditors in the event of bankruptcy or insolvency.  Investments of the rabbi trust consist of mutual funds and Company common stock.  The Deferred Compensation Plan liability, excluding Company common stock, is included within other long-term liabilities and changes in the balance, except those relating to payments, are recognized as compensation expense within selling, general, and administrative expenses.  The value of the mutual funds is included in other assets and related earnings and losses are recognized as investment income or loss, which is included within selling, general, and administrative expenses.  Company stock deferrals are included within the equity section of the Company’s consolidated balance sheet as treasury stock and as a deferred compensation liability.  Deferred stock is recorded at fair market value at the time of deferral, and any subsequent changes in fair market value are not recognized.
Fair Value Measurement and Financial Instruments- FASB ASC 820--Fair Value Measurements and Disclosure provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.
This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The three levels of the hierarchy are defined as follows:
Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities
Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities

Our cash and cash equivalents, accounts receivable, assets of the Company’s Deferred Compensation Plan, accounts payable, current lease liabilities, and revolving loan are all short-term in nature.  As such, their carrying amounts approximate fair value and fall within Level 1 of the fair value hierarchy. The Company stock included in the Deferred Compensation Plan is not subject to fair value measurement.

Our derivative assets and liabilities include foreign exchange forward contracts that are measured at fair value using observable market inputs such as forward rates, our credit risk, and our counterparties’ credit risks. Based on these inputs, our derivative assets and liabilities are classified within Level 2 of the valuation hierarchy.

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Our assets measured at fair value on a nonrecurring basis include long-lived assets, such as intangible assets, fixed assets, and right-of-use assets. We review the carrying amounts of such assets when events indicate that their carrying amounts may not be recoverable. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to fall within Level 3 of the fair value hierarchy.

Recently Issued Accounting Standards

Adopted in Fiscal 2019

In August 2017, the FASB issued guidance relating to the accounting for hedging activities. This guidance aims to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in the guidance expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. We adopted this guidance in the first quarter of fiscal 2019. This adoption did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued guidance relating to the accounting for leases. This guidance applies a right-of-use model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset for the lease term and a liability to make lease payments. The lease term is the noncancellable period of the lease, and includes both periods covered by an option to extend the lease, if the lessee is reasonably certain to exercise that option, and periods covered by an option to terminate the lease, if the lessee is reasonably certain not to exercise that termination option. We adopted this guidance in the in the first quarter of fiscal 2019 using the modified-retrospective method. Refer to Note 3, "Leases”, for additional information.

To Be Adopted After Fiscal 2019

In August 2018, the FASB issued guidance related to the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aims to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. We do not expect the guidance to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurement. The amendments modify current fair value measurement disclosure requirements by removing, adding, or modifying certain fair value measurement disclosures. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We plan to adopt the new disclosure requirements on a prospective basis beginning in the year of adoption. We do not expect the guidance to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued guidance related to the accounting for financial instrument credit losses. The guidance aims to provide more decision-useful information about the expected credit losses on financial instruments by replacing the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2019. We do not expect the guidance to have a material impact on our consolidated financial statements.

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2. REVENUES
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The following table presents our revenues disaggregated by geography:

 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
Net sales:
(In thousands)
South
$
152,645

 
$
159,770

 
$
299,709

 
$
313,534

Northeast
92,240

 
101,939

 
190,143

 
207,817

West
67,137

 
70,894

 
129,131

 
137,499

Midwest
49,307

 
52,884

 
103,955

 
110,385

International and other
59,141

 
63,231

 
109,913

 
115,796

Total net sales
$
420,470

 
$
448,718

 
$
832,851

 
$
885,031



The Company recognizes revenue, including shipping and handling fees billed to customers, upon purchase at the Company's retail stores or when received by the customer if the product was purchased via e-commerce, net of coupon redemptions and anticipated sales returns. The Company deferred approximately $5.0 million and $5.4 million as of August 3, 2019 and August 4, 2018, respectively, based upon estimated time of delivery, at which point control passes to the customer, and is recorded in accrued expenses and other current liabilities. Sales tax collected from customers is excluded from revenue.

For the sale of goods with a right of return, the Company recognizes revenue for the consideration it expects to be entitled to and calculates an allowance for estimated sales returns based upon the Company's sales return experience. Adjustments to the allowance for estimated sales returns in subsequent periods are generally not material based on historical data, thereby reducing the uncertainty inherent in such estimates. The allowance for estimated sales returns, which is recorded in accrued expenses and other current liabilities, was approximately $2.5 million and $2.3 million as of August 3, 2019 and August 4, 2018, respectively.

Our private label credit card is issued to our customers for use exclusively at The Children's Place stores and online at www.childrensplace.com, and credit is extended to such customers by a third-party financial institution on a non-recourse basis to us. The private label credit card includes multiple performance obligations, including marketing and promoting the program on behalf of the bank and the operation of the loyalty rewards program. Included in the agreement with the third-party financial institution was an upfront bonus paid to the Company. The upfront bonus is recognized as revenue and allocated between brand and reward obligations. As the license of the Company’s brand is the predominant item in the performance obligation, the amount allocated to the brand obligation is recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur.

In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration, such as additional bonuses, including profit-sharing, over the life of the program. Similar to the upfront bonus, the usage-based royalties and bonuses are recognized as revenue and allocated between the brand and reward obligations. The amount allocated to the brand obligation is recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur. In addition, the annual profit-sharing amount is estimated and recognized quarterly within an annual period when earned. The additional bonuses are amortized over the contract term based on anticipated progress against future targets and level of risk associated with achieving the targets.

The Company has a points-based customer loyalty program, in which customers earn points based on purchases and other promotional activities. These points can be redeemed for coupons to discount future purchases. A contract liability is estimated based on the standalone selling price of benefits earned by customers through the program and the related redemption experience under the program. The value of each point earned is recorded as deferred revenue and is included within accrued expenses and other current liabilities. The total contract liability related to this program was $5.3 million and $1.2 million as of August 3, 2019 and August 4, 2018, respectively.



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The Company's policy with respect to gift cards is to record revenue as and when the gift cards are redeemed for merchandise. The Company recognizes gift card breakage income in proportion to the pattern of rights exercised by the customer when the Company expects to be entitled to breakage and the Company determines that it does not have a legal obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property and is recorded within net sales. Prior to their redemption, gift cards are recorded as a liability, included within accrued expenses and other current liabilities. The total contract liability related to gift cards issued was $15.7 million and $16.2 million as of August 3, 2019 and August 4, 2018, respectively. The liability is estimated based on expected breakage that considers historical patterns of redemption. The following table provides the reconciliation of the contract liability related to gift cards:

 
Contract Liability
 
(In thousands)
Balance at February 2, 2019
$
17,867

Gift cards sold
14,597

Gift cards redeemed
(13,545
)
Gift card breakage
(3,267
)
Balance at August 3, 2019
$
15,652



The Company has an international expansion program through territorial agreements with franchisees. The Company generates revenues from the franchisees from the sale of product and, in certain cases, sales royalties. The Company records net sales and cost of goods sold on the sale of product to franchisees when the franchisee takes ownership of the product. The Company records net sales for royalties when the applicable franchisee sells the product to their customers. Under certain agreements, the Company receives a fee from each franchisee for exclusive territorial rights and based on the opening of new stores. The Company records these territorial fees as deferred revenue and amortizes the fee into net sales over the life of the territorial agreement.

3. LEASES
Adoption of ASC Topic 842, "Leases"

On February 3, 2019, the Company adopted ASC Topic 842 "Leases" ("Topic 842") using the modified retrospective method. Results for reporting periods beginning in fiscal 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 840 "Leases" ("Topic 840").

On February 3, 2019, the Company recognized a cumulative-effect charge of $1.7 million, net of tax, to the opening balance of retained earnings, which represents the initial impairment of right-of-use assets related to retail locations.

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. The right-of-use asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and unamortized lease incentives. For finance leases, the right-of-use asset is initially measured at cost and subsequently amortized using the straight-line method generally from the lease commencement date to the earlier of the end of its useful life or the end of the lease term.

The Company has elected the package of practical expedients permitted under the transition guidance within the new standard. Accordingly, we have adopted these practical expedients and did not reassess: (1) whether an expired or existing contract is a lease or contains an embedded lease; (2) lease classification of an expired or existing lease; (3) capitalization of initial direct costs for an expired or existing lease.

The Company has made an accounting policy election by class of underlying asset to not apply the recognition requirements of Topic 842 to leases with an initial term of 12 months or less. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

In certain leases, the Company has the right to exercise lease renewal options. Renewal option periods are included in the measurement of lease right-of-use assets and lease liabilities where the exercise is reasonably certain to occur.

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The Company has lease agreements with lease and non-lease components. The Company elected a policy to account for lease and non-lease components as a single component for all asset classes.

The discount rate is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the Company is required to use its incremental borrowing rate. The discount rate for a lease is determined based on the information available at the later of adoption of Topic 842 or at lease commencement. In general, the Company accounts for the underlying leased asset and applies a discount rate at the lease level. However, there are certain non-real estate leases for which the Company utilizes the portfolio method by aggregating similar leased assets based on the underlying lease term.

As of August 3, 2019, the Company's finance leases were not material to the consolidated balance sheets, consolidated statements of operations, or consolidated statement of cash flows.

We have certain lease agreements structured with both a fixed base rent and a contingent rent based on a percentage of sales over contractual levels, others with only contingent rent based on a percentage of sales and some with a fixed base rent adjusted periodically for inflation or changes in fair market value of the underlying real estate. Contingent rent is recognized as sales occur. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We have operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. Our leases have remaining lease terms of less than 1 year up to 10 years, some of which may include options to extend the leases for up to five years, and some of which may include options to early terminate the lease.

We record all occupancy costs in cost of sales, except administrative office buildings, which are recorded in selling, general, and administrative expenses.

The following components of lease expense are included in the Company's consolidated statement of operations.
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
August 3, 2019
 
(in thousands)
Operating lease cost
$
37,236

 
$
75,968

Variable lease cost1
14,829

 
30,766

Total lease cost
$
52,065

 
$
106,734

1Includes short term leases with lease periods of less than 12 months.

As of August 3, 2019, the weighted-average remaining operating lease term was 4.8 years and the weighted-average discount rate for operating leases was 5.0%.

Cash paid for amounts included in the measurement of operating lease liabilities in the Second Quarter 2019 and Year-To-Date 2019 was approximately $39.8 million and $79.6 million, respectively.

Right-of-use assets obtained in exchange for new operating lease liabilities was approximately $51.5 million.

As of August 3, 2019, the future minimum annual lease payments under operating lease agreements were as follows:

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August 3, 2019
 
Operating Leases
 
(in thousands)
Remainder of 2019
$
80,641

2020
134,811

2021
102,739

2022
70,677

2023
45,582

Thereafter
87,301

Total lease payments
$
521,751

Less: imputed interest
$
(52,228
)
Present value of lease liabilities
$
469,523




4. INTANGIBLE ASSETS
During the first quarter of fiscal 2019, the Company acquired certain intellectual property and related assets (the “Gymboree Assets”) of Gymboree Group, Inc. and related entities, which included the worldwide rights to the names “Gymboree” and “Crazy 8” and other intellectual property, including trademarks, domain names, copyrights, and customer databases. These intangible assets, inclusive of acquisition costs, are recorded in the long-term assets section of the consolidated balance sheets.
The Company's intangible assets were as follows as of August 3, 2019:
 
 
 
 
August 3, 2019
 
 
Useful life
 
Gross amount
 
Accumulated amortization
 
Net amount
 
 
 
 
(in thousands)
Gymboree tradename(1)
 
Indefinite
 
$
69,725

 
$

 
$
69,725

Crazy 8 tradename(1)
 
5 years
 
4,000

 
269

 
3,731

Customer databases(2)
 
3 years
 
3,000

 
333

 
2,667

Total intangibles, net
 
 
 
$
76,725

 
$
602

 
$
76,123

(1) 
Included within Tradenames, net in the consolidated balance sheets.
(2) 
Included within Other assets in the consolidated balance sheets.

5. STOCKHOLDERS’ EQUITY
Share Repurchase Programs
The Company's Board of Directors has authorized the following share repurchase programs which were active during Year-To-Date 2019 and Year-To-Date 2018: (1) $250 million in March 2017 (the "2017 Share Repurchase Program"); and (2) $250 million in March 2018 (the "2018 Share Repurchase Program"). The 2017 Share Repurchase Program has been completed. At August 3, 2019, there was approximately $179.0 million remaining on the 2018 Share Repurchase Program. Under these programs, the Company may repurchase shares in the open market at current market prices at the time of purchase or in privately negotiated transactions. The timing and actual number of shares repurchased under a program will depend on a variety of factors including price, corporate and regulatory requirements, and other market and business conditions. The Company may suspend or discontinue a program at any time and may thereafter reinstitute purchases, all without prior announcement.
Pursuant to the Company's practice, including due to restrictions imposed by the Company's insider trading policy during black-out periods, the Company withholds and repurchases shares of vesting stock awards and makes payments to taxing authorities as required by law to satisfy the withholding tax requirements of all equity award recipients. The Company's payment of the withholding taxes in exchange for the surrendered shares constitutes a purchase of its common stock. The Company also acquires shares of its common stock in conjunction with liabilities owed under the Company's Deferred Compensation Plan, which are held in treasury.

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The following table summarizes the Company's share repurchases:
 
 
Twenty-six Weeks Ended
 
 
August 3, 2019
 
August 4, 2018
 
 
 Shares
 
Value
 
 Shares
 
Value
 
 
(In thousands)
 Shares repurchases related to:
 
 
 
 
 
 
 
 
 2017 Share Repurchase Program(1)
 

 
$

 
1,474

 
$
187,522

 2018 Share Repurchase Program(2)(3)
 
611

 
$
60,386

 

 
$

Shares acquired and held in treasury under Deferred Compensation Plan
 
1.3

 
$
131

 
0.9

 
$
124


(1) 
Inclusive of 0.3 million shares for approximately $42.9 million during Year-To-Date 2018 withheld to cover taxes in conjunction with the vesting of stock awards. Inclusive of approximately 1.0 million shares for $125.0 million repurchased pursuant to an accelerated repurchase program.
(2) 
Inclusive of 0.2 million shares for approximately $19.8 million during Year-To-Date 2019 withheld to cover taxes in conjunction with the vesting of stock awards.
(3) 
Subsequent to August 3, 2019 and through August 23, 2019, the Company repurchased approximately 0.1 million shares for approximately $8.3 million.
In accordance with the FASB ASC 505--Equity, the par value of the shares retired is charged against common stock and the remaining purchase price is allocated between additional paid-in capital and retained earnings.  The portion charged against additional paid-in capital is determined using a pro-rata allocation based on total shares outstanding.  Related to all shares retired during Year-To-Date 2019 and Year-To-Date 2018, approximately $53.0 million and $50.2 million, respectively, were charged to retained earnings.
Dividends
The Second Quarter 2019 dividend of $0.56 per share was paid on June 28, 2019 to shareholders of record on the close of business on June 18, 2019. During Year-To-Date 2019, $18.3 million was charged to retained earnings, of which $17.8 million related to cash dividends paid and $0.5 million related to dividend share equivalents on unvested Deferred Awards and Performance Awards. During Year-To-Date 2018, $17.4 million was charged to retained earnings, of which $16.7 million related to cash dividends paid and $0.7 million related to dividend share equivalents on unvested Deferred Awards and Performance Awards.
The Company's Board of Directors declared a quarterly cash dividend of $0.56 per share to be paid October 4, 2019 to shareholders of record at the close of business on September 23, 2019. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Company’s Board of Directors based on a number of factors, including business and market conditions, the Company’s future financial performance, and other investment priorities.


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6. STOCK-BASED COMPENSATION
The following table summarizes the Company’s stock-based compensation expense:
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
 
(In thousands)
   Deferred Awards
$
5,595

 
$
3,533

 
$
9,745

 
$
7,346

   Performance Awards
(2,081
)
 
3,887

 
1,528

 
8,871

Total stock-based compensation expense (1)
$
3,514

 
$
7,420

 
$
11,273

 
$
16,217


____________________________________________
(1) 
During the Second Quarter 2019 and the Second Quarter 2018, approximately $0.9 million and $1.0 million, respectively, were included within cost of sales. During Year-To-Date 2019 and the Year-To-Date 2018, approximately $1.9 million and $1.9 million, respectively, were included within cost of sales (exclusive of depreciation and amortization). All other stock-based compensation is included in selling, general, and administrative expenses. 
The Company recognized a tax benefit related to stock-based compensation expense of approximately $3.0 million and $4.3 million during Year-To-Date 2019 and Year-To-Date 2018, respectively.
Changes in the Company’s Unvested Stock Awards during Year-To-Date 2019
Deferred Awards
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
 
(In thousands)
 
 
Unvested Deferred Awards, beginning of period
299

 
$
99.98

Granted
251

 
103.79

Vested
(116
)
 
104.43

Forfeited
(20
)
 
112.95

Unvested Deferred Awards, end of period
414

 
$
100.42



Total unrecognized stock-based compensation expense related to unvested Deferred Awards approximated $31.3 million as of August 3, 2019, which will be recognized over a weighted average period of approximately 2.0 years.

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Performance Awards
 
Number of
Shares (1)
 
Weighted
Average
Grant Date
Fair Value
 
(In thousands)
 
 
Unvested Performance Awards, beginning of period
352

 
$
90.66

Granted
194

 
99.57

Shares earned in excess of target
181

 
75.83

Vested shares, including shares earned in excess of target
(349
)
 
75.83

Forfeited
(9
)
 
116.63

Unvested Performance Awards, end of period
369

 
$
101.51


____________________________________________
(1) 
For those awards in which the performance period is complete, the number of unvested shares is based on actual shares that will vest upon completion of the service period. 
For those awards in which the performance period is not yet complete, the number of unvested shares in the table above is based on the participants earning their Target Shares at 100%. However, the cumulative expense recognized reflects changes in estimated adjusted earnings per share, adjusted operating margin expansion, adjusted return on invested capital, and ranking of our adjusted return on investment capital relative to that of companies in our peer group as they occur. Total unrecognized stock-based compensation expense related to unvested Performance Awards approximated $21.0 million as of August 3, 2019, which will be recognized over a weighted average period of approximately 2.1 years.

7. EARNINGS PER COMMON SHARE
The following table reconciles net income and share amounts utilized to calculate basic and diluted earnings per common share:
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
August 3, 2019
 
August 4, 2018
 
August 3, 2019
 
August 4, 2018
 
(In thousands)
Net income
$
1,523

 
$
7,486

 
$
6,012

 
$
39,023

 
 
 
 
 
 
 
 
Basic weighted average common shares
15,818

 
16,636

 
15,832

 
16,819

Dilutive effect of stock awards
41

 
79

 
151

 
406

Diluted weighted average common shares
15,859

 
16,715

 
15,983

 
17,225

 


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8. PROPERTY AND EQUIPMENT
Property and equipment, net consist of the following:
 
 
August 3, 2019
 
February 2, 2019
 
August 4, 2018
 
 
(In thousands)
Property and equipment:
 
 

 
 

 
 

Land and land improvements
 
$
3,403

 
$
3,403

 
$
3,403

Building and improvements
 
35,568

 
35,568

 
35,548

Material handling equipment
 
52,219

 
51,934

 
50,230

Leasehold improvements
 
301,844

 
301,233

 
310,669

Store fixtures and equipment
 
270,956

 
273,430

 
274,661

Capitalized software
 
260,266

 
254,064

 
240,471

Construction in progress
 
28,343

 
14,823

 
11,135

 
 
952,599

 
934,455

 
926,117

Accumulated depreciation and amortization
 
(703,822
)
 
(674,098
)
 
(669,062
)
Property and equipment, net
 
$
248,777

 
$
260,357

 
$
257,055



At August 3, 2019, the Company performed impairment testing on 961 stores with a total net book value of approximately $71.3 million. During the Second Quarter 2019, the Company recorded asset impairment charges of $0.1 million primarily for two stores, both of which were fully impaired. During Year-To-Date 2019, the Company recorded asset impairment charges of $0.5 million primarily for seven stores.
At August 4, 2018, the Company performed impairment testing on 992 stores with a total net book value of approximately $84.5 million. During the Second Quarter 2018, the Company recorded asset impairment charges of $0.6 million primarily for two stores, both of which were fully impaired. Additionally, during the Second Quarter 2018, the Company recorded asset impairment charges of $3.4 million related to the write-down of information technology systems. During Year-To-Date 2018, the Company recorded asset impairment charges of $0.8 million primarily for four stores. Additionally, during Year-To-Date 2018, the Company recorded asset impairment charges of $4.4 million related to the write-down of information technology systems.
9. CREDIT FACILITY
The Company and certain of its subsidiaries maintain a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), Bank of America, N.A., HSBC Business Credit (USA) Inc., and JPMorgan Chase Bank, N.A., as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, and Swing Line Lender. The Credit Agreement was amended and restated on May 9, 2019, and the provisions below reflect the terms of the amended Credit Agreement.
The Credit Agreement, which expires in May 2024, consists of a $325 million asset based revolving credit facility, including a $25 million Canadian sublimit, with a $50 million sublimit for standby and documentary letters of credit and an uncommitted accordion feature that could provide up to $50 million of additional availability. Revolving credit loans outstanding under the Credit Agreement bear interest, at the Company’s option, at:
(i)
the prime rate, plus a margin of 0.38% to 0.50% based on the amount of the Company’s average excess availability under the facility; or
(ii)
the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, two, three, or six months, as selected by the Company, plus a margin of 1.13% to 1.38% based on the amount of the Company’s average excess availability under the facility.
The Company is charged a fee of 0.20% on the unused portion of the commitments.  Letter of credit fees range from 0.56% to 0.69% for commercial letters of credit and from 0.63% to 0.88% for standby letters of credit.  Letter of credit fees are determined based on the amount of the Company's average excess availability under the facility. The amount available for loans and letters of credit under the Credit Agreement is determined by a borrowing base consisting of certain credit card receivables, certain trade and franchise receivables, certain inventory, and the fair market value of certain real estate, subject to certain reserves.

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Table of Contents

The outstanding obligations under the Credit Agreement may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other material indebtedness and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods.  The Company is not subject to any early termination fees. 
The Credit Agreement contains covenants which include conditions on stock buybacks and the payment of cash dividends or similar payments.  Credit extended under the Credit Agreement is secured by a first priority security interest in substantially all of the Company’s U.S. and Canadian assets excluding intellectual property, software, equipment, and fixtures.
The Company has capitalized an aggregate of approximately $5.0 million in deferred financing costs related to the Credit Agreement. The unamortized balance of deferred financing costs at August 3, 2019 was approximately $1.0 million. Unamortized deferred financing costs are amortized over the remaining term of the Credit Agreement.
The table below presents the components of the Company’s credit facility:
 
August 3,
2019
 
February 2,
2019
 
August 4,
2018
 
(In millions)
Credit facility maximum
$
325.0

 
$
250.0

 
$
250.0

Borrowing base
325.0

 
250.0

 
250.0

 
 
 
 
 
 
Outstanding borrowings
196.4

 
48.9

 
89.3

Letters of credit outstanding—standby
6.2

 
7.0

 
7.0

Utilization of credit facility at end of period
202.5

 
55.9

 
96.3

 
 
 
 
 
 
Availability (1)
$
122.5

 
$
194.1

 
$
153.7

 
 
 
 
 
 
Interest rate at end of period
3.8
%
 
6.0
%
 
3.5
%
 
Year-To-Date 2019
 
Fiscal
2018
 
Year-To-Date 2018
Average end of day loan balance during the period
$
176.6

 
$
64.4

 
$
64.6

Highest end of day loan balance during the period
247.5

 
156.4

 
151.6

Average interest rate
4.3
%
 
4.3
%
 
4.0
%
____________________________________________