| Significant accounting policies | 2. Significant accounting
policies:
(a) Revenue recognition:
Sales are recognized at the point of sale when merchandise is
picked up by the customer or delivered to a customer. Shipping and
handling fees billed to customers are included in net sales.
Revenues for gift certificate sales and store credits are
recognized upon redemption. Prior to recognition as a sale, gift
certificates are recorded as accrued liabilities on the balance
sheet. Based on historical redemption rates, a portion of gift
certificates and store credits, not subject to unclaimed property
laws, are recorded as income. Gift certificates and store credits
outstanding and subject to unclaimed property laws are maintained
as accrued liabilities until remitted in accordance with local
ordinances.
Sales of consignment merchandise are recognized at such time as the
merchandise is sold, and are recorded on a gross basis because the
Company is the primary obligor of the transaction, has general
latitude on setting the price, has discretion as to the suppliers,
is involved in the selection of the product and has inventory loss
risk. Sales are reported net of returns and sales taxes. The
Company generally gives its customers the right to return
merchandise purchased by them within 10 to 90 days, depending on
the product sold and records a provision at the time of sale for
the effect of the estimated returns.
Revenues for repair services are recognized when the service is
delivered to and accepted by the customer.
Revenue related to the Company’s purchases of gold and other
precious metals from our customers are recognized when the Company
delivers the goods, and receives and accepts an offer from a
refiner to purchase the gold and other precious metal.
(b) Cost of sales:
Cost of sales includes direct inbound freight and duties, direct
labor related to repair services, design and creative, the jewelry
studio, inventory shrink, inventory thefts, and boxes (jewelry,
watch and giftware). Indirect freight including inter-store
transfers, purchasing and receiving costs, distribution costs and
warehousing costs are included in selling, general and
administrative expenses. Purchase discounts are recorded as a
reduction of inventory cost and are recorded to cost of sales as
the items are sold. Mark down dollars received from vendors are
recorded as a reduction of inventory costs to the specific items to
which they apply and are recognized in cost of sales once the items
are sold. Other vendor allowances, primarily related to the
achievement of certain milestones, are infrequent and insignificant
and are recognized upon achievement of the specified milestone in
cost of sales. Included in cost of sales is depreciation related to
manufacturing machinery, equipment and facilities of $59,000,
$97,000 and $208,000 for the years ended March 28,
2015, March 29, 2014 and March 30, 2013,
respectively.
(c) Cash and cash equivalents:
The Company utilizes a cash management system under which a book
cash overdraft may exist in its primary disbursement account. These
overdrafts, when applicable, represent uncleared checks in excess
of cash balance in the bank account at the end of a reporting
period and have been reclassified to accounts payable on the
consolidated balance sheets.
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Amounts receivable from credit card issuers are included in cash
and cash equivalents and are typically converted to cash within 2
to 4 days of the original sales transaction. These amounts totaled
$1.7 million and $1.5 million at March 28, 2015 and
March 29, 2014, respectively.
(d) Accounts receivable:
Accounts receivable arise primarily from customers’ use of
the Mayors credit card and sales to Birks Group corporate
customers. Several installment sales plans are offered to the
Mayors credit card holders which vary as to repayment terms and
finance charges assessed. Finance charges on Mayors’ consumer
credit receivables, when applicable, accrue at rates ranging from
2.9% to 18% per annum. Finance charges on Mayors consumer
credit accounts are not significant. The Company maintains
allowances for doubtful accounts associated with the accounts
receivable recorded on the balance sheet for estimated losses
resulting from the inability of its customers to make required
payments. The allowance is determined based on a combination of
factors including, but not limited to, the length of time that the
receivables are past due, the Company’s knowledge of the
customer, economic and market conditions and historical write-off
experiences. The Company classifies a receivable account as past
due if a required payment amount has not been received within the
allotted time frame (generally 30 days), after which internal
collection efforts commence. Once all internal collection efforts
have been exhausted and management has reviewed the account, the
account is put on nonaccrual status and may be sent for external
collection or legal action. Upon the suspension of the accrual of
interest, interest income is recognized to the extent cash payments
received exceed the balance of the principal amount owed on the
account. After all collection efforts have been exhausted,
including internal and external collection efforts, an account is
written off.
The Company guarantees a portion of its private label credit card
sales to its credit card vendor. The Company maintains a liability
associated with these outstanding amounts. Similar to the allowance
for doubtful accounts, the liability related to these guaranteed
sales amounts are based on a combination of factors including the
length of time the receivables are past due to the Company’s
credit card vendor, the Company’s knowledge of the customer,
economic and market conditions and historical write-off experiences
of similar credits. If the financial conditions of our customers
were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
(e) Inventories:
Retail inventories and inventories of raw materials are valued at
the lower of average cost or market. Inventories of work in
progress and Company manufactured finished goods are valued at the
lower of average cost (which includes material, labor and overhead
costs) or market. The Company records provisions for lower of cost
or market, damaged goods, and slow-moving inventory. The cost of
inbound freight and duties are included in the carrying value of
the inventories.
The allowance for inventory shrink is estimated for the period from
the last physical inventory date to the end of the reporting period
on a store by store basis and at our factories and distribution
centers. The shrink rate from the most recent physical inventory,
in combination with historical experience, is the basis for
providing a shrink allowance. Inventory is written down for
estimated slow moving inventory equal to the difference between the
cost of inventory and the estimated market value based on
assumptions about future demand and market conditions. If actual
market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
(f) Property and equipment:
Property and equipment are recorded at cost. Maintenance and repair
costs are charged to selling, general and administrative expenses
as incurred, while expenditures for major renewals and improvements
are capitalized. Depreciation and amortization are computed using
the straight-line method based on the estimated useful lives of the
assets as follows:
Asset
Period
Buildings
Lesser of term of the lease or the economic life
Leasehold improvements Lesser of term of the lease or the economic
life
Software and electronic equipment 3 - 5 years
Molds 2 – 5 years
Furniture and fixtures 5 - 8 years
Equipment and vehicles 3 - 8 years
(g) Intangible assets:
Trademarks and tradenames are amortized using the straight-line
method over a period of 15 to 20 years. The Company had $1.8
million and $1.9 million of intangible assets at March 28,
2015 and March 29, 2014, respectively. The Company had $0.9
million and $0.8 million of accumulated amortization of intangibles
at March 28, 2015 and March 29, 2014, respectively.
(h) Deferred financing costs:
The Company amortizes deferred financing costs incurred in
connection with its financing agreements using the effective
interest method over the term of the related financing. Such
deferred costs are included in other assets in the accompanying
consolidated balance sheets.
(i) Warranty accrual:
The Company generally provides warranties on its jewelry and
watches for periods extending up to three years and has a battery
replacement policy for its private label watches. The Company
accrues a liability based on its historical repair costs for such
warranties.
(j) Income taxes:
Deferred income taxes reflect the net tax effects of
(a) temporary differences between the carrying amounts of
assets and liabilities for financial statement reporting purposes
and the bases for income tax purposes, and (b) operating
losses and tax credit carryforwards. Deferred income tax assets are
evaluated and, if realization is not considered to be
more-likely-than-not, a valuation allowance is provided (see note
9(a)).
(k) Foreign exchange:
Monetary assets and liabilities denominated in foreign currencies
are translated at the rates of exchange in effect at the balance
sheet date. Non-monetary assets and liabilities denominated in
foreign currencies are translated at the rates prevailing at the
respective transaction dates. Revenue and expenses denominated in
foreign currencies are translated at average rates prevailing
during the year. (Losses) gains on foreign exchange of ($0.4)
million, ($0.2) million and $0.1 million were recorded in cost of
goods sold for the years ended March 28,
2015, March 29, 2014 and March 30, 2013,
respectively and $0.5 million, $0.3 million and $0.2 million of
losses on foreign exchange were recorded in interest and other
financial costs related to U.S. dollar denominated debt of the
Company’s Canadian operations for the years ended
March 28, 2015, March 29, 2014 and March 30,
2013, respectively.
Birks Group’s Canadian operations’ functional currency
is the Canadian dollar while the reporting currency of the Company
is the U.S. dollar. The assets and liabilities denominated in
Canadian dollars are translated for reporting purposes at exchange
rates in effect at the balance sheet dates. Revenue and expense
items are translated at average exchange rates prevailing during
the periods. The resulting gains and losses are accumulated in
other comprehensive income.
(l) Impairment of long-lived assets:
The Company periodically reviews the estimated useful lives of its
depreciable assets and changes in useful lives are made on a
prospective basis unless factors indicate the carrying amounts of
the assets may not be recoverable and an impairment write-down is
necessary. However, the Company will review its long-lived assets
for impairment once events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. An
impairment loss would be recognized when the estimated undiscounted
future cash flows expected to result from the use of an asset and
its eventual disposition is less than its carrying value.
Measurement of an impairment loss for such long-lived assets would
be based on the difference between the carrying value and the fair
value of the asset, with fair value being determined based upon
discounted cash flows or appraised values, depending on the nature
of the asset. Long-lived assets to be disposed of are reported at
the lower of the carrying amount or fair value less cost to sell.
During fiscal 2015, the Company recorded impairment charges on
long-lived assets of $0.2 million associated with a Canadian Birks
retail shop-n-shop location due to the projected operating
performance of the location and a software impairment associated
with a decision to abandon a software project. No impairment charge
was required in fiscal 2014 and 2013.
(m) Advertising and marketing costs:
Advertising and marketing costs are generally charged to expense as
incurred and are included in selling, general and administrative
expenses in the consolidated statements of operations. However,
certain expenses such as those related to catalogs are expensed at
the time such catalogs are shipped to recipients. The Company and
its vendors participate in cooperative advertising programs in
which the vendors reimburse the Company for a portion of certain
specific advertising costs which are netted against advertising
expense in selling, general and administrative expenses, and
amounted to $2.9 million, $2.6 million and $2.9 million for each of
the years ended March 28, 2015, March 29, 2014 and
March 30, 2013, respectively. Advertising and marketing
expense, net of vendor cooperative advertising allowances, amounted
to $9.5 million, $11.0 million and $10.8 million in the years ended
March 28, 2015, March 29, 2014 and March 30,
2013, respectively.
(n) Restructuring charges:
Restructuring charges consist of exit costs and other costs
associated with the reorganization of the Company’s
operations, including the consolidation of most of the
Company’s administrative workforce from its regional office
in Tamarac, Florida to its Montreal corporate head office.
Restructuring charges include severance and stay bonuses for
employees being terminated, sublease costs and related losses
recognized related to the abandonment of a portion of the
Company’s Tamarac facilities and other costs related to the
transition of administrative positions to Montreal including
employee recruitment costs, temporary duplication of salaries
related to the transition and travel and relocation costs. Costs
associated with restructuring activities are recorded when the
liability is incurred or when such costs are deemed probable and
estimable and represent the Company’s best estimate.
(o) Pre-opening expenses:
Pre-opening expenses related to the opening of new and relocated
stores are expensed in the period incurred.
(p) Operating leases:
All material lessor incentive amounts on operating leases are
deferred and amortized as a reduction of rent expense over the term
of the lease. Rent expense is recorded on a straight-line basis,
which takes into effect any rent escalations, rent holidays and
fixturing periods. Lease terms are from the inception of the
fixturing period until the end of the initial lease term and
generally exclude renewal periods. However, renewal periods would
be included in instances in which the exercise of the renewal
period option would be reasonably assured and failure to exercise
such option would result in an economic penalty. Contingent rent
payments vary by lease, are based on a percentage of revenue above
a predetermined sales level and are expensed when it becomes
probable the sales levels will be achieved. This level is different
for each location and includes and excludes various types of
sales.
(q) Earnings per common share:
Basic earnings per share (“EPS”) is computed as net
earnings divided by the weighted-average number of common shares
outstanding for the period. Diluted EPS includes the dilutive
effect of the assumed exercise of stock options, warrants and
equity settled stock appreciation rights.
The following table sets forth the computation of basic and diluted
earnings per common share for the years ended March 28,
2015, March 29, 2014 and March 30, 2013:
Fiscal Year Ended
March 28, 2015 March 29, 2014 March 30, 2013
(In thousands,
except per share data)
Basic (loss) income per common share computation:
Numerator:
Net (loss) income $ (8,632 ) $ (5,801 ) $ 1,513
Denominator:
Weighted-average common shares outstanding 17,937 16,617 13,538
(Loss) income per common share $ (0.48 ) $ (0.35 ) $ 0.11
Diluted (loss) income per common share computation:
Numerator:
Net (loss) income $ (8,632 ) $ (5,801 ) $ 1,513
Denominator:
Weighted-average common shares outstanding 17,937 16,617 13,538
Dilutive effect of stock options, warrants and stock appreciation
rights (SARs)
—
— 6
Weighted-average common shares outstanding – diluted 17,937 16,617 13,544
Diluted (loss) income per common share $ (0.48 ) $ (0.35 ) $ 0.11
For the year ended March 28, 2015, the effect from the assumed
exercise of 442,088 Class A voting shares underlying
outstanding stock options and 382,693 Class A voting shares
underlying outstanding warrants were excluded from the computation
of diluted earnings per share due to their antidilutive effect. For
the year ended March 29, 2014, the effect from the assumed
exercise of 668,421 Class A voting shares underlying
outstanding stock options, 4,347 stock appreciation rights and
382,693 Class A voting shares underlying outstanding warrants
were excluded from the computation of diluted earnings per share
due to their antidilutive effect. For the year ended March 30,
2013, the effect from the assumed exercise of 232,821 Class A
voting shares underlying outstanding stock options and 382,693
Class A voting shares underlying outstanding warrants were
excluded from the computation of diluted earnings per share due to
their antidilutive effect.
(r) Commodity and currency risk:
The Company has exposure to market risk related to gold, silver,
platinum and diamond purchases and foreign exchange risk. The
Company may periodically enter into gold futures contracts to
economically hedge a portion of these risks. During the years ended
and as of March 28, 2015 and March 29, 2014, there were
no such contracts outstanding.
(s) Recent Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, Presentation of
Financial Statements (Topic 205) and Property, Plant and Equipment
(Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity, which updates the criteria
for reporting discontinued operations and enhance related
disclosures. Under the new guidance, only disposals that have a
major effect through a strategic shift on an organization’s
operations and financial results should be presented as
discontinued operations. In addition, the new guidance requires
expanded disclosures that will provide financial statement users
with more information about the assets, liabilities, income and
expenses of discontinued operations. The guidance is effective for
the Company’s fiscal year beginning March 29, 2015.
In 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers,
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial
Statements – Going Concern
In April 2015, the FASB issued ASU 2015-03, Simplifying the
Presentation of Debt Issuance Costs, |
