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EX-32.1 - EX-32.1 - Boot Barn Holdings, Inc.boot-20150926ex321a6cc69.htm
EX-31.2 - EX-31.2 - Boot Barn Holdings, Inc.boot-20150926ex3122dd849.htm
EX-31.1 - EX-31.1 - Boot Barn Holdings, Inc.boot-20150926ex3116f5023.htm
EX-32.2 - EX-32.2 - Boot Barn Holdings, Inc.boot-20150926ex322538bf4.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 26, 2015

 

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                to

 

Commission File Number: 001-36711

 


 

BOOT BARN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

90-0776290

(I.R.S. employer

identification no.)

 

 

 

 

 

 

 

15776 Laguna Canyon Road

Irvine, California

(Address of principal executive offices)

 

92618

(Zip code)

(949) 453-4400

Registrant’s telephone number, including area code

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

 

Indicate by check mark whether the registrant has submitted electronically 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 (§ 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  No

 

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

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

Non-accelerated filer

 

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

 

As of November 6, 2015, the registrant had 26,352,206 shares of common stock outstanding, $0.0001 par value.

 

 

 

 

 


 

Boot Barn Holdings, Inc. and Subsidiaries

Form 10-Q

For the Thirteen and Twenty-Six Weeks Ended September 26, 2015

 

 

 

 

 

 

 

 

Page

 

 

 

 

PART I. 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1. 

Condensed Consolidated Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets as of September 26, 2015 and March 28, 2015

 

 

Condensed Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks Ended September 26, 2015 and September 27, 2014

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Twenty-Six Weeks Ended September 26, 2015 and September 27, 2014

 

 

Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended September 26, 2015 and September 27, 2014

 

 

Notes to the Condensed Consolidated Financial Statements

 

 

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24 

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

38 

 

 

 

 

Item 4. 

Controls and Procedures

 

38 

 

 

 

 

PART II. 

OTHER INFORMATION

 

39 

 

 

 

 

Item 1. 

Legal Proceedings

 

39 

 

 

 

 

Item 1A. 

Risk Factors

 

39 

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41 

 

 

 

 

Item 3. 

Defaults Upon Senior Securities

 

41 

 

 

 

 

Item 4. 

Mine Safety Disclosures

 

41 

 

 

 

 

Item 5. 

Other Information

 

41 

 

 

 

 

Item 6. 

Exhibits

 

42 

 

 

 

 

 

Signatures

 

43 

 

 

2


 

Part 1. Financial Information

 

Item 1.Condensed Consolidated Financial Statements (Unaudited)

 

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

September 26,

    

March 28,

 

 

    

2015

    

2015

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,458

 

$

1,448

 

Accounts receivable

 

 

4,490

 

 

3,863

 

Inventories

 

 

177,977

 

 

129,312

 

Prepaid expenses and other current assets

 

 

17,007

 

 

10,656

 

Total current assets

 

 

206,932

 

 

145,279

 

Property and equipment, net

 

 

64,753

 

 

30,054

 

Goodwill

 

 

191,915

 

 

93,097

 

Intangible assets, net

 

 

66,196

 

 

57,131

 

Other assets

 

 

955

 

 

567

 

Total assets

 

$

530,751

 

$

326,128

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Line of credit

 

$

69,018

 

$

16,200

 

Accounts payable

 

 

60,678

 

 

44,636

 

Accrued expenses and other current liabilities

 

 

35,278

 

 

24,061

 

Current portion of notes payable, net of unamortized debt issuance costs

 

 

1,048

 

 

1,596

 

Total current liabilities

 

 

166,022

 

 

86,493

 

Deferred taxes

 

 

3,957

 

 

21,102

 

Long-term portion of notes payable, net of unamortized debt issuance costs

 

 

193,089

 

 

72,030

 

Capital lease obligations

 

 

8,494

 

 

15

 

Other liabilities

 

 

10,459

 

 

4,066

 

Total liabilities

 

 

382,021

 

 

183,706

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value; September 26, 2015 - 100,000 shares authorized, 26,313 shares issued and outstanding; March 28, 2015 - 100,000 shares authorized, 25,824 shares issued and outstanding

 

 

3

 

 

3

 

Preferred stock, $0.0001 par value; 10,000 shares authorized, no shares issued or outstanding

 

 

 —

 

 

 —

 

Additional paid-in capital

 

 

136,073

 

 

128,693

 

Retained earnings

 

 

12,654

 

 

13,726

 

Total stockholders’ equity

 

 

148,730

 

 

142,422

 

Total liabilities and stockholders’ equity

 

$

530,751

 

$

326,128

 

 

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

 

3


 

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Twenty-Six Weeks Ended

 

 

 

September 26,

 

September 27,

 

September 26,

 

September 27,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

129,712

 

$

86,384

 

$

225,712

 

$

168,881

 

Cost of goods sold

 

 

94,064

 

 

58,631

 

 

159,285

 

 

114,238

 

Amortization of inventory fair value adjustment

 

 

(225)

 

 

 —

 

 

(225)

 

 

 —

 

Total cost of goods sold

 

 

93,839

 

 

58,631

 

 

159,060

 

 

114,238

 

Gross profit

 

 

35,873

 

 

27,753

 

 

66,652

 

 

54,643

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

36,284

 

 

23,371

 

 

61,337

 

 

44,868

 

Acquisition-related expenses

 

 

 —

 

 

 —

 

 

891

 

 

 —

 

Total operating expenses

 

 

36,284

 

 

23,371

 

 

62,228

 

 

44,868

 

(Loss)/income from operations

 

 

(411)

 

 

4,382

 

 

4,424

 

 

9,775

 

Interest expense, net

 

 

5,003

 

 

2,821

 

 

5,794

 

 

5,578

 

Other income, net

 

 

 —

 

 

7

 

 

 —

 

 

25

 

(Loss)/income before income taxes

 

 

(5,414)

 

 

1,568

 

 

(1,370)

 

 

4,222

 

Income tax (benefit)/expense

 

 

(2,071)

 

 

624

 

 

(298)

 

 

1,865

 

Net (loss)/income

 

 

(3,343)

 

 

944

 

 

(1,072)

 

 

2,357

 

Net income  attributed to non-controlling interest

 

 

 —

 

 

 —

 

 

 —

 

 

4

 

Net (loss)/income attributed to Boot Barn Holdings, Inc.

 

$

(3,343)

 

$

944

 

$

(1,072)

 

$

2,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss/(earnings) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic shares

 

$

(0.13)

 

$

0.05

 

$

(0.04)

 

$

0.05

 

Diluted shares

 

$

(0.13)

 

$

0.05

 

$

(0.04)

 

$

0.05

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic shares

 

 

26,159

 

 

19,929

 

 

26,012

 

 

19,539

 

Diluted shares

 

 

26,159

 

 

20,552

 

 

26,012

 

 

20,121

 

 

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

 

4


 

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands) 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Treasury Shares

 

Noncontrolling

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

 

Shares

    

Amount

 

Interest

    

Total

 

 

 

 

 

Balance at March 28, 2015

 

25,824

 

$

3

 

$

128,693

 

$

13,726

 

 —

 

$

 —

 

$

 —

 

$

142,422

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(1,072)

 

 —

 

 

 —

 

 

 —

 

 

(1,072)

 

Stock options exercised

 

490

 

 

 —

 

 

2,424

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

2,424

 

Shares forfeited, held in treasury

 

 —

 

 

 —

 

 

 —

 

 

 —

 

(1)

 

 

 —

 

 

 —

 

 

 —

 

Excess tax benefit

 

 —

 

 

 —

 

 

3,574

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

3,574

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,382

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,382

 

Balance at September 26, 2015

 

26,314

 

$

3

 

$

136,073

 

$

12,654

 

(1)

 

$

 —

 

$

 —

 

$

148,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Treasury Shares

 

Noncontrolling

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

 

Shares

    

Amount

 

Interest

    

Total

 

 

 

 

 

Balance at March 29, 2014

 

18,929

 

$

2

 

$

78,834

 

$

1,652

 

 —

 

$

 —

 

$

4,087

 

$

84,575

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

2,353

 

 —

 

 

 —

 

 

4

 

 

2,357

 

Dividend paid

 

 —

 

 

 —

 

 

(39,648)

 

 

(1,652)

 

 —

 

 

 —

 

 

 —

 

 

(41,300)

 

Reorganization and issuance of stock

 

1,000

 

 

 —

 

 

4,091

 

 

 —

 

 —

 

 

 —

 

 

(4,091)

 

 

 —

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

920

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

920

 

Balance at September 27, 2014

 

19,929

 

$

2

 

$

44,197

 

$

2,353

 

 —

 

$

 —

 

$

 —

 

$

46,552

 

 

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

 

5


 

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Twenty-Six Weeks Ended

    

 

 

September 26,

    

September 27,

 

 

    

2015

    

2014

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net (loss)/income

 

$

(1,072)

 

$

2,357

 

Adjustments to reconcile net (loss)/income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

4,711

 

 

2,819

 

Stock-based compensation

 

 

1,382

 

 

920

 

Excess tax benefit

 

 

(3,574)

 

 

 —

 

Amortization of intangible assets

 

 

1,218

 

 

1,313

 

Amortization and write-off of debt issuance fees and debt discount

 

 

1,709

 

 

371

 

Loss on disposal of property and equipment

 

 

234

 

 

86

 

Accretion of above market leases

 

 

37

 

 

(90)

 

Deferred taxes

 

 

(1,601)

 

 

381

 

Amortization of inventory fair value adjustment

 

 

(225)

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

1,165

 

 

352

 

Inventories

 

 

(18,004)

 

 

(16,745)

 

Prepaid expenses and other current assets

 

 

1,599

 

 

(4,969)

 

Other assets

 

 

(1,610)

 

 

168

 

Accounts payable

 

 

2,811

 

 

5,992

 

Accrued expenses and other current liabilities

 

 

4,450

 

 

471

 

Other liabilities

 

 

2,388

 

 

49

 

Net cash used in operating activities

 

$

(4,382)

 

$

(6,525)

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(19,695)

 

 

(4,597)

 

Acquisition of business, net of cash acquired

 

 

(146,541)

 

 

 —

 

Net cash used in investing activities

 

$

(166,236)

 

$

(4,597)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Line of credit - net

 

 

52,818

 

 

23,232

 

Proceeds from loan borrowings

 

 

200,938

 

 

30,750

 

Repayments on debt and capital lease obligations

 

 

(76,639)

 

 

(615)

 

Debt issuance fees

 

 

(6,487)

 

 

(682)

 

Excess tax benefits from stock options

 

 

3,574

 

 

 —

 

Proceeds from exercise of stock options

 

 

2,424

 

 

 —

 

Dividends paid

 

 

 —

 

 

(41,300)

 

Net cash provided by financing activities

 

$

176,628

 

$

11,385

 

Net increase in cash and cash equivalents

 

 

6,010

 

 

263

 

Cash and cash equivalents, beginning of period

 

 

1,448

 

 

1,118

 

Cash and cash equivalents, end of period

 

$

7,458

 

$

1,381

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

2,827

 

$

2,152

 

Cash paid for interest

 

$

3,957

 

$

4,599

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

Unpaid purchases of property and equipment

 

$

51

 

$

439

 

Equipment acquired through capital lease

 

$

 —

 

$

36

 

 

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

 

6


 

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1Description of the Company and Basis of Presentation

 

Boot Barn Holdings, Inc., formerly known as WW Top Investment Corporation (the “Company”) was formed on November 17, 2011, and is incorporated in the State of Delaware. The equity of the Company consists of 100,000,000 authorized shares and 26,313,456 issued and outstanding shares of common stock as of September 26, 2015. The shares of common stock have voting rights of one vote per share.

 

The Company operates specialty retail stores that sell western and work boots and related apparel and accessories. The Company operates retail locations throughout the U.S. and sells its merchandise via the internet. The Company operated a total of 201 stores in 29 states as of September 26, 2015 and 169 stores in 26 states as of March 28, 2015. As of September 26, 2015, all stores operate under the Boot Barn name, with the exception of twenty stores which operate under the “Sheplers” name and two stores which operate under the “American Worker” name.

 

As of June 8, 2014, the Company held all of the outstanding shares of common stock of WW Holding Corporation, which held 95.0% of the outstanding shares of common stock of Boot Barn Holding Corporation. On June 9, 2014, WW Holding Corporation was merged with and into the Company and then Boot Barn Holding Corporation was merged with and into the Company (“Reorganization”). As a result of this Reorganization, Boot Barn, Inc. became a direct wholly owned subsidiary of the Company, and the minority stockholders that formerly held 5.0% of Boot Barn Holding Corporation were issued a total of 1,000,000 shares of common stock and became holders of 5.0% of the Company. Net income attributed to non-controlling interest was recorded for all periods through June 9, 2014. Subsequent to June 9, 2014, there were no noncontrolling interests. On June 10, 2014, the legal name of the Company was changed from WW Top Investment Corporation to Boot Barn Holdings, Inc.

 

Basis of Presentation

 

The Company’s consolidated financial statements as of and for the thirteen and twenty-six weeks ended September 26, 2015 and September 27, 2014 are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), and include the accounts of the Company and each of its subsidiaries, including Boot Barn, Inc., RCC Western Stores, Inc. (“RCC”), Baskins Acquisition Holdings, LLC (“Baskins”), Sheplers Inc. and Sheplers Holding Corporation (collectively with Sheplers, Inc. “Sheplers”) and Boot Barn International (Hong Kong) Limited (“Hong Kong”). All intercompany accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted.

 

In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments that are of a normal and recurring nature necessary to fairly present the Company’s financial position and results of operations and cash flows in all material respects as of the dates and for the periods presented. The results of operations presented in the interim condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the fiscal year ending March 26, 2016.

 

Change in Accounting Principle

 

The Company historically presented debt issuance costs, or fees paid to third party advisors related to directly issuing debt, as assets on the consolidated balance sheet. During the second quarter of fiscal 2016,  the Company elected early adoption of Accounting Standards Update (ASU) 2015−03, “Interest − Imputation of Interest (Subtopic 835−30), Simplifying the Presentation of Debt Issuance Costs”. The guidance simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected. Therefore, these costs will continue to be amortized as interest expense over the term of the corresponding debt issuance. This guidance is not applicable to debt issuance costs associated with revolving line of credit agreements, and therefore these costs remain as

7


 

assets on the condensed consolidated balance sheets. The Company has applied the guidance in ASU 2015-03 retrospectively to the prior period presented in the condensed consolidated balance sheet.

 

The reclassification did not impact net income previously reported or any prior amounts reported on the condensed consolidated statements of operations. The following table presents the effect of the retrospective application of this change in accounting principle on the Company’s condensed consolidated balance sheet as of March 28, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of Debt Issuance Costs

 

As Reported

 

Effect of Change in

 

As Adjusted

 

(in thousands)

    

March 28, 2015

    

Accounting Principle

    

March 28, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

10,773

 

$

(117)

 

$

10,656

 

Total current assets

 

 

145,396

 

 

(117)

 

 

145,279

 

Noncurrent assets:

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

1,026

 

 

(459)

 

 

567

 

Total assets

 

$

326,704

 

$

(576)

 

$

326,128

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Current portion of notes payable

 

$

1,713

 

$

(117)

 

$

1,596

 

Total current liabilities

 

 

86,610

 

 

(117)

 

 

86,493

 

Long-term liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

72,489

 

 

(459)

 

 

72,030

 

Total liabilities

 

$

184,282

 

$

(576)

 

$

183,706

 

Total liabilities and stockholders' equity

 

$

326,704

 

$

(576)

 

$

326,128

 

 

Fiscal Periods

 

The Company reports its results of operations and cash flows on a 52- or 53-week basis ending on the last Saturday of March unless April 1st is a Saturday, in which case the fiscal year ends on April 1st. In a 52-week year, each quarter includes 13 weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations and the fourth quarter includes 14 weeks of operations. The fiscal year ending on March 26, 2016 (“fiscal 2016”) and the fiscal year ended on March 28, 2015 (“fiscal 2015”), each consists of 52 weeks.

 

Amendment of Certificate of Incorporation

 

On October 19, 2014, the Company’s board of directors authorized the amendment of its certificate of incorporation to increase the number of shares that the Company is authorized to issue to 100,000,000 shares of common stock, par value $0.0001 per share. In addition, the amendment of the certificate of incorporation authorized the Company to issue 10,000,000 shares of preferred stock, par value $0.0001 per share, and effect a 25-for-1 stock split of its outstanding common stock. The amendment became effective on October 27, 2014. Accordingly, all common share and per share amounts in these condensed consolidated financial statements have been adjusted to reflect the increase in authorized shares and the 25-for-1 stock split as though it had occurred at the beginning of the initial period presented.

 

Initial Public Offering

 

On October 29, 2014, the Company commenced its initial public offering (“IPO”) of 5,000,000 shares of its common stock. In addition, on October 31, 2014, the underwriters of the IPO exercised their option to purchase an additional 750,000 shares of common stock from the Company. As a result, 5,750,000 shares of common stock were issued and sold by the Company at a price of $16.00 per share.

 

As a result of the IPO, the Company received net proceeds of approximately $82.2 million, after deducting the underwriting discount of $6.4 million and related fees and expenses of $3.3 million. The Company used the net proceeds

8


 

from the IPO to pay down the principal balance of its term loan with Golub Capital LLC. See Note 5, “Revolving Credit Facilities and Long-Term Debt.”

 

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 consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 29, 2015. Presented below in the following notes is supplemental information that should be read in conjunction with those consolidated financial statements.

 

Comprehensive Income

 

The Company does not have any components of other comprehensive income recorded within its consolidated financial statements and, therefore, does not separately present a statement of comprehensive income in its consolidated financial statements.

 

Segment Reporting

 

GAAP has established guidance for reporting information about a company’s operating segments, including disclosures related to a company’s products and services, geographic areas and major customers. The Company operates in a single operating segment, which includes net sales generated from its retail stores and e-commerce websites. The vast majority of the Company’s identifiable assets are in the U.S.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Among the significant estimates affecting the Company’s consolidated financial statements are those relating to revenue recognition, inventories, goodwill, intangible and long-lived assets, stock-based compensation and income taxes. Management regularly evaluates its estimates and assumptions based upon historical experience and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent actual results differ from those estimates, the Company’s future results of operations may be affected.

 

Inventories

 

Inventory consists primarily of purchased merchandise and is valued at the lower of cost or market. Cost is determined on a first-in, first-out basis and includes the cost of merchandise and import related costs, including freight, duty and agent commissions. The Company assesses the recoverability of inventory through a periodic review of historical usage and present demand. When the inventory on hand exceeds the foreseeable demand, the value of inventory that, at the time of the review, is not expected to be sold is written down to its estimated net realizable value.

 

The Company recorded a fair value adjustment to reflect the acquired cost of inventory related to its acquisition of Sheplers. The amount will be amortized over the period that the related inventory is sold. The amortization of inventory costs was $0.2 million and zero for the thirteen and twenty-six weeks ended September 26, 2015 and September 27, 2014, respectively.

 

Fair Value of Certain Financial Assets and Liabilities

 

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, (“ASC 820”) which requires disclosure of the estimated fair value of certain assets and liabilities defined by the guidance as financial instruments. The Company’s financial

9


 

instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable and debt. ASC 820 defines the fair value of financial instruments as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

 

·

Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.

 

·

Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data.

 

·

Level 3 uses one or more significant inputs that are unobservable and supported by little or no market activity, and reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation. The Company’s Level 3 assets include certain acquired businesses.

 

Cash and cash equivalents, accounts receivable and accounts payable are valued at fair value and are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified as Level 2 or Level 3 even though there may be certain significant inputs that are readily observable. The Company believes that the recorded value of its financial instruments approximates their current fair values because of their nature and relatively short maturity dates or duration.

 

Although market quotes for the fair value of the outstanding debt arrangements discussed in Note 5, “Revolving Credit Facilities and Long-Term Debt” are not readily available, the Company believes its carrying value approximates fair value due to the variable interest rates, which are Level 2 inputs. There were no financial assets or liabilities requiring fair value measurements on a recurring basis as of September 26, 2015.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued a new revenue recognition standard, ASU No. 2014‑09, Revenue From Contracts with Customers, that will supersede nearly all existing revenue recognition guidance under GAAP. The revenue recognition standard will allow for the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. On July 9, 2015, the FASB voted to approve a one-year deferral of the effective date, and voted to permit early adoption as long as the adoption date is not before the original public entity effective date. The standard is effective for public entities for annual and interim periods beginning after December 15, 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) which amends the accounting guidance related to the evaluation of an entity’s ability to continue as a going concern. The amendment establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. The update also gives guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. This guidance is effective for the Company beginning in fiscal 2017. The Company does not expect the new guidance to have an impact on its consolidated financial statements.

 

10


 

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. This update requires inventory within the scope of the standard to be measured at the lower of cost and net realizable value. Previous guidance required inventory to be measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin). This update is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on our consolidated financial statements.

 

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16"), which simplifies the accounting for measurement-period adjustments to provisional amounts recognized in a business combination. ASU 2015-16 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The Company does not expect the new guidance to have an impact on its consolidated financial statements.

 

3.Business Combinations

 

On June 29, 2015, the Company completed the acquisition of Sheplers, a western lifestyle company with 25 retail locations across the United States and an e-commerce business, for a purchase price of $147.0 million (which included assumption of certain indebtedness), subject to customary adjustments (the “Sheplers Acquisition”). The primary reason for the acquisition of Sheplers was to expand its retail operations into new and existing markets and grow the Company’s e-commerce business and omni-channel capability. 

 

The Company funded the acquisition by refinancing approximately $172.0 million of its and Sheplers’ existing indebtedness in part with an initial borrowing of $57.0 million under a new $125.0 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association (“June 2015 Wells Fargo Revolver”), is agent, and a $200.0 million syndicated senior secured term loan for which GCI Capital Markets LLC (“2015 Golub Term Loan”) is agent. Borrowings under the new credit agreements were also used to pay costs and expenses related to the acquisition and the closing of the new credit agreements, and may be used for working capital and other general corporate purposes.

 

The acquisition-date fair value of the consideration transferred totaled $149.3 million, which consisted of $147.0 million in cash and $2.3 million of a preliminary working capital adjustment, cash acquired and other adjustments. The total fair value of consideration transferred for the acquisition was allocated to the preliminary net tangible and intangible assets based upon their estimated fair values as of the date of the acquisition. The Company’s allocation of the purchase price is preliminary as it is still finalizing the amounts related to identifiable intangible assets, inventories, fixed assets, accrued liabilities and the effects of income taxes resulting from the transaction. Any measurement period adjustments will be recorded retrospectively to the acquisition date.  The excess of the purchase price over the preliminary net tangible and intangible assets was recorded as goodwill.  The goodwill is not deductible for income tax purposes.  The intangible assets are not expected to be deductible for income tax purposes. Such estimated fair values require management to make estimates and judgments, especially with respect to intangible assets.

 

The fair value of each intangible and fixed asset acquired through the Sheplers Acquisition was measured in accordance with ASC 820. Customer lists, furniture, fixtures, office equipment, leasehold improvements, computer equipment and warehouse equipment were all valued using the cost approach. The trade name was valued under the royalty savings income approach method and inventory was valued under the comparative sales method. All operating leases, below-market leases, capital leases and financing obligations were valued under either the cost or income approach. Such fair values were determined using Level 3 inputs.

 

11


 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date based on the preliminary purchase price:

 

 

 

 

 

 

    

 

 

 

 

 

    

At June 29, 2015

 

Assets acquired:

 

(in thousands)

 

Cash

 

$

2,762

 

Accounts receivable

 

 

1,792

 

Inventory

 

 

30,436

 

Prepaid expenses and other current assets

 

 

18,891

 

Property and equipment

 

 

10,744

 

Properties under capital lease and financing transactions

 

 

10,528

 

Intangible - below-market leases

 

 

500

 

Intangible - trade name

 

 

9,200

 

Intangible - customer lists

 

 

488

 

Goodwill

 

 

98,818

 

Other assets

 

 

128

 

Total assets acquired

 

$

184,287

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

Accounts payable

 

$

14,554

 

Accrued liabilities and other payables

 

 

5,065

 

Accrued customer liabilities

 

 

1,318

 

Deferred tax liability

 

 

1,226

 

Capital lease and financing transactions

 

 

8,853

 

Other liabilities

 

 

3,968

 

Total liabilities assumed

 

 

34,984

 

Net Assets acquired

 

$

149,303

 

 

 Definite-lived intangible assets are recorded at their fair value as of the acquisition date with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The period of amortization for below-market leases is 8 to 12 years and for customer lists is three years.  The trade name is an indefinite-lived intangible asset and is not amortized but instead is measured for impairment at least annually, or when events indicate that impairment may exist.

 

The Company incurred $0.9 million of acquisition-related costs, which are expensed in “Acquisition-related expenses” in the condensed consolidated statement of operations for the six months ended September 26, 2015.

 

The amount of net revenue and net loss of Sheplers included in the Company’s unaudited condensed consolidated statements of operations subsequent to the June 29, 2015 acquisition date was as follows:

 

 

 

 

 

 

 

 

 

Thirteen and

 

 

 

 

Twenty-Six Weeks Ended

 

 

 

 

September 26,

 

 

 

    

2015

    

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

Net sales

 

$

32,125

 

 

Net loss

 

$

(4,537)

 

 

 

12


 

Supplemental Pro Forma Data 

 

The as adjusted net sales and net loss below give effect to the Sheplers Acquisition as if it had been consummated on March 30, 2014, the first day of the Company’s 2015 fiscal year. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Sheplers to reflect the effects of amortization of purchased intangible assets and acquired inventory valuation step-down,  refinanced debt and capital lease and financing transactions as of March 30, 2014 in order to complete the acquisition, and income tax expense. The adjustments are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances. Pre-acquisition net sales and net loss numbers for Sheplers are derived from their books and records prepared prior to the acquisition. This as adjusted data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place as of the date noted above.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Twenty-Six Weeks Ended

 

 

 

September 26,

 

September 27,

 

September 26,

 

September 27,

 

 

    

2015

    

2014

    

2015

    

2014

 

(in thousands)

    

 

    

    

 

    

    

 

    

    

 

    

 

As adjusted net sales

 

$

129,712

 

$

117,227

 

$

258,644

 

$

229,851

 

As adjusted net loss

 

$

(2,368)

 

$

(1,039)

 

$

(4,680)

 

$

(510)

 

 

 

 

4.Intangible Assets, Net

 

Net intangible assets as of September 26, 2015 and March 28, 2015 consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 26, 2015

 

 

 

Gross

    

 

 

    

 

 

    

Weighted

 

 

 

Carrying

 

Accumulated

 

 

 

 

Average

 

 

    

Amount

    

Amortization

    

Net

    

Useful Life

 

 

 

(in thousands, except for weighted average useful life)

 

Trademarks

 

$

2,490

 

$

(2,490)

 

$

 —

 

0.9

 

Customer lists

 

 

7,788

 

 

(5,293)

 

 

2,495

 

4.9

 

Non-compete agreements

 

 

1,380

 

 

(922)

 

 

458

 

4.7

 

Below-market leases

 

 

5,818

 

 

(1,970)

 

 

3,848

 

9.7

 

Total definite lived

 

 

17,476

 

 

(10,675)

 

 

6,801

 

 

 

Trademarks—indefinite lived

 

 

59,395

 

 

 —

 

 

59,395

 

 

 

Total intangible assets

 

$

76,871

 

$

(10,675)

 

$

66,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 28, 2015

 

 

 

Gross

 

 

 

 

 

 

 

Weighted

 

 

 

Carrying

 

Accumulated

 

 

 

 

Average

 

 

    

Amount

    

Amortization

    

Net

    

Useful Life

 

 

 

(in thousands, except for weighted average useful life)

 

Trademarks

 

$

2,490

 

$

(2,490)

 

$

 —

 

0.9

 

Customer lists

 

 

7,300

 

 

(4,473)

 

 

2,827

 

5.0

 

Non-compete agreements

 

 

1,380

 

 

(788)

 

 

592

 

4.7

 

Below-market leases

 

 

5,318

 

 

(1,706)

 

 

3,612

 

10.4

 

Total definite lived

 

 

16,488

 

 

(9,457)

 

 

7,031

 

 

 

Trademarks—indefinite lived

 

 

50,100

 

 

 —

 

 

50,100

 

 

 

Total intangible assets

 

$

66,588

 

$

(9,457)

 

$

57,131

 

 

 

 

Amortization expense for intangible assets totaled $0.6 million for the thirteen weeks ended September 26, 2015 and $0.7 million for the thirteen weeks ended September 27, 2014, and is included in selling, general and administrative expenses.

 

13


 

Amortization expense for intangible assets totaled $1.2 million for the twenty-six weeks ended September 26, 2015 and $1.3 million for the twenty-six weeks ended September 27, 2014, and is included in selling, general and administrative expenses.

 

As of September 26, 2015, estimated future amortization of intangible assets was as follows:

 

 

 

 

 

 

Fiscal year

    

(in thousands)

 

 

 

 

 

 

2016

    

$

1,264

 

2017

 

 

1,990

 

2018

 

 

995

 

2019

 

 

531

 

2020

 

 

396

 

Thereafter

 

 

1,625

 

Total

 

$

6,801

 

 

The entire change in goodwill from March 28, 2015 to September 26, 2015 resulted from the purchase of Sheplers. The Company performs its annual goodwill impairment test on the first day of the fourth fiscal quarter, or more frequently if it believes that indicators of impairment exist. As of September 26, 2015, the Company had identified no indicators of impairment with respect to its goodwill, intangible and long-lived asset balances.

 

5.Revolving Credit Facilities and Long-Term Debt

 

On June 29, 2015, the Company, as guarantor, and its wholly-owned primary operating subsidiary, Boot Barn, Inc., refinanced the $150.0 million credit facility with Wells Fargo Bank, N.A. (“February 2015 Wells Fargo Credit Facility”) with the $125.0 million June 2015 Wells Fargo Revolver and the $200.0 million 2015 Golub Term Loan. Borrowings under the new credit agreements were also used to pay costs and expenses related to the Sheplers Acquisition and the closing of the new credit agreements, and may be used for working capital and other general corporate purposes.

 

Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at the Company’s option, either (i) London Interbank Offered Rate (“LIBOR”) plus an applicable margin for LIBOR loans, or (ii) the base rate plus an applicable margin for base rate loans.  The base rate is calculated as the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) one-month LIBOR plus 1.0%.  The applicable margin will be calculated based on a pricing grid that will in each case be linked to quarterly average excess availability.  For LIBOR Loans, the applicable margin will be in the range of 1.00% to 1.25%, and for base rate loans it will be between 0.00% and 0.25%.  The Company will also pay a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans.  The interest on the June 2015 Wells Fargo Revolver is payable in quarterly installments beginning on September 25, 2015 and ending on June 29, 2020, the maturity date. Total interest expense incurred in the thirteen weeks ended September 26, 2015 on the June 2015 Wells Fargo Credit Facility was $0.3 million and the weighted average interest rate at September 26, 2015 was 1.68%.

 

Borrowings under the 2015 Golub Term Loan will bear interest at per annum rates equal to, at the Company’s option, either (a) LIBOR plus an applicable margin for LIBOR loans with a LIBOR floor of 1.0%, or (b) the base rate plus an applicable margin for base rate loans.  The base rate will be calculated as the greater of (i) the higher of (x) the prime rate and (y) the federal funds rate plus 0.5% and (ii) the sum of one-month LIBOR plus 1.0%.  The applicable margin is 4.5% for LIBOR Loans and 3.5% for base rate loans.  The principal and interest on the 2015 Golub Term Loan is payable in quarterly installments beginning on September 25, 2015 and ending on the maturity date of the term loan, June 29, 2021. Quarterly principal payments of $500,000 are due each quarter. Total interest expense incurred in the thirteen weeks ended September 26, 2015 on the 2015 Golub Term Loan was $2.8 million and the weighted average interest rate at September 26, 2015 was 5.5%.

 

All obligations under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver are unconditionally guaranteed by the Company and each of its direct and indirect domestic subsidiaries (other than certain

14


 

immaterial subsidiaries) which are not named as borrowers under the 2015 Golub Term Loan or the June 2015 Wells Fargo Revolver, as applicable.

 

The priority with respect to collateral under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver is subject to the terms of an intercreditor agreement among the Lenders under the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver.

 

Each of the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan contains customary provisions relating to mandatory prepayments, restricted payments, voluntary payments, affirmative and negative covenants, and events of default.  In addition, the terms of the June 2015 Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio to be at least 1.00:1.00 during such times as a covenant trigger event shall exist.  The terms of the 2015 Golub Term Loan will require the Company to maintain, on a consolidated basis, a maximum Consolidated Total Net Leverage Ratio of 5.25:1.00 (with step downs to 4.00:1.00 as provided for in the 2015 Golub Term Loan). The June 2015 Wells Fargo Revolver and 2015 Golub Term Loan also require the Company to pay additional interest of 2.0% per annum upon triggering certain specified events of default set forth in the June 2015 Wells Fargo Revolver and 2015 Golub Term Loan. For financial accounting purposes, the requirement for the Company to pay a higher interest rate in the event of default is an embedded derivative. As of September 26, 2015, the fair value of these embedded derivatives was estimated and was not significant.

 

Debt Issuance Costs and Debt Discount

 

Upon issuance of the note payable on February 23, 2015, the Company paid $1.4 million of transaction fees in connection with the February 2015 Wells Fargo Credit Facility. These transaction fees were paid to both Wells Fargo and other advisors via a reduction in the proceeds from the February 2015 Wells Fargo Credit Facility and were accounted for as debt issuance costs and a debt discount at March 28, 2015. On June 29, 2015, the note payable was repaid when the new financing was obtained, and the $1.4 million remaining debt issuance costs and debt discounts were written off to interest expense.

 

Debt issuance costs totaling $0.8 million were incurred under the June 2015 Wells Fargo Revolver and are included as assets on the condensed consolidated balance sheets in prepaid expenses and other current assets. These amounts are being amortized to interest expense over the term of the June 2015 Wells Fargo Revolver.

 

Debt issuance costs and debt discount totaling $5.4 million were incurred under the 2015 Golub Term Loan and are included as a reduction of the current and non-current note payable on the condensed consolidated balance sheet. These amounts are being amortized to interest expense over the term of the 2015 Golub Term Loan.

 

The following sets forth the balance sheet information related to the term loan:

 

 

 

 

 

 

 

 

 

 

 

 

September 26,

 

March 28,

 

 

    

2015

      

2015

 

(in thousands)

 

 

 

Term Loan

 

$

199,500

$

75,000

 

Unamortized value of the debt issuance costs and debt discount(1)

 

 

(5,363)

 

 

(1,374)

 

Net carrying value

 

$

194,137

 

$

73,626

 

 

(1)

Includes the reclassification of debt issuance costs of $0.1 million from “Prepaid and other current assets” and $0.5 million from “Other assets” at March 28, 2015 as a result of the Company adopting ASU 2015-03. See Note 1.

 

Total amortization expense of $0.3 million related to the June 2015 Wells Fargo Revolver and 2015 Golub Term Loan is included as a component of interest expense in the thirteen and twenty-six weeks ended September 26, 2015.

 

15


 

$150 Million Credit Facility (Wells Fargo Bank, N.A.)

 

On February 23, 2015, the Company and Boot Barn, Inc., the Company’s wholly-owned primary operating subsidiary, entered into the February 2015 Wells Fargo Credit Facility, which consisted of a $75.0 million revolving credit facility, including a $5.0 million sub-limit for letters of credit, and a $75.0 million term loan, and also provided the Company with the ability to incur additional incremental term loans of up to $50.0 million, provided that certain conditions were met, including compliance with certain covenants. On June 29, 2015, the Company repaid all outstanding borrowings under the February 2015 Wells Fargo Credit Facility and terminated such facility in connection with the refinancing discussed above.

 

Total interest expense incurred in the twenty-six weeks ended September 26, 2015 on the February 2015 Wells Fargo Credit Facility was $0.8 million and the weighted average interest rate at September 26, 2015 was 4.09%.

 

Revolving Credit Facility (PNC Bank, N.A.)

 

On December 11, 2011, the Company obtained a collateral-based revolving line of credit with PNC Bank, N.A. (the “PNC Line of Credit”), which the Company amended on August 31, 2012 and May 31, 2013. The PNC Line of Credit included a $5.0 million sub-limit for letters of credit. On April 15, 2014, the Company amended the PNC Line of Credit to increase the borrowing capacity from $60.0 million to up to $70.0 million. The available borrowing under the PNC Line of Credit was based on the collective value of eligible inventory and credit card receivables multiplied by specific advance rates. Total interest expense incurred on the PNC Line of Credit for the thirteen and twenty-six weeks ended September 27, 2014 was $0.3 million and $0.6 million, respectively. On February 23, 2015, proceeds from the February 2015 Wells Fargo Credit Facility were used to pay the entire $50.8 million outstanding balance of the PNC Line of Credit.

 

Term Loan Due May 2019 (Golub Capital LLC)

 

The Company entered into a loan and security agreement with Golub Capital LLC on May 31, 2013, as amended by the first amendment to term loan and security agreement dated September 23, 2013 (the “2013 Golub Loan”). On April 14, 2014, the Company entered into an amended and restated term loan and security agreement for the 2013 Golub Loan. The amended and restated loan and security agreement increased the borrowings on the 2013 Golub Loan from $99.2 million to $130.0 million, with the proceeds used to fund a portion of the $41.3 million dividend to stockholders and cash payment to holders of vested options that was paid in April 2014. See Note 6, “Stock-Based Compensation”. On November 5, 2014, the Company amended the 2013 Golub Loan to reduce the applicable LIBOR Floor from 1.25% to 1.00% which changed the current interest rate from 7.00% to 6.75%.  Total interest expense incurred on the 2013 Golub Loan for the thirteen and twenty-six weeks ended September 27, 2014 was $2.3 million and $4.5 million, respectively.

 

On November 5, 2014, the Company used $81.9 million of the net proceeds from the IPO to repay a portion of the principal balance on the 2013 Golub Loan. The Company incurred a pre-payment penalty of $0.6 million and accelerated amortization of debt issuance costs of $1.7 million, which was recorded to interest expense.

 

On February 23, 2015, proceeds from the February 2015 Wells Fargo Credit Facility were used to pay the entire $47.3 million outstanding balance of the 2013 Golub Loan. The Company incurred prepayment penalties of $1.1 million to the lenders under the Company’s prior credit facilities. Total debt issuance costs from the PNC Line of Credit and the 2013 Golub Loan of $1.4 million were written off to interest expense.

 

16


 

Aggregate Contractual Maturities

 

Aggregate contractual maturities for the Company’s line of credit and long-term debt as of September 26, 2015 are as follows:

 

 

 

 

 

 

Fiscal year

 

 

(in thousands)

 

 

 

 

 

 

2016

    

$

1,000

 

2017

 

 

2,000

 

2018

 

 

2,000

 

2019

 

 

2,000

 

2020

 

 

2,000

 

Thereafter

 

 

259,518

 

Total

 

$

268,518

 

 

 

 

6.Stock-Based Compensation

 

Equity Incentive Plans

 

On January 27, 2012, the Company approved the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan authorized the Company to issue options to employees, consultants and directors to purchase up to a total of 3,750,000 shares of common stock. As of September 26, 2015, all awards granted by the Company under the 2011 Plan have been nonqualified stock options. Options granted under the 2011 Plan have a life of 10 years and vest over service periods of five years or in connection with certain events as defined by the 2011 Plan.

 

On October 19, 2014, the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan authorizes the Company to issue awards to employees, consultants and directors with respect to a total of 1,600,000 shares of common stock, par value $0.0001 per share. Options granted under the 2014 Plan have a life of 8 years and vest over service periods of five years or in connection with certain events as defined by the 2014 Plan. All awards granted by the Company under the 2014 Plan to date have been nonqualified stock options, restricted stock awards or restricted stock units.

 

Pro Rata Cash Dividend, Cash Payment to Holders of Vested Options and Adjustment to Exercise Price of Unvested Options

 

On April 11, 2014, the Company declared and subsequently paid a pro rata cash dividend to its stockholders totaling $39.9 million, made a cash payment of $1.4 million to holders of vested options, and lowered the exercise price of 1,918,550 unvested options by $2.00 per share. The cash payments totaling $41.3 million reduced retained earnings to zero and reduced additional paid-in capital by $39.7 million. The 2011 Plan has nondiscretionary anti-dilution provisions that require the fair value of the option awards to be equalized in the event of an equity restructuring. Consequently, the board of directors of the Company was obligated under the anti-dilution provisions to approve the reduction of the exercise price on the unvested options and make the cash payment to the holders of vested options. No incremental stock-based compensation expense was recognized for the dividend for the vested options or reduction in exercise price of the unvested options.

 

Non-Qualified Stock Options

 

During the thirteen weeks ended September 26, 2015, the Company granted certain members of management options to purchase a total of 10,540 shares under the 2014 Plan.  The total grant date fair value of stock options granted during the thirteen weeks ended September 26, 2015 was $0.1 million, with a  grant date fair value of $11.52 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise price of these awards was $32.02 per share.

 

17


 

During the twenty-six weeks ended September 26, 2015, the Company granted certain members of management options to purchase a total of 294,153 shares under the 2014 Plan. The total grant date fair value of stock options granted during the twenty-six weeks ended September 26, 2015 was $2.7 million, with grant date fair values ranging from $7.48 to $11.52 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise prices of these awards range between $22.31 and $32.02 per share.

 

On October 29, 2014, the Company granted its Chief Executive Officer (“CEO”) options to purchase 99,650 shares of common stock under the 2014 Plan. These options contain provisions related to both time of service and market conditions. Vesting of the options occurs if the market price of the Company’s stock achieves stated targets through the third anniversary of the date of grant. If those market price targets are achieved, the options will vest in equal amounts on the third, fourth and fifth anniversaries of the grant date. The fair value of the options was estimated using a Monte Carlo simulation model. The following significant assumptions were used as of October 29, 2014:

 

 

 

 

 

 

 

Stock price

    

$

16.00

 

Exercise price

 

$

16.00

 

Expected option term

 

 

6.0

years

Expected volatility

 

 

55.0

%

Risk-free interest rate

 

 

1.8

%

Expected annual dividend yield

 

 

0

%

 

During the twenty-six weeks ended September 27, 2014, the Company granted certain members of management options to purchase a total of 237,500 shares of common stock under the 2011 Plan. The total grant date fair value of the stock options during the twenty-six weeks ended September 27, 2014 was $1.5 million, with grant date fair values ranging from $6.20 to $6.36 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise prices of these awards range between $11.14 and $11.40 per share. No options were granted during the thirteen weeks ended September 27, 2014.

 

The stock option awards discussed above, with the exception of options awarded to the Company’s CEO on October 29, 2014, were measured at fair value on the grant date using the Black-Scholes option valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, expected volatility of the Company’s stock price over the option’s expected term, the risk-free interest rate over the option’s expected term and the Company’s expected annual dividend yield, if any. The Company’s estimate of pre-vesting forfeitures, or forfeiture rate, was based on its internal analysis, which included the award recipients’ positions within the Company and the vesting period of the awards. The Company will issue shares of common stock when the options are exercised.

 

The fair values of stock options granted during the thirteen and twenty-six weeks ended September 26, 2015 and September 27, 2014 were estimated on the grant dates using the following assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Twenty-Six Weeks Ended

    

 

 

September 26,

 

September 27,

 

September 26,

 

September 27,

 

 

    

2015

    

2014

  

2015

    

2014

 

Expected option term(1)