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EX-31.2 - EX-31.2 - Burlington Stores, Inc.burl-ex312_9.htm
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EX-32.1 - EX-32.1 - Burlington Stores, Inc.burl-ex321_10.htm
EX-32.2 - EX-32.2 - Burlington Stores, Inc.burl-ex322_12.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended October 31, 2015

OR

o

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 001-36107

 

BURLINGTON STORES, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

80-0895227

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2006 Route 130 North

Burlington, New Jersey

 

08016

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (609) 387-7800

 

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 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 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

x

Accelerated filer

o

 

 

 

 

Non-Accelerated filer

o  (Do not check if a smaller reporting company)

Smaller reporting company

o

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

The number of shares of registrant’s common stock outstanding as of November 20, 2015: 75,952,146.

 

 

 


BURLINGTON STORES, INC.

INDEX

 

 

 

Page

Part I—Financial Information

 

3

 

 

 

Item 1. Financial Statements (unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets as of October 31, 2015, January 31, 2015 and November 1, 2014

 

3

 

 

 

Condensed Consolidated Statements of Operations – Three and Nine Months Ended October 31, 2015 and November 1, 2014

 

4

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended October 31, 2015 and November 1, 2014

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine Months Ended October 31, 2015 and November 1, 2014

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

Item 4. Controls and Procedures

 

36

 

 

 

Part II—Other Information

 

36

 

 

 

Item 1. Legal Proceedings

 

36

 

 

 

Item 1A. Risk Factors

 

37

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

37

 

 

 

Item 3. Defaults Upon Senior Securities

 

38

 

 

 

Item 4. Mine Safety Disclosures

 

38

 

 

 

Item 5. Other Information

 

38

 

 

 

Item 6. Exhibits

 

38

 

 

 

SIGNATURES

 

39

 

 

 

 

2


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(All amounts in thousands, except share and per share data)

 

 

 

 

October 31,

 

 

January 31,

 

 

November 1,

 

 

 

2015

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,847

 

 

$

25,349

 

 

$

29,437

 

Restricted cash and cash equivalents

 

 

27,800

 

 

 

27,800

 

 

 

32,100

 

Accounts receivablenet of allowance for doubtful accounts

 

 

49,018

 

 

 

49,716

 

 

 

53,484

 

Merchandise inventories

 

 

934,011

 

 

 

788,708

 

 

 

899,880

 

Deferred tax assets

 

 

36,934

 

 

 

37,229

 

 

 

18,216

 

Prepaid and other current assets

 

 

68,721

 

 

 

58,681

 

 

 

123,382

 

Total current assets

 

 

1,145,331

 

 

 

987,483

 

 

 

1,156,499

 

Property and equipment—net of accumulated depreciation and amortization

 

 

1,018,188

 

 

 

970,419

 

 

 

964,217

 

Tradenames

 

 

238,000

 

 

 

238,000

 

 

 

238,000

 

Favorable leases—net of accumulated amortization

 

 

248,210

 

 

 

266,397

 

 

 

272,807

 

Goodwill

 

 

47,064

 

 

 

47,064

 

 

 

47,064

 

Other assets

 

 

108,524

 

 

 

115,206

 

 

 

118,314

 

Total assets

 

$

2,805,317

 

 

$

2,624,569

 

 

$

2,796,901

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

704,187

 

 

$

621,682

 

 

$

766,510

 

Other current liabilities

 

 

327,156

 

 

 

310,268

 

 

 

299,122

 

Current maturities of long term debt

 

 

1,376

 

 

 

1,167

 

 

 

13,275

 

Total current liabilities

 

 

1,032,719

 

 

 

933,117

 

 

 

1,078,907

 

Long term debt

 

 

1,412,431

 

 

 

1,249,276

 

 

 

1,410,838

 

Other liabilities

 

 

272,774

 

 

 

273,767

 

 

 

257,832

 

Deferred tax liabilities

 

 

209,330

 

 

 

234,360

 

 

 

217,189

 

Commitments and contingencies (Notes 2, 9, 10, and 11)

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value: authorized: 50,000,000 shares; no shares

   issued and outstanding at October 31, 2015, January 31, 2015 and November 1, 2014

 

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value: authorized: 500,000,000 shares

   at October 31, 2015, January 31, 2015 and November 1, 2014;

 

 

 

 

 

 

 

 

 

 

 

 

Issued: 76,597,066 shares at October 31, 2015, 75,925,507 shares at

   January 31, 2015 and 75,241,724 shares at November 1, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding: 73,560,207 shares at October 31, 2015, 75,254,682

   shares at January 31, 2015 and 74,590,114 shares at November 1, 2014

 

 

7

 

 

 

7

 

 

 

7

 

Additional paid-in-capital

 

 

1,391,034

 

 

 

1,370,498

 

 

 

1,361,603

 

Accumulated deficit

 

 

(1,374,745

)

 

 

(1,426,454

)

 

 

(1,521,319

)

Accumulated other comprehensive loss

 

 

(5,844

)

 

 

(1,744

)

 

 

(745

)

Treasury stock, at cost

 

 

(132,389

)

 

 

(8,258

)

 

 

(7,411

)

Total stockholders' deficit

 

 

(121,937

)

 

 

(65,951

)

 

 

(167,865

)

Total liabilities and stockholders' deficit

 

$

2,805,317

 

 

$

2,624,569

 

 

$

2,796,901

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

3


BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(All amounts in thousands, except per share data)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 31,

 

 

November 1,

 

 

October 31,

 

 

November 1,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,230,886

 

 

$

1,157,292

 

 

$

3,558,162

 

 

$

3,329,142

 

Other revenue

 

 

7,783

 

 

 

8,816

 

 

 

22,998

 

 

 

23,950

 

Total revenue

 

 

1,238,669

 

 

 

1,166,108

 

 

 

3,581,160

 

 

 

3,353,092

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

741,584

 

 

 

698,590

 

 

 

2,150,430

 

 

 

2,042,079

 

Selling, general and administrative expenses

 

 

416,205

 

 

 

396,713

 

 

 

1,175,491

 

 

 

1,093,760

 

Costs related to debt amendments, secondary offerings and other

 

 

 

 

 

589

 

 

 

247

 

 

 

1,930

 

Stock option modification expense

 

 

324

 

 

 

628

 

 

 

1,120

 

 

 

2,419

 

Depreciation and amortization

 

 

43,186

 

 

 

42,584

 

 

 

127,087

 

 

 

124,341

 

Impairment charges-long-lived assets

 

 

 

 

 

6

 

 

 

1,903

 

 

 

853

 

Other income—net

 

 

(1,680

)

 

 

(1,705

)

 

 

(4,142

)

 

 

(5,569

)

Loss on extinguishment of debt

 

 

 

 

 

70,302

 

 

 

649

 

 

 

73,983

 

Interest expense (inclusive of gain (loss) on interest rate cap agreements)

 

 

14,792

 

 

 

16,624

 

 

 

44,192

 

 

 

68,722

 

Total cost and expenses

 

 

1,214,411

 

 

 

1,224,331

 

 

 

3,496,977

 

 

 

3,402,518

 

Income (loss) before income tax expense (benefit)

 

 

24,258

 

 

 

(58,223

)

 

 

84,183

 

 

 

(49,426

)

Income tax expense (benefit)

 

 

9,142

 

 

 

(24,009

)

 

 

32,474

 

 

 

(20,516

)

Net income (loss)

 

$

15,116

 

 

$

(34,214

)

 

$

51,709

 

 

$

(28,910

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - basic

 

$

0.20

 

 

$

(0.46

)

 

$

0.69

 

 

$

(0.39

)

Common stock - diluted

 

$

0.20

 

 

$

(0.46

)

 

$

0.68

 

 

$

(0.39

)

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - basic

 

 

74,115

 

 

 

74,218

 

 

 

74,759

 

 

 

73,943

 

Common stock - diluted

 

 

75,394

 

 

 

74,218

 

 

 

76,135

 

 

 

73,943

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

4


BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(All amounts in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 31,

 

 

November 1,

 

 

October 31,

 

 

November 1,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income (loss)

 

$

15,116

 

 

$

(34,214

)

 

$

51,709

 

 

$

(28,910

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses, net of related tax benefit of $2.2 million and

   $2.8 million for the three and nine months ended October 31,

   2015, respectively, and $0.5 million for the three and nine

   months ended November 1, 2014, respectively.

 

 

(3,358

)

 

 

(745

)

 

 

(4,179

)

 

 

(745

)

Amount reclassified into earnings, net of related taxes of less than

    $0.1 million and $0.1 million for the three and nine months ended

    October 31, 2015, respectively.

 

 

55

 

 

 

 

 

 

79

 

 

 

 

Other comprehensive (loss), net of tax:

 

 

(3,303

)

 

 

(745

)

 

 

(4,100

)

 

 

(745

)

Total comprehensive income (loss)

 

$

11,813

 

 

$

(34,959

)

 

$

47,609

 

 

$

(29,655

)

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

5


BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(All amounts in thousands)

 

 

Nine Months Ended

 

 

 

October 31,

 

 

November 1,

 

 

 

2015

 

 

2014

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

51,709

 

 

$

(28,910

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

127,087

 

 

 

124,341

 

Impairment chargeslong-lived assets

 

 

1,903

 

 

 

853

 

Amortization of deferred financing costs

 

 

2,156

 

 

 

5,303

 

Accretion of long-term debt instruments

 

 

609

 

 

 

1,358

 

Deferred income tax (benefit)

 

 

(22,001

)

 

 

(29,764

)

Non-cash loss on extinguishment of debt—write-off of deferred financing costs

   and original issue discount

 

 

649

 

 

 

27,687

 

Non-cash stock compensation expense

 

 

8,237

 

 

 

4,616

 

Non-cash rent expense

 

 

(17,354

)

 

 

(13,819

)

Deferred rent incentives

 

 

18,481

 

 

 

21,673

 

Excess tax benefit from stock based compensation

 

 

(10,211

)

 

 

(9,144

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,430

)

 

 

(19,967

)

Merchandise inventories

 

 

(145,303

)

 

 

(179,828

)

Prepaid and other current assets

 

 

(13,008

)

 

 

(40,372

)

Accounts payable

 

 

82,505

 

 

 

223,523

 

Other current liabilities

 

 

21,094

 

 

 

(979

)

Other long term assets and long term liabilities

 

 

3,251

 

 

 

1,282

 

Other

 

 

1,325

 

 

 

651

 

Net cash provided by operating activities

 

 

103,699

 

 

 

88,504

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Cash paid for property and equipment

 

 

(153,720

)

 

 

(164,525

)

Proceeds from sale of property and equipment and assets held for sale

 

 

4,213

 

 

 

161

 

Net cash used in investing activities

 

 

(149,507

)

 

 

(164,364

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from long term debt—ABL Line of Credit

 

 

1,173,200

 

 

 

728,300

 

Principal payments on long term debt—ABL Line of Credit

 

 

(960,300

)

 

 

(523,100

)

Proceeds from long term debt—Term B-3 Loans

 

 

 

 

 

1,194,000

 

Principal payments on long term debt—Term B-3 Loans

 

 

(50,000

)

 

 

(3,000

)

Principal payments on long term debt—Term B-2 Loans

 

 

 

 

 

(834,507

)

Principal payments on long term debt—Holdco Notes

 

 

 

 

 

(128,223

)

Principal payments on long term debt—Senior Notes

 

 

 

 

 

(450,000

)

Cash payments for interest rate cap contracts

 

 

 

 

 

(4,478

)

Proceeds from sale of interest rate cap contracts

 

 

1,169

 

 

 

 

Repayment of capital lease obligations

 

 

(779

)

 

 

(737

)

Purchase of treasury shares

 

 

(124,131

)

 

 

(3,086

)

Proceeds from stock option exercises

 

 

1,926

 

 

 

1,585

 

Excess tax benefit from stock based compensation

 

 

10,211

 

 

 

9,144

 

Deferred financing costs

 

 

(2,399

)

 

 

(13,585

)

Other

 

 

409

 

 

 

 

Net cash provided by (used in) financing activities

 

 

49,306

 

 

 

(27,687

)

Increase (decrease) in cash and cash equivalents

 

 

3,498

 

 

 

(103,547

)

Cash and cash equivalents at beginning of period

 

 

25,349

 

 

 

132,984

 

Cash and cash equivalents at end of period

 

$

28,847

 

 

$

29,437

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

43,499

 

 

$

83,849

 

Income tax payments - net

 

$

54,264

 

 

$

72,670

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

27,256

 

 

$

26,865

 

Acquisition of capital lease

 

$

 

 

$

5,621

 

See Notes to Condensed Consolidated Financial Statements.

 

6


BURLINGTON STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2015

(UNAUDITED)

 

1. Summary of Significant Accounting Policies

Basis of Presentation

As of October 31, 2015, Burlington Stores, Inc. and its subsidiaries (the Company), a Delaware Corporation, through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated 566 retail stores, inclusive of an internet store.

These unaudited Condensed Consolidated Financial Statements include the accounts of Burlington Stores, Inc. and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The Condensed Consolidated Financial Statements are unaudited, but in the opinion of management reflect all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of operations for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (Fiscal 2014 10-K). The balance sheet at January 31, 2015 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2014 10-K. Because the Company’s business is seasonal in nature, the operating results for the three and nine month periods ended October 31, 2015 are not necessarily indicative of results for the fiscal year ending January 30, 2016 (Fiscal 2015).

Accounting policies followed by the Company are described in Note 1 to the Fiscal 2014 10-K, “Summary of Significant Accounting Policies.”

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it 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. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration included in the transaction price and allocating the transaction price to each separate performance obligation. At its July 9, 2015 meeting, the FASB affirmed its proposal to defer the effective date of this ASU for reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. The effective date of this ASU for the Company is February 4, 2018. The Company is currently in the process of evaluating the impact of adoption of this ASU on its Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability. This ASU is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company intends to adopt this ASU during the fiscal year beginning on January 31, 2016. The Company does not expect this standard to have a significant effect on its Consolidated Financial Statements.

There were no other new accounting standards that had a material impact on the Company’s Condensed Consolidated Financial Statements during the three and nine month periods ended October 31, 2015, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of October 31, 2015 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

Secondary Offering

On April 7, 2015, the Company closed a secondary public offering of 12,490,154 shares of its common stock (the Secondary Offering). All of the shares sold in the Secondary Offering were offered by selling stockholders. The Company did not receive any of the proceeds from the Secondary Offering. The Company incurred $0.2 million in offering costs related to the Secondary Offering, which are included in the line item “Costs related to debt amendments, secondary offerings and other” on the Company’s Condensed Consolidated Statements of Operations.

 

 

7


2. Long Term Debt

Long term debt consists of:

 

 

(in thousands)

 

 

 

October 31,

 

 

January 31,

 

 

November 1,

 

 

 

2015

 

 

2015

 

 

2014

 

$1,200,000 senior secured term loan facility (Term B-3 Loans), LIBOR

   (with a floor of 1.0%) plus 3.25%, matures on August 13, 2021

 

$

1,112,376

 

 

$

1,161,541

 

 

$

1,191,194

 

$600,000 ABL senior secured revolving facility, LIBOR plus spread based

   on average outstanding balance, matures August 13, 2019

 

 

276,200

 

 

 

63,300

 

 

 

205,200

 

Capital lease obligations

 

 

25,231

 

 

 

25,602

 

 

 

27,719

 

Total debt

 

 

1,413,807

 

 

 

1,250,443

 

 

 

1,424,113

 

Less: current maturities

 

 

(1,376

)

 

 

(1,167

)

 

 

(13,275

)

Long term debt, net of current maturities

 

$

1,412,431

 

 

$

1,249,276

 

 

$

1,410,838

 

 

Term Loan Facility

On August 13, 2014, BCFWC entered into Amendment No. 4 (the Fourth Amendment) to the Term Loan Credit Agreement (as amended by the Fourth Amendment, the Amended Term Loan Credit Agreement) governing its senior secured term loan facility (the Term Loan Facility). The Fourth Amendment, among other things, (i) increased the available incremental amount to $400.0 million plus unlimited amounts so long as BCFWC’s pro forma consolidated secured leverage ratio does not exceed 3.50 to 1.00 and (ii) gave BCFWC and its restricted subsidiaries additional flexibility to make investments, restricted payments (including dividends), incur additional debt, grant liens and otherwise comply with its covenants under the Amended Term Loan Credit Agreement. The interest rate margin applicable under the Amended Term Loan Credit Agreement is 3.25% in the case of loans drawn at LIBOR and 2.25% in the case of loans drawn under the prime rate (as determined by the Term Loan Facility Administrative Agent). The Fourth Amendment removed the variable pricing mechanism that was formerly in place, which was based on BCFWC’s pro forma consolidated secured leverage ratio. The Term Loan Facility is collateralized by a first lien on our favorable leases, real estate and property & equipment and a second lien on our inventory and receivables.

The Term B-3 Loans outstanding under the Term Loan Facility mature on August 13, 2021. Mandatory quarterly payments of $3.0 million were payable as of the last day of each quarter, beginning with the quarter ended July 29, 2017. The Company elected to make a prepayment of $50.0 million on May 1, 2015, which offset the mandatory quarterly payments through May 1, 2021. In accordance with ASC Topic No. 470-50, “Debt Modifications and Extinguishments” (Topic No. 470), the Company recognized a non-cash loss on the partial extinguishment of debt of $0.6 million, representing the write-off of $0.4 million and $0.2 million in deferred financing costs and unamortized original issue discount, respectively, which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Condensed Consolidated Statements of Operations.

Interest rates for the Term Loan Facility are based on: (i) for LIBOR rate loans for any interest period, at a rate per annum equal to the greater of (x) the LIBOR rate, as determined by the Term Loan Facility Administrative Agent, for such interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement) and (y) 1.00% (the Term Loan Adjusted LIBOR Rate), plus an applicable margin; and (ii) for prime rate loans, a rate per annum equal to the highest of (a) the variable annual rate of interest then announced by JPMorgan Chase Bank, N.A. at its head office as its “prime rate,” (b) the federal funds rate in effect on such date plus 0.50% per annum, and (c) the Term Loan Adjusted LIBOR Rate for the applicable class of term loans for one-month plus 1.00%, plus, in each case, an applicable margin. At October 31, 2015, the Company’s borrowing rate related to the Term Loan Facility was 4.25%.

ABL Line of Credit

On August 13, 2014, BCFWC also entered into Amendment No. 1 (the ABL Amendment) to the Second Amended and Restated Credit Agreement, dated September 2, 2011 (as amended, supplemented and otherwise modified, the Amended ABL Credit Agreement) governing BCFWC’s existing senior secured asset-based revolving credit facility (the ABL Line of Credit). The ABL Amendment, among other things, provided BCFWC and certain of its subsidiaries with additional flexibility to make investments, restricted payments (including dividends), incur additional debt, grant liens and otherwise comply with its covenants under the Amended ABL Credit Agreement. The Company believes that the Amended ABL Credit Agreement provides the liquidity and flexibility to meet its operating and capital requirements over the remaining term of the ABL Line of Credit. Further, the calculation of the borrowing base under the amended and restated credit agreement has been amended to allow for increased availability, particularly during the September 1st through December 15th period of each year.

The ABL Line of Credit matures on August 13, 2019. The aggregate amount of commitments under the Amended ABL Credit Agreement is $600.0 million and, subject to the satisfaction of certain conditions, the Company can increase the aggregate amount of

 

8


commitments up to $900.0 million. Interest rate margin applicable under the Amended ABL Credit Agreement in the case of loans drawn at LIBOR is 1.25% - 1.50% (based on total commitments or borrowing base availability), and the fee on the average daily balance of unused loan commitments is 0.25%. The ABL Line of Credit is collateralized by a first lien on the Company’s inventory and receivables and a second lien on the Company’s real estate and property and equipment.

At October 31, 2015, the Company had $278.2 million available under the Amended ABL Line of Credit and $276.2 million of outstanding borrowings. The maximum borrowings under the facility during the three and nine month periods ended October 31, 2015 amounted to $330.7 million. Average borrowings during the three and nine month periods ended October 31, 2015 amounted to $270.2 million and $199.7 million, respectively, at average interest rates of 1.6%. The Company had outstanding borrowings under the Amended ABL Line of Credit of $63.3 million as of January 31, 2015.

At November 1, 2014, the Company had $346.3 million available under the ABL Line of Credit and $205.2 million of outstanding borrowings. The maximum borrowings under the facility during the three and nine month periods ended November 1, 2014 amounted to $297.0 million. Average borrowings during the three and nine month periods ended November 1, 2014 amounted to $226.5 million and $83.8 million, respectively at average interest rates of 1.7%.

 

 

3. Derivative Instruments and Hedging Activities

The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815 “Derivatives and Hedging” (Topic No. 815). Topic No. 815 provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (i) how and why an entity uses derivative instruments, (ii) how the entity accounts for derivative instruments and related hedged items, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by Topic No. 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The Company uses interest rate cap contracts to manage interest rate risk. The fair value of the Company’s interest rate cap contracts is determined using the market standard methodology of discounted future variable cash flows. The variable cash flows are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps in conjunction with the cash payments related to financing the premium of the interest rate caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. In addition, to comply with the provisions of ASC Topic No. 820, “Fair Value Measurements” (Topic No. 820), credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees.

In accordance with Topic No. 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. There is no impact of netting because the Company’s only derivatives are interest rate cap contracts that are with separate counterparties and are under separate master netting agreements.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of October 31, 2015, January 31, 2015 and November 1, 2014, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivative portfolios. As a result, the Company classifies its derivative valuations in Level 2 of the fair value hierarchy.

 

9


The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract.

On August 19, 2014, the Company entered into four interest rate cap contracts which were designated as cash flow hedges (the Previous Interest Rate Cap Contracts). On April 24, 2015, the Company terminated and sold the Previous Interest Rate Cap Contracts. The Company received $1.2 million in cash in connection with the termination and sale of the Previous Interest Rate Cap Contracts. As a result of these transactions, the amount of loss previously deferred in accumulated other comprehensive loss related to these caps was $2.0 million, net of taxes of $1.3 million. The Company will amortize this loss from accumulated other comprehensive loss into interest expense over the original life of each respective cap through April 2019. Also on April 24, 2015, the Company entered into two new interest rate cap contracts (the New Interest Rate Cap Contracts) which were designated as cash flow hedges. The Company financed the cost of the New Interest Rate Cap Contracts, which will be amortized through the life of the caps.  Through the nine month period ended October 31, 2015, the Company paid $2.2 million related to the financing of the New Interest Rate Cap Contracts, which is included in the line item “Deferred financing costs” in the Company’s Condensed Consolidated Statements of Cash Flows.  

During the nine month period ended October 31, 2015, such derivatives were used to hedge the variable cash flows associated with existing (or anticipated) variable-rate debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in the line item “Accumulated other comprehensive loss” on the Company’s Condensed Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to the New Interest Rate Cap Contracts will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the three and nine month periods ended October 31, 2015, the Company reclassified $0.1 million out of accumulated other comprehensive loss into interest expense. As of October 31, 2015, the Company estimates that approximately $1.6 million will be reclassified into interest expense during the next twelve months.

The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company did not record any hedge ineffectiveness in its earnings during the three or nine month periods ended October 31, 2015.

As of October 31, 2015, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivative

 

Number of

Instruments

 

Notional Aggregate

Principal Amount

 

Interest

Cap Rate

 

 

Effective Date

 

Maturity Date

Interest rate cap contracts

 

Two

 

$ 800.0 million

 

 

1.0%

 

 

May 29, 2015

 

May 31, 2019

 

 

10


Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements or the Company elected not to designate these derivatives as hedges. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.  The Company had two interest rate cap contracts which limited our interest rate exposure to 7.0% on our first $900.0 million of borrowings under our variable rate debt obligations that expired on May 31, 2015.  As of October 31, 2015, the Company no longer has any outstanding derivatives that were not designated as hedges in qualifying hedging relationships.

Tabular Disclosure

The tables below present the fair value of the Company’s derivative financial instruments on a gross basis as well as their classification on the Company’s Condensed Consolidated Balance Sheets:

 

 

 

(in thousands)

 

 

 

Fair Values of Derivative Instruments

 

 

 

Asset Derivatives

 

 

 

October 31, 2015

 

 

January 31, 2015

 

 

November 1, 2014

 

Derivatives Designated as Hedging Instruments

 

Balance

Sheet

Location

 

Fair

Value

 

 

Balance

Sheet

Location

 

Fair

Value

 

 

Balance

Sheet

Location

 

Fair

Value

 

Interest rate cap contracts

 

N/A

 

$

 

 

Other assets

 

$

1,572

 

 

Other assets

 

$

3,237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Fair Values of Derivative Instruments

 

 

 

Liability Derivatives

 

 

 

October 31, 2015

 

 

January 31, 2015

 

 

November 1, 2014

 

Derivatives Designated as Hedging Instruments

 

Balance

Sheet

Location

 

Fair

Value

 

 

Balance

Sheet

Location

 

Fair

Value

 

 

Balance

Sheet

Location

 

Fair

Value

 

Interest rate cap contracts

 

Other liabilities

 

$

4,331

 

 

N/A

 

$

 

 

N/A

 

$

 

 

The tables below present the amounts of losses recognized in other comprehensive loss, net of taxes, and the classification of losses reclassified into earnings related to the Company’s derivative instruments designated as cash flow hedging instruments for each of the reporting periods.

 

 

 

(in thousands)

 

 

 

 

 

Amount of Losses Recognized in Other

Comprehensive

Loss Related to Derivatives

 

 

 

Derivatives Designated as

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

Hedging Instruments

 

October 31, 2015

 

 

November 1, 2014

 

 

October 31, 2015

 

 

November 1, 2014

 

 

 

Interest rate cap contracts

 

$

(3,358

)

 

$

(745

)

 

$

(4,179

)

 

$

(745

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Amount of Loss Reclassified from

Accumulated Other Comprehensive

Loss into Earnings Related to

Derivatives

 

 

 

Derivatives Designated as

 

Three Months Ended

 

 

Nine Months Ended

 

 

Component of

Hedging Instruments

 

October 31, 2015

 

 

November 1, 2014

 

 

October 31, 2015

 

 

November 1, 2014

 

 

Earnings

Interest rate cap contracts

 

$

55

 

 

$

 

 

$

79

 

 

$

 

 

Interest expense

 

11


The table below presents the classification of losses recognized within our statements of operations for the Company’s derivative instruments not designated as hedging instruments for each of the reporting periods.

 

 

 

 

 

(in thousands)

 

 

 

 

 

Amount of Loss Recognized in

Earnings Related to Derivatives

 

 

 

Location of Loss Recognized in Earnings

 

Three Months Ended

 

 

Nine Months Ended

 

Derivatives Not Designated as Hedging Instruments

 

Related to Derivatives

 

October 31, 2015

 

 

November 1, 2014

 

 

October 31, 2015

 

 

November 1, 2014

 

Interest rate cap contracts

 

Interest expense

 

$

 

 

$

 

 

$

 

 

$

1

 

 

 

4. Accumulated Other Comprehensive Loss

Amounts included in accumulated other comprehensive loss are recorded net of the related income tax effects. The following table details the changes in accumulated other comprehensive loss:

 

 

(in thousands)

 

 

Derivative

Instruments

 

 

Total

 

Balance at January 31, 2015

$

(1,744

)

 

$

(1,744

)

Unrealized losses arising during the period, net of related tax

   benefit of $2.8 million for the nine months ended October 31, 2015

 

(4,179

)

 

 

(4,179

)

Amount reclassified into earnings, net of related taxes of

    $0.1 million for the nine months ended October 31, 2015

 

79

 

 

 

79

 

Balance at October 31, 2015

$

(5,844

)

 

$

(5,844

)

 

 

5. Fair Value Measurements

The Company accounts for fair value measurements in accordance with Topic No. 820, which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements. Topic No. 820 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 (exit price), and classifies the inputs used to measure fair value into the following hierarchy:

 

Level 1:

Quoted prices for identical assets or liabilities in active markets.

 

Level 2:

Quoted market 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 model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3:

Pricing inputs that are unobservable for the assets and liabilities and include situations where there is little, if any, market activity for the assets and liabilities.

The inputs into the determination of fair value require significant management judgment or estimation.

The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments.

Refer to Note 3, “Derivative Instruments and Hedging Activities,” for further discussion regarding the fair value of the Company’s interest rate cap contracts.

Financial Assets

The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of October 31, 2015, January 31, 2015 and November 1, 2014 are summarized below: 

 

 

(in thousands)

 

 

 

Fair Value Measurements at

 

 

 

October 31,

 

 

January 31,

 

 

November 1,

 

 

 

2015

 

 

2015

 

 

2014

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (including restricted cash)

 

$

28,109

 

 

$

28,094

 

 

$

32,349

 

 

12


Long-Lived Assets

Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy of Topic No. 820. The fair value of the Company’s long-lived assets is generally calculated using discounted cash flows. During the nine month period ended October 31, 2015, the Company recorded impairment charges of $1.7 million, primarily related to declines in revenues and operating results for two stores, which was recorded in the line item “Impairment charges – long-lived assets” in the Company’s Condensed Consolidated Statements of Operations. During the nine month period ended October 31, 2015, the Company also recorded impairment charges for capital expenditures for previously impaired stores of approximately $0.2 million.  One of the stores impaired during the nine month period ended October 31, 2015 was fully impaired and therefore had zero fair value as of October 31, 2015, and would be categorized as Level 3 in the fair value hierarchy described above. The table below sets forth, by level within the fair value hierarchy, the fair value of the remaining, partially-impaired store, subsequent to impairment charges as of October 31, 2015:

 

 

(in thousands)

 

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Un-

Observable

Inputs

(Level 3)

 

 

Total

 

 

Total

Impairment

Losses

 

Leasehold improvements

 

$

 

 

$