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EX-32.2 - EX-32.2 - Burlington Stores, Inc.burl-ex322_6.htm
EX-32.1 - EX-32.1 - Burlington Stores, Inc.burl-ex321_9.htm
EX-31.2 - EX-31.2 - Burlington Stores, Inc.burl-ex312_8.htm
EX-31.1 - EX-31.1 - Burlington Stores, Inc.burl-ex311_7.htm
EX-10.1 - EX-10.1 - Burlington Stores, Inc.burl-ex101_93.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 April 30, 2016

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 April 30, 2016: 71,513,289.

 

 

 


BURLINGTON STORES, INC.

INDEX

 

 

 

Page

Part I—Financial Information

 

3

 

 

 

Item 1. Financial Statements (unaudited)

 

3

 

 

 

Condensed Consolidated Statements of Operations - Three Months Ended April 30, 2016 and May 2, 2015  

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three Months Ended April 30, 2016 and May 2, 2015

 

4

 

 

 

Condensed Consolidated Balance Sheets – April 30, 2016, January 30, 2016 and May 2, 2015

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows – Three Months Ended April 30, 2016 and May 2, 2015

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

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

 

17

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

Item 4. Controls and Procedures

 

29

 

 

 

Part II—Other Information

 

29

 

 

 

Item 1. Legal Proceedings

 

29

 

 

 

Item 1A. Risk Factors

 

30

 

 

 

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

 

30

 

 

 

Item 3. Defaults Upon Senior Securities

 

30

 

 

 

Item 4. Mine Safety Disclosures

 

30

 

 

 

Item 5. Other Information

 

30

 

 

 

Item 6. Exhibits

 

31

 

 

 

SIGNATURES

 

32

 

 

 

 

2


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(All amounts in thousands, except per share data)

 

 

Three Months Ended

 

 

 

April 30,

 

 

May 2,

 

 

 

2016

 

 

2015

 

REVENUES:

 

 

 

 

 

 

 

 

Net sales

 

$

1,282,670

 

 

$

1,183,059

 

Other revenue

 

 

6,214

 

 

 

7,860

 

Total revenue

 

 

1,288,884

 

 

 

1,190,919

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

Cost of sales

 

 

768,681

 

 

 

712,930

 

Selling, general and administrative expenses

 

 

403,385

 

 

 

377,679

 

Costs related to secondary offering

 

 

 

 

 

259

 

Stock option modification expense

 

 

236

 

 

 

460

 

Depreciation and amortization

 

 

45,545

 

 

 

42,155

 

Impairment charges-long-lived assets

 

 

109

 

 

 

1,715

 

Other income—net

 

 

(4,169

)

 

 

(1,072

)

Loss on extinguishment of debt

 

 

 

 

 

649

 

Interest expense

 

 

14,952

 

 

 

14,803

 

Total cost and expenses

 

 

1,228,739

 

 

 

1,149,578

 

Income before income tax expense

 

 

60,145

 

 

 

41,341

 

Income tax expense

 

 

22,631

 

 

 

15,646

 

Net income

 

$

37,514

 

 

$

25,695

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

Common stock - basic

 

$

0.53

 

 

$

0.34

 

Common stock - diluted

 

$

0.52

 

 

$

0.34

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

Common stock - basic

 

 

71,166

 

 

 

74,982

 

Common stock - diluted

 

 

72,423

 

 

 

76,501

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

3


BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(All amounts in thousands)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

May 2,

 

 

 

2016

 

 

2015

 

Net income

 

$

37,514

 

 

$

25,695

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

Interest rate cap contracts:

 

 

 

 

 

 

 

 

Unrealized (losses) gains, net of related taxes of $0.8 million

   and $0.6 million, respectively

 

 

(1,151

)

 

 

901

 

Amount reclassified into earnings, net of related taxes

   of $0.1 million

 

 

157

 

 

 

 

Other comprehensive (loss) income, net of tax:

 

 

(994

)

 

 

901

 

Total comprehensive income

 

$

36,520

 

 

$

26,596

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 


 

4


BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

 

 

 

 

April 30,

 

 

January 30,

 

 

May 2,

 

 

 

2016

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,100

 

 

$

20,915

 

 

$

34,748

 

Restricted cash and cash equivalents

 

 

27,800

 

 

 

27,800

 

 

 

27,800

 

Accounts receivablenet

 

 

51,371

 

 

 

38,571

 

 

 

45,717

 

Merchandise inventories

 

 

804,694

 

 

 

783,528

 

 

 

822,313

 

Deferred tax assets

 

 

 

 

 

 

 

 

35,821

 

Prepaid and other current assets

 

 

69,525

 

 

 

62,168

 

 

 

90,173

 

Total current assets

 

 

981,490

 

 

 

932,982

 

 

 

1,056,572

 

Property and equipment—net

 

 

1,011,869

 

 

 

1,018,570

 

 

 

967,054

 

Tradenames

 

 

238,000

 

 

 

238,000

 

 

 

238,000

 

Favorable leases—net

 

 

232,482

 

 

 

238,753

 

 

 

260,291

 

Goodwill

 

 

47,064

 

 

 

47,064

 

 

 

47,064

 

Other assets

 

 

94,996

 

 

 

96,444

 

 

 

104,666

 

Total assets

 

$

2,605,901

 

 

$

2,571,813

 

 

$

2,673,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

594,381

 

 

$

598,199

 

 

$

631,790

 

Other current liabilities

 

 

279,076

 

 

 

286,986

 

 

 

261,691

 

Current maturities of long term debt

 

 

1,452

 

 

 

1,403

 

 

 

1,195

 

Total current liabilities

 

 

874,909

 

 

 

886,588

 

 

 

894,676

 

Long term debt

 

 

1,350,176

 

 

 

1,295,163

 

 

 

1,306,570

 

Other liabilities

 

 

285,554

 

 

 

287,389

 

 

 

273,335

 

Deferred tax liabilities

 

 

200,500

 

 

 

201,695

 

 

 

229,418

 

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

 

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value:

 

 

 

 

 

 

 

 

 

 

 

 

   Authorized: 500,000,000 shares;

 

 

 

 

 

 

 

 

 

 

 

 

   Issued: 77,079,034 shares, 76,711,663 shares and 76,346,273

      shares, respectively;

 

 

 

 

 

 

 

 

 

 

 

 

   Outstanding: 71,513,289 shares, 72,071,177 shares and

      75,669,129 shares, respectively

 

 

7

 

 

 

7

 

 

 

7

 

Additional paid-in-capital

 

 

1,393,955

 

 

 

1,395,863

 

 

 

1,379,832

 

Accumulated deficit

 

 

(1,238,458

)

 

 

(1,275,972

)

 

 

(1,400,759

)

Accumulated other comprehensive loss

 

 

(9,986

)

 

 

(8,992

)

 

 

(843

)

Treasury stock, at cost

 

 

(250,756

)

 

 

(209,928

)

 

 

(8,589

)

Total stockholders' deficit

 

 

(105,238

)

 

 

(99,022

)

 

 

(30,352

)

Total liabilities and stockholders' deficit

 

$

2,605,901

 

 

$

2,571,813

 

 

$

2,673,647

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

5


BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(All amounts in thousands)

 

 

Three Months Ended

 

 

 

April 30,

 

 

May 2,

 

 

 

2016

 

 

2015

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

37,514

 

 

$

25,695

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

45,545

 

 

 

42,155

 

Impairment chargeslong-lived assets

 

 

109

 

 

 

1,715

 

Amortization of deferred financing costs

 

 

712

 

 

 

734

 

Accretion of long-term debt instruments

 

 

199

 

 

 

211

 

Deferred income tax (benefit)

 

 

(533

)

 

 

(4,135

)

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

   and original issue discount

 

 

 

 

 

649

 

Non-cash stock compensation expense

 

 

3,283

 

 

 

2,119

 

Non-cash rent expense

 

 

(7,331

)

 

 

(5,586

)

Deferred rent incentives

 

 

2,476

 

 

 

11,301

 

Excess tax benefit from stock based compensation

 

 

(3,070

)

 

 

(6,150

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(13,287

)

 

 

(2,015

)

Merchandise inventories

 

 

(21,166

)

 

 

(33,605

)

Prepaid and other current assets

 

 

(8,384

)

 

 

(31,492

)

Accounts payable

 

 

(2,959

)

 

 

10,108

 

Other current liabilities

 

 

(7,004

)

 

 

(33,350

)

Other long term assets and long term liabilities

 

 

1,469

 

 

 

(913

)

Other operating activities

 

 

2,804

 

 

 

701

 

Net cash provided by (used in) operating activities

 

 

30,377

 

 

 

(21,858

)

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Cash paid for property and equipment

 

 

(30,425

)

 

 

(43,088

)

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

 

 

83

 

 

 

108

 

Net cash used in investing activities

 

 

(30,342

)

 

 

(42,980

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from long term debt—ABL Line of Credit

 

 

450,200

 

 

 

436,100

 

Principal payments on long term debt—ABL Line of Credit

 

 

(395,400

)

 

 

(319,400

)

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

 

 

 

 

 

(50,000

)

Proceeds from sale of interest rate cap contracts

 

 

 

 

 

1,169

 

Purchase of treasury shares

 

 

(50,017

)

 

 

(331

)

Proceeds from stock option exercises

 

 

927

 

 

 

903

 

Excess tax benefit from stock based compensation

 

 

3,070

 

 

 

6,150

 

Other financing activities

 

 

(1,630

)

 

 

(354

)

Net cash provided by financing activities

 

 

7,150

 

 

 

74,237

 

Increase in cash and cash equivalents

 

 

7,185

 

 

 

9,399

 

Cash and cash equivalents at beginning of period

 

 

20,915

 

 

 

25,349

 

Cash and cash equivalents at end of period

 

$

28,100

 

 

$

34,748

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

13,958

 

 

$

13,885

 

Income tax payments - net

 

$

5,251

 

 

$

18,499

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

18,316

 

 

$

12,571

 

See Notes to Condensed Consolidated Financial Statements.

 

6


BURLINGTON STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2016

(UNAUDITED)

 

1. Summary of Significant Accounting Policies

Basis of Presentation

As of April 30, 2016, Burlington Stores, Inc. and its subsidiaries (the Company), a Delaware Corporation, through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated 570 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. These Condensed Consolidated Financial Statements should 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 30, 2016 (Fiscal 2015 10-K). The balance sheet at January 30, 2016 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2015 10-K. Because the Company’s business is seasonal in nature, the operating results for the three month period ended April 30, 2016 are not necessarily indicative of results for the fiscal year ending January 28, 2017 (Fiscal 2016).

Accounting policies followed by the Company are described in Note 1 to the Fiscal 2015 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 the beginning of the fiscal year ended February 2, 2019 (Fiscal 2018). The Company is currently in the process of evaluating the impact of adoption of this ASU on its Condensed Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, “Leases” which provides guidance for leases.  The standard’s core principle is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which would be the beginning of the fiscal year ended February 1, 2020 (Fiscal 2019).  Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of this ASU on its Condensed 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 requires the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability. Further, on August 16, 2015, the FASB issued ASU 2015-15 to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. The SEC staff has stated that it would “not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement.”  These standards become effective for fiscal years beginning after December 15, 2015.  The Company adopted these standards during the first quarter of Fiscal 2016 on a retrospective basis.  As a result, $8.3 million and $9.5 million of deferred financing costs associated with the Term Loan Facility (as defined in Note 2, “Long Term Debt,”) as of January 30, 2016 and May 2, 2015, respectively, have been reclassified and shown as a deduction from the line item “Long term debt” on our Condensed Consolidated Balance Sheets.  These amounts were previously recorded in the line item “Other assets” on our Condensed Consolidated Balance Sheets.  The remaining deferred financing costs associated with the Company’s ABL Line of Credit (as defined

 

7


in Note 2, “Long Term Debt,”) and interest rate cap contracts continue to be shown in the line item “Other assets” on our Condensed Consolidated Balance Sheets in accordance with ASU 2015-15.

On March 30, 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted in any interim or annual period.  Once adopted, all excess tax benefits and tax deficiencies from stock based compensation will be recognized as income tax expense or benefit in the statement of operations as discrete items in the reporting period in which they occur, regardless of whether the benefit reduces taxes payable in the current period.  In addition, any excess tax benefit from stock based compensation will be classified along with other income tax cash flows as an operating activity on the statement of cash flows.  Currently, the Company records all excess tax benefits in additional paid-in capital on the balance sheet when the deduction reduces taxes payable and records tax deficiencies in the statement of operations and separates any excess tax benefit from stock based compensation from other income tax cash flows and classifies them as a financing activity on the statement of cash flows with a corresponding offset in operating activities. The Company is currently in the process of evaluating the impact of adoption of this ASU on its Condensed 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 month period ended April 30, 2016, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of April 30, 2016 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

 

2. Long Term Debt

Long term debt consists of:

 

 

(in thousands)

 

 

 

April 30,

 

 

January 30,

 

 

May 2,

 

 

 

2016

 

 

2016

 

 

2015

 

$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

 

$

1,112,774

 

 

$

1,112,575

 

 

$

1,111,977

 

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

   on average outstanding balance, matures August 13, 2019

 

 

222,200

 

 

 

167,400

 

 

 

180,000

 

Capital lease obligations

 

 

24,613

 

 

 

24,925

 

 

 

25,255

 

Unamortized deferred financing costs

 

 

(7,959

)

 

 

(8,334

)

 

 

(9,467

)

Total debt

 

 

1,351,628

 

 

 

1,296,566

 

 

 

1,307,765

 

Less: current maturities

 

 

(1,452

)

 

 

(1,403

)

 

 

(1,195

)

Long term debt, net of current maturities

 

$

1,350,176

 

 

$

1,295,163

 

 

$

1,306,570

 

 

Term Loan Facility

On August 13, 2014, BCFWC entered into Amendment No. 4 (the Fourth Amendment) to the Term Loan Credit Agreement (as amended, 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. 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

 

8


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 April 30, 2016, 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, 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 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 April 30, 2016, the Company had $339.3 million available under the Amended ABL Line of Credit and $222.2 million of outstanding borrowings. The maximum borrowings under the facility during the three month period ended April 30, 2016 amounted to $315.0 million. Average borrowings during the three month period ended April 30, 2016 amounted to $224.9 million, at an average interest rate of 1.7%. The Company had outstanding borrowings under the Amended ABL Line of Credit of $167.4 million as of January 30, 2016.

At May 2, 2015, the Company had $382.6 million available under the ABL Line of Credit and $180.0 million of outstanding borrowings. The maximum borrowings under the facility during the three month period ended May 2, 2015 amounted to $181.8 million. Average borrowings during the three month period ended May 2, 2015 amounted to $113.3 million, at an average interest rate of 1.6%.

 

 

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). 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.  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.

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.

 

9


The Company did not record any hedge ineffectiveness in its earnings during the three month period ended April 30, 2016. As of April 30, 2016, the Company estimates that approximately $3.8 million will be reclassified into interest expense during the next twelve months.

As of April 30, 2016, 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

 

 

Maturity Date

Interest rate cap contracts

 

Two

 

$ 800.0 million

 

 

1.0%

 

 

May 31, 2019

 

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

 

 

 

April 30, 2016

 

 

January 30, 2016

 

 

May 2, 2015

 

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

 

$

 

 

Other assets

 

$

1,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Fair Values of Derivative Instruments

 

 

 

Liability Derivatives

 

 

 

April 30, 2016

 

 

January 30, 2016

 

 

May 2, 2015

 

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

 

$

9,016

 

 

Other liabilities

 

$

8,415

 

 

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

 

 

 

Hedging Instruments

 

April 30, 2016

 

 

May 2, 2015

 

 

 

Interest rate cap contracts

 

$

(1,151

)

 

$

901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Amount of Loss Reclassified from

Accumulated Other Comprehensive

Loss into Earnings Related to

Derivatives

 

Derivatives Designated as

 

Three Months Ended

 

 

Component of

Hedging Instruments

 

April 30, 2016

 

 

May 2, 2015

 

 

Earnings

Interest rate cap contracts

 

$

157

 

 

$

 

 

Interest expense

 

 

 

10


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

 

Balance at January 30, 2016

$

(8,992

)

Unrealized losses, net of related tax benefit of $0.8 million

 

(1,151

)

Amount reclassified into earnings, net of related taxes of $0.1 million

 

157

 

Balance at April 30, 2016

$

(9,986

)

 

 

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 April 30, 2016, January 30, 2016 and May 2, 2015 are summarized below: 

 

 

(in thousands)

 

 

 

Fair Value Measurements at

 

 

 

April 30,

 

 

January 30,

 

 

May 2,

 

 

 

2016

 

 

2016

 

 

2015

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (including restricted cash)

 

$

28,125

 

 

$

28,114

 

 

$

28,099

 

 

11


Financial Liabilities

The fair values of the Company’s financial liabilities are summarized below:

 

 

(in thousands)

 

 

 

April 30, 2016

 

 

January 30, 2016

 

 

May 2, 2015

 

 

 

Carrying

Amount (b)

 

 

Fair

Value (b)

 

 

Carrying

Amount (b)

 

 

Fair

Value (b)

 

 

Carrying

Amount (b)

 

 

Fair

Value (b)

 

$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

 

$

1,112,774

 

 

$

1,116,465

 

 

$

1,112,575

 

 

$

1,107,921

 

 

$

1,111,977

 

 

$

1,120,317

 

$600,000 ABL senior secured revolving facility,

   LIBOR plus spread based on average outstanding

  balance, matures August 13, 2019(a)

 

 

222,200

 

 

 

222,200

 

 

 

167,400

 

 

 

167,400

 

 

 

180,000

 

 

 

180,000

 

Total debt

 

$

1,334,974

 

 

$

1,338,665

 

 

$

1,279,975

 

 

$

1,275,321

 

 

$

1,291,977

 

 

$

1,300,317

 

 

 

(a)

To the extent the Company has any outstanding borrowings under the ABL Line of Credit, the fair value would approximate its reported value because the interest rate is variable and reflects current market rates due to its short term nature (borrowings are typically done in 30 day increments).

(b)

Capital lease obligations are excluded from the table above.

The fair values presented herein are based on pertinent information available to management as of the respective period end dates. The estimated fair values of the Company’s debt are classified as Level 2 in the fair value hierarchy. Although management is not aware of any factors that could significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these Condensed Consolidated Financial Statements since April 30, 2016, and current estimates of fair value may differ from amounts presented herein.

 

 

6. Income Taxes

Net deferred taxes are as follows:

 

 

(in thousands)

 

 

 

April 30,

 

 

January 30,

 

 

May 2,

 

 

 

2016

 

 

2016

 

 

2015

 

Current deferred tax asset

 

$

 

 

$

 

 

$

35,821

 

Non-current deferred tax liability

 

 

200,500

 

 

 

201,695

 

 

 

229,418

 

Net deferred tax liability

 

$

200,500

 

 

$

201,695

 

 

$

193,597

 


The amounts presented in the table above are reflective of the prospective adoption of Accounting Standards Update 2015-17, “Income Taxes: Balance Sheet Classification of Deferred Taxes,” which called for the presentation of deferred tax assets and deferred tax liabilities as non-current.  The Company adopted this standard on a prospective basis during the fourth quarter of Fiscal 2015. Amounts as of May 2, 2015 have not been retrospectively adjusted to reflect the adoption of this standard.

Deferred tax liabilities primarily relate to rent expense, intangible assets, and depreciation expense where the Company has a future obligation for tax purposes.

As of April 30, 2016, January 30, 2016 and May 2, 2015, valuation allowances amounted to $7.8 million, $7.8 million and $6.2 million, respectively, primarily related to state tax net operating losses and state tax credit carry forwards. The Company believes that it is more likely than not that a portion of the benefit of the state tax net operating losses will not be realized. As of April 30, 2016, the Company had $7.3 million of deferred tax assets recorded for state net operating losses, which will expire between 2016 and 2026. In addition, management also determined that a full valuation allowance of $5.4 million, $5.1 million and $4.8 million were required against the tax benefit associated with Puerto Rico deferred tax assets as of April 30, 2016, January 30, 2016 and May 2, 2015, respectively.

 

 

7. Capital Stock

Treasury Stock

The Company accounts for treasury stock under the cost method.

 

12


During the three month period ended April 30, 2016, the Company acquired 306 shares of common stock from employees for less than $0.1 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock awards. During the three month period ended April 30, 2016, the Company re-issued 688,880 shares held in its treasury stock pool for re-issuance under the 2006 Management Incentive Plan.  As a result of this transaction, the Company reclassified approximately $9.2 million from treasury stock to additional paid-in-capital.  

Share Repurchase Programs

During the three month period ended April 30, 2016, the Company repurchased 924,953 shares of its common stock for $50.0 million, inclusive of commissions, under its share repurchase program, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheet.  As of April 30, 2016, the Company had $149.6 million available for purchase under its share repurchase program.  

 

 

8. Net Income Per Share

Basic net income per share is calculated by dividing net income by the weighted-average common shares outstanding. Dilutive net income per share is calculated by dividing net income by the weighted-average common shares and potentially dilutive securities outstanding during the period using the treasury stock method.

 

 

 

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

May 2,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

 

 

 

 

 

 

 

Net income

 

$

37,514

 

 

$

25,695

 

Weighted average number of common shares – basic

 

 

71,166

 

 

 

74,982

 

Net income per common share – basic

 

$

0.53

 

 

$

0.34

 

Diluted net income per share

 

 

 

 

 

 

 

 

Net income

 

$

37,514

 

 

$

25,695

 

Shares for basic and diluted net income per share:

 

 

 

 

 

 

 

 

Weighted average number of common shares – basic

 

 

71,166

 

 

 

74,982

 

Assumed exercise of stock options and vesting of restricted stock

 

 

1,257

 

 

 

1,519

 

Weighted average number of common shares – diluted

 

 

72,423

 

 

 

76,501

 

Net income per common share – diluted

 

$

0.52

 

 

$

0.34

 

 

Approximately 120,000 options to purchase shares of common stock and unvested restricted stock awards were excluded from diluted net income per share for the three month period ended April 30, 2016, since their effect was anti-dilutive.

 

For the three month period ended May 2, 2015, there were less than 100,000 outstanding options to purchase shares of common stock and shares of unvested restricted stock awards that were excluded from diluted earnings per share since their effect was anti-dilutive.  

 

 

9. Stock Option and Award Plans and Stock-Based Compensation

As of April 30, 2016, there were 6,000,000 shares of common stock authorized for issuance under the 2013 Omnibus Incentive Plan (the 2013 Plan). The 2006 Management Incentive Plan (the 2006 Plan and, together with the 2013 Plan, the Plans) terminated on April 12, 2016.

Stock Options

The Company accounts for awards issued under the Plans in accordance with ASC Topic No. 718, Stock Compensation. The Company granted 533,731 options under the 2006 Plan and 13,159 options under the 2013 Plan during the three month period ended April 30, 2016 at exercise prices ranging from $54.11 to $56.06 per share.  Options granted during the three month period ended May 2, 2015 were all granted under the 2006 Plan at exercise prices ranging from $52.02 to $52.75 per share. All options granted during

 

13


the three month periods ended April 30, 2016 and May 2, 2015 were service-based awards that vest 25% on each of the first four anniversaries of the grant date. The final exercise date for any option granted is the tenth anniversary of the grant date.

With the exception of the special one-time grant of options to purchase shares of common stock to certain members of management made during Fiscal 2013, all options awarded prior to Fiscal 2016 become exercisable upon a change of control; options awarded after Fiscal 2015 become exercisable if the grantee’s employment is terminated without cause or, in some instances, the recipient resigns with good reason within a certain period of time following a change in control. The vesting of special one-time grants will not be accelerated in the event of a change of control, provided, however, that in the event that within two years after a change of control, the grantee’s employment is terminated without cause or, in some instances, the grantee resigns with good reason, then an incremental 20% of the special one-time grants shall be deemed vested as of the date of termination of grantee’s employment, but in no event more than the total number of special one-time grants granted to such grantee. Unless determined otherwise by the plan administrator, upon cessation of employment, the majority of options that have not vested will terminate immediately (subject to the potential acceleration of special one-time grants in the event of a change of control, as described above) and unexercised vested options will be exercisable for a period of 60 days. The final exercise date for any option granted is the tenth anniversary of the grant date.

Non-cash stock compensation expense is as follows:

 

 

(in thousands)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

May 2,

 

Type of Non-Cash Stock Compensation

 

2016

 

 

2015

 

Restricted stock grants (a)

 

$

1,758

 

 

$

1,218

 

Stock option grants (a)

 

 

1,324

 

 

 

561

 

Stock option modification (b)

 

 

201

 

 

 

340

 

Total (c)

 

$

3,283

 

 

$

2,119

 

 

(a)

Included in the line item “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Operations.

(b)

Represents non-cash compensation related to the May 2013 stock option modification.  Amounts are included in the line item “Stock option modification expense” in the Company’s Condensed Consolidated Statements of Operations.

(c)

The amounts presented in the table above exclude taxes.  For the three month period ended April 30, 2016, the tax benefit related to the Company’s non-cash stock compensation was approximately $1.2 million.  For the three month period ended May 2, 2015, the tax benefit related to the Company’s non-cash stock compensation was approximately $0.8 million.

As of April 30, 2016, the Company had 3,106,899 options outstanding to purchase shares of common stock under the Plans.

Stock option transactions during the three month period ended April 30, 2016 are summarized as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price Per

Share

 

Options outstanding, January 30, 2016

 

 

2,744,671

 

 

$

12.43

 

Options granted

 

 

546,890

 

 

 

54.60

 

Options exercised (a)

 

 

(170,848

)

 

 

5.42

 

Options forfeited

 

 

(13,814

)

 

 

22.70

 

Options outstanding, April 30, 2016

 

 

3,106,899

 

 

$

20.19

 

 

(a)

Options exercised during the three month period ended April 30, 2016 had a total intrinsic value of $8.4 million.

The following table summarizes information about the stock options vested and expected to vest during the contractual term as of April 30, 2016:

 

 

Options

 

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

 

Weighted

Average

Exercise

Price

 

 

Aggregate Intrinsic

Value

Vested and expected to vest

 

 

2,735,595

 

 

 

7.6

 

 

$

19.61

 

 

$  102.2 million

 

 

14


The fair value of each stock option granted during the three month period ended April 30, 2016 was estimated using the Black Scholes option pricing model using the following assumptions:

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2016

 

Risk-free interest rate

 

1.43% - 1.81%

 

Expected volatility

 

36.0% - 37.0%

 

Expected life (years)

 

 

6.25

 

Contractual life (years)

 

 

10.0

 

Expected dividend yield

 

 

0.0%

 

Weighted average grant date fair value of options issued

 

$

21.00

 

 

The expected dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. Since the Company completed its initial public offering in October 2013, it does not have sufficient history as a publicly traded company to evaluate its volatility factor. As such, the expected stock price volatility is based upon the historical volatility of the stock price over the expected life of the options of peer companies that are publicly traded. The risk free interest rate was based on the U.S. Treasury rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. For grants issued during the three month period ended April 30, 2016 and May 2, 2015, the expected life of the options was calculated