Attached files

file filename
EX-32.2 - EX-32.2 - Burlington Stores, Inc.burl-ex322_7.htm
EX-32.1 - EX-32.1 - Burlington Stores, Inc.burl-ex321_6.htm
EX-31.2 - EX-31.2 - Burlington Stores, Inc.burl-ex312_10.htm
EX-31.1 - EX-31.1 - Burlington Stores, Inc.burl-ex311_8.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 July 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 July 30, 2016: 71,340,072.

 

 

 


BURLINGTON STORES, INC.

INDEX

 

 

 

Page

Part I—Financial Information

 

3

 

 

 

Item 1. Financial Statements (unaudited)

 

3

 

 

 

Condensed Consolidated Statements of Operations - Three and Six Months Ended July 30, 2016 and August 1, 2015  

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended July 30, 2016 and August 1, 2015

 

4

 

 

 

Condensed Consolidated Balance Sheets – July 30, 2016, January 30, 2016 and August 1, 2015

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows – Six Months Ended July 30, 2016 and August 1, 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

 

32

 

 

 

Item 4. Controls and Procedures

 

33

 

 

 

Part II—Other Information

 

33

 

 

 

Item 1. Legal Proceedings

 

33

 

 

 

Item 1A. Risk Factors

 

33

 

 

 

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

 

33

 

 

 

Item 3. Defaults Upon Senior Securities

 

34

 

 

 

Item 4. Mine Safety Disclosures

 

34

 

 

 

Item 5. Other Information

 

34

 

 

 

Item 6. Exhibits

 

34

 

 

 

SIGNATURES

 

35

 

 

 

 

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

 

 

Six Months Ended

 

 

 

July 30,

 

 

August 1,

 

 

July 30,

 

 

August 1,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,255,053

 

 

$

1,144,218

 

 

$

2,537,723

 

 

$

2,327,276

 

Other revenue

 

 

5,663

 

 

 

7,355

 

 

 

11,877

 

 

 

15,215

 

Total revenue

 

 

1,260,716

 

 

 

1,151,573

 

 

 

2,549,600

 

 

 

2,342,491

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

757,622

 

 

 

695,915

 

 

 

1,526,303

 

 

 

1,408,845

 

Selling, general and administrative expenses

 

 

407,102

 

 

 

381,606

 

 

 

810,487

 

 

 

759,285

 

Costs related to debt amendments and secondary offering

 

 

1,346

 

 

 

(12

)

 

 

1,346

 

 

 

247

 

Stock option modification expense

 

 

178

 

 

 

335

 

 

 

414

 

 

 

795

 

Depreciation and amortization

 

 

44,613

 

 

 

41,746

 

 

 

90,158

 

 

 

83,901

 

Impairment charges-long-lived assets

 

 

 

 

 

188

 

 

 

109

 

 

 

1,903

 

Other income—net

 

 

(1,717

)

 

 

(1,389

)

 

 

(5,886

)

 

 

(2,462

)

Loss on extinguishment of debt

 

 

3,805

 

 

 

 

 

 

3,805

 

 

 

649

 

Interest expense

 

 

15,084

 

 

 

14,598

 

 

 

30,036

 

 

 

29,401

 

Total cost and expenses

 

 

1,228,033

 

 

 

1,132,987

 

 

 

2,456,772

 

 

 

2,282,564

 

Income before income tax expense

 

 

32,683

 

 

 

18,586

 

 

 

92,828

 

 

 

59,927

 

Income tax expense

 

 

12,289

 

 

 

7,686

 

 

 

34,920

 

 

 

23,332

 

Net income

 

$

20,394

 

 

$

10,900

 

 

$

57,908

 

 

$

36,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - basic

 

$

0.29

 

 

$

0.14

 

 

$

0.82

 

 

$

0.49

 

Common stock - diluted

 

$

0.28

 

 

$

0.14

 

 

$

0.80

 

 

$

0.48

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - basic

 

 

70,757

 

 

 

75,181

 

 

 

70,962

 

 

 

75,081

 

Common stock - diluted

 

 

71,987

 

 

 

76,511

 

 

 

72,205

 

 

 

76,506

 

 

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

 

 

Six Months Ended

 

 

 

July 30,

 

 

August 1,

 

 

July 30,

 

 

August 1,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income

 

$

20,394

 

 

$

10,900

 

 

$

57,908

 

 

$

36,595

 

Other comprehensive (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses), net of related taxes of $1.4 million and

   $2.2 million during the three and six months ended July 30, 2016,

   respectively, and $1.1 million and $0.5 million during the three

   and six months ended August 1, 2015, respectively.

 

 

(2,142

)

 

 

(1,722

)

 

 

(3,293

)

 

 

(821

)

Amount reclassified into earnings, net of related taxes

   of $0.2 million and $0.3 million during the three and six months

   ended July 30, 2016 and less than $0.1 million during the three

   and six months ended August 1, 2015.

 

 

261

 

 

 

24

 

 

 

418

 

 

 

24

 

Other comprehensive (loss), net of tax:

 

 

(1,881

)

 

 

(1,698

)

 

 

(2,875

)

 

 

(797

)

Total comprehensive income

 

$

18,513

 

 

$

9,202

 

 

$

55,033

 

 

$

35,798

 

 

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)

 

 

 

 

July 30,

 

 

January 30,

 

 

August 1,

 

 

 

2016

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,469

 

 

$

20,915

 

 

$

27,231

 

Restricted cash and cash equivalents

 

 

27,800

 

 

 

27,800

 

 

 

27,800

 

Accounts receivablenet

 

 

41,902

 

 

 

38,571

 

 

 

38,979

 

Merchandise inventories

 

 

744,965

 

 

 

783,528

 

 

 

802,341

 

Deferred tax assets

 

 

 

 

 

 

 

 

34,446

 

Prepaid and other current assets

 

 

86,895

 

 

 

62,168

 

 

 

106,226

 

Total current assets

 

 

932,031

 

 

 

932,982

 

 

 

1,037,023

 

Property and equipment—net

 

 

1,024,919

 

 

 

1,018,570

 

 

 

986,395

 

Tradenames

 

 

238,000

 

 

 

238,000

 

 

 

238,000

 

Favorable leases—net

 

 

226,581

 

 

 

238,753

 

 

 

254,250

 

Goodwill

 

 

47,064

 

 

 

47,064

 

 

 

47,064

 

Other assets

 

 

97,659

 

 

 

96,444

 

 

 

101,799

 

Total assets

 

$

2,566,254

 

 

$

2,571,813

 

 

$

2,664,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

546,035

 

 

$

598,199

 

 

$

590,498

 

Other current liabilities

 

 

291,353

 

 

 

286,986

 

 

 

278,593

 

Current maturities of long term debt

 

 

1,512

 

 

 

1,403

 

 

 

1,340

 

Total current liabilities

 

 

838,900

 

 

 

886,588

 

 

 

870,431

 

Long term debt

 

 

1,351,830

 

 

 

1,295,163

 

 

 

1,340,857

 

Other liabilities

 

 

284,083

 

 

 

287,389

 

 

 

270,575

 

Deferred tax liabilities

 

 

195,175

 

 

 

201,695

 

 

 

223,305

 

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: 77,316,292 shares, 76,711,663 shares and 76,491,839

      shares, respectively;

 

 

 

 

 

 

 

 

 

 

 

 

   Outstanding: 71,340,072 shares, 72,071,177 shares and

      75,362,744 shares, respectively

 

 

7

 

 

 

7

 

 

 

7

 

Additional paid-in-capital

 

 

1,403,085

 

 

 

1,395,863

 

 

 

1,385,804

 

Accumulated deficit

 

 

(1,218,064

)

 

 

(1,275,972

)

 

 

(1,389,860

)

Accumulated other comprehensive loss

 

 

(11,867

)

 

 

(8,992

)

 

 

(2,541

)

Treasury stock, at cost

 

 

(276,895

)

 

 

(209,928

)

 

 

(34,047

)

Total stockholders' deficit

 

 

(103,734

)

 

 

(99,022

)

 

 

(40,637

)

Total liabilities and stockholders' deficit

 

$

2,566,254

 

 

$

2,571,813

 

 

$

2,664,531

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

5


BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(All amounts in thousands)

 

 

Six Months Ended

 

 

 

July 30,

 

 

August 1,

 

 

 

2016

 

 

2015

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

57,908

 

 

$

36,595

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

90,158

 

 

 

83,901

 

Impairment chargeslong-lived assets

 

 

109

 

 

 

1,903

 

Amortization of deferred financing costs

 

 

1,426

 

 

 

1,452

 

Accretion of long term debt instruments

 

 

398

 

 

 

410

 

Deferred income tax (benefit)

 

 

(4,603

)

 

 

(7,740

)

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

   and original issue discount

 

 

3,805

 

 

 

649

 

Non-cash stock compensation expense

 

 

7,376

 

 

 

5,258

 

Non-cash rent (income)

 

 

(15,712

)

 

 

(12,182

)

Deferred rent incentives

 

 

9,681

 

 

 

16,936

 

Excess tax benefit from stock based compensation

 

 

(6,528

)

 

 

(8,386

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,034

)

 

 

1,902

 

Merchandise inventories

 

 

38,263

 

 

 

(13,633

)

Prepaid and other current assets

 

 

(20,374

)

 

 

(47,546

)

Accounts payable

 

 

(53,238

)

 

 

(31,184

)

Other current liabilities

 

 

(3,870

)

 

 

(30,564

)

Other long term assets and long term liabilities

 

 

2,440

 

 

 

512

 

Other operating activities

 

 

914

 

 

 

1,011

 

Net cash provided by (used in) operating activities

 

 

103,119

 

 

 

(706

)

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Cash paid for property and equipment

 

 

(75,949

)

 

 

(81,935

)

Other investing activities

 

 

203

 

 

 

136

 

Net cash used in investing activities

 

 

(75,746

)

 

 

(81,799

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from long term debt—ABL Line of Credit

 

 

887,400

 

 

 

797,800

 

Principal payments on long term debt—ABL Line of Credit

 

 

(831,500

)

 

 

(647,400

)

Proceeds from long term debt—Term B-4 Loans

 

 

1,114,208

 

 

 

 

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

 

 

(1,117,000

)

 

 

(50,000

)

Proceeds from sale of interest rate cap contracts

 

 

 

 

 

1,169

 

Purchase of treasury shares

 

 

(76,155

)

 

 

(25,782

)

Proceeds from stock option exercises

 

 

2,507

 

 

 

1,492

 

Excess tax benefit from stock based compensation

 

 

6,528

 

 

 

8,386

 

Other financing activities

 

 

(3,807

)

 

 

(1,278

)

Net cash (used in) provided by financing activities

 

 

(17,819

)

 

 

84,387

 

Increase in cash and cash equivalents

 

 

9,554

 

 

 

1,882

 

Cash and cash equivalents at beginning of period

 

 

20,915

 

 

 

25,349

 

Cash and cash equivalents at end of period

 

$

30,469

 

 

$

27,231

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

29,779

 

 

$

30,022

 

Income tax payments - net

 

$

50,626

 

 

$

54,023

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

31,335

 

 

$

28,664

 

See Notes to Condensed Consolidated Financial Statements.

 

6


BURLINGTON STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 30, 2016

(UNAUDITED)

 

1. Summary of Significant Accounting Policies

Basis of Presentation

As of July 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 and six month periods ended July 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.”

Adopted Accounting Standards

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 $9.1 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 August 1, 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 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.

Pending Accounting Standards

In May 2014, the FASB issued 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.” 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 about leasing arrangements. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods

 

7


within those fiscal years.  This ASU will be effective for the Company as of the beginning of the fiscal year ended February 1, 2020.  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.

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.  In addition, the Company currently 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 and six month periods ended July 30, 2016, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of July 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)

 

 

 

July 30,

 

 

January 30,

 

 

August 1,

 

 

 

2016

 

 

2016

 

 

2015

 

$1,200,000 senior secured term loan facility (Term B-4 Loans), LIBOR

   (with a floor of 0.75%) plus 2.75%, matures on August 13, 2021

 

$

1,111,500

 

 

$

 

 

$

 

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

   (with a floor of 1.0%) plus 3.25%, redeemed in full on July 29, 2016

 

 

 

 

 

1,112,575

 

 

 

1,112,176

 

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

   on average outstanding balance, matures August 13, 2019

 

 

223,300

 

 

 

167,400

 

 

 

213,700

 

Capital lease obligations

 

 

24,296

 

 

 

24,925

 

 

 

25,414

 

Unamortized deferred financing costs

 

 

(5,754

)

 

 

(8,334

)

 

 

(9,093

)

Total debt

 

 

1,353,342

 

 

 

1,296,566

 

 

 

1,342,197

 

Less: current maturities

 

 

(1,512

)

 

 

(1,403

)

 

 

(1,340

)

Long term debt, net of current maturities

 

$

1,351,830

 

 

$

1,295,163

 

 

$

1,340,857

 

 

Term Loan Facility

On July 29, 2016, BCFWC entered into Amendment No. 5 (the Fifth 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 Fifth Amendment, among other things, reduced the interest rate margins applicable to the Term Loan Facility from 2.25% to 1.75% in the case of prime rate loans, and from 3.25% to 2.75% in the case of LIBOR loans, with the LIBOR floor being reduced from 1.00% to 0.75%.  The Fifth Amendment was accomplished by replacing the outstanding $1,117.0 million principal amount of Term B-3 Loans with a like aggregate principal amount of Term B-4 Loans. The Term B-4 Loans have the same maturity date that was applicable to the Term B-3 Loans. In accordance with ASC Topic No. 470-50, “Debt Modifications and Extinguishments” (Topic No. 470), the Company recognized a non-cash loss on the extinguishment of debt of $3.8 million, representing the write-off of $2.5 million and $1.3 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. Also in connection with the Fifth Amendment, the Company incurred fees of $1.3 million, primarily related to legal and placement fees, which were recorded in the line item “Costs related to debt amendments and secondary offering” in the Company’s Condensed Consolidated Statements of Operations.  The Company incurred new deferred financing costs of $0.7 million as a result of the Fifth Amendment which were recorded in the line item “Long term debt” on the Company’s Condensed Consolidated Balance Sheets.

   At July 30, 2016, the Company’s borrowing rate related to the Term Loan Facility was 3.50%.

 

8


ABL Line of Credit

      At July 30, 2016, the Company had $311.5 million available under the Second Amended and Restated Credit Agreement, dated September 2, 2011 governing BCFWC’s existing senior secured asset-based revolving credit facility (the ABL Line of Credit). The maximum borrowings under the facility during the three and six month periods ended July 30, 2016 amounted to $350.0 million. Average borrowings during the three and six month periods ended July 30, 2016 amounted to $224.1 million and $224.5 million, respectively, at average interest rates of 1.8% during both periods.

At August 1, 2015, the Company had $329.6 million available under the ABL Line of Credit. The maximum borrowings under the facility during the three and six month periods ended August 1, 2015 amounted to $280.0 million. Average borrowings during the three and six month periods ended August 1, 2015 amounted to $215.5 million and $164.4 million, respectively, at average interest rates of 1.5% and 1.6%, respectively.

 

 

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.

The Company did not record any hedge ineffectiveness in its earnings during the three or six month periods ended July 30, 2016. The Company financed the cost of the interest rate cap contracts, which will be amortized through the life of the caps. As of July 30, 2016, the Company estimates that approximately $5.0 million will be reclassified into interest expense during the next twelve months.

As of July 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

 

 

9


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

 

 

 

July 30, 2016

 

 

January 30, 2016

 

 

August 1, 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

 

$

 

 

N/A

 

$

 

 

Other assets

 

$

101

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Fair Values of Derivative Instruments

 

 

 

Liability Derivatives

 

 

 

July 30, 2016

 

 

January 30, 2016

 

 

August 1, 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

 

$

11,267

 

 

Other liabilities

 

$

8,415

 

 

Other liabilities

 

$

110

 

 

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

 

 

Six Months Ended

 

Hedging Instruments

 

July 30, 2016

 

 

August 1, 2015

 

 

July 30, 2016

 

 

August 1, 2015

 

 

 

Interest rate cap contracts

 

$

(2,142

)

 

$

(1,722

)

 

$

(3,293

)

 

$

(821

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Amount of Loss Reclassified from

Accumulated Other Comprehensive

Loss into Earnings Related to

Derivatives

 

Derivatives Designated as

 

Three Months Ended

 

 

Six Months Ended

Component of

Hedging Instruments

 

July 30, 2016

 

 

August 1, 2015

 

 

July 30, 2016

 

 

August 1, 2015

 

 

Earnings

Interest rate cap contracts

 

$

261

 

 

$

24

 

 

$

418

 

 

$

24

 

 

Interest expense

 

 

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 $2.2 million

 

(3,293

)

Amount reclassified into earnings, net of related taxes of $0.3 million

 

418

 

Balance at July 30, 2016

$

(11,867

)

 

 

 

10


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 July 30, 2016, January 30, 2016 and August 1, 2015 are summarized below: 

 

 

(in thousands)

 

 

 

Fair Value Measurements at

 

 

 

July 30,

 

 

January 30,

 

 

August 1,

 

 

 

2016

 

 

2016

 

 

2015

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (including restricted cash)

 

$

28,139

 

 

$

28,114

 

 

$

28,104

 

Financial Liabilities

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

 

 

(in thousands)

 

 

 

July 30, 2016

 

 

January 30, 2016

 

 

August 1, 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-4 Loans), LIBOR (with a floor of 0.75%) plus

   2.75%, matures on August 13, 2021

 

$

1,111,500

 

 

$

1,113,353

 

 

$

 

 

$

 

 

$

 

 

$

 

$1,200,000 senior secured term loan facility (Term

   B-3 Loans), LIBOR (with a floor of 1.0%) plus

   3.25%, redeemed in full on July 29, 2016

 

 

 

 

 

 

 

 

1,112,575

 

 

 

1,107,921

 

 

 

1,112,176

 

 

 

1,114,011

 

$600,000 ABL senior secured revolving facility,

   LIBOR plus spread based on average outstanding

   balance, matures August 13, 2019(a)

 

 

223,300

 

 

 

223,300

 

 

 

167,400

 

 

 

167,400

 

 

 

213,700

 

 

 

213,700

 

Total debt

 

$

1,334,800

 

 

$

1,336,653

 

 

$

1,279,975

 

 

$

1,275,321

 

 

$

1,325,876

 

 

$

1,327,711

 

 

 

(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

 

11


revalued for purposes of these Condensed Consolidated Financial Statements since July 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)

 

 

 

July 30,

 

 

January 30,

 

 

August 1,

 

 

 

2016

 

 

2016

 

 

2015

 

Current deferred tax asset

 

$

 

 

$

 

 

$

34,446

 

Non-current deferred tax liability

 

 

195,175

 

 

 

201,695