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EX-32.2 - EX-32.2 - Burlington Stores, Inc.burl-ex322_8.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_9.htm
EX-31.1 - EX-31.1 - Burlington Stores, Inc.burl-ex311_7.htm
EX-10.4 - EX-10.4 - Burlington Stores, Inc.burl-ex104_268.htm
EX-10.3 - EX-10.3 - Burlington Stores, Inc.burl-ex103_269.htm
EX-10.2 - EX-10.2 - Burlington Stores, Inc.burl-ex102_270.htm
EX-10.1 - EX-10.1 - Burlington Stores, Inc.burl-ex101_271.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended October 29, 2016

OR

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

For the transition period from                      to                     .

Commission File Number 001-36107

 

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      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-Accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

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

The number of shares of registrant’s common stock outstanding as of October 29, 2016: 70,597,057.

 

 

 


BURLINGTON STORES, INC.

INDEX

 

 

 

Page

Part I—Financial Information

 

3

 

 

 

Item 1. Financial Statements (unaudited)

 

3

 

 

 

Condensed Consolidated Statements of Operations - Three and Nine Months Ended October 29, 2016 and October 31, 2015  

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended October 29, 2016 and October 31, 2015

 

4

 

 

 

Condensed Consolidated Balance Sheets – October 29, 2016, January 30, 2016 and October 31, 2015

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine Months Ended October 29, 2016 and October 31, 2015

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

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

 

18

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

33

 

 

 

Item 4. Controls and Procedures

 

33

 

 

 

Part II—Other Information

 

34

 

 

 

Item 1. Legal Proceedings

 

34

 

 

 

Item 1A. Risk Factors

 

34

 

 

 

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

 

34

 

 

 

Item 3. Defaults Upon Senior Securities

 

35

 

 

 

Item 4. Mine Safety Disclosures

 

35

 

 

 

Item 5. Other Information

 

35

 

 

 

Item 6. Exhibits

 

35

 

 

 

SIGNATURES

 

36

 

 

 

 

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

 

 

Nine Months Ended

 

 

 

October 29,

 

 

October 31,

 

 

October 29,

 

 

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,342,600

 

 

$

1,230,886

 

 

$

3,880,322

 

 

$

3,558,162

 

Other revenue

 

 

6,447

 

 

 

7,783

 

 

 

18,324

 

 

 

22,998

 

Total revenue

 

 

1,349,047

 

 

 

1,238,669

 

 

 

3,898,646

 

 

 

3,581,160

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

789,858

 

 

 

741,584

 

 

 

2,316,162

 

 

 

2,150,430

 

Selling, general and administrative expenses

 

 

451,072

 

 

 

416,205

 

 

 

1,261,559

 

 

 

1,175,491

 

Costs related to debt amendments and secondary offering

 

 

 

 

 

 

 

 

1,346

 

 

 

247

 

Stock option modification expense

 

 

106

 

 

 

324

 

 

 

520

 

 

 

1,120

 

Depreciation and amortization

 

 

46,472

 

 

 

43,186

 

 

 

136,630

 

 

 

127,087

 

Impairment charges-long-lived assets

 

 

 

 

 

 

 

 

109

 

 

 

1,903

 

Other income—net

 

 

(1,473

)

 

 

(1,680

)

 

 

(7,361

)

 

 

(4,142

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

3,805

 

 

 

649

 

Interest expense

 

 

13,159

 

 

 

14,792

 

 

 

43,196

 

 

 

44,192

 

Total costs and expenses

 

 

1,299,194

 

 

 

1,214,411

 

 

 

3,755,966

 

 

 

3,496,977

 

Income before income tax expense

 

 

49,853

 

 

 

24,258

 

 

 

142,680

 

 

 

84,183

 

Income tax expense

 

 

17,449

 

 

 

9,142

 

 

 

52,368

 

 

 

32,474

 

Net income

 

$

32,404

 

 

$

15,116

 

 

$

90,312

 

 

$

51,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - basic

 

$

0.46

 

 

$

0.20

 

 

$

1.28

 

 

$

0.69

 

Common stock - diluted

 

$

0.45

 

 

$

0.20

 

 

$

1.25

 

 

$

0.68

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - basic

 

 

70,347

 

 

 

74,115

 

 

 

70,757

 

 

 

74,759

 

Common stock - diluted

 

 

71,597

 

 

 

75,394

 

 

 

72,002

 

 

 

76,135

 

 

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

 

 

Nine Months Ended

 

 

 

October 29,

 

 

October 31,

 

 

October 29,

 

 

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income

 

$

32,404

 

 

$

15,116

 

 

$

90,312

 

 

$

51,709

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) arising during the period

 

 

239

 

 

 

(3,358

)

 

 

(3,054

)

 

 

(4,179

)

Reclassification into earnings during the period

 

 

442

 

 

 

55

 

 

 

860

 

 

 

79

 

Other comprehensive income (loss), net of tax:

 

 

681

 

 

 

(3,303

)

 

 

(2,194

)

 

 

(4,100

)

Total comprehensive income

 

$

33,085

 

 

$

11,813

 

 

$

88,118

 

 

$

47,609

 

 

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)

 

 

 

 

October 29,

 

 

January 30,

 

 

October 31,

 

 

 

2016

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,799

 

 

$

20,915

 

 

$

28,847

 

Restricted cash and cash equivalents

 

 

27,800

 

 

 

27,800

 

 

 

27,800

 

Accounts receivablenet

 

 

59,757

 

 

 

38,571

 

 

 

49,018

 

Merchandise inventories

 

 

822,469

 

 

 

783,528

 

 

 

934,011

 

Deferred tax assets

 

 

 

 

 

 

 

 

36,934

 

Prepaid and other current assets

 

 

104,051

 

 

 

62,168

 

 

 

68,721

 

Total current assets

 

 

1,046,876

 

 

 

932,982

 

 

 

1,145,331

 

Property and equipment—net

 

 

1,040,297

 

 

 

1,018,570

 

 

 

1,018,188

 

Tradenames

 

 

238,000

 

 

 

238,000

 

 

 

238,000

 

Favorable leases—net

 

 

220,680

 

 

 

238,753

 

 

 

248,210

 

Goodwill

 

 

47,064

 

 

 

47,064

 

 

 

47,064

 

Other assets

 

 

95,203

 

 

 

96,444

 

 

 

99,815

 

Total assets

 

$

2,688,120

 

 

$

2,571,813

 

 

$

2,796,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

691,971

 

 

$

598,199

 

 

$

704,187

 

Other current liabilities

 

 

326,114

 

 

 

286,986

 

 

 

327,156

 

Current maturities of long term debt

 

 

1,574

 

 

 

1,403

 

 

 

1,376

 

Total current liabilities

 

 

1,019,659

 

 

 

886,588

 

 

 

1,032,719

 

Long term debt

 

 

1,303,001

 

 

 

1,295,163

 

 

 

1,403,722

 

Other liabilities

 

 

294,740

 

 

 

287,389

 

 

 

272,774

 

Deferred tax liabilities

 

 

206,124

 

 

 

201,695

 

 

 

209,330

 

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: 77,500,291 shares, 76,711,663 shares and 76,597,066

      shares, respectively;

 

 

 

 

 

 

 

 

 

 

 

 

   Outstanding: 70,597,057 shares, 72,071,177 shares and

      73,560,207 shares, respectively

 

 

7

 

 

 

7

 

 

 

7

 

Additional paid-in-capital

 

 

1,413,955

 

 

 

1,395,863

 

 

 

1,391,034

 

Accumulated deficit

 

 

(1,185,660

)

 

 

(1,275,972

)

 

 

(1,374,745

)

Accumulated other comprehensive loss

 

 

(11,186

)

 

 

(8,992

)

 

 

(5,844

)

Treasury stock, at cost

 

 

(352,520

)

 

 

(209,928

)

 

 

(132,389

)

Total stockholders' deficit

 

 

(135,404

)

 

 

(99,022

)

 

 

(121,937

)

Total liabilities and stockholders' deficit

 

$

2,688,120

 

 

$

2,571,813

 

 

$

2,796,608

 

 

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 29,

 

 

October 31,

 

 

 

2016

 

 

2015

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

90,312

 

 

$

51,709

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

136,630

 

 

 

127,087

 

Impairment chargeslong-lived assets

 

 

109

 

 

 

1,903

 

Amortization of deferred financing costs

 

 

2,052

 

 

 

2,156

 

Accretion of long term debt instruments

 

 

670

 

 

 

609

 

Deferred income taxes

 

 

5,891

 

 

 

(22,001

)

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

 

 

11,634

 

 

 

8,237

 

Non-cash rent

 

 

(22,052

)

 

 

(17,354

)

Deferred rent incentives

 

 

17,884

 

 

 

18,481

 

Excess tax benefit from stock based compensation

 

 

(11,728

)

 

 

(10,211

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(13,671

)

 

 

(7,430

)

Merchandise inventories

 

 

(39,518

)

 

 

(145,303

)

Prepaid and other current assets

 

 

(37,529

)

 

 

(13,008

)

Accounts payable

 

 

88,090

 

 

 

82,505

 

Other current liabilities

 

 

47,510

 

 

 

21,094

 

Other long term assets and long term liabilities

 

 

4,187

 

 

 

3,251

 

Other operating activities

 

 

2,216

 

 

 

1,325

 

Net cash provided by operating activities

 

 

286,492

 

 

 

103,699

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Cash paid for property and equipment

 

 

(137,643

)

 

 

(153,720

)

Other investing activities

 

 

104

 

 

 

4,213

 

Net cash used in investing activities

 

 

(137,539

)

 

 

(149,507

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from long term debt—ABL Line of Credit

 

 

1,286,100

 

 

 

1,173,200

 

Principal payments on long term debt—ABL Line of Credit

 

 

(1,279,200

)

 

 

(960,300

)

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

 

 

(151,781

)

 

 

(124,131

)

Proceeds from stock option exercises

 

 

3,919

 

 

 

1,926

 

Excess tax benefit from stock based compensation

 

 

11,728

 

 

 

10,211

 

Other financing activities

 

 

(5,043

)

 

 

(2,769

)

Net cash (used in) provided by financing activities

 

 

(137,069

)

 

 

49,306

 

Increase in cash and cash equivalents

 

 

11,884

 

 

 

3,498

 

Cash and cash equivalents at beginning of period

 

 

20,915

 

 

 

25,349

 

Cash and cash equivalents at end of period

 

$

32,799

 

 

$

28,847

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

40,623

 

 

$

43,499

 

Income tax payments - net

 

$

62,548

 

 

$

54,264

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

26,045

 

 

$

27,256

 

See Notes to Condensed Consolidated Financial Statements.

 

6


BURLINGTON STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 29, 2016

(UNAUDITED)

 

1. Summary of Significant Accounting Policies

Basis of Presentation

As of October 29, 2016, Burlington Stores, Inc. and its subsidiaries (the Company), a Delaware Corporation, through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated 592 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 nine month periods ended October 29, 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: 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 $8.7 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 October 31, 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. This ASU will be effective for the Company as of the beginning of the fiscal year ended February 2, 2019 (Fiscal 2018). The Company is in the process of determining the impact of the adoption of this guidance on its consolidated financial statements or notes thereto, however, it does not anticipate that the new guidance will have a significant impact on its 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

 

7


about leasing arrangements. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods 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 in the process of determining the impact of the adoption of this guidance on its consolidated financial statements or notes thereto, however, it does anticipate that the new guidance will have a significant impact on its consolidated financial statements given its portfolio of lease arrangements. This guidance is not expected, however, to have a material impact on the Company's liquidity.

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 in the process of determining the impact of the adoption of this guidance on its consolidated financial statements.

On August 26, 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.”  The primary purpose of this ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic.  This ASU is effective for fiscal years beginning after December 15, 2017.  This ASU will be effective for the Company as of the beginning of Fiscal 2018. Early adoption is permitted in any interim or annual period.   The Company is in the process of determining the impact of the adoption of this guidance on its consolidated financial statements or notes thereto, however, it does not anticipate that the new guidance will have a significant impact on its consolidated financial statements.

On November 17, 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows: Restricted Cash.”  The primary purpose of this ASU is to reduce the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows.  This ASU will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017.  This ASU will be effective for the Company as of the beginning of Fiscal 2018. Early adoption is permitted in any interim or annual period.   The Company is in the process of determining the impact of the adoption of this guidance on its consolidated financial statements or notes thereto, however, it does not anticipate that the new guidance will have a significant impact 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 29, 2016, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of October 29, 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:

 

8


 

 

(in thousands)

 

 

 

October 29,

 

 

January 30,

 

 

October 31,

 

 

 

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

 

$

1,111,772

 

 

$

 

 

$

 

$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

 

 

 

1,112,376

 

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

   on average outstanding balance, matures August 13, 2019

 

 

174,300

 

 

 

167,400

 

 

 

276,200

 

Capital lease obligations

 

 

23,972

 

 

 

24,925

 

 

 

25,231

 

Unamortized deferred financing costs

 

 

(5,469

)

 

 

(8,334

)

 

 

(8,709

)

Total debt

 

 

1,304,575

 

 

 

1,296,566

 

 

 

1,405,098

 

Less: current maturities

 

 

(1,574

)

 

 

(1,403

)

 

 

(1,376

)

Long term debt, net of current maturities

 

$

1,303,001

 

 

$

1,295,163

 

 

$

1,403,722

 

 

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 October 29, 2016, the Company’s borrowing rate related to the Term Loan Facility was 3.50%.

ABL Line of Credit

      At October 29, 2016, the Company had $383.7 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 nine month periods ended October 29, 2016 amounted to $300.0  million and $350.0 million, respectively. Average borrowings during the three and nine month periods ended October 29, 2016 amounted to $201.4 million and $216.8  million, respectively, at average interest rates of 1.8% for both periods.

At October 31, 2015, the Company had $278.2 million available under the ABL Line of Credit. 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% for both periods.

 

 

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

 

9


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 nine month periods ended October 29, 2016. The Company financed the cost of the interest rate cap contracts, which will be amortized through the life of the caps. As of October 29, 2016, the Company estimates that approximately $6.3 million will be reclassified into interest expense during the next twelve months.

As of October 29, 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 table below presents 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

 

 

 

Liability Derivatives

 

 

 

October 29, 2016

 

 

January 30, 2016

 

 

October 31, 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

 

$

9,957

 

 

Other liabilities

 

$

8,415

 

 

Other liabilities

 

$

4,331

 

 

The following table presents the unrealized losses deferred to accumulated other comprehensive income resulting from the Company’s derivative instruments designated as cash flow hedging instruments for each of the reporting periods.

 

 

 

(in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

Interest Rate Cap Contracts:

 

October 29, 2016

 

 

October 31, 2015

 

 

October 29, 2016

 

 

October 31, 2015

 

Unrealized gains (losses), before taxes

 

$

398

 

 

$

(5,597

)

 

$

(5,090

)

 

$

(6,965

)

Income tax (expense) benefit

 

 

(159

)

 

 

2,239

 

 

 

2,036

 

 

 

2,786

 

Unrealized gains (losses), net of taxes

 

$

239

 

 

$

(3,358

)

 

$

(3,054

)

 

$

(4,179

)

 

 

The following table presents information about the reclassification of losses from accumulated other comprehensive income into earnings related to the Company’s derivative instruments designated as cash flow hedging instruments for each of the reporting periods.

 

 

 

(in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

Component of Earnings:

 

October 29, 2016

 

 

October 31, 2015

 

 

October 29, 2016

 

 

October 31, 2015

 

Interest expense

 

$

738

 

 

$

91

 

 

$

1,434

 

 

$

131

 

Income tax expense

 

 

(296

)

 

 

(36

)

 

 

(574

)

 

 

(52

)

Net income

 

$

442

 

 

$

55

 

 

$

860

 

 

$

79

 

 

 

 

 

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 $2.0 million

 

(3,054

)

Amount reclassified into earnings, net of related taxes of $0.6 million

 

860

 

Balance at October 29, 2016

$

(11,186

)

 

 

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 29, 2016, January 30, 2016 and October 31, 2015 are summarized below: 

 

 

(in thousands)

 

 

 

Fair Value Measurements at

 

 

 

October 29,

 

 

January 30,

 

 

October 31,

 

 

 

2016

 

 

2016

 

 

2015

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (including restricted cash)

 

$

28,153

 

 

$

28,114

 

 

$

28,109

 

Non-financial Assets

Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy. The fair value of the Company’s long-lived assets is generally calculated using discounted cash flows.

 

11


Financial Liabilities

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

 

 

(in thousands)

 

 

 

October 29, 2016

 

 

January 30, 2016

 

 

October 31, 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

 

$

1,111,772

 

 

$

1,116,404

 

 

$

 

 

$

 

 

$

 

 

$

 

$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

 

 

 

1,112,376

 

 

 

1,114,210

 

$600,000 ABL senior secured revolving facility,

   LIBOR plus spread based on average outstanding

   balance, matures August 13, 2019(a)

 

 

174,300

 

 

 

174,300

 

 

 

167,400

 

 

 

167,400

 

 

 

276,200

 

 

 

276,200

 

Total debt

 

$

1,286,072

 

 

$

1,290,704

 

 

$

1,279,975

 

 

$

1,275,321

 

 

$

1,388,576

 

 

$

1,390,410

 

 

 

(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 October 29, 2016, and current estimates of fair value may differ from amounts presented herein.

 

 

6. Income Taxes

Net deferred taxes are as follows:

 

 

(in thousands)

 

 

 

October 29,

 

 

January 30,

 

 

October 31,

 

 

 

2016

 

 

2016

 

 

2015

 

Current deferred tax asset

 

$

 

 

$

 

 

$

36,934

 

Non-current deferred tax liability

 

 

206,124

 

 

 

201,695

 

 

 

209,330

 

Net deferred tax liability

 

$

206,124

 

 

$

201,695

 

 

$

172,396

 


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 October 31, 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 October 29, 2016, January 30, 2016 and October 31, 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 October 29, 2016, the Company had $7.4 million of deferred tax assets recorded for state net operating losses, which will expire between 2016 and 2036. In addition, the Company also determined that a full valuation allowance of $5.5 million, $5.1 million and $5.4 million were required against the tax benefit associated with Puerto Rico deferred tax assets as of October 29, 2016, January 30, 2016 and October 31, 2015, respectively.

 

 

 

12


7. Capital Stock

Treasury Stock

The Company accounts for treasury stock under the cost method.

During the nine month period ended October 29, 2016, the Company acquired 27,859 shares of common stock from employees for approximately $1.8 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock awards. During the first quarter of Fiscal 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

The Company is authorized to repurchase from time to time shares of its outstanding common stock on the open market or in privately negotiated transactions under its repurchase programs. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The share repurchase programs may be suspended, modified or discontinued at any time and the Company has no obligation to repurchase any amount of the Company’s common stock under the programs.

During the nine month period ended October 29, 2016, the Company repurchased 2,234,889 shares of its common stock for $150.0 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 October 29, 2016, the Company had $49.6 million available for purchase under its share repurchase program.  On November 15, 2016, the Company’s Board of Directors approved the repurchase of up to an additional $200 million of the Company’s common stock. This new repurchase program, which is in addition to the share repurchase program announced by the Company in November 2015, will be funded using the Company’s available cash and is authorized to be executed through November 2018.

 

 

8. Net Income Per Share

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

 

 

 

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 29,

 

 

October 31,

 

 

October 29,

 

 

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015