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EX-32.2 - EX-32.2 - Burlington Stores, Inc.burl-ex322_9.htm
EX-32.1 - EX-32.1 - Burlington Stores, Inc.burl-ex321_8.htm
EX-31.2 - EX-31.2 - Burlington Stores, Inc.burl-ex312_6.htm
EX-31.1 - EX-31.1 - Burlington Stores, Inc.burl-ex311_7.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 May 5, 2018

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.       

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

The registrant had 67,612,407 shares of common stock outstanding as of May 5, 2018.

 

 


BURLINGTON STORES, INC.

INDEX

 

 

 

Page

Part I—Financial Information

 

3

 

 

 

Item 1. Financial Statements (unaudited)

 

3

 

 

 

Condensed Consolidated Statements of Income - Three Months Ended May 5, 2018 and April 29, 2017  

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three Months Ended May 5, 2018 and April 29, 2017

 

4

 

 

 

Condensed Consolidated Balance Sheets – May 5, 2018, February 3, 2018 and April 29, 2017

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows – Three Months Ended May 5, 2018 and April 29, 2017

 

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

 

30

 

 

 

Item 4. Controls and Procedures

 

30

 

 

 

Part II—Other Information

 

30

 

 

 

Item 1. Legal Proceedings

 

30

 

 

 

Item 1A. Risk Factors

 

30

 

 

 

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

 

31

 

 

 

Item 3. Defaults Upon Senior Securities

 

31

 

 

 

Item 4. Mine Safety Disclosures

 

31

 

 

 

Item 5. Other Information

 

31

 

 

 

Item 6. Exhibits

 

32

 

 

 

SIGNATURES

 

33

 

 

 

 

2


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(All amounts in thousands, except per share data)

 

Three Months Ended

 

 

May 5,

 

 

April 29,

 

 

2018

 

 

2017

 

REVENUES:

 

 

 

 

 

 

 

Net sales

$

1,518,446

 

 

$

1,346,546

 

Other revenue

 

6,262

 

 

 

5,673

 

Total revenue

 

1,524,708

 

 

 

1,352,219

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

Cost of sales

 

892,682

 

 

 

796,396

 

Selling, general and administrative expenses

 

468,348

 

 

 

420,856

 

Stock option modification expense

 

 

 

 

63

 

Depreciation and amortization

 

50,509

 

 

 

48,012

 

Other income - net

 

(1,351

)

 

 

(1,906

)

Interest expense

 

14,521

 

 

 

13,514

 

Total costs and expenses

 

1,424,709

 

 

 

1,276,935

 

Income before income tax expense

 

99,999

 

 

 

75,284

 

Income tax expense

 

17,411

 

 

 

22,916

 

Net income

$

82,588

 

 

$

52,368

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Common stock - basic

$

1.23

 

 

$

0.76

 

Common stock - diluted

$

1.20

 

 

$

0.73

 

Weighted average number of common shares:

 

 

 

 

 

 

 

Common stock - basic

 

66,983

 

 

 

69,333

 

Common stock - diluted

 

68,970

 

 

 

71,505

 

 

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

 

 

 

May 5,

 

 

April 29,

 

 

 

2018

 

 

2017

 

Net income

 

$

82,588

 

 

$

52,368

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Interest rate cap contracts:

 

 

 

 

 

 

 

 

Net unrealized gains (losses) arising during the period

 

 

986

 

 

 

(456

)

Reclassification into earnings during the period

 

 

657

 

 

 

850

 

Other comprehensive income, net of tax:

 

 

1,643

 

 

 

394

 

Total comprehensive income

 

$

84,231

 

 

$

52,762

 

 

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)

 

 

 

 

May 5,

 

 

February 3,

 

 

April 29,

 

 

 

2018

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,008

 

 

$

133,286

 

 

$

29,588

 

Restricted cash and cash equivalents

 

 

21,882

 

 

 

27,800

 

 

 

27,800

 

Accounts receivablenet

 

 

82,758

 

 

 

71,649

 

 

 

52,980

 

Merchandise inventories

 

 

786,559

 

 

 

752,562

 

 

 

725,537

 

Prepaid and other current assets

 

 

126,694

 

 

 

115,136

 

 

 

78,819

 

Total current assets

 

 

1,100,901

 

 

 

1,100,433

 

 

 

914,724

 

Property and equipment—net

 

 

1,148,257

 

 

 

1,134,772

 

 

 

1,055,171

 

Tradenames

 

 

238,000

 

 

 

238,000

 

 

 

238,000

 

Favorable leases—net

 

 

183,605

 

 

 

188,947

 

 

 

207,150

 

Goodwill

 

 

47,064

 

 

 

47,064

 

 

 

47,064

 

Deferred tax assets

 

 

6,724

 

 

 

6,952

 

 

 

7,678

 

Other assets

 

 

100,895

 

 

 

96,661

 

 

 

89,071

 

Total assets

 

$

2,825,446

 

 

$

2,812,829

 

 

$

2,558,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

726,635

 

 

$

736,252

 

 

$

608,919

 

Other current liabilities

 

 

351,974

 

 

 

370,215

 

 

 

336,705

 

Current maturities of long term debt

 

 

13,040

 

 

 

13,164

 

 

 

1,696

 

Total current liabilities

 

 

1,091,649

 

 

 

1,119,631

 

 

 

947,320

 

Long term debt

 

 

1,122,552

 

 

 

1,113,808

 

 

 

1,152,186

 

Other liabilities

 

 

318,367

 

 

 

313,130

 

 

 

287,760

 

Deferred tax liabilities

 

 

181,607

 

 

 

179,486

 

 

 

212,500

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (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: 78,698,229 shares, 78,421,947 shares and 77,830,140 shares, respectively;

 

 

 

 

 

 

 

 

 

 

 

 

   Outstanding: 67,612,407 shares, 67,871,725 shares and 69,821,637 shares, respectively

 

 

7

 

 

 

7

 

 

 

7

 

Additional paid-in-capital

 

 

1,467,726

 

 

 

1,457,205

 

 

 

1,427,676

 

Accumulated deficit

 

 

(593,077

)

 

 

(675,664

)

 

 

(1,008,148

)

Accumulated other comprehensive loss

 

 

(244

)

 

 

(1,887

)

 

 

(6,797

)

Treasury stock, at cost

 

 

(763,141

)

 

 

(692,887

)

 

 

(453,646

)

Total stockholders' equity (deficit)

 

 

111,271

 

 

 

86,774

 

 

 

(40,908

)

Total liabilities and stockholders' equity (deficit)

 

$

2,825,446

 

 

$

2,812,829

 

 

$

2,558,858

 

 

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

 

 

 

May 5,

 

 

April 29,

 

 

 

2018

 

 

2017

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

82,588

 

 

$

52,368

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

50,509

 

 

 

48,012

 

Amortization of deferred financing costs

 

 

499

 

 

 

630

 

Accretion of long term debt instruments

 

 

201

 

 

 

272

 

Deferred income taxes

 

 

1,721

 

 

 

4,600

 

Non-cash stock compensation expense

 

 

7,023

 

 

 

5,083

 

Non-cash rent

 

 

(6,203

)

 

 

(6,749

)

Deferred rent incentives

 

 

8,709

 

 

 

5,024

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(10,377

)

 

 

(10,308

)

Merchandise inventories

 

 

(33,997

)

 

 

(23,646

)

Prepaid and other current assets

 

 

(11,559

)

 

 

(5,213

)

Accounts payable

 

 

(12,716

)

 

 

(32,431

)

Other current liabilities

 

 

(18,111

)

 

 

(11,196

)

Other long term assets and long term liabilities

 

 

738

 

 

 

541

 

Other operating activities

 

 

1,185

 

 

 

1,597

 

Net cash provided by operating activities

 

 

60,210

 

 

 

28,584

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Cash paid for property and equipment

 

 

(60,382

)

 

 

(52,913

)

Proceeds from sale of property and equipment

 

 

5,441

 

 

 

 

Other investing activities

 

 

(3,001

)

 

 

140

 

Net cash (used in) investing activities

 

 

(57,942

)

 

 

(52,773

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from long term debt—ABL Line of Credit

 

 

238,800

 

 

 

268,300

 

Principal payments on long term debt—ABL Line of Credit

 

 

(227,000

)

 

 

(245,100

)

Principal payments on long term debt—Term B-5 Loans

 

 

(2,793

)

 

 

 

Purchase of treasury shares

 

 

(70,254

)

 

 

(50,536

)

Proceeds from stock option exercises

 

 

3,498

 

 

 

1,597

 

Other financing activities

 

 

(715

)

 

 

(2,081

)

Net cash (used in) financing activities

 

 

(58,464

)

 

 

(27,820

)

(Decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents

 

 

(56,196

)

 

 

(52,009

)

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period

 

 

161,086

 

 

 

109,397

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

 

$

104,890

 

 

$

57,388

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

14,238

 

 

$

10,900

 

Income tax payments - net

 

$

343

 

 

$

372

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

35,390

 

 

$

18,017

 

See Notes to Condensed Consolidated Financial Statements.

 

6


BURLINGTON STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

May 5, 2018

(Unaudited)

 

1. Summary of Significant Accounting Policies

Basis of Presentation

As of May 5, 2018, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), has expanded its store base to 647 retail stores, inclusive of an internet store, as of May 5, 2018.

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 February 3, 2018 (Fiscal 2017 10-K). The balance sheet at February 3, 2018 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2017 10-K. Because the Company’s business is seasonal in nature, the operating results for the three month period ended May 5, 2018 are not necessarily indicative of results for the fiscal year.

Accounting policies followed by the Company are described in Note 1 to the Fiscal 2017 10-K, “Summary of Significant Accounting Policies.”

Fiscal Year

The Company defines its fiscal year as the 52 or 53 week period ending on the Saturday closest to January 31. The current fiscal year ends February 2, 2019 (Fiscal 2018) and is a 52-week fiscal year. The fiscal year ended February 3, 2018 (Fiscal 2017) was a 53-week fiscal year.

Adopted Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09, “Revenue from Contracts with Customers,” which converges revenue recognition under U.S. GAAP and International Financial Reporting Standards. The new guidance supersedes most preexisting revenue recognition guidance, and provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted this standard effective February 4, 2018 on a modified retrospective basis.

Adoption of the standard did not result in any change in the timing or amount of revenue recognized as it relates to revenue from point of sale at the registers in our stores, which constitutes more than 99% of the Company’s revenue. The new standard requires the Company’s sales return reserve to be established at the gross sales value with an asset established for the value of the expected merchandise returned. The liability and asset related to the sales return reserve as of May 5, 2018 were $13.2 million and $7.9 million, respectively, and were included in the lines “Other current liabilities” and “Prepaid and other current assets,” respectively, on the Company’s Condensed Consolidated Balance Sheet. Prior period amounts have not been adjusted. As of February 3, 2018 and April 29, 2017, the net sales return reserve was $3.8 million and $5.2 million, respectively, and was included in the line “Other current liabilities” on the Company’s Condensed Consolidated Balance Sheets.

The Company records revenue at the time of sale and delivery of merchandise, net of allowances for estimated future returns, which is estimated based on historical return rates. The Company presents sales, net of sales taxes, in its Condensed Consolidated Statements of Income. The Company accounts for layaway sales and leased department revenue in compliance with ASC Topic No. 606 “Revenue from Contracts with Customers” (Topic No. 606). Layaway sales are recognized upon delivery of merchandise to the customer. The amount of cash received upon initiation of the layaway is recorded as a deposit liability in the line item “Other current liabilities” in the Company’s Consolidated Balance Sheets. Stored value cards (gift cards and store credits issued for merchandise returns) are recorded as a liability at the time of issuance, and the related sale is recorded upon redemption.

 

7


The Company determines an estimated stored value card breakage rate by continuously evaluating historical redemption data. Breakage income is recognized monthly in proportion to the historical redemption patterns for those stored value cards for which the likelihood of redemption is remote.

In August 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. The Company adopted this standard effective February 4, 2018. Adoption of the new guidance did not have a significant impact on the Company’s consolidated financial statements.

In November 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 requires 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. The Company adopted this standard effective February 4, 2018. As a result of adoption, the Company has included $27.8 million of restricted cash and cash equivalents in both the beginning-of-period and end-of-period cash and cash equivalents balances on its Condensed Consolidated Statement of Cash Flows for the three month period ended April 29, 2017.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.” This ASU eliminates the concept of recognizing periodic hedge ineffectiveness for cash flow and net investment hedges. As a result, changes in fair value for hedging instruments designated as a cash flow or net investment hedge will be recognized as a component of other comprehensive income, regardless of whether or not an economic mismatch exists in the hedging relationship. Additionally, the ASU eliminates the benchmark interest rate concept for variable-rate instruments in cash flow hedges. As a result, the contractually specified interest rate can now be designated as the hedged risk. The Company has elected to adopt the ASU as of February 4, 2018, using a modified retrospective transition method. Adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

Pending Accounting Standards

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 within those fiscal years. This ASU will be effective for the Company as of the beginning of the fiscal year ending February 1, 2020 (Fiscal 2019). Early adoption is permitted. While the Company is continuing to evaluate the impact of the adoption of this guidance on its consolidated financial statements or notes thereto, it does expect that this new guidance will result in a significant increase to the assets and liabilities presented on its consolidated balance sheets. Refer to Note 13 to the Company’s Consolidated Financial Statements included in the Fiscal 2017 10-K (entitled “Lease Commitments”) for further detail of the Company’s future minimum lease payments. This guidance is not expected, however, to have a material impact on the Company's liquidity.

On January 26, 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment,” which aims to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be measured as the amount by which the carrying value exceeds the fair value. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods. This ASU will be effective for the Company as of the beginning of Fiscal 2020. Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017. The Company 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 month period ended May 5, 2018, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of May 5, 2018 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

 

8


2. Long Term Debt

Long term debt consists of:

 

 

(in thousands)

 

 

 

May 5,

 

 

February 3,

 

 

April 29,

 

 

 

2018

 

 

2018

 

 

2017

 

$1,200,000 senior secured term loan facility (Term B-5 Loans), LIBOR (with a floor of 0.75%) plus 2.50%, matures on November 17, 2024

 

$

1,106,321

 

 

$

1,108,913

 

 

 

 

$1,200,000 senior secured term loan facility (Term B-4 Loans), LIBOR (with a floor of 0.75%) plus 2.75%, redeemed in full on November 17, 2017

 

 

 

 

 

 

 

$

1,112,316

 

$600,000 ABL senior secured revolving facility, LIBOR plus spread based on average outstanding balance, matures on August 13, 2019

 

 

11,800

 

 

 

 

 

 

23,200

 

Capital lease obligations

 

 

21,196

 

 

 

21,931

 

 

 

23,286

 

Unamortized deferred financing costs

 

 

(3,725

)

 

 

(3,872

)

 

 

(4,920

)

Total debt

 

 

1,135,592

 

 

 

1,126,972

 

 

 

1,153,882

 

Less: current maturities

 

 

(13,040

)

 

 

(13,164

)

 

 

(1,696

)

Long term debt, net of current maturities

 

$

1,122,552

 

 

$

1,113,808

 

 

$

1,152,186

 

 

Term Loan Facility

At May 5, 2018 and April 29, 2017, the Company’s borrowing rate related to its senior secured term loan facility (the Term Loan Facility) was 4.41% and 3.75%, respectively.

ABL Line of Credit

At May 5, 2018, the Company had $533.2 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 month period ended May 5, 2018 amounted to $90.0 million. Average borrowings during the three month period ended May 5, 2018 amounted to $28.7 million at an average interest rate of 3.3%.

At April 29, 2017, the Company had $514.4 million available under the ABL Line of Credit. The maximum borrowings under the facility during the three month period ended April 29, 2017 amounted to $91.8 million. Average borrowings during the three month period ended April 29, 2017 amounted to $32.1 million at an average interest rate of 2.5%.

 

 

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 these objectives, 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


As of May 5, 2018, 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

 

 

 

Asset Derivatives

 

 

 

May 5, 2018

 

 

February 3, 2018

 

 

April 29, 2017

 

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 assets

 

$

5,793

 

 

Other assets

 

$

4,543

 

 

N/A

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

Fair Values of Derivative Instruments

 

 

 

Liability Derivatives

 

 

 

May 5, 2018

 

 

February 3, 2018

 

 

April 29, 2017

 

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 liabilities

 

$

2,216

 

 

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

 

 

 

(in thousands)

 

 

 

Three Months Ended

 

Interest Rate Cap Contracts:

 

May 5, 2018

 

 

April 29, 2017

 

Unrealized gains (losses), before taxes

 

$

1,364

 

 

$

(757

)

Income tax (expense) benefit

 

 

(378

)

 

 

301

 

Unrealized gains (losses), net of taxes

 

$

986

 

 

$

(456

)

 

 

The following table presents information about the reclassification of gains and losses from accumulated other comprehensive loss 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

 

Component of Earnings:

 

May 5, 2018

 

 

April 29, 2017

 

Interest expense

 

$

909

 

 

$

1,411

 

Income tax expense

 

 

(252

)

 

 

(561

)

Net income

 

$

657

 

 

$

850

 

 

The Company estimates that approximately $0.4 million will be reclassified from accumulated other comprehensive loss into interest expense during the next twelve months.

 

 

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 February 3, 2018

$

(1,887

)

Unrealized gains, net of related taxes of $0.4 million

 

986

 

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

 

657

 

Balance at May 5, 2018

$

(244

)

 

 

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 May 5, 2018, February 3, 2018 and April 29, 2017 are summarized below: 

 

 

(in thousands)

 

 

 

Fair Value Measurements at

 

 

 

May 5,

 

 

February 3,

 

 

April 29,

 

 

 

2018

 

 

2018

 

 

2017

 

Level 1

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (including restricted cash)

 

$

22,393

 

 

$

28,283

 

 

$

28,184

 

Financial Liabilities

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

 

 

(in thousands)

 

 

 

May 5, 2018

 

 

February 3, 2018

 

 

April 29, 2017

 

 

 

Carrying

Amount

 

 

Fair

Value

 

 

Carrying

Amount

 

 

Fair

Value

 

 

Carrying

Amount

 

 

Fair

Value

 

Term B-5 Loans

 

$

1,106,321

 

 

$

1,111,853

 

 

$

1,108,913

 

 

$

1,108,913

 

 

$

 

 

$

 

Term B-4 Loans

 

 

 

 

 

 

 

 

 

 

$

 

 

 

1,112,316

 

 

 

1,114,633

 

ABL senior secured revolving facility

 

 

11,800

 

 

 

11,800

 

 

 

 

 

 

 

 

 

23,200

 

 

 

23,200

 

Total debt

 

$

1,118,121

 

 

$

1,123,653

 

 

$

1,108,913

 

 

$

1,108,913

 

 

$

1,135,516

 

 

$

1,137,833

 

 

11


Capital lease obligations are excluded from the table above. 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.

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.

 

 

6. Income Taxes

Net deferred taxes are as follows:

 

 

(in thousands)

 

 

 

May 5,

 

 

February 3,

 

 

April 29,

 

 

 

2018

 

 

2018

 

 

2017

 

Deferred tax asset

 

$

6,724

 

 

$

6,952

 

 

$

7,678

 

Deferred tax liability

 

 

181,607

 

 

 

179,486

 

 

 

212,500

 

Net deferred tax liability

 

$

174,883

 

 

$

172,534

 

 

$

204,822

 


Deferred tax assets relate to Puerto Rico deferred balances that have a future net benefit for tax purposes.  Deferred tax liabilities primarily relate to intangible assets and depreciation expense where the Company has a future obligation for tax purposes.

As of May 5, 2018, February 3, 2018 and April 29, 2017, valuation allowances amounted to $8.6 million, $8.4 million and $7.7 million, respectively, related to state tax net operating losses and state tax credit carry-forwards. The Company believes that it is more likely than not that this portion of the benefit of these state tax net operating losses and state tax credit carry-forwards will not be realized. As of May 5, 2018, the Company has a deferred tax asset related to net operating losses of $12.0 million, inclusive of $10.2 million of state net operating losses, which will expire at various dates between 2018 and 2038, as well as $1.8 million of deferred tax assets recorded for Puerto Rico net operating loss carry-forwards that will begin to expire in 2025.

The U.S. Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law on December 22, 2017. The Tax Act, among other things, lowered the federal statutory rate from 35% to 21%. The Company has analyzed the Tax Act and made reasonable estimates of the effects on its consolidated financial statements and tax disclosures. As the Company completes its analysis of the Tax Act, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make adjustments to the provisional amounts as allowed by Staff Accounting Bulletin No. 118. The accounting is expected to be completed during Fiscal 2018.

 

7. Capital Stock

Treasury Stock

The Company accounts for treasury stock under the cost method.

During the three month period ended May 5, 2018, the Company acquired 47,132 shares of common stock from employees for approximately $6.4 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock awards, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows.”

Share Repurchase Programs 

During the three month period ended May 5, 2018, the Company repurchased 488,468 shares of its common stock for $63.9 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 Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows.” The repurchase program is authorized to be executed through August 2019 and is funded using the Company’s available cash and borrowings on the ABL Line of Credit. As of May 5, 2018, the Company had $153.3 million remaining under its share repurchase authorization.

 

 

12


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. The following table presents the computation of basic and diluted net income per share:

 

 

 

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

May 5,

 

 

April 29,

 

 

 

2018

 

 

2017

 

Basic net income per share

 

 

 

 

 

 

 

 

Net income

 

$

82,588

 

 

$

52,368

 

Weighted average number of common shares – basic

 

 

66,983

 

 

 

69,333

 

Net income per common share – basic

 

$

1.23

 

 

$

0.76

 

Diluted net income per share

 

 

 

 

 

 

 

 

Net income

 

$

82,588

 

 

$

52,368

 

Shares for basic and diluted net income per share:

 

 

 

 

 

 

 

 

Weighted average number of common shares – basic

 

 

66,983

 

 

 

69,333

 

Assumed exercise of stock options and vesting of restricted stock

 

 

1,987

 

 

 

2,172

 

Weighted average number of common shares – diluted

 

 

68,970

 

 

 

71,505

 

Net income per common share – diluted

 

$

1.20

 

 

$

0.73

 

 

Approximately 220,000 shares were excluded from diluted net income per share for the three month period ended May 5, 2018, since their effect was anti-dilutive.

 

Less than 100,000 shares were excluded from diluted net income per share for the three month period ended April 29, 2017, since their effect was anti-dilutive.

 

 

9. Stock-Based Compensation

As of May 5, 2018, there were 4,223,442 shares of common stock available for issuance under the Company’s 2013 Omnibus Incentive Plan (the 2013 Plan).

Non-cash stock compensation expense is as follows:

 

 

(in thousands)

 

 

 

Three Months Ended

 

 

 

May 5,

 

 

April 29,

 

Type of Non-Cash Stock Compensation

 

2018

 

 

2017

 

Restricted stock grants (a)

 

$

3,984

 

 

$

3,158

 

Stock option grants (a)

 

 

3,039

 

 

 

1,866

 

Stock option modification (b)

 

 

 

 

 

59

 

Total (c)

 

$

7,023

 

 

$

5,083

 

 

(a)

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

(b)

Represents non-cash compensation related to the May 2013 stock option modification, which became fully vested during Fiscal 2017. Amounts are included in the line item “Stock option modification expense” in the Company’s Condensed Consolidated Statements of Income. The Company does not expect to recognize any additional compensation expense related to the modification.

(c)

The amounts presented in the table above exclude taxes. For the three month period ended May 5, 2018, the tax benefit related to the Company’s non-cash stock compensation was approximately $1.2 million. For the three month period ended April 29, 2017, the tax benefit related to the Company’s non-cash stock compensation was approximately $1.5 million.

 

13


Stock Options

Stock option transactions during the three month period ended May 5, 2018 are summarized as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price Per

Share

 

Options outstanding, February 3, 2018

 

 

2,579,831

 

 

$

39.79

 

Options granted

 

 

491,066

 

 

 

135.05

 

Options exercised (a)

 

 

(150,502

)

 

 

23.25

 

Options forfeited

 

 

(7,268

)

 

 

68.87

 

Options outstanding, May 5, 2018

 

 

2,913,127

 

 

$

56.63

 

 

(a)

Options exercised during the three month period ended May 5, 2018 had a total intrinsic value of $16.0 million.

The following table summarizes information about the stock options vested and expected to vest during the contractual term as of May 5, 2018:

 

 

Options

 

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

 

Weighted

Average

Exercise

Price

 

 

Aggregate

Intrinsic

Value

(in millions)

 

Vested and expected to vest

 

 

2,913,127

 

 

 

7.3

 

 

$

56.63

 

 

$

238.9

 

 

The fair value of each stock option granted during the three month period ended May 5, 2018 was estimated using the Black Scholes option pricing model using the following assumptions:

 

 

Three Months Ended

 

 

 

May 5,

 

 

 

2018

 

Risk-free interest rate

 

2.13% - 3.00%

 

Expected volatility

 

32% - 34%

 

Expected life (years)

 

5.92 - 6.25

 

Contractual life (years)

 

 

10.0

 

Expected dividend yield

 

 

0.0%

 

Weighted average grant date fair value of options issued

 

$

50.54

 

 

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 May 5, 2018, the expected life of the options was calculated using the simplified method. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches. This methodology was utilized due to the relatively short length of time the Company’s common stock has been publicly traded.

 

14


Restricted Stock Awards

Restricted stock transactions during the three month period ended May 5, 2018 are summarized as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value Per

Awards

 

Non-vested awards outstanding, February 3, 2018

 

 

748,894

 

 

$

66.99

 

Awards granted

 

 

129,098

 

 

 

135.41

 

Awards vested (a)

 

 

(139,729

)

 

 

63.13

 

Awards forfeited

 

 

(3,318

)

 

 

70.30

 

Non-vested awards outstanding, May 5, 2018

 

 

734,945

 

 

 

79.73

 

 

(a)

Restricted stock awards vested during the three month period ended May 5, 2018 had a total intrinsic value of $18.9 million.

 

The fair value of each share of restricted stock granted during Fiscal 2018 was based upon the closing price of the Company’s common stock on the grant date.

 

 

10. Other Liabilities

Other liabilities primarily consist of deferred lease incentives, the long term portion of self-insurance reserves, the excess of straight-line rent expense over actual rental payments and tax liabilities associated with the uncertain tax positions recognized by the Company in accordance with ASC Topic No. 740, “Income Taxes.”

Deferred lease incentives are funds received or receivable from landlords used primarily to offset costs incurred for leasehold improvements and fixturing of new and remodeled stores. These deferred lease incentives are amortized over the expected lease term including rent holiday periods and option periods, where the exercise of the option can be reasonably assured. Amortization of deferred lease incentives is included in the line item “Selling, general and administrative expenses” on the Company’s Condensed Consolidated Statements of Income. At May 5, 2018, February 3, 2018 and April 29, 2017, deferred lease incentives were $207.1 million, $206.0 million and $177.7 million, respectively, and are recorded in the line item “Other liabilities” on the Company’s Condensed Consolidated Balance Sheets.

 

 

11. Commitments and Contingencies

Legal

The Company establishes accruals relating to legal claims in connection with litigation to which the Company is party from time to time in the ordinary course of business. Like many retailers, the Company has been named in class or collective actions on behalf of various groups alleging violations of federal and state wage and hour and other labor statutes, and alleged violation of state consumer and/or privacy protection statutes. In the normal course of business, we are also party to various other lawsuits and regulatory proceedings including, among others, commercial, product, product safety, employee, customer, intellectual property and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. To determine the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. The Company’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. While no assurance can be given as to the ultimate outcome of these matters, the Company believes that the final resolution of these actions will not have a material adverse effect on the Company’s results of operations, financial position, liquidity or capital resources.

 

15


Lease Agreements

The Company enters into lease agreements during the ordinary course of business in order to secure favorable store locations. The Company’s minimum lease payments for all operating leases are expected to be $260.5 million for the remainder of Fiscal 2018 and $372.2 million, $355.9 million, $334.3 million, $311.9 million and $1,433.1 million for the fiscal years ended February 1, 2020, January 30, 2021, January 29, 2022, January 28, 2023 and all subsequent years thereafter, respectively. Total future minimum lease payments include $277.2 million related to options to extend lease terms that are reasonably assured of being exercised and $487.7 million of minimum lease payments for 65 stores that the Company has committed to open or relocate in the current or future years.

Letters of Credit

The Company had letter of credit arrangements with various banks in the aggregate amount of $55.0 million, $60.0 million and $50.8 million as of May 5, 2018, February 3, 2018 and April 29, 2017, respectively. Among these arrangements, as of May 5, 2018, February 3, 2018 and April 29, 2017, the Company had letters of credit in the amount of $44.5 million, $51.9 million and $43.8 million, respectively, guaranteeing performance under various insurance contracts and utility agreements. In addition, the Company had outstanding letters of credit agreements in the amounts of $10.5 million, $8.1 million and $7.0 million at May 5, 2018, February 3, 2018 and April 29, 2017, respectively, related to certain merchandising agreements. Based on the terms of the agreement governing the ABL Line of Credit, the Company had the ability to enter into letters of credit up to $533.2 million, $455.8 million and $514.4 million as of May 5, 2018, February 3, 2018 and April 29, 2017, respectively.

Purchase Commitments

The Company had $994.5 million of purchase commitments related to goods that were not received as of May 5, 2018.

Death Benefits

In November 2005, the Company entered into agreements with three of the Company’s former executives whereby upon each of their deaths the Company will pay $1.0 million to each respective designated beneficiary.

 

 

12. Related Parties

The brother-in-law of one of the Company’s Executive Vice Presidents is an independent sales representative of one of the Company’s suppliers of merchandise inventory. This relationship predated the commencement of the Executive Vice President’s employment with the Company. The Company has determined that the dollar amount of purchases through such supplier represents an insignificant amount of its inventory purchases.

 

 

16


BURLINGTON STORES, INC.

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

The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report and in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018.

In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations, and intentions. Our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements due to various factors, including those discussed under the section of this Item 2 entitled “Safe Harbor Statement.”

Executive Summary

Introduction and Overview of Operating Results

We are a nationally recognized off-price retailer of high-quality, branded apparel at everyday low prices. We opened our first store in Burlington, New Jersey in 1972