NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
As of January 30, 2021, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), has expanded its store base to 761 retail stores in 45 states and Puerto Rico. The Company sells in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. As of January 30, 2021, the Company operated stores under the names “Burlington Stores” (757 stores), “Cohoes Fashions” (1 store), “Super Baby Depot” (2 stores), and “MJM Designer Shoes” (1 store). Cohoes Fashions offers products similar to those offered by Burlington Stores. MJM Designer Shoes offers moderately priced designer and fashion shoes. The Super Baby Depot stores offer baby clothing, accessories, furniture and other merchandise in the middle to higher price range.
Basis of Consolidation and Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Consolidated Financial Statements include the accounts of Burlington Stores, Inc. and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
Fiscal Years
The Company defines its fiscal year as the 52 or 53-week period ending on the Saturday closest to January 31. The fiscal years ended January 30, 2021 (Fiscal 2020), February 1, 2020 (Fiscal 2019) and February 2, 2019 (Fiscal 2018) each consisted of 52 weeks.
Use of Estimates
Certain amounts included in the Consolidated Financial Statements are estimated based on historical experience, currently available information and management’s judgment as to the expected outcome of future conditions and circumstances. While every effort is made to ensure the integrity of such estimates, actual results could differ from these estimates, and such differences could have a material impact on the Company’s Consolidated Financial Statements.
COVID-19
On March 11, 2020, the World Health Organization declared the novel coronavirus (known as COVID-19) outbreak to be a global pandemic. As a result, the Company began the temporary closing of some of its stores, and effective March 22, 2020, it made the decision to temporarily close all of its stores, distribution centers (other than processing of received inventory) and corporate offices to combat the rapid spread of COVID-19.
These developments have caused significant disruptions to the Company’s business and have had a significant adverse impact on its financial condition, results of operations and cash flows. The continuing extent of which will be primarily based on a variety of factors, including the production and administration of effective medical treatments and vaccines, the timing and extent of any recovery in traffic and consumer spending at the Company’s stores, supply chain delays due to closed factories or distribution centers, reduced workforces or labor shortages, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas, and any future required store closures because of COVID-19 resurgences. The Company began re-opening stores on May 11, 2020, with the majority of stores, as well as all distribution centers, re-opened by mid-June 2020, and substantially all stores re-opened by the end of the second quarter. However, the Company is currently unable to determine how long the conditions resulting from the COVID-19 pandemic will continue, including the imposition of social distancing protocols and other restrictions on its store operations, and whether potential subsequent additional outbreaks will lead to a reduction in customer traffic and additional temporary store closures.
In response to the COVID-19 pandemic and the temporary closing of stores, the Company provided two weeks of financial support to associates impacted by these store closures and by the shutdown of distribution centers. The Company temporarily furloughed most store and distribution center associates, as well as some corporate associates, but continued to provide benefits to its furloughed associates in accordance with its benefit plans. In addition, we paid 100% of their medical benefit premiums during the period they were furloughed. During the second quarter, the Company recalled all furloughed associates at its re-opened stores, as well as its corporate and distribution facilities.
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In order to maintain maximum financial flexibility during these uncertain times, the Company completed several debt transactions in the first quarter of Fiscal 2020. In March 2020, the Company borrowed $400 million on its existing $600 million senior secured asset-based revolving credit facility (the ABL Line of Credit), of which $150 million was repaid during the second quarter, and the remaining $250 million was repaid during the fourth quarter. In April 2020, the Company issued $805 million of 2.25% Convertible Senior Notes due 2025 (the Convertible Notes), and BCFWC issued $300 million of 6.25% Senior Secured Notes due 2025 (the Secured Notes). Refer to Note 7, “Long Term Debt,” for further discussion regarding these debt transactions.
Additionally, the Company took the following steps to further enhance its financial flexibility:
|
•
|
Carefully managed operating expenses, working capital and capital expenditures, including ceasing substantially all buying activities while stores were closed. The Company subsequently resumed its buying activities, while continuing its conservative approach toward operating expenses and capital expenditures.
|
|
•
|
Negotiated rent deferral agreements with landlords.
|
|
•
|
Suspended the Company’s share repurchase program.
|
|
•
|
The Company’s CEO voluntarily agreed to not take a salary; the Company’s board of directors voluntarily forfeited their cash compensation; the Company’s executive leadership team voluntarily agreed to decrease their salary by 50%; and smaller salary reductions were temporarily put in place for all employees through a certain level. This compensation was reinstated once substantially all of the Company’s stores re-opened.
|
|
•
|
The annual incentive bonus payments related to Fiscal 2019 performance were delayed to the second quarter of Fiscal 2020, and merit pay increases for Fiscal 2020 were delayed to the third quarter of Fiscal 2020.
|
Due to the aging of inventory related to the temporary store closures discussed above, as well as the impact of seasonality on the Company’s merchandise, the Company recognized inventory markdown reserves of $271.9 million during the first quarter of Fiscal 2020. These reserves covered markdowns taken during the second quarter of Fiscal 2020. These charges were included in “Cost of sales” on the Company’s Consolidated Statement of (Loss) Income.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law, which provides emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic. The economic relief package includes government loan enhancement programs and various tax provisions to help improve liquidity for American businesses. Based on the Company’s evaluation of the CARES Act, the Company believes that it qualifies for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss (NOL) carrybacks and immediate expensing for eligible qualified improvement property. The Company recorded a tax benefit of $86.8 million in its effective income tax rate for the year ended January 30, 2021 for the increased benefit from NOL carrybacks to earlier years when the tax rate was higher than the current year. The Company estimates that it will obtain a one-time tax refund of $219.7 million from the carryback of federal NOLs, which is included in the line item “Prepaid and other current assets” on the Company’s Consolidated Balance Sheet. Refer to Note 15, “Income Taxes” for further discussion.
Casualty Losses and Insurance Proceeds
During Fiscal 2019 and Fiscal 2018, the Company received $12.5 million and $9.3 million, respectively, of insurance proceeds related to certain weather-related incidents that occurred in Fiscal 2017. These proceeds resulted in a gain on insurance recovery of $8.1 million and $3.3 million, which is included in “Other income – net” on the Company’s Consolidated Statements of Income for Fiscal 2019 and Fiscal 2018, respectively. The Company allocated $5.1 million and $2.8 million of these proceeds to property and equipment, which is included in the line item “Proceeds from insurance recoveries related to property and equipment,” a component of cash flows from investing activities, on the Company’s Consolidated Statements of Cash Flows for Fiscal 2019 and Fiscal 2018, respectively.
Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at the time of purchase. Book cash overdrafts are included in the line item “Accounts payable” on the Company’s Consolidated Balance Sheets.
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Accounts Receivable
Accounts receivable consist of credit card receivables, insurance receivables and other receivables. Accounts receivable are recorded at net realizable value, which approximates fair value. The Company provides an allowance for doubtful accounts for amounts deemed uncollectible.
Inventories
Merchandise inventories are valued at the lower of cost or market, as determined by the retail inventory method. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. The Company regularly records a provision for estimated shortage, thereby reducing the carrying value of merchandise inventory. Complete physical inventories of all of the Company’s stores and warehouses are performed no less frequently than annually, with the recorded amount of merchandise inventory being adjusted to coincide with these physical counts.
The Company records its cost of merchandise (net of purchase discounts and certain vendor allowances), certain merchandise acquisition costs (primarily commissions and import fees), inbound freight, outbound freight from distribution centers, and freight on internally transferred merchandise in the line item “Cost of sales” in the Company’s Consolidated Statements of (Loss) Income.
Costs associated with the Company’s distribution, buying, and store receiving functions (product sourcing costs) are included in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in the Company’s Consolidated Statements of (Loss) Income. Product sourcing costs included within the line item “Selling, general and administrative expenses” amounted to $433.8 million, $339.1 million and $313.3 million during Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. Depreciation and amortization related to the distribution and purchasing functions for the same periods amounted to $30.8 million, $31.9 million and $30.5 million, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 20 to 40 years for buildings, depending upon the expected useful life of the facility, and 3 to 15 years for store fixtures and equipment. Leasehold improvements are amortized over the lease term, including any reasonably assured renewal options or the expected economic life of the improvement, whichever is less. Repairs and maintenance expenditures are expensed as incurred. Renewals and betterments, which significantly extend the useful lives of existing property and equipment, are capitalized. Assets recorded under capital leases are recorded at the present value of minimum lease payments and are amortized over the lease term. Amortization of assets recorded as capital leases is included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of (Loss) Income. The carrying value of all long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, in accordance with ASC Topic No. 360 “Property, Plant, and Equipment” (Topic No. 360). The Company recorded impairment charges related to property and equipment of $4.6 million, $3.4 million and $3.9 million during Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. These charges are recorded in the line item “Impairment charges—long-lived assets” in the Company’s Consolidated Statements of (Loss) Income. Refer to Note 6, “Impairment Charges,” for further discussion of the Company’s measurement of impairment of long-lived assets.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to undiscounted pre-tax future net cash flows expected to be generated by that asset. If the undiscounted future cash flows are not adequate to recover the carrying value of the asset, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of such assets. Refer to Note 6, “Impairment Charges,” for further discussion of the Company’s measurement of impairment of long-lived assets.
Capitalized Computer Software Costs
The Company accounts for capitalized software in accordance with ASC Topic No. 350 “Intangibles—Goodwill and Other” (Topic No. 350) which requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. The Company capitalized $12.2 million and $18.0 million relating to these costs during Fiscal 2020 and Fiscal 2019, respectively.
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Intangible Assets
The Company accounts for intangible assets in accordance with Topic No. 350. The Company’s intangible assets represent tradenames. The tradename asset “Burlington” is expected to generate cash flows indefinitely and, therefore, is accounted for as an indefinite-lived asset not subject to amortization. The Company evaluates its intangible assets for possible impairment as follows:
Indefinite-lived intangible assets: The Company tests identifiable intangible assets with an indefinite life for impairment on an annual basis, or when a triggering event occurs, relying on a number of factors that include operating results, business plans and projected future cash flows. The impairment test consists of a comparison of the fair value of the indefinite-lived intangible asset with its carrying amount. The Company determines fair value through the relief of royalty method which is a widely accepted valuation technique. On the first business day of the second quarter, the Company’s annual assessment date, the Company performed a quantitative analysis and determined that the fair values of each of the Company’s identifiable intangible assets are greater than their respective carrying values. There were no impairment charges recorded during Fiscal 2020, Fiscal 2019 or Fiscal 2018 related to indefinite-lived intangible assets.
Finite-lived intangible assets: Identifiable intangible assets that are subject to amortization are evaluated for impairment in accordance with Topic No. 360 using a process similar to that used to evaluate other long-lived assets as described in Note 6, “Impairment Charges.” An impairment charge is recognized for the amount by which the carrying value exceeds the fair value of the asset. The Company recorded impairment charges of $2.9 million related to finite-lived intangible assets during Fiscal 2018. There were no impairment charges related to finite-lived intangible assets during Fiscal 2020 and Fiscal 2019. These charges are recorded in the line item “Impairment charges–long-lived assets” in the Company’s Consolidated Statements of (Loss) Income. Refer to Note 6, “Impairment Charges,” for further discussion of the Company’s measurement of impairment of long-lived assets.
Goodwill
Goodwill represents the excess of the acquisition cost over the estimated fair value of tangible assets and other identifiable intangible assets acquired less liabilities assumed. Topic No. 350 requires a comparison, at least annually, of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. The Company determines fair value through multiple widely accepted valuation techniques. These techniques use a variety of assumptions including projected market conditions, discount rates and future cash flows. If the carrying value of the assets and liabilities exceeds the fair value of the reporting unit, the Company would calculate the implied fair value of its reporting unit goodwill as compared with the carrying value of its reporting unit goodwill to determine the appropriate impairment charge. On the first business day of the second fiscal quarter, the Company’s annual assessment date, the Company performed a quantitative analysis and determined that the fair value of the Company’s reporting unit was greater than its carrying value. There were no impairment charges related to goodwill during Fiscal 2020, Fiscal 2019 or Fiscal 2018.
Other Assets
Other assets consist primarily of landlord-owned store assets that the Company has paid for as part of its lease and deferred financing costs associated with the Company’s senior secured asset-based revolving credit facility (the ABL Line of Credit). Landlord-owned assets represent leasehold improvements at certain stores for which the Company has paid and derives a benefit, but the landlord has retained title. These assets are amortized over the lease term inclusive of reasonably assured renewal options. Amortization of landlord-owned assets was $14.0 million, $14.6 million and $16.0 million, during Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively, and was included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of (Loss) Income. Deferred financing costs are amortized over the life of the ABL Line of Credit using the interest method of amortization. Amortization of deferred financing costs is recorded in the line item “Interest expense” in the Company’s Consolidated Statements of (Loss) Income.
Other Current Liabilities
Other current liabilities primarily consist of sales tax payable, customer liabilities, accrued payroll costs, self-insurance reserves, accrued operating expenses, payroll taxes payable and other miscellaneous items. Customer liabilities totaled $30.2 million and $32.1 million as of January 30, 2021 and February 1, 2020, respectively.
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The Company has risk participation agreements with insurance carriers with respect to workers’ compensation, general liability insurance and health insurance. Pursuant to these arrangements, the Company is responsible for paying individual claims up to designated dollar limits. The amounts related to these claims are estimated and can vary based on changes in assumptions or claims experience included in the associated insurance programs. An increase in workers’ compensation claims, health insurance claims or general liability claims may result in a corresponding increase in costs related to these claims. Self-insurance reserves as of January 30, 2021 and February 1, 2020 were:
|
|
(in thousands)
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
Short-term self-insurance reserve(a)
|
|
$
|
33,191
|
|
|
$
|
34,817
|
|
Long-term self-insurance reserve(b)
|
|
|
47,721
|
|
|
|
44,137
|
|
Total
|
|
$
|
80,912
|
|
|
$
|
78,954
|
|
(a)
|
Represents the portions of the self-insurance reserve expected to be paid in the next twelve months, which were recorded in the line item “Other current liabilities” in the Company’s Consolidated Balance Sheets.
|
(b)
|
Represents the portions of the self-insurance reserve expected to be paid in excess of twelve months, which was recorded in the line item “Other liabilities” in the Company’s Consolidated Balance Sheets.
|
Other Liabilities
Other liabilities primarily consist of the long term portion of self-insurance reserves, the fair value of derivative contracts and tax liabilities associated with the uncertain tax positions recognized by the Company in accordance with ASC Topic No. 740 “Income Taxes” (Topic No. 740).
Revenue Recognition
The Company records revenue at the time control of the goods are transferred to the customer, which the Company determines to be at point 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 Consolidated Statements of (Loss) Income. The Company accounts for layaway sales 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. The Company’s layaway program was suspended as of the end of Fiscal 2020. 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.
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.
Other Revenue
Other revenue consists of service fees (layaway, shipping and handling, alteration, dormancy and other service charges), subleased rental income and rental income from leased departments as shown in the table below:
|
|
(in thousands)
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
February 2,
2019
|
|
Service fees
|
|
$
|
3,186
|
|
|
$
|
16,051
|
|
|
$
|
15,836
|
|
Subleased rental income and other
|
|
|
9,253
|
|
|
|
9,104
|
|
|
|
9,319
|
|
Rental income from leased departments
|
|
|
—
|
|
|
|
—
|
|
|
|
273
|
|
Total
|
|
$
|
12,439
|
|
|
$
|
25,155
|
|
|
$
|
25,428
|
|
Rental income from leased departments resulted from arrangements at some of the Company’s stores where the Company granted unaffiliated third parties the right to use designated store space solely for the purpose of selling such third parties’ goods, including such items as fragrances and designer handbags. Rental income was based on an agreed upon percentage of the lease departments’ total revenues. The Company did not own or have any rights to any tradenames, licenses or other intellectual property in
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connection with the brands sold by such unaffiliated third parties. The Company no longer has any such arrangements as of the end of Fiscal 2020.
Private Label Credit Card
The Company has a private label credit card program, in which customers earn reward points for purchases made using the card. The Company reduces net sales for the dollar value of any points earned at the time of the initial transaction, and subsequently recognizes net sales at the time the points are redeemed or expired. The Company receives royalty revenue based on a percentage of all purchases made on the card, which is recognized at the time of the initial transaction. The Company also receives a fee for each card activated. Revenue from activation fees are deferred and amortized over the period the Company performs its obligations under the card to the customer.
Advertising Costs
The Company’s advertising costs consist primarily of video, audio and digital marketing. Advertising costs are expensed the first time the advertising takes place, and are included in the line item “Selling, general and administrative expenses” on the Company’s Consolidated Statements of (Loss) Income. During Fiscal 2020, Fiscal 2019 and Fiscal 2018, advertising costs were $43.8 million, $73.1 million and $75.4 million, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Topic No. 740. Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. A valuation allowance against the Company’s deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including forecasting future earnings, taxable income, and the mix of earnings in the jurisdictions in which the Company operates. Management periodically assesses the need for a valuation allowance based on the Company’s current and anticipated results of operations. The need for and the amount of a valuation allowance can change in the near term if operating results and projections change significantly.
Topic No. 740 requires the recognition in the Company’s Consolidated Financial Statements of the impact of a tax position taken or expected to be taken in a tax return, if that position is “more likely than not” to be sustained upon examination by the relevant taxing authority, based on the technical merits of the position. The tax benefits recognized in the Company’s Consolidated Financial Statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company records interest and penalties related to unrecognized tax benefits as part of income taxes.
Other Income, Net
Other income, net, consists of gains and losses on insurance proceeds, interest income, net gains and losses on disposition of assets, and other miscellaneous items. The Company recognized $3.2 million, $8.1 million and $3.3 million of gain on insurance recoveries during Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. The Company also recognized $2.1 million during Fiscal 2018, related to the sale of certain state tax credits. There were no sales of tax credits during Fiscal 2020 or Fiscal 2019.
Comprehensive (Loss) Income
Comprehensive (loss) income is comprised of net (loss) income and the effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges, less amounts reclassified into earnings.
Lease Accounting
The Company leases store locations, distribution centers and office space used in its operations. Beginning in Fiscal 2019, as a result of adopting ASU 2016-02, the Company accounts for these types of leases in accordance with ASC Topic No. 842, “Leases” (Topic No. 842), which requires that leases be evaluated and classified as operating or finance leases for financial reporting purposes. The lease liability is calculated as the present value of the remaining future lease payments over the lease term, including reasonably assured renewal options. The discount rates used in valuing the Company’s leases are not readily determinable, and are based on the Company’s incremental borrowing rate on a fully collateralized basis. In calculating its incremental borrowing rate, the Company uses
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a retail industry yield curve, adjusted for the Company’s credit profile. The right-of-use asset for operating leases is based on the lease liability plus initial direct costs and prepaid lease payments, less landlord incentives received.
The Company’s operating lease cost, included in the line item “Selling, general and administrative expenses” on its Consolidated Statements of (Loss) Income, includes amortization of right-of-use assets, interest on lease liabilities, as well as any variable and short-term lease cost. The Company commences recording operating lease cost when the underlying asset is made available for use.
Assets held under finance leases are included in the line item “Property and equipment—net of accumulated depreciation and amortization” in the Company’s Consolidated Balance Sheets.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic No. 718, “Stock Compensation” (Topic No. 718), which requires companies to record stock compensation expense for all non-vested and new awards beginning as of the grant date. Refer to Note 12, “Stock-Based Compensation,” for further details.
Net (Loss) Income Per Share
Net (loss) income per share is calculated using the treasury stock method. Refer to Note 11, “Net (Loss) Income Per Share,” for further details.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and investments. The Company manages the credit risk associated with cash equivalents and investments by investing with high-quality institutions and, by policy, limiting investments only to those which meet prescribed investment guidelines. The Company maintains cash accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of such limits. Management believes that it is not exposed to any significant risks on its cash and cash equivalent accounts.
Segment Information
The Company reports segment information in accordance with ASC Topic No. 280 “Segment Reporting.” The Company has one reportable segment. The Company is an off-price retailer that offers customers a complete line of value-priced apparel, including: women’s ready-to-wear apparel, accessories, footwear, menswear, youth apparel, baby, home, coats, beauty, toys and gifts. Sales percentage by major product category is as follows:
Category
|
|
Fiscal 2020(a)
|
|
|
Fiscal 2019(a)
|
|
|
Fiscal 2018(a)
|
|
Women’s ready-to-wear apparel
|
|
|
21
|
%
|
|
|
22
|
%
|
|
|
23
|
%
|
Accessories and footwear
|
|
|
21
|
%
|
|
|
22
|
%
|
|
|
22
|
%
|
Menswear
|
|
|
19
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
Home
|
|
|
19
|
%
|
|
|
15
|
%
|
|
|
15
|
%
|
Youth apparel/baby
|
|
|
15
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
Coats
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
(a)
|
Percentages may not foot due to rounding.
|
2. Recent Accounting Pronouncements
Adopted Accounting Standards
Reference Rate Reform
On March 12, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which aims to address accounting consequences that could result from the global markets’ anticipated transition away from the use of the London Interbank Offered Rate (LIBOR) and
63
other interbank offered rates to alternative reference rates. The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The optional amendments are effective for all entities as of March 12, 2020, through December 31, 2022. The Company intends to elect to apply certain of the optional expedients when evaluating the impact of reference rate reform on its debt and derivative instruments that reference LIBOR.
Intangible Assets
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 became effective for the Company as of the beginning of Fiscal 2020. Adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements and notes thereto.
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This ASU requires that implementation costs incurred in a hosting arrangement that is a service contract be assessed in accordance with the existing guidance in Subtopic 350-40, “Internal-Use Software.” Accordingly, costs incurred during the preliminary project stage must be expensed as incurred, while costs incurred during the application development stage must be capitalized. Capitalized implementation costs associated with a hosting arrangement that is a service contract must be expensed over the term of the hosting arrangement. Additionally, the new guidance requires that the expense of these capitalized costs be presented in the same line item in the statements of income as the fees associated with the hosting element of the arrangement. The new guidance became effective for the Company as of the beginning of Fiscal 2020. Adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements and notes thereto.
Pending Accounting Standards
Convertible Debt
On August 5, 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. The new guidance removes from GAAP the separation models for convertible debt with a cash conversion feature. As a result, after adopting the guidance, entities will no longer separately present imbedded conversion features in equity, and will instead account for the convertible debt wholly as debt. Among other things, the new guidance also requires use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share. The new guidance will be effective for fiscal years beginning after December 15, 2021 and interim periods within those years, and may be early adopted for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Entities can elect either the full or modified retrospective method of adoption.
While the Company is still in the process of determining the impact of adopting this guidance, it does anticipate that the new guidance will have a significant impact on its consolidated financial statements and notes thereto. The Company anticipates a significant reclassification from equity to debt, as well as a reduction in interest expense, due to eliminating the amortization of the debt discount. Additionally, this guidance may cause a change to our diluted share count in certain periods.
There were no other new accounting standards that had a significant impact on the Company’s Consolidated Financial Statements and notes thereto during the year ended January 30, 2021, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of January 30, 2021 that the Company expects to have a significant impact on its financial position or results of operations upon becoming effective.
3. Restricted Cash and Cash Equivalents
At both January 30, 2021 and February 1, 2020, restricted cash and cash equivalents consisted of $6.6 million related to collateral for certain insurance contracts. The Company has the ability to convert the restricted cash to a letter of credit at any time, which would reduce available borrowings on the ABL Line of Credit by a like amount.
64
4. Property and Equipment
Property and equipment consist of:
|
|
|
|
(in thousands)
|
|
|
|
Useful Lives
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
Land
|
|
N/A
|
|
$
|
148,973
|
|
|
$
|
149,426
|
|
Buildings
|
|
20 to 40 Years
|
|
|
492,289
|
|
|
|
491,389
|
|
Store fixtures and equipment
|
|
3 to 15 Years
|
|
|
1,074,584
|
|
|
|
1,030,646
|
|
Software
|
|
3 to 10 Years
|
|
|
278,786
|
|
|
|
273,674
|
|
Leasehold improvements
|
|
Shorter of
lease term or
useful life
|
|
|
772,825
|
|
|
|
761,561
|
|
Construction in progress
|
|
N/A
|
|
|
170,061
|
|
|
|
58,759
|
|
Total property and equipment at cost
|
|
|
|
|
2,937,518
|
|
|
|
2,765,455
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
(1,498,655
|
)
|
|
|
(1,362,282
|
)
|
Total property and equipment, net of accumulated
depreciation and amortization
|
|
|
|
$
|
1,438,863
|
|
|
$
|
1,403,173
|
|
As of January 30, 2021 and February 1, 2020, assets, net of accumulated amortization of $8.7 million and $4.4 million, respectively, held under finance leases amounted to approximately $38.9 million and $44.8 million, respectively, and are included in the line item “Buildings” in the foregoing table. Amortization expense related to finance leases is included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of (Loss) Income. The total amount of depreciation expense during Fiscal 2020, Fiscal 2019 and Fiscal 2018 was $206.2 million, $195.8 million and $175.8 million, respectively.
During Fiscal 2020, Fiscal 2019 and Fiscal 2018, the Company recorded impairment charges related to property and equipment of $4.6 million, $3.4 million and $3.9 million, respectively. Refer to Note 6, “Impairment Charges,” for further discussion.
Internally developed software is amortized on a straight line basis over three to ten years and is recorded in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of (Loss) Income. Depreciation and amortization of internally developed software amounted to $16.9 million, $17.9 million and $19.4 million during Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
5. Intangible Assets
Intangible assets at January 30, 2021 and February 1, 2020 consist primarily of tradenames.
|
|
(in thousands)
|
|
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Tradenames
|
|
$
|
238,000
|
|
|
$
|
—
|
|
|
$
|
238,000
|
|
|
$
|
238,000
|
|
|
$
|
—
|
|
|
$
|
238,000
|
|
65
6. Impairment Charges
Impairment charges recorded during Fiscal 2020, Fiscal 2019 and Fiscal 2018 amounted to $6.0 million, $4.3 million and $6.8 million, respectively, and are primarily related to declines in revenues and operating results of the respective stores. Additionally, during Fiscal 2018, a portion of the impairment related to a decline in the appraised fair value of one of the Company’s owned stores. Impairment charges during these periods related to the following:
|
|
(in thousands)
|
|
|
|
Fiscal Years Ended
|
|
Asset Categories
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
February 2,
2019
|
|
Store fixtures and equipment
|
|
$
|
2,811
|
|
|
$
|
809
|
|
|
$
|
878
|
|
Leasehold improvements
|
|
|
1,665
|
|
|
|
52
|
|
|
|
195
|
|
Operating lease assets
|
|
|
1,373
|
|
|
|
921
|
|
|
|
—
|
|
Buildings
|
|
|
43
|
|
|
|
921
|
|
|
|
1,262
|
|
Land
|
|
|
—
|
|
|
|
1,604
|
|
|
|
1,551
|
|
Favorable leases
|
|
|
—
|
|
|
|
—
|
|
|
|
2,894
|
|
Other assets
|
|
|
120
|
|
|
|
8
|
|
|
|
64
|
|
Total
|
|
$
|
6,012
|
|
|
$
|
4,315
|
|
|
$
|
6,844
|
|
The Company recorded impairment charges related to store-level assets for 14 stores during Fiscal 2020, two stores, as well as the online store, during Fiscal 2019, and eight stores during Fiscal 2018.
Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy of ASC Topic No. 820 “Fair Value Measurements” (Topic No. 820). Refer to Note 16, “Fair Value of Financial Instruments,” for further discussion of the Company’s fair value hierarchy. The fair value of the Company’s long-lived assets is calculated using a discounted cash-flow model that used level 3 inputs. In calculating future cash flows, the Company makes estimates regarding future operating results and market rent rates, based on its experience and knowledge of market factors in which the retail location is located. As of January 30, 2021, there were two stores with lease assets held at fair value as a result of impairment recorded during the fourth quarter. These lease assets had an aggregate fair value of $17.5 million.
7. Long Term Debt
Long term debt consists of:
|
|
(in thousands)
|
|
|
|
January 30,
|
|
|
February 1,
|
|
|
|
2021
|
|
|
2020
|
|
$1,200,000 senior secured term loan facility (Term B-5 Loans), LIBOR (with a floor of 0.00%) plus 1.75%, matures on November 17, 2024
|
|
$
|
958,418
|
|
|
$
|
957,505
|
|
$805,000 convertible senior notes, 2.25%, matures on April 15, 2025
|
|
|
648,311
|
|
|
|
—
|
|
$300,000 senior secured notes, 6.25%, matures on April 15, 2025
|
|
|
300,000
|
|
|
|
—
|
|
$600,000 ABL senior secured revolving facility, LIBOR plus spread based on average outstanding balance, matures on June 29, 2023
|
|
|
—
|
|
|
|
—
|
|
Finance lease obligations
|
|
|
47,664
|
|
|
|
50,130
|
|
Unamortized deferred financing costs
|
|
|
(22,724
|
)
|
|
|
(2,335
|
)
|
Total debt
|
|
|
1,931,669
|
|
|
|
1,005,300
|
|
Less: current maturities
|
|
|
(3,899
|
)
|
|
|
(3,577
|
)
|
Long term debt, net of current maturities
|
|
$
|
1,927,770
|
|
|
$
|
1,001,723
|
|
Term Loan Facility
On February 24, 2011, the Company entered into a senior secured term loan facility (the Term Loan Facility). The Term Loan Facility was issued pursuant to a credit agreement (Term Loan Credit Agreement), dated February 24, 2011, among Burlington Coat Factory Warehouse Corporation, an indirect subsidiary of the Company (BCFWC), the guarantors signatory thereto, and JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, the lenders party thereto, J.P. Morgan Securities LLC and Goldman Sachs Lending Partners LLC, as joint bookrunners, and J.P. Morgan Securities LLC, Goldman Sachs Lending Partners LLC, Merrill
66
Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint arrangers, governing the terms of the Term Loan Facility.
In June 2018, the Company prepaid $150.0 million on the Term Loan Facility, which offset the mandatory quarterly payments through November 17, 2024. In accordance with Topic No. 470, the Company recognized a non-cash loss on the extinguishment of debt of $1.2 million, representing the write-off of unamortized original issue discount and deferred financing costs, which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Consolidated Statement of Income.
On November 2, 2018, BCFWC entered into Amendment No. 7 (the Seventh Amendment) to the Term Loan Credit Agreement governing its Term Loan Facility. The Seventh Amendment, among other things, reduced the interest rate margins applicable to the Company’s term loan facility from 1.50% to 1.00%, in the case of prime rate loans, and from 2.50% to 2.00%, in the case of LIBOR loans, with the LIBOR floor being reduced from 0.75% to 0.00%. In connection with the execution of the Seventh Amendment, the Company paid fees and expenses, including a fee to each consenting lender equal to 0.125% of the aggregate principal amount of such lender’s loans under the Term Loan Credit Agreement. In accordance with Topic No. 470, the Company recognized a non-cash loss on the extinguishment of debt of $0.5 million, representing the write-off of deferred financing costs and unamortized original issue discount, which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Consolidated Statement of Income. Also in connection with the Seventh Amendment, the Company incurred fees of $2.4 million, primarily related to legal and placement fees, which were recorded in the line item “Costs related to debt amendments” in the Company’s Consolidated Statement of Income.
On February 26, 2020, the Company entered into Amendment No. 8 (the Eighth Amendment) to the Term Loan Credit Agreement governing its Term Loan Facility. The Eighth Amendment, among other things, reduced the interest rate margins applicable to the Term Loan Facility from 1.00% to 0.75%, in the case of prime rate loans, and from 2.00% to 1.75%, in the case of LIBOR loans, with the LIBOR floor remaining at 0.00%. In connection with the execution of the Eighth Amendment, the Company incurred fees of $1.1 million, primarily related to legal and placement fees, which were recorded in the line item “Costs related to debt issuances and amendments” in the Company’s Consolidated Statement of (Loss) Income. Additionally, the Company recognized a non-cash loss on the extinguishment of debt of $0.2 million, representing the write-off of unamortized deferred financing costs and original issue discount, which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Consolidated Statement of Loss.
The Term Loan Facility is collateralized by a first lien on our favorable leases, real estate and property & equipment and a second lien on our inventory and receivables. Interest rates for the Term Loan Facility are based on: (i) for LIBOR rate loans for any interest period, at a rate per annum equal to the greater of (x) the LIBOR rate, as determined by the Term Loan Facility Administrative Agent, for such interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement), and (y) 0.00% (the Term Loan Adjusted LIBOR Rate), plus an applicable margin; and (ii) for prime rate loans, a rate per annum equal to the highest of (a) the variable annual rate of interest then announced by JPMorgan Chase Bank, N.A. at its head office as its “prime rate,” (b) the federal reserve bank of New York rate in effect on such date plus 0.50% per annum, and (c) the Term Loan Adjusted LIBOR Rate for the applicable class of term loans for one-month plus 1.00%, plus, in each case, an applicable margin. As of January 30, 2021, the Company’s borrowing rate related to the Term Loan Facility was 1.9%.
Convertible Notes
On April 16, 2020, the Company issued $805 million of Convertible Notes. An aggregate of up to 3,656,149 shares of common stock may be issued upon conversion of the Convertible Notes, which number is subject to adjustment up to an aggregate of 4,844,410 shares following certain corporate events that occur prior to the maturity date or if the Company issues a notice of redemption, and which is also subject to certain anti-dilution adjustments.
The Convertible Notes are general unsecured obligations of the Company. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears, on April 15 and October 15 of each year, beginning on October 15, 2020. The Convertible Notes will mature on April 15, 2025, unless earlier converted, redeemed or repurchased.
Prior to the close of business on the business day immediately preceding January 15, 2025, the Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $220.18 per share of the Company’s common stock), subject to adjustment if certain events occur. The initial conversion price represents a conversion premium of approximately 32.50% over $166.17 per share, the last reported sale price of the Company’s common stock on April 13, 2020 (the pricing date of the offering) on the New York Stock Exchange. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The Company
67
may not redeem the Convertible Notes prior to April 15, 2023. On or after April 15, 2023, the Company will be able to redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of the Company’s common stock is equal to or greater than 130% of the conversion price for a specified period of time, at a redemption price equal to 100% of the principal aggregate amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Holders of the Convertible Notes may require the Company to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate event or during the relevant redemption period for such Convertible Notes.
The Convertible Notes contain a cash conversion feature, and as a result, the Company has separated it into liability and equity components. The Company valued the liability component based on its borrowing rate for a similar debt instrument that does not contain a conversion feature. The equity component, which is recognized as a debt discount, was valued as the difference between the face value of the Convertible Notes and the fair value of the liability component.
In connection with the Convertible Notes issuance, the Company incurred deferred financing costs of $21.0 million, primarily related to fees paid to the bookrunners of the offering, as well as legal, accounting and rating agency fees. These costs were allocated on a pro rata basis, with $16.4 million allocated to the debt component and $4.6 million allocated to the equity component.
The debt discount and the debt portion of the deferred costs are being amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 8.2%.
The Convertible Notes consist of the following components as of the dates indicated:
|
|
(in thousands)
|
|
|
|
January 30,
|
|
|
February 1,
|
|
|
|
2021
|
|
|
2020
|
|
Liability component:
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
805,000
|
|
|
$
|
—
|
|
Unamortized debt discount
|
|
|
(156,689
|
)
|
|
|
—
|
|
Unamortized deferred debt costs
|
|
|
(14,191
|
)
|
|
|
—
|
|
Net carrying amount
|
|
$
|
634,120
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Equity component, net
|
|
$
|
131,916
|
|
|
$
|
—
|
|
Interest expense related to the Convertible Notes consists of the following as of the periods indicated:
|
|
(in thousands)
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Coupon interest
|
|
$
|
14,375
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Amortization of debt discount
|
|
|
23,988
|
|
|
|
—
|
|
|
|
—
|
|
Amortization of deferred debt costs
|
|
|
2,173
|
|
|
|
—
|
|
|
|
—
|
|
Convertible Notes interest expense
|
|
$
|
40,536
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Secured Notes
On April 16, 2020, BCFWC issued $300 million of Secured Notes. The Secured Notes are senior, secured obligations of BCFWC, and interest is payable semiannually in cash, in arrears, at a rate of 6.25% per annum on April 15 and October 15 of each year, beginning on October 15, 2020. The Secured Notes are guaranteed on a senior secured basis by Burlington Coat Factory Holdings, LLC, Burlington Coat Factory Investments Holdings, Inc. and BCFWC’s subsidiaries that guarantee the loans under the Term Loan Facility. The Secured Notes mature on April 15, 2025, unless earlier redeemed or repurchased.
In connection with the Secured Notes issuance, the Company incurred deferred financing costs of $7.8 million, primarily related to fees paid to the bookrunners of the offering, as well as legal fees. These costs are being amortized to interest expense over
68
the term of the Secured Notes. The Company incurred additional costs of $2.5 million, primarily related to legal fees, which are recorded in the line item, “Costs related to debt issuances and amendments” in the Company’s Consolidated Statement of (Loss) Income.
ABL Line of Credit
On June 29, 2018, BCFWC entered into Amendment No. 2 (the Second Amendment) to the Second Amended and Restated Credit Agreement, dated September 2, 2011 (the ABL Credit Agreement), governing BCFWC’s existing senior secured asset-based revolving credit facility (the ABL Line of Credit). The Second Amendment, among other things, extended the maturity date from August 13, 2019 to June 29, 2023 and adjusted the pricing grid such that the lower interest rate of 1.25% in the case of LIBOR loans and 0.25% in the case of prime rate loans is applicable so long as the Company maintains at least 40% average daily availability (as opposed to 50%). In connection with its entry into the Second Amendment, and in accordance with Topic No. 470, the Company recognized a non-cash loss on the extinguishment of debt of $0.2 million, representing the write-off of deferred financing costs, which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Consolidated Statement of Income for the year ended February 2, 2019.
The aggregate amount of commitments under the Second Amended and Restated Credit Agreement (as amended, supplemented and otherwise modified, the Amended ABL Credit Agreement) is $600.0 million (subject to a borrowing base limitation) and, subject to the satisfaction of certain conditions, the Company can increase the aggregate amount of commitments up to $900.0 million. The interest rate margin applicable under the Amended ABL Credit Agreement in the case of loans drawn at LIBOR is 1.25% - 1.50% (based on total commitments or borrowing base availability), and the fee on the average daily balance of unused loan commitments is 0.20%. Prior to the Second Amendment, the ABL Line of Credit was collateralized by a first lien on the Company’s inventory and receivables and a second lien on the Company’s real estate and property and equipment. In connection with the Second Amendment, the agent and lenders under the ABL Line of Credit agreed to release their second liens on the Company's real estate, but retained their liens on the Company's inventory, receivables, and equipment.
The Company believes that the Amended ABL Credit Agreement provides the liquidity and flexibility to meet its operating and capital requirements over the remaining term of the ABL Line of Credit. Further, the calculation of the borrowing base under the Amended ABL Credit Agreement has been amended to allow for increased availability, particularly during the September 1st through December 15th period of each year.
On March 17, 2020, the Company borrowed $400.0 million under the ABL Line of Credit as a precautionary measure in order to increase the Company’s cash position and facilitate financial flexibility in light of the uncertainty resulting from COVID-19. The Company repaid $150.0 million of this amount during the second quarter of Fiscal 2020, and the remaining $250.0 million during the fourth quarter of Fiscal 2020.
At January 30, 2021, the Company had $476.8 million available under the ABL Line of Credit. The maximum borrowings under the facility during Fiscal 2020 amounted to $400.0 million. Average borrowings during Fiscal 2020 amounted to $256.6 million at an average interest rate of 1.9%.
At February 1, 2020, the Company had $501.8 million available under the ABL Line of Credit. The maximum borrowings under the facility during Fiscal 2019 amounted to $255.0 million. Average borrowings during Fiscal 2019 amounted to $81.5 million at an average interest rate of 3.7%.
Deferred Financing Costs
The Company had $1.8 million and $2.5 million in deferred financing costs associated with its ABL Line of Credit, which are recorded in the line item “Other assets” in the Company’s Consolidated Balance Sheets as of January 30, 2021 and February 1, 2020, respectively. In addition, The Company had $22.7 million and $2.3 million of deferred financing costs associated with its Term Loan Facility, Convertible Notes and Secured Notes, recorded in the line item “Long term debt” in the Company’s Consolidated Balance Sheets as of January 30, 2021 and February 1, 2020, respectively.
Amortization of deferred financing costs amounted to $4.5 million, $1.2 million and $1.6 million during Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively, which was included in the line item “Interest expense” in the Company’s Consolidated Statements of (Loss) Income.
69
Amortization expense related to the deferred financing costs as of January 30, 2021 for each of the next five fiscal years and thereafter is estimated to be as follows:
Fiscal Years
|
|
(in thousands)
|
|
2021
|
|
$
|
5,563
|
|
2022
|
|
|
5,913
|
|
2023
|
|
|
5,984
|
|
2024
|
|
|
5,881
|
|
2025
|
|
|
1,157
|
|
Thereafter
|
|
|
—
|
|
Total
|
|
$
|
24,498
|
|
Deferred financing costs have a weighted average amortization period of approximately 4.0 years.
Scheduled Maturities
Scheduled maturities of the Company’s long term debt obligations, as they exist as of January 30, 2021, in each of the next five fiscal years and thereafter are as follows:
|
|
(in thousands)
|
|
|
|
Long-Term Debt
|
|
Fiscal Years:
|
|
|
|
|
2021
|
|
$
|
—
|
|
2022
|
|
|
—
|
|
2023
|
|
|
—
|
|
2024
|
|
|
961,415
|
|
2025
|
|
|
1,105,000
|
|
Thereafter
|
|
|
—
|
|
Total
|
|
|
2,066,415
|
|
Less: unamortized discount
|
|
|
(159,686
|
)
|
Less: unamortized deferred financing costs
|
|
|
(22,724
|
)
|
Long term finance lease liabilities
|
|
|
43,765
|
|
Long term debt
|
|
$
|
1,927,770
|
|
8. Derivative Instruments and Hedging Activities
The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815 “Derivatives and Hedging” (Topic No. 815). Topic No. 815 provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (i) how and why an entity uses derivative instruments, (ii) how the entity accounts for derivative instruments and related hedged items, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by Topic No. 815, the Company records all derivatives on the balance sheet at fair value and adjusts them to market on a quarterly basis. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
70
The Company has used interest rate cap contracts and interest rate swap contracts to manage interest rate risk. The fair value of these contracts are determined using the market standard methodology of discounted future variable cash flows. The variable cash flows of the interest rate cap contracts are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps in conjunction with the cash payments related to financing the premium of the interest rate caps. The variable cash flows of the interest rate swap contract are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise or fall compared to current levels in conjunction with the fixed cash payments. The variable interest rates used in the calculation of projected receipts on the cap and swap contracts are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. In addition, to comply with the provisions of 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 and interest rate swap contracts that are with separate counterparties and are under separate master netting agreements.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of January 30, 2021 and February 1, 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivative portfolios. As a result, the Company classifies its derivative valuations in Level 2 of the fair value hierarchy.
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company uses derivative financial instruments to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company uses interest rate derivatives to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily has used interest rate caps and interest rate swaps 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. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
On April 24, 2015, the Company entered into two interest rate cap contracts, which were designated as cash flow hedges, and expired in May of 2019. On December 17, 2018, the Company entered into an interest rate swap contract, which was designated as a cash flow hedge, and became effective May 31, 2019.
During Fiscal 2020, the Company’s derivatives were used to hedge the variable cash flows associated with existing (or anticipated) variable-rate debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in the line item “Accumulated other comprehensive loss” on the Company’s Consolidated Balance Sheets and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to the Company’s derivative contracts will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of January 30, 2021, the Company estimates that $11.7 million will be reclassified into interest expense during the next twelve months.
71
As of January 30, 2021, 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/Swap Rate
|
|
|
Maturity Date
|
Interest rate swap contract
|
|
One
|
|
$ 450.0 million
|
|
2.72%
|
|
|
December 29, 2023
|
Tabular Disclosure
The tables below present the fair value of the Company’s derivative financial instruments on a gross basis, as well as their classification on the Company’s Consolidated Balance Sheets:
|
|
(in thousands)
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
Derivatives Designated as Hedging Instruments
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Interest rate swap contract
|
|
Other liabilities
|
|
$
|
31,665
|
|
|
Other liabilities
|
|
$
|
26,220
|
|
The following table presents the unrealized 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)
|
|
|
|
Fiscal Year Ended
|
|
Interest Rate Derivatives:
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Unrealized losses, before taxes
|
|
$
|
(15,606
|
)
|
|
$
|
(22,959
|
)
|
|
$
|
(4,232
|
)
|
Income tax benefit
|
|
|
4,148
|
|
|
|
6,353
|
|
|
|
1,152
|
|
Unrealized losses net of taxes
|
|
$
|
(11,458
|
)
|
|
$
|
(16,606
|
)
|
|
$
|
(3,080
|
)
|
The following table presents information about the reclassification of 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)
|
|
|
|
Fiscal Year Ended
|
|
Component of Earnings:
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Interest expense
|
|
$
|
10,198
|
|
|
$
|
1,733
|
|
|
$
|
1,872
|
|
Income tax benefit
|
|
|
(2,795
|
)
|
|
|
(474
|
)
|
|
|
(518
|
)
|
Net reclassification into earnings
|
|
$
|
7,403
|
|
|
$
|
1,259
|
|
|
$
|
1,354
|
|
9. Accumulated Other Comprehensive Loss
Amounts included in accumulated other comprehensive loss are recorded net of the related income tax effects. The table below details the changes in accumulated other comprehensive loss for Fiscal 2020 and Fiscal 2019.
|
(in thousands)
|
|
|
Derivative
Instruments
|
|
Balance at February 2, 2019
|
$
|
(3,613
|
)
|
Unrealized losses, net of related tax benefit of $6.4 million
|
|
(16,606
|
)
|
|
Amount reclassified into earnings, net of related taxes of $0.5 million
|
|
1,259
|
|
Balance at February 1, 2020
|
$
|
(18,960
|
)
|
Unrealized losses, net of related tax benefit of $4.1 million
|
|
(11,458
|
)
|
Amount reclassified into earnings, net of related taxes of $2.8 million
|
|
7,403
|
|
Balance at January 30, 2021
|
$
|
(23,015
|
)
|
72
10. Capital Stock
Common Stock
As of January 30, 2021, the total amount of the Company’s authorized capital stock consisted of 500,000,000 shares of common stock, par value $0.0001 per share, and 50,000,000 shares of undesignated preferred stock, par value of $0.0001 per share.
The Company’s common stock is not entitled to preemptive or other similar subscription rights to purchase any of the Company’s securities. The Company’s common stock is neither convertible nor redeemable. Unless the Company’s Board of Directors determines otherwise, the Company will issue all of the Company’s capital stock in uncertificated form.
Preferred Stock
The Company does not have any shares of preferred stock issued or outstanding. The Company’s Board of Directors has the authority to issue shares of preferred stock from time to time on terms it may determine, to divide shares of preferred stock into one or more series and to fix the designations, preferences, privileges, and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms, and the number of shares constituting any series or the designation of any series to the fullest extent permitted by the General Corporation Law of the State of Delaware. The issuance of the Company’s preferred stock could have the effect of decreasing the trading price of the Company’s common stock, restricting dividends on the Company’s capital stock, diluting the voting power of the Company’s common stock, impairing the liquidation rights of the Company’s capital stock, or delaying or preventing a change in control of the Company.
Dividend Rights
Each holder of shares of the Company’s capital stock will be entitled to receive such dividends and other distributions in cash, stock or property as may be declared by the Company’s Board of Directors from time to time out of the Company’s assets or funds legally available for dividends or other distributions. These rights are subject to the preferential rights of any other class or series of the Company’s preferred stock.
Treasury Stock
The Company accounts for treasury stock under the cost method.
During Fiscal 2020, the Company acquired 79,015 shares of common stock from employees for approximately $15.4 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock awards.
Share Repurchase Program
On August 14, 2019, the Company’s Board of Directors authorized the repurchase of up to $400 million of common stock, which is authorized to be executed through August 2021. This repurchase program is funded using the Company’s available cash and borrowings under the ABL Line of Credit.
As part of the Company’s cash management efforts during the COVID-19 pandemic, the Company suspended its share repurchase program in March 2020. From the beginning of Fiscal 2020 through the time the program was suspended, the Company repurchased 243,573 shares of common stock for $50.2 million under its share repurchase program, which was recorded in the line item, “Treasury stock” on the Company’s Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Consolidated Statements of Cash Flows. As of January 30, 2021, the Company had $348.4 million remaining under its share repurchase authorization.
73
11. Net (Loss) Income Per Share
Basic net (loss) income per share is calculated by dividing net (loss) income by the weighted-average number of common shares outstanding. Dilutive net (loss) income per share is calculated by dividing net (loss) 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)
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
February 1,
|
|
|
February 2,
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Basic net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(216,499
|
)
|
|
$
|
465,116
|
|
|
$
|
414,745
|
|
Weighted average number of common shares – basic
|
|
|
65,962
|
|
|
|
65,943
|
|
|
|
66,812
|
|
Net (loss) income per common share – basic
|
|
$
|
(3.28
|
)
|
|
$
|
7.05
|
|
|
$
|
6.21
|
|
Diluted net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(216,499
|
)
|
|
$
|
465,116
|
|
|
$
|
414,745
|
|
Shares for basic and diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares – basic
|
|
|
65,962
|
|
|
|
65,943
|
|
|
|
66,812
|
|
Assumed exercise of stock options and vesting of restricted stock
|
|
|
—
|
|
|
|
1,350
|
|
|
|
1,867
|
|
Assumed conversion of convertible debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average number of common shares – diluted
|
|
|
65,962
|
|
|
|
67,293
|
|
|
|
68,679
|
|
Net (loss) income per common share – diluted
|
|
$
|
(3.28
|
)
|
|
$
|
6.91
|
|
|
$
|
6.04
|
|
All of the Company’s stock option, restricted stock and restricted stock unit awards have an anti-dilutive effect while in a net loss position. Approximately 1,960,000 shares, 405,000 shares and 425,000 shares were excluded from diluted net (loss) income per share for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively, since their effect was anti-dilutive.
During the year ended January 30, 2021, shares of common stock issuable upon conversion of the Convertible Notes have been excluded from the computation of diluted earnings per share as the effect would be anti-dilutive, since the conversion price of $220.18 exceeded the average market price of the Company’s common stock during the period.
12. Stock-Based Compensation
On May 1, 2013, the Company’s Board of Directors approved the Company’s assumption and adoption of the 2006 Management Incentive Plan (the 2006 Plan) that was previously sponsored by Burlington Coat Factory Holdings, LLC. The 2006 Plan terminated on April 12, 2016. The Company’s 2013 Omnibus Incentive Plan (the 2013 Plan and, together with the 2006 Plan, the Plans), originally adopted effective prior to and in connection with the Company’s initial public offering, was amended and restated effective May 17, 2017. The 2006 Plan, prior to its termination, and the 2013 Plan provide for the granting of stock options, restricted stock and other forms of awards to key employees and directors of the Company or its affiliates.
The Company accounts for awards issued under the Plans in accordance with Topic No. 718. As of January 30, 2021, there were 2,477,044 shares of common stock available for issuance under the 2013 Plan.
Stock Options
Options granted during Fiscal 2020, Fiscal 2019 and Fiscal 2018, were all service-based awards granted under the Plans at the following exercise prices:
|
|
Exercise Price Ranges
|
|
|
|
From
|
|
|
To
|
|
Fiscal 2020
|
|
$
|
179.46
|
|
|
$
|
246.97
|
|
Fiscal 2019
|
|
$
|
145.08
|
|
|
$
|
231.86
|
|
Fiscal 2018
|
|
$
|
113.80
|
|
|
$
|
172.40
|
|
All awards granted during Fiscal 2020, Fiscal 2019 and Fiscal 2018 vest in either one-fourth annual increments or one-third annual increments (subject to continued employment through the applicable vesting date). The final exercise date for any option
74
granted is the tenth anniversary of the grant date. Options granted during Fiscal 2020, Fiscal 2019 and Fiscal 2018 become exercisable if the grantee’s employment is terminated without cause or, in some instances, the recipient resigns with good reason, within a certain period of time following a change in control. Unless determined otherwise by the plan administrator, upon cessation of employment other than for cause, the majority of options that have not vested will terminate immediately, and unexercised vested options will be exercisable for a period of 60 to 180 days.
Non-cash stock compensation expense is as follows:
|
|
(in thousands)
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 30,
|
|
|
February 1,
|
|
|
February 2,
|
|
Type of Non-Cash Stock Compensation
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Restricted stock and restricted stock unit grants (a)
|
|
$
|
25,258
|
|
|
$
|
20,454
|
|
|
$
|
18,967
|
|
Stock option grants (a)
|
|
|
20,038
|
|
|
|
19,222
|
|
|
|
16,518
|
|
Performance stock unit grants (a)
|
|
|
10,549
|
|
|
|
4,252
|
|
|
|
—
|
|
Total (b)
|
|
$
|
55,845
|
|
|
$
|
43,928
|
|
|
$
|
35,485
|
|
(a)
|
Included in the line item “Selling, general and administrative expenses” in the Company’s Consolidated Statements of (Loss) Income.
|
(b)
|
The amounts presented in the table above exclude the effect of income taxes. The tax benefit related to the Company’s non-cash stock compensation was $9.1 million, $9.0 million and $9.7 million during Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
|
As of January 30, 2021, the Company had 1,346,775 options outstanding to purchase shares of common stock, and there was $32.0 million of unearned non-cash stock-based option compensation that the Company expects to recognize as expense over a weighted average period of 2.3 years. The awards are expensed on a straight-line basis over the requisite service period.
Stock option transactions during Fiscal 2020 are summarized as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
Options outstanding, February 1, 2020
|
|
|
1,890,955
|
|
|
$
|
94.17
|
|
Options granted
|
|
|
243,783
|
|
|
|
180.96
|
|
Options exercised (a)
|
|
|
(731,954
|
)
|
|
|
47.71
|
|
Options forfeited
|
|
|
(56,009
|
)
|
|
|
124.86
|
|
Options outstanding, January 30, 2021
|
|
|
1,346,775
|
|
|
$
|
133.86
|
|
(a)
|
Options exercised during Fiscal 2020 had a total intrinsic value of $114.5 million.
|
The following table summarizes information about the stock options vested and expected to vest during the contractual term, as well as options exercisable:
|
|
Options
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Options vested and expected to vest
|
|
|
1,346,775
|
|
|
|
6.3
|
|
|
$
|
133.86
|
|
|
$
|
154.9
|
|
Options exercisable
|
|
|
469,965
|
|
|
|
4.7
|
|
|
$
|
106.92
|
|
|
$
|
66.7
|
|
75
The fair value of each stock option granted was estimated on the date of grant using the Monte Carlo Simulation option pricing model prior to the date of the Company’s initial public offering and the Black Scholes option pricing model subsequent to the date of the initial public offering. The fair value of each stock option granted during Fiscal 2020 was estimated using the following assumptions:
|
|
Fiscal Year Ended
|
|
|
|
January 30,
|
|
|
|
2021
|
|
Risk-free interest rate
|
|
0.45% - 1.48%
|
|
Expected volatility
|
|
35% - 36%
|
|
Expected life (years)
|
|
|
6.25
|
|
Contractual life (years)
|
|
|
10.0
|
|
Expected dividend yield
|
|
|
0.0%
|
|
Weighted average grant date fair value of options issued
|
|
$
|
63.68
|
|
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 Fiscal 2020, Fiscal 2019 and Fiscal 2018, the expected life of the options was calculated using the simplified method, which 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 short length of time our common stock has been publicly traded.
Restricted Stock Awards
Restricted stock awards granted during Fiscal 2020 were all service-based awards. The fair value of each unit of restricted stock granted during Fiscal 2020 was based upon the closing price of the Company’s common stock on the grant date. As of January 30, 2021, the Company had 67,739 awards outstanding that cliff vest at the end of the service periods ranging from two years to four years from the grant date. Awards granted to non-employee members of the Company’s Board of Directors vest 100% on the first anniversary of the grant date. The remaining awards outstanding as of January 30, 2021 have graded vesting provisions that generally vest in one-fourth annual increments or one-third annual increments (subject to continued employment through the applicable vesting date). Following a change of control, all unvested restricted stock awards shall remain unvested, provided, however, that 100% of such shares shall vest if, following such change of control, the employment of the recipient is terminated without cause or, in some instances, the recipient resigns with good reason, within a certain period of time following a change in control.
As of January 30, 2021, there was approximately $47.9 million of unearned non-cash stock-based compensation related to restricted stock awards that the Company expects to recognize as an expense over the next 2.4 years. The awards are expensed on a straight-line basis over the requisite service periods.
Prior to May 1, 2019, the Company granted shares of restricted stock. Grants made on and after May 1, 2019 are in the form of restricted stock units. Award grant, vesting and forfeiture transactions during Fiscal 2020 are summarized as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair
Value Per
Award
|
|
Non-vested awards outstanding, February 1, 2020
|
|
|
451,774
|
|
|
$
|
131.03
|
|
Awards granted
|
|
|
186,546
|
|
|
|
180.06
|
|
Awards vested (a)
|
|
|
(222,303
|
)
|
|
|
108.93
|
|
Awards forfeited
|
|
|
(19,462
|
)
|
|
|
146.22
|
|
Non-vested awards outstanding, January 30, 2021
|
|
|
396,555
|
|
|
|
168.87
|
|
|
(a)
|
Restricted stock awards vested during Fiscal 2020 had a total intrinsic value of $42.9 million.
|
Performance Share Units
Beginning in Fiscal 2019, the Company granted performance share units to its senior executives. Vesting of these performance share units is based on pre-established EBIT margin expansion and sales compound annual growth rate (CAGR) goals (each weighted
76
equally) over a three-year performance period. Based on the Company’s achievement of these goals, each award may range from 50% (at threshold performance) to no more than 200% of the target award. In the event that actual performance is below threshold, no award will be made. In addition to the performance conditions, each performance share unit cliff vests at the end of a three-year service period. Following a change of control, all unvested performance share units shall remain unvested, provided, however, that 100% of such shares shall vest if, following such change of control, the employment of the recipient is terminated without cause or, in some instances, the recipient resigns with good reason, within a certain period of time following a change in control.
As of January 30, 2021, there was approximately $15.5 million of unearned non-cash stock-based compensation related to performance share units that the Company expects to recognize as an expense over the next 1.9 years. The awards are expensed on a straight-line basis over the requisite service periods.
Performance share unit transactions during Fiscal 2020 are summarized as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair
Value Per
Award
|
|
Non-vested units outstanding, February 1, 2020
|
|
|
80,951
|
|
|
$
|
173.87
|
|
Units granted
|
|
|
74,783
|
|
|
|
179.46
|
|
Awards forfeited
|
|
|
(7,066
|
)
|
|
|
173.53
|
|
Non-vested units outstanding, January 30, 2021
|
|
|
148,668
|
|
|
|
176.70
|
|
13. Lease Commitments
The Company’s leases primarily consist of stores, distribution facilities and office space under operating and finance leases that will expire principally during the next 30 years. The leases typically include renewal options at five year intervals and escalation clauses. Lease renewals are only included in the lease liability to the extent that they are reasonably assured of being exercised. The Company’s leases typically provide for contingent rentals based on a percentage of gross sales. Contingent rentals are not included in the lease liability, and they are recognized as variable lease cost when incurred.
As a result of the COVID-19 pandemic and the associated temporary store closures, the Company worked with its landlords to modify payment terms for certain leases. The FASB has provided relief under ASC 842, “Leases,” related to the COVID-19 pandemic. Under this relief, companies can make a policy election on how to treat lease concessions resulting directly from COVID-19, provided that the modified contracts result in total cash flows that are substantially the same or less than the cash flows in the original contract. The Company has made the policy election to account for lease concessions that result from the COVID-19 pandemic as if they were made as enforceable rights under the original contract. Additionally, the Company has elected to account for these concessions outside of the lease modification framework described under ASC 842. As a result, deferred payments related to these leases of $32.9 million are included in the line item “Other current liabilities” on the Company’s Consolidated Balance Sheet. Due dates for these payments vary by lease, with all payments due before the end of Fiscal 2021.
77
The following is a schedule of the Company’s future lease payments:
|
|
(in thousands)
|
|
Fiscal Year
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2021
|
|
$
|
444,392
|
|
|
$
|
6,841
|
|
2022
|
|
|
453,025
|
|
|
|
7,513
|
|
2023
|
|
|
430,014
|
|
|
|
7,589
|
|
2024
|
|
|
393,757
|
|
|
|
7,417
|
|
2025
|
|
|
360,327
|
|
|
|
5,298
|
|
Thereafter
|
|
|
1,291,811
|
|
|
|
33,354
|
|
Total future minimum lease payments
|
|
|
3,373,326
|
|
|
|
68,012
|
|
Amount representing interest
|
|
|
(667,915
|
)
|
|
|
(20,348
|
)
|
Total lease liabilities
|
|
|
2,705,411
|
|
|
|
47,664
|
|
Less: current portion of lease liabilities
|
|
|
(304,629
|
)
|
|
|
(3,899
|
)
|
Total long term lease liabilities
|
|
$
|
2,400,782
|
|
|
$
|
43,765
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
5.4
|
%
|
|
|
6.8
|
%
|
Weighted average remaining lease term (years)
|
|
|
8.5
|
|
|
|
11.6
|
|
The above schedule excludes approximately $360.7 million for 74 stores that the Company has committed to open or relocate but has not yet taken possession of the space.
The following is a schedule of net lease costs for the years indicated:
|
|
(in thousands)
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of finance lease asset (a)
|
|
$
|
5,907
|
|
|
$
|
4,027
|
|
Interest on lease liabilities (b)
|
|
|
3,394
|
|
|
|
2,770
|
|
Operating lease cost (c)
|
|
|
441,089
|
|
|
|
414,174
|
|
Variable lease cost (c)
|
|
|
180,270
|
|
|
|
155,210
|
|
Total lease cost
|
|
|
630,660
|
|
|
|
576,181
|
|
Less all rental income(d)
|
|
|
(5,010
|
)
|
|
|
(5,029
|
)
|
Total net rent expense (e)
|
|
$
|
625,650
|
|
|
$
|
571,152
|
|
|
(a)
|
Included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of (Loss) Income.
|
|
(b)
|
Included in the line item “Interest expense” in the Company’s Consolidated Statements of (Loss) Income.
|
|
(c)
|
Includes real estate taxes, common area maintenance, insurance and percentage rent. Included in the line item “Selling, general and administrative expenses” in the Company’s Consolidated Statements of (Loss) Income.
|
|
(d)
|
Included in the line item “Other revenue” in the Company’s Consolidated Statements of (Loss) Income.
|
|
(e)
|
Excludes an immaterial amount of short-term lease cost.
|
78
Supplemental cash flow disclosures related to leases are as follows:
|
|
(in thousands)
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Cash payments arising from operating lease liabilities (a)
|
|
$
|
409,750
|
|
|
$
|
401,575
|
|
Cash payments for the principal portion of finance lease liabilities (b)
|
|
$
|
3,269
|
|
|
$
|
2,932
|
|
Cash payments for the interest portion of finance lease liabilities (a)
|
|
$
|
3,394
|
|
|
$
|
2,770
|
|
Supplemental non-cash information:
|
|
|
|
|
|
|
|
|
Operating lease liabilities arising from obtaining right-of-use assets
|
|
$
|
413,068
|
|
|
$
|
690,827
|
|
|
(a)
|
Included within operating activities in the Company’s Consolidated Statements of Cash Flows.
|
|
(b)
|
Included within financing activities in the Company’s Consolidated Statements of Cash Flows.
|
The following is a schedule of net rent expense for the periods indicated under Accounting Standards Codification (ASC) 840, “Leases.” Prior periods have not been adjusted for adoption of ASU 2016-02:
|
|
(in thousands)
|
|
|
|
Year Ended
|
|
|
|
February 2,
2019
|
|
Rent expense:
|
|
|
|
|
Minimum rental payments
|
|
$
|
364,637
|
|
Contingent rental payments
|
|
|
6,047
|
|
Straight-line rent expense
|
|
|
8,469
|
|
Lease incentives amortization
|
|
|
(34,827
|
)
|
Amortization of purchased lease rights
|
|
|
844
|
|
Total rent expense(a)
|
|
|
345,170
|
|
Less all rental income(b)
|
|
|
(6,164
|
)
|
Total net rent expense
|
|
$
|
339,006
|
|
(a)
|
Included in the line item “Selling, general and administrative expenses” in the Company’s Consolidated Statements of (Loss) Income.
|
(b)
|
Included in the line item “Other revenue” in the Company’s Consolidated Statements of (Loss) Income.
|
14. Employee Retirement Plans
The Company maintains separate defined contribution 401(k) retirement savings and profit-sharing plans covering employees in the United States and Puerto Rico who meet specified age and service requirements. The discretionary profit sharing component (which the Company has not utilized since 2005 and has no current plans to utilize) is entirely funded by the Company, and the Company also makes additional matching contributions to the 401(k) component of the plans. Participating employees can voluntarily elect to contribute a percentage of their earnings to the 401(k) component of the plans (up to certain prescribed limits) through a cash or deferred (salary deferral) feature qualifying under Section 401(k) of the Internal Revenue Code (401(k) Plan).
The Company recorded $10.2 million, $10.0 million and $9.3 million of 401(k) Plan match expense during Fiscal 2020, Fiscal 2019 and Fiscal 2018 respectively, which is included in the line item “Selling, general and administrative expenses” on the Company’s Consolidated Statements of (Loss) Income.
79
15. Income Taxes
(Loss) income before income taxes was as follows for Fiscal 2020, Fiscal 2019 and Fiscal 2018:
|
|
(in thousands)
|
|
|
|
Year Ended
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
February 2,
2019
|
|
Domestic
|
|
$
|
(441,473
|
)
|
|
$
|
573,399
|
|
|
$
|
503,290
|
|
Foreign
|
|
|
3,850
|
|
|
|
7,126
|
|
|
|
4,294
|
|
Total (loss) income before income taxes
|
|
$
|
(437,623
|
)
|
|
$
|
580,525
|
|
|
$
|
507,584
|
|
Income tax (benefit) expense was as follows for Fiscal 2020, Fiscal 2019 and Fiscal 2018:
|
|
(in thousands)
|
|
|
|
Year Ended
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
February 2,
2019
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(210,304
|
)
|
|
$
|
83,521
|
|
|
$
|
69,007
|
|
State
|
|
|
12,964
|
|
|
|
20,778
|
|
|
|
19,642
|
|
Foreign
|
|
|
1,175
|
|
|
|
2,040
|
|
|
|
1,671
|
|
Subtotal
|
|
|
(196,165
|
)
|
|
|
106,339
|
|
|
|
90,320
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
13,600
|
|
|
|
8,375
|
|
|
|
8,337
|
|
State
|
|
|
(38,816
|
)
|
|
|
1,012
|
|
|
|
(8,409
|
)
|
Foreign
|
|
|
257
|
|
|
|
(317
|
)
|
|
|
2,591
|
|
Subtotal
|
|
|
(24,959
|
)
|
|
|
9,070
|
|
|
|
2,519
|
|
Total Income Tax (Benefit) Expense
|
|
$
|
(221,124
|
)
|
|
$
|
115,409
|
|
|
$
|
92,839
|
|
The tax rate reconciliations were as follows for Fiscal 2020, Fiscal 2019 and Fiscal 2018:
|
|
Fiscal Year Ended
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
February 2,
2019
|
|
Tax at statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State income taxes, net of federal benefit
|
|
|
3.0
|
|
|
|
4.0
|
|
|
|
4.2
|
|
Excess tax benefit from stock compensation
|
|
|
7.2
|
|
|
|
(5.3
|
)
|
|
|
(5.2
|
)
|
Tax credits
|
|
|
1.8
|
|
|
|
(1.0
|
)
|
|
|
(1.2
|
)
|
Carryback tax rate differential
|
|
|
19.8
|
|
|
|
—
|
|
|
|
—
|
|
Non-deductible expenses
|
|
|
(1.8
|
)
|
|
|
0.8
|
|
|
|
0.4
|
|
Other
|
|
|
(0.5
|
)
|
|
|
0.4
|
|
|
|
(0.9
|
)
|
Effective tax rate
|
|
|
50.5
|
%
|
|
|
19.9
|
%
|
|
|
18.3
|
%
|
The increase in the effective tax rate was primarily due to the Company’s pretax loss and applying the CARES Act, namely the benefit related to the carryback of federal NOLs in Fiscal 2020 to earlier tax years with higher tax rates than the current year.
80
The tax effects of temporary differences are included in deferred tax accounts as follows:
|
|
(in thousands)
|
|
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
|
|
Tax
Assets
|
|
|
Tax
Liabilities
|
|
|
Tax
Assets
|
|
|
Tax
Liabilities
|
|
Non-current deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment basis adjustments
|
|
$
|
—
|
|
|
$
|
225,203
|
|
|
$
|
—
|
|
|
$
|
171,949
|
|
Operating lease liability
|
|
|
705,968
|
|
|
|
—
|
|
|
|
682,104
|
|
|
|
—
|
|
Operating lease asset
|
|
|
—
|
|
|
|
656,193
|
|
|
|
—
|
|
|
|
645,240
|
|
Intangibles—indefinite-lived
|
|
|
—
|
|
|
|
64,459
|
|
|
|
—
|
|
|
|
64,842
|
|
Financing
|
|
|
—
|
|
|
|
30,860
|
|
|
|
6,022
|
|
|
|
—
|
|
Employee benefit compensation
|
|
|
21,015
|
|
|
|
—
|
|
|
|
14,933
|
|
|
|
—
|
|
State net operating losses (net of federal benefit)
|
|
|
42,991
|
|
|
|
—
|
|
|
|
9,346
|
|
|
|
—
|
|
Tax credits
|
|
|
13,883
|
|
|
|
—
|
|
|
|
8,154
|
|
|
|
—
|
|
Other
|
|
|
10,386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,296
|
|
Valuation allowance
|
|
|
(12,957
|
)
|
|
|
—
|
|
|
|
(9,842
|
)
|
|
|
—
|
|
Total non-current deferred tax assets and liabilities
|
|
$
|
781,286
|
|
|
$
|
976,715
|
|
|
$
|
710,717
|
|
|
$
|
888,327
|
|
Net deferred tax liability
|
|
|
|
|
|
$
|
195,429
|
|
|
|
|
|
|
$
|
177,610
|
|
As of January 30, 2021, the Company has a deferred tax asset related to net operating losses of $43.0 million, inclusive of $42.7 million of state net operating losses which will expire at various dates between 2021 and 2040 and $0.3 million of deferred tax assets recorded for Puerto Rico net operating loss carry-forwards that will expire in 2025. As of January 30, 2021, the Company had tax credit carry-forwards of $13.9 million, inclusive of federal tax credit carry-forwards of $4.8 million that will expire in 2040, state tax credit carry-forwards of $7.9 million that will begin to expire in 2023 and $1.2 million of Puerto Rico alternative minimum tax (AMT) credits that have an indefinite life.
As of February 1, 2020, the Company had a deferred tax asset related to net operating losses of $9.3 million, inclusive of $9.0 million of state net operating losses, and $0.3 million of deferred tax assets recorded for Puerto Rico net operating loss carry-forwards. As of February 1, 2020, the Company had tax credit carry-forwards of $8.2 million, inclusive of state tax credit carry-forwards of $6.8 million, and $1.4 million of Puerto Rico AMT credits.
We believe that it is more likely than not that the benefit from certain state net operating loss carry forwards and credits will not be realized. In recognition of this risk, we have provided a valuation allowance of $5.3 million on state net operating losses and $7.4 million on state tax credit carry forwards. In addition, the Company believes that it is more likely than not that the benefit from Puerto Rico net operating loss carry-forwards will not be realized. As a result, we have provided for a full valuation allowance of $0.3 million. If our assumptions change and we determine we will be able to realize these net operating losses or credits, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets as of January 30, 2021 will be recorded to the Company’s Consolidated Statement of (Loss) Income. As of February 1, 2020, we provided a total valuation allowance of $9.8 million, inclusive of $5.6 of valuation allowance related to state net operating losses, $3.9 million related to tax credit carry-forwards and $0.3 million related to Puerto Rico.
81
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of interest and penalties) is as follows:
|
|
(in thousands)
|
|
|
|
Gross
Unrecognized
Tax Benefits,
Exclusive of
Interest and
Penalties
|
|
Balance at February 3, 2018
|
|
$
|
9,073
|
|
Additions for tax positions of the current year
|
|
|
18
|
|
Additions for tax positions of prior years
|
|
|
698
|
|
Reduction for tax positions of prior years
|
|
|
(782
|
)
|
Settlements
|
|
|
—
|
|
Lapse of statute of limitations
|
|
|
(80
|
)
|
Balance at February 2, 2019
|
|
$
|
8,927
|
|
Additions for tax positions of the current year
|
|
|
—
|
|
Additions for tax positions of prior years
|
|
|
—
|
|
Reduction for tax positions of prior years
|
|
|
(783
|
)
|
Settlements
|
|
|
—
|
|
Lapse of statute of limitations
|
|
|
(67
|
)
|
Balance at February 1, 2020
|
|
$
|
8,077
|
|
Additions for tax positions of the current year
|
|
|
—
|
|
Additions for tax positions of prior years
|
|
|
—
|
|
Reduction for tax positions of prior years
|
|
|
(1,269
|
)
|
Settlements
|
|
|
(396
|
)
|
Lapse of statute of limitations
|
|
|
(72
|
)
|
Balance at January 30, 2021
|
|
$
|
6,340
|
|
As of January 30, 2021, the Company reported total unrecognized benefits of $6.3 million, of which $5.0 million would affect the Company’s effective tax rate if recognized. As a result of previous positions taken and current period activity, the Company recorded a net benefit of $1.1 million of interest and penalties during Fiscal 2020 in the line item “Income tax (benefit) expense” in the Company’s Consolidated Statements of (Loss) Income. Cumulative interest and penalties of $10.6 million are recorded in the line item “Other liabilities” in the Company’s Consolidated Balance Sheet as of January 30, 2021. The Company recognizes interest and penalties related to unrecognized tax benefits as part of income taxes. Within the next twelve months, the Company does not expect any significant changes in its unrecognized tax benefits.
As of February 1, 2020, the Company reported total unrecognized benefits of $8.1 million, of which $6.4 million would affect the Company’s effective tax rate if recognized. As a result of previous positions taken, the Company recorded a net benefit of $0.2 million of interest and penalties during Fiscal 2019 in the line item “Income tax (benefit) expense” in the Company’s Consolidated Statements of (Loss) Income. Cumulative interest and penalties of $12.0 million are recorded in the line item “Other liabilities” in the Company’s Consolidated Balance Sheets as of February 1, 2020.
The Company files tax returns in the U.S. federal jurisdiction, Puerto Rico, and various state jurisdictions. The Company is open to examination by the IRS under the applicable statutes of limitations for Fiscal Years 2017 through 2020. The Company or its subsidiaries’ state and Puerto Rico income tax returns are open to audit for Fiscal Years 2015 through 2020, with a few exceptions, under the applicable statutes of limitations. There are ongoing state audits in several jurisdictions, and the Company has accrued for possible exposures as required under Topic No. 740. The Company does not expect the settlement of these audits to have a material impact to its financial results.
82
16. Fair Value of Financial Instruments
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 8, “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 January 30, 2021 and February 1, 2020 are summarized below:
|
|
(in thousands)
|
|
|
|
Fair Value Measurements at
|
|
|
|
January 30,
|
|
|
February 1,
|
|
|
|
2021
|
|
|
2020
|
|
Level 1
|
|
|
|
|
|
|
|
|
Cash equivalents (including restricted cash)
|
|
$
|
1,001,475
|
|
|
$
|
369,733
|
|
Financial Liabilities
The fair values of the Company’s financial liabilities are summarized below:
|
|
(in thousands)
|
|
|
|
January 30, 2021
|
|
|
February 1, 2020
|
|
|
|
Principal
Amount
|
|
|
Fair
Value
|
|
|
Principal
Amount
|
|
|
Fair
Value
|
|
Term B-5 Loans
|
|
$
|
961,415
|
|
|
$
|
955,406
|
|
|
$
|
961,415
|
|
|
$
|
959,899
|
|
Convertible Notes (a)
|
|
|
805,000
|
|
|
|
1,080,713
|
|
|
|
—
|
|
|
|
—
|
|
Secured Notes
|
|
|
300,000
|
|
|
|
320,625
|
|
|
|
—
|
|
|
|
—
|
|
ABL Line of Credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total debt (b)
|
|
$
|
2,066,415
|
|
|
$
|
2,356,744
|
|
|
$
|
961,415
|
|
|
$
|
959,899
|
|
(a)Includes amounts that are attributable to the conversion feature, which are classified within equity for financial reporting purposes.
(b)Excludes finance lease obligations, original-issue discount and deferred financing costs.
The fair values presented herein are based on pertinent information available to management as of the respective year end dates. The estimated fair values of the Company’s debt are classified as Level 2 in the fair value hierarchy, and are based on current market quotes received from inactive markets. 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 financial statements since that date, and current estimates of fair value may differ from amounts presented herein.
83
17. Commitments and Contingencies
Legal
Like many retailers, the Company has been named in potential class or collective actions on behalf of groups alleging violations of federal and state wage and hour and other labor statutes, and alleged violation of state consumer and/or privacy protection and other statutes. The Company was involved in a federal wage and hour lawsuit alleging that certain exempt employees were misclassified under the Fair Labor Standards Act (FLSA). In addition, the Company was involved in a putative class action matter raising similar allegations of misclassification under the wage and hour laws of three states. In June 2020, the Company agreed to settle both matters for approximately $19.6 million (plus applicable employer-side payroll taxes). The parties obtained final Court approval of the settlement in December 2020, and the full settlement was paid during the fourth quarter of Fiscal 2020.
The Company is also party to representative claims under the California Private Attorneys’ General Act and 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. 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.
Letters of Credit
The Company had irrevocable letters of credit in the amounts of $54.9 million and $53.1 million as of January 30, 2021 and February 1, 2020, respectively.
Letters of credit outstanding as of January 30, 2021 and February 1, 2020 amounted to $46.8 million and $46.6 million, respectively, guaranteeing performance under various lease agreements, insurance contracts, and utility agreements. The Company also had outstanding letters of credit arrangements in the aggregate amount of $8.2 million and $6.5 million at January 30, 2021 and February 1, 2020, respectively, related to certain merchandising agreements. The Company had $476.8 million and $501.8 million available under the ABL Line of Credit as of January 30, 2021 and February 1, 2020, respectively.
Inventory Purchase Commitments
The Company had $1,105.6 million of purchase commitments related to goods that were not received as of January 30, 2021.
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.
18. Related Party Transactions
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.
84
19. Quarterly Results (Unaudited)
In the opinion of the Company’s management, the accompanying unaudited interim Consolidated Financial Statements contain all adjustments which are necessary for the fair presentation of the quarters presented. The operating results for any quarter are not necessarily indicative of the results of any future quarter.
|
|
(in thousands, except share data)
|
|
Year ended January 31, 2021:
|
|
Quarter Ended
|
|
|
|
May 2,
2020 (3)
|
|
|
August 1,
2020 (3)
|
|
|
October 31,
2020
|
|
|
January 30,
2021
|
|
Net sales
|
|
$
|
797,996
|
|
|
$
|
1,009,882
|
|
|
$
|
1,664,728
|
|
|
$
|
2,278,935
|
|
Gross margin(1)
|
|
$
|
15,812
|
|
|
$
|
462,332
|
|
|
$
|
748,881
|
|
|
$
|
969,492
|
|
Net (loss) income
|
|
$
|
(333,728
|
)
|
|
$
|
(46,781
|
)
|
|
$
|
8,016
|
|
|
$
|
155,994
|
|
Net (loss) income per share—basic(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders
|
|
$
|
(5.09
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
0.12
|
|
|
$
|
2.35
|
|
Net (loss) income per share—diluted(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders
|
|
$
|
(5.09
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
0.12
|
|
|
$
|
2.33
|
|
|
|
(in thousands, except share data)
|
|
Year ended February 1, 2020:
|
|
Quarter Ended
|
|
|
|
May 4,
2019
|
|
|
August 3,
2019
|
|
|
November 2,
2019
|
|
|
February 1,
2020
|
|
Net sales
|
|
$
|
1,628,547
|
|
|
$
|
1,656,363
|
|
|
$
|
1,774,949
|
|
|
$
|
2,201,384
|
|
Gross margin (1)
|
|
$
|
667,229
|
|
|
$
|
685,942
|
|
|
$
|
752,037
|
|
|
$
|
927,295
|
|
Net income
|
|
$
|
77,765
|
|
|
$
|
84,567
|
|
|
$
|
96,459
|
|
|
$
|
206,325
|
|
Net income per share—basic(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders
|
|
$
|
1.18
|
|
|
$
|
1.28
|
|
|
$
|
1.46
|
|
|
$
|
3.14
|
|
Net income per share—diluted(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders
|
|
$
|
1.15
|
|
|
$
|
1.26
|
|
|
$
|
1.44
|
|
|
$
|
3.08
|
|
(1)
|
Gross margin is equal to net sales less cost of sales.
|
(2)
|
Quarterly net income (loss) per share results may not equal full year amounts due to rounding.
|
(3)
|
Due to the impact of the COVID-19 pandemic and various governmental mandates, all of the Company’s stores were closed for a portion of the first and second quarters of Fiscal 2020, causing a decline in sales during those periods.
|
85
Schedule I
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Condensed Balance Sheets
|
|
As of
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
(in thousands)
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51
|
|
|
$
|
51
|
|
Total current assets
|
|
|
51
|
|
|
|
51
|
|
Investment in subsidiaries
|
|
|
1,098,823
|
|
|
|
528,098
|
|
Total assets
|
|
$
|
1,098,874
|
|
|
$
|
528,149
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
Long term debt
|
|
|
634,120
|
|
|
|
—
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
464,754
|
|
|
|
528,149
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,098,874
|
|
|
$
|
528,149
|
|
See Notes to Condensed Financial Statements
86
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Condensed Statements of (Loss) Income
|
|
Fiscal Years Ended
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
February 2,
2019
|
|
|
|
(in thousands)
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total costs and expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Income before provision for income tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Provision for income tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Earnings from equity investment, net of income taxes
|
|
$
|
(216,499
|
)
|
|
$
|
465,116
|
|
|
$
|
414,745
|
|
Net income
|
|
$
|
(216,499
|
)
|
|
$
|
465,116
|
|
|
$
|
414,745
|
|
Total comprehensive income
|
|
$
|
(216,499
|
)
|
|
$
|
465,116
|
|
|
$
|
414,745
|
|
See Notes to Condensed Financial Statements
87
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Condensed Statements of Cash Flows
|
|
Fiscal Years Ended
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
February 2,
2019
|
|
|
|
(in thousands)
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long term debt - Convertible Notes
|
|
|
805,000
|
|
|
|
—
|
|
|
|
—
|
|
Purchase of treasury shares
|
|
|
(65,526
|
)
|
|
|
(323,080
|
)
|
|
|
(228,874
|
)
|
Intercompany financing transactions
|
|
|
(753,404
|
)
|
|
|
288,871
|
|
|
|
212,462
|
|
Proceeds from stock option exercises
|
|
|
34,924
|
|
|
|
34,222
|
|
|
|
16,306
|
|
Deferred financing costs
|
|
|
(20,994
|
)
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
|
—
|
|
|
|
13
|
|
|
|
(106
|
)
|
Increase (Decrease) in cash and cash equivalents
|
|
|
—
|
|
|
|
13
|
|
|
|
(106
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
51
|
|
|
|
38
|
|
|
|
144
|
|
Cash and cash equivalents at end of period
|
|
$
|
51
|
|
|
$
|
51
|
|
|
$
|
38
|
|
See Notes to Condensed Financial Statements
88
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Note 1. Basis of Presentation
Burlington Stores, Inc. (the Parent Company) is a holding company that conducts substantially all of its business operations through its subsidiaries. The Parent Company’s ability to pay dividends on Parent Company’s common stock will be limited by restrictions on the ability of Parent Company and its subsidiaries to pay dividends or make distributions under the terms of current and future agreements governing the indebtedness of Parent Company’s subsidiaries. In addition to other baskets under the agreements governing its indebtedness, the Parent Company and its subsidiaries are permitted to make dividends and distributions under the Term Loan Facility so long as there is no event of default and the pro forma consolidated leverage ratio of the Parent Company and its subsidiaries does not exceed 3.50 to 1.00, and under the ABL Line of Credit as long as certain restricted payment conditions are satisfied.
The accompanying Condensed Financial Statements include the accounts of the Parent Company and, on an equity basis, its consolidated subsidiaries and affiliates. Accordingly, these Condensed Financial Statements have been presented on a “parent-only” basis. Under a parent-only presentation, the Parent Company’s investments in its consolidated subsidiaries are presented under the equity method of accounting. These parent-only financial statements should be read in conjunction with Burlington Stores, Inc.’s audited Consolidated Financial Statements included elsewhere herein.
Note 2. Dividends
As discussed above, the terms of current and future agreements governing the indebtedness of the Parent Company and its subsidiaries include, or may include, limitations on the ability of such subsidiaries and the Parent Company to pay dividends, subject to certain exceptions set forth in such agreements.
Note 3. Stock-Based Compensation
Non-cash stock compensation expense of $55.8 million, $43.9 million and $35.5 million has been pushed down to Parent Company’s subsidiaries for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
Note 4. Long Term Debt
On April 16, 2020, the Parent Company issued $805 million of Convertible Notes. An aggregate of up to 3,656,149 shares of common stock may be issued upon conversion of the Convertible Notes, which number is subject to adjustment up to an aggregate of 4,844,410 shares following certain corporate events that occur prior to the maturity date or if the Company issues a notice of redemption, and which is also subject to certain anti-dilution adjustments.
The Convertible Notes are general unsecured obligations of the Parent Company. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears, on April 15 and October 15 of each year, beginning on October 15, 2020. The Convertible Notes will mature on April 15, 2025, unless earlier converted, redeemed or repurchased.
The Convertible Notes contain a cash conversion feature, and as a result, the Parent Company has separated it into liability and equity components. The Parent Company valued the liability component based on its borrowing rate for a similar debt instrument that does not contain a conversion feature. The equity component, which is recognized as a debt discount, was valued as the difference between the face value of the Convertible Notes and the fair value of the liability component.
In connection with the Convertible Notes issuance, the Parent Company incurred deferred financing costs of $21.0 million, primarily related to fees paid to the bookrunners of the offering, as well as legal, accounting and rating agency fees. These costs were allocated on a pro rata basis, with $16.4 million allocated to the debt component and $4.6 million allocated to the equity component.
The debt discount and the debt portion of the deferred costs are being amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 8.2%. Interest expense on the Convertible Notes of $40.5 million has been pushed down to Parent Company’s subsidiaries for Fiscal 2020.
89
The Convertible Notes consist of the following components as of the dates indicated:
|
|
(in thousands)
|
|
|
|
January 30,
|
|
|
February 1,
|
|
|
|
2021
|
|
|
2020
|
|
Liability component:
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
805,000
|
|
|
$
|
—
|
|
Unamortized debt discount
|
|
|
(156,689
|
)
|
|
|
—
|
|
Unamortized deferred debt costs
|
|
|
(14,191
|
)
|
|
|
—
|
|
Net carrying amount
|
|
$
|
634,120
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Equity component, net
|
|
$
|
131,916
|
|
|
$
|
—
|
|
90