What changed in this filing

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Item 1. Financial Statements

2020-05-29 compared with 2019-11-26 · 247 added, 237 removed, 347 unchanged (58% of the section changed)

1 unchanged sentence

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(All amounts in thousands, except per share data)

Three Months Ended

Nine Months Ended

Other revenue

5 unchanged sentences

Depreciation and amortization

Impairment charges - long-lived assets

Other income - net

2 unchanged sentences

Total costs and expenses

Income before income tax expense

Income tax expense

Net income per common share:

(Loss) income before income tax (benefit) expense

Income tax (benefit) expense

Net (loss) income

Net (loss) income per common share:

Common stock - basic

5 unchanged sentences

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(All amounts in thousands)

Three Months Ended

Nine Months Ended

Other comprehensive (loss) income, net of tax:

Net (loss) income

Other comprehensive loss, net of tax:

Interest rate derivative contracts:

Net unrealized (losses) gains arising during the period

Net unrealized losses arising during the period

Reclassification into earnings during the period

Other comprehensive (loss) income, net of tax

Total comprehensive income

Other comprehensive loss, net of tax

Total comprehensive (loss) income

See Notes to Condensed Consolidated Financial Statements.

7 unchanged sentences

Merchandise inventories

Assets held for disposal

Prepaid and other current assets

24 unchanged sentences

Additional paid-in-capital

Accumulated deficit

Accumulated other comprehensive (loss) income

Accumulated (deficit) earnings

Accumulated other comprehensive loss

Treasury stock, at cost

5 unchanged sentences

(All amounts in thousands)

Nine Months Ended

Three Months Ended

OPERATING ACTIVITIES

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

Net (loss) income

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

Depreciation and amortization

Impairment charges — long-lived assets

Amortization of deferred financing costs

4 unchanged sentences

Non-cash lease expense

Non-cash rent

Cash received from landlord allowances

7 unchanged sentences

Other operating activities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

INVESTING ACTIVITIES

Cash paid for property and equipment

Lease acquisition costs

Proceeds from insurance recoveries related to property and equipment

Other investing activities

3 unchanged sentences

Principal payments on long term debt—ABL Line of Credit

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

Proceeds from long term debt—Convertible Note

Proceeds from long term debt—Secured Note

Purchase of treasury shares

Proceeds from stock option exercises

Deferred financing costs

Other financing activities

Net cash (used in) financing activities

Net cash provided by financing activities

Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents

6 unchanged sentences

Accrued purchases of property and equipment

Acquisition of finance leases

See Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

November 2, 2019

Summary of Significant Accounting Policies

Basis of Presentation

As of November 2, 2019, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), has expanded its store base to 726 retail stores, inclusive of an internet store.

As of May 2, 2020, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), has expanded its store base to 736 retail stores, which includes temporarily closed stores.

These unaudited Condensed Consolidated Financial Statements include the accounts of Burlington Stores, Inc.

5 unchanged sentences

The balance sheet at February 1, 2020 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2019 10-K.

Because the Company’s business is seasonal in nature, the operating results for the three and nine month periods ended November 2, 2019 are not necessarily indicative of results for the fiscal year.

Because of the COVID-19 pandemic discussed below, and because the Company’s business is seasonal in nature, the operating results for the three month period ended May 2, 2020 are not necessarily indicative of results for the fiscal year.

Accounting policies followed by the Company are described in Note 1, “Summary of Significant Accounting Policies,” included in Part II, Item 8 of the Fiscal 2019 10-K.

The Company defines its fiscal year as the 52- or 53-week period ending on the Saturday closest to January 31.

The current fiscal year ending February 1, 2020 (Fiscal 2019) and the prior fiscal year ended February 2, 2019 (Fiscal 2018) both consist of 52 weeks.

Casualty Losses and Insurance Proceeds

During the third quarter of Fiscal 2019, the Company received $ 12.5 million of insurance proceeds related to weather-related incidents that occurred during Fiscal 2017.

These proceeds resulted in a gain on insurance recovery of $ 8.1 million, which is included in “Other income – net” on the Company’s Condensed Consolidated Statements of Income for the three and nine month periods ended November 2, 2019.

The Company allocated $ 5.1 million of these proceeds to property and equipment, which was 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 Condensed Consolidated Statement of Cash Flows for the nine month period ended November 2, 2019.

The Company incurred losses during Fiscal 2019 of $ 3.1 million, related to several stores that sustained damages and were temporarily closed during the year.

These losses primarily relate to merchandise held at these stores, and the losses are included in the line item “Cost of sales” in the Company’s Condensed Consolidated Statement of Income for the nine month period ended November 2, 2019.

Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-02, “Leases” (ASU 2016-02).

The standard’s core principle is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements.

The Company adopted this ASU as of the beginning of Fiscal 2019.

The Company applied the changes from the new guidance at the adoption date and recognized a cumulative effect adjustment to retained earnings in the period of adoption, as allowed under ASU 2018-11, “Leases:

Targeted Improvements.” The Company did not adjust prior periods.

The Company made an accounting policy election not to capitalize leases with an initial term of twelve months or less.

The Company elected the transition package of practical expedients, which allows the Company to carry forward for its existing leases:

( i) the historical lease classification as either operating or capital;

( ii) assessment of whether any expired or existing contracts are or contain leases;

and ( iii) capitalization of initial direct costs.

Additionally, the Company elected the practical expedients to not separate lease and non-lease components for both its real estate and non-real estate leases, to not assess whether existing or expired land easements contain a lease, and to employ hindsight when determining lease terms for existing leases on the date of adoption.

As a result of this standard, the Company has recognized approximately $ 2.3 billion of additional right-of-use assets and approximately $ 2.6 billion of additional lease liabilities (current and long-term combined) on its Condensed Consolidated Balance Sheet as of November 2, 2019.

The right-of-use lease liability for operating leases is based on the net present value of future minimum lease payments.

The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as favorable leases, the long term portion of straight line rent liability, purchased lease rights and landlord allowances.

In addition, the Company also recorded an approximate $ 0.6 million cumulative-effect adjustment to retained earnings, related to a deferred gain on a previous sale-leaseback transaction that was being recognized into the line item “Other income” over a 13 year period.

Adoption of this standard also resulted in a change in the timing of certain expense recognition, primarily related to net favorable lease cost, as well as a reclassification of favorable lease cost from “Depreciation and amortization” to “Selling, general and administrative expenses” on the Company’s Condensed Consolidated Statements of Income for the three and nine months ended November 2, 2019.

This guidance did not have a material impact on the Company's liquidity.

Refer to Note 3, “Lease Commitments,” for further detail of the Company’s future minimum lease payments.

Pending Accounting Standards

The current fiscal year ending January 30, 2021 (Fiscal 2020) and the prior fiscal year ended February 1, 2020 (Fiscal 2019) both consist of 52 weeks.

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 sporadic processing of received inventory) and corporate offices to combat the rapid spread of COVID-19.

All stores, distribution centers and corporate offices remained temporarily closed as of May 2, 2020.

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 extent of which will be primarily based on the duration of the store closures, as well as the timing and extent of any recovery in traffic and consumer spending at the Company’s stores.

As of May 29, 2020, approximately 400 of the Company’s stores, as well as its distribution centers, have been reopened, and the Company expects the majority of its stores to reopen by mid-June 2020.

However, the Company is currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change, including the impact that social distancing protocols will have on the Company’s operations, the degree to which the Company’s customers will patronize its stores and any impact from potential subsequent additional outbreaks.

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 continues to provide benefits to furloughed associates, including paying 100 % of their current medical benefit premiums.

As the Company reopens its stores, it has begun to recall furloughed associates.

In order to maintain maximum financial flexibility during these uncertain times, the Company initiated several debt transactions.

During March 2020, the Company borrowed $ 400 million on its existing $ 600 million senior secured asset-based revolving credit facility (the ABL Line of Credit).

On April 16, 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 4, “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 activity.

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 have been temporarily put in place for all employees through a certain level.

It is anticipated that this compensation will be reinstated when a significant number of the Company’s stores reopen.

The annual incentive bonus payments related to Fiscal 2019 performance, as well as merit pay increases for Fiscal 2020, have been delayed to later in the fiscal year after the Company has more clarity regarding the impact of COVID-19.

Although the Company has ceased most of its merchandise purchasing activity during this period, a significant amount of inventory remained at stores and in distribution centers prior to the temporary closures discussed above.

Due to the aging of this inventory, as well as the impact of seasonality on the Company’s merchandise, the Company recognized inventory markdowns of $ 271.9 million during the three month period ended May 2, 2020.

These charges are included in “Cost of sales” on the Company’s Condensed Consolidated Statement of (Loss) Income.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (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 preliminary evaluation of the CARES Act, the Company currently believes that it qualifies for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss carryback and immediate expensing for eligible qualified improvement property.

The Company recorded a tax benefit of $ 62.5 million in its effective income tax rate for the three month period ended May 2, 2020, for the increased benefit from net operating loss carryback to earlier years when the tax rate was higher than the current year.

The Company intends to continue to review and consider any available potential benefits under the CARES Act for which it qualifies, including those described above.

The Company could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, charges from adjustments to the carrying amount of goodwill and other intangible assets or long-lived asset impairment charges.

In addition, the negative impacts of the COVID-19 pandemic may result in further changes in the amount of valuation allowance required.

Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the duration and extent of the disruption to its business.

Recently 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 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

3 unchanged sentences

The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit.

The new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods.

This ASU will be effective for the Company as of the beginning of the fiscal year ending January 30, 2021 (Fiscal 2020).

Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017.

The Company does not anticipate that the new guidance will have a significant impact on its consolidated financial statements.

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.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software:

1 unchanged sentence

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 statement of income as the fees associated with the hosting element of the arrangement.

The new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods.

This ASU will be effective for the Company as of the beginning of Fiscal 2020.

Early adoption is permitted for annual or interim periods.

While t he Company is still in the process of determining the impact of the adoption of this guidance on its consolidated financial statements, it does not anticipate that the new guidance will have a significant impact on its consolidated financial statements.

There were no other new accounting standards that had a material impact on the Company’s Condensed Consolidated Financial Statements during the three and nine month periods ended November 2, 2019, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of November 2, 2019 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

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.

There were no other new accounting standards that had a material impact on the Company’s Condensed Consolidated Financial Statements during the three month period ended May 2, 2020, and there were no new accounting standards or pronouncements that were issued but not yet effective as of May 2, 2020 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

Stockholders’ Equity

Activity for the three and nine month periods ended November 2, 2019 and November 3, 2018 in the Company’s stockholders’ equity are summarized below:

Activity for the three month periods ended May 2, 2020 and May 4, 2019 in the Company’s stockholders’ equity are summarized below:

(in thousands, except share data)

1 unchanged sentence

Treasury Stock

Deficit (Earnings)

Balance at February 1, 2020

2 unchanged sentences

Shares purchased as part of publicly announced programs

Forfeiture of restricted shares, net of issuance of 1,759 restricted shares

Vesting of restricted shares, net of forfeitures of 4,166 restricted shares

Stock based compensation

Equity component of convertible notes issuance, net

Unrealized losses on interest rate derivative contracts, net of related tax benefit of $ 3.6 million

Amount reclassified into earnings, net of related taxes of $ 0.4 million

Cumulative-effect adjustment

Balance at May 2, 2020

Stock options exercised

Shares used for tax withholding

Shares purchased as part of publicly announced programs

Forfeiture of restricted shares

Stock based compensation

Unrealized losses on interest rate derivative contracts, net of related tax benefit of $ 3.9 million

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

Balance at August 3, 2019

Stock options exercised

Shares used for tax withholding

Shares purchased as part of publicly announced programs

Forfeiture of restricted shares

Stock based compensation

Unrealized losses on interest rate derivative contracts, net of related tax benefit of $ 0.4 million

Amount reclassified into earnings, net of related taxes of $ 0.2 million

Balance at November 2, 2019

(in thousands, except share data)

8 unchanged sentences

Stock based compensation

Unrealized gains on interest rate cap contracts, net of related taxes of $ 0.4 million

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

Balance at May 5, 2018 (a)

Stock options exercised

Shares used for tax withholding

Shares purchased as part of publicly announced programs

Issuance of restricted shares, net of forfeitures of 5,579 restricted shares

Stock based compensation

Unrealized gains on interest rate cap contracts, net of related taxes of less than $ 0.1 million

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

Balance at August 4, 2018 (a)

Stock options exercised

Shares used for tax withholding

Shares purchased as part of publicly announced programs

Forfeiture of restricted shares, net of issuance of 1,111 restricted shares

Stock based compensation

Unrealized gains on interest rate cap contracts, net of related taxes of $ 0.1 million

Unrealized losses on interest rate derivative contracts, net of related taxes of $ 1.3 million

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

Balance at November 3, 2018 (a)

Amounts may not foot due to rounding.

Cumulative-effect adjustment

Balance at May 4, 2019

Lease Commitments

2 unchanged sentences

Lease renewals are only included in the lease liability to the extent that they are reasonably assured of being exercised.

Company’s leases typically provide for contingent rentals based on a percentage of gross sales.

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 store closures discussed above, the Company worked with 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 under 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 are included in the line item “Other current liabilities” on the Company’s Condensed Consolidated Balance Sheet.

The following is a schedule of the Company’s future lease payments:

13 unchanged sentences

Three Months Ended

Nine Months Ended

November 2, 2019

Three Months Ended

Finance lease cost:

6 unchanged sentences

Total net rent expense (e)

Included in the line item “Depreciation and amortization” in the Company’s Condensed Consolidated Statements of Income.

Included in the line item “Interest expense” in the Company’s Condensed Consolidated Statements of Income.

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

Included in the line item “Other revenue” in the Company’s Condensed Consolidated Statements of Income.

Included in the line item “Depreciation and amortization” in the Company’s Condensed Consolidated Statements of (Loss) Income.

Included in the line item “Interest expense” in the Company’s Condensed Consolidated Statements of (Loss) Income.

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 Condensed Consolidated Statements of (Loss) Income.

Included in the line item “Other revenue” in the Company’s Condensed Consolidated Statements of (Loss) Income.

Excludes an immaterial amount of short-term lease cost.

1 unchanged sentence

(in thousands)

Nine Months Ended

November 2, 2019

Three Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

6 unchanged sentences

Included within financing activities in the Company’s Condensed 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)

Three Months Ended

Nine Months Ended

November 3, 2018

Rent expense:

Minimum rental payments

Contingent rental payments

Straight-line rent expense

Lease incentives amortization

Total rent expense(a)

Less all rental income(b)

Total net rent expense

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

Included in the line item “Other revenue” in the Company’s Condensed Consolidated Statements of Income.

As previously disclosed in the Company’s Fiscal 2018 Form 10-K and under the previous lease accounting standard, future minimum lease payments due under non-cancelable operating leases as of February 2, 2019 would have been as follows:

(in thousands)

Total minimum lease payments

Amount representing interest

Total future minimum lease payments

The above schedule included $ 278.9 million related to options to extend lease terms that were reasonably assured of being exercised and $ 622.4 million of minimum lease payments for 76 stores that the Company had committed to open or relocate.

Long Term Debt

2 unchanged sentences

$ 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

$ 805,000 convertible senior notes, 2.25 %, matures on April 15, 2025

$ 300,000 senior secured notes, 6.25 %, matures on April 15, 2025

$ 600,000 ABL senior secured revolving facility, LIBOR plus spread based on average outstanding balance, matures on June 29, 2023

4 unchanged sentences

Term Loan Facility

At November 2, 2019 and November 3, 2018, the Company’s interest rate related to its senior secured term loan facility (the Term Loan Facility) was 3.9 % and 4.3 %, respectively.

On February 26, 2020, the Company entered into Amendment No.

8 (the Eighth Amendment) to the Term Loan Credit Agreement governing its senior secured credit term loan facility (the 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 amendments” in the Company’s Condensed Consolidated Statement of 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 Condensed Consolidated Statement of (Loss) Income.

At May 2, 2020 and May 4, 2019, the Company’s interest rate related to the Term Loan Facility was 2.6 % and 4.5 %, respectively.

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 will 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 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 $ 20.6 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 $ 16.0 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 periods indicated:

(in thousands)

Liability component:

Unamortized debt discount

Unamortized deferred debt costs

Net carrying amount

Equity component, net

Interest expense related to the Convertible Notes consists of the following as of the periods indicated:

(in thousands)

Three Months Ended

Coupon interest

Amortization of debt discount

Amortization of deferred debt costs

Convertible Notes interest expense

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 each of April 15 and October 15, 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 $ 7.3 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 the term of the Secured Notes.

The Company incurred additional costs of $ 3.2 million, primarily related to legal fees, which are recorded in the line item, “Costs related to debt amendments” in the Company’s Condensed Consolidated Statement of (Loss) Income.

ABL Line of Credit

At November 2, 2019, the Company had $ 540.8 million available under the ABL senior secured revolving facility (the ABL Line of Credit).

The maximum borrowings under the ABL Line of Credit during the three and nine month periods ended November 2, 2019 amounted to $ 120.0 million and $ 255.0 million, respectively.

Average borrowings during the three and nine month periods ended November 2, 2019 amounted to $ 32.6 million and $ 108.7 million, respectively, at average interest rates of 3.5 % and 3.7 %, respectively.

At November 3, 2018, the Company had $ 434.1 million available under the ABL Line of Credit.

The maximum borrowings under the ABL Line of Credit during the three and nine month periods ended November 3, 2018 amounted to $ 265.0 million for both periods.

Average borrowings during the three and nine month periods ended November 3, 2018 amounted to $ 166.5 million and $ 103.4 million, respectively, at an average interest rate of 3.4 % in both periods.

On March 17, 2020, the Company borrowed $ 400 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.

At May 2, 2020, the Company had $ 150.9 million available under the ABL Line of Credit.

The maximum borrowings under the ABL Line of Credit during the three month period ended May 2, 2020 amounted to $ 400.0 million.

Average borrowings during the three month period ended May 2, 2020 amounted to $ 206.6 million, at an average interest rate of 2.2 %.

At May 4, 2019, the Company had $ 393.9 million available under the ABL Line of Credit.

The maximum borrowings under the ABL Line of Credit during the three month period ended May 4, 2019 amounted to $ 255.0 million.

Average borrowings during the three month period ended May 4, 2019 amounted to $ 147.4 million, at an average interest rate of 3.8 %.

Derivative Instruments and Hedging Activities

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There is no impact of netting, because the Company has only one derivative.

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 November 2, 2019, 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 it is not significant.

As a result, the Company classifies its derivative valuations in Level 2 of the fair value hierarchy.

The Company classifies its derivative valuations in Level 2 of the fair value hierarchy.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.

To accomplish these objectives, the Company primarily uses interest rate caps 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.

As of November 2, 2019, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.

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.

As of May 2, 2020, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:

Interest Rate Derivative

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Fair Values of Derivative Instruments

November 2, 2019

February 1, 2020

November 3, 2018

Derivatives Designated as Hedging Instruments

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Prepaid and other current assets

Interest rate swap contract

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Other liabilities

The following table presents the unrealized gains and losses deferred to accumulated other comprehensive income (loss) resulting from the Company’s derivative financial instruments for each of the reporting periods.

Other liabilities

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

(in thousands)

Three Months Ended

Nine Months Ended

Interest Rate Derivatives:

November 2, 2019

November 3, 2018

November 2, 2019

November 3, 2018

Unrealized (losses) gains, before taxes

Income tax benefit (expense)

Unrealized (losses) gains, net of taxes

The following table presents information about the reclassification of gains and losses from accumulated other comprehensive income (loss) into earnings related to the Company’s derivative instruments for each of the reporting periods.

Unrealized losses, before taxes

Income tax benefit

Unrealized losses, net of taxes

The following table presents information about the reclassification of gains and losses from accumulated other comprehensive loss into earnings related to the Company’s derivative instruments for each of the reporting periods.

(in thousands)

Three Months Ended

Nine Months Ended

Component of Earnings:

November 2, 2019

November 3, 2018

November 2, 2019

November 3, 2018

Interest expense

Income tax expense

Income tax (benefit) expense

Net reclassification into earnings

The Company estimates that approximately $ 11.2 million will be reclassified from accumulated other comprehensive loss into interest expense during the next twelve months.

Accumulated Other Comprehensive Income (Loss)

Amounts included in accumulated other comprehensive income (loss) are recorded net of the related income tax effects.

The following table details the changes in accumulated other comprehensive income (loss):

Accumulated Other Comprehensive Loss

Amounts included in accumulated other comprehensive loss are recorded net of the related income tax effects.

The following table details the changes in accumulated other comprehensive loss:

(in thousands)

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Amount reclassified into earnings, net of related taxes of $ 0.4 million

Balance at November 2, 2019

Balance at May 2, 2020

Fair Value Measurements

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Financial Assets

The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of November 2, 2019, February 2, 2019 and November 3, 2018 are summarized below:

The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of May 2, 2020, February 1, 2020 and May 4, 2019 are summarized below:

(in thousands)

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Cash equivalents (including restricted cash)

Long-Lived Assets

Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy of Topic No.

The fair value of the Company’s long-lived assets is generally calculated using discounted cash flows.

During the three months ended May 2, 2020, the Company recorded impairment charges of $ 1.9 million, primarily related to declines in revenues and operating results for seven stores.

These costs were recorded in the line item “Impairment charges – long-lived assets” in the Company’s Condensed Consolidated Statements of (Loss) Income.

All of the fixed assets for these seven stores were fully impaired and therefore had zero fair value as of May 2, 2020, and would be categorized as Level 3 in the fair value hierarchy described above.

Financial Liabilities

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(in thousands)

November 2, 2019

February 1, 2020

November 3, 2018

Term B-5 Loans

Convertible Notes

Secured Notes

ABL Line of Credit

Total debt (a)

Finance lease obligations are excluded from the table above.

The table above excludes finance lease obligations, debt discount and deferred debt costs.

The fair values presented herein are based on pertinent information available to management as of the respective period end dates.

The estimated fair values of the Company’s debt are classified as Level 2 in the fair value hierarchy.

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 .

On March 27, 2020, the CARES Act was enacted into law.

The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years, loosen the business interest limitation under section 163(j), and fix the qualified improvement property regulations in the 2017 Tax Cuts and Jobs Act.

As a result of the CARES Act, to the extent that there are taxable losses at the end of 2020, the Company estimates that it will be able to obtain a tax refund from the carryback of federal NOLs.

Income tax benefit was $ 205.4 million during the three-month period ended May 2, 2020, compared with income tax expense of $ 16.2 million during the three month period ended May 4, 2019.

The effective tax rate for the three month period ended May 2, 2020 was 38.1 %, compared with 17.2 % during the three month period ended May 4, 2019.

The effective tax rate for the first quarter of fiscal 2020 differs from the federal statutory rate of 21 % and is an increase over the prior year primarily due to the Company’s pretax loss and applying various provisions of 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, which represents a rate impact of 11.6 %.

Additionally, there was a 2.2 % rate impact related to permanent benefits related to stock compensation and a 3.5 % rate impact related to state tax benefits on the Company’s taxable loss.

Net deferred taxes are as follows:

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

As of November 2, 2019, the Company has a deferred tax asset related to net operating losses of $ 9.2 million, inclusive of $ 8.9 million related to state net operating losses that expire at various dates between 2019 and 2038 , as well as $ 0.3 million related to Puerto Rico net operating losses that will expire between 2024 and 2025 .

As of November 2, 2019, the Company has a deferred tax asset related to tax credit carry-forwards of $ 6.1 million, inclusive of $ 4.5 million of state tax credit carry-forwards, which will begin to expire in 2022 , as well as $ 1.6 million of deferred tax assets recorded for Puerto Rico alternative minimum tax credits that have an indefinite life .

As of November 2, 2019, February 2, 2019 and November 3, 2018, valuation allowances amounted to $ 8.7 million, $ 10.3 million and $ 9.0 million, respectively, related to state and Puerto Rico net operating losses and state tax credit carry-forwards.

The increase in deferred tax liability is primarily attributable to the tax treatment of certain debt transactions entered into during the first quarter.

As of May 2, 2020, the Company had a deferred tax asset related to net operating losses of $ 16.8 million, inclusive of $ 16.5 million related to state net operating losses that expire at various dates between 2021 and 2040 , as well as $ 0.3 million related to Puerto Rico net operating losses that will expire in 2025 .

As of May 2, 2020, the Company had a deferred tax asset related to tax credit carry-forwards of $ 9.5 million, inclusive of $ 0.6 million of federal tax credits, which will expire in 2040 , and $ 7.5 million of state tax credit carry-forwards, which will begin to expire in 2021 , as well as $ 1.4 million of deferred tax assets recorded for Puerto Rico alternative minimum tax credits that have an indefinite life .

As of May 2, 2020, February 1, 2020 and May 4, 2019, valuation allowances amounted to $ 10.7 million, $ 9.8 million and $ 9.2 million, respectively, related to state and Puerto Rico net operating losses and state tax credit carry-forwards.

The Company believes that it is more likely than not that this portion of state and Puerto Rico net operating losses and state tax credit carry-forwards will not be realized.

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The Company accounts for treasury stock under the cost method.

During the nine month period ended November 2, 2019, the Company acquired 113,582 shares of common stock from employees for approximately $ 19.2 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock awards, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows.

During the three month period ended May 2, 2020, the Company acquired 41,363 shares of common stock from employees for approximately $ 7.4 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock and restricted stock unit awards, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows.

Share Repurchase 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 .

On August 14, 2019, the Company’s Board of Directors authorized the repurchase of up to an additional $ 400 million of common stock, which is authorized to be executed through August 2021 .

These repurchase programs are funded using the Company’s available cash and borrowings under the ABL Line of Credit.

During the nine month period ended November 2, 2019, the Company repurchased 1,365,211 shares of its common stock for $ 216.9 million, inclusive of commissions, under its share repurchase programs, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows.

As of November 2, 2019, the Company had $ 481.6 million remaining under its share repurchase authorizations.

Net Income Per Share

This repurchase program is funded using the Company’s available cash and borrowings under the ABL Line of Credit.

During the three month period ended May 2, 2020, the Company repurchased 243,573 shares of its common stock for $ 50.2 million under its share repurchase program, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows.

As part of the Company’s cash management efforts during the COVID-19 pandemic, the Company suspended its share repurchase program in March 2020.

As of May 2, 2020, the Company had $ 348.4 million remaining under its share repurchase authorization.

Net (Loss) Income Per Share

Basic net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding.

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Three Months Ended

Nine Months Ended

Basic net income per share

Basic net (loss) income per share

Net (loss) income

Weighted average number of common shares – basic

Net income per common share – basic

Diluted net income per share

Net (loss) income per common share – basic

Diluted net (loss) income per share

Net (loss) income

Shares for basic and diluted net income per share:

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Assumed exercise of stock options and vesting of restricted stock

Assumed conversion of convertible debt

Weighted average number of common shares – diluted

Net income per common share – diluted

Approximately 350,000 and 450,000 shares were excluded from diluted net income per share for the three and nine month periods ended November 2, 2019, respectively, since their effect was anti-dilutive.

Approximately 485,000 and 400,000 shares were excluded from diluted net income per share for the three and nine month periods ended November 3, 2018, respectively, since their effect was anti-dilutive.

Net (loss) income per common share – diluted

Approximately 2,025,000 shares were excluded from diluted net loss per share for the three month period ended May 2, 2020, since 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 440,000 shares related to the Company’s stock option, restricted stock and restricted stock unit awards were excluded from diluted net income per share for the three month period ended May 4, 2019, since their effect was anti-dilutive.

The Company intends to repay the principal portion of the Convertible Notes in cash and any excess in either cash, shares or a combination of cash and shares.

As a result, the Company will use the treasury stock method to calculate the dilutive impact of the Convertible Notes, assuming that the principal will be repaid in cash, and that the excess will be paid by issuing shares of common stock.

During the three months ended May 2, 2020, 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.

Stock-Based Compensation

As of November 2, 2019, there were 3,277,586 shares of common stock available for issuance under the Company’s 2013 Omnibus Incentive Plan.

As of May 2, 2020, there were 2,547,386 shares of common stock available for issuance under the Company’s 2013 Omnibus Incentive Plan.

Non-cash stock compensation expense is as follows:

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Three Months Ended

Nine Months Ended

Type of Non-Cash Stock Compensation

Restricted stock grants (a)

Restricted stock and restricted stock unit grants (a)

Stock option grants (a)

Performance stock grants (a)

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

Performance-based restricted stock unit grants (a)

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

The amounts presented in the table above exclude taxes.

For the three and nine month periods ended November 2, 2019, the tax benefit related to the Company’s non-cash stock compensation was approximately $ 1.7 million and $ 6.4 million, respectively.

For the three and nine month periods ended November 3, 2018, the tax benefit related to the Company’s non-cash stock compensation was approximately $ 2.4 million and $ 6.6 million, respectively.

For the three month period ended May 2, 2020, the tax benefit related to the Company’s non-cash stock compensation was approximately $ 3.8 million.

For the three month period ended May 4, 2019, the tax benefit related to the Company’s non-cash stock compensation was approximately $ 2.4 million.

Stock Options

Stock option transactions during the nine month period ended November 2, 2019 are summarized as follows:

Stock option transactions during the three month period ended May 2, 2020 are summarized as follows:

Options outstanding, February 1, 2020

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Options forfeited

Options outstanding, November 2, 2019

Options exercised during the nine month period ended November 2, 2019 had a total intrinsic value of $ 82.5 million.

The following table summarizes information about the stock options vested and expected to vest during the contractual term of such options as of November 2, 2019:

Options outstanding, May 2, 2020

Options exercised during the three month period ended May 2, 2020 had a total intrinsic value of $ 32.7 million.

The following table summarizes information about the stock options vested and expected to vest during the contractual term of such options as of May 2, 2020:

(in millions)

Vested and expected to vest

The fair value of each stock option granted during the nine month period ended November 2, 2019 was estimated using the Black Scholes option pricing model using the following assumptions:

Nine Months Ended

The fair value of each stock option granted during the three month period ended May 2, 2020 was estimated using the Black Scholes option pricing model using the following assumptions:

Three Months Ended

Risk-free interest rate

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Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued.

For grants issued during the nine month period ended November 2, 2019, the expected life of the options was calculated using the simplified method.

issued during the three month period ended May 2, 2020 , the expected life of the options was calculated using the simplified method.

The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches.

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Grants made on and after May 1, 2019 are in the form of restricted stock units.

Restricted stock transactions during the nine month period ended November 2, 2019 are summarized as follows:

Restricted stock transactions during the three month period ended May 2, 2020 are summarized as follows:

Average Grant

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Awards forfeited

Non-vested awards outstanding, November 2, 2019

Restricted stock awards vested during the nine month period ended November 2, 2019 had a total intrinsic value of $ 51.1 million.

Non-vested awards outstanding, May 2, 2020

Restricted stock awards vested during the three month period ended May 2, 2020 had a total intrinsic value of $ 22.0 million.

The fair value of each share of restricted stock granted during Fiscal 2020 was based upon the closing price of the Company’s common stock on the grant date .

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 CAGR goals (each weighted equally) over a three-year performance period.

Performance Stock Units

The Company grants performance-based restricted stock units to its senior executives.

Vesting of these performance share units is based on pre-established EBIT margin expansion and sales compounded annual growth rate (CAGR) goals (each weighted 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.

Performance share unit transactions during the nine month period ended November 2, 2019 are summarized as follows:

In addition to the performance conditions, each performance stock unit cliff vests at the end of a three-year service period.

Compensation costs recognized on the performance-based restricted stock units are adjusted, as applicable, for performance above or below the target specified in the award.

Performance stock unit transactions during the three month period ended May 2, 2020 are summarized as follows:

Average Grant

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Awards forfeited

Non-vested units outstanding, November 2, 2019

A portion of the awards granted during Fiscal 2019, included in the tables above, were granted to Michael O’Sullivan, the Company’s Chief Executive Officer (the CEO), upon commencement of his employment in September 2019.

To compensate the CEO for equity awards forfeited at his prior employer, he received a one-time long-term incentive grant with a target grant date fair value of $ 25.0 million, comprised of 50 % time-based restricted stock units and 50 % stock options, vesting in one-third annual increments (subject to the CEO’s continued employment through the applicable vesting date).

The CEO also received a prorated portion of his Fiscal 2019 long-term incentive award (such award having a target grant date fair value equal to $ 8.5 million), delivered as 50 % performance-based restricted stock units, 25 % stock options and 25 % time-based restricted stock units, on the same terms as the Company’s Fiscal 2019 annual equity grants.

Other Liabilities

As of November 2, 2019, the line item “Other liabilities” on the Company’s Condensed Consolidated Balance Sheet primarily consists of the long term portion of self-insurance reserves and tax liabilities associated with the uncertain tax positions recognized by the Company in accordance with ASC Topic No.

740, “Income Taxes.” As of February 2, 2019 and November 3, 2018, the line item “Other liabilities” on the Company’s Condensed Consolidated Balance Sheets primarily consists of deferred lease incentives, the excess of straight-line rent expense over actual rental payments, the long term portion of self-insurance reserves and tax liabilities associated with uncertain tax positions.

Deferred lease incentives are funds received or receivable from landlords used primarily to offset costs incurred for leasehold improvements and fixturing of new and remodeled stores.

These deferred lease incentives are amortized over the expected lease term including rent holiday periods and option periods, where the exercise of the option can be reasonably assured.

Amortization of deferred lease incentives is included in the line item “Selling, general and administrative expenses” on the Company’s Condensed Consolidated Statements of Income.

At February 2, 2019 and November 3, 2018, deferred lease incentives included in the line item “Other liabilities” were $ 216.2 million and $ 217.2 million, respectively.

As a result of adoption of ASC 2016-02, deferred lease incentives are included in the line item “Operating lease assets” on the Company’s Condensed Consolidated Balance Sheet as of November 2, 2019.

Refer to Note 3, “Lease Commitments,” for further detail of the Company’s lease liabilities.

Non-vested units outstanding, May 2, 2020

Commitments and Contingencies

The Company establishes accruals relating to legal claims in connection with litigation to which the Company is party from time to time in the ordinary course of business.

Like many retailers, the Company has been named in class or collective actions on behalf of various groups alleging violations of federal and state wage and hour and other labor statutes, and alleged violation of state consumer and/or privacy protection and other statutes.

In the normal course of business, we are also party to various other lawsuits and regulatory proceedings including, among others, commercial, product, product safety, employee, customer, intellectual property and other claims.

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 is involved in a federal wage and hour lawsuit alleging that certain exempt employees were misclassified under the Fair Labor Standards Act (FLSA).

In late November 2019, the Court overseeing this lawsuit granted final certification allowing the matter to proceed as a collective action under the FLSA.

In addition, the Company is involved in a putative class action matter raising similar allegations of misclassification under the wage and hour laws of three states.

This matter was stayed by the Court shortly after it was filed and has remained stayed to date.

The Company is beginning mediation discussions in early June

with respect to these lawsuits and is not able to predict the outcome at this time and cannot reasonably estimate any reasonably possible loss in excess of the amount accrued.

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.

To determine the likelihood of a loss and/or the measurement of any loss can be complex.

Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued.

The Company’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

While no assurance can be given as to the ultimate outcome of these matters, the Company believes that the final resolution of these actions will not have a material adverse effect on the Company’s results of operations, financial position, liquidity or capital resources.

Letters of Credit

The Company had letter of credit arrangements with various banks in the aggregate amount of $ 59.2 million, $ 56.7 million and $ 60.9 million as of November 2, 2019, February 2, 2019 and November 3, 2018, respectively.

Among these arrangements, as of November 2, 2019, February 2, 2019 and November 3, 2018, the Company had letters of credit in the amount of $ 50.8 million, $ 48.9 million and $ 44.5 million, respectively, guaranteeing performance under various insurance contracts and utility agreements.

In addition, the Company had outstanding letters of credit agreements in the amounts of $ 8.4 million, $ 7.8 million and $ 16.4 million at November 2, 2019, February 2, 2019 and November 3, 2018, respectively, related to certain merchandising agreements.

Based on the terms of the agreement governing the ABL Line of Credit, the Company had the ability to enter into letters of credit up to $ 540.8 million, $ 543.3 million and $ 434.1 million as of November 2, 2019, February 2, 2019 and November 3, 2018, respectively.

The Company had letter of credit arrangements with various banks in the aggregate amount of $ 49.1 million, $ 53.1 million and $ 56.0 million as of May 2, 2020, February 1, 2020 and May 4, 2019, respectively.

Among these arrangements, as of May 2, 2020, February 1, 2020 and May 4, 2019, the Company had letters of credit outstanding in the amount of $ 47.2 million, $ 46.6 million and $ 50.9 million, respectively, guaranteeing performance under various insurance contracts and utility agreements.

In addition, the Company had outstanding letters of credit arrangements in the amounts of $ 1.9 million, $ 6.5 million and $ 5.1 million at May 2, 2020, February 1, 2020 and May 4, 2019, respectively, related to certain merchandising agreements.

Based on the terms of the agreement governing the ABL Line of Credit, the Company had the ability to enter into letters of credit up to $ 150.9 million, $ 501.8 million and $ 393.9 million as of May 2, 2020, February 1, 2020 and May 4, 2019, respectively.

Purchase Commitments

The Company had $ 971.8 million of purchase commitments related to goods that were not received as of November 2, 2019.

The Company had $ 455.2 million of purchase commitments related to goods that were not received as of May 2, 2020.

Death Benefits

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements