What changed in this filing

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Item 1. Financial Statements

2020-08-27 compared with 2020-05-29 · 164 added, 104 removed, 490 unchanged (35% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Other revenue

3 unchanged sentences

Selling, general and administrative expenses

Costs related to debt amendments

Costs related to debt issuances and amendments

Depreciation and amortization

18 unchanged sentences

Three Months Ended

Six Months Ended

Net (loss) income

Other comprehensive loss, net of tax:

Other comprehensive income (loss), net of tax:

Interest rate derivative contracts:

1 unchanged sentence

Reclassification into earnings during the period

Other comprehensive loss, net of tax

Other comprehensive income (loss), net of tax

Total comprehensive (loss) income

44 unchanged sentences

(All amounts in thousands)

Three Months Ended

Six Months Ended

OPERATING ACTIVITIES

21 unchanged sentences

Cash paid for property and equipment

Lease acquisition costs

Other investing activities

9 unchanged sentences

Other financing activities

Net cash provided by financing activities

Net cash provided by (used in) financing activities

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

9 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 1, 2020

Summary of Significant Accounting Policies

Basis of Presentation

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.

As of August 1, 2020, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated 739 retail 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 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.

Because of the COVID-19 pandemic discussed below, and because the Company’s business is seasonal in nature, the operating results for the three and six month periods ended August 1, 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.

3 unchanged sentences

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.

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 timing and extent of any recovery in traffic and consumer spending at the Company’s stores, as well as any future required store closures because of COVID-19 resurgences.

The Company began reopening 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.

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).

The Company temporarily furloughed most store and distribution center associates, as well as some corporate associates, but continued to provide benefits to furloughed associates, including paying 100 % of their current medical benefit premiums.

As of August 1, 2020, the Company has recalled all furloughed associates at its re-opened stores, as well as its corporate and distribution facilities.

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) , $ 150 million of which was repaid during the second quarter .

In April 2020, the Company issued $ 805 million of 2.25 % Converti ble Senior Notes due 2025 (the Convertible Notes ), and BCFWC issued $ 300 million of 6.25 % Seni or 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.

Carefully managed operating expenses, working capital and capital expenditures, including ceasing substantially all buying activity while stores were closed.

The Company has subsequently resumed its buying activities, while continuing its conservative approach toward operating expenses and capital expenditures.

Negotiated rent deferral agreements with landlords.

2 unchanged sentences

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.

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 has been reinstated now that substantially all of the Company’s stores have reopened.

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 three month period ended May 2, 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 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.

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 $ 24.8 million and $ 87.3 million in its effective income tax rate for the three and six month periods ended August 1, 2020, respectively, 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 tax refund of $ 221.2 million from the carryback of federal NOLs, which is included in the line item “Other assets” on the Company’s Condensed Consolidated Balance Sheet.

Refer to Note 8, “Income Taxes” for further discussion.

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.

14 unchanged sentences

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.

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:

3 unchanged sentences

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.

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 material 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 material impact on the Company’s Condensed Consolidated Financial Statements and notes thereto during the three and six month periods ended August 1, 2020, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of August 1, 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 month periods ended May 2, 2020 and May 4, 2019 in the Company’s stockholders’ equity are summarized below:

Activity for the three and six month periods ended August 1, 2020 and August 3, 2019 in the Company’s stockholders’ equity are summarized below:

(in thousands, except share data)

1 unchanged sentence

Treasury Stock

Deficit (Earnings)

Earnings (Deficit)

Balance at February 1, 2020

8 unchanged sentences

Balance at May 2, 2020

Stock options exercised

Shares used for tax withholding

Vesting of restricted shares, net of forfeitures of 2,499 restricted shares

Stock based compensation

Unrealized losses on interest rate derivative contracts, net of related tax benefit of $ 0.7 million

Amount reclassified into earnings, net of related taxes of $ 0.8 million

Balance at August 1, 2020

(in thousands, except share data)

1 unchanged sentence

Treasury Stock

(Loss) Income

Balance at February 2, 2019

2 unchanged sentences

Shares purchased as part of publicly announced programs

Issuance of restricted shares, net of forfeitures of 4,344 restricted shares

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

Stock based compensation

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

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

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

1 unchanged sentence

Balance at May 4, 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 $ 3.9 million

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

Balance at August 3, 2019

Lease Commitments

7 unchanged sentences

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.

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 are included in the line item “Other current liabilities” on the Company’s Condensed Consolidated Balance Sheet.

As a result, deferred payments related to these leases of $ 47.9 million 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

Six Months Ended

Three Months Ended

Six Months Ended

August 1, 2020

August 3, 2019

Finance lease cost:

14 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

August 1, 2020

August 3, 2019

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

21 unchanged sentences

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.

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 Condensed 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 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.

At August 1, 2020 and August 3, 2019, the Company’s interest rate related to the Term Loan Facility was 1.9 % and 4.3 %, respectively.

Convertible Notes

2 unchanged sentences

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 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.

5 unchanged sentences

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.

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.

16 unchanged sentences

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

August 1, 2020

August 3, 2019

Coupon interest

4 unchanged sentences

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 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.

3 unchanged sentences

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.

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 issuances and amendments” in the Company’s Condensed Consolidated Statement of (Loss) Income.

ABL Line of Credit

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 %.

The Company repaid $ 150 million of this amount during the second quarter of Fiscal 2020.

At August 1, 2020, the Company had $ 120.4 million available under the ABL Line of Credit.

The maximum borrowings under the ABL Line of Credit during the three and six month periods ended August 1, 2020 amounted to $ 400.0 million.

Average borrowings during the three and six month periods ended August 1, 2020 amounted to $ 372.0 million and $ 289.3 million, respectively, at an average interest rate of 2.1 % in both periods.

At August 3, 2019, the Company had $ 428.6 million available under the ABL Line of Credit.

The maximum borrowings under the ABL Line of Credit during the three and six month periods ended August 3, 2019 amounted to $ 245.0 million and $ 255.0 million, respectively.

Average borrowings during the three and six month periods ended August 3, 2019 amounted to $ 146.0 million and $ 146.7 million, respectively, at an average interest rate of 3.7 % in both periods.

Derivative Instruments and Hedging Activities

15 unchanged sentences

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:

As of August 1, 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

10 unchanged sentences

Fair Values of Derivative Instruments

August 1, 2020

February 1, 2020

August 3, 2019

Derivatives Designated as Hedging Instruments

Interest rate cap contracts

Prepaid and other current assets

Interest rate swap contract

5 unchanged sentences

Three Months Ended

Six Months Ended

Interest Rate Derivatives:

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Unrealized losses, before taxes

4 unchanged sentences

Three Months Ended

Six Months Ended

Component of Earnings:

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Interest expense

9 unchanged sentences

Amount reclassified into earnings, net of related taxes of $ 1.2 million

Balance at May 2, 2020

Balance at August 1, 2020

Fair Value Measurements

11 unchanged sentences

Financial Assets

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:

The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of August 1, 2020, February 1, 2020 and August 3, 2019 are summarized below:

(in thousands)

4 unchanged sentences

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.

During the three and six months ended August 1, 2020, the Company recorded impairment charges of $ 1.1 million and $ 3.0 million, respectively, primarily related to declines in revenues and operating results for five stores and ten stores, respectively.

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.

All of the fixed assets for these ten stores were fully impaired and therefore had zero fair value as of August 1, 2020, and would be categorized as Level 3 in the fair value hierarchy described above.

Two of these stores also had partially impaired lease assets, with an aggregate fair value of $ 0.7 million as of August 1, 2020, and are categorized as Level 3 in the fair value hierarchy described above.

Financial Liabilities

1 unchanged sentence

(in thousands)

August 1, 2020

February 1, 2020

August 3, 2019

Term B-5 Loans

7 unchanged sentences

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.

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 correct certain revisions made to qualified improvement property regulations enacted 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.

Income tax benefit was $ 268.4 million during the six month period ended August 1, 2020, compared with income tax expense of $ 27.3 million during the six month period ended August 3, 2019.

The effective tax rate for the six month period ended August 1, 2020 was 41.4 %, compared with 14.4 % during the six month period ended August 3, 2019.

The effective tax rate for the six month period ended August 1, 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 13.5 %.

Additionally, there was a 3.5 % tax rate impact related to permanent benefits related to stock compensation.

Net deferred taxes are as follows:

5 unchanged sentences

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

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 increase in deferred tax liability is primarily attributable to the tax treatment of certain debt transactions entered into during the first quarter of Fiscal 2020.

As of August 1, 2020, the Company had a deferred tax asset related to net operating losses of $ 20.7 million, inclusive of $ 20.4 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 August 1, 2020, the Company had a deferred tax asset related to tax credit carry-forwards of $ 11.1 million, inclusive of $ 1.4 million of federal tax credits, which will expire in 2040 , and $ 8.3 million of state tax credit carry-forwards, which will begin to expire in 2021 , and $ 1.4 million of deferred tax assets recorded for Puerto Rico alternative minimum tax credits that have an indefinite life .

As of August 1, 2020, February 1, 2020 and August 3, 2019, valuation allowances amounted to $ 11.5 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.

2 unchanged sentences

The Company accounts for treasury stock under the cost method.

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.

During the six month period ended August 1, 2020, the Company acquired 54,471 shares of common stock from employees for approximately $ 9.7 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

1 unchanged sentence

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.

From the beginning of Fiscal 2020 through the time the program was suspended, 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.

As of August 1, 2020, the Company had $ 348.4 million remaining under its share repurchase authorization.

Net (Loss) Income Per Share

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Three Months Ended

Six Months Ended

Basic net (loss) income per share

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Net (loss) income

Shares for basic and diluted net income per share:

Shares for basic and diluted net (loss) income per share:

Weighted average number of common shares – basic

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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.

Approximately 2,005,000 and 2,015,000 shares were excluded from diluted net loss per share for the three and six month periods ended August 1, 2020, respectively, 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 600,000 and 500,000 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 and six month periods ended August 3, 2019, respectively, since their effect was anti-dilutive.

During the three and six months ended August 1, 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 May 2, 2020, there were 2,547,386 shares of common stock available for issuance under the Company’s 2013 Omnibus Incentive Plan.

As of August 1, 2020, there were 2,432,377 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

Six Months Ended

Type of Non-Cash Stock Compensation

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Stock option grants (a)

Performance-based restricted stock unit grants (a)

Performance 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 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.

For the three and six month periods ended August 1, 2020, the tax benefit related to the Company’s non-cash stock compensation was approximately $ 2.2 million and $ 6.0 million, respectively.

For the three and six month periods ended August 3, 2019, the tax benefit related to the Company’s non-cash stock compensation was approximately $ 2.9 million and $ 5.2 million, respectively.

Stock Options

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

Stock option transactions during the six month period ended August 1, 2020 are summarized as follows:

Options outstanding, February 1, 2020

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Options forfeited

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:

Options outstanding, August 1, 2020

Options exercised during the six month period ended August 1, 2020 had a total intrinsic value of $ 77.5 million.

The following table summarizes information about the stock options vested and expected to vest during the contractual term of such options as of August 1, 2020:

(in millions)

Vested and expected to vest

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

The fair value of each stock option granted during the six month period ended August 1, 2020 was estimated using the Black Scholes option pricing model using the following assumptions:

Six Months Ended

Risk-free interest rate

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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.

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.

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

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

For grants issued during the six month period ended August 1, 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 three month period ended May 2, 2020 are summarized as follows:

Restricted stock transactions during the six month period ended August 1, 2020 are summarized as follows:

Average Grant

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Awards forfeited

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.

Non-vested awards outstanding, August 1, 2020

Restricted stock awards vested during the six month period ended August 1, 2020 had a total intrinsic value of $ 29.8 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 .

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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.

Vesting of these performance stock 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.

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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:

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

Performance stock unit transactions during the six month period ended August 1, 2020 are summarized as follows:

Average Grant

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Awards forfeited

Non-vested units outstanding, May 2, 2020

Non-vested units outstanding, August 1, 2020

Commitments and Contingencies

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.

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 violations 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.

In June 2020, the Company agreed to

settle both matters for approximately $ 19.6 million (plus applicable employer-side payroll taxes).

The parties are currently working to obtain final Court approval of the settlement.

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.

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Letters of Credit

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.

The Company had letters of credit arrangements with various banks in the aggregate amount of $ 53.9 million, $ 53.1 million and $ 74.5 million as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively.

Among these arrangements, as of August 1, 2020, February 1, 2020 and August 3, 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 $ 6.7 million, $ 6.5 million and $ 23.6 million at August 1, 2020, February 1, 2020 and August 3, 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 $ 120.4 million, $ 501.8 million and $ 428.6 million as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively.

Purchase Commitments

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

The Company had $ 955.6 million of purchase commitments related to goods that were not received as of August 1, 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