What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-27 compared with 2020-05-29 · 216 added, 141 removed, 417 unchanged (46% of the section changed)

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We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear.

Since then, we have expanded our store base to 736 stores as of May 2, 2020, which includes temporarily closed stores, in 45 states and Puerto Rico.

Since then, we have expanded our store base to 739 stores as of August 1, 2020 in 45 states and Puerto Rico.

We have diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including:

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As a result, we began the temporary closing of some of our stores, and effective March 22, 2020, we made the decision to temporarily close all of our 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 our business and have had a significant adverse impact on our financial condition, results of operations and cash flows, the extent of which will be primarily based on the duration of our store closures as well as the timing and extent of any recovery in traffic and consumer spending at our stores.

As of May 29, 2020, approximately 400 of our stores, as well as our distribution centers, have been reopened, and we expect the majority of our stores to reopen by mid-June 2020.

However, w e are 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 our operations, the degree to which our customers will patronize our stores and any impact from potential subsequent additional outbreaks.

These developments have caused significant disruptions to our business and have had a significant adverse impact on our 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 our stores, as well as any future required store closures because of COVID-19 resurgences.

We 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 our stores, we provided two weeks of financial support to associates impacted by these store closures and by the shutdown of distribution centers.

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

As we reopen our stores, we have begun to recall furloughed associates.

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

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

On April 16, 2020, we issued $805 million of 2.25% Convertible Senior Notes due 2025 (the Convertible Notes), and through our indirect subsidiary, Burlington Coat Factory Warehouse Corporation (BCFWC), issued $300 million of 6.25% Senior Secured Notes due 2025 (the Secured Notes).

We 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, we have recalled all furloughed associates at our re-opened stores, as well as our corporate and distribution facilities.

In order to maintain maximum financial flexibility during these uncertain times, we completed several debt transactions during the first quarter of Fiscal 2020.

During March 2020, we borrowed $400 million on our 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, we issued $805 million of 2.25% Convertible Senior Notes due 2025 (the Convertible Notes), and through our indirect subsidiary, Burlington Coat Factory Warehouse Corporation (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, we took the following steps to further enhance our financial flexibility:

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

C arefully manag ed operating expenses, working capital and capital expenditures , including ceasing s ubstantially all buying activities .

We have su bsequently resumed our buying activity, while continuing our conservative approach toward operating expenses and capital expenditures .

Negotiated rent deferral agreements with landlords.

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Our CEO voluntarily agreed to not take a salary, our board of directors voluntarily forfeited their cash compensation, our 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 our 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 we have more clarity regarding the impact of COVID-19.

Although we have ceased most of our 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 our merchandise, we 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 our Condensed Consolidated Statement of (Loss) Income.

This compensation has been reinstated now that substantially all of our 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 our merchandise, we 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 our Condensed Consolidated Statement of (Loss) Income.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law, which provides emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic.

The economic relief package includes government loan enhancement programs and various tax provisions to help improve liquidity for American businesses.

Based on our preliminary evaluation of the CARES Act, we currently believe we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss carryback and immediate expensing for eligible qualified improvement property.

We recorded a tax benefit of $62.5 million in our 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 current year.

We intend to continue to review and consider any available potential benefits under the CARES Act for which we qualify, including those described above.

As various states across the country begin to authorize the re-opening of businesses, we continue to keep health and safety as a top priority as we take steps to re-open our stores.

We are implementing social distancing and safety practices, including:

Based on our evaluation of the CARES Act, we believe we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss (NOL) carrybacks and immediate expensing for eligible qualified improvement property.

We recorded a tax benefit of $24.8 million and $87.3 million in our effective income tax rate for the three and six months 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.

We continue to keep health and safety as a top priority as we operate our stores.

We have implemented social distancing and safety practices, including:

Signage to remind customers and associates to practice social distancing and remain at least six feet apart.

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Wider check-out lanes, with social distancing markers on the floor.

Increased space at each register between customers and associates.

Increased space at each register, as well as a physical barrier, between customers and associates.

Closing all fitting rooms.

Routinely cleaning and disinfecting all areas of the store, including frequently cleaning high-touch areas.

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Making shopping cart wipes available.

Associates are being screened before returning to work, wearing face coverings while in stores, and are provided with gloves.

All associates were screened before returning from furlough and continued to be screened daily in stores and distribution centers where required by state and local mandates.

Associates are also required to wear face coverings while in stores and our distribution centers and are provided face masks and gloves by the Company.

We 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.

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Store Openings, Closings, and Relocations

During the three month period ended May 2, 2020, we opened 22 new stores, inclusive of 10 relocations, and permanently closed three stores, exclusive of the aforementioned relocations, bringing our store count as of May 2, 2020 to 736 stores, which includes temporarily closed stores.

Ong o ing Initiatives for Fiscal 2020

During the six month period ended August 1, 2020, we opened 25 new stores, inclusive of 10 relocations, and permanently closed three stores, exclusive of the aforementioned relocations, bringing our store count as of August 1, 2020 to 739 stores, which includes temporarily closed stores.

Ongoing Initiatives for Fiscal 2020

Since the beginning of the COVID-19 pandemic, protecting the health and safety of our customers, associates, and the communities that we serve has been our top priority.

Accordingly, we moved quickly to close our stores, distribution centers, and corporate offices in March.

Now, as various states across the country begin to authorize the re-opening of businesses, we continue to keep health and safety as a top priority as we take steps to re-open our stores.

As discussed above, we began reopening stores on May 11, 2020 in accordance with applicable government guidelines and, as of May 29, 2020, approximately 400 of our stores have been reopened.

We plan on opening most of our remaining stores by mid-June 2020.

We continue to keep health and safety as a top priority as we operate our stores.

As discussed above, we began reopening stores on May 11, 2020 in accordance with applicable government guidelines, with the majority of our stores re-opened by mid-June 2020, and substantially all stores re-opened by the end of the second quarter.

While our stores were closed, our primary short-term financial objective was to effectively manage and enhance our liquidity.

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In addition, consumer purchasing patterns may be influenced by consumers’ disposable income, credit availability and debt levels.

A more broad, protracted slowdown in the U.S.

A broader, protracted slowdown in the U.S.

economy, an extended period of high unemployment rates, an uncertain global economic outlook or a credit crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis.

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Ongoing international trade and tariff negotiations could have a direct impact on our income and an indirect impact on consumer prices.

The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., or public health issues such as pandemics or epidemics, including the recent outbreak of the COVID-19 pandemic, could lead to a decrease in spending by consumers.

The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., or public health issues such as pandemics or epidemics, including the outbreak of the COVID-19 pandemic, could lead to a decrease in spending by consumers.

In addition, natural disasters, public health issues, industrial accidents and acts of war in various parts of the world could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S.

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At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those offered by us at our Burlington stores.

Additionally, it is likely that the retail environment may be highly promotional in the near term, as retailers try to rebuild traffic to their stores and clear aged merchandise.

Additionally, it is likely that the retail environment may continue to be highly promotional in the near term, as retailers try to rebuild traffic to their stores and clear aged merchandise.

We anticipate that competition will increase in the future.

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Management measures liquidity through cash flow, which is the measure of cash generated from or used in operating, financing, and investing activities.

We took several steps during the three months ended May 2, 2020 to effectively manage our liquidity during the COVID-19 pandemic, including careful management of operating expenses, working capital and capital expenditures, as well as suspending our share repurchase program.

We took several steps during the six months ended August 1, 2020 to effectively manage our liquidity during the COVID-19 pandemic, including careful management of operating expenses, working capital and capital expenditures, as well as suspending our share repurchase program.

Additionally, we borrowed $400 million on our existing ABL Line of Credit, issued $805 million of our Convertible Notes, and through BCFWC, issued $300 million of our Secured Notes.

Cash and cash equivalents, including restricted cash and cash equivalents, increased $1,085.4 million during the three months ended May 2, 2020, compared with a decrease of $7.2 million during the three months ended May 4, 2019.

We repaid $150 million on the ABL Line of Credit during the second quarter of Fiscal 2020.

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

Cash and cash equivalents, including restricted cash and cash equivalents, increased $674.1 million during the six months ended August 1, 2020, compared with a decrease of $15.1 million during the six months ended August 3, 2019.

Refer to the section below entitled “Liquidity and Capital Resources” for further explanation.

Net (loss) income .

We recorded a net loss of $333.7 million during the three month period ended May 2, 2020 compared with net income of $77.8 million during the three month period ended May 4, 2019.

This decrease was primarily driven by the temporary closure of all our stores in March and April 2020 due to the COVID-19 pandemic.

We recorded a net loss of $46.8 million during the three month period ended August 1, 2020 compared with net income of $84.6 million during the three month period ended August 3, 2019.

We recorded a net loss of $380.5 million during the six month period ended August 1, 2020 compared with net income of $162.3 million during the six month period ended August 3, 2019.

These decreases were primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Refer to the section below entitled “Results of Operations” for further explanation.

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(i) net favorable lease cost;

(ii) costs related to debt amendments;

(ii) costs related to debt issuances and amendments;

(iii) loss on extinguishment of debt;

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(vi) non-cash interest expense on the Convertible Notes;

and (vii) other unusual, non-recurring or extraordinary expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net (Loss) Income.

(vii) costs related to closing the e-commerce store;

and (v ii i ) other unusual, non-recurring or extraordinary expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net (Loss) Income .

We define Adjusted EBITDA as net (loss) income, exclusive of the following items, if applicable:

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(vi) impairment charges;

(vii) costs related to debt amendments;

(vii) costs related to debt issuances and amendments;

(viii) amounts related to certain litigation matters;

and (ix ) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

(ix) costs related to closing the e-commerce store;

and (x) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

We define Adjusted EBIT as net (loss) income, exclusive of the following items, if applicable:

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(vi) net favorable lease costs;

(vii) costs related to debt amendments;

(vii) costs related to debt issuances and amendments;

(viii) amounts related to certain litigation matters;

and (ix) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

(ix) costs related to closing the e-commerce store;

and (x) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

We present Adjusted Net (Loss) Income, Adjusted EBITDA and Adjusted EBIT, because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations.

In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods.

Additionally, Adjusted Net Income per share (subject to further adjustment by the Compensation Committee of the board of directors) has historically been used for purposes of determining 50% of the awards made under our corporate annual incentive plan.

Adjusted Net (Loss) Income has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net (loss) income or other data prepared in accordance with GAAP.

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favorable lease costs;

costs related to debt amendments;

costs related to debt issuances and amendments;

losses on extinguishment of debt;

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impairment charges on long-lived assets;

costs related to closing the e-commerce store;

other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During the three months ended May 2, 2020, Adjusted Net (Loss) Income, exclusive of management transition costs, decreased $397.9 million to a loss of $312.4 million.

This decrease was primarily driven by the temporary closure of all our stores in March and April 2020 due to the COVID-19 pandemic.

During the three and six months ended August 1, 2020, Adjusted Net (Loss) Income decreased $128.6 million to a loss of $37.2 million and decreased $529.2 million to a loss of $352.2 million, respectively, compared to the same periods in the prior year.

These decreases were primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net (loss) income to Adjusted Net (Loss) Income for the three months ended May 2, 2020 compared with the three months ended May 4, 2019 :

The following table shows our reconciliation of net (loss) income to Adjusted Net (Loss) Income for the three and six months ended August 1, 2020 compared with the three and six months ended August 3, 2019 :

(in thousands)

Three Months Ended

Six Months Ended

Reconciliation of net (loss) income to Adjusted Net (Loss) Income:

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Non-cash interest expense on convertible notes (b)

Costs related to debt amendments (c)

Costs related to debt issuances and amendments (c)

Loss on extinguishment of debt (d)

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Litigation accruals (e)

Tax effect (f)

E-commerce closure (f)

Tax effect (g)

Adjusted Net (Loss) Income

Management transition costs, net of tax effect (g)

Adjusted Net (Loss) Income, exclusive of management transition costs

Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of purchase accounting related to the April 13, 2006 Bain Capital acquisition of Burlington Coat Factory Warehouse Corporation (the Merger Transaction).

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Represents amounts charged for certain litigation matters.

Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, adjusted for the tax effect for the impact of items (a) through (e).

Represents costs incurred as a result of hiring a new Chief Executive Officer, primarily related to sign-on and duplicative compensation costs.

Represents costs related to the closure of our e-commerce store.

Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, adjusted for the tax effect for the impact of items (a) through (f).

The effective tax rate includes the benefit of loss carrybacks to prior years with higher statutory tax rates.

Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net (loss) income or other data prepared in accordance with GAAP.

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losses on the extinguishment of debt;

costs related to debt amendments;

costs related to debt issuances and amendments;

cash requirements for replacement of assets.

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impairment charges on long-lived assets;

costs related to closing the e-commerce store;

income tax expense;

other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During the three months ended May 2, 2020, Adjusted EBITDA, exclusive of management transition costs, decreased $612.9 million to a loss of $444.9 million.

This decrease was primarily driven by the temporary closure of all our stores in March and April 2020 due to the COVID-19 pandemic.

During the three and six months ended August 1, 2020, Adjusted EBITDA decreased $179.1 million to a loss of $8.8 million and decreased $794.6 million to a loss of $456.4 million, respectively, compared to the same period in the prior year.

These decreases were primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net (loss) income to Adjusted EBITDA for the three months ended May 2, 2020 compared with the three months ended May 4, 2019 :

The following table shows our reconciliation of net (loss) income to Adjusted EBITDA for the three and six months ended August 1, 2020 compared with the three and six months ended August 3, 2019 :

(in thousands)

Three Months Ended

Six Months Ended

Reconciliation of net (loss) income to Adjusted EBITDA:

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Loss on extinguishment of debt (a)

Costs related to debt amendments (b)

Costs related to debt issuances and amendments (b)

Litigation accruals (c)

Depreciation and amortization (d)

E-commerce closure (d)

Depreciation and amortization (e)

Impairment charges

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Adjusted EBITDA

Management transition costs (e)

Adjusted EBITDA, exclusive of management transition costs

Amounts relate to the refinancing of the Term Loan Facility.

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Represents amounts charged for certain litigation matters.

Includes $6.4 million and $10.5 million of favorable lease cost included in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of (Loss) Income for the three months ended May 2, 2020 and the three months ended May 4, 2019, respectively.

Represents costs related to the closure of our e-commerce store.

Includes $6.1 million and $12.5 million of favorable lease cost included in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of (Loss) Income for the three and six months ended August 1, 2020, and $9.1 million and $19.6 million for the three and six months ended August 3, 2019, respectively.

Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of the Merger Transaction.

Represents costs incurred as a result of hiring a new Chief Executive Officer, primarily related to sign-on and duplicative compensation costs.

Adjusted EBIT has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net (loss) income or other data prepared in accordance with GAAP.

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losses on the extinguishment of debt;

costs related to debt amendments;

costs related to debt issuances and amendments;

favorable lease cost;

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impairment charges on long-lived assets;

costs related to closing the e-commerce store;

income tax expense;

other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During the three months ended May 2, 2020, Adjusted EBIT, exclusive of management transition costs, decreased $616.6 million to a loss of $499.2 million.

This decrease was primarily driven by the temporary closure of all our stores in March and April 2020 due to the COVID-19 pandemic.

During the three and six months ended August 1, 2020, Adjusted EBIT decreased $181.3 million to a loss of $63.2 million and decreased $800.6 million to a loss of $564.9 million, respectively, compared to the same period in the prior year.

These decreases were primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net (loss) income to Adjusted EBIT for the three months ended May 2, 2020 compared with the three months ended May 4, 2019 :

The following table shows our reconciliation of net (loss) income to Adjusted EBIT for the three and six months ended August 1, 2020 compared with the three and six months ended August 3, 2019 :

(in thousands)

Three Months Ended

Six Months Ended

Reconciliation of net (loss) income to Adjusted EBIT:

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Loss on extinguishment of debt (a)

Costs related to debt amendments (b)

Costs related to debt issuances and amendments (b)

Net favorable lease costs (c)

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Litigation accruals (d)

E-commerce closure (e)

Income tax (benefit) expense

Adjusted EBIT

Management transition costs (e)

Adjusted EBIT, exclusive of management transition costs

Amounts relate to the refinancing of the Term Loan Facility.

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Represents amounts charged for certain litigation matters.

Represents costs incurred as a result of hiring a new Chief Executive Officer, primarily related to sign-on and duplicative compensation costs.

Represents costs related to the closure of our e-commerce store.

Comparable Store Sales.

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As a result, our definition of comparable store sales may differ from other retailers.

This metric has also historically been used for purposes of determining 50% of the awards made under our corporate annual incentive plan.

We define comparable store sales as merchandise sales of those stores, commencing on the first day of the fiscal month one year after the end of their grand opening activities, which normally conclude within the first two months of operations.

If a store is closed for seven or more days during a month, our policy is to remove that store from our calculation of comparable stores sales for any such month, as well as during the month(s) of their grand re-opening activities.

Comparable store sales increased 3% in February of Fiscal 2020.

All stores were non-comparable during March and April of Fiscal 2020 due to the temporary closures associated with the COVID-19 pandemic.

Comparable store sales were flat for the three months ended May 4, 2019 .

Comparable store sales increased 4% and 2% for the three and six month periods ended August 3, 2019, respectively .

Comparable store sales as defined above are not meaningful for the three and six months ended August 1, 2020, due to the extended store closures resulting from the COVID-19 pandemic.

In order to provide a performance indicator for our stores as they reopen, we are temporarily reporting a new sales measure:

sales in re-opened stores.

Sales in re-opened stores includes all stores that were opened prior to the end of the second quarter of Fiscal 2019, and reports the sales increase or decrease of these stores for the days the stores were open in the current period against sales for the same days in the prior year.

Sales in re-opened stores decreased 14% during the second quarter of Fiscal 2020.

These sales were stronger in the first half of the quarter driven by strong clearance sales, but weakened in late June and July due to low inventory levels and delayed store replenishment.

Various factors affect comparable store sales, including, but not limited to, weather conditions, current economic conditions, the timing of our releases of new merchandise and promotional events, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs.

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We include in our “Cost of sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees.

Gross margin as a percentage of net sales decreased to 2.0% during the three month period ended May 2, 2020, compared with 41.0% during the three month period ended May 4, 2019, driven primarily by a $271.9 million charge against aged inventory due to our extended store closures.

Product sourcing costs, which are included in selling, general and administrative

expenses, were $75.7 million during the three month period ended May 2, 2020 , compared with $78.6 million during the three month period ended May 4, 2019 .

Inventory at May 2, 2020 decreased to $625.9 million compared with $895.8 million at May 4, 2019.

The decrease was attributable primarily to the $271.9 million inventory charge during the three month period ended May 2, 2020 due to aged inventory, as well as aggressive actions to reduce inventory receipts during this period of extended store closures.

These charges are included in “Cost of sales” on our Condensed Consolidated Statement of (Loss) Income.

Pack and hold inventory was 22% of total inventory as of May 2, 2020, compared with 28% as of May 4, 2019.

We ceased most buying activity, including pack and hold, during the period that stores were closed.

Once operations return to normal, we intend to continue to build up our pack and hold merchandise.

Gross margin as a percentage of net sales improved to 45.8% during the three month period ended August 1, 2020, compared with 41.4% during the three month period ended August 3, 2019.

We recorded a reserve in the first quarter of Fiscal 2020 to

account for the impact of clearance markdowns anticipated up on store re-openings in the s econd quarter.

These markdowns reserved for in the first quarter led to low levels of clearance inventory in the second half of the second quarter and resulted in lower markdowns and increased margin for the quarter.

Product sourcing costs, which are included in selling, general and administrative expenses, were $72.1 million during the three month period ended August 1, 2020 , compared with $82.2 million during the three month period ended August 3, 2019 .

Gross margin as a percentage of ne t sales decreased to 26.4% during the six month period ended August 1, 2020 , compared with 41.2 % during the six month period ended August 3, 2019 , driven primarily by aged inventory markdowns in the first quarter due to our extended store closures.

Product sourcing costs were $ 146.6 million during the six month period ended August 1, 2020 , compared with $160.7 million during the six month period ended August 3, 2019 .

Inventory at August 1, 2020 decreased to $607.6 million compared with $823.8 million at August 3, 2019.

The decrease was driven by faster than expected clearance sell through during the first half of the quarter, delays in inventory replenishment, and conservative inventory plans due to uncertain consumer demand during the pandemic.

We are planning in-store inventories to remain well below last year’s levels on a comparable store basis.

Pack and hold inventory was 26% of total inventory as of August 1, 2020, compared with 29% as of August 3, 2019.

We intend to continue to build up our pack and hold merchandise.

Inventory at February 1, 2020 was $777.2 million.

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By appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh merchandise to our customers.

Once operations begin to normalize, we will continue to move toward more productive inventories by increasing the amount of current inventory as a percent of total inventory.

Once operations begin to normalize, we intend to move toward more productive inventories by increasing the amount of current inventory as a percent of total inventory.

Store Payroll.

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

As a result of these actions, store payroll costs decreased to $105.2 million during the three month period ended May 2, 2020, compared with $141.0 million during the three month period ended May 4, 2019.

As a result of these actions, store payroll costs decreased to $110.5 million and $215.6 million during the three and six month periods ended August 1, 2020, compared with $148.8 million and $289.9 million during the three and six month periods ended August 3, 2019, respectively.

Results of Operations

The following table sets forth certain items in the Condensed Consolidated Statements of (Loss) Income as a percentage of net sales for the three months ended May 2, 2020 and the three months ended May 4, 2019.

The following table sets forth certain items in the Condensed Consolidated Statements of (Loss) Income as a percentage of net sales for the three and six months ended August 1, 2020 and the three and six months ended August 3, 2019.

Percentage of Net Sales

Three Months Ended

Six Months Ended

Other revenue

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Selling, general and administrative expenses

Costs related to debt amendments

Costs related to debt issuances and amendments

Depreciation and amortization

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Net (loss) income

Three Month Period Ended May 2, 2020 Compared With the Three Month Period Ended May 4, 2019

Net sales decreased approximately $830.6 million, or 51.0%, to $798.0 million during the three month period ended May 2, 2020, driven primarily by the temporary closure of all our stores by March 22, 2020.

Comparable store sales for February of Fiscal 2020 increased 3% prior to the store closures.

All stores were non-comparable for March and April of Fiscal 2020.

Three Month Period Ended August 1, 2020 Compared With the Three Month Period Ended August 3, 2019

Net sales decreased approximately $646.5 million, or 39.0%, to $1,009.9 million during the second quarter of Fiscal 2020, primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Sales in reopened stores, from the date of

their reopening to the end of the second quarter, decreased 14%.

These sales were stronger in the first half of the quarter driven by strong clearance sales, but weakened in late June and July due to low inventor y levels and delayed store replenishment.

Cost of sales

Cost of sales as a percentage of net sales increased to 98.0% during the three month period ended May 2, 2020, compared to 59.0% during the three month period ended May 4, 2019, driven primarily by a $271.9 million charge against aged inventory due to

the extended store closures .

On a dollar basis, cost of sales de creased $ 179.1 million, or 18.6% , pr imarily driven by our overall de crease in sales .

Product sourcing costs, which are included in selling, general and administrative expenses, wer e $75.7 million during the three month period ended May 2, 2020 , compared with $78.6 million during the three month period ended May 4, 2019 .

Cost of sales as a percentage of net sales decreased to 54.2% during the second quarter of Fiscal 2020, compared to 58.6% during the second quarter of Fiscal 2019.

We recorded a reserve in the first quarter of Fiscal 2020 to account for the impact of clearance markdowns anticipated upon store re-openings in the second quarter.

On a dollar basis, cost of sales decreased $422.9 million, or 43.6%, primarily driven by our overall decrease in sales.

Product sourcing costs, which are included in selling, general and administrative expenses, were $72.1 million during the second quarter of Fiscal 2020, compared with $82.2 million during the second quarter of Fiscal 2019.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for the three month period ended May 2, 2020 compared with the three month period ended May 4, 2019.

The following table details selling, general and administrative expenses for the three month period ended August 1, 2020 compared with the three month period ended August 3, 2019.

(in millions)

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Selling, general and administrative expenses

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by the temporary closure of all stores by March 22, 2020.

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by the temporary closure of all our stores.

We took significant steps to reduce selling, general and administrative expenses during this period.

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As a result of these actions, our selling, general and administrative expenses decreased from last year on a dollar basis.

These decreases were partially offset by increases in stock compensation expense and litigation accruals, as well as COVID-19 related expenses.

Costs related to debt amendments

These decreases were partially offset by COVID-19 related expenses and store re-opening costs of approximately $37 million, as well as litigation accruals.

Refer to Note 12, “Commitments and Contingencies” for further discussion regarding our litigation accruals.

Depreciation and amortization

Depreciation and amortization expense related to the depreciation of fixed assets amounted to $54.4 million during the second quarter of Fiscal 2020 compared with $52.3 million during the second quarter of Fiscal 2019.

The increase in depreciation and amortization expense was primarily driven by capital expenditures related to our new and non-comparable stores.

Interest expense

Interest expense increased $14.9 million during the second quarter of Fiscal 2020 to $28.4 million, compared to the same period in the prior year.

The increase was primarily driven by the $400 million draw on our ABL Line of Credit in March 2020, as well as the issuance of our $805 million Convertible Notes and our $300 million Secured Notes.

This increase was partially offset by the refinancing of our Term Loan Facility in February 2020, which reduced the applicable interest rate margins on our Term Loan Facility from 2.00% to 1.75%, as well as a decrease in average LIBOR.

The average interest rates and average balances related to our variable rate debt for the second quarter of Fiscal 2020 compared with the second quarter of Fiscal 2019 , are summarized in the table below:

Three Months Ended

Average interest rate – ABL Line of Credit

Average interest rate – Term Loan Facility

Average balance – ABL Line of Credit (in millions)

Average balance – Term Loan Facility (in millions) (a)

Excludes original issue discount.

Income tax (benefit) expense

Income tax benefit was $63.1 million during the second quarter of Fiscal 2020 compared with income tax expense of $11.2 million during the second quarter of Fiscal 2019.

The effective tax rate for the second quarter of Fiscal 2020 was 57.4% compared with 11.6% during the second quarter of Fiscal 2019.

The income tax benefit in the current year is a result of the pre-tax loss and the carry-back of net operating losses arising in 2020 to the five prior tax years, as permitted under the CARES Act.

The increase in the income tax rate is a function of current year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.

At the end of each interim period we are required to determine the best estimate of our annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis.

Use of this methodology during the second quarter of Fiscal 2020 resulted in an annual effective income tax rate of approximately 36 % (before discrete items) as our best estimate.

This is an increase compared to the annual effective tax rate for the second quarter of Fiscal 2019 of approximately 25% (before discrete items), due to current year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.

Net (loss) income

We recorded a net loss of $46.8 million for the second quarter of Fiscal 2020 compared with net income of $84.6 million for the second quarter of Fiscal 2019.

This decrease was primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Six Month Period Ended August 1, 2020 Compared With the Six Month Period Ended August 3, 2019

Net sales decreased approximately $1,477.0 million, or 45.0%, to $1,807.9 million during the six month period ended August 1, 2020, driven primarily by the temporary closure of all our stores due to the COVID-19 pandemic.

Sales in reopened stores, from the date of their reopening to the end of the second quarter, decreased 14%.

These sales were stronger in the first half of the quarter driven by strong clearance sales, but weakened in late June and July due to low inventory levels and delayed store replenishment.

Cost of sales

Cost of sales as a percentage of net sales increased to 73.6% during the six month period ended August 1, 2020, compared to 58.8% during the six month period ended August 3, 2019, driven primarily by markdowns on aged inventory in the first quarter due to the extended store closures.

On a dollar basis, cost of sales decreased $602.0 million, or 31.2%, primarily driven by our overall decrease in sales.

Product sourcing costs, which are included in selling, general and administrative expenses, were $146.6 million during the six month period ended August 1, 2020, compared with $160.7 million during the six month period ended August 3, 2019.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for the six month period ended August 1, 2020 compared with the six month period ended August 3, 2019.

(in millions)

Six Months Ended

August 1, 2020

August 3, 2019

Store related costs

Product sourcing costs

Corporate costs

Marketing and strategy costs

Favorable lease cost

Other selling, general and administrative expenses

Selling, general and administrative expenses

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by the temporary closure of all our stores.

We took significant steps to reduce selling, general and administrative expenses during this period.

Among other things, we worked with landlords to modify payment terms for certain leases, furloughed most store and distribution center associates, as well as some corporate associates, temporarily eliminated the salary of the CEO and cash compensation for our Board of Directors, and temporarily reduced the salaries for our executive leadership team by 50%, with smaller salary reductions for all employees through a certain level.

As a result of these actions, our selling, general and administrative expenses decreased from last year on a dollar basis.

These decreases were partially offset by COVID-19 related expenses and store re-opening costs of approximately $37 million, as well as litigation accruals.

Refer to Note 12, “Commitments and Contingencies” for further discussion regarding our litigation accruals.

Costs related to debt issuances and amendments

During the first quarter of Fiscal 2020, we incurred legal fees related to the issuance of our Secured Notes of $3.2 million, as well as legal and placement fees of $1.1 million related to the refinancing our Term Loan Facility.

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Depreciation and amortization

Depreciation and amortization expense related to the depreciation of fixed assets amounted to $54.3 million during the three month period ended May 2, 2020 compared with $50.6 million during the three month period ended May 4, 2019.

Depreciation and amortization expense related to the depreciation of fixed assets amounted to $108.7 million during the six month period ended August 1, 2020 compared with $102.9 million during the six month period ended August 3, 2019.

The increase in depreciation and amortization expense was primarily driven by capital expenditures related to our new and non-comparable stores.

Interest expense

Interest expense increased $1.3 million to $14.7 million.

Interest expense increased $16.2 million during the six month period ended August 1, 2020 to $43.1 million, compared to the same period in the prior year.

The increase was primarily driven by the $400 million draw on our ABL Line of Credit in March 2020, as well as the issuance of our $805 million Convertible Notes and our $300 million Secured Notes.

The average interest rates and average balances related to our variable rate debt for the three month period ended May 2, 2020 compared with prior year, are summarized in the table below:

Three Months Ended

The average interest rates and average balances related to our variable rate debt for the six month period ended August 1, 2020 compared with prior year, are summarized in the table below:

Six Months Ended

Average interest rate – ABL Line of Credit

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Excludes original issue discount

Income tax expense

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 income tax benefit in the current year is a result of the pre-tax loss, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27th, 2020.

Among other things, the CARES Act allows for a 5 year Net Operating Loss carry-back.

Income tax (benefit) expense

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 income tax benefit in the current year is a result of the pre-tax loss and the carry-back of net operating losses arising in 2020 to the five prior tax years, as permitted under the CARES Act.

The increase in the income tax rate is a function of current year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.

Net (loss) income

We recorded a net loss of $333.7 million during the three month period ended May 2, 2020 compared with net income of $77.8 million for the three month period ended May 4, 2019.

This decrease was primarily driven by the temporary closure of all our stores in March and April 2020 due to the COVID-19 pandemic.

We recorded a net loss of $380.5 million during the six month period ended August 1, 2020 compared with net income of $162.3 million for the six month period ended August 3, 2019.

This decrease was primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Liquidity and Capital Resources

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We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all.

As a result of the temporary store closures and the uncertainty regarding the duration of the COVID-19 impact on store traffic, the Company took a more conservative approach to managing its cash flow during the first quarter of Fiscal 2020.

These measures included carefully managing operating expenses, working capital and capital expenditures during the period, as well as suspending the Company’s share repurchase program.

We initiated several debt transactions in order to facilitate increased financial flexibility during this period.

We completed several debt transactions in order to facilitate increased financial flexibility during this period.

During March 2020, we borrowed $400 million on our existing ABL Line of Credit.

We repaid $150 million on the ABL Line of Credit during the second quarter of Fiscal 2020.

On April 16, 2020, we issued $805 million of our Convertible Notes, and through BCFWC, issued $300 million of Secured Notes.

The proceeds of the Convertible Notes and Secured Notes will be used for general corporate purposes.

The proceeds of the Convertible Notes and Secured Notes are being used for general corporate purposes.

We believe that cash generated from operations upon re-opening of our stores, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future.

However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives in the event that the economy declines, or we are again required to cease or significantly limit our operations as a result of the COVID-19 pandemic.

Cash Flow for the Three Month Period Ended May 2, 2020 Compared With the Three Month Period Ended May 4, 2019

We generated $1,085.4 million of cash flow during the three month period ended May 2, 2020 compared with a use of $7.2 million during the three month period ended May 4, 2019.

Net cash used in operating activities amounted to $271.7 million during the three month period ended May 2, 2020, compared with proceeds of $54.2 million during the three month period ended May 4, 2019.

Cash Flow for the Six Month Period Ended August 1, 2020 Compared With the Six Month Period Ended August 3, 2019

We generated $674.1 million of cash flow during the six month period ended August 1, 2020 compared with a use of $15.1 million during the six month period ended August 3, 2019.

Net cash used in operating activities amounted to $473.0 million during the six month period ended August 1, 2020, compared with proceeds of $229.4 million during the six month period ended August 3, 2019.

The decrease in our operating cash flows was primarily driven by the temporary closure of all stores due to the COVID-19 pandemic.

Net cash used in investing activities was $ 62.6 million during the three month period ended May 2, 2020 compared with a use of $ 83.9 million during the three month period ended May 4, 2019 .

Net cash used in investing activities was $ 134.1 million during the six month period ended August 1, 2020 compared with a use of $ 164.0 million during the six month period ended August 3, 2019 .

This change was primarily the result of a decrease in capital expenditures.

Many of our new store, store remodel and other store expenditure projects were moved to future periods as a result of the COVID-19 pandemic .

Net cash provided by financing activities was $1,419.7 million during the three month period ended May 2, 2020 compared with $22.4 million during the three month period ended May 4, 2019.

This change was primarily driven by our cash flow management efforts as a result of the COVID-19 pandemic, which included drawing $400 million on our ABL Line of Credit, issuing $805 million of our Convertible Notes, and through BCFWC, issuing $300 million on our Secured Notes, and suspending our share repurchase program.

Some of our new store, store remodel and other store expenditure projects were moved to future periods as a result of the COVID-19 pandemic .

Net cash provided by financing activities was $1,281.2 million during the six month period ended August 1, 2020 compared with a use of $80.5 million during the six month period ended August 3, 2019.

This change was primarily driven by our cash flow management efforts as a result of the COVID-19 pandemic, which included drawing $400 million on our ABL Line of Credit, issuing $805 million of our Convertible Notes, and through BCFWC, issuing $300 million of Secured Notes, and suspending our share repurchase program.

We repaid $150 million on the ABL Line of Credit during the second quarter of Fiscal 2020.

Changes in working capital also impact our cash flows.

Working capital equals current assets (exclusive of restricted cash) minus current liabilities.

We had working capital at May 2, 2020 of $867.9 million compared with a working capital deficit of $114.0 million at May 4, 2019.

The increase in working capital was primarily due to our increased cash balance, as a result of issuing the Convertible Notes and the Secured Notes and the $400 million draw on our ABL Line of Credit.

These increases were partially offset by a decrease in merchandise inventories, as a result of markdowns taken on inventory purchased prior to the COVID-19 pandemic.

We had working capital at August 1, 2020 of $660.0 million compared with a working capital deficit of $151.7 million at August 3, 2019.

The increase in working capital was primarily due to our increased cash balance, as a result of issuing the Convertible Notes and the Secured Notes and the $250 million net draw on our ABL Line of Credit, as well as a decrease in accounts payable, due to decreased inventory receipts.

These increases were partially offset by a decrease in merchandise inventories, an increase in other current liabilities (primarily due to deferral of rent payments and accrued interest on the Convertible Notes and Secured Notes), and a decrease in accounts receivable (primarily due to decreased credit card receivables).

We had a working capital deficit at February 1, 2020 of $51.1 million.

Capital Expenditures

For the three month period ended May 2, 2020, cash spend for capital expenditures, net of $5.8 million of landlord allowances, amounted to $56.7 million.

As a result of our temporary store closures and the uncertainty regarding the impact of the COVID-19 pandemic on store traffic, many of our capital expenditure projects have been moved to future periods.

For the six month period ended August 1, 2020, cash spend for capital expenditures, net of $12.8 million of landlord allowances, amounted to $120.9 million.

As a result of our temporary store closures and the uncertainty regarding the impact of the COVID-19 pandemic on store traffic, some of our capital expenditure projects have been moved to future periods.

We now estimate that we will spend approximately $260 million, net of approximately $40 million of landlord allowances, in capital expenditures during Fiscal 2020, including approximately $105 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures).

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This repurchase program is funded using our available cash and borrowings on our ABL Line of Credit.

During the three month period ended May 2, 2020, we repurchased 243,573 shares of our common stock for $50.2 million under the share repurchase program.

During the six month period ended August 1, 2020, we repurchased 243,573 shares of our common stock for $50.2 million under the share repurchase program.

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

As of May 2, 2020, we had $348.4 million remaining under our share repurchase authorization.

As of August 1, 2020, we had $348.4 million remaining under our share repurchase authorization.

We are authorized to repurchase, from time to time, shares of our outstanding common stock on the open market or in privately negotiated transactions under our repurchase program.

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Operational Growth

During the three month period ended May 2, 2020, we opened 22 new stores, inclusive of 10 relocations, and closed three stores, exclusive of the aforementioned relocations, bringing our store count as of May 2, 2020 to 736 stores.

Many of our store opening and relocation projects have been moved to future periods as a result of the COVID-19 pandemic.

We will continue to pursue our growth plans and invest in capital projects that meet our financial requirements once normal store operations resume, and we have more clarity on the extent of the impact of the COVID-19 pandemic.

During the six month period ended August 1, 2020, we opened 25 new stores, inclusive of 10 relocations, and closed three stores, exclusive of the aforementioned relocations, bringing our store count as of August 1, 2020 to 739 stores.

Some of our store opening and relocation projects have been moved to future periods as a result of the COVID-19 pandemic.

We continue to pursue our growth plans and invest in capital projects that meet our financial requirements.

During Fiscal 2020, we plan to open 36 net new stores, which includes approximately 62 gross new stores, along with approximately 26 store relocations and closings.

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The opening of stores generally is contingent upon a number of factors including, but not limited to, the availability of desirable locations with suitable structures and the negotiation of acceptable lease terms.

There can be no assurance, however, that we will be able to find suitable locations for new stores or that even if such locations are found and acceptable lease terms are obtained, we will be able to open the number of new stores presently planned.

There can be no assurance, however, that we will be able to find suitable locations for new stores or that we will be able to open the number of new stores presently planned, even if such locations are found and acceptable lease terms are obtained.

Assuming that appropriate locations are identified, we believe that we will be able to execute our growth strategy without significantly impacting our current stores.

Debt and Hedging

As of May 2, 2020, our obligations, inclusive of original issue discount, include $957.8 million under our Term Loan Facility, $625.7 million of Convertible Notes, $300.0 million of Secured Notes and $400.0 million of outstanding borrowings on our ABL Line of Credit.

Our debt obligations also include $49.5 million of finance lease obligations as of May 2, 2020.

As of August 1, 2020, our obligations, inclusive of original issue discount, include $958.0 million under our Term Loan Facility, $633.1 million of Convertible Notes, $300.0 million of Secured Notes and $250.0 million of outstanding borrowings on our ABL Line of Credit.

Our debt obligations also include $48.8 million of finance lease obligations as of August 1, 2020.

Term Loan Facility

On February 26, 2020, we completed a repricing of our Term Loan Facility, which among other things, reduced the interest rate margins applicable to our 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%.

At May 2, 2020, our borrowing rate related to the Term Loan Facility was 2.6 %.

At August 1, 2020, our borrowing rate related to the Term Loan Facility was 1.9%.

ABL Line of Credit

On March 17, 2020, we borrowed $400 million under the ABL Line of Credit as a precautionary measure in order to increase our cash position and facilitate financial flexibility in light of the uncertainty resulting from COVID-19.

At May 2, 2020, we 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%.

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

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

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

Average borrowings during the six month period ended August 1, 2020 amounted to $289.3 million at an average interest rate of 2.1%.

Convertible Notes

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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.

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On April 16, 2020, our indirect subsidiary, BCFWC, issued $300 million of Senior Secured Notes.

The Secured Notes are senior, secured obligations of BCFWC, and interest is payable semiannually in cash 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 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.

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Certain Information Concerning Contractual Obligations

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.

Except as disclosed above with respect to the issuance of the Convertible Notes and Secured Notes, there were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Fiscal 2019 10-K.

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Actual results may differ from these estimates under different assumptions or conditions.

As of May 2, 2020, the end of our first quarter, the impact of the COVID-19 pandemic continues to unfold.

As of August 1, 2020, the end of our second quarter, the impact of the COVID-19 pandemic continues to unfold.

As a result, many of our estimates and judgments carry a higher degree of variability and volatility.

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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 2. Management’s Discussion and Analysis