What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-27 compared with 2020-11-24 · 118 added, 222 removed, 450 unchanged (43% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

Other revenue

24 unchanged sentences

Three Months Ended

Nine Months Ended

Net income (loss)

2 unchanged sentences

Net unrealized gains (losses) arising during the period

Reclassification into earnings during the period

Net reclassification into earnings during the period

Other comprehensive income (loss), net of tax

14 unchanged sentences

Operating lease assets

Favorable leases—net

Deferred tax assets

19 unchanged sentences

Additional paid-in-capital

Accumulated (deficit) earnings

Accumulated earnings (deficit)

Accumulated other comprehensive loss

6 unchanged sentences

(All amounts in thousands)

Nine Months Ended

Three Months Ended

OPERATING ACTIVITIES

Net (loss) income

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

Net income (loss)

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

Depreciation and amortization

15 unchanged sentences

Other operating activities

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

INVESTING ACTIVITIES

Cash paid for property and equipment

Lease acquisition costs

Proceeds from insurance recoveries related to property and equipment

Other investing activities

9 unchanged sentences

Other financing activities

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Increase in cash, cash equivalents, restricted cash and restricted cash equivalents

9 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2020

Summary of Significant Accounting Policies

Basis of Presentation

As of October 31, 2020, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated 769 retail stores.

As of May 1, 2021, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated 784 retail stores.

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

3 unchanged sentences

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted.

These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (Fiscal 2019 10-K).

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 and nine month periods ended October 31, 2020 are not necessarily indicative of results for the fiscal year.

The balance sheet at January 30, 2021 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2020 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 1, 2021 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 2020 10-K.

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

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

The current fiscal year ending January 29, 2022 (Fiscal 2021) and the prior fiscal year ended January 30, 2021 (Fiscal 2020) both consist of 52 weeks.

On March 11, 2020, the World Health Organization declared the novel coronavirus (known as COVID-19) outbreak to be a global pandemic.

As a result, the Company began the temporary closing of some of its stores, and effective March 22, 2020, it made the decision to temporarily close all of its stores, distribution centers (other than processing of received inventory) and corporate offices to combat the rapid spread of COVID-19.

These developments have caused significant disruptions to the Company’s business and have had a significant adverse impact on its financial condition, results of operations and cash flows, the continuing extent of which will be primarily based on a variety of factors, including the 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 re-opening stores on May 11, 2020, with the majority of stores, as well as all distribution centers, re-opened by mid-June 2020, and substantially all stores re-opened by the end of the second quarter.

However, the Company is currently unable to determine 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, including additional temporary store closures.

These developments caused significant disruptions to the Company’s business and had a significant adverse impact on its financial condition, results of operations and cash flows.

The Company began re-opening stores on May 11, 2020, with substantially all stores re-opened by the end of the second quarter of Fiscal 2020.

In response to the COVID-19 pandemic and the temporary closing of stores, the Company provided two weeks of financial support to associates impacted by these store closures and by the shutdown of distribution centers.

The Company temporarily furloughed most store and distribution center associates, as well as some corporate associates, but continued to provide benefits to its furloughed associates in accordance with its benefit plans.

In addition, we paid 100 % of their medical benefit premiums during the period they were furloughed.

During the second quarter, the Company recalled all furloughed associates at its re-opened stores, as well as its corporate and distribution facilities.

In addition, the Company paid 100 % of their medical benefit premiums during the period they were furloughed.

During the second quarter of Fiscal 2020, the Company 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 March 2020, the Company borrowed $ 400 million on its existing $ 600 million senior secured asset-based revolving credit facility (the ABL Line of Credit), of which $ 150 million was repaid during the second quarter of Fiscal 2020, and the remaining $ 250 million was repaid during the fourth quarter of Fiscal 2020.

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

15 unchanged sentences

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

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

Based on the Company’s evaluation of the CARES Act, the Company believes that it qualifies for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss (NOL) carrybacks and immediate expensing for eligible qualified improvement property.

The Company recorded a tax expense of $ 7.2 million and a tax benefit of $ 80.1 million in its effective income tax rate for the three and nine month periods ended October 31, 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 $ 202.1 million from the carryback of federal NOLs, which is included in the line item “Prepaid and other current 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.

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

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

For the year ended January 30, 2021 the Company estimated it would obtain a one-time tax refund of $ 219.7 million from the carryback of federal net operating losses (NOLs) as a result of the CARES Act, which is included in the line item “Prepaid and other current assets” on the Company’s Condensed Consolidated Balance Sheet.

Recently Adopted Accounting Standards

Reference Rate Reform

On March 12, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which aims to address accounting consequences that could result from the global markets’ anticipated transition away from the use of the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates.

The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The optional amendments are effective for all entities as of March 12, 2020, through December 31, 2022.

The Company intends to elect to apply certain of the optional expedients when evaluating the impact of reference rate reform on its debt and derivative instruments that reference LIBOR.

Intangible Assets

On January 26, 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other:

Simplifying the Test for Goodwill Impairment,” which aims to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.

Under the new guidance, goodwill impairment will be measured as the amount by which the carrying value exceeds the fair value.

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

The new guidance became effective for the Company as of the beginning of Fiscal 2020.

Adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements and notes thereto.

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

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This ASU requires that implementation costs incurred in a hosting arrangement that is a service contract be assessed in accordance with the existing guidance in Subtopic 350-40, “Internal-Use Software.” Accordingly, costs incurred during the preliminary project stage must be expensed as incurred, while costs incurred during the application development stage must be capitalized.

Capitalized implementation costs associated with a hosting arrangement that is a service contract must be expensed over the term of the hosting arrangement.

Additionally, the new guidance requires that the expense of these capitalized costs be presented in the same line item in the statements of income as the fees associated with the hosting element of the arrangement.

The new guidance became effective for the Company as of the beginning of Fiscal 2020.

Adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements and notes thereto.

Pending Accounting Standards

Convertible Debt

On August 5, 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments.

On August 5, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), 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 nine month periods ended October 31, 2020, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of October 31, 2020 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

The Company elected to early adopt this ASU as of the beginning of Fiscal 2021, using the modified retrospective method of transition.

Prior periods have not been restated.

As a result of adopting the guidance, the Company is no longer separating the Convertible Notes into debt and equity components, and is instead accounting for it wholly as debt.

As of the beginning of Fiscal 2021, this ASU resulted in a reduction in the line item “Additional paid-in capital” of $ 176.0 million, net of deferred financing costs, and an increase in the line item “Long term debt” of $ 153.0 million, which eliminated the debt discount and reallocated deferred financing costs that were previously allocated to the equity component.

The changes noted above caused a decrease in the effective interest rate on the Convertible Notes from 8.2 % to 2.8 %, resulting in a cumulative-effect adjustment to retained earnings of $ 23.0 million related to Fiscal 2020 interest expense, as well as a $ 7.6 million reduction in interest expense for the three month period ended May 1, 2021.

As of the beginning of Fiscal 2021, the tax effect of adopting this guidance resulted in a $ 44.1 million increase in the line item “Additional paid-in-capital,” a $ 38.3 million reduction in the line item “Deferred tax liabilities” and a $ 5.9 million reduction to retained earnings.

The new guidance also requires use of the if-converted method when calculating the dilutive impact of the Convertible Notes on earnings per share.

The Company used the treasury stock method prior to adoption of the ASU.

The impact of this ASU on net income and weighted average diluted shares resulted in an increase to diluted net income per share of $ 0.05 during the three month period ended May 1, 2021.

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 month period ended May 1, 2021, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of May 1, 2021 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

Stockholders’ Equity

Activity for the three and nine month periods ended October 31, 2020 and November 2, 2019 in the Company’s stockholders’ equity are summarized below:

Activity for the three month periods ended May 1, 2021 and May 2, 2020 in the Company’s stockholders’ equity are summarized below:

(in thousands, except share data)

Accumulated Earnings

Comprehensive

Treasury Stock

Earnings (Deficit)

Balance at February 1, 2020

Balance at January 30, 2021

Stock options exercised

Shares used for tax withholding

Shares purchased as part of publicly announced programs

Vesting of restricted shares, net of forfeitures of 883 restricted shares

Stock based compensation

Equity component of convertible notes issuance, net

Unrealized losses on interest rate derivative contracts, net of related taxes of $ 0.3 million

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

Adoption of Accounting Standards Update 2020-06 (Note 1)

Balance at May 1, 2021

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 taxes of $ 0.7 million

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

Balance at August 1, 2020

Stock options exercised

Shares used for tax withholding

Vesting of restricted shares, net of forfeitures of 508 restricted shares

Stock based compensation

Unrealized gains on interest rate derivative contracts, net of related taxes of $ 0.2 million

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

Balance at October 31, 2020

(in thousands, except share data)

5 unchanged sentences

Shares purchased as part of publicly announced programs

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

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

Stock based compensation

Equity component of convertible notes issuance, net of related taxes of $ 44.1 million

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

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

Cumulative-effect adjustment

Balance at May 2, 2020

Stock options exercised

Shares used for tax withholding

Shares purchased as part of publicly announced programs

Forfeiture of restricted shares

Stock based compensation

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

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

Balance at August 3, 2019

Stock options exercised

Shares used for tax withholding

Shares purchased as part of publicly announced programs

Forfeiture of restricted shares

Stock based compensation

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

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

Balance at November 2, 2019

Lease Commitments

4 unchanged sentences

Contingent rentals are not included in the lease liability, and they are recognized as variable lease cost when incurred.

As a result of the COVID-19 pandemic and the associated temporary store closures discussed above , the Company worked with landlords to modify paymen t terms for certain leas e s .

The FASB has pr ovided relief under ASC 842, “Leases,” related to the COVID-19 pandemic.

Under thi s relief, c ompanies 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 m ade as enforceable rights under the original contract.

As a result of the COVID-19 pandemic and the associated temporary store closures discussed above, the Company worked with landlords to modify payment terms for certain leases.

The FASB has provided relief under ASC 842, “Leases,” related to the COVID-19 pandemic.

Under this relief, companies can make a policy election on how to treat lease concessions resulting directly from COVID-19, provided that the modified contracts result in total cash flows that are substantially the same or less than the cash flows in the original contract.

The Company has made the policy election to account for lease concessions that result from the COVID-19 pandemic as if they were made 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.

16 unchanged sentences

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

October 31, 2020

November 2, 2019

Finance lease cost:

14 unchanged sentences

(in thousands)

Nine Months Ended

October 31, 2020

November 2, 2019

Three Months Ended

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

23 unchanged sentences

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 Income (Loss).

At October 31, 2020 and November 2, 2019, the Company’s interest rate related to the Term Loan Facility was 1.9 % and 3.9 %, respectively.

At May 1, 2021 and May 2, 2020, the Company’s interest rate related to the Term Loan Facility was 1.9 % and 2.6 %, respectively.

Convertible Notes

8 unchanged sentences

The initial conversion price represents a conversion premium of approximately 32.50 % over $ 166.17 per share, the last reported sale price of the Company’s common stock on April 13, 2020 (the pricing date of the offering) on the New York Stock Exchange.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election.

During the first quarter of Fiscal 2021, the Company made an irrevocable settlement election for any conversions of the Convertible Notes.

Upon conversion, the Company will pay cash for the principal amount.

For any excess above principal, the Company will deliver shares of its common stock.

The Company may not redeem the Convertible Notes prior to April 15, 2023.

2 unchanged sentences

In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate event or during the relevant redemption period for such Convertible Notes.

The Convertible Notes contain a cash conversion feature, and as a result, the Company has separated it into liability and equity components.

The Convertible Notes contain a cash conversion feature, and as a result, the Company initially separated it into liability and equity components.

The Company valued the liability component based on its borrowing rate for a similar debt instrument that does not contain a conversion feature.

The equity component, which is recognized as a debt discount, was valued as the difference between the face value of the Convertible Notes and the fair value of the liability component.

The equity component, which was recognized as a debt discount, was valued as the difference between the face value of the Convertible Notes and the fair value of the liability component.

As a result of adopting ASU 2020-06, the Company is no longer separating the Convertible Notes into debt and equity components, and is instead accounting for it wholly as debt.

In connection with the Convertible Notes issuance, the Company incurred deferred financing costs of $ 21.0 million, primarily related to fees paid to the bookrunners of the offering, as well as legal, accounting and rating agency fees.

These costs were allocated on a pro rata basis, with $ 16.4 million allocated to the debt component and $ 4.6 million allocated to the equity component.

The debt discount and the debt portion of the deferred costs are being amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 8.2 %.

These costs were initially allocated on a pro rata basis, with $ 16.4 million allocated to the debt component and $ 4.6 million allocated to the equity component.

As a result of adopting ASU 2020-06, all unamortized deferred financing costs related to the Convertible Notes are now allocated to debt.

Prior to adoption of ASU 2020-06, the debt discount and the debt portion of the deferred costs were being amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 8.2 %.

The effective interest rate after adoption of ASU 2020-06 is 2.8 %.

The Convertible Notes consist of the following components as of the dates indicated:

8 unchanged sentences

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

October 31, 2020

November 2, 2019

Coupon interest

11 unchanged sentences

The Company incurred additional costs of $ 2.5 million, primarily related to legal fees, which are recorded in the line item, “Costs related to debt issuances and amendments” in the Company’s Condensed Consolidated Statement of Income (Loss).

On May 27, 2021, the Company announced a make-whole call for the full $ 300.0 million outstanding principal amount of the Secured Notes.

As a result of this action, the Company is expecting a pre-tax debt extinguishment charge of approximately $ 30 million in the three month period ended July 31, 2021.

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.

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

At October 31, 2020, the Company had $ 292.4 million available under the ABL Line of Credit.

The maximum borrowings under the ABL Line of Credit during the three and nine month periods ended October 31, 2020 amounted to $ 250.0 million and $ 400.0 million, respectively.

Average borrowings during the three and nine month periods ended October 31, 2020 amounted to $ 250.0 million and $ 276.2 million, respectively, at an average interest rate of 1.6 % and 2.0 %, respectively.

At November 2, 2019, the Company had $ 540.8 million available under the ABL Line of Credit.

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

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

The Company repaid $ 150 million of this amount during the second quarter of Fiscal 2020, and the remaining $ 250.0 million during the fourth quarter of Fiscal 2020.

At May 1, 2021, the Company had $ 549.5 million available under the ABL Line of Credit.

There were no borrowings under the ABL Line of Credit during the three month period ended May 1, 2021.

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 %.

Derivative Instruments and Hedging Activities

The Company accounts for derivatives and hedging activities in accordance with ASC Topic No.

815, “Derivatives and Hedging” (Topic No.

As required by Topic No.

815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis.

In addition, to comply with the provisions of ASC Topic No.

820, “Fair Value Measurements” (Topic No.

820), credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

The Company accounts for derivatives and hedging activities in accordance with ASC 815, “Derivatives and Hedging” (ASC 815).

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis.

In addition, to comply with the provisions of ASC 820, “Fair Value Measurements” (ASC 820), credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees.

In accordance with Topic No.

820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

In accordance with ASC 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

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

4 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 October 31, 2020, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:

As of May 1, 2021, 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

October 31, 2020

February 1, 2020

November 2, 2019

January 30, 2021

Derivatives Designated as Hedging Instruments

6 unchanged sentences

Three Months Ended

Nine Months Ended

Interest Rate Derivatives:

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

Unrealized gains (losses), before taxes

4 unchanged sentences

Three Months Ended

Nine Months Ended

Component of Earnings:

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

Interest expense

Income tax expense (benefit)

Income tax benefit

Net reclassification into earnings

4 unchanged sentences

(in thousands)

Balance at February 1, 2020

Unrealized losses, net of related tax benefit of $ 4.1 million

Balance at January 30, 2021

Unrealized gains, net of related taxes of $ 0.3 million

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

Balance at October 31, 2020

Balance at May 1, 2021

Fair Value Measurements

1 unchanged sentence

820, which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements.

820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price), and classifies the inputs used to measure fair value into the following hierarchy:

820 defines fair value as the price that

would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price), and classifies the inputs used to measure fair value into the following hierarchy:

Quoted prices for identical assets or liabilities in active markets.

7 unchanged sentences

Financial Assets

The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of October 31, 2020, February 1, 2020 and November 2, 2019 are summarized below:

The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of May 1, 2021, January 30, 2021 and May 2, 2020 are summarized below:

(in thousands)

2 unchanged sentences

Long-Lived Assets

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

Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy of ASC 820.

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

During the three and nine months ended October 31, 2020, the Company recorded impairment charges of $ 2.6 million and $ 5.6 million, respectively, primarily related to declines in revenues and operating results for 10 stores and 14 stores, respectively.

During the three months ended May 1, 2021, the Company recorded impairment charges of $ 0.8 million, primarily related to declines in revenues and operating results for one store.

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

All of the fixed assets for these stores were fully impaired and therefore had zero fair value as of October 31, 2020, and would be categorized as Level 3 in the fair value hierarchy described above.

One of these stores also had a partially impaired lease asset, with a fair value of $ 2.9 million as of October 31, 2020, and is categorized as Level 3 in the fair value hierarchy described above.

All of the fixed assets for this store were fully impaired and therefore had zero fair value as of May 1, 2021, and would be categorized as Level 3 in the fair value hierarchy described above.

Financial Liabilities

1 unchanged sentence

(in thousands)

October 31, 2020

February 1, 2020

November 2, 2019

January 30, 2021

Term B-5 Loans

6 unchanged sentences

The estimated fair values of the Company’s debt are classified as Level 2 in the fair value hierarchy, and are based on current market quotes received from inactive markets.

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

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

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 $ 253.3 million during the nine month period ended October 31, 2020, compared with income tax expense of $ 50.3 million during the nine month period ended November 2, 2019.

The effective tax rate for the nine month period ended October 31, 2020 was 40.5 %, compared with 16.3 % during the nine month period ended November 2, 2019.

The effective tax rate for the nine month period ended October 31, 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 12.8 %.

Additionally, there was a 4.1 % tax rate impact related to permanent benefits related to stock compensation.

Income tax expense was $ 40.6 million during the three month period ended May 1, 2021, compared with income tax benefit of $ 205.4 million during the three month period ended May 2, 2020.

The effective tax rate for the three month period ended May 1, 2021 was 19.2 %, compared with 38.1 % during the three month period ended May 2, 2020.

The decrease in the effective tax rate was primarily due to the Company’s pretax loss in the prior year 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.

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 of Fiscal 2020.

As of October 31, 2020, the Company had a deferred tax asset related to net operating losses of $ 22.2 million, inclusive of $ 21.9 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 October 31, 2020, the Company had a deferred tax asset related to tax credit carry-forwards of $ 12.9 million, inclusive of $ 2.5 million of federal tax credits, which will expire in 2040 , and $ 9.1 million of state tax credit carry-forwards, which will begin to expire in 2021 , and $ 1.3 million of deferred tax assets recorded for Puerto Rico alternative minimum tax credits that have an indefinite life .

As of October 31, 2020, February 1, 2020 and November 2, 2019, valuation allowances amounted to $ 12.4 million, $ 9.8 million and $ 8.7 million, respectively, related to state and Puerto Rico net operating losses and state tax credit carry-forwards.

The decrease in deferred tax liability is primarily attributable to the early adoption of ASU 2020-06 related to accounting for convertible debt in the first quarter of 2021.

See Note 1 for additional information related to the Company’s adoption of this accounting guidance.

As of May 1, 2021, the Company had a deferred tax asset related to net operating losses of $ 36.2 million, inclusive of $ 35.9 million related to state net operating losses that expire at various dates between 2022 and 2040 , as well as $ 0.3 million related to Puerto Rico net operating losses that will expire in 2025 .

As of May 1, 2021, the Company had a deferred tax asset related to tax credit carry-forwards of $ 9.8 million, inclusive of $ 8.6 million of state tax credit carry-forwards, which will begin to expire in 2023 , and $ 1.2 million of deferred tax assets recorded for Puerto Rico alternative minimum tax credits that have an indefinite life .

As of May 1, 2021, January 30, 2021 and May 2, 2020, valuation allowances amounted to $ 13.7 million, $ 13.0 million and $ 10.7 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 nine month period ended October 31, 2020, the Company acquired 68,180 shares of common stock from employees for approximately $ 12.6 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 three month period ended May 1, 2021, the Company acquired 41,768 shares of common stock from employees for approximately $ 13.1 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.

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 October 31, 2020, the Company had $ 348.4 million remaining under its share repurchase authorization.

As of May 1, 2021, the Company had $ 348.4 million remaining under its share repurchase authorization.

Net Income (Loss) Per Share

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

Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares and potentially dilutive securities outstanding during the period using the treasury stock method.

stock option, restricted stock and restricted stock unit awards, and the if-converted method for the Convertible Notes .

The following table presents the computation of basic and diluted net income (loss) per share:

1 unchanged sentence

Three Months Ended

Nine Months Ended

Basic net income (loss) per share

10 unchanged sentences

Net income (loss) per common share – diluted

Approximately 5,000 shares of the Company’s stock-based compensation grants were excluded from diluted net income per share for the three month period ended May 1, 2021, since their effect was anti-dilutive.

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 585,000 and 2,010,000 shares were excluded from diluted net income (loss) per share for the three and nine month periods ended October 31, 2020, respectively, since their effect was anti-dilutive.

Approximately 350,000 and 450,000 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 nine month periods ended November 2, 2019, respectively, since their effect was anti-dilutive.

During the three and nine months ended October 31, 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 2,025,000 shares related to the Company’s stock option, restricted stock and restricted stock unit awards were excluded from diluted net loss per share for the three month period ended May 2, 2020, since their effect was anti-dilutive.

Stock-Based Compensation

As of October 31, 2020, there were 2,424,032 shares of common stock available for issuance under the Company’s 2013 Omnibus Incentive Plan.

As of May 1, 2021, there were 2,485,161 shares of common stock available for issuance under the Company’s 2013 Omnibus Incentive Plan.

Non-cash stock compensation expense is as follows:

1 unchanged sentence

Three Months Ended

Nine Months Ended

Type of Non-Cash Stock Compensation

4 unchanged sentences

The amounts presented in the table above exclude taxes.

For the three and nine month periods ended October 31, 2020, the tax benefit related to the Company’s non-cash stock compensation was approximately $ 2.3 million and $ 8.3 million, respectively.

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

For the three month period ended May 1, 2021, the tax benefit related to the Company’s non-cash stock compensation was approximately $ 2.4 million.

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.

Stock Options

Stock option transactions during the nine month period ended October 31, 2020 are summarized as follows:

Options outstanding, February 1, 2020

Stock option transactions during the three month period ended May 1, 2021 are summarized as follows:

Options outstanding, January 30, 2021

Options granted

1 unchanged sentence

Options forfeited

Options outstanding, October 31, 2020

Options exercised during the nine month period ended October 31, 2020 had a total intrinsic value of $ 88.2 million.

The following table summarizes information about the stock options vested and expected to vest during the contractual term of such options as of October 31, 2020:

Options outstanding, May 1, 2021

Options exercised during the three month period ended May 1, 2021 had a total intrinsic value of $ 39.9 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 1, 2021:

(in millions)

Vested and expected to vest

The fair value of each stock option granted during the nine month period ended October 31, 2020 was estimated using the Black Scholes option pricing model using the following assumptions:

Nine Months Ended

Options vested and expected to vest

Options exercisable

The fair value of each stock option granted during the three month period ended May 1, 2021 was estimated using the Black Scholes option pricing model using the following assumptions:

Three Months Ended

Risk-free interest rate

0.45% - 1.48%

Expected volatility

5 unchanged sentences

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.

1 unchanged sentence

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

For grants issued during the nine month period ended October 31, 2020 , the expected life of the options was calculated using the simplified method.

For grants issued during the three month period ended May 1, 2021, 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.

3 unchanged sentences

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

Restricted stock transactions during the nine month period ended October 31, 2020 are summarized as follows:

Restricted stock transactions during the three month period ended May 1, 2021 are summarized as follows:

Average Grant

Non-vested awards outstanding, February 1, 2020

Non-vested awards outstanding, January 30, 2021

Awards granted

1 unchanged sentence

Awards forfeited

Non-vested awards outstanding, October 31, 2020

Restricted stock awards vested during the nine month period ended October 31, 2020 had a total intrinsic value of $ 36.3 million.

Non-vested awards outstanding, May 1, 2021

Restricted stock awards vested during the three month period ended May 1, 2021 had a total intrinsic value of $ 37.5 million.

The fair value of each share of restricted stock granted during Fiscal 2021 was based upon the closing price of the Company’s common stock on the grant date .

6 unchanged sentences

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 nine month period ended October 31, 2020 are summarized as follows:

Performance stock unit transactions during the three month period ended May 1, 2021 are summarized as follows:

Average Grant

Non-vested units outstanding, February 1, 2020

Non-vested units outstanding, January 30, 2021

Units granted

Awards forfeited

Non-vested units outstanding, October 31, 2020

Non-vested units outstanding, May 1, 2021

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 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 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.

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.

In the normal course of business, the Company is also party to representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings including, among others, commercial, product, product safety, employee, customer, intellectual property and other claims.

Actions against us are in various procedural stages.

2 unchanged sentences

Letters of Credit

The Company had letters of credit arrangements with various banks in the aggregate amount of $ 57.6 million, $ 53.1 million and $ 59.2 million as of October 31, 2020, February 1, 2020 and November 2, 2019, respectively.

Among these arrangements, as of October 31, 2020, February 1, 2020 and November 2, 2019, the Company had letters of credit outstanding in the amount of $ 47.2 million, $ 46.6 million and $ 50.8 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 $ 10.4 million, $ 6.5 million and $ 8.4 million at October 31, 2020, February 1, 2020 and November 2, 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 $ 292.4 million, $ 501.8 million and $ 540.8 million as of October 31, 2020, February 1, 2020 and November 2, 2019, respectively.

The Company had letters of credit arrangements with various banks in the aggregate amount of $ 50.6 million, $ 54.9 million and $ 49.1 million as of May 1, 2021, January 30, 2021 and May 2, 2020, respectively.

Among these arrangements, as of May 1, 2021,

January 30, 2021 and May 2, 2020 , the Company had letters of credit outstanding in the amount of $ 46.8 million, $ 46.8 million and $ 47.2 million, respectively, guaranteeing performance under various insurance contracts and utility agreements.

In addition, the Company had outstand ing letters of credit arrangements in the amounts of $ 3.8 million, $ 8.2 million and $ 1.9 million at May 1, 2021 , January 30, 2021 and May 2, 2020 , 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 $ 549.5 million, $ 476.8 million and $ 150.9 million as of May 1, 2021 , January 30, 2021 and May 2, 2020 , respectively.

Purchase Commitments

The Company had $ 1,090.7 million of purchase commitments related to goods that were not received as of October 31, 2020.

The Company had $ 1,576.6 million of purchase commitments related to goods that were not received as of May 1, 2021.

Death Benefits

6 unchanged sentences

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