UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36107
BURLINGTON STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
2006 Route 130 North
Burlington, New Jersey
(Address of Principal Executive Offices)
80-0895227
(I.R.S. Employer
Identification No.)
08016
(Zip Code)
(609) 387-7800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Trading Symbol(s)
BURL
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-Accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates of the registrant on August 2, 2019, the last business day of the registrant’s most recently completed second fiscal quarter,
was $11,637,817,686. The aggregate market value was computed by reference to the closing price of the common stock on such date.
As of February 28, 2020, there were 65,892,508 shares of common stock of the registrant outstanding.
Certain provisions of the registrant’s definitive proxy statement for the 2020 Annual Meeting of Stockholders, to be filed within 120 days of the close of the registrant’s 2019 fiscal year, are
incorporated by reference in Part III of this Form 10-K to the extent described herein.
Documents Incorporated By Reference:
BURLINGTON STORES, INC.
INDEX TO REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2020
PAGE
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV.
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
SIGNATURES
1
5
18
19
19
19
20
23
24
40
42
83
83
85
85
85
85
85
85
86
93
94
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the
industry in which we operate and other matters, as well as management’s beliefs and assumptions. For example, when we use words such as “projects,”
“expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,”
variations of such words or other words that convey uncertainty of future events or outcomes, we are making “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended
(the Exchange Act). All statements other than statements of historical fact are forward-looking statements. These forward-looking statements may relate to
such matters as our future actions, including expected store openings, ongoing strategic initiatives and the intended results of those initiatives, future
performance or results of current and anticipated sales, expenses, interest rates, foreign exchange rates and results and the outcome of contingencies such as
legal proceedings. Our forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from the events or
results anticipated in these forward-looking statements as a result of a variety of factors, including each of the factors discussed in Item 1A, Risk Factors as
well as risks and uncertainties discussed elsewhere in this Annual Report. While we believe that our assumptions are reasonable, we caution that it is very
difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual future events or results. In
light of these risks and uncertainties, the forward-looking events and circumstances discussed in this Annual Report might not occur. In addition, as a result
of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred
to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or
persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.
PART I
Item 1.
Overview
Business
We are a nationally recognized retailer of high-quality, branded merchandise at everyday low prices. 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 727 stores as of February 1, 2020, inclusive of an
internet store, 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: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear,
accessories, home, toys, gifts and coats. We sell a broad selection of merchandise acquired directly from nationally recognized manufacturers and other
suppliers.
As used in this Annual Report, the terms “Company,” “we,” “us,” or “our” refer to Burlington Stores, Inc. and all of its subsidiaries. We were
organized in 2013 under the name Burlington Holdings, Inc. and currently exist as a Delaware corporation. Our indirect wholly-owned subsidiary,
Burlington Coat Factory Warehouse Corporation (BCFWC), was initially organized in 1972 as a New Jersey corporation, was reincorporated in 1983 in
Delaware, and currently exists as a Florida corporation. We completed an initial public offering of our common stock in October 2013.
Fiscal Year End
We define our fiscal year as the 52- or 53-week period ending on the Saturday closest to January 31. This is an annual report for the 52-week fiscal
year ended February 1, 2020 (Fiscal 2019). The fiscal years ended February 2, 2019 (Fiscal 2018) and February 3, 2018 (Fiscal 2017) consisted of 52
weeks and 53 weeks, respectively.
Our Stores
Over 99% of our net sales are derived from stores we operate as Burlington Stores. We believe that our customers are attracted to our stores
principally by the availability of a large assortment of first-quality, current, brand-name merchandise at everyday low prices.
Burlington Stores offer customers a complete line of merchandise, including: women’s ready-to-wear apparel, accessories, footwear, menswear,
youth apparel, baby, home, coats, beauty, toys and gifts. Our broad selection provides a wide range of apparel, accessories and furnishings for all ages. We
purchase both pre-season and in-season merchandise, allowing us to respond timely to changing market conditions and consumer fashion preferences.
Furthermore, we believe Burlington Stores’ substantial selection of staple, destination products attracts customers from beyond our local trade areas. We
believe these products drive incremental store traffic and differentiate us from our competitors.
1
We believe the breadth of our selection and our ability to successfully operate in stores of varying square footage represents a competitive
advantage. We believe that, as we continue to reduce our comparable store inventory, we will be able to reduce the square footage of our stores while
continuing to maintain our broad assortment. As a result, we believe major landlords seek us as a tenant because the appeal of our merchandise profile
attracts a desired customer base.
Our store base is geographically diversified with stores located in 45 states and Puerto Rico as set forth below:
State
AK
AL
AR
AZ
CA
CO
CT
DE
FL
GA
IA
ID
IL
IN
KS
KY
Number of Stores
2
6
6
13
82
10
12
3
56
23
3
2
37
14
5
6
State
LA
MA
MD
ME
MI
MN
MO
MS
NC
ND
NE
NH
NJ
NM
NV
Number of Stores
7
17
18
2
18
9
9
3
17
1
4
4
37
3
9
State
NY
OH
OK
OR
PA
PR
RI
SC
SD
TN
TX
UT
VA
WA
WI
Number of Stores
47
28
7
4
34
12
5
10
1
9
81
8
20
12
10
Our internet store is excluded from the above table.
Store Expansion and Real Estate Strategy
We continue to explore expansion opportunities both within our current market areas and in other regions. We believe that our ability to find
satisfactory locations for our stores is essential for the continued growth of our business. The opening of stores generally is contingent upon a number of
factors, including the availability of desirable locations with suitable structures and the negotiation of acceptable lease terms.
We have a proven track record of new store expansion. Our store base has grown from 13 stores in 1980 to 727 stores, inclusive of an internet store,
as of February 1, 2020. If we identify appropriate locations, we believe that we will be able to execute our growth strategy without significantly impacting
our current stores. We have identified numerous market opportunities that we believe will allow us to operate at least 1,000 stores over the long-term. The
table below shows our store openings and closings each of the last three fiscal years.
Stores (beginning of period)
Stores opened(a)(b)
Stores closed(a)
Stores (end of period)
Fiscal 2019
Fiscal 2018
Fiscal 2017
675
60
(8)
727
629
56
(10)
675
592
43
(6)
629
(a)
(b)
Exclusive of relocations.
Stores opened during Fiscal 2019 had an average size of 42,000 square feet.
Distribution and Warehousing
We have four distribution centers that shipped approximately 98% of merchandise units to our stores in Fiscal 2019. The remaining 2% of
merchandise units are drop shipped by our vendors directly to our stores. Our two east coast distribution centers are located in Edgewater Park, New Jersey
and Burlington, New Jersey. Our two west coast distribution centers are located in San Bernardino, California and Redlands, California. These four
distribution centers occupy an aggregate of 2,884,000 square feet, and
2
each includes processing, shipping and storage capabilities. In addition, we entered into a lease for an additional distribution center in Riverside, California
occupying approximately 900,000 square feet, which is expected to become operational during Fiscal 2020.
In addition to the distribution centers that we operate, we have arrangements with third parties for the use of pool point facilities, which we believe
streamline and optimize our distribution network
We also operate three warehousing facilities to support our distribution centers. The east coast has two supporting warehouses in Burlington, New
Jersey. The west coast has one supporting warehouse in Redlands, California. These three warehousing facilities occupy an aggregate of 1,456,000 square
feet and primarily serve as storage facilities.
In addition, as of February 1, 2020, we occupied approximately 180,000 square feet of space at a third-party logistics center in Plainfield, Indiana to
support our e-commerce business.
Customer Service
We are committed to providing our customers with an enjoyable shopping experience in stores that are clean, neat and easy to shop. In training our
employees, our goal is to emphasize knowledgeable, friendly customer service and a sense of professional pride. We offer our customers special services in
most of our stores, such as layaway, to enhance the convenience of their shopping experience.
We have empowered our store teams to provide an outstanding customer experience for every customer in every store, every day. We have
streamlined processes and will continue to strive to create opportunities for fast and friendly customer interactions. Our goal for our stores is to reflect
clean, organized merchandise presentations that highlight the brands, value and diversity of selection within our assortments.
Our Off-Price Sourcing and Merchandising Model
Our “open to buy” off-price model enables us to provide our customers with products that are nationally branded, fashionable, high quality and
priced right. We have an experienced team of General Merchandise Managers, Divisional Merchandise Managers and buyers focused on improving
comparable store inventory turnover, inventory age and freshness of merchandise.
We continue to improve the quality of our brand portfolio, driven by the growth of our merchandising team, excellent product availability, and a
vendor community increasingly committed to grow with Burlington. We carry many different brands, none of which accounted for more than 2% of our net
purchases during Fiscal 2019, Fiscal 2018 or Fiscal 2017. We have no long-term purchase commitments or arrangements with any of our suppliers, and
believe that we are not dependent on any one supplier. We continue to have good working relationships with our suppliers.
We have designed our merchant organization so that buyers focus primarily on buying, planners focus primarily on planning, and information
systems help inform data-driven decisions for both groups. Buyers are in the market each week and focus on purchasing great products for great value. We
seek to purchase a majority of our merchandise in-season. Buyers spend time interacting face-to-face with new and existing vendors and on continuously
evaluating trends in the market to which we believe our customers would respond positively. Our buyers use a merchant scorecard that rates products
across four key attributes—fashion, quality, brand and price—to help formalize a framework for buying decisions.
3
Our merchandising model allows us to provide our customers with a wide breadth of product categories. Sales percentage by major product category
is as follows:
Category
Women’s ready-to-wear apparel
Accessories and footwear
Menswear
Youth apparel/baby
Home
Coats
(a)
Percentages may not foot due to rounding.
E-Commerce
Fiscal 2019(a)
Fiscal 2018(a)
Fiscal 2017(a)
22%
22%
20%
16%
15%
5%
23%
22%
20%
16%
15%
5%
23%
22%
20%
16%
14%
5%
We employ an online strategy focused on increasing awareness of the breadth of our merchandise selection, great brands and values, as well as
driving traffic to our stores. We execute our strategy through our website and through social media platforms such as Facebook and Twitter. We are in the
process of winding down the sales of merchandise (other than gift cards) from our website. The website will transition from an e-commerce platform to an
engaging online site filled with inspirational content, showcasing the great finds found in our stores at a great value. Merchandise sold directly from our
website represented approximately 0.5% of our total sales in Fiscal 2019.
Customer Demographic
Our core customer is the 25-49 year old woman, with an average annual household income of $25,000-$100,000. The core customer is educated,
resides in mid- to large-sized metropolitan areas and is a brand conscious fashion enthusiast. This customer shops for herself, her family, and her home. We
appeal to value seeking and fashion conscious customers who are price-driven but enjoy the style and fit of high-quality, branded merchandise.
Marketing and Advertising
We use a variety of broad-based and targeted marketing strategies to efficiently deliver the right message to the targeted audience at the right time.
These strategies include national television, direct mail, email, digital and social marketing, local radio and out-of-home communications. Our broad
television broadcast communication and reach is balanced with relevant customer contacts to increase frequency of store visits.
Private Label Credit Card
During Fiscal 2019, we launched a private label credit card program. The program has been rolled out to all of our stores. We believe this program
has the potential to deepen customer loyalty, inform customer contact strategies, and drive increases in trip frequency and transaction size.
Management Information Systems and Processes
We utilize a combination of industry-standard third party and internally developed information technology and system solutions to support our
business functions. We continually evaluate and implement business system technologies and solutions that enhance the consistency of our execution and
improve the scalability of business system functions. We utilize standard methodologies to evaluate new initiatives across our entire organization and make
data-driven decisions that support our growth and cost management initiatives.
Competition
The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete on the basis of a combination of factors,
including, among others, price, breadth, quality and style of merchandise offered, in-store experience, level of customer service, ability to identify and
respond to new and emerging fashion trends, brand image and scalability. We compete for business with department stores, off-price retailers, specialty
stores, online retailers, discount stores, wholesale clubs, and outlet stores, as well as with certain traditional, full-price retail chains that have developed off-
price concepts. 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 stores.
4
Seasonality
Our business, like that of most retailers, is subject to seasonal influences. In the second half of the year, which includes the back-to-school and
holiday seasons, we generally realize a higher level of sales and net income. Weather is also a contributing factor to the sale of our clothing. Generally, our
sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are increased by early cold weather
during the Fall, while sales of warm weather clothing are improved by early warm weather conditions in the Spring. Although we have diversified our
product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.
Trademarks
We are the owner of certain registered and common law trademarks, service marks and tradenames (collectively referred to as the Marks) that we
use in connection with our business. Our Marks include, but are not limited to, “Burlington Stores,” “BCF,” “Burlington,” “Burlington Coat Factory,”
“Cohoes,” “Luxury Linens,” “MJM Designer Shoes,” “B” and “Baby Depot.” We consider these Marks and the accompanying name recognition to be
valuable to our business. We believe that our rights to these properties are adequately protected. Our rights in these trademarks endure for as long as they
are used.
Employees
As of February 1, 2020, we employed approximately 47,000 people, including part-time and seasonal employees. Our staffing requirements
fluctuate during the year as a result of the seasonality of our business. We hire additional employees and increase the hours of part-time employees during
seasonal peak selling periods. As of February 1, 2020, employees at one of our stores were subject to a collective bargaining agreement.
Available Information
We are subject to the reporting requirements of the Exchange Act. Therefore, we file reports, proxy statements and other information with the
Securities and Exchange Commission (SEC). The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC, including us.
You can access financial and other information about us in the Investor Relations page of our website at www.burlingtoninvestors.com. We make
available through our website, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed with or furnished to the SEC under Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after
electronically filing or furnishing such material to the SEC.
Investors and others should note that we currently announce material information using SEC filings, press releases, public conference calls and
webcasts. In the future, we will continue to use these channels to distribute material information about the Company, and may also utilize our website
and/or various social media sites to communicate important information about the Company, key personnel, new brands and services, trends, new
marketing campaigns, corporate initiatives and other matters. Information that we post on our website or on social media channels could be deemed
material; therefore, we encourage investors, the media, our customers, business partners and others interested in the Company to review the information
posted on our website, as well as the following social media channels: Facebook (https://www.facebook.com/BurlingtonStores) and Twitter
(https://twitter.com/burlington). Any updates to the list of social media channels we may use to communicate material information will be posted on the
Investor Relations page of our website at www.burlingtoninvestors.com.
The information contained on, or accessible through, our website and these social media channels is not part of this Annual Report and is therefore
not incorporated by reference. The references to our website and these social media channels are intended to be inactive textual references only.
Item 1A.
Risk Factors
Set forth below are certain important risks and uncertainties that could adversely affect our results of operations, financial condition or cash flows
and cause our actual results to differ materially from those expressed in forward-looking statements made by us. Although we believe that we have
identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or
that are not currently believed to be significant that may adversely affect our results of operations, financial condition or cash flows. Before making an
investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or
incorporated by reference in this Annual Report. If we are not successful in managing these risks and uncertainties, they could have a negative impact on
our results of operations, financial condition and cash flows.
5
Risks Related to Our Business and Our Substantial Indebtedness
A downturn in general economic conditions or consumer spending could adversely affect our business.
Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing global economic
conditions, inflation, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs, commodities pricing, income tax
rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by
consumers’ disposable income, credit availability and debt levels. Slowdown in the U.S. economy, 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. Consumer confidence
is also affected by the domestic and international political situation. Our financial condition and operations could be impacted by changes in government
regulations in areas, including taxes and healthcare. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting
the U.S. could lead to a decrease in spending by consumers. In addition, natural disasters, industrial accidents, acts of war, and public health issues such as
pandemics or epidemics could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and
U.S. economies and lead to a downturn in consumer confidence and spending.
Concerns are rapidly growing about the outbreak of a novel strain of coronavirus (COVID-19) that was first reported in China in December 2019.
Since then, the virus has spread to over 100 countries, including the U.S. The number of people ill with or dying of a viral pneumonia caused by the virus is
rising rapidly, despite quarantines of millions of people and other measures to try to stop it or slow its spread. As the pandemic continues to grow,
consumer fear about becoming ill with the virus and recommendations and/or mandates from federal, state and local authorities to avoid large gatherings of
people or self-quarantine may continue to increase, which may adversely affect traffic to our stores. Any significant reduction in customer visits to, and
spending at, our stores caused by COVID-19 would result in a loss of sales and profits and other material adverse effects. The extent of the impact of
COVID-19 on our business and financial results will depend largely on future developments, including the duration and spread of the outbreak within the
U.S. and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted.
We face increased competition from other retailers that could adversely affect our business.
The retail sector is highly competitive, and retailers are constantly adjusting their business models, promotional activities and pricing strategies in
response to changing conditions. We compete on the basis of a combination of factors, including among others, price, breadth, quality and style of
merchandise offered, in-store experience, level of customer service, ability to identify and respond to new and emerging fashion trends, brand image and
scalability. We compete with a wide variety of retailers for customers, vendors, suitable store locations and personnel. In order to increase traffic and drive
consumer spending, competitors, including department stores, mass merchants and specialty apparel stores, have been offering brand-name merchandise at
substantial markdowns. Continuation of this trend, or the possible effect on consumer buying patterns that improving economic conditions could have, may
cause consumer demand to shift from off-price retailers to other retail categories, which could have a material adverse effect on our business, financial
condition and results of operations.
Certain traditional, full-price retail chains have developed off-price concepts, which may directly compete with our business. Our competitors,
including such retail chains, may seek to emulate facets of our business strategy, which could result in a reduction of any competitive advantage or special
appeal that we might possess. In addition, most of our products are sold to us on a non-exclusive basis. As a result, our current and future competitors may
be able to duplicate or improve on some or all of our product offerings that we believe are important in differentiating our stores. If our competitors were to
duplicate or improve on some or all of our in-store experience or product offerings, obtaining the products we sell may become increasingly difficult,
competition for customers may increase, and our competitive position and our business could suffer.
We may not be able to sustain our growth plans or successfully implement our long-range strategic goals.
Our growth largely depends on our ability to successfully open and operate new stores, as well as to expand our distribution capabilities in order to
support that growth. We intend to open 54 net new stores in 2020, while refreshing, remodeling or relocating a portion of our existing store base annually.
The success of these strategies is dependent upon, among other things, the current retail environment, the identification of suitable markets and the
availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics, demographics, and other factors, the negotiation
of acceptable lease terms, construction costs, the availability of financing, the hiring, training and retention of competent sales personnel, and the effective
management of inventory to meet the needs of new and existing stores on a timely basis.
Notably, as we continue to evolve our off-price model, we plan on more effectively chasing the sales trend, making greater investments in our
merchandising capabilities, operating with leaner inventories, improving operational flexibility, and challenging expenses, among other things. Executing
these initiatives while also maintaining the current pace of our expansion may place increased demands on our operational, managerial and administrative
resources. These initiatives may require us to increase the
6
number of merchants and other associates we employ, modify how we manage our liquidity and inventory, as well as to monitor and upgrade our
management information and other systems and our distribution infrastructure.
We may not be able to successfully execute our growth and other strategies on a timely basis or at all. If we fail to implement these strategies
successfully, if we cannot keep up with the pace required for execution, or if these strategies do not yield the desired outcomes, our financial condition and
results of operations would be adversely affected.
Our net sales, operating income and inventory levels fluctuate on a seasonal basis, and decreases in sales or margins during our peak seasons could
have a disproportionate effect on our overall financial condition and results of operations.
Our net sales and operating income fluctuate seasonally, with a higher level of our operating income typically realized during the second half of the
year. Any decrease in sales or margins during this period could have a disproportionate effect on our financial condition and results of operations. Seasonal
fluctuations also affect our inventory levels. We must carry a significant amount of inventory, especially before the holiday season selling period. If we are
not successful in selling our inventory, we may have to write down our inventory or sell it at significantly reduced prices or we may not be able to sell such
inventory at all, which could have a material adverse effect on our financial condition and results of operations.
A reduction in traffic to, or the closing of, the other destination retailers in the shopping areas where our stores are located could significantly reduce
our sales and leave us with excess inventory, which could have a material adverse effect on our business, financial condition, profitability and cash
flows.
Many of our stores are strategically located in off-mall shopping areas known as “power centers.” Power centers typically contain three to five big-
box anchor stores along with a variety of smaller specialty tenants. Due to many of our stores being located in such shopping areas, our sales are derived, in
part, from the volume of traffic generated by the other destination retailers and the anchor stores in power centers where our stores are located. Customer
traffic to these shopping areas may be adversely affected by the closing of such destination retailers or anchor stores, or by a reduction in traffic to such
stores resulting from a regional or global economic downturn, a general downturn in the local area where our store is located, or a decline in the desirability
of the shopping environment of a particular power center. Such a reduction in customer traffic would reduce our sales and leave us with excess inventory,
which could have a material adverse effect on our business, financial condition, profitability and cash flows. We may respond by increasing markdowns or
transferring product to other stores to reduce excess inventory, which would further decrease our gross profits and net income.
Failure to execute our opportunistic buying and inventory management process could adversely affect our business.
We purchase the majority of our inventory opportunistically, with our buyers purchasing close to need. Establishing the “treasure hunt” nature of
the off-price buying experience to drive traffic to our stores requires us to offer changing assortments of merchandise in our stores. While opportunistic
purchasing provides our buyers the ability to buy at desirable times and prices, in the quantities we need and into market trends, it places considerable
discretion with our buyers, which subjects us to risks related to the pricing, quantity, nature and timing of inventory flowing to our stores. If we are unable
to provide frequent replenishment of fresh, high quality, attractively priced merchandise in our stores, it could adversely affect traffic to our stores as well
as our sales and margins. We base our purchases of inventory, in part, on our sales forecasts. If our sales forecasts do not match customer demand, we may
experience higher inventory levels and need to markdown excess or slow-moving inventory, leading to decreased profit margins, or we may have
insufficient inventory to meet customer demand, leading to lost sales, either of which could adversely affect our financial performance. We need to
purchase inventory sufficiently below conventional retail to maintain our pricing differential to regular department and specialty store prices, and to attract
customers and sustain our margins, which we may not achieve at various times and which could adversely affect our results.
In order to better serve our customers and maximize sales, we must properly execute our inventory management strategies by appropriately
allocating merchandise among our stores, timely and efficiently distributing inventory to such locations, maintaining an appropriate mix and level of
inventory in such locations, appropriately changing the allocation of floor space of stores among product categories to respond to customer demand, and
effectively managing pricing and markdowns, and there is no assurance we will be able to do so. In addition, as we execute inventory localization
initiatives, there could be disruptions in inventory flow and placement. Failure to effectively execute our opportunistic inventory buying and inventory
management strategies could adversely affect our performance and our reputation.
In addition to our own execution, we may need to react to factors affecting inventory flow that are outside our control, such as adverse weather,
natural disasters, epidemics or pandemics (including COVID-19) or other changes in conditions affecting our vendors and others in our supply chain, such
as political instability, labor issues (including strikes or threats of strikes and scarcity of labor) or increasing cost of regulations. If we are not able to adjust
appropriately to such factors, our inventory management may be affected, which could impact our performance and our reputation.
7
Failure to identify customer trends and preferences to meet customer demand could negatively impact our performance and reputation.
Because our success depends on our ability to meet customer demand, we work to follow customer trends and preferences on an ongoing basis and
to buy inventory in response to those trends and preferences. However, identifying consumer trends and preferences in the diverse product lines and many
markets in which we do business and successfully meeting customer demand across those lines and for those markets on a timely basis is challenging.
Although our flexible business model allows us to buy close to need and in response to consumer preferences and trends, and to expand and contract
merchandise categories in response to consumers’ changing tastes, we may not do so successfully, which could adversely affect our sales and the
markdowns required to move the resulting excess inventory will adversely affect our operating margins.
Customers may also have expectations about how they shop in stores, or more generally engage with businesses across different channels or media
(through internet-based and other digital or mobile channels or particular forms of social media), which may vary across demographics and may evolve
rapidly. Customers are increasingly using technology and mobile devices to rapidly compare products and prices and to purchase products. Failure to
effectively meet these changing expectations and demands, including any failure of the planned transformation of our e-commerce platform, may adversely
impact our reputation and our financial results.
Many stakeholders, including investors, customers, consumers and others, have increasingly focused on sustainability matters. If we do not (or are
perceived not to) act responsibly with respect to any sustainability matters, our reputation could be harmed, which could negatively impact our business
and results of operations.
If we are unable to renew or replace our store leases or enter into leases for new stores on favorable terms, if our current leases are terminated prior to
the expiration of their stated term and we cannot find suitable alternate locations, or if we cannot optimize our existing stores, our growth strategy and
profitability could be negatively impacted.
We lease substantially all of our store locations. Most of our current leases expire at various dates after ten-year terms, the majority of which are
subject to our option to renew such leases for several additional five-year periods. While we have the right to terminate some of our leases under specified
conditions, including by making specified payments, we may not be able to terminate a particular lease if or when we would like to close a particular store.
If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases, which generally include, among other
things, paying rent and operating expenses for the balance of the lease term, or paying to exercise rights to terminate, and performing any of these
obligations may be expensive. When we assign leases or sublease space to third parties, we may remain liable on the lease obligations, which could lead to
significant expense if the assignee or sublessee does not perform. In addition, when the lease terms for the stores in our ongoing operations expire, our
ability to renew such expiring leases on commercially acceptable terms or, if such leases cannot be renewed, our ability to lease a suitable alternative
location, and our ability to enter into leases for new stores on favorable terms will each depend on many factors, some of which may not be within our
control, such as conditions in the local real estate market, competition for desirable properties and our relationships with current and prospective lessors. As
we renew and replace our store leases, we also strive to optimize the size of our existing stores to ensure maximum space utilization, which frequently
means adjusting operations to accommodate smaller space through alternative floor plans and inventory turn optimization.
In addition, to the extent that our new store openings are in existing markets, we may experience reduced net sales volumes in existing stores in
those markets. We expect to fund some of our expansion through cash flow from operations, lease incentives from our lessors, and, if necessary, by
borrowings under our line of credit. If we experience a decline in performance or lease payment allowances from our lessors become unavailable, we may
slow or discontinue store openings, relocations, refreshes and/or remodels.
If we are unable to effectively manage our existing portfolio of real estate leases, renew existing leases or lease suitable alternative locations, enter
into leases for new stores on favorable terms, or optimize our existing stores, our growth and profitability may be negatively impacted.
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Extreme and/or unseasonable weather conditions, or catastrophic events could have a significant adverse effect on our business, financial condition
and results of operations.
Extreme weather conditions in the areas in which our stores or distribution centers are located – especially in areas with a high concentration of our
stores – could have a material adverse effect on our business, financial condition and results of operations. For example, heavy snowfall or other extreme
weather conditions over a prolonged period might make it difficult for our customers or employees to travel to our stores. In addition, natural disasters such
as hurricanes, tornados, floods, earthquakes, and other extreme weather or climate conditions, or a combination of these or other factors, could severely
damage or destroy one or more of our stores or distribution facilities located in the affected areas, or disrupt our computer systems, thereby disrupting our
business operations. Any of these events or circumstances also could disrupt the operations of one or more of our vendors. Day-to-day operations,
particularly our ability to receive products from our vendors or transport products to our stores, could be adversely affected, or we could be required to
close stores. Finally, if the COVID-19 pandemic continues to grow within the U.S., we may decide or be required to temporarily close a significant number
of our stores in various affected areas, which could have a material adverse effect on our business and results of operations.
Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the
Fall or Winter seasons or cool weather during the Spring or Summer seasons could render a portion of our inventory incompatible with those unseasonable
conditions, particularly in light of our historical product mix. These prolonged unseasonable weather conditions could adversely affect our business,
financial condition and results of operations. In addition, because higher net sales historically have occurred during the second half of the year,
unseasonably warm weather during these months could have a disproportionately large effect on our business and materially adversely affect our financial
condition and results of operations.
Since we do not have long-term contracts with our vendors, if we are unable to purchase attractive brand name merchandise in sufficient quantities at
competitive prices, we may be unable to offer an appealing merchandise mix and our sales may be harmed.
Our ability to purchase merchandise opportunistically from third party vendors depends upon the continuous, sufficient availability of high quality
merchandise that we can acquire at prices sufficiently below those paid by conventional retailers in order to achieve the value proposition we strive to
provide to our customers. Some of our key vendors may limit the number of retail channels they use to sell their merchandise, which may result in intense
competition among retailers to obtain and sell these goods. In addition, most of the brands of our top vendors are sold by competing retailers and some of
our top vendors also have their own dedicated retail stores. Moreover, we typically buy products from our vendors on a purchase order basis. We have no
long-term purchase contracts with any of our vendors and, therefore, have no contractual assurances of continued supply, pricing or access to products, and
any vendor could change the terms upon which they sell to us or discontinue selling to us at any time. Finally, if our vendors are better able to manage their
inventory levels and reduce the amount of their excess inventory, the amount of high quality merchandise available to us could be materially reduced.
If our relationships with our vendors are disrupted, we may not be able to acquire the merchandise we require in sufficient quantities or on terms
acceptable to us. Any inability to acquire high quality merchandise would have a negative effect on our business and operating results because we would be
missing products from our merchandise mix unless and until alternative supply arrangements were made, resulting in deferred or lost sales. In addition,
events that adversely affect our vendors could impair our ability to obtain desired merchandise in sufficient quantities. Such events include difficulties or
problems associated with our vendors’ businesses, finances, labor, importation of products, costs, production, insurance and reputation.
The loss of executives or other key personnel or our failure to facilitate senior management smooth transitions may disrupt our business and adversely
affect our financial results.
We depend on the contributions of key personnel in various functions for our continued success. These executives and other key personnel may be
hired by our competitors, some of which have considerably more financial resources than we do. The loss of key personnel, or the inability to hire, train,
motivate and retain qualified employees, or changes to our organizational structure, operating results, or business model that adversely affect morale or
retention, could adversely affect our business, financial condition and results of operations. Effective succession planning is also a key factor for our
success.
In Fiscal 2019, we experienced significant transitions among the Company’s senior management with the appointment of a new Chief Executive
Officer and a new Chief Financial Officer. Our failure to enable the effective transfer of knowledge and facilitate smooth transitions with regard to these
key personnel and others could adversely affect our strategic planning and execution and negatively affect our business, financial condition and results of
operations. If we fail to enable the effective transfer of knowledge and facilitate smooth transitions for key personnel, the operating results and future
growth for our business could be adversely affected, and the morale and productivity of the workforce could be disrupted.
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Our failure to attract, train and retain quality employees and temporary personnel in appropriate numbers could adversely affect our business.
Our performance depends on recruiting, developing, training and retaining quality sales, systems, distribution center and other employees in large
numbers as well as experienced buying and management personnel, and we invest significant resources in training and motivating them to maintain a high
level of job satisfaction. Many of our store employees are in entry level or part-time positions with historically high rates of turnover, which can lead to
increased training and retention costs, particularly if employment opportunities increase. Availability and skill of employees may differ across markets in
which we do business and in new markets we enter, and we need to manage our labor needs effectively.
In addition, because of the distinctive nature of our off-price model, we must provide significant internal training and development for key
employees across the company, including within our buying organization. Similar to other retailers, we face challenges in securing and retaining sufficient
talent in management and other key areas for many reasons, including competition in the retail industry generally and for talent in various geographic
markets. If we do not continue to attract qualified individuals, train them in our business model, support their development and retain them, our
performance could be adversely affected or our growth could be limited.
We are also dependent upon temporary personnel to adequately staff our stores and distribution facilities, with heightened dependence during busy
periods such as the holiday season and when multiple new stores are opening. Although we strive to secure long-term contracts on favorable terms with our
service providers and other vendors, we may not be able to avoid unexpected operating cost increases in the future, such as those associated with minimum
wage increases or enhanced health care requirements. In addition, there can be no assurance that we will receive adequate assistance from our temporary
personnel, or that there will be sufficient sources of suitable temporary personnel to meet our demand. Any such failure to meet our staffing needs or any
material increases in associate turnover rates could have a material adverse effect on our business or results of operations. Further, any negative publicity
regarding the agencies from which we source temporary personnel, such as in connection with immigration issues or employment practices, could damage
our reputation, disrupt our ability to obtain needed labor or result in financial harm to our business.
Labor costs, including healthcare costs, and other challenges from our large workforce may adversely affect our results and profitability.
We have a large workforce, and our ability to meet our labor needs while controlling costs, including costs of providing health, retirement and other
associate benefits, is subject to various factors such as unemployment levels; prevailing wage rates and minimum wage requirements; participant benefit
levels; economic conditions; interest rate changes; health and other insurance costs; and the regulatory environment, including health care legislation, and
with respect to governmental labor and employment and associate benefits programs and requirements. When wage rates or benefit levels increase in the
market or the unemployment rate is otherwise low, increasing our wages or benefits to compete for employees may cause our earnings to decrease, while
failing to increase our wages or benefits competitively or reducing our wages or benefits could result in a decline in our ability to attract or retain
employees or in the quality of our workforce, causing our customer service or performance to suffer, which could negatively impact our results.
Parties with whom we do business may be subject to insolvency risks or may otherwise become unable or unwilling to perform their obligations to us.
We are party to contracts, transactions and business relationships with various third parties, including vendors, suppliers, service providers and
lenders, pursuant to which such third parties have performance, payment and other obligations to us. In some cases, we depend upon such third parties to
provide essential leaseholds, products, services or other benefits, including with respect to store and distribution center locations, merchandise, advertising,
software development and support, logistics, other agreements for goods and services in order to operate our business in the ordinary course, extensions of
credit, hedging instruments and other vital matters. Economic, industry and market conditions could result in increased risks to us associated with the
potential financial distress of such third parties.
If any of the third parties with which we do business become subject to bankruptcy, receivership or similar insolvency proceedings, our rights and
benefits in relation to our contracts, transactions and business relationships with such third parties could be terminated, modified in a manner adverse to us,
or otherwise impaired. We cannot make any assurances that we would be able to arrange for alternate or replacement contracts, transactions or business
relationships on terms as favorable as our existing contracts, transactions or business relationships, if at all. Any inability on our part to do so could
negatively affect our cash flows, financial condition and results of operations.
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Many of our vendors produce merchandise overseas, and our business is exposed to the risk of foreign and domestic operations and international tax
policies and trade relations.
We do not own or operate any manufacturing facilities. As a result, we are dependent upon the timely receipt of quality merchandise from vendors,
many of which produce merchandise overseas. Factors which affect overseas production could affect our vendors and, in turn, our ability to obtain
inventory and the price levels at which they may be obtained. Factors that cause an increase in merchandise costs or a decrease in supply could lead to
generally lower sales and gross margins in the retail industry.
Such factors include:
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political or labor instability in countries where vendors are located or at foreign ports which could result in lengthy shipment
delays, which, if timed ahead of the Fall and Winter peak selling periods, could materially and adversely affect our ability to
stock inventory on a timely basis;
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disruptions in the operations of domestic ports through which we import our merchandise, including labor disputes involving
work slowdowns, lockouts or strikes, which could require us and/or our vendors to ship merchandise to alternative ports in the
United States or through the use of more expensive means, and shipping to alternative ports in the United States could result in
increased lead times and transportation costs; disruptions at ports through which we import our goods could also result in
unanticipated inventory shortages;
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•
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political or military conflict, which could cause a delay in the transportation of our products to us and an increase in
transportation costs;
heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough
inspections, leading to delays in deliveries or impoundment of goods for extended periods;
disease epidemics, pandemics (including COVID-19), outbreaks and other health-related concerns, which could result in closed
factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;
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natural disasters and industrial accidents, which could have the effect of curtailing production and disrupting supplies;
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increases in labor and production costs in goods-producing countries, which would result in an increase in our inventory
costs;
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the migration and development of manufacturers, which can affect where our products are or will be produced;
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fluctuation in our vendors’ local currency against the dollar, which may increase our cost of goods sold; and
changes in import duties, taxes, charges, quotas, loss of “most favored nation” trading status with the United States for a
particular foreign country and trade restrictions (including the United States imposing antidumping or countervailing duty
orders, safeguards, remedies or compensation and retaliation due to illegal foreign trade practices).
Any of the foregoing factors, or a combination thereof, could have a material adverse effect on our business.
Over the past couple years, uncertainty has increased with respect to tax and trade policies, tariffs and government regulations affecting trade
between the U.S. and other countries. Although we source the majority of our merchandise from third party vendors located in the U.S., the production of
that merchandise occurs primarily overseas. As a result, we continue to evaluate the impact of the effective and any additional proposed tariffs on our
supply chain, costs, sales and profitability. Given the uncertainty regarding the scope and duration of the tariffs on Chinese goods, as well as the potential
for additional trade actions by the U.S. or other countries, the impact on our operations and results is uncertain, and we can provide no assurance that any
strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful.
In addition, other major developments in tax policy or trade relations, such as the disallowance of tax deductions for imported merchandise or the
imposition of additional unilateral tariffs on imported products could increase the cost of products purchased from suppliers in such countries or restrict the
importation of products from such countries, which in turn could have a material adverse effect on our business, results of operations and liquidity.
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Any disruption to our distribution network, including the shutdown of one of our primary distribution centers or complications with any third-party
vendors that support our network, or increases in the cost of their services, could cause disruptions in our business, a loss of sales and profits, increases
in our expenses, and other material adverse effects.
Most of the merchandise we purchase is shipped directly to our distribution centers, where it is prepared for shipment to the appropriate stores. The
success of our stores depends on their timely receipt of merchandise, and a strong, efficient and flexible distribution network is critical to our ability to
grow and to maintain a low-cost operating structure. A disruption within our distribution network, including the shutdown of or loss of significant capacity
by one of our current primary distribution centers, could adversely affect our ability to deliver inventory in a timely manner and significantly disrupt our
business. In addition, any failure to continue to add capacity to our existing distribution centers and build out planned additional distribution centers timely
and cost effectively could adversely affect our business.
In addition to the distribution centers that we operate, we have arrangements with third parties for the use of pool point facilities, which we believe
streamline and optimize our distribution network. If complications arise with a pool point facility or its operator, or if any such facility is severely damaged
or destroyed, it may cause delays in the delivery of our merchandise to our stores. We also may be affected by disruptions in the global transportation
network such as port strikes, weather conditions, work stoppages or other labor unrest, which may also adversely affect our ability to deliver inventory on a
timely basis. We also depend upon third-party carriers for shipment of merchandise; any interruption in service by these carriers for any reason could cause
disruptions in our business, a loss of sales and profits, and other material adverse effects.
Finally, if the COVID-19 pandemic continues to grow, our import supply chain could experience severe delays due to closed factories and/or
reduction in processing capacity as a result of workers not being able to return back to work or other labor shortages, which could cause disruptions in our
business, a loss of sales and profits, and other adverse effects.
If we are unable to protect our information systems against service interruption, misappropriation of data, breaches of security, or other cyber-related
attacks, our operations could be disrupted, we may suffer financial losses and our reputation may be damaged.
We rely extensively on various information systems, including data centers, hardware, software and applications to manage many aspects of our
business, including to process and record transactions in our stores, to enable effective communication systems, to plan and track inventory flow, to manage
logistics and to generate performance and financial reports. In addition, some aspects of our business, like that of most retailers, involve the receipt, storage
and transmission of customers’ personal information and consumer preferences, as well as confidential information about our employees, our vendors and
our Company, some of which is entrusted to third-party service providers and vendors. We are dependent on the integrity, security and consistent operations
of these systems and related back-up systems, software, tools (including encryption technology) and monitoring to provide security and oversight for
processing, transmission, storage and the protection of such confidential information.
Like most major corporations, however, we, our customers and our third-party services providers face an evolving, increasing threat landscape in
which cybercriminals, among others, employ a complex array of techniques designed to access personal and other information, including, for example, the
use of fraudulent or stolen access credentials, malware, ransomware, phishing, denial of service and other types of attacks. Hardware, software or
applications we develop or obtain from third parties may contain defects in design or manufacture or other problems that are not presently known and could
unexpectedly compromise information security. In addition, our employees, contractors or third parties with which we do business or to which we
outsource business operations may attempt to circumvent our security measures in order to misappropriate such information, and may purposefully or
inadvertently cause a breach involving such information or become subject to various other cyber-crimes. Further, our computer systems and the third-party
systems of our vendors are also subject to damage or interruption from a number of non-criminal causes, including power outages; computer and
telecommunications failures; computer viruses; and design or usage errors by our employees or contractors.
If we or third parties with which we do business were to fall victim to successful cyber-attacks or experience other cybersecurity incidents,
including the loss of individually identifiable customer or other sensitive data, we may incur substantial costs and suffer other negative consequences,
which may include:
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•
•
•
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remediation costs, such as liability for stolen assets or information, repairs of system damage or replacement of systems, and incentives to
customers or business partners in an effort to maintain relationships after an attack;
increased cybersecurity protection costs, which may include the costs to continuing to make organizational changes, deploy additional personnel
and protection technologies, train employees, and engage third party consultants;
lost revenues resulting from the unauthorized use of proprietary information or the failure to retain or attract customers following an attack;
litigation and legal risks, including regulatory actions by state and federal governmental authorities;
increased cybersecurity and other insurance premiums;
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•
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reputational damage that adversely affects customer or investor confidence; and
damage to our competitiveness, stock price, and long-term stockholder value.
Despite advances in security hardware, software, and encryption technologies, the methods and tools used to obtain unauthorized access, disable or
degrade service, or sabotage systems are constantly changing and evolving, and may be difficult to anticipate or detect for long periods of time, and there is
no guarantee that the proactive measures we put in place will be adequate to safeguard against all data security breaches or misuses of data.
Although we endeavor to protect consumer identity and payment information through the implementation and modification of security
technologies, processes and procedures, including training programs for employees to raise awareness about phishing, malware and other cyber risks and
certification of our major technology suppliers and any outsourced services through accepted security certification measures, we could experience
increased costs associated with maintaining these protections as threats of cyber-attacks increase in sophistication and complexity. In addition, there are
additional inherent risks associated with modifying or replacing systems, and with new or changed relationships, including accurately capturing and
maintaining data, realizing the expected benefit of the change and managing the potential disruption of the operation of the systems as the changes are
implemented. Potential issues associated with implementing technology initiatives and the time and resources required to optimize the benefits of new
elements of our systems and infrastructure could reduce the efficiency of our operations in the short term.
Compliance with increasingly rigorous privacy and data security regulations could be costly, affect or limit our business opportunities and how we
collect and/or use data, and potentially subject us to fines and lawsuits.
As described above, the protection of customer, employee, vendor and Company data is critical to our business. As the regulatory environment
relating to retailers’ and other companies’ obligation to protect such sensitive data becomes increasingly rigorous, with new and evolving requirements
applicable to our business, compliance with those requirements could result in additional costs; could have a significant impact on our current and planned
privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of customer and/or employee
information, and some of our current or future business plans; and a material failure on our part to comply could subject us to fines or other regulatory
sanctions and potentially to lawsuits.
In recent years, there has been increasing regulatory enforcement and litigation activity in the area of privacy, data protection and information
security in various states in which we operate. Notably, on January 1, 2020, the California Consumer Privacy Act of 2018 (the “CCPA”) became effective.
The CCPA requires certain companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, protection and
the ability of California residents whose data is stored to know specifically what data types each company has collected on them and, if they so choose, the
right to demand that such companies delete their data. While we believe we have sufficient measures in place to comply with our obligations under the
CCPA, failure to comply with its requirements could result in civil penalties, and it additionally provides a private right of action that allows consumers to
seek, either individually or as a class, statutory or actual damages and injunctive and other relief, if their sensitive personal information is subject to
unauthorized access and exfiltration, theft or disclosure as a result of a business’s failure to implement and maintain required reasonable security
procedures. Compliance with the CCPA and other similar laws will likely increase the costs of doing business, especially if we face differing regulatory
requirements across multiple jurisdictions and/or a lack of adequate regulatory guidance. New legislation or regulations such as the CCPA, including any
potential comprehensive federal privacy legislation, as well as any associated inquiries or investigations or any other government actions, could also result
in negative publicity, require significant management time and attention, and subject us to remedies that may harm our business, including fines or
demands or orders that we modify or cease existing business practices.
We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and
potentially disrupt our business.
We accept payments using a variety of methods, including cash, checks, credit and debit cards, and gift cards, and we may offer new payment
options over time. Acceptance of these payment methods subjects us to rules, regulations, contractual obligations and compliance requirements, including
payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers.
These requirements may change over time or be reinterpreted, making compliance more difficult or costly.
For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our
operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and other forms of
electronic payment. If these companies become unable to provide these services to us, or if their systems are compromised, it could potentially disrupt our
business. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated,
seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or
requirements for the payment methods
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we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks
and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In
addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our
payment systems that may result in higher costs. As a result, our business and operating results could be adversely affected.
Issues with merchandise safety could damage our reputation, sales and financial results.
Various governmental authorities in the jurisdictions where we do business regulate the safety of the merchandise we sell to consumers.
Regulations and standards in this area, including those related to the U.S. Consumer Product Safety Improvement Act of 2008, state regulations like
California’s Proposition 65, and similar legislation, impose restrictions and requirements on the merchandise we sell in our stores. These regulations change
from time to time as new federal, state or local regulations are enacted. If we or our merchandise vendors are unable to comply with regulatory
requirements on a timely basis or at all, or to adequately monitor new regulations that may apply to existing or new merchandise categories, significant
fines or penalties could be incurred or we could have to curtail some aspects of our sales or operations, which could have a material adverse effect on our
financial results.
We rely on our vendors to provide quality merchandise that complies with applicable product safety laws and other applicable laws, but they may
not comply with their obligations to do so. Although our arrangements with our vendors frequently provide for indemnification for product liabilities, the
vendors may fail to honor those obligations to an extent we consider sufficient or at all. Issues with the safety of merchandise, and issues with the
authenticity of merchandise, or customer concerns about such issues, regardless of our fault, could cause damage to our reputation and could result in lost
sales, uninsured product liability claims or losses, merchandise recalls and increased costs, and regulatory, civil or criminal fines or penalties, any of which
could have a material adverse effect on our financial results.
Difficulty complying with existing laws, rules, regulations and local codes, or changes in existing laws, rules, regulations and local codes, could
negatively affect our business operations and financial performance.
We are subject to federal, state and local laws, rules and regulations in the operation of our business. In addition to complying with current laws,
rules and regulations, we must also comply with new and changing laws and regulations, new regulatory initiatives, evolving interpretation of existing laws
by judicial and regulatory authorities, and reforms in jurisdictions where we do business. Complying with local zoning codes, real estate land use
restrictions, employment-related laws, and other local laws across numerous jurisdictions is particularly challenging as we grow the number of our stores in
new municipalities and need to stay abreast of changes in such local laws. The increasing proliferation of local laws, some of which may be conflicting,
further complicates our efforts to comply with all of the various laws, rules and regulations that apply to our business.
All of the above legal, regulatory and administrative requirements collectively affect multiple aspects of our business, including those involving
labor and employment benefits; health, welfare and finance; real estate management; consumer protection and product safety; climate change, supply chain,
energy and waste; electronic communications, data protection and privacy; and protection of third party intellectual property rights. Changes to these laws
and regulations could increase our costs of compliance or of doing business, and could adversely affect our operating results. In addition, if we fail to
comply with these laws, rules and regulations, we may be subject to judgments, fines or other costs or penalties, which could materially adversely affect
our business operations and financial performance.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could
significantly affect our financial results or financial condition.
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a
wide range of matters that are relevant to our business, such as inventories, leases, and self-insurance reserves, are highly complex and involve many
subjective assumptions, estimates and judgments. Changes in these rules or their interpretation, or changes in underlying assumptions, estimates or
judgments, could significantly change our reported or expected financial performance or financial condition.
Our future growth and profitability could be adversely affected if our advertising and marketing programs are not effective in generating sufficient
levels of customer awareness and traffic.
We rely on advertising to increase consumer awareness of our product offerings and pricing to drive traffic to our stores. In addition, we rely and
will increasingly rely on other forms of media advertising, including digital, social media and e-marketing. Our future growth and profitability will depend
in part upon the effectiveness and efficiency of our advertising and marketing programs. Our advertising and marketing programs may not be successful if
we do not:
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manage advertising and marketing costs effectively in order to maintain acceptable operating margins and return on our
marketing investment; and
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convert customer awareness into actual store visits and product purchases.
Our planned advertising and marketing expenditures may not result in increased total or comparable store sales or generate sufficient levels of
product awareness. Further, we may not be able to manage our advertising and marketing expenditures on a cost-effective basis. Additionally, some of our
competitors may have substantially larger marketing budgets, which may provide them with a competitive advantage over us.
Damage to our corporate reputation or brand could adversely affect our sales and operating results.
Building brand reputation is important to our continuing success. Our reputation is partially based on perceptions of various subjective qualities and
overall integrity. Any incident that erodes the trust or confidence of our customers or the general public could adversely affect our reputation and business,
particularly if the incident results in significant adverse publicity or governmental inquiry. In addition, information concerning us, whether or not true, may
be instantly and easily posted on social media platforms and similar devices at any time, which information may be adverse to our reputation or business.
The harm may be immediate without affording us an opportunity for redress or correction. Damage to our reputation in any form could result in declines in
customer loyalty and sales, affect our vendor relationships, development opportunities and associate retention, and otherwise adversely affect our business.
Use of social media by the Company or third parties at our direction may adversely impact our reputation or subject us to fines or other penalties.
There has been a substantial increase in the use of social media platforms, including blogs, social media websites, and other forms of internet-based
communications, which allow individuals access to a broad audience of consumers and other interested persons. We have increasingly utilized social media
in our marketing and employment recruiting efforts in order to reach as many current and potential new customers and potential employment candidates as
efficiently and cost effectively as possible, and have also retained third parties with expertise and distinction in the social media realm to bolster our social
media efforts. As laws and regulations rapidly evolve to govern the use of these platforms, the failure by us, our employees or third parties acting at our
direction to abide by applicable laws and regulations in the use of these platforms could adversely impact our reputation or subject us to fines or other
penalties.
Legal and regulatory proceedings could have an adverse impact on our results of operations.
We are subject to various legal and regulatory proceedings relating to our business, certain of which may involve jurisdictions with reputations for
aggressive application of laws and procedures against corporate defendants. We are impacted by trends in litigation, such as representative claims under the
California Private Attorneys’ General Act and class action litigation brought under various consumer protection, employment, and privacy and information
security laws, including wage and hour lawsuits alleging employee misclassification as discussed in Note 17 to our Consolidated Financial Statements,
“Commitments and Contingencies.” Accruals are established based on our best estimates of our potential liability. However, we cannot accurately predict
the ultimate outcome of any such proceedings due to the inherent uncertainties of litigation. Regardless of the outcome or whether the claims are
meritorious, legal and regulatory proceedings may require that we devote substantial time and expense to defend our Company. Unfavorable rulings could
result in a material adverse impact on our business, financial condition or results of operations.
Our business could be impacted as a result of actions by activist stockholders or others.
From time to time, we may be subject to legal and business challenges in the operation of our Company due to stockholder proposals, media
campaigns, proxy contests, and other such actions instituted by activist stockholders or others. Responding to such actions could be costly and time-
consuming, disrupt our operations, may not align with our business strategies and could divert the attention of our Board of Directors and senior
management from the pursuit of current business strategies. Perceived uncertainties as to our future direction as a result of stockholder activism or potential
changes to the composition of the Board of Directors may lead to the perception of a change in the direction of the business or other instability, and may
make it more difficult to attract and retain qualified personnel and business partners.
Circumstances limiting our ability, or the ability of our vendors, to access capital markets could adversely affect our business or financial condition.
Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of
financing or restrict our access to this potential source of future liquidity. A decrease in the ratings that rating agencies assign to our short- and long-term
debt may also negatively impact our access to the debt financing markets and increase our cost of borrowing. These circumstances may negatively impact
our access to capital markets, which could have a materially adverse impact on our business or financial condition.
15
In many cases, our vendors depend upon commercial credit to finance their operations. If they are unable to secure commercial financing, our
vendors could seek to change the terms on which they sell to us, which could negatively affect our liquidity. In addition, the inability of vendors to access
liquidity, or the insolvency of vendors, could lead to their failure to deliver merchandise to us.
Our substantial indebtedness requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our
control, and we may be unable to generate sufficient cash flow to service our debt obligations.
As of February 1, 2020, our obligations include $957.5 million, inclusive of original issue discount, under our $1,200.0 million senior secured term
loan facility (Term Loan Facility). We had no outstanding balance on our $600.0 million asset-based lending facility (ABL Line of Credit) as of February 1,
2020. Our debt obligations also include $50.1 million of finance lease obligations as of February 1, 2020. Estimated cash required to make interest
payments for these debt obligations amounts to approximately $44.7 million for the fiscal year ending January 30, 2021.
Our ability to make payments on and to refinance our debt, and to fund planned capital expenditures, will depend on our ability to generate cash in
the future, which is to some extent subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we will be required to adopt one or more alternatives,
such as refinancing all or a portion of our debt, selling material assets or operations or raising additional debt or equity capital. We may not be able to
successfully carry out any of these actions on a timely basis, on commercially reasonable terms or at all, or be assured that these actions would be sufficient
to meet our capital requirements. In addition, the terms of our existing or future debt agreements, including the Term Loan Facility and the ABL Line of
Credit, may restrict us from affecting any of these alternatives.
Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in
an event of default that could materially and adversely affect our results of operations and our financial condition.
If an event of default under any of the agreements relating to our outstanding indebtedness occurred, the holders of the defaulted debt could cause
all amounts outstanding with respect to that debt to be due and payable immediately. Our assets or cash flow may not be sufficient to fully repay
borrowings under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our
secured indebtedness, the holders of such debt could proceed against the collateral securing that indebtedness through foreclosure proceedings and/or by
forcing us into bankruptcy or liquidation. In addition, any event of default or declaration of acceleration under one debt instrument could also result in an
event of default under one or more of our other debt instruments.
It is unclear how increased regulatory oversight and changes in the method for determining LIBOR may affect the financial obligations owed by us
that are linked to LIBOR, or how such changes could affect our results of operations or financial condition.
In the recent past, concerns have been publicized that some of the member banks surveyed by British Bankers’ Association, or (the BBA), in
connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting, over-reporting or otherwise
manipulating the inter-bank lending rate applicable to them in order to profit on their derivative positions or to avoid an appearance of capital insufficiency
or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A
number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR,
and investigations by regulators and governmental authorities in various jurisdictions are ongoing. Other member banks may also enter into such
settlements with, or have proceedings brought by, their regulators or law enforcement agencies in the future. If manipulation of LIBOR occurred, it may
have resulted in LIBOR having been artificially lower (or higher) than it would otherwise have been. Any such manipulation could have occurred over a
substantial period of time.
On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by
the end of 2021. It is unclear whether LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist
after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.
financial institutions, announced an alternative to U.S. dollar LIBOR with a new index calculated by short term repurchase agreements, backed by Treasury
securities, called the Secured Overnight Financing Rate (SOFR). Whether or not SOFR attains market traction as a LIBOR alternative or replacement for
U.S. dollar-denominated instruments remains in question and future of LIBOR at this time is uncertain. To address a potential transition away from LIBOR,
the Term Loan Facility and ABL Line of Credit agreements each provide for an agreed upon methodology to amend such agreements to substitute LIBOR
with an agreed replacement rate, subject to our consent and the applicable administrative agent, and in each case subject to a short lender negative consent
period. However, there is no guarantee that any such replacement rate would be agreed by
16
the applicable agents and lenders or that such consents would be obtained, and in such event we would be required to pay a rate of interest higher than
expected on the amount owed under such agreements where the interest rate is subject to LIBOR. We have also entered into LIBOR‑based interest rate
swap agreements to manage our exposure to interest rate movements resulting from changes in the benchmark interest rate of LIBOR. Any replacement of
LIBOR as the basis on which interest on our floating-rate debt and/or under our interest rate swaps is calculated may result in interest rates and/or payments
that do not correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current
form.
In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease
in reported LIBOR, which could have a material adverse effect on our business, financial condition and results of operations.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our
obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends
and distributions and other transfers from our subsidiaries to meet our obligations. The deterioration of income from, or other available assets of, our
subsidiaries for any reason could limit or impair their ability to pay dividends or other distributions to us.
Risks Related to Ownership of Our Common Stock
Our stock price has been and may continue to be volatile.
The market price of our common stock has fluctuated substantially in the past and may continue to fluctuate significantly. For example, in Fiscal
2019, our stock price fluctuated from a high of $236.02 to a low of $136.30. Future announcements or disclosures concerning us or any of our competitors,
our strategic initiatives, our sales and profitability, our financial condition, any quarterly variations in actual or anticipated operating results or comparable
sales, any failure to meet analysts’ expectations and sales of large blocks of our common stock, among other factors, could cause the market price of our
common stock to fluctuate substantially. In addition, the stock market has experienced price and volume fluctuations that have affected the market price of
many retail and other stocks that have often been unrelated or disproportionate to the operating performance of these companies.
Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us that stockholders might
consider favorable.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of the
Company more difficult without the approval of our Board of Directors. These provisions:
•
•
•
•
•
•
•
•
authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which
may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other
rights or preferences superior to the rights of the holders of common stock;
prohibit stockholder action by written consent, requiring all stockholder actions be taken at a meeting of our stockholders;
establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that
can be acted upon by stockholders at stockholder meetings;
establish a classified Board of Directors, as a result of which our Board of Directors is divided into three classes, with
each class serving for staggered three-year terms, which prevents stockholders from electing an entirely new Board of
Directors at an annual meeting;
limit the ability of stockholders to remove directors only for cause and only upon the affirmative vote of at least 75% of
the outstanding shares of our common stock;
prohibit stockholders from calling special meetings of stockholders;
provide that the Board of Directors is expressly authorized to alter or repeal our amended and restated bylaws; and
require the approval of holders of at least 75% of the outstanding shares of our voting common stock to amend the
amended and restated bylaws and certain provisions of the amended and restated certificate of incorporation.
17
These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in
control of the Company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult
for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for
certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware
will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a
fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising
pursuant to any provision of the Delaware General Corporation Law, or (iv) any other action asserting a claim against us that is governed by the internal
affairs doctrine.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have
consented to the provisions of our amended and restated certificate of incorporation described above. This choice of forum provision may limit a
stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may
discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and
restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may
incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
Because we do not intend to pay cash dividends in the near term, stockholders may not receive any return on investment unless they are able to sell
their common stock for a price greater than their purchase price.
The continued operation and expansion of our business will require substantial funding. Accordingly, we do not anticipate that we will pay any
cash dividends on shares of our common stock in the near term. Any determination to pay dividends in the future will be at the discretion of our Board of
Directors and will depend upon results of operations, financial condition, contractual restrictions, including those under our ABL Line of Credit and Term
Loan Facility, any potential future indebtedness we may incur, restrictions imposed by applicable law and other factors our Board of Directors deems
relevant. Accordingly, if stockholders purchase shares of our common stock, realization of a gain on investment will depend on the appreciation of the price
of our common stock, which may never occur.
Item 1B.
Unresolved Staff Comments
Not Applicable.
18
Item 2.
Properties
We own the land and/or buildings for 36 of our stores and have leases for 690 of our stores. Our new stores are generally leased for an initial term of
ten to fifteen years, the majority of which are subject to our option to renew such leases for several additional five-year periods. Store leases generally
provide for fixed monthly rental payments, plus the payment, in most cases, of real estate taxes and other charges with escalation clauses. In many
locations, our store leases contain formulas providing for the payment of additional rent based on sales. Most of our stores are freestanding or located in
regional power centers, strip shopping centers or in malls.
Primary Distribution Centers:
Edgewater Park, New Jersey(a)
Burlington, New Jersey (Daniels Way)
San Bernardino, California
Redlands, California (Pioneer Ave)
Riverside, California (Cactus Ave)(b)
Warehousing Facilities:
Burlington, New Jersey (Route 130 North)(a)
Burlington, New Jersey (Richards Run)
Redlands, California (River Bluff Ave)
Calendar
Year
Operational
Size
(sq. feet)
2004
2014
2006
2014
2020
1987
2017
2017
648,000
678,000
758,000
800,000
900,000
402,000
511,000
543,000
Leased
or
Owned
Owned
Leased
Leased
Leased
Leased
Owned
Leased
Leased
(a)
(b)
Inclusive of corporate offices.
The lease for this distribution center was signed during Fiscal 2018.
We own approximately 235 acres of land in Burlington and Florence, New Jersey on which we have constructed our corporate campus, which
includes our corporate headquarters and a warehouse facility. We own approximately 43 acres of land in Edgewater Park, New Jersey on which we have
constructed our Edgewater Park, New Jersey distribution center and an office facility. We lease approximately 35,000 square feet of office space in New
York City (east coast buying office), and we are relocating our 10,000 square feet of office space in Los Angeles, California (west coast buying office) to a
larger space consisting of approximately 25,000 square feet.
Item 3.
Legal Proceedings
Like many retailers, the Company has been named in potential class or collective actions on behalf of groups alleging violations of federal and state
wage and hour and other labor statutes, and alleged violation of state consumer and/or privacy protection and other statutes. In the normal course of
business, we are also party to representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory
proceedings including, among others, commercial, product, product safety, employee, customer, intellectual property and other claims. Actions against us
are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. Refer to Note 17 to our
Consolidated Financial Statements, “Commitments and Contingencies,” for further detail.
Item 4.
Mine Safety Disclosures
Not applicable.
19
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol “BURL.”
Holders
As of February 28, 2020, we had 277 holders of record of our common stock. This figure does not include the significantly greater number of
beneficial holders of our common stock.
Dividends
During the past two fiscal years, we have not declared, and do not anticipate declaring in the near term, dividends on shares of our common stock.
We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of the Company's capital expenditures, business
initiatives, and to support any potential opportunistic capital structure initiatives. Any determination to pay dividends in the future will be at the discretion
of our Board of Directors and will depend upon results of operations, financial condition, contractual restrictions, including those under our ABL Line of
Credit and Term Loan Facility, any potential future indebtedness we may incur, restrictions imposed by applicable law and other factors our Board of
Directors deems relevant.
In addition, since we are a holding company, substantially all of the assets shown on our consolidated balance sheets are held by our subsidiaries.
Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the
distribution or other payment of such earnings to us in the form of dividends.
Stock Performance Graph
The performance graph below and related information shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any
future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
20
The following graph compares the cumulative total stockholder return on our common stock from the closing prices as of the end of each fiscal year
from January 31, 2015 through February 1, 2020, with the return on the Standard & Poor’s (S&P) 500 Index and the S&P Retailing Index over the same
period. This graph assumes an initial investment of $100 and assumes the reinvestment of dividends, if any. Such returns are based on historical results and
are not intended to suggest future performance.
Company / Index
Burlington Stores, Inc.
S&P 500 Index
S&P Retailing Index
Base Period
January 31,
2015
100.00 $
100.00 $
100.00 $
$
$
$
January 30,
2016
107.70 $
97.26 $
115.56 $
Indexed Returns for Fiscal Years Ended
February 3,
2018
232.01 $
138.45 $
189.60 $
January 28,
2017
162.18 $
115.02 $
135.54 $
February 2,
2019
344.50 $
135.67 $
203.54 $
February 1,
2020
435.90
161.68
243.26
21
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information regarding our purchases of common stock during the three fiscal months ended February 1, 2020:
Month
November 3, 2019 through November 30, 2019
December 1, 2019 through January 4, 2020
January 5, 2020 through February 1, 2020
Total
Total Number
of Shares
Purchased(1)
Average Price
Paid Per
Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs(2)
Approximate
Dollar Value
of Shares
That May Yet
Be Purchased
Under the
Plans or
Programs
(in thousands)
80,462 $
236,574 $
77,133 $
394,169
202.70
224.90
227.43
73,731 $
236,145 $
65,653 $
375,529
466,615
413,505
398,546
(1)
(2)
The number of shares purchased between November 3, 2019 and November 30, 2019, between December 1, 2019 and January 4, 2020 and between
January 5, 2020 and February 1, 2020 include 6,731 shares, 429 shares and 11,480 shares, respectively, which were withheld for tax payments due
upon the vesting of employee restricted stock awards, and do not reduce the dollar value that may yet be purchased under our publicly announced
share repurchase program.
On August 15, 2018, our Board of Directors authorized the repurchase of up to $300 million of common stock, which was completed during the
fourth quarter of Fiscal 2019. On August 14, 2019, our Board of Directors authorized the repurchase of up to an additional $400 million of common
stock, which is authorized to be executed through August 2021. For a further discussion of our share repurchase programs, see Part II, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Share Repurchase
Program.
22
Item 6.
Selected Financial Data
The following table presents selected historical consolidated financial data. The historical consolidated balance sheet data and consolidated
statement of operations data for Fiscal 2019, Fiscal 2018 and Fiscal 2017 and for the fiscal years ended January 28, 2017 (Fiscal 2016) and January 30,
2016 (Fiscal 2015) have been derived from our historical audited Consolidated Financial Statements.
The historical consolidated financial data presented below should only be read in conjunction with our audited Consolidated Financial Statements
(and the related notes thereto) and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, each of which are
included elsewhere in this Annual Report. Our historical consolidated financial data may not be indicative of our future performance.
Consolidated Statement of Operations Data:
Net sales
Net income
Net income per common share—basic:
Net income per common share—diluted:
Consolidated Balance Sheet Data (end of the period):
Inventory
Total assets
Long term debt
Stockholders’ equity (deficit)
Other Financial Data:
Adjusted Net Income(2)
Adjusted EBITDA(3)
Comparable store sales growth(4)
Gross margin rate
Store payroll as a percentage of net sales
Cash flow increase (decrease)
Working capital (deficit)(5)
Number of stores
Gross square footage (in thousands)
Selling square footage (in thousands)
February 1,
2020
February 2,
2019
Fiscal Year Ended (1)
February 3,
2018
(dollar amounts in thousands, except per share data)
January 28,
2017
January 30,
2016
$ 7,261,243
$ 6,643,051
$ 6,084,766
$ 5,566,038
$ 5,098,932
$
$
$
465,116
7.05
6.91
$
$
$
414,745
6.21
6.04
$
$
$
384,852
5.64
5.48
$
$
$
215,873
3.06
3.01
$
$
$
150,482
2.03
1.99
777,248
$
$ 5,593,859
$ 1,001,723
528,149
$
954,183
$
$ 3,079,172
983,643
$
322,710
$
752,562
$
$ 2,812,829
1,113,808
$
86,774
$
701,891
$
$ 2,574,483
$ 1,128,843
(49,812)
$
783,528
$
$ 2,571,813
$ 1,295,163
(99,022)
$
$
$
$
$
498,784
883,905
$
$
2.7%
41.8%
8.6%
$
$
275,500
(51,112)
727
47,449
31,997
442,540
792,215
$
$
3.2%
41.8%
8.5%
$
$
(26,930)
2,276
675
46,773
32,898
405,753
696,066
$
$
3.4%
41.5%
8.5%
$
$
51,689
(46,998)
629
45,693
33,305
232,268
584,562
$
$
4.5%
40.8%
8.5%
$
$
60,682
(96,310)
592
44,736
34,234
174,555
484,029
2.1%
40.0%
8.6%
(4,434)
18,594
567
43,468
33,230
Fiscal 2019, Fiscal 2018, Fiscal 2016 and Fiscal 2015 consisted of 52 weeks. Fiscal 2017 consisted of 53 weeks.
(1)
(2) We define Adjusted Net Income as net income, exclusive of the following items: (i) net favorable lease costs, (ii) costs related to debt amendments
and secondary offerings, (iii) stock option modification expense, (iv) loss on extinguishment of debt, (v) impairment charges, (vi) advisory fees, (vii)
amounts related to certain litigation and (viii) other unusual, non-recurring or extraordinary expenses, losses, charges or gains, all of which are tax
effected to arrive at Adjusted Net Income. For further discussion of Adjusted Net Income, including a reconciliation of Adjusted Net Income to net
income, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Measures.
(3) We define Adjusted EBITDA as net income, exclusive of the following items: (i) interest expense, (ii) interest income, (iii) loss on extinguishment
of debt, (iv) income tax expense (benefit), (v) depreciation and amortization, (vi) impairment charges, (vii) advisory fees, (viii) stock option
modification expense, (ix) costs related to debt amendments and secondary offerings, (x) amounts related to certain litigation and (xi) other unusual,
non-recurring or extraordinary expenses, losses, charges or gains. For further discussion of Adjusted EBITDA, including a reconciliation of
Adjusted EBITDA to net income, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Key Performance Measures.
(4) We define comparable store sales as sales of those stores, including online sales, 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. Our comparable store sales are based on a
52-week basis.
(5) We define working capital as current assets (excluding restricted cash) minus current liabilities.
23
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For purposes of the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” unless the context
requires otherwise, references to “the Company,” “we,” “our,” or “us” refer to Burlington Stores, Inc. and its consolidated subsidiaries.
The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash
flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with “Item 6, Selected Financial
Data” and our Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report.
In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve
risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions set forth under the caption above entitled “Cautionary
Statement Regarding Forward-Looking Statements.” Our actual results and the timing of events may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth in Item 1A, Risk Factors and elsewhere in this Annual Report.
General
We are a nationally recognized retailer of high-quality, branded apparel at everyday low prices. 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 727 stores as of February 1, 2020, inclusive of an internet
store, 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: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home,
toys, gifts and coats. We sell a broad selection of desirable, first-quality, current-brand, labeled merchandise acquired directly from nationally-recognized
manufacturers and other suppliers.
Executive Summary
Overview of Fiscal 2019 Operating Results
Highlights from Fiscal 2019 compared with Fiscal 2018 include the following:
•
•
•
•
•
•
•
•
We generated total revenues of $7,286.4 million compared with $6,668.5 million.
Net sales improved $618.2 million to $7,261.2 million. Comparable store sales increased 2.7%.
Gross margin as a percentage of net sales remained consistent at 41.8%. Product sourcing costs, which are included in selling, general and
administrative expenses, remained flat as a percentage of net sales. Product sourcing costs include the costs of processing goods through our
supply chain and buying costs.
Selling, general and administrative expenses as a percentage of net sales increased to 30.7% compared with 30.4%.
We earned net income of $465.1 million compared with $414.7 million, an increase of $50.4 million.
Adjusted Net Income (as defined in the section below entitled “Key Performance Measures”), exclusive of management transition costs,
improved $56.2 million to $498.8 million.
Adjusted EBITDA (as defined in the section below entitled “Key Performance Measures”), exclusive of management transition costs,
improved $91.7 million to $883.9 million.
Adjusted EBIT (as defined in the section below entitled “Key Performance Measures”), exclusive of management transition costs, improved
$73.1 million to $673.6 million.
Store Openings, Closings and Relocations
During Fiscal 2019, we opened 76 new stores, inclusive of 16 relocations, and closed eight stores, exclusive of the aforementioned relocations,
bringing our store count as of February 1, 2020 to 727 stores, inclusive of an internet store. We will wind down operations of the internet store during
Fiscal 2020. We continue to pursue our growth plans and invest in capital projects that meet our financial requirements. During the fiscal year ending
January 30, 2021 (Fiscal 2020), we plan to open approximately 54 net new stores, which includes approximately 80 gross new stores, along with
approximately 26 store relocations and closings.
24
Ongoing Initiatives for Fiscal 2020
We continue to focus on a number of ongoing initiatives aimed at driving merchandise value and increasing our overall profitability by improving
our comparable store sales trends, increasing total sales growth and reducing expenses. These initiatives include:
•
Driving Comparable Store Sales Growth.
We intend to continue to increase comparable store sales through the following initiatives:
•
•
•
•
More Effectively Chasing the Sales Trend. We are planning a more conservative comparable stores sales growth, holding and
controlling liquidity, closely analyzing the sales trend by business, and being ready to chase that trend. We believe that these actions
should not only enable us to more effectively chase the trend, but they will also allow us to take more advantage of great opportunistic
buys.
Making a Greater Investment in Merchandising Capabilities. We intend to invest in incremental headcount, especially in growing or
under-developed businesses, training and coaching, improved tools and reporting, and other forms of merchant support. We believe
that these investments should improve our ability to develop vendor relationships, source great merchandise buys, more accurately
assess value, and better forecast and chase the sales trend.
Operating with Leaner Inventories. We are planning to carry less inventory going forward, which we believe should result in the
customer finding a higher mix of fresh receipts and great merchandise values within the racks. We believe that this should drive faster
turns and lower markdowns, while simultaneously improving our customers’ shopping experience.
Enhancing Existing Categories and Introducing New Categories. We have opportunities to expand the depth and breadth of certain
existing categories, such as ladies’ apparel, children’s products, bath and cosmetic merchandise, housewares, décor for the home and
beauty as we continue to de-weather our business, and maintain the flexibility to introduce new categories as we expand our
merchandising capabilities.
•
Expanding and Enhancing Our Retail Store Base.
We intend to expand and enhance our retail store base through the following initiatives:
•
•
•
Adhering to a Market Focused and Financially Disciplined Real Estate Strategy. We have grown our store base consistently since our
founding in 1972, developing more than 99% of our stores organically. We believe there is significant opportunity to expand our retail
store base in the United States. We have identified numerous market opportunities that we believe will allow us to operate at least
1,000 stores over the long term.
Maintaining Focus on Unit Economics and Returns. We have adopted a market focused approach to new store openings with a
specific focus on maximizing sales while achieving attractive unit economics and returns. This focus is demonstrated by the fact that
more than 98% of our existing stores had positive Adjusted EBIT for Fiscal 2019. By focusing on opening stores with attractive unit
economics, we believe that we are able to achieve attractive returns on capital and continue to grow our margins. We believe that as
we continue to reduce our comparable store inventory, we will be able to reduce the square footage of our stores while continuing to
maintain our broad assortment.
Enhancing the Store Experience Through Store Remodels and Relocations. We continue to invest in store remodels on a store-by-store
basis where appropriate, taking into consideration the age, sales and profitability of a store, as well as the potential impact to the
customer shopping experience. During Fiscal 2019, we remodeled 28 of our stores and relocated 16 stores. In our remodeled stores,
we have typically incorporated new flooring, painting, lighting and graphics, relocated our fitting rooms to maximize productive
selling space, enhanced certain departments such as home and accessories and made various other improvements as appropriate by
location.
25
•
Enhancing Operating Margins.
We intend to increase our operating margins through the following initiatives:
•
•
•
•
Improving Operational Flexibility. Our store and supply chain teams must continue to respond to the challenge of becoming more
responsive to the sales chase, enhancing their ability at flexing up and down based on trends. Their ability to appropriately flex based
on the ongoing trends allows us to maximize leverage on sales, regardless of the trend.
Optimizing Markdowns. We believe that our markdown system allows us to maximize sales and gross margin dollars based on
forward-looking sales forecasts, sell-through targets and exit dates. Additionally, as we plan to carry less inventory in our stores, we
expect to drive faster turns, which in turn will reduce the amount of markdowns taken.
Enhancing Purchasing Power. We believe that increasing our store footprint and expanding our west coast buying office provides us
with the opportunity to capture incremental buying opportunities and realize economies of scale in our merchandising and non-
merchandising purchasing activities.
Challenging Expenses to Drive Operating Leverage. We believe that we will be able to leverage our growing sales over the fixed costs
of our business. In addition, by more conservatively planning our comparable store sales growth, we are forcing even tighter expense
control. We believe that this should put us in a strong position to drive operating leverage on any sales ahead of the plan. Additionally,
we plan to continue challenging the processes and operating norms throughout the organization with the belief that this will lead to
incremental efficiency improvements and savings.
Uncertainties and Challenges
As we strive to increase profitability through achieving positive comparable store sales and leveraging productivity initiatives focused on improving
the in-store experience, more efficient movement of products from the vendors to the selling floors, and modifying our marketing plans to increase our core
customer base and increase our share of our current customers’ spending, there are uncertainties and challenges that we face as an off-price retailer of
apparel and accessories for men, women and children and home furnishings that could have a material impact on our revenues or income.
Seasonality of Sales and Weather Conditions. Our business, like that of most retailers, is subject to seasonal influences. In the second half of the
year, which includes the back-to-school and holiday seasons, we generally realize a higher level of sales and net income.
Weather continues to be a contributing factor to the sale of our clothing. Generally, our sales are higher if the weather is cold during the Fall and
warm during the early Spring. Sales of cold weather clothing are increased by early cold weather during the Fall, while sales of warm weather clothing are
improved by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still
driven, in part, by weather patterns.
General Economic Conditions. Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things,
prevailing global economic conditions, inflation, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs,
commodities pricing, income tax rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer
purchasing patterns may be influenced by consumers’ disposable income, credit availability and debt levels.
A slowdown in the U.S. economy, 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. Consumer confidence is also affected by the domestic and international political
situation. Our financial condition and operations could be impacted by changes in government regulations in areas including taxes and healthcare. The
outbreak or escalation of war, 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 a novel strain of coronavirus (COVID-19), could lead to a decrease in spending by consumers. We are
continuing to monitor and assess the effects of the COVID-19 outbreak on our operations. In addition, natural disasters, industrial accidents, acts of war in
various parts of the world and public health issues could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse
effects on the world and U.S. economies and lead to a downturn in consumer confidence and spending.
We closely monitor our net sales, gross margin and expenses. We have performed scenario planning such that, if our net sales decline, we have
identified variable costs that could be reduced to partially mitigate the impact of these declines. If we were to
26
experience adverse economic trends and our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact
on our financial performance and position in future fiscal periods.
Competition and Margin Pressure. We believe that in order to remain competitive with retailers, including off-price retailers and discount stores, we
must continue to offer brand-name merchandise at a discount to prices offered by other retailers as well as an assortment of merchandise that is appealing to
our customers.
The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete for business with department stores, off-
price retailers, specialty stores, discount stores, wholesale clubs, and outlet stores as well as with certain traditional, full-price retail chains that have
developed off-price concepts. 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. We anticipate that
competition will increase in the future. Therefore, we will continue to look for ways to differentiate our stores from those of our competitors.
The U.S. retail industry continues to face increased pressure on margins as overall challenging retail conditions have led consumers to be more value
conscious. Our “open to buy” paradigm, in which we purchase both pre-season and in-season merchandise, allows us the flexibility to purchase less pre-
season with the balance purchased in-season and opportunistically. It also provides us with the flexibility to shift purchases between suppliers and
categories. This enables us to obtain better terms with our suppliers, which we expect to help offset any rising costs of goods.
Ongoing international trade and tariff negotiations could have a direct impact on our income and an indirect impact on consumer prices.
Key Performance Measures
We consider numerous factors in assessing our performance. Key performance measures used by management include net income, Adjusted Net
Income, Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory, store payroll as a percentage of net sales and liquidity.
Net income. We earned net income of $465.1 million during Fiscal 2019 compared with net income of $414.7 million during Fiscal 2018. This
improvement was primarily driven by our improved gross margin dollars, partially offset by an increase in our selling, general and administrative expenses.
Refer to the section below entitled “Results of Operations” for further explanation.
Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT: Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT are non-GAAP financial
measures of our performance.
We define Adjusted Net Income as net income, exclusive of the following items, if applicable: (i) net favorable lease costs; (ii) costs related to debt
amendments; (iii) stock option modification expense; (iv) loss on extinguishment of debt; (v) impairment charges; and (vi) other unusual, non-recurring or
extraordinary expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net Income.
We define Adjusted EBITDA as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on
extinguishment of debt; (iv) income tax expense; (v) depreciation and amortization; (vi) impairment charges; (vii) stock option modification expense;
(viii) costs related to debt amendments; and (ix) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
We define Adjusted EBIT as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income (iii) loss on
extinguishment of debt; (iv) income tax expense; (v) impairment charges; (vi) stock option modification expense; (vii) net favorable lease costs; (viii) costs
related to debt amendments; and (ix) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
We present Adjusted Net 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 operating income are useful supplemental measures that assist investors and management in
evaluating our ability to generate earnings and leverage sales, and to more readily compare these metrics between past and future periods. Additionally,
Adjusted Net Income per share (subject to further adjustment by the Compensation Committee of the board of directors) is used for purposes of
determining 50% of the awards made under our corporate annual incentive plan.
27
Adjusted Net Income has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other
data prepared in accordance with GAAP. Among other limitations, Adjusted Net Income does not reflect the following items, net of their tax effect:
•
•
•
•
•
•
favorable lease costs;
costs related to debt amendments;
expenses related to our May 2013 stock option modification;
losses on extinguishment of debt;
impairment charges on long-lived assets; and
other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
During Fiscal 2019, Adjusted Net Income, exclusive of management transition costs, improved $56.2 million to $498.8 million. This improvement
was primarily driven by our improved gross margin dollars, partially offset by an increase in our selling, general and administrative expenses. Refer to the
section below entitled “Results of Operations” for further explanation.
28
The following table shows our reconciliation of net income to Adjusted Net Income for Fiscal 2019, Fiscal 2018 and Fiscal 2017:
Reconciliation of net income to Adjusted Net Income:
Net income
Net favorable lease costs (a)
Costs related to debt amendments (b)
Stock option modification expense (c)
Loss on extinguishment of debt (d)
Impairment charges (e)
Tax effect (f)
Adjusted Net Income
Management transition costs, net of tax effect (g)
Adjusted Net Income, exclusive of management transition costs
(unaudited)
(in thousands)
Fiscal Year Ended
February 2,
2019
February 1,
2020
February 3,
2018
(53 Weeks)
$
$
465,116
35,761
(375)
—
—
4,315
(10,083)
494,734
4,050
498,784
$
$
414,745
26,081
2,496
—
1,823
6,844
(9,449)
442,540
—
442,540
$
$
384,852
23,325
2,262
142
2,881
2,127
(9,836)
405,753
—
405,753
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Net favorable lease costs 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). As a result of adoption of Accounting Standards Update (ASU) 2016-02, “Leases” (ASU 2016-02), these expenses are recorded in the
line item “Selling, general and administrative expenses” in our Consolidated Statement of Income for Fiscal 2019. These expenses are recorded in
the line item “Depreciation and amortization” in our Consolidated Statements of Income for Fiscal 2018 and Fiscal 2017.
Represents costs incurred in connection with review and execution of refinancing opportunities and the reversal of previously estimated costs related
to the repricing of our senior secured term loan facility (the Term Loan Facility) in Fiscal 2018.
Represents expenses incurred as a result of our May 2013 stock option modification. Refer to Note 12 to our Consolidated Financial Statements,
“Stock-Based Compensation,” for further detail.
For Fiscal 2018, amounts relate to the refinancing of our Term Loan Facility, the $150.0 million prepayment on the Term Loan Facility and an
amendment to our Second Amended and Restated Credit Agreement, dated September 2, 2011 governing our ABL Line of Credit (the ABL Credit
Agreement). For Fiscal 2017, amounts relate to the repricing and extension of our Term Loan Facility.
Represents impairment charges on long-lived assets.
Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, for the tax 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.
Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other
data prepared in accordance with GAAP. Among other limitations, Adjusted EBITDA does not reflect:
•
•
•
•
•
•
•
•
interest expense on our debt;
losses on the extinguishment of debt;
costs related to debt amendments;
expenses related to our May 2013 stock option modification;
cash requirements for replacement of assets. Although depreciation and amortization are non-cash charges, the assets being depreciated and
amortized will likely have to be replaced in the future;
impairment charges on long-lived assets;
income tax expense; and
other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
29
During Fiscal 2019, Adjusted EBITDA, exclusive of management transition costs, improved $91.7 million to $883.9 million. This improvement was
primarily driven by our improved gross margin dollars, partially offset by an increase in selling, general and administrative expenses. Refer to the section
below entitled “Results of Operations” for further explanation.
The following table shows our reconciliation of net income to Adjusted EBITDA for Fiscal 2019, Fiscal 2018 and Fiscal 2017:
Reconciliation of net income to Adjusted EBITDA:
Net income
Interest expense
Interest income
Loss on extinguishment of debt (a)
Costs related to debt amendments (b)
Stock option modification expense (c)
Depreciation and amortization (d)
Impairment charges (e)
Income tax expense
Adjusted EBITDA
Management transition costs (f)
Adjusted EBITDA, exclusive of management transition costs
(unaudited)
(in thousands)
Fiscal Year Ended
February 2,
2019
February 1,
2020
February 3,
2018
(53 Weeks)
$
$
465,116 $
50,826
(1,720)
—
(375)
—
246,109
4,315
115,409
879,680
4,225
883,905 $
414,745 $
55,990
(406)
1,823
2,496
—
217,884
6,844
92,839
792,215
—
792,215 $
384,852
58,777
(206)
2,881
2,262
142
201,103
2,127
44,128
696,066
—
696,066
(a)
(b)
(c)
(d)
(e)
(f)
For Fiscal 2018, amounts relate to the refinancing of our Term Loan Facility, the $150.0 million prepayment on the Term Loan Facility and the
amendment of the ABL Credit Agreement. For Fiscal 2017, amounts relate to the repricing and extension of our Term Loan Facility.
Represents costs incurred in connection with review and execution of refinancing opportunities and the reversal of previously estimated costs related
to the repricing of our Term Loan Facility in Fiscal 2018.
Represents expenses incurred as a result of our May 2013 stock option modification. Refer to Note 12 to our Consolidated Financial Statements,
“Stock-Based Compensation,” for further detail.
Includes $35.4 million of favorable lease cost included in the line item “Selling, general and administrative expenses” in our Consolidated Statement
of Income for Fiscal 2019. 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. As a result of adoption of ASU 2016-02, these expenses are recorded in the line item “Selling,
general and administrative expenses” in our Consolidated Statement of Income for Fiscal 2019. These expenses are recorded in the line item
“Depreciation and amortization” in our Consolidated Statements of Income for Fiscal 2018 and Fiscal 2017.
Represents impairment charges on long-lived assets.
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 income or other data
prepared in accordance with GAAP. Among other limitations, Adjusted EBIT does not reflect:
•
•
•
•
•
•
•
•
interest expense on our debt;
losses on the extinguishment of debt;
costs related to debt amendments;
expenses related to our May 2013 stock option modification;
favorable lease cost;
impairment charges on long-lived assets;
income tax expense; and
other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
30
During Fiscal 2019, Adjusted EBIT, exclusive of management transition costs, improved $73.1 million to $673.6 million. This improvement was
primarily driven by our improved gross margin dollars, partially offset by an increase in selling, general and administrative expenses. Refer to the section
below entitled “Results of Operations” for further explanation.
The following table shows our reconciliation of net income to Adjusted EBIT for Fiscal 2019, Fiscal 2018 and Fiscal 2017:
Reconciliation of net income to Adjusted EBIT:
Net income
Interest expense
Interest income
Loss on extinguishment of debt (a)
Costs related to debt amendments (b)
Stock option modification expense (c)
Net favorable lease costs (d)
Impairment charges (e)
Income tax expense
Adjusted EBIT
Management transition costs (f)
Adjusted EBIT, exclusive of management transition costs
(unaudited)
(in thousands)
Fiscal Year Ended
February 2,
2019
February 1,
2020
February 3,
2018
(53 Weeks)
$
$
465,116 $
50,826
(1,720)
—
(375)
—
35,761
4,315
115,409
669,332
4,225
673,557 $
414,745 $
55,990
(406)
1,823
2,496
—
26,081
6,844
92,839
600,412
—
600,412 $
384,852
58,777
(206)
2,881
2,262
142
23,325
2,127
44,128
518,288
—
518,288
(a)
(b)
(c)
(d)
(e)
(f)
For Fiscal 2018, amounts relate to the refinancing of our Term Loan Facility, the $150.0 million prepayment on the Term Loan Facility and the
amendment of the ABL Credit Agreement. For Fiscal 2017, amounts relate to the repricing and extension of our Term Loan Facility.
Represents costs incurred in connection with review and execution of refinancing opportunities and the reversal of previously estimated costs related
to the repricing of our Term Loan Facility in Fiscal 2018.
Represents expenses incurred as a result of our May 2013 stock option modification. Refer to Note 12 to our Consolidated Financial Statements,
“Stock-Based Compensation,” for further detail.
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 Merger Transaction. As a result of adoption of ASU 2016-02, these expenses are recorded in the line item “Selling, general
and administrative expenses” in our Consolidated Statement of Income for Fiscal 2019. These expenses are recorded in the line item “Depreciation
and amortization” in our Consolidated Statements of Income for Fiscal 2018 and Fiscal 2017.
Represents impairment charges on long-lived assets.
Represents costs incurred as a result of hiring a new Chief Executive Officer, primarily related to sign-on and duplicative compensation costs.
Comparable Store Sales. Comparable store sales measure performance of a store during the current reporting period against the performance of the
same store in the corresponding period of the previous year. The method of calculating comparable store sales varies across the retail industry. As a result,
our definition of comparable store sales may differ from other retailers. This metric is also used for purposes of determining 50% of the awards made under
our corporate annual incentive plan.
We define comparable store sales as sales of those stores, including our online store, 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. The table below depicts our comparable store sales during Fiscal 2019, Fiscal 2018 and Fiscal 2017, all of which are
calculated on a 52-week basis.
Fiscal 2019
Fiscal 2018
Fiscal 2017
31
Comparable
Store Sales
2.7%
3.2%
3.4%
Various factors affect comparable store sales, including 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.
Gross Margin. Gross margin is the difference between net sales and the cost of sales. Our cost of sales and gross margin may not be comparable to
those of other entities, since some entities include all of the costs related to their buying and distribution functions, and other costs, in cost of sales. We
include certain of these costs in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in our Consolidated
Statements of Income. 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 remained consistent at 41.8% during Fiscal 2019. Increased merchandise margin was offset by higher freight costs.
Inventory. Inventory at February 1, 2020 decreased to $777.2 million from $954.2 million at February 2, 2019. This decrease was primarily related
to our pack-and hold inventory levels, which were 26% of total inventory at the end of Fiscal 2019 compared to 30% at the end of Fiscal 2018, as well as a
15% decrease in comparable store inventory and a decrease in short stay inventory. These decreases were partially offset by our 52 net new stores opened
since February 2, 2019.
In order to better serve our customers and maximize sales, we continue to refine our merchandising mix and inventory levels within our stores. By
appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh merchandise to our customers. We continue to
move toward more productive inventories by increasing the amount of current inventory as a percent of total inventory.
Inventory turnover and comparable store inventory turnover are performance metrics that indicate how efficiently inventory is bought and
sold. They each measure the length of time that we own our inventory.
Inventory turnover is calculated by dividing cost of goods sold by the 13-month average cost value of our inventory for the period being
measured. Our inventory turnover rate improved approximately 6% during Fiscal 2019, compared with Fiscal 2018.
Comparable store inventory turnover is calculated by dividing comparable store sales by the average comparable store retail value of inventory for
the period being measured. The comparable store retail value of inventories is estimated based on the original sales price of items on hand reduced by retail
reductions, which include sales, markdowns taken, an estimated shortage adjustment and employee discounts, for our comparable stores. The calculation is
based on a rolling 13-month average of inventory (at estimated retail value) and the last 12 months’ comparable store sales. Our comparable store inventory
turnover rate improved approximately 13% during Fiscal 2019 compared with Fiscal 2018.
The difference between inventory turnover and comparable store inventory turnover is primarily the result of the latter not including distribution
center and warehouse inventory or inventory at new and non-comparable stores. Inventory held at our warehouses and distribution centers includes
merchandise being readied for shipment to our stores and pack-and-hold inventory acquired opportunistically for future store release. The magnitude of
pack-and-hold inventory, at any one point in time, is dependent on the buying opportunities identified in the marketplace.
We present inventory turnover because it demonstrates how effective we are at managing our inventory. We present comparable store inventory
turnover as we believe this is a useful supplemental metric in evaluating the effectiveness of our merchandising efforts, as a faster comparable store
inventory turnover generally leads to reduced markdowns and more fresh merchandise in our stores.
Store Payroll as a Percentage of Net Sales. Store payroll as a percentage of net sales measures our ability to manage our payroll in accordance with
increases or decreases in net sales. The method of calculating store payroll varies across the retail industry. As a result, our store payroll as a percentage of
net sales may differ from other retailers. We define store payroll as regular and overtime payroll for all store personnel as well as regional and territory
personnel, exclusive of payroll charges related to corporate and warehouse employees. Store payroll as a percentage of net sales was 8.6% during Fiscal
2019, compared with 8.5% during Fiscal 2018.
Liquidity. Liquidity measures our ability to generate cash. Management measures liquidity through cash flow, which is the measure of cash
generated from or used in operating, financing, and investing activities. Cash and cash equivalents, including restricted cash and cash equivalents, increased
$275.5 million during Fiscal 2019, compared with a decrease of $26.9 million during Fiscal 2018. Refer to the section below entitled “Liquidity and
Capital Resources” for further explanation.
32
Results of Operations
The following table sets forth certain items in the Consolidated Statements of Income as a percentage of net sales for the periods indicated.
Net sales
Other revenue
Total revenue
Cost of sales
Selling, general and administrative expenses
Costs related to debt amendments
Stock option modification expense
Depreciation and amortization
Impairment charges - long-lived assets
Other income - net
Loss on extinguishment of debt
Interest expense
Total costs and expenses
Income before income tax expense
Income tax expense
Net income
February 1,
2020
Percentage of Net Sales
Fiscal Year Ended
February 2,
2019
February 3,
2018
(53 Weeks)
100.0%
0.4
100.4
58.2
30.7
(0.0)
—
2.9
0.1
(0.2)
—
0.7
92.4
8.0
1.6
6.4%
100.0%
0.4
100.4
58.2
30.4
0.0
—
3.3
0.1
(0.2)
0.0
0.8
92.6
7.8
1.4
6.4%
100.0%
0.4
100.4
58.5
30.6
0.0
0.0
3.3
0.0
(0.1)
0.0
1.0
93.3
7.1
0.7
6.4%
Performance for Fiscal Year Ended February 1, 2020 (Fiscal 2019) Compared with Fiscal Year Ended February 2, 2019 (Fiscal 2018)
Net sales
Net sales improved $618.2 million, or 9.3%, to $7,261.2 million, driven by the following:
an increase of $503.3 million from our new and non-comparable stores; and
an increase in comparable store sales of $172.8 million, to $6,537.9 million; partially offset by
a $57.9 million decrease related to the net impact of permanently closed stores and other sales adjustments.
•
•
•
Cost of sales
Cost of sales as a percentage of net sales remained consistent at 58.2% during Fiscal 2019. Increased merchandise margins were offset by higher
freight costs. Product sourcing costs, which are included in the line item “Selling, general and administrative expenses” in our Consolidated Statements of
Income, remained flat as a percentage of net sales. On a dollar basis, cost of sales increased $360.6 million, or 9.3%, primarily driven by our overall
increase in sales.
33
Selling, general and administrative expenses
Selling, general and administrative expenses as a percentage of net sales increased 30 basis points during Fiscal 2019. The following table details
selling, general and administrative expenses for Fiscal 2019 compared with Fiscal 2018:
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
(in millions)
Fiscal Year Ended
$
February 1,
2020
1,462.5
339.1
214.4
86.1
35.4
Percentage
of
Net Sales
20.1% $
4.7
3.0
1.2
0.5
February 2,
2019
1,336.3
313.3
200.9
89.5
—
Percentage
of
Net Sales
$ Variance
% Change
20.1% $
4.7
3.0
1.4
—
126.2
25.8
13.5
(3.4)
35.4
9.4%
8.2
6.7
(3.8)
N/A
90.7
1.2
78.7
1.2
12.0
15.2
$
2,228.2
30.7% $
2,018.7
30.4% $
209.5
10.4%
The increase in selling, general and administrative expenses as a percentage of sales was primarily driven by the reclassification of favorable lease
cost from depreciation and amortization expense to selling, general and administrative expense as a result of adopting ASU 2016-02, which resulted in a 50
basis point increase. This increase was partially offset by a 20 basis point improvement in our national television advertising and direct marketing efforts.
Store related costs remained consistent, due to a 10 basis point improvement in store occupancy costs, offset by a 10 basis point increase in store payroll.
Costs related to debt amendments
During Fiscal 2018, we recorded total estimated costs related to debt amendments of $2.5 million, primarily as a result of the repricing of our Term
Loan Facility. During Fiscal 2019, we reversed $0.4 million of this estimated expense based on actual expenses incurred.
Depreciation and amortization
Depreciation and amortization expense amounted to $210.7 million during Fiscal 2019, primarily related to the depreciation of fixed assets,
compared with $217.9 million during Fiscal 2018, primarily related to the depreciation of fixed assets and the amortization of favorable leases. The
decrease was primarily driven by the reclassification of favorable lease cost from depreciation and amortization expense to selling, general and
administrative expense as a result of adopting ASU 2016-02, partially offset by our capital expenditures related to new and non-comparable stores.
Impairment charges—long-lived assets
Impairment charges related to long-lived assets were $4.3 million and $6.8 million during Fiscal 2019 and Fiscal 2018, respectively. We recorded
impairment charges related to store-level assets for two stores as well as the online store during Fiscal 2019, and eight stores during Fiscal 2018. Refer to
Note 6 to our Consolidated Financial Statements, “Impairment Charges,” for further discussion.
The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future
revenues, gross margin rates, store expenses and other assumptions. We base these estimates upon our past and expected future performance. We believe
our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current
revenue or cash flow projections for each store.
Other income, net
Other income, net (consisting of stored value card breakage income, gains and losses on disposition of assets, gains and losses on insurance
proceeds and other miscellaneous items) improved $5.5 million to $16.5 million during Fiscal 2019. The improvement in other income was primarily
driven by gains on insurance recoveries.
34
Loss on extinguishment of debt
During Fiscal 2018, we recorded a loss on extinguishment of debt of $1.8 million related to transactions associated with our Term Loan Facility and
ABL Credit Agreement. Refer to Note 7, “Long Term Debt,” to our Consolidated Financial Statements for further details regarding our debt transactions.
There were no debt extinguishments during Fiscal 2019.
Interest expense
Interest expense improved $5.2 million to $50.8 million. The improvement was primarily driven by the $150 million paydown and repricing of our
Term Loan Facility during Fiscal 2018. Refer to Note 7, “Long Term Debt,” to our Consolidated Financial Statements for further details on our debt
transactions.
Our average interest rates and average balances related to our ABL Line of Credit and our Term Loan Facility for Fiscal 2019 compared with Fiscal
2018 are summarized in the table below:
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)
(a) Excludes original issue discount
Income tax expense
Fiscal Year Ended
February 1,
2020
3.7%
4.2%
81.5
961.4
$
$
February 2,
2019
3.4%
4.4%
83.9
1,015.8
$
$
Income tax expense was $115.4 million for Fiscal 2019 compared with $92.8 million for Fiscal 2018. The effective tax rate was 19.9% related to
pretax income of $580.5 million for Fiscal 2019, and 18.3% related to pretax income of $507.6 million for Fiscal 2018. The lower tax rate in the prior year
was primarily related to the impact of the changes to New Jersey tax law enacted during the second quarter of Fiscal 2018.
Net income
We earned net income of $465.1 million during Fiscal 2019 compared with net income of $414.7 million for Fiscal 2018. This improvement was
primarily driven by our improved gross margin dollars, partially offset by an increase in our selling, general and administrative expenses.
Performance for Fiscal Year Ended February 2, 2019 (Fiscal 2018) Compared with Fiscal Year Ended February 3, 2018 (Fiscal 2017)
For a discussion related to Fiscal 2018 performance compared to Fiscal 2017 performance, refer to Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019
(Fiscal 2018 10-K).
Liquidity and Capital Resources
Our ability to satisfy interest payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to
prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service interest
payment obligations on our outstanding indebtedness, and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and
results of operations will be materially adversely affected. 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.
We believe that cash generated from operations, 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.
35
Cash Flows
Cash Flows for Fiscal 2019 Compared with Fiscal 2018
We generated $275.5 million of cash flows during Fiscal 2019 compared with a use of $26.9 million during Fiscal 2018.
Net cash provided by operating activities amounted to $891.7 million and $639.7 million during Fiscal 2019 and Fiscal 2018, respectively. The
increase in our operating cash flows was primarily driven by our improved operating results and changes in working capital.
Net cash used in investing activities was $324.6 million and $298.5 million during Fiscal 2019 and Fiscal 2018, respectively. This change was
primarily the result of an increase in capital expenditures related to a new distribution center and our store expenditures (new stores, remodels and other
store expenditures).
Net cash used in financing activities was $291.6 million during Fiscal 2019 compared to $368.1 million during Fiscal 2018. This change was
primarily driven by an increase in the value of share repurchases, partially offset by a decrease in net payments on our debt and increased proceeds from
stock option exercises.
Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash) minus current liabilities.
We had a working capital deficit at February 1, 2020 of $51.1 million compared with working capital of $2.3 million at February 2, 2019. The decrease in
working capital was primarily related to our adoption of ASU 2016-02, which resulted in adding a portion of the new lease liability to current liabilities, as
well as a decrease in merchandise inventories. This was partially offset by an increase in cash and a decrease in accounts payable.
For a discussion of our cash flows for Fiscal 2018 compared to Fiscal 2017, refer to Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” included in our Fiscal 2018 10-K.
Capital Expenditures
For Fiscal 2019, cash spend for capital expenditures, net of $56.3 million of landlord allowances and $5.1 million of insurance recoveries related to
property and equipment, amounted to $268.9 million. These capital expenditures include approximately $140 million, net of the previously mentioned
landlord allowances and insurance recoveries, for store expenditures (new stores, remodels and other store expenditures). In addition, we made capital
expenditures of approximately $56 million to support our supply chain initiatives including a new distribution center, with the remaining capital to support
information technology and other business initiatives. We incurred cash spend on capital expenditures of $253.7 million, net of approximately $50.8
million of landlord allowances and $2.8 million of insurance recoveries related to property and equipment, during Fiscal 2018.
We estimate that we will spend approximately $400 million, net of approximately $30 million of landlord allowances, in capital expenditures during
Fiscal 2020, including approximately $175 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and
other store expenditures). In addition, we estimate that we will spend approximately $80 million to support our supply chain initiatives, with the remaining
capital used to support our information technology and other business initiatives.
Share Repurchase Programs
On August 15, 2018, our Board of Directors authorized the repurchase of up to $300 million of common stock, which was completed during the
fourth quarter of Fiscal 2019. On August 14, 2019, our Board of Directors authorized the repurchase of up to an additional $400 million of common stock,
which is authorized to be executed through August 2021.These repurchase programs are funded using our available cash and borrowings on our ABL Line
of Credit.
During Fiscal 2019, we repurchased 1,740,740 shares of common stock for $299.9 million, inclusive of commissions, under our share repurchase
programs. As of February 1, 2020, we had $398.5 million remaining under our share repurchase authorizations.
We are authorized to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated
transactions under our repurchase programs. The timing and amount of stock repurchases will depend on a variety of factors, including the market
conditions as well as corporate and regulatory considerations. Our share repurchase program may be suspended, modified or discontinued at any time, and
we have no obligation to repurchase any amount of our common stock under the programs.
36
Dividends
During the past two fiscal years, we have not declared, and do not anticipate declaring in the near term, dividends on shares of our common stock.
We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of the Company's capital expenditures, business
initiatives, and to support any potential opportunistic capital structure initiatives. Any determination to pay dividends in the future will be at the discretion
of our Board of Directors and will depend upon results of operations, financial condition, contractual restrictions, including those under our ABL Line of
Credit and Term Loan Facility, any potential future indebtedness we may incur, restrictions imposed by applicable law and other factors our Board of
Directors deems relevant.
In addition, since we are a holding company, substantially all of the assets shown on our consolidated balance sheets are held by our subsidiaries.
Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the
distribution or other payment of such earnings to us in the form of dividends.
Debt and Hedging
As of February 1, 2020, our obligations include $957.5 million, inclusive of original issue discount, under our Term Loan Facility. We had no
outstanding balance on our ABL Line of Credit as of February 1, 2020. Our debt obligations also include $50.1 million of finance lease obligations as of
February 1, 2020. Refer to Note 7 to our Consolidated Financial Statements, “Long Term Debt,” for an overview of the terms and conditions of these
instruments.
Term Loan Facility
At February 1, 2020, our borrowing rate related to the Term Loan Facility was 3.7%.
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 continuing to be 0.00%.
ABL Line of Credit
At February 1, 2020, we had $501.8 million available under the ABL Line of Credit. The maximum borrowings under the ABL Line of Credit
during Fiscal 2019 amounted to $255.0 million. Average borrowings during Fiscal 2019 amounted to $81.5 million at an average interest rate of 3.7%.
Hedging
We were hedged on $800 million of our Term Loan Facility through May 2019. On December 17, 2018, the Company entered into an interest rate
swap contract, which was designated as a cash flow hedge. This interest rate swap, which hedges $450 million of our Term Loan Facility, became effective
May 31, 2019 and matures December 29, 2023.
37
Certain Information Concerning Contractual Obligations
The following table sets forth certain information regarding our obligations to make future payments under current contracts as of February 1, 2020:
Payments Due By Period
Total
Less Than
1 Year
2-3 Years
(in thousands)
4-5 Years
Thereafter
Debt obligations(1)
Interest on debt obligations(2)
Finance lease obligations(3)
Operating lease obligations(4)
Purchase obligations(5)
Other(6)
Total
$
961,415 $
210,944
74,068
3,308,058
921,242
848
— $
44,728
6,057
435,535
921,242
848
$ 5,476,575 $ 1,408,410 $
— $
89,455
14,354
821,900
—
—
925,709 $
961,415 $
76,761
15,006
725,890
—
—
1,779,072 $
—
—
38,651
1,324,733
—
—
1,363,384
(1)
(2)
(3)
(4)
(5)
(6)
Represents future principal payments on outstanding borrowings as of February 1, 2020.
Represents interest payments on (i) the outstanding balance of the Term Loan Facility, with an average interest rate of 4.2% during Fiscal 2019 and
(ii) the average borrowings outstanding on our ABL Line of Credit during Fiscal 2019, with an average interest rate of 3.7% during Fiscal 2019.
Finance lease obligations include future interest payments.
Represents minimum rent payments for operating leases under the current terms.
Represents commitments to purchase goods that have not been received as of February 1, 2020. The table above excludes estimated commitments
for services used in our business of up to $105 million over the next five years.
Represents severance payments in the normal course of business that are included in the line item “Selling, general and administrative expenses” in
our Consolidated Statements of Income.
Our agreements with three former employees (including our former President and Chief Executive Officer) to pay their respective beneficiaries $1.0
million upon their deaths for a total of $3.0 million is not reflected in the table above because the timing of the payments is unpredictable.
The table above excludes ASC Topic No. 740 “Income Taxes” (Topic No. 740) liabilities which represent uncertain tax positions related to
temporary differences. The total Topic No. 740 liability was $20.1 million, inclusive of $12.0 million of interest and penalties included in our total Topic
No. 740 liability neither of which is presented in the table above as we are not certain if and when these payments would be required.
The table above excludes our irrevocable letters of credit guaranteeing payment and performance under certain leases, insurance contracts, debt
agreements, merchandising agreements and utility agreements in the amount of $53.1 million as of February 1, 2020.
As of February 1, 2020, insurance reserves amounted to $79.0 million. These amounts are excluded from the table above as we are not certain if and
when these payments would be required.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in accordance with GAAP. We believe there are several accounting policies that are
critical to understanding our historical and future performance as these policies affect the reported amounts of revenues and other significant areas that
involve management’s judgments and estimates. The preparation of our Consolidated Financial Statements requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the Consolidated
Financial Statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its
estimates and judgments, including those related to revenue recognition, inventories and insurance reserves. Historical experience and various other factors
that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A
critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters and (2) there would be a material effect on the
Consolidated Financial Statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from
reasonably likely period-to-period changes in the estimate.
38
While there are a number of accounting policies, methods and estimates affecting our Consolidated Financial Statements as addressed in Note 1 to
our Consolidated Financial Statements, “Summary of Significant Accounting Policies,” areas that are particularly critical and significant include:
Revenue Recognition. While revenue recognition for the Company does not involve significant judgment, it represents an important accounting
policy. We record revenue at the time control of goods are transferred to the customer, which we determine to be at point of sale and delivery of
merchandise, net of allowances for estimated future returns, which is estimated based on historical return rates. We present sales, net of sales taxes, in our
Consolidated Statements of Income. We account for layaway sales and leased department revenue in compliance with ASC Topic No. 606 “Revenue from
Contracts with Customers.” Layaway sales are recognized upon delivery of merchandise to the customer. The amount of cash received upon initiation of
the layaway is recorded as a deposit liability within the line item “Other current liabilities” in our Consolidated Balance Sheets. Stored value cards (gift
cards and store credits issued for merchandise returns) are recorded as a liability at the time of issuance, and the related sale is recorded upon redemption.
We estimate and recognize stored value card breakage income in proportion to actual stored value card redemptions and record such income in the
line item “Other income, net” in our Consolidated Statements of Income. We determine an estimated stored value card breakage rate by continuously
evaluating historical redemption data. Breakage income is recognized on a monthly basis in proportion to the historical redemption patterns for those stored
value cards for which the likelihood of redemption is remote.
Inventory. Our inventory is valued at the lower of cost or market using the retail inventory method. Under the retail inventory method, the valuation
of inventory and the resulting gross margin are determined by applying a calculated cost to retail ratio to the retail value of inventory. The retail inventory
method is an averaging method that results in valuing inventory at the lower of cost or market provided markdowns are taken timely to reduce the retail
value of inventory. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including merchandise
markon, markups, markdowns and shortage, which significantly impact the ending inventory valuation as well as the resulting gross margin. Management
believes that our retail inventory method provides an inventory valuation which approximates cost using a first-in, first-out assumption and results in
carrying value at the lower of cost or market. We reserve for aged inventory based on historical trends and specific identification. Our aged inventory
reserve contains uncertainties as the calculations require management to make assumptions and to apply judgment regarding a number of factors, including
market conditions, the selling environment, historical results and current inventory trends. A 1% change in the dollar amount of retail markdowns would
have resulted in an increase in markdown dollars, at cost, of approximately $3.0 million for Fiscal 2019.
Typically, estimates are used to record inventory shortage at retail stores for the first three quarters of a fiscal year. Actual physical inventories are
typically conducted annually during the second or fourth quarters to calculate actual shortage. While we make estimates on the basis of the best information
available to us at the time the estimates are made, over accruals or under accruals of shortage may be identified as a result of the physical inventory counts,
requiring adjustments. During the fourth quarter of Fiscal 2019, Fiscal 2018 and Fiscal 2017, we recorded shortage adjustments of $1.9 million, $1.9
million and $1.8 million, respectively, as a result of actual shortage being less than what we had estimated throughout the year.
Insurance Reserves. We have risk participation agreements with insurance carriers with respect to workers’ compensation, general liability insurance
and health insurance. Pursuant to these arrangements, we are responsible for paying individual claims up to designated dollar limits. The amounts included
in our costs related to these claims are estimated and can vary based on changes in assumptions or claims experience included in the associated insurance
programs. For example, changes in legal trends and interpretations, as well as changes in the nature and method of how claims are settled, can impact
ultimate costs. An increase in workers’ compensation claims by employees, health insurance claims by employees or general liability claims may result in a
corresponding increase in our costs related to these claims. Insurance reserves amounted to $79.0 million and $70.9 million at February 1, 2020 and
February 2, 2019, respectively.
Recent Accounting Pronouncements
Refer to Note 2 to our Consolidated Financial Statements, “Recent Accounting Pronouncements,” for a discussion of recent accounting
pronouncements and their impact in our Consolidated Financial Statements.
Fluctuations in Operating Results
We expect that our revenues and operating results may fluctuate from fiscal quarter to fiscal quarter or over the longer term. Certain of the general
factors that may cause such fluctuations are discussed in Item 1A, Risk Factors and elsewhere in this Annual Report.
39
Seasonality
Our business, like that of most retailers, is subject to seasonal influences. In the second half of the year, which includes the back-to-school and
holiday seasons, we generally realize a higher level of sales and net income. Weather is also a contributing factor to the sale of our clothing. Generally, our
sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are increased by early cold weather
during the Fall, while sales of warm weather clothing are improved by early warm weather conditions in the Spring. Although we have diversified our
product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.
Inflation
We do not believe that our operating results have been materially affected by inflation during Fiscal 2019, Fiscal 2018 or Fiscal 2017. Historically,
as the costs of merchandising and related operating expenses have increased, we have been able to mitigate the effect of such impact on our operations.
The U.S. retail industry continues to face increased pressure on margins as commodity prices increase and the overall challenging retail conditions
have led consumers to be more value conscious. Our “open to buy” paradigm, in which we purchase both pre-season and in-season merchandise, allows us
the flexibility to purchase less pre-season with the balance purchased in-season and opportunistically. It also provides us the flexibility to shift purchases
between suppliers and categories. This enables us to obtain better terms with our suppliers, which we expect to help offset the expected rising costs of
goods.
Market Risk
We are exposed to market risks relating to fluctuations in interest rates. Our borrowings contain floating rate obligations and are subject to interest
rate fluctuations. The objective of our financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and cash
flows. We manage interest rate risk through the use of our interest rate cap contracts.
As more fully described in Note 8 to our Consolidated Financial Statements, “Derivative Instruments and Hedging Activities,” we enter into interest
rate derivative contracts to manage interest rate risks associated with our long term debt obligations. The effective portion of changes in the fair value of
derivatives designated and that qualify as cash flow hedges is recorded in the line item “Accumulated other comprehensive loss” on the Company’s
Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. We
continue to have exposure to interest rate risks to the extent they are not hedged.
Off-Balance Sheet Arrangements
Other than operating leases consummated in the normal course of business (prior to our adoption of ASU 2016-02) and letters of credit, as more
fully described above under the caption “Certain Information Concerning Contractual Obligations,” we are not involved in any off-balance sheet
arrangements that have or are reasonably likely to have a material current or future impact on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result of adopting ASU 2016-02, our operating leases
are included in our Consolidated Balance Sheet for Fiscal 2019.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in interest rates, as
borrowings under our ABL Line of Credit and Term Loan Facility bear interest at floating rates based on LIBOR or the base rate, in each case plus an
applicable borrowing margin. The interest rate of our Term Loan Facility is also dependent on the prime rate, and the federal funds rate as further discussed
in Note 7 to our Consolidated Financial Statements, “Long Term Debt.”
We manage our interest rate risk through the use of interest rate derivative contracts. For our floating-rate debt, interest rate changes generally
impact our earnings and cash flows, assuming other factors are held constant.
On April 24, 2015, we entered into two interest rate cap contracts which were designated as cash flow hedges. These interest rate cap contracts had
an aggregate notional principal amount of $800.0 million, cap rates of 1.0%, and matured on May 31, 2019.
On December 17, 2018, we entered into an interest rate swap contract, which was designated as a cash flow hedge. This interest rate swap became
effective on May 31, 2019. It has a notional principal amount of $450.0 million, a swap rate of 2.72%, and matures on December 29, 2023.
40
On November 2, 2018, 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 1.50% to 1.00%, in the case of prime rate loans, and from 2.50% to 2.00%, in the case of LIBOR loans, with the LIBOR
floor being reduced from 0.75% to 0.00%.
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 continuing to be 0.00%.
We have unlimited interest rate risk related to borrowings on our variable rate debt in excess of the notional principal amount of our interest rate
swap contract.
At February 1, 2020, we had $961.4 million of floating-rate debt, exclusive of original issue discount. Based on $961.4 million outstanding as
floating-rate debt, a one percentage point increase as of February 1, 2020 (after considering our interest rate swap contract), would cause an increase to
cash interest expense of $5.2 million per year, resulting in $5.2 million less in our pre-tax earnings. This sensitivity analysis assumes our mix of financial
instruments and all other variables will remain constant in future periods. These assumptions are made in order to facilitate the analysis and are not
necessarily indicative of our future intentions.
If a one percentage point increase in interest rates were to occur as of February 1, 2020, such an increase would result in the following additional
interest expenses (assuming current borrowing level remains constant):
Floating Rate Debt
Term Loan Facility (a)
ABL Line of Credit
Principal
Outstanding
at February 1,
2020
Additional
Interest
Expense
Q1 2020
(in millions)
Additional
Interest
Expense
Q2 2020
Additional
Interest
Expense
Q3 2020
Additional
Interest
Expense
Q4 2020
$
$
961.4 $
—
961.4 $
1.3 $
—
1.3 $
1.3 $
—
1.3 $
1.3 $
—
1.3 $
1.3
—
1.3
(a)
Principal balance represents carrying value of our Term Loan Facility exclusive of original issue discount.
Our ability to satisfy our interest payment obligations on our outstanding debt will depend largely on our future performance, which, in turn, is in
part subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to
service our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations,
our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could
be successfully completed.
41
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the fiscal years ended February 1, 2020, February 2, 2019 and
February 3, 2018
Consolidated Statements of Comprehensive Income for the fiscal years ended February 1, 2020, February 2,
2019 and February 3, 2018
Consolidated Balance Sheets as of February 1, 2020 and February 2, 2019
Consolidated Statements of Cash Flows for the fiscal years ended February 1, 2020, February 2, 2019 and
February 3, 2018
Consolidated Statements of Stockholders’ Equity (Deficit) for the fiscal years ended February 1, 2020,
February 2, 2019 and February 3, 2018
Notes to Consolidated Financial Statements for the fiscal years ended February 1, 2020, February 2, 2019
and February 3, 2018
Page
43
45
46
47
48
49
50
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Burlington Stores, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Burlington Stores, Inc. and subsidiaries (the “Company”) as of February 1, 2020, and
February 2, 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in
the period ended February 1, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of February 1, 2020, and February 2, 2019, and the results of its operations
and its cash flows for each of the three fiscal years in the period ended February 1, 2020, in conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2020, expressed an unqualified opinion on the
Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, effective February 3, 2019, the Company adopted Financial Accounting Standards Board (FASB)
Update (ASU) 2016-12, Leases (Topic 842), using the alternative transition method, which does not require prior periods to be recast. See below for a
critical audit matter related to the change in accounting principle.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and
(2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Incremental Borrowing Rate Used in Adoption of Topic No. 842—Refer to Notes 1 and 2 to the financial statements (also see Change in Accounting
Principle explanatory paragraph above)
Critical Audit Matter Description
The Company adopted the provisions of FASB ASU 2016-12 as of February 3, 2019. Accordingly, the Company recognized an operating lease liability of
$2.1 billion based on the present value of its lease payments on the adoption date. The discount rates used
43
in valuing the Company’s leases are not readily determinable and are based on the Company’s incremental borrowing rate (IBR) on a fully collateralized
basis. The determination of the IBRs required management to make significant estimates and assumptions as to its use of the retail industry yield curve,
credit profile adjustment, and estimate of the impact of collateral.
Given the determination of the IBRs required management to make significant estimates and assumptions relating to its use of the retail industry yield
curve, credit profile adjustment, and estimate for the impact of collateral, performing audit procedures to evaluate the reasonableness of such estimates and
assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the IBRs that were used in the adoption of Topic 842 included the following:
• We tested the effectiveness of controls over management’s review of methodology, inputs, and assumptions used in the determination of the IBRs.
• With the assistance of our valuation specialists, we evaluated the methods and assumptions used by management to determine the IBRs, tested the
reasonableness of the inputs used, and tested the mathematical accuracy of the IBR model.
Retail Inventory Method—Impact of Markdowns—Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company values merchandise inventories at the lower of cost or market using the retail inventory method. Under this method, the valuation of
inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the retail value of inventories. The retail
inventory method is an averaging method that results in valuing inventory at the lower of cost or market provided markdowns are taken timely to reduce
the retail value of inventory. Merchandise inventories as of February 1, 2020, were $777.2 million.
The judgments involved in determining when to record markdowns can significantly impact the ending inventory valuation and the resulting gross profit.
Given the significant judgments necessary to identify and record markdowns timely, performing audit procedures to evaluate the timeliness of markdowns
involved a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the timing of markdowns taken included the following, among others:
• We tested the effectiveness of controls over inventory valuation, specifically those over the determination and execution of markdowns.
• We made selections of markdowns recorded after year-end to determine if the selected markdowns should have been taken as of the year-end balance
sheet date.
• We made selections of markdowns recorded throughout the year to test the accuracy and timeliness of markdowns taken.
• We developed an expectation for markdowns based on historical amounts recorded as a percentage of sales and compared our estimate to
management’s recorded markdowns.
Parsippany, New Jersey
March 13, 2020
We have served as the Company’s auditor since 1983.
44
REVENUES:
Net sales
Other revenue
Total revenue
COSTS AND EXPENSES:
Cost of sales
Selling, general and administrative expenses
Costs related to debt amendments
Stock option modification expense
Depreciation and amortization
Impairment charges - long-lived assets
Other income - net
Loss on extinguishment of debt
Interest expense
Total costs and expenses
Income before income tax expense
Income tax expense
Net income
Net income per common share:
Common stock - basic
Common stock - diluted
Weighted average number of common shares:
Common stock - basic
Common stock - diluted
BURLINGTON STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(All amounts in thousands, except per share data)
Fiscal Year Ended
February 1,
February 2,
February 3,
2020
2019
2018
(53 Weeks)
$
7,261,243 $
25,155
7,286,398
6,643,051 $
25,428
6,668,479
6,084,766
25,277
6,110,043
4,228,740
2,228,178
(375)
—
210,720
4,315
(16,531)
—
50,826
6,705,873
580,525
115,409
465,116 $
3,868,119
2,018,737
2,496
—
217,884
6,844
(10,998)
1,823
55,990
6,160,895
507,584
92,839
414,745 $
7.05 $
6.91 $
6.21 $
6.04 $
65,943
67,293
66,812
68,679
3,559,158
1,863,501
2,262
142
201,103
2,127
(8,888)
2,881
58,777
5,681,063
428,980
44,128
384,852
5.64
5.48
68,286
70,288
$
$
$
See Notes to Consolidated Financial Statements.
45
BURLINGTON STORES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(All amounts in thousands)
Net income
Other comprehensive (loss) income, net of tax:
Interest rate derivative contracts:
Net unrealized (losses) gains arising during the period
Reclassification into earnings during the period
Other comprehensive (loss) income, net of tax
Total comprehensive income
February 1,
2020
Fiscal Year Ended
February 2,
2019
February 3,
2018
(53 Weeks)
$
465,116
$
414,745 $
384,852
(16,606)
1,259
(15,347)
449,769
$
(3,080)
1,354
(1,726)
413,019 $
1,742
3,562
5,304
390,156
$
See Notes to Consolidated Financial Statements.
46
BURLINGTON STORES, INC.
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share and per share data)
February 1,
2020
February 2,
2019
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable—net of allowance for doubtful accounts of $795 and $78, respectively
Merchandise inventories
Assets held for disposal
Prepaid and other current assets
Total current assets
Property and equipment—net
Operating lease assets
Tradenames
Favorable leases—net
Goodwill
Deferred tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Current operating lease liabilities
Other current liabilities
Current maturities of long term debt
Total current liabilities
Long term debt
Long term operating lease liabilities
Other liabilities
Deferred tax liabilities
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.0001 par value: authorized: 50,000,000
shares; no shares issued and outstanding
Common stock, $0.0001 par value:
Authorized: 500,000,000 shares;
Issued: 79,882,506 shares and 79,224,669 shares, respectively;
Outstanding: 65,929,972 shares and 67,145,097 shares, respectively
Additional paid-in-capital
Accumulated earnings (deficit)
Accumulated other comprehensive loss
Treasury stock, at cost
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
$
$
403,074 $
6,582
91,508
777,248
2,261
136,698
1,417,371
1,403,173
2,397,111
238,000
731
47,064
4,678
85,731
5,593,859 $
759,107 $
302,185
397,032
3,577
1,461,901
1,001,723
2,322,000
97,798
182,288
112,274
21,882
58,752
954,183
—
124,809
1,271,900
1,253,705
—
238,000
164,324
47,064
4,361
99,818
3,079,172
848,561
—
396,257
2,924
1,247,742
983,643
—
346,298
178,779
—
—
7
1,587,146
204,797
(18,960)
(1,244,841)
528,149
5,593,859 $
7
1,508,996
(260,919)
(3,613)
(921,761)
322,710
3,079,172
See Notes to Consolidated Financial Statements.
47
BURLINGTON STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
Impairment charges—long-lived assets
Amortization of deferred financing costs
Accretion of long term debt instruments
Deferred income taxes
Non-cash loss on extinguishment of debt
Non-cash stock compensation expense
Non-cash lease expense
Non-cash rent
Cash received from landlord allowances
Changes in assets and liabilities:
Accounts receivable
Merchandise inventories
Prepaid and other current assets
Accounts payable
Other current liabilities
Other long term assets and long term liabilities
Other operating activities
Net cash provided by operating activities
INVESTING ACTIVITIES
Cash paid for property and equipment
Lease acquisition costs
Proceeds from insurance recoveries related to property and equipment
Proceeds from sale of property and equipment and assets held for sale
Other investing activities
Net cash (used in) investing activities
FINANCING ACTIVITIES
Proceeds from long term debt—ABL Line of Credit
Principal payments on long term debt—ABL Line of Credit
Proceeds from long term debt—Term B-5 Loans
Principal payments on long term debt—Term B-5 Loans
Principal payments on long term debt—Term B-4 Loans
Purchase of treasury shares
Proceeds from stock option exercises
Deferred financing costs
Other financing activities
Net cash (used in) financing activities
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash
equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning
of period
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of
period
Supplemental disclosure of cash flow information:
Interest paid
Income tax payments - net
Non-cash investing activities:
Accrued purchases of property and equipment
Acquisition of finance leases
February 1,
2020
Fiscal Year Ended
February 2,
2019
February 3,
2018
(53 Weeks)
$
465,116 $
414,745 $
384,852
210,720
4,315
1,247
813
9,070
—
43,928
12,599
—
56,280
(8,816)
176,430
(13,598)
(90,899)
25,202
3,176
(3,858)
891,725
(328,357)
(1,983)
5,131
—
611
(324,598)
1,294,400
(1,294,400)
—
—
—
(323,080)
34,222
—
(2,769)
(291,627)
217,884
6,844
1,596
754
2,519
1,823
35,485
—
(25,568)
50,843
3,482
(201,621)
(7,461)
111,023
13,700
8,780
4,825
639,653
(295,772)
(8,543)
2,787
6,020
(3,000)
(298,508)
1,220,200
(1,220,200)
—
(152,793)
—
(228,874)
16,306
(2,439)
(275)
(368,075)
201,103
2,127
2,463
1,048
(30,727)
2,881
27,034
—
(24,689)
48,834
(19,983)
(50,671)
(42,855)
97,003
2,509
(2,109)
8,430
607,250
(268,194)
—
5,980
(3)
9
(262,208)
1,215,500
(1,215,500)
1,114,207
(2,793)
(1,117,000)
(289,777)
9,173
(1,188)
(5,975)
(293,353)
275,500
(26,930)
51,689
134,156
161,086
109,397
409,656
$
134,156 $
161,086
47,071 $
110,588 $
62,814 $
19,875 $
52,173 $
75,650 $
47,258 $
13,538
49,092
109,581
31,279
—
$
$
$
$
$
See Notes to Consolidated Financial Statements.
48
BURLINGTON STORES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(All dollar amounts in thousands)
Balance at January 28, 2017
Net income
Stock options exercised
Shares used for tax withholding
Shares purchased as part of publicly announced
programs
Issuance of restricted shares, net
of forfeitures of 33,263 restricted shares
Stock based compensation
Unrealized gains on interest rate
cap contracts, net of related
taxes of $1.7 million
Amount reclassified into earnings, net of related
taxes of $2.4 million
Cumulative-effect adjustment
Balance at February 3, 2018
Net income
Stock options exercised
Shares used for tax withholding
Shares purchased as part of publicly announced
programs
Issuance of restricted shares, net
of forfeitures of 25,504 restricted shares
Stock based compensation
Unrealized gains on interest rate
cap contracts, net of related
taxes of $1.2 million
Amount reclassified into earnings, net of related
taxes of $0.5 million
Balance at February 2, 2019
Net income
Stock options exercised
Shares used for tax withholding
Shares purchased as part of publicly announced
programs
Forfeiture of restricted shares, net
of issuances of 1,759 restricted shares
Stock based compensation
Unrealized losses on interest rate
derivative contracts, net of related
taxes of $6.4 million
Amount reclassified into earnings, net of related
taxes of $0.5 million
Cumulative-effect adjustment
Balance at February 1, 2020
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
77,653,924 $
—
568,675
—
7 $ 1,420,581 $ (1,060,099) $
384,852
—
—
—
—
—
—
9,173
—
(7,191)
—
—
—
Treasury Stock
Total
Amount
Shares
(7,473,211) $ (403,110) $ (49,812)
— 384,852
9,173
—
(7,307)
(7,307)
—
—
(70,291)
—
—
—
—
—
(3,006,720)
(282,470)
(282,470)
199,348
—
—
—
—
27,034
—
—
—
—
—
—
—
—
—
27,034
—
—
—
—
1,742
—
—
1,742
—
—
78,421,947
—
684,011
—
—
—
—
417
7 1,457,205
—
—
16,306
—
—
—
—
(417)
(675,664)
414,745
—
—
3,562
—
—
—
(1,887) (10,550,222)
—
—
(69,489)
—
—
—
—
—
(692,887)
3,562
—
86,774
— 414,745
16,306
—
(10,127)
(10,127)
—
—
—
—
—
(1,459,861)
(218,747)
(218,747)
118,711
—
—
—
—
35,485
—
—
—
—
—
—
—
—
—
35,485
—
—
—
—
(3,080)
—
—
(3,080)
—
79,224,669
—
710,964
—
—
—
7 1,508,996
—
—
34,222
—
—
—
—
(260,919)
465,116
—
—
—
1,354
(3,613) (12,079,572)
—
—
(132,222)
—
—
—
—
1,354
(921,761) 322,710
465,116
34,222
(23,200)
—
—
(23,200)
—
—
—
—
—
(1,740,740)
(299,880)
(299,880)
(53,127)
—
—
—
—
43,928
—
—
—
—
—
—
—
—
—
43,928
—
—
—
—
(16,606)
—
—
(16,606)
—
—
79,882,506 $
—
—
—
—
7 $ 1,587,146 $
—
600
204,797 $
See Notes to Consolidated Financial Statements.
49
1,259
—
1,259
600
(18,960) (13,952,534) $ (1,244,841) $ 528,149
—
—
—
—
BURLINGTON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
As of February 1, 2020, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), has expanded its store
base to 727 retail stores, inclusive of an internet store, in 45 states and Puerto Rico. The Company sells in-season, fashion-focused merchandise at up to
60% off other retailers’ prices, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts
and coats. As of February 1, 2020, the Company operated stores under the names “Burlington Stores” (714 stores), “Cohoes Fashions” (2 stores), “Super
Baby Depot” (2 stores), “MJM Designer Shoes” (8 stores) and 1 online store. Cohoes Fashions offers products similar to those offered by Burlington
Stores. MJM Designer Shoes offers moderately priced designer and fashion shoes. The Super Baby Depot stores offer baby clothing, accessories, furniture
and other merchandise in the middle to higher price range.
Basis of Consolidation and Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP). The Consolidated Financial Statements include the accounts of Burlington Stores, Inc. and its subsidiaries. All inter-
company accounts and transactions have been eliminated in consolidation.
Fiscal Years
The Company defines its fiscal year as the 52 or 53-week period ending on the Saturday closest to January 31. The fiscal years ended February 1,
2020 (Fiscal 2019) and February 2, 2019 (Fiscal 2018) each consisted of 52 weeks. The fiscal year ended February 3, 2018 (Fiscal 2017) consisted of 53
weeks.
Use of Estimates
Certain amounts included in the Consolidated Financial Statements are estimated based on historical experience, currently available information and
management’s judgment as to the expected outcome of future conditions and circumstances. While every effort is made to ensure the integrity of such
estimates, actual results could differ from these estimates, and such differences could have a material impact on the Company’s Consolidated Financial
Statements.
Casualty Losses and Insurance Proceeds
As a result of the effects of certain weather-related incidents, 82 of the Company’s stores were closed for at least one day during Fiscal 2017. The
Company incurred losses during Fiscal 2017 of (i) $5.4 million related to the net book values of merchandise inventories and (ii) $17.7 million related to
the net book values of property and equipment and other long-lived assets, as well as repair and maintenance costs related to the clean-up of its stores.
These costs were recorded in the line items “Cost of sales” and “Selling general and administrative expenses” on the Company’s Consolidated Statement of
Income for the year ended February 3, 2018. The Company was insured at the selling price of the inventory and at replacement costs for the property and
equipment and other long-lived assets, less a deductible. During Fiscal 2017, the Company received approximately $11.7 million of insurance proceeds to
offset some of the losses. The Company allocated $6.0 million of these proceeds to property and equipment, which is included in the line item “Proceeds
from insurance recoveries related to property and equipment,” a component of cash flows from investing activities, on the Company’s Consolidated
Statements of Cash Flows during the year ended February 3, 2018.
50
During Fiscal 2019 and Fiscal 2018, the Company received $12.5 million and $9.3 million, respectively, of insurance proceeds related to these
incidents. These proceeds resulted in a gain on insurance recovery of $8.1 million and $3.3 million, which is included in “Other income – net” on the
Company’s Consolidated Statements of Income for Fiscal 2019 and Fiscal 2018, respectively. The Company allocated $5.1 million and $2.8 million of
these proceeds to property and equipment, which is included in the line item “Proceeds from insurance recoveries related to property and equipment,” a
component of cash flows from investing activities, on the Company’s Consolidated Statement of Cash Flows for Fiscal 2019 and Fiscal 2018, respectively.
The Company also incurred losses during Fiscal 2019 of $3.1 million related to several stores that sustained damages and were temporarily closed
during the year. These losses primarily relate to merchandise held at these stores, and the losses are included in the line item “Cost of sales” in the
Company’s Consolidated Statement of Income for Fiscal 2019.
Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at the time of purchase.
Book cash overdrafts are included in the line item “Accounts payable” on the Company’s Consolidated Balance Sheets.
Accounts Receivable
Accounts receivable consist of credit card receivables, lease incentive receivables, insurance receivables and other receivables. Accounts receivable
are recorded at net realizable value, which approximates fair value. The Company provides an allowance for doubtful accounts for amounts deemed
uncollectible.
Inventories
Merchandise inventories are valued at the lower of cost or market, as determined by the retail inventory method. Under the retail inventory method,
the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of
inventories. The Company regularly records a provision for estimated shortage, thereby reducing the carrying value of merchandise inventory. Complete
physical inventories of all of the Company’s stores and warehouses are performed no less frequently than annually, with the recorded amount of
merchandise inventory being adjusted to coincide with these physical counts.
The Company records its cost of merchandise (net of purchase discounts and certain vendor allowances), certain merchandise acquisition costs
(primarily commissions and import fees), inbound freight, outbound freight from distribution centers, and freight on internally transferred merchandise in
the line item “Cost of sales” in the Company’s Consolidated Statements of Income.
Costs associated with the Company’s distribution, buying, and store receiving functions (product sourcing costs) are included in the line items
“Selling, general and administrative expenses” and “Depreciation and amortization” in the Company’s Consolidated Statements of Income. Product
sourcing costs included within the line item “Selling, general and administrative expenses” amounted to $339.1 million, $313.3 million and $283.6 million
during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Depreciation and amortization related to the distribution and purchasing functions for the
same periods amounted to $31.9 million, $30.5 million and $26.6 million, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets,
which range from 20 to 40 years for buildings, depending upon the expected useful life of the facility, and 3 to 15 years for store fixtures and equipment.
Leasehold improvements are amortized over the lease term, including any reasonably assured renewal options or the expected economic life of the
improvement, whichever is less. Repairs and maintenance expenditures are expensed as incurred. Renewals and betterments, which significantly extend the
useful lives of existing property and equipment, are capitalized. Assets recorded under capital leases are recorded at the present value of minimum lease
payments and are amortized over the lease term. Amortization of assets recorded as capital leases is included in the line item “Depreciation and
amortization” in the Company’s Consolidated Statements of Income. The carrying value of all long-lived assets is reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, in accordance with ASC Topic No. 360 “Property,
Plant, and Equipment” (Topic No. 360). The Company recorded impairment charges related to property and equipment of $3.4 million, $3.9 million and
$1.1 million during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. These charges are recorded in the line item “Impairment charges—long-lived
assets” in the Company’s Consolidated Statements of Income. Refer to Note 6, “Impairment Charges,” for further discussion of the Company’s
measurement of impairment of long-lived assets.
51
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to undiscounted pre-
tax future net cash flows expected to be generated by that asset. If the undiscounted future cash flows are not adequate to recover the carrying value of the
asset, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of such assets. Refer to Note 6,
“Impairment Charges,” for further discussion of the Company’s measurement of impairment of long-lived assets.
Capitalized Computer Software Costs
The Company accounts for capitalized software in accordance with ASC Topic No. 350 “Intangibles—Goodwill and Other” (Topic No. 350) which
requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. The Company capitalized $18.0
million and $15.7 million relating to these costs during Fiscal 2019 and Fiscal 2018, respectively.
Intangible Assets
The Company accounts for intangible assets in accordance with Topic No. 350. The Company’s intangible assets primarily represent tradenames and
favorable lease positions. The tradename asset “Burlington” is expected to generate cash flows indefinitely and, therefore, is accounted for as an indefinite-
lived asset not subject to amortization. The values of favorable and unfavorable lease positions are amortized on a straight-line basis over the expected
lease terms. Amortization of net favorable lease positions is included in the line item “Depreciation and amortization” in the Company’s Consolidated
Statements of Income. The Company evaluates its intangible assets for possible impairment as follows:
Indefinite-lived intangible assets: The Company tests identifiable intangible assets with an indefinite life for impairment on an annual basis, or when
a triggering event occurs, relying on a number of factors that include operating results, business plans and projected future cash flows. The impairment test
consists of a comparison of the fair value of the indefinite-lived intangible asset with its carrying amount. The Company determines fair value through the
relief of royalty method which is a widely accepted valuation technique. On the first business day of the second quarter, the Company’s annual assessment
date, the Company performed a quantitative analysis and determined that the fair values of each of the Company’s identifiable intangible assets are greater
than their respective carrying values. There were no impairment charges recorded during Fiscal 2019, Fiscal 2018 or Fiscal 2017 related to indefinite-lived
intangible assets.
Finite-lived intangible assets: Identifiable intangible assets that are subject to amortization are evaluated for impairment in accordance with Topic
No. 360 using a process similar to that used to evaluate other long-lived assets as described in Note 6, “Impairment Charges.” An impairment charge is
recognized for the amount by which the carrying value exceeds the fair value of the asset. The Company recorded impairment charges of $2.9 million and
$0.8 million related to finite-lived intangible assets during Fiscal 2018 and Fiscal 2017, respectively. There were no impairment charges related to finite-lived
intangible assets during Fiscal 2019. These charges are recorded in the line item “Impairment charges–long-lived assets” in the Company’s Consolidated
Statements of Income. Refer to Note 6, “Impairment Charges,” for further discussion of the Company’s measurement of impairment of long-lived assets.
Goodwill
Goodwill represents the excess of the acquisition cost over the estimated fair value of tangible assets and other identifiable intangible assets acquired
less liabilities assumed. Topic No. 350 requires a comparison, at least annually, of the carrying value of the assets and liabilities associated with a reporting
unit, including goodwill, with the fair value of the reporting unit. The Company determines fair value through multiple widely accepted valuation
techniques. These techniques use a variety of assumptions including projected market conditions, discount rates and future cash flows. If the carrying value
of the assets and liabilities exceeds the fair value of the reporting unit, the Company would calculate the implied fair value of its reporting unit goodwill as
compared with the carrying value of its reporting unit goodwill to determine the appropriate impairment charge. On the first business day of the second
fiscal quarter, the Company’s annual assessment date, the Company performed a quantitative analysis and determined that the fair value of the Company’s
reporting unit was greater than its carrying value. There were no impairment charges related to goodwill during Fiscal 2019, Fiscal 2018 or Fiscal 2017.
52
Other Assets
Other assets consist primarily of landlord-owned store assets that the Company has paid for as part of its lease and deferred financing costs associated
with the Company’s senior secured asset-based revolving credit facility (the ABL Line of Credit). Landlord-owned assets represent leasehold improvements at
certain stores for which the Company has paid and derives a benefit, but the landlord has retained title. These assets are amortized over the lease term inclusive
of reasonably assured renewal options. Amortization of landlord-owned assets was $14.6 million, $16.0 million and $14.5 million, during Fiscal 2019, Fiscal
2018 and Fiscal 2017, respectively, and was included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of Income.
Deferred financing costs are amortized over the life of the ABL Line of Credit using the interest method of amortization. Amortization of deferred financing
costs is recorded in the line item “Interest expense” in the Company’s Consolidated Statements of Income. Other assets also included purchased lease rights as
of February 2, 2019. As a result of adopting Accounting Standards Update (ASU) 2016-02, “Leases” (ASU 2016-02), purchased lease rights are now included
in the line item “Operating lease assets” as of February 1, 2020.
Other Current Liabilities
Other current liabilities primarily consist of sales tax payable, customer liabilities, accrued payroll costs, self-insurance reserves, accrued operating
expenses, payroll taxes payable and other miscellaneous items. Additionally, the current portion of straight line rent liability was included in other current
liabilities as of February 2, 2019. As a result of adopting ASU 2016-02, the current portion of straight line rent liability is included in the line item “Current
operating lease liabilities” as of February 1, 2020. Customer liabilities totaled $32.1 million and $33.7 million as of February 1, 2020 and February 2, 2019,
respectively.
The Company has risk participation agreements with insurance carriers with respect to workers’ compensation, general liability insurance and health
insurance. Pursuant to these arrangements, the Company is responsible for paying individual claims up to designated dollar limits. The amounts related to
these claims are estimated and can vary based on changes in assumptions or claims experience included in the associated insurance programs. An increase
in workers’ compensation claims, health insurance claims or general liability claims may result in a corresponding increase in costs related to these claims.
Self-insurance reserves as of February 1, 2020 and February 2, 2019 were:
Short-term self-insurance reserve(a)
Long-term self-insurance reserve(b)
Total
(in thousands)
Fiscal Years Ended
February 1,
2020
February 2,
2019
$
$
34,817 $
44,137
78,954 $
29,918
40,975
70,893
(a)
(b)
Represents the portions of the self-insurance reserve expected to be paid in the next twelve months, which were recorded in the line item “Other
current liabilities” in the Company’s Consolidated Balance Sheets.
Represents the portions of the self-insurance reserve expected to be paid in excess of twelve months, which was recorded in the line item “Other
liabilities” in the Company’s Consolidated Balance Sheets.
Other Liabilities
As of February 1, 2020, other liabilities primarily consist of the long term portion of self-insurance reserves and tax liabilities associated with the
uncertain tax positions recognized by the Company in accordance with ASC Topic No. 740 “Income Taxes” (Topic No. 740). As of February 2, 2019, other
liabilities primarily consist of deferred lease incentives, the long term portion of straight line rent liability, the long term portion of self-insurance reserves
and tax liabilities associated with the uncertain tax positions recognized by the Company in accordance with Topic No. 740.
Deferred lease incentives are funds received or receivable from landlords used primarily to offset the costs incurred for leasehold improvements and
for new and remodeled stores. These deferred lease incentives are amortized over the expected lease term, including rent holiday periods and option periods
where the exercise of the option can be reasonably assured. Amortization of deferred lease incentives is included in the line item “Selling, general and
administrative expenses” on the Company’s Consolidated Statements of Income. As of February 2, 2019, deferred lease incentives included in the line item
“Other liabilities” were $216.2 million. As a result of adoption of ASU 2016-02, deferred lease incentives are included in the line item “Operating lease
assets” as of February 1, 2020.
53
Revenue Recognition
The Company records revenue at the time control of the goods are transferred to the customer, which the Company determines to be at point of sale
and delivery of merchandise, net of allowances for estimated future returns, which is estimated based on historical return rates. The Company presents
sales, net of sales taxes, in its Consolidated Statements of Income. The Company accounts for layaway sales and leased department revenue in compliance
with ASC Topic No. 606 “Revenue from Contracts with Customers” (Topic No. 606). Layaway sales are recognized upon delivery of merchandise to the
customer. The amount of cash received upon initiation of the layaway is recorded as a deposit liability in the line item “Other current liabilities” in the
Company’s Consolidated Balance Sheets. Stored value cards (gift cards and store credits issued for merchandise returns) are recorded as a liability at the
time of issuance, and the related sale is recorded upon redemption.
The Company determines an estimated stored value card breakage rate by continuously evaluating historical redemption data. Breakage income is
recognized monthly in proportion to the historical redemption patterns for those stored value cards for which the likelihood of redemption is remote.
Other Revenue
Other revenue consists of service fees (layaway, shipping and handling, alteration, dormancy and other service charges), subleased rental income
and rental income from leased departments as shown in the table below:
Service fees
Subleased rental income and other
Rental income from leased departments
Total
February 1,
2020
$
$
16,051 $
9,104
—
25,155 $
(in thousands)
Fiscal Years Ended
February 2,
2019
15,836 $
9,319
273
25,428 $
February 3,
2018
(53 Weeks)
16,207
8,846
224
25,277
Rental income from leased departments resulted from arrangements at some of the Company’s stores where the Company granted unaffiliated third
parties the right to use designated store space solely for the purpose of selling such third parties’ goods, including such items as fragrances and designer
handbags. Rental income was based on an agreed upon percentage of the lease departments’ total revenues. The Company did not own or have any rights to
any tradenames, licenses or other intellectual property in connection with the brands sold by such unaffiliated third parties. The Company no longer has any
such arrangements as of the end of Fiscal 2019.
Private Label Credit Card
The Company has a private label credit card program, in which customers earn reward points for purchases made using the card. The Company
reduces net sales for the dollar value of any points earned at the time of the initial transaction, and subsequently recognizes net sales at the time the points
are redeemed or expired. The Company receives royalty revenue based on a percentage of all purchases made on the card, which is recognized at the time
of the initial transaction. The Company also receives a fee for each card activated. Revenue from activation fees are deferred and amortized over the period
the Company performs its obligations under the card to the customer.
Advertising Costs
The Company’s advertising costs consist primarily of national television, direct mail and digital costs. Advertising costs are expensed the first time
the advertising takes place, and are included in the line item “Selling, general and administrative expenses” on the Company’s Consolidated Statements of
Income. During Fiscal 2019, Fiscal 2018 and Fiscal 2017, advertising costs were $74.6 million, $77.1 million and $82.3 million, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Topic No. 740. Deferred income taxes reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. A valuation allowance against the
Company’s deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In
determining the need for a valuation allowance, management is required to make
54
assumptions and to apply judgment, including forecasting future earnings, taxable income, and the mix of earnings in the jurisdictions in which the
Company operates. Management periodically assesses the need for a valuation allowance based on the Company’s current and anticipated results of
operations. The need for and the amount of a valuation allowance can change in the near term if operating results and projections change significantly.
Topic No. 740 requires the recognition in the Company’s Consolidated Financial Statements of the impact of a tax position taken or expected to be
taken in a tax return, if that position is “more likely than not” to be sustained upon examination by the relevant taxing authority, based on the technical
merits of the position. The tax benefits recognized in the Company’s Consolidated Financial Statements from such a position are measured based on the
largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company records interest and penalties related
to unrecognized tax benefits as part of income taxes.
Other Income, Net
Other income, net, consists of breakage income, gains and losses on insurance proceeds, interest income, net gains and losses on disposition of
assets, and other miscellaneous items. During Fiscal 2019, Fiscal 2018 and Fiscal 2017, the Company recognized $3.6 million, $4.2 million and $3.3
million, respectively, of breakage income. The Company recognized an $8.1 million and $3.3 million gain on insurance recoveries during Fiscal 2019 and
Fiscal 2018, respectively. There was no gain on insurance recovery during Fiscal 2017. The Company also recognized $2.1 million and $2.5 million during
Fiscal 2018 and Fiscal 2017, respectively, related to the sale of certain state tax credits. There were no sales of tax credits during Fiscal 2019.
Comprehensive Income
Comprehensive income is comprised of net income and the effective portion of changes in the fair value of derivatives designated and that qualify as
cash flow hedges, less amounts reclassified into earnings.
Lease Accounting
The Company leases store locations, distribution centers and office space used in its operations. Beginning in Fiscal 2019, as a result of adopting
ASU 2016-02, the Company accounts for these types of leases in accordance with ASC Topic No. 842, “Leases” (Topic No. 842), which requires that
leases be evaluated and classified as operating or finance leases for financial reporting purposes. The lease liability is calculated as the present value of the
remaining future lease payments over the lease term, including reasonably assured renewal options. The discount rates used in valuing the Company’s
leases are not readily determinable, and are based on the Company’s incremental borrowing rate on a fully collateralized basis. In calculating its
incremental borrowing rate, the Company uses a retail industry yield curve, adjusted for the Company’s credit profile. The right-of-use asset for operating
leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts, such as favorable leases, the long term portion of
straight line rent liability, purchased lease rights, unamortized initial direct costs, impairment of the right-of-use asset and unamortized landlord allowances.
The Company’s operating lease cost, included in the line item “Selling, general and administrative expenses” on its Consolidated Statement of
Income, includes amortization of right-of-use assets, interest on lease liabilities, as well as any variable and short-term lease cost. The Company
commences recording operating lease cost when the underlying asset is made available for use.
Assets held under finance leases are included in the line item “Property and equipment—net of accumulated depreciation and amortization” in the
Company’s Consolidated Balance Sheets.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic No. 718, “Stock Compensation” (Topic No. 718), which
requires companies to record stock compensation expense for all non-vested and new awards beginning as of the grant date. Refer to Note 12, “Stock-
Based Compensation,” for further details.
Net Income Per Share
Net income per share is calculated using the treasury stock method. Refer to Note 11, “Net Income Per Share,” for further details.
55
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and
investments. The Company manages the credit risk associated with cash equivalents and investments by investing with high-quality institutions and, by
policy, limiting investments only to those which meet prescribed investment guidelines. The Company maintains cash accounts that, at times, may exceed
federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of such limits. Management believes that it
is not exposed to any significant risks on its cash and cash equivalent accounts.
Segment Information
The Company reports segment information in accordance with ASC Topic No. 280 “Segment Reporting.” The Company has one reportable
segment. The Company is an off-price retailer that offers customers a complete line of value-priced apparel, including: women’s ready-to-wear apparel,
accessories, footwear, menswear, youth apparel, baby, home, coats, beauty, toys and gifts. Sales percentage by major product category is as follows:
Category
Women’s ready-to-wear apparel
Accessories and footwear
Menswear
Youth apparel/baby
Home
Coats
(a)
Percentages may not foot due to rounding.
2. Recent Accounting Pronouncements
Adopted Accounting Standards
Leases
Fiscal 2019(a)
Fiscal 2018(a)
Fiscal 2017(a)
22%
22%
20%
16%
15%
5%
23%
22%
20%
16%
15%
5%
23%
22%
20%
16%
14%
5%
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02. The standard’s core principle is to increase
transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about
leasing arrangements. The Company adopted this ASU as of the beginning of Fiscal 2019.
The Company applied the changes from the new guidance at the adoption date and recognized a cumulative effect adjustment to retained
earnings in the period of adoption, as allowed under ASU 2018-11, “Leases: Targeted Improvements.” The Company did not adjust prior periods. The
Company made an accounting policy election not to capitalize leases with an initial term of twelve months or less. The Company elected the transition
package of practical expedients, which allows the Company to carry forward for its existing leases: (i) the historical lease classification as either operating
or capital; (ii) assessment of whether any expired or existing contracts are or contain leases; and (iii) capitalization of initial direct costs. Additionally, the
Company elected the practical expedients to not separate lease and non-lease components for both its real estate and non-real estate leases, to not assess
whether existing or expired land easements contain a lease, and to employ hindsight when determining lease terms for existing leases on the date of
adoption.
At adoption of this standard, the Company recognized approximately $2.1 billion of additional right-of-use assets and approximately $2.2 billion
of additional lease liabilities (current and long-term combined) on its Consolidated Balance Sheet as of February 3, 2019. The lease liability for operating
leases is based on the net present value of future minimum lease payments. The right-of-use asset for operating leases is based on the lease liability adjusted
for the reclassification of certain balance sheet amounts such as favorable leases, the long term portion of straight line rent liability, purchased lease rights,
unamortized initial direct costs, impairment of the right-of-use asset and unamortized landlord allowances. In addition, the Company also recorded an
approximate $0.6 million cumulative-effect adjustment to retained earnings, related to a deferred gain on a previous sale-leaseback transaction that was
being recognized into the line item “Other income” over a 13 year period.
Adoption of this standard also resulted in a change in the timing of certain expense recognition, primarily related to net favorable lease cost, as
well as a reclassification of favorable lease cost from “Depreciation and amortization” to “Selling, general and administrative expenses” on the Company’s
Consolidated Statement of Income for the year ended February 1, 2020. This guidance did
56
not have a material impact on the Company's liquidity. Refer to Note 3, “Lease Commitments,” for further detail of the Company’s future minimum lease
payments.
Pending Accounting Standards
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 will be effective for annual reporting periods beginning after December 15, 2019, including
interim periods. This ASU will be effective for the Company as of the beginning of the fiscal year ending January 30, 2021 (Fiscal 2020). Early adoption is
permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate that the new
guidance will have a significant impact on its consolidated financial statements.
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
statement of income as the fees associated with the hosting element of the arrangement. The new guidance will be effective for annual reporting periods
beginning after December 15, 2019, including interim periods. This ASU will be effective for the Company as of the beginning of Fiscal 2020. Early
adoption is permitted for annual or interim periods. The Company does not anticipate that the new guidance will have a significant impact on its
consolidated financial statements.
There were no other new accounting standards that had a material impact on the Company’s Consolidated Financial Statements during the year
ended February 1, 2020, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of February 1, 2020
that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.
3. Restricted Cash and Cash Equivalents
At February 1, 2020 and February 2, 2019, restricted cash and cash equivalents consisted of $6.6 million and $21.9 million, respectively, related to
collateral for certain insurance contracts. The Company has the ability to convert the restricted cash to a letter of credit at any time, which would reduce
available borrowings on the ABL Line of Credit by a like amount.
4. Property and Equipment
Property and equipment consist of:
Land
Buildings
Store fixtures and equipment
Software
Leasehold improvements
Construction in progress
Total property and equipment at cost
Less: accumulated depreciation
Total property and equipment, net of accumulated
depreciation and amortization
Useful Lives
$
N/A
20 to 40 Years
3 to 15 Years
3 to 10 Years
Shorter of
lease term or
useful life
N/A
(in thousands)
February 1,
2020
149,426 $
491,389
1,030,646
273,674
February 2,
2019
156,040
485,265
927,081
256,610
761,561
58,759
2,765,455
(1,362,282)
694,145
24,767
2,543,908
(1,290,203)
$
1,403,173 $
1,253,705
57
As of February 1, 2020 and February 2, 2019, assets, net of accumulated amortization of $4.4 million and $23.2 million, respectively, held under
finance leases amounted to approximately $44.8 million and $30.3 million, respectively, and are included in the line item “Buildings” in the foregoing
table. Amortization expense related to finance leases is included in the line item “Depreciation and amortization” in the Company’s Consolidated
Statements of Income. The total amount of depreciation expense during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $195.8 million, $175.8 million and
$163.3 million, respectively.
During Fiscal 2019, Fiscal 2018 and Fiscal 2017, the Company recorded impairment charges related to property and equipment of $3.4 million, $3.9
million and $1.1 million, respectively. Refer to Note 6, “Impairment Charges,” for further discussion.
Internally developed software is amortized on a straight line basis over three to ten years and is recorded in the line item “Depreciation and
amortization” in the Company’s Consolidated Statements of Income. Depreciation and amortization of internally developed software amounted to $17.9
million, $19.4 million and $18.2 million during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
5. Intangible Assets
Intangible assets at February 1, 2020 consist primarily of tradenames. Intangible assets at February 2, 2019 consisted primarily of tradenames and
favorable lease positions. As a result of adopting ASU 2016-02, most of the Company’s favorable lease positions are included in “Operating lease assets”
on the Company’s Consolidated Balance Sheet as of February 1, 2020.
(in thousands)
February 1, 2020
February 2, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amount
$
$
238,000 $
— $
238,000 $
238,000 $
— $
3,506 $
(2,775) $
731 $
420,537 $
(256,213) $
238,000
164,324
Tradenames
Favorable leases
Favorable Leases
The total amount of net favorable lease amortization during Fiscal 2018 and Fiscal 2017 was $26.1 million and $23.3 million, respectively, and was
included in “Depreciation and amortization” on the Company’s Consolidated Statements of Income. As a result of adopting ASU 2016-02, amortization of
favorable leases is part of operating lease cost, included in “Selling, general and administrative expenses” on the Company’s Consolidated Statement of
Income for Fiscal 2019. The Company recorded impairment charges of $2.9 million and $0.8 million related to its favorable leases during Fiscal 2018 and
Fiscal 2017, respectively.
6. Impairment Charges
Impairment charges recorded during Fiscal 2019, Fiscal 2018 and Fiscal 2017 amounted to $4.3 million, $6.8 million and $2.1 million, respectively,
and are primarily related to declines in revenues and operating results of the respective stores. Additionally, during Fiscal 2018 and Fiscal 2017, a portion
of the impairment related to a decline in the appraised fair value of one of the Company’s owned stores. Impairment charges during these periods related to
the following:
Asset Categories
Land
Operating lease assets
Buildings
Store fixtures and equipment
Leasehold improvements
Favorable leases
Other assets
Total
(in thousands)
Fiscal Years Ended
February 1,
2020
February 2,
2019
February 3,
2018
(53 Weeks)
$
$
1,604 $
921
921
809
52
—
8
4,315 $
1,551 $
—
1,262
878
195
2,894
64
6,844 $
247
—
227
308
306
836
203
2,127
58
The Company recorded impairment charges related to store-level assets for two stores, as well as the online store, during Fiscal 2019, eight stores
during Fiscal 2018 and four stores during Fiscal 2017.
Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy of ASC
Topic No. 820 “Fair Value Measurements” (Topic No. 820). Refer to Note 16, “Fair Value of Financial Instruments,” for further discussion of the
Company’s fair value hierarchy. The fair value of the Company’s long-lived assets is calculated using a discounted cash-flow model that used level 3
inputs. In calculating future cash flows, the Company makes estimates regarding future operating results based on its experience and knowledge of market
factors in which the retail location is located. The table below sets forth, by level within the fair value hierarchy, the remaining fair value of the two
impaired stores as of February 1, 2020:
(in thousands)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Un-
Observable
Inputs
(Level 3)
$
$
— $
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
— $
1,450 $
132
(125)
833
148
4
7
2,449 $
Total
1,450
132
(125)
833
148
4
7
2,449
Land
Operating lease assets
Operating lease liabilities
Buildings
Store fixtures and equipment
Leasehold improvements
Other assets
Total
7. Long Term Debt
Long term debt consists of:
$1,200,000 senior secured term loan facility (Term B-5 Loans), LIBOR (with a
floor of 0.00%) plus 2.00%, matures on November 17, 2024
$600,000 ABL senior secured revolving facility, LIBOR plus spread based on
average outstanding balance, matures on June 29, 2023
Finance lease obligations
Unamortized deferred financing costs
Total debt
Less: current maturities
Long term debt, net of current maturities
(in thousands)
February 1,
2020
February 2,
2019
$
957,505 $
956,693
—
50,130
(2,335)
1,005,300
(3,577)
1,001,723 $
—
32,706
(2,832)
986,567
(2,924)
983,643
$
Term Loan Facility
On February 24, 2011, the Company entered into a $1.0 billion senior secured term loan facility (the Term Loan Facility). The Term Loan Facility
was issued pursuant to a credit agreement (Term Loan Credit Agreement), dated February 24, 2011, among Burlington Coat Factory Warehouse
Corporation, an indirect subsidiary of the Company (BCFWC), the guarantors signatory thereto, and JPMorgan Chase Bank, N.A., as administrative agent
and as collateral agent, the lenders party thereto, J.P. Morgan Securities LLC and Goldman Sachs Lending Partners LLC, as joint bookrunners, and J.P.
Morgan Securities LLC, Goldman Sachs Lending Partners LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as
joint arrangers, governing the terms of the Term Loan Facility.
On November 17, 2017, BCFWC entered into Amendment No. 6 (the Sixth Amendment) to the Term Loan Credit Agreement governing its Term
Loan Facility. The Sixth Amendment, among other things, reduced the interest rate margins applicable to the Term Loan Facility from 1.75% to 1.50% in
the case of prime rate loans, and from 2.75% to 2.50% in the case of LIBOR loans, with the LIBOR floor continuing to be 0.75%. The Sixth Amendment
also extended the maturity date from August 13, 2021 to November 17, 2024. The Sixth Amendment was accomplished by replacing the outstanding
$1,117.0 million principal amount of Term B-4 Loans
59
with a like aggregate principal amount of Term B-5 Loans. In accordance with ASC Topic No. 470-50, “Debt Modifications and extinguishments” (Topic
No. 470), the Company recognized a non-cash loss on the extinguishment of debt of $2.9 million, representing the write-off of $1.5 million and $1.4
million in deferred financing costs and unamortized original issue discount, respectively, which was recorded in the line item “Loss on extinguishment of
debt” in the Company’s Consolidated Statements of Income. Also in connection with the Sixth Amendment, the Company incurred fees of $2.3 million,
primarily related to legal and placement fees, which were recorded in the line item “Costs related to debt amendments” in the Company’s Consolidated
Statements of Income.
In June 2018, the Company prepaid $150.0 million on the Term Loan Facility, which offset the mandatory quarterly payments through November
17, 2024. In accordance with Topic No. 470, the Company recognized a non-cash loss on the extinguishment of debt of $1.2 million, representing the write-
off of unamortized original issue discount and deferred financing costs, which was recorded in the line item “Loss on extinguishment of debt” in the
Company’s Consolidated Statement of Income.
On November 2, 2018, BCFWC entered into Amendment No. 7 (the Seventh Amendment) to the Term Loan Credit Agreement governing its Term
Loan Facility. The Seventh Amendment, among other things, reduced the interest rate margins applicable to the Company’s term loan facility from 1.50%
to 1.00%, in the case of prime rate loans, and from 2.50% to 2.00%, in the case of LIBOR loans, with the LIBOR floor being reduced from 0.75% to
0.00%. In connection with the execution of the Seventh Amendment, the Company paid fees and expenses, including a fee to each consenting lender equal
to 0.125% of the aggregate principal amount of such lender’s loans under the Term Loan Credit Agreement. In accordance with Topic No. 470, the
Company recognized a non-cash loss on the extinguishment of debt of $0.5 million, representing the write-off of deferred financing costs and unamortized
original issue discount, which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Consolidated Statement of Income. Also in
connection with the Seventh Amendment, the Company incurred fees of $2.4 million, primarily related to legal and placement fees, which were recorded in
the line item “Costs related to debt amendments” in the Company’s Consolidated Statement of Income.
The Term Loan Facility is collateralized by a first lien on our favorable leases, real estate and property & equipment and a second lien on our
inventory and receivables. Interest rates for the Term Loan Facility are based on: (i) for LIBOR rate loans for any interest period, at a rate per annum equal
to the greater of (x) the LIBOR rate, as determined by the Term Loan Facility Administrative Agent, for such interest period multiplied by the Statutory
Reserve Rate (as defined in the Term Loan Credit Agreement), and (y) 0.00% (the Term Loan Adjusted LIBOR Rate), plus an applicable margin; and
(ii) for prime rate loans, a rate per annum equal to the highest of (a) the variable annual rate of interest then announced by JPMorgan Chase Bank, N.A. at
its head office as its “prime rate,” (b) the federal reserve bank of New York rate in effect on such date plus 0.50% per annum, and (c) the Term Loan
Adjusted LIBOR Rate for the applicable class of term loans for one-month plus 1.00%, plus, in each case, an applicable margin. As of February 1, 2020,
the Company’s borrowing rate related to the Term Loan Facility was 3.7%.
Subsequent Event
On February 26, 2020, the Company entered into Amendment No. 8 (the Eighth Amendment) to the Term Loan Credit Agreement governing its
Term Loan Facility. The Eighth Amendment, among other things, reduced the interest rate margins applicable to the Term Loan Facility from 1.00% to
0.75%, in the case of prime rate loans, and from 2.00% to 1.75%, in the case of LIBOR loans, with the LIBOR floor remaining at 0.00%. In connection
with the execution of the Eighth Amendment, the Company incurred fees of $1.1 million, primarily related to legal and placement fees.
ABL Line of Credit
On June 29, 2018, BCFWC entered into Amendment No. 2 (the Second Amendment) to the Second Amended and Restated Credit Agreement, dated
September 2, 2011 (the ABL Credit Agreement), governing BCFWC’s existing senior secured asset-based revolving credit facility (the ABL Line of
Credit). The Second Amendment, among other things, extended the maturity date from August 13, 2019 to June 29, 2023 and adjusted the pricing grid such
that the lower interest rate of 1.25% in the case of LIBOR loans and 0.25% in the case of prime rate loans is applicable so long as the Company maintains
at least 40% average daily availability (as opposed to 50%). In connection with its entry into the Second Amendment, and in accordance with Topic
No. 470, the Company recognized a non-cash loss on the extinguishment of debt of $0.2 million, representing the write-off of deferred financing costs,
which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Consolidated Statement of Income for the year ended February 2,
2019.
The aggregate amount of commitments under the Second Amended and Restated Credit Agreement (as amended, supplemented and otherwise
modified, the Amended ABL Credit Agreement) is $600.0 million (subject to a borrowing base limitation) and, subject to the satisfaction of certain
conditions, the Company can increase the aggregate amount of commitments up to $900.0 million. The interest rate margin applicable under the Amended
ABL Credit Agreement in the case of loans drawn at LIBOR is 1.25% - 1.50% (based on total commitments or borrowing base availability), and the fee on
the average daily balance of unused loan commitments is
60
0.20%. Prior to the Second Amendment, the ABL Line of Credit was collateralized by a first lien on the Company’s inventory and receivables and a second
lien on the Company’s real estate and property and equipment. In connection with the Second Amendment, the agent and lenders under the ABL Line of
Credit agreed to release their second liens on the Company's real estate, but retained their liens on the Company's inventory, receivables, and equipment.
The Company believes that the Amended ABL Credit Agreement provides the liquidity and flexibility to meet its operating and capital requirements
over the remaining term of the ABL Line of Credit. Further, the calculation of the borrowing base under the Amended ABL Credit Agreement has been
amended to allow for increased availability, particularly during the September 1st through December 15th period of each year.
At February 1, 2020, the Company had $501.8 million available under the ABL Line of Credit. The maximum borrowings under the facility during
Fiscal 2019 amounted to $255.0 million. Average borrowings during Fiscal 2019 amounted to $81.5 million at an average interest rate of 3.7%.
At February 2, 2019, the Company had $543.3 million available under the ABL Line of Credit. The maximum borrowings under the facility during
Fiscal 2018 amounted to $265.0 million. Average borrowings during Fiscal 2018 amounted to $83.9 million at an average interest rate of 3.4%.
Deferred Financing Costs
The Company had $2.5 million and $3.4 million in deferred financing costs associated with its ABL Line of Credit, which are recorded in the line
item “Other assets” in the Company’s Consolidated Balance Sheets as of February 1, 2020 and February 2, 2019, respectively. In addition, The Company
had $2.3 million and $2.8 million of deferred financing costs associated with its Term Loan Facility recorded in the line item “Long term debt” in the
Company’s Consolidated Balance Sheets as of February 1, 2020 and February 2, 2019, respectively.
Amortization of deferred financing costs amounted to $1.2 million, $1.6 million and $2.5 million during Fiscal 2019, Fiscal 2018 and Fiscal 2017,
respectively, which was included in the line item “Interest expense” in the Company’s Consolidated Statements of Income.
Amortization expense related to the deferred financing costs as of February 1, 2020 for each of the next five fiscal years and thereafter is estimated
to be as follows:
Fiscal Years
2020
2021
2022
2023
2024
Thereafter
Total
(in thousands)
1,216
1,216
1,216
807
384
—
4,839
$
$
Deferred financing costs have a weighted average amortization period of approximately 4.1 years.
61
Scheduled Maturities
Scheduled maturities of the Company’s long term debt obligations, as they exist as of February 1, 2020, in each of the next five fiscal years and
thereafter are as follows:
Fiscal Years:
2020
2021
2022
2023
2024
Thereafter
Total
Less: unamortized discount
Less: unamortized deferred financing costs
Long term finance lease liabilities
Long term debt
(in thousands)
Long-Term Debt
$
$
—
—
—
—
961,415
—
961,415
(3,910)
(2,335)
46,553
1,001,723
8. Derivative Instruments and Hedging Activities
The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815 “Derivatives and Hedging” (Topic No. 815).
Topic No. 815 provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an
enhanced understanding of: (i) how and why an entity uses derivative instruments, (ii) how the entity accounts for derivative instruments and related
hedged items, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.
Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures
about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by Topic No. 815, the Company records all derivatives on the balance sheet at fair value and adjusts them to market on a quarterly
basis. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to
designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to
apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on
the hedging instrument with the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative
contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply
hedge accounting.
The Company uses interest rate cap contracts and interest rate swap contracts to manage interest rate risk. The fair value of these contracts are
determined using the market standard methodology of discounted future variable cash flows. The variable cash flows of the interest rate cap contracts are
determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the
strike rate of the caps in conjunction with the cash payments related to financing the premium of the interest rate caps. The variable cash flows of the
interest rate swap contract are determined using the market standard methodology of discounting the future expected cash receipts that would occur if
variable interest rates rise or fall compared to current levels in conjunction with the fixed cash payments. The variable interest rates used in the calculation
of projected receipts on the cap and swap contracts are based on an expectation of future interest rates derived from observable market interest rate curves
and volatilities. In addition, to comply with the provisions of Topic No. 820, credit valuation adjustments, which consider the impact of any credit
enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its derivative
contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds,
mutual puts, and guarantees.
62
In accordance with Topic No. 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments
that are subject to master netting agreements on a net basis by counterparty portfolio. There is no impact of netting because the Company’s only derivatives
are interest rate cap contracts and interest rate swap contracts that are with separate counterparties and are under separate master netting agreements.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the
credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of
default by the Company and its counterparties. However, as of February 1, 2020 and February 2, 2019, the Company has assessed the significance of the
impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not
significant to the overall valuation of its derivative portfolios. As a result, the Company classifies its derivative valuations in Level 2 of the fair value
hierarchy.
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its
exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks,
including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative
financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that
result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company uses derivative
financial instruments to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to
the Company’s borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company uses interest rate derivatives to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish
this objective, the Company primarily uses interest rate caps and interest rate swaps as part of its interest rate risk management strategy. Interest rate caps
designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract.
Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making
fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
On April 24, 2015, the Company entered into two interest rate cap contracts, which were designated as cash flow hedges, and expired in May of
2019. On December 17, 2018, the Company entered into an interest rate swap contract, which was designated as a cash flow hedge, and became effective
May 31, 2019.
During Fiscal 2019, the Company’s derivatives were used to hedge the variable cash flows associated with existing (or anticipated) variable-rate
debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in the line item
“Accumulated other comprehensive loss” on the Company’s Consolidated Balance Sheets and are subsequently reclassified into earnings in the period that
the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to the Company’s derivative
contracts will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of February 1, 2020, the Company
estimates that $5.9 million will be reclassified into interest expense during the next twelve months.
As of February 1, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest
rate risk:
Interest Rate Derivative
Interest rate swap contract
Number of
Instruments
One
Notional Aggregate
Principal Amount
$ 450.0 million
Interest
Cap/Swap Rate
2.72%
Maturity Date
December 29, 2023
63
Tabular Disclosure
The tables below present the fair value of the Company’s derivative financial instruments on a gross basis, as well as their classification on the
Company’s Consolidated Balance Sheets:
(in thousands)
Fair Values of Derivative Instruments
February 1, 2020
February 2, 2019
Derivatives Designated as Hedging Instruments
Interest rate cap contracts
Interest rate swap contract
Balance
Sheet
Location
N/A
Other liabilities
$
Fair
Value
Balance
Sheet
Location
Prepaid and
other current
assets
N/A
$
26,220 Other liabilities $
Fair
Value
2,213
5,239
The following table presents the unrealized (losses) gains deferred to accumulated other comprehensive loss resulting from the Company’s
derivative instruments designated as cash flow hedging instruments for each of the reporting periods.
Interest Rate Derivatives:
Unrealized (losses) gains, before taxes
Income tax benefit (expense)
Unrealized (losses) gains, net of taxes
February 1, 2020
$
$
(22,959)
6,353
(16,606)
$
$
(in thousands)
Fiscal Year Ended
February 2, 2019
February 3, 2018
(53 Weeks)
$
(4,232)
1,152
(3,080) $
3,460
(1,718)
1,742
The following table presents information about the reclassification of losses from accumulated other comprehensive loss into earnings related to the
Company’s derivative instruments designated as cash flow hedging instruments for each of the reporting periods.
Component of Earnings:
Interest expense
Income tax expense
Net reclassification into earnings
9. Accumulated Other Comprehensive Loss
(in thousands)
Fiscal Year Ended
February 1, 2020
February 2, 2019
February 3, 2018
$
$
1,733
(474)
1,259
$
$
$
1,872
(518)
1,354 $
(53 Weeks)
5,931
(2,369)
3,562
Amounts included in accumulated other comprehensive loss are recorded net of the related income tax effects. The table below details the changes
in accumulated other comprehensive loss for Fiscal 2019 and Fiscal 2018.
Balance at February 3, 2018
Unrealized losses, net of related tax benefit of $1.2 million
Amount reclassified into earnings, net of related taxes of $0.5 million
Balance at February 2, 2019
Unrealized losses, net of related tax benefit of $6.4 million
Amount reclassified into earnings, net of related taxes of $0.5 million
Balance at February 1, 2020
64
(in thousands)
Derivative
Instruments
(1,887)
(3,080)
1,354
(3,613)
(16,606)
1,259
(18,960)
$
$
$
10. Capital Stock
Common Stock
As of February 1, 2020, the total amount of the Company’s authorized capital stock consisted of 500,000,000 shares of common stock, par value
$0.0001 per share, and 50,000,000 shares of undesignated preferred stock, par value of $0.0001 per share.
The Company’s common stock is not entitled to preemptive or other similar subscription rights to purchase any of the Company’s securities. The
Company’s common stock is neither convertible nor redeemable. Unless the Company’s Board of Directors determines otherwise, the Company will issue
all of the Company’s capital stock in uncertificated form.
Preferred Stock
The Company does not have any shares of preferred stock issued or outstanding. The Company’s Board of Directors has the authority to issue shares
of preferred stock from time to time on terms it may determine, to divide shares of preferred stock into one or more series and to fix the designations,
preferences, privileges, and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation
preference, sinking fund terms, and the number of shares constituting any series or the designation of any series to the fullest extent permitted by the
General Corporation Law of the State of Delaware. The issuance of the Company’s preferred stock could have the effect of decreasing the trading price of
the Company’s common stock, restricting dividends on the Company’s capital stock, diluting the voting power of the Company’s common stock, impairing
the liquidation rights of the Company’s capital stock, or delaying or preventing a change in control of the Company.
Dividend Rights
Each holder of shares of the Company’s capital stock will be entitled to receive such dividends and other distributions in cash, stock or property as
may be declared by the Company’s Board of Directors from time to time out of the Company’s assets or funds legally available for dividends or other
distributions. These rights are subject to the preferential rights of any other class or series of the Company’s preferred stock.
Treasury Stock
The Company accounts for treasury stock under the cost method.
During Fiscal 2019, the Company acquired 132,222 shares of common stock from employees for approximately $23.2 million to satisfy their
minimum statutory tax withholdings related to the vesting of restricted stock awards.
Share Repurchase Programs
On August 15, 2018, the Company’s Board of Directors authorized the repurchase of up to an additional $300 million of common stock, which was
completed during the fourth quarter of Fiscal 2019. On August 14, 2019, the Company’s Board of Directors authorized the repurchase of up to an
additional $400 million of common stock, which is authorized to be executed through August 2021. These repurchase programs are funded using the
Company’s available cash and borrowings under the ABL Line of Credit.
During Fiscal 2019, the Company repurchased 1,740,740 shares of common stock for $299.9 million under its share repurchase programs, which
was recorded in the line item, “Treasury stock” on the Company’s Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the
Company’s Consolidated Statements of Cash Flows. As of February 1, 2020, the Company had $398.5 million remaining under its share repurchase
authorization.
65
11. Net Income Per Share
Basic net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding. Dilutive net
income per share is calculated by dividing net income by the weighted-average number of common shares and potentially dilutive securities outstanding
during the period using the treasury stock method.
Basic net income per share
Net income
Weighted average number of common shares – basic
Net income per common share – basic
Diluted net income per share
Net income
Shares for basic and diluted net income per share:
(in thousands, except per share data)
Fiscal Year Ended
February 1,
February 2,
2020
2019
February 3,
2018
(53 Weeks)
$
$
$
465,116 $
414,745 $
384,852
65,943
66,812
7.05 $
6.21 $
68,286
5.64
465,116 $
414,745 $
384,852
Weighted average number of common shares – basic
Assumed exercise of stock options and vesting of restricted stock
Weighted average number of common shares – diluted
65,943
1,350
67,293
66,812
1,867
68,679
Net income per common share – diluted
$
6.91 $
6.04 $
68,286
2,002
70,288
5.48
Approximately 405,000 shares, 425,000 shares and less than 150,000 shares were excluded from diluted net income per share for Fiscal 2019, Fiscal
2018 and Fiscal 2017, respectively, since their effect was anti-dilutive.
12. Stock-Based Compensation
On May 1, 2013, the Company’s Board of Directors approved the Company’s assumption and adoption of the 2006 Management Incentive Plan (the
2006 Plan) that was previously sponsored by Burlington Coat Factory Holdings, LLC. The 2006 Plan terminated on April 12, 2016. The Company’s 2013
Omnibus Incentive Plan (the 2013 Plan and, together with the 2006 Plan, the Plans), originally adopted effective prior to and in connection with the
Company’s initial public offering, was amended and restated effective May 17, 2017. The 2006 Plan, prior to its termination, and the 2013 Plan provide for
the granting of stock options, restricted stock and other forms of awards to key employees and directors of the Company or its affiliates.
The Company accounts for awards issued under the Plans in accordance with Topic No. 718. As of February 1, 2020, there were 3,280,488 shares of
common stock available for issuance under the 2013 Plan.
66
CEO Awards
A portion of the awards granted during Fiscal 2019 were granted to Michael O’Sullivan, the Company’s Chief Executive Officer (the CEO), upon
commencement of his employment in September 2019. To compensate the CEO for a portion of the equity awards forfeited at his prior employer, he
received a make-whole long-term incentive grant with a target grant date fair value of $25.0 million, comprised of 50% time-based restricted stock units
and 50% stock options, vesting in one-third annual increments (subject to the CEO’s continued employment through the applicable vesting date). The CEO
also received a prorated portion of his Fiscal 2019 long-term incentive award (such award having a target grant date fair value equal to $8.5 million),
delivered as 50% performance-based restricted stock units, 25% stock options and 25% time-based restricted stock units, on the same terms as the
Company’s Fiscal 2019 annual equity grants.
Stock Options
Options granted during Fiscal 2019, Fiscal 2018 and Fiscal 2017, were all service-based awards granted under the Plans at the following exercise
prices:
Fiscal 2019
Fiscal 2018
Fiscal 2017
Exercise Price Ranges
To
From
$
$
$
145.08 $
113.80 $
80.91 $
231.86
172.40
110.50
All awards granted during Fiscal 2019, Fiscal 2018 and Fiscal 2017, other than certain awards granted to the CEO as noted above, vest 25% on each
of the first four anniversaries of the grant date. The final exercise date for any option granted is the tenth anniversary of the grant date. Options granted
during Fiscal 2019, Fiscal 2018 and Fiscal 2017 become exercisable if the grantee’s employment is terminated without cause or, in some instances, the
recipient resigns with good reason, within a certain period of time following a change in control. Unless determined otherwise by the plan administrator,
upon cessation of employment other than for cause, the majority of options that have not vested will terminate immediately, and unexercised vested options
will be exercisable for a period of 60 to 180 days.
In May 2013, the Company’s Board of Directors approved a modification to all then outstanding options. The modification, through a combination
of either reduced exercise prices or cash payments, did not affect the existing vesting schedules. The modification resulted in a total of $0.1 million of
incremental compensation expense during Fiscal 2017, of which less than $0.1 million was payable in cash. These costs were recorded in the line item
“Stock option modification expense” in the Company’s Consolidated Statement of Income. There was no incremental compensation expense as a result of
the modification during Fiscal 2019 or Fiscal 2018. As of February 1, 2020, the Company does not expect to recognize any additional compensation
expense related to the modification.
Non-cash stock compensation expense is as follows:
Type of Non-Cash Stock Compensation
Restricted stock grants (a)
Stock option grants (a)
Stock option modification (b)
Performance stock grants (a)
Total (c)
February 1,
2020
(in thousands)
Fiscal Year Ended
February 2,
2019
$
$
20,454 $
19,222
—
4,252
43,928 $
18,967 $
16,518
—
—
35,485 $
February 3,
2018
(53 Weeks)
15,864
11,039
131
—
27,034
(a)
(b)
(c)
Included in the line item “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Income.
Represents non-cash compensation related to the May 2013 stock option modification as discussed above. Amounts are included in the line item
“Stock option modification expense” in the Company’s Consolidated Statements of Income.
The amounts presented in the table above exclude the effect of income taxes. The tax benefit related to the Company’s non-cash stock compensation
was $9.0 million, $9.7 million and $2.8 million during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
67
As of February 1, 2020, the Company had 1,890,955 options outstanding to purchase shares of common stock, and there was $40.8 million of
unearned non-cash stock-based option compensation that the Company expects to recognize as expense over a weighted average period of 2.5 years. The
awards are expensed on a straight-line basis over the requisite service period.
Stock option transactions during Fiscal 2019 are summarized as follows:
Options outstanding, February 2, 2019
Options granted
Options exercised (a)
Options forfeited
Options outstanding, February 1, 2020
Weighted
Average
Exercise
Price Per
Share
64.48
180.22
48.14
89.20
94.17
Number of
Shares
2,337,316 $
417,286
(710,964)
(152,683)
1,890,955 $
(a)
Options exercised during Fiscal 2019 had a total intrinsic value of $94.1 million.
The following table summarizes information about the options outstanding and exercisable as of February 1, 2020:
Exercise Prices
$0.79 - $4.55
$26.96+
Options Outstanding
Options Exercisable
Number
Outstanding at
February 1,
2020
399,129
1,491,826
1,890,955
Weighted
Average
Remaining
Contractual
Life (Years)
3.4
7.7
Number
Exercisable at
February 1,
2020
247,329
424,077
671,406
Weighted
Average
Remaining
Contractual
Life (Years)
3.4
6.3
The following table summarizes information about the stock options vested and expected to vest during the contractual term:
Vested and expected to vest
Weighted
Average
Remaining
Contractual
Life (Years)
6.8
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
(in millions)
$
94.17 $
233.2
Options
1,890,955
The fair value of each stock option granted was estimated on the date of grant using the Monte Carlo Simulation option pricing model prior to the
date of the Company’s initial public offering and the Black Scholes option pricing model subsequent to the date of the initial public offering. The fair value
of each stock option granted during Fiscal 2019 was estimated using the following assumptions:
Risk-free interest rate
Expected volatility
Expected life (years)
Contractual life (years)
Expected dividend yield
Weighted average grant date fair value of options issued
Fiscal Year Ended
February 1,
2020
1.47% - 3.00%
32% - 36%
5.69 - 6.25
10.0
0.0%
67.41
$
The expected dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. Since the Company
completed its initial public offering in October 2013, it does not have sufficient history as a publicly traded company to evaluate its volatility factor. As
such, the expected stock price volatility is based upon the historical volatility of the stock price over the expected life of the options of peer companies that
are publicly traded. The risk free interest rate was based on the U.S. Treasury
68
rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. For grants issued during Fiscal
2019, Fiscal 2018 and Fiscal 2017, the expected life of the options was calculated using the simplified method, which defines the life as the average of the
contractual term of the options and the weighted average vesting period for all option tranches. This methodology was utilized due to the short length of
time our common stock has been publicly traded.
Restricted Stock Awards
Restricted stock awards granted during Fiscal 2019 were all service-based awards. The fair value of each unit of restricted stock granted during
Fiscal 2019 was based upon the closing price of the Company’s common stock on the grant date. As of February 1, 2020, the Company had 40,000 awards
outstanding that cliff vest at the end of the service periods ranging from three years to five years from the grant date. Awards granted to non-employee
members of the Company’s Board of Directors before Fiscal 2018 have graded vesting provisions that generally vest in thirds over a three-year period.
Awards granted to non-employee members of the Company’s Board of Directors during Fiscal 2018 and Fiscal 2019 vest 100% on the first anniversary of
the grant date. The remaining awards outstanding as of February 1, 2020, other than certain awards granted to the CEO as noted above, have graded vesting
provisions that generally vest in quarters over a four-year-period. Following a change of control, all unvested restricted stock awards shall remain unvested,
provided, however, that 100% of such shares shall vest if, following such change of control, the employment of the recipient is terminated without cause or,
in some instances, the recipient resigns with good reason, within a certain period of time following a change in control.
As of February 1, 2020, there was approximately $43.0 million of unearned non-cash stock-based compensation related to restricted stock awards
that the Company expects to recognize as an expense over the next 2.5 years. The awards are expensed on a straight-line basis over the requisite service
periods.
Prior to May 1, 2019, the Company granted shares of restricted stock. Grants made on and after May 1, 2019 are in the form of restricted stock
units. Award grant, vesting and forfeiture transactions during Fiscal 2019 are summarized as follows:
Non-vested awards outstanding, February 2, 2019
Awards granted
Awards vested (a)
Awards forfeited
Non-vested awards outstanding, February 1, 2020
Weighted
Average Grant
Date Fair
Value Per
Award
81.93
177.72
67.48
101.32
131.03
Number of
Shares
666,842 $
192,278
(344,800)
(62,546)
451,774
(a) Restricted stock awards vested during Fiscal 2019 had a total intrinsic value of $60.1 million.
Performance Share Units
Beginning in Fiscal 2019, the Company granted performance share units to its senior executives. Vesting of these performance share units is based
on pre-established EBIT margin expansion and sales compound annual growth rate (CAGR) goals (each weighted equally) over a three-year performance
period. Based on the Company’s achievement of these goals, each award may range from 50% (at threshold performance) to no more than 200% of the
target award. In the event that actual performance is below threshold, no award will be made. In addition to the performance conditions, each performance
share unit cliff vests at the end of a three-year service period. Following a change of control, all unvested performance share units shall remain unvested,
provided, however, that 100% of such shares shall vest if, following such change of control, the employment of the recipient is terminated without cause or,
in some instances, the recipient resigns with good reason, within a certain period of time following a change in control.
As of February 1, 2020, there was approximately $12.6 million of unearned non-cash stock-based compensation related to performance share units
that the Company expects to recognize as an expense over the next 2.3 years. The awards are expensed on a straight-line basis over the requisite service
periods.
69
Performance share unit transactions during Fiscal 2019 are summarized as follows:
Non-vested units outstanding, February 2, 2019
Units granted
Awards forfeited
Non-vested units outstanding, February 1, 2020
Weighted
Average Grant
Date Fair
Value Per
Award
Number of
Shares
— $
89,448
(8,497)
80,951
—
173.51
170.08
173.87
13. Lease Commitments
The Company’s leases primarily consist of stores, distribution facilities and office space under operating and finance leases that will expire
principally during the next 30 years. The leases typically include renewal options at five year intervals and escalation clauses. Lease renewals are only
included in the lease liability to the extent that they are reasonably assured of being exercised. The Company’s leases typically provide for contingent
rentals based on a percentage of gross sales. Contingent rentals are not included in the lease liability, and they are recognized as variable lease cost when
incurred.
The following is a schedule of the Company’s future lease payments:
Fiscal Year
2020
2021
2022
2023
2024
Thereafter
Total future minimum lease payments
Amount representing interest
Total lease liabilities
Less: current portion of lease liabilities
Total long term lease liabilities
Weighted average discount rate
Weighted average remaining lease term (years)
(in thousands)
Operating
Leases
Finance
Leases
435,535
419,251
402,649
381,618
344,272
1,324,733
3,308,058
(683,873)
2,624,185
(302,185)
2,322,000
$
5.4%
8.6
6,057
6,841
7,513
7,589
7,417
38,651
74,068
(23,938)
50,130
(3,577)
46,553
7.0%
12.1
$
The above schedule excludes approximately $373.2 million for 51 stores that the Company has committed to open or relocate but has not yet taken
possession of the space.
70
The following is a schedule of net lease costs for Fiscal 2019:
Finance lease cost:
Amortization of finance lease asset (a)
Interest on lease liabilities (b)
Operating lease cost (c)
Variable lease cost (c)
Total lease cost
Less all rental income(d)
Total net rent expense (e)
(in thousands)
Fiscal Year Ended
February 1, 2020
4,027
2,770
414,174
155,210
576,181
(5,029)
571,152
$
$
(a)
(b)
(c)
Included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of Income.
Included in the line item “Interest expense” in the Company’s Consolidated Statements of Income.
Includes real estate taxes, common area maintenance, insurance and percentage rent. Included in the line item “Selling, general and administrative
expenses” in the Company’s Consolidated Statements of Income.
Included in the line item “Other revenue” in the Company’s Consolidated Statements of Income.
(d)
(e) Excludes an immaterial amount of short-term lease cost.
Supplemental cash flow disclosures related to leases are as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Cash payments arising from operating lease liabilities (a)
Cash payments for the principal portion of finance lease liabilities (b)
Cash payments for the interest portion of finance lease liabilities (a)
Supplemental non-cash information:
Operating lease liabilities arising from obtaining right-of-use assets
$
$
$
$
(a)
(b)
Included within operating activities in the Company’s Consolidated Statements of Cash Flows.
Included within financing activities in the Company’s Consolidated Statements of Cash Flows.
(in thousands)
Fiscal Year Ended
February 1, 2020
401,575
2,932
2,770
690,827
The following is a schedule of net rent expense for the periods indicated under Accounting Standards Codification (ASC) 840, “Leases.” Prior
periods have not been adjusted for adoption of ASU 2016-02:
Rent expense:
Minimum rental payments
Contingent rental payments
Straight-line rent expense
Lease incentives amortization
Amortization of purchased lease rights
Total rent expense(a)
Less all rental income(b)
Total net rent expense
(in thousands)
Year Ended
February 2,
2019
February 3,
2018
(53 Weeks)
$
$
364,637 $
6,047
8,469
(34,827)
844
345,170
(6,164)
339,006 $
340,979
4,734
7,543
(32,618)
499
321,137
(6,846)
314,291
(a)
(b)
Included in the line item “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Income.
Included in the line item “Other revenue” in the Company’s Consolidated Statements of Income.
71
As previously disclosed in the Company’s Fiscal 2018 Form 10-K and under the previous lease accounting standard, future minimum lease
payments due under non-cancelable operating leases as of February 2, 2019 would have been as follows:
Fiscal Year
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Amount representing interest
Total future minimum lease payments
(in thousands)
Operating
Leases
Capital
Leases
$
$
383,877 $
405,370
387,140
369,068
346,175
1,475,301
3,366,931
—
3,366,931 $
5,414
5,120
5,597
5,725
6,291
15,849
43,996
(11,290)
32,706
The above schedule included $278.9 million related to options to extend lease terms that were reasonably assured of being exercised and $622.4
million of minimum lease payments for 76 stores that the Company had committed to open or relocate.
14. Employee Retirement Plans
The Company maintains separate defined contribution 401(k) retirement savings and profit-sharing plans covering employees in the United States
and Puerto Rico who meet specified age and service requirements. The discretionary profit sharing component (which the Company has not utilized since
2005 and has no current plans to utilize) is entirely funded by the Company, and the Company also makes additional matching contributions to the 401(k)
component of the plans. Participating employees can voluntarily elect to contribute a percentage of their earnings to the 401(k) component of the plans (up
to certain prescribed limits) through a cash or deferred (salary deferral) feature qualifying under Section 401(k) of the Internal Revenue Code (401(k) Plan).
The Company recorded $10.0 million, $9.3 million and $8.4 million of 401(k) Plan match expense during Fiscal 2019, Fiscal 2018 and Fiscal 2017
respectively, which is included in the line item “Selling, general and administrative expenses” on the Company’s Consolidated Statements of Income.
15. Income Taxes
Income before income taxes was as follows for Fiscal 2019, Fiscal 2018 and Fiscal 2017:
Domestic
Foreign
Total income before income taxes
(in thousands)
Year Ended
February 1,
2020
573,399 $
7,126
580,525 $
February 2,
2019
503,290 $
4,294
507,584 $
$
$
February 3,
2018
(53 Weeks)
429,939
(959)
428,980
72
Income tax expense was as follows for Fiscal 2019, Fiscal 2018 and Fiscal 2017:
Current:
Federal
State
Foreign
Subtotal
Deferred:
Federal
State
Foreign
Subtotal
Total Income Tax Expense
(in thousands)
Year Ended
February 1,
2020
February 2,
2019
February 3,
2018
(53 Weeks)
$
$
83,521 $
20,778
2,040
106,339
8,375
1,012
(317)
9,070
115,409 $
69,007 $
19,642
1,671
90,320
8,337
(8,409)
2,591
2,519
92,839 $
65,824
8,824
207
74,855
(40,839)
9,091
1,021
(30,727)
44,128
The tax rate reconciliations were as follows for Fiscal 2019, Fiscal 2018 and Fiscal 2017:
Tax at statutory rate
State income taxes, net of federal
Excess tax benefit from stock compensation
Tax credits
Impact of federal tax reform
Other
Effective tax rate
Fiscal Year Ended
February 1,
2020
February 2,
2019
February 3,
2018
(53 Weeks)
21.0%
4.0
(5.3)
(1.0)
—
1.2
19.9%
21.0%
4.2
(5.2)
(1.2)
—
(0.5)
18.3%
33.7%
3.0
(4.4)
(1.4)
(21.1)
0.5
10.3%
The increase in the effective tax rate was primarily related to the one-time tax benefit in the prior year from the deferred tax revaluation due to
changes in New Jersey tax law, enacted during the second quarter of Fiscal 2018.
The tax effects of temporary differences are included in deferred tax accounts as follows:
$
Non-current deferred tax assets and liabilities:
Property and equipment basis adjustments
Operating lease liability
Operating lease asset
Deferred rent
Intangibles—long-lived
Intangibles—indefinite-lived
Employee benefit compensation
State net operating losses (net of federal benefit)
Landlord allowances
Tax credits
Other
Valuation allowance
Total non-current deferred tax assets and liabilities
$
(in thousands)
February 1, 2020
February 2, 2019
Tax
Assets
Tax
Liabilities
Tax
Assets
Tax
Liabilities
— $
682,104
—
—
—
—
14,933
9,346
—
8,154
—
(9,842)
704,695 $
171,949 $
—
645,240
—
—
64,842
—
—
—
—
274
—
882,305 $
— $
—
—
19,496
—
—
15,186
12,290
35,907
6,140
2,651
(10,268)
81,402 $
149,705
—
—
—
40,918
65,197
—
—
—
—
—
—
255,820
Net deferred tax liability
$
177,610
$
174,418
73
As of February 1, 2020, the Company has a deferred tax asset related to net operating losses of $9.3 million, inclusive of $9.0 million of state net
operating losses which will expire at various dates between 2020 and 2039 and $0.3 million of deferred tax assets recorded for Puerto Rico net operating
loss carry-forwards that will expire in 2025. As of February 1, 2020, the Company had tax credit carry-forwards of $8.2 million, inclusive of state tax credit
carry-forwards of $6.8 million that will begin to expire in 2020 and $1.4 million of Puerto Rico alternative minimum tax (AMT) credits that have an
indefinite life.
As of February 2, 2019, the Company had a deferred tax asset related to net operating losses of $12.3 million, inclusive of $10.4 million of state net
operating losses, and $1.9 million of deferred tax assets recorded for Puerto Rico net operating loss carry-forwards. As of February 2, 2019, the Company
had tax credit carry-forwards of $6.1 million, inclusive of state tax credit carry-forwards of $4.5 million, and $1.6 million of Puerto Rico AMT credits.
We believe that it is more likely than not that the benefit from certain state net operating loss carry forwards and credits will not be realized. In
recognition of this risk, we have provided a valuation allowance of $5.6 million on state net operating losses and $3.9 million on state tax credit carry
forwards. In addition, the Company believes that it is more likely than not that the benefit from Puerto Rico net operating loss carry-forwards will not be
realized. As a result, we have provided for a full valuation allowance of $0.3 million. If our assumptions change and we determine we will be able to
realize these net operating losses or credits, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets as of February 1, 2020
will be recorded to the Company’s Consolidated Statement of Income. As of February 2, 2019, we provided a total valuation allowance of $10.3 million,
inclusive of $5.9 of valuation allowance related to state net operating losses, $2.5 million related to tax credit carry-forwards and $1.9 million related to
Puerto Rico.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of interest and penalties) is as follows:
Balance at January 28, 2017
Additions for tax positions of the current year
Additions for tax positions of prior years
Reduction for tax positions of prior years
Settlements
Lapse of statute of limitations
Balance at February 3, 2018
Additions for tax positions of the current year
Additions for tax positions of prior years
Reduction for tax positions of prior years
Settlements
Lapse of statute of limitations
Balance at February 2, 2019
Additions for tax positions of the current year
Additions for tax positions of prior years
Reduction for tax positions of prior years
Settlements
Lapse of statute of limitations
Balance at February 1, 2020
(in thousands)
Gross
Unrecognized
Tax Benefits,
Exclusive of
Interest and
Penalties
$
$
$
$
9,193
72
882
(973)
—
(101)
9,073
18
698
(782)
—
(80)
8,927
—
—
(783)
—
(67)
8,077
As of February 1, 2020, the Company reported total unrecognized benefits of $8.1 million, of which $6.4 million would affect the Company’s
effective tax rate if recognized. As a result of previous positions taken and current period activity, the Company recorded a net benefit of $0.2 million of
interest and penalties during Fiscal 2019 in the line item “Income tax expense” in the Company’s Consolidated Statements of Income. Cumulative interest
and penalties of $12.0 million are recorded in the line item “Other liabilities” in the Company’s Consolidated Balance Sheets as of February 1, 2020. The
Company recognizes interest and penalties related to unrecognized tax benefits as part of income taxes. Within the next twelve months, the Company does
not expect any significant changes in its unrecognized tax benefits.
74
As of February 2, 2019, the Company reported total unrecognized benefits of $8.9 million, of which $7.1 million would affect the Company’s
effective tax rate if recognized. As a result of previous positions taken, the Company recorded an increase of $0.2 million of interest and penalties during
Fiscal 2018 in the line item “Income tax expense” in the Company’s Consolidated Statements of Income. Cumulative interest and penalties of $12.3 million
are recorded in the line item “Other liabilities” in the Company’s Consolidated Balance Sheets as of February 2, 2019.
The Company files tax returns in the U.S. federal jurisdiction, Puerto Rico, and various state jurisdictions. The Company is open to examination by
the IRS under the applicable statutes of limitations for Fiscal Years 2016 through 2019. The Company or its subsidiaries’ state and Puerto Rico income tax
returns are open to audit for Fiscal Years 2014 through 2019, with a few exceptions, under the applicable statutes of limitations. There are ongoing state
audits in several jurisdictions, and the Company has accrued for possible exposures as required under Topic No. 740. The Company does not expect the
settlement of these audits to have a material impact to its financial results.
16. Fair Value of Financial Instruments
The Company accounts for fair value measurements in accordance with Topic No. 820 which defines fair value, establishes a framework for
measurement and expands disclosure about fair value measurements. Topic No. 820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price), and classifies the inputs used to
measure fair value into the following hierarchy:
Level 1:
Level 2:
Quoted prices for identical assets or liabilities in active markets.
Quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are
observable.
Level 3:
Pricing inputs that are unobservable for the assets and liabilities, and include situations where there is little, if any, market activity
for the assets and liabilities.
The inputs into the determination of fair value require significant management judgment or estimation.
The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these
instruments.
Refer to Note 8, “Derivative Instruments and Hedging Activities,” for further discussion regarding the fair value of the Company’s interest rate cap
contracts.
Financial Assets
The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of February 1, 2020 and February 2, 2019 are
summarized below:
Level 1
(in thousands)
Fair Value Measurements at
February 1,
2020
February 2,
2019
Cash equivalents (including restricted cash)
$
369,733
$
22,416
Financial Liabilities
The fair values of the Company’s financial liabilities are summarized below:
Term B-5 Loans
ABL Line of Credit
Total debt (a)
(in thousands)
February 1, 2020
February 2, 2019
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
957,505 $
—
957,505 $
959,899 $
—
959,899 $
956,693 $
—
956,693 $
947,126
—
947,126
$
$
75
(a)
Finance lease obligations are excluded from the table above.
The fair values presented herein are based on pertinent information available to management as of the respective year end dates. The estimated fair
values of the Company’s debt are classified as Level 2 in the fair value hierarchy. Although management is not aware of any factors that could significantly
affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date,
and current estimates of fair value may differ from amounts presented herein.
17. Commitments and Contingencies
Legal
Like many retailers, the Company has been named in potential class or collective actions on behalf of groups alleging violations of federal and state
wage and hour and other labor statutes, and alleged violation of state consumer and/or privacy protection and other statutes. The Company is involved in a
federal wage and hour lawsuit alleging that certain exempt employees were misclassified under the Fair Labor Standards Act (FLSA). In late November
2019, the Court overseeing this lawsuit granted final certification allowing the matter to proceed as a collective action under the FLSA. In addition, the
Company is involved in a putative class action matter raising similar allegations of misclassification under the wage and hour laws of three states. This
matter was stayed by the Court shortly after it was filed and has remained stayed to date. At this time, the Company is not able to predict the outcome of
these two lawsuits and cannot reasonably estimate any reasonably possible loss therefrom.
The Company is also party to representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory
proceedings including, among others, commercial, product, product safety, employee, customer, intellectual property and other claims. Actions against us
are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. While no assurance can be given
as to the ultimate outcome of these matters, the Company believes that the final resolution of these actions will not have a material adverse effect on the
Company’s results of operations, financial position, liquidity or capital resources.
Letters of Credit
The Company had irrevocable letters of credit in the amounts of $53.1 million and $56.7 million as of February 1, 2020 and February 2, 2019,
respectively.
Letters of credit outstanding as of February 1, 2020 and February 2, 2019 amounted to $46.6 million and $48.9 million, respectively, guaranteeing
performance under various lease agreements, insurance contracts, and utility agreements. The Company also had outstanding letters of credit arrangements
in the aggregate amount of $6.5 million and $7.8 million at February 1, 2020 and February 2, 2019, respectively, related to certain merchandising
agreements. Based on the terms of the Amended ABL Credit Agreement relating to the ABL Line of Credit, the Company had available letters of credit of
$501.8 million and $543.3 million as of February 1, 2020 and February 2, 2019, respectively.
Inventory Purchase Commitments
The Company had $921.2 million of purchase commitments related to goods that were not received as of February 1, 2020.
Death Benefits
In November 2005, the Company entered into agreements with three of the Company’s former executives whereby, upon each of their deaths, the
Company will pay $1.0 million to each respective designated beneficiary.
18. Related Party Transactions
The brother-in-law of one of the Company’s Executive Vice Presidents is an independent sales representative of one of the Company’s suppliers of
merchandise inventory. This relationship predated the commencement of the Executive Vice President’s employment with the Company. The Company has
determined that the dollar amount of purchases through such supplier represents an insignificant amount of its inventory purchases.
76
19. Quarterly Results (Unaudited)
In the opinion of the Company’s management, the accompanying unaudited interim Consolidated Financial Statements contain all adjustments
which are necessary for the fair presentation of the quarters presented. The operating results for any quarter are not necessarily indicative of the results of
any future quarter.
Year ended February 1, 2020:
Net sales
Gross margin(1)(2)
Net income
Net income per share—basic(3):
Common stockholders
Net income per share—diluted(3):
Common stockholders
Year ended February 2, 2019:
Net sales
Gross margin (1)(2)
Net income
Net income per share—basic(3):
Common stockholders
Net income per share—diluted(3):
Common stockholders
(in thousands, except share data)
Quarter Ended
May 4,
2019
1,628,547 $
667,229 $
77,765 $
August 3,
2019
1,656,363 $
685,942 $
84,567 $
November 2,
2019
1,774,949 $
752,037 $
96,459 $
February 1,
2020
2,201,384
927,295
206,325
1.18 $
1.28 $
1.46 $
3.14
1.15 $
1.26 $
1.44 $
3.08
(in thousands, except share data)
Quarter Ended
May 5,
2018
1,518,446 $
625,764 $
82,588 $
August 4,
2018
1,498,633 $
621,159 $
70,957 $
November 3,
2018
1,634,489 $
692,480 $
76,849 $
February 2,
2019
1,991,483
835,529
184,351
1.23 $
1.06 $
1.15 $
2.77
1.20 $
1.03 $
1.12 $
2.70
$
$
$
$
$
$
$
$
$
$
(1)
(2)
(3)
Gross margin is equal to net sales less cost of sales.
During the quarterly periods ended February 1, 2020 and February 2, 2019, the Company recorded shortage adjustments of $1.9 million and $1.9
million, respectively, as a result of actual shortage being less than what the Company had estimated throughout the year.
Quarterly net income per share results may not equal full year amounts due to rounding.
20. Subsequent Event
Towards the end of December 2019, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. There have been mandates from
federal, state and local authorities requiring forced closures of non-essential retailers, which could negatively impact the Company’s business. Although it
is not possible to reliably estimate the length or severity of this outbreak and hence its financial impact, any significant reduction in customer visits to, and
spending at, the Company’s stores caused by COVID-19 would result in a loss of sales and profits and other material adverse effects.
77
Schedule I
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Balance Sheets
ASSETS:
Current assets
Investment in subsidiaries
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities
Negative investment in subsidiaries
Commitments and contingencies
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to Condensed Financial Statements
78
As of
February 1,
2020
February 2,
2019
(in thousands)
$
$
$
$
51
528,098
528,149
—
—
—
528,149
528,149
$
$
$
$
38
322,672
322,710
—
—
—
322,710
322,710
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Statements of Income
REVENUES:
Total revenue
COSTS AND EXPENSES:
Income from equity investment
Total costs and expenses
Income before provision for income tax
Provision for income tax
Earnings from equity investment, net of income taxes
Net income
Total comprehensive income
February 1,
2020
Fiscal Years Ended
February 2,
2019
(in thousands)
February 3,
2018
(53 Weeks)
$
—
$
—
$
—
—
—
—
—
465,116
465,116
465,116
$
$
$
—
—
—
—
414,745
414,745
414,745
$
$
$
—
—
—
—
384,852
384,852
384,852
$
$
$
See Notes to Condensed Financial Statements
79
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Statements of Cash Flows
OPERATING ACTIVITIES:
Net cash provided by operations
INVESTING ACTIVITIES:
Receipt of dividends
Net cash used in investing activities
FINANCING ACTIVITIES:
Proceeds from initial public offering
Offering costs
Receipt of dividends
Payment of dividends
Purchase of treasury shares
Intercompany financing transactions
Proceeds from stock option exercises
Net cash provided by (used in) financing activities
Increase (Decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
February 1,
2020
Fiscal Years Ended
February 2,
2019
(in thousands)
February 3,
2018
(53 Weeks)
$
—
$
—
$
—
—
—
—
—
—
—
—
—
—
—
—
(323,080)
288,871
34,222
13
13
38
51
$
(228,874)
212,462
16,306
(106)
(106)
144
38
$
$
—
—
—
—
—
—
—
(289,777)
280,701
9,173
97
97
47
144
See Notes to Condensed Financial Statements
80
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Note 1. Basis of Presentation
Burlington Stores, Inc. (the Parent Company) is a holding company that conducts substantially all of its business operations through its subsidiaries.
The Parent Company’s ability to pay dividends on Parent Company’s common stock will be limited by restrictions on the ability of Parent Company and its
subsidiaries to pay dividends or make distributions under the terms of current and future agreements governing the indebtedness of Parent Company’s
subsidiaries. In addition to other baskets under the agreements governing its indebtedness, the Parent Company and its subsidiaries are permitted to make
dividends and distributions under the Term Loan Facility so long as there is no event of default and the pro forma consolidated leverage ratio of the Parent
Company and its subsidiaries does not exceed 3.50 to 1.00, and under the ABL Line of Credit as long as certain restricted payment conditions are satisfied.
The accompanying Condensed Financial Statements include the accounts of the Parent Company and, on an equity basis, its consolidated
subsidiaries and affiliates. Accordingly, these Condensed Financial Statements have been presented on a “parent-only” basis. Under a parent-only
presentation, the Parent Company’s investments in its consolidated subsidiaries are presented under the equity method of accounting. These parent-only
financial statements should be read in conjunction with Burlington Stores, Inc.’s audited Consolidated Financial Statements included elsewhere herein.
Note 2. Dividends
As discussed above, the terms of current and future agreements governing the indebtedness of the Parent Company and its subsidiaries include, or
may include, limitations on the ability of such subsidiaries and the Parent Company to pay dividends, subject to certain exceptions set forth in such
agreements.
Note 3. Stock-Based Compensation
Non-cash stock compensation expense of $43.9 million, $35.5 million and $27.0 million has been pushed down to Parent Company’s subsidiaries
for Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
81
BURLINGTON STORES, INC.
Schedule II—Valuation and Qualifying Accounts and Reserves
(All amounts in thousands)
Description
Year ended February 1, 2020
Allowance for doubtful accounts
Sales reserves(3)
Valuation allowances on deferred tax assets
Year ended February 2, 2019
Allowance for doubtful accounts
Sales reserves(3)
Valuation allowances on deferred tax assets
Year ended February 3, 2018
Allowance for doubtful accounts
Sales reserves(3)
Valuation allowances on deferred tax assets
Balance at
Beginning
of Period
Charged
to Costs &
Expenses
Charged
to Other
Accounts(1)
Accounts
Written Off
or
Deductions(2)
Balance at
End of
Period
$
$
$
$
$
$
$
$
$
78 $
9,451 $
10,268 $
99 $
3,768 $
8,376 $
262 $
3,419 $
7,388 $
992 $
— $
— $
122 $
(19) $
— $
— $
362,764 $
(426) $
275 $
360,546 $
— $
— $
359,711 $
1,892 $
143 $
354,009 $
— $
411 $
(524) $
— $
— $
335,675 $
988 $
574 $
334,802 $
— $
795
11,669
9,842
78
9,451
10,268
99
3,768
8,376
Notes:
(1)
(2)
(3)
Amounts related to sales reserves are charged to net sales and cost of sales, and amounts related to valuation allowances on deferred taxes are
charged to income tax expense.
Actual returns and allowances.
During Fiscal 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers,” which requires the Company’s sales return
reserve to be established at the gross sales value with an asset established for the value of the expected merchandise returned. The liability and asset
related to the sales return reserve were $11.7 million and $7.0 million, respectively, as of February 1, 2020, and $9.5 million and $5.7 million,
respectively, as of February 2, 2019, and were included in the lines “Other current liabilities” and “Prepaid and other current assets,” respectively, on
the Company’s Consolidated Balance Sheet. Prior period amounts have not been adjusted. As of February 3, 2018, the net sales return reserve was
$3.8 million and was included in the line “Other current liabilities” on the Company’s Consolidated Balance Sheet.
82
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer,
evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated
under the Exchange Act, as of the last day of the fiscal period covered by this Annual Report, February 1, 2020. The term disclosure controls and
procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and
principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this
evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of
February 1, 2020.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the issuer’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP and includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the issuer;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
GAAP, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors
of the issuer; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In accordance with the internal control reporting requirement of the SEC, management completed an assessment of the adequacy of our internal
control over financial reporting as of February 1, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013).
Based on this assessment and the criteria in the COSO framework, management has concluded that, as of February 1, 2020, our internal control over
financial reporting was effective.
Deloitte & Touche LLP, the independent registered public accounting firm that audited and reported on our consolidated financial statements
contained herein, has audited the effectiveness of our internal control over financial reporting as of February 1, 2020, and has issued an attestation report on
the effectiveness of our internal control over financial reporting included herein.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of Fiscal 2019, there were no changes in our internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
83
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Burlington Stores, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Burlington Stores, Inc. and subsidiaries (the “Company”) as of February 1, 2020, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 1,
2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), consolidated
statements of income, comprehensive income, stockholders’ equity, and cash flows, as of and for the year ended February 1, 2020, of the Company and our
report dated March 13, 2020 , expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the
Company’s adoption of Accounting Standards Update (“ASU”) 2016-12, Leases (Topic 842), using the alternative transition method.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
March 13, 2020
84
Item 9B.
Other Information.
None.
Item 10.
Directors, Executive Officers and Corporate Governance
Part III
For the information required by this Item 10, see “Election of Directors,” “Information About Our Executive Officers,” “Corporate Governance,”
and “Board Committees,” in the Proxy Statement for our 2020 Annual Meeting of Stockholders (the “Proxy Statement”), which information is incorporated
herein by reference. The Proxy Statement will be filed within 120 days of the close of our 2019 fiscal year.
Item 11.
Executive Compensation
For the information required by this Item 11, see “Executive Compensation” and “Director Compensation” in the Proxy Statement, which
information is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
For the information required by this Item 12, see “Ownership of Securities” and “Securities Authorized for Issuance Under Equity Compensation
Plans” in the Proxy Statement, which information is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
For the information required by this Item 13, see “Certain Relationships and Related Party Transactions” and “Corporate Governance” in the Proxy
Statement, which information is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
For the information required by this Item 14, see “Principal Accountant Fees and Services” and “Policy on Audit Committee Pre-Approval of Audit
and Permissible Non-Audit Services of Independent Registered Certified Public Accounting Firm” in the Proxy Statement, which information is
incorporated herein by reference.
85
Item 15.
Exhibits and Financial Statement Schedules
(a)
Documents Filed as Part of this Report
PART IV
(1) Financial Statements. The Consolidated Financial Statements filed as part of this Annual Report are listed on the Index to Consolidated Financial
Statements on page 42 of this Annual Report.
(2) Financial Statement Schedules. Schedule I—Condensed Financial Information of Registrant filed as part of this Annual Report is set forth on pages
78-81. Schedule II—Valuation and Qualifying Accounts filed as part of this Annual Report is set forth on page 82 of this Annual Report. All other financial
statement schedules have been omitted here because they are not applicable, not required, or the information is shown in the Consolidated Financial
Statements or notes thereto.
(3) Exhibits Required by Item 601 of Regulation S-K.
The following is a list of exhibits required by Item 601 of Regulation S-K and filed as part of this Annual Report. Exhibits that previously have been
filed are incorporated herein by reference.
Exhibit
Number
3.1
Amended and Restated Certificate of Incorporation of Burlington Stores, Inc.
Exhibit Description
3.2
Amended and Restated Bylaws of Burlington Stores, Inc.
4.1†
10.1
Description of the Registrant’s Securities.
Credit Agreement, dated February 24, 2011, by and among Burlington Coat Factory
Warehouse Corporation, as borrower, the facility guarantors signatory thereto,
JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, Goldman
Sachs Lending Partners LLC, the lenders party thereto, and J.P. Morgan Securities
LLC, Goldman Sachs Lending Partners LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Wells Fargo Securities, LLC, as joint lead arrangers and joint
bookrunners.
Incorporated by
Reference
Filing
Date
September
10, 2013
February
27, 2018
Form
Registration
Statement
on Form S-
1/A
Current
Report on
Form 8-K
Current
Report on
Form 8-K
February
24, 2011
10.1.1 Amendment No. 1, dated May 16, 2012, to the Credit Agreement, dated February 24,
2011, by and among Burlington Coat Factory Warehouse Corporation, the lenders
party thereto, JPMorgan Chase Bank, N.A., as administrative agent and as collateral
agent, and the other parties thereto.
10.1.2 Amendment No. 2, dated February 15, 2013, to the Credit Agreement, dated February
24, 2011, by and among Burlington Coat Factory Warehouse Corporation, the lender
parties thereto, JPMorgan Chase Bank, N.A., as administrative agent and as collateral
agent, and the other parties thereto.
10.1.3 Amendment No. 3, dated May 17, 2013, to the Credit Agreement, dated February 24,
2011, by and among Burlington Coat Factory Warehouse Corporation, the lenders
party thereto, JPMorgan Chase Bank, N.A., as administrative agent and as collateral
agent.
10.1.4 Amendment No. 4, dated August 13, 2014, to the Credit Agreement, dated February
24, 2011, by and among Burlington Coat Factory Warehouse Corporation, the lenders
party thereto, JPMorgan Chase Bank, N.A., as administrative agent and as collateral
agent.
Current
Report on
Form 8-K
Current
Report on
Form 8-K
Current
Report on
Form 8-K
Current
Report on
Form 8-K
May 17,
2012
February
21, 2013
May 22,
2013
August
18, 2014
86
Exhibit
Number
10.1.5 Amendment No. 5, dated July 29, 2016, to the Credit Agreement, dated February 24, 2011,
Exhibit Description
by and among Burlington Coat Factory Warehouse Corporation, the lenders party thereto,
JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent.
10.1.6 Amendment No. 6 to the Credit Agreement, dated November 17, 2017, to the Credit
Agreement, dated February 24, 2011, by and among Burlington Coat Factory Warehouse
Corporation, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative
agent and as collateral agent.
10.1.7 Amendment No. 7 to the Credit Agreement, dated November 2, 2018, to the Credit
Agreement, dated February 24, 2011, by and among Burlington Coat Factor Warehouse
Corporation, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative
agent and as collateral agent.
10.1.8 Amendment No. 8 to the Credit Agreement, dated February 26, 2020, to the Credit
Agreement, dated February 24, 2011, by and among Burlington Coat Factory Warehouse
Corporation, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative
agent and as collateral agent.
10.2
10.2.1
10.2.2
Second Amended and Restated Credit Agreement, dated September 2, 2011, among
Burlington Coat Factory Warehouse Corporation, as lead borrower, the borrowers named
therein and the facility guarantors party thereto, Bank of America, N.A., as administrative
agent and as collateral agent, Wells Fargo Capital Finance, LLC and JPMorgan Chase
Bank, N.A., as co-syndication agents, and Suntrust Bank and U.S. Bank, National
Association, as co-documentation agents, the lenders named therein, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Wells Fargo Capital Finance, LLC, as joint lead
arrangers, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo
Capital Finance, LLC, as joint bookrunners.
First Amendment to Second Amended and Restated Credit Agreement, dated August 13,
2014, by and among Burlington Coat Factory Warehouse Corporation, as lead borrower,
the other borrowers party thereto, the facility guarantors thereto, the lenders party thereto
and Bank of America, N.A., as administrative agent and collateral agent.
Second Amendment to Second Amended and Restated Credit Agreement, dated June 29,
2018, by and among Burlington Coat Factory Warehouse Corporation, as lead borrower,
the other borrowers party thereto, the facility guarantors thereto, the lenders party thereto
and Bank of America, N.A., as administrative agent and collateral agent.
10.2.3 Consent and Technical Modification Agreement, dated December 3, 2018, by and between
Burlington Coat Factory Warehouse Corporation, as lead borrower, and Bank of America,
N.A., as administrative agent
87
Incorporated by
Reference
Filing
Date
July 29,
2016
November
21, 2017
November
8, 2018
March 3,
2020
September
9, 2011
August
18, 2014
July 2,
2018
March 20,
2019
Form
Current
Report
on
Form
8-K
Current
Report
on
Form
8-K
Current
Report
on
Form
8-K
Current
Report
on
Form
8-K
Current
Report
on
Form
8-K
Current
Report
on
Form
8-K
Current
Report
on
Form
8-K
Annual
Report
on
Form
10-K
Exhibit
Number
10.3
Revolving Credit Note, dated April 13, 2006, by the borrowers party thereto in favor
of PNC Bank, National Association.
Exhibit Description
10.4
Revolving Credit Note, dated April 13, 2006, by the borrowers party thereto in favor
of Siemens Financial Services, Inc.
10.5
Amended and Restated Revolving Credit Note, dated January 15, 2010, by the
borrowers party thereto in favor of Wells Fargo Retail Finance, LLC.
10.6
Revolving Credit Note, dated April 13, 2006, by the borrowers party thereto in favor
of National City Business Credit, Inc.
10.7
Revolving Credit Note, dated April 13, 2006, by the borrowers party thereto in favor
of Citizens Bank of Pennsylvania.
10.8
Revolving Credit Note, dated April 13, 2006, by the borrowers party thereto in favor
of HSBC Business Credit (USA), Inc.
10.9
Revolving Credit Note, dated April 13, 2006, by the borrowers party thereto in favor
of Sovereign Bank.
10.10 Amended and Restated Revolving Credit Note, dated January 15, 2010, by the
borrowers party thereto in favor of Capital One Leverage Finance Corp.
10.11
Form of Swingline Note.
10.12 Guaranty, dated April 13, 2006, by the facility guarantors party thereto in favor of
Bank of America, N.A., as administrative Agent and Bank of America, N.A., as
Collateral Agent.
10.13
10.14
10.15
Security Agreement, dated April 13, 2006, by and among each of the borrowers party
thereto, each of the facility guarantors party thereto, and Bank of America, N.A., as
collateral agent.
Intellectual Property Security Agreement, dated April 13, 2006, by and among each of
the borrowers party thereto, each of the facility guarantors party thereto, and Bank of
America, N.A., as collateral agent.
Pledge Agreement, dated April 13, 2006, by and between Burlington Coat Factory
Holdings, Inc., Burlington Coat Factory Investments Holdings, Inc., Burlington Coat
Factory Warehouse Corporation, Burlington Coat Factory Realty Corp., Burlington
Coat Factory Purchasing, Inc., K&T Acquisition Corp., Burlington Coat Factory of
New York, LLC, Burlington Coat Factory Warehouse of Baytown, Inc., Burlington
Coat Factory of Texas, Inc., as the pledgors, and Bank of America, N.A., as collateral
agent.
10.16+ Employment Agreement, dated October 13, 2009, by and between Burlington Coat
Factory Warehouse Corporation and Joyce Manning Magrini.
10.16.1+ Amendment to Employment Agreement, dated February 26, 2010, by and between
Burlington Coat Factory Warehouse Corporation and Joyce Manning Magrini.
10.16.2+ Amendment No. 2 to Employment Agreement, dated October 18, 2012, by and
between Burlington Coat Factory Warehouse Corporation and Joyce Manning
Magrini.
88
Incorporated by
Reference
Filing
Date
October
10, 2006
October
10, 2006
April 30,
2010
October
10, 2006
October
10, 2006
October
10, 2006
October
10, 2006
April 30,
2010
October
10, 2006
October
10, 2006
October
10, 2006
October
10, 2006
October
10, 2006
Form
Registration
Statement
on Form S-
4
Registration
Statement
on Form S-
4
Transition
Report on
Form 10-
K/T
Registration
Statement
on Form S-
4
Registration
Statement
on Form S-
4
Registration
Statement
on Form S-
4
Registration
Statement
on Form S-
4
Transition
Report on
Form 10-
K/T
Registration
Statement
on Form S-
4
Registration
Statement
on Form S-
4
Registration
Statement
on Form S-
4
Registration
Statement
on Form S-
4
Registration
Statement
on Form S-
4
Transition
Report on
Form 10-
K/T
Transition
Report on
Form 10-
K/T
Quarterly
Report on
Form 10-Q
April 30,
2010
April 30,
2010
December
11, 2012
Exhibit
Number
10.17+ Employment Agreement, dated December 2, 2008, by and among Burlington Coat
Exhibit Description
Factory Warehouse Corporation, Burlington Coat Factory Holdings, Inc., and
Thomas Kingsbury.
10.17.1+ Amendment No. 1 to Employment Agreement, dated October 23, 2012, by and
among Burlington Coat Factory Warehouse Corporation, Burlington Coat Factory
Holdings, Inc., and Thomas Kingsbury.
10.17.2+ Amendment No. 2 to Employment Agreement, dated December 8, 2014, by and
among Burlington Coat Factory Warehouse Corporation, Burlington Coat Factory
Holdings, LLC, Burlington Stores, Inc. and Thomas Kingsbury.
10.17.3+ Amendment No. 3 to Employment Agreement, dated May 18, 2015, by and among
Burlington Coat Factory Warehouse Corporation, Burlington Coat Factory
Holdings, LLC, Burlington Stores, Inc. and Thomas Kingsbury.
10.17.4+ Amendment No. 4 to Employment Agreement, dated May 29, 2015, by and among
Burlington Coat Factory Warehouse Corporation, Burlington Coat Factory
Holdings, LLC, Burlington Stores, Inc. and Thomas Kingsbury.
10.17.5+ Amendment No. 5 to Employment Agreement, dated July 7, 2015, by and among
Burlington Coat Factory Warehouse Corporation, Burlington Coat Factory
Holdings, LLC, Burlington Stores, Inc. and Thomas Kingsbury.
10.17.6+ Amendment No. 6 to Employment Agreement, dated January 20, 2017, by and
among Burlington Coat Factory Warehouse Corporation, Burlington Coat Factory
Holdings, LLC, Burlington Stores, Inc. and Thomas Kingsbury.
10.17.7+ Chairman Agreement, dated June 14, 2019, by and between Burlington Stores, Inc.
and Thomas A. Kingsbury.
10.18+ Employment Agreement, dated January 28, 2008, by and between Burlington Coat
Factory Warehouse Corporation and Fred Hand.
10.18.1+ Amendment No. 1 to Employment Agreement, dated October 31, 2012, by and
between Burlington Coat Factory Warehouse Corporation and Fred Hand.
10.19+ Employment Agreement, dated June 26, 2008, by and between Burlington Coat
Factory Warehouse Corporation and Marc Katz.
10.19.1+ Amendment No. 1 to Employment Agreement, dated October 16, 2012, by and
between Burlington Coat Factory Warehouse Corporation and Marc Katz.
10.20+ Amended and Restated Employment Agreement, dated July 28, 2015, by and
among Burlington Coat Factory Warehouse Corporation and Jennifer Vecchio.
Incorporated by
Reference
Filing
Date
April 14,
2009
December
11, 2012
December
9, 2014
August
31, 2015
June 1,
2015
July 7,
2015
January
20, 2017
June 17,
2019
April 15,
2008
September
6, 2013
June 27,
2008
September
6, 2013
August
31, 2015
Form
Quarterly
Report on
Form 10-Q
Quarterly
Report on
Form 10-Q
Current
Report on
Form 8-K
Quarterly
Report on
Form 10-Q
Current
Report on
Form 8-K
Current
Report on
Form 8-K
Current
Report on
Form 8-K
Current
Report on
Form 8-K/A
Quarterly
Report on
Form 10-Q
Registration
Statement on
Form S-1/A
Current
Report on
Form 8-K
Registration
Statement on
Form S-1/A
Quarterly
Report on
Form 10-Q
10.20.1+ Amendment, dated May 19, 2017, to the Amended and Restated Employment
Agreement, dated July 28, 2015, by and among Burlington Coat Factory Warehouse
Corporation and Jennifer Vecchio.
Current
Report on
Form 8-K
May 22,
2017
89
Exhibit
Number
10.21+ Employment Agreement, dated as of April 23, 2019, by and between Burlington
Exhibit Description
Stores, Inc. and Michael O’Sullivan.
10.22+† Employment Agreement, dated as of March 23, 2011, by and between Burlington
Coat Factory Warehouse Corporation and John Crimmins
10.23+ Form of Non-Qualified Stock Option Agreement between Burlington Coat Factory
Holdings, Inc. and Employees with Employment Agreements (for grants made after
March 2009 and prior to 2014 (other than 2013 special one-time grants)) pursuant to
2006 Management Incentive Plan.
10.24+ Form of Non-Qualified Stock Option Agreement between Burlington Coat Factory
Holdings, Inc. and Employees without Employment Agreements (for grants made
after March 2009 and prior to 2014 (other than 2013 special one-time grants))
pursuant to 2006 Management Incentive Plan.
10.25+ Burlington Coat Factory Holdings, Inc. 2006 Management Incentive Plan (Amended
and Restated June 15, 2013).
10.26+ Form of Directors and Officers Indemnification Agreement.
10.27+ Burlington Stores, Inc. 2013 Omnibus Incentive Plan,
as amended and restated May 17, 2017.
10.28+ Form of Non-Qualified Stock Option Agreement, pursuant to Burlington Holdings,
Inc. 2006 Management Incentive Plan (Amended and Restated June 15, 2013),
between Burlington Holdings, Inc. and Employees with Employment Agreements (for
2013 special one-time grants).
10.29+ Form of Non-Qualified Stock Option Agreement, pursuant to Burlington Holdings,
Inc. 2006 Management Incentive Plan (Amended and Restated June 15, 2013),
between Burlington Holdings, Inc. and Employees without Employment Agreements
(for 2013 special one-time grants).
10.30+ Form of Non-Qualified Stock Option Agreement, pursuant to Burlington Holdings,
Inc. 2006 Management Incentive Plan (Amended and Restated June 15, 2013), dated
June 17, 2013, between Burlington Holdings, Inc. and Thomas A. Kingsbury (for
2013 special one-time grant).
10.31+ Restricted Stock Grant Agreement between Burlington Stores, Inc. and Thomas
Kingsbury, dated December 15, 2014 (for grants made after 2014 and before May
2019).
10.32+ Form of Non-Qualified Stock Option Agreement between Burlington Stores, Inc. and
Employees with Employment Agreements pursuant to Burlington Holdings, Inc. 2006
Management Incentive Plan (Amended and Restated June 15, 2013) (for grants made
from and after December 2015 and prior to November 2016).
90
Incorporated by
Reference
Filing
Date
April 23,
2019
April 30,
2009
April 30,
2009
Form
Current
Report on
Form 8-K
Current
Report on
Form 8-K
Current
Report on
Form 8-K
Registration
Statement
on Form S-
1/A
Registration
Statement
on Form S-
1/A
Current
Report on
Form 8-K
Registration
Statement
on Form S-
1/A
Registration
Statement
on Form S-
1/A
Registration
Statement
on Form S-
1/A
Annual
Report on
Form 10-K
Annual
Report on
Form 10-K
September
6, 2013
September
10, 2013
May 22,
2017
September
6, 2013
September
6, 2013
September
6, 2013
March 25,
2015
March 15,
2016
Exhibit
Number
10.33+ Form of Non-Qualified Stock Option Agreement between Burlington Stores, Inc. and
Exhibit Description
Employees without Employment Agreements pursuant to Burlington Holdings, Inc. 2006
Management Incentive Plan (Amended and Restated June 15, 2013) (for grants made
from and after December 2015 and prior to November 2016).
10.34+ Form of Restricted Stock Grant Agreement between Burlington Stores, Inc. and
Employees with Employment Agreements pursuant to Burlington Holdings, Inc. 2006
Management Incentive Plan (Amended and Restated June 15, 2013) (for grants made
from and after December 2015 and prior to November 2016).
10.35+ Form of Restricted Stock Grant Agreement between Burlington Stores, Inc. and
Employees without Employment Agreements pursuant to Burlington Holdings, Inc. 2006
Management Incentive Plan (Amended and Restated June 15, 2013) (for grants made
from and after December 2015 and prior to November 2016).
10.36+ Form of Non-Qualified Stock Option Agreement between Burlington Stores, Inc. and
Employees with Employment Agreements pursuant to Burlington Stores, Inc. 2013
Omnibus Incentive Plan, as amended and restated May 17, 2017 (for grants made from
and after November 2016 and prior to May 2017).
Incorporated by
Reference
Filing
Date
March 15,
2016
March 15,
2016
March 15,
2016
November
23, 2016
Form
Annual
Report
on Form
10-K
Annual
Report
on Form
10-K
Annual
Report
on Form
10-K
Quarterly
Report
on Form
10-Q
10.37+ Form of Non-Qualified Stock Option Agreement between Burlington Stores, Inc. and
Employees without Employment Agreements pursuant to Burlington Stores, Inc. 2013
Omnibus Incentive Plan, as amended and restated May 17, 2017 (for grants made from
and after November 2016 and prior to May 2017).
Quarterly
Report
on Form
10-Q
November
23, 2016
10.38+ Form of Restricted Stock Grant Agreement between Burlington Stores, Inc. and
Employees with Employment Agreements pursuant to Burlington Stores, Inc. 2013
Omnibus Incentive Plan, as amended and restated May 17, 2017 (for grants made from
and after November 2016 and prior to May 2017).
10.39+ Form of Restricted Stock Grant Agreement between Burlington Stores, Inc. and
Employees without Employment Agreements pursuant to Burlington Stores, Inc. 2013
Omnibus Incentive Plan, as amended and restated May 17, 2017 (for grants made from
and after November 2016 and prior to May 2017).
10.40+ Burlington Stores, Inc. Executive Severance Plan
10.41+ Form of Non-Qualified Stock Option Agreement between Burlington Stores, Inc. and
Employees with Employment Agreements or Subject to the Executive Severance Plan
pursuant to Burlington Stores, Inc. 2013 Omnibus Incentive Plan, as amended and
restated May 17, 2017 (for grants made from and after May 2017 and prior to May
2019).
November
23, 2016
November
23, 2016
May 22,
2017
May 22,
2017
Quarterly
Report
on Form
10-Q
Quarterly
Report
on Form
10-Q
Current
Report
on Form
8-K
Current
Report
on Form
8-K
10.42+ Form of Non-Qualified Stock Option Agreement between Burlington Stores, Inc. and
Employees without Employment Agreements pursuant to Burlington Stores, Inc. 2013
Omnibus Incentive Plan, as amended and restated May 17, 2017 (for grants made from
and after May 2017 and prior to May 2019).
Current
Report
on Form
8-K
May 22,
2017
91
Exhibit
Number
10.43+ Form of Restricted Stock Grant Agreement between Burlington Stores, Inc. and Employees
Exhibit Description
with Employment Agreements or Subject to the Executive Severance Plan pursuant to
Burlington Stores, Inc. 2013 Omnibus Incentive Plan, as amended and restated May 17,
2017 (for grants made from and after May 2017 and prior to May 2019).
Incorporated
by Reference
Filing
Date
May
22,
2017
Form
Current
Report
on Form
8-K
10.44+ Form of Restricted Stock Grant Agreement between Burlington Stores, Inc. and Employees
without Employment Agreements pursuant to Burlington Stores, Inc. 2013 Omnibus
Incentive Plan, as amended and restated May 17, 2017 (for grants made from and after May
2017 and prior to May 2019).
Current
Report
on Form
8-K
May
22,
2017
10.45+ Form of Restricted Stock Grant Agreement between Burlington Stores, Inc. and Independent
Directors pursuant to Burlington Stores, Inc. 2013 Omnibus Incentive Plan, as amended and
restated May 17, 2017 (for grants made from and after May 2017 and prior to March 2018).
10.46+ Form of Performance-Based Restricted Stock Unit Award Notice and Agreement between
Burlington Stores, Inc. and award recipients pursuant to the Burlington Stores, Inc. 2013
Omnibus Incentive Plan, as amended and restated May 17, 2017 (for grants made from and
after May 1, 2019).
10.47+ Form of Restricted Stock Unit Award Notice and Agreement between Burlington Stores,
Inc. and award recipients pursuant to the Burlington Stores, Inc. 2013 Omnibus Incentive
Plan, as amended and restated May 17, 2017 (for grants made from and after May 2019).
10.48+ Form of Stock Option Award Notice and Agreement between Burlington Stores, Inc. and
award recipients pursuant to the Burlington Stores, Inc. 2013 Omnibus Incentive Plan, as
amended and restated May 17, 2017 (for grants made from and after May 2019).
10.49+ Form of Performance-Based Restricted Stock Unit Award Notice and Agreement between
Burlington Stores, Inc. and Thomas A. Kingsbury pursuant to the Burlington Stores, Inc.
2013 Omnibus Incentive Plan, as amended and restated May 17, 2017 (for grants made from
and after May 2019).
10.50+ Form of Restricted Stock Unit Award Notice and Agreement between Burlington Stores,
Inc. and Thomas A. Kingsbury pursuant to the Burlington Stores, Inc. 2013 Omnibus
Incentive Plan, as amended and restated May 17, 2017 (for grants made from and after May
2019).
10.51+ Form of Stock Option Award Notice and Agreement between Burlington Stores, Inc. and
Thomas A. Kingsbury pursuant to the Burlington Stores, Inc. 2013 Omnibus Incentive Plan,
as amended and restated May 17, 2017 (for grants made from and after May 2019).
10.52+ Form of Restricted Stock Unit Award Notice and Agreement between Burlington Stores,
Inc. and Non-Employee Directors pursuant to the Burlington Stores, Inc. 2013 Omnibus
Incentive Plan, as amended and restated May 17, 2017 (for grants made from and after May
2019).
List of Subsidiaries of Burlington Stores, Inc.
21.1†
92
Current
Report
on Form
8-K
May
22,
2017
Quarterly
Report
on Form
10-Q
Quarterly
Report
on Form
10-Q
Quarterly
Report
on Form
10-Q
Quarterly
Report
on Form
10-Q
Quarterly
Report
on Form
10-Q
Quarterly
Report
on Form
10-Q
Quarterly
Report
on Form
10-Q
June 3,
2019
June 3,
2019
June 3,
2019
June 3,
2019
June 3,
2019
June 3,
2019
August
29,
2019
Incorporated by Reference
Form
Filing Date
Exhibit
Number
23.1†
31.1†
31.2†
32.1†
32.2†
Exhibit Description
Consent of Deloitte & Touche LLP.
Certification of Principal Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Principal Financial Officer required by Rule 13a-
14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Principal Executive Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
101.INS† Inline XBRL Instance Document – the instance document does
not appear in Interactive Data File, because its XBRL tags are
embedded within the Inline XBRL document.
101.SCH† Inline XBRL Taxonomy Extension Schema Document
101.CAL† Inline Taxonomy Extension Calculation Linkbase Document
101.DEF† Inline XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB† Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE† Inline XBRL Taxonomy Extension Presentation Linkbase
104†
Document
Cover Page Interactive Data File (formatted as inline XBRL and
contained in Exhibit 101)
+
†
Indicates management contract or compensatory plan or arrangement.
Filed or furnished herewith.
Item 16.
Form 10-K Summary
None.
93
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BURLINGTON STORES, INC.
By:
/s/ Michael O’Sullivan
Michael O’Sullivan
Chief Executive Officer
Date: March 13, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 13th day of March 2020.
Signature
Title
/s/ Michael O’Sullivan
Michael O’Sullivan
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ John Crimmins
John Crimmins
/s/ Ted English
Ted English
/s/ Jordan Hitch
Jordan Hitch
/s/ John Mahoney
John Mahoney
/s/ William McNamara
William McNamara
/s/ Jessica Rodriguez
Jessica Rodriguez
/s/ Laura J. Sen
Laura J. Sen
/s/ Paul Sullivan
Paul Sullivan
/s/ Mary Ann Tocio
Mary Ann Tocio
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
94
Exhibit 4.1
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Burlington Stores, Inc. (“Burlington” or the “Company”) has one class of securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended: our Common Stock, par value $0.0001 per share (the “Common Stock”).
The following description of our Common Stock is a summary of certain key terms and does not purport to be complete. It is
subject to and qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation (the “Certificate of
Incorporation”) and our Amended and Restated Bylaws (the “Bylaws”), each of which is incorporated by reference as an exhibit
to the Annual Report on Form 10-K of which this Exhibit 4.1 is a part.
General
Under our Certificate of Incorporation, Burlington is authorized to issue up to 500,000,000 shares of our Common Stock and up
to 50,000,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”). The outstanding shares of our
Common Stock are fully paid and non-assessable.
Description Of Common Stock
No Preemptive, Redemption or Conversion Rights
Our Common Stock is not redeemable, is not subject to sinking fund provisions, does not have any conversion rights and is not
subject to call. Holders of shares of Common Stock do not have preemptive rights to acquire newly issued shares.
Voting Rights
We have one class of stock outstanding, our Common Stock, all holders of which have one vote per share in all elections of directors and on all
other matters submitted to a vote of stockholders of Burlington. Holders of shares of Common Stock do not have cumulative voting rights.
Directors elected at a meeting of stockholders are elected by the vote of the majority of the votes cast by shares present in person or represented
by proxy at the meeting and entitled to vote thereon, provided that in any contested election of directors the directors shall be elected by a
plurality of the shares present in person or represented by proxy and entitled to vote thereon. All other matters submitted to a vote of
stockholders are decided by the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the
meeting and entitled to vote thereon, unless the matter is one upon which a different vote is required by express provision of law, our Certificate
of Incorporation or our Bylaws.
Board of Directors
Subject to any rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances,
our Board is divided into three classes as nearly equal in size as is practicable. Each of the three classes of directors serves a
staggered three-year term.
Dividend Rights
Subject to the rights of the holders of any series of Preferred Stock and other provisions of the Certificate of Incorporation,
holders of Common Stock are entitled to receive equally, on a per share basis, dividends and other distributions in cash, securities
or other property of the Company, if any, as and when declared by our Board of Directors from time to time out of assets or funds
of the Company legally available therefor.
Liquidation, Dissolution or Similar Rights
Upon liquidation, dissolution or winding up of the affairs of Burlington, after payment of the Company’s debts and subject
to the rights of the holders of shares of any series of Preferred Stock upon such dissolution, liquidation or winding up, the
remaining net assets of the Company would be distributed among holders of shares of Common Stock equally on a per
share basis.
Preferred Stock
Under our Certificate of Incorporation, without further stockholder action, our Board of Directors is authorized to provide for
the issuance of all or any of the shares of Preferred Stock in one or more series, to establish the number of shares to be included
in each such series, and to fix the voting powers (full, limited or no voting powers), designations, powers, preferences, and
relative, participating, optional or other rights, if any, and any qualifications, limitations or restrictions thereof. The rights of
the holders of our Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock that we may designate and issue in the future.
Anti-Takeover Effects of Provisions of our Certificate of Incorporation and Bylaws
Our Certificate of Incorporation and Bylaws contain provisions that, in addition to being applicable in other contexts, could
delay or discourage some transactions involving an actual or potential change in control of Burlington or its management. For
example, our Certificate of Incorporation and Bylaws contain certain anti-takeover provisions, which:
•
•
authorize the issuance of Preferred Stock as described above;
prohibit stockholder action by written consent, requiring all stockholder actions be taken at a meeting of our
stockholders;
•
•
•
•
•
•
establish advance notice requirements for nominations for elections to our Board of Directors or for proposing
matters that can be acted upon by stockholders at stockholder meetings;
establish a classified Board of Directors as described above;
limit the ability of stockholders to remove directors only for cause and only upon the affirmative vote of at least
75% of the outstanding shares of our Common Stock;
prohibit stockholders from calling special meetings of stockholders;
provide that the Board of Directors is expressly authorized to alter or repeal our Bylaws; and
require the approval of holders of at least 75% of the outstanding shares of our Common Stock to amend the
Bylaws and certain provisions of the Certificate of Incorporation.
EMPLOYMENT AGREEMENT
Exhibit 10.22
Burlington Coat Factory Warehouse Corporation, a Delaware corporation (the “Company”), and John Crimmins (“Executive”).
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made as of March 23, 2011, by and between
willing to accept employment with the Company, on the terms and conditions set forth herein; and
WHEREAS, the Company desires to employ Executive during the Employment Period, and Executive is
Agreement.
WHEREAS, the agreements of Executive in Sections 5, 6 and 7 are material inducements to enter into this
receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
In consideration of the mutual covenants contained herein and other good and valuable consideration, the
1.
Definitions. In this Agreement:
“Base Salary” has the meaning given to that term in Section 3(a).
“Board” means the Board of Directors of the Company.
“Cause” means Executive (i) is convicted of a felony or other crime involving dishonesty towards the
Company or any of its Subsidiaries or material misuse of property of the Company or any of its Subsidiaries; (ii) engages in
willful misconduct or fraud with respect to the Company or any of its Subsidiaries or any of their customers or suppliers or an
intentional act of dishonesty or disloyalty in the course of Executive’s employment; (iii) refuses to perform Executive’s material
obligations under this Agreement (except in connection with a Disability) as reasonably directed by the Board or the Company’s
chief executive officer, which failure is not cured within 15 days after written notice thereof to Executive; (iv) misappropriates
one or more of the Company’s or any of its Subsidiaries material assets or business opportunities; or (v) breaches Sections 5, 6 or
7 hereof which breach, if capable of being cured, is not cured within 10 days of written notice thereof has been delivered to
Executive. The Company may allow Executive an extension of time to cure a breach if the Board, in its sole discretion,
determines that such extension is appropriate under the circumstances.
includes all predecessor entities.
“Company” has the meaning set forth in the preamble above; together with its Subsidiaries and affiliates and
“Confidential Information” has the meaning given to that term in Section 5(a).
“Court” has the meaning given to that term in Section 8(b).
Executive’s position with the Company and its Subsidiaries for
“Disability” means Executive’s inability to perform the essential duties, responsibilities and functions of
any period totaling two hundred and seventy (270) days in any consecutive twelve (12) month period as a result of any mental or
physical disability or incapacity, as determined under the definition of disability in the Company’s long-term disability plan so as
to qualify Executive for benefits under the terms of that plan or as determined by an independent physician to the extent no such
plan is then in effect. Executive shall cooperate in all respects with the Company if a question arises as to whether Executive has
become disabled (including, without limitation, submitting to an examination by a medical doctor or other health care specialists
selected by the Company and authorizing such medical doctor or such other health care specialist to discuss Executive’s
condition with the Company).
ending on the Expiration Date or such earlier date as contemplated in the proviso to Section 4(a).
“Employment Period” means the period commencing on ____________ (the “Commencement Date”) and
“Expiration Date” means the first anniversary of the Commencement Date; provided, that if a written notice
is not given by the Company at least ninety (90) days prior to such anniversary (or any subsequent anniversary if this Agreement
is extended) stating that such party is electing not to extend the Employment Period, then the Expiration Date will automatically
be extended to the next anniversary of the date hereof.
“Expiration Year” means the calendar year in which the Employment Period expires.
“Good Reason” means the occurrence of any of the following events without the written consent of
Executive: (i) a material diminution of Executive’s duties or the assignment to Executive of duties that are inconsistent in any
substantial respect with the position, authority or responsibilities associated with Executive’s position as set forth pursuant to
Section 2(b), other than any such authorities, duties or responsibilities assigned at any time which are by their nature, or which
are identified at the time of assignment, as being temporary or short-term; (ii) the Company’s requiring Executive to be based at a
location which is fifty (50) or more miles from Executive’s principal office location on the Commencement Date; or (iii) a
material breach by the Company of its obligations pursuant to this Agreement (including, without limitation, its obligations
pursuant to Section 3) (which such breach goes uncured after notice and a reasonable opportunity to cure) ; provided, however,
no condition enumerated in the preceding shall be deemed to be “Good Reason” unless within thirty (30) days of the initial
existence of such condition, Executive shall have given the Company written notice thereof specifically describing the condition
giving rise to “Good Reason” and allowing the Company a period of at least thirty (30) days from the date of receipt of the notice
to remedy such condition. Notwithstanding the foregoing, in no event will a condition give rise to “Good Reason” hereunder
unless within ten (10) days after the expiration of the period provided in the Executive’s notice for the Company to remedy said
condition but in no event later than one hundred and twenty (120) days initial existence of said condition, Executive shall have
actually terminated his employment with the Company by giving written notice of resignation for failure of the Company to
remedy such condition.
“Termination Year” means the calendar year in which the Employment Period is terminated.
2
“Subsidiaries” means any corporation or other entity of which the securities or other ownership interests
having the voting power to elect a majority of the board of directors or other governing body are, at the time of determination,
owned by the Company, directly or through one of more Subsidiaries.
“Work Product” has the meaning given to that term in Section 6.
2.
Employment, Position and Duties.
the Company, upon the terms and conditions set forth in this Agreement for the Employment Period.
(a)
The Company shall employ Executive and Executive hereby accepts employment with
(b)
During the Employment Period, Executive shall serve as Senior Vice President of the
Company and shall perform the normal duties, responsibilities and functions of an executive officer with similar role of a
company of a similar size and type and shall have such power and authority as shall reasonably be required to enable Executive
to perform Executive’s duties hereunder, subject to the power and authority of the Board to expand or limit such duties,
responsibilities, functions, power and authority and to overrule actions of officers of the Company in a manner consistent with the
traditional responsibilities of such office; provided, however, that Executive shall be appointed as the Company’s Senior Vice
President and Chief Accounting Officer on or before the date on which the Company’s Quarterly Report on Form 10-Q for the
fiscal quarter ended April 30, 2011 is filed with the United States Securities and Exchange Commission (the “SEC”) but no
earlier than the business day following the date on which the Company’s Annual Report on Form 10-K for the fiscal year ended
January 29, 2011 is filed with the SEC.
(c)
During the Employment Period, Executive shall (i) render such administrative, financial
and other executive and managerial services to the Company and its Subsidiaries which are consistent with Executive’s position
as the Board may from time to time direct, (ii) report to the Company’s Chief Financial Officer or such other person designated
by the Company’s chief executive officer from time to time and shall devote Executive’s best efforts and Executive’s full
business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of the Company and its Subsidiaries and (iii) submit to the Board all business, commercial and investment
opportunities presented to Executive or of which Executive becomes aware which relate to the business of the Company and its
Subsidiaries, and unless approved by the Board in writing, Executive shall not pursue, directly or indirectly, any such
opportunities on Executive’s own behalf. Executive shall perform Executive’s duties, responsibilities and functions to the
Company and its Subsidiaries hereunder to the best of Executive’s abilities in a diligent, trustworthy and professional manner.
3.
Compensation and Benefits.
During the Employment Period, Executive’s base salary shall be a minimum of Three
Hundred and Twenty-Five Thousand Dollars ($325,000.00) per annum (as increased or decreased in accordance with this
Agreement from time to time, the “Base Salary”),
(a)
3
which salary shall be payable by the Company in regular installments in accordance with the Company’s general payroll practices
(in effect from time to time). Executive’s Base Salary will be subject to annual review and increase or decrease (but shall not be
decreased below the Base Salary in effect on the date of this Agreement) by the Board during the Employment Period.
(b)
Executive shall be entitled to participate in the Company’s Management Bonus Plan
applicable to employees of comparable level with Executive as approved by the Board or a committee thereof, as in effect from
time to time, with a target annual bonus of fifty percent (50%) of Executive’s Base Salary (“Target Bonus”); provided, however,
that for the Executive’s initial year of employment, the bonus payable to Executive will be prorated based on the number of days
between the Commencement Date and the end of the bonus calculation period within which the Commencement Date occurred,
divided by the total number of days in the bonus calculation period..
The Board, or a committee or appointee thereof, during the term of this Agreement, shall
review annually, or at more frequent intervals which the Board determines is appropriate, Executive’s compensation and may
award Executive compensation as the Board deems appropriate in its sole discretion; provided, however, that Executive’s base
salary shall not be reduced pursuant to any such review or otherwise.
(c)
(d)
Executive shall be entitled to the number of paid vacation and other paid time off in each
calendar year in accordance with the Company’s policies applicable to employees of comparable level, which if not taken in any
year may not be carried forward to any subsequent calendar year and no compensation shall be payable in lieu thereof. Such
vacation will accrue as of January 1 of each year, except that if Executive’s employment commences after January 31 of any
calendar year, Executive shall accrue the total number of paid time off days available for a calendar year pro rated for the number
of full calendar months remaining in the calendar year in which the Employment Period commences, divided by 12.
(e)
During the Employment Period, the Company shall reimburse Executive for all
reasonable business expenses incurred by Executive in the course of performing Executive’s duties, responsibilities and functions
under this Agreement which are consistent with the Company’s policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company’s requirements with respect to reporting and documentation
of such expenses.
(f)
Executive shall be entitled to participate, on the same basis as other executives of
comparable level in the Company, in any compensation, bonus, incentive, award, deferred compensation, pension, retirement,
stock award, stock option or other benefit, plan or arrangement of the Company (including, without limitation, any plan
sponsored by the entity owning or controlling the Company, or any affiliate of such entity) now existing or hereafter adopted, all
upon terms at least as favorable as those enjoyed by other salaried employees of comparable level of the Company; provided,
however, the Company may restrict or exclude Executive’s participation in any such plan, or the benefits thereunder, on such
terms and conditions as the Company shall in its sole discretion determine, if at any time Executive shall be working fewer than
five days a week or on other part-time basis during regular business days. Executive also shall be entitled to hospital, health,
disability, medical and life insurance, and any
4
other benefits enjoyed, from time to time, by other salaried employees of the Company of comparable level, all upon terms as
favorable as those enjoyed by other salaried employees of comparable level of the Company. Notwithstanding anything in this
Section 3(f) to the contrary, if the Company adopts any change in the benefits provided for other salaried employees of the
Company of comparable level, and such policy is uniformly applied to all such employees of the Company (and any successor or
acquirer of the Company, if any), then no such change shall be deemed a breach by the Company of this Section 3(f).
Executive shall be entitled to participate in the Company automobile program in effect
from time to time on the same terms as made available to employees of comparable level. Currently, such program provides for a
car allowance for executive of $1,500.00 per month.
(g)
Executive will be indemnified and defended for acts performed (or omissions made) in
Executive’s capacity as an officer or director of the Company to the fullest extent specified in the Company’s certificate of
incorporation and bylaws and as permitted under Delaware law.
(h)
(i)
For the period from the Commencement Date to the earlier of (x) three (3) months after
the Commencement Date and (y) the time Executive sells his current residence in Reading, Massachusetts (the “Current Home”)
and relocates to a non-temporary residence within reasonable commuting distance from the Company’s principal offices in
Burlington, New Jersey (the “New Home”), the Company will reimburse to the Executive, reasonable housing accommodations
for Executive and his family (not to exceed $3,000.00 per month) (the “Housing Allowance”). Executive acknowledges that he
will be solely responsible for the excess of the amount of Executive’s actual cost of housing accommodations over $3,000.00 per
month. The Company shall also reimburse Executive for any applicable federal and state income taxes paid by Executive
resulting from the inclusion in his taxable income of the Housing Allowance, payable in accordance with the Company’s general
payroll practices and based on the highest applicable marginal state and federal income tax rates. The Company shall also
reimburse Executive for any applicable federal and state employment taxes paid by Executive resulting from the inclusion in his
taxable wages of the Housing Allowance, payable in accordance with the Company’s general payroll practices. Executive agrees
to provide to the Company documentation showing that the reimbursed amounts are taxable at such rates for the year in
question. The obligation of the Company to provide reimbursement for Executive’s federal tax liability will be adjusted to take
into account the federal tax benefit, if any, of state income taxes applicable to the inclusion in taxable income of the amount of
such amounts paid or reimbursed, regardless of
is realized by
the year
Executive. Notwithstanding the preceding or anything herein to the contrary, it is understood and agreed that the gross up of
taxes hereunder shall only apply to reimburse Executive for taxes assessed or levied upon the Housing Allowance on a one-time
basis and shall not apply to any tax assessed or levied against such reimbursement of taxes. In addition to the preceding, in the
event that Executive sells his Current Home and relocates to the New Home within one (1) year of the Commencement Date, the
Company shall pay Executive a relocation allowance of One Hundred Fifty Thousand Dollars ($150,000.00) (“Relocation
Allowance”). Such relocation allowance shall be subject to tax, shall not be grossed up for tax purposes and shall be in lieu of
any other payment or reimbursement for the costs of relocation by Executive from his Current Home
in which such federal
tax benefit
5
including, without limitation, moving expenses, temporary housing expense, travel, loss on sale of current home, financing on
purchase of new home, brokerage commissions, attorneys fees, title, insurance, income and employment tax and any other
expense.
The Company will pay Executive a sign-on bonus of Fifty Thousand Dollars ($50,000.00), payable on the payroll date
first occurring after seven (7) days after the Commencement Date. The sign-on bonus shall be subject to applicable withholding
taxes and payroll deductions.
(j)
Notwithstanding anything herein to the contrary, in the event Executive’s employment
with the Company is terminated either voluntarily by Executive (other than for Good Reason) or for Cause by the Company
within eighteen (18) months after the respective dates on which Executive receives payment under Section 3(i) above, Executive
shall immediately repay to the Company all amounts paid to Executive or on Executive’s behalf by the Company or reimbursed
to Executive by the Company pursuant to said Section 3(i).
4.
Termination and Payment Terms.
(a)
The Employment Period shall end on the Expiration Date; provided, that (i) the
Employment Period shall terminate prior to such date immediately upon Executive’s resignation, death or Disability and (ii) the
Employment Period may be terminated by resolution of the Board, with or without Cause at any time prior to such date. Except
as otherwise provided herein, any termination of the Employment Period by the Company shall be effective as specified in a
written notice from the Company to Executive.
Date:
(b)
If the Employment Period is terminated by the Company on or prior to the Expiration
(i)
(A) by resolution of the Board (other than for Cause) or by Executive resigning
for Good Reason or (B) if the Employment Period expires on the Expiration Date, Executive shall be entitled to receive (1) all
previously earned and accrued but unpaid Base Salary and vacation and unpaid business expenses up to the date of such
termination or the Expiration Date, as applicable, (2) any unpaid bonus earned by Executive for the fiscal year prior to the
Termination Year or the Expiration Year, as applicable, but then unpaid, and any other amounts owed under Section 3(i), (3) the
pro rata portion of Executive’s Target Bonus (pursuant to Section 3(b) hereof) during the Termination Year or the Expiration
Year, as applicable, to the extent targets thereunder are achieved for such year, after such termination or expiration, pro rated
based on the number of days of the Termination Year or the Expiration Year, as applicable, prior to the date of termination or the
Expiration Date, as applicable, which payment shall be made when the bonus payments for such Termination Year or the
Expiration Year, as applicable, are otherwise due; (4) severance pay in the full amount of Base Salary at the time of termination
or expiration from the date of termination or the Expiration Date, as applicable, through the period ending on the first anniversary
of the date of termination or the Expiration Date, as applicable and (5) full continuation of Executive’s medical insurance benefits
during the one year severance period (but only to the extent such medical insurance benefit (i) was previously
6
elected by Executive and in effect immediately prior to the date of termination of the Employment Period or Expiration Date, as
applicable, and (ii) can be provided by Company under the Company’s medical insurance plan during the one year severance
period (to the extent any of those benefits cannot be provided by the Company during the one year severance period, the
Company will provide Executive with a sum of money calculated to permit Executive to obtain the same benefits individually,
grossed up for tax purposes so that Executive remains whole)); provided, however, that, if after the date of termination of the
Employment Period or Expiration Date, as applicable, and during the period when Executive is receiving continuation payments
under clause (4) above or medical insurance benefits under clause (5) above, Executive shall receive compensation from any
source for services provided by Executive which are substantially similar to services provided by Executive under this
Agreement or accepts employment with a third party, (x) Executive shall give notice to the Company immediately upon entering
into any such arrangement or employment together with the full details thereof, (y) the amounts payable to Executive pursuant to
clause (4) shall be reduced by the amount of any compensation received by Executive from such third party or new employer in
respect of any services to be provided by Executive to such third party or new employer during the period prior to the first
anniversary of the date of termination of the Employment Period or the Expiration Date, as applicable, and (z) the medical
insurance benefits provided pursuant to clause (5) shall immediately cease on the earlier of (i) the date Executive is first entitled
to receive medical insurance benefits from Executive’s new employer (such date to be promptly reported to the Company), or (ii)
the first anniversary of the date of termination or the Expiration Date, as applicable.
for any other reason, including as a result of Executive’s death, Disability,
voluntary resignation for other than Good Reason or by resolution of the Board for Cause, Executive’s sole entitlement shall be to
receive all previously earned and accrued but unpaid Base Salary, vacation and unpaid business expenses up to the date of such
termination or expiration and Executive shall not be entitled to any further Base Salary, bonus payments or benefits for that year
or any future year, except as required by law, or to any other severance compensation of any kind.
(ii)
(c)
Executive agrees that: (i) Executive shall be entitled to the payments and services
provided for in Sections 4(b)(i)(3), 4(b)(i)(4), and 4(b)(i)(5), if any, if and only if Executive has executed and delivered the
Release attached as Exhibit A and seven (7) days have elapsed since such execution without any revocation thereof by Executive
and Executive has not breached as of the date of termination of the Employment Period the provisions of Sections 5, 6 and 7
hereof and does not breach such sections or such covenants at any time during the period for which such payments or services are
to be made; and (ii) the Company’s obligation to make such payments and services will terminate upon the occurrence of any
such breach during such period.
(d)
Except as stated above, any payments pursuant to Section 4(b) shall be paid by the
Company in regular installments in accordance with the Company’s general payroll practices, and following such payments the
Company shall have no further obligation to Executive pursuant to this Section 4 except as provided by law. All amounts payable
to Executive as compensation hereunder shall be subject to all customary withholding, payroll and other taxes. The Company
shall be entitled to deduct or withhold from any amounts payable to
7
Executive any federal, state, local or foreign withholding taxes, excise tax, or employment taxes imposed with respect to
Executive’s compensation or other payments or Executive’s ownership interest in the Company (including, without limitation,
wages, bonuses, dividends, the receipt or exercise of equity options and/or the receipt or vesting of restricted equity).
Executive hereby agrees that except as expressly provided herein, no severance
compensation of any kind, nature or amount shall be payable to Executive and except as expressly provided herein, Executive
hereby irrevocably waives any claim for severance compensation.
(e)
to Sections 3(c), 3(d), 3(e), 3(f), 3(g), and 3(i) shall cease upon the termination of the Employment Period.
(f)
Except as provided in Sections 4(b)(i) and (b)(ii) above, all of Executive’s rights pursuant
(g)
Notwithstanding anything herein to the contrary, if, at the time any payment is payable to
Executive pursuant to the provisions of Section 4(b)(i) above as a result of Executive’s “separation from service” (within the
meaning of Section 409A of the Internal revenue Code of 1986, as amended (the “Code”) and the regulations promulgated
thereunder, the Company or any company in the affiliate group in which the Company’s financial statements are consolidated in
accordance with generally accepted accounting principles has a class of equity securities traded on an established domestic or
foreign securities market or otherwise including, without limitation, trading on an American exchange only as American
Depositary receipts (“ADR’S”) and Executive is designated a “specified person” (as such term is defined in Section 409A of the
Code and the regulations promulgated thereunder) on a list prepared by the Company periodically pursuant to Section 409A of
the Code and the regulations promulgated thereunder, then during the six month period from and after the date of Executive’s
“separation from service” the amount payable to Executive pursuant to the provisions of Section 4(b)(i) of the Employment
Agreement shall not exceed the lesser of (x) two times Executive’s annual base compensation or (y) two times the amount
determined pursuant to Section 401(a)(17) of the Code, and any excess amount which accrues to Executive during such period
shall be withheld during such period and paid to Executive in a lump sum upon the expiration of six months after the date of
“separation from service” (or , if earlier than the end of such six month period, upon Executive’s death). Any further amounts
payable to Executive pursuant to Section 4(b) (i) thereafter accruing shall be paid on their scheduled payment dates.
5.
Confidential Information.
(a)
Executive acknowledges and agrees that the information, observations and data
(including trade secrets) obtained by Executive while employed by the Company and its Subsidiaries concerning the business or
affairs of the Company and its Subsidiaries are the confidential information (“Confidential Information”), and the property, of the
Company and/or its Subsidiaries. Without limiting the foregoing, the term “Confidential Information” shall be interpreted as
broadly as possible to include all observations, data and other information of any sort that are (i) related to any past, current or
potential business of the Company or any of its Subsidiaries or any of their respective predecessors, and any other business
related to any of the foregoing, and (ii) not generally known to and available for use by
8
those within the line of business or industry of the Company or by the public (except to the extent such information has become
generally known to and available for use by the public as a direct or indirect result of Executive’s acts or omissions) including all
(A) Work Product (as defined below); (B) information concerning development, acquisition or investment opportunities in or
reasonably related to the business or industry of the Company or any of its Subsidiaries of which Executive is aware or becomes
aware during the term of his employment; (C) information identifying or otherwise concerning any current, former or prospective
suppliers, distributors, contractors, agents or customers of the Company or any of its Subsidiaries; (D) development, transition,
integration and transformation plans, methodologies, processes and methods of doing business; (E) strategic, marketing,
promotional and financial information (including all financial statements), business and expansion plans, including plans and
information regarding planned, projected and/or potential sales, pricing, discount and cost information; (F) information
identifying or otherwise concerning employees, independent contractors and consultants; (G) information on new and existing
programs and services, prices, terms, and related information; (H) the terms of this Agreement; (I) all information marked, or
otherwise designated, as confidential by the Company or any of its Subsidiaries or which Executive should reasonably know is
confidential or proprietary information of the Company or any of its Subsidiaries; (J) all information or materials similar or
related to any of the foregoing, in whatever form or medium, whether now existing or arising hereafter (and regardless of whether
merely stored in the mind of Executive or employees or consultants of the Company or any of its Subsidiaries, or embodied in a
tangible form or medium); and (K) all tangible embodiments of any of the foregoing.
(b)
Therefore, Executive agrees that, except as required by law or court order, including,
without limitation, depositions, interrogatories, court testimony, and the like (and in such case provided that Executive must give
the Company and/or its Subsidiaries, as applicable, prompt written notice of any such legal requirement, disclose no more
information than is so required and seek, at the Company’s sole cost and expense, confidential treatment where available and
cooperate fully with all efforts by the Company and/or its Subsidiaries to obtain a protective order or similar confidentiality
treatment for such information), Executive shall not disclose to any unauthorized person or entity or use for Executive’s own
purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the
Confidential Information becomes generally known to and available for use by the public other than as a direct or indirect result
of Executive’s acts or omissions. Executive shall deliver to the Company at the termination or expiration of the Employment
Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts
and software and other documents and data (and copies thereof) embodying or relating to the Confidential Information (including
any Work Product (as defined below)) or the business of the Company and its Subsidiaries which Executive may then possess or
have under Executive’s control and if, at any time thereafter, any such materials are brought to Executive’s attention or Executive
discovers them in his possession or control, Executive shall deliver such materials to the Company immediately upon such notice
or discovery.
Intellectual Property, Inventions and Patents. Executive acknowledges and agrees that all
discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, specifications, designs, analyses,
drawings, reports, patents and patent applications, processes, programs, systems, software, firmware, materials, plans, sketches,
6.
9
models, know‑how, devices, developments, data, databases, technology, trade secrets, works of authorship, copyrightable works
and mask works (whether or not including any confidential information) and all registrations or applications related thereto, all
other intellectual property or proprietary information and all similar or related information (whether or not patentable or
copyrightable and whether or not reduced to tangible form or practice) which relate to the Company’s or any of its Subsidiaries’
actual or anticipated business, research and development or existing or future products or services and which are conceived,
developed or made by Executive (whether alone or jointly with others) while employed by the Company or its predecessors and
its Subsidiaries (“Work Product”) shall be deemed to be “work made for hire” (as defined in the Copyright Act, 17 U.S.C.A.
§101 et seq., as amended) and owned exclusively by the Company. To the extent that any Work Product is not deemed to be
“work made for hire” under applicable law, and all right, title and interest in and to such Work Product have not automatically
vested in the Company, Executive hereby (A) irrevocably assigns, transfers and conveys, and shall assign transfer and convey, to
the full extent permitted by applicable law, all right, title and interest in and to the Work Product on a worldwide basis to the
Company (or such other person or entity as the Company shall designate), without further consideration, and (B) waives all moral
rights in or to all Work Product, and to the extent such rights may not be waived, agrees not to assert such rights against the
Company or its respective licensees, successors or assigns. Executive shall, at the Company’s expense, execute all documents
and perform all actions reasonably requested by the Board (whether during or after the Employment Period) to establish, confirm,
evidence, effectuate, maintain, protect, enforce, perfect, record, patent or register any of the Company’s rights hereunder
(including, without limitation, assignments, consents, powers of attorney and other instruments).
7.
Non-Compete, Non-Solicitation.
(a)
In further consideration of the compensation to be paid to Executive hereunder,
Executive acknowledges and agrees that during the course of Executive’s employment with the Company and its Subsidiaries
Executive shall become familiar with the Company’s trade secrets and with other Confidential Information and that Executive’s
services have been and shall be of special, unique and extraordinary value to the Company and its Subsidiaries, and therefore,
Executive agrees that, during his or her employment with the Company and for a period of one year thereafter (the “Non-
Compete Period”), Executive shall not directly or indirectly (whether as an owner, partner, shareholder, agent, officer, director,
employee, independent contractor, consultant or otherwise) own any interest in, operate, invest in, manage, control, participate in,
consult with, render services for (alone or in association with any person or entity), in any manner engage in any business activity
on behalf of a Competing Business within any geographical area in which the Company or its Subsidiaries operates or plan to
operate. Nothing herein shall prohibit Executive from being a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no active participation in the business of such
corporation. For purposes of this paragraph, “Competing Business” means each of the following entities, together with their
respective subsidiaries and affiliates: TJ Maxx, Marshalls, Ross Stores, Stein Mart, Century 21, Forman Mills, Schottenstein
Stores and Daffy Dan’s.
ensure that any person or entity controlled by Executive does not, (i) induce
(b)
During the Non-Compete Period, Executive shall not, directly or indirectly, and shall
10
or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or
in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) hire, directly or
through another person, any person (whether or not solicited) who was an executive of the Company or any Subsidiary at any
time within the one year period before Executive’s termination from employment, (iii) induce or attempt to induce any customer,
supplier, licensee, licensor, franchisee or other business relation of the Company or any Subsidiary to cease doing business with
the Company or such Subsidiary, engage in or assist any person or entity in engaging in any Competing Business or in any way
interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any
Subsidiary (Executive understands that any person or entity that Executive contacted during the one year period prior to the date
of Executive’s termination of employment for the purpose of soliciting sales from such person or entity shall be regarded as a
“potential customer” of the Company and its Subsidiaries as to whom the Company has a protectible proprietary interest) or (iv)
make or solicit or encourage others to make or solicit directly or indirectly any defamatory statement or communication about the
Company or any of its Subsidiaries or any of their respective businesses, products, services or activities (it being understood that
such restriction shall not prohibit truthful testimony compelled by valid legal process).
8.
Enforcement.
(a)
Executive acknowledges and agrees that the Company entered into this Agreement in
reliance on the provisions of Sections 5, 6 and 7 and the enforcement of this Agreement is necessary to ensure the preservation,
protection and continuity of the business of the Company and its Subsidiaries and other Confidential Information and goodwill of
the Company and its Subsidiaries to the extent and for the periods of time expressly agreed to herein. Executive acknowledges
and agrees that he has carefully read this Agreement and has given careful consideration to the restraints imposed upon Executive
by this Agreement, and is in full accord as to their necessity for the reasonable and proper protection of confidential and
proprietary information of the Company and its Subsidiaries now existing or to be developed in the future. Executive expressly
acknowledges and agrees that each and every restraint imposed by this Agreement is reasonable with respect to subject matter,
time period and geographical area.
may pursue, at its discretion, enforcement of Sections 5, 6 and 7 in any court of competent jurisdiction (each a “Court”).
(b)
Notwithstanding any provision to the contrary herein, the Company or its Subsidiaries
(c)
Whenever possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. More specifically, if any
Court determines that any of the covenants set forth in Sections 5, 6 and 7 are overbroad or unreasonable under applicable law in
duration, geographical area or scope, the parties to this Agreement specifically agree and
11
authorize such Court to rewrite this Agreement to reflect the maximum duration, geographical area and/or scope permitted under
applicable law.
(d)
Because Executive’s services are unique and because Executive has intimate knowledge
of and access to Confidential Information and Work Product, the parties hereto agree that money damages would not be an
adequate remedy for any breach of Sections 5, 6 and 7, and any breach of the terms of Sections 5, 6 and 7 would result in
irreparable injury and damage to the Company and its Subsidiaries for which the Company and its Subsidiaries would have no
adequate remedy at law. Therefore, in the event of a breach or threatened breach of Sections 5, 6 and 7, the Company or its
successors or assigns, in addition to any other rights and remedies existing in their favor at law or in equity, shall be entitled to
specific performance and/or immediate injunctive or other equitable relief from a Court in order to enforce, or prevent any
violations of, the provisions hereof (without posting a bond or other security), without having to prove damages. The terms of
this Section 8 shall not prevent the Company or any of its Subsidiaries from pursuing any other available remedies for any breach
or threatened breach of this Agreement, including the recovery of damages from Executive.
9.
Executive’s Representations. Executive hereby represents and warrants to the Company that (i) the
execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is
bound, (ii) Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality
agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this
Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms. EXECUTIVE
HEREBY ACKNOWLEDGES, AGREES AND REPRESENTS THAT EXECUTIVE HAS CONSULTED WITH
INDEPENDENT LEGAL COUNSEL REGARDING EXECUTIVE’S RIGHTS AND OBLIGATIONS UNDER THIS
AGREEMENT AND THE TERMS OF THE RELEASE ATTACHED AS EXHIBIT A AND THAT EXECUTIVE
FULLY UNDERSTANDS THE TERMS AND CONDITIONS CONTAINED HEREIN AND THEREIN.
survive and continue in full force in accordance with their terms notwithstanding the termination of the Employment Period.
10.
Survival. The provisions of Sections 3(h) and 3(j) and Sections 4 through 20, inclusive, shall
Notices. Any notice provided for in this Agreement shall be in writing and shall be either
personally delivered, sent by reputable overnight courier service with confirmation of delivery, sent by facsimile (with evidence
of transmission) or mailed by first class mail, return receipt requested, to the recipient at the address below indicated:
11.
To Executive:
John D. Crimmins
14 Lindsay Lane
Reading, Massachusetts 01867
12
To the Company:
Burlington Coat Factory Warehouse Corporation
1830 Route 130
Burlington, New Jersey 08016
Attention: General Counsel
Facsimile No.: (609) 239-9675
with copies (which shall not constitute notice) to:
Bain Capital Partners, LLC
111 Huntington AvenueBoston, Massachusetts 02199
Attention: Jordan Hitch
Facsimile No.: (617) 516-2010
Kirkland & Ellis LLP
153 East 53rd StreetNew York, NY 10022
Attention:
Facsimile No.: (212) 446-6460
Josh Korff, Esq.
or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to
the sending party. Any notice under this Agreement shall be deemed to have been given when personally delivered, one (1)
business day following delivery to the overnight courier service, if given by facsimile, when such facsimile is transmitted to the
applicable fax number specified above and the appropriate facsimile confirmation is received, or if so mailed, on receipt.
12.
Complete Agreement. This Agreement and those other documents expressly referred to herein
embody the complete agreement and understanding among the parties hereto and supersede and preempt any prior
understandings, agreements or representations by or among the parties hereto, written or oral, which may have related to the
subject matter hereof in any way.
to be an original and all of which taken together constitute one and the same agreement.
13.
Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed
14.
Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be
enforceable by Executive, the Company and their respective heirs, successors and assigns; provided, that the services provided by
Executive under this Agreement are of a personal nature and rights and obligations of Executive under this Agreement shall not
be assignable.
Choice of Law. All issues and questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York,
without giving effect to any choice of law
15.
13
or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of New York. In furtherance of the foregoing, the internal law of the State of
New York shall control the interpretation and construction of this Agreement, even though under that jurisdiction’s choice of law
or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.
16.
Consent to Jurisdiction. EACH OF THE PARTIES IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE STATE OR FEDERAL COURTS LOCATED IN THE CITY AND STATE OF NEW
YORK IN THE BOROUGH OF MANHATTAN FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY OR THEREBY. EACH OF THE PARTIES HERETO FURTHER AGREES THAT SERVICE OF ANY PROCESS,
SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO SUCH PARTY’S RESPECTIVE ADDRESS SET
FORTH IN SECTION 11 SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING
WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS SECTION
16. EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE
LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY
RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY IN THE STATE OR
FEDERAL COURTS LOCATED IN THE CITY AND STATE OF NEW YORK IN THE BOROUGH OF MANHATTAN AND
HEREBY AND THEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
17.
Waiver of Jury Trial. AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH
OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT AFTER HAVING THE OPPORTUNITY TO CONSULT
WITH COUNSEL, EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT
OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS
CONTEMPLATED HEREBY.
18.
Amendment and Waiver. The provisions of this Agreement may be amended or waived only with
the prior written consent of the Company (as approved by the Board) and Executive, and no course of conduct or course of
dealing or failure or delay by any party hereto in enforcing or exercising any of the provisions of this Agreement (including,
without limitation, the Company’s right to terminate the Employment Period for Cause) shall affect the validity, binding effect or
enforceability of this Agreement or be deemed to be an implied waiver of any provision of this Agreement.
Key Man Life Insurance. The Company may apply for and obtain and maintain a key man life
insurance policy in the name of Executive together with other executives of the Company in an amount deemed sufficient by the
Board, the beneficiary of which shall be
19.
14
the Company. Executive shall submit to physical examinations and answer reasonable questions in connection with the
application and, if obtained, the maintenance of, as may be required, such insurance policy.
20.
Executive’s Cooperation. During the Employment Period and thereafter, Executive shall cooperate
with the Company and its Subsidiaries in any internal investigation or administrative, regulatory or judicial proceeding as
reasonably requested by the Company (including, without limitation, Executive being available to the Company upon reasonable
notice for interviews and factual investigations, appearing at the Company’s request to give testimony without requiring service
of a subpoena or other legal process, volunteering to the Company all pertinent information and turning over to the Company all
relevant documents which are or may come into Executive’s possession, all at times and on schedules that are reasonably
consistent with Executive’s other permitted activities and commitments). In the event the Company requires Executive’s
cooperation in accordance with this section after the termination of the Employment Period, the Company shall reimburse
Executive for all of Executive’s reasonable costs and expenses incurred, in connection therewith, plus pay Executive a reasonable
amount per day for Executive’s time spent.
* * * * *
15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
By:
/s/ Joyce Manning Magrini
Name: Joyce Manning Magrini
Title: EVP Human Resources
/s/ John Crimmins
EXECUTIVE: John Crimmins
GENERAL RELEASE
Exhibit A
I, [__________], in consideration of and subject to the performance by Burlington Coat Factory Warehouse
Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), of its obligations with respect to the
payment of severance pursuant to Sections 4(b)(i)(3), 4(b)(i)(4) and 4(b)(i)(5) of the Employment Agreement, dated as of
____________, 20__ (the “Agreement”) and this General Release (the “General Release”), do hereby release and forever
discharge as of the date hereof the Company, its subsidiaries and affiliates and all present and former directors, officers, agents,
representatives, employees, successors and assigns of the Companies and their subsidiaries and affiliates and the Company’s
direct and indirect owners (collectively, the “Released Parties”) to the extent provided below.
1.
2.
I understand that any payments paid to me under Sections 4(b)(i)(3), 4(b)(i)(4) and 4(b)(i)(5) of the Agreement represent
consideration for signing this General Release and are not salary or wages to which I was already entitled. I understand and
agree that I will not receive the payments specified in Sections 4(b)(i)(3), 4(b)(i)(4) and 4(b)(i)(5) of the Agreement unless I
execute this General Release and do not revoke this General Release within the time period permitted hereafter or breach
this General Release or Sections 5, 6 or 7 of the Agreement. Such payments will not be considered compensation for
purposes of any employee benefit plan, program, policy or arrangement maintained or hereafter established by the Company
or its affiliates. I also acknowledge and represent that I have received all salary, wages and bonuses that I am entitled to
receive (as of the date hereof) by virtue of any employment by the Company.
Except as provided in paragraphs 4, 12 and 13 below and except for the provisions of the Agreement which expressly
survive the termination of my employment with the Company, I knowingly and voluntarily (for myself, my heirs, executors,
administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all
claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages,
liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any
nature whatsoever in law and in equity, both past and present (through the date this General Release becomes effective and
enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties
which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected
with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation,
claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the
Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the
Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of
1993; the Worker Adjustment Retraining and Notification Act; any applicable Executive Order Programs; the Fair Labor
Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or
under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under
common law; or arising under any policies, practices or procedures of the
A-1
Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim
for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively
referred to herein as the “Claims”).
I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered
by paragraph 2 above.
I agree that this General Release does not waive or release any rights or claims that I may have under the Age
Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and
agree that my engagement and employment by, and separation from employment with the Company in compliance with the
terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under
the Age Discrimination in Employment Act of 1967).
In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the
Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect
according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims
(notwithstanding any state statute that expressly limits the effectiveness of a general release of unknown, unsuspected and
unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I
acknowledge and agree that this waiver is an essential and material term of this General Release and that without such
waiver the Company would not have agreed to make any payments pursuant to the terms of Sections 4(b)(i)(3), 4(b)(i)(4)
and 4(b)(i)(5) of the Agreement. I further agree that in the event I should bring a Claim seeking damages against the
Company or any other Released Party, or in the event I should seek to recover against the Company or any other Released
Party in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense
to such Claims. I further agree that I am not aware of any pending charge or complaint of the type described in paragraph 2
as of the execution of this General Release.
I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or
construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful
conduct.
I agree that I will forfeit all amounts payable by the Company pursuant to Sections 4(b)(i)(3), 4(b)(i)(4) and 4(b)(i)(5) of the
Agreement if I challenge the validity of this General Release. I also agree that if I violate this General Release by suing the
Company or the other Released Parties, I will return all severance payments received by me pursuant to Sections 4(b)(i)(3),
4(b)(i)(4) and 4(b)(i)(5) of the Agreement.
I agree that this General Release is confidential and agree not to disclose any information regarding the terms of this General
Release, except to my immediate family and any tax, legal or other advisor I have consulted regarding the meaning or effect
hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.
3.
4.
5.
6.
7.
8.
2
9. Any non-disclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to
any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange
Commission (SEC), the Financial Industry Regulatory Authority, Inc. (FINRA), any other self-regulatory organization or
governmental entity.
10.
I agree that, as of the date hereof, I have returned to the Company any and all property, tangible or intangible, relating to its
business, which I possessed or had control over at any time (including, but not limited to, company-provided credit cards,
building or office access cards, keys, computer equipment, manuals, files, documents, records, software, customer data base
and other data) and that I shall not retain any copies, compilations, extracts, excerpts, summaries or other notes of any such
manuals, files, documents, records, software, customer data base or other data other than such documents as are generally or
publicly known; provided, that such documents are not known as a result of my breach or actions in violation of the
Agreement or this General Release.
11. Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in
any way affect any rights or claims arising out of any breach by the Company or by any Released Party of the Agreement
after the date hereof or any other rights or claims I may have against the Company or any Released Party arising after the
date hereof.
12. Whenever possible, each provision of this General Release shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any
other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
13. As set forth in Section 10 of the Agreement, Section 3(h) and 3(j) and Sections 4 through 20 of the Agreement, inclusive,
survived the termination of my employment and are incorporated herein and made part hereof.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(i)
(ii)
I HAVE READ IT CAREFULLY;
I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS,
INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS
AMENDED; THE EQUAL PAY ACT OF 1963 AND THE AMERICANS WITH DISABILITIES ACT OF
1990;
(iii)
I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
3
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I
HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT
TO DO SO OF MY OWN VOLITION;
I HAVE HAD AT LEAST 21 DAYS (OR 45 DAYS, AS REQUIRED BY LAW) FROM THE DATE OF MY
RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON _______________ __, _____
TO CONSIDER IT AND THE CHANGES MADE SINCE THE _______________ __, _____ VERSION OF
THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED 21-DAY (OR 45-
DAY, AS APPLICABLE) PERIOD;
ANY CHANGES TO THE AGREEMENT SINCE [_______, 200_] EITHER ARE NOT MATERIAL OR
WERE MADE AT MY REQUEST.
I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO
REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL THE REVOCATION PERIOD HAS EXPIRED WITHOUT NOTICE OF ANY SUCH
REVOCATION HAVING BEEN RECEIVED BY THE COMPANY;
I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE
ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
DATE: _____________
____________________________________
4
Subsidiaries of Burlington Stores, Inc.
Exact Name of Subsidiaries of Registrant as Specified in their Charter
Burlington Holdings, LLC
Burlington Holdings Finance, Inc.
Burlington Coat Factory Holdings, LLC
Burlington Coat Factory Investments Holdings, Inc.
Burlington Coat Factory Warehouse Corporation
Burlington Merchandising Corporation
Burlington Coat Factory of Texas, Inc.
Burlington Coat Factory of Texas, L.P.
Burlington Coat Factory of Kentucky, Inc.
Burlington Coat Factory Direct Corporation
Burlington Coat Factory Realty of Edgewater Park, Inc.
Burlington Coat Factory Realty of Pinebrook, Inc.
Burlington Coat Factory Warehouse of Edgewater Park, Inc.
Burlington Coat Factory Warehouse of Edgewater Park Urban Renewal Corp.
Burlington Coat Factory Warehouse of New Jersey, Inc.
BCF Florence Urban Renewal, LLC
BCF Florence Urban Renewal II, LLC
Burlington Coat Factory Warehouse of Cleveland, Inc.
Burlington Coat Factory of Puerto Rico, LLC
Cohoes Fashions of Cranston, Inc.
Burlington Coat Factory Warehouse of Baytown, Inc.
Burlington Coat Factory of Pocono Crossing, LLC
Florence Insurance Company, Inc.
Burlington Distribution Corp.
Exhibit 21.1
State or Other Jurisdiction of
Incorporation or Organization
Delaware
Delaware
Delaware
Delaware
Florida
Delaware
Florida
Florida
Kentucky
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
Ohio
Puerto Rico
Rhode Island
Texas
Virginia
New Jersey
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-191637 on Form S-8 of our reports dated March 13, 2020, relating to the
consolidated financial statements and financial statement schedules of Burlington Stores, Inc. and subsidiaries, and the effectiveness of Burlington Stores,
Inc. and subsidiaries' internal control over financial reporting, appearing in this Annual Report on Form 10-K of Burlington Stores, Inc. for the year ended
February 1, 2020.
Exhibit 23.1
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
March 13, 2020
Exhibit 31.1
I, Michael O’Sullivan, certify that:
1. I have reviewed this annual report on Form 10-K of Burlington Stores, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 13, 2020
/s/ Michael O’Sullivan
Michael O’Sullivan
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, John Crimmins, certify that:
1. I have reviewed this annual report on Form 10-K of Burlington Stores, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 13, 2020
/s/ John Crimmins
John Crimmins
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Burlington Stores, Inc. (the “Company”) on Form 10-K for the period ending February 1, 2020, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Michael O’Sullivan, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.
Date: March 13, 2020
/s/ Michael O’Sullivan
Michael O’Sullivan
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Burlington Stores, Inc. (the “Company”) on Form 10-K for the period ending February 1, 2020, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, John Crimmins, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.
Date: March 13, 2020
/s/ John Crimmins
John Crimmins
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)