BURLINGTON STORES, INC. 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 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 as further described under the caption above entitled "Cautionary Statement Regarding Forward-Looking Statements." Our actual results or other events 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 off-price retailer of high-quality, branded merchandise at everyday low prices. We opened our first store inBurlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 927 stores as ofJanuary 28, 2023 in 46 states andPuerto 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
Store Openings, Closings and Relocations
During Fiscal 2022, we opened 113 new stores, inclusive of 22 relocations, and closed four stores, exclusive of the aforementioned relocations, bringing our store count as ofJanuary 28, 2023 to 927 stores. We continue to pursue our growth plans and invest in capital projects that meet our financial requirements. During the fiscal year endingFebruary 3, 2024 (Fiscal 2023), we plan to open approximately 70-80 net new stores, which includes approximately 90-100 gross new stores. COVID-19 Results for Fiscal 2020 were significantly impacted by the COVID-19 pandemic. All our stores were temporarily closed for a portion of Fiscal 2020, resulting in a sales decline and higher inventory markdowns. These store closures did not repeat in Fiscal 2021 or Fiscal 2022. However, certain lingering economic effects of the pandemic did continue to impact results, including supply chain disruptions.
Ongoing Initiatives for Fiscal 2023
We continue to focus on a number of ongoing initiatives aimed at increasing our overall profitability. These initiatives include, but are not limited to:
•
Driving Comparable Store Sales Growth.
We strive to increase comparable store sales through the following initiatives:
•
More Effectively Chasing the Sales Trend. We plan sales using conservative comparable store sales growth, holding and controlling liquidity, closely analyzing the sales trend by business, and remaining ready to chase that trend. We believe that these actions will also allow us to take more advantage of great opportunistic buys.
•
Operating with Leaner Inventories. We are planning to carry less inventory in our stores going forward compared to historical levels, which we believe should result in the customer finding a higher mix of fresh receipts and great merchandise values. We believe that this should drive faster turns and lower markdowns, while simultaneously improving our customers' shopping experience.
•
Investment in Merchandising Capabilities. We plan to continue investing in training and coaching, improved tools and reporting, incremental headcount, especially in growing or under-developed businesses, and other forms of
25
--------------------------------------------------------------------------------merchant support. We believe that these investments should improve our ability to strengthen vendor relationships, source great merchandise buys, more accurately assess value, and better forecast and chase the sales trend.
•
Enhancing Existing Categories and Introducing New Categories. We have opportunities to expand our offerings in certain existing categories, such as ladies' apparel, bath and cosmetic merchandise, housewares, and décor for the home, 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 inthe United States . As a result of our smaller store prototype, we have identified numerous market opportunities that we believe will allow us to operate 2,000 stores over the long term.
•
Maintaining Focus on Unit Economics and Returns. We have adopted a market focused approach to new store openings in more productive retail locations, with a specific focus on maximizing sales while achieving attractive unit economics and returns. Additionally, as we continue to execute our smaller store prototype, we believe we can reduce occupancy and operating expenses.
•
Enhancing the Store Experience. We continue to invest in select store relocations and downsizes to improve the customer experience, taking into consideration the age, size, sales, and location of a store. Relocations provide an opportunity, upon lease expirations, to right-size our stores, improve our competitive positioning, incorporate our new prototype store designs and reduce occupancy costs. Downsizes provide an opportunity to right-size our stores, within our existing space, improve co-tenancy, incorporate our new store designs and reduce occupancy costs. • 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.
•
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 compared to historical levels, we expect to drive faster turns, which in turn should reduce the amount of markdowns taken.
•
Enhancing Purchasing Power. We believe that increasing our store footprint and expanding our east and west coast buying offices 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 throughout all areas of our business. 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, there are uncertainties and challenges that we face that could have a material impact on our revenues or income.
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, including the costs of basic necessities
and other goods, 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.
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A broad, protracted slowdown in the U.S. economy, an extended period of high
unemployment rates, inflation rates, an uncertain global economic outlook or a
credit crisis could adversely affect consumer spending habits resulting in lower
net sales and profits than expected on a quarterly or annual basis. 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, but not limited to, taxes and
healthcare. Ongoing international trade and tariff negotiations could have a
direct impact on our income and an indirect impact on consumer prices. The
outbreak or escalation of war, or the occurrence of terrorist acts or other
hostilities in or affecting the U.S. , or public health issues such as pandemics
or epidemics, including the continuing COVID-19 pandemic, could lead to a
decrease in spending by consumers. In addition, natural disasters, public health
issues, industrial accidents and acts of war in various parts of the world, such
as the current war in Ukraine , 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 for an extended period of
time, we have identified variable costs that could be reduced to partially
mitigate the impact of these declines. If we were to experience adverse economic
trends and/or if 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.
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 merchandise.
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.
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, internet 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 . Recently, an
overhang of inventory across the retail industry has driven a surge in
promotional activity at other retailers. 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. Additionally, lower-to-moderate income shoppers continue to face
economic pressure due to higher cost of living. Our strategy to chase the sales
trend allows us the flexibility to purchase less pre-season merchandise 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.
Industry-wide supply chain issues led to increased freight and labor costs during Fiscal 2021 and continued to add pressure on margins in Fiscal 2022. These costs significantly impacted results in Fiscal 2021 and Fiscal 2022, and there remains significant uncertainty around when and if freight costs will return to pre-pandemic levels.
We have also experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods, as well as in occupancy and other operating costs. There can be no assurance that we will be able to offset inflationary pressure in the future by increasing prices or through other means, or that our business will not be negatively affected by continued inflation in the future.
Key Performance and Non-GAAP Measures
We consider numerous factors in assessing our performance. Key performance and
non-GAAP measures used by management include net income (loss), Adjusted Net
Income (Loss), Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross
margin, inventory, store payroll and liquidity.
27
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Net income (loss). We earned net income of $230.1 million during Fiscal 2022
compared with of $408.8 million during Fiscal 2021. This decrease was primarily
driven by lower sales, as well as decreased gross margin rate, partially offset
by decreased loss on debt extinguishment charges. Refer to the section below
entitled "Results of Operations" for further explanation.
Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT: Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.
We define Adjusted Net Income (Loss) as net income (loss), exclusive of the following items, if applicable: (i) net favorable lease costs; (ii) costs related to debt issuances and amendments; (iii) loss on extinguishment of debt; (iv) impairment charges; (v) amounts related to certain litigation matters; (vi) non-cash interest on the 2.25% Convertible Senior Notes due 2025 (Convertible Notes); (vii) costs related to closing the e-commerce store; 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 (Loss). We define Adjusted EBITDA as net income (loss), exclusive of the following items, if applicable: (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) costs related to debt issuances and amendments; (viii) amounts related to certain litigation matters; (ix) costs related to closing the e-commerce store; and (x) other unusual, non-recurring or extraordinary expenses, losses, charges or gains We define Adjusted EBIT as net income (loss), exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) income tax expense(benefit); (v) impairment charges; (vi) net favorable lease costs; (vii) costs related to debt issuances and amendments; (viii) amounts related to certain litigation matters; (ix) costs related to closing the e-commerce store; and (x) other unusual, non-recurring or extraordinary expenses, losses, charges or gains. We present Adjusted Net Income (loss), Adjusted EBITDA and Adjusted EBIT, because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations. In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist investors and management in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods. Adjusted Net Income (Loss) has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income (loss) or other data prepared in accordance with GAAP. Among other limitations, Adjusted Net Income (Loss) does not reflect the following items, net of their tax effect: • net favorable lease costs; •
costs related to debt issuances and amendments;
•
losses on extinguishment of debt;
•
amounts charged for certain litigation matters;
•
non-cash interest expense related to original issue discount on the Convertible Notes;
•
impairment charges on long-lived assets;
•
costs related to closing the e-commerce store; and
•
other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
During Fiscal 2022, Adjusted Net Income (Loss) decreased$292.4 million to$280.8 million . This decrease was primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled "Results of Operations" for further explanation. 28 --------------------------------------------------------------------------------
The following table shows our reconciliation of net income (loss) to Adjusted Net Income (Loss) for Fiscal 2022, Fiscal 2021 and Fiscal 2020:
(unaudited)
(in thousands)
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
Reconciliation of net income (loss) to Adjusted
Net Income (Loss):
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Net favorable lease costs (a) 18,591 21,914 24,078
Non-cash interest expense on convertible notes
(b) - - 23,988
Costs related to debt issuances and amendments
(c) - 3,419 3,633
Loss on extinguishment of debt (d) 14,657 156,020 202
Impairment charges - long-lived assets 21,402 7,748 6,012
Litigation matters (e) 10,500 - 22,788
E-commerce closure (f) - - 1,549
Tax effect (g) (14,503 ) (24,741 ) (35,273 )
Adjusted Net Income (Loss) $ 280,770 $ 573,199 $ (169,522 )
(a) Net favorable lease costs represent 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). These expenses are
recorded in the line item "Selling, general and administrative expenses" in our
Consolidated Statements of Income (Loss)
(b) Represents non-cash accretion of original issue discount on the Convertible
Notes. The original issue discount was eliminated as of the beginning of Fiscal
2021, as a result of adopting Accounting Standards Update (ASU) 2020-06,
"Accounting for Convertible Instruments and Contracts in an Entity's Own Equity"
(ASU 2020-06).
(c) Represents costs incurred in connection with the review and execution of
refinancing opportunities, as well as the issuance of the $300.0 million 6.25%
Senior Secured Notes due 2025 (Secured Notes) and the Convertible Notes.
(d) Relates to the partial repurchases of the Convertible Notes, the redemption
of the Secured Notes, as well as the refinancing of the Term Loan Facility.
(e) Represents amounts charged for certain litigation matters.
(f) Represents costs related to the closure of our e-commerce store.
(g) Tax effect is calculated based on the effective tax rates (before discrete
items) for the respective periods, adjusted for the tax effect for the impact of
items (a) through (f). The effective tax rate during Fiscal 2020 includes the
benefit of loss carrybacks to prior years with higher statutory tax rates.
Adjusted EBITDA has limitations as an analytical tool, and should not be
considered either in isolation or as a substitute for net income (loss) or other
data prepared in accordance with GAAP. Among other limitations, Adjusted EBITDA
does not reflect:
•
net interest expense;
•losses on the extinguishment of debt;
•
costs related to debt issuances and amendments;
•
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;
•
amounts charged for certain litigation matters;
•
impairment charges on long-lived assets;
•
costs related to closing the e-commerce store;
•
income tax expense (benefit); and
•
other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
During Fiscal 2022, Adjusted EBITDA decreased$350.2 million to$700.7 million . This decrease was primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled "Results of Operations" for further explanation. 29 --------------------------------------------------------------------------------
The following table shows our reconciliation of net income (loss) to Adjusted EBITDA for Fiscal 2022, Fiscal 2021 and Fiscal 2020:
(unaudited)
(in thousands)
Fiscal Year Ended
January 28 ,
2023 2022 2021
Reconciliation of net income (loss) to Adjusted EBITDA:
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Interest expense 66,474 67,502 97,767
Interest income (8,799 ) (189 ) (1,253 )
Loss on extinguishment of debt (a) 14,657 156,020 202
Costs related to debt issuances and amendments (b) - 3,419 3,633
Litigation matters (c) 10,500 - 22,788
E-commerce closure (d) - - 1,549
Depreciation and amortization (e) 288,990 271,132 244,273
Impairment charges - long-lived assets 21,402 7,748 6,012
Income tax expense (benefit) 77,386 136,459 (221,124 )
Adjusted EBITDA $ 700,733 $ 1,050,930 $ (62,652 )
(a) Relates to the partial repurchases of the Convertible Notes, the redemption
of the Secured Notes, as well as the refinancing of the Term Loan Facility.
(b) Represents costs incurred in connection with the review and execution of
refinancing opportunities, as well as the issuance of the Secured Notes and the
Convertible Notes.
(c) Represents amounts charged for certain litigation matters.
(d) Represents costs related to the closure of our e-commerce store.
(e) Includes $18.6 million , $21.9 million , and $23.9 million of favorable lease
costs included in the line item "Selling, general and administrative expenses"
in our Consolidated Statements of Income (Loss) for Fiscal 2022, Fiscal 2021 and
Fiscal 2020, respectively. Net favorable lease cost represents the non-cash
expense associated with favorable and unfavorable leases that were recorded as a
result of the Merger Transaction.
Adjusted EBIT has limitations as an analytical tool, and should not be
considered either in isolation or as a substitute for net income (loss) or other
data prepared in accordance with GAAP. Among other limitations, Adjusted EBIT
does not reflect:
•
net interest expense;
•losses on the extinguishment of debt;
•
costs related to debt issuances and amendments;
•
net favorable lease cost;
•
amounts charged for certain litigation matters;
•
impairment charges on long-lived assets;
•
costs related to closing the e-commerce store;
•
income tax expense (benefit); and
•
other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
During Fiscal 2022, Adjusted EBIT decreased$371.4 million to$430.3 million . This decrease was primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled "Results of Operations" for further explanation. 30 --------------------------------------------------------------------------------
The following table shows our reconciliation of net income (loss) to Adjusted EBIT for Fiscal 2022, Fiscal 2021 and Fiscal 2020:
(unaudited)
(in thousands)
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
Reconciliation of net income (loss) to Adjusted EBIT:
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Interest expense 66,474 67,502 97,767
Interest income (8,799 ) (189 ) (1,253 )
Loss on extinguishment of debt (a) 14,657 156,020 202
Costs related to debt issuances and amendments (b) - 3,419 3,633
Net favorable lease costs (c) 18,591 21,914 24,078
Impairment charges - long-lived assets 21,402 7,748 6,012
Litigation matters (d) 10,500 - 22,788
E-commerce closure (e) - - 1,549
Income tax expense (benefit) 77,386 136,459 (221,124 )
Adjusted EBIT $ 430,334 $ 801,712 $ (282,847 )
(a) Relates to the partial repurchases of the Convertible Notes, the redemption
of the Secured Notes, as well as the refinancing of the Term Loan Facility.
(b) Represents costs incurred in connection with the review and execution of
refinancing opportunities, as well as the issuance of the Secured Notes and the
Convertible Notes.
(c) Net favorable lease costs represent the non-cash expense associated with
favorable and unfavorable leases that were recorded as a result of the Merger
Transaction. These expenses are recorded in the line item "Selling, general and
administrative expenses" in our Consolidated Statements of Income (Loss).
(d) Represents amounts charged for certain litigation matters. (e) Represents costs related to the closure of our e-commerce store.
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 a prior year. Comparable store sales were not
meaningful for Fiscal 2020 due to the extended store closures resulting from the
COVID-19 pandemic. Additionally, due to the impact of the COVID-19 pandemic in
Fiscal 2020, we are using Fiscal 2019 as the comparable previous year period
when calculating comparable store sales for Fiscal 2021. 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.
For Fiscal 2022, we define comparable store sales as merchandise sales of those
stores commencing on the first day of the fiscal month one year after the end of
their grand opening activities, which normally conclude within the first two
months of operations. If a store is closed for seven or more days during a
month, our policy is to remove that store from our calculation of comparable
store sales for any such month, as well as during the month(s) of their grand
re-opening activities. The change in our comparable store sales was as follows:
Fiscal Year Ended
January 28, 2023 -13%
January 29, 2022 15%
Various factors affect comparable store sales, including, but not limited to,
weather conditions, current economic conditions, the timing of our releases of
new merchandise and promotional events, the general retail sales environment,
consumer preferences and buying trends, changes in sales mix among distribution
channels, competition, and the success of marketing programs
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 may include all of the costs related to
their buying and distribution functions, certain store-related costs 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 (Loss). We include in our
"Cost of sales" line item all costs of merchandise (net of purchase discounts
and certain vendor allowances), inbound freight, distribution center outbound
freight and certain merchandise acquisition costs, primarily commissions and
import fees. Gross margin as a percentage of net sales decreased to 40.4% during
Fiscal 2022, compared with 41.6% during Fiscal 2021, driven primarily by
decreased merchandise margins, primarily due to higher markdowns and increased
shortage, as well as increased freight costs.
31
--------------------------------------------------------------------------------Product sourcing costs, which are included in selling, general and administrative expenses, decreased approximately 120 basis points as a percentage of net sales.
Inventory. Inventory atJanuary 28, 2023 increased to$1,182.0 million from$1,021.0 million atJanuary 29, 2022 . This increase primarily relates to a 32% increase in comparable store inventory, a 30% increase in reserve inventory, and 87 net new stores since the end of Fiscal 2021. In Fiscal 2021, as we came into the spring season, our comparable store inventories were too lean, and this hurt our sales trend in the first quarter of Fiscal 2022. Therefore, the significant increase in our comparable store inventories was by design. Our comparable store inventory is still below pre-pandemic levels. The difference between inventory and comparable store inventory 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 reserve inventory acquired opportunistically for future store release. The magnitude of reserve inventory, at any one point in time, is dependent on the buying opportunities identified in the marketplace. Reserve inventory includes all inventory that is being stored for release either later in the season, or in a subsequent season. We intend to use our reserve merchandise to effectively chase sales trends. 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. Store Payroll as a Percentage ofNet 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 8.0% and 8.1% during Fiscal 2022 and Fiscal 2021, respectively. 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, decreased$218.5 million during Fiscal 2022, compared with a decrease of$289.2 million during Fiscal 2021. Refer to the section below entitled "Liquidity and Capital Resources" for further explanation.
Results of Operations
The following table sets forth certain items in the Consolidated Statements of Income (Loss) as a percentage of net sales for the periods indicated.
Percentage of Net Sales
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
Net sales 100.0 % 100.0 % 100.0 %
Other revenue 0.2 0.2 0.2
Total revenue 100.2 100.2 100.2
Cost of sales 59.6 58.4 61.8
Selling, general and administrative expenses 33.1 30.8 40.5
Costs related to debt issuances and amendments - 0.0 0.1
Depreciation and amortization 3.1 2.7 3.8
Impairment charges - long-lived assets 0.2 0.1 0.1
Other income - net (0.3 ) (0.1 ) (0.1 )
Loss on extinguishment of debt 0.2 1.7 0.0
Interest expense 0.8 0.7 1.7
Total costs and expenses 96.7 94.3 107.9
Income (loss) before income tax expense (benefit) 3.5 5.9 (7.7 )
Income tax expense (benefit) 0.9 1.5 (3.8 )
Net income (loss) 2.6 % 4.4 % (3.9 )%
32--------------------------------------------------------------------------------
Performance for Fiscal Year Ended
Net sales
Net sales decreased$622.0 million , or 6.7%, to$8,684.5 million , primarily driven by a decrease of 13% in comparable store sales during Fiscal 2022. We believe this decrease in comparable store sales was driven by economic pressure on our core customers and promotional activity throughout the retail environment, as well as strong comparable store sales of 15% in the prior period. The decrease in net sales was partially offset by 87 net new stores since the end of Fiscal 2021.
Other revenue
Other revenue improved
Cost of sales
Cost of sales as a percentage of net sales increased to 59.6% during Fiscal 2022, primarily driven by decreased merchandise margins, as a result of higher markdowns and increased shortage, as well as increased freight costs. On a dollar basis, cost of sales decreased$264.4 million , or 4.9%, primarily driven by our overall decrease in sales. Product sourcing costs, which are included in the line item "Selling, general and administrative expenses" in our Consolidated Statements of Income (Loss), were$677.6 million during Fiscal 2022, compared to$618.3 million during Fiscal 2021, primarily driven by increased supply chain costs.
Selling, general and administrative expenses
The following table details selling, general and administrative expenses for Fiscal 2022 compared with Fiscal 2021.
(in millions)
Fiscal Year Ended
Percentage Percentage
January of January of
28, 2023 Net Sales 29, 2022 Net Sales $ Variance % Change
Store related costs $ 1,739.0 20.0 % $ 1,766.7 19.0 % $ (27.7 ) (1.6 )%
Product sourcing costs 677.6 7.8 618.3 6.6 59.3 9.6
Corporate costs 301.8 3.5 311.6 3.3 (9.8 ) (3.1 )
Marketing and strategy
costs 47.0 0.5 61.1 0.7 (14.1 ) (23.1 )
Other selling, general
and administrative
expenses 112.0 1.3 110.8 1.2 1.2 1.1
Selling, general and
administrative expenses $ 2,877.4 33.1 % $ 2,868.5 30.8 % $ 8.9 0.3 %
The increase in selling, general and administrative expenses as a percentage of
net sales was primarily driven by deleverage in occupancy and increased product
sourcing costs, partially offset by decreased incentive compensation, store
payroll costs, and advertising costs. The dollar basis increase was primarily
due to the same drivers listed above.
Depreciation and amortization
Depreciation and amortization expense amounted to
Impairment charges-long-lived assets
Impairment charges related to long-lived assets were$21.4 million and$7.7 million during Fiscal 2022 and Fiscal 2021, respectively, related to four stores sold below carrying value as well as impairment of store-level assets and lease assets at twelve stores during Fiscal 2022, compared to impairment of store-level assets and lease assets at nine stores during Fiscal 2021.
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
33
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impairment charges could be required if we do not achieve our current revenue or
cash flow projections for each store. Refer to Note 6, "Impairment Charges," for
further discussion.
Other income, net
Other income, net improved $15.3 million to $26.9 million during Fiscal 2022.
The improvement in other income was primarily driven by the gain on sale of real
estate related assets, increased interest rates as a result of shifting cash to
a higher yielding vehicle, interest income on a tax refund, and insurances
recoveries, partially offset by the sale of the NJ Grow tax credit in Fiscal
2021.
Loss on Extinguishment of Debt
During Fiscal 2022, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged$64.6 million in aggregate principal amount of Convertible Notes held by them for$78.2 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of$14.7 million . During Fiscal 2021, we incurred debt extinguishment charges of$124.6 million related to the partial repurchases of the Convertible Notes,$30.2 million related to the premium paid on redemption of the Secured Notes, as well as$1.2 million related to the refinancing of our Term Loan Facility. Refer to Note 7, "Long Term Debt," for further discussion regarding our debt transactions.
Interest expense
Interest expense improved$1.0 million to$66.5 million . The decrease was driven by the redemption in full of the$300.0 million aggregate principal amount of Secured Notes and repurchase of$297.3 million of Convertible Notes, partially offset by the increase in LIBOR rates on the unhedged portion of our Term Loan Facility. Our average interest rates and average balances related to our variable rate debt for Fiscal 2022 compared with Fiscal 2021 are summarized in the table below: Fiscal Year Ended January 28, January 29, 2023 2022 Average balance - ABL Line of Credit (in millions) $ - $ - Average interest rate - ABL Line of Credit - - Average balance - Term Loan Facility (in millions) (a)$ 952.2 $ 960.4 Average interest rate - Term Loan Facility 4.0% 2.0% (a)
Excludes original issue discount
Income tax expense
Income tax expense was$77.4 million for Fiscal 2022 compared with$136.5 million for Fiscal 2021. The effective tax rate was 25.2% related to pretax income of$307.5 million for Fiscal 2022, and 25.0% related to pretax income of$545.3 million for Fiscal 2021. The decrease in tax expense is primarily driven by the decrease in pretax income.
Net income
We earned net income of
Performance for Fiscal Year Ended
For a discussion related to Fiscal 2021 performance compared to Fiscal 2020 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 endedJanuary 29, 2022 (Fiscal 2021 10-K).
Liquidity and Capital Resources
Our ability to satisfy interest and principal 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
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control. If we do not have sufficient cash flow to service interest and
principal 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. Refer
to "Debt and Hedging" below for recent debt transactions completed.
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.
As market conditions warrant, we may, from time to time, repurchase our
outstanding debt securities in the open market, in privately negotiated
transactions, by tender offer, by exchange transaction or otherwise. Such
repurchases, if any, will depend on prevailing market conditions, our liquidity
and other factors and may be commenced or suspended at any time. The amounts
involved and total consideration paid may be material.
Cash Flows
Cash Flows for Fiscal 2022 Compared with Fiscal 2021
We used
Net cash provided by operating activities amounted to$596.4 million and$833.2 million during Fiscal 2022 and Fiscal 2021, respectively. The decrease in our operating cash flows was primarily driven by lower sales and margin in Fiscal 2022, as well as changes in working capital (primarily due to an accounts payable policy change resulting in earlier payments to vendors, partially offset by receipt of a tax refund). Net cash used in investing activities was$423.1 million and$344.4 million during Fiscal 2022 and Fiscal 2021, respectively. This change was primarily the result of an increase in capital expenditures related to our stores (new stores, remodels and other store expenditures) and supply chain growth initiatives. Net cash used in financing activities was$391.7 million during Fiscal 2022 compared to$778.0 million during Fiscal 2021. This change was primarily driven by higher debt redemptions in Fiscal 2021 compared to Fiscal 2022, partially offset by more share repurchases in Fiscal 2022. Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash) minus current liabilities. We had working capital atJanuary 28, 2023 of$365.3 million compared with$593.4 million atJanuary 29, 2022 . The decrease in working capital was primarily due to a decrease in cash and cash equivalents, primarily driven by payments on the Convertible Notes and share repurchases, partially offset by decreased accounts payable and increased inventory.
Cash Flows for Fiscal 2021 Compared with Fiscal 2020
For a discussion of our cash flows for Fiscal 2021 compared to Fiscal 2020, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Fiscal 2021 10-K.
Capital Expenditures
For Fiscal 2022, cash spend for capital expenditures, net of$23.1 million of landlord allowances, amounted to$428.0 million . These capital expenditures include approximately$190.5 million , net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures). In addition, we made capital expenditures of$145.1 million to support our supply chain initiatives, with the remaining capital to support information technology and other business initiatives. We incurred cash spend on capital expenditures of$319.0 million , net of approximately$34.1 million of landlord allowances, during Fiscal 2021. We estimate that we will spend approximately$560 million , net of approximately$10 million of landlord allowances, in capital expenditures during Fiscal 2023, including approximately$300 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$115 million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives. 35 --------------------------------------------------------------------------------
Share Repurchase Program
On
OnFebruary 16, 2022 , our Board of Directors authorized the repurchase of up to an additional$500.0 million of common stock, which is authorized to be executed throughFebruary 2024 .
During Fiscal 2022, we repurchased 1,756,811 shares of common stock for
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 program. 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 program.
Dividends
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. Therefore, at this time, we do not anticipate paying cash dividends in the near term. Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that 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 ofJanuary 28, 2023 , our obligations, inclusive of original issue discount, include$942.0 million under our Term Loan Facility,$507.7 million of Convertible Notes and no outstanding borrowings on our ABL Line of Credit. Our debt obligations also include$33.4 million of finance lease obligations as ofJanuary 28, 2023 . 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
OnJune 24, 2021 ,Burlington Coat Factory Warehouse Corporation , an indirect subsidiary of the Company (BCFWC), entered into Amendment No. 9 (the Ninth Amendment) to the Term Loan Credit Agreement governing the Term Loan Facility. The Ninth Amendment, among other things, extended the maturity date fromNovember 17, 2024 toJune 24, 2028 , and changed the interest rate margins applicable to the Term Loan Facility from 0.75% to 1.00%, in the case of prime rate loans, and from 1.75% to 2.00%, in the case of LIBOR loans, with a 0.00% LIBOR floor. Refer to Note 7, "Long Term Debt," for further discussion regarding our debt transactions.
At
ABL Line of Credit OnJuly 20, 2022 , we entered into a Fourth Amendment to the Second Amended and Restated Credit Agreement (the "Amendment"), by and among BCFWC, as lead borrower and the other borrowers party thereto, the facility guarantors party thereto, the lenders party thereto andBank of America, N.A ., as administrative agent and collateral agent, which Amendment amends that certain Second Amended and Restated Credit Agreement dated as ofSeptember 2, 2011 , by and among the BCFWC, the other borrowers party thereto, the facility guarantors party thereto, the lenders party thereto andBank of America, N.A ., as administrative agent and collateral agent. The Amendment increased the aggregate principal amount of the commitments of the ABL Line of Credit 36 -------------------------------------------------------------------------------- from$650.0 million to$900.0 million and replaced the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate (SOFR) or a daily SOFR rate (in the case of daily SOFR, available for borrowings up to$100 million , or up to the full amount of the commitments if the term SOFR rate is not available).
At
Convertible Notes
OnApril 16, 2020 , we issued$805.0 million of Convertible Notes. The Convertible Notes have an initial conversion rate of 4.5418 shares per$1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately$220.18 per share of our common stock), subject to adjustment if certain events occur. The Convertible Notes are our general unsecured obligations. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears onApril 15 andOctober 15 of each year, beginning onOctober 15, 2020 . The Convertible Notes will mature onApril 15, 2025 , unless earlier converted, redeemed or repurchased. During the second half of Fiscal 2021, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged$232.7 million in aggregate principal amount of Convertible Notes held by them for a combination of an aggregate of$199.8 million in cash and 513,991 shares of common stock. During the first quarter of Fiscal 2022, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged$64.6 million in aggregate principal amount of Convertible Notes held by them for$78.2 million in cash. See Note 7, "Long Term Debt," for additional information.
Secured Notes
OnApril 16, 2020 , BCFWC, issued$300.0 million of Secured Notes. The Secured Notes were senior, secured obligations of BCFWC, and interest was payable semiannually in cash at a rate of 6.25% per annum onApril 15 andOctober 15 of each year, beginning onOctober 15, 2020 . The Secured Notes were guaranteed on a senior secured basis byBurlington Coat Factory Holdings, LLC ,Burlington Coat Factory Investments Holdings, Inc. and BCFWC's subsidiaries that guarantee the loans under the Term Loan Facility and ABL Line of Credit. OnJune 11, 2021 , BCFWC redeemed the full$300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was$323.7 million , plus accrued and unpaid interest to, but not including, the date of redemption. Refer to Note 7, "Long Term Debt," for further discussion regarding our debt transactions.
Hedging
OnJune 24, 2021 , the Company terminated its previous interest rate swap and entered into a new interest rate swap. The new interest rate swap, which hedges$450 million of variable rate exposure under our Term Loan Facility, is designated as a cash flow hedge and expires onJune 24, 2028 . Refer to Note 8, "Derivative Instruments and Hedging Activities," for further discussion regarding our derivative transactions. 37 --------------------------------------------------------------------------------
Certain Information Concerning Material Cash Requirements
The following table sets forth certain information regarding our obligations to
make future payments under current contracts as of
Payments Due By Period
Less Than
Total 1 Year 2-3 Years 4-5 Years Thereafter
(in thousands)
Debt obligations(1) $ 1,454,681 $ 9,614 $ 526,916 $ 19,228 $ 898,923
Interest on debt obligations(2) 293,947 63,500 113,629 97,441 19,377
Finance lease obligations(3) 46,756 5,906 9,337 7,280 24,233
Operating lease obligations(4) 3,922,155 550,636 1,046,178 892,102 1,433,239
Purchase obligations(5) 1,049,047 1,049,047 - - -
Other(6) 2,078 2,078 - - -
Total $ 6,768,664 $ 1,680,781 $ 1,696,060 $ 1,016,051 $ 2,375,772 (1) Represents future principal payments on outstanding borrowings as of
(2) Represents interest payments on (i) the outstanding balance of the Term Loan Facility, with an interest rate of 6.4% as ofJanuary 28, 2023 ; (ii)$450.0 million interest rate swap with a fixed LIBOR of 2.2%; and (iii) the outstanding balance of the Convertible Notes, with an interest rate of 2.25%. (3) Finance lease obligations include future interest payments. (4) Represents minimum rent payments for operating leases under the current terms. (5) Represents commitments to purchase goods that have not been received as ofJanuary 28, 2023 . The table above excludes estimated commitments for services to be used in our business of up to approximately$185 million over the next five years. (6) 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 (Loss). Our agreements with three former employees 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$11.9 million , inclusive of$8.0 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$51.1 million as ofJanuary 28, 2023 .
As of
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,
long-lived assets, intangible assets, goodwill, insurance reserves and income
taxes. 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. As events continue to
evolve and additional information becomes available, our estimates may change
materially in future periods. 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.
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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 our revenue recognition 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 (Loss). We
account for layaway sales 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. 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 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
2022.
Estimates are used to record inventory shortage at retail stores between
physical inventories. Actual physical inventories are conducted at least
annually 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.
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 $86.2
million and $81.6 million at January 28, 2023 and January 29, 2022 ,
respectively.
Recent Accounting Pronouncements
There were no new accounting standards that had a material impact on the Company's Consolidated Financial Statements during Fiscal 2022, and there were no new accounting standards or pronouncements that were issued but not yet effective as ofJanuary 28, 2023 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.
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
--------------------------------------------------------------------------------Inflation
During Fiscal 2022 and Fiscal 2021, we have experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods. There can be no assurance that we will be able to offset inflationary pressure in the future, or that our business will not be negatively affected by continued inflation in the future. We may not be able to adequately increase our prices over time to offset increased costs, whether due to inflation or otherwise. Any decreases in consumer discretionary spending could result in a decrease in store traffic and same store sales, all of which could negatively affect our business, operations, liquidity, financial results and/or stock price, particularly if consumer spending levels are depressed for a prolonged period of time. We do not believe that our operating results were materially affected by inflation during Fiscal 2020. 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. TheU.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. Additionally, lower-to-moderate income shoppers continue to face economic pressure due to higher cost of living. Our strategy of chasing sales, 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 swap 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 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.
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 bear interest based on SOFR and borrowings under our 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." During Fiscal 2022, an amendment to the ABL Line of Credit replaced the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate (SOFR) or a daily SOFR rate (in the case of daily SOFR, available for borrowings up to$100 million , or up to the full amount of the commitments if the term SOFR rate is not available). 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. OnJune 24, 2021 , we terminated our previous interest rate swap and entered into a new interest rate swap. The new interest rate swap, which hedges$450.0 million of variable rate exposure under our Term Loan Facility, is designated as a cash flow hedge and expires onJune 24, 2028 . Refer to Note 8, "Derivative Instruments and Hedging Activities," for further discussion regarding our derivative transactions.
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.
AtJanuary 28, 2023 , we had$947.0 million of floating-rate debt, exclusive of original issue discount. Based on$947.0 million outstanding as floating-rate debt, a one percentage point interest rate increase or decrease as ofJanuary 28, 2023 (after considering our interest rate swap contract and assuming current borrowing level remains constant), would cause an increase or decrease, respectively, to cash interest expense of$4.8 million per year. This sensitivity analysis assumes our mix of financial instruments and all other 40 --------------------------------------------------------------------------------
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.
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
Page
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
42
Consolidated Statements of Income (Loss) for the fiscal
years ended
45
Consolidated Statements of Comprehensive Income (Loss)
for the fiscal years ended
46
Consolidated Balance Sheets as of
47
Consolidated Statements of Cash Flows for the fiscal
years ended
48
Consolidated Statements of Stockholders' Equity for the
fiscal years ended
49
Notes to Consolidated Financial Statements for the fiscal
years ended
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets ofBurlington Stores, Inc. and subsidiaries (the "Company") as ofJanuary 28, 2023 andJanuary 29, 2022 , the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period endedJanuary 28, 2023 , and the related notes and the schedules listed in the Index at Item 15 (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 ofJanuary 28, 2023 andJanuary 29, 2022 , and the results of its operations and its cash flows for each of the three years in the period endedJanuary 28, 2023 , in conformity with accounting principles generally accepted inthe United States of America . We have also audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States ) (PCAOB), the Company's internal control over financial reporting as ofJanuary 28, 2023 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission and our report datedMarch 10 , 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 7 to the financial statements, onJanuary 31, 2021 , the Company adopted Financial Accounting Standards Board Accounting Standards Update (ASU) 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity."
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 theU.S. federal securities laws and the applicable rules and regulations of theSecurities 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 42 -------------------------------------------------------------------------------- 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 Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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 ofJanuary 28, 2023 , were$1,182 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 design and operating effectiveness of controls over inventory valuation, specifically those over the determination and execution of markdowns.
•
We made a selection of markdowns recorded throughout the year to test the accuracy and timeliness of markdowns taken.
•
We made a selection 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 a selection of purchases made throughout the year; determined if those purchases were subsequently marked down; and, if marked down, that the markdown was recorded timely. •
We analyzed trends in the aging of inventory to determine if there were any significant fluctuations in aged inventory that would indicate markdowns were not taken timely.
•
We developed an expectation of markdowns in ending inventory based on historical
relationships between markdowns and inventory balances on hand and compared to
recorded markdowns.
43--------------------------------------------------------------------------------
/s/Deloitte & Touche LLP New York, New York March 13, 2023
We have served as the Company's auditor since 1983.
44
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BURLINGTON STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(All amounts in thousands, except per share data)
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
REVENUES:
Net sales $ 8,684,545 $ 9,306,549 $ 5,751,541
Other revenue 18,059 15,707 12,439
Total revenue 8,702,604 9,322,256 5,763,980
COSTS AND EXPENSES:
Cost of sales 5,171,715 5,436,155 3,555,024
Selling, general and administrative expenses 2,877,356 2,868,527 2,326,928
Costs related to debt issuances and amendments - 3,419 3,633
Depreciation and amortization 270,398 249,217 220,390
Impairment charges - long-lived assets 21,402 7,748 6,012
Other income - net (26,907 ) (11,630 ) (8,353 )
Loss on extinguishment of debt 14,657 156,020 202
Interest expense 66,474 67,502 97,767
Total costs and expenses 8,395,095 8,776,958 6,201,603
Income (loss) before income tax expense (benefit) 307,509 545,298 (437,623 )
Income tax expense (benefit) 77,386 136,459 (221,124 )
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Net income (loss) per common share:
Common stock - basic $ 3.51 $ 6.14 $ (3.28 )
Common stock - diluted $ 3.49 $ 6.00 $ (3.28 )
Weighted average number of common shares:
Common stock - basic 65,637 66,588 65,962
Common stock - diluted 65,901 68,126 65,962
See Notes to Consolidated Financial Statements.
45
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BURLINGTON STORES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(All amounts in thousands)
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Other comprehensive income (loss), net of tax:
Interest rate derivative contracts:
Net unrealized gain (loss) arising during the period 27,726 7,931 (11,458 )
Net reclassification into earnings during the period 5,463 10,643 7,403
Other comprehensive income (loss), net of tax 33,189 18,574 (4,055 )
Total comprehensive income (loss) $ 263,312 $ 427,413 $ (220,554 )
See Notes to Consolidated Financial Statements.
46
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BURLINGTON STORES, INC.
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share and per share data)
January 28, January 29,
2023 2022
ASSETS
Current assets:
Cash and cash equivalents $ 872,623 $ 1,091,091
Restricted cash and cash equivalents 6,582 6,582
Accounts receivable-net of allowance for doubtful accounts of$1,252 and$3,305 , respectively 71,091 54,089 Merchandise inventories 1,181,982 1,021,009 Assets held for disposal 19,823 4,358 Prepaid and other current assets 131,691 370,515 Total current assets 2,283,792 2,547,644 Property and equipment-net 1,668,005 1,552,237 Operating lease assets 2,945,932 2,638,473 Tradenames 238,000 238,000 Goodwill 47,064 47,064 Deferred tax assets 3,205 3,959 Other assets 83,599 62,136 Total assets$ 7,269,597 $ 7,089,513 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable$ 955,793 $
1,080,802
Current operating lease liabilities 401,111
358,793
Other current liabilities 541,413
493,695
Current maturities of long term debt 13,634 14,357 Total current liabilities 1,911,951 1,947,647 Long term debt 1,462,072 1,541,102 Long term operating lease liabilities 2,825,292 2,539,420 Other liabilities 69,386 80,904 Deferred tax liabilities 205,991 220,023 Commitments and contingencies (Note 16) Stockholders' equity: Preferred stock,$0.0001 par value: authorized: 50,000,000 shares; no shares issued and outstanding -
-
Common stock,
Authorized: 500,000,000 shares;
Issued: 82,037,994 shares and 81,677,315 shares, respectively;
Outstanding: 65,019,713 shares and 66,491,555 shares, respectively 8 7 Additional paid-in-capital 2,015,625 1,927,554 Accumulated earnings 644,415 414,292 Accumulated other comprehensive income (loss) 28,748 (4,441 ) Treasury stock, at cost (1,893,891 ) (1,576,995 ) Total stockholders' equity 794,905 760,417 Total liabilities and stockholders' equity$ 7,269,597 $ 7,089,513 See Notes to Consolidated Financial Statements. 47
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BURLINGTON STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
OPERATING ACTIVITIES
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization 270,398 249,217 220,390
Impairment charges-long-lived assets 21,402 7,748 6,012
Amortization of deferred financing costs 3,633 5,323 4,450
Accretion of long term debt instruments 949 889 24,775
Deferred income taxes (25,431 ) 51,952 (24,959 )
Loss on extinguishment of debt 14,657 156,020 202
Non-cash stock compensation expense 67,480 58,546 55,845
Non-cash lease expense (523 ) (10,294 ) (1,530 )
Cash received from landlord allowances 23,137 34,051 40,663
Changes in assets and liabilities:
Accounts receivable (13,012 ) 10,186 26,858
Merchandise inventories (160,974 ) (280,220 ) 36,459
Prepaid and other current assets 244,852 (56,363 ) (177,454 )
Accounts payable (125,006 ) 214,792 104,607
Other current liabilities 44,830 (33,129 ) 103,871
Other long term assets and long term
liabilities (360 ) (2,782 ) 562
Other operating activities 230 18,384 14,929
Net cash provided by operating activities 596,385 833,159 219,181
INVESTING ACTIVITIES
Cash paid for property and equipment (447,393 ) (352,467 ) (273,282 )
Lease acquisition costs (3,710 ) (576 ) -
Proceeds from insurance recoveries related to
property and equipment - - 220
Proceeds from sale of property and equipment
and assets held for sale 27,961 8,654 -
Other investing activities - - (1,070 )
Net cash (used in) investing activities (423,142 ) (344,389 ) (274,132 )
FINANCING ACTIVITIES
Proceeds from long term debt-ABL Line of
Credit - - 400,000
Principal payments on long term debt-ABL Line
of Credit - - (400,000 )
Proceeds from long term debt-Term B-6 Loans - 956,608 -
Principal payments on long term debt-Term B-6
Loans (9,614 ) (4,807 ) -
Principal payments on long term debt-Term B-5
Loans - (961,415 ) -
Proceeds from long term debt-Convertible Notes - - 805,000
Principal payment on long term
debt-Convertible Notes (78,240 ) (201,695 ) -
Proceeds from long term debt-Secured Notes - - 300,000
Principal payments on long term debt-Secured
Notes - (323,905 ) -
Purchase of treasury shares (316,896 ) (266,628 ) (65,526 )
Proceeds from stock option exercises 20,592 39,887 34,924
Deferred financing costs - (2,143 ) (28,815 )
Other financing activities (7,553 ) (13,857 ) (13,430 )
Net cash (used in) provided by financing
activities (391,711 ) (777,955 ) 1,032,153
(Decrease) increase in cash, cash equivalents,
restricted cash and restricted cash
equivalents (218,468 ) (289,185 ) 977,202
Cash, cash equivalents, restricted cash and
restricted cash equivalents at beginning of
period 1,097,673 1,386,858 409,656
Cash, cash equivalents, restricted cash and
restricted cash equivalents at end of period $ 879,205 $ 1,097,673 $ 1,386,858
Supplemental disclosure of cash flow
information:
Interest paid $ 51,445 $ 52,671 $ 48,392
Income tax (refund) payments - net $ (208,333 ) $ 130,247 $ 44,993
Non-cash investing and financing activities:
Shares issued to repurchase Convertible Notes $ - $ 151,206 $ -
Finance lease modification $ (6,042 ) $ - $ -
Accrued purchases of property and equipment $ 66,007 $ 63,296 $ 44,490
Exchange of noncash assets $ 7,300 $ - $ -
See Notes to Consolidated Financial Statements.
48--------------------------------------------------------------------------------
BURLINGTON STORES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All dollar amounts in thousands)
Accumulated
Additional Other
Common Stock Paid-in Accumulated Comprehensive Treasury Stock
Shares Amount Capital Deficit Loss Shares Amount Total
Balance at February 1, 2020 79,882,506 $ 7 $ 1,587,146 $ 204,797 $ (18,960 ) (13,952,534 ) $ (1,244,841 ) $ 528,149
Net loss - - - (216,499 ) - - - (216,499 )
Stock options exercised 731,954 - 34,924 - - - - 34,924
Shares used for tax withholding - - - - - (79,015 ) (15,368 ) (15,368 )
Shares purchased as part of
publicly announced programs - - - - - (243,573 ) (50,158 ) (50,158 )
Vesting of restricted shares,
net of forfeitures of
9,437 restricted shares 46,993 - - - - - - -
Stock based compensation - - 55,845 - - - - 55,845
Equity component of convertible
notes issuance, net of related
taxes of $44.1 million - - 131,916 - - - - 131,916
Unrealized losses on interest rate derivative contracts, net of related taxes of$4.1 million - - - - (11,458 ) - - (11,458 ) Amount reclassified into earnings, net of related taxes of$2.8 million - - - - 7,403 - - 7,403 Balance at January 30, 2021 80,661,453 7 1,809,831 (11,702 ) (23,015 ) (14,275,122 ) (1,310,367 ) 464,754 Net income - - - 408,839 - - - 408,839 Stock options exercised 418,173 - 39,887 - - - - 39,887 Shares used for tax withholding - - - - - (53,783 ) (16,612 ) (16,612 ) Shares purchased as part of publicly announced programs - - - - - (856,855 ) (250,016 ) (250,016 ) Vesting of restricted shares, net of forfeitures of 2,886 restricted shares 83,698 - - - - - - - Stock based compensation - - 58,546 - - - - 58,546 Shares issued to redeem convertible notes 513,991 - 151,206 - - - - 151,206 Unrealized gains on interest rate derivative contracts, net of related taxes of$3.0 million - - - - 7,931 - -
7,931
Amount reclassified into earnings, net of related taxes of$4.0 million - - - - 10,643 - - 10,643 Adoption of ASU 2020-06 - - (131,916 ) 17,155 - - - (114,761 ) Balance at January 29, 2022 81,677,315 7 1,927,554 414,292 (4,441 ) (15,185,760 ) (1,576,995 ) 760,417 Net income - - - 230,123 - - - 230,123 Stock options exercised 168,720 1 20,591 - - - - 20,592 Shares used for tax withholding - - - - - (75,710 ) (14,238 ) (14,238 ) Shares purchased as part of publicly announced programs - - - - - (1,756,811 ) (302,658 ) (302,658 ) Vesting of restricted shares, net of forfeitures of 199 restricted shares 191,959 - - - - - - - Stock based compensation - - 67,480 - - - - 67,480 Unrealized gains on interest rate derivative contracts, net of related taxes of$10.1 million - - - - 27,726 - - 27,726 Amount reclassified into earnings, net of related taxes of$2.0 million - - - - 5,463 - -
5,463
Balance at
$ 644,415 $ 28,748 (17,018,281 )$ (1,893,891 ) $ 794,905 See Notes to Consolidated Financial Statements. 49
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BURLINGTON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Summary of Significant Accounting Policies
Business
As ofJanuary 28, 2023 ,Burlington Stores, Inc. , aDelaware corporation (collectively with its subsidiaries, the Company), has expanded its store base to 927 retail stores in 46 states andPuerto 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 ofJanuary 28, 2023 , the Company operated stores under the names "Burlington Stores" (925 stores), and "Cohoes Fashions" (2 stores). Cohoes Fashions offers products similar to those offered byBurlington Stores .
Basis of Consolidation and Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted inthe United States of America (GAAP). The Consolidated Financial Statements include the accounts ofBurlington 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 toJanuary 31 . The fiscal years endedJanuary 28, 2023 (Fiscal 2022),January 29, 2022 (Fiscal 2021) andJanuary 30, 2021 (Fiscal 2020) each consisted of 52 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.
COVID-19
Results for Fiscal 2020 were significantly impacted by the COVID-19 pandemic. All the Company's stores were temporarily closed for a portion of Fiscal 2020, resulting in a sales decline and higher inventory markdowns. These store closures did not repeat in Fiscal 2021 or Fiscal 2022. However, certain lingering economic effects of the pandemic did continue to impact results, including supply chain disruptions.
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, insurance receivables, interest 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.
50
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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
(Loss).
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 (Loss). Product sourcing costs
included within the line item "Selling, general and administrative expenses"
amounted to $677.6 million , $618.3 million and $433.8 million during Fiscal
2022, Fiscal 2021 and Fiscal 2020, respectively. Depreciation and amortization
related to the distribution and purchasing functions for the same periods
amounted to $56.3 million , $45.0 million and $30.8 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 (Loss). 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). Refer to Note 6, "Impairment Charges," for further discussion of the Company's measurement of impairment of long-lived assets.
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$26.1 million ,$25.3 million , and$12.2 million relating to these costs during Fiscal 2022, Fiscal 2021, and Fiscal 2020, respectively.
Intangible Assets
The Company accounts for intangible assets in accordance with Topic No. 350. The
Company's intangible assets represent tradenames. 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
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 2022, Fiscal 2021 or Fiscal 2020 related to indefinite-lived
intangible assets.
51
--------------------------------------------------------------------------------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 2022, Fiscal 2021 or Fiscal 2020.
Other Assets
Other assets consist primarily of landlord-owned store assets that the Company has paid for as part of its lease, deferred financing costs associated with the Company's senior secured asset-based revolving credit facility (the ABL Line of Credit), and the fair value of derivative contracts. 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, and are included in the line item "Depreciation and amortization" in the Company's Consolidated Statements of Income (Loss). 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 (Loss). Other Current Liabilities Other current liabilities primarily consist of accrued payroll costs, self-insurance reserves, customer liabilities, accrued operating expenses, sales tax payable, payroll taxes payable and other miscellaneous items. Customer liabilities totaled$36.0 million and$35.5 million as ofJanuary 28, 2023 andJanuary 29, 2022 , 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 ofJanuary 28, 2023 andJanuary 29, 2022 were: (in thousands)January 28 ,January 29, 2023 2022
Short-term self-insurance reserve(a)
50,368 47,841
Total $ 86,176 $ 81,575
(a) 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.
(b) 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
Other liabilities primarily consist of the long term portion of self-insurance
reserves, the fair value of derivative contracts 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).
52
--------------------------------------------------------------------------------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 (Loss). The Company accounts for layaway sales 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 and other miscellaneous service
charges), subleased rental income and revenue from the Company's private label
credit card (PLCC) as shown in the table below:
(in thousands)
Fiscal Years Ended
January 28, January 29, January 30,
2023 2022 2021
Service fees $ 4,131 $ 3,178 $ 3,186
Subleased rental income and other 9,444 9,529 7,590
PLCC 4,484 3,000 1,663
Total $ 18,059 $ 15,707 $ 12,439
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 within net sales 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 video, audio and digital marketing. 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 (Loss). During Fiscal 2022, Fiscal 2021 and Fiscal 2020, advertising costs were$33.8 million ,$48.5 million and$43.8 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 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
53
--------------------------------------------------------------------------------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 gains and losses on insurance proceeds, interest income, net gains and losses on disposition of assets, gift card breakage, and other miscellaneous items. The Company recognized$3.0 million ,$1.5 million and$3.2 million of gain on insurance recoveries during Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively. The Company also recognized$3.7 million during Fiscal 2021 related to the sale of certain state tax credits. There were no sales of tax credits during Fiscal 2022 or Fiscal 2020.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) 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. 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 plus initial direct costs and prepaid lease payments, less landlord incentives received. The Company's operating lease cost, included in the line item "Selling, general and administrative expenses" on its Consolidated Statements of Income (Loss), 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 and through the end of the vesting period. Refer to Note 11, "Stock-Based Compensation," for further details.
Net Income (Loss) Per Share
Net income (loss) per share is calculated using the treasury stock method. Refer to Note 10, "Net Income (Loss) Per Share," for further details.
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:
54
--------------------------------------------------------------------------------women's ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. Sales percentage by major product category is as follows:
Category Fiscal 2022 Fiscal 2021 Fiscal 2020 Ladies apparel 22 % 23 % 20 % Accessories and shoes 24 % 23 % 24 % Home 21 % 20 % 21 % Mens apparel 17 % 16 % 16 % Kids apparel and baby 12 % 14 % 15 % Outerwear 4 % 4 % 4 %
2. Recent Accounting Pronouncements
There were no new accounting standards that had a material impact on the Company's Consolidated Financial Statements during Fiscal 2022, and there were no new accounting standards or pronouncements that were issued but not yet effective as ofJanuary 28, 2023 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 bothJanuary 28, 2023 andJanuary 29, 2022 , restricted cash and cash equivalents consisted of$6.6 million 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:
(in thousands)
January 28, January 29,
Useful Lives 2023 2022
Land N/A $ 112,513 $ 148,144
Buildings 20 to 40 Years 394,798 490,698
Store fixtures and equipment 3 to 15 Years 1,414,220 1,300,997
Software 3 to 10 Years 332,509 307,077
Shorter of
lease term or
Leasehold improvements useful life 881,695 828,095
Construction in progress N/A 250,160 128,673
Total property and equipment at cost 3,385,895 3,203,684
Less: accumulated depreciation and amortization (1,717,890 ) (1,651,447 )
Total property and equipment, net of accumulated
depreciation and amortization $ 1,668,005 $ 1,552,237
As of January 28, 2023 and January 29, 2022 , assets, net of accumulated
amortization of $13.6 million and $13.3 million , respectively, held under
finance leases amounted to approximately $25.3 million and $34.2 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 (Loss). The total amount of depreciation expense during Fiscal 2022,
Fiscal 2021 and Fiscal 2020 was $237.8 million , $218.1 million and $189.5
million , respectively.
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 (Loss). Amortization of
internally developed software amounted to $21.2 million , $18.9 million and $16.9
million during Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively.
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 $11.4
million , $12.2 million and $14.0 million , during Fiscal 2022, Fiscal 2021 and
Fiscal 2020, respectively, and was included in the line item "Depreciation and
amortization" in the Company's Consolidated Statements of Income (Loss).
55
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During Fiscal 2022, Fiscal 2021 and Fiscal 2020, the Company recorded impairment
charges related to property and equipment of $20.1 million , $7.5 million and
$4.6 million , respectively. These charges are recorded in the line item
"Impairment charges-long-lived assets" in the Company's Consolidated Statements
of Income (Loss). Refer to Note 6, "Impairment Charges," for further discussion.
5. Intangible Assets
Intangible assets atJanuary 28, 2023 andJanuary 29, 2022 consist primarily of tradenames. (in thousands) January 28, 2023 January 29, 2022 Gross Gross Carrying Accumulated Net Carrying Accumulated Net Amount Amortization Amount Amount
Amortization Amount Tradenames$ 238,000 $ -$ 238,000 $ 238,000 $ -$ 238,000 6. Impairment Charges Impairment charges recorded during Fiscal 2022, Fiscal 2021 and Fiscal 2020 amounted to$21.4 million ,$7.7 million and$6.0 million , respectively. Impairment charges are primarily related to sales of owned properties in Fiscal 2022, as well as declines in revenues and operating results of certain stores in Fiscal 2022, Fiscal 2021, and Fiscal 2020. Impairment charges during these periods related to the following: (in thousands) Fiscal Years Ended January 28, January 29, January 30, Asset Categories 2023 2022 2021 Store fixtures and equipment$ 2,981 $ 3,163 $ 2,811 Leasehold improvements 2,097 3,330 1,665 Operating lease assets 1,286 202 1,373 Buildings 8,687 970 43 Land 4,968 - - Other assets 1,383 83 120 Total$ 21,402 $ 7,748 $ 6,012 The Company recorded impairment charges related to store-level assets for 16 stores during Fiscal 2022, nine stores during Fiscal 2021, and 14 stores during Fiscal 2020. 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 15, "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 and market rent rates, based on its experience and knowledge of market factors in which the retail 56 -------------------------------------------------------------------------------- location is located. The assets impaired had a remaining carrying value after impairments of$99.0 million ,$63.4 million , and$30.5 million during Fiscal 2022, Fiscal 2021, and Fiscal 2020, respectively, primarily related to the right-of-use assets. 7. Long Term Debt Long term debt consists of: (in thousands) January 28, January 29, 2023 2022
Senior secured term loan facility (Term B-6 Loans),
LIBOR (with a floor of 0.00%) plus 2.00%, matures on
$ 942,012 $
950,676
Convertible senior notes, 2.25%, matures on
507,687 572,322
ABL senior secured revolving facility, SOFR plus
spread based on average outstanding balance, matures
on
- -
Finance lease obligations 33,447
43,945
Unamortized deferred financing costs (7,440 ) (11,484 ) Total debt 1,475,706 1,555,459 Less: current maturities (13,634 ) (14,357 ) Long term debt, net of current maturities$ 1,462,072 $ 1,541,102 Term Loan Facility OnJune 24, 2021 , BCFWC entered into Amendment No. 9 (the Ninth Amendment) to the Term Loan Credit Agreement governing the Term Loan Facility. The Ninth Amendment, among other things, extended the maturity date fromNovember 17, 2024 toJune 24, 2028 , and changed the interest rate margins applicable to the Term Loan Facility from 0.75% to 1.00%, in the case of prime rate loans, and from 1.75% to 2.00%, in the case of LIBOR loans, with a 0.00% LIBOR floor. This amendment also requires quarterly principal payments of$2.4 million . In connection with the execution of the Ninth Amendment, the Company incurred fees of$3.3 million , primarily related to legal and placement fees, which were recorded in the line item "Costs related to debt issuances and amendments" in the Company's Consolidated Statement of Income (Loss). Additionally, the Company recognized a loss on the extinguishment of debt of$1.2 million , representing the write-off of unamortized deferred financing costs and original issue discount, which was recorded in the line item "Loss on extinguishment of debt" in the Company's Consolidated Statement of Income (Loss). The Term Loan Facility is collateralized by a first lien on the Company's favorable leases, real estate and property & equipment and a second lien on the Company's 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 byJPMorgan Chase Bank, N.A . at its head office as its "prime rate," (b) the federal reserve bank ofNew 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 ofJanuary 28, 2023 , the Company's borrowing rate related to the Term Loan Facility was 6.4%.
Convertible Notes
OnApril 16, 2020 , the Company issued$805.0 million of its 2.25% Convertible Senior Notes due 2025 (Convertible Notes). The Convertible Notes are general unsecured obligations of the Company. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears, onApril 15 andOctober 15 of each year, beginning onOctober 15, 2020 . The Convertible Notes will mature onApril 15, 2025 , unless earlier converted, redeemed or repurchased. OnAugust 5, 2020 , theFinancial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. The Company elected to early adopt this ASU as of the beginning of Fiscal 2021, using the modified retrospective method of transition. As a result of adopting the guidance, the Company is no longer separating the Convertible Notes into debt and equity components, and is instead accounting for it wholly as debt. Prior periods have not been 57 --------------------------------------------------------------------------------
restated. During the second half of Fiscal 2021, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged$232.7 million in aggregate principal amount of Convertible Notes held by them for a combination of an aggregate of$199.8 million in cash and 513,991 shares of the Company's common stock. During the first quarter of Fiscal 2022, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged$64.6 million in aggregate principal amount of Convertible Notes held by them for$78.2 million in cash.
These exchanges resulted in aggregate pre-tax debt extinguishment charges of
Subsequent toJanuary 28, 2023 (March 7, 2023 ), the Company entered into separate, privately negotiated exchange agreements with certain holders of its Convertible Notes. Under the terms of the exchange agreements, the holders have agreed to exchange$110.3 million in aggregate principal amount of Convertible Notes held by them for$133.3 million in cash. Prior to the close of business on the business day immediately precedingJanuary 15, 2025 , the Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Convertible Notes have an initial conversion rate of 4.5418 shares per$1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately$220.18 per share of the Company's common stock), subject to adjustment if certain events occur. The initial conversion price represents a conversion premium of approximately 32.50% over$166.17 per share, the last reported sale price of the Company's common stock onApril 13, 2020 (the pricing date of the offering) on theNew York Stock Exchange . During the first quarter of Fiscal 2021, the Company made an irrevocable settlement election for any conversions of the Convertible Notes. Upon conversion, the Company will pay cash for the principal amount. For any excess above principal, the Company will deliver shares of its common stock. The Company may not redeem the Convertible Notes prior toApril 15, 2023 . On or afterApril 15, 2023 , the Company will be able to redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of the Company's common stock is equal to or greater than 130% of the conversion price for a specified period of time, at a redemption price equal to 100% of the principal aggregate amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Holders of the Convertible Notes may require the Company to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate event or during the relevant redemption period for such Convertible Notes. The effective interest rate is 2.8%. The Convertible Notes consist of the following components as of the dates indicated: (in thousands) January 28, January 29, 2023 2022 Principal$ 507,687 $ 572,322
Unamortized deferred debt costs (5,992 ) (9,761 ) Net carrying amount
$ 501,695 $ 562,561 Interest expense related to the Convertible Notes consists of the following as of the periods indicated: (in thousands) Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Coupon interest $ 11,564 $ 16,313 $ 14,375 Amortization of debt discount - - 23,988 Amortization of deferred debt costs 2,717 3,742 2,173 Convertible Notes interest expense $ 14,281 $ 20,055 $ 40,536 58
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Secured Notes
OnApril 16, 2020 , BCFWC issued$300.0 million of 6.25% Senior Secured Notes due 2025 (Secured Notes). The Secured Notes were senior, secured obligations of BCFWC, and interest was payable semiannually in cash, in arrears, at a rate of 6.25% per annum onApril 15 andOctober 15 of each year, beginning onOctober 15, 2020 . The Secured Notes were guaranteed on a senior secured basis byBurlington Coat Factory Holdings, LLC ,Burlington Coat Factory Investments Holdings, Inc. and BCFWC's subsidiaries that guarantee the loans under the Term Loan Facility. OnJune 11, 2021 , BCFWC redeemed the full$300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was$323.7 million , plus accrued and unpaid interest to, but not including, the date of redemption. This redemption resulted in a pre-tax debt extinguishment charge of$30.2 million in Fiscal 2021.
ABL Line of Credit
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$900.0 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$1,200 million . The interest rate margin applicable under the Amended ABL Credit Agreement in the case of loans drawn at the Secured Overnight Financing Rate (SOFR) is 1.125% to 1.375% in the case of a daily SOFR rate or a term SOFR rate (in each case, plus a credit spread adjustment of 0.10%), and 0.125% to 0.375% in the case of a prime rate, depending on the average daily availability of the lesser of (a) the total commitments or (b) the borrowing base. The ABL Line of Credit is collateralized by a first priority lien on the Company's and each guarantor's inventory, receivables, bank accounts, and certain related assets and proceeds thereof (subject to certain exceptions), and a second priority lien on the Company's and each guarantor's other assets and proceeds thereof (other than real estate and subject to certain exceptions). 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 allows for increased availability with respect to inventory during the period from (i)August 1st through November 30th of each year or (ii) after 2023, a 120 day period selected by the Company commencing afterFebruary 15 of the applicable year and ending on or beforeDecember 15 of such year. OnMarch 17, 2020 , the Company borrowed$400.0 million under the ABL Line of Credit as a precautionary measure in order to increase the Company's cash position and facilitate financial flexibility in light of the uncertainty resulting from COVID-19. The Company repaid$150.0 million of this amount during the second quarter of Fiscal 2020, and the remaining$250.0 million during the fourth quarter of Fiscal 2020. OnDecember 22, 2021 , the Company finalized an extension of its current ABL line of credit. This extension increased the aggregate principal amount of the commitments from$600 million to$650 million , extended the maturity date toDecember 22, 2026 , and reduced the interest rate margins applicable to the Company's ABL facility. OnJuly 20, 2022 , BCFWC entered into a Fourth Amendment to Second Amended and Restated Credit Agreement (the "Amendment"). The Amendment increased the aggregate principal amount of the commitments of its ABL Line of Credit from$650.0 million to$900.0 million and replaced the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate (SOFR) or a daily SOFR rate (in the case of daily SOFR, available for borrowings up to$100 million , or up to the full amount of the commitments if the term SOFR rate is not available).
At
At
Deferred Financing Costs
The Company had$2.8 million in deferred financing costs associated with its ABL Line of Credit as of bothJanuary 28, 2023 andJanuary 29, 2022 , which are recorded in the line item "Other assets" in the Company's Consolidated Balance Sheets. In addition, the Company had$7.4 million and$11.5 million of deferred financing costs associated with its Term Loan Facility and Convertible 59 --------------------------------------------------------------------------------
Notes, recorded in the line item "Long term debt" in the Company's Consolidated
Balance Sheets as of
Amortization of deferred financing costs amounted to$3.6 million ,$5.3 million and$4.5 million during Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively, which was included in the line item "Interest expense" in the Company's Consolidated Statements of Income (Loss). Amortization expense related to the deferred financing costs as ofJanuary 28, 2023 for each of the next five fiscal years and thereafter is estimated to be as follows: Fiscal Years (in thousands) 2023 $ 3,724 2024 3,714 2025 1,538 2026 904 2027 262 Thereafter 105 Total$ 10,247
Deferred financing costs have a weighted average amortization period of approximately 3.1 years.
Scheduled Maturities
Scheduled maturities of the Company's long term debt obligations, as they exist as ofJanuary 28, 2023 , in each of the next five fiscal years and thereafter are as follows: (in thousands) Total Debt Fiscal Years: 2023 $ 13,634 2024 13,808 2025 519,591 2026 12,066 2027 12,199 Thereafter 916,830 Total 1,488,128 Less: unamortized discount (4,982 ) Less: unamortized deferred financing costs (7,440 ) Total debt$ 1,475,706
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.
60
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The Company has used interest rate swap contracts to add stability to interest
expense and to manage its exposure to interest rate movements. 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 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 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.
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 only has the one derivative
mentioned above.
Although the Company has determined that the majority of the inputs used to
value its derivative fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with its derivative 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 January 28, 2023
and January 29, 2022 , 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
OnJune 24, 2021 , the Company terminated its previous interest rate swap, and entered into a new interest rate swap, which hedges$450 million of the variable rate exposure on the Term Loan Facility at a blended rate of 2.19%. This derivative contract was designated as a cash flow hedge. The amount of loss deferred for the previous interest rate swap was$26.9 million . The Company is amortizing this amount from accumulated other comprehensive loss into interest expense over the original life of the previous interest rate swap, which had an original maturity date ofDecember 29, 2023 . The current interest rate swap had a liability fair value at inception of$26.9 million . The Company will accrete this amount into accumulated other comprehensive income as a benefit to interest expense over the life of the new interest rate swap, which has a maturity date ofJune 24, 2028 . During Fiscal 2022, the Company's derivative was used to hedge the variable cash flows associated with existing 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 income 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 ofJanuary 28, 2023 , the Company estimates that$5.7 million will be reclassified as a reduction to interest expense during the next twelve months.
As of
Number of Notional Aggregate Interest
Interest Rate Derivative Instruments Principal Amount Swap Rate Maturity Date
Interest rate swap contract One $450.0 million 2.19% June 24, 2028
61--------------------------------------------------------------------------------
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
January 28, 2023 January 29, 2022
Balance Balance
Derivatives Designated as Sheet Fair Sheet Fair
Hedging Instruments Location Value Location Value
Interest rate swap
contracts Other assets $ 29,152 Other liabilities $ 10,968
The following table presents the unrealized losses 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.
(in thousands)
Fiscal Year Ended
Interest Rate Derivatives: January 28, 2023 January 29, 2022 January 30, 2021
Unrealized gains (losses), before taxes $ 37,864 $ 10,914 $ (15,606 )
Income tax (expense) benefit (10,138 ) (2,983 ) 4,148
Unrealized gains (losses), net of taxes $ 27,726 $
7,931 $ (11,458 )
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.
(in thousands)
Fiscal Year Ended
Component of Earnings: January 28, 2023 January 29, 2022 January 30, 2021
Interest expense $ 7,479 $ 14,608 $ 10,198
Income tax benefit (2,016 ) (3,965 ) (2,795 )
Net reclassification into earnings $ 5,463 $ 10,643 $ 7,403
9. Capital Stock
Common Stock
As of January 28, 2023 , 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 theState 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. 62 --------------------------------------------------------------------------------
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 2022, the Company acquired 75,710 shares of common stock from employees for approximately$14.2 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock awards, which was recorded in the line item "Treasury stock" on the Company's Consolidated Balance Sheets, and the line item "Purchase of treasury shares" on the Company's Consolidated Statements of Cash Flows.
Share Repurchase Program
OnAugust 18, 2021 , the Company's Board of Directors authorized the repurchase of up to$400.0 million of common stock, which was authorized to be executed throughAugust 2023 . This authorization was completed during the second quarter of Fiscal 2022.
On
These repurchase programs are funded using the Company's available cash and borrowings under the ABL Line of Credit.
During Fiscal 2022, the Company repurchased 1,756,811 shares of common stock for$302.7 million under its share repurchase program. As ofJanuary 28, 2023 , the Company had$347.3 million remaining under its share repurchase authorization.
10. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by
the weighted-average number of common shares outstanding. Dilutive net income
(loss) per share is calculated by dividing net income (loss) by the
weighted-average number of common shares and potentially dilutive securities
outstanding during the period using the treasury stock method for the Company's
stock option, restricted stock and restricted stock unit awards, and the
if-converted method for the Convertible Notes.
(in thousands, except per share data)
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
Basic net income (loss) per share
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Weighted average number of common shares -
basic 65,637 66,588 65,962
Net income (loss) per common share - basic $ 3.51 $ 6.14 $ (3.28 )
Diluted net income per share
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Shares for basic and diluted net income
(loss) per share:
Weighted average number of common shares -
basic 65,637 66,588 65,962
Assumed exercise of stock options and
vesting of restricted stock 264 685 -
Assumed conversion of convertible debt - 853 -
Weighted average number of common shares -
diluted 65,901 68,126 65,962
Net income (loss) per common share -
diluted $ 3.49 $ 6.00 $ (3.28 )
63-------------------------------------------------------------------------------- All of the Company's stock option, restricted stock and restricted stock unit awards have an anti-dilutive effect while in a net loss position. Approximately 1,068,000 shares, 177,000 shares and 1,960,000 shares were excluded from diluted net income (loss) per share for Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively, since their effect was anti-dilutive.
11. Stock-Based Compensation
The Company's 2013 Omnibus Incentive Plan (the 2013 Plan), originally adopted effective prior to and in connection with the Company's initial public offering, was amended and restated effectiveMay 17, 2017 . OnMay 18, 2022 , the Company's stockholders approved the Company's 2022 Omnibus Incentive Plan (the 2022 Plan), which replaced the 2013 Plan. The 2013 Plan provided, prior to its termination, and the 2022 Plan provides 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 ofJanuary 28, 2023 , there were 6,281,887 shares of common stock available for issuance under the Company's 2022 Omnibus Incentive Plan.
Non-cash stock compensation expense is as follows:
(in thousands)
Fiscal Year Ended
January 28, January 29, January 30,
Type of Non-Cash Stock Compensation 2023 2022 2021
Restricted stock and restricted stock unit grants (a)$ 37,749 $ 30,525 $ 25,258 Stock option grants (a) 19,274 18,909
20,038
Performance stock unit grants (a) 10,457 9,112 10,549 Total (b)$ 67,480 $ 58,546 $ 55,845 (a) Included in the line item "Selling, general and administrative expenses" in the Company's Consolidated Statements of Income (Loss). (b) 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$12.5 million ,$10.3 million and$9.1 million during Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively.
Stock Options
Options granted during Fiscal 2022, Fiscal 2021 and Fiscal 2020, were all
service-based awards granted under the Plans at the following exercise prices:
Exercise Price Ranges
From To
Fiscal 2022 $ 115.65 $ 236.93
Fiscal 2021 $ 219.08 $ 342.03
Fiscal 2020 $ 179.46 $ 246.97
All awards granted during Fiscal 2022, Fiscal 2021 and Fiscal 2020 generally
vest in either one-fourth annual increments or one-third annual increments
(subject to continued employment through the applicable vesting date). The final
exercise date for any option granted is the tenth anniversary of the grant date.
Options granted during Fiscal 2022, Fiscal 2021 and Fiscal 2020 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.
As of January 28, 2023 , the Company had 1,218,101 options outstanding to
purchase shares of common stock, and there was $35.9 million of unearned
non-cash stock-based option compensation that the Company expects to recognize
as expense over a weighted average period of 2.6 years. The awards are expensed
on a straight-line basis over the requisite service period.
64
--------------------------------------------------------------------------------Stock option transactions during Fiscal 2022 are summarized as follows:
Weighted
Average
Exercise
Number of Price Per
Shares Share
Options outstanding,
332,788 201.76
Options exercised (a) (168,720 ) 122.05
Options forfeited (43,525 ) 228.02
Options outstanding,
(a) Options exercised during Fiscal 2022 had a total intrinsic value of
The following table summarizes information about the stock options vested and
expected to vest during the contractual term, as well as options exercisable:
Weighted
Average Weighted Aggregate
Remaining Average Intrinsic
Contractual Exercise Value
Options Life (Years) Price (in millions)
Options vested and
expected to vest 1,218,101 7.1 $ 193.31 $ 57.2
Options exercisable 623,673 5.8 $ 165.27 $ 42.6
During Fiscal 2022, the fair value of each stock option granted was estimated on
the date of grant using the Black Scholes option pricing model. The fair value
of each stock option granted during Fiscal 2022 was estimated using the
following assumptions:
Fiscal Year Ended
January 28,
2023
Risk-free interest rate 1.13% - 2.78%
Expected volatility 32% - 34%
Expected life (years) 6.25
Contractual life (years) 10.0
Expected dividend yield 0%
Weighted average grant date fair value of options issued
The expected dividend yield was based on the Company's expectation of not paying dividends in the near term. To evaluate its volatility factor, the Company uses the historical volatility of its stock price, as well as the historical volatility of the stock price of peer companies that are publicly traded over the expected life of the options. The risk free interest rate was based on theU.S. Treasury rates forU.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. For grants issued during Fiscal 2022, Fiscal 2021 and Fiscal 2020, the expected life of the options was calculated using the simplified method. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches. This methodology was utilized due to the relatively short length of time the Company's common stock has been publicly traded. Restricted Stock Awards Restricted stock awards granted during Fiscal 2022 were all service-based awards. The fair value of each unit of restricted stock granted during Fiscal 2022 was based upon the closing price of the Company's common stock on the grant date. Certain awards outstanding as ofJanuary 28, 2023 cliff vest at the end of a designated service period, ranging from two years to four years from the grant date. Awards granted to non-employee members of the Company's Board of Directors vest 100% on the first anniversary of the grant date. The remaining awards outstanding as ofJanuary 28, 2023 have graded vesting provisions that generally vest in one-fourth annual increments or one-third annual increments (subject to continued employment through the applicable vesting date). Following a change of control, all unvested restricted stock awards shall remain unvested, provided, however, that 100% of such shares shall vest 65 --------------------------------------------------------------------------------
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 ofJanuary 28, 2023 , there was approximately$69.9 million of unearned non-cash stock-based compensation related to restricted stock awards that the Company expects to recognize as expense over a weighted average period of 2.4 years. The awards are expensed on a straight-line basis over the requisite service periods. Award grant, vesting and forfeiture transactions during Fiscal 2022 are summarized as follows: Weighted Average Grant Date Fair Number of Value Per Shares Award Non-vested awards outstanding, January 29, 2022 368,158$ 233.00 Awards granted 267,145 201.11 Awards vested (a) (132,880 ) 205.07 Awards forfeited (24,982 ) 233.52 Non-vested awards outstanding, January 28, 2023 477,441 222.90 (a)
Restricted stock awards vested during Fiscal 2022 had a total intrinsic value of
Performance Share Units The Company grants performance-based restricted stock units to its senior executives. The fair value of each unit of performance stock granted during Fiscal 2022 was based upon the closing price of the Company's common stock on the grant date. Vesting of the performance stock units granted in Fiscal 2020 and Fiscal 2021 is based on continued service and the achievement of pre-established EBIT margin expansion and sales compounded annual growth rate (CAGR) goals (each weighted equally) over a three-year performance period. Vesting of the performance stock units granted in Fiscal 2022 will be based on continued service and the achievement of pre-established adjusted net income per share growth over a three-year performance period. Based on the Company's achievement of these goals, each award may be earned up to 200% of the target award. In the event that actual performance is below threshold, no award will be made. Compensation costs recognized on the performance stock units are adjusted, as applicable, for performance above or below the target specified in the award. As ofJanuary 28, 2023 , there was approximately$20.4 million of unearned non-cash stock-based compensation related to performance share units that the Company expects to recognize as expense over a weighted average period of 1.8 years. The awards are expensed on a straight-line basis over the requisite service periods. Performance share unit transactions during Fiscal 2022 are summarized as follows: Weighted Average Grant Date Fair Number of Value Per Shares Award Non-vested awards outstanding, January 29, 2022 186,436$ 215.90 Awards granted (a) 107,476 204.27 Awards vested (a) (b) (81,440 ) 173.84 Awards forfeited (16,172 ) 227.12 Non-vested awards outstanding, January 28, 2023 196,300 226.05 (a)
Inclusive of awards distributed in connection with the final settlement of the performance-based stock awards granted in Fiscal 2019.
(b)
Performance-based stock awards vested during Fiscal 2022 had a total intrinsic
value of
12. 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
66
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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:
(in thousands)
Operating Finance
Fiscal Year Leases Leases
2023 $ 550,636 $ 5,906
2024 540,446 5,733
2025 505,732 3,604
2026 466,983 3,640
2027 425,119 3,640
Thereafter 1,433,239 24,233
Total future minimum lease payments 3,922,155 46,756
Amount representing interest (695,752 ) (13,309 )
Total lease liabilities 3,226,403 33,447
Less: current portion of lease liabilities (401,111 ) (4,020 ) Total long term lease liabilities
$ 2,825,292 $ 29,427 Weighted average discount rate 4.9% 6.1% Weighted average remaining lease term (years) 8.1 11.9 The above schedule excludes approximately$409.5 million for 75 stores that the Company has committed to open or relocate but has not yet taken possession of the space.
The following is a schedule of net lease costs for the years indicated:
(in thousands)
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
Finance lease cost:
Amortization of finance lease
asset (a) $ 4,210 $ 4,554 $ 5,907
Interest on lease liabilities (b) 2,561 3,111 3,394
Operating lease cost (c) 523,980 468,349 441,089
Variable lease cost (c) 205,876 188,035 180,270
Total lease cost 736,627 664,049 630,660
Less all rental income (d) (5,650 ) (5,771 ) (5,010 )
Total net rent expense (e) $ 730,977 $ 658,278 $ 625,650
(a) Included in the line item "Depreciation and amortization" in the Company's
Consolidated Statements of Income (Loss).
(b) Included in the line item "Interest expense" in the Company's Consolidated
Statements of Income (Loss).
(c) 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 (Loss).
(d) Included in the line item "Other revenue" in the Company's Consolidated
Statements of Income (Loss).
(e) Excludes an immaterial amount of short-term lease cost.
Supplemental cash flow disclosures related to leases are as follows:
(in thousands)
Fiscal Year Ended
January 28, 2023 January 29, 2022 January 30, 2021
Cash paid for amounts included in
the measurement of lease
liabilities:
Cash payments arising from operating
lease liabilities (a) $ 525,098 $ 509,971 $ 409,750
Cash payments for the principal
portion of finance lease liabilities
(b) $ 4,455 $ 4,073 $ 3,269
Cash payments for the interest
portion of finance lease liabilities
(a) $ 2,561 $ 3,111 $ 3,394
Supplemental non-cash information:
Operating lease liabilities arising
from obtaining right-of-use assets $ 712,688 $ 516,545 $ 413,068
67--------------------------------------------------------------------------------
(a) Included within operating activities in the Company's Consolidated Statements of Cash Flows. (b) Included within financing activities in the Company's Consolidated Statements of Cash Flows.
13. Employee Retirement Plans
The Company maintains separate defined contribution 401(k) retirement savings and profit-sharing plans covering employees inthe United States andPuerto 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$15.6 million ,$11.4 million and$10.2 million of 401(k) Plan match expense during Fiscal 2022, Fiscal 2021 and Fiscal 2020 respectively, which is included in the line item "Selling, general and administrative expenses" on the Company's Consolidated Statements of Income (Loss).
14. Income Taxes
Income (loss) before income taxes was as follows for Fiscal 2022, Fiscal 2021
and Fiscal 2020:
(in thousands)
Year Ended
January 28, January 29, January 30,
2023 2022 2021
Domestic $ 297,440 $ 533,906 $ (441,473 )
Foreign 10,069 11,392 3,850
Total income (loss) before income taxes
Income tax expense (benefit) was as follows for Fiscal 2022, Fiscal 2021 and
Fiscal 2020:
(in thousands)
Year Ended
January 28, January 29, January 30,
2023 2022 2021
Current:
Federal $ 86,299 $ 69,146 $ (210,304 )
State 13,494 11,546 12,964
Foreign 3,024 3,815 1,175
Subtotal 102,817 84,507 (196,165 )
Deferred:
Federal (28,980 ) 32,217 13,600
State 2,796 19,272 (38,816 )
Foreign 753 463 257
Subtotal (25,431 ) 51,952 (24,959 )
Total income tax expense (benefit) $ 77,386 $ 136,459 $ (221,124 )
The tax rate reconciliations were as follows for Fiscal 2022, Fiscal 2021 and
Fiscal 2020:
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
Tax at statutory rate 21.0 % 21.0 % 21.0 %
State income taxes, net of federal benefit 5.3 4.0 3.0
Excess tax benefit from stock compensation (0.2 ) (4.8 ) 7.2
Tax credits (2.2 ) (1.6 ) 1.8
Carryback tax rate differential - - 19.8
Non-deductible expenses 2.1 2.0 (1.8 )
Loss from extinguishment of convertible debt 0.9 4.4 -
Other (1.7 ) - (0.5 )
Effective tax rate 25.2 % 25.0 % 50.5 %
68
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The tax effects of temporary differences are included in deferred tax accounts
as follows:
(in thousands)
January 28, 2023 January 29, 2022
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Non-current deferred tax assets and
liabilities:
Property and equipment basis adjustments $ - $ 231,426 $ - $ 253,097
Operating lease liability 830,029 - 745,300 -
Operating lease asset - 764,446 - 687,128
Intangibles-indefinite-lived - 63,871 - 64,093
Employee benefit compensation 21,303 - 17,703 -
State net operating losses (net of
federal benefit) 11,323 - 25,450 -
Tax credits 11,132 - 8,562 -
Other - 3,770 4,103 -
Valuation allowance (13,060 ) - (12,864 ) -
Total non-current deferred tax assets
and liabilities $ 860,727 $ 1,063,513 $ 788,254 $ 1,004,318
Net deferred tax liability $ 202,786 $ 216,064
As of January 28, 2023 , the Company has a deferred tax asset related to net
operating losses of $11.3 million , inclusive of $11.0 million of state net
operating losses which will expire at various dates between 2023 and 2041 and
$0.3 million of deferred tax assets recorded for Puerto Rico net operating loss
carry-forwards that will expire in 2025. As of January 28, 2023 , the Company had
tax credit carry-forwards of $11.1 million , inclusive of state tax credit
carry-forwards of $10.4 million that will begin to expire in 2023 and $0.7
million of Puerto Rico alternative minimum tax (AMT) credits that have an
indefinite life.
As of January 29, 2022 , the Company had a deferred tax asset related to net
operating losses of $25.5 million , inclusive of $25.2 million of state net
operating losses, and $0.3 million of deferred tax assets recorded for Puerto
Rico net operating loss carry-forwards. As of January 29, 2022 , the Company had
tax credit carry-forwards of $8.6 million , inclusive of state tax credit
carry-forwards of $7.7 million , and $0.9 million of Puerto Rico AMT credits.
The Company believes 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, the Company has provided a valuation
allowance of $3.3 million on state net operating losses and $9.5 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, it has provided for a full
valuation allowance of $0.3 million . If the Company's assumptions change and it
determines it 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 January 28, 2023 will be recorded to the Company's Consolidated
Statement of Income (Loss). As of January 29, 2022 , the Company provided a total
valuation allowance of $12.9 million , inclusive of $5.3 of valuation allowance
related to state net operating losses, $7.3 million related to tax credit
carry-forwards and $0.3 million related to Puerto Rico .
69
--------------------------------------------------------------------------------A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of interest and penalties) is as follows:
(in thousands)
Gross
Unrecognized
Tax Benefits,
Exclusive of
Interest and
Penalties
Balance at February 1, 2020 $ 8,077
Additions for tax positions of the current year -
Additions for tax positions of prior years -
Reduction for tax positions of prior years (1,269 )
Settlements (396 )
Lapse of statute of limitations (72 )
Balance at January 30, 2021 $ 6,340
Additions for tax positions of the current year -
Additions for tax positions of prior years -
Reduction for tax positions of prior years (783 )
Settlements -
Lapse of statute of limitations (770 )
Balance at January 29, 2022 $ 4,787
Additions for tax positions of the current year -
Additions for tax positions of prior years -
Reduction for tax positions of prior years (782 )
Settlements -
Lapse of statute of limitations (72 )
Balance at January 28, 2023 $ 3,933
As of January 28, 2023 , the Company reported total unrecognized benefits of $3.9
million , of which $3.1 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 $0.9 million of interest and penalties
during Fiscal 2022 in the line item "Income tax expense (benefit)" in the
Company's Consolidated Statements of Income (Loss). Cumulative interest and
penalties of $8.0 million are recorded in the line item "Other liabilities" in
the Company's Consolidated Balance Sheet as of January 28, 2023 . 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.
As of January 29, 2022 , the Company reported total unrecognized benefits of $4.8
million , of which $3.8 million would affect the Company's effective tax rate if
recognized. As a result of previous positions taken, the Company recorded a net
benefit of $1.2 million of interest and penalties during Fiscal 2021 in the line
item "Income tax expense (benefit)" in the Company's Consolidated Statements of
Income (Loss). Cumulative interest and penalties of $9.1 million are recorded in
the line item "Other liabilities" in the Company's Consolidated Balance Sheets
as of January 29, 2022 .
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 2019 through 2022. The
Company or its subsidiaries' state and Puerto Rico income tax returns are open
to audit for Fiscal Years 2018 through 2022 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.
15. 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
70
--------------------------------------------------------------------------------
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: Quoted prices for identical assets or liabilities in active
markets.
Level 2: 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; andmodel-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 swap contract.
Refer to Note 6, "Impairment Charges," for further discussion regarding the fair value of the Company's long-lived assets after impairment.
Financial Assets
The fair values of the Company's financial assets and the hierarchy of the level
of inputs as of
(in thousands)
Fair Value Measurements at
January 28, January 29,
2023 2022
Level 1
Cash equivalents (including restricted cash equivalents) $ 548,986 $ 701,638
Financial Liabilities
The fair values of the Company's financial liabilities are summarized below:
(in thousands)
January 28, 2023 January 29, 2022
Principal Fair Principal Fair
Amount Value Amount Value
Term B-6 Loans $ 946,994 $ 938,708 $ 956,608 $ 955,412
Convertible Notes 507,687 619,409 572,322 724,703
ABL Line of Credit (a) - - - -
Total debt (b) $ 1,454,681 $ 1,558,117 $ 1,528,930 $ 1,680,115
(a)
To the extent the Company has any outstanding borrowings under the ABL Line of
Credit, the fair value would approximate its reported value, because the
interest rate is variable and reflects current market rates, due to its short
term nature.
(b)
The table above excludes finance lease obligations, debt discount and deferred debt costs.
The fair values presented herein are based on pertinent information available to
management as of the respective year end dates. The estimated fair values of the
Company's debt are classified as Level 2 in the fair value hierarchy, and are
based on current market quotes received from inactive markets. 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.
71
--------------------------------------------------------------------------------16. Commitments and Contingencies
Legal
In the course of business, the Company is party to class or collective actions alleging violations of federal and state wage and hour and other labor statutes, representative claims under the California Private Attorneys' General Act and various other lawsuits and regulatory proceedings from time to time including, among others, commercial, product, employee, customer, intellectual property, privacy 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
Letters of credit outstanding as ofJanuary 28, 2023 andJanuary 29, 2022 amounted to$47.4 million and$48.4 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$3.7 million and$7.1 million atJanuary 28, 2023 andJanuary 29, 2022 , respectively, related to certain merchandising agreements. The Company had$795.7 million and$594.6 million available under the ABL Line of Credit as ofJanuary 28, 2023 andJanuary 29, 2022 , respectively.
Inventory Purchase Commitments
The Company had
Death Benefits
In
Schedule I
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Condensed Statements of Income (Loss) and Comprehensive Income (Loss)
Fiscal Years Ended
January 28, January 29, January 30,
2023 2022 2021
(in thousands)
REVENUES:
Total revenue $ - $ - $ -
COSTS AND EXPENSES:
Interest expense, net - - -
Total costs and expenses - - -
Income before provision for income tax - - -
Provision for income tax - - -
Earnings from equity investment, net of
income taxes $ 230,123 $ 408,839 $ (216,499 )
Net income (loss) $ 230,123 $ 408,839 $ (216,499 )
Other comprehensive income (loss), net of
tax:
Interest rate derivative contracts:
Net unrealized gains (losses) arising during
the period 27,726 7,931 (11,458 )
Net reclassification into earnings during the
period 5,463 10,643 7,403
Total comprehensive income (loss) $ 263,312 $ 427,413 $ (220,554 )
72--------------------------------------------------------------------------------
See Notes to Condensed Financial Statements
73--------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Condensed Balance Sheets
As of
January 28, January 29,
2023 2022
(in thousands)
ASSETS:
Cash and cash equivalents $ 192 $ 503
Total current assets 192 503
Investment in subsidiaries 1,296,408 1,322,475
Total assets $ 1,296,600 $ 1,322,978
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities $ - $ -
Long term debt 501,695 562,561
Commitments and contingencies
Total stockholders' equity 794,905 760,417
Total liabilities and stockholders' equity
See Notes to Condensed Financial Statements
74--------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
Parent Company Information
Burlington Stores, Inc.
Condensed Statements of Cash Flows
Fiscal Years Ended
January 28, January 29, January 30,
2023 2022 2021
(in thousands)
OPERATING ACTIVITIES:
Net cash provided by operating activities $ - $ - $ -
INVESTING ACTIVITIES:
Net contribution from (payment to)
subsidiaries 374,233 428,888 (753,404 )
Net cash provided by (used in) investing
activities 374,233 428,888 (753,404 )
FINANCING ACTIVITIES:
Proceeds from long term debt - Convertible
Notes - - 805,000
Principal payment on long term
debt-Convertible Notes (78,240 ) (201,695 ) -
Purchase of treasury shares (316,896 ) (266,628 ) (65,526 )
Proceeds from stock option exercises 20,592 39,887 34,924
Deferred financing costs - - (20,994 )
Net cash provided by (used in) financing
activities (374,544 ) (428,436 ) 753,404
Increase (Decrease) in cash and cash
equivalents (311 ) 452 -
Cash and cash equivalents at beginning of
period 503 51 51
Cash and cash equivalents at end of period $ 192 $ 503 $ 51
See Notes to Condensed Financial Statements
75--------------------------------------------------------------------------------
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's 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 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. Other than debt related costs, the Parent Company incurs certain corporate costs which are borne by the Parent Company's subsidiaries. Such costs are not significant. These parent-only financials statements are not the general-purpose financial statements ofBurlington Stores, Inc. , and they should be read in conjunction withBurlington 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$67.5 million ,$58.5 million and$55.8 million has been pushed down to Parent Company's subsidiaries for Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively.
Note 4. Long Term Debt
OnApril 16, 2020 , the Parent Company issued$805.0 million of Convertible Notes. The Convertible Notes are general unsecured obligations of the Parent Company. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears, onApril 15 andOctober 15 of each year, beginning onOctober 15, 2020 . The Convertible Notes will mature onApril 15, 2025 , unless earlier converted, redeemed or repurchased.BCFWC and Burlington Merchandising Corporation , aDelaware corporation, wholly owned subsidiaries of the Company, have entered into a promissory note, in which they jointly and severally have promised to pay to the Parent an amount equal to the principal of the Convertible Notes. In connection with the promissory note, there was a$507.7 million and$572.3 million intercompany note receivable as ofJanuary 28, 2023 andJanuary 29, 2022 , respectively, related to the cash transferred to Parent subsidiaries for the Convertible Notes, which is included in the line item "Investment in subsidiaries" in the Condensed Balance Sheets. The interest rate and repayment terms of the intercompany note receivable are consistent with that of the Convertible Notes. The Convertible Notes consist of the following components as of the dates indicated: (in thousands) January 28, January 29, 2023 2022 Principal$ 507,687 $ 572,322 Unamortized deferred debt costs (5,992 ) (9,761 ) Net carrying amount$ 501,695 $ 562,561 76
-------------------------------------------------------------------------------- During the second half of Fiscal 2021, the Parent Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged$232.7 million in aggregate principal amount of Convertible Notes held by them for a combination of an aggregate of$199.8 million in cash and 513,991 shares of the Parent Company's common stock. During the first quarter of Fiscal 2022, the Parent Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged$64.6 million in aggregate principal amount of Convertible Notes held by them for$78.2 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of$14.7 million and$124.6 million during Fiscal 2022 and Fiscal 2021, respectively. Furthermore, the intercompany note receivable was extinguished for the same terms, resulting in an offsetting gain on extinguishment, as reflected in the table below. Subsequent toJanuary 28, 2023 (March 7, 2023 ), the Parent Company entered into separate, privately negotiated exchange agreements with certain holders of its Convertible Notes. Under the terms of the exchange agreements, the holders have agreed to exchange$110.3 million in aggregate principal amount of Convertible Notes held by them for$133.3 million in cash.
Included in the Condensed Statements of Income (Loss) and Comprehensive Income (Loss) is the following for each of the periods indicated:
(in thousands)
Fiscal Year Ended
January 28, January 29, January 30,
2023 2022 2021
Convertible Notes interest expense $ (14,281 ) $ (20,055 ) $ (40,536 )
Intercompany note receivable interest
expense 14,281 20,055 40,536
Loss on extinguishment of Convertible
Notes (14,657 ) (124,639 ) -
Gain on extinguishment of intercompany
note receivable 14,657 124,639 -
Interest expense, net $ - $ - $ -
Refer also to Note 7 to the Consolidated financial statements.
Note 5. Capital Stock
Treasury Stock
During Fiscal 2022, the Parent Company acquired 75,710 shares of common stock from employees for approximately$14.2 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock awards, which was recorded in the line item "Purchase of treasury shares" on the Parent Company's Condensed Statements of Cash Flows.
Share Repurchase Program
OnAugust 18, 2021 , the Parent Company's Board of Directors authorized the repurchase of up to$400.0 million of common stock, which was authorized to be executed throughAugust 2023 . This authorization was completed during the second quarter of Fiscal 2022. OnFebruary 16, 2022 , the Parent Company's Board of Directors authorized the repurchase of up to an additional$500.0 million of common stock, which is authorized to be executed throughFebruary 2024 . During Fiscal 2022, the Parent Company repurchased 1,756,811 shares of common stock for$302.7 million under its share repurchase program. As ofJanuary 28, 2023 , the Parent Company had$347.3 million remaining under its share repurchase authorization. 77
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