MAHWAH BERGEN RETAIL GROUP, INC. Certain statements made within this Form 10-Q may constitute "forward-looking statements" within the meaning of, and are being made pursuant to, the "safe harbor" provisions, of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially. Forward-looking statements are statements related to future, not past, events, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," "forecast," "target," "preliminary," or "range," although not all forward-looking statements contain these identifying words. Forward-looking statements are based only on the current assumptions ofMahwah Bergen Retail Group, Inc. (f/k/aAscena Retail Group, Inc. ) (the "Company") and its views of future events and financial performance. They are subject to known and unknown risks and uncertainties, many of which are outside of the Company's control that may cause the Company's actual results to be materially different from planned or expected results. Those risks and uncertainties include, but are not limited to, risks attendant to the bankruptcy process, including the Company's ability to obtain approval from theBankruptcy Court (as defined below) with respect to motions or other requests made to theBankruptcy Court during the Chapter 11 Cases (as defined below); the ability of the Company to consummate a plan of reorganization; the effects of the Chapter 11 Cases, including increased legal and other professional costs necessary to execute the Company's reorganization, on the Company's liquidity (including the availability of operating capital during the pendency of the Chapter 11 Cases); the length of time that the Company will operate under Chapter 11 protection; and risks associated with third-party motions in the Chapter 11 Cases. Please refer to our Annual Report on Form 10-K for the fiscal year endedAugust 1, 2020 (the "Fiscal 2020 10-K") and subsequent filings with theSecurities and Exchange Commission (the "SEC"). The Company does not undertake to publicly update or review its forward-looking statements even if experience or future changes make it clear that our projected results expressed or implied will not be achieved.
OVERVIEW
Our Business
OnJuly 23, 2020 , the Company and certain of its subsidiaries commenced the Chapter 11 Cases, which are described in Note 2. As part of the Chapter 11 Cases, the Company has divested the Catherines' e-commerce business, Justice's intellectual property and other assets and certain assets and liabilities relating to the Company'sAnn Taylor , LOFT and Lane Bryant brands. In addition, the Company has closed all of its Catherines' brick and mortar locations and closed all of its Justice brick and mortar locations. These transactions, some of which occurred subsequent to the first quarter of Fiscal 2021, are collectively referred to as the "Chapter 11 Sales and Closures." As a result of the Chapter 11 Sales and Closures, the Company has no remaining revenue-producing operations and its sole operations consist of expenses associated with the completion of the Chapter 11 Cases and the winding down the Company's operations after the end of the Chapter 11 Cases. The Company is aDelaware corporation and, prior to the consummation of the Chapter 11 Sales and Closures, the Company was a national specialty retailer of apparel for women and tween girls, with annual revenue from continuing operations of approximately$3.5 billion for Fiscal 2020. We and our subsidiaries are collectively referred to herein as the "Company," "we," "us," "our" and "ourselves," unless the context indicates otherwise.
Recent Developments
Voluntary Reorganization Under Chapter 11
OnJuly 23, 2020 (the "Petition Date"), the Company and certain of its subsidiaries (collectively, the "Debtors") commenced voluntary cases (the "Chapter 11 Cases") under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in theUnited States Bankruptcy Court for the Eastern District of Virginia ("theBankruptcy Court "). The Company's Chapter 11 Cases are being jointly administered under the caption In re:Ascena Retail Group, Inc. , et al., Case No. 20-33113. OnFebruary 25, 2021 , theBankruptcy Court entered an order confirming the Amended Joint Chapter 11 Plan (Technical Modifications) ofMahwah Bergen Retail Group, Inc. (f/k/aAscena Retail Group, Inc. ) and Its Debtor Affiliates (the "Plan of Reorganization"). The effective date of the Plan of Reorganization (the "Effective Date") will occur as soon as all conditions precedent to the Plan of Reorganization have been satisfied. The Effective Date is currently expected to occur inMarch 2021 ; however, the Company can make no assurances as to when, or ultimately if, the Plan of Reorganization will become effective. It is also possible that amendments could be made to the Plan of Reorganization prior to the Effective Date in accordance with the Plan of Reorganization and applicable law. On the Effective Date, among other things, cash distributions will be made to 33 --------------------------------------------------------------------------------
MAHWAH BERGEN RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
those stakeholders entitled to such distributions under the Plan of
Reorganization, all existing common equity in the Company will be cancelled,
released, and extinguished without any distributions, and certain releases of
direct and derivative claims and causes of action will become effective as set
forth in the Plan of Reorganization.
Until the Effective Date, the Debtors will continue to operate their businesses
as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and the orders
of the Bankruptcy Court . Bankruptcy Court filings and other information related
to the Chapter 11 Cases are available free of charge online at
http://cases.primeclerk.com/ascena/.
The Debtors have filed the Chapter 11 Cases to implement the terms of a
Restructuring Support Agreement, dated July 23, 2020 (together with all exhibits
and schedules thereto, the "RSA"), by and among the Company and certain of its
subsidiaries (each, a "Company Party" and collectively, the "Company Parties")
and members of an ad hoc group of lenders (the "Consenting Stakeholders") under
the Term Credit Agreement, dated as of August 21, 2015 (as amended, restated,
supplemented or otherwise modified from time to time, the "Prepetition Term
Credit Agreement"), among the Company, AnnTaylor Retail, Inc. , the lenders party
thereto and Goldman Sachs Bank USA , as administrative agent.
For the duration of the Chapter 11 Cases, the Company's operations and ability
to develop and execute its business plan are subject to the risks and
uncertainties associated with the Chapter 11 process as described in Part I,
Item 1A - "Risk Factors" of the Fiscal 2020 Form 10-K. As a result of these
risks and uncertainties, the amount and composition of the Company's assets and
liabilities could be significantly different following the outcome of the
Chapter 11 Cases, and the description of the Company's operations, properties
and liquidity and capital resources included in the Fiscal 2020 Form 10-K may
not accurately reflect its operations, properties and liquidity and capital
resources following emergence from the Chapter 11 Cases.
For more information regarding the Chapter 11 Cases, see Note 2 to the accompanying condensed consolidated financial statements, and for information regarding our ability to continue as a going concern, see Note 1 to the accompanying condensed consolidated financial statements.
COVID-19 Pandemic
Prior to the consummation of the Chapter 11 Sales and Closures, COVID-19 had far-reaching adverse impacts on many aspects of our operation, directly and indirectly, including our employees, consumer behavior, distribution and logistics, our suppliers, and the market overall.
Seasonality of Business
Prior to the consummation of the Chapter 11 Sales and Closures, our individual segments were typically affected by seasonal sales trends primarily resulting from the timing of holiday and back-to-school shopping periods. In particular, sales at our Kids Fashion segment tended to be significantly higher during the Fall season, which occurs during the first and second quarters of our fiscal year, as this includes the back-to-school period and the December holiday season. Our Plus Fashion segment tended to experience higher sales during the Spring season, which include the Easter andMother's Day holidays. Our Premium Fashion segment had relatively balanced sales across the Fall and Spring seasons. As a result, our operational results and cash flows may fluctuate materially in any quarterly period depending on, among other things, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain holidays and changes in merchandise mix.
Summary of Financial Performance
Discontinued Operations
Sale of Catherines Intellectual Property
OnOctober 13, 2020 , following a comprehensive sales process and auction conducted under Section 363 of theU.S. Bankruptcy Code, the Company sold Catherines' intellectual property assets for a base sale price of$40.8 million , subject to adjustment. At closing, the parties entered into a 30-day Transition Services Agreement (the "TSA") in order to provide for a transition of the e-commerce business. Amounts received under theTSA were not material. Subsequent to the sale, the 34 --------------------------------------------------------------------------------
MAHWAH BERGEN RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Company returned
In addition, all Catherines store locations were closed by the end of the first quarter of Fiscal 2021 and its operations ceased. As a result, the Company's Catherines business has been classified as a component of discontinued operations within the condensed consolidated financial statements for all periods presented. The operating results of Catherines are excluded from the discussion below. Dressbarn Wind Down The Company completed the wind down of its Dressbarn brand during the second quarter of Fiscal 2020. All Dressbarn store locations were closed as ofDecember 31, 2019 . As a result, the Company'sDressbarn business has been classified as a component of discontinued operations within the condensed consolidated financial statements for all periods presented, which concluded the reporting of the Value Fashion segment. The operating results ofDressbarn are excluded from the discussion below.
Summary of Financial Performance
First Quarter Summary and Key Developments Highlights of our continuing operations for the first quarter are as follows: •Sales decreased by 46.0%, reflecting decreases at all of our segments due to the reduction in store count along with significant declines in store traffic reflecting the continued impact of COVID-19; •Gross margin as a percent of sales decreased to 44.0% compared to 59.0% in the three months endedNovember 2, 2019 primarily due to markdowns and promotional selling necessary to clear excess inventory that was unable to be sold; •Operating loss was$176.5 million compared to operating income of$6.5 million in the three months endedNovember 2, 2019 resulting primarily from the lower Net sales and Gross margin rates, which were offset in part by expense reductions primarily reflecting the impact of our previously-announced cost reduction initiatives; and •Net loss from continuing operations per diluted share was$0.26 , compared to$0.16 in the three months endedNovember 2, 2019 . Liquidity highlights for the three-month period endedOctober 31, 2020 are as follows: •Cash used in operations was$137.0 million in Fiscal 2021 compared to cash used in operations of$41.7 million for the three months endedNovember 2, 2019 ; •Capital expenditures were$2.9 million compared to$29.2 million for the three months endedNovember 2, 2019 ; and •Cash used in financing activities primarily reflects term loan payments of$162.3 million and the payoff of$230.0 million which was outstanding under our revolving credit facility, offset in part by proceeds from our debtor-in-possession term loan of$312.3 million . 35 --------------------------------------------------------------------------------
MAHWAH BERGEN RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS
Three Months Ended October 31, 2020 compared to Three Months Ended November 2,
2019
The following table summarizes operating results for certain financial statement
line items:
Three Months Ended
October 31, November 2,
2020 2019 $ Change % Change
(millions, except per share data)
Net sales $ 573.0 $ 1,060.5 $ (487.5) (46.0) %
Cost of goods sold (321.1) (434.4) 113.3 26.1 %
Cost of goods sold as % of net sales 56.0 % 41.0 %
Gross margin 251.9 626.1 (374.2) (59.8) %
Gross margin as % of net sales 44.0 % 59.0 %
Other operating expenses:
Buying, distribution and occupancy expenses (150.9) (214.4) 63.5 29.6 %
BD&O expenses as % of net sales 26.3 % 20.2 %
Selling, general and administrative expenses (229.0) (335.1) 106.1 31.7 %
SG&A expenses as % of net sales 40.0 % 31.6 %
Restructuring and other related charges (1.3) (3.8) 2.5 65.8 % Depreciation and amortization expense (47.2) (66.3) 19.1 28.8 % Total other operating expenses (428.4) (619.6) 191.2 30.9 % Operating (loss) income (176.5) 6.5 (183.0) NM Operating (loss) income as % of net sales (30.8) % 0.6 % Interest expense (8.1) (26.4) 18.3 69.3 % Interest income and other income, net 0.3 1.5 (1.2) (80.0) % Reorganization items, net 177.4 - 177.4 NM
Loss from continuing operations before provision for income taxes and income from equity method investment (6.9)
(18.4) 11.5 62.5 %
Provision for income taxes from continuing operations (2.9)
(2.2) (0.7) (31.8) %
Effective tax rate (a) (42.0) % (12.0) %
Income from equity method investment 7.2 19.0 (11.8) (62.1) %
Loss from continuing operations (2.6) (1.6) (1.0) NM
Income from discontinued operations, net of taxes (b) 40.0
33.3 6.7 20.1 %
Gain on disposal of discontinued operations, net of taxes
(c) 38.9 - 38.9 NM
Net income $ 76.3 $ 31.7 $ 44.6 NM
Net (loss) income per common share - basic:
Continuing operations $ (0.26) $ (0.16) $ (0.10) NM
Discontinued operations 7.82 3.35 4.47 NM
Total net income per basic common share $ 7.56 $ 3.19 $ 4.37 NM
Net (loss) income per common share - diluted:
Continuing operations $ (0.26) $ (0.16) $ (0.10) NM
Discontinued operations 7.82 3.35 4.47 NM
Total net income per diluted common share $ 7.56 $ 3.19 $ 4.37 NM
_______
(a) Effective tax rate is calculated by dividing the Provision for income taxes from continuing operations by the Loss from continuing operations before provision for income taxes and income from equity method investment. (b) No taxes related to discontinued operation were recorded during the three months endedOctober 31, 2020 . Income from discontinued operations presented net of income tax expense of$0.4 million for the three months endedNovember 2, 2019 . (c) Gain on sale of discontinued operations is presented net of income tax expense of$0.1 million for the three months endedOctober 31, 2020 . (NM) Not meaningful. 36 --------------------------------------------------------------------------------
MAHWAH BERGEN RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Net Sales . Total Net sales decreased by $487.5 million for the three months
ended October 31, 2020 primarily driven by the reduction in store count along
with significant declines in store traffic as a result of the continuing impact
of COVID-19. The change in Net sales for all of our segments primarily reflects
a decrease in combined store and direct channel sales.
Net sales data for our three operating segments is presented below:
Three Months Ended
October 31, November 2,
2020 2019 $ Change % Change
(millions)
Net sales:
Premium Fashion $ 306.5 $ 585.0 $ (278.5) (47.6) %
Plus Fashion 170.2 220.7 (50.5) (22.9) %
Kids Fashion 96.3 254.8 (158.5) (62.2) %
Total net sales $ 573.0 $ 1,060.5 $ (487.5) (46.0) %
Comparable sales (a) NM
_______
(a) Comparable sales represent combined store comparable sales and direct
channel sales. Store comparable sales generally refers to the growth of sales in
stores only open in the current period and comparative calendar period in the
prior year (including stores relocated within the same shopping center and
stores with minor square footage additions). Stores that close during the fiscal
year are excluded from store comparable sales beginning with the fiscal month
the store actually closes. Direct channel sales refer to growth of sales from
our direct channel in the current period and comparative calendar period in the
prior year. Due to customer cross-channel behavior, we typically report a
single, consolidated comparable sales metric, inclusive of store and direct
channels. In light of the continued significant impact on store traffic due to
COVID-19 in the current period, which did not impact the corresponding period in
the prior year, the Company has not disclosed comparable sales as the results
are not considered meaningful.
Gross Margin. Gross margin in terms of dollars, was primarily lower as a result
of a decline in sales and a decline in rate, which is discussed on a segment
basis below. The gross margin rate represents the difference between net sales
and cost of goods sold, expressed as a percentage of net sales. Gross margin
rate is dependent upon a variety of factors, including brand sales mix, product
mix, channel mix, the timing and level of promotional activities, and
fluctuations in material costs. These factors, among others, may cause cost of
goods sold as a percentage of net revenues to fluctuate from period to period.
Gross margin rate decreased to 44.0% for the three months ended October 31, 2020
from 59.0% for the three months ended November 2, 2019 , resulting from lower
gross margins at our Premium Fashion and Kids Fashion segments, partially offset
by increased gross margin at our Plus Fashion segment. Gross margin rate results
on a segment basis are as follows:
•Premium Fashion gross margin rate performance declined to 33.8% from 59.4% for
the three months ended October 31, 2020 primarily reflecting increased
promotional selling and inventory reserves necessary to clear inventory that was
unable to be sold in the normal course. The gross margin rate decline also
reflects higher shipping costs related to increased direct channel penetration;
•Plus Fashion gross margin rate performance increased to 64.6% from 61.1% for
the three months ended October 31, 2020 primarily reflecting improved inventory
sell-through resulting in lower required inventory reserves, offset in part by
higher shipping costs related to increased direct channel penetration; and
•Kids Fashion gross margin rate performance declined to 39.9% from 56.4% for the
three months ended October 31, 2020 primarily due to increased promotional
selling to clear excess inventory as well as higher shipping costs related to
increased direct channel penetration.
Buying, Distribution and Occupancy ("BD&O") Expenses consist of store occupancy
and utility costs (excluding depreciation) and all costs associated with the
buying and distribution functions.
BD&O expenses decreased by $63.5 million , or 29.6%, to $150.9 million for the
three months ended October 31, 2020 . The reduction in expenses was driven by
significantly lower occupancy expense and lower-employee related costs, both
resulting from the impact of our Justice brand wind down and the continuation of
our other cost reduction efforts. BD&O expenses as
37
--------------------------------------------------------------------------------
MAHWAH BERGEN RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
a percentage of net sales increased to 26.3% for the three months ended
Selling, General and Administrative ("SG&A") Expenses consist of compensation
and benefit-related costs for sales and store operations personnel,
administrative personnel and other employees not associated with the functions
described above under BD&O expenses. SG&A expenses also include advertising and
marketing costs, information technology and communication costs, supplies for
our stores and administrative facilities, insurance costs, legal costs and costs
related to other administrative services.
SG&A expenses decreased by $106.1 million , or 31.7%, to $229.0 million for the
three months ended October 31, 2020 . The change in SG&A expenses reflects
reductions resulting from the impact of our Justice brand wind down and the
continuation of our other cost reduction efforts, mainly reflecting lower store
related expenses and non-merchandise procurement savings, lower marketing
expenses. SG&A expenses as a percentage of net sales increased to 40.0% for the
three months ended October 31, 2020 from 31.6% for the three months ended
November 2, 2019 .
Depreciation and Amortization Expense decreased by
Operating Loss. Operating loss was
Operating results for our three operating segments are presented below:
Three Months Ended
October 31, November 2,
2020 2019 $ Change % Change
(millions)
Operating (loss) income:
Premium Fashion $ (155.2) $ 27.0 $ (182.2) NM
Plus Fashion 1.8 (8.6) 10.4 NM
Kids Fashion (21.8) (8.1) (13.7) NM
Unallocated restructuring and other related charges (1.3) (3.8) 2.5 (65.8) %
Total operating (loss) income $ (176.5) $ 6.5 $ (183.0) NM
_______
(NM) Not meaningful.
Premium Fashion operating results decreased by $182.2 million primarily due to a
decline in sales and a lower gross margin rate, as discussed above, offset in
part by operating expense reductions primarily driven by lower expenses as a
result of our continued cost reduction efforts and the reduction in store count.
Plus Fashion operating results increased by $10.4 million primarily due to a
higher gross margin rate, as discussed above, and operating expenses reductions
primarily driven by lower expenses as a result of our continued cost reduction
efforts and the reduction in store count, offset in part by a decline in sales.
Kids Fashion operating results decreased by $13.7 million primarily due to a
decline in sales and a lower gross margin rate, as discussed above, offset in
part by operating expense reductions driven by the significant reduction in
store count and the wind down of the Justice brand operations.
Unallocated Restructuring and Other Related Charges of $1.3 million for the
three months ended October 31, 2020 includes charges resulting primarily from
store closures in connection with Chapter 11 Cases. The $3.8 million for the
three months ended November 2, 2019 primarily reflected severance related to the
sourcing reorganization.
Interest Expense decreased by $18.3 million , or 69.3%, to $8.1 million for the
three months ended October 31, 2020 primarily due to the Company ceasing the
recording of interest on the Term Loan as of the start of the Chapter 11 Cases,
38
--------------------------------------------------------------------------------
MAHWAH BERGEN RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
offset in part by interest expense on outstanding revolver borrowings. There
were no revolver borrowings outstanding during the three months ended
Reorganization Items, Net substantially reflects the non-cash write-off of Operating lease right-of-use assets and lease-related liabilities of$196.1 million which were canceled in connection with the Chapter 11 cases, partially offset by professional fees of$17.2 million and the write-off of deferred financing fees of$1.9 million . There were no Reorganization items, net during the three months endedNovember 2, 2019 . Provision for Income Taxes from Continuing Operations represents federal, foreign, state and local income taxes. We record income taxes based on the estimated effective tax rate for the year. For the three months endedOctober 31, 2020 , we recorded a tax provision of$2.9 million on a pre-tax loss of$6.9 million , for an effective tax rate of (42.0)%, which was lower than the statutory tax rate as a result of changes in the valuation allowance onU.S. federal and state deferred tax assets. In the three months endedNovember 2, 2019 , we recorded a tax provision of$2.2 million on a pre-tax loss of$18.4 million for an effective tax rate of (12.0)%, which was lower than the statutory tax rate primarily due to changes in the valuation allowance onU.S. federal and certain state deferred tax assets. Loss from Continuing Operations increased by$1.0 million to$2.6 million for the three months endedOctober 31, 2020 . The increase was primarily due to the decrease in operating results, substantially offset by the Reorganization items, net, both of which are discussed above. Net Loss from Continuing Operations per Diluted Common Share was$0.26 per share for the three months endedOctober 31, 2020 , compared to$0.16 per share in the three months endedNovember 2, 2019 , primarily as a result of an increase in the loss from continuing operations, as discussed above.
FINANCIAL CONDITION AND LIQUIDITY
Cash Flows
The table below summarizes our cash flows from continuing operations and is presented as follows:
Three Months Ended
October 31, November 2,
2020 2019
(millions)
Cash flows used in operating activities $ (137.0) $ (41.7)
Cash flows provided by (used in) investing activities 37.9 (24.2)
Cash flows used in financing activities (100.6) -
Net decrease in cash, cash equivalents and restricted cash $
(199.7)
Net cash used in operating activities. Net cash used in operating activities was$137.0 million for the three months endedOctober 31, 2020 , compared to$41.7 million for the three months endedNovember 2, 2019 . Net cash used in operating activities increased primarily due to the lower earnings before non-cash expenses primarily resulting from the lower sales and margin rates, offset in part by reduced inventory purchases. Net cash provided by (used in) investing activities. Net cash provided by investing activities for the three months endedOctober 31, 2020 was$37.9 million , consisting of$40.8 million of proceeds from the sale of the intellectual property and other related assets of Catherines, offset in part by capital expenditures of$2.9 million . Net cash used in investing activities for the three months endedNovember 2, 2019 was$24.2 million , consisting primarily of capital expenditures of$29.2 million , offset in part by$5.0 million received from the sale of intellectual property rights associated with theDressbarn e-commerce operations. Net cash used in financing activities. Net cash used in financing activities for the three months endedOctober 31, 2020 reflects term loan payments of$162.3 million and the payoff of$230.0 million outstanding under our revolving credit 39 --------------------------------------------------------------------------------
MAHWAH BERGEN RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
facility, offset in part by proceeds from our debtor-in-possession term loan of
$312.3 million . Net cash used in financing activities for the three months ended
November 2, 2019 was $0.0 million .
Capital Spending
Capital expenditures during the three months endedOctober 31, 2020 were$2.9 million . For a detailed discussion of our significant capital investments, see Part II, Item 7 as specified in the Capital Spending section of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Fiscal 2020 10-K. The Company does not expect to have significant capital expenditures after the completion of the Chapter 11 Sales and Closures. Liquidity Our primary sources of liquidity are the cash flows generated from our operations (prior to the consummation of the Chapter 11 Sales and Closures), proceeds from the sale of assets, available cash and cash equivalents, and prior to the commencement of the Chapter 11 Cases onJuly 23, 2020 , access to our Amended Revolving Credit Agreement and the Term Loan (both of which are defined below). Upon the commencement of the Chapter 11 Cases, the Company may not make borrowings under the Amended Revolving Credit Agreement. As ofOctober 31, 2020 , we had cash and cash equivalents of$380.3 million , approximately$11 million , or 3%, which was held overseas by our foreign subsidiaries. Prior to the commencement of the Chapter 11 Cases, these sources of liquidity were used to fund our ongoing cash requirements, such as inventory purchases and other changes in working capital requirements, construction and renovation of stores, investment in technological and supply chain infrastructure, acquisitions, debt service, open market purchases of debt, stock repurchases, contingent liabilities (including uncertain tax positions) and other corporate activities. For a detailed description of the terms and restrictions under our amended and restated revolving credit agreement datedFebruary 27, 2018 (the "Amended Revolving Credit Agreement"), and the$1.8 billion seven-year term loan (the "Term Loan"), see Note 11 to the accompanying condensed consolidated financial statements. As discussed elsewhere herein, COVID-19 had a material adverse effect on our revenues, earnings, liquidity, and cash flows. As a result of the reduced cash flows, our ability to meet our future debt service obligations has been impacted by COVID-19. The Company projects that it will not have sufficient cash on hand or available liquidity to repay such debt. Accordingly, onJuly 23, 2020 , the Company and certain of its subsidiaries commenced the Chapter 11 Cases. Following the commencement of the Chapter 11 Cases, the Company may not make borrowings under the Amended Revolving Credit Agreement. Following the commencement of the Chapter 11 Cases, onSeptember 16, 2020 , the Company andAnnTaylor Retail, Inc. , as borrowers, entered into a Senior Secured Super-Priority Debtor-in-Possession Term Credit Agreement (the "DIP Term Credit Agreement") with the lenders party thereto andAlter Domus (US) LLC , as administrative agent. The DIP Term Credit Agreement provides for a term loan credit facility (the "DIP Term Facility") that consists of (i)$150.0 million in new money term loans (the "New Money DIP Loans") and (ii)$162.3 million of certain prepetition term loan obligations that have been rolled into the DIP Term Facility. The proceeds of the New Money DIP Loans were permitted to be used, among other things, to pay certain costs, fees and expenses related to the Chapter 11 Cases and to prepay or repay up to$50.0 million of borrowings under the Amended Revolving Credit Agreement, in all cases, subject to the terms of the DIP Term Credit Agreement. Also onSeptember 16, 2020 , the Company and certain of its subsidiaries, as borrowers, and certain other subsidiaries of the Company, as guarantors, entered into a Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (the "DIP ABL Credit Agreement") with the lenders party thereto andJPMorgan Chase Bank, N.A ., as administrative agent, which provides the Company with a superpriority senior secured debtor-in-possession asset based revolving credit facility of up to$400 million in the aggregate with a$200 million letter of credit sublimit (the "DIP ABL Facility" and together with the DIP Term Facility, the "DIP Facilities"). Pursuant to the DIP ABL Credit Agreement, the commitments and loans of the lenders party to the Amended Revolving Credit Agreement converted into the DIP ABL Facility. In connection with the consummation of the Sycamore Transaction (as defined in Note 18), onDecember 23, 2020 , the obligations under DIP Term Credit Agreement and the DIP ABL Credit Agreement were repaid in full (but with respect to any outstanding letters of credit under the DIP ABL Credit Agreement, such letters of credit were cash collateralized, 40 --------------------------------------------------------------------------------
MAHWAH BERGEN RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
backstopped, replaced, continued under new credit facilities or otherwise accommodated for), and such credit agreements were terminated.
Management currently believes that our existing sources of liquidity described above will be sufficient to support our needs during the remainder of the Chapter 11 Cases. However, for the duration of the Chapter 11 Cases, the Company's operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process as described in Part I, Item 1A - "Risk Factors" of the Fiscal 2020 10-K. As a result of these risks and uncertainties, the amount and composition of the Company's assets and liabilities could be significantly different following the outcome of the Chapter 11 Cases, and the description of the Company's operations, properties and liquidity and capital resources included in the Fiscal 2020 10-K do not accurately reflect its operations, properties and liquidity and capital resources following emergence from the Chapter 11 Cases. For more information regarding the Chapter 11 Cases, the RSA and the DIP Facilities, see Note 2 to the accompanying condensed consolidated financial statements, and for more information regarding the items causing substantial doubt about the Company's ability to continue as a going concern, see Note 1 to the accompanying condensed consolidated financial statements.
Contractual and Other Obligations
Firm Commitments
Except for presentation changes resulting from the adoption of ASU 2016-02 as of the beginning of Fiscal 2020, there have been no material changes during the period covered by this report to the firm commitments specified in the contractual and other obligations section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Fiscal 2020 10-K. See Note 5 to the accompanying condensed consolidated financial statements for disclosures on operating lease commitments.
Off-Balance Sheet Arrangements
There have been no material changes during the period covered by this report to the off-balance sheet arrangements specified in the contractual and other obligations section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Fiscal 2020 10-K.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Notes 4 and 5 to the audited consolidated financial statements included in the Fiscal 2020 10-K. For a detailed discussion of our critical accounting policies, see the "Critical Accounting Policies" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Fiscal 2020 10-K. There have been no material changes to our critical accounting policies sinceAugust 1, 2020 . As disclosed in our Fiscal 2020 10-K, we performed an impairment test in the fourth quarter of Fiscal 2020 (the "Fiscal 2020 Year-End Valuation"). The Fiscal 2020 Year-End Valuation resulted in a conclusion that the fair value of our LOFT andAnn Taylor indefinite-lived intangible assets were less than their carrying value. In addition, the fair value of the LOFT reporting unit exceeded its carrying value in the Fiscal 2020 Year-End Valuation by approximately 11%. It is possible that a shortfall in the cash flows from the amounts estimated in the Fiscal 2020 Year-End Valuation may result in a future impairment loss. During the first quarter of Fiscal 2021, our brands subject to the Fiscal 2020 Year-End Valuation generally performed in line with the cash flow projections supporting that valuation. However, as discussed earlier in Overview, we continued to experience the effects of COVID-19 through the completion of the Chapter 11 Sales and Closures. Prolonged effects of COVID-19 may have a negative impact on some of the other key assumptions used in the Fiscal 2020 Year-End Valuation, including anticipated gross margin and operating income margin. These assumptions are highly judgmental and subject to change. 41 --------------------------------------------------------------------------------ASCENA RETAIL GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 4 to the accompanying condensed consolidated financial statements for a description of certain recently adopted or issued accounting standards which may impact our financial statements in future reporting periods.
© Edgar Online, source
