NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
BJ’s Wholesale Club Holdings, Inc. and its wholly-owned subsidiaries is a leading warehouse club operator primarily on the east coast of the United States. As of October 30, 2021, the Company operated 222 warehouse clubs and 151 gas stations in 17 states.
The Company follows and reports based on the National Retail Federation’s fiscal calendar. The thirteen week periods ended October 30, 2021 and October 31, 2020 are referred to as the "third quarter of fiscal year 2021" and the "third quarter of fiscal year 2020," respectively.
The novel coronavirus ("COVID-19") pandemic has severely impacted the economies of the U.S. and other countries around the world. In the preparation of these financial statements and related disclosures we have assessed the impact that COVID-19 has had on our estimates, assumptions and accounting policies and made additional disclosures, as necessary.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim financial statements of BJ’s Wholesale Club Holdings, Inc. are unaudited and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair statement of the Company’s financial statements in accordance with generally accepted accounting principles in the United States of America ("GAAP").
The consolidated balance sheet as of January 30, 2021 is derived from the audited consolidated balance sheet as of that date. The unaudited results of operations through the third quarter of fiscal year 2021 are not necessarily indicative of future results or results to be expected for fiscal year 2021. The Company’s business, in common with the business of retailers generally, is subject to seasonal influences. The Company’s sales and operating income have typically been highest in the fourth quarter holiday season and lowest in the first quarter of each fiscal year.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year 2020, as filed with the Securities and Exchange Commission on March 19, 2021.
Recently Adopted Accounting Pronouncements
The accounting policies the Company follows are set forth in its audited financial statements for fiscal year 2020. There have been no material changes to these accounting policies, except as noted below for a new accounting pronouncement adopted at the beginning of fiscal year 2021.
Income Taxes (ASU 2019-12)
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this standard as of January 31, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
3. Revenue Recognition
Performance Obligations
The Company identifies each distinct performance obligation to transfer goods (or bundle of goods) or services. The Company recognizes revenue as it satisfies a performance obligation by transferring control of the goods or services to the customer.
Net sales—The Company recognizes net sales at clubs and gas stations when the customer takes possession of the goods and tenders payment. Sales tax is recorded as a liability at the point of sale. Revenue is recorded at the point of sale based on the transaction price on the shelf sign, net of any applicable discounts, sales tax and expected refunds. For e-commerce sales, the Company recognizes sales when control of the merchandise is transferred to the customer, which is typically at the shipping point. The following tables summarize the Company’s point of sale transactions at clubs and gas stations, excluding sales tax, as a percentage of both net sales and total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
October 30, 2021
|
|
October 31, 2020
|
Point of sale transactions, excluding sales tax, as a percent of net sales
|
94%
|
|
96%
|
Point of sale transactions, excluding sales tax, as a percent of total revenues
|
92%
|
|
94%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
October 30, 2021
|
|
October 31, 2020
|
Point of sale transactions, excluding sales tax, as a percent of net sales
|
93%
|
|
96%
|
Point of sale transactions, excluding sales tax, as a percent of total revenues
|
91%
|
|
94%
|
BJ’s Perks Rewards and My BJ’s Perks programs—The Company’s BJ’s Perks Rewards® membership program allows participating members to earn 2% cash back, up to a maximum of $500 per year, on qualified purchases made at BJ’s. The Company also offers a co-branded credit card program, the My BJ’s Perks® program, which allows My BJ’s Perks® Mastercard credit card holders to earn up to 5% cash back on eligible purchases made at BJ’s and up to 2% cash back on purchases made with the card outside of BJ’s. Cash back has been in the form of electronic awards issued in $10 increments that may be used online or in-club at the register and expire six months from the date issued.
Earned awards may be redeemed on future purchases made at the Company. The Company recognizes revenue for earned awards when customers redeem such awards as part of a purchase at one of the Company’s clubs or on the Company’s website or app. The Company accounts for these transactions as multiple element arrangements and allocates the transaction price to separate performance obligations using their relative fair values. The Company includes the fair value of award dollars earned in deferred revenue at the time the award dollars are earned. This liability was $29.3 million at October 30, 2021, $25.5 million at January 30, 2021 and $24.6 million at October 31, 2020.
Royalty revenue received in connection with the My BJ’s Perks co-brand credit card program is variable consideration and is considered deferred until the card holder makes a purchase. The Company’s total deferred royalty revenue related to the outstanding My BJ’s Perks Rewards was $19.1 million, $13.5 million and $13.5 million at October 30, 2021, January 30, 2021 and October 31, 2020, respectively. The timing of revenue recognition is driven by actual customer activities, such as redemptions and expirations. As of October 30, 2021, the Company expects to recognize $13.4 million of the deferred revenue in fiscal year 2021 and expects the remainder to be recognized in the periods thereafter.
Membership—The Company charges a membership fee to its customers. That fee allows customers to shop in the Company’s clubs, shop on the Company’s website and app and purchase gasoline at the Company’s gas stations for the duration of the membership, which is generally 12 months. As the Company has the obligation to provide access to its clubs, website, app and gas stations for the duration of the membership term, the Company recognizes membership fees on a straight-line basis over the life of the membership. The Company’s deferred revenue related to membership fees was $168.1 million, $155.6 million and $151.2 million at October 30, 2021, January 30, 2021 and October 31, 2020, respectively.
Gift Card Program—The Company sells BJ’s gift cards in both physical and digital format, which allow customers to redeem the card for future purchases equal to the amount of the original purchase price of the gift card. Revenue from gift card sales is recognized in proportion to its rate of gift card redemptions as the Company’s performance obligation to redeem the gift
card for merchandise is satisfied when the gift card is redeemed. The Company also recognizes breakage in proportion to its rate of gift card redemptions. Deferred revenue related to gift cards was $10.3 million, $10.3 million and $9.0 million at October 30, 2021, January 30, 2021 and October 31, 2020, respectively. The Company recognized $8.9 million and $9.2 million of revenue from gift card redemptions in the third quarter of fiscal year 2021 and third quarter of fiscal year 2020, respectively. The Company recognized $27.3 million and $28.7 million of revenue from gift card redemptions in the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively.
Disaggregation of Revenue
The Company’s club retail operations, which represent substantially all of its consolidated total revenues, are the Company’s only reportable segment. All the Company’s identifiable assets are in the United States. The Company does not have significant sales outside the United States, nor does any customer represent more than 10% of total revenues for any period presented.
The following tables summarize the Company’s percentage of net sales disaggregated by category:
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|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
October 30, 2021
|
|
October 31, 2020
|
Grocery
|
72
|
%
|
|
77
|
%
|
General Merchandise & Services
|
12
|
%
|
|
13
|
%
|
Gasoline and Other
|
16
|
%
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
October 30, 2021
|
|
October 31, 2020
|
Grocery
|
71
|
%
|
|
78
|
%
|
General Merchandise & Services
|
14
|
%
|
|
13
|
%
|
Gasoline and Other
|
15
|
%
|
|
9
|
%
|
4. Debt and Credit Arrangements
The following table summarizes the Company’s debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30, 2021
|
|
January 30, 2021
|
|
October 31, 2020
|
ABL Facility
|
$
|
50,000
|
|
|
$
|
310,000
|
|
|
$
|
310,000
|
|
First Lien Term Loan
|
701,920
|
|
|
801,920
|
|
|
801,920
|
|
Unamortized debt discount and debt issuance cost
|
(3,771)
|
|
|
(5,745)
|
|
|
(6,224)
|
|
Less: current portion
|
—
|
|
|
(260,000)
|
|
|
(260,000)
|
|
Long-term debt
|
$
|
748,149
|
|
|
$
|
846,175
|
|
|
$
|
845,696
|
|
ABL Facility
The ABL Facility is comprised of a $950.0 million revolving credit facility and a $50.0 million term loan. The ABL Facility is secured on a senior basis by certain "liquid assets" of the Company and secured on a junior basis by certain "fixed assets" of the Company. Payment terms on the $50.0 million term loan are restricted in that the term loan cannot be repaid unless all loans outstanding under the revolving credit facility are repaid, and once repaid, cannot be re-borrowed. The availability under the $950.0 million revolving credit facility is restricted based on eligible monthly merchandise inventories and receivables as defined in the agreement governing the ABL Facility. As amended, interest on the revolving credit facility is calculated either at LIBOR plus a range of 125 to 175 basis points or a base rate plus a range of 25 to 75 basis points; and interest on the term loan is calculated at LIBOR plus a range of 200 to 250 basis points or a base rate plus a range of 100 to 150 basis points, in all cases based on excess availability. The applicable spread of LIBOR and base rate loans at all levels of excess availability steps down by 12.5 basis points upon achieving total net leverage of 3.00 to 1.00. The ABL Facility also provides a sub-facility for issuances of letters of credit subject to certain fees defined in the agreement governing the ABL Facility. The ABL Facility is subject to various commitment fees during the term of the facility based on utilization of the revolving credit facility, which is scheduled to mature on August 17, 2023.
At October 30, 2021, there were $50.0 million outstanding in loans under the ABL Facility and $19.4 million in outstanding letters of credit. The interest rate on the revolving credit facility was 1.20%, the interest rate of the term loan was 2.08% and unused capacity was $930.6 million.
At January 30, 2021, there were $310.0 million outstanding in loans under the ABL Facility and $15.0 million in outstanding letters of credit. The interest rate on the revolving credit facility was 1.25%, the interest rate of the term loan was 2.14% and unused capacity was $641.1 million.
At October 31, 2020, there were $310.0 million outstanding in loans under the ABL Facility and $21.2 million in outstanding letters of credit. The interest rate on the revolving credit facility was 1.27%, the interest rate of the term loan was 2.14% and unused capacity was $670.8 million.
First Lien Term Loan
The Company’s First Lien Term Loan matures on February 3, 2024. Voluntary prepayments are permitted. Principal payments must be made on the First Lien Term Loan pursuant to an annual excess cash flow calculation when the net leverage ratio exceeds 3.50 to 1.00. The First Lien Term Loan is subject to certain affirmative and negative covenants but no financial covenants. It is secured on a senior basis by certain "fixed assets" of the Company and on a junior basis by certain "liquid" assets of the Company.
On October 30, 2020, the Company borrowed $260.0 million from the ABL Facility. The proceeds from the Company’s borrowing and $100.0 million of the Company’s cash and cash equivalents were used to pay $360.0 million of the principal amount outstanding on the First Lien Term Loan. In connection with the payment, the Company expensed $2.8 million of previously capitalized debt issuance costs and original issue discount.
On April 30, 2021, the Company used $100.0 million of cash and cash equivalents to pay $100.0 million of the principal amount outstanding on the First Lien Term Loan. In connection with the payment, the Company expensed $0.7 million of previously capitalized debt issuance costs and original issue discount.
There were $701.9 million, $801.9 million and $801.9 million outstanding on the First Lien Term Loan at October 30, 2021, January 30, 2021 and October 31, 2020, respectively. Interest rates for the First Lien Term Loan were 2.09%, 2.13% and 2.15% at October 30, 2021, January 30, 2021 and October 31, 2020, respectively.
5. Interest Expense, net
The following details the components of interest expense for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
October 30, 2021
|
|
October 31, 2020
|
|
October 30, 2021
|
|
October 31, 2020
|
Interest on debt
|
$
|
10,864
|
|
|
$
|
15,915
|
|
|
$
|
34,264
|
|
|
$
|
52,860
|
|
Interest on capital lease and financing obligations
|
966
|
|
|
972
|
|
|
2,947
|
|
|
2,971
|
|
Debt issuance costs amortization
|
544
|
|
|
629
|
|
|
1,649
|
|
|
1,934
|
|
Original issue discount amortization
|
288
|
|
|
477
|
|
|
906
|
|
|
1,535
|
|
Loss on debt extinguishment
|
—
|
|
|
2,794
|
|
|
657
|
|
|
4,077
|
|
Loss (gain) on cash flow hedge
|
(808)
|
|
|
5,097
|
|
|
7,146
|
|
|
5,097
|
|
Capitalized interest
|
—
|
|
|
(2)
|
|
|
(2)
|
|
|
(7)
|
|
Interest expense, net
|
$
|
11,854
|
|
|
$
|
25,882
|
|
|
$
|
47,567
|
|
|
$
|
68,467
|
|
Interest expense in the thirteen and thirty-nine weeks ended October 30, 2021 decreased due to lower debt balances outstanding and lower interest rates.
6. Commitments and Contingencies
The Company is involved in various legal proceedings that are typical of a retail business. In accordance with applicable accounting guidance, an accrual will be established for legal proceedings if and when those matters present loss contingencies that are both probable and estimable. The Company does not believe the resolution of any current proceedings will result in a material loss to the consolidated financial statements.
7. Stock Incentive Plans
On June 13, 2018, the Company’s Board of Directors adopted, and its stockholders approved, the BJ’s Wholesale Club Holdings, Inc. 2018 Incentive Award Plan (the "2018 Plan"). The 2018 Plan provides for the grant of stock options, restricted stock, dividend equivalents, stock payments, restricted stock units, performance shares, other incentive awards, stock appreciation rights, and cash awards. Prior to the adoption of the 2018 Plan, the Company granted stock-based compensation to employees and non-employee directors under the Fourth Amended and Restated 2011 Stock Option Plan of BJ’s Wholesale Club, Inc. (f/k/a Beacon Holding Inc.), as amended (the "2011 Plan") and the 2012 Director Stock Option Plan of BJ’s Wholesale Club Holdings, Inc. (f/k/a Beacon Holding, Inc.), as amended (the "2012 Director Plan"). No further grants will be made under the 2011 Plan or the 2012 Director Plan.
The 2018 Plan authorizes the issuance of 13,148,058 shares, including 985,369 shares that were reserved but not issued under the 2011 Plan and the 2012 Director Plan. If an award under the 2018 Plan, the 2011 Plan or the 2012 Director Plan is forfeited, expires or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the 2018 Plan. Additionally, shares tendered or withheld to satisfy grant or exercise price, or tax withholding obligations associated with an award under the 2018 Plan, the 2011 Plan or the 2012 Director Plan will be added to the shares authorized for grant under the 2018 Plan. The following shares may not be used again for grant under the 2018 Plan: (1) shares subject to a stock appreciation right ("SAR") that are not issued in connection with the stock settlement of the SAR upon its exercise and (2) shares purchased on the open market with the cash proceeds from the exercise of options under the 2018 Plan, 2011 Plan or 2012 Director Plan. As of October 30, 2021, there were 5,565,015 shares available for future issuance under the 2018 Plan.
On April 16, 2021, the Compensation Committee approved a modification to the equity awards agreements under the 2011 Plan, 2012 Director Plan and 2018 Plan. In the event that an employee is terminated due to death or disability, the modified equity award agreements provide for: (i) full vesting of all time-based awards, including restricted stock awards and stock options, (ii) pro-rata vesting of all performance-based awards, including performance share units, based on actual performance as of the end of the applicable performance period, pro-rated based on the period of employment during the applicable performance period, and (iii) the extension of the post-termination exercise window for vested stock options.
The following table summarizes the Company’s stock award activity during the thirty-nine weeks ended October 30, 2021 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Restricted Stock
|
|
Restricted Stock Units
|
|
Performance Stock
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
Outstanding, January 30, 2021
|
3,673
|
|
|
$
|
17.50
|
|
|
1,575
|
|
|
$
|
26.29
|
|
|
29
|
|
|
$
|
34.54
|
|
|
527
|
|
|
$
|
23.96
|
|
Granted
|
—
|
|
|
—
|
|
|
494
|
|
|
44.59
|
|
|
26
|
|
|
46.82
|
|
|
422
|
|
|
44.96
|
|
Forfeited/canceled
|
—
|
|
|
—
|
|
|
(14)
|
|
|
39.76
|
|
|
—
|
|
|
—
|
|
|
(282)
|
|
|
28.98
|
|
Exercised/vested
|
(1,322)
|
|
|
13.97
|
|
|
(1,013)
|
|
|
29.52
|
|
|
(29)
|
|
|
34.60
|
|
|
—
|
|
|
—
|
|
Outstanding, October 30, 2021
|
2,350
|
|
|
$
|
19.49
|
|
|
1,042
|
|
|
$
|
33.99
|
|
|
26
|
|
|
$
|
46.82
|
|
|
666
|
|
|
$
|
39.56
|
|
Stock-based compensation expense was $7.8 million and $8.7 million for the thirteen weeks ended October 30, 2021 and October 31, 2020, respectively. Stock-based compensation expense was $42.4 million and $23.2 million for the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively. Stock-based compensation expense in the thirty-nine weeks ended October 30, 2021 included $17.5 million of stock-based compensation expense related to the modification of stock awards for a former executive.
On June 14, 2018, the Company’s Board of Directors adopted, and its stockholders approved, the BJ’s Wholesale Club Holdings, Inc. Employee Stock Purchase Plan (the "ESPP"), which became effective July 1, 2018. The aggregate number of shares of common stock that were to be reserved for issuance under the ESPP was to be equal to the sum of (i) 973,014 shares and (ii) an annual increase on the first day of each calendar year beginning in 2019 and ending in 2028 equal to the lesser of (A) 486,507 shares, (B) 0.5% of the shares outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (C) such smaller number of shares as determined by the Board of Directors. The offering under the ESPP commenced on January 1, 2019. The amount of expense recognized for both the thirteen weeks ended October 30, 2021 and October 31, 2020 was $0.2 million. The amount of expense recognized for the thirty-nine weeks ended October 30, 2021 and October 31, 2020 was $0.7 million and $0.5 million, respectively. As of October 30, 2021, there were 2,177,223 shares available for issuance under the ESPP.
Treasury Shares Acquired
The Company reacquired 28,398 shares to satisfy employees’ tax withholding obligations upon the vesting of restricted stock awards in the thirteen weeks ended October 30, 2021, which were recorded as $1.0 million of treasury stock. The Company reacquired 6,727 shares in the thirteen weeks ended October 31, 2020, which were recorded as $0.1 million of treasury stock.
The Company reacquired 375,223 shares to satisfy employees’ tax withholding obligations upon the vesting of restricted stock awards in the thirty-nine weeks ended October 30, 2021, which were recorded as $16.7 million of treasury stock. The Company reacquired 211,995 shares in the thirty-nine weeks ended October 31, 2020, which were recorded as $6.5 million of treasury stock.
Share Repurchase Program
On December 19, 2019, the Company’s Board of Directors authorized the repurchase of up to $250.0 million of the Company’s outstanding common stock from time to time as market conditions warrant (the "Program"). The Program expires at the end of fiscal year 2021. The Company initiated the Program to mitigate potentially dilutive effects of stock options and shares of restricted stock granted by the Company, in addition to enhancing shareholder value. As of October 30, 2021, $15.3 million remained available to purchase under the Program. The Company repurchased 1,261,873 shares for $71.6 million and 1,200,000 shares for $50.0 million during the thirteen weeks ended October 30, 2021 and October 31, 2020, respectively. The Company repurchased 2,630,989 shares for $135.1 million and 2,299,282 shares for $88.1 million during the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively.
8. Income Taxes
The Company projects the estimated annual effective tax rate for fiscal year 2021 to be 26.8%, excluding the tax effect of discrete events, such as excess tax benefits from stock-based compensation, changes in tax legislation, settlements of tax audits and changes in uncertain tax positions, among others.
The Company’s effective income tax rate from continuing operations was 20.0% and 25.3% for the thirteen weeks ended October 30, 2021 and October 31, 2020, respectively; and 22.6% and 24.2% for the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively. The decrease in the effective tax rate for the thirteen and thirty-nine weeks ended October 30, 2021 compared to the thirteen and thirty-nine weeks ended October 31, 2020 is due primarily to higher excess tax benefits from stock-based compensation as a result of activity related to a former executive.
The Company is subject to taxation in the U.S. federal and various state taxing jurisdictions. In general, the Company’s tax years from 2016 forward remain open and subject to examination by the Internal Revenue Service and various state taxing authorities; however, certain ongoing state audits and appeals relate to periods prior to 2016.
9. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date or "exit price." The inputs used to measure fair value are generally classified into the following hierarchy:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not observable for the asset or liability.
Level 3: Unobservable inputs for the asset or liability.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair values of the Company’s derivative instruments are based on quotes received from third-party banks and represent the estimated amount the Company would pay to terminate the agreements taking into consideration current interest rates as well as the creditworthiness of the counterparties. These inputs are considered to be Level 2.
Financial Assets and Liabilities
The gross carrying amount and fair value of the Company’s debt at October 30, 2021 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
First Lien Term Loan
|
$
|
701,920
|
|
|
$
|
701,857
|
|
ABL Facility
|
50,000
|
|
|
50,000
|
|
Total Debt
|
$
|
751,920
|
|
|
$
|
751,857
|
|
The gross carrying amount and fair value of the Company’s debt at January 30, 2021 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
First Lien Term Loan
|
$
|
801,920
|
|
|
$
|
802,256
|
|
ABL Facility
|
310,000
|
|
|
310,000
|
|
Total Debt
|
$
|
1,111,920
|
|
|
$
|
1,112,256
|
|
The gross carrying amount and fair value of the Company’s debt at October 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
First Lien Term Loan
|
$
|
801,920
|
|
|
$
|
788,800
|
|
ABL Facility
|
310,000
|
|
|
310,000
|
|
Total Debt
|
$
|
1,111,920
|
|
|
$
|
1,098,800
|
|
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis.
The Company believes that the carrying amounts of its other financial instruments, including cash, accounts receivable, and accounts payable, approximates their carrying value due to the short-term maturities of these instruments.
10. Earnings Per Share
The table below reconciles basic weighted-average shares of common stock outstanding to diluted weighted-average shares of common stock outstanding for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020:
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Thirteen Weeks Ended
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Thirty-Nine Weeks Ended
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October 30, 2021
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October 31, 2020
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October 30, 2021
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October 31, 2020
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Weighted-average shares of common stock outstanding, used for basic computation
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135,581,539
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136,011,473
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135,603,891
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136,269,239
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Plus: Incremental shares of potentially dilutive securities
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2,423,188
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3,048,987
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2,684,061
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2,734,180
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Weighted-average shares of common stock and dilutive potential shares of common stock outstanding
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138,004,727
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139,060,460
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138,287,952
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139,003,419
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As their inclusion would have been anti-dilutive, 1,933 restricted shares were excluded from the computation of diluted earnings for the thirteen weeks ended October 30, 2021, and 1,252 restricted shares were excluded from the computation of diluted earnings for the thirteen weeks ended October 31, 2020.
Similarly, 42,483 restricted shares were excluded from the computation of diluted earnings for the thirty-nine weeks ended October 30, 2021. A total of 368,554 stock options and 260,503 restricted shares were excluded from the computation of diluted earnings for the thirty-nine weeks ended October 31, 2020.
11. Derivative Financial Instruments
Interest Rate Swaps
On November 13, 2018, the Company entered into three forward starting interest rate swaps (the "interest rate swaps"), which became effective on February 13, 2019. The Company fixed the LIBOR component of $1.2 billion of its floating rate debt at a rate of approximately 3.0% from February 13, 2019 to February 13, 2022. The Company elected hedge accounting for the interest rate swap agreements, and as such, the effective portion of the gains or losses were recorded as a component of other comprehensive income and the ineffective portion of gains or losses were recorded as interest expense.
On October 30, 2020, the Company borrowed $260.0 million from the ABL Facility. The proceeds from the Company’s borrowing, as well as $100.0 million of the Company’s cash and cash equivalents, were used to pay $360.0 million of the principal amount outstanding on the First Lien Term Loan. Due to the payment of debt principal on the First Lien Term Loan, the Company determined that certain interest payments were no longer probable and a portion of one of the interest rate swap agreements would be ineffective as a result of the payment of debt, and as such, released $3.7 million recorded in other comprehensive income to interest expense, net of tax.
On November 10, 2020, the Company terminated one of the interest rate swaps, which fixed $360.0 million of its floating rate debt at a rate of approximately 3.0%. An additional interest rate swap, which fixed $240.0 million of its floating rate debt at a rate of 3.0%, was determined to be ineffective.
On April 30, 2021, the Company used $150.0 million of its cash and cash equivalents to pay $100.0 million of the principal amount outstanding on the First Lien Term Loan and $50.0 million of the outstanding amounts on the ABL Facility. The Company accelerated the release of unrealized losses into earnings on the ineffective interest rate swap agreements and reclassified $4.7 million recorded in other comprehensive income to interest expense, net of tax.
On July 30, 2021, the Company used $210.0 million of its cash and cash equivalents to pay $210.0 million of the principal amount outstanding on the ABL Facility. The Company accelerated the release of unrealized losses into earnings on the ineffective interest rate swap agreements and reclassified $3.5 million recorded in other comprehensive income to interest expense, net of tax.
The interest rate swaps were recorded as a liability of $8.3 million, $26.4 million and $45.3 million at October 30, 2021, January 30, 2021 and October 31, 2020, respectively. The net of tax amount for the effective and ineffective interest rate swaps were recorded in other comprehensive income and interest expense, respectively.
There were gains of $4.6 million and $8.1 million recorded in other comprehensive income for the thirteen weeks ended October 30, 2021 and October 31, 2020, respectively. There were $12.9 million of gains and $4.5 million of losses recorded in other comprehensive income for the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively. The ineffective portion of gains in the third quarter and first nine months of fiscal year 2021 of $1.8 million and $5.1 million, respectively, were recorded in interest expense. In the third quarter and first nine months of fiscal year 2020, all interest rate swap agreements were effective.
The fair values of derivative instruments included on the consolidated balance sheets are as follows (in thousands):
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Fair Value at
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Accounting
for Cash Flow Hedges
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Notional Amount
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Fixed Rate
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Balance Sheet Classification
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October 30, 2021
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January 30, 2021
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October 31, 2020
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Interest rate swap
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$
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600,000
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3.00
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%
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Other current liabilities
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$
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(5,952)
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$
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(18,828)
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$
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(22,670)
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Interest rate swap
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360,000
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3.00
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%
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Other current liabilities
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—
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—
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(13,587)
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Interest rate swap
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240,000
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3.00
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%
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Other current liabilities
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(2,379)
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(7,525)
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(9,061)
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Net carrying amount
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$
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1,200,000
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Total liabilities
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$
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(8,330)
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$
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(26,353)
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$
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(45,318)
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12. Subsequent Event
On November 16, 2021, the Company’s Board of Directors approved a new share repurchase program (the "2021 Repurchase Program"), effective immediately. The authorization allows the Company to repurchase up to $500.0 million of its outstanding common stock. The 2021 Repurchase Program expires in January 2025 and gives management the flexibility to determine the terms and conditions under which shares may be purchased. The amount and timing of any repurchases made under the 2021 Repurchase Program will depend on a variety of factors, including available liquidity, cash flow and market conditions. The 2021 Repurchase Program does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and the program may be suspended or discontinued at any time. The Program that was approved in December 2019 was fully exhausted on November 17, 2021.