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 in the eastern United States. As of May 2, 2020, the Company operated 218 warehouse clubs and 145 gas stations in 17 states.
The Company follows, and reports based on the National Retail Federation’s fiscal calendar. The thirteen week periods ended May 2, 2020 and May 4, 2019 are referred to as the "first quarter of fiscal year 2020" and the "first quarter of fiscal year 2019," respectively.
The coronavirus disease 2019 (“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 February 1, 2020 is derived from the audited consolidated balance sheet as of that date. The unaudited results of operations for the first quarter of fiscal year 2020 are not necessarily indicative of future results or results to be expected for fiscal year 2020. 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 2019, as filed with the Securities and Exchange Commission (the "SEC") on March 19, 2020.
Reclassification
We adjusted the statement of cash flows for the first quarter of fiscal year 2020 to reclassify the change in book overdraft amounts into the accounts payable and accrued expenses line items, all within net cash provided by operating activities.
Recently Adopted Accounting Pronouncements
The accounting policies the Company follows are set forth in its audited financial statements for fiscal year 2019. There have been no material changes to these accounting policies, except as noted below for new accounting pronouncements adopted at the beginning of fiscal year 2020.
Fair Value Measurement (ASU 2018-13)
In August 2018, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2018-13 Changes to the Disclosure Requirements for Fair Value Measurement which updates the guidance to Fair Value Measurement (Topic 820). The updated guidance modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 at the beginning of fiscal year 2020 on a prospective basis and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Intangibles-Goodwill and Other-Internal-Use Software (ASU 2018-15)
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). The update related to accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The update allows entities who are customers in hosting arrangements that are service contracts to apply the existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The update specifies classification for capitalizing implementation costs and related amortization expense within the financial statements and requires additional disclosures. The updated guidance is effective for fiscal reporting periods, including interim reporting within those periods, beginning after December 15, 2019. The Company adopted this standard at the beginning of fiscal year 2020 on a prospective basis. The adoption of this standard had no material impact on the Company's consolidated financial statements.
Goodwill Impairment (ASU 2017-04)
In January 2017, the FASB issued ASU 2017-04, which provides amendments to Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other, to eliminate Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The Company adopted ASU 2017-04 at the beginning of fiscal year 2020 on a prospective basis and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This new guidance changes how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments. ASU 2016-13 replaces the current "incurred loss" model with an "expected loss" model. Under the "incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected loss" model, an entity recognizes a loss (or allowance) upon initial recognition of the asset that reflects all future events that will lead to a loss being realized, regardless of whether it is probable that the future event will occur. The "incurred loss" model considers past events and current conditions, while the "expected loss" model includes expectations for the future which have yet to occur. The Company adopted ASU 2016-13 at the beginning of fiscal year 2020 and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements
Reference Rate Reform (ASU 2020-04)
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the impact of the new guidance 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.
Merchandise sales—The Company recognizes sales of merchandise at clubs and gas stations when the customer takes possession of the goods and tenders payment. Sales of merchandise at the Company’s clubs and gas stations, excluding sales taxes, represented approximately 96% of the Company’s net sales and approximately 94% of the Company’s total revenues for the thirteen weeks ended May 2, 2020. Sales taxes are 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 taxes 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.
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 is in the form of electronic awards issued in $20 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 the Company’s website. 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 $28.6 million at May 2, 2020, $26.7 million at February 1, 2020 and $27.6 million at May 4, 2019.
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 $14.8 million, $14.8 million and $13.3 million at May 2, 2020, February 1, 2020 and May 4, 2019, respectively. The timing of revenue recognition of these awards dollars is driven by actual customer activities, such as redemptions and expirations. As of May 2, 2020, the Company expects to recognize $13.0 million of the deferred revenue in fiscal year 2020, and expects the remainder will be recognized in the years 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 purchase gasoline at the Company’s gas stations for the duration of the membership, which is generally 12 months. Because the Company has the obligation to provide access to its clubs, website 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 $157.6 million, $144.0 million and $141.6 million at May 2, 2020, February 1, 2020 and May 4, 2019, respectively.
Gift Card Program—The Company sells BJ’s gift cards that 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 because 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 $9.8 million, $10.3 million and $8.0 million at May 2, 2020, February 1, 2020 and May 4, 2019, respectively. The Company recognized $10.2 million and $11.1 million of revenue from gift card redemptions in the first quarter of fiscal year 2020 and first quarter of fiscal year 2019, 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 table summarizes the Company's percentage of net sales disaggregated by category:
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
May 2, 2020
|
|
May 4, 2019
|
Grocery (1)
|
81%
|
|
74%
|
General Merchandise & Services
|
11%
|
|
13%
|
Gasoline and Other
|
8%
|
|
13%
|
|
|
(1)
|
Grocery division includes the legacy perishables, edible grocery and non-edible grocery division.
|
4. Related Party Transactions
One of the Company’s suppliers, Advantage Solutions Inc., is controlled by affiliates of the Sponsors. Advantage Solutions Inc. is principally a provider of in-club product demonstration and sampling services, and the Company also engages them from time to time to provide ancillary support services, including for example, seasonal gift wrapping, on-floor sales assistance and display maintenance. The Company incurred approximately $9.4 million and $11.8 million of costs payable to Advantage Solutions Inc. for services rendered during the thirteen weeks ended May 2, 2020 and May 4, 2019, respectively. The demonstration and sampling service fees are fully funded by merchandise vendors who participate in the program.
The Company believes the terms obtained or consideration paid or received, as applicable, in connection with the transactions were comparable to terms available or amounts that would be paid or received, as applicable, in arms’-length transactions with unrelated parties.
5. Debt and Credit Arrangements
Debt consisted of the following at May 2, 2020, February 1, 2020 and May 4, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2,
2020
|
|
February 1,
2020
|
|
May 4,
2019
|
ABL Facility
|
$
|
50,000
|
|
|
$
|
378,000
|
|
|
$
|
281,000
|
|
First Lien Term Loan
|
1,311,919
|
|
|
1,315,216
|
|
|
1,526,201
|
|
Unamortized debt discount and debt issuance cost
|
(11,747
|
)
|
|
(12,531
|
)
|
|
(17,287
|
)
|
Less: current portion
|
(15,377
|
)
|
|
(343,377
|
)
|
|
(246,377
|
)
|
Long-term debt
|
$
|
1,334,795
|
|
|
$
|
1,337,308
|
|
|
$
|
1,543,537
|
|
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. The $50.0 million term loan payment terms 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 (the "ABL Facility Agreement"). 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 ABL Facility Agreement. 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 May 2, 2020, there was $50.0 million outstanding in loans under the ABL Facility and $22.1 million in outstanding letters of credit. As of May 2, 2020, the interest rate on the revolving credit facility was 1.45%, and unused capacity was $770.6 million.
At February 1, 2020, there was $378.0 million outstanding in loans under the ABL Facility and $17.5 million in outstanding letters of credit. As of February 1, 2020, the interest rate on the revolving credit facility was 2.78%, and unused capacity was $496.3 million.
At May 4, 2019, there was $281.0 million outstanding in loans under the ABL Facility and $29.2 million in outstanding letters of credit. As of May 4, 2019, the interest rate on the revolving credit facility was 3.73%, and unused capacity was $560.8 million.
First Lien Term Loan
Principal payments on the Company's First Lien Term Loan are required in quarterly installments of 0.25% of the original principal amount with the balance due upon maturity 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 November 1, 2019, the Company borrowed $200.0 million from the ABL Facility. The proceeds from the Company's borrowing were used to pay a portion of the principal amount due on the First Lien Term Loan. In connection with the payment, the Company expensed $2.0 million of previously capitalized deferred debt issuance costs and original issue discount.
On January 29, 2020, the Company amended its First Lien Term Loan to reduce the applicable interest rates. As amended, the First Lien Term Loan has an initial principal amount of $1,315.2 million and interest is calculated either at LIBOR plus 225 basis points or a base rate plus 125 basis points. Total fees associated with the refinancing were approximately $1.7 million. The Company wrote-off $0.1 million of previously capitalized debt issuance costs and original issue discount and expensed $1.7 million of new third-party fees.
At May 2, 2020, there was $1,311.9 million outstanding on the First Lien Term Loan. At February 1, 2020, there was $1,315.2 million outstanding on the First Lien Term Loan. At May 4, 2019, there was $1,526.2 million outstanding on the First Lien Term Loan. At May 2, 2020, the Company's net leverage ratio was less than 2.00 and the interest rate for the First Lien Term Loan was 3.08%. At February 1, 2020, the interest rate for the First Lien Term Loan was 3.90%. At May 4, 2019, the interest rate for the First Lien Term Loan was 5.47%.
6. Interest Expense, net
The following details the components of interest expense for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
May 2, 2020
|
|
May 4, 2019
|
Interest on debt
|
$
|
19,643
|
|
|
$
|
25,851
|
|
Interest on capital lease and financing obligations
|
1,008
|
|
|
631
|
|
Debt issuance costs amortization
|
657
|
|
|
696
|
|
Original issue discount amortization
|
539
|
|
|
627
|
|
Capitalized interest
|
(3
|
)
|
|
(16
|
)
|
Interest expense, net
|
$
|
21,844
|
|
|
$
|
27,789
|
|
7. 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.
8. 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, respectively, 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, 2011 Plan or 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 May 2, 2020, there were 5,687,534 shares available for future issuance under the 2018 Plan.
The following table summarizes the Company’s stock award activity during the thirteen weeks ended May 2, 2020 (shares in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, February 1, 2020
|
5,213
|
|
|
$
|
14.00
|
|
|
1,445
|
|
|
$
|
25.22
|
|
|
30
|
|
|
$
|
25.83
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
441
|
|
|
25.07
|
|
|
683
|
|
|
25.07
|
|
|
2
|
|
|
20.52
|
|
|
527
|
|
|
23.96
|
|
Forfeited/canceled
|
(26
|
)
|
|
20.07
|
|
|
(26
|
)
|
|
24.29
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised/vested
|
(969
|
)
|
|
6.03
|
|
|
(254
|
)
|
|
25.07
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding, May 2, 2020
|
4,659
|
|
|
$
|
16.67
|
|
|
1,848
|
|
|
$
|
24.85
|
|
|
32
|
|
|
$
|
25.41
|
|
|
527
|
|
|
$
|
23.96
|
|
Stock-based compensation expense was $5.5 million and $3.8 million for the thirteen weeks ended May 2, 2020 and May 4, 2019, respectively.
Employee Stock Purchase Plan
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 the day prior to the first day of public trading of the Company’s equity securities. 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. As of May 2, 2020, 1,857,062 shares remained available for issuance. The amount of expense recognized for the thirteen weeks ended May 2, 2020 and May 4, 2019 was $0.1 million and $0.2 million, respectively.
Treasury Shares Acquired
On June 27, 2019, the Company completed the CVC June 2019 Secondary Offering of 9,977,024 shares of the Company's common stock and, in connection with the offering, the Company repurchased 2,500,000 shares of common stock at a price of $25.41 per share. These repurchased shares are being held in treasury.
In addition, 83,353 shares were reacquired to satisfy employees’ tax withholding obligations upon the vesting of restricted stock awards in the thirteen weeks ended May 2, 2020 and no shares were reacquired in the thirteen weeks ended May 4, 2019. These reacquired shares were recorded as $2.1 million of treasury stock for the thirteen weeks ended May 2, 2020.
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 May 2, 2020, $246.0 million remained available to purchase under the Program. The Company repurchased 175,000 shares for $4.0 million during the first quarter of fiscal year 2020.
9. Income Taxes
The Company projects the estimated annual effective tax rate for fiscal year 2020 to be 27.0%, excluding the tax effect of discrete events. Potential discrete adjustments include tax charges or benefits related to 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 21.5% and 15.9% for the thirteen weeks ended May 2, 2020 and May 4, 2019, respectively. The effective tax rate for the first quarter of fiscal year 2020 differs from our annual effective tax rate primarily due to excess tax benefits from stock-based compensation in the first quarter which reduced the effective tax rate by 3.7% and increase of prior year enhanced charitable contributions in the same period which reduced the effective tax rate by 1.6%.
We are subject to taxation in the U.S. federal and various state taxing jurisdictions. In general, the Company’s tax years from 2015 forward remain open and subject to examination by the Internal Revenue Service and various state taxing authorities.
10. 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 May 2, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
First Lien Term Loan
|
$
|
1,311,919
|
|
|
$
|
1,268,758
|
|
ABL Facility
|
50,000
|
|
|
50,000
|
|
Total Debt
|
$
|
1,361,919
|
|
|
$
|
1,318,758
|
|
The gross carrying amount and fair value of the Company’s debt at February 1, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
First Lien Term Loan
|
$
|
1,315,216
|
|
|
$
|
1,319,990
|
|
ABL Facility
|
378,000
|
|
|
378,000
|
|
Total Debt
|
$
|
1,693,216
|
|
|
$
|
1,697,990
|
|
The gross carrying amount and fair value of the Company’s debt at May 4, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
First Lien Term Loan
|
$
|
1,526,200
|
|
|
$
|
1,532,800
|
|
ABL Facility
|
281,000
|
|
|
281,000
|
|
Total Debt
|
$
|
1,807,200
|
|
|
$
|
1,813,800
|
|
The fair value of debt was based on quoted market prices and on borrowing rates available to the Company as of May 2, 2020, February 1, 2020 and May 4, 2019. These inputs are considered to be Level 2.
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.
11. Earnings Per Share
The table below reconciles basic weighted-average common shares outstanding to diluted weighted-average common shares outstanding for the thirteen weeks ended May 2, 2020 and May 4, 2019:
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
May 2, 2020
|
|
May 4, 2019
|
Weighted-average common shares outstanding, used for basic computation
|
136,089,960
|
|
|
136,810,084
|
|
Plus: Incremental shares of potentially dilutive securities
|
2,337,780
|
|
|
3,652,488
|
|
Weighted-average number of common and dilutive potential common shares outstanding
|
138,427,740
|
|
|
140,462,572
|
|
Stock options and restricted shares of 875,894 and 780,256, respectively, were excluded from the computation of diluted earnings for the thirteen weeks ended May 2, 2020, because their inclusion would have been anti-dilutive. Similarly, stock options and restricted shares of 286,124 and 209,149, respectively, were excluded from the computation of diluted earnings for the thirteen weeks ended May 4, 2019.
12. 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 has 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. At May 2, 2020, February 1, 2020, and May 4, 2019, the Interest Rate Swaps were recorded as a liability of $59.8 million, $40.0 million and $24.6 million, respectively, with the net of tax amount recorded in other comprehensive loss.
The Company elected hedge accounting for the interest rate swap agreements, and as such, the effective portion of the losses was recorded as a component of other comprehensive loss. There were $19.4 million and $5.2 million of losses recorded in other comprehensive loss for the thirteen weeks ended May 2, 2020 and May 4, 2019, respectively.
The fair values of derivative instruments included on the consolidated balance sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
Accounting for cash flow hedges
|
|
Notional Amount
|
|
Fixed Rate
|
|
Balance Sheet Classification
|
|
May 2,
2020
|
|
February 1,
2020
|
|
May 4,
2019
|
Interest rate swap
|
|
$
|
600,000
|
|
|
3.00
|
%
|
|
Other non-current liabilities
|
|
$
|
(29,934
|
)
|
|
$
|
(20,035
|
)
|
|
$
|
(12,336
|
)
|
Interest rate swap
|
|
360,000
|
|
|
3.00
|
%
|
|
Other non-current liabilities
|
|
(17,941
|
)
|
|
(11,997
|
)
|
|
(7,370
|
)
|
Interest rate swap
|
|
240,000
|
|
|
3.00
|
%
|
|
Other non-current liabilities
|
|
(11,965
|
)
|
|
(8,003
|
)
|
|
(4,920
|
)
|
Net carrying amount
|
|
$
|
1,200,000
|
|
|
|
|
Total liabilities
|
|
$
|
(59,840
|
)
|
|
$
|
(40,035
|
)
|
|
$
|
(24,626
|
)
|