| Organization and Summary of Significant Accounting Policies | (1) Organization and Summary of
Significant Accounting Policies
(a) Description of
Business
On September 28, 2012, Ollie’s Bargain Outlet Holdings,
Inc. (formerly known as Bargain Holdings, Inc.) acquired Bargain
Parent, Inc. and its subsidiary Ollie’s Holdings, Inc. and
its sole operating subsidiary, Ollie’s Bargain Outlet, Inc.
for $700.0 million in cash. The acquisition was financed
through approximately $462.6 million in equity investment and
approximately $250.0 million in various debt financing and
Bargain Holdings, Inc. was formed to complete the acquisition by
its majority shareholder, CCMP Capital Advisors, LLC and
affiliates. On March 23, 2015, Bargain Holdings, Inc. changed
its name to Ollie’s Bargain Outlet Holdings, Inc.
Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries are
collectively referenced to as the Company or Ollie’s.
Since the first store opened in 1982, the Company has grown to 203
Ollie’s Bargain Outlet retail locations as of
January 30, 2016. Ollie’s Bargain Outlet retail
locations are currently located in 17 states (Alabama, Connecticut,
Delaware, Georgia, Indiana, Kentucky, Maryland, Michigan, New
Jersey, New York, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee, Virginia, and West Virginia).
Ollie’s principally buys overproduced, overstocked, and
closeout merchandise from manufacturers, wholesalers, and other
retailers. In addition, the Company augments its name-brand
closeout deals with directly sourced private label products
featuring names exclusive to Ollie’s, in order to provide
consistently value-priced goods in select key merchandise
categories.
Stock split
On June 17, 2015, the Company effected a stock split of its
common stock at a ratio of 115 shares for every share previously
held. All common stock share and common stock per share amounts for
all periods presented in these financial statements have been
adjusted retroactively to reflect the stock split.
Initial Public Offering
On July 15, 2015, the Company priced its initial public
offering (“IPO”) of 8,925,000 shares of its common
stock. In addition, on July 17, 2015, the underwriters of the
IPO exercised their option to purchase an additional 1,338,750
shares of common stock from the Company. As a result, 10,263,750
shares of common stock were issued and sold by the Company at a
price of $16.00 per share.
As a result of the IPO, the Company received net proceeds of $153.1
million, after deducting the underwriting fees of $11.1 million.
The Company used the net proceeds from the IPO to pay off
outstanding borrowings under the Revolving Credit Facility and a
portion of the outstanding principal balance of the Term Loan. See
Note 5, “Debt Obligations and Financing
Arrangements.”
(b) Fiscal Year
Ollie’s follows a 52/53-week fiscal year, which ends on the
Saturday nearest to January 31st. References to the fiscal
year ended January 30, 2016 refer to the period from
February 1, 2015 to January 30, 2016 (“Fiscal
2015”). References to the fiscal year ended January 31,
2015 refer to the period from February 2, 2014 to
January 31, 2015 (“Fiscal 2014”). References to
the fiscal year end February 1, 2014 refer to the period from
February 3, 2013 to February 1, 2014 (“Fiscal
2013”).
(c) Principles of
Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany transactions have been
eliminated in consolidation.
(d) Use of Estimates
The preparation of consolidated financial statements in conformity
with U.S. generally accepted accounting principles
(“U.S. GAAP”) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(e) Fair Value
Disclosures
Fair value is defined as the price which the Company would receive
to sell an asset or pay to transfer a liability (an exit price) in
an orderly transaction between market participants on the
measurement date. In determining fair value, U.S. GAAP
establishes a three-level
• Level 1 inputs are quoted prices
available for identical assets and liabilities in active
markets.
• Level 2 inputs are observable
for the asset or liability, either directly or indirectly,
including quoted prices for similar assets and liabilities in
active markets or other inputs that are observable or can be
corroborated by observable market data.
• Level 3 inputs are less
observable and reflect the Company’s assumptions.
Ollie’s financial instruments consist of cash, accounts
receivable, accounts payable and the Company’s term loan. The
carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of their short maturities. The
carrying amount of the Company’s term loan facility
approximates its fair value because the interest rates are adjusted
regularly based on current market conditions.
(f) Cash and Cash
Equivalents
The Company considers cash on hand in stores, bank deposits, credit
card receivables, and all highly liquid investments with remaining
maturities of three months or less at the date of acquisition to be
cash and cash equivalents. Amounts receivable from credit card
issuers are typically converted to cash within one to two business
days of the original sales transaction.
(g) Concentration of Credit
Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk are cash. Ollie’s currently
maintains its day-to-day
(h) Inventories
Inventories are stated at the lower of cost or market determined
using the retail inventory method on a first-in, first-out basis.
The cost of inventories includes the merchandise cost,
transportation costs, and certain distribution and storage costs.
Such costs are thereafter expensed as cost of sales upon the sale
of the merchandise. The retail inventory method uses estimates for
shrink and markdowns to calculate ending inventory. These estimates
made by management could significantly impact the ending inventory
valuation at cost and the resulting gross margin.
(i) Property and
Equipment
Property and equipment are stated at original cost less accumulated
depreciation and amortization. Depreciation and amortization are
calculated over the estimated useful lives of the related assets,
or in the case of leasehold improvements, the lesser of the useful
lives or the remaining term of the lease. Expenditures for
additions, renewals, and betterments are capitalized; expenditures
for maintenance and repairs are charged to expense as incurred.
Depreciation is computed on the straight-line method for financial
reporting purposes.
The useful lives for the purpose of computing depreciation and
amortization are as follows:
Software 3 years
Automobiles 5 years
Computer equipment 5 years
Furniture, fixtures, and equipment 7-10 years
Leasehold improvements Lesser of lease term or useful
life
(j) Goodwill/Intangible
Assets
The Company amortizes intangible assets over their useful lives
unless it determines such lives to be indefinite. Goodwill and
intangible assets having indefinite useful lives are not amortized
to earnings, but instead are subject to annual impairment testing
or more frequently if events or circumstances indicate that the
value of goodwill or intangible assets having indefinite useful
lives might be impaired.
Entities have an option to perform a qualitative assessment to
determine whether further impairment testing on goodwill is
necessary. Specifically, an entity has the option to first assess
qualitative factors to determine whether it is necessary to perform
the two-step quantitative test. The goodwill quantitative
impairment test is a two-step test. Under the first step, the fair
value of the reporting unit is compared with its carrying value
(including goodwill). If the fair value of the reporting unit is
less than its carrying value, an indication of goodwill impairment
exists for the reporting unit and the enterprise must perform step
two of the impairment test (measurement). Under step two, an
impairment loss is recognized for any excess of the carrying amount
of the reporting unit’s goodwill over the implied fair value
of that goodwill. The implied fair value of goodwill is determined
by allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation. The residual fair value
after the allocation is the implied fair value of the reporting
unit goodwill. Fair value of the sole reporting unit for the most
recent quantitative test was determined utilizing a combination of
valuation methods including both the income approach (including a
discounted cash flow analysis) and market approaches (including
prior transaction method and comparable public company multiples).
The fair value estimates utilized in the impairment testing reflect
the use of Level 3 inputs. If the fair value of the reporting unit
exceeds its carrying value, step two does not need to be performed.
If an entity believes, as a result of its qualitative assessment,
that it is more-likely than-not that the fair value of a reporting
unit is less than its carrying amount, the quantitative impairment
test is required. Otherwise, no further testing is required. The
Company has selected the fiscal month ending date of
October as the annual impairment testing date. For the fiscal
years ended January 30, 2016 and January 31, 2015, the
Company completed a qualitative impairment test. For the fiscal
year ended February 1, 2014, the Company completed a
quantitative impairment test. Based upon the procedures described
above, no impairment of goodwill existed.
The Company is also required to perform impairment tests annually
or more frequently if events or circumstances indicate that the
value of its nonamortizing intangible assets might be impaired. The
Company’s nonamortizing intangible assets as of
January 30, 2016 and January 31, 2015 consisted of a
tradename. Entities have an option to perform a qualitative
assessment to determine whether further impairment testing of
nonamortizing intangible assets is necessary. Specifically, an
entity has the option to first assess qualitative factors to
determine whether it is necessary to perform a quantitative test.
The Company performs the quantitative impairment test using the
discounted cash flow method based on management’s projections
to determine the fair value of the asset. The carrying amount of
the asset is then compared to the fair value. If the carrying
amount is greater than fair value, an impairment loss is recorded
for the amount that fair value is less than the carrying amount. If
an entity believes, as a result of its qualitative assessment, that
it is more-likely than-not that the fair value is less than its
carrying amount, the quantitative impairment test is required.
Otherwise, no further testing is required. For the fiscal years
ended January 30, 2016 and January 31, 2015, the Company
completed a qualitative impairment test. For the fiscal year ended
February 1, 2014, the Company completed a quantitative test.
Based upon the procedures described above, no impairment of the
tradename existed.
Intangible assets with determinable useful lives are amortized over
their estimated useful lives and reviewed for impairment whenever
events or changes in circumstances indicate that its carrying
amount may not be recoverable.
(k) Impairment of Long-Lived
Assets
Long-lived assets, such as property and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset or asset group be tested
for possible impairment, the Company first compares undiscounted
cash flows expected to be generated by that asset or asset group to
its carrying value. If the carrying value of the long-lived asset
or asset group is not recoverable on an undiscounted cash flow
basis, impairment is recognized to the extent that the carrying
value exceeds its fair value. Fair value is determined through
various valuation techniques including discounted cash flow models,
quoted market values and third-party independent appraisals, as
considered necessary.
(l) Stock-Based
Compensation
The Company measures the cost of employee services received in
exchange for share-based compensation based on the grant date fair
value of the employee stock award. Ollie’s recognizes
stock-based compensation expense based on estimated grant date fair
value using the Black-Scholes option-pricing model which is
recorded on a straight-line basis over the vesting period for the
entire reward. Excess tax benefits of awards related to stock
option exercises are reflected as financing cash inflows.
(m) Revenue
Recognition
Ollie’s recognizes retail sales in its stores when
merchandise is sold and the customer takes possession of
merchandise. Net sales are presented net of returns and sales tax.
The Company provides an allowance for estimated retail merchandise
returns based on prior experience. The total allowance for returns
was $0.2 million as of January 30, 2016, January 31,
2015 and February 1, 2014. The following table provides a
reconciliation of the activity related to the Company’s sales
returns allowance (in thousands):
Fiscal year ended
January 30, January 31, February 1,
Beginning balance $ 247 $ 207 $ 207
Provisions 30,835 27,292 24,236
Sales returns (30,835 ) (27,252 ) (24,236 )
Ending balance $ 247 $ 247 $ 207
(n) Cost of Sales
Cost of sales includes merchandise cost, transportation costs,
inventory markdowns, shrink, and distribution, warehousing, and
storage costs.
(o) Selling, General and
Administrative Expenses
Selling, general and administrative expenses are comprised of
payroll and benefits for stores, field support, and support center
employees. Selling, general and administrative expense also
includes marketing and advertising expense, occupancy costs for
stores and the store support center, insurance, corporate
infrastructure and other selling, general and administrative
expenses.
(p) Advertising Costs
Advertising costs primarily consist of newspaper circulars, email
campaigns, media broadcasts and prominent advertising at
professional and collegiate sporting events and are charged to
expense the first time the advertising occurs. Advertising expense
for the fiscal years ended January 30,
2016, January 31, 2015 and February 1, 2014 was
$25.8 million, $23.1 million and $19.7 million,
respectively.
(q) Operating Leases
The Company leases all of its store locations, distribution centers
and office facilities. Many of the lease agreements contain rent
holidays, rent escalation clauses and contingent rent provisions
– or some combination of these items. For leases of store
locations and the store support center, the Company recognizes rent
expense in selling, general and administrative expenses. For leases
of distribution centers, the Company recognizes rent expense within
cost of sales. All rent expense is recorded on a straight-line
basis over the accounting lease term, which includes lease renewals
determined to be reasonably assured. Additionally, the commencement
date of the accounting lease term reflects the earlier of the date
the Company becomes legally obligated for the lease payments or the
date the Company takes possession of the building for initial
construction and setup. The excess rent expense over the actual
cash paid for rent is accounted for as deferred rent. Leasehold
improvement allowances received from landlords and other lease
incentives are recorded as deferred rent liabilities and are
recognized in selling, general and administrative expenses on a
straight-line basis over the accounting lease term.
(r) Pre-Opening Costs
Pre-opening costs (costs of opening new stores and distribution
facilities, including grand opening promotions, payroll, travel,
training, and store setup costs) are expensed as incurred.
(s) Debt Issuance Costs and
Original Issue Discount
Debt issuance costs and original issue discount are amortized to
interest expense using the effective interest method, over the life
of the related debt. As of January 30, 2016 and
January 31, 2015, debt issuance costs, net of accumulated
amortization, were $3.6 million and $6.1 million and the
amortization expense was $1.3 million and $1.5 million,
respectively. The original issue discount, net of accumulated
amortization, were $0.1 million and $2.8 million for the fiscal
years ended January 30, 2016 and January 31, 2015, and
the amortization expense was $0.4 million and $0.6 million,
respectively. The write off of unamortized debt issuance and
original issue discount costs recorded in loss on extinguishment of
debt on the consolidated statements of income and totaled $6.7
million, $0.7 million and $1.8 million, respectively, for the years
ended January 30, 2016, January 31, 2015 and
February 1, 2014.
(t) Self-Insurance
Under a number of the Company’s insurance programs, which
include the Company’s employee health insurance program, its
workers’ compensation and general liability insurance
programs, the Company is liable for a portion of its
losses. Ollie’s is self-insured for certain losses
related to the company sponsored employee health insurance program.
The Company estimates the accrued liabilities for its
self-insurance programs using historical claims experience and loss
reserves. To limit the Company’s exposure to losses, a
stop-loss third-party
(u) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating losses and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The Company recognizes the
effect of income tax positions only if those positions are more
likely than not of being sustained. Recognized income tax positions
are measured at the largest amount that is greater than 50% likely
of being realized.
Ollie’s files consolidated federal and state income tax
returns. For years before 2011, the Company is no longer subject to
U.S. federal income tax examinations. State income tax returns
are filed in various state tax jurisdictions, as appropriate, with
varying statutes of limitation and remain subject to examination
for varying periods up to three to four years depending on the
state.
(v) Earnings per Common
Share
Basic earnings per common share is computed by dividing net income
by the weighted average number of common shares outstanding.
Diluted earnings per common share is computed by dividing net
income by the weighted average number of common shares outstanding,
after giving effect to the potential dilution, if applicable, from
the assumed exercise of stock options into shares of common stock
as if those stock options were exercised.
The following table summarizes those effects for the diluted net
income per common share calculation (in thousands, except per share
amounts):
Fiscal year ended
January 30, January 31, February 1,
Net income $ 35,839 $ 26,915 $ 19,541
Weighted average number of common shares outstanding –
Basic 53,835 48,202 48,519
Incremental shares from the assumed exercise of outstanding stock
options 1,961 407
—
Weighted average number of common shares outstanding - Diluted 55,796 48,609 48,519
Earnings per common share – Basic $ 0.67 $ 0.56 $ 0.40
Earnings per common share - Diluted $ 0.64 $ 0.55 $ 0.40
Weighted average stock option shares totaling 651,400, 2,971,140
and 5,230,200 as of January 30, 2016, January 31, 2015,
and February 1, 2014, respectively, were excluded from the
calculation of diluted weighted average common shares outstanding
because the effect would have been antidilutive.
(w) Recent Accounting
Pronouncements
Revenue
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued an Accounting Standards Update
(“ASU”) 2014-09, Revenue from Contracts with
Customers
Debt Issuance Costs
In April 2015, the FASB issued ASU 2015-03, Simplifying the
Presentation of Debt Issuance Costs Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements
Deferred Taxes
In November 2015, the FASB issued ASU 2015-17, Balance Sheet
Classification of Deferred Taxes
Leases
In February 2016, the FASB issued ASU 2016-02, Leases
Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Stock
Compensation,
(x) Reclassification
Certain prior-year amounts have been reclassified to conform to
current-year presentation. |
