BOOT BARN HOLDINGS, INC., 10-K filed on 6/3/2016
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Mar. 26, 2016
May 31, 2016
Sep. 26, 2015
Document and Entity Information
 
 
 
Entity Registrant Name
Boot Barn Holdings, Inc. 
 
 
Entity Central Index Key
0001610250 
 
 
Document Type
10-K 
 
 
Document Period End Date
Mar. 26, 2016 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--03-26 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 234.4 
Entity Common Stock, Shares Outstanding
 
26,407,137 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Mar. 26, 2016
Mar. 28, 2015
Current assets:
 
 
Cash and cash equivalents
$ 7,195 
$ 1,448 
Accounts receivable, net
4,131 
3,863 
Inventories
176,335 
129,312 
Prepaid expenses and other current assets
15,558 
10,656 
Total current assets
203,219 
145,279 
Property and equipment, net
76,076 
30,054 
Goodwill
193,095 
93,097 
Intangible assets, net
64,861 
57,131 
Other assets
2,075 
567 
Total assets
539,326 
326,128 
Current liabilities:
 
 
Line of credit
48,815 
16,200 
Accounts payable
66,553 
44,636 
Accrued expenses and other current liabilities
35,896 
24,061 
Current portion of notes payable, net of unamortized debt issuance costs
1,035 
1,596 
Total current liabilities
152,299 
86,493 
Deferred taxes
12,255 
21,102 
Long-term portion of notes payable, net of unamortized debt issuance costs
192,579 
72,030 
Capital lease obligations
8,272 
15 
Other liabilities
12,431 
4,066 
Total liabilities
377,836 
183,706 
Commitments and contingencies (Note 10)
   
   
Stockholders' equity:
 
 
Common stock, $0.0001 par value; March 26, 2016 - 100,000 shares authorized, 26,354 shares issued; March 28, 2015 - 100,000 shares authorized, 25,824 shares issued
Preferred stock, $0.0001 par value; 10,000 shares authorized, no shares issued or outstanding
   
   
Additional paid-in capital
137,893 
128,693 
Retained earnings
23,594 
13,726 
Total stockholders' equity
161,490 
142,422 
Total liabilities and stockholders' equity
$ 539,326 
$ 326,128 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Mar. 26, 2016
Mar. 28, 2015
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
Common stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized (in shares)
100,000,000 
100,000,000 
Common Stock, shares issued (in shares)
26,354,000 
25,824,000 
Preferred stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Preferred stock, shares authorized (in shares)
10,000,000 
10,000,000 
Preferred Stock, shares issued (in shares)
Preferred Stock, shares outstanding (in shares)
Common Stock, shares held in treasury (in shares)
4,000 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Mar. 26, 2016
Mar. 28, 2015
Mar. 29, 2014
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
Net sales
$ 569,020 
$ 402,684 
$ 345,868 
Cost of goods sold
396,317 
267,907 
231,796 
Amortization of inventory fair value adjustment
(500)
867 
Total cost of goods sold
395,817 
267,907 
232,663 
Gross profit
173,203 
134,777 
113,205 
Operating expenses:
 
 
 
Selling, general and administrative expenses
142,078 
99,341 
91,998 
Acquisition-related expenses
891 
 
671 
Total operating expenses
142,969 
99,341 
92,669 
Income from operations
30,234 
35,436 
20,536 
Interest expense, net
12,923 
13,291 
11,594 
Other income, net
 
51 
39 
Income before income taxes
17,311 
22,196 
8,981 
Income tax expense
7,443 
8,466 
3,321 
Net income
9,868 
13,730 
5,660 
Net income attributed to non-controlling interest
 
283 
Net income attributed to Boot Barn Holdings, Inc.
$ 9,868 
$ 13,726 
$ 5,377 
Earnings per share:
 
 
 
Basic shares (in dollars per share)
$ 0.38 
$ 0.56 
$ 0.28 
Diluted shares (in dollars per share)
$ 0.37 
$ 0.54 
$ 0.28 
Weighted average shares outstanding:
 
 
 
Basic shares
26,170 
22,126 
18,929 
Diluted shares
26,955 
22,888 
19,175 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Common Stock
USD ($)
Additional Paid-In Capital
USD ($)
Retained Earnings
USD ($)
Treasury Shares
Noncontrolling Interest
USD ($)
Total
USD ($)
Balance at Mar. 30, 2013
$ 2 
$ 77,543 
$ (3,725)
 
$ 3,804 
$ 77,624 
Balance (in shares) at Mar. 30, 2013
18,929,000 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Net income
 
 
5,377 
 
283 
5,660 
Stock-based compensation expense
 
1,291 
 
 
 
1,291 
Balance at Mar. 29, 2014
78,834 
1,652 
 
4,087 
84,575 
Balance (in shares) at Mar. 29, 2014
18,929,000 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Net income
 
 
13,726 
 
13,730 
Dividend paid
 
(39,648)
(1,652)
 
 
(41,300)
Reorganization and issuance of stock
 
4,091 
 
 
(4,091)
 
Reorganization and issuance of stock (in shares)
1,000,000 
 
 
 
 
 
Issuance of stock in initial public offering, net of cost
82,223 
 
 
 
82,224 
Issuance of stock in initial public offering, net of cost (in shares)
5,750,000 
 
 
 
 
 
Issuance of restricted stock awards (in shares)
30,000 
 
 
 
 
 
Stock options exercised
 
464 
 
 
 
464 
Stock options exercised (in shares)
115,000 
 
 
 
 
 
Excess tax benefit
 
681 
 
 
 
681 
Stock-based compensation expense
 
2,048 
 
 
 
2,048 
Balance at Mar. 28, 2015
128,693 
13,726 
 
 
142,422 
Balance (in shares) at Mar. 28, 2015
25,824,000 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Net income
 
 
9,868 
 
 
9,868 
Stock options exercised
 
2,698 
 
 
 
2,698 
Stock options exercised (in shares)
530,000 
 
 
 
 
 
Shares forfeited, held in treasury stock
 
 
 
(4,000)
 
 
Excess tax benefit
 
3,621 
 
 
 
3,621 
Stock-based compensation expense
 
2,881 
 
 
 
2,881 
Balance at Mar. 26, 2016
$ 3 
$ 137,893 
$ 23,594 
 
 
$ 161,490 
Balance (in shares) at Mar. 26, 2016
26,354,000 
 
 
(4,000)
 
 
CONDENSED CONDSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Mar. 26, 2016
Mar. 28, 2015
Mar. 29, 2014
Cash flows from operating activities
 
 
 
Net income
$ 9,868 
$ 13,730 
$ 5,660 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
11,480 
6,615 
4,628 
Stock-based compensation
2,881 
2,048 
1,291 
Excess tax benefit
(3,621)
(681)
 
Amortization of intangible assets
2,536 
2,592 
3,501 
Amortization and write-off of debt issuance fees and debt discount
2,274 
3,684 
2,507 
Loss on disposal of property and equipment
463 
134 
1,980 
Accretion of above market leases
(72)
(149)
(230)
Deferred taxes
981 
1,402 
(1,874)
Amortization of inventory fair value adjustment
(500)
867 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
1,524 
(1,672)
(710)
Inventories
(16,087)
(26,610)
(14,100)
Prepaid expenses and other current assets
7,543 
(1,667)
(871)
Other assets
(2,713)
(362)
104 
Accounts payable
6,835 
7,364 
3,190 
Accrued expenses and other current liabilities
5,068 
3,298 
5,944 
Other liabilities
4,469 
1,782 
893 
Net cash provided by operating activities
32,929 
11,508 
12,780 
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(36,127)
(14,074)
(11,400)
Proceeds from sale of property and equipment
 
 
24 
Purchase of trademark rights
 
 
(200)
Acquisition of business, net of cash acquired
(146,541)
 
(15,696)
Net cash used in investing activities
(182,668)
(14,074)
(27,272)
Cash flows from financing activities
 
 
 
Line of credit - net
32,615 
(12,424)
9,714 
Proceeds from loan borrowings
200,938 
104,938 
100,000 
Repayments on debt and capital lease obligations
(77,899)
(130,326)
(70,126)
Debt issuance fees
(6,487)
(1,361)
(3,350)
Net proceeds from initial public offering
 
82,224 
 
Excess tax benefits from stock options
3,621 
681 
 
Proceeds from exercise of stock options
2,698 
464 
 
Dividends paid
 
(41,300)
 
Payment of assumed contingent consideration and debt from acquisitions
 
 
(21,818)
Net cash provided by financing activities
155,486 
2,896 
14,420 
Net increase in cash and cash equivalents
5,747 
330 
(72)
Cash and cash equivalents, beginning of period
1,448 
1,118 
1,190 
Cash and cash equivalents, end of period
7,195 
1,448 
1,118 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for income taxes
3,296 
8,297 
4,849 
Cash paid for interest
10,333 
11,167 
9,110 
Supplemental disclosure of non-cash activities:
 
 
 
Unpaid purchases of property and equipment
1,992 
1,374 
132 
Equipment acquired through capital lease
$ 38 
$ 36 
$ 28 
Business Operations
Business Operations

1. Business Operations

Boot Barn Holdings, Inc., formerly known as WW Top Investment Corporation (the “Company”) was formed on November 17, 2011, and is incorporated in the State of Delaware. The equity of the Company consists of 100,000,000 authorized shares and 26,349,387 and 25,824,569 outstanding shares of common stock as of March 26, 2016 and March 28, 2015, respectively, with 13,435,387 and 12,432,000 shares of common stock held by Freeman Spogli & Co. as of March 26, 2016 and March 28, 2015, respectively. The shares of common stock have voting rights of one vote per share.

The Company operates specialty retail stores that sell western and work boots and related apparel and accessories. The Company operates retail locations throughout the U.S. and sells its merchandise via the Internet. The Company operated a total of 208 stores in 29 states as of March 26, 2016, 169 stores in 26 states as of March 28, 2015 and 152 stores in 23 states as of March 29, 2014. As of the fiscal year ending March 26, 2016, all stores operate under the Boot Barn name, with the exception of two stores which operate under the “American Worker” name.

As of June 8, 2014, the Company held all of the outstanding shares of common stock of WW Holding Corporation, which held 95.0% of the outstanding shares of common stock of Boot Barn Holding Corporation. On June 9, 2014, WW Holding Corporation was merged with and into the Company and then Boot Barn Holding Corporation was merged with and into the Company (“Reorganization”). As a result of this Reorganization, Boot Barn, Inc. became a direct wholly owned subsidiary of the Company, and the minority stockholders that formerly held 5.0% of Boot Barn Holding Corporation were issued a total of 1,000,000 shares of common stock and became holders of 5.0% of the Company. Net income attributed to non-controlling interest was recorded for all periods through June 9, 2014. Subsequent to June 9, 2014, there were no noncontrolling interests. On June 10, 2014, the legal name of the Company was changed from WW Top Investment Corporation to Boot Barn Holdings, Inc.

Amendment of Certificate of Incorporation

On October 19, 2014, the Company’s board of directors authorized the amendment of its certificate of incorporation to increase the number of shares that the Company is authorized to issue to 100,000,000 shares of common stock, par value $0.0001 per share. In addition, the amendment of the certificate of incorporation authorized the Company to issue 10,000,000 shares of preferred stock, par value $0.0001 per share, and effect a 25-for-1 stock split of its outstanding common stock. The amendment became effective on October 27, 2014. Accordingly, all common share and per share amounts in these consolidated financial statements have been adjusted to reflect the increase in authorized shares and the 25-for-1 stock split as though it had occurred at the beginning of the initial period presented.

Initial Public Offering

On October 29, 2014, the Company completed its initial public offering (“IPO”) of 5,000,000 shares of its common stock. In addition, on October 31, 2014, the underwriters of the IPO exercised their option to purchase an additional 750,000 shares of common stock from the Company. As a result, 5,750,000 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 approximately $82.2 million, after deducting the underwriting discount of $6.4 million and related fees and expenses of $3.3 million. The Company used the net proceeds from the IPO to pay down the principal balance of its term loan with Golub Capital LLC. See Note 8, “Revolving Credit Facilities and Long-Term Debt”.

Secondary Offering

On February 25, 2015, the Company completed a secondary offering of 6,235,544 shares of common stock, including 813,332 shares of the Company’s common stock, issued as a result of the underwriters’ exercise of their option to purchase additional shares at the public offering price of $23.50 per share, less the underwriting discount. The Company did not receive any proceeds from the secondary offering.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), include the accounts of the Company and each of its subsidiaries, including WW Holding Corporation, Boot Barn Holding Corporation, Boot Barn, Inc., RCC Western Stores, Inc. (“RCC”), Baskins Acquisition Holdings, LLC (“Baskins”), Sheplers Inc. and Sheplers Holding Corporation (collectively with Sheplers, Inc. “Sheplers”) and Boot Barn International (Hong Kong) Limited (“Hong Kong”). All intercompany accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation.

Change in Accounting Principle 

   

The Company historically presented debt issuance costs, or fees paid to third party advisors related to directly issuing debt, as assets on the consolidated balance sheet. During the second quarter of fiscal 2016, the Company elected early adoption of Accounting Standards Update (ASU) 2015−03, “Interest − Imputation of Interest (Subtopic 835−30), Simplifying the Presentation of Debt Issuance Costs”. The guidance simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected. Therefore, these costs will continue to be amortized as interest expense over the term of the corresponding debt issuance. This guidance is not applicable to debt issuance costs associated with revolving line of credit agreements, and therefore these costs remain as

assets on the condensed consolidated balance sheets. The Company has applied the guidance in ASU 2015-03 retrospectively to the prior period presented in the condensed consolidated balance sheet.

   

The reclassification did not impact net income previously reported or any prior amounts reported on the condensed consolidated statements of operations. The following table presents the effect of the retrospective application of this change in accounting principle on the Company’s condensed consolidated balance sheet as of March 28, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of Debt Issuance Costs

 

As Reported

 

Effect of Change in

 

As Adjusted

 

(in thousands)

    

March 28, 2015

    

Accounting Principle

    

March 28, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

10,773

 

$

(117)

 

$

10,656

 

Total current assets

 

 

145,396

 

 

(117)

 

 

145,279

 

Noncurrent assets:

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

1,026

 

 

(459)

 

 

567

 

Total assets

 

$

326,704

 

$

(576)

 

$

326,128

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Current portion of notes payable

 

$

1,713

 

$

(117)

 

$

1,596

 

Total current liabilities

 

 

86,610

 

 

(117)

 

 

86,493

 

Long-term liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

72,489

 

 

(459)

 

 

72,030

 

Total liabilities

 

$

184,282

 

$

(576)

 

$

183,706

 

Total liabilities and stockholders' equity

 

$

326,704

 

$

(576)

 

$

326,128

 

 

Fiscal Year

The Company reports its results of operations and cash flows on a 52 or 53‑week basis, and its fiscal year ends on the last Saturday of March unless April 1st is a Saturday, in which case the fiscal year ends on April 1st. The years ending March 26, 2016 (“fiscal 2016”), March 28, 2015 (“fiscal 2015”) and March 29, 2014 (“fiscal 2014”) each consisted of 52 weeks. 

Comprehensive Income

The Company does not have any components of other comprehensive income recorded within its consolidated financial statements and, therefore, does not separately present a statement of comprehensive income in its consolidated financial statements.

Segment Reporting

GAAP has established guidance for reporting information about a company’s operating segments, including disclosures related to a company’s products and services, geographic areas and major customers. The Company operates in a single operating segment, which includes net sales generated from its retail stores and e‑commerce websites. The vast majority of the Company’s identifiable assets are in the U.S.

Use of Estimates

The preparation of financial statements in conformity with 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Among the significant estimates affecting the Company’s consolidated financial statements are those relating to revenue recognition, inventories, goodwill, intangible and long‑lived assets, stock‑based compensation and income taxes. Management regularly evaluates its estimates and assumptions based upon historical experience and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent actual results differ from those estimates, the Company’s future results of operations may be affected.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents also include receivables from credit card sales. The carrying amounts of cash and cash equivalents represent their fair values.

Accounts Receivable

The Company’s accounts receivable consist of amounts due from commercial customers for merchandise sold, as well as receivables from suppliers under co‑operative arrangements. The Company’s allowance for doubtful accounts was less than $0.1 million and zero for the fiscal years ending March 26, 2016 and March 28, 2015, respectively.

Inventories

Inventory consists primarily of purchased merchandise and is valued at the lower of cost or market. Cost is determined on a first‑in, first‑out basis and includes the cost of merchandise and import related costs, including freight, duty and agent commissions. The Company assesses the recoverability of inventory through a periodic review of historical usage and present demand. When the inventory on hand exceeds the foreseeable demand, the value of inventory that, at the time of the review, is not expected to be sold is written down to its estimated net realizable value.

The Company recorded fair value adjustments to reflect the acquired cost of inventory related to its acquisitions of Baskins and Sheplers. These amounts were amortized over the period that the related inventory was sold. Amortization of the acquired cost of inventory was $0.5 million, $0.0 million and $0.9 million for fiscal 2016, 2015 and 2014, respectively.

Debt Issuance Costs and Debt Discounts

Debt issuance costs are capitalized and amortized to interest expense over the terms of the applicable loan agreements using the effective interest method. Those costs related to the issuance of debt are presented as a reduction to the principal amount of the debt. Debt issuance costs incurred with the issuance of revolving credit lines are included in prepaid expenses and other current assets. 

 

Debt discounts arise when transaction fees are paid to the lending institution. Debt discounts are recorded as a reduction to the principal amount of the debt. Amortization of debt discounts is recorded as an increase to the net principal amount of the debt and as a charge to interest expense over the term of the applicable loan agreement using the effective interest method.

Property and Equipment, net

Property and equipment consists of leasehold improvements, machinery and equipment, furniture and fixtures and vehicles. Property and equipment is subject to depreciation and is recorded at cost less accumulated depreciation. Expenditures for major remodels and improvements are capitalized while minor replacements, maintenance and repairs that do not improve or extend the life of such assets are charged to expense. Gains or losses on disposal of fixed assets, when applicable, are reflected in operations. Depreciation is computed using the straight‑line method over the estimated useful lives, ranging from five to ten years. Machinery and equipment is depreciated over five years. Furniture and fixtures are depreciated over seven years. Vehicles are depreciated over five years. Leasehold improvements are depreciated over the shorter of the terms of the leases or ten years.

Goodwill and Indefinite‑Lived Intangible Assets

Goodwill is recorded as the difference between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Goodwill is tested for impairment at least annually or more frequently if indicators of impairment exist. An annual goodwill impairment test is performed as of the first day of the fourth fiscal quarter. Management evaluates the fair value of the reporting unit using a market‑based analysis to review market capitalization as well as reviewing a discounted cash flow analysis using management’s assumptions.

The Company conducts a two‑step goodwill impairment test. The first step of the impairment test involves comparing the fair value of the reporting unit with its carrying value. The Company’s entire operations represent one reporting unit. The Company determines the fair value of its reporting unit using the income approach and market approach to valuation, as well as other generally accepted valuation methodologies. If the carrying amount of the reporting unit exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test, which involves comparing the implied fair value of the reporting unit’s goodwill to the carrying value of that goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, will be recognized as an impairment loss. The Company concluded that there was no impairment of goodwill during fiscal 2016, 2015 or 2014.

Intangible assets with indefinite lives, which include the Boot Barn and Sheplers trademarks, are not amortized but instead are measured for impairment at least annually, or when events indicate that impairment may exist. The Company calculates impairment as the excess of the carrying value of indefinite‑lived intangible assets over their estimated fair value. If the carrying value exceeds the estimate of fair value an impairment charge is recorded. The Company concluded there was no impairment of intangible assets with indefinite lives during fiscal 2016, 2015 or 2014.

Definite‑Lived Intangible Assets

Definite‑lived intangible assets consist of certain trademarks, customer lists, non‑compete agreements, and below‑market leases. Definite‑lived intangible assets are amortized utilizing the straight‑line method over the assets’ estimated useful lives, with the exception of customer lists, which are amortized based on the estimated attrition rate. The period of amortization for trademarks is six months to two years, customer lists is three to five years, non‑compete agreements is four to five years and below‑market leases is four to 19 years.

Long‑Lived Assets

Long‑lived assets consist of property and equipment and definite‑lived intangible assets. The Company assesses potential impairment of its long‑lived assets whenever events or changes in circumstances indicate that an asset or asset group’s carrying value may not be recoverable. Factors that are considered important that could trigger an impairment review include a current period operating or cash flow loss combined with a history of operating or cash flow losses and a projection or forecast that demonstrates continuing losses or insufficient income associated with the use of a long‑lived asset or asset group. Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on estimated undiscounted future cash flows from operating activities compared with the carrying value of the related assets. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized, measured by the difference between the carrying value, and the estimated fair value of the assets, with such estimated fair values determined using the best information available and in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. The Company has determined that there were no impairments of long‑lived assets during fiscal 2016, 2015 or 2014.

Stock‑Based Compensation

Stock‑based compensation is accounted for under FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). The Company accounts for all stock‑based compensation transactions using a fair‑value method and recognizes the fair value of each award as an expense over the service period. The Company estimates the fair value of stock options granted using the Black‑Scholes option‑pricing model. The use of the Black‑Scholes model requires a number of estimates, including the expected option term, the expected volatility in the price of the Company’s common stock, the risk‑free rate of interest and the dividend yield on the Company’s common stock. Judgment is required in estimating the number of share‑based awards that the Company expects will ultimately vest upon the fulfillment of service conditions (such as time‑based vesting). The fair value of the Company’s restricted stock awards and restricted stock units is the closing price of the Company’s common stock on the grant date. The consolidated financial statements include amounts that are based on the Company’s best estimates and judgments. The Company classifies compensation expense related to these awards in the consolidated statements of operations based on the department to which the recipient reports.

Noncontrolling Interest

Until June 8, 2014, certain investors held approximately 5.0% of the outstanding shares of Boot Barn Holding Corporation. Noncontrolling interests were recorded based on an allocation of subsidiary earnings based on the relative ownership interest. On June 8, 2014, as a result of the Reorganization discussed in Note 1, the minority stockholders that formerly held 5.0% of Boot Barn Holding Corporation became holders of 5.0% of the Company.

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. E‑commerce sales are recorded when the customer takes title of the merchandise and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable, which generally occurs upon delivery of the product. Shipping and handling revenues are included in total net sales. Shipping costs incurred by the Company are included as cost of goods sold.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions, estimated future award redemption and other promotions. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages. The total reserve for returns was $1.3 million, $0.7 million and $0.4 million as of fiscal 2016, 2015 and 2014, respectively and is recorded in accrued expenses and other current liabilities in the accompanying consolidated balance sheet. The following table provides a reconciliation of the activity related to the Company’s sales returns reserve:

 

 

 

 

 

 

 

 

 

 

 

Sales Returns Reserve

 

Fiscal Year Ended

 

 

 

March 26,

 

March 28,

 

March 29,

 

(In thousands)

    

2016

    

2015

    

2014

 

Beginning balance

 

$

687

 

$

430

 

$

238

 

Provisions

 

 

29,597

 

 

17,689

 

 

15,034

 

Sales returns

 

 

(28,965)

 

 

(17,432)

 

 

(14,842)

 

Ending balance

 

$

1,319

 

$

687

 

$

430

 

 

The Company maintains a customer loyalty program. Under the program, customers accumulate points based on purchase activity. For customers to maintain their active point balance, they must make a qualifying purchase of merchandise at least once in a 365‑day period. Once a loyalty program member achieves a certain point level, the member earns awards that may be redeemed for credits on merchandise purchases. To redeem awards, the member must make a qualifying purchase of merchandise within 60 days of the date the award was granted. Unredeemed awards and accumulated partial points are accrued as unearned revenue and as an adjustment to net sales. The unearned revenue for this program is recorded in accrued expenses and other current liabilities on the consolidated balance sheets and was $2.0 million as of both March 26, 2016 and March 28, 2015, respectively. The following table provides a reconciliation of the activity related to the Company’s customer loyalty program:

 

 

 

 

 

 

 

 

 

 

 

Customer Loyalty Program

    

Fiscal Year Ended

 

 

 

March 26,

 

March 28,

 

March 29,

 

(In thousands)

    

2016

    

2015

    

2014

 

Beginning balance

 

$

1,971

 

$

1,950

 

$

1,343

 

Current year provisions

 

 

5,718

 

 

4,996

 

 

5,015

 

Current year award redemptions

 

 

(5,714)

 

 

(4,975)

 

 

(4,408)

 

Ending balance

 

$

1,975

 

$

1,971

 

$

1,950

 

 

Proceeds from the sale of gift cards are deferred until the customers use the cards to acquire merchandise. Gift cards, gift certificates and store credits do not have expiration dates, and unredeemed gift cards, gift certificates and store credits are subject to state escheatment laws. The Company retains the percentage of the value of such unredeemed gift cards, gift certificates and store credits not escheated, and recognizes these amounts in net sales. The Company defers recognition of a layaway sale and its related profit to the accounting period when the customer receives the layaway merchandise. Income from the redemption of gift cards, gift card breakage, and the sale of layaway merchandise is included in net sales. In fiscal 2014, the Company elected to participate in a voluntary disclosure program with the State of Delaware in order to settle past due unclaimed property obligations. The Company agreed with the State of Delaware to settle all unreported escheatment liabilities in the amount of $0.3 million. These amounts were recorded in accrued expenses and other current liabilities in fiscal 2014 based upon preliminary settlement amounts. The final settlement was reached with, and amounts were paid to, the State of Delaware in May 2014.

Cost of Goods Sold

Cost of goods sold includes the cost of merchandise, obsolescence and shrink provisions, store and warehouse occupancy costs (including rent, depreciation and utilities), inbound and outbound freight, supplier allowances, occupancy‑related taxes, compensation costs for merchandise purchasing and warehouse personnel and other inventory acquisition‑related costs.

Store Opening Costs

Store opening costs consist of costs incurred prior to opening a new store and primarily consist of manager and other employee payroll, travel and training costs, marketing expenses, initial opening supplies and costs of transporting initial inventory and certain fixtures to store locations, as well as occupancy costs incurred from the time that we take possession of a store site to the opening of that store. Occupancy costs are included in cost of goods sold and the other store opening costs are included in selling, general and administrative (“SG&A”) expenses. All of these costs are expensed as incurred.

Advertising Costs

Certain advertising costs, including direct mail, television and radio promotions, event sponsorship, in‑store photographs and other promotional advertising are expensed when the marketing campaign commences. The Company had prepaid advertising costs of $0.6 million and $0.5 million as of March 26, 2016 and March 28, 2015, respectively. All other advertising costs are expensed as incurred. The Company recognized $22.0 million, $11.5 million and $11.3 million in advertising costs during fiscal 2016, 2015 and 2014, respectively. 

Leases

The Company recognizes rent expense for operating leases on a straight‑line basis (including the effect of reduced or free rent and rent escalations) over the lease term. The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight‑line basis is recognized as an adjustment to deferred rent in the consolidated balance sheets. Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives are recorded as deferred rent and are amortized using the straight‑line method over the lease term as an offset to rent expense. Contingent rent, determined based on a percentage of sales in excess of specified levels, is recognized as rent expense when the achievement of the specified sales that triggers the contingent rent is probable.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires the asset and liability approach for financial accounting and reporting of income taxes. Deferred tax assets and liabilities are attributable to differences between financial statement and income tax reporting. Deferred tax assets, net of any valuation allowances, represent the future tax return consequences of those differences and for operating loss and tax credit carryforwards, which will be deductible when the assets are recovered. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

The Company accounts for uncertain tax positions in accordance with ASC 740, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Such changes in recognition or measurement might result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statements of operations. Accrued interest and penalties, if incurred, are included within accrued expenses and other current liabilities in the consolidated balance sheets. There were no accrued interest or penalties for the fiscal years ended March 26, 2016 or March 28, 2015. 

Per Share Information

Basic earnings per share is computed by dividing net income by the weighted average number of outstanding shares of common stock. In computing diluted earnings per share, the weighted average number of common shares outstanding is adjusted to reflect the effect of potentially dilutive securities such as stock options. In accordance with ASC 718, the Company utilizes the treasury stock method to compute the dilutive effect of stock options, restricted stock awards and restricted stock units.

Fair Value of Certain Financial Assets and Liabilities

The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC 820”) which requires disclosure of the estimated fair value of certain assets and liabilities defined by the guidance as financial instruments. The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable and debt. ASC 820 defines the fair value of financial instruments as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a three‑level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

·

Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. The Company’s Level 1 assets include investments in money market funds.

·

Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data.

·

Level 3 uses one or more significant inputs that are unobservable and supported by little or no market activity, and reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation. The Company’s Level 3 assets include certain acquired businesses and its Level 3 liability includes contingent consideration.

Cash and cash equivalents, accounts receivable and accounts payable are valued at fair value and are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified as Level 2 or Level 3 even though there may be certain significant inputs that are readily observable. The Company believes that the recorded value of its financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or duration.

Although market quotes for the fair value of the outstanding debt arrangements discussed in Note 8 “Revolving credit facilities and long‑term debt” are not readily available, the Company believes its carrying value approximates fair value due to the variable interest rates, which are Level 2 inputs. There were no financial assets or liabilities requiring fair value measurements as of March 26, 2016 on a recurring basis.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents. At times, such amounts held at banks may be in excess of Federal Deposit Insurance Corporation insurance limits, and the Company mitigates such risk by utilizing multiple banks.

Supplier Concentration Risk

The Company purchases merchandise inventories from several hundred suppliers worldwide. Sales of products from the Company’s three largest suppliers totaled approximately 38%,  40% and 40% of net sales for fiscal 2016, 2015 and 2014.

Recent Accounting Pronouncements

In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued a new revenue recognition standard, ASU No. 2014‑09, Revenue From Contracts with Customers, that will supersede nearly all existing revenue recognition guidance under GAAP. The revenue recognition standard will allow for the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. On August 8, 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU No. 2014-09 by one year, and permits early adoption as long as the adoption date is not before the original public entity effective date. The standard is effective for public entities for annual and interim periods beginning after December 15, 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) which amends the accounting guidance related to the evaluation of an entity’s ability to continue as a going concern. The amendment establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. The update also gives guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. This guidance is effective for the Company beginning in fiscal 2017. The Company does not expect the new guidance to have an impact on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the customer’s accounting for service contracts. ASU 2015-05 is effective for the Company beginning in fiscal 2017 with early adoption permitted. The Company does not expect the new guidance to have an impact on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. This update requires inventory within the scope of the standard to be measured at the lower of cost and net realizable value. Previous guidance required inventory to be measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin). This update is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16"), which simplifies the accounting for measurement-period adjustments to provisional amounts recognized in a business combination. ASU 2015-16 is effective for annual periods (and interim reporting periods within those years) beginning after December 15, 2016. The Company does not expect the new guidance to have an impact on its consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in annual periods beginning after December 15, 2016, and for interim periods within those annual periods. The amendments for ASU-2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.

Business Combinations
Business Combinations

3. Business Combinations

In allocating the purchase price of the following acquisitions, the Company recorded all assets acquired and liabilities assumed at fair value. The excess of the purchase price over the aggregate fair values was recorded as goodwill. ASC 820 defines fair value 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. The fair value assigned to identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisitions.

The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as it obtains more information as to facts and circumstances existing as of the acquisition date.

Valuations on acquired intangible assets for acquisitions were completed based on Level 3 inputs. The acquired trademarks, customer lists, below‑market leases, above‑market leases and non‑compete agreements are subject to fair value measurements that were based primarily on significant inputs not observable in the market and thus represent Level 3 measurements.

Sheplers Acquisition

On June 29, 2015, the Company completed the acquisition of Sheplers, a western lifestyle company with 25 retail locations across the United States and an e-commerce business, for a purchase price of $147.0 million (which included assumption of certain indebtedness), subject to customary adjustments (the “Sheplers Acquisition”). The primary reason for the Sheplers Acquisition was to expand the Company’s retail operations into new and existing markets and grow the Company’s e-commerce business.

   

The Company funded the Sheplers Acquisition by refinancing approximately $172.0 million of its and Sheplers’ existing indebtedness in part with an initial borrowing of $57.0 million under a $125.0 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association (“June 2015 Wells Fargo Revolver”), is agent, and a $200.0 million syndicated senior secured term loan for which GCI Capital Markets LLC (“2015 Golub Term Loan”) is agent. Borrowings under the credit agreements were initially used to pay costs and expenses related to the Sheplers Acquisition and the closing of the credit agreements, and may be used for working capital and other general corporate purposes.

   

The acquisition-date fair value of the consideration transferred totaled $149.3 million, which consisted of $147.0 million in cash and $2.3 million of a working capital adjustment, cash acquired and other adjustments. The total fair value of consideration transferred for the acquisition was allocated to the net tangible and intangible assets based upon their estimated fair values as of the date of the acquisition. Any measurement period adjustments will be recorded retrospectively to the acquisition date.  The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill. The goodwill and intangibles assets are not deductible for income tax purposes. Such estimated fair values require management to make estimates and judgments, especially with respect to intangible assets.

   

The fair value of each intangible and fixed asset acquired through the Sheplers Acquisition was measured in accordance with ASC 820. Customer lists, furniture, fixtures, office equipment, leasehold improvements, computer equipment and warehouse equipment were all valued using the cost approach. The trade name was valued under the royalty savings income approach method and inventory was valued under the comparative sales method. All operating leases, below-market leases, capital leases and financing obligations were valued under either the cost or income approach. Such fair values were determined using Level 3 inputs.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date based on the purchase price allocation:

 

 

 

 

 

    

 

At June 29, 2015

 

 

    

(in thousands)

 

Assets acquired:

 

 

 

 

Cash

 

$

2,762

 

Accounts receivable

 

 

1,792

 

Inventory

 

 

30,436

 

Prepaid expenses and other current assets

 

 

17,711

 

Property and equipment

 

 

10,744

 

Properties under capital lease and financing transactions

 

 

10,528

 

Intangible - below-market leases

 

 

500

 

Intangible - trade name

 

 

9,200

 

Intangible - customer lists

 

 

488

 

Goodwill

 

 

99,998

 

Other assets

 

 

128

 

Total assets acquired

 

$

184,287

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

Accounts payable

 

$

14,554

 

Accrued liabilities and other payables

 

 

5,065

 

Accrued customer liabilities

 

 

1,318

 

Deferred tax liability

 

 

1,226

 

Capital lease and financing transactions

 

 

8,853

 

Other liabilities

 

 

3,968

 

Total liabilities assumed

 

 

34,984

 

Net Assets acquired

 

$

149,303

 

 

The Company incurred $0.9 million of acquisition‑related costs in fiscal 2016 related to the acquisition of Sheplers, which are recorded in “Acquisition-related expenses” in the consolidated statements of operations for the fiscal year ending March 26, 2016.

 

The amount of net revenue and net loss of Sheplers included in the Company’s consolidated statements of operations subsequent to the June 29, 2015 acquisition date was as follows:

 

 

 

 

 

 

 

Fiscal Year Ended

 

 

    

March 26, 2016

    

 

 

(in thousands)

 

 

 

 

 

 

Net sales

 

$

126,877

 

Net loss

 

$

(6,082)

 

 

Supplemental As Adjusted Data (Unaudited)

The as adjusted net sales and net income below give effect to the Sheplers Acquisition as if it had been consummated on March 30, 2014, the first day of the Company’s 2015 fiscal year. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Sheplers to reflect the effects of amortization of purchased intangible assets and acquired inventory valuation step-down, refinanced debt and capital lease and financing transactions as of March 30, 2014 in order to complete the acquisition, and income tax expense. The adjustments are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances. Pre-acquisition net sales and net income numbers for Sheplers are derived from their books and records prepared prior to the acquisition and are not verified by the Company. This as adjusted data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place as of the date noted above.

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended

 

 

 

March 26,

 

March 28,

 

 

    

2016

    

2015

 

(in thousands)

    

 

    

    

 

    

 

As adjusted net sales

 

$

601,952

 

$

559,950

 

As adjusted net income

 

$

6,449

 

$

13,162

 

 

Baskins Acquisition Holdings, LLC

Effective May 25, 2013, the Company completed the acquisition of 100% of the member interests in Baskins Acquisition Holdings LLC (“Baskins”), including 30 stores and an online retail website. Baskins is a specialty western retailer with stores in Texas and Louisiana, and the acquisition expanded the Company’s operations into these core markets.

The acquisition‑date fair value of the consideration transferred totaled $37.7 million, which consisted of $36.0 million in cash and $1.7 million of contingent consideration. The $36.0 million of cash included $13.7 million paid to the members of Baskins, $2.2 million paid into an escrow account and $20.1 million to repay Baskins’ outstanding debt. These payments were partially offset by $1.9 million, which represents the amount of cash on hand immediately prior to the closing of the acquisition. All escrow amounts were settled by December 4, 2014.

The Company was obligated to make additional earnout payments, contingent on the achievement of milestones relating to 12‑month store sales associated with three new stores for the periods beginning January 24, 2013, January 31, 2013 and February 20, 2013 at each of the three stores. The maximum amount payable upon achievement of the milestones was $2.1 million. Each of the milestones was achieved, and the Company made a cash payment of $2.1 million in the fourth quarter of fiscal 2014. As of the acquisition date, the Company estimated that these earnout payments would be $1.7 million, based on then existing facts and circumstances. The estimated fair value of this earnout was determined by using revenue projections and applying a discount rate to reflect the risk of the underlying conditions not being satisfied such that no payment would be due. The fair value measurement of the earnout was based primarily on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. A total of $0.4 million from the revaluation of contingent consideration was recorded in fiscal 2014 to selling, general and administrative expenses in the Company’s consolidated statement of operations.

The total fair value of consideration transferred for the acquisition was allocated to the net tangible and intangible assets based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill. The goodwill is deductible for income tax purposes. Such estimated fair values require management to make estimates and judgments, especially with respect to intangible assets. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date based on the preliminary purchase price (in thousands):

 

 

 

 

 

 

    

At May 25, 2013

 

 

    

(Level 3)

 

Assets acquired:

 

 

 

 

Cash and cash equivalents

 

$

1,935

 

Current assets

 

 

22,083

 

Property and equipment, net

 

 

5,850

 

Intangible assets acquired

 

 

5,006

 

Goodwill

 

 

15,064

 

Other assets

 

 

109

 

Total assets acquired

 

$

50,047

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

Other current liabilities

 

$

12,119

 

Line of credit - current

 

 

10,259

 

Notes payable - current

 

 

9,819

 

Contingent consideration

 

 

1,740

 

Above-market leases

 

 

83

 

Capital lease obligation

 

 

138

 

Total liabilities assumed

 

 

34,158

 

Net Assets acquired

 

$

15,889

 

 

Definite‑lived intangible assets are recorded at their fair value as of the acquisition date with amortization computed utilizing the straight‑line method over the assets’ estimated useful lives, with the exception of customer lists, which are amortized based on the estimated attrition rate. The period of amortization for trademarks is six months to two years, non‑compete agreements is four to five years, customer lists is five years, and below‑market leases is two to 17 years. For leases under market rent, amortization is based on the discounted future benefits from lease payments under market rents.

Acquisition‑related costs are recognized separately from the acquisition and are expensed as incurred. Goodwill represents the additional amounts paid in order to expand the Company’s geographical presence. The Company incurred $0.7 million of acquisition‑related costs in fiscal 2014. The amount of net revenue and net loss of Baskins included in the Company’s consolidated statements of operations from the acquisition date to March 29, 2014 were $63.4 million and $0.1 million, respectively.

The change in the carrying amount of goodwill is as follows (in thousands):

 

 

 

 

 

Balance as of March 29, 2014

    

$

93,097

 

Activity during fiscal 2015

 

 

 —

 

Balance as of March 28, 2015

 

 

93,097

 

Goodwill as a result of the Sheplers Acquisition

 

 

99,998

 

Balance as of March 26, 2016

 

$

193,095

 

 

Prepaid Expenses and Other Current Assets
Prepaid Expenses and Other Current Assets

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

March 26,

    

March 28,

 

 

    

2016

    

2015

 

Prepaid rent and property taxes

 

$

 —

 

$

2,314

 

Prepaid advertising

 

 

570

 

 

513

 

Prepaid insurance

 

 

1,052

 

 

582

 

Deferred taxes

 

 

6,150

 

 

5,358

 

Income tax receivable

 

 

5,869

 

 

916

 

Debt issuance costs

 

 

752

 

 

 —

 

Other

 

 

1,165

 

 

973

 

Total prepaid expenses and other current assets

 

$

15,558

 

$

10,656

 

 

Property and Equipment, Net
Property and Equipment, Net

5. Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

March 26,

    

March 28,

 

 

    

2016

    

2015

 

Land

 

$

2,530

 

$

 —

 

Buildings

 

 

7,998

 

 

 —

 

Leasehold improvements

 

 

42,190

 

 

18,716

 

Machinery and equipment

 

 

13,433

 

 

6,738

 

Furniture and fixtures

 

 

31,462

 

 

16,345

 

Construction in progress

 

 

2,427

 

 

1,720

 

Vehicles

 

 

919

 

 

483

 

 

 

 

100,959

 

 

44,002

 

Less: Accumulated depreciation

 

 

(24,883)

 

 

(13,948)

 

Property and equipment, net

 

$

76,076

 

$

30,054

 

 

Depreciation expense was $11.5 million, $6.6 million, and $4.6 million for fiscal years 2016, 2015 and 2014, respectively. Amortization related to assets under capital leases is included in the above depreciation expense (see Note 11 “Leases”).

Intangible Assets, Net
Intangible Assets, Net

6. Intangible Assets, Net

Net intangible assets consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 26, 2016

 

 

 

Gross

    

 

 

    

 

 

    

Weighted

 

 

 

Carrying

 

Accumulated

 

 

 

 

Average

 

 

    

Amount

    

Amortization

    

Net

    

Useful Life

 

 

 

(in thousands, except for weighted average useful life)

 

Customer lists

 

$

7,788

 

$

(6,172)

 

$

1,616

 

4.9

 

Non-compete agreements

 

 

1,290

 

 

(968)

 

 

322

 

4.9

 

Below-market leases

 

 

5,248

 

 

(1,702)

 

 

3,546

 

9.4

 

Total definite lived

 

 

14,326

 

 

(8,842)

 

 

5,484

 

 

 

Trademarks—indefinite lived

 

 

59,377

 

 

 —

 

 

59,377

 

 

 

Total intangible assets

 

$

73,703

 

$

(8,842)

 

$

64,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 28, 2015

 

 

 

Gross

 

 

 

 

 

 

 

Weighted

 

 

 

Carrying

 

Accumulated

 

 

 

 

Average

 

 

    

Amount

    

Amortization

    

Net

    

Useful Life

 

 

 

(in thousands, except for weighted average useful life)

 

Trademarks

 

$

2,490

 

$

(2,490)

 

$

 —

 

0.9

 

Customer lists

 

 

7,300

 

 

(4,473)

 

 

2,827

 

5.0

 

Non-compete agreements

 

 

1,380

 

 

(788)

 

 

592

 

4.7

 

Below-market leases

 

 

5,318

 

 

(1,706)

 

 

3,612

 

10.4

 

Total definite lived

 

 

16,488

 

 

(9,457)

 

 

7,031

 

 

 

Trademarks—indefinite lived

 

 

50,100

 

 

 —

 

 

50,100

 

 

 

Total intangible assets

 

$

66,588

 

$

(9,457)

 

$

57,131

 

 

 

 

Amortization expense for intangible assets totaled $2.5 million, $2.6 million and $3.5 million for fiscal 2016, 2015 and 2014, respectively, and is included in selling, general and administrative expenses.

As of March 26, 2016, estimated future amortization of intangible assets was as follows:

 

 

 

 

 

Fiscal year

    

(in thousands)

 

 

 

 

 

 

2017

 

$

2,067

 

2018

 

 

903

 

2019

 

 

519

 

2020

 

 

388

 

2021

 

 

314

 

Thereafter

 

 

1,293

 

Total

 

$

5,484

 

 

Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

March 26,

    

March 28,

 

 

    

2016

    

2015

 

Accrued compensation

 

$

6,304

 

$

7,207

 

Deferred revenue

 

 

7,073

 

 

4,360

 

Sales tax liability

 

 

4,526

 

 

3,554

 

Accrued interest

 

 

205

 

 

192

 

Sales reward redemption liability

 

 

1,975

 

 

1,971

 

Capital leases-short term

 

 

378

 

 

30

 

Other

 

 

15,435

 

 

6,747

 

Total accrued expenses

 

$

35,896

 

$

24,061

 

 

Revolving Credit Facilities and Long-Term Debt
Revolving Credit Facilities and Long-Term Debt

8. Revolving Credit Facilities and Long-Term Debt

On June 29, 2015, the Company, as guarantor, and its wholly-owned primary operating subsidiary, Boot Barn, Inc., refinanced the $150.0 million credit facility with Wells Fargo Bank, N.A. (“February 2015 Wells Fargo Credit Facility”) with the $125.0 million June 2015 Wells Fargo Revolver and the $200.0 million 2015 Golub Term Loan. The borrowing base of the June 2015 Wells Fargo Revolver is calculated on a monthly basis and is based on the amount of eligible credit card receivables, commercial accounts, inventory, and available reserves. Borrowings under the credit agreements were initially used to pay costs and expenses related to the Sheplers Acquisition and the closing of such credit agreements, and may be used for working capital and other general corporate purposes.

   

Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at the Company’s option, either (i) London Interbank Offered Rate (“LIBOR”) plus an applicable margin for LIBOR loans, or (ii) the base rate plus an applicable margin for base rate loans.  The base rate is calculated as the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) one-month LIBOR plus 1.0%.  The applicable margin is calculated based on a pricing grid that in each case is linked to quarterly average excess availability.  For LIBOR Loans, the applicable margin ranges from 1.00% to 1.25%, and for base rate loans it ranges from 0.00% to 0.25%.  The Company also pays a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans.  The interest on the June 2015 Wells Fargo Revolver is payable in quarterly installments ending on June 29, 2020, the maturity date. Total interest expense incurred in the fiscal year ended March 26, 2016 on the June 2015 Wells Fargo Revolver was $0.9 million, and the weighted average interest rate for the fiscal year ended March 26, 2016 was 1.7%.  

   

Borrowings under the 2015 Golub Term Loan bear interest at per annum rates equal to, at the Company’s option, either (a) LIBOR plus an applicable margin for LIBOR loans with a LIBOR floor of 1.0%, or (b) the base rate plus an applicable margin for base rate loans.  The base rate is calculated as the greater of (i) the higher of (x) the prime rate and (y) the federal funds rate plus 0.5% and (ii) the sum of one-month LIBOR plus 1.0%.  The applicable margin is 4.5% for LIBOR Loans and 3.5% for base rate loans.  The principal and interest on the 2015 Golub Term Loan is payable in quarterly installments ending on the maturity date of the term loan, June 29, 2021. Quarterly principal payments of $500,000 are due each quarter. Total interest expense incurred in the fiscal year ended March 26, 2016 on the 2015 Golub Term Loan was $8.3 million, and the weighted average interest rate for the fiscal year ended March 26, 2016 was 5.5%.  

   

All obligations under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver are unconditionally guaranteed by the Company and each of its direct and indirect domestic subsidiaries (other than certain immaterial subsidiaries) which are not named as borrowers under the 2015 Golub Term Loan or the June 2015 Wells Fargo Revolver, as applicable.

 

The priority with respect to collateral under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver is subject to the terms of an intercreditor agreement among the lenders under the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver.

   

Each of the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan contains customary provisions relating to mandatory prepayments, restricted payments, voluntary payments, affirmative and negative covenants, and events of default. In addition, the terms of the June 2015 Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio of at least 1.00:1.00 during such times as a covenant trigger event shall exist. The terms of the 2015 Golub Term Loan require the Company to maintain, on a consolidated basis, a maximum Consolidated Total Net Leverage Ratio as of March 26, 2016 of 5.00:1.00. As provided for in the 2015 Golub Term Loan, this ratio steps down to 4.75:1.00 as of June 25, 2016, 4.50:1.00 as of December 24, 2016, 4.25:1.00 as of April 1, 2017, and 4.00:1:00 as of September 30, 2017 and for all subsequent periods. The June 2015 Wells Fargo Revolver and 2015 Golub Term Loan also require the Company to pay additional interest of 2.0% per annum upon triggering certain specified events of default set forth therein. For financial accounting purposes, the requirement for the Company to pay a higher interest rate upon an event of default is an embedded derivative. As of March 26, 2016, the fair value of these embedded derivatives was estimated and was not significant.

Debt Issuance Costs and Debt Discount

The Company paid $1.4 million of transaction fees in connection with the February 2015 Wells Fargo Credit Facility. These transaction fees were paid to both Wells Fargo and other advisors via a reduction in the proceeds from the February 2015 Wells Fargo Credit Facility and were accounted for as debt issuance costs and a debt discount at March 28, 2015. On June 29, 2015, the note payable was repaid when the new financing was obtained, and the $1.4 million remaining debt issuance costs and debt discounts were written off to interest expense.

   

Debt issuance costs totaling $0.9 million were incurred under the June 2015 Wells Fargo Revolver and are included as assets on the consolidated balance sheets in prepaid expenses and other current assets. Total debt issuance costs were $0.8 million as of March 26, 2016. These amounts are being amortized to interest expense over the term of the June 2015 Wells Fargo Revolver.

   

Debt issuance costs and debt discount totaling $5.6 million were incurred under the 2015 Golub Term Loan and are included as a reduction of the current and non-current note payable on the consolidated balance sheet. Total debt issuance costs and debt discount were $4.9 million as of March 26, 2016. These amounts are being amortized to interest expense over the term of the 2015 Golub Term Loan.

   

The following sets forth the balance sheet information related to the term loan:

 

 

 

 

 

 

 

 

 

 

 

March 26,

 

March 28,

 

 

    

2016

      

2015

 

(in thousands)

 

 

 

 

 

 

 

Term Loan

 

$

198,500

$

75,000

 

Unamortized value of the debt issuance costs and debt discount(1)

 

 

(4,886)

 

 

(1,374)

 

Net carrying value

 

$

193,614

 

$

73,626

 

 

 

(1) 

 

Includes the reclassification of debt issuance costs of $0.1 million from “Prepaid and other current assets” and $0.5 million from “Other assets” at March 28, 2015 as a result of the Company adopting ASU 2015-03. See Note 2.

   

Total amortization expense of $0.8 million related to the June 2015 Wells Fargo Revolver and 2015 Golub Term Loan is included as a component of interest expense in the fiscal year ended March 26, 2016.  

 

$150 Million Credit Facility (Wells Fargo Bank, N.A.)

   

On February 23, 2015, the Company and Boot Barn, Inc., the Company’s wholly-owned primary operating subsidiary, entered into the February 2015 Wells Fargo Credit Facility, which consisted of a $75.0 million revolving credit facility, including a $5.0 million sub-limit for letters of credit, and a $75.0 million term loan, and also provided the Company with the ability to incur additional incremental term loans of up to $50.0 million, provided that certain conditions were met, including compliance with certain covenants. On June 29, 2015, the Company repaid all outstanding borrowings under the February 2015 Wells Fargo Credit Facility and terminated such facility in connection with the refinancing discussed above.

   

Total interest expense incurred in fiscal 2016 on the February 2015 Wells Fargo Credit Facility was $0.8 million.

   

Revolving Credit Facility (PNC Bank, N.A.) 

   

On December 11, 2011, the Company obtained a collateral-based revolving line of credit with PNC Bank, N.A. (the “PNC Line of Credit”), which the Company amended on August 31, 2012 and May 31, 2013. The PNC Line of Credit included a $5.0 million sub-limit for letters of credit. On April 15, 2014, the Company amended the PNC Line of Credit to increase the borrowing capacity from $60.0 million to up to $70.0 million. The available borrowing under the PNC Line of Credit was based on the collective value of eligible inventory and credit card receivables multiplied by specific advance rates. Total interest expense incurred on the PNC Line of Credit for the fiscal year ended March 28, 2015 was $2.6 million. On February 23, 2015, proceeds from the February 2015 Wells Fargo Credit Facility were used to pay the entire $50.8 million outstanding balance of the PNC Line of Credit. 

   

Term Loan Due May 2019 (Golub Capital LLC) 

   

The Company entered into a loan and security agreement with Golub Capital LLC on May 31, 2013, as amended by the first amendment to the term loan and security agreement dated September 23, 2013 (the “2013 Golub Loan”). On April 14, 2014, the Company entered into an amended and restated term loan and security agreement for the 2013 Golub Loan. The amended and restated loan and security agreement increased the borrowings on the 2013 Golub Loan from $99.2 million to $130.0 million, with the proceeds used to fund a portion of the $41.3 million dividend to stockholders and cash payment to holders of vested options that was paid in April 2014. See Note 9, “Stock-Based Compensation”. On November 5, 2014, the Company amended the 2013 Golub Loan to reduce the applicable LIBOR Floor from 1.25% to 1.00% which changed the current interest rate from 7.00% to 6.75%. Total interest expense incurred on the 2013 Golub Loan for the fiscal year ended March 28, 2015 was $6.8 million.

   

On November 5, 2014, the Company used $81.9 million of the net proceeds from the IPO to repay a portion of the principal balance on the 2013 Golub Loan. The Company incurred a pre-payment penalty of $0.6 million and accelerated amortization of debt issuance costs of $1.7 million, which was recorded to interest expense in fiscal 2015.

   

On February 23, 2015, proceeds from the February 2015 Wells Fargo Credit Facility were used to pay the entire $47.3 million outstanding balance of the 2013 Golub Loan. The Company incurred prepayment penalties of $1.1 million to the lenders under the Company’s prior credit facilities. Total debt issuance costs from the PNC Line of Credit and the 2013 Golub Loan of $1.4 million were written off to interest expense in fiscal 2015.

 

Aggregate contractual maturities

Aggregate contractual maturities for the Company’s line of credit and term loan as of March 26, 2016 are as follows:

 

 

 

 

 

Fiscal Year

 

 

(in thousands)

 

 

 

 

 

 

2017

 

$

2,000

 

2018

 

 

2,000

 

2019

 

 

2,000

 

2020

 

 

2,000

 

2021

 

 

2,000

 

Thereafter

 

 

237,315

 

Total

 

$

247,315

 

 

Stock-Based Compensation
Stock-Based Compensation

9. Stock-Based Compensation

Equity Incentive Plans

On January 27, 2012, the Company approved the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan authorized the Company to issue options to employees, consultants and directors exercisable for up to a total of 3,750,000 shares of common stock. As of March 26, 2016, all awards granted by the Company under the 2011 Plan have been nonqualified stock options. Options granted under the 2011 Plan have a life of 10 years and vest over service periods of five years or in connection with certain events as defined by the 2011 Plan.

On October 19, 2014, the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan authorizes the Company to issue awards to employees, consultants and directors for up to a total of 1,600,000 shares of common stock, par value $0.0001 per share. As of March 26, 2016, all awards granted by the Company under the 2014 Plan to date have been nonqualified stock options, restricted stock awards or restricted stock units. Options granted under the 2014 Plan have a life of eight years and vest over service periods of five years or in connection with certain events as defined by the 2014 Plan. Restricted stock awards granted vest over one or four years, as determined by the Compensation Committee of the Board of Directors. Restricted stock units vest over service periods of five years.

Pro Rata Cash Dividend, Cash Payment to Holders of Vested Options and Adjustment to Exercise Price of Unvested Options

On April 11, 2014, the Company declared and subsequently paid a pro rata cash dividend to its stockholders totaling $39.9 million, made a cash payment of $1.4 million to holders of vested options, and lowered the exercise price of 1,918,550 unvested options by $2.00 per share. The cash payments totaling $41.3 million reduced retained earnings to zero and reduced additional paid-in capital by $39.7 million. The 2011 Plan has nondiscretionary antidilution provisions that require the fair value of the option awards to be equalized in the event of an equity restructuring. Consequently, the board of directors of the Company was obligated under the antidilution provisions to approve the reduction of the exercise price on the unvested options and make the cash payment to the holders of vested options. No incremental stock-based compensation expense was recognized for the dividend for the vested options or reduction in exercise price for the unvested options.

Stock Options

During fiscal 2016, the Company granted certain members of management options to purchase a total of 294,153 shares under the 2014 Plan. The total grant date fair value of stock options granted during fiscal 2016 was $2.7 million, with grant date fair values ranging from $7.48 to $11.52 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise prices of these awards range between $22.31 and $32.02 per share.

During fiscal 2015, the Company granted certain members of management options to purchase a total of 265,650 shares under the 2014 Plan and 237,500 shares under the 2011 Plan. The total grant date fair value of stock options granted during fiscal 2015 was $3.5 million, with grant date fair values ranging from $6.08 to $9.27 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise prices of these awards range between $9.40 and $25.50 per share.

On October 29, 2014, the Company granted its Chief Executive Officer (“CEO”) options to purchase 99,650 shares of common stock under the 2014 Plan. These options contain both service and market conditions. Vesting of the options occurs if the market price of the Company’s stock achieves stated targets through the third anniversary of the date of grant. As of March 26, 2016, the market price targets were achieved, and the options will vest in equal amounts on the third, fourth and fifth anniversaries of the grant date. The fair value of the options was estimated using a Monte Carlo simulation model. The following significant assumptions were used as of October 29, 2014:

 

 

 

 

 

Stock price

    

$

16.00

 

Exercise price

 

$

16.00

 

Expected option term

 

 

6.0

years

Expected volatility

 

 

55.0

%

Risk-free interest rate

 

 

1.8

%

Expected annual dividend yield

 

 

0

%

 

During fiscal 2014, the Company granted certain members of management options to purchase a total of 312,500 shares under the 2011 Plan. The total grant date fair value of stock options granted during fiscal 2014 was $2.1 million, with grant date fair values ranging from $6.64 to $6.92 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise prices of these awards range between $7.18 and $8.16 per share.

The fair values of stock options granted in fiscal 2016, 2015 and 2014 were estimated on the grant dates using the following assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended

 

 

March 26,

 

March 28,

 

March 29,

 

 

2016

    

2015

    

2014

    

Expected option term(1)

 

 

 

5.5

years  

 

 

 

5.5

years  

 

 

 

6.5

years  

Expected volatility factor(2)

33.3

%

-

36.7

%  

37.0

%

-

56.2

%  

 

 

 

56.2

%  

Risk-free interest rate(3)

1.3

%

-

1.8

%  

1.4

%

-

2.0

%  

1.9

%

-

2.0

%  

Expected annual dividend yield(4)

 

 

 

0

%

 

 

 

0

%

 

 

 

0

%  

 


(1)

The Company has limited historical information regarding expected option term. Accordingly, the Company determined the expected life of the options using the simplified method.

(2)

Stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s competitors’ common stock over the most recent period equal to the expected option term of the Company’s awards.

(3)

The risk‑free interest rate is determined using the rate on treasury securities with the same term.

(4)

The board of directors paid a dividend to stockholders in April 2014. The Company’s board of directors does not plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

The stock option awards discussed above, with the exception of options awarded to the Company’s CEO on October 29, 2014, were measured at fair value on the grant date using the Black‑Scholes option valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, expected volatility of the Company’s stock price over the option’s expected term, the risk‑free interest rate over the option’s expected term and the Company’s expected annual dividend yield, if any. The Company’s estimate of pre‑vesting forfeitures, or forfeiture rate, was based on its internal analysis, which included the award recipients’ positions within the Company and the vesting period of the awards. The Company will issue shares of common stock when the options are exercised.

Intrinsic value for stock options is defined as the difference between the market price of the Company’s common stock on the last business day of the fiscal year and the weighted average exercise price of in‑the‑money stock options outstanding at the end of each fiscal period. The market value per share was $9.34 at March 26, 2016. The following table summarizes the stock award activity for the fiscal year ended March 26, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted

    

 

 

 

 

 

 

 

Grant Date

 

Average

 

 

 

 

 

 

 

 

Weighted

 

Remaining

 

Aggregate

 

 

 

Stock

 

Average

 

Contractual

 

Intrinsic

 

 

    

Options

    

Exercise Price(1)

    

Life (in Years)

    

Value

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Outstanding at March 28, 2015

 

2,902,775

 

$

7.56

 

 

 

 

 

 

Granted

 

294,153

 

$

26.29

 

 

 

 

 

 

Exercised

 

(528,575)

 

$

5.17

 

 

 

$

10,679

 

Cancelled, forfeited or expired

 

(221,220)

 

$

12.69

 

 

 

 

 

 

Outstanding at March 26, 2016

 

2,447,133

 

$

9.87

 

6.6

 

$

5,164

 

Vested and expected to vest after March 26, 2016

 

2,447,133

 

$

9.87

 

6.6

 

$

5,164

 

Exerciseable at March 26, 2016

 

1,112,030

 

$

7.12

 

6.1

 

$

3,013

 

 


(1)

The grant date weighted-average exercise price reflects the reduction of the exercise price by $2.00 per share for the 1,918,550 unvested options that were part of the April 2014 dividend discussed above.

A summary of the status of non-vested stock options as of March 26, 2016 and changes during fiscal 2016 is presented below:

 

 

 

 

 

 

 

 

    

 

    

Weighted-

 

 

 

 

 

Average

 

 

 

 

 

Grant Date

 

 

    

Shares

    

Fair Value

 

Nonvested at March 28, 2015

 

1,800,170

 

$

4.57

 

Granted

 

294,153

 

$

9.92

 

Vested

 

(538,000)

 

$

3.87

 

Nonvested shares forfeited

 

(221,220)

 

$

5.08

 

Nonvested at March 26, 2016

 

1,335,103

 

$

5.82

 

 

Restricted Stock

During fiscal 2016, the Company granted 86,530 restricted stock units to various employees under the 2014 Plan. The shares granted to employees vest in five equal annual installments beginning on the grant date, provided that the respective award recipient continues to be employed by the Company through each of those dates. The grant date fair value of these awards for fiscal 2016 totaled $1.7 million. The Company is recognizing the expense relating to these awards on a straight-line basis over the service period of each award, commencing on the date of grant.

   

During fiscal 2015, the Company granted 30,313 restricted stock awards of common stock to various employees and one member of its Board of Directors under the 2014 Plan. The shares granted to employees vest in four equal annual installments beginning on the grant date, provided that the respective award recipient continues to be employed by the Company through each of those dates. The shares granted to the member of the Board of Directors vested in full upon the one-year anniversary of the date of grant. The grant date fair value of these awards totaled $0.5 million. The Company is recognizing the expense relating to these awards on a straight-line basis over the service period of each award, commencing on the date of grant.

Stock-Based Compensation Expense

Stock‑based compensation expense was $2.9 million, $2.0 million and $1.3 million for fiscal 2016, 2015 and 2014, respectively. Stock-based compensation expense of $0.4 million, $0.4 million and $0.2 million was recorded in cost of goods sold in the consolidated statements of operations for fiscal 2016, 2015 and 2014, respectively. All other stock-based compensation expense is included in selling, general and administrative expenses in the consolidated statements of operations.

 

As of March 26, 2016, there was $6.5 million of total unrecognized stock-based compensation expense related to unvested stock options, with a weighted-average remaining recognition periods of 3.03 years. As of March 26, 2016, there was $1.7 million of total unrecognized stock-based compensation expense related to restricted stock, with a weighted-average remaining recognition period of 4.09 years.

Commitments and Contingencies
Commitments and Contingencies

10. Commitments and Contingencies

The Company is involved, from time to time, in litigation that is incidental to its business. The Company has reviewed these matters to determine if reserves are required for losses that are probable and reasonable to estimate in accordance with FASB ASC Topic 450, Contingencies. The Company evaluates such reserves, if any, based upon several criteria, including the merits of each claim, settlement discussions and advice from outside legal counsel, as well as indemnification of amounts expended by the Company’s insurers or others, if any.

On April 28, 2016, two employees, on behalf of themselves and all other similarly situated employees, filed a wage-and-hour class action, which includes claims for penalties under California’s Private Attorney General Act, in the Fresno County Superior Court, Case No. 16 CE CG 01330, alleging violations of California’s wage and hour, overtime, meal break and statement of wages rules and regulations among other things. The complaint seeks an unspecified amount of damages and penalties. The Company intends to defend this claim vigorously. At present, the Company cannot reasonably estimate the loss that may arise from this matter, but has recorded as of March 26, 2016 an amount for the estimated probable loss, which is not material to the audited financial statements. Depending on the actual outcome of pending litigation, charges in excess of such recorded amount could be recorded in the future, which may have a material adverse effect on the Company’s financial position, results of operations or liquidity.

During the normal course of its business, the Company has made certain indemnifications and commitments under which the Company may be required to make payments for certain transactions. These indemnifications include those given to various lessors in connection with facility leases for certain claims arising from such facility leases, and indemnifications to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The majority of these indemnifications and commitments do not provide for any limitation of the maximum potential future payments the Company could be obligated to make, and their duration may be indefinite. The Company has not recorded any liability for these indemnifications and commitments in the consolidated balance sheets as the impact is expected to be immaterial.

Leases
Leases

11. Leases

Operating Leases

The following is a schedule by year of non‑cancelable future minimum rental payments under operating leases as of March 26, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

    

Related

    

All

    

 

 

 

 

    

party(1)

    

other

    

Total

 

2017

 

$

199

 

$

33,547

 

$

33,746

 

2018

 

 

101

 

 

31,652

 

 

31,753

 

2019

 

 

 —

 

 

27,846

 

 

27,846

 

2020

 

 

 —

 

 

24,471

 

 

24,471

 

2021

 

 

 —

 

 

23,165