10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 2015

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-11735

99 CENTS ONLY STORES LLC

(Exact Name of Registrant as Specified in Its Charter)

California (State or Other Jurisdiction of Incorporation or Organization)	95-2411605 (I.R.S. Employer Identification No.)
4000 Union Pacific Avenue, City of Commerce, California (Address of Principal Executive Offices)	90023 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (323) 980-8145

(Former name, address and fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  o   No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of December 9, 2015, there were 100 units outstanding of the registrant’s common units, none of which are publicly traded.

99 CENTS ONLY STORES LLC

Form 10-Q

Table of Contents

		Page
Part I - Financial Information
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of October 30, 2015 (unaudited) and January 30, 2015	4
	Consolidated Statements of Comprehensive Income (Loss) for the third quarter and first three quarters ended October 30, 2015 (unaudited) and October 31, 2014 (unaudited)	5
	Consolidated Statements of Cash Flows for the first three quarters ended October 30, 2015 (unaudited) and October 31, 2014 (unaudited)	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
Part II — Other Information
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
	Signatures	46

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FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended.  The words “expect,” “estimate,” “anticipate,” “predict,” “will,” “project,” “plan,” “believe” and other similar expressions and variations thereof are intended to identify forward-looking statements.  Such statements appear in a number of places in this Report and include statements regarding the intent, belief or current expectations of 99 Cents Only Stores LLC and its directors or officers with respect to, among other things, (a) trends affecting the financial condition or results of operations of the Company, and (b) the business and growth strategies of the Company (including the Company’s store opening growth rate) and (c) our investments in our existing stores, warehouse and distribution facilities and information systems, that are not historical in nature.  The term the “Company” refers to 99¢ Only Stores and its consolidated subsidiaries prior to the conversion to a California limited liability company effective October 18, 2013 and to 99 Cents Only Stores LLC and its consolidated subsidiaries on or after such conversion.  Readers are cautioned not to put undue reliance on such forward-looking statements.  Such forward-looking statements are and will be based on the Company’s then-current expectations, estimates and assumptions regarding future events and are applicable only as of the date of such statements.  The Company may not realize its expectations and its estimates and assumptions may not prove correct.  In addition, such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in this Report, for the reasons, among others, discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections.  The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.  Readers should carefully review the risk factors described in the Company’s Annual Report on Form 10-K containing the Company’s most recent audited financial statements for the fiscal year ended January 30, 2015 filed with the Securities and Exchange Commission.

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PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

99 CENTS ONLY STORES LLC

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	October 30, 2015			January 30, 2015
	(Unaudited)
ASSETS
Current Assets:
Cash	$	2,585		$	12,463
Accounts receivable, net of allowance for doubtful accounts of $80 and $58 at October 30, 2015 and January 30, 2015, respectively	1,813			1,954
Income taxes receivable	1,540			10,911
Deferred income taxes	31,115			41,583
Inventories, net	266,236			296,040
Assets held for sale	2,308			3,094
Other	15,697			19,039
Total current assets	321,294			385,084
Property and equipment, net	555,445			581,020
Deferred financing costs, net	13,402			15,463
Intangible assets, net	455,817			460,311
Goodwill	359,745			479,745
Deposits and other assets	7,518			7,543
Total assets	$	1,713,221		$	1,929,166
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	98,901		$	139,287
Payroll and payroll-related	20,115			20,004
Sales tax	6,668			14,087
Other accrued expenses	51,115			40,168
Workers’ compensation	68,705			70,491
Current portion of long-term debt	6,138			6,138
Current portion of capital and financing lease obligations	979			380
Total current liabilities	252,621			290,555
Long-term debt, net of current portion	916,485			901,395
Unfavorable lease commitments, net	6,365			8,220
Deferred rent	26,559			23,293
Deferred compensation liability	762			724
Capital and financing lease obligation, net of current portions	34,474			24,681
Long-term deferred income taxes	191,914			170,678
Other liabilities	3,972			1,868
Total liabilities	1,433,152			1,421,414
Commitments and contingencies (Note 11)
Member’s Equity:
Member units — 100 units issued and outstanding at October 30, 2015 and January 30, 2015	550,144			549,135
Investment in Number Holdings, Inc. preferred stock	(19,200		)	(19,200		)
Accumulated deficit	(250,751		)	(21,185		)
Other comprehensive loss	(124		)	(998		)
Total equity	280,069			507,752
Total liabilities and equity	$	1,713,221		$	1,929,166

The accompanying notes are an integral part of these consolidated financial statements.

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99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	For the Third Quarter Ended						For the First Three Quarters Ended
	October 30, 2015			October 31, 2014			October 30, 2015			October 31, 2014
Net Sales:
99¢ Only Stores	$	480,547		$	467,134		$	1,452,682		$	1,379,823
Bargain Wholesale	10,918			11,144			33,474			34,559
Total sales	491,465			478,278			1,486,156			1,414,382
Cost of sales	359,796			328,144			1,061,989			959,368
Gross profit	131,669			150,134			424,167			455,014
Selling, general and administrative expenses	147,149			140,372			451,865			395,251
Goodwill impairment	120,000			—			120,000			—
Operating (loss) income	(135,480		)	9,762			(147,698		)	59,763
Other (income) expense:
Interest income	—			—			(3		)	—
Interest expense	16,549			15,717			49,302			46,613
Total other expense, net	16,549			15,717			49,299			46,613
(Loss) income before provision for income taxes	(152,029		)	(5,955		)	(196,997		)	13,150
Provision (benefit) for income taxes	607			(2,141		)	32,569			5,350
Net (loss) income	$	(152,636	)	$	(3,814	)	$	(229,566	)	$	7,800
Other comprehensive income, net of tax:
Unrealized losses on interest rate cash flow hedge	(192		)	(176		)	(333		)	(380		)
Less: reclassification adjustment included in net income	724			240			1,207			668
Other comprehensive income, net of tax	532			64			874			288
Comprehensive (loss) income	$	(152,104	)	$	(3,750	)	$	(228,692	)	$	8,088

The accompanying notes are an integral part of these consolidated financial statements.

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99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the First Three Quarters Ended
	October 30, 2015			October 31, 2014
Cash flows from operating activities:
Net (loss) income	$	(229,566	)	$	7,800
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	49,179			38,451
Amortization of deferred financing costs and accretion of OID	3,542			3,292
Amortization of intangible assets	1,332			1,340
Amortization of favorable/unfavorable leases, net	1,322			529
Gain on disposal of fixed assets	(5,497		)	(45		)
Loss on interest rate hedge	1,119			1,105
Goodwill impairment	120,000			—
Long-lived assets impairment	509			—
Deferred income taxes	31,704			465
Stock-based compensation	1,456			2,016
Changes in assets and liabilities associated with operating activities:
Accounts receivable	141			132
Inventories	29,804			(69,030		)
Deposits and other assets	3,487			(1,051		)
Accounts payable	(22,433		)	34,652
Accrued expenses	3,270			9,455
Accrued workers’ compensation	(1,786		)	(3,366		)
Income taxes	9,371			(902		)
Deferred rent	3,266			6,403
Other long-term liabilities	1,607			(4,221		)
Net cash provided by operating activities	1,827			27,025
Cash flows from investing activities:
Purchases of property and equipment	(55,710		)	(76,914		)
Proceeds from sale of property and fixed assets	22,320			29
Net cash used in investing activities	(33,390		)	(76,885		)
Cash flows from financing activities:
Payments of long-term debt	(4,604		)	(4,604		)
Proceeds under revolving credit facility	404,050			112,500
Payments under revolving credit facility	(385,350		)	(76,500		)
Payments of debt issuance costs	(487		)	—
Proceeds from financing lease obligations	8,666			—
Payments of capital and financing lease obligations	(143		)	(65		)
Payments to repurchase stock options of Number Holdings, Inc.	(390		)	(76		)
Net settlement of stock options of Number Holdings, Inc. for tax withholdings	(57		)	—
Net cash provided by financing activities	21,685			31,255
Net decrease in cash	(9,878		)	(18,605		)
Cash - beginning of period	12,463			34,842
Cash - end of period	$	2,585		$	16,237
Supplemental cash flow information:
Income taxes (refunded) paid	$	(8,500	)	$	6,119
Interest paid	$	39,084		$	36,590
Non-cash investing activities for purchases of property and equipment d equipment	$	17,953		$	(4,945	)
Non-cash investing activities for construction in progress- leased facility	$	—		$	24,600

The accompanying notes are an integral part of these consolidated financial statements.

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99 CENTS ONLY STORES LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.           Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business

The Company is organized under the laws of the State of California.  Effective October 18, 2013, 99¢ Only Stores converted from a California corporation to a California limited liability company, 99 Cents Only Stores LLC, that is managed by its sole member, Number Holdings, Inc., a Delaware corporation (“Parent”).  The term “Company” refers to 99¢ Only Stores and its consolidated subsidiaries prior to the Conversion (as described in Note 1 to the Annual Report on Form 10-K for the fiscal year ended January 30, 2015) and to 99 Cents Only Stores LLC and its consolidated subsidiaries at the time of or after the Conversion.  The Company is an extreme value retailer of consumable and general merchandise and seasonal products. As of October 30, 2015, the Company operated 389 retail stores with 281 in California, 49 in Texas, 38 in Arizona, and 21 in Nevada.  The Company is also a wholesale distributor of various products.

Merger

On January 13, 2012, the Company was acquired through a merger (the “Merger”) with a subsidiary of Parent with the Company surviving.  In connection with the Merger, the Company became a subsidiary of Parent, which is controlled by affiliates of Ares Management, L.P. (“Ares”) and Canada Pension Plan Investment Board.  As a result of the Merger, the Company’s common stock was delisted from the New York Stock Exchange and ceased to be a publicly held and traded equity company.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  However, certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission.  These statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2015.  In the opinion of the Company’s management, these interim unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the consolidated financial position and results of operations for each of the periods presented.  The results of operations and cash flows for such periods are not necessarily indicative of results to be expected for the full fiscal year ending January 29, 2016 (“fiscal 2016”).

Fiscal Year

The Company follows a fiscal calendar consisting of four quarters with 91 days, each ending on the Friday closest to the last day of April, July, October or January, as applicable, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years.  Unless otherwise stated, references to years in this Report relate to fiscal years rather than calendar years.  The Company’s fiscal year 2016 began on January 31, 2015, will end on January 29, 2016 and will consist of 52 weeks.  The Company’s fiscal year 2015 (“fiscal 2015”) began on February 1, 2014, ended on January 30, 2015 and consisted of 52 weeks.  The third quarter ended October 30, 2015 (“the third quarter of fiscal 2016”) and the third quarter ended October 31, 2014 (“the third quarter of fiscal 2015”) were each comprised of 91 days.  The period ended October 30, 2015 (“the first three quarters of fiscal 2016”) and the period ended October 31, 2014 (“the first three quarters of fiscal 2015”) were each comprised of 273 days.  References to the Company’s “transition fiscal 2014” are to the Company’s fiscal year ended January 31, 2014.

Use of Estimates

The preparation of the unaudited consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

For purposes of reporting cash flows, cash includes cash on hand, cash at the stores and cash in financial institutions.  The majority of payments due from financial institutions for the settlement of debit card and credit card transactions are processed within three business days and therefore are also classified as cash.  Cash balances held at financial institutions are generally in excess of

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federally insured limits.  These accounts are only insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company historically has not experienced any losses in such accounts.  The Company places its temporary cash investments with what it believes to be high credit, quality financial institutions.  Under the Company’s cash management system, checks issued but not presented to the bank may result in book cash overdraft balances for accounting purposes.  The Company reclassifies book overdrafts to accounts payable, which are reflected as an operating activity in its unaudited consolidated statements of cash flows.  Book overdrafts included in accounts payable were $15.6 million and $16.5 million as of October 30, 2015 and January 30, 2015, respectively.

Allowance for Doubtful Accounts

In connection with its wholesale business, the Company evaluates the collectability of accounts receivable based on a combination of factors.  In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected.  For all other customers and tenants, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and the Company’s historical experiences.

Inventories

Inventories are valued at the lower of cost or market. Inventory cost is established using a methodology that approximates first in, first out, which for store inventories is based on a retail inventory method.  Valuation allowances for shrinkage as well as excess and obsolete inventory are also recorded.  Shrinkage is estimated as a percentage of sales for the period from the last physical inventory date to the end of the applicable period.  Such estimates are based on experience and the most recent physical inventory results.  Physical inventory counts are completed at each of the Company’s retail stores at least once a year by an outside inventory service company.  The Company performs inventory cycle counts at its warehouses throughout the year.  The Company also performs inventory reviews and analysis on a quarterly basis for both warehouse and store inventory to determine inventory valuation allowances for excess and obsolete inventory.  The valuation allowances for excess and obsolete inventory are based on the age of the inventory, sales trends and future merchandising plans.  The valuation allowances for excess and obsolete inventory require management judgment and estimates that may impact the ending inventory valuation and valuation allowances that may affect the reported gross margin for the period.

In order to obtain inventory at attractive prices, the Company takes advantage of large volume purchases, closeouts and other similar purchases.  As such, the Company’s inventory fluctuates from period to period and the inventory balances vary based on the timing and availability of such opportunities.

Property and Equipment

Property and equipment are carried at cost and are depreciated or amortized on a straight-line basis over the following useful lives:

Owned buildings and improvements	Lesser of 30 years or the estimated useful life of the improvement
Leasehold improvements	Lesser of the estimated useful life of the improvement or remaining lease term
Fixtures and equipment	3-5 years
Transportation equipment	3-5 years
Information technology systems	For major corporate systems, estimated useful life up to 7 years; for functional standalone systems, estimated useful life up to 5 years

The Company’s policy is to capitalize expenditures that materially increase asset lives and expense ordinary repairs and maintenance as incurred.

Long-Lived Assets

The Company assesses the impairment of depreciable long-lived assets when events or changes in circumstances indicate that the carrying value may not be recoverable.  The Company groups and evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual identifiable cash flows are available.  Recoverability is measured by comparing the carrying amount of an asset to expected future net cash flows generated by the asset.  If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, the carrying amount is compared to its fair value and an impairment charge is recognized to the extent of the difference.  Factors that the Company considers important that could individually or in combination trigger an impairment review include the following: (1) significant underperformance relative to expected historical or projected future operating results; (2) significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s

8

overall business; and (3) significant changes in the Company’s business strategies and/or negative industry or economic trends.  On a quarterly basis, the Company assesses whether events or changes in circumstances occur that potentially indicate that the carrying value of long-lived assets may not be recoverable (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).  Considerable management judgment is necessary to estimate projected future operating cash flows.  Accordingly, if actual results fall short of such estimates, significant future impairments could result. During the second quarter of fiscal 2016, due to the underperformance of one store in Texas, the Company concluded that the carrying value of the long-lived assets relating to such store were not recoverable and accordingly recorded an asset impairment charge of $0.5 million. During each of the third quarter and first three quarters of fiscal 2015, the Company did not record any long-lived asset impairment charges.

Goodwill and Other Intangible Assets

In connection with the Merger purchase price allocation, the fair values of long-lived and intangible assets were determined based upon assumptions related to the future cash flows, discount rates and asset lives using then available information, and in some cases were obtained from independent professional valuation experts.  The Company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite.

Goodwill and indefinite-lived intangible assets are not amortized but instead tested annually for impairment or more frequently when events or changes in circumstances indicate that the assets might be impaired.  Goodwill is tested for impairment by comparing the carrying amount of the reporting unit to the fair value of the reporting unit to which the goodwill is assigned.  The Company has the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step zero of the goodwill impairment test).  If the Company does not perform a qualitative assessment, or determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required.  The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, goodwill is impaired and the loss is measured by performing step two.  Under step two, the impairment loss is measured by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill.  Management has determined that the Company has two reporting units, the wholesale reporting unit and the retail reporting unit.

The Company performs the annual test for impairment in January of the fiscal year and determines fair value based on a combination of the income approach and the market approach.  The income approach is based on discounted cash flows to determine fair value. The market approach uses a selection of comparable companies and transactions in determining fair value. The fair value of the trade name is also tested for impairment in the fourth quarter by comparing the carrying value to the fair value. Fair value of a trade name is determined using a relief from royalty method under the income approach, which uses projected revenue allocable to the trade name and an assumed royalty rate (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).

Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on undiscounted cash flows, and, if impaired, written down to fair value based on either discounted cash flows or appraised values.  Significant judgment is required in determining whether a potential indicator of impairment of long-lived assets exists and in estimating future cash flows used in the impairment tests (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).

During the third quarter of fiscal 2016, the Company determined that sufficient indicators of potential impairment for the retail reporting unit existed to require an interim impairment analysis of goodwill and trade name. These indicators included significant declines in profitability in the most recent quarters of fiscal 2016 and a modest recovery to restore expected future operating results to historical levels.  The Company’s first step evaluation was completed assuming the company could be bought or sold in a non-taxable transaction and concluded that the fair value of the retail reporting unit was below its carrying value.

The Company performed step two of the goodwill impairment that requires the retail reporting unit’s fair value to be allocated to all of the assets and liabilities of the reporting unit, including any intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination in a non-taxable transaction as applied in the first step, including any significant increases in the fair value of tangible property and intangible assets.  Assessing the fair value of goodwill includes making assumptions about future cash flows, discount rates and asset lives using then best available information.  These assumptions are subject to a high degree of complexity and judgment. Due to the complexity and effort required to estimate the fair value of the retail reporting unit in the second step of the analysis, the fair value estimates were based on preliminary analyses and assumptions that are subject to change. Based on the Company’s preliminary step two analysis, the implied fair value of the retail reporting unit’s goodwill was estimated to be $347.2 million (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).  As a result of the Company’s preliminary analysis and best estimate, the Company recorded a $120.0 million non-cash goodwill impairment charge in the third quarter of fiscal 2016, which was reflected as Goodwill Impairment in the consolidated statements of comprehensive income (loss). The goodwill impairment charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial covenants. The finalization of preliminary goodwill impairment will be completed in the fourth quarter of fiscal 2016 and further adjustments to the preliminary goodwill impairment charge, if any, may be recognized

9

when the Company’s finalizes the second step of the goodwill impairment test.  The primary factors that contributed to the estimated goodwill impairment loss were the declines in fiscal 2016 operating results and hypothetical projected impact in succeeding years as well as significant increases in the fair value of tangible property since the Merger.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

During fiscal 2015, the Company did not record any impairment charges related to goodwill or other intangible assets.

Derivatives

The Company accounts for derivative financial instruments in accordance with authoritative guidance for derivative instrument and hedging activities.  Financial instrument positions taken by the Company are primarily intended to be used to manage risks associated with interest rate exposures.

The Company’s derivative financial instruments are recorded on the balance sheet at fair value, and are recorded in either current or noncurrent assets or liabilities based on their maturity.  Changes in the fair values of derivatives are recorded in net earnings or other comprehensive income (“OCI”), based on whether the instrument is designated and effective as a hedge transaction and, if so, the type of hedge transaction.  Gains or losses on derivative instruments reported in accumulated other comprehensive income (“AOCI”) are reclassified to earnings in the period the hedged item affects earnings.  Any ineffectiveness is recognized in earnings in the period incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes.  Under the liability method, deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities.  Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The Company’s ability to realize deferred tax assets is assessed throughout the year and a valuation allowance is established accordingly.  The Company recognizes the impact of a tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position.  The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense.  Refer to Note 10, “Income Taxes,” for further discussion of income taxes.

Stock-Based Compensation

The Company accounts for stock-based payment awards based on their fair value.  The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods.  For awards classified as equity, the Company estimates the fair value for each option award as of the date of grant using the Black-Scholes option pricing model or other appropriate valuation models.  The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of the stock price.  Stock options are generally granted to employees at exercise prices equal to or greater than the fair market value of the stock at the dates of grant.  Former executive put rights were classified as equity awards and revalued using a binomial model at each reporting period with changes in the fair value recognized as stock-based compensation expense.  The fair value of the options that will vest based on the Company’s and Parent’s achievement of certain performance hurdles were valued using a Monte Carlo simulation method.  Refer to Note 8, “Stock-Based Compensation” for further discussion of stock-based compensation.

Revenue Recognition

The Company recognizes retail sales in its retail stores at the time the customer takes possession of merchandise.  All sales are net of discounts and returns and exclude sales tax.  Wholesale sales are recognized in accordance with the shipping terms agreed upon on the purchase order. Wholesale sales are typically recognized free on board origin, where title and risk of loss pass to the buyer when the merchandise leaves the Company’s distribution facility.

The Company has a gift card program.  The Company does not charge administrative fees on gift cards and the Company’s gift cards do not have expiration dates.  The Company records the sale of gift cards as a current liability and recognizes a sale when a customer redeems a gift card.  The liability for outstanding gift cards is recorded in accrued expenses.

Cost of Sales

Cost of sales includes the cost of inventory, freight in, obsolescence, spoilage, scrap and inventory shrinkage, and is net of discounts and allowances.  Cost of sales also includes receiving, warehouse costs and distribution costs (which include payroll and associated costs, occupancy, transportation to and from stores and depreciation expense).  Cash discounts for satisfying early payment terms are recognized when payment is made, and allowances and rebates based upon milestone achievements such as reaching a certain volume of purchases of a vendor’s products are included as a reduction of cost of sales when such contractual milestones are reached.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses include the costs of selling merchandise in stores (which include payroll and associated costs, occupancy and other store-level costs) and corporate costs (which include payroll and associated costs, occupancy, advertising, professional fees and other corporate administrative costs).  Selling, general and administrative expenses also include depreciation and amortization expense relating to these costs.

Leases

The Company follows the policy of capitalizing allowable expenditures that relate to the acquisition and signing of its retail store leases.  These costs are amortized on a straight-line basis over the applicable lease term.

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 applicable lease term.  The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is included in deferred rent.  Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives are recorded as deferred rent.  Deferred rent related to landlord incentives is amortized as an offset to rent expense using the straight-line method over the applicable lease term.

In certain lease arrangements, the Company can be involved with the construction of the building. If it is determined that the Company has substantially all of the risks of ownership during construction of the leased property and therefore is deemed to be the owner of the construction project, the Company records an asset for the amount of the total project costs and an amount related to the value attributed to the pre-existing leased building in property and equipment, net and the related financing obligation as part of current and non-current liabilities.  Once construction is complete, if it is determined that the asset does not qualify for sale-leaseback accounting treatment, the Company amortizes the obligation over the lease term and depreciates the asset over the life of the lease. The Company does not report rent expense for the portion of the rent payment determined to be related to the assets which are owned for accounting purposes. Rather, this portion of the rent payment under the lease is recognized as a reduction of the financing obligation and interest expense.

For store closures where a lease obligation still exists, the Company records the estimated future liability associated with the rental obligation on the cease use date (when the store is closed).  Liabilities are established at the cease use date for the present value of any remaining operating lease obligations, net of estimated sublease income, and at the communication date for severance and other exit costs.  Key assumptions in calculating the liability include the timeframe expected to terminate lease agreements, estimates related to the sublease potential of closed locations, and estimates of other related exit costs.  If actual timing and potential termination costs or realization of sublease income differ from the Company’s estimates, the resulting liabilities could vary from recorded amounts. These liabilities are reviewed periodically and adjusted when necessary.

During the second quarter of fiscal 2016, the Company sold and concurrently leased back two retail stores with a carrying value of $7.9 million and received net proceeds from these transactions of $8.7 million.  The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transactions closed. The resulting leases are accounted for as financing leases and the Company has recorded a corresponding financing lease obligation of $8.7 million (as a component of current and non-current liabilities).  The Company will amortize the financing lease obligation over the lease term and depreciate the assets over their remaining useful lives.  During the third quarter of fiscal 2016, the Company sold and concurrently leased one store and the resulting lease qualifies and is accounted for as an operating lease.  The net proceeds from the sale-leaseback transaction amounted to $9.0 million.  The Company will amortize deferred gains of $2.6 million relating to the sale-leaseback transaction over the lease term.

Self-Insured Workers’ Compensation Liability

The Company self-insures for workers’ compensation claims in California and Texas.  The Company establishes a liability for losses from both estimated known and incurred but not reported insurance claims based on reported claims and actuarial valuations of estimated future costs of known and incurred but not yet reported claims.  Should an amount of claims greater than anticipated occur, the liability recorded may not be sufficient and additional workers’ compensation costs, which may be significant, could be incurred.  The Company has not discounted the projected future cash outlays for the time value of money for claims and claim-related costs when establishing its workers’ compensation liability in its financial reports for each of October 30, 2015 and January 30, 2015.

Self-Insured Health Insurance Liability

The Company self-insures for a portion of its employee medical benefit claims.  The liability for the self-funded portion of the Company health insurance program is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

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Pre-Opening Costs

The Company expenses, as incurred, pre-opening costs such as payroll, rent and marketing related to the opening of new retail stores.

Advertising

The Company expenses advertising costs as incurred.

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash, accounts receivable, interest rate and other derivatives, accounts payable, accruals, debt, and other liabilities.  Cash and derivatives are measured and recorded at fair value.  Accounts receivable and other receivables are financial assets with carrying values that approximate fair value.  Accounts payable and other accrued expenses are financial liabilities with carrying values that approximate fair value.  Refer to Note 7, “Fair Value of Financial Instruments” for further discussion of the fair value of debt.

The Company uses the authoritative guidance for fair value, which includes the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements.  Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.  Fair value measurements reflect the assumptions market participants would use in pricing an asset or liability based on the best information available.  Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model.

Comprehensive Income

Other comprehensive income (“OCI”) includes unrealized gains or losses on interest rate derivatives designated as cash flow hedges.

2.Goodwill and Other Intangibles

The following tables set forth the value of the goodwill and other intangible assets and liabilities, and unfavorable leases, respectively (in thousands):

	October 30, 2015										January 30, 2015
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(120,000	)	$	—		$	359,745	$	479,745	$	—		$	479,745
Trade name	410,000		—			—			410,000		410,000		—			410,000
Total indefinite lived intangible assets	$	889,745	$	(120,000	)	$	—		$	769,745	$	889,745	$	—		$	889,745
Finite lived intangible assets:
Trademarks	$	2,000	$	—		$	(381	)	$	1,619	$	2,000	$	(306	)	$	1,694
Bargain Wholesale customer relationships	20,000		—			(6,338		)	13,662		20,000		(5,096		)	14,904
Favorable leases	46,723		—			(16,187		)	30,536		46,723		(13,010		)	33,713
Total finite lived intangible assets	68,723		—			(22,906		)	45,817		68,723		(18,412		)	50,311
Total goodwill and other intangible assets	$	958,468	$	(120,000	)	$	(22,906	)	$	815,562	$	958,468	$	(18,412	)	$	940,056

	October 30, 2015								January 30, 2015
	Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	1 to 15	$	19,835	$	(13,470	)	$	6,365	1 to 15	$	19,835	$	(11,615	)	$	8,220

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3.Property and Equipment, net

The following table provides details of property and equipment (in thousands):

	October 30, 2015			January 30, 2015
Land	$	177,970		$	176,506
Buildings	111,397			117,422
Buildings improvements	71,828			71,985
Leasehold improvements	185,111			176,895
Fixtures and equipment	186,124			148,851
Transportation equipment	11,962			12,685
Construction in progress	25,301			46,195
Total property and equipment	769,693			750,539
Less: accumulated depreciation and amortization	(214,248		)	(169,519		)
Property and equipment, net	$	555,445		$	581,020

4.Comprehensive Income

The following table sets forth the calculation of comprehensive income, net of tax effects (in thousands):

	For the Third Quarter Ended						For the First Three Quarters Ended
	October 30, 2015			October 31, 2014			October 30, 2015			October 31, 2014
Net (loss) income	$	(152,636	)	$	(3,814	)	$	(229,566	)	$	7,800
Unrealized loss on interest rate cash flow hedge, net of tax effects of $94, $(117), $0 and $(254) for the third quarter and first three quarters of each of fiscal 2016 and fiscal 2015, respectively	(192		)	(176		)	(333		)	(380		)
Reclassification adjustment, net of tax effects of $(321), $160, $0 and $445 for the third quarter and first three quarters of each of fiscal 2016 and fiscal 2015, respectively	724			240			1,207			668
Total unrealized gains , net	532			64			874			288
Total comprehensive (loss) income	$	(152,104	)	$	(3,750	)	$	(228,692	)	$	8,088

Amounts in accumulated other comprehensive loss as of October 30, 2015 and January 30, 2015 consisted of unrealized losses on interest rate cash flow hedges.  Reclassifications out of AOCI in each of the third quarter and first three quarters of fiscal 2016 and fiscal 2015 are presented in Note 6, “Derivative Financial Instruments.”

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5.Debt

Short and long-term debt consists of the following (in thousands):

	October 30, 2015		January 30, 2015
ABL Facility, maturing on January 13, 2017	$	75,700	$	57,000
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2019, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $4,612 and $5,606 as of October 30, 2015 and January 30, 2015, respectively	596,923		600,533
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000		250,000
Total debt	922,623		907,533
Less: current portion	6,138		6,138
Long-term debt, net of current portion	$	916,485	$	901,395

As of October 30, 2015 and January 30, 2015, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	October 30, 2015		January 30, 2015
ABL Facility	$	1,160	$	1,196
First Lien Term Loan Facility	4,734		5,754
Senior Notes	7,508		8,513
Total deferred financing costs, net	$	13,402	$	15,463

On January 13, 2012 (the “Original Closing Date”), in connection with the Merger, the Company obtained Credit Facilities (as defined below) provided by a syndicate of lenders arranged by Royal Bank of Canada as administrative agent, as well as other agents and lenders that are parties to the agreements governing these Credit Facilities.  The Credit Facilities include (a) a first lien based revolving credit facility (as amended, the “ABL Facility”), and (b) a first lien term loan facility (as amended, the “First Lien Term Loan Facility” and together with the ABL Facility, the “Credit Facilities”).

First Lien Term Loan Facility

Under the First Lien Term Loan Facility, (i) $525.0 million of term loans were incurred on the Original Closing Date and (ii) $100.0 million of additional term loans were incurred pursuant to an incremental facility effected through an amendment entered into on October 8, 2013 (the “Second Amendment”) (all such term loans, collectively, the “Term Loans”).  The First Lien Term Loan Facility has a term of seven years with a maturity date of January 13, 2019.  All obligations under the First Lien Term Loan Facility are guaranteed by Parent and the Company’s direct or indirect 100% owned subsidiaries, except for immaterial subsidiaries (collectively, the “Credit Facilities Guarantors”).  In addition, the First Lien Term Loan Facility is secured by pledges of certain of the Company’s equity interests and the equity interests of the Credit Facilities Guarantors.

The Company is required to make scheduled quarterly payments each equal to 0.25% of the principal amount of the Term Loans, with the balance due on the maturity date.  Borrowings under the First Lien Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, either (i) a base rate (the “Base Rate”) determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as the “Prime Rate” (3.25% as of October 30, 2015), (b) the federal funds effective rate plus 0.50% and (c) an adjusted Eurocurrency rate for one month (determined by reference to the greater of the Eurocurrency rate for the interest period subject to certain adjustments) plus 1.00%, or (ii) an Adjusted Eurocurrency Rate.

On April 4, 2012, the Company amended the terms of the First Lien Term Loan Facility (the “First Amendment”) and incurred related refinancing costs of $11.2 million.  The First Amendment, among other things, (i) decreased the applicable margin from London Interbank Offered Rate (“LIBOR”) plus 5.50% (or Base Rate plus 4.50%) to LIBOR plus 4.00% (or Base Rate plus 3.00%) and (ii) decreased the LIBOR floor from 1.50% to 1.25%.

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On October 8, 2013, the Company entered into the Second Amendment, which among other things, (i) provided $100.0 million of additional term loans as described above, (ii) decreased the applicable margin from LIBOR plus 4.00% (or Base Rate plus 3.00%) to LIBOR plus 3.50% (or Base Rate plus 2.50%) and (iii) decreased the LIBOR floor from 1.25% to 1.00%.  The Company will continue to be required to make scheduled quarterly payments each equal to 0.25% of the amended principal amount of the Term Loans (approximately $1.5 million).

In addition, the Second Amendment (i) amended certain restricted payment provisions, (ii) removed the maximum capital expenditures covenant from the agreement governing the First Lien Term Loan Facility, (iii) modified the existing provision restricting the Company’s ability to make dividend and other payments so that from and after March 31, 2013, the permitted payment amount represents the sum of (a) a calculation based on 50% of Consolidated Net Income (as defined in the First Lien Term Loan Facility agreement), if positive, or a deficit of 100% of Consolidated Net Income, if negative, and (b) $20.0 million, and (iv) permitted proceeds of any sale leasebacks of any assets acquired after January 13, 2012, to be reinvested in the Company’s business without restriction.

As of October 30, 2015, the interest rate charged on the First Lien Term Loan Facility was 4.50% (1.00% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of October 30, 2015, the amount outstanding under the First Lien Term Loan Facility was $596.9 million.

Following the end of each fiscal year, the Company is required to make prepayments on the First Lien Term Loan Facility in an amount equal to (i) 50% of Excess Cash Flow (as defined in the agreement governing the First Lien Term Loan Facility), with the ability to step down to 25% and 0% upon achievement of specified total leverage ratios, minus (ii) the amount of certain voluntary prepayments made on the First Lien Term Loan Facility and/or the ABL Facility during such fiscal year.  There was no Excess Cash Flow payment required for fiscal 2015.

The First Lien Term Loan Facility includes certain customary restrictions, among other things, on the Company’s ability and the ability of Parent, our subsidiary 99 Cents Only Stores Texas, Inc. (“99 Cents Texas”) and certain future subsidiaries of the Company to incur or guarantee additional indebtedness, make certain restricted payments, acquisitions or investments, materially change the Company’s business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets, make capital expenditures or merge or consolidate with or into, another company.  As of October 30, 2015, the Company was in compliance with the terms of the First Lien Term Loan Facility.

During the first quarter of fiscal 2013, the Company entered into an interest rate swap agreement to limit the variability of cash flows associated with interest payments on the First Lien Term Loan Facility that result from fluctuations in the LIBOR rate.  See Note 6, “Derivative Financial Instruments” for more information on this interest rate swap agreement.

ABL Facility

The ABL Facility initially provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations.  Subject to certain conditions, the Company could increase the commitments under the ABL Facility by up to $50.0 million.  All obligations under the ABL Facility are guaranteed by Parent and the other Credit Facilities Guarantors.  The ABL Facility is secured by substantially all of the Company’s assets and the assets of the Credit Facilities Guarantors.

Borrowings under the ABL Facility bear interest at a rate based, at the Company’s option, on (i) LIBOR plus an applicable margin to be determined (2.00% as of October 30, 2015) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (1.00% at October 30, 2015), in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

In addition to paying interest on outstanding principal under the Credit Facilities, the Company is required to pay a commitment fee to the lenders under the ABL Facility on unused commitments.  The commitment fee is adjusted at the beginning of each quarter based upon the average historical excess availability of the prior quarter (0.375% for the quarter ended October 30, 2015).  The Company must also pay customary letter of credit fees and agency fees.

As of October 30, 2015, borrowings under the ABL Facility were $75.7 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $106.8 million.  As of January 30, 2015, borrowings under the ABL Facility were $57.0 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $115.5 million.

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The ABL Facility includes restrictions on the Company’s ability and the ability of Parent and certain of the Company’s restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, its capital stock, make certain acquisitions or investments, materially change its business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets or merge or consolidate with or into another company.

On October 8, 2013, the ABL Facility was amended to among other things, modify the provision restricting the Company’s ability to make dividend and other payments.  Such payments are subject to achievement of Excess Availability (as defined in the agreement governing the ABL Facility) and a ratio of EBITDA (as defined in the agreement governing the ABL Facility) to fixed charges.

On August 24, 2015, the Company amended its ABL Facility to increase commitments available under the ABL Facility by $10.0 million, resulting in an aggregate ABL Facility size of $185.0 million.  The additional commitments implemented pursuant to the amendment have terms identical to the existing commitments under the ABL Facility, including as to interest rate and other pricing terms. The Company paid amendment fees of $0.5 million to lenders under the ABL Facility.

In addition, the amendment to the ABL Facility (a) modifies certain springing covenants triggered by reference to excess availability under the ABL Facility agreement so that, from August 24, 2015 to April 30, 2016, the occurrence of any such excess availability trigger is determined solely by reference to the available borrowing base under the ABL Facility rather than by reference to the lesser of the available borrowing base and the available aggregate commitments under the ABL Facility, (b) increases the inventory advance rate during such period for purposes of calculating the borrowing base from 90% to 92.5%, (c) provides for certain additional inspection rights by the administrative agent if there is a material increase in the amount of inventory that is not eligible inventory for purposes of the borrowing base and (d) provides for certain additional technical waivers and amendments in order to effect the foregoing.

As of October 30, 2015, the Company was in compliance with the terms of the ABL Facility.

Senior Notes

On December 29, 2011, the Company issued $250.0 million aggregate principal amount of 11% Senior Notes that mature on December 15, 2019 (the “Senior Notes”).  The Senior Notes are guaranteed by the same subsidiaries that guarantee the Credit Facilities.

Pursuant to the terms of the indenture governing the Senior Notes (the “Indenture”), the Company may redeem all or a part of the Senior Notes at certain redemption prices that vary based on the date of redemption.  The Company is not required to make any mandatory redemptions or sinking fund payments, and may at any time or from time to time purchase notes in the open market.

The Indenture contains covenants that, among other things, limit the Company’s ability and the ability of certain of its subsidiaries to incur or guarantee additional indebtedness, create or incur certain liens, pay dividends or make other restricted payments and investments, incur restrictions on the payment of dividends or other distributions from restricted subsidiaries, sell assets, engage in transactions with affiliates, or merge or consolidate with other companies.  As of October 30, 2015, the Company was in compliance with the terms of the Indenture.

The significant components of interest expense are as follows (in thousands):

	For the Third Quarter Ended				For the First Three Quarters Ended
	October 30, 2015		October 31, 2014		October 30, 2015		October 31, 2014
First Lien Term Loan Facility	$	7,230	$	7,345	$	21,735	$	21,928
ABL Facility	654		366		1,843		817
Senior Notes	6,875		6,875		20,701		20,549
Amortization of deferred financing costs and OID	1,238		1,113		3,543		3,291
Other interest expense	552		18		1,480		28
Interest expense	$	16,549	$	15,717	$	49,302	$	46,613

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6.Derivative Financial Instruments

The Company entered into derivative instruments for risk management purposes and uses these derivatives to manage exposure to fluctuation in interest rates.

Interest Rate Swap

In May 2012, the Company entered into a floating-to-fixed interest rate swap agreement for an initial aggregate notional amount of $261.8 million to limit exposure to interest rate increases related to a portion of the Company’s floating rate indebtedness once the Company’s interest rate cap agreement expires.  The swap agreement, effective November 2013, hedges a portion of contractual floating rate interest commitments through the expiration of the swap agreement in May 2016.  As a result of the agreement, the Company’s effective fixed interest rate on the notional amount of floating rate indebtedness will be 1.36% plus an applicable margin of 3.50%.

The Company designated the interest rate swap agreement as a cash flow hedge.  The interest rate swap agreement is highly correlated to the changes in interest rates to which the Company is exposed.  Unrealized gains and losses on the interest rate swap are designated as effective or ineffective.  The effective portion of such gains or losses is recorded as a component of AOCI or loss, while the ineffective portion of such gains or losses is recorded as a component of interest expense.  Future realized gains and losses in connection with each required interest payment will be reclassified from AOCI or loss to interest expense.

Covert Transition Payments

In September 2015, the Company entered into an employment agreement with Geoffrey J. Covert’s as the President and Chief Executive Officer of each of the Company and Parent. In connection with this agreement, Mr. Covert is entitled to receive amounts under a transition program based on the value of certain equity awards from his former employer that he forfeited in connection with his previous employment.  The maximum amount of payments due under this agreement is approximately $5.0 million, payable over a period of four years. The Company accounts for these transition payments as derivatives that are not designated as hedging instruments and has measured the obligation at fair value at October 30, 2015. The Company recognizes the expense associated with these payments over the requisite service period.

Fair Value

The fair value of the interest rate swap agreement is estimated using industry standard valuation models using market-based observable inputs, including interest rate curves (Level 2, as defined in Note 7, “Fair Value of Financial Instruments”).  The fair value of the transition payments is estimated using a valuation model that includes unobservable inputs (Level 3, as defined in Note 7, “Fair Value of Financial Instruments”).

A summary of the recorded amounts included in the consolidated balance sheets is as follows (in thousands):

	October 30, 2015		January 30, 2015
Derivatives designated as cash flow hedging instruments
Interest rate swap (included in other current liabilities)	$	1,221	$	1,591
Interest rate swap (included in other liabilities)	$	—	$	596
Accumulated other comprehensive loss, net of tax (included in member’s equity)	$	124	$	998
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	516	$	—
Transition payments (included in other liabilities)	$	197	$	—

A summary of recorded amounts included in the unaudited consolidated statements of comprehensive income (loss) is as follows (in thousands):

	For the Third Quarter Ended					For the First Three Quarters Ended
	October 30, 2015			October 31, 2014		October 30, 2015			October 31, 2014
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	192		$	176	$	333		$	380
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	724		$	240	$	1,207		$	668
(Gain) loss related to ineffective portion of derivative recognized in interest expense	$	(27	)	$	22	$	(88	)	$	(110	)
Derivatives not designated as hedging instruments:
Loss recognized in selling, general and administrative expenses	$	713		$	—	$	713		$	—

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7.Fair Value of Financial Instruments

The Company complies with authoritative guidance for fair value measurement and disclosures which establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are described below:

Level 1: Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2: Defined as observable inputs other than Level 1 prices.  These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company uses the best available information in measuring fair value.  The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands):

	October 30, 2015
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	762	$	762	$	—	$	—
LIABILITIES
Other current liabilities — interest rate swap	$	1,221	$	—	$	1,221	$	—
Other current liabilities — transition payments	$	516	$	—	$	—	$	516
Other long-term liabilities — transition payments	$	197	$	—	$	—	$	197
Other long-term liabilities — deferred compensation	$	762	$	762	$	—	$	—

Level 1 measurements include $0.8 million of deferred compensation assets that fund the liabilities related to the Company’s deferred compensation, including investments in trust funds.  The fair values of these funds are based on quoted market prices in an active market.

Level 2 measurements include interest rate swap agreement estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.

Level 3 measurements include transition payments to Mr. Covert (See Note 6, “Derivative Financial Instruments”) estimated using a valuation model that includes Level 3 unobservable inputs.  Significant assumptions used in the analysis include projected stock prices, stock volatility and the Company’s credit spread.

The Company did not have any transfers in and out of Levels 1 and 2 during the first three quarters of fiscal 2016.

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of January 30, 2015 (in thousands):

	January 30, 2015
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	724	$	724	$	—	$	—
LIABILITES
Other current liabilities — interest rate swap	$	1,591	$	—	$	1,591	$	—
Other long-term liabilities — interest rate swap	$	596	$	—	$	596	$	—
Other long-term liabilities — deferred compensation	$	724	$	724	$	—	$	—

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Level 1 measurements include $0.7 million of deferred compensation assets that fund the liabilities related to the Company’s deferred compensation, including investments in trust funds.  The fair values of these funds are based on quoted market prices in an active market.

Level 2 measurements include interest rate swap agreement estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.

There were no Level 3 assets or liabilities as of January 30, 2015.

The following table summarizes the activity for the period of changes in fair value of the Company’s Level 3 instruments (in thousands):

	For the First Three Quarters Ended
Transition Payments	October 30, 2015			October 31, 2014
Description
Beginning balance	$	—		$	—
Transfers in and/or out of Level 3	—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	(713		)	—
Included in other comprehensive loss	—			—
Purchases, sales, issues and settlements:
Settlements	—			—
Ending balance	$	(713	)	$	—
Total amount of unrealized gains (losses) for the period included in earnings relating to liabilities held at the reporting period	$	(713	)	$	—

(1)Losses are included in selling, general and administrative expenses.

The outstanding debt under the Credit Facilities and the Senior Notes is recorded in the financial statements at historical cost, net of applicable unamortized discounts.

The ABL Facility is tied directly to market rates and fluctuates as market rates change; as a result, the carrying value of the ABL Facility approximates fair value as of October 30, 2015 and January 30, 2015.

The fair value of the First Lien Term Loan Facility was estimated at $487.2 million, or $114.3 million lower than the carrying value, as of October 30, 2015, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the First Lien Term Loan Facility approximated the carrying value, as of January 30, 2015, based on quoted market prices of the debt (Level 1 inputs).

The fair value of the Senior Notes was estimated at $141.2 million, or $108.8 million lower than the carrying value, as of October 30, 2015, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the Senior Notes was estimated at $264.7 million, or $14.7 million greater than the carrying value, as of January 30, 2015, based on quoted market prices of the debt (Level 1 inputs).

See Note 5, “Debt” for more information on the Company’s debt.

8.Stock-Based Compensation

Number Holdings, Inc. 2012 Equity Incentive Plan

On February 27, 2012, the board of directors of Parent adopted the Number Holdings, Inc. 2012 Stock Incentive Plan (the “2012 Plan”).  The 2012 Plan authorizes equity awards to be granted for up to 85,000 shares of Class A Common Stock of Parent and 85,000 shares of Class B Common Stock of Parent.  As of October 30, 2015, options for 56,551 shares of each of Class A Common Stock and Class B Common Stock were issued to certain members of management and directors.  Options upon vesting may be exercised only for units consisting of an equal number of Class A Common Stock and Class B Common Stock.  Class B Common Stock has de minimis economic rights and the right to vote solely for election of directors.

Employee Option Grants

Options granted to employees generally become exercisable over a four or five year service period and have terms of ten years from date of the grant.

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Under the standard form of option award agreement for the 2012 Plan, Parent has a right to repurchase from the participant all or a portion of (i) Class A and Class B Common Stock of Parent issued upon the exercise of the options awarded to a participant and still held by such participant or his or her transferee and (ii) vested but unexercised options.  The repurchase price for the shares of Class A and Class B Common Stock of Parent received from option exercises prior to termination of employment is the fair market value of such shares as of the date of such termination, and, for the vested but unexercised options, the repurchase price is the difference between the fair market value of the Class A and Class B Common Stock of Parent as of the date of termination of employment and the exercise price of the option.  However, upon (i) a termination of employment for cause, (ii) a voluntary resignation without good reason, or (iii) upon discovery that the participant engaged in detrimental activity, the repurchase price is the lesser of the exercise price paid by the participant to exercise the option or the fair market value of the Class A and Class B Common Stock of Parent.  If Parent elects to exercise its repurchase right for any shares acquired pursuant to the exercise of an option, it must do so no later than (i) 180 days after the date of participant’s termination of employment if the option is exercised prior to the date of termination, or (ii) no later than 90 days from the latest date that such option can be exercised if the option is exercised after the date of termination.  If Parent elects to exercise its repurchase right for any vested and unexercised option, it must do so for no longer than the latest date that such option can be exercised.  The options also contain transfer restrictions that lapse upon registration of an offering of Parent common stock under the Securities Act of 1933 (a “liquidity event”).

The Company defers recognition of substantially all of the stock-based compensation expense related to these stock options. The nature of repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence. These options are accounted for as equity-based awards. The fair value of these stock options was estimated at the date of grant using the Black-Scholes pricing model. There were 19,675 time-based employee options outstanding as of October 30, 2015.

In the second quarter of fiscal 2015, 750 options were granted that would have vested subject to the Company’s and Parent’s achievement of performance hurdles.  In the first quarter of fiscal 2016, 1,250 options were granted that would have vested subject to the Company’s and Parent’s achievement of performance hurdles.  The Company deferred recognition of these performance-based options until it was probable that that the performance hurdles would be achieved.  The fair value of these performance-based options was estimated at the date of grant using a Monte Carlo simulation method. These performance-based options were forfeited in the second quarter of fiscal 2016.

Director Option Grants

Options granted to board members generally become exercisable over a five year service period and have terms of ten years from date of the grant.  Options granted to these board members do not contain repurchase rights that would allow the Parent to repurchase these options at less than fair value. The Company recognizes stock-based compensation expense for these option grants over the service period. These options are accounted for as equity awards.  The fair value of these stock options was estimated at the date of grant using the Black-Scholes pricing model.

Former Chief Executive Officer Equity Awards

On October 9, 2013, in connection with Stéphane Gonthier’s employment as President and Chief Executive Officer of the Company and Parent, the Compensation Committee of Parent’s Board of Directors granted to Mr. Gonthier stock options to purchase an aggregate of 21,505 shares of each of the Class A and Class B Common Stock.  Subject to the continued employment of Mr. Gonthier, (a) 75% of the options would have vested according to a timetable of 30% on the first anniversary of the grant date, 20% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date and (b) 25% of these options would have vested subject to the Company’s and Parent’s achievement of performance hurdles.  These options are subject to the terms of the 2012 Plan and the award agreement under which they were granted.

On May 25, 2015, Mr. Gonthier resigned from his positions as a director and as the President and Chief Executive Officer of the Company, Parent, and each of the Company’s subsidiaries. Twenty percent of the options to purchase common stock of Parent held by Mr. Gonthier that are subject to time-based vesting accelerated and vested as of the date of Mr. Gonthier’s resignation.  All of Mr. Gonthier’s time-based options were forfeited on August 24, 2015.  All of Mr. Gonthier’s performance-based options were forfeited on November 21, 2015.

The Company recorded stock-based compensation for the time-based options in accordance with the four year vesting period.  The Company had deferred recognition of performance-based options until it was probable that the performance hurdles would be achieved.  The time-based and performance-based options were accounted for as equity awards.  The fair value of these time-based options was estimated at the date of grant using the Black-Scholes pricing model.  The fair value of performance-based options was estimated at the date of grant using a Monte Carlo simulation method.

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New Chief Executive Officer Equity Awards

In September 2015, the Company entered into an employment agreement with Geoffrey J. Covert as the President and Chief Executive Officer of each of the Company and Parent.  In connection with this agreement, Mr. Covert was granted two options, each to purchase 15,500 shares of Class A and Class B Common Stock of Parent.  One of the grants has an exercise price of $1,000 per share.  The other grant has an exercise price equal to $750 per share plus the amount by which the fair market value of the underlying share exceeds $1,000 on the date of exercise.  One-half of each grant vests on each of the first four installments of the grant date, and the other half of each grant vests based on the achievement of certain performance targets.  The vesting of the options is subject to Mr. Covert’s continued employment through the applicable vesting date.  The options are subject to the terms of the 2012 Plan and the award agreements under which they were granted.

The Company has deferred recognition of the stock-based compensation expense for these time-based and performance-based stock options. The nature of the repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence. Additionally, the Company has deferred recognition of the stock-based compensation expense for performance-based options until it is probable that the performance targets will be achieved.

Accounting for stock-based compensation

Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise and the associated volatility.  At the grant date, the Company estimates an amount of forfeitures that will occur prior to vesting.  During the third quarter and first three quarters of fiscal 2016, the Company recorded stock-based compensation expense of less than $0.1 million and $1.5 million, respectively.  During the third quarter and first three quarters of fiscal 2015, the Company recorded stock-based compensation expense of $0.6 million and $2.0 million, respectively.

The following summarizes stock option activity in the first three quarters of fiscal 2016:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	48,130		$	1,171
Granted	36,800		$	946
Exercised	(660	)	$	1,000
Cancelled	(27,719	)	$	1,209
Outstanding at the end of the period	56,551		$	1,007	8.20
Exercisable at the end of the period	6,970		$	1,049	6.70

The following table summarizes the stock awards available for grant under the 2012 Plan as of October 30, 2015:

	Number of Shares
Available for grant as of January 30, 2015	36,840
Authorized	—
Granted	(36,800	)
Cancelled	27,719
Available for grant at October 30, 2015	27,759

9.Related-Party

Parent Stock Repurchase Agreement

In March 2015, in connection with Mr. Michael Kvitko’s resignation as Executive Vice President and Chief Merchandising Officer of the Company and all positions with Parent, Parent purchased all of the vested options to purchase shares of Class A Common Stock and Class B Common Stock held by Mr. Kvitko, for an aggregate consideration of $0.4 million.

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Credit Facility

In connection with the Merger, the Company entered into the First Lien Term Loan Facility, under which various funds affiliated with Ares were lenders.  As of January 30, 2015 these affiliates held approximately $1.4 million of term loans under the First Lien Term Loan Facility.  The terms of the term loans are the same as those held by unaffiliated third party lenders under the First Lien Term Loan Facility.  As of October 30, 2015, these affiliates no longer held any term loans under the First Lien Term Loan Facility.

Senior Notes

Various funds affiliated with Ares and Canada Pension Plan Investment Board have collectively acquired $102.1 million aggregate principal amount of the Company’s Senior Notes in open market transactions.  From time to time, these or other affiliated funds may acquire additional Senior Notes.

10.Income Taxes

The effective income tax rate for the first three quarters of fiscal 2016 was a provision rate of (16.5)% compared to a provision rate of 40.7% for the first three quarters of fiscal 2015.  Income tax expense for the interim periods was computed using the effective tax rate estimated to be applicable for the full fiscal year.  The change in the effective tax rate is primarily due to the tax effect of the non-deductible goodwill impairment, the establishment of a valuation allowance against deferred tax assets as discussed below, and the effect of not recognizing the benefit of losses incurred in fiscal 2016 in jurisdictions where we concluded is it more likely than not that such benefits would not be realized.

The Company assesses its ability to realize deferred tax assets throughout the fiscal year.  As a result of this assessment during the second quarter of fiscal 2016, the Company concluded that it was more likely than not that the Company would not realize its deferred tax assets. In the first three quarters of fiscal 2016, the Company recorded a $31.7 million increase to its provision for income taxes in order to establish a valuation allowance against such deferred tax assets and, additionally, realize the benefit of losses incurred in fiscal 2016.  The Company will continue to evaluate all of the positive and negative evidence in future periods and will make a determination as to whether it is more likely than not that all or a portion of its deferred tax assets will be realized in such future periods. At such time as the Company determines that it is more likely than not that all or a portion of its deferred tax assets are realizable, the valuation allowance will be reduced or released in its entirety, and the corresponding benefit will be reflected in the Company’s tax provision. Deferred tax liabilities associated with intangibles cannot be considered a source of taxable income to support the realization of deferred tax assets because these deferred tax liabilities will not reverse until some indefinite future period when these assets are either sold or impaired for book purposes.  The establishment of a valuation allowance does not have any impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or utilizing other deferred tax assets in the future.

The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense.  As of October 30, 2015 and January 31, 2015, the Company has not accrued any interest and penalties related to uncertain tax positions.

The Company files income tax returns in the U.S. federal jurisdiction and in various states.  The Company is subject to examinations by the major tax jurisdictions in which it files for the tax years 2010 forward.  The federal tax returns for the period ended March 27, 2010 and period ended March 31, 2012 were examined by the Internal Revenue Service resulting in no changes to the reported tax.

11.Commitments and Contingencies

Credit Facilities

The Credit Facilities and commitments are discussed in detail in Note 5, “Debt.”

Workers’ Compensation

The Company self-insures its workers’ compensation claims in California and Texas and provides for losses of estimated known and incurred but not reported insurance claims.  The Company does not discount the projected future cash outlays for the time value of money for claims and claim related costs when establishing its workers’ compensation liability.

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As of October 30, 2015 and January 30, 2015, the Company had recorded a liability of $68.6 million and $70.4 million, respectively, for estimated workers’ compensation claims in California.  The Company has limited self-insurance exposure in Texas and had recorded a liability of less than $0.1 million as of each of October 30, 2015 and January 30, 2015 for workers’ compensation claims in Texas.  The Company purchases workers’ compensation insurance coverage in Arizona and Nevada and is not self-insured in those states.

Self-Insured Health Insurance Liability

The Company self-insures for a portion of its employee medical benefit claims.  As of each of October 30, 2015 and January 30, 2015, the Company had recorded a liability of $0.5 million for estimated health insurance claims.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

Legal Matters

Wage and Hour Matters

Shelley Pickett v. 99¢ Only Stores.  Plaintiff, a former cashier for the Company, filed a representative action complaint against the Company on November 4, 2011 in the Superior Court of the State of California, County of Los Angeles alleging a PAGA claim that the Company violated section 14 of Wage Order 7-2001 by failing to provide seats for its cashiers behind checkout counters.  The plaintiff seeks civil penalties of $100 to $200 per violation, per each pay period for each affected employee, and attorney’s fees.  The court denied the Company’s motion to compel arbitration of Pickett’s individual claims or, in the alternative, to strike the representative action allegations in the Complaint, and the Court of Appeals affirmed the trial court’s ruling.  The Company’s petition for review of the decision in the California Supreme Court was denied on January 15, 2014, and remittitur issued on January 27, 2014.  On June 27, 2013, the plaintiff entered into a settlement agreement and release with the Company in another matter.  Payment has been made to the plaintiff under that agreement and the other action has been dismissed.  The Company’s position is that the release the plaintiff executed in that matter waives the claims she asserts in this action, waives her right to proceed on a class or representative basis or as a private attorney general and requires her to dismiss this action with prejudice as to her individual claims.  The Company notified the plaintiff of its position by a letter dated as of July 30, 2013, but she has yet to dismiss the lawsuit.  On February 11, 2014, the Company answered the complaint, denying all material allegations, and filed a cross-complaint against Pickett seeking to enforce her agreement to dismiss this action.  Through the cross-complaint, the Company seeks declaratory relief, specific performance and damages.  Pickett has answered the cross-complaint, asserting a general denial of all material allegations and various affirmative defenses.  On March 12, 2014, in an unrelated matter involving similar claims against a different employer, the California Supreme Court agreed to rule on several questions that will provide guidance to lower courts as to California’s employee seating requirement, which is a largely untested area of law.  Accordingly, on May 20, 2014, the parties stipulated to stay this matter pending the final resolution of the California Supreme Court proceeding, with the exception of the Company’s motion for judgment on the pleadings on the cross-complaint and Ms. Pickett’s motion for leave to substitute in a new representative plaintiff.  On September 30, 2014, the court denied the motion for judgment on the pleadings and granted the motion for leave to amend.  Plaintiffs filed their amended complaint on October 8, 2014, and the Company answered on October 10, 2014, denying all material allegations.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that it could face as a result of such lawsuit.

Sofia Wilton Barriga v. 99¢ Only Stores.  Plaintiff, a former store associate, filed an action against the Company on August 5, 2013, in the Superior Court of the State of California, County of Riverside alleging on behalf of plaintiff and all others allegedly similarly situated under the California Labor Code that the Company failed to pay wages for all hours worked, provide meal periods, pay wages timely upon termination, and provide accurate wage statements.  The plaintiff also asserted a derivative claim for unfair competition under the California Business and Professions Code.  The plaintiff seeks to represent a class of all non-exempt employees who were employed in California in the Company’s retail stores who worked the graveyard shift at any time from January 1, 2012, through the date of trial or settlement.  Although the class period as originally pled would extend back to August 5, 2009, the parties have agreed that any class period would run beginning January 1, 2012, because of the preclusive effect of a judgment in a previous matter.  The plaintiff seeks to recover alleged unpaid wages, statutory penalties, interest, attorney’s fees and costs, and restitution.  On September 23, 2013, the Company filed an answer denying all material allegations.  A case management conference was held on October 4, 2013, at which the court ordered that discovery may proceed as to class certification issues only.  After discovery commenced, a mediation was held on March 12, 2015, resulting in a confidential mediator’s proposal, which the parties verbally accepted.  The parties were unable to negotiate and finalize a written settlement agreement.  Subsequent settlement discussions directly with the plaintiff and through the mediator, as well as a court-ordered settlement conference, were unsuccessful.  The Court has set a status conference for January 12, 2016, and at that time will set a discovery plan and deadline for the filing of motions regarding class certification if the parties are unable to agree prior to that time on such a plan and deadline.  On October 26, 2015, plaintiffs’ counsel filed another action, this time in Los Angeles Superior Court, entitled Ivan Guerra v. 99 Cents Only Stores LLC (Case No. BC599119), which asserts PAGA claims based in part on the allegations at issue in the Barriga action.  While the Guerra case is not yet at issue, plaintiffs have agreed to stipulate to the transfer of the action to Riverside Superior Court and to consolidate it with the Barriga action.  The Company cannot predict the outcome of these lawsuits or the amount of potential loss, if any, that it could face as a result of such lawsuits.

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Other Matters

The Company is also subject to other private lawsuits, administrative proceedings and claims that arise in its ordinary course of business.  A number of these lawsuits, proceedings and claims may exist at any given time.  While the resolution of such a lawsuit, proceeding or claim may have an impact on the Company’s financial results for the period in which it is resolved, and litigation is inherently unpredictable, in management’s opinion, none of these matters arising in the ordinary course of business is expected to have a material adverse effect on the Company’s financial position, results of operations or overall liquidity.

12.Assets Held for Sale

Assets held for sale as of October 30, 2015 consisted of vacant land in Rancho Mirage, California and land in Bullhead, Arizona with a carrying value of $2.3 million.  Assets held for sale as of January 30, 2015 consisted of vacant land in Rancho Mirage, California and property containing land and a building in Pasadena-Shaver, Texas with a carrying value of $3.1 million.

In April 2015, the Company completed the sale of property in Pasadena-Shaver, Texas and received net proceeds of $1.4 million.  The carrying value of the Pasadena-Shaver property was $1.4 million.

In September 2015, the Company completed the sale of a cold storage distribution center in City of Commerce, California and received net proceeds of $11.8 million.  The carrying value of the cold storage distribution center was $6.5 million.

13.Other Accrued Expenses

Other accrued expenses as of October 30, 2015 and January 30, 2015 are as follows (in thousands):

	October 30, 2015		January 30, 2015
Accrued interest	$	14,073	$	8,363
Accrued occupancy costs	15,225		11,766
Accrued legal reserves and fees	7,043		6,006
Accrued interest swap	1,221		1,591
Accrued California Redemption Value	2,450		951
Other	11,103		11,491
Total other accrued expenses	$	51,115	$	40,168

14.New Authoritative Standards

In April 2014, the Final Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”).  ASU 2014-08 changes the requirements for reporting discontinued operations.  Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.  ASU 2014-08 is effective for all disposals or classifications as held for sale of components of an entity that occur within fiscal years beginning after December 15, 2014, and early adoption is permitted.  The Company adopted ASU 2014-08 in the first quarter of fiscal 2016.  There is no material impact on the Company or its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”).  ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The ASU also requires expanded disclosures about revenue recognition. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach.  ASU 2014-09 was to be effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 for all entities by one year. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such,

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the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and early adoption is permitted. The Company will adopt ASU 2014-12 in the first quarter of fiscal 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued.  If substantial doubt exists, additional disclosures are required. This ASU is effective for annual periods ending after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted.  The Company will adopt this standard in the first quarter of fiscal 2018 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates the concept of extraordinary items under GAAP, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations.  This ASU is effective for annual periods ending after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The Company will adopt this standard in the first quarter of fiscal 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis.”  This ASU amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities.  The amendment modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, among other provisions.  This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and early adoption permitted.  The Company will adopt this standard in the first quarter of fiscal 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03.)” This ASU requires companies to present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. Debt issuance costs will continue to be amortized to interest expense using the effective interest method. In August 2015, FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangement (“ASU 2015-15”). ASU 2015-15 clarifies the presentation and measurement of debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. For line-of-credit arrangements, an entity can continue to present debt issuance costs as an asset and amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. These standards are effective for public companies for annual periods beginning after December 15, 2015 as well as interim periods within those annual periods using the retrospective approach. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.”  This ASU simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost or net realizable value test.  Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  The guidance is effective for reporting periods beginning after December 15, 2016 and interim periods within those fiscal years, with early adoption permitted. This ASU should be applied prospectively. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.”  This ASU eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. This ASU is effective for fiscal years beginning after December 15, 2015, and early adoption is permitted.  The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.  The Company will adopt this standard in the first quarter of fiscal 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

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In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.”  This ASU simplifies the presentation of deferred income taxes by requiring that all deferred tax liabilities and assets be classified as long-term on the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2017, and allows for either prospective or retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

15.Financial Guarantees

On December 29, 2011, the Company issued $250.0 million principal amount of the Senior Notes.  The Senior Notes are irrevocably and unconditionally guaranteed, jointly and severally, by each of the Company’s existing and future restricted subsidiaries that are guarantors under the Credit Facilities and certain other indebtedness.

As of October 30, 2015 and January 30, 2015, the Senior Notes are fully and unconditionally guaranteed by the Company’s 100% owned subsidiaries (the “Subsidiary Guarantors”), except for immaterial subsidiaries.

The tables in the following pages present the condensed consolidating financial information for the Company and the Subsidiary Guarantors together with consolidating entries, as of and for the periods indicated.  The subsidiaries that are not Subsidiary Guarantors are minor.  The condensed consolidating financial information may not necessarily be indicative of the financial position, results of operations or cash flows had the Company, and the Subsidiary Guarantors operated as independent entities.

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CONDENSED CONSOLIDATING BALANCE SHEETS

As of October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,303		$	1,246		$	36		$	—		$	2,585
Accounts receivable, net	1,711			102			—			—			1,813
Income taxes receivable	1,540			—			—			—			1,540
Deferred income taxes	31,115			—			—			—			31,115
Inventories, net	234,212			32,024			—			—			266,236
Assets held for sale	2,308			—			—			—			2,308
Other	14,438			1,245			14			—			15,697
Total current assets	286,627			34,617			50			—			321,294
Property and equipment, net	496,096			59,321			28			—			555,445
Deferred financing costs, net	13,402			—			—			—			13,402
Equity investments and advances to subsidiaries	565,157			482,517			1,424			(1,049,098		)	—
Intangible assets, net	453,752			2,065			—			—			455,817
Goodwill	359,745			—			—			—			359,745
Deposits and other assets	7,100			410			8			—			7,518
Total assets	$	2,181,879		$	578,930		$	1,510		$	(1,049,098	)	$	1,713,221
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	93,165		$	5,736		$	—		$	—		$	98,901
Intercompany payable	483,189			501,681			1,985			(986,855		)	—
Payroll and payroll-related	18,890			1,225			—			—			20,115
Sales tax	6,010			658			—			—			6,668
Other accrued expenses	46,530			4,568			17			—			51,115
Workers’ compensation	68,630			75			—			—			68,705
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	979			—			—			—			979
Total current liabilities	723,531			513,943			2,002			(986,855		)	252,621
Long-term debt, net of current portion	916,485			—			—			—			916,485
Unfavorable lease commitments, net	6,303			62			—			—			6,365
Deferred rent	24,369			2,185			5			—			26,559
Deferred compensation liability	762			—			—			—			762
Capital and financing lease obligation, net of current portion	34,474			—			—			—			34,474
Long-term deferred income taxes	191,914			—			—			—			191,914
Other liabilities	3,972			—			—			—			3,972
Total liabilities	1,901,810			516,190			2,007			(986,855		)	1,433,152
Member’s Equity:
Member units	550,144			—			1			(1		)	550,144
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(250,751		)	(37,203		)	(498		)	37,701			(250,751		)
Other comprehensive loss	(124		)	—			—			—			(124		)
Total equity	280,069			62,740			(497		)	(62,243		)	280,069
Total liabilities and equity	$	2,181,879		$	578,930		$	1,510		$	(1,049,098	)	$	1,713,221

27

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 30, 2015

(In thousands)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	11,333		$	1,097		$	33		$	—		$	12,463
Accounts receivable, net	1,844			110			—			—			1,954
Income taxes receivable	10,911			—			—			—			10,911
Deferred income taxes	41,583			—			—			—			41,583
Inventories, net	263,284			32,756			—			—			296,040
Assets held for sale	1,680			1,414			—			—			3,094
Other	18,023			1,005			11			—			19,039
Total current assets	348,658			36,382			44			—			385,084
Property and equipment, net	517,739			63,251			30			—			581,020
Deferred financing costs, net	15,463			—			—			—			15,463
Equity investments and advances to subsidiaries	451,053			357,842			—			(808,895		)	—
Intangible assets, net	458,043			2,268			—			—			460,311
Goodwill	479,745			—			—			—			479,745
Deposits and other assets	7,040			503			—			—			7,543
Total assets	$	2,277,741		$	460,246		$	74		$	(808,895	)	$	1,929,166
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	136,884		$	2,403		$	—		$	—		$	139,287
Intercompany payable	357,909			377,382			567			(735,858		)	—
Payroll and payroll-related	18,489			1,515			—			—			20,004
Sales tax	13,562			525			—			—			14,087
Other accrued expenses	37,756			2,375			37			—			40,168
Workers’ compensation	70,416			75			—			—			70,491
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	380			—			—			—			380
Total current liabilities	641,534			384,275			604			(735,858		)	290,555
Long-term debt, net of current portion	901,395			—			—			—			901,395
Unfavorable lease commitments, net	8,103			117			—			—			8,220
Deferred rent	21,006			2,287			—			—			23,293
Deferred compensation liability	724			—			—			—			724
Capital and financing lease obligation, net of current portion	24,681			—			—			—			24,681
Long-term deferred income taxes	170,678			—			—			—			170,678
Other liabilities	1,868			—			—			—			1,868
Total liabilities	1,769,989			386,679			604			(735,858		)	1,421,414
Member’s Equity:
Member units	549,135			—			1			(1		)	549,135
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(21,185		)	(26,376		)	(531		)	26,907			(21,185		)
Other comprehensive loss	(998		)	—			—			—			(998		)
Total equity	507,752			73,567			(530		)	(73,037		)	507,752
Total liabilities and equity	$	2,277,741		$	460,246		$	74		$	(808,895	)	$	1,929,166

28

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Third Quarter Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	447,617		$	43,848		$	197		$	(197	)	$	491,465
Cost of sales	325,304			34,492			—			—			359,796
Gross profit	122,313			9,356			197			(197		)	131,669
Selling, general and administrative expenses	133,506			13,652			188			(197		)	147,149
Goodwill impairment	120,000			—			—			—			120,000
Operating (loss) income	(131,193		)	(4,296		)	9			—			(135,480		)
Other (income) expense:
Interest income	—			—			—			—			—
Interest expense	16,549			—			—			—			16,549
Equity in (earnings) loss of subsidiaries	4,281			—			—			(4,281		)	—
Total other expense, net	20,830			—			—			(4,281		)	16,549
(Loss) income before provision for income taxes	(152,023		)	(4,296		)	9			4,281			(152,029		)
Provision (benefit) for income taxes	613			—			(6		)	—			607
Net (loss) income	$	(152,636	)	$	(4,296	)	$	15		$	4,281		$	(152,636	)
Comprehensive (loss) income	$	(152,104	)	$	(4,296	)	$	15		$	4,281		$	(152,104	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the First Three Quarters Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,354,980		$	131,176		$	578		$	(578	)	$	1,486,156
Cost of sales	960,445			101,544			—			—			1,061,989
Gross profit	394,535			29,632			578			(578		)	424,167
Selling, general and administrative expenses	411,433			40,459			551			(578		)	451,865
Goodwill impairment	120,000			—			—			—			120,000
Operating (loss) income	(136,898		)	(10,827		)	27			—			(147,698		)
Other (income) expense:
Interest income	(3		)	—			—			—			(3		)
Interest expense	49,302			—			—			—			49,302
Equity in (earnings) loss of subsidiaries	10,794			—			—			(10,794		)	—
							—
Total other expense, net	60,093			—			—			(10,794		)	49,299
(Loss) income before provision for income taxes	(196,991		)	(10,827		)	27			10,794			(196,997		)
Provision (benefit) for income taxes	32,575			—			(6		)	—			32,569
Net (loss) income	$	(229,566	)	$	(10,827	)	$	33		$	10,794		$	(229,566	)
Comprehensive (loss) income	$	(228,692	)	$	(10,827	)	$	33		$	10,794		$	(228,692	)

29

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Third Quarter Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	434,121		$	44,157		$	—		$	—		$	478,278
Cost of sales	293,887			34,257			—			—			328,144
Gross profit	140,234			9,900			—			—			150,134
Selling, general and administrative expenses	127,094			13,185			93			—			140,372
Operating income (loss)	13,140			(3,285		)	(93		)	—			9,762
Other (income) expense:
Interest expense	15,717			—			—			—			15,717
Equity in (earnings) loss of subsidiaries	3,378			—			—			(3,378		)	—
Total other expense, net	19,095			—			—			(3,378		)	15,717
Loss before provision for income taxes	(5,955		)	(3,285		)	(93		)	3,378			(5,955		)
Benefit for income taxes	(2,141		)	—			—			—			(2,141		)
Net loss	$	(3,814	)	$	(3,285	)	$	(93	)	$	3,378		$	(3,814	)
Comprehensive loss	$	(3,750	)	$	(3,285	)	$	(93	)	$	3,378		$	(3,750	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the First Three Quarters Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer		Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,281,485	$	132,897		$	—		$	—		$	1,414,382
Cost of sales	858,364		101,004			—			—			959,368
Gross profit	423,121		31,893			—			—			455,014
Selling, general and administrative expenses	356,927		38,099			225			—			395,251
Operating income (loss)	66,194		(6,206		)	(225		)	—			59,763
Other (income) expense:
Interest expense	46,613		—			—			—			46,613
Equity in (earnings) loss of subsidiaries	6,431		—			—			(6,431		)	—
Total other expense, net	53,044		—			—			(6,431		)	46,613
Income (loss) before provision for income taxes	13,150		(6,206		)	(225		)	6,431			13,150
Provision for income taxes	5,350		—			—			—			5,350
Net income (loss)	$	7,800	$	(6,206	)	$	(225	)	$	6,431		$	7,800
Comprehensive income	$	8,088	$	(6,206	)	$	(225	)	$	6,431		$	8,088

30

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the First Three Quarters Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	1,447		$	374		$	6		$	—	$	1,827
Cash flows from investing activities:
Purchases of property and equipment	(53,998		)	(1,709		)	(3		)	—		(55,710		)
Proceeds from sales of fixed assets	20,836			1,484			—			—		22,320
Net cash used in investing activities	(33,162		)	(225		)	(3		)	—		(33,390		)
Cash flows from financing activities:
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	404,050			—			—			—		404,050
Payments under revolving credit facility	(385,350		)	—			—			—		(385,350		)
Payments of debt issuance costs	(487		)	—			—			—		(487		)
Proceeds from financing lease obligations	8,666			—			—			—		8,666
Payments of capital and financing lease obligations	(143		)	—			—			—		(143		)
Payments to repurchase stock options of Number Holdings, Inc	(390		)	—			—			—		(390		)
Net settlement of stock options of Number Holdings, Inc. for tax withholdings	(57		)	—			—			—		(57		)
Net cash provided by financing activities	21,685			—			—			—		21,685
Net (decrease) increase in cash	(10,030		)	149			3			—		(9,878		)
Cash — beginning of period	11,333			1,097			33			—		12,463
Cash — end of period	$	1,303		$	1,246		$	36		$	—	$	2,585

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the First Three Quarters Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary		Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	19,287		$	7,706		$	32	$	—		$	27,025
Cash flows from investing activities:
Purchases of property and equipment	(69,531		)	(7,383		)	—		—			(76,914		)
Proceeds from sale of fixed assets	21			8			—		—			29
Investment in subsidiary	(1		)	—			—		1			—
Net cash used in investing activities	(69,511		)	(7,375		)	—		1			(76,885		)
Cash flows from financing activities:
Payments of long—term debt	(4,604		)	—			—		—			(4,604		)
Proceeds under revolving credit facility	112,500			—			—		—			112,500
Payments under revolving credit facility	(76,500		)	—			—		—			(76,500		)
Payments of capital lease obligation	(65		)	—			—		—			(65		)
Payments to repurchase stock options of Number Holdings, Inc	(76		)	—			—		—			(76		)
Capital contributions	—			—			1		(1		)	—
Net cash provided by financing activities	31,255			—			1		(1		)	31,255
Net (decrease) increase in cash	(18,969		)	331			33		—			(18,605		)
Cash — beginning of period	33,723			1,119			—		—			34,842
Cash — end of period	$	14,754		$	1,450		$	33	$	—		$	16,237

31

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this quarterly report on Form 10-Q (this “Report”), unless the context suggests otherwise, the terms “Company,” “we,” “us,” and “our” refer to 99¢ Only Stores and its consolidated subsidiaries prior to the Conversion (as described in Note 1 to the Annual Report on Form 10-K for the fiscal year ended January 30, 2015) and to 99 Cents Only Stores LLC and its consolidated subsidiaries on or after the Conversion.

General

We are an extreme value retailer of consumable and general merchandise and seasonal products.  Our stores offer a wide assortment of regularly available consumer goods as well as a broad variety of first-quality closeout merchandise. In addition, we carry domestic and imported fresh produce, deli, dairy and frozen and refrigerated food products.

On January 13, 2012, we were acquired through a merger (the “Merger”) with a subsidiary of Number Holdings, Inc., a Delaware corporation (“Parent”) with us surviving.  In connection with the Merger, we became a subsidiary of Parent, which is controlled by affiliates of Ares Management, L.P. and Canada Pension Plan Investment Board.

We follow a fiscal calendar consisting of four quarters with 91 days, each ending on the Friday closest to the last day of April, July, October or January, as applicable, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years. Unless otherwise stated, references to years in this Report relate to fiscal years rather than calendar years.  Fiscal year 2016 (“fiscal 2016”) began on January 31, 2015, will end on January 29, 2016 and will consist of 52 weeks.  Fiscal year 2015 (“fiscal 2015”) began on February 1, 2014, ended on January 30, 2015 and consisted of 52 weeks.  The third quarter ended October 30, 2015 (“the third quarter of fiscal 2016”) and the third quarter ended October 31, 2014 (“the third quarter of fiscal 2015”) were each comprised of 91 days.  The period ended October 30, 2015 (“the first three quarters of fiscal 2016”) and the period ended October 31, 2014 (“the first three quarters of fiscal 2015”) were each comprised of 273 days.

For the third quarter of fiscal 2016, we had net sales of $491.5 million, operating loss of $135.5 million and a net loss of $152.6 million.  Sales increased during the third quarter of fiscal 2016 over the same period in fiscal 2015 primarily due to the full quarter effect of new stores opened in fiscal 2015 and the effect of six new stores opened in fiscal 2016.  This was partially offset by a 3.9% decrease in same-store sales.  For the first three quarters of fiscal 2016, we had net sales of $1,486.2 million, operating loss of $147.7 million and net loss of $229.6 million.  Sales increased during the first three quarters of fiscal 2016 primarily due to the full year effect of new stores opened in fiscal 2015 and the effect of six new stores opened in fiscal 2016.  This was partially offset by a 2.5% decrease in same-store sales.

In the first three quarters of fiscal 2016, we opened six new stores.  In fiscal 2016, we currently intend to increase our store count by up to approximately 10 stores, all of which are expected to be opened in our existing markets.  We believe that our near term growth will primarily result from new store openings in our existing markets and increases in same-store sales.

Critical Accounting Policies and Estimates

Our critical accounting policies reflecting management’s estimates and judgments are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended January 30, 2015.

We assess our ability to realize deferred tax assets throughout the fiscal year.  As a result of this assessment during the second quarter of fiscal 2016, we concluded that it was more likely than not that we would not realize our deferred tax assets.  As a result of this analysis, we recorded a $31.7 million valuation allowance against our deferred tax assets for the first three quarters of fiscal 2016.  We will continue to evaluate all of the positive and negative evidence in future periods and will make a determination as to whether it is more likely than not that all or a portion of our deferred tax assets will be realized in such future periods. See Note 10 to the Unaudited Consolidated Financial Statements.

Goodwill and indefinite-lived intangible assets are not amortized but instead tested annually for impairment or more frequently when events or changes in circumstances indicate that the assets might be impaired.  During the third quarter of fiscal 2016, we determined that sufficient indicators of impairment existed to require an interim impairment analysis of goodwill and trade name.  Our first step evaluation concluded that the fair value of the retail reporting unit was below its carrying value. We performed step two of the goodwill impairment that requires the retail reporting unit’s fair value to be allocated to all of the assets and liabilities of the reporting unit, including any intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination, including any significant increases in the fair value of tangible property and intangible assets.  Assessing the fair value of goodwill includes making assumptions about future cash flows, discount rates and asset lives using then best available information.  These assumptions are subject to a high degree of complexity and judgment.  Due to the complexity and effort required to estimate the fair value of the retail reporting unit in the second step of the

32

analysis, the fair value estimates were based on preliminary analyses and assumptions that are subject to change. As a result of this preliminary analysis and based on our best estimate, we recorded a $120.0 million non-cash goodwill impairment charge in the third quarter of fiscal 2016, which was reflected as Goodwill Impairment in the consolidated statements of comprehensive income (loss). The finalization of goodwill of preliminary goodwill impairment will be completed in the fourth quarter of fiscal 2016 and further adjustments to the preliminary goodwill impairment charge, if any, may be recognized when we finalize the second step of the goodwill impairment test.  If operating results continue to change versus our expectations, additional impairment charges may be recorded in the future. See Note 1 to the Unaudited Consolidated Financial Statements.

Since the filing of our Annual Report on Form 10-K for the fiscal year ended January 30, 2015, there have been no other significant changes to our critical accounting policies and estimates.

Results of Operations

The following discussion defines the components of the statement of income.

Net Sales: Revenue is recognized at the point of sale in our stores (“retail sales”).  Bargain Wholesale sales revenue is recognized in accordance with the shipping terms agreed upon on the purchase order.  Bargain Wholesale sales are typically recognized free on board origin, where title and risk of loss pass to the buyer when the merchandise leaves our distribution facility.

Cost of Sales: Cost of sales includes the cost of inventory, freight-in, obsolescence, spoilage, scrap and inventory shrinkage, and is net of discounts and allowances.  Cost of sales also includes receiving, warehouse costs and distribution costs (which include payroll and associated costs, occupancy, transportation to and from stores and depreciation expense).  Cash discounts for satisfying early payment terms are recognized when payment is made, and allowances and rebates based upon milestone achievements, such as reaching a certain volume of purchases of a vendor’s products, are included as a reduction of cost of sales when such contractual milestones are reached.

Selling, General and Administrative Expenses: Selling, general and administrative expenses include the costs of selling merchandise in stores (which include payroll and associated costs, occupancy and other store-level costs) and corporate costs (which include payroll and associated costs, occupancy, advertising, professional fees and other corporate administrative costs).  Selling, general and administrative expenses also include depreciation and amortization expense relating to these costs.

Goodwill Impairment: Represents the estimated goodwill impairment charge measured by comparing the implied fair value of goodwill (determined as a result of our interim impairment analysis) with the carrying amount of goodwill.

Other (Income) Expense: Other (income) expense relates primarily to interest expense on our debt and capitalized and financing leases.

The following table sets forth selected income statement data, including such data as a percentage of net sales for the periods indicated (percentages may not add up due to rounding):

33

	For the Third Quarter Ended										For the First Three Quarters Ended
	October 30,			% of Net		October 31,			% of Net		October 30,			% of Net		October 31,		% of Net
	2015			Sales		2014			Sales		2015			Sales		2014		Sales
Net Sales:
99¢ Only Stores	$	480,547		97.8	%	$	467,134		97.7	%	$	1,452,682		97.7	%	$	1,379,823	97.6	%
Bargain Wholesale	10,918			2.2		11,144			2.3		33,474			2.3		34,559		2.4
Total sales	491,465			100.0		478,278			100.0		1,486,156			100.0		1,414,382		100.0
Cost of sales	359,796			73.2		328,144			68.6		1,061,989			71.5		959,368		67.8
Gross profit	131,669			26.8		150,134			31.4		424,167			28.5		455,014		32.2
Selling, general and administrative expenses	147,149			29.9		140,372			29.3		451,865			30.4		395,251		27.9
Goodwill impairment	120,000			24.4		—			0.0		120,000			8.1		—		0.0
Operating (loss) income	(135,480		)	(27.6	)	9,762			2.0		(147,698		)	(9.9	)	59,763		4.2
Other (income) expense:
Interest income	—			0.0		—			0.0		(3		)	0.0		—		0.0
Interest expense	16,549			3.4		15,717			3.3		49,302			3.3		46,613		3.3
Total other expense, net	16,549			3.4		15,717			3.3		49,299			3.3		46,613		3.3
(Loss) income before provision for income taxes	(152,029		)	(30.9	)	(5,955		)	(1.2	)	(196,997		)	(13.3	)	13,150		0.9
Provision (benefit) for income taxes	607			0.1		(2,141		)	(0.4	)	32,569			2.2		5,350		0.4
Net (loss) income	$	(152,636	)	(31.1	)%	$	(3,814	)	(0.8	)%	$	(229,566	)	(15.4	)%	7,800		0.6	%

Third Quarter Ended October 30, 2015 Compared to Third Quarter Ended October 31, 2014

Net sales.  Total net sales increased $13.2 million, or 2.8%, to $491.5 million in the third quarter of fiscal 2016, from $478.3 million in the third quarter of fiscal 2015.  Net retail sales increased $13.4 million, or 2.9%, to $480.5 million in the third quarter of fiscal 2016, from $467.1 million in the third quarter of fiscal 2015.  Bargain Wholesale net sales decreased by $0.2 million, or 2.0%, to $10.9 million in the third quarter of fiscal 2016, from $11.1 million in the third quarter of fiscal 2015.  The $13.4 million increase in net retail sales was primarily due to the full quarter effect of stores opened in fiscal 2015, and the effect of new stores opened during the first three quarters of fiscal 2016. The increase in retail sales was partially offset by a 3.9% decrease in same-store sales, with lower customer traffic partially offset by higher average ticket.

Gross profit.  Gross profit decreased $18.5 million, or 12.3%, to $131.7 million in the third quarter of fiscal 2016, from $150.1 million in the third quarter of 2015.  As a percentage of net sales, overall gross margin decreased to 26.8% in the third quarter of fiscal 2016, from 31.4% in the third quarter of fiscal 2015.  Among the gross profit components, cost of products sold increased by 230 basis points compared to the third quarter of fiscal 2015 primarily due to higher inbound freight and duty costs and the accelerated implementation of inventory clearance initiatives, partially offset by a shift in product mix toward higher margin general merchandise products. Additionally, inventory shrinkage and scrap increased by 160 basis points compared to the third quarter of fiscal 2015 based on the results of physical inventory counts completed during the quarter. Distribution and transportation expenses increased 60 basis points primarily due to higher transportation costs and depreciation expense for an incremental warehouse facility. The remaining change was attributable to other less significant items included in cost of sales.

Selling, general and administrative expenses.  Selling, general and administrative expenses increased by $6.7 million, or 4.8%, to $147.1 million in the third quarter of fiscal 2016, from $140.4 million in the third quarter of fiscal 2015.  As a percentage of net sales, selling, general and administrative expenses increased to 29.9% for the third quarter of fiscal 2016 from 29.3% for the third quarter of fiscal 2015.  The 60 basis point increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by store level payroll and occupancy expenses, depreciation and amortization and outside professional fees.  Selling, general, and administrative expenses as a percentage of sales were negatively impacted by the recent opening of 27 new stores since the same period of last fiscal year and negative operating leverage as a result of the decline in same-store sales during the third quarter of fiscal 2016.  Depreciation and amortization expense was higher due to new store openings, the store remodeling program and the information system implementation. Outside professional fees were higher primarily due to costs relating to executive transitions.  These increases were partially offset by a gain realized on the sale of a cold storage facility during the third quarter of fiscal 2016.

Goodwill impairment.  During the third quarter of fiscal 2016, we recorded a best estimate of $120.0 million non-cash goodwill impairment charge relating to the retail reporting unit resulting from significant declines in profitability in the most recent quarters of fiscal 2016, a modest recovery to restore expected future operating results to historical levels and significant increase in the fair value of our tangible property since the Merger.  The goodwill impairment charge did not adversely affect our debt position, cash flow, liquidity or compliance with financial covenants. See Note 1 to the Unaudited Consolidated Financial Statements.

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Operating (loss) income.  Operating loss was $135.5 million in the third quarter of fiscal 2016 compared to operating income of $9.8 million for the third quarter of fiscal 2015.  Operating loss as a percentage of net sales was (27.6)% in the third quarter of fiscal 2016 compared to operating income of 2.0% in the third quarter of fiscal 2015.  The decrease in operating income as a percentage of net sales was primarily due to changes in gross margin and selling, general, and administrative expenses, and the recording of a goodwill impairment charge, as discussed above.

Interest expense.  Interest expense was $16.5 million for the third quarter of fiscal 2016 compared to interest expense of $15.7 million for the third quarter of fiscal 2015.  Interest expense was higher primarily due to interest expense on financing leases and additional borrowings under the ABL Facility (as defined below).

Provision for income taxes. The provision for income taxes was $0.6 million for the third quarter of fiscal 2016 compared to an income tax benefit of $2.1 million for the third quarter of fiscal 2015.  The effective income tax rate for the third quarter of fiscal 2016 was a provision rate of (0.4)% compared to a benefit rate of 36.0% for the third quarter 2015.  The change in the effective tax rate is primarily due to the non-deductible goodwill impairment and the effect of not recognizing the benefit of losses incurred in the third quarter of fiscal 2016 in jurisdictions where we concluded it is more likely than not that such benefits would not be realized.  See Note 10 to the Unaudited Consolidated Financial Statements for a description of a valuation allowance established in fiscal 2016 against the deferred tax assets and the implications of that allowance on the assessment of our conclusions on realization of the tax benefits of losses incurred in fiscal 2016.  Income taxes for interim periods are computed using the effective tax rate estimated to be applicable for the full fiscal year.  The estimated effective tax rate for the entire year is based on current estimates and any changes to those estimates in future periods could result in effective tax rate that is materially different from the current estimate.

Net (loss) income.  As a result of the items discussed above, net loss for the third quarter of fiscal 2016 was $152.6 million compared to net loss of $3.8 million in the third quarter of fiscal 2015.  Net loss as a percentage of net sales was (31.1)% for the third quarter of fiscal 2016, compared to net loss of (0.8)% for the third quarter of fiscal 2015.

First Three Quarters Ended October 30, 2015 Compared to First Three Quarters Ended October 31, 2014

Net sales.  Total net sales increased $71.8 million, or 5.1%, to $1,486.2 million in the first three quarters of fiscal 2016, from $1,414.4  million in the first three quarters of fiscal 2015.  Net retail sales increased $72.9 million, or 5.3%, to $1,452.7 million in the first three quarters of fiscal 2016, from $1,379.8 million in the first three quarters of fiscal 2015.  Bargain Wholesale net sales decreased by approximately $1.1 million, or 3.1%, to $33.5 million in the first three quarters of fiscal 2016, from $34.6 million in the first three quarters of fiscal 2015.  The $72.9 million increase in net retail sales was primarily due to the full year effect of stores opened in fiscal 2015, and the effect of new stores opened during first three quarters of fiscal 2016.  The increase in retail sales was partially offset by a 2.5% decrease in same-store sales, with lower customer traffic partially offset by higher average ticket.

Gross profit.  Gross profit decreased $30.8 million, or 6.8%, to $424.2 million in the first three quarters of fiscal 2016, from $455.0 million in the first three quarters of fiscal 2015.  As a percentage of net sales, overall gross margin decreased to 28.5% in the first three quarters of fiscal 2016, from 32.2% in the first three quarters of fiscal 2015.  Among the gross profit components, cost of products sold increased by 150 basis points compared to the first three quarters of fiscal 2016 primarily due to greater levels of promotional activities, higher inbound freight and duty costs as well as the accelerated implementation of inventory clearance initiatives in the third quarter of fiscal 2016, partially offset by a shift in product mix toward higher margin general merchandise and seasonal products.  Additionally, inventory shrinkage and scrap increased by 140 basis points compared to the first three quarters of fiscal 2015 based on the results of physical inventory counts completed during the year.  Distribution and transportation expenses increased 40 basis points primarily due to higher transportation costs and depreciation expense for an incremental warehouse facility.  The remaining change was attributable to other less significant items included in costs of sales.

Selling, general and administrative expenses.  Selling, general and administrative expenses increased by $56.6 million, or 14.3%, to $451.9 million in the first three quarters of fiscal 2016, from $395.3 million in the first three quarters of fiscal 2015.  As a percentage of net sales, selling, general and administrative expenses increased to 30.4% for the first three quarters of fiscal 2016 from 27.9% for the first three quarters of fiscal 2015.  The 250 basis point increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by store level payroll and occupancy expenses, depreciation and amortization and outside professional fees.  Selling, general and administrative expenses as a percentage of sales were negatively impacted by the recent opening of 27 new stores since the same period of last fiscal year and an increase in the minimum wage in California as well as negative operating leverage as a result of the decline in same-store sales during the third quarter of fiscal 2016.  Depreciation and amortization expense was higher due to new store openings, the store remodeling program and the information system implementation. Outside professional fees were higher primarily due to charges relating to previously capitalized store and distribution center real estate development costs expensed in the second quarter of fiscal 2016 as a result of cancelled projects and costs relating to executive transitions.  These increases were partially offset by a gain realized on the sale of a cold storage facility during the third quarter of fiscal 2016.

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Goodwill impairment.  During the third quarter of fiscal 2016, we recorded a best estimate of $120.0 million non-cash goodwill impairment charge relating to the retail reporting unit resulting from significant declines in profitability in the most recent quarters of fiscal 2016, a modest recovery to restore expected future operating results to historical levels and significant increase in the fair value of our tangible property since the Merger.  The goodwill impairment charge did not adversely affect our debt position, cash flow, liquidity or compliance with financial covenants. See Note 1 to the Unaudited Consolidated Financial Statements.

Operating (loss) income.  Operating loss was $147.7 million for the first three quarters of fiscal 2016 compared to operating income of $59.8 million for the first three quarters of fiscal 2015.  Operating loss as a percentage of net sales was (9.9)% in the first three quarters of fiscal 2016 compared to operating income of 4.2% in the first three quarters of fiscal 2015.  The decrease in operating income as a percentage of net sales was primarily due to changes in gross margin, selling, general, and administrative expenses and the recording of a goodwill impairment charge, as discussed above.

Interest expense.  Interest expense was $49.3 million for the first three quarters of fiscal 2016 compared to interest expense of $46.6 million for the first three quarters of fiscal 2015.  Interest expense was higher primarily due to interest expense on financing leases and additional borrowings under the ABL Facility (as defined below).

Provision for income taxes. The provision for income taxes was $32.6 million for the first three quarters of fiscal 2016 compared to an income tax provision of $5.4 million for the first three quarters of fiscal 2015.  The effective income tax rate for the first three quarters of fiscal 2016 was a provision rate of (16.5)% compared to a provision rate of 40.7% for the first three quarters of fiscal 2015.  The change in the effective tax rate is primarily due to the non-deductible goodwill impairment, the establishment of a valuation allowance of $31.7 million in fiscal 2016 (as described in Note 10 to the Unaudited Consolidated Financial Statements) and the effect of not recognizing the benefit of losses incurred in the first three quarters of fiscal 2016 in the jurisdictions where we concluded it is more likely than not that such benefits would not be realized.  Income taxes for interim periods are computed using the effective tax rate estimated to be applicable for the full fiscal year.  The estimated effective tax rate for the entire year is based on current estimates and any changes to those estimates in future periods could result in effective tax rate that is materially different from the current estimate.

Net (loss) income.  As a result of the items discussed above, net loss for the first three quarters of fiscal 2016 was $229.6 million compared to net income of $7.8 million for the first three quarters of fiscal 2015.  Net loss as a percentage of net sales was (15.4)% for the first three quarters of fiscal 2016 compared to net income of 0.6% for the first three quarters of fiscal 2015.

Liquidity and Capital Resources

Our capital requirements consist primarily of purchases of inventory, expenditures related to new store openings, investments in information technology and supply chain infrastructure, working capital requirements for new and existing stores, including lease obligations, and debt service requirements.  Our primary sources of liquidity are the net cash flow from operations and availability under our ABL Facility (as defined below), which we believe will be sufficient to fund our regular operating needs and principal and interest payments on our indebtedness for at least the next 12 months.  Availability under the ABL Facility is not expected to affect our ability to make immediate buying decisions, willingness to take on large volume purchases or ability to pay cash or accept abbreviated credit terms.

As of the end of the third quarter of fiscal 2016, we held $2.6 million in cash, and our total indebtedness was $922.6 million, consisting of borrowings under the First Lien Term Loan Facility (as defined below) of $596.9 million, borrowings under the ABL Facility of $75.7 million and $250.0 million of our Senior Notes (as defined below).  As of October 30, 2015, availability under the ABL Facility (subject to the borrowing base) was $106.8 million and, subject to certain limitations and the satisfaction of certain conditions, including the receipt of commitments for additional borrowings, we were also permitted to incur up to an aggregate of $50.0 million of additional borrowings pursuant to incremental facilities under the First Lien Term Loan Facility and up to an aggregate of $40.0 million of additional revolving commitments (subject to the borrowing base) pursuant to the ABL Facility.  We also have, and will continue to have, significant lease obligations.  As of October 30, 2015, our minimum annual rental obligations under long-term operating leases for the remainder of fiscal 2016 are $18.5 million.  These obligations are significant and could affect our ability to pursue significant growth initiatives, such as strategic acquisitions, in the future.  However, we expect to be able to service these obligations from our net cash flow from operations, and we do not expect these obligations to negatively affect our expansion plans for the foreseeable future, including our plans to increase our store count, planned upgrades to our information technology systems and other planned capital expenditures.

Credit Facilities and Senior Notes

On January 13, 2012 (the “Original Closing Date”), in connection with the Merger, we obtained Credit Facilities provided by a syndicate of lenders arranged by Royal Bank of Canada as administrative agent, as well as other agents and lenders that are parties to the agreements governing these Credit Facilities.  The Credit Facilities include (a) our first lien based revolving credit facility (as amended, the “ABL Facility”), and (b) our first lien term loan facility (as amended, the “First Lien Term Loan Facility” and together with the ABL Facility, the “Credit Facilities”).

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First Lien Term Loan Facility

Under the First Lien Term Loan Facility, (i) $525.0 million of term loans were incurred on the Original Closing Date and (ii) $100.0 million of additional term loans were incurred pursuant to an incremental facility effected through an amendment entered into on October 8, 2013 (the “Second Amendment”) (all such term loans, collectively, the “Term Loans”).  The First Lien Term Loan Facility has a term of seven years with a maturity date of January 13, 2019.  All obligations under the First Lien Term Loan Facility are guaranteed by Parent and our direct or indirect 100% owned subsidiaries, except for immaterial subsidiaries (collectively, the “Credit Facilities Guarantors”).  In addition, the First Lien Term Loan Facility is secured by pledges of certain of our equity interests and the equity interests of the Credit Facilities Guarantors.

We are required to make scheduled quarterly payments each equal to 0.25% of the principal amount of the Term Loans, with the balance due on the maturity date.  Borrowings under the First Lien Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, either (i) a base rate (the “Base Rate”) determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as the “Prime Rate” (3.25% as of October 30, 2015), (b) the federal funds effective rate plus 0.50% and (c) an adjusted Eurocurrency rate for one month (determined by reference to the greater of the Eurocurrency rate for the interest period subject to certain adjustments) plus 1.00%, or (ii) an Adjusted Eurocurrency Rate.

On April 4, 2012, we amended the terms of the First Lien Term Loan Facility (the “First Amendment”) and incurred related refinancing costs of $11.2 million.  The First Amendment, among other things, (i) decreased the applicable margin from London Interbank Offered Rate (“LIBOR”) plus 5.50% (or Base Rate plus 4.50%) to LIBOR plus 4.00% (or Base Rate plus 3.00%) and (ii) decreased the LIBOR floor from 1.50% to 1.25%.

On October 8, 2013, we entered into the Second Amendment which among other things, (i) provided $100.0 million of additional term loans as described above, (ii) decreased the applicable margin from LIBOR plus 4.00% (or Base Rate plus 3.00%) to LIBOR plus 3.50% (or Base Rate plus 2.50%) and (iii) decreased the LIBOR floor from 1.25% to 1.00%.  We will continue to be required to make scheduled quarterly payments each equal to 0.25% of the amended principal amount of the Term Loans (approximately $1.5 million).

In addition, the Second Amendment (i) amended certain restricted payment provisions, (ii) removed the maximum capital expenditures covenant from the agreement governing the First Lien Term Loan Facility, (iii) modified the existing provision restricting our ability to make dividend and other payments so that from and after March 31, 2013, the permitted payment amount represents the sum of (a) a calculation based on 50% of Consolidated Net Income (as defined in the First Lien Term Loan Facility agreement), if positive, or a deficit of 100% of Consolidated Net Income, if negative, and (b) $20 million, and (iv) permitted proceeds of any sale leasebacks of any assets acquired after January 13, 2012, to be reinvested in our business without restriction.

As of October 30, 2015, the interest rate charged on the First Lien Term Loan Facility was 4.50% (1.00% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of October 30, 2015, the amount outstanding under the First Lien Term Loan Facility was $596.9 million.

Following the end of each fiscal year, we are required to make prepayments on the First Lien Term Loan Facility in an amount equal to (i) 50% of Excess Cash Flow (as defined in the agreement governing the First Lien Term Loan Facility), with the ability to step down to 25% and 0% upon achievement of specified total leverage ratios, minus (ii) the amount of certain voluntary prepayments made on the First Lien Term Loan Facility and/or the ABL Facility during such fiscal year.  There was no Excess Cash Flow payment required for fiscal 2015.

The First Lien Term Loan Facility includes certain customary restrictions, among other things, on our ability and the ability of Parent, 99 Cents Texas and certain future subsidiaries of ours to incur or guarantee additional indebtedness, make certain restricted payments, acquisitions or investments, materially change our business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets, make capital expenditures or merge or consolidate with or into, another company.  As of October 30, 2015, we were in compliance with the terms of the First Lien Term Loan Facility.

During the first quarter of fiscal 2013, we entered into an interest rate swap agreement to limit the variability of cash flows associated with interest payments on the First Lien Term Loan Facility that result from fluctuations in the LIBOR rate.  See Note 6 to our Unaudited Consolidated Financial Statements for more information on our interest rate swap agreement.

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ABL Facility

The ABL Facility initially provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations.  Subject to certain conditions, we could increase the commitments under the ABL Facility by up to $50.0 million.  All obligations under the ABL Facility are guaranteed by Parent and the other Credit Facilities Guarantors.  The ABL Facility is secured by substantially all of our assets and the assets of the Credit Facilities Guarantors.

Borrowings under the ABL Facility bear interest at a rate based, at our option, on (i) LIBOR plus an applicable margin to be determined (2.00% as of October 30, 2015) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (1.00% at October 30, 2015), in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

In addition to paying interest on outstanding principal under the Credit Facilities, we are required to pay a commitment fee to the lenders under the ABL Facility on unused commitments.  The commitment fee is adjusted at the beginning of each quarter based upon the average historical excess availability of the prior quarter (0.375% for the quarter ended October 30, 2015).  We must also pay customary letter of credit fees and agency fees.

As of October 30, 2015, borrowings under the ABL Facility were $75.7 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $106.8 million. As of January 30, 2015, borrowings under the ABL Facility were $57.0 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $115.5 million.

The ABL Facility includes restrictions on our ability and the ability of Parent and certain of our subsidiaries to incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, its capital stock, make certain acquisitions or investments, materially change its business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets or merge or consolidate with or into another company.

On October 8, 2013, we amended the ABL Facility to, among other things, modify the provision restricting our ability to make dividend and other payments.  Such payments are subject to achievement of Excess Availability (as defined in the agreement governing the ABL Facility) and a ratio of EBITDA (as defined in the agreement governing the ABL Facility) to fixed charges

On August 24, 2015, we amended the ABL Facility to increase commitments available under ABL Facility by $10.0 million, resulting in an aggregate ABL Facility size of $185.0 million.  The additional commitments implemented pursuant to the amendment have terms identical to the existing commitments under the ABL Facility, including as to interest rate and other pricing terms. We paid amendment fees of $0.5 million to lenders under the ABL Facility.

In addition, the amendment to the ABL Facility (a) modifies certain springing covenants triggered by reference to excess availability under the ABL Facility agreement so that, from August 24, 2015 to April 30, 2016, the occurrence of any such excess availability trigger is determined solely by reference to the available borrowing base under the ABL Facility rather than by reference to the lesser of the available borrowing base and the available aggregate commitments under the ABL Facility, (b) increases the inventory advance rate during such period for purposes of calculating the borrowing base from 90% to 92.5%, (c) provides for certain additional inspection rights by the administrative agent if there is a material increase in the amount of inventory that is not eligible inventory for purposes of the borrowing base and (d) provides for certain additional technical waivers and amendments in order to effect the foregoing.

As of October 30, 2015, we were in compliance with the terms of the ABL Facility.

Senior Notes

On December 29, 2011, we issued $250.0 million aggregate principal amount of 11% Senior Notes that mature on December 15, 2019 (the “Senior Notes”).  The Senior Notes are guaranteed by the same subsidiaries that guarantee the Credit Facilities.

Pursuant to the terms of the indenture governing the Senior Notes (the “Indenture”), we may redeem all or a part of the Senior Notes at certain redemption prices that vary based on the date of redemption.  We are not required to make any mandatory redemptions or sinking fund payments, and may at any time or from time to time purchase notes in the open market.

The Indenture contains covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to incur or guarantee additional indebtedness, create or incur certain liens, pay dividends or make other restricted payments and investments, incur restrictions on the payment of dividends or other distributions from restricted subsidiaries, sell assets, engage in transactions with affiliates, or merge or consolidate with other companies.  As of October 30, 2015, we were in compliance with the terms of the Indenture.

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Various funds affiliated with Ares and Canada Pension Plan Investment Board have collectively acquired $102.1 million aggregate principal amount of our Senior Notes in open market transactions.  From time to time, these or other affiliated funds may acquire additional Senior Notes.

Cash Flows

Operating Activities

	First Three Quarters Ended
	October 30, 2015			October 31, 2014
	(amounts in thousands)
Cash flows from operating activities:
Net (loss) income	$	(229,566	)	$	7,800
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	49,179			38,451
Amortization of deferred financing costs and accretion of OID	3,542			3,292
Amortization of intangible assets	1,332			1,340
Amortization of favorable/unfavorable leases, net	1,322			529
Gain on disposal of fixed assets	(5,497		)	(45		)
Loss on interest rate hedge	1,119			1,105
Long-lived assets impairment	509			—
Goodwill impairment	120,000			—
Deferred income taxes	31,704			465
Stock-based compensation	1,456			2,016
Changes in assets and liabilities associated with operating activities:
Accounts receivable	141			132
Inventories	29,804			(69,030		)
Deposits and other assets	3,487			(1,051		)
Accounts payable	(22,433		)	34,652
Accrued expenses	3,270			9,455
Accrued workers’ compensation	(1,786		)	(3,366		)
Income taxes	9,371			(902		)
Deferred rent	3,266			6,403
Other long-term liabilities	1,607			(4,221		)
Net cash provided by operating activities	$	1,827		$	27,025

Cash provided by operating activities during the first three quarters of fiscal 2016 was $1.8 million and consisted of (i) net loss of $229.6 million; (ii) net income adjustments for depreciation, deferred taxes, goodwill impairment and other non-cash items of $204.7 million; (iii) an increase in working capital activities of $21.7 million; and (iv) an increase in other activities of $5.0 million, primarily due to increased deferred rent and other long-term liabilities.  The increase in working capital activities was primarily due to a decrease in inventory and income taxes receivable, partially offset by decreases in accounts payable.

Cash provided by operating activities during the first three quarters of fiscal 2015 was $27.0 million and consisted of (i) net income of $7.8 million; (ii) net income adjustments for depreciation and other non-cash items of $47.1 million; (iii) a decrease in working capital activities of $28.9 million; and (iv) an increase in other activities of $1.0 million, primarily due to an increase in deferred rent, partially offset by a decrease in other long-term liabilities and an increase in other long-term assets.  The decrease in working capital activities was primarily due to an increase in inventories, partially offset by increases in accounts payable and accrued expenses. Inventory increased as a result of several factors, including the opening of new stores, an expansion of our seasonal merchandise programs, higher volume of purchases sourced directly from international vendors, and the “Go Taller” store remodeling program which increased shelf height (and consequently, merchandising space) across our stores.

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Investing Activities

	First Three Quarters Ended
	October 30, 2015			October 31, 2014
	(amounts in thousands)
Cash flows from investing activities:
Purchases of property and equipment	$	(55,710	)	$	(76,914	)
Proceeds from sale of fixed assets	22,320			29
Net cash used in investing activities	$	(33,390	)	$	(76,885	)

Capital expenditures in the first three quarters of fiscal 2016 consisted of leasehold improvements, fixtures and equipment for new store openings, information technology projects and other capital projects of $55.7 million. Proceeds from sale of fixed assets primarily relate to sale of held for sale properties and a sale-leaseback transaction.

Capital expenditures in the first three quarters of fiscal 2015 consisted of leasehold improvements, fixtures and equipment for new store openings, information technology projects and other capital projects of $76.9 million.

We estimate that total capital expenditures through the end of the current fiscal year will be between $63 to $67 million, comprised of approximately of $45 to $49 million for leasehold improvements and fixtures and equipment for new and existing stores and approximately $18 million primarily related to information technology upgrades and supply chain infrastructure maintenance. We expect to fund a portion of these capital expenditures through divestitures of surplus assets and sale-leaseback transactions. We are also finalizing our long-term plans regarding our supply chain, which could increase our capital spend in this area over the next 12 to 24 months.

Financing Activities

	First Three Quarters Ended
	October 30, 2015			October 31, 2014
	(amounts in thousands)
Cash flows from financing activities:
Payments of long-term debt	$	(4,604	)	$	(4,604	)
Proceeds under revolving credit facility	404,050			112,500
Payments under revolving credit facility	(385,350		)	(76,500		)
Payment of debt issuance costs	(487		)	—
Proceeds from financing lease obligations	8,666			—
Payments of capital and financing lease obligations	(143		)	(65		)
Payments to repurchase stock options of Number Holdings, Inc.	(390		)	(76		)
Net settlement of stock options of Number Holdings, Inc. for tax withholdings	(57		)	—
Net cash provided by financing activities	$	21,685		$	31,255

Net cash provided by financing activities in the first three quarters of fiscal 2016 was comprised primarily of net borrowings under the ABL Facility and proceeds from the financing lease obligations associated with sale-leaseback transactions, partially offset by repayments of borrowings under the First Lien Term Loan Facility.

Net cash provided by financing activities in the first three quarters of fiscal 2015 was comprised primarily of net borrowings under the ABL Facility, partially offset by repayments of borrowings under the First Lien Term Loan Facility.

Senior Management Changes

On May 25, 2015, Stéphane Gonthier resigned from his positions as a director and the principal executive officer of the Company, Parent, and each of the Company’s subsidiaries.

Effective May 26, 2015, the Board of Directors of Parent elected Andrew Giancamilli to serve as Interim President and Chief Executive Officer of the Company and Parent.  Mr. Giancamilli is currently Chairman of the Board of Directors of Parent.

On June 21, 2015, Bradley Lukow resigned as Chief Financial Officer, Treasurer and Secretary of the Company and Parent.

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Effective June 23, 2015, the Board of Directors of Parent elected one of its members, Michael Fung, to serve as Interim Chief Financial Officer and Treasurer of the Company and Parent.  While Mr. Fung served as Interim Chief Financial Officer and Treasurer of the Company and Parent, he stepped down from the Audit Committee of the Board of Directors of Parent but remained a member of the Board of Directors of Parent.

On September 11, 2015, the Board of Directors of Parent appointed Geoffrey J. Covert as President and Chief Executive Officer of each of the Company and Parent, replacing Mr. Giancamilli, who will remain Chairman of the Board of Directors of Parent.  In connection with his appointment, Mr. Covert was elected to the Board of Directors of Parent.

On November 2, 2015, Felicia Thornton was appointed as Chief Financial Officer and Treasurer of each of the Company and Parent, replacing Mr. Fung, who will remain as a member of the Board of Directors of Parent and has resumed his role as Chairperson of the Audit Committee of the Board of Directors of Parent.

Off-Balance Sheet Arrangements

As of October 30, 2015, we had no off-balance sheet arrangements.

Contractual Obligations

A summary of our contractual obligations as of January 30, 2015 is provided in our Annual Report on Form 10-K for the fiscal year ended January 30, 2015.  During the first three quarters of fiscal 2016, there were no material changes in our contractual obligations previously disclosed.

Lease Commitments

We lease various facilities under operating leases (except for one location classified as a capital lease and three locations classified as financing leases), which will expire at various dates through fiscal year 2035.  Most of the lease agreements contain renewal options and/or provide for fixed rent escalations or increases based on the Consumer Price Index.  Total minimum lease payments under each of these lease agreements, including scheduled increases, are charged to operations on a straight-line basis over the term of each respective lease.  Most leases require us to pay property taxes, maintenance and insurance. Rental expense (including property taxes, maintenance and insurance) charged to operations for the third quarter of fiscal 2016 and fiscal 2015 was $24.3 million and $21.4 million, respectively. Rental expense charged to operations for the first three quarters of fiscal 2016 and fiscal 2015 was $71.7 million and $61.5 million, respectively.  We typically seek leases with a five-year to ten-year initial term and with multiple five-year renewal options.  A large majority of our store leases were entered into with multiple renewal periods, which are typically five years and occasionally longer.

Seasonality and Quarterly Fluctuations

We have historically experienced and expect to continue to experience some seasonal fluctuations in our net sales, operating income, and net income.  During the quarters that have included the Halloween, Christmas and Easter selling seasons, we have historically experienced higher net sales and higher operating income.  Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of certain of these holidays, the timing of new store openings and the merchandise mix.

New Authoritative Standards

Information regarding new authoritative standards is contained in Note 14 to our Unaudited Consolidated Financial Statements for the quarter ended October 30, 2015 which is incorporated herein by this reference.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk for our debt borrowings.

Our primary interest rate exposure relates to outstanding principal amounts under our Credit Facilities.  As of October 30, 2015, we had variable rate borrowings of $596.9 million under our First Lien Term Loan Facility and $75.7 million under our ABL Facility.  The Credit Facilities provide interest rate options based on certain indices as described in Note 5 to our Unaudited Consolidated Financial Statements, which is incorporated herein by this reference.

During the first quarter of fiscal 2013, we entered into an interest rate swap agreement to limit the variability of cash flows associated with interest payments on the First Lien Term Loan Facility that result from fluctuations in the LIBOR rate.  The swap limits our interest exposure on a notional value of $261.8 million to 1.36% plus an applicable margin of 3.50%.  The term of the swap is from November 29, 2013 through May 31, 2016.  The fair value of the swap on the trade date was zero as we neither paid nor received any value to enter into the swap, which was entered into at market rates.  As of October 30, 2015, the fair value of the interest rate swap was a liability of $1.2 million.

A change in interest rates on our variable rate debt impacts our pre-tax earnings and cash flows.  Based on our variable rate borrowing levels and interest rate derivatives outstanding, the annualized effect of a 1% increase in applicable interest rates would not have resulted in any material change in our pre-tax earnings and cash flows for the three months ended October 30, 2015.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Report. Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, has been appropriately recorded, processed, summarized and reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  Based on such evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that as of October 30, 2015, the Company’s controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the third quarter of fiscal 2016, we did not make any changes that materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

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PART II    OTHER INFORMATION

Item 1.    Legal Proceedings

Information regarding legal proceedings is contained in Note 11 to our Unaudited Consolidated Financial Statements for the quarter ended October 30, 2015 under the heading “Legal Matters,” which is incorporated herein by reference.

Item 1A.  Risk Factors

Reference is made to Item 1A. Risk Factors, in the Annual Report on Form 10-K for the fiscal year ended January 30, 2015 for information regarding the most significant factors affecting our operations.  Except as described below, as of October 30, 2015, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2015.

There can be no guarantee that the strategic initiatives we are implementing to improve our results will be successful.

Over the past several years, we implemented several strategic initiatives, including accelerating store growth, retrofitting our existing store base and enhancing our merchandising and replenishment systems.  These significant changes and accelerated timing in implementing these initiatives have placed increased demands on our operating, managerial and administrative resources and have also contributed to decreased profitability in our operating results through the first three quarters of fiscal 2016.  In response, we have begun to implement corrective measures focusing on merchandising, supply chain and operational effectiveness that we believe will improve performance over the next several future periods. However, there can be no assurance that these measures will improve our financial results and, if they do, there can be no guarantee as to the timing, sustainability or magnitude of any such improvement. The persistence of poor operating performance could adversely affect our relationships with key vendors, our lenders and other business partners, who may seek to impose stricter credit or other terms on their arrangements with us. This could restrict our operational flexibility and/or impair our liquidity position, which could further adversely affect our operating results and financial condition and cause the trading price of our debt securities to decline.

We have recognized substantial goodwill impairment charges in the current period and may be required to recognize additional goodwill and intangible asset impairment charges in the future.

A substantial portion of our total assets consists of goodwill and intangible assets. Goodwill and certain intangible assets are not amortized, but are tested for impairment at least annually and between annual tests if events or circumstances indicate that it is more likely than not that the fair value of our net assets is less than its carrying amount. Testing for impairment involves an estimation of the fair value of our net assets and other factors and involves a high degree of judgment and subjectivity. During the third quarter of fiscal 2016, we determined that sufficient indicators of impairment existed to require an interim impairment analysis of goodwill and trade name. These indicators included significant declines in profitability in the most recent quarters of fiscal 2016 and a modest recovery to restore expected future operating results to historical levels.  As a result of the preliminary results of the impairment test, impairment of goodwill was required and based on our best estimate we recorded a $120.0 million non-cash goodwill impairment charge in the third quarter of fiscal 2016.  The finalization of the preliminary goodwill impairment will be completed in the fourth quarter of fiscal 2016 and further adjustments to the preliminary goodwill impairment charge, if any, may be recognized when we finalize the second step of the goodwill impairment test.  The primary factors that contributed to the goodwill impairment loss were the declines in fiscal 2016 operating results and the hypothetical projected impact in succeeding years as well as significant increases in the fair value of tangible assets since the Merger.  If operating results continue to change versus our expectations, additional impairment charges may be recorded in the future.  If we have an additional impairment of our goodwill or intangible assets, the amount of any impairment could be significant and could negatively impact our net income and members’ equity for the period in which the impairment charge is recorded.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.    Defaults Upon Senior Securities

None

Item 4.    Mine Safety Disclosures

None

Item 5.   Other Information

None

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Item 6.   Exhibits

Exhibit No.	Description
3.1	Limited Liability Company Articles of Organization — Conversion of 99 Cents Only Stores LLC, dated as of October 18, 2013. (1)
3.2	Limited Liability Company Agreement of 99 Cents Only Stores LLC, dated as of October 18, 2013. (1)
10.1	Consulting Agreement, dated August 24, 2015, among the Registrant and Michael Fung. (2)
10.2	Amendment No. 3 to the ABL Credit Agreement, dated August 24, 2015, among the Company, Number Holdings, Inc., each other Loan Party party thereto, each Lender party thereto and Royal Bank of Canada, as administrative agent. (2)
10.3	Employment Agreement, dated September 11, 2015, among the Registrant and Geoffrey J. Covert. *
10.4	Non-Qualified Stock Option Agreement ($750) pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, dated as of September 21, 2015, between Number Holdings, Inc. and Geoffrey J. Covert. *
10.5	Non-Qualified Stock Option Agreement ($1000) pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, dated as of September 21, 2015, between Number Holdings, Inc. and Geoffrey J. Covert. *
10.6	Employment Agreement, dated October 31, 2015, among the Registrant and Felicia Thornton. (3)
10.7	Non-Qualified Stock Option Agreement, pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, dated as of November 13, 2015, between Number Holdings, Inc. and Felicia Thornton. *
31.1	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
32.1	Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**
32.2	Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase*

*     Filed herewith.

**   Furnished herewith.

(1) Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q as filed with Securities and Exchange Commission on November 8, 2013.

(2) Incorporated by reference from the Registrant’s Current Report on Form 8-K as filed with Securities and Exchange Commission on August 25, 2015.

(3) Incorporated by reference from the Registrant’s Current Report on Form 8-K as filed with Securities and Exchange Commission on November 3, 2015.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	99 CENTS ONLY STORES LLC
Date: December 14, 2015	By:	/s/Felicia Thornton
		Felicia Thornton
		Chief Financial Officer and Treasurer

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Limited Liability Company Articles of Organization — Conversion of 99 Cents Only Stores LLC, dated as of October 18, 2013. (1)
3.2	Limited Liability Company Agreement of 99 Cents Only Stores LLC, dated as of October 18, 2013. (1)
10.1	Consulting Agreement, dated August 24, 2015, among the Registrant and Michael Fung. (2)
10.2	Amendment No. 3 to the ABL Credit Agreement, dated August 24, 2015, among the Company, Number Holdings, Inc., each other Loan Party party thereto, each Lender party thereto and Royal Bank of Canada, as administrative agent. (2)
10.3	Employment Agreement, dated September 11, 2015, among the Registrant and Geoffrey J. Covert. *
10.4	Non-Qualified Stock Option Agreement ($750) pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, dated as of September 21, 2015, between Number Holdings, Inc. and Geoffrey J. Covert. *
10.5	Non-Qualified Stock Option Agreement ($1000) pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, dated as of September 21, 2015, between Number Holdings, Inc. and Geoffrey J. Covert. *
10.6	Employment Agreement, dated October 31, 2015, among the Registrant and Felicia Thornton. (3)
10.7	Non-Qualified Stock Option Agreement, pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, dated as of November 13, 2015, between Number Holdings, Inc. and Felicia Thornton. *
31.1	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
32.1	Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**
32.2	Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase*

*     Filed herewith.

**   Furnished herewith.

(1) Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q as filed with Securities and Exchange Commission on November 8, 2013.

(2) Incorporated by reference from the Registrant’s Current Report on Form 8-K as filed with Securities and Exchange Commission on August 25, 2015.

(3) Incorporated by reference from the Registrant’s Current Report on Form 8-K as filed with Securities and Exchange Commission on November 3, 2015.

47

EX-10.3

Exhibit 10.3

EXECUTION DRAFT

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”), dated and effective as of September 11, 2015 (the “Effective Date”), is entered into by and among 99 Cents Only Stores LLC, a California limited liability company (the “Company”) and Geoffrey J. Covert (“Executive”).

NOW, THEREFORE, the Company and Executive agree as follows:

1.Employment.

(a)Term.  The term of this Agreement shall commence on September 11, 2015 (the “Start Date”) and shall continue until the fourth anniversary of the Start Date, unless earlier terminated pursuant to Section 4 hereof (the “Initial Term”); provided, that on the last day of the Initial Term, the term of this Agreement automatically shall be extended for one additional year, unless earlier terminated pursuant to Section 4 hereof, unless, not later than 90 days prior to the expiration of the Initial Term, either party gives written notice to the other that the term of this Agreement will not be extended.  The Initial Term, together with any extension, collectively shall be referred to as the “Term.” After the Term, Executive’s continued employment with the Company, if any, shall be pursuant to such terms and conditions as Executive and the Company may agree.

(b)Duties and Responsibilities.  During the Term, Executive shall serve as the full-time President and Chief Executive Officer of the Company and shall have the duties and responsibilities customarily associated with such position, and such additional duties and responsibilities as may from time to time be assigned to him by the Board of Directors (the “Board”) of the Company’s parent, Number Holdings, Inc. (“Parent”).  Executive shall report directly to the Board.  Executive shall also serve on (or following an initial public offering of Parent, will be nominated to) the Board for so long as Executive serves as the Chief Executive Officer of the Company and Parent is the parent of the Company.  Executive shall not receive any separate compensation for his Board service. Executive shall (i) devote his full business time to the business and affairs of the Company, (ii) not engage in any other business activities, as a director, officer, employee or consultant or in any other capacity, whether or not he receives compensation therefor and (iii) observe and comply with all rules, regulations, policies and practices of the Company.  Executive shall principally perform his duties at the Company’s headquarters in Los Angeles County, California.  Notwithstanding the foregoing, Executive may serve on the boards of charitable, civic or religious organizations, engage in charitable and community affairs and activities, and manage his personal investments; provided that such activities do not interfere with the performance of Executive’s duties and responsibilities hereunder.

2.Compensation.

(a)Base Salary.  So long as he remains employed by the Company, during the Term Executive shall be paid a base salary (“Base Salary”), which initially shall be at the annual rate of $900,000, payable in installments, at least monthly, consistent with the Company’s normal payroll practices.

(b)Annual Incentive Bonus.

(i)Beginning with fiscal year 2017, Executive shall be eligible to earn an annual incentive bonus (“Annual Bonus”) for each fiscal year of the Company under a bonus plan approved by the Board or an authorized committee thereof.  Executive’s target Annual Bonus shall be 100% of the Base Salary in effect at the beginning of such fiscal year. Executive’s maximum Annual Bonus shall be 200% of the Base Salary in effect at the beginning of such fiscal year. The actual level of payment will be contingent upon achieving applicable performance goals as determined by the Board or an authorized committee thereof.  For fiscal year 2016, Executive’s Bonus shall be 100% of the Base Salary, provided that any bonus for fiscal year 2016 shall be prorated for the period of Executive’s actual employment with the Company (“Guaranteed Bonus”).

(ii)Except as provided in Section 4 hereof, no Bonus shall be earned until the date that such Bonus is paid, and Executive must be an employee in good standing on such date to earn any such Bonus and each Bonus shall be paid in the first calendar year that ends following the end of the fiscal year relating to such Bonus.  Payment of each such Bonus will be based on the evaluation of the level of achievement of performance goals by the Board, or an authorized committee thereof, in its reasonable discretion.

(c)Option Awards.  Subject to the approval of the Compensation Committee of the Board and pursuant to the terms of Parent’s 2012 Stock Incentive Plan (the “Equity Plan”), as soon as practicable following the Start Date, Executive shall be granted options to purchase shares of common stock of Parent in substantially the forms attached hereto as Exhibit A and Exhibit B.

3.Employee Benefits.

(a)Business Expenses.  Upon timely submission of itemized expense statements and other documentation in accordance with the procedures specified by the Company, Executive shall be entitled to reimbursement for actual out-of-pocket business and travel expenses duly incurred by Executive during the Term in the course of his duties hereunder, in accordance with the policies of the Company then in effect generally applicable to senior executives of the Company.

(b)Transition Program.  Executive shall be eligible to participate in the Transition Program described in Exhibit C.

(c)Relocation.

(i)The Company shall reimburse Executive for reasonable out-of-pocket expenses for the transfer of household goods from Executive’s former residence in Ohio to Executive’s property in Florida or California incurred on or after the Effective Date and on or prior to the first anniversary thereof, up to a maximum of $50,000.

(ii)The Company shall reimburse Executive for out-of-pocket costs associated with leasing temporary housing in the Los Angeles, California metropolitan area, not to exceed the monthly cost of the temporary housing leased by Executive as of the Effective Date, beginning on the later of (A) the Effective Date and (B) the date Executive establishes residency in California until the earlier of (x) the six-month anniversary of the first day of such lease and (y) the six-month anniversary of the Effective Date.

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(iii)All expense reimbursements, including the transfer of household goods, are subject to the Company’s and Parent’s policies in effect from time to time.  Executive must be employed by the Company on the date of reimbursement.  In no event shall Executive be able to determine the year of payment of any reimbursement.

(d)Benefit Plans.  So long as he remains employed by the Company, during the Term Executive shall be entitled to participate in the Company’s employee benefit plans and programs (“Benefit Plans”) as they may exist from time to time, in each case as offered by the Company to its senior executives generally, subject to the terms and conditions thereof.  Nothing in this Agreement shall require the Company to maintain any Benefit Plan, or shall preclude the Company from terminating or amending any Benefit Plan from time to time.

(e)Vacation.  Executive shall be entitled to six weeks of vacation time per year (pro-rated for any partial years) to be accrued and used in accordance with the Company’s vacation policy for senior executives.  Executive acknowledges that given his position at the Company, Executive will remain generally available and accessible to the Company’s senior managers through an electronic means of communication when reasonably possible.

4.Termination of Employment.  This Agreement may be terminated in accordance with this Section 4.

(a)For Cause.  The Company may terminate Executive’s employment for “Cause” immediately upon written notice for any of the following reasons: (i) Executive’s (A) being indicted for or charged with a felony under United States or applicable state law or (B) conviction of, or plea of guilty or nolo contendere to a misdemeanor where imprisonment is imposed (other than for a traffic-related offense); (ii) perpetration by Executive of an illegal act, dishonesty, or fraud that could cause economic injury to the Company, Parent or any of their subsidiaries; (iii) Executive’s insubordination, refusal to perform his duties or responsibilities for any reason other than illness or incapacity; (iv) Executive’s unsatisfactory performance of his material duties for the Company, Parent or any of their subsidiaries, after written notice thereof (if such a breach is capable of correction), unless Executive fully corrects his unsatisfactory performance within 30 days following receipt of such notice, as determined by the Board or a duly authorized committee thereof; (v) willful and deliberate failure by Executive to perform his duties after he has been given notice and an opportunity to effectuate a cure as determined by the Company; (vi) Executive’s willful misconduct or gross negligence with regard to the Company, Parent or any of their subsidiaries; (vii) Executive’s unlawful appropriation of a material corporate opportunity; (viii) Executive’s breach of (A) any confidentiality or other restrictive covenant entered into between Executive and the Company or any of its affiliates, including the Fair Competition Agreement or (B) any other agreement with the Company or any of its affiliates; or (ix) Executive’s failure to start providing services to the Company on the Start Date in accordance with this Agreement for any reason.

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Upon termination of Executive’s employment for Cause, neither the Company, nor any of its affiliates, shall be under any further obligation to Executive, except the Company’s obligation to pay (A) all accrued but unpaid Base Salary to the date of termination within 30 days following such termination, less all applicable deductions, (B) any accrued but unused vacation, (C) any earned and vested benefits and payments pursuant to the terms of any Benefit Plan and (D) all unreimbursed business expenses incurred and properly submitted in accordance with this Agreement (the payments and benefits described in subsections (A) through (D) herein shall be referred herein as the “Accrued Benefits”).

(b)Without Cause; Good Reason.

(i)The Company may terminate Executive’s employment at any time without Cause immediately upon delivery of written notice.

(ii)Executive may terminate Executive’s employment at any time for Good Reason (as defined in Section 4(b)(v)) by giving written notice to the Company of his good faith belief that Good Reason exists within 60 days thereof, which notice shall describe the circumstances thereof; provided that (A) the Company shall have 30 days following receipt of such notice to cure such circumstance(s), and (B) Executive terminates his employment within 15 days following the expiration of the Company’s cure period without the Company curing such circumstance(s).

(iii)Upon termination of Executive’s employment by the Company without Cause or by Executive for Good Reason, in each case during the Term, in addition to the Accrued Benefits, Executive shall be entitled to receive from the Company (A) an amount equal to Executive’s Base Salary, payable in equal installments over 12 months following termination of employment in accordance with the Company’s regular payroll schedule, commencing on the first regularly scheduled payroll date on or after the 60th day following termination of employment and (B) if such termination is during the last six months of any fiscal year, a pro-rated share of the Annual Bonus payable pursuant to Section 2(b)(i) hereof (based on the period of actual employment) to which Executive would have been entitled had Executive worked for the full fiscal year during which the termination occurred, based on the actual level of achievement of the applicable goals for such fiscal year (the “Pro-rata Bonus”), payable in a lump sum when bonuses are paid to executives generally and in accordance with Section 2(b)(ii).  Neither the Company nor any of its affiliates shall be under any further obligation to Executive.

(iv)The foregoing payments shall be contingent on (A) Executive executing and delivering to the Company a release of claims against the Company substantially in the form attached hereto as Exhibit D (subject to any modifications necessary to render such release fully enforceable under applicable law, as determined by the Company) (“Release”), and such Release becoming effective by the 60th day following Executive’s termination of employment and (B) Executive’s continued compliance with all post-termination restrictive covenants applicable to Executive, including the covenants contained in the Fair Competition Agreement.  Any installments delayed pursuant to the foregoing sentence shall be paid with the first such payment on the first regularly schedule payroll date on or after the 60th day following termination of employment.  A termination of Executive’s employment under this Section 4(b) does not include a termination of employment by reason of Executive’s Disability (as defined below) or upon the death of Executive, or the Company’s timely notice of its option not to extend the Term.

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(v)“Good Reason” shall mean a material breach of this Agreement by the Company without Executive’s written consent.

(c)Resignation without Good Reason.  Executive may resign his employment without Good Reason upon providing the Company 30 day’s prior written notice; provided, that the Company shall have the right to accelerate Executive’s termination date to an earlier date than specified in Executive’s notice.  In the event of such resignation by Executive, neither the Company nor any of its affiliates shall be under any further obligation to Executive, except the Company’s obligation to pay the Accrued Benefits.

(d)Disability; Death.  The Company may terminate Executive’s employment if Executive experiences a “Total Disability” (or equivalent) as defined under the Company’s Long Term Disability Plan in effect at the time of the disability (or, if no Long Term Disability Plan is in effect at the time of the disability, if executive becomes disabled within the meaning of Section 409A (as defined below)) (a “Disability”).  In the event that Executive’s employment is terminated by reason of Executive’s Disability or upon the death of Executive, in addition to the Accrued Benefits, Executive shall be entitled to receive from the Company the Pro-rata Bonus, payable in a lump sum when bonuses are paid to executives generally and in accordance with Section 2(b)(ii).  Neither the Company nor any of its affiliates shall be under any further obligation to Executive or his estate.  The foregoing payments shall be contingent on Executive (or Executive’s estate, as applicable) executing and delivering to the Company a Release, and such Release becoming effective by the 60th day following Executive’s termination of employment.

(e)Compliance with Injunction.  If Executive is enjoined from working for the Company, (i) Executive shall comply with such injunction, (ii) Executive shall immediately cease working for the Company, (iii) the Term of this Agreement shall immediately cease, (iv) the Company shall make no further payments to Executive pursuant to this Agreement or otherwise, (v) neither the Company nor any of its affiliates shall have any further obligations to Executive pursuant to this Agreement or otherwise.

(f)Cooperation.  Following termination of employment for any reason, Executive shall (i) cooperate with the Company and its affiliates and their respective counsel, as reasonably requested by the Company, to effect a transition of Executive’s responsibilities and to ensure that the Company is aware of all matters being handled by Executive and (ii) cooperate and provide assistance to the Company and its affiliates and their respective counsel at the Company’s reasonable request in connection with any action, suit or proceeding brought by or against the Company or any of its affiliates (or in which any of them is or may be a party) or that relates in any way to Executive’s employment by the Company.  The Company shall reimburse Executive promptly for actual out-of-pocket expenses incurred by him in connection with assisting the Company in the manner described in the immediately preceding sentence in accordance with the policies of the Company then in effect generally applicable to senior executives of the Company. If Executive is subpoenaed to give testimony (in a deposition, court proceeding or otherwise) that in any way relates to the Company or any of its affiliates or Executive’s employment with

5

the Company, Executive shall give prompt notice of such request to the Company, and shall make no disclosure until the Company has had a reasonable opportunity to contest the right of the requesting party or entity to such disclosure.  In addition, the Company shall compensate Executive for such cooperation pursuant to this Section 4(f) at a rate of $500 per hour, provided that if Executive is required to provide such cooperation away from his primary residence, such compensation shall not be less than $3,000 per day.  Upon termination for any reason, Executive shall be deemed to have resigned from all offices and directorships then held with the Company or any of its subsidiaries. Executive’s obligations under this Section 4(f) shall survive the termination of Executive’s employment and the termination of the Agreement.

5.Other Agreements.  Executive shall execute and deliver to the Company the Fair Competition Agreement and the Arbitration Agreement, attached hereto as Exhibits E and F, respectively, on or before the Effective Date.  Such execution and delivery is a condition to the effectiveness of this Agreement. Executive shall at all times comply with the Fair Competition Agreement.

6.Withholding.  The Company may withhold from all amounts payable to Executive hereunder all federal, state, city or other taxes that the Company may reasonably determine are required to be withheld pursuant to any applicable law or regulation and any additional withholding to which Executive has agreed.

7.Section 409A.  Notwithstanding anything herein to the contrary:

(a)The Company does not guarantee to Executive any particular tax treatment relating to the payments and benefits under this Agreement.  It is intended that such payments and benefits be exempt from, or comply with, Section 409A of the Internal Revenue Code (the “Code”) and the regulations and guidance promulgated thereunder (collectively, “Section 409A”), and all provisions of this Agreement shall be administered, interpreted and construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.  Notwithstanding any other provision hereof, in no event shall the Company be liable for, or be required to indemnify Executive for, any liability of Executive for taxes or penalties under Section 409A or otherwise.

(b)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A.

(c)With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit; (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided, that this clause (ii) shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect; and (iii) such payments shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense was incurred.

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(d)Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten calendar days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company.  If under this Agreement, an amount is to be paid in two or more installments, for purposes of Section 409A, each installment shall be treated as a separate payment.

(e)Notwithstanding any other provision of this Agreement, if at the time of the Executive’s termination of employment, he is a “specified employee,” determined in accordance with Section 409A, any payments and benefits provided under this Agreement that constitute “nonqualified deferred compensation” subject to Section 409A that are provided to the Executive on account of his separation from service shall not be paid until the first day of the seventh month following such date of termination, or if earlier, within 60 calendar days after Executive’s death to the personal representative of Executive’s estate.

8.Miscellaneous.

(a)Governing Law.  This Agreement, and any contest, dispute, controversy or claim arising hereunder or related hereto (collectively, “Disputes”), shall be governed by and construed in accordance with the laws of the State of California without regard to conflict of law principles that would require the application of the laws of another jurisdiction.

(b)Assignment and Transfer.  Executive’s rights and obligations under this Agreement shall not be transferable by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void.  This Agreement shall inure to the benefit of, and be binding upon and enforceable by, any purchaser of substantially all of the Company’s assets, any successor to the Company or any assignee thereof.

(c)Entire Agreement.  This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes any prior or contemporaneous written or oral agreements, representations and warranties between them respecting the subject matter hereof (including the Employment Term Sheet describing the terms of Executive’s employment).  Without limiting the foregoing, this Agreement expressly supersedes all prior agreements (written or oral) relating to Executive’s employment with the Company or any of its subsidiaries.

(d)Amendment and Waiver; Rights Cumulative.  This Agreement may be amended, waived or discharged only by a writing signed by Executive and by a duly authorized representative of the Company (other than Executive).  No failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance.  All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by a duly authorized representative of the Company (other than Executive).  The rights and remedies provided by this Agreement are cumulative, and the exercise of any right or remedy by either party hereto (or by its successor), whether pursuant to this Agreement, to any other agreement, or to law, shall not preclude or waive its right to exercise any or all other rights and remedies.

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(e)Severability.  If any term, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances shall remain in full force and effect.

(f)Dispute Resolution.  Except as provided in the Fair Competition Agreement, all Disputes shall be resolved in accordance with the Arbitration Agreement attached hereto as Exhibit F and incorporated herein.  This Section 8(f) shall survive the termination of Executive’s employment and the expiration or termination of this Agreement.  Executive shall execute and deliver to the Company a copy of such Agreement on or before the Effective Date as a condition to the effectiveness of this Agreement.

(g)Notices.  Any notices or other communication required or permitted under this Agreement shall be effective only if it is in writing and shall be deemed given when delivered personally, one day after it is sent through a reputable overnight carrier, or three business days after it is mailed by registered mail, return receipt requested, to the parties at the following addresses (or at such other address as a party may specify by notice given hereunder to the other party:

If to Executive:

At the address(es) listed in the Company’s personnel records.

with a copy to:

Wood & Lamping LLC

600 Vine Street, Suite 2500

Cincinnati, OH 45202

Telephone: (513) 852-6028
Facsimile: (513) 419-6428 
Attention: Edward S. Dorsey, Esq.

If to the Company:

99 Cents Only Stores LLC
4000 Union Pacific Avenue
Commerce, CA 90023
Telephone: (323) 980-8145
Facsimile: (323) 307-9611
Attention: General Counsel

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with copies to:

Ares Management LLC
2000 Avenue of the Stars, 12th Floor
Los Angeles, CA 90067
Telephone: (310) 201-4100
Facsimile: (310) 201-4170
Attention: Adam Stein

and

Proskauer Rose LLP
2049 Century Park East, Suite 3200
Los Angeles, CA 90067
Telephone: (310) 284-4582
Facsimile: (310) 557-2193 
Attention: Michael A. Woronoff, Esq.

(h)Representations.  Executive hereby represents and warrants that (a) there are no agreements, oral or written, to which Executive is a party or by which Executive is bound that prohibit Executive’s execution and delivery of, or performance under, this Agreement except for agreements The Kroger Co. has informed Executive that The Kroger Co. will not enforce or litigate; (b) Executive does not have any relationship or interest that creates a conflict between the interests of Executive and the Company or its direct or indirect parents or subsidiaries; and (c) none of the information supplied by Executive to the Company in connection with Executive’s employment by the Company misstated a material fact or omitted facts necessary to make the information supplied by Executive not materially misleading.

(i)Further Assurances.  Executive shall, upon the Company’s reasonable request, execute such further documents and take such other actions as may be permitted or reasonably required by law to implement the purposes, objectives, terms, and provisions of this Agreement.

(j)Interpretation.  The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement.  The language in all parts of this Agreement shall be in all cases construed according to its fair meaning and not strictly for or against the Company or Executive.  As used herein:  (i)  reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof; (ii) reference to any law, rule or regulation means such law, rule or regulation as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any law, rule or regulation means that provision of such law, rule or regulation from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (iii) “hereunder,” “hereof,” “hereto,” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular article, section or other provision hereof; (iv) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term; (v) “or” is used in the inclusive sense of “and/or”; and (vi) references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments thereto.

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(k)Acknowledgement.  Executive understands the terms and conditions set forth in this Agreement and acknowledges having had adequate time to consider whether to agree to the terms and conditions and to consult a lawyer or other advisor of Executive’s choice.

(l)Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be considered to have the force and effect of an original.

(m)Each Party the Drafter.  Executive understands the terms and conditions set forth in this Agreement and acknowledges having had adequate time to consider whether to agree to the terms and conditions and to consult a lawyer or other advisor of Executive’s choice.  This Agreement and the provisions contained herein shall not be construed or interpreted for or against any party to this Agreement because that party drafted or caused that party’s legal representative to draft any of its provisions.

(n)Time of Essence.  Time is and shall be of the essence in connection with this Agreement and the terms and conditions contained herein.

(n)Survival.  All rights and obligations of any party in Sections 4 through 8 of this Agreement not fully satisfied or performed, as applicable, on the date Executive’s employment is terminated, shall survive the termination of Executive’s employment and the expiration or termination of this Agreement.

[Remainder of Page Intentionally Left Blank / Signatures on Next Page]

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.

99 CENTS ONLY STORES LLC

By:	/s/Michael Green
Name: Michael Green
Title: Senior Vice President, General Counsel and Secretary

GEOFFREY J. COVERT

/s/ Geoffrey J. Covert

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EXHIBIT A

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EXHIBIT B

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EXHIBIT C

TRANSITION PROGRAM

If on any date after the Start Date, but on or prior to December 31, 2016, Executive’s unvested equity or performance cash awards from The Kroger Co. are involuntarily forfeited pursuant to the terms thereof by reason of (i) his voluntary termination of employment with The Kroger Co. or (ii) acceptance of employment with the Company, the Company shall pay Executive the amounts as set forth in this Exhibit C.  Such payment shall be paid in the amounts and on the dates provided in this Exhibit C, in each case, provided Executive’s employment with the Company has not been terminated pursuant to Section 4(c) or (e), or prongs (i), (ii), (v), (vi), (vii), (viii)(A), or (ix) of Section 4(a) of the Agreement, as set forth below.

Restricted Stock:		Options:				Performance Cash:			Performance Units:
Determination Date	Maximum # of Awards	Determination Date	Maximum # of Awards	Exercise Price		Determination Date	Maximum $ Value		Determination Date	Maximum # of Awards
12/12/2015	6,500	3/10/2016	4,000	$	11.97	3/31/2016	$	373,172	3/31/2016	10,260
7/15/2016	3,804	6/23/2016	10,144	$	12.37	3/28/2017	$	239,269	3/28/2017	6,068
7/15/2016	3,804	7/12/2016	10,144	$	10.98	3/27/2018	$	77,443	3/27/2018	1,192
12/12/2016	13,000	7/15/2016	10,144	$	18.88
7/15/2017	3,804	7/15/2016	10,144	$	24.67
7/15/2017	3,804	7/12/2017	10,144	$	10.98
7/15/2018	3,804	7/15/2017	10,144	$	18.88
7/15/2018	3,804	7/15/2017	10,144	$	24.67
7/15/2019	3,804	7/15/2018	10,144	$	18.88
		7/15/2018	10,144	$	24.67
		7/15/2019	10,144	$	24.67

Executive represents and warrants that he would otherwise be entitled to the amounts shown above from The Kroger Co. but for the involuntary forfeiture.

On each Determination Date the Company shall determine the applicable amount payable in accordance with the Transition Program, if any, as follows:

(a)with respect to Restricted Stock, the amount payable will be calculated by multiplying the number of shares of Restricted Stock of The Kroger Co. to which Executive otherwise would have been entitled on such date (not to exceed the maximum set forth in the table above) by the Applicable Price (defined below);

(b)with respect to Options, the amount payable will be calculated by multiplying the number of Options of The Kroger Co. to which Executive otherwise would have vested on such date (not to exceed the maximum set forth in the table above) by the Applicable Price less the Exercise Price of such Options;

(c)with respect to Performance Cash awards, the amount payable will be the amounts to which Executive otherwise would have been entitled from The Kroger Co. (not to exceed the maximum set forth in the table above); and

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(d)with respect to Performance Units, the amount payable will be calculated by multiplying the number of Performance Units of The Kroger Co. to which Executive otherwise would have been entitled (not to exceed the maximum set forth in the table above) by the Applicable Price.

“Applicable Price” means the lesser of (i) $36.92 (the trailing 30-day average closing price per share of The Kroger Co. common stock on September 4, 2015) and (ii) the trailing 30-day average closing price per share of such common stock on the trading day immediately preceding the applicable Determination Date.

Payment

Each amount payable pursuant to the Transition Program is payable in cash on the Determination Date corresponding to each payment as set forth above.

Change in Control

Upon a Change in Control (as defined below), all amounts payable pursuant to the Transition Program, including amounts for which the Determination Date would otherwise occur after the effective date of the Change in Control, shall accelerate, vest and become immediately payable as if the date of such Change in Control is the Determination Date.

“Change in Control” shall have the meaning set forth in the Equity Plan, provided that such Change in Control constitutes a “change in the ownership of the corporation,” a “change in effective control of the corporation” or a “change in the ownership of a substantial portion of the assets of the corporation,” within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended.

Forfeiture; Repayment

If Executive’s employment is terminated on or prior to the second anniversary of the Start Date pursuant to Section 4(c) or (e) of the Agreement then (i) all unpaid amounts pursuant to the Transition Program shall be forfeited, and (ii) not later than the 60th day following the date of termination Executive shall repay to the Company (x) all amounts paid to Executive pursuant to the Transition Program, minus (y) an amount equal to the difference between (I) all federal and state income, FICA and California state employment taxes actually paid by Executive with respect to such bonus and (II) Executive’s good faith estimate of the reduction in his federal and state income taxes for the year of repayment (determined as if such repayment is deductible in full and computed at the highest marginal aggregate federal and state income tax rate applicable to Executive in such year of repayment) attributable to all deductions available to Executive by reason of such repayment. In addition, if, after the repayment to the Company of any amount pursuant to clause (y) above, Executive becomes entitled to receive any refund from a taxing authority with respect to such repayment in excess of the amount described in clause (y) above, Executive shall pay to the Company the amount of such excess promptly (but in no event later than 10 business days) following receipt thereof. If the Company incurs any costs or expenses, including attorneys’ fees, in collection of any such repayment, then, in addition to all other remedies, Executive shall reimburse the Company for all such costs and expenses.

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If Executive’s employment is terminated at any time pursuant to Section 4(c) or (e) or prongs (i), (ii), (v), (vi), (vii), (viii)(A) or (ix) of Section 4(a) of the Agreement, all unpaid amounts pursuant to the Transition Program shall be forfeited.

Executive agrees to take all actions and execute and deliver all documents which the Company reasonably requests in connection with the Transition Program.

For the avoidance of doubt, if Executive is enjoined from working for the Company, neither the Company nor any of its affiliates shall be under any obligation to Executive pursuant to the Transition Program.

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EXHIBIT D

RELEASE

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EXHIBIT E

FAIR COMPETITION AGREEMENT

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EXHIBIT F

ARBITRATION AGREEMENT

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EX-10.4

Exhibit 10.4

Award Number:  15-004

Execution Version

NUMBER HOLDINGS, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT
PURSUANT TO THE
NUMBER HOLDINGS, INC.
2012 STOCK INCENTIVE PLAN

AGREEMENT (“Agreement”), dated as of the Grant Date, between Number Holdings, Inc., a Delaware corporation (the “Company”), and Geoffrey J. Covert (the “Participant”).

Preliminary Statement

The Committee hereby grants this non-qualified stock option (the “Option”) as of September 21, 2015 (the “Grant Date”), pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, as it may be amended from time to time (the “Plan”),  to purchase the number of shares of Class A Common Stock, $0.001 par value per share of the Company (the “Class A Common Stock”), and Class B Common Stock, par value $0.001 per share, of the Company (the “Class B Common Stock,” and, together with the Class A Common Stock, the “Common Stock”), set forth below to the Participant, as an Eligible Employee of the Company or one of its Affiliates (collectively, the Company and all of its Affiliates shall be referred to as the “Employer”).  Except as otherwise indicated, any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan.  A copy of the Plan has been delivered to the Participant.  By signing and returning this Agreement, the Participant acknowledges having received and read a copy of the Plan and agrees to comply with it, this Agreement and all applicable laws and regulations.

Accordingly, the parties hereto agree as follows:

1.Tax Matters.  No part of the Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

2.Common Stock Subject to Option; Exercise Price.  Subject in all respects to the Plan and the terms and conditions set forth herein and therein, the Option entitles the Participant to purchase from the Company, upon exercise, 15,500 shares of Class A Common Stock and 15,500 shares of Class B Common Stock, provided that the Participant must exercise the Option with respect to an equal number of shares of Class A Common Stock and Class B Common Stock concurrently. The exercise price under the Option for each unit consisting of one share of Class A Common Stock and one share of Class B Common Stock is (a) $750(1) plus (b) the amount by which the Fair Market Value of one share of Class A Common Stock and one share of Class B Common Stock, together, on the date of exercise exceeds $1,000 (the “Unit Exercise Price”).

(1)  Note that in no event shall the Unit Exercise Price be less than the Fair Market Value of the underlying shares on the date of grant.

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3.Vesting;  Exercise.

(a)Time-Based Vesting.  A portion of the Option equal to 7,750 shares of each class of Common Stock (the “Time-Vested Option”) shall vest and become exercisable on the dates and in the cumulative percentages provided in the table below (which percentages shall apply equally with respect to the Class A Common Stock and the Class B Common Stock subject to the Time-Vested Option), provided, with respect to each vesting date, that the Participant has not experienced a Termination prior to such date.  There shall be no proportionate or partial vesting in the periods prior to each vesting date.

Time-Vested Option Vesting Date	Cumulative Percent  Vested
September 21, 2016	25	%
September 21, 2017	50	%
September 21, 2018	75	%
September 21, 2019	100	%

(b)Performance-Based Vesting.  A portion of the Option equal to 7,750 shares of each class of Common Stock (the “Performance-Vested Option”) shall vest and become exercisable as provided below; provided, that the Participant has not experienced a Termination prior to such date.

(i)If, on any date from and after the Grant Date, the Company’s LTM EBITDA equals or exceeds $175,000,000 on the last day of each of the 12 consecutive calendar months ending prior to such date, 50% of the Performance-Vested Options shall vest; and

(ii)If, on any date from and after the Grant Date, the Company’s LTM EBITDA equals or exceeds $225,000,000 on the last day of each of the 12 consecutive calendar months ending prior to such date, 100% of the Performance-Based Shares shall vest.

(iii)Definitions:

“EBITDA” means, consolidated net income, determined in accordance with generally accepted accounting principles, plus (without duplication) to the extent deducted in calculating such consolidated net income, the sum of (a) the provision for taxes based on income or profits; plus (b) consolidated net interest expense; plus (c) consolidated depreciation and amortization expense; plus (d) certain adjustments as determined to be appropriate by the Committee, in each case as determined by the Committee, as such sum may be adjusted by the Committee (after consultation with the Participant).

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“LTM EBITDA” means, on any date, the EBITDA of the Company, as determined by the Committee, for the most recent 12 fiscal month period for which financial statements are available on such date.

(c)To the extent that the Option has become vested and exercisable with respect to a number of shares of Common Stock, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option in accordance with the Plan, provided that the Participant must exercise the Option with respect to an equal number of shares of Class A Common Stock and Class B Common Stock concurrently.  Notwithstanding the foregoing, the Participant may not exercise the Option unless the offering of shares of Common Stock issuable upon such exercise (i) is then registered under the Securities Act, or, if such offering is not then so registered, the Company has determined that such offering is exempt from the registration requirements of the Securities Act and (ii) complies with all other applicable laws and regulations governing the Option, and the Participant may not exercise the Option if the Committee determines that such exercise would not be so registered or exempt and otherwise in compliance with such laws and regulations.

4.Option Term.  The term of the Option shall be until the tenth anniversary of the Grant Date, after which time it shall expire (the “Expiration Date”).  Upon the Expiration Date, the Option shall be canceled for no consideration and no longer shall be exercisable.  The Option is subject to termination prior to the Expiration Date to the extent provided in Sections 5 and 6 below.

5.Detrimental Activity.  The provisions in the Plan regarding Detrimental Activity shall apply to the Option.

6.Termination and Change in Control.  The provisions in the Plan regarding Termination and Change in Control shall apply to the Option.

7.Restriction on Transfer of Option.  Unless otherwise determined by the Committee in accordance with the Plan, (a) no part of the Option shall be Transferable other than by will or by the laws of descent and distribution and (b) during the lifetime of the Participant, the Option may be exercised only by the Participant or the Participant’s guardian or legal representative.  Any attempt to Transfer the Option other than in accordance with the Plan shall be void.

8.Company’s Right to Repurchase; Other Restrictions.

(a)Company’s Right to Repurchase.  In the event of the Participant’s Termination, the Company shall have the right (the “Repurchase Right”), but not the obligation, to repurchase (or to cause one or more of its designees to repurchase) from the Participant (or his or her transferee) (X) any or all of the shares of Common Stock acquired

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upon the exercise of the Option and still held at the time of such repurchase by the Participant (or his or her transferee) or (Y) any vested but unexercised portion of the Option at the price determined in the manner set forth below (the “Repurchase Price”), during each period set forth below (each, a “Repurchase Period”) and to the extent set forth below:

(i)In the event of Termination for Cause, voluntary Termination without Good Reason, or the discovery that the Participant engaged in Detrimental Activity, the Company may exercise the Repurchase Right with respect to all shares previously acquired pursuant to the exercise of the Option.  The Repurchase Period under this Section 8(a)(i) shall be 180 days from the date of Termination.  The Repurchase Price under this Section 8(a)(i) shall be (1) with respect to each share of Class A Common Stock, the lesser of (A) the Unit Exercise Price or (B) the Fair Market Value of a share of Class A Common Stock on the date of Termination and (2) with respect to each share of Class B Common Stock, the par value thereof.

(ii)In the event of Termination for any reason other than (x) Termination for Cause or (y) voluntary Termination without Good Reason:

(A)The Company may exercise the Repurchase Right with respect to all shares acquired pursuant to the exercise of the Option on or prior to the date of Termination.  The Repurchase Period under this Section 8(a)(ii)(A) shall be 180 days from the date of Termination.  The Repurchase Price under this Section 8(a)(ii)(A) shall be (1) with respect to each share of Class A Common Stock, the Fair Market Value of a share of Class A Common Stock on the date of Termination and (2) with respect to each share of Class B Common Stock, the par value thereof.

(B)The Company may exercise the Repurchase Right with respect to all shares acquired pursuant to the exercise of the Option after the date of Termination.  The Repurchase Period under this Section 8(a)(ii)(B) shall be 90 days from the latest date on which the Option is permitted to be exercised under this Agreement.  The Repurchase Price under this Section 8(a)(ii)(B) shall be (1) with respect to each share of Class A Common Stock, the Fair Market Value of a share of Class A Common Stock on the date of repurchase and (2) with respect to each share of Class B Common Stock, the par value thereof.

(C)the Company may exercise the Repurchase Right with respect to the vested but unexercised portion of the Option.  The Repurchase Period under this Section 8(a)(ii)(C) shall be the latest date on which the Option is permitted to be exercised under this Agreement.  The Repurchase Price under this Section 8(a)(ii)(C) shall be the product of (A) the excess (if any) of the Fair Market Value of a share of Class A Common Stock on the date of Termination over the Unit Exercise Price multiplied by (B) the number of shares of Class A Common Stock covered by the Option being repurchased.  For the avoidance of doubt, upon such repurchase such Option shall no longer be exercisable for any shares of Common Stock.

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(iii)To exercise any Repurchase Right, the Company (or one or more of its designees) shall deliver a written notice to the Participant setting forth the securities to be repurchased and the applicable Repurchase Price thereof, and the date on which such repurchase is to be consummated, which date shall be not less than 15 days or more than 30 days after the date of such notice.  On the date of consummation of the repurchase, the Company will pay the Participant the applicable Repurchase Price in cash or, in the Company’s discretion and to the extent not prohibited by law, by cancellation of indebtedness of the Participant to the Company.  The Company may exercise its Repurchase Rights upon one or more occasions at any time during the Repurchase Periods set forth above.

(iv)Notwithstanding the foregoing, the Repurchase Period and the date on which any repurchase is to be consummated may be extended by the Company at any time when repurchase by the Company (A) is prohibited pursuant to applicable law, (B) is prohibited under any debt instrument of the Company or any of its Affiliates or (C) would result in adverse accounting consequences for the Company, in each case as determined by the Company.

(b)To ensure that the shares of Common Stock issuable upon exercise of the Option are not transferred in contravention of the terms of the Plan and this Agreement, and to ensure compliance with other provisions of the Plan and this Agreement, the Company may deposit any certificates evidencing such shares with an escrow agent designated by the Company.

(c)Notwithstanding anything in this Agreement to the contrary, the Option and any Common Stock purchased pursuant to the exercise thereof shall be subject to the terms of the Stockholders Agreement in addition to the provisions of this Section 8.

9.Securities Representations.  Upon the exercise of the Option prior to registration of the offering of the Common Stock subject to the Option pursuant to the Securities Act or other applicable securities laws, the Participant shall be deemed to acknowledge and make the representations and warranties as described below and as otherwise may be requested by the Company for compliance with applicable laws, and any issuances of Common Stock by the Company shall be made in reliance upon the express representations and warranties of the Participant.

(a)The Participant is acquiring and will hold the shares of Common Stock for investment for his account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act or other applicable securities laws.

(b)The Participant has been advised that offerings of the shares of Common Stock have not been registered under the Securities Act or other applicable securities laws, on the ground that no public offering of the shares of Common Stock is to be effected (it being understood, however, that the shares of Common Stock are being offered in reliance on the

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exemption provided under Rule 701 under the Securities Act), and that the shares of Common Stock must be held indefinitely, unless they are subsequently registered under the applicable securities laws or the Participant obtains an opinion of counsel (in the form and substance satisfactory to the Company and its counsel) that registration is not required.  In connection with the foregoing, the Company is relying in part on the Participant’s representations set forth in this Section.  The Participant further acknowledges and understands that the Company is under no obligation hereunder to register offerings of the shares of Common Stock.

(c)The Participant is aware of the adoption of Rule 144 by the Securities and Exchange Commission under the Securities Act, which permits limited public resales of securities acquired in a non-public offering, subject to the satisfaction of certain conditions.  The Participant acknowledges that he is familiar with the conditions for resale set forth in Rule 144, and acknowledges and understands that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future.

(d)The Participant will not sell, transfer or otherwise dispose of the shares of Common Stock in violation of the Plan, this Agreement, the Securities Act (or the rules and regulations promulgated thereunder) or under any other applicable securities laws.  The Participant agrees that he will not dispose of the Common Stock unless and until he has complied with all requirements of this Agreement applicable to the disposition of the shares of Common Stock.

(e)The Participant has been furnished with, and has had access to, such information as he considers necessary or appropriate for deciding whether to invest in the shares of Common Stock, and the Participant has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Common Stock.

(f)The Participant is aware that his investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss.  The Participant is able, without impairing his financial condition, to hold the Common Stock for an indefinite period and to suffer a complete loss of his investment in the Common Stock.

10.No Rights as Stockholder.  The Participant shall have no rights as a stockholder with respect to any shares of Common Stock covered by the Option unless and until the Participant has become the holder of record of such shares, and no adjustments shall be made for dividends (whether in cash, in kind or other property), distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan.

11.Provisions of Plan Control.  This Agreement is subject to all the terms, conditions and provisions of the Plan, including the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time.  The Plan is incorporated herein by reference.  If and to the extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.

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12.Notices.  All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and sent to the party to which the notice, demand or request is being made:

(a)unless otherwise specified by the Company in a notice delivered by the Company in accordance with this Section 12, any notice required to be delivered to the Company shall be properly delivered if delivered to:

Number Holdings, Inc.
c/o Ares Management LLC
2000 Avenue of the Stars, 12th Floor
Los Angeles, CA 90067
Attention:Adam Stein
Telephone: (310) 201-4100
Facsimile:(310) 201-4170

with a copy (which shall not constitute notice) to:

Proskauer Rose LLP
2049 Century Park East, Suite 3200
Los Angeles, CA 90067
Attention:Michael A. Woronoff, Esq.
Telephone:(310) 284-4550
Facsimile:(310) 557-2193

(b)if to the Participant, to the address on file with the Company.

Any notice, demand or request, if made in accordance with this Section 12 shall be deemed to have been duly given:  (i) when delivered in person; (ii) three days after being sent by United States mail; or (iii) on the first business day following the date of deposit if delivered by a nationally recognized overnight delivery service.

13.No Right to Employment.  This Agreement is not an agreement of employment.  None of this Agreement, the Plan or the grant of the Option hereunder shall (a) guarantee that the Employer will employ the Participant for any specific time period or (b) modify or limit in any respect the Employer’s right to terminate or modify the Participant’s employment or compensation.

14.Stockholders Agreement.  As a condition to the receipt of shares of Common Stock when the Option is exercised, the Participant shall execute and deliver a Joinder Agreement or such other documentation as required by the Committee which shall set forth certain restrictions on transferability of the shares of Common Stock acquired upon exercise, a right of first refusal or a right of first offer of the Company and other Persons with respect to shares, and such other terms or restrictions as the Board or Committee shall from time to time establish, including any drag along rights, tag along rights, transfer restrictions and registration rights.  The Stockholders Agreement or other documentation shall apply to the Common Stock acquired when the Option is exercised and covered by the Stockholders Agreement or other documentation.

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15.Dispute Resolution.  All controversies and claims arising out of or relating to this Agreement, or the breach hereof, shall be settled by the Employer’s mandatory dispute resolution procedures as may be in effect from time to time with respect to matters arising out of or relating to Participant’s employment with the Employer, including the procedures set forth in the Arbitration Agreement attached hereto as Exhibit A (or any amendment or replacement of such agreement).

16.Severability of Provisions.  If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Agreement shall be construed and enforced as if such provisions had not been included; provided that if the Company’s call rights and rights of first refusal or rights of first offer set forth in the Stockholders Agreement or other agreement shall be held invalid or unenforceable, the Option shall be cancelled and terminated.

17.Governing Law.  All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws.

18.Construction.  Wherever any words are used in this Agreement in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply.  As used herein, (i) “or” shall mean “and/or” and (ii) “including” or “include” shall mean “including, without limitation.”

19.Other Shares.  Notwithstanding anything in this Agreement or the Plan to the contrary, none of the shares of Common Stock owned from time to time by a Participant that were not acquired in connection with the grant of an Award to such Participant shall be subject to any of the terms, conditions or provisions of this Agreement or the Plan.

[Remainder of Page Left Intentionally Blank]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date.

	NUMBER HOLDINGS, INC.
	By:	/s/ Michael B. Green
		Name: Michael B. Green
		Title:  SVP/General Secretary
/s/Geoffrey J. Covert
Employee Name: Geoffrey J. Covert
Employee ID Number:

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EX-10.5

Exhibit 10.5

Execution Version

Award Number:  15-005

NUMBER HOLDINGS, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT
PURSUANT TO THE
NUMBER HOLDINGS, INC.
2012 STOCK INCENTIVE PLAN

AGREEMENT (“Agreement”), dated as of the Grant Date, between Number Holdings, Inc., a Delaware corporation (the “Company”), and Geoffrey J. Covert (the “Participant”).

Preliminary Statement

The Committee hereby grants this non-qualified stock option (the “Option”) as of September 21, 2015 (the “Grant Date”), pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, as it may be amended from time to time (the “Plan”),  to purchase the number of shares of Class A Common Stock, $0.001 par value per share of the Company (the “Class A Common Stock”), and Class B Common Stock, par value $0.001 per share, of the Company (the “Class B Common Stock,” and, together with the Class A Common Stock, the “Common Stock”), set forth below to the Participant, as an Eligible Employee of the Company or one of its Affiliates (collectively, the Company and all of its Affiliates shall be referred to as the “Employer”).  Except as otherwise indicated, any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan.  A copy of the Plan has been delivered to the Participant.  By signing and returning this Agreement, the Participant acknowledges having received and read a copy of the Plan and agrees to comply with it, this Agreement and all applicable laws and regulations.

Accordingly, the parties hereto agree as follows:

1.Tax Matters.  No part of the Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

2.Common Stock Subject to Option; Exercise Price.  Subject in all respects to the Plan and the terms and conditions set forth herein and therein, the Option entitles the Participant to purchase from the Company, upon exercise, 15,500 shares of Class A Common Stock and 15,500 shares of Class B Common Stock, provided that the Participant must exercise the Option with respect to an equal number of shares of Class A Common Stock and Class B Common Stock concurrently. The exercise price under the Option for each unit consisting of one share of Class A Common Stock and one share of Class B Common Stock is $1,000(1) (the “Unit Exercise Price”).

(1)  Note that in no event shall the Unit Exercise Price be less than the Fair Market Value of the underlying shares on the date of grant.

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3.Vesting;  Exercise.

(a)Time-Based Vesting.  A portion of the Option equal to 7,750 shares of each class of Common Stock (the “Time-Vested Option”) shall vest and become exercisable on the dates and in the cumulative percentages provided in the table below (which percentages shall apply equally with respect to the Class A Common Stock and the Class B Common Stock subject to the Time-Vested Option), provided, with respect to each vesting date, that the Participant has not experienced a Termination prior to such date.  There shall be no proportionate or partial vesting in the periods prior to each vesting date.

Time-Vested Option Vesting Date	Cumulative Percent  Vested
September 21, 2016	25	%
September 21, 2017	50	%
September 21, 2018	75	%
September 21, 2019	100	%

(b)Performance-Based Vesting.  A portion of the Option equal to 7,750 shares of each class of Common Stock (the “Performance-Vested Option”) shall vest and become exercisable as provided below; provided, that the Participant has not experienced a Termination prior to such date.

(i)If, on any date from and after the Grant Date, the Company’s LTM EBITDA equals or exceeds $175,000,000 on the last day of each of the 12 consecutive calendar months ending prior to such date, 50% of the Performance-Vested Options shall vest; and

(ii)If, on any date from and after the Grant Date, the Company’s LTM EBITDA equals or exceeds $225,000,000 on the last day of each of the 12 consecutive calendar months ending prior to such date, 100% of the Performance-Based Shares shall vest.

(iii)Definitions:

“EBITDA” means, consolidated net income, determined in accordance with generally accepted accounting principles, plus (without duplication) to the extent deducted in calculating such consolidated net income, the sum of (a) the provision for taxes based on income or profits; plus (b) consolidated net interest expense; plus (c) consolidated depreciation and amortization expense; plus (d) certain adjustments as determined to be appropriate by the Committee, in each case as determined by the Committee, as such sum may be adjusted by the Committee (after consultation with the Participant).

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“LTM EBITDA” means, on any date, the EBITDA of the Company, as determined by the Committee, for the most recent 12 fiscal month period for which financial statements are available on such date.

(c)To the extent that the Option has become vested and exercisable with respect to a number of shares of Common Stock, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option in accordance with the Plan, provided that the Participant must exercise the Option with respect to an equal number of shares of Class A Common Stock and Class B Common Stock concurrently.  Notwithstanding the foregoing, the Participant may not exercise the Option unless the offering of shares of Common Stock issuable upon such exercise (i) is then registered under the Securities Act, or, if such offering is not then so registered, the Company has determined that such offering is exempt from the registration requirements of the Securities Act and (ii) complies with all other applicable laws and regulations governing the Option, and the Participant may not exercise the Option if the Committee determines that such exercise would not be so registered or exempt and otherwise in compliance with such laws and regulations.

4.Option Term.  The term of the Option shall be until the tenth anniversary of the Grant Date, after which time it shall expire (the “Expiration Date”).  Upon the Expiration Date, the Option shall be canceled for no consideration and no longer shall be exercisable.  The Option is subject to termination prior to the Expiration Date to the extent provided in Sections 5 and 6 below.

5.Detrimental Activity.  The provisions in the Plan regarding Detrimental Activity shall apply to the Option.

6.Termination and Change in Control.  The provisions in the Plan regarding Termination and Change in Control shall apply to the Option.

7.Restriction on Transfer of Option.  Unless otherwise determined by the Committee in accordance with the Plan, (a) no part of the Option shall be Transferable other than by will or by the laws of descent and distribution and (b) during the lifetime of the Participant, the Option may be exercised only by the Participant or the Participant’s guardian or legal representative.  Any attempt to Transfer the Option other than in accordance with the Plan shall be void.

8.Company’s Right to Repurchase; Other Restrictions.

(a)Company’s Right to Repurchase.  In the event of the Participant’s Termination, the Company shall have the right (the “Repurchase Right”), but not the obligation, to repurchase (or to cause one or more of its designees to repurchase) from the Participant (or his or her transferee) (X) any or all of the shares of Common Stock acquired

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upon the exercise of the Option and still held at the time of such repurchase by the Participant (or his or her transferee) or (Y) any vested but unexercised portion of the Option at the price determined in the manner set forth below (the “Repurchase Price”), during each period set forth below (each, a “Repurchase Period”) and to the extent set forth below:

(i)In the event of Termination for Cause, voluntary Termination without Good Reason, or the discovery that the Participant engaged in Detrimental Activity, the Company may exercise the Repurchase Right with respect to all shares previously acquired pursuant to the exercise of the Option.  The Repurchase Period under this Section 8(a)(i) shall be 180 days from the date of Termination.  The Repurchase Price under this Section 8(a)(i) shall be (1) with respect to each share of Class A Common Stock, the lesser of (A) the Unit Exercise Price or (B) the Fair Market Value of a share of Class A Common Stock on the date of Termination and (2) with respect to each share of Class B Common Stock, the par value thereof.

(ii)In the event of Termination for any reason other than (x) Termination for Cause or (y) voluntary Termination without Good Reason:

(A)The Company may exercise the Repurchase Right with respect to all shares acquired pursuant to the exercise of the Option on or prior to the date of Termination.  The Repurchase Period under this Section 8(a)(ii)(A) shall be 180 days from the date of Termination.  The Repurchase Price under this Section 8(a)(ii)(A) shall be (1) with respect to each share of Class A Common Stock, the Fair Market Value of a share of Class A Common Stock on the date of Termination and (2) with respect to each share of Class B Common Stock, the par value thereof.

(B)The Company may exercise the Repurchase Right with respect to all shares acquired pursuant to the exercise of the Option after the date of Termination.  The Repurchase Period under this Section 8(a)(ii)(B) shall be 90 days from the latest date on which the Option is permitted to be exercised under this Agreement.  The Repurchase Price under this Section 8(a)(ii)(B) shall be (1) with respect to each share of Class A Common Stock, the Fair Market Value of a share of Class A Common Stock on the date of repurchase and (2) with respect to each share of Class B Common Stock, the par value thereof.

(C)the Company may exercise the Repurchase Right with respect to the vested but unexercised portion of the Option.  The Repurchase Period under this Section 8(a)(ii)(C) shall be the latest date on which the Option is permitted to be exercised under this Agreement.  The Repurchase Price under this Section 8(a)(ii)(C) shall be the product of (A) the excess (if any) of the Fair Market Value of a share of Class A Common Stock on the date of Termination over the Unit Exercise Price multiplied by (B) the number of shares of Class A Common Stock covered by the Option being repurchased.  For the avoidance of doubt, upon such repurchase such Option shall no longer be exercisable for any shares of Common Stock.

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(iii)To exercise any Repurchase Right, the Company (or one or more of its designees) shall deliver a written notice to the Participant setting forth the securities to be repurchased and the applicable Repurchase Price thereof, and the date on which such repurchase is to be consummated, which date shall be not less than 15 days or more than 30 days after the date of such notice.  On the date of consummation of the repurchase, the Company will pay the Participant the applicable Repurchase Price in cash or, in the Company’s discretion and to the extent not prohibited by law, by cancellation of indebtedness of the Participant to the Company.  The Company may exercise its Repurchase Rights upon one or more occasions at any time during the Repurchase Periods set forth above.

(iv)Notwithstanding the foregoing, the Repurchase Period and the date on which any repurchase is to be consummated may be extended by the Company at any time when repurchase by the Company (A) is prohibited pursuant to applicable law, (B) is prohibited under any debt instrument of the Company or any of its Affiliates or (C) would result in adverse accounting consequences for the Company, in each case as determined by the Company.

(b)To ensure that the shares of Common Stock issuable upon exercise of the Option are not transferred in contravention of the terms of the Plan and this Agreement, and to ensure compliance with other provisions of the Plan and this Agreement, the Company may deposit any certificates evidencing such shares with an escrow agent designated by the Company.

(c)Notwithstanding anything in this Agreement to the contrary, the Option and any Common Stock purchased pursuant to the exercise thereof shall be subject to the terms of the Stockholders Agreement in addition to the provisions of this Section 8.

9.Securities Representations.  Upon the exercise of the Option prior to registration of the offering of the Common Stock subject to the Option pursuant to the Securities Act or other applicable securities laws, the Participant shall be deemed to acknowledge and make the representations and warranties as described below and as otherwise may be requested by the Company for compliance with applicable laws, and any issuances of Common Stock by the Company shall be made in reliance upon the express representations and warranties of the Participant.

(a)The Participant is acquiring and will hold the shares of Common Stock for investment for his account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act or other applicable securities laws.

(b)The Participant has been advised that offerings of the shares of Common Stock have not been registered under the Securities Act or other applicable securities laws, on the ground that no public offering of the shares of Common Stock is to be effected (it being understood, however, that the shares of Common Stock are being offered in reliance on the

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exemption provided under Rule 701 under the Securities Act), and that the shares of Common Stock must be held indefinitely, unless they are subsequently registered under the applicable securities laws or the Participant obtains an opinion of counsel (in the form and substance satisfactory to the Company and its counsel) that registration is not required.  In connection with the foregoing, the Company is relying in part on the Participant’s representations set forth in this Section.  The Participant further acknowledges and understands that the Company is under no obligation hereunder to register offerings of the shares of Common Stock.

(c)The Participant is aware of the adoption of Rule 144 by the Securities and Exchange Commission under the Securities Act, which permits limited public resales of securities acquired in a non-public offering, subject to the satisfaction of certain conditions.  The Participant acknowledges that he is familiar with the conditions for resale set forth in Rule 144, and acknowledges and understands that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future.

(d)The Participant will not sell, transfer or otherwise dispose of the shares of Common Stock in violation of the Plan, this Agreement, the Securities Act (or the rules and regulations promulgated thereunder) or under any other applicable securities laws.  The Participant agrees that he will not dispose of the Common Stock unless and until he has complied with all requirements of this Agreement applicable to the disposition of the shares of Common Stock.

(e)The Participant has been furnished with, and has had access to, such information as he considers necessary or appropriate for deciding whether to invest in the shares of Common Stock, and the Participant has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Common Stock.

(f)The Participant is aware that his investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss.  The Participant is able, without impairing his financial condition, to hold the Common Stock for an indefinite period and to suffer a complete loss of his investment in the Common Stock.

10.No Rights as Stockholder.  The Participant shall have no rights as a stockholder with respect to any shares of Common Stock covered by the Option unless and until the Participant has become the holder of record of such shares, and no adjustments shall be made for dividends (whether in cash, in kind or other property), distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan.

11.Provisions of Plan Control.  This Agreement is subject to all the terms, conditions and provisions of the Plan, including the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time.  The Plan is incorporated herein by reference.  If and to the extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.

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12.Notices.  All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and sent to the party to which the notice, demand or request is being made:

(a)unless otherwise specified by the Company in a notice delivered by the Company in accordance with this Section 12, any notice required to be delivered to the Company shall be properly delivered if delivered to:

Number Holdings, Inc.
c/o Ares Management LLC
2000 Avenue of the Stars, 12th Floor
Los Angeles, CA 90067
Attention:Adam Stein
Telephone:(310) 201-4100
Facsimile:(310) 201-4170

with a copy (which shall not constitute notice) to:

Proskauer Rose LLP
2049 Century Park East, Suite 3200
Los Angeles, CA 90067
Attention:Michael A. Woronoff, Esq.
Telephone:(310) 284-4550
Facsimile:(310) 557-2193

(b)if to the Participant, to the address on file with the Company.

Any notice, demand or request, if made in accordance with this Section 12 shall be deemed to have been duly given:  (i) when delivered in person; (ii) three days after being sent by United States mail; or (iii) on the first business day following the date of deposit if delivered by a nationally recognized overnight delivery service.

13.No Right to Employment.  This Agreement is not an agreement of employment.  None of this Agreement, the Plan or the grant of the Option hereunder shall (a) guarantee that the Employer will employ the Participant for any specific time period or (b) modify or limit in any respect the Employer’s right to terminate or modify the Participant’s employment or compensation.

14.Stockholders Agreement.  As a condition to the receipt of shares of Common Stock when the Option is exercised, the Participant shall execute and deliver a Joinder Agreement or such other documentation as required by the Committee which shall set forth certain restrictions on transferability of the shares of Common Stock acquired upon exercise, a right of first refusal or a right of first offer of the Company and other Persons with respect to shares, and such other terms or restrictions as the Board or Committee shall from time to time establish, including any drag along rights, tag along rights, transfer restrictions and registration rights.  The Stockholders Agreement or other documentation shall apply to the Common Stock acquired when the Option is exercised and covered by the Stockholders Agreement or other documentation.

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15.Dispute Resolution.  All controversies and claims arising out of or relating to this Agreement, or the breach hereof, shall be settled by the Employer’s mandatory dispute resolution procedures as may be in effect from time to time with respect to matters arising out of or relating to Participant’s employment with the Employer, including the procedures set forth in the Arbitration Agreement attached hereto as Exhibit A (or any amendment or replacement of such agreement).

16.Severability of Provisions.  If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Agreement shall be construed and enforced as if such provisions had not been included; provided that if the Company’s call rights and rights of first refusal or rights of first offer set forth in the Stockholders Agreement or other agreement shall be held invalid or unenforceable, the Option shall be cancelled and terminated.

17.Governing Law.  All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws.

18.Construction.  Wherever any words are used in this Agreement in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply.  As used herein, (i) “or” shall mean “and/or” and (ii) “including” or “include” shall mean “including, without limitation.”

19.Other Shares.  Notwithstanding anything in this Agreement or the Plan to the contrary, none of the shares of Common Stock owned from time to time by a Participant that were not acquired in connection with the grant of an Award to such Participant shall be subject to any of the terms, conditions or provisions of this Agreement or the Plan.

[Remainder of Page Left Intentionally Blank]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date.

NUMBER HOLDINGS, INC.
By:	/s/ Michael B. Green.
	Name: Michael B. Green.
	Title: SVP/General Counsel

/s/ Geoffrey J. Covert

Employee Name: Geoffrey J. Covert

Employee ID Number:

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EX-10.7

Exhibit 10.7

Award Number: 15-006

NUMBER HOLDINGS, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT
PURSUANT TO THE
NUMBER HOLDINGS, INC.
2012 STOCK INCENTIVE PLAN

AGREEMENT (“Agreement”), dated as of the Grant Date, between Number Holdings, Inc., a Delaware corporation (the “Company”), and Felicia Thornton (the “Participant”).

Preliminary Statement

The Committee hereby grants this non-qualified stock option (the “Option”) as of November 13, 2015 (the “Grant Date”), pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, as it may be amended from time to time (the “Plan”),  to purchase the number of shares of Class A Common Stock, $0.001 par value per share of the Company (the “Class A Common Stock”), and Class B Common Stock, par value $0.001 per share, of the Company (the “Class B Common Stock,” and, together with the Class A Common Stock, the “Common Stock”), set forth below to the Participant, as an Eligible Employee of the Company or one of its Affiliates (collectively, the Company and all of its Affiliates shall be referred to as the “Employer”).  Except as otherwise indicated, any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan.  A copy of the Plan has been delivered to the Participant.  By signing and returning this Agreement, the Participant acknowledges having received and read a copy of the Plan and agrees to comply with it, this Agreement and all applicable laws and regulations.

Accordingly, the parties hereto agree as follows:

1.Tax Matters.  No part of the Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

2.Common Stock Subject to Option; Exercise Price.  Subject in all respects to the Plan and the terms and conditions set forth herein and therein, the Option entitles the Participant to purchase from the Company, upon exercise, 10,000 shares of Class A Common Stock and 10,000 shares of Class B Common Stock, provided that the Participant must exercise the Option with respect to an equal number of shares of Class A Common Stock and Class B Common Stock concurrently. The exercise price under the Option for each unit consisting of one share of Class A Common Stock and one share of Class B Common Stock is $750 (the “Unit Exercise Price”).

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3.Vesting;  Exercise.

(a)Time-Based Vesting.  A portion of the Option equal to 5,000 shares of each class of Common Stock (the “Time-Vested Option”) shall vest and become exercisable on the dates and in the cumulative percentages provided in the table below (which percentages shall apply equally with respect to the Class A Common Stock and the Class B Common Stock subject to the Time-Vested Option), provided, with respect to each vesting date, that the Participant has not experienced a Termination prior to such date.  There shall be no proportionate or partial vesting in the periods prior to each vesting date.

Time-Vested Option Vesting Date	Cumulative Percent  Vested
November 2, 2016	25	%
November 2, 2017	50	%
November 2, 2018	75	%
November 2, 2019	100	%

(b)Performance-Based Vesting.  A portion of the Option equal to 5,000 shares of each class of Common Stock (the “Performance-Vested Option”) shall vest and become exercisable as provided below; provided, that the Participant has not experienced a Termination prior to such date.

(i)If, on any date from and after the Grant Date, the Company’s LTM EBITDA equals or exceeds $150,000,000 on the last day of each of the 12 consecutive calendar months ending prior to such date, 50% of the Performance-Vested Options shall vest; and

(ii)If, on any date from and after the Grant Date, the Company’s LTM EBITDA equals or exceeds $225,000,000 on the last day of each of the 12 consecutive calendar months ending prior to such date, 100% of the Performance-Vested Options shall vest.

(iii)Definitions:

“EBITDA” means, consolidated net income, determined in accordance with generally accepted accounting principles, plus (without duplication) to the extent deducted in calculating such consolidated net income, the sum of (a) the provision for taxes based on income or profits; plus (b) consolidated net interest expense; plus (c) consolidated depreciation and amortization expense; plus (d) certain adjustments as determined to be appropriate by the Committee, in each case as determined by the Committee, as such sum may be adjusted by the Committee (after consultation with the Chief Executive Officer of the Company).

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“LTM EBITDA” means, on any date, the EBITDA of the Company, as determined by the Committee, for the most recent 12 fiscal month period for which financial statements are available on such date.

(c)To the extent that the Option has become vested and exercisable with respect to a number of shares of Common Stock, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option in accordance with the Plan, provided that the Participant must exercise the Option with respect to an equal number of shares of Class A Common Stock and Class B Common Stock concurrently.  Notwithstanding the foregoing, the Participant may not exercise the Option unless the offering of shares of Common Stock issuable upon such exercise (i) is then registered under the Securities Act, or, if such offering is not then so registered, the Company has determined that such offering is exempt from the registration requirements of the Securities Act and (ii) complies with all other applicable laws and regulations governing the Option, and the Participant may not exercise the Option if the Committee determines that such exercise would not be so registered or exempt and otherwise in compliance with such laws and regulations.  For the purpose of Section 6.3(d) and Section 14.4 of the Plan, if Participant’s Termination is (A) by the Company without Cause, (B) by the Participant for Good Reason, (C) (1) by the Participant without Good Reason on or after November 2, 2017 and (2) Participant is offered employment, or a self-employment relationship (including, without limitation, as a consultant, advisor or member of a board of directors) with a direct or indirect affiliate of the Company, and Employer and Participant are unable to enter into a mutually agreeable consulting arrangement as contemplated in Section 4(f) of Participant’s employment agreement with 99 Cents Only Stores LLC dated on or about the Grant Date or (D) as the parties may otherwise agree, the Committee hereby approves a Net Exercise for the Participant’s exercise of the Option.  A “Net Exercise” shall mean that, upon the Participant’s exercise of the Option, at the Participant’s election the Participant may direct the Company to withhold an equal number of shares of Class A Common Stock and Class B Common Stock having a Fair Market Value equal to the sum of the aggregate exercise price plus the minimum statutorily required withholding taxes becoming due from the Participant on such exercise and shall issue to the Participant the net shares not so withheld.

4.Option Term.  The term of the Option shall be until the tenth anniversary of the Grant Date, after which time it shall expire (the “Expiration Date”).  Upon the Expiration Date, the Option shall be canceled for no consideration and no longer shall be exercisable.  The Option is subject to termination prior to the Expiration Date to the extent provided in Sections 5 and 6 below.

5.Detrimental Activity.  The provisions in the Plan regarding Detrimental Activity shall apply to the Option.

6.Termination and Change in Control.

(a)Except as provided in Section 6(b) and Section 6(c), the provisions in the Plan regarding Termination and Change in Control shall apply to the Option.

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(b)In the event of the Participant’s Termination prior to the occurrence of a Change in Control (i) without Cause by the Employer or (ii) for Good Reason by the Participant, the Option shall become vested and exercisable as to:

(A) a pro rata portion of the unvested Time-Vested Option, based on the ratio of the number of days employed since the immediately preceding Vesting Date (or Grant Date, if applicable) through the date of Termination to 365; and

(B) a pro rata portion of the Performance-Vested Option under Section 3(b)(i) and Section 3(b)(ii), as applicable (including any previously vested portion), based on the ratio of the number of days employed since the Grant Date through the date of Termination to 1,460, subject to the attainment of the applicable performance requirements at any time through the last day of the fiscal year in which such Termination occurs;

provided, in the event of a Change in Control (i) after the date of Termination, (ii) prior to the last day of the fiscal year in which such Termination occurs and (iii) no more than 90 days following the date of Termination, the Option shall remain eligible to vest in connection with such Change in Control in the sole discretion of the Committee (subject to Section 6(c) below).

(c)In the event of a Change of Control covered by Section 10.1(c) of Plan (relating to substituted awards), and a Termination of the Participant by the Company or Subsidiary (or successor) without Cause or by Participant for Good Reason upon or following such Change in Control:

(i)the unvested portion of the Option shall become 100% vested and exercisable; and

(ii)if Participant’s Termination is upon or within one year following such Change in Control, and the common stock of the Company or its successor is not then traded on an established securities market, the Participant shall have a right (a “Put Right”) to cause the Company or its successor (or, at such entity’s election, one or more of its designees) to purchase the shares acquired pursuant to the exercise of the Option in a lump sum, for cash or marketable securities, at price per share equal to the Fair Market Value of (1) a share of Class A Common Stock on the date of repurchase and (2) with respect to each share of Class B Common Stock, the par value thereof; provided that the Put Right only shall be for the same proportion of such shares as the proportion of cash or marketable securities received by Ares for its shares of Class A Common Stock and Class B Common Stock in connection with such Change in Control.  The Put Right shall be valid and may be exercised only during the 90 day period following the date of any such Termination.  For purposes of this Section 6(c)(ii), the Fair Market Value shall be determined in good faith by the Board without any discounts (e.g., marketability, minority status, etc.); provided that Participant may require the Company to obtain a third-party valuation in connection with such determination.  Participant may rescind the exercise of the Put Right within 15 days following the determination of the Fair Market Value.

4

7.Restriction on Transfer of Option.  Unless otherwise determined by the Committee in accordance with the Plan, (a) no part of the Option shall be Transferable other than by will or by the laws of descent and distribution and (b) during the lifetime of the Participant, the Option may be exercised only by the Participant or the Participant’s guardian or legal representative.  Any attempt to Transfer the Option other than in accordance with the Plan shall be void.

8.Company’s Right to Repurchase; Other Restrictions.

(a)Company’s Right to Repurchase.  In the event of the Participant’s Termination, the Company shall have the right (the “Repurchase Right”), but not the obligation, to repurchase (or to cause one or more of its designees to repurchase) from the Participant (or his or her transferee) (X) any or all of the shares of Common Stock acquired upon the exercise of the Option and still held at the time of such repurchase by the Participant (or his or her transferee) or (Y) any vested but unexercised portion of the Option at the price determined in the manner set forth below (the “Repurchase Price”), during each period set forth below (each, a “Repurchase Period”) and to the extent set forth below:

(i)In the event of (x) Termination for Cause, (y) the discovery that the Participant engaged in Detrimental Activity or, (z) prior to November 2, 2017, Termination by the Participant without Good Reason, the Company may exercise the Repurchase Right with respect to all shares previously acquired pursuant to the exercise of the Option.  The Repurchase Period under this Section 8(a)(i) shall be 180 days from the date of Termination.  The Repurchase Price under this Section 8(a)(i) shall be (1) with respect to each share of Class A Common Stock, the lesser of (A) the Unit Exercise Price or (B) the Fair Market Value of a share of Class A Common Stock on the date of Termination and (2) with respect to each share of Class B Common Stock, the par value thereof.  For purposes of this Agreement, Fair Market Value shall be determined in good faith by the Committee, in accordance with the terms of the Plan.

(ii)In the event of Termination for any reason other than (x) Termination for Cause or (y) prior to November 2, 2017, Termination by the Participant without Good Reason:

(A)The Company may exercise the Repurchase Right with respect to all shares acquired pursuant to the exercise of the Option on or prior to the date of Termination.  The Repurchase Period under this Section 8(a)(ii)(A) shall be 180 days from the date of Termination.  The Repurchase Price under this Section 8(a)(ii)(A) shall be (1) with respect to each share of Class A Common Stock, the Fair Market Value of a share of Class A Common Stock on the date of Termination and (2) with respect to each share of Class B Common Stock, the par value thereof.

5

(B)The Company may exercise the Repurchase Right with respect to all shares acquired pursuant to the exercise of the Option after the date of Termination.  The Repurchase Period under this Section 8(a)(ii)(B) shall be 90 days from the latest date on which the Option is permitted to be exercised under this Agreement.  The Repurchase Price under this Section 8(a)(ii)(B) shall be (1) with respect to each share of Class A Common Stock, the Fair Market Value of a share of Class A Common Stock on the date of repurchase and (2) with respect to each share of Class B Common Stock, the par value thereof.

(C)the Company may exercise the Repurchase Right with respect to the vested but unexercised portion of the Option.  The Repurchase Period under this Section 8(a)(ii)(C) shall be the latest date on which the Option is permitted to be exercised under this Agreement.  The Repurchase Price under this Section 8(a)(ii)(C) shall be the product of (A) the excess (if any) of the Fair Market Value of a share of Class A Common Stock on the date of Termination over the Unit Exercise Price multiplied by (B) the number of shares of Class A Common Stock covered by the Option being repurchased.  For the avoidance of doubt, upon such repurchase such Option shall no longer be exercisable for any shares of Common Stock.

(iii)To exercise any Repurchase Right, the Company (or one or more of its designees) shall deliver a written notice to the Participant setting forth the securities to be repurchased and the applicable Repurchase Price thereof, and the date on which such repurchase is to be consummated, which date shall be not less than 15 days or more than 30 days after the date of such notice.  On the date of consummation of the repurchase, the Company will pay the Participant the applicable Repurchase Price in cash or, in the Company’s discretion and to the extent not prohibited by law, by cancellation of indebtedness of the Participant to the Company.  The Company may exercise its Repurchase Rights upon one or more occasions at any time during the Repurchase Periods set forth above.

(iv)Notwithstanding the foregoing, the Repurchase Period and the date on which any repurchase is to be consummated may be extended by the Company at any time when repurchase by the Company (A) is prohibited pursuant to applicable law, (B) is prohibited under any debt instrument of the Company or any of its Affiliates or (C) would result in adverse accounting consequences for the Company, in each case as determined by the Company.

(b)To ensure that the shares of Common Stock issuable upon exercise of the Option are not transferred in contravention of the terms of the Plan and this Agreement, and to ensure compliance with other provisions of the Plan and this Agreement, the Company may deposit any certificates evidencing such shares with an escrow agent designated by the Company.

6

(c)Notwithstanding anything in this Agreement to the contrary, the Option and any Common Stock purchased pursuant to the exercise thereof shall be subject to the terms of the Stockholders Agreement in addition to the provisions of this Section 8.

(d)This Section 8 shall terminate upon an Initial Public Offering or a Change in Control.

9.Securities Representations.  Upon the exercise of the Option prior to registration of the offering of the Common Stock subject to the Option pursuant to the Securities Act or other applicable securities laws, the Participant shall be deemed to acknowledge and make the representations and warranties as described below and as otherwise may be requested by the Company for compliance with applicable laws, and any issuances of Common Stock by the Company shall be made in reliance upon the express representations and warranties of the Participant.

(a)The Participant is acquiring and will hold the shares of Common Stock for investment for her account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act or other applicable securities laws.

(b)The Participant has been advised that offerings of the shares of Common Stock have not been registered under the Securities Act or other applicable securities laws, on the ground that no public offering of the shares of Common Stock is to be effected (it being understood, however, that the shares of Common Stock are being offered in reliance on the exemption provided under Rule 701 under the Securities Act), and that the shares of Common Stock must be held indefinitely, unless they are subsequently registered under the applicable securities laws or the Participant obtains an opinion of counsel (in the form and substance satisfactory to the Company and its counsel) that registration is not required.  In connection with the foregoing, the Company is relying in part on the Participant’s representations set forth in this Section.  The Participant further acknowledges and understands that the Company is under no obligation hereunder to register offerings of the shares of Common Stock.

(c)The Participant is aware of the adoption of Rule 144 by the Securities and Exchange Commission under the Securities Act, which permits limited public resales of securities acquired in a non-public offering, subject to the satisfaction of certain conditions.  The Participant acknowledges that she is familiar with the conditions for resale set forth in Rule 144, and acknowledges and understands that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future.

(d)The Participant will not sell, transfer or otherwise dispose of the shares of Common Stock in violation of the Plan, this Agreement, the Securities Act (or the rules and regulations promulgated thereunder) or under any other applicable securities laws.  The Participant agrees that she will not dispose of the Common Stock unless and until she has complied with all requirements of this Agreement applicable to the disposition of the shares of Common Stock.

7

(e)The Participant has been furnished with, and has had access to, such information as she considers necessary or appropriate for deciding whether to invest in the shares of Common Stock, and the Participant has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Common Stock.

(f)The Participant is aware that her investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss.  The Participant is able, without impairing her financial condition, to hold the Common Stock for an indefinite period and to suffer a complete loss of her investment in the Common Stock.

10.No Rights as Stockholder.  The Participant shall have no rights as a stockholder with respect to any shares of Common Stock covered by the Option unless and until the Participant has become the holder of record of such shares, and no adjustments shall be made for dividends (whether in cash, in kind or other property), distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan.

11.Provisions of Plan Control.  This Agreement is subject to all the terms, conditions and provisions of the Plan, including the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time.  The Plan is incorporated herein by reference.  If and to the extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.

12.Notices.  All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and sent to the party to which the notice, demand or request is being made:

(a)unless otherwise specified by the Company in a notice delivered by the Company in accordance with this Section 12, any notice required to be delivered to the Company shall be properly delivered if delivered to:

Number Holdings, Inc.
c/o Ares Management LLC
2000 Avenue of the Stars, 12th Floor
Los Angeles, CA 90067
Attention:Adam Stein
Telephone:(310) 201-4100
Facsimile:(310) 201-4170

8

with a copy (which shall not constitute notice) to:

Proskauer Rose LLP
2049 Century Park East, Suite 3200
Los Angeles, CA 90067
Attention:Michael A. Woronoff, Esq.
Telephone:(310) 284-4550
Facsimile:(310) 557-2193

(b)if to the Participant, to the address on file with the Company.

Any notice, demand or request, if made in accordance with this Section 12 shall be deemed to have been duly given:  (i) when delivered in person; (ii) three days after being sent by United States mail; or (iii) on the first business day following the date of deposit if delivered by a nationally recognized overnight delivery service.

13.No Right to Employment.  This Agreement is not an agreement of employment.  None of this Agreement, the Plan or the grant of the Option hereunder shall (a) guarantee that the Employer will employ the Participant for any specific time period or (b) modify or limit in any respect the Employer’s right to terminate or modify the Participant’s employment or compensation.

14.Stockholders Agreement.  As a condition to the receipt of shares of Common Stock when the Option is exercised, the Participant shall execute and deliver a Joinder Agreement or such other documentation as required by the Committee which shall set forth certain restrictions on transferability of the shares of Common Stock acquired upon exercise, a right of first refusal or a right of first offer of the Company and other Persons with respect to shares, and such other terms or restrictions as the Board or Committee shall from time to time establish, including any drag along rights, tag along rights, transfer restrictions and registration rights.  The Stockholders Agreement or other documentation shall apply to the Common Stock acquired when the Option is exercised and covered by the Stockholders Agreement or other documentation.

15.Dispute Resolution.  All controversies and claims arising out of or relating to this Agreement, or the breach hereof, shall be settled by the Employer’s mandatory dispute resolution procedures as may be in effect from time to time with respect to matters arising out of or relating to Participant’s employment with the Employer, including the procedures set forth in the Arbitration Agreement attached hereto as Exhibit A (or any amendment or replacement of such agreement).

16.Severability of Provisions.  If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Agreement shall be construed and enforced as if such provisions had not been included; provided that if the Company’s call rights and rights of first refusal or rights of first offer set forth in the Stockholders Agreement or other agreement shall be held invalid or unenforceable, the Option shall be cancelled and terminated.

9

17.Governing Law.  All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws.

18.Construction.  Wherever any words are used in this Agreement in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply.  As used herein, (i) “or” shall mean “and/or” and (ii) “including” or “include” shall mean “including, without limitation.”

19.Other Shares.Notwithstanding anything in this Agreement or the Plan to the contrary, none of the shares of Common Stock owned from time to time by a Participant that were not acquired in connection with the grant of an Award to such Participant shall be subject to any of the terms, conditions or provisions of this Agreement or the Plan.

[Remainder of Page Left Intentionally Blank]

10

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date.

NUMBER HOLDINGS, INC.
By:
	Name:
	Title:

Employee Name: Felicia Thornton

Employee ID Number:

11

EX-31.1

Exhibit 31.1

Certification of

Chief Executive Officer

of 99 Cents Only Stores LLC

I, Geoffrey J. Covert, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of 99 Cents Only Stores LLC;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  December 14, 2015

By:	/s/ Geoffrey J. Covert
	Geoffrey J. Covert, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of

Chief Financial Officer

of 99 Cents Only Stores LLC

I, Felicia Thornton, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of 99 Cents Only Stores LLC;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 14, 2015

By:	/s/ Felicia Thornton
	Felicia Thornton, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

OF 99 CENTS ONLY STORES LLC

This certification is provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the “Report”) for the period ended October 30, 2015 of 99 Cents Only Stores LLC (the “Issuer”).

I, Geoffrey J. Covert, the Chief Executive Officer of the Issuer certify that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Date: December 14, 2015

By:	/s/ Geoffrey J. Covert
	Geoffrey J. Covert, President and Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C 1350) and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

Exhibit 32.2

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

OF 99 CENTS ONLY STORES LLC

This certification is provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the “Report”) for the period ended October 30, 2015 of 99 Cents Only Stores LLC (the “Issuer”).

I, Felicia Thornton, the Chief Financial Officer of the Issuer certify that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Date:  December 14, 2015

By:	/s/ Felicia Thornton
	Felicia Thornton, Chief Financial Officer and Treasurer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C 1350) and is not being filed as part of the Report or as a separate disclosure document.

XML

Document and Entity Information - shares	9 Months Ended
	Oct. 30, 2015	Dec. 09, 2015
Document and Entity Information
Entity Registrant Name	99 CENTS ONLY STORES LLC
Entity Central Index Key	0001011290
Document Type	10-Q
Document Period End Date	Oct. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--01-29
Entity Current Reporting Status	No
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		100
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Oct. 30, 2015	Jan. 30, 2015
Current Assets:
Cash	$ 2,585	$ 12,463
Accounts receivable, net of allowance for doubtful accounts of $80 and $58 at October 30, 2015 and January 30, 2015, respectively	1,813	1,954
Income taxes receivable	1,540	10,911
Deferred income taxes	31,115	41,583
Inventories, net	266,236	296,040
Assets held for sale	2,308	3,094
Other	15,697	19,039
Total current assets	321,294	385,084
Property and equipment, net	555,445	581,020
Deferred financing costs, net	13,402	15,463
Intangible assets, net	455,817	460,311
Goodwill	359,745	479,745
Deposits and other assets	7,518	7,543
Total assets	1,713,221	1,929,166
Current Liabilities:
Accounts payable	98,901	139,287
Payroll and payroll-related	20,115	20,004
Sales tax	6,668	14,087
Other accrued expenses	51,115	40,168
Workers' compensation	68,705	70,491
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligations	979	380
Total current liabilities	252,621	290,555
Long-term debt, net of current portion	916,485	901,395
Unfavorable lease commitments, net	6,365	8,220
Deferred rent	26,559	23,293
Deferred compensation liability	762	724
Capital and financing lease obligation, net of current portions	34,474	24,681
Long-term deferred income taxes	191,914	170,678
Other liabilities	3,972	1,868
Total liabilities	$ 1,433,152	$ 1,421,414
Commitments and contingencies (Note 11)
Member's Equity:
Member units - 100 units issued and outstanding at October 30, 2015 and January 30, 2015	$ 550,144	$ 549,135
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(250,751)	(21,185)
Other comprehensive loss	(124)	(998)
Total equity	280,069	507,752
Total liabilities and equity	$ 1,713,221	$ 1,929,166

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Oct. 30, 2015	Jan. 30, 2015
CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 80	$ 58
Member units, units issued	100	100
Member units, units outstanding	100	100

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2015	Oct. 31, 2014	Oct. 30, 2015	Oct. 31, 2014
Net Sales:
99 Only Stores	$ 480,547	$ 467,134	$ 1,452,682	$ 1,379,823
Bargain Wholesale	10,918	11,144	33,474	34,559
Total sales	491,465	478,278	1,486,156	1,414,382
Cost of sales	359,796	328,144	1,061,989	959,368
Gross profit	131,669	150,134	424,167	455,014
Selling, general and administrative expenses	147,149	140,372	451,865	395,251
Goodwill impairment	120,000	0	120,000	0
Operating (loss) income	(135,480)	9,762	(147,698)	59,763
Other (income) expense:
Interest income			(3)
Interest expense	16,549	15,717	49,302	46,613
Total other expense, net	16,549	15,717	49,299	46,613
(Loss) income before provision for income taxes	(152,029)	(5,955)	(196,997)	13,150
Provision (benefit) for income taxes	607	(2,141)	32,569	5,350
Net (loss) income	(152,636)	(3,814)	(229,566)	7,800
Other comprehensive income, net of tax:
Unrealized losses on interest rate cash flow hedge	(192)	(176)	(333)	(380)
Less: reclassification adjustment included in net income	724	240	1,207	668
Other comprehensive income, net of tax	532	64	874	288
Comprehensive (loss) income	$ (152,104)	$ (3,750)	$ (228,692)	$ 8,088

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Oct. 30, 2015	Oct. 31, 2014
Cash flows from operating activities:
Net (loss) income	$ (229,566)	$ 7,800
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	49,179	38,451
Amortization of deferred financing costs and accretion of OID	3,542	3,292
Amortization of intangible assets	1,332	1,340
Amortization of favorable/unfavorable leases, net	1,322	529
Gain on disposal of fixed assets	(5,497)	(45)
Loss on interest rate hedge	1,119	1,105
Goodwill impairment	120,000	0
Long-lived assets impairment	509
Deferred income taxes	31,704	465
Stock-based compensation	1,456	2,016
Changes in assets and liabilities associated with operating activities:
Accounts receivable	141	132
Inventories	29,804	(69,030)
Deposits and other assets	3,487	(1,051)
Accounts payable	(22,433)	34,652
Accrued expenses	3,270	9,455
Accrued workers' compensation	(1,786)	(3,366)
Income taxes	9,371	(902)
Deferred rent	3,266	6,403
Other long-term liabilities	1,607	(4,221)
Net cash provided by operating activities	1,827	27,025
Cash flows from investing activities:
Purchases of property and equipment	(55,710)	(76,914)
Proceeds from sale of property and fixed assets	22,320	29
Net cash used in investing activities	(33,390)	(76,885)
Cash flows from financing activities:
Payments of long-term debt	(4,604)	(4,604)
Proceeds under revolving credit facility	404,050	112,500
Payments under revolving credit facility	(385,350)	(76,500)
Payments of debt issuance costs	(487)
Proceeds from financing lease obligations	8,666
Payments of capital and financing lease obligations	(143)	(65)
Payments to repurchase stock options of Number Holdings, Inc.	(390)	(76)
Net settlement of stock options of Number Holdings, Inc. for tax withholdings	(57)
Net cash provided by financing activities	21,685	31,255
Net decrease in cash	(9,878)	(18,605)
Cash - beginning of period	12,463	34,842
Cash - end of period	2,585	16,237
Supplemental cash flow information:
Income taxes (refunded) paid	(8,500)	6,119
Interest paid	39,084	36,590
Non-cash investing activities for purchases of property and equipment	$ 17,953	(4,945)
Non-cash investing activities for construction in progress - leased facility		$ 24,600

XML

Basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Oct. 30, 2015

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

1.            Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business

The Company is organized under the laws of the State of California.  Effective October 18, 2013, 99¢ Only Stores converted from a California corporation to a California limited liability company, 99 Cents Only Stores LLC, that is managed by its sole member, Number Holdings, Inc., a Delaware corporation (“Parent”).  The term “Company” refers to 99¢ Only Stores and its consolidated subsidiaries prior to the Conversion (as described in Note 1 to the Annual Report on Form 10-K for the fiscal year ended January 30, 2015) and to 99 Cents Only Stores LLC and its consolidated subsidiaries at the time of or after the Conversion.  The Company is an extreme value retailer of consumable and general merchandise and seasonal products. As of October 30, 2015, the Company operated 389 retail stores with 281 in California, 49 in Texas, 38 in Arizona, and 21 in Nevada.  The Company is also a wholesale distributor of various products.

Merger

On January 13, 2012, the Company was acquired through a merger (the “Merger”) with a subsidiary of Parent with the Company surviving.  In connection with the Merger, the Company became a subsidiary of Parent, which is controlled by affiliates of Ares Management, L.P. (“Ares”) and Canada Pension Plan Investment Board.  As a result of the Merger, the Company’s common stock was delisted from the New York Stock Exchange and ceased to be a publicly held and traded equity company.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  However, certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission.  These statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2015.  In the opinion of the Company’s management, these interim unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the consolidated financial position and results of operations for each of the periods presented.  The results of operations and cash flows for such periods are not necessarily indicative of results to be expected for the full fiscal year ending January 29, 2016 (“fiscal 2016”).

Fiscal Year

The Company follows a fiscal calendar consisting of four quarters with 91 days, each ending on the Friday closest to the last day of April, July, October or January, as applicable, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years.  Unless otherwise stated, references to years in this Report relate to fiscal years rather than calendar years.  The Company’s fiscal year 2016 began on January 31, 2015, will end on January 29, 2016 and will consist of 52 weeks.  The Company’s fiscal year 2015 (“fiscal 2015”) began on February 1, 2014, ended on January 30, 2015 and consisted of 52 weeks.  The third quarter ended October 30, 2015 (“the third quarter of fiscal 2016”) and the third quarter ended October 31, 2014 (“the third quarter of fiscal 2015”) were each comprised of 91 days.  The period ended October 30, 2015 (“the first three quarters of fiscal 2016”) and the period ended October 31, 2014 (“the first three quarters of fiscal 2015”) were each comprised of 273 days. References to the Company’s “transition fiscal 2014” are to the Company’s fiscal year ended January 31, 2014.

Use of Estimates

The preparation of the unaudited consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

For purposes of reporting cash flows, cash includes cash on hand, cash at the stores and cash in financial institutions.  The majority of payments due from financial institutions for the settlement of debit card and credit card transactions are processed within three business days and therefore are also classified as cash.  Cash balances held at financial institutions are generally in excess offederally insured limits.  These accounts are only insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company historically has not experienced any losses in such accounts.  The Company places its temporary cash investments with what it believes to be high credit, quality financial institutions.  Under the Company’s cash management system, checks issued but not presented to the bank may result in book cash overdraft balances for accounting purposes.  The Company reclassifies book overdrafts to accounts payable, which are reflected as an operating activity in its unaudited consolidated statements of cash flows.  Book overdrafts included in accounts payable were $15.6 million and $16.5 million as of October 30, 2015 and January 30, 2015, respectively.

Allowance for Doubtful Accounts

In connection with its wholesale business, the Company evaluates the collectability of accounts receivable based on a combination of factors.  In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected.  For all other customers and tenants, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and the Company’s historical experiences.

Inventories

Inventories are valued at the lower of cost or market. Inventory cost is established using a methodology that approximates first in, first out, which for store inventories is based on a retail inventory method.  Valuation allowances for shrinkage as well as excess and obsolete inventory are also recorded.  Shrinkage is estimated as a percentage of sales for the period from the last physical inventory date to the end of the applicable period.  Such estimates are based on experience and the most recent physical inventory results.  Physical inventory counts are completed at each of the Company’s retail stores at least once a year by an outside inventory service company.  The Company performs inventory cycle counts at its warehouses throughout the year.  The Company also performs inventory reviews and analysis on a quarterly basis for both warehouse and store inventory to determine inventory valuation allowances for excess and obsolete inventory.  The valuation allowances for excess and obsolete inventory are based on the age of the inventory, sales trends and future merchandising plans.  The valuation allowances for excess and obsolete inventory require management judgment and estimates that may impact the ending inventory valuation and valuation allowances that may affect the reported gross margin for the period.

In order to obtain inventory at attractive prices, the Company takes advantage of large volume purchases, closeouts and other similar purchases.  As such, the Company’s inventory fluctuates from period to period and the inventory balances vary based on the timing and availability of such opportunities.

Property and Equipment

Property and equipment are carried at cost and are depreciated or amortized on a straight-line basis over the following useful lives:

Owned buildings and improvements	Lesser of 30 years or the estimated useful life of the improvement
Leasehold improvements	Lesser of the estimated useful life of the improvement or remaining lease term
Fixtures and equipment	3-5 years
Transportation equipment	3-5 years
Information technology systems	For major corporate systems, estimated useful life up to 7 years; for functional standalone systems, estimated useful life up to 5 years

The Company’s policy is to capitalize expenditures that materially increase asset lives and expense ordinary repairs and maintenance as incurred.

Long-Lived Assets

The Company assesses the impairment of depreciable long-lived assets when events or changes in circumstances indicate that the carrying value may not be recoverable.  The Company groups and evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual identifiable cash flows are available.  Recoverability is measured by comparing the carrying amount of an asset to expected future net cash flows generated by the asset.  If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, the carrying amount is compared to its fair value and an impairment charge is recognized to the extent of the difference.  Factors that the Company considers important that could individually or in combination trigger an impairment review include the following: (1) significant underperformance relative to expected historical or projected future operating results; (2) significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’soverall business; and (3) significant changes in the Company’s business strategies and/or negative industry or economic trends.  On a quarterly basis, the Company assesses whether events or changes in circumstances occur that potentially indicate that the carrying value of long-lived assets may not be recoverable (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).  Considerable management judgment is necessary to estimate projected future operating cash flows.  Accordingly, if actual results fall short of such estimates, significant future impairments could result. During the second quarter of fiscal 2016, due to the underperformance of one store in Texas, the Company concluded that the carrying value of the long-lived assets relating to such store were not recoverable and accordingly recorded an asset impairment charge of $0.5 million. During each of the third quarter and first three quarters of fiscal 2015, the Company did not record any long-lived asset impairment charges.

Goodwill and Other Intangible Assets

In connection with the Merger purchase price allocation, the fair values of long-lived and intangible assets were determined based upon assumptions related to the future cash flows, discount rates and asset lives using then available information, and in some cases were obtained from independent professional valuation experts.  The Company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite.

Goodwill and indefinite-lived intangible assets are not amortized but instead tested annually for impairment or more frequently when events or changes in circumstances indicate that the assets might be impaired.  Goodwill is tested for impairment by comparing the carrying amount of the reporting unit to the fair value of the reporting unit to which the goodwill is assigned.  The Company has the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step zero of the goodwill impairment test).  If the Company does not perform a qualitative assessment, or determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required.  The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, goodwill is impaired and the loss is measured by performing step two.  Under step two, the impairment loss is measured by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill.  Management has determined that the Company has two reporting units, the wholesale reporting unit and the retail reporting unit.

The Company performs the annual test for impairment in January of the fiscal year and determines fair value based on a combination of the income approach and the market approach.  The income approach is based on discounted cash flows to determine fair value. The market approach uses a selection of comparable companies and transactions in determining fair value. The fair value of the trade name is also tested for impairment in the fourth quarter by comparing the carrying value to the fair value. Fair value of a trade name is determined using a relief from royalty method under the income approach, which uses projected revenue allocable to the trade name and an assumed royalty rate (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).

Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on undiscounted cash flows, and, if impaired, written down to fair value based on either discounted cash flows or appraised values.  Significant judgment is required in determining whether a potential indicator of impairment of long-lived assets exists and in estimating future cash flows used in the impairment tests (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).

During the third quarter of fiscal 2016, the Company determined that sufficient indicators of potential impairment for the retail reporting unit existed to require an interim impairment analysis of goodwill and trade name. These indicators included significant declines in profitability in the most recent quarters of fiscal 2016 and a modest recovery to restore expected future operating results to historical levels.  The Company’s first step evaluation was completed assuming the company could be bought or sold in a non-taxable transaction and concluded that the fair value of the retail reporting unit was below its carrying value.

The Company performed step two of the goodwill impairment that requires the retail reporting unit’s fair value to be allocated to all of the assets and liabilities of the reporting unit, including any intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination in a non-taxable transaction as applied in the first step, including any significant increases in the fair value of tangible property and intangible assets.  Assessing the fair value of goodwill includes making assumptions about future cash flows, discount rates and asset lives using then best available information.  These assumptions are subject to a high degree of complexity and judgment. Due to the complexity and effort required to estimate the fair value of the retail reporting unit in the second step of the analysis, the fair value estimates were based on preliminary analyses and assumptions that are subject to change. Based on the Company’s preliminary step two analysis, the implied fair value of the retail reporting unit’s goodwill was estimated to be $347.2 million (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).  As a result of the Company’s preliminary analysis and best estimate, the Company recorded a $120.0 million non-cash goodwill impairment charge in the third quarter of fiscal 2016, which was reflected as Goodwill Impairment in the consolidated statements of comprehensive income (loss). The goodwill impairment charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial covenants. The finalization of preliminary goodwill impairment will be completed in the fourth quarter of fiscal 2016 and further adjustments to the preliminary goodwill impairment charge, if any, may be recognized when the Company’s finalizes the second step of the goodwill impairment test.  The primary factors that contributed to the estimated goodwill impairment loss were the declines in fiscal 2016 operating results and hypothetical projected impact in succeeding years as well as significant increases in the fair value of tangible property since the Merger.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

During fiscal 2015, the Company did not record any impairment charges related to goodwill or other intangible assets.

Derivatives

The Company accounts for derivative financial instruments in accordance with authoritative guidance for derivative instrument and hedging activities.  Financial instrument positions taken by the Company are primarily intended to be used to manage risks associated with interest rate exposures.

The Company’s derivative financial instruments are recorded on the balance sheet at fair value, and are recorded in either current or noncurrent assets or liabilities based on their maturity.  Changes in the fair values of derivatives are recorded in net earnings or other comprehensive income (“OCI”), based on whether the instrument is designated and effective as a hedge transaction and, if so, the type of hedge transaction.  Gains or losses on derivative instruments reported in accumulated other comprehensive income (“AOCI”) are reclassified to earnings in the period the hedged item affects earnings.  Any ineffectiveness is recognized in earnings in the period incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes.  Under the liability method, deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities.  Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The Company’s ability to realize deferred tax assets is assessed throughout the year and a valuation allowance is established accordingly.  The Company recognizes the impact of a tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position.  The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense.  Refer to Note 10, “Income Taxes,” for further discussion of income taxes.

Stock-Based Compensation

The Company accounts for stock-based payment awards based on their fair value.  The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods.  For awards classified as equity, the Company estimates the fair value for each option award as of the date of grant using the Black-Scholes option pricing model or other appropriate valuation models.  The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of the stock price.  Stock options are generally granted to employees at exercise prices equal to or greater than the fair market value of the stock at the dates of grant.  Former executive put rights were classified as equity awards and revalued using a binomial model at each reporting period with changes in the fair value recognized as stock-based compensation expense.  The fair value of the options that will vest based on the Company’s and Parent’s achievement of certain performance hurdles were valued using a Monte Carlo simulation method.  Refer to Note 8, “Stock-Based Compensation” for further discussion of stock-based compensation.

Revenue Recognition

The Company recognizes retail sales in its retail stores at the time the customer takes possession of merchandise.  All sales are net of discounts and returns and exclude sales tax.  Wholesale sales are recognized in accordance with the shipping terms agreed upon on the purchase order. Wholesale sales are typically recognized free on board origin, where title and risk of loss pass to the buyer when the merchandise leaves the Company’s distribution facility.

The Company has a gift card program.  The Company does not charge administrative fees on gift cards and the Company’s gift cards do not have expiration dates.  The Company records the sale of gift cards as a current liability and recognizes a sale when a customer redeems a gift card.  The liability for outstanding gift cards is recorded in accrued expenses.

Cost of Sales

Cost of sales includes the cost of inventory, freight in, obsolescence, spoilage, scrap and inventory shrinkage, and is net of discounts and allowances.  Cost of sales also includes receiving, warehouse costs and distribution costs (which include payroll and associated costs, occupancy, transportation to and from stores and depreciation expense).  Cash discounts for satisfying early payment terms are recognized when payment is made, and allowances and rebates based upon milestone achievements such as reaching a certain volume of purchases of a vendor’s products are included as a reduction of cost of sales when such contractual milestones are reached.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include the costs of selling merchandise in stores (which include payroll and associated costs, occupancy and other store-level costs) and corporate costs (which include payroll and associated costs, occupancy, advertising, professional fees and other corporate administrative costs).  Selling, general and administrative expenses also include depreciation and amortization expense relating to these costs.

Leases

The Company follows the policy of capitalizing allowable expenditures that relate to the acquisition and signing of its retail store leases.  These costs are amortized on a straight-line basis over the applicable lease term.

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 applicable lease term.  The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is included in deferred rent.  Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives are recorded as deferred rent.  Deferred rent related to landlord incentives is amortized as an offset to rent expense using the straight-line method over the applicable lease term.

In certain lease arrangements, the Company can be involved with the construction of the building. If it is determined that the Company has substantially all of the risks of ownership during construction of the leased property and therefore is deemed to be the owner of the construction project, the Company records an asset for the amount of the total project costs and an amount related to the value attributed to the pre-existing leased building in property and equipment, net and the related financing obligation as part of current and non-current liabilities.  Once construction is complete, if it is determined that the asset does not qualify for sale-leaseback accounting treatment, the Company amortizes the obligation over the lease term and depreciates the asset over the life of the lease. The Company does not report rent expense for the portion of the rent payment determined to be related to the assets which are owned for accounting purposes. Rather, this portion of the rent payment under the lease is recognized as a reduction of the financing obligation and interest expense.

For store closures where a lease obligation still exists, the Company records the estimated future liability associated with the rental obligation on the cease use date (when the store is closed).  Liabilities are established at the cease use date for the present value of any remaining operating lease obligations, net of estimated sublease income, and at the communication date for severance and other exit costs.  Key assumptions in calculating the liability include the timeframe expected to terminate lease agreements, estimates related to the sublease potential of closed locations, and estimates of other related exit costs.  If actual timing and potential termination costs or realization of sublease income differ from the Company’s estimates, the resulting liabilities could vary from recorded amounts. These liabilities are reviewed periodically and adjusted when necessary.

During the second quarter of fiscal 2016, the Company sold and concurrently leased back two retail stores with a carrying value of $7.9 million and received net proceeds from these transactions of $8.7 million. The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transactions closed. The resulting leases are accounted for as financing leases and the Company has recorded a corresponding financing lease obligation of $8.7 million (as a component of current and non-current liabilities).  The Company will amortize the financing lease obligation over the lease term and depreciate the assets over their remaining useful lives.  During the third quarter of fiscal 2016, the Company sold and concurrently leased one store and the resulting lease qualifies and is accounted for as an operating lease.  The net proceeds from the sale-leaseback transaction amounted to $9.0 million.  The Company will amortize deferred gains of $2.6 million relating to the sale-leaseback transaction over the lease term.

Self-Insured Workers’ Compensation Liability

The Company self-insures for workers’ compensation claims in California and Texas.  The Company establishes a liability for losses from both estimated known and incurred but not reported insurance claims based on reported claims and actuarial valuations of estimated future costs of known and incurred but not yet reported claims.  Should an amount of claims greater than anticipated occur, the liability recorded may not be sufficient and additional workers’ compensation costs, which may be significant, could be incurred.  The Company has not discounted the projected future cash outlays for the time value of money for claims and claim-related costs when establishing its workers’ compensation liability in its financial reports for each of October 30, 2015 and January 30, 2015.

Self-Insured Health Insurance Liability

The Company self-insures for a portion of its employee medical benefit claims.  The liability for the self-funded portion of the Company health insurance program is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

Pre-Opening Costs

The Company expenses, as incurred, pre-opening costs such as payroll, rent and marketing related to the opening of new retail stores.

Advertising

The Company expenses advertising costs as incurred.

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash, accounts receivable, interest rate and other derivatives, accounts payable, accruals, debt, and other liabilities.  Cash and derivatives are measured and recorded at fair value.  Accounts receivable and other receivables are financial assets with carrying values that approximate fair value.  Accounts payable and other accrued expenses are financial liabilities with carrying values that approximate fair value.  Refer to Note 7, “Fair Value of Financial Instruments” for further discussion of the fair value of debt.

The Company uses the authoritative guidance for fair value, which includes the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements.  Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.  Fair value measurements reflect the assumptions market participants would use in pricing an asset or liability based on the best information available.  Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model.

Comprehensive Income

Other comprehensive income (“OCI”) includes unrealized gains or losses on interest rate derivatives designated as cash flow hedges.

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Goodwill and Other Intangibles

9 Months Ended

Oct. 30, 2015

Goodwill and Other Intangibles

Goodwill and Other Intangibles

2.Goodwill and Other Intangibles

The following tables set forth the value of the goodwill and other intangible assets and liabilities, and unfavorable leases, respectively (in thousands):

	October 30, 2015										January 30, 2015
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(120,000	)	$	—		$	359,745	$	479,745	$	—		$	479,745
Trade name	410,000		—			—			410,000		410,000		—			410,000
Total indefinite lived intangible assets	$	889,745	$	(120,000	)	$	—		$	769,745	$	889,745	$	—		$	889,745
Finite lived intangible assets:
Trademarks	$	2,000	$	—		$	(381	)	$	1,619	$	2,000	$	(306	)	$	1,694
Bargain Wholesale customer relationships	20,000		—			(6,338		)	13,662		20,000		(5,096		)	14,904
Favorable leases	46,723		—			(16,187		)	30,536		46,723		(13,010		)	33,713
Total finite lived intangible assets	68,723		—			(22,906		)	45,817		68,723		(18,412		)	50,311
Total goodwill and other intangible assets	$	958,468	$	(120,000	)	$	(22,906	)	$	815,562	$	958,468	$	(18,412	)	$	940,056

	October 30, 2015								January 30, 2015
	Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	1 to 15	$	19,835	$	(13,470	)	$	6,365	1 to 15	$	19,835	$	(11,615	)	$	8,220

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Property and Equipment, net

9 Months Ended

Oct. 30, 2015

Property and Equipment, net

Property and Equipment, net

3.Property and Equipment, net

The following table provides details of property and equipment (in thousands):

	October 30, 2015			January 30, 2015
Land	$	177,970		$	176,506
Buildings	111,397			117,422
Buildings improvements	71,828			71,985
Leasehold improvements	185,111			176,895
Fixtures and equipment	186,124			148,851
Transportation equipment	11,962			12,685
Construction in progress	25,301			46,195
Total property and equipment	769,693			750,539
Less: accumulated depreciation and amortization	(214,248		)	(169,519		)
Property and equipment, net	$	555,445		$	581,020

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Comprehensive Income

9 Months Ended

Oct. 30, 2015

Comprehensive Income

Comprehensive Income

4.Comprehensive Income

The following table sets forth the calculation of comprehensive income, net of tax effects (in thousands):

	For the Third Quarter Ended						For the First Three Quarters Ended
	October 30, 2015			October 31, 2014			October 30, 2015			October 31, 2014
Net (loss) income	$	(152,636	)	$	(3,814	)	$	(229,566	)	$	7,800
Unrealized loss on interest rate cash flow hedge, net of tax effects of $94, $(117), $0 and $(254) for the third quarter and first three quarters of each of fiscal 2016 and fiscal 2015, respectively	(192		)	(176		)	(333		)	(380		)
Reclassification adjustment, net of tax effects of $(321), $160, $0 and $445 for the third quarter and first three quarters of each of fiscal 2016 and fiscal 2015, respectively	724			240			1,207			668
Total unrealized gains , net	532			64			874			288
Total comprehensive (loss) income	$	(152,104	)	$	(3,750	)	$	(228,692	)	$	8,088

Amounts in accumulated other comprehensive loss as of October 30, 2015 and January 30, 2015 consisted of unrealized losses on interest rate cash flow hedges.  Reclassifications out of AOCI in each of the third quarter and first three quarters of fiscal 2016 and fiscal 2015 are presented in Note 6, “Derivative Financial Instruments.”

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Debt

9 Months Ended

Oct. 30, 2015

Debt

Debt

5.Debt

Short and long-term debt consists of the following (in thousands):

	October 30, 2015		January 30, 2015
ABL Facility, maturing on January 13, 2017	$	75,700	$	57,000
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2019, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $4,612 and $5,606 as of October 30, 2015 and January 30, 2015, respectively	596,923		600,533
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000		250,000
Total debt	922,623		907,533
Less: current portion	6,138		6,138
Long-term debt, net of current portion	$	916,485	$	901,395

As of October 30, 2015 and January 30, 2015, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	October 30, 2015		January 30, 2015
ABL Facility	$	1,160	$	1,196
First Lien Term Loan Facility	4,734		5,754
Senior Notes	7,508		8,513
Total deferred financing costs, net	$	13,402	$	15,463

On January 13, 2012 (the “Original Closing Date”), in connection with the Merger, the Company obtained Credit Facilities (as defined below) provided by a syndicate of lenders arranged by Royal Bank of Canada as administrative agent, as well as other agents and lenders that are parties to the agreements governing these Credit Facilities.  The Credit Facilities include (a) a first lien based revolving credit facility (as amended, the “ABL Facility”), and (b) a first lien term loan facility (as amended, the “First Lien Term Loan Facility” and together with the ABL Facility, the “Credit Facilities”).

First Lien Term Loan Facility

Under the First Lien Term Loan Facility, (i) $525.0 million of term loans were incurred on the Original Closing Date and (ii) $100.0 million of additional term loans were incurred pursuant to an incremental facility effected through an amendment entered into on October 8, 2013 (the “Second Amendment”) (all such term loans, collectively, the “Term Loans”).  The First Lien Term Loan Facility has a term of seven years with a maturity date of January 13, 2019.  All obligations under the First Lien Term Loan Facility are guaranteed by Parent and the Company’s direct or indirect 100% owned subsidiaries, except for immaterial subsidiaries (collectively, the “Credit Facilities Guarantors”).  In addition, the First Lien Term Loan Facility is secured by pledges of certain of the Company’s equity interests and the equity interests of the Credit Facilities Guarantors.

The Company is required to make scheduled quarterly payments each equal to 0.25% of the principal amount of the Term Loans, with the balance due on the maturity date.  Borrowings under the First Lien Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, either (i) a base rate (the “Base Rate”) determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as the “Prime Rate” (3.25% as of October 30, 2015), (b) the federal funds effective rate plus 0.50% and (c) an adjusted Eurocurrency rate for one month (determined by reference to the greater of the Eurocurrency rate for the interest period subject to certain adjustments) plus 1.00%, or (ii) an Adjusted Eurocurrency Rate.

On April 4, 2012, the Company amended the terms of the First Lien Term Loan Facility (the “First Amendment”) and incurred related refinancing costs of $11.2 million.  The First Amendment, among other things, (i) decreased the applicable margin from London Interbank Offered Rate (“LIBOR”) plus 5.50% (or Base Rate plus 4.50%) to LIBOR plus 4.00% (or Base Rate plus 3.00%) and (ii) decreased the LIBOR floor from 1.50% to 1.25%.

On October 8, 2013, the Company entered into the Second Amendment, which among other things, (i) provided $100.0 million of additional term loans as described above, (ii) decreased the applicable margin from LIBOR plus 4.00% (or Base Rate plus 3.00%) to LIBOR plus 3.50% (or Base Rate plus 2.50%) and (iii) decreased the LIBOR floor from 1.25% to 1.00%.  The Company will continue to be required to make scheduled quarterly payments each equal to 0.25% of the amended principal amount of the Term Loans (approximately $1.5 million).

In addition, the Second Amendment (i) amended certain restricted payment provisions, (ii) removed the maximum capital expenditures covenant from the agreement governing the First Lien Term Loan Facility, (iii) modified the existing provision restricting the Company’s ability to make dividend and other payments so that from and after March 31, 2013, the permitted payment amount represents the sum of (a) a calculation based on 50% of Consolidated Net Income (as defined in the First Lien Term Loan Facility agreement), if positive, or a deficit of 100% of Consolidated Net Income, if negative, and (b) $20.0 million, and (iv) permitted proceeds of any sale leasebacks of any assets acquired after January 13, 2012, to be reinvested in the Company’s business without restriction.

As of October 30, 2015, the interest rate charged on the First Lien Term Loan Facility was 4.50% (1.00% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of October 30, 2015, the amount outstanding under the First Lien Term Loan Facility was $596.9 million.

Following the end of each fiscal year, the Company is required to make prepayments on the First Lien Term Loan Facility in an amount equal to (i) 50% of Excess Cash Flow (as defined in the agreement governing the First Lien Term Loan Facility), with the ability to step down to 25% and 0% upon achievement of specified total leverage ratios, minus (ii) the amount of certain voluntary prepayments made on the First Lien Term Loan Facility and/or the ABL Facility during such fiscal year.  There was no Excess Cash Flow payment required for fiscal 2015.

The First Lien Term Loan Facility includes certain customary restrictions, among other things, on the Company’s ability and the ability of Parent, our subsidiary 99 Cents Only Stores Texas, Inc. (“99 Cents Texas”) and certain future subsidiaries of the Company to incur or guarantee additional indebtedness, make certain restricted payments, acquisitions or investments, materially change the Company’s business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets, make capital expenditures or merge or consolidate with or into, another company.  As of October 30, 2015, the Company was in compliance with the terms of the First Lien Term Loan Facility.

During the first quarter of fiscal 2013, the Company entered into an interest rate swap agreement to limit the variability of cash flows associated with interest payments on the First Lien Term Loan Facility that result from fluctuations in the LIBOR rate.  See Note 6, “Derivative Financial Instruments” for more information on this interest rate swap agreement.

ABL Facility

The ABL Facility initially provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations.  Subject to certain conditions, the Company could increase the commitments under the ABL Facility by up to $50.0 million.  All obligations under the ABL Facility are guaranteed by Parent and the other Credit Facilities Guarantors.  The ABL Facility is secured by substantially all of the Company’s assets and the assets of the Credit Facilities Guarantors.

Borrowings under the ABL Facility bear interest at a rate based, at the Company’s option, on (i) LIBOR plus an applicable margin to be determined (2.00% as of October 30, 2015) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (1.00% at October 30, 2015), in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

In addition to paying interest on outstanding principal under the Credit Facilities, the Company is required to pay a commitment fee to the lenders under the ABL Facility on unused commitments.  The commitment fee is adjusted at the beginning of each quarter based upon the average historical excess availability of the prior quarter (0.375% for the quarter ended October 30, 2015).  The Company must also pay customary letter of credit fees and agency fees.

As of October 30, 2015, borrowings under the ABL Facility were $75.7 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $106.8 million.  As of January 30, 2015, borrowings under the ABL Facility were $57.0 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $115.5 million.

The ABL Facility includes restrictions on the Company’s ability and the ability of Parent and certain of the Company’s restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, its capital stock, make certain acquisitions or investments, materially change its business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets or merge or consolidate with or into another company.

On October 8, 2013, the ABL Facility was amended to among other things, modify the provision restricting the Company’s ability to make dividend and other payments.  Such payments are subject to achievement of Excess Availability (as defined in the agreement governing the ABL Facility) and a ratio of EBITDA (as defined in the agreement governing the ABL Facility) to fixed charges.

On August 24, 2015, the Company amended its ABL Facility to increase commitments available under the ABL Facility by $10.0 million, resulting in an aggregate ABL Facility size of $185.0 million.  The additional commitments implemented pursuant to the amendment have terms identical to the existing commitments under the ABL Facility, including as to interest rate and other pricing terms. The Company paid amendment fees of $0.5 million to lenders under the ABL Facility.

In addition, the amendment to the ABL Facility (a) modifies certain springing covenants triggered by reference to excess availability under the ABL Facility agreement so that, from August 24, 2015 to April 30, 2016, the occurrence of any such excess availability trigger is determined solely by reference to the available borrowing base under the ABL Facility rather than by reference to the lesser of the available borrowing base and the available aggregate commitments under the ABL Facility, (b) increases the inventory advance rate during such period for purposes of calculating the borrowing base from 90% to 92.5%, (c) provides for certain additional inspection rights by the administrative agent if there is a material increase in the amount of inventory that is not eligible inventory for purposes of the borrowing base and (d) provides for certain additional technical waivers and amendments in order to effect the foregoing.

As of October 30, 2015, the Company was in compliance with the terms of the ABL Facility.

Senior Notes

On December 29, 2011, the Company issued $250.0 million aggregate principal amount of 11% Senior Notes that mature on December 15, 2019 (the “Senior Notes”).  The Senior Notes are guaranteed by the same subsidiaries that guarantee the Credit Facilities.

Pursuant to the terms of the indenture governing the Senior Notes (the “Indenture”), the Company may redeem all or a part of the Senior Notes at certain redemption prices that vary based on the date of redemption.  The Company is not required to make any mandatory redemptions or sinking fund payments, and may at any time or from time to time purchase notes in the open market.

The Indenture contains covenants that, among other things, limit the Company’s ability and the ability of certain of its subsidiaries to incur or guarantee additional indebtedness, create or incur certain liens, pay dividends or make other restricted payments and investments, incur restrictions on the payment of dividends or other distributions from restricted subsidiaries, sell assets, engage in transactions with affiliates, or merge or consolidate with other companies.  As of October 30, 2015, the Company was in compliance with the terms of the Indenture.

The significant components of interest expense are as follows (in thousands):

	For the Third Quarter Ended				For the First Three Quarters Ended
	October 30, 2015		October 31, 2014		October 30, 2015		October 31, 2014
First Lien Term Loan Facility	$	7,230	$	7,345	$	21,735	$	21,928
ABL Facility	654		366		1,843		817
Senior Notes	6,875		6,875		20,701		20,549
Amortization of deferred financing costs and OID	1,238		1,113		3,543		3,291
Other interest expense	552		18		1,480		28
Interest expense	$	16,549	$	15,717	$	49,302	$	46,613

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Derivative Financial Instruments

9 Months Ended

Oct. 30, 2015

Derivative Financial Instruments

Derivative Financial Instruments

6.            Derivative Financial Instruments

The Company entered into derivative instruments for risk management purposes and uses these derivatives to manage exposure to fluctuation in interest rates.

Interest Rate Swap

In May 2012, the Company entered into a floating-to-fixed interest rate swap agreement for an initial aggregate notional amount of $261.8 million to limit exposure to interest rate increases related to a portion of the Company’s floating rate indebtedness once the Company’s interest rate cap agreement expires.  The swap agreement, effective November 2013, hedges a portion of contractual floating rate interest commitments through the expiration of the swap agreement in May 2016.  As a result of the agreement, the Company’s effective fixed interest rate on the notional amount of floating rate indebtedness will be 1.36% plus an applicable margin of 3.50%.

The Company designated the interest rate swap agreement as a cash flow hedge.  The interest rate swap agreement is highly correlated to the changes in interest rates to which the Company is exposed.  Unrealized gains and losses on the interest rate swap are designated as effective or ineffective.  The effective portion of such gains or losses is recorded as a component of AOCI or loss, while the ineffective portion of such gains or losses is recorded as a component of interest expense.  Future realized gains and losses in connection with each required interest payment will be reclassified from AOCI or loss to interest expense.

Covert Transition Payments

In September 2015, the Company entered into an employment agreement with Geoffrey J. Covert’s as the President and Chief Executive Officer of each of the Company and Parent. In connection with this agreement, Mr. Covert is entitled to receive amounts under a transition program based on the value of certain equity awards from his former employer that he forfeited in connection with his previous employment.  The maximum amount of payments due under this agreement is approximately $5.0 million, payable over a period of four years. The Company accounts for these transition payments as derivatives that are not designated as hedging instruments and has measured the obligation at fair value at October 30, 2015. The Company recognizes the expense associated with these payments over the requisite service period.

Fair Value

The fair value of the interest rate swap agreement is estimated using industry standard valuation models using market-based observable inputs, including interest rate curves (Level 2, as defined in Note 7, “Fair Value of Financial Instruments”).  The fair value of the transition payments is estimated using a valuation model that includes unobservable inputs (Level 3, as defined in Note 7, “Fair Value of Financial Instruments”).

A summary of the recorded amounts included in the consolidated balance sheets is as follows (in thousands):

	October 30, 2015		January 30, 2015
Derivatives designated as cash flow hedging instruments
Interest rate swap (included in other current liabilities)	$	1,221	$	1,591
Interest rate swap (included in other liabilities)	$	—	$	596
Accumulated other comprehensive loss, net of tax (included in member’s equity)	$	124	$	998
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	516	$	—
Transition payments (included in other liabilities)	$	197	$	—

A summary of recorded amounts included in the unaudited consolidated statements of comprehensive income (loss) is as follows (in thousands):

	For the Third Quarter Ended					For the First Three Quarters Ended
	October 30, 2015			October 31, 2014		October 30, 2015			October 31, 2014
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	192		$	176	$	333		$	380
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	724		$	240	$	1,207		$	668
(Gain) loss related to ineffective portion of derivative recognized in interest expense	$	(27	)	$	22	$	(88	)	$	(110	)
Derivatives not designated as hedging instruments:
Loss recognized in selling, general and administrative expenses	$	713		$	—	$	713		$	—

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Fair Value of Financial Instruments

9 Months Ended

Oct. 30, 2015

Fair Value of Financial Instruments

Fair Value of Financial Instruments

7.            Fair Value of Financial Instruments

The Company complies with authoritative guidance for fair value measurement and disclosures which establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are described below:

Level 1: Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2: Defined as observable inputs other than Level 1 prices.  These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company uses the best available information in measuring fair value.  The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands):

	October 30, 2015
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	762	$	762	$	—	$	—
LIABILITIES
Other current liabilities — interest rate swap	$	1,221	$	—	$	1,221	$	—
Other current liabilities — transition payments	$	516	$	—	$	—	$	516
Other long-term liabilities — transition payments	$	197	$	—	$	—	$	197
Other long-term liabilities — deferred compensation	$	762	$	762	$	—	$	—

Level 1 measurements include $0.8 million of deferred compensation assets that fund the liabilities related to the Company’s deferred compensation, including investments in trust funds.  The fair values of these funds are based on quoted market prices in an active market.

Level 2 measurements include interest rate swap agreement estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.

Level 3 measurements include transition payments to Mr. Covert (See Note 6, “Derivative Financial Instruments”) estimated using a valuation model that includes Level 3 unobservable inputs.  Significant assumptions used in the analysis include projected stock prices, stock volatility and the Company’s credit spread.

The Company did not have any transfers in and out of Levels 1 and 2 during the first three quarters of fiscal 2016.

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of January 30, 2015 (in thousands):

	January 30, 2015
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	724	$	724	$	—	$	—
LIABILITES
Other current liabilities — interest rate swap	$	1,591	$	—	$	1,591	$	—
Other long-term liabilities — interest rate swap	$	596	$	—	$	596	$	—
Other long-term liabilities — deferred compensation	$	724	$	724	$	—	$	—

Level 1 measurements include $0.7 million of deferred compensation assets that fund the liabilities related to the Company’s deferred compensation, including investments in trust funds.  The fair values of these funds are based on quoted market prices in an active market.

Level 2 measurements include interest rate swap agreement estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.

There were no Level 3 assets or liabilities as of January 30, 2015.

The following table summarizes the activity for the period of changes in fair value of the Company’s Level 3 instruments (in thousands):

	For the First Three Quarters Ended
Transition Payments	October 30, 2015			October 31, 2014
Description
Beginning balance	$	—		$	—
Transfers in and/or out of Level 3	—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	(713		)	—
Included in other comprehensive loss	—			—
Purchases, sales, issues and settlements:
Settlements	—			—
Ending balance	$	(713	)	$	—
Total amount of unrealized gains (losses) for the period included in earnings relating to liabilities held at the reporting period	$	(713	)	$	—

(1) Losses are included in selling, general and administrative expenses.

The outstanding debt under the Credit Facilities and the Senior Notes is recorded in the financial statements at historical cost, net of applicable unamortized discounts.

The ABL Facility is tied directly to market rates and fluctuates as market rates change; as a result, the carrying value of the ABL Facility approximates fair value as of October 30, 2015 and January 30, 2015.

The fair value of the First Lien Term Loan Facility was estimated at $487.2 million, or $114.3 million lower than the carrying value, as of October 30, 2015, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the First Lien Term Loan Facility approximated the carrying value, as of January 30, 2015, based on quoted market prices of the debt (Level 1 inputs).

The fair value of the Senior Notes was estimated at $141.2 million, or $108.8 million lower than the carrying value, as of October 30, 2015, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the Senior Notes was estimated at $264.7 million, or $14.7 million greater than the carrying value, as of January 30, 2015, based on quoted market prices of the debt (Level 1 inputs).

See Note 5, “Debt” for more information on the Company’s debt.

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Stock-Based Compensation

9 Months Ended

Oct. 30, 2015

Stock-Based Compensation

Stock-Based Compensation

8.            Stock-Based Compensation

Number Holdings, Inc. 2012 Equity Incentive Plan

On February 27, 2012, the board of directors of Parent adopted the Number Holdings, Inc. 2012 Stock Incentive Plan (the “2012 Plan”).  The 2012 Plan authorizes equity awards to be granted for up to 85,000 shares of Class A Common Stock of Parent and 85,000 shares of Class B Common Stock of Parent.  As of October 30, 2015, options for 56,551 shares of each of Class A Common Stock and Class B Common Stock were issued to certain members of management and directors.  Options upon vesting may be exercised only for units consisting of an equal number of Class A Common Stock and Class B Common Stock.  Class B Common Stock has de minimis economic rights and the right to vote solely for election of directors.

Employee Option Grants

Options granted to employees generally become exercisable over a four or five year service period and have terms of ten years from date of the grant.

Under the standard form of option award agreement for the 2012 Plan, Parent has a right to repurchase from the participant all or a portion of (i) Class A and Class B Common Stock of Parent issued upon the exercise of the options awarded to a participant and still held by such participant or his or her transferee and (ii) vested but unexercised options.  The repurchase price for the shares of Class A and Class B Common Stock of Parent received from option exercises prior to termination of employment is the fair market value of such shares as of the date of such termination, and, for the vested but unexercised options, the repurchase price is the difference between the fair market value of the Class A and Class B Common Stock of Parent as of the date of termination of employment and the exercise price of the option.  However, upon (i) a termination of employment for cause, (ii) a voluntary resignation without good reason, or (iii) upon discovery that the participant engaged in detrimental activity, the repurchase price is the lesser of the exercise price paid by the participant to exercise the option or the fair market value of the Class A and Class B Common Stock of Parent.  If Parent elects to exercise its repurchase right for any shares acquired pursuant to the exercise of an option, it must do so no later than (i) 180 days after the date of participant’s termination of employment if the option is exercised prior to the date of termination, or (ii) no later than 90 days from the latest date that such option can be exercised if the option is exercised after the date of termination.  If Parent elects to exercise its repurchase right for any vested and unexercised option, it must do so for no longer than the latest date that such option can be exercised.  The options also contain transfer restrictions that lapse upon registration of an offering of Parent common stock under the Securities Act of 1933 (a “liquidity event”).

The Company defers recognition of substantially all of the stock-based compensation expense related to these stock options. The nature of repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence. These options are accounted for as equity-based awards. The fair value of these stock options was estimated at the date of grant using the Black-Scholes pricing model. There were 19,675 time-based employee options outstanding as of October 30, 2015.

In the second quarter of fiscal 2015, 750 options were granted that would have vested subject to the Company’s and Parent’s achievement of performance hurdles. In the first quarter of fiscal 2016, 1,250 options were granted that would have vested subject to the Company’s and Parent’s achievement of performance hurdles. The Company deferred recognition of these performance-based options until it was probable that that the performance hurdles would be achieved.  The fair value of these performance-based options was estimated at the date of grant using a Monte Carlo simulation method. These performance-based options were forfeited in the second quarter of fiscal 2016.

Director Option Grants

Options granted to board members generally become exercisable over a five year service period and have terms of ten years from date of the grant.  Options granted to these board members do not contain repurchase rights that would allow the Parent to repurchase these options at less than fair value. The Company recognizes stock-based compensation expense for these option grants over the service period. These options are accounted for as equity awards.  The fair value of these stock options was estimated at the date of grant using the Black-Scholes pricing model.

Former Chief Executive Officer Equity Awards

On October 9, 2013, in connection with Stéphane Gonthier’s employment as President and Chief Executive Officer of the Company and Parent, the Compensation Committee of Parent’s Board of Directors granted to Mr. Gonthier stock options to purchase an aggregate of 21,505 shares of each of the Class A and Class B Common Stock.  Subject to the continued employment of Mr. Gonthier, (a) 75% of the options would have vested according to a timetable of 30% on the first anniversary of the grant date, 20% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date and (b) 25% of these options would have vested subject to the Company’s and Parent’s achievement of performance hurdles.  These options are subject to the terms of the 2012 Plan and the award agreement under which they were granted.

On May 25, 2015, Mr. Gonthier resigned from his positions as a director and as the President and Chief Executive Officer of the Company, Parent, and each of the Company’s subsidiaries. Twenty percent of the options to purchase common stock of Parent held by Mr. Gonthier that are subject to time-based vesting accelerated and vested as of the date of Mr. Gonthier’s resignation.  All of Mr. Gonthier’s time-based options were forfeited on August 24, 2015.  All of Mr. Gonthier’s performance-based options were forfeited on November 21, 2015.

The Company recorded stock-based compensation for the time-based options in accordance with the four year vesting period.  The Company had deferred recognition of performance-based options until it was probable that the performance hurdles would be achieved.  The time-based and performance-based options were accounted for as equity awards.  The fair value of these time-based options was estimated at the date of grant using the Black-Scholes pricing model.  The fair value of performance-based options was estimated at the date of grant using a Monte Carlo simulation method.

New Chief Executive Officer Equity Awards

In September 2015, the Company entered into an employment agreement with Geoffrey J. Covert as the President and Chief Executive Officer of each of the Company and Parent.  In connection with this agreement, Mr. Covert was granted two options, each to purchase 15,500 shares of Class A and Class B Common Stock of Parent.  One of the grants has an exercise price of $1,000 per share.  The other grant has an exercise price equal to $750 per share plus the amount by which the fair market value of the underlying share exceeds $1,000 on the date of exercise.  One-half of each grant vests on each of the first four installments of the grant date, and the other half of each grant vests based on the achievement of certain performance targets.  The vesting of the options is subject to Mr. Covert’s continued employment through the applicable vesting date.  The options are subject to the terms of the 2012 Plan and the award agreements under which they were granted.

The Company has deferred recognition of the stock-based compensation expense for these time-based and performance-based stock options. The nature of the repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence. Additionally, the Company has deferred recognition of the stock-based compensation expense for performance-based options until it is probable that the performance targets will be achieved.

Accounting for stock-based compensation

Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise and the associated volatility.  At the grant date, the Company estimates an amount of forfeitures that will occur prior to vesting.  During the third quarter and first three quarters of fiscal 2016, the Company recorded stock-based compensation expense of less than $0.1 million and $1.5 million, respectively.  During the third quarter and first three quarters of fiscal 2015, the Company recorded stock-based compensation expense of $0.6 million and $2.0 million, respectively.

The following summarizes stock option activity in the first three quarters of fiscal 2016:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	48,130		$	1,171
Granted	36,800		$	946
Exercised	(660	)	$	1,000
Cancelled	(27,719	)	$	1,209
Outstanding at the end of the period	56,551		$	1,007	8.20
Exercisable at the end of the period	6,970		$	1,049	6.70

The following table summarizes the stock awards available for grant under the 2012 Plan as of October 30, 2015:

	Number of Shares
Available for grant as of January 30, 2015	36,840
Authorized	—
Granted	(36,800	)
Cancelled	27,719
Available for grant at October 30, 2015	27,759

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Related-Party

9 Months Ended

Oct. 30, 2015

Related-Party

Related-Party

9.            Related-Party

Parent Stock Repurchase Agreement

In March 2015, in connection with Mr. Michael Kvitko’s resignation as Executive Vice President and Chief Merchandising Officer of the Company and all positions with Parent, Parent purchased all of the vested options to purchase shares of Class A Common Stock and Class B Common Stock held by Mr. Kvitko, for an aggregate consideration of $0.4 million.

Credit Facility

In connection with the Merger, the Company entered into the First Lien Term Loan Facility, under which various funds affiliated with Ares were lenders.  As of January 30, 2015 these affiliates held approximately $1.4 million of term loans under the First Lien Term Loan Facility.  The terms of the term loans are the same as those held by unaffiliated third party lenders under the First Lien Term Loan Facility.  As of October 30, 2015, these affiliates no longer held any term loans under the First Lien Term Loan Facility.

Senior Notes

Various funds affiliated with Ares and Canada Pension Plan Investment Board have collectively acquired $102.1 million aggregate principal amount of the Company’s Senior Notes in open market transactions.  From time to time, these or other affiliated funds may acquire additional Senior Notes.

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Income Taxes

9 Months Ended

Oct. 30, 2015

Income Taxes

Income Taxes

10.          Income Taxes

The effective income tax rate for the first three quarters of fiscal 2016 was a provision rate of (16.5)% compared to a provision rate of 40.7% for the first three quarters of fiscal 2015.  Income tax expense for the interim periods was computed using the effective tax rate estimated to be applicable for the full fiscal year.  The change in the effective tax rate is primarily due to the tax effect of the non-deductible goodwill impairment, the establishment of a valuation allowance against deferred tax assets as discussed below, and the effect of not recognizing the benefit of losses incurred in fiscal 2016 in jurisdictions where we concluded is it more likely than not that such benefits would not be realized.

The Company assesses its ability to realize deferred tax assets throughout the fiscal year.  As a result of this assessment during the second quarter of fiscal 2016, the Company concluded that it was more likely than not that the Company would not realize its deferred tax assets. In the first three quarters of fiscal 2016, the Company recorded a $31.7 million increase to its provision for income taxes in order to establish a valuation allowance against such deferred tax assets and, additionally, realize the benefit of losses incurred in fiscal 2016.  The Company will continue to evaluate all of the positive and negative evidence in future periods and will make a determination as to whether it is more likely than not that all or a portion of its deferred tax assets will be realized in such future periods. At such time as the Company determines that it is more likely than not that all or a portion of its deferred tax assets are realizable, the valuation allowance will be reduced or released in its entirety, and the corresponding benefit will be reflected in the Company’s tax provision. Deferred tax liabilities associated with intangibles cannot be considered a source of taxable income to support the realization of deferred tax assets because these deferred tax liabilities will not reverse until some indefinite future period when these assets are either sold or impaired for book purposes.  The establishment of a valuation allowance does not have any impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or utilizing other deferred tax assets in the future.

The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense.  As of October 30, 2015 and January 31, 2015, the Company has not accrued any interest and penalties related to uncertain tax positions.

The Company files income tax returns in the U.S. federal jurisdiction and in various states.  The Company is subject to examinations by the major tax jurisdictions in which it files for the tax years 2010 forward.  The federal tax returns for the period ended March 27, 2010 and period ended March 31, 2012 were examined by the Internal Revenue Service resulting in no changes to the reported tax.

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Commitments and Contingencies

9 Months Ended

Oct. 30, 2015

Commitments and Contingencies

Commitments and Contingencies

11.          Commitments and Contingencies

Credit Facilities

The Credit Facilities and commitments are discussed in detail in Note 5, “Debt.”

Workers’ Compensation

The Company self-insures its workers’ compensation claims in California and Texas and provides for losses of estimated known and incurred but not reported insurance claims.  The Company does not discount the projected future cash outlays for the time value of money for claims and claim related costs when establishing its workers’ compensation liability.

As of October 30, 2015 and January 30, 2015, the Company had recorded a liability of $68.6 million and $70.4 million, respectively, for estimated workers’ compensation claims in California.  The Company has limited self-insurance exposure in Texas and had recorded a liability of less than $0.1 million as of each of October 30, 2015 and January 30, 2015 for workers’ compensation claims in Texas.  The Company purchases workers’ compensation insurance coverage in Arizona and Nevada and is not self-insured in those states.

Self-Insured Health Insurance Liability

The Company self-insures for a portion of its employee medical benefit claims.  As of each of October 30, 2015 and January 30, 2015, the Company had recorded a liability of $0.5 million for estimated health insurance claims.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

Legal Matters

Wage and Hour Matters

Shelley Pickett v. 99¢ Only Stores.  Plaintiff, a former cashier for the Company, filed a representative action complaint against the Company on November 4, 2011 in the Superior Court of the State of California, County of Los Angeles alleging a PAGA claim that the Company violated section 14 of Wage Order 7-2001 by failing to provide seats for its cashiers behind checkout counters.  The plaintiff seeks civil penalties of $100 to $200 per violation, per each pay period for each affected employee, and attorney’s fees.  The court denied the Company’s motion to compel arbitration of Pickett’s individual claims or, in the alternative, to strike the representative action allegations in the Complaint, and the Court of Appeals affirmed the trial court’s ruling.  The Company’s petition for review of the decision in the California Supreme Court was denied on January 15, 2014, and remittitur issued on January 27, 2014.  On June 27, 2013, the plaintiff entered into a settlement agreement and release with the Company in another matter.  Payment has been made to the plaintiff under that agreement and the other action has been dismissed.  The Company’s position is that the release the plaintiff executed in that matter waives the claims she asserts in this action, waives her right to proceed on a class or representative basis or as a private attorney general and requires her to dismiss this action with prejudice as to her individual claims.  The Company notified the plaintiff of its position by a letter dated as of July 30, 2013, but she has yet to dismiss the lawsuit.  On February 11, 2014, the Company answered the complaint, denying all material allegations, and filed a cross-complaint against Pickett seeking to enforce her agreement to dismiss this action.  Through the cross-complaint, the Company seeks declaratory relief, specific performance and damages.  Pickett has answered the cross-complaint, asserting a general denial of all material allegations and various affirmative defenses.  On March 12, 2014, in an unrelated matter involving similar claims against a different employer, the California Supreme Court agreed to rule on several questions that will provide guidance to lower courts as to California’s employee seating requirement, which is a largely untested area of law.  Accordingly, on May 20, 2014, the parties stipulated to stay this matter pending the final resolution of the California Supreme Court proceeding, with the exception of the Company’s motion for judgment on the pleadings on the cross-complaint and Ms. Pickett’s motion for leave to substitute in a new representative plaintiff.  On September 30, 2014, the court denied the motion for judgment on the pleadings and granted the motion for leave to amend.  Plaintiffs filed their amended complaint on October 8, 2014, and the Company answered on October 10, 2014, denying all material allegations.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that it could face as a result of such lawsuit.

Sofia Wilton Barriga v. 99¢ Only Stores.  Plaintiff, a former store associate, filed an action against the Company on August 5, 2013, in the Superior Court of the State of California, County of Riverside alleging on behalf of plaintiff and all others allegedly similarly situated under the California Labor Code that the Company failed to pay wages for all hours worked, provide meal periods, pay wages timely upon termination, and provide accurate wage statements.  The plaintiff also asserted a derivative claim for unfair competition under the California Business and Professions Code.  The plaintiff seeks to represent a class of all non-exempt employees who were employed in California in the Company’s retail stores who worked the graveyard shift at any time from January 1, 2012, through the date of trial or settlement.  Although the class period as originally pled would extend back to August 5, 2009, the parties have agreed that any class period would run beginning January 1, 2012, because of the preclusive effect of a judgment in a previous matter.  The plaintiff seeks to recover alleged unpaid wages, statutory penalties, interest, attorney’s fees and costs, and restitution.  On September 23, 2013, the Company filed an answer denying all material allegations.  A case management conference was held on October 4, 2013, at which the court ordered that discovery may proceed as to class certification issues only.  After discovery commenced, a mediation was held on March 12, 2015, resulting in a confidential mediator’s proposal, which the parties verbally accepted.  The parties were unable to negotiate and finalize a written settlement agreement.  Subsequent settlement discussions directly with the plaintiff and through the mediator, as well as a court-ordered settlement conference, were unsuccessful.  The Court has set a status conference for January 12, 2016, and at that time will set a discovery plan and deadline for the filing of motions regarding class certification if the parties are unable to agree prior to that time on such a plan and deadline.  On October 26, 2015, plaintiffs’ counsel filed another action, this time in Los Angeles Superior Court, entitled Ivan Guerra v. 99 Cents Only Stores LLC (Case No. BC599119), which asserts PAGA claims based in part on the allegations at issue in the Barriga action.  While the Guerra case is not yet at issue, plaintiffs have agreed to stipulate to the transfer of the action to Riverside Superior Court and to consolidate it with the Barriga action.  The Company cannot predict the outcome of these lawsuits or the amount of potential loss, if any, that it could face as a result of such lawsuits.

Other Matters

The Company is also subject to other private lawsuits, administrative proceedings and claims that arise in its ordinary course of business.  A number of these lawsuits, proceedings and claims may exist at any given time.  While the resolution of such a lawsuit, proceeding or claim may have an impact on the Company’s financial results for the period in which it is resolved, and litigation is inherently unpredictable, in management’s opinion, none of these matters arising in the ordinary course of business is expected to have a material adverse effect on the Company’s financial position, results of operations or overall liquidity.

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Assets Held for Sale

9 Months Ended

Oct. 30, 2015

Assets Held for Sale

Assets Held for Sale

12.          Assets Held for Sale

Assets held for sale as of October 30, 2015 consisted of vacant land in Rancho Mirage, California and land in Bullhead, Arizona with a carrying value of $2.3 million.  Assets held for sale as of January 30, 2015 consisted of vacant land in Rancho Mirage, California and property containing land and a building in Pasadena-Shaver, Texas with a carrying value of $3.1 million.

In April 2015, the Company completed the sale of property in Pasadena-Shaver, Texas and received net proceeds of $1.4 million.  The carrying value of the Pasadena-Shaver property was $1.4 million.

In September 2015, the Company completed the sale of a cold storage distribution center in City of Commerce, California and received net proceeds of $11.8 million.  The carrying value of the cold storage distribution center was $6.5 million.

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Other Accrued Expenses

9 Months Ended

Oct. 30, 2015

Other Accrued Expenses

Other Accrued Expenses

13.          Other Accrued Expenses

Other accrued expenses as of October 30, 2015 and January 30, 2015 are as follows (in thousands):

	October 30, 2015		January 30, 2015
Accrued interest	$	14,073	$	8,363
Accrued occupancy costs	15,225		11,766
Accrued legal reserves and fees	7,043		6,006
Accrued interest swap	1,221		1,591
Accrued California Redemption Value	2,450		951
Other	11,103		11,491
Total other accrued expenses	$	51,115	$	40,168

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New Authoritative Standards

9 Months Ended

Oct. 30, 2015

New Authoritative Standards

New Authoritative Standards

14.          New Authoritative Standards

In April 2014, the Final Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”).  ASU 2014-08 changes the requirements for reporting discontinued operations.  Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.  ASU 2014-08 is effective for all disposals or classifications as held for sale of components of an entity that occur within fiscal years beginning after December 15, 2014, and early adoption is permitted.  The Company adopted ASU 2014-08 in the first quarter of fiscal 2016.  There is no material impact on the Company or its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”).  ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The ASU also requires expanded disclosures about revenue recognition. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach.  ASU 2014-09 was to be effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 for all entities by one year. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and early adoption is permitted. The Company will adopt ASU 2014-12 in the first quarter of fiscal 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued.  If substantial doubt exists, additional disclosures are required. This ASU is effective for annual periods ending after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted.  The Company will adopt this standard in the first quarter of fiscal 2018 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates the concept of extraordinary items under GAAP, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations.  This ASU is effective for annual periods ending after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The Company will adopt this standard in the first quarter of fiscal 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis.”  This ASU amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities.  The amendment modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, among other provisions.  This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and early adoption permitted.  The Company will adopt this standard in the first quarter of fiscal 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03.)” This ASU requires companies to present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. Debt issuance costs will continue to be amortized to interest expense using the effective interest method. In August 2015, FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangement (“ASU 2015-15”). ASU 2015-15 clarifies the presentation and measurement of debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. For line-of-credit arrangements, an entity can continue to present debt issuance costs as an asset and amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. These standards are effective for public companies for annual periods beginning after December 15, 2015 as well as interim periods within those annual periods using the retrospective approach. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.”  This ASU simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost or net realizable value test.  Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  The guidance is effective for reporting periods beginning after December 15, 2016 and interim periods within those fiscal years, with early adoption permitted. This ASU should be applied prospectively. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.”  This ASU eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. This ASU is effective for fiscal years beginning after December 15, 2015, and early adoption is permitted.  The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.  The Company will adopt this standard in the first quarter of fiscal 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.”  This ASU simplifies the presentation of deferred income taxes by requiring that all deferred tax liabilities and assets be classified as long-term on the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2017, and allows for either prospective or retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

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Financial Guarantees

9 Months Ended

Oct. 30, 2015

Financial Guarantees

Financial Guarantees

15.Financial Guarantees

On December 29, 2011, the Company issued $250.0 million principal amount of the Senior Notes.  The Senior Notes are irrevocably and unconditionally guaranteed, jointly and severally, by each of the Company’s existing and future restricted subsidiaries that are guarantors under the Credit Facilities and certain other indebtedness.

As of October 30, 2015 and January 30, 2015, the Senior Notes are fully and unconditionally guaranteed by the Company’s 100% owned subsidiaries (the “Subsidiary Guarantors”), except for immaterial subsidiaries.

The tables in the following pages present the condensed consolidating financial information for the Company and the Subsidiary Guarantors together with consolidating entries, as of and for the periods indicated.  The subsidiaries that are not Subsidiary Guarantors are minor.  The condensed consolidating financial information may not necessarily be indicative of the financial position, results of operations or cash flows had the Company, and the Subsidiary Guarantors operated as independent entities.

CONDENSED CONSOLIDATING BALANCE SHEETS

As of October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,303		$	1,246		$	36		$	—		$	2,585
Accounts receivable, net	1,711			102			—			—			1,813
Income taxes receivable	1,540			—			—			—			1,540
Deferred income taxes	31,115			—			—			—			31,115
Inventories, net	234,212			32,024			—			—			266,236
Assets held for sale	2,308			—			—			—			2,308
Other	14,438			1,245			14			—			15,697
Total current assets	286,627			34,617			50			—			321,294
Property and equipment, net	496,096			59,321			28			—			555,445
Deferred financing costs, net	13,402			—			—			—			13,402
Equity investments and advances to subsidiaries	565,157			482,517			1,424			(1,049,098		)	—
Intangible assets, net	453,752			2,065			—			—			455,817
Goodwill	359,745			—			—			—			359,745
Deposits and other assets	7,100			410			8			—			7,518
Total assets	$	2,181,879		$	578,930		$	1,510		$	(1,049,098	)	$	1,713,221
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	93,165		$	5,736		$	—		$	—		$	98,901
Intercompany payable	483,189			501,681			1,985			(986,855		)	—
Payroll and payroll-related	18,890			1,225			—			—			20,115
Sales tax	6,010			658			—			—			6,668
Other accrued expenses	46,530			4,568			17			—			51,115
Workers’ compensation	68,630			75			—			—			68,705
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	979			—			—			—			979
Total current liabilities	723,531			513,943			2,002			(986,855		)	252,621
Long-term debt, net of current portion	916,485			—			—			—			916,485
Unfavorable lease commitments, net	6,303			62			—			—			6,365
Deferred rent	24,369			2,185			5			—			26,559
Deferred compensation liability	762			—			—			—			762
Capital and financing lease obligation, net of current portion	34,474			—			—			—			34,474
Long-term deferred income taxes	191,914			—			—			—			191,914
Other liabilities	3,972			—			—			—			3,972
Total liabilities	1,901,810			516,190			2,007			(986,855		)	1,433,152
Member’s Equity:
Member units	550,144			—			1			(1		)	550,144
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(250,751		)	(37,203		)	(498		)	37,701			(250,751		)
Other comprehensive loss	(124		)	—			—			—			(124		)
Total equity	280,069			62,740			(497		)	(62,243		)	280,069
Total liabilities and equity	$	2,181,879		$	578,930		$	1,510		$	(1,049,098	)	$	1,713,221

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 30, 2015

(In thousands)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	11,333		$	1,097		$	33		$	—		$	12,463
Accounts receivable, net	1,844			110			—			—			1,954
Income taxes receivable	10,911			—			—			—			10,911
Deferred income taxes	41,583			—			—			—			41,583
Inventories, net	263,284			32,756			—			—			296,040
Assets held for sale	1,680			1,414			—			—			3,094
Other	18,023			1,005			11			—			19,039
Total current assets	348,658			36,382			44			—			385,084
Property and equipment, net	517,739			63,251			30			—			581,020
Deferred financing costs, net	15,463			—			—			—			15,463
Equity investments and advances to subsidiaries	451,053			357,842			—			(808,895		)	—
Intangible assets, net	458,043			2,268			—			—			460,311
Goodwill	479,745			—			—			—			479,745
Deposits and other assets	7,040			503			—			—			7,543
Total assets	$	2,277,741		$	460,246		$	74		$	(808,895	)	$	1,929,166
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	136,884		$	2,403		$	—		$	—		$	139,287
Intercompany payable	357,909			377,382			567			(735,858		)	—
Payroll and payroll-related	18,489			1,515			—			—			20,004
Sales tax	13,562			525			—			—			14,087
Other accrued expenses	37,756			2,375			37			—			40,168
Workers’ compensation	70,416			75			—			—			70,491
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	380			—			—			—			380
Total current liabilities	641,534			384,275			604			(735,858		)	290,555
Long-term debt, net of current portion	901,395			—			—			—			901,395
Unfavorable lease commitments, net	8,103			117			—			—			8,220
Deferred rent	21,006			2,287			—			—			23,293
Deferred compensation liability	724			—			—			—			724
Capital and financing lease obligation, net of current portion	24,681			—			—			—			24,681
Long-term deferred income taxes	170,678			—			—			—			170,678
Other liabilities	1,868			—			—			—			1,868
Total liabilities	1,769,989			386,679			604			(735,858		)	1,421,414
Member’s Equity:
Member units	549,135			—			1			(1		)	549,135
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(21,185		)	(26,376		)	(531		)	26,907			(21,185		)
Other comprehensive loss	(998		)	—			—			—			(998		)
Total equity	507,752			73,567			(530		)	(73,037		)	507,752
Total liabilities and equity	$	2,277,741		$	460,246		$	74		$	(808,895	)	$	1,929,166

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Third Quarter Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	447,617		$	43,848		$	197		$	(197	)	$	491,465
Cost of sales	325,304			34,492			—			—			359,796
Gross profit	122,313			9,356			197			(197		)	131,669
Selling, general and administrative expenses	133,506			13,652			188			(197		)	147,149
Goodwill impairment	120,000			—			—			—			120,000
Operating (loss) income	(131,193		)	(4,296		)	9			—			(135,480		)
Other (income) expense:
Interest income	—			—			—			—			—
Interest expense	16,549			—			—			—			16,549
Equity in (earnings) loss of subsidiaries	4,281			—			—			(4,281		)	—
Total other expense, net	20,830			—			—			(4,281		)	16,549
(Loss) income before provision for income taxes	(152,023		)	(4,296		)	9			4,281			(152,029		)
Provision (benefit) for income taxes	613			—			(6		)	—			607
Net (loss) income	$	(152,636	)	$	(4,296	)	$	15		$	4,281		$	(152,636	)
Comprehensive (loss) income	$	(152,104	)	$	(4,296	)	$	15		$	4,281		$	(152,104	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the First Three Quarters Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,354,980		$	131,176		$	578		$	(578	)	$	1,486,156
Cost of sales	960,445			101,544			—			—			1,061,989
Gross profit	394,535			29,632			578			(578		)	424,167
Selling, general and administrative expenses	411,433			40,459			551			(578		)	451,865
Goodwill impairment	120,000			—			—			—			120,000
Operating (loss) income	(136,898		)	(10,827		)	27			—			(147,698		)
Other (income) expense:
Interest income	(3		)	—			—			—			(3		)
Interest expense	49,302			—			—			—			49,302
Equity in (earnings) loss of subsidiaries	10,794			—			—			(10,794		)	—
							—
Total other expense, net	60,093			—			—			(10,794		)	49,299
(Loss) income before provision for income taxes	(196,991		)	(10,827		)	27			10,794			(196,997		)
Provision (benefit) for income taxes	32,575			—			(6		)	—			32,569
Net (loss) income	$	(229,566	)	$	(10,827	)	$	33		$	10,794		$	(229,566	)
Comprehensive (loss) income	$	(228,692	)	$	(10,827	)	$	33		$	10,794		$	(228,692	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Third Quarter Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	434,121		$	44,157		$	—		$	—		$	478,278
Cost of sales	293,887			34,257			—			—			328,144
Gross profit	140,234			9,900			—			—			150,134
Selling, general and administrative expenses	127,094			13,185			93			—			140,372
Operating income (loss)	13,140			(3,285		)	(93		)	—			9,762
Other (income) expense:
Interest expense	15,717			—			—			—			15,717
Equity in (earnings) loss of subsidiaries	3,378			—			—			(3,378		)	—
Total other expense, net	19,095			—			—			(3,378		)	15,717
Loss before provision for income taxes	(5,955		)	(3,285		)	(93		)	3,378			(5,955		)
Benefit for income taxes	(2,141		)	—			—			—			(2,141		)
Net loss	$	(3,814	)	$	(3,285	)	$	(93	)	$	3,378		$	(3,814	)
Comprehensive loss	$	(3,750	)	$	(3,285	)	$	(93	)	$	3,378		$	(3,750	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the First Three Quarters Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer		Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,281,485	$	132,897		$	—		$	—		$	1,414,382
Cost of sales	858,364		101,004			—			—			959,368
Gross profit	423,121		31,893			—			—			455,014
Selling, general and administrative expenses	356,927		38,099			225			—			395,251
Operating income (loss)	66,194		(6,206		)	(225		)	—			59,763
Other (income) expense:
Interest expense	46,613		—			—			—			46,613
Equity in (earnings) loss of subsidiaries	6,431		—			—			(6,431		)	—
Total other expense, net	53,044		—			—			(6,431		)	46,613
Income (loss) before provision for income taxes	13,150		(6,206		)	(225		)	6,431			13,150
Provision for income taxes	5,350		—			—			—			5,350
Net income (loss)	$	7,800	$	(6,206	)	$	(225	)	$	6,431		$	7,800
Comprehensive income	$	8,088	$	(6,206	)	$	(225	)	$	6,431		$	8,088

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the First Three Quarters Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	1,447		$	374		$	6		$	—	$	1,827
Cash flows from investing activities:
Purchases of property and equipment	(53,998		)	(1,709		)	(3		)	—		(55,710		)
Proceeds from sales of fixed assets	20,836			1,484			—			—		22,320
Net cash used in investing activities	(33,162		)	(225		)	(3		)	—		(33,390		)
Cash flows from financing activities:
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	404,050			—			—			—		404,050
Payments under revolving credit facility	(385,350		)	—			—			—		(385,350		)
Payments of debt issuance costs	(487		)	—			—			—		(487		)
Proceeds from financing lease obligations	8,666			—			—			—		8,666
Payments of capital and financing lease obligations	(143		)	—			—			—		(143		)
Payments to repurchase stock options of Number Holdings, Inc	(390		)	—			—			—		(390		)
Net settlement of stock options of Number Holdings, Inc. for tax withholdings	(57		)	—			—			—		(57		)
Net cash provided by financing activities	21,685			—			—			—		21,685
Net (decrease) increase in cash	(10,030		)	149			3			—		(9,878		)
Cash — beginning of period	11,333			1,097			33			—		12,463
Cash — end of period	$	1,303		$	1,246		$	36		$	—	$	2,585

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the First Three Quarters Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary		Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	19,287		$	7,706		$	32	$	—		$	27,025
Cash flows from investing activities:
Purchases of property and equipment	(69,531		)	(7,383		)	—		—			(76,914		)
Proceeds from sale of fixed assets	21			8			—		—			29
Investment in subsidiary	(1		)	—			—		1			—
Net cash used in investing activities	(69,511		)	(7,375		)	—		1			(76,885		)
Cash flows from financing activities:
Payments of long—term debt	(4,604		)	—			—		—			(4,604		)
Proceeds under revolving credit facility	112,500			—			—		—			112,500
Payments under revolving credit facility	(76,500		)	—			—		—			(76,500		)
Payments of capital lease obligation	(65		)	—			—		—			(65		)
Payments to repurchase stock options of Number Holdings, Inc	(76		)	—			—		—			(76		)
Capital contributions	—			—			1		(1		)	—
Net cash provided by financing activities	31,255			—			1		(1		)	31,255
Net (decrease) increase in cash	(18,969		)	331			33		—			(18,605		)
Cash — beginning of period	33,723			1,119			—		—			34,842
Cash — end of period	$	14,754		$	1,450		$	33	$	—		$	16,237

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Oct. 30, 2015

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  However, certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission.  These statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2015.  In the opinion of the Company’s management, these interim unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the consolidated financial position and results of operations for each of the periods presented.  The results of operations and cash flows for such periods are not necessarily indicative of results to be expected for the full fiscal year ending January 29, 2016 (“fiscal 2016”).

Fiscal Year

Fiscal Year

The Company follows a fiscal calendar consisting of four quarters with 91 days, each ending on the Friday closest to the last day of April, July, October or January, as applicable, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years.  Unless otherwise stated, references to years in this Report relate to fiscal years rather than calendar years.  The Company’s fiscal year 2016 began on January 31, 2015, will end on January 29, 2016 and will consist of 52 weeks.  The Company’s fiscal year 2015 (“fiscal 2015”) began on February 1, 2014, ended on January 30, 2015 and consisted of 52 weeks.  The third quarter ended October 30, 2015 (“the third quarter of fiscal 2016”) and the third quarter ended October 31, 2014 (“the third quarter of fiscal 2015”) were each comprised of 91 days.  The period ended October 30, 2015 (“the first three quarters of fiscal 2016”) and the period ended October 31, 2014 (“the first three quarters of fiscal 2015”) were each comprised of 273 days. References to the Company’s “transition fiscal 2014” are to the Company’s fiscal year ended January 31, 2014.

Use of Estimates

Use of Estimates

The preparation of the unaudited consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

Cash

For purposes of reporting cash flows, cash includes cash on hand, cash at the stores and cash in financial institutions.  The majority of payments due from financial institutions for the settlement of debit card and credit card transactions are processed within three business days and therefore are also classified as cash.  Cash balances held at financial institutions are generally in excess offederally insured limits.  These accounts are only insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company historically has not experienced any losses in such accounts.  The Company places its temporary cash investments with what it believes to be high credit, quality financial institutions.  Under the Company’s cash management system, checks issued but not presented to the bank may result in book cash overdraft balances for accounting purposes.  The Company reclassifies book overdrafts to accounts payable, which are reflected as an operating activity in its unaudited consolidated statements of cash flows.  Book overdrafts included in accounts payable were $15.6 million and $16.5 million as of October 30, 2015 and January 30, 2015, respectively.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

In connection with its wholesale business, the Company evaluates the collectability of accounts receivable based on a combination of factors.  In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected.  For all other customers and tenants, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and the Company’s historical experiences.

Inventories

Inventories

Inventories are valued at the lower of cost or market. Inventory cost is established using a methodology that approximates first in, first out, which for store inventories is based on a retail inventory method.  Valuation allowances for shrinkage as well as excess and obsolete inventory are also recorded.  Shrinkage is estimated as a percentage of sales for the period from the last physical inventory date to the end of the applicable period.  Such estimates are based on experience and the most recent physical inventory results.  Physical inventory counts are completed at each of the Company’s retail stores at least once a year by an outside inventory service company.  The Company performs inventory cycle counts at its warehouses throughout the year.  The Company also performs inventory reviews and analysis on a quarterly basis for both warehouse and store inventory to determine inventory valuation allowances for excess and obsolete inventory.  The valuation allowances for excess and obsolete inventory are based on the age of the inventory, sales trends and future merchandising plans.  The valuation allowances for excess and obsolete inventory require management judgment and estimates that may impact the ending inventory valuation and valuation allowances that may affect the reported gross margin for the period.

In order to obtain inventory at attractive prices, the Company takes advantage of large volume purchases, closeouts and other similar purchases.  As such, the Company’s inventory fluctuates from period to period and the inventory balances vary based on the timing and availability of such opportunities.

Property and Equipment

Property and Equipment

Property and equipment are carried at cost and are depreciated or amortized on a straight-line basis over the following useful lives:

Owned buildings and improvements	Lesser of 30 years or the estimated useful life of the improvement
Leasehold improvements	Lesser of the estimated useful life of the improvement or remaining lease term
Fixtures and equipment	3-5 years
Transportation equipment	3-5 years
Information technology systems	For major corporate systems, estimated useful life up to 7 years; for functional standalone systems, estimated useful life up to 5 years

The Company’s policy is to capitalize expenditures that materially increase asset lives and expense ordinary repairs and maintenance as incurred.

Long-Lived Assets

Long-Lived Assets

The Company assesses the impairment of depreciable long-lived assets when events or changes in circumstances indicate that the carrying value may not be recoverable.  The Company groups and evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual identifiable cash flows are available.  Recoverability is measured by comparing the carrying amount of an asset to expected future net cash flows generated by the asset.  If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, the carrying amount is compared to its fair value and an impairment charge is recognized to the extent of the difference.  Factors that the Company considers important that could individually or in combination trigger an impairment review include the following: (1) significant underperformance relative to expected historical or projected future operating results; (2) significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’soverall business; and (3) significant changes in the Company’s business strategies and/or negative industry or economic trends.  On a quarterly basis, the Company assesses whether events or changes in circumstances occur that potentially indicate that the carrying value of long-lived assets may not be recoverable (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).  Considerable management judgment is necessary to estimate projected future operating cash flows.  Accordingly, if actual results fall short of such estimates, significant future impairments could result. During the second quarter of fiscal 2016, due to the underperformance of one store in Texas, the Company concluded that the carrying value of the long-lived assets relating to such store were not recoverable and accordingly recorded an asset impairment charge of $0.5 million. During each of the third quarter and first three quarters of fiscal 2015, the Company did not record any long-lived asset impairment charges.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

In connection with the Merger purchase price allocation, the fair values of long-lived and intangible assets were determined based upon assumptions related to the future cash flows, discount rates and asset lives using then available information, and in some cases were obtained from independent professional valuation experts.  The Company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite.

Goodwill and indefinite-lived intangible assets are not amortized but instead tested annually for impairment or more frequently when events or changes in circumstances indicate that the assets might be impaired.  Goodwill is tested for impairment by comparing the carrying amount of the reporting unit to the fair value of the reporting unit to which the goodwill is assigned.  The Company has the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step zero of the goodwill impairment test).  If the Company does not perform a qualitative assessment, or determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required.  The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, goodwill is impaired and the loss is measured by performing step two.  Under step two, the impairment loss is measured by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill.  Management has determined that the Company has two reporting units, the wholesale reporting unit and the retail reporting unit.

The Company performs the annual test for impairment in January of the fiscal year and determines fair value based on a combination of the income approach and the market approach.  The income approach is based on discounted cash flows to determine fair value. The market approach uses a selection of comparable companies and transactions in determining fair value. The fair value of the trade name is also tested for impairment in the fourth quarter by comparing the carrying value to the fair value. Fair value of a trade name is determined using a relief from royalty method under the income approach, which uses projected revenue allocable to the trade name and an assumed royalty rate (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).

Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on undiscounted cash flows, and, if impaired, written down to fair value based on either discounted cash flows or appraised values.  Significant judgment is required in determining whether a potential indicator of impairment of long-lived assets exists and in estimating future cash flows used in the impairment tests (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).

During the third quarter of fiscal 2016, the Company determined that sufficient indicators of potential impairment for the retail reporting unit existed to require an interim impairment analysis of goodwill and trade name. These indicators included significant declines in profitability in the most recent quarters of fiscal 2016 and a modest recovery to restore expected future operating results to historical levels.  The Company’s first step evaluation was completed assuming the company could be bought or sold in a non-taxable transaction and concluded that the fair value of the retail reporting unit was below its carrying value.

The Company performed step two of the goodwill impairment that requires the retail reporting unit’s fair value to be allocated to all of the assets and liabilities of the reporting unit, including any intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination in a non-taxable transaction as applied in the first step, including any significant increases in the fair value of tangible property and intangible assets.  Assessing the fair value of goodwill includes making assumptions about future cash flows, discount rates and asset lives using then best available information.  These assumptions are subject to a high degree of complexity and judgment. Due to the complexity and effort required to estimate the fair value of the retail reporting unit in the second step of the analysis, the fair value estimates were based on preliminary analyses and assumptions that are subject to change. Based on the Company’s preliminary step two analysis, the implied fair value of the retail reporting unit’s goodwill was estimated to be $347.2 million (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”).  As a result of the Company’s preliminary analysis and best estimate, the Company recorded a $120.0 million non-cash goodwill impairment charge in the third quarter of fiscal 2016, which was reflected as Goodwill Impairment in the consolidated statements of comprehensive income (loss). The goodwill impairment charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial covenants. The finalization of preliminary goodwill impairment will be completed in the fourth quarter of fiscal 2016 and further adjustments to the preliminary goodwill impairment charge, if any, may be recognized when the Company’s finalizes the second step of the goodwill impairment test.  The primary factors that contributed to the estimated goodwill impairment loss were the declines in fiscal 2016 operating results and hypothetical projected impact in succeeding years as well as significant increases in the fair value of tangible property since the Merger.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

During fiscal 2015, the Company did not record any impairment charges related to goodwill or other intangible assets.

Derivatives

Derivatives

The Company accounts for derivative financial instruments in accordance with authoritative guidance for derivative instrument and hedging activities.  Financial instrument positions taken by the Company are primarily intended to be used to manage risks associated with interest rate exposures.

The Company’s derivative financial instruments are recorded on the balance sheet at fair value, and are recorded in either current or noncurrent assets or liabilities based on their maturity.  Changes in the fair values of derivatives are recorded in net earnings or other comprehensive income (“OCI”), based on whether the instrument is designated and effective as a hedge transaction and, if so, the type of hedge transaction.  Gains or losses on derivative instruments reported in accumulated other comprehensive income (“AOCI”) are reclassified to earnings in the period the hedged item affects earnings.  Any ineffectiveness is recognized in earnings in the period incurred.

Income Taxes

Income Taxes

The Company uses the liability method of accounting for income taxes.  Under the liability method, deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities.  Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The Company’s ability to realize deferred tax assets is assessed throughout the year and a valuation allowance is established accordingly.  The Company recognizes the impact of a tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position.  The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense.  Refer to Note 10, “Income Taxes,” for further discussion of income taxes.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based payment awards based on their fair value.  The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods.  For awards classified as equity, the Company estimates the fair value for each option award as of the date of grant using the Black-Scholes option pricing model or other appropriate valuation models.  The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of the stock price.  Stock options are generally granted to employees at exercise prices equal to or greater than the fair market value of the stock at the dates of grant.  Former executive put rights were classified as equity awards and revalued using a binomial model at each reporting period with changes in the fair value recognized as stock-based compensation expense.  The fair value of the options that will vest based on the Company’s and Parent’s achievement of certain performance hurdles were valued using a Monte Carlo simulation method.  Refer to Note 8, “Stock-Based Compensation” for further discussion of stock-based compensation.

Revenue Recognition

Revenue Recognition

The Company recognizes retail sales in its retail stores at the time the customer takes possession of merchandise.  All sales are net of discounts and returns and exclude sales tax.  Wholesale sales are recognized in accordance with the shipping terms agreed upon on the purchase order. Wholesale sales are typically recognized free on board origin, where title and risk of loss pass to the buyer when the merchandise leaves the Company’s distribution facility.

The Company has a gift card program.  The Company does not charge administrative fees on gift cards and the Company’s gift cards do not have expiration dates.  The Company records the sale of gift cards as a current liability and recognizes a sale when a customer redeems a gift card.  The liability for outstanding gift cards is recorded in accrued expenses.

Cost of Sales

Cost of Sales

Cost of sales includes the cost of inventory, freight in, obsolescence, spoilage, scrap and inventory shrinkage, and is net of discounts and allowances.  Cost of sales also includes receiving, warehouse costs and distribution costs (which include payroll and associated costs, occupancy, transportation to and from stores and depreciation expense).  Cash discounts for satisfying early payment terms are recognized when payment is made, and allowances and rebates based upon milestone achievements such as reaching a certain volume of purchases of a vendor’s products are included as a reduction of cost of sales when such contractual milestones are reached.

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses include the costs of selling merchandise in stores (which include payroll and associated costs, occupancy and other store-level costs) and corporate costs (which include payroll and associated costs, occupancy, advertising, professional fees and other corporate administrative costs).  Selling, general and administrative expenses also include depreciation and amortization expense relating to these costs.

Leases

Leases

The Company follows the policy of capitalizing allowable expenditures that relate to the acquisition and signing of its retail store leases.  These costs are amortized on a straight-line basis over the applicable lease term.

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 applicable lease term.  The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is included in deferred rent.  Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives are recorded as deferred rent.  Deferred rent related to landlord incentives is amortized as an offset to rent expense using the straight-line method over the applicable lease term.

In certain lease arrangements, the Company can be involved with the construction of the building. If it is determined that the Company has substantially all of the risks of ownership during construction of the leased property and therefore is deemed to be the owner of the construction project, the Company records an asset for the amount of the total project costs and an amount related to the value attributed to the pre-existing leased building in property and equipment, net and the related financing obligation as part of current and non-current liabilities.  Once construction is complete, if it is determined that the asset does not qualify for sale-leaseback accounting treatment, the Company amortizes the obligation over the lease term and depreciates the asset over the life of the lease. The Company does not report rent expense for the portion of the rent payment determined to be related to the assets which are owned for accounting purposes. Rather, this portion of the rent payment under the lease is recognized as a reduction of the financing obligation and interest expense.

For store closures where a lease obligation still exists, the Company records the estimated future liability associated with the rental obligation on the cease use date (when the store is closed).  Liabilities are established at the cease use date for the present value of any remaining operating lease obligations, net of estimated sublease income, and at the communication date for severance and other exit costs.  Key assumptions in calculating the liability include the timeframe expected to terminate lease agreements, estimates related to the sublease potential of closed locations, and estimates of other related exit costs.  If actual timing and potential termination costs or realization of sublease income differ from the Company’s estimates, the resulting liabilities could vary from recorded amounts. These liabilities are reviewed periodically and adjusted when necessary.

During the second quarter of fiscal 2016, the Company sold and concurrently leased back two retail stores with a carrying value of $7.9 million and received net proceeds from these transactions of $8.7 million. The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transactions closed. The resulting leases are accounted for as financing leases and the Company has recorded a corresponding financing lease obligation of $8.7 million (as a component of current and non-current liabilities).  The Company will amortize the financing lease obligation over the lease term and depreciate the assets over their remaining useful lives.  During the third quarter of fiscal 2016, the Company sold and concurrently leased one store and the resulting lease qualifies and is accounted for as an operating lease.  The net proceeds from the sale-leaseback transaction amounted to $9.0 million.  The Company will amortize deferred gains of $2.6 million relating to the sale-leaseback transaction over the lease term.

Self-Insured Workers' Compensation Liability

Self-Insured Workers’ Compensation Liability

The Company self-insures for workers’ compensation claims in California and Texas.  The Company establishes a liability for losses from both estimated known and incurred but not reported insurance claims based on reported claims and actuarial valuations of estimated future costs of known and incurred but not yet reported claims.  Should an amount of claims greater than anticipated occur, the liability recorded may not be sufficient and additional workers’ compensation costs, which may be significant, could be incurred.  The Company has not discounted the projected future cash outlays for the time value of money for claims and claim-related costs when establishing its workers’ compensation liability in its financial reports for each of October 30, 2015 and January 30, 2015.

Self-Insured Health Insurance Liability

Self-Insured Health Insurance Liability

The Company self-insures for a portion of its employee medical benefit claims.  The liability for the self-funded portion of the Company health insurance program is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

Pre-Opening Costs

Pre-Opening Costs

The Company expenses, as incurred, pre-opening costs such as payroll, rent and marketing related to the opening of new retail stores.

Advertising

Advertising

The Company expenses advertising costs as incurred.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash, accounts receivable, interest rate and other derivatives, accounts payable, accruals, debt, and other liabilities.  Cash and derivatives are measured and recorded at fair value.  Accounts receivable and other receivables are financial assets with carrying values that approximate fair value.  Accounts payable and other accrued expenses are financial liabilities with carrying values that approximate fair value.  Refer to Note 7, “Fair Value of Financial Instruments” for further discussion of the fair value of debt.

The Company uses the authoritative guidance for fair value, which includes the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements.  Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.  Fair value measurements reflect the assumptions market participants would use in pricing an asset or liability based on the best information available.  Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model.

Comprehensive Income

Comprehensive Income

Other comprehensive income (“OCI”) includes unrealized gains or losses on interest rate derivatives designated as cash flow hedges.

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Basis of Presentation and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Oct. 30, 2015

Basis of Presentation and Summary of Significant Accounting Policies

Schedule of property and equipment useful lives

Owned buildings and improvements	Lesser of 30 years or the estimated useful life of the improvement
Leasehold improvements	Lesser of the estimated useful life of the improvement or remaining lease term
Fixtures and equipment	3-5 years
Transportation equipment	3-5 years
Information technology systems	For major corporate systems, estimated useful life up to 7 years; for functional standalone systems, estimated useful life up to 5 years

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Goodwill and Other Intangibles (Tables)

9 Months Ended

Oct. 30, 2015

Goodwill and Other Intangibles

Schedule of goodwill and other intangible assets and liabilities, and unfavorable leases

The following tables set forth the value of the goodwill and other intangible assets and liabilities, and unfavorable leases, respectively (in thousands):

	October 30, 2015										January 30, 2015
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(120,000	)	$	—		$	359,745	$	479,745	$	—		$	479,745
Trade name	410,000		—			—			410,000		410,000		—			410,000
Total indefinite lived intangible assets	$	889,745	$	(120,000	)	$	—		$	769,745	$	889,745	$	—		$	889,745
Finite lived intangible assets:
Trademarks	$	2,000	$	—		$	(381	)	$	1,619	$	2,000	$	(306	)	$	1,694
Bargain Wholesale customer relationships	20,000		—			(6,338		)	13,662		20,000		(5,096		)	14,904
Favorable leases	46,723		—			(16,187		)	30,536		46,723		(13,010		)	33,713
Total finite lived intangible assets	68,723		—			(22,906		)	45,817		68,723		(18,412		)	50,311
Total goodwill and other intangible assets	$	958,468	$	(120,000	)	$	(22,906	)	$	815,562	$	958,468	$	(18,412	)	$	940,056

	October 30, 2015								January 30, 2015
	Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	1 to 15	$	19,835	$	(13,470	)	$	6,365	1 to 15	$	19,835	$	(11,615	)	$	8,220

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Property and Equipment, net (Tables)

9 Months Ended

Oct. 30, 2015

Property and Equipment, net

Schedule of details of property and equipment

The following table provides details of property and equipment (in thousands):

	October 30, 2015			January 30, 2015
Land	$	177,970		$	176,506
Buildings	111,397			117,422
Buildings improvements	71,828			71,985
Leasehold improvements	185,111			176,895
Fixtures and equipment	186,124			148,851
Transportation equipment	11,962			12,685
Construction in progress	25,301			46,195
Total property and equipment	769,693			750,539
Less: accumulated depreciation and amortization	(214,248		)	(169,519		)
Property and equipment, net	$	555,445		$	581,020

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Comprehensive Income (Tables)

9 Months Ended

Oct. 30, 2015

Comprehensive Income

Schedule of comprehensive income, net of tax effects

The following table sets forth the calculation of comprehensive income, net of tax effects (in thousands):

	For the Third Quarter Ended						For the First Three Quarters Ended
	October 30, 2015			October 31, 2014			October 30, 2015			October 31, 2014
Net (loss) income	$	(152,636	)	$	(3,814	)	$	(229,566	)	$	7,800
Unrealized loss on interest rate cash flow hedge, net of tax effects of $94, $(117), $0 and $(254) for the third quarter and first three quarters of each of fiscal 2016 and fiscal 2015, respectively	(192		)	(176		)	(333		)	(380		)
Reclassification adjustment, net of tax effects of $(321), $160, $0 and $445 for the third quarter and first three quarters of each of fiscal 2016 and fiscal 2015, respectively	724			240			1,207			668
Total unrealized gains , net	532			64			874			288
Total comprehensive (loss) income	$	(152,104	)	$	(3,750	)	$	(228,692	)	$	8,088

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Debt (Tables)

9 Months Ended

Oct. 30, 2015

Debt

Schedule of short and long-term debt

Short and long-term debt consists of the following (in thousands):

	October 30, 2015		January 30, 2015
ABL Facility, maturing on January 13, 2017	$	75,700	$	57,000
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2019, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $4,612 and $5,606 as of October 30, 2015 and January 30, 2015, respectively	596,923		600,533
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000		250,000
Total debt	922,623		907,533
Less: current portion	6,138		6,138
Long-term debt, net of current portion	$	916,485	$	901,395

Schedule of net deferred financing costs

As of October 30, 2015 and January 30, 2015, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	October 30, 2015		January 30, 2015
ABL Facility	$	1,160	$	1,196
First Lien Term Loan Facility	4,734		5,754
Senior Notes	7,508		8,513
Total deferred financing costs, net	$	13,402	$	15,463

Schedule of significant components of interest expense

The significant components of interest expense are as follows (in thousands):

	For the Third Quarter Ended				For the First Three Quarters Ended
	October 30, 2015		October 31, 2014		October 30, 2015		October 31, 2014
First Lien Term Loan Facility	$	7,230	$	7,345	$	21,735	$	21,928
ABL Facility	654		366		1,843		817
Senior Notes	6,875		6,875		20,701		20,549
Amortization of deferred financing costs and OID	1,238		1,113		3,543		3,291
Other interest expense	552		18		1,480		28
Interest expense	$	16,549	$	15,717	$	49,302	$	46,613

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Derivative Financial Instruments (Tables)

9 Months Ended

Oct. 30, 2015

Derivative Financial Instruments

Summary of the recorded amounts included in the consolidated balance sheet

A summary of the recorded amounts included in the consolidated balance sheets is as follows (in thousands):

	October 30, 2015		January 30, 2015
Derivatives designated as cash flow hedging instruments
Interest rate swap (included in other current liabilities)	$	1,221	$	1,591
Interest rate swap (included in other liabilities)	$	—	$	596
Accumulated other comprehensive loss, net of tax (included in member’s equity)	$	124	$	998
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	516	$	—
Transition payments (included in other liabilities)	$	197	$	—

Summary of recorded amounts included in the consolidated statements of comprehensive income (loss)

A summary of recorded amounts included in the unaudited consolidated statements of comprehensive income (loss) is as follows (in thousands):

	For the Third Quarter Ended					For the First Three Quarters Ended
	October 30, 2015			October 31, 2014		October 30, 2015			October 31, 2014
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	192		$	176	$	333		$	380
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	724		$	240	$	1,207		$	668
(Gain) loss related to ineffective portion of derivative recognized in interest expense	$	(27	)	$	22	$	(88	)	$	(110	)
Derivatives not designated as hedging instruments:
Loss recognized in selling, general and administrative expenses	$	713		$	—	$	713		$	—

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Oct. 30, 2015

Fair Value of Financial Instruments

Schedule of financial assets and liabilities recorded at fair value on a recurring basis, by level within the fair value hierarchy

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands):

	October 30, 2015
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	762	$	762	$	—	$	—
LIABILITIES
Other current liabilities — interest rate swap	$	1,221	$	—	$	1,221	$	—
Other current liabilities — transition payments	$	516	$	—	$	—	$	516
Other long-term liabilities — transition payments	$	197	$	—	$	—	$	197
Other long-term liabilities — deferred compensation	$	762	$	762	$	—	$	—

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of January 30, 2015 (in thousands):

	January 30, 2015
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	724	$	724	$	—	$	—
LIABILITES
Other current liabilities — interest rate swap	$	1,591	$	—	$	1,591	$	—
Other long-term liabilities — interest rate swap	$	596	$	—	$	596	$	—
Other long-term liabilities — deferred compensation	$	724	$	724	$	—	$	—

Summary of activity for the period of changes in fair value of the Company's Level 3 investments

The following table summarizes the activity for the period of changes in fair value of the Company’s Level 3 instruments (in thousands):

	For the First Three Quarters Ended
Transition Payments	October 30, 2015			October 31, 2014
Description
Beginning balance	$	—		$	—
Transfers in and/or out of Level 3	—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	(713		)	—
Included in other comprehensive loss	—			—
Purchases, sales, issues and settlements:
Settlements	—			—
Ending balance	$	(713	)	$	—
Total amount of unrealized gains (losses) for the period included in earnings relating to liabilities held at the reporting period	$	(713	)	$	—

(1) Losses are included in selling, general and administrative expenses.

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Stock-Based Compensation (Tables)

9 Months Ended

Oct. 30, 2015

Stock-Based Compensation

Summary of stock option activity

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	48,130		$	1,171
Granted	36,800		$	946
Exercised	(660	)	$	1,000
Cancelled	(27,719	)	$	1,209
Outstanding at the end of the period	56,551		$	1,007	8.20
Exercisable at the end of the period	6,970		$	1,049	6.70

Summary of stock awards available for grant

	Number of Shares
Available for grant as of January 30, 2015	36,840
Authorized	—
Granted	(36,800	)
Cancelled	27,719
Available for grant at October 30, 2015	27,759

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Other Accrued Expenses (Tables)

9 Months Ended

Oct. 30, 2015

Other Accrued Expenses

Schedule of other accrued expenses

Other accrued expenses as of October 30, 2015 and January 30, 2015 are as follows (in thousands):

	October 30, 2015		January 30, 2015
Accrued interest	$	14,073	$	8,363
Accrued occupancy costs	15,225		11,766
Accrued legal reserves and fees	7,043		6,006
Accrued interest swap	1,221		1,591
Accrued California Redemption Value	2,450		951
Other	11,103		11,491
Total other accrued expenses	$	51,115	$	40,168

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Financial Guarantees (Tables)

9 Months Ended

Oct. 30, 2015

Financial Guarantees

Schedule of condensed consolidating balance sheets

CONDENSED CONSOLIDATING BALANCE SHEETS

As of October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,303		$	1,246		$	36		$	—		$	2,585
Accounts receivable, net	1,711			102			—			—			1,813
Income taxes receivable	1,540			—			—			—			1,540
Deferred income taxes	31,115			—			—			—			31,115
Inventories, net	234,212			32,024			—			—			266,236
Assets held for sale	2,308			—			—			—			2,308
Other	14,438			1,245			14			—			15,697
Total current assets	286,627			34,617			50			—			321,294
Property and equipment, net	496,096			59,321			28			—			555,445
Deferred financing costs, net	13,402			—			—			—			13,402
Equity investments and advances to subsidiaries	565,157			482,517			1,424			(1,049,098		)	—
Intangible assets, net	453,752			2,065			—			—			455,817
Goodwill	359,745			—			—			—			359,745
Deposits and other assets	7,100			410			8			—			7,518
Total assets	$	2,181,879		$	578,930		$	1,510		$	(1,049,098	)	$	1,713,221
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	93,165		$	5,736		$	—		$	—		$	98,901
Intercompany payable	483,189			501,681			1,985			(986,855		)	—
Payroll and payroll-related	18,890			1,225			—			—			20,115
Sales tax	6,010			658			—			—			6,668
Other accrued expenses	46,530			4,568			17			—			51,115
Workers’ compensation	68,630			75			—			—			68,705
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	979			—			—			—			979
Total current liabilities	723,531			513,943			2,002			(986,855		)	252,621
Long-term debt, net of current portion	916,485			—			—			—			916,485
Unfavorable lease commitments, net	6,303			62			—			—			6,365
Deferred rent	24,369			2,185			5			—			26,559
Deferred compensation liability	762			—			—			—			762
Capital and financing lease obligation, net of current portion	34,474			—			—			—			34,474
Long-term deferred income taxes	191,914			—			—			—			191,914
Other liabilities	3,972			—			—			—			3,972
Total liabilities	1,901,810			516,190			2,007			(986,855		)	1,433,152
Member’s Equity:
Member units	550,144			—			1			(1		)	550,144
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(250,751		)	(37,203		)	(498		)	37,701			(250,751		)
Other comprehensive loss	(124		)	—			—			—			(124		)
Total equity	280,069			62,740			(497		)	(62,243		)	280,069
Total liabilities and equity	$	2,181,879		$	578,930		$	1,510		$	(1,049,098	)	$	1,713,221

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 30, 2015

(In thousands)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	11,333		$	1,097		$	33		$	—		$	12,463
Accounts receivable, net	1,844			110			—			—			1,954
Income taxes receivable	10,911			—			—			—			10,911
Deferred income taxes	41,583			—			—			—			41,583
Inventories, net	263,284			32,756			—			—			296,040
Assets held for sale	1,680			1,414			—			—			3,094
Other	18,023			1,005			11			—			19,039
Total current assets	348,658			36,382			44			—			385,084
Property and equipment, net	517,739			63,251			30			—			581,020
Deferred financing costs, net	15,463			—			—			—			15,463
Equity investments and advances to subsidiaries	451,053			357,842			—			(808,895		)	—
Intangible assets, net	458,043			2,268			—			—			460,311
Goodwill	479,745			—			—			—			479,745
Deposits and other assets	7,040			503			—			—			7,543
Total assets	$	2,277,741		$	460,246		$	74		$	(808,895	)	$	1,929,166
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	136,884		$	2,403		$	—		$	—		$	139,287
Intercompany payable	357,909			377,382			567			(735,858		)	—
Payroll and payroll-related	18,489			1,515			—			—			20,004
Sales tax	13,562			525			—			—			14,087
Other accrued expenses	37,756			2,375			37			—			40,168
Workers’ compensation	70,416			75			—			—			70,491
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	380			—			—			—			380
Total current liabilities	641,534			384,275			604			(735,858		)	290,555
Long-term debt, net of current portion	901,395			—			—			—			901,395
Unfavorable lease commitments, net	8,103			117			—			—			8,220
Deferred rent	21,006			2,287			—			—			23,293
Deferred compensation liability	724			—			—			—			724
Capital and financing lease obligation, net of current portion	24,681			—			—			—			24,681
Long-term deferred income taxes	170,678			—			—			—			170,678
Other liabilities	1,868			—			—			—			1,868
Total liabilities	1,769,989			386,679			604			(735,858		)	1,421,414
Member’s Equity:
Member units	549,135			—			1			(1		)	549,135
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(21,185		)	(26,376		)	(531		)	26,907			(21,185		)
Other comprehensive loss	(998		)	—			—			—			(998		)
Total equity	507,752			73,567			(530		)	(73,037		)	507,752
Total liabilities and equity	$	2,277,741		$	460,246		$	74		$	(808,895	)	$	1,929,166

Schedule of condensed consolidated statements of comprehensive income (loss)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Third Quarter Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	447,617		$	43,848		$	197		$	(197	)	$	491,465
Cost of sales	325,304			34,492			—			—			359,796
Gross profit	122,313			9,356			197			(197		)	131,669
Selling, general and administrative expenses	133,506			13,652			188			(197		)	147,149
Goodwill impairment	120,000			—			—			—			120,000
Operating (loss) income	(131,193		)	(4,296		)	9			—			(135,480		)
Other (income) expense:
Interest income	—			—			—			—			—
Interest expense	16,549			—			—			—			16,549
Equity in (earnings) loss of subsidiaries	4,281			—			—			(4,281		)	—
Total other expense, net	20,830			—			—			(4,281		)	16,549
(Loss) income before provision for income taxes	(152,023		)	(4,296		)	9			4,281			(152,029		)
Provision (benefit) for income taxes	613			—			(6		)	—			607
Net (loss) income	$	(152,636	)	$	(4,296	)	$	15		$	4,281		$	(152,636	)
Comprehensive (loss) income	$	(152,104	)	$	(4,296	)	$	15		$	4,281		$	(152,104	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the First Three Quarters Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,354,980		$	131,176		$	578		$	(578	)	$	1,486,156
Cost of sales	960,445			101,544			—			—			1,061,989
Gross profit	394,535			29,632			578			(578		)	424,167
Selling, general and administrative expenses	411,433			40,459			551			(578		)	451,865
Goodwill impairment	120,000			—			—			—			120,000
Operating (loss) income	(136,898		)	(10,827		)	27			—			(147,698		)
Other (income) expense:
Interest income	(3		)	—			—			—			(3		)
Interest expense	49,302			—			—			—			49,302
Equity in (earnings) loss of subsidiaries	10,794			—			—			(10,794		)	—
							—
Total other expense, net	60,093			—			—			(10,794		)	49,299
(Loss) income before provision for income taxes	(196,991		)	(10,827		)	27			10,794			(196,997		)
Provision (benefit) for income taxes	32,575			—			(6		)	—			32,569
Net (loss) income	$	(229,566	)	$	(10,827	)	$	33		$	10,794		$	(229,566	)
Comprehensive (loss) income	$	(228,692	)	$	(10,827	)	$	33		$	10,794		$	(228,692	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Third Quarter Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	434,121		$	44,157		$	—		$	—		$	478,278
Cost of sales	293,887			34,257			—			—			328,144
Gross profit	140,234			9,900			—			—			150,134
Selling, general and administrative expenses	127,094			13,185			93			—			140,372
Operating income (loss)	13,140			(3,285		)	(93		)	—			9,762
Other (income) expense:
Interest expense	15,717			—			—			—			15,717
Equity in (earnings) loss of subsidiaries	3,378			—			—			(3,378		)	—
Total other expense, net	19,095			—			—			(3,378		)	15,717
Loss before provision for income taxes	(5,955		)	(3,285		)	(93		)	3,378			(5,955		)
Benefit for income taxes	(2,141		)	—			—			—			(2,141		)
Net loss	$	(3,814	)	$	(3,285	)	$	(93	)	$	3,378		$	(3,814	)
Comprehensive loss	$	(3,750	)	$	(3,285	)	$	(93	)	$	3,378		$	(3,750	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the First Three Quarters Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer		Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,281,485	$	132,897		$	—		$	—		$	1,414,382
Cost of sales	858,364		101,004			—			—			959,368
Gross profit	423,121		31,893			—			—			455,014
Selling, general and administrative expenses	356,927		38,099			225			—			395,251
Operating income (loss)	66,194		(6,206		)	(225		)	—			59,763
Other (income) expense:
Interest expense	46,613		—			—			—			46,613
Equity in (earnings) loss of subsidiaries	6,431		—			—			(6,431		)	—
Total other expense, net	53,044		—			—			(6,431		)	46,613
Income (loss) before provision for income taxes	13,150		(6,206		)	(225		)	6,431			13,150
Provision for income taxes	5,350		—			—			—			5,350
Net income (loss)	$	7,800	$	(6,206	)	$	(225	)	$	6,431		$	7,800
Comprehensive income	$	8,088	$	(6,206	)	$	(225	)	$	6,431		$	8,088

Schedule of condensed consolidated statements of cash flows

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the First Three Quarters Ended October 30, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	1,447		$	374		$	6		$	—	$	1,827
Cash flows from investing activities:
Purchases of property and equipment	(53,998		)	(1,709		)	(3		)	—		(55,710		)
Proceeds from sales of fixed assets	20,836			1,484			—			—		22,320
Net cash used in investing activities	(33,162		)	(225		)	(3		)	—		(33,390		)
Cash flows from financing activities:
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	404,050			—			—			—		404,050
Payments under revolving credit facility	(385,350		)	—			—			—		(385,350		)
Payments of debt issuance costs	(487		)	—			—			—		(487		)
Proceeds from financing lease obligations	8,666			—			—			—		8,666
Payments of capital and financing lease obligations	(143		)	—			—			—		(143		)
Payments to repurchase stock options of Number Holdings, Inc	(390		)	—			—			—		(390		)
Net settlement of stock options of Number Holdings, Inc. for tax withholdings	(57		)	—			—			—		(57		)
Net cash provided by financing activities	21,685			—			—			—		21,685
Net (decrease) increase in cash	(10,030		)	149			3			—		(9,878		)
Cash — beginning of period	11,333			1,097			33			—		12,463
Cash — end of period	$	1,303		$	1,246		$	36		$	—	$	2,585

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the First Three Quarters Ended October 31, 2014

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary		Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	19,287		$	7,706		$	32	$	—		$	27,025
Cash flows from investing activities:
Purchases of property and equipment	(69,531		)	(7,383		)	—		—			(76,914		)
Proceeds from sale of fixed assets	21			8			—		—			29
Investment in subsidiary	(1		)	—			—		1			—
Net cash used in investing activities	(69,511		)	(7,375		)	—		1			(76,885		)
Cash flows from financing activities:
Payments of long—term debt	(4,604		)	—			—		—			(4,604		)
Proceeds under revolving credit facility	112,500			—			—		—			112,500
Payments under revolving credit facility	(76,500		)	—			—		—			(76,500		)
Payments of capital lease obligation	(65		)	—			—		—			(65		)
Payments to repurchase stock options of Number Holdings, Inc	(76		)	—			—		—			(76		)
Capital contributions	—			—			1		(1		)	—
Net cash provided by financing activities	31,255			—			1		(1		)	31,255
Net (decrease) increase in cash	(18,969		)	331			33		—			(18,605		)
Cash — beginning of period	33,723			1,119			—		—			34,842
Cash — end of period	$	14,754		$	1,450		$	33	$	—		$	16,237

XML

Basis of Presentation and Summary of Significant Accounting Policies (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 30, 2015 USD ($) item	Oct. 31, 2014	Oct. 30, 2015 USD ($) item	Oct. 31, 2014	Jan. 29, 2016 item	Jan. 30, 2015 USD ($) item
Nature of Business
Stores in operation	389		389
Fiscal Year
Days in each fiscal quarter	91 days	91 days	273 days	273 days
Number of weeks in period					52	52
Number of days in a fiscal year						364
Number of weeks in a fiscal year every five to six years						53
Cash
Number of business days within which the majority of payments are due for the settlement of debit and credit card transactions			3 days
Cash, FDIC Insured Amount | $	$ 250,000		$ 250,000
Book overdrafts included in accounts payable | $			$ 15,600,000			$ 16,500,000
Minimum
Fiscal Year
Period during which fiscal years includes 53 weeks						5 years
Maximum
Fiscal Year
Period during which fiscal years includes 53 weeks						6 years
California
Nature of Business
Stores in operation	281		281
Texas
Nature of Business
Stores in operation	49		49
Arizona
Nature of Business
Stores in operation	38		38
Nevada
Nature of Business
Stores in operation	21		21

XML

Basis of Presentation and Summary of Significant Accounting Policies (Details 2) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2015 USD ($)	Jul. 31, 2015 USD ($) item	Oct. 30, 2015 USD ($)
Long-Lived Assets
Long-lived assets impairment	$ 0		$ 509
Owned buildings and improvements | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life			30 years
Fixtures and equipment | Minimum
Property and equipment
Property, Plant and Equipment, Useful Life			3 years
Fixtures and equipment | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life			5 years
Transportation equipment | Minimum
Property and equipment
Property, Plant and Equipment, Useful Life			3 years
Transportation equipment | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life			5 years
Information and technology major corporate systems | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life			7 years
Information and technology standalone systems | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life			5 years
Texas
Long-Lived Assets
Number of stores in underperformance | item		1
Long-lived assets impairment		$ 500

XML

Basis of Presentation and Summary of Significant Accounting Policies (Details 3) $ in Thousands	3 Months Ended			9 Months Ended
	Oct. 30, 2015 USD ($) store	Jul. 31, 2015 USD ($) store	Oct. 31, 2014 USD ($)	Oct. 30, 2015 USD ($) item	Oct. 31, 2014 USD ($)
Goodwill and Other Intangible assets
Number of reporting units | item				2
Goodwill impairment loss	$ 120,000		$ 0	$ 120,000	$ 0
Leases
Number of retail stores sold and concurrently leased back | store	1	2
Carrying value of sale-leaseback transactions		$ 7,900
Net proceeds from the sale-leaseback transactions		8,700		8,666
Net proceeds from the sale-leaseback transactions	$ 9,000
Sale Leaseback obligation		$ 8,700
Deferred gain	2,600			2,600
Retail reporting unit
Goodwill and Other Intangible assets
Goodwill fair value	$ 347,200			$ 347,200

XML

Goodwill and Other Intangibles (Details) - USD ($) $ in Thousands	Oct. 30, 2015	Jan. 30, 2015
Indefinite lived intangible assets:
Goodwill Gross Carrying Amount	$ 479,745	$ 479,745
Goodwill Impairment losses	(120,000)
Goodwill Net Carrying Amount	359,745	479,745
Indefinite Lived Assets Gross Carrying Amount	889,745	889,745
Indefinite Lived Assets Impairment losses	(120,000)
Indefinite Lived Assets Net Carrying Amount	769,745	889,745
Finite lived intangible assets:
Gross Carrying Amount	68,723	68,723
Accumulated Amortization	(22,906)	(18,412)
Net Carrying Amount	45,817	50,311
Total goodwill and other intangible assets, Gross Carrying Amount	958,468	958,468
Total goodwill and other intangible assets, Accumulated losses	(120,000)
Total goodwill and other intangible assets, Net Carrying Amount	815,562	940,056
Trademarks
Finite lived intangible assets:
Gross Carrying Amount	2,000	2,000
Accumulated Amortization	(381)	(306)
Net Carrying Amount	1,619	1,694
Bargain Wholesale customer relationships
Finite lived intangible assets:
Gross Carrying Amount	20,000	20,000
Accumulated Amortization	(6,338)	(5,096)
Net Carrying Amount	13,662	14,904
Favorable leases
Finite lived intangible assets:
Gross Carrying Amount	46,723	46,723
Accumulated Amortization	(16,187)	(13,010)
Net Carrying Amount	30,536	33,713
Trade name
Indefinite lived intangible assets:
Net Carrying Amount	$ 410,000	$ 410,000

XML

Goodwill and Other Intangibles (Details 2) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Oct. 30, 2015	Jan. 30, 2015
Unfavorable leases
Remaining Amortization Life, minimum	1 year	1 year
Remaining Amortization Life, maximum	15 years	15 years
Gross Carrying Amount	$ 19,835	$ 19,835
Accumulated Amortization	(13,470)	(11,615)
Net Carrying Amount	$ 6,365	$ 8,220

XML

Property and Equipment, net (Details) - USD ($) $ in Thousands	Oct. 30, 2015	Jan. 30, 2015
Property and equipment
Total property and equipment	$ 769,693	$ 750,539
Less: accumulated depreciation and amortization	(214,248)	(169,519)
Property and equipment, net	555,445	581,020
Land
Property and equipment
Total property and equipment	177,970	176,506
Buildings
Property and equipment
Total property and equipment	111,397	117,422
Buildings improvements
Property and equipment
Total property and equipment	71,828	71,985
Leasehold improvements
Property and equipment
Total property and equipment	185,111	176,895
Fixtures and equipment
Property and equipment
Total property and equipment	186,124	148,851
Transportation equipment
Property and equipment
Total property and equipment	11,962	12,685
Construction in progress
Property and equipment
Total property and equipment	$ 25,301	$ 46,195

XML

Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2015	Oct. 31, 2014	Oct. 30, 2015	Oct. 31, 2014
Comprehensive Income
Net (loss) income	$ (152,636)	$ (3,814)	$ (229,566)	$ 7,800
Unrealized loss on interest rate cash flow hedge, net of tax effects of $94, $(117), $0 and $(254) for the third quarter and first three quarters of each of fiscal 2016 and fiscal 2015, respectively	(192)	(176)	(333)	(380)
Reclassification adjustment, net of tax effects of $(321), $160, $0 and $445 for the third quarter and first three quarters of each of fiscal 2016 and fiscal 2015, respectively	724	240	1,207	668
Other comprehensive income, net of tax	532	64	874	288
Comprehensive (loss) income	(152,104)	(3,750)	(228,692)	8,088
Tax effects of unrealized gains (losses) on interest rate cash flow hedge	94	(117)	0	(254)
Tax effect of reclassification adjustment	$ (321)	$ 160	$ 0	$ 445

XML

Debt (Details) - USD ($) $ in Thousands					3 Months Ended		9 Months Ended		12 Months Ended
	Aug. 24, 2015	Oct. 08, 2013	Apr. 04, 2012	Jan. 13, 2012	Oct. 30, 2015	Oct. 31, 2014	Oct. 30, 2015	Oct. 31, 2014	Jan. 30, 2015	Jul. 31, 2015	Dec. 29, 2011
Debt
Total long-term debt					$ 922,623		$ 922,623		$ 907,533
Less: current portion of long-term debt					6,138		6,138		6,138
Long-term debt, net of current portion					916,485		916,485		901,395
Deferred financing costs
Net Amount					13,402		13,402		15,463
Significant components of interest expense
Amortization of deferred financing costs and OID					1,238	$ 1,113	3,543	$ 3,291
Other interest expense					552	18	1,480	28
Interest expense					$ 16,549	15,717	$ 49,302	46,613
99 Cents Only Stores Texas, Inc.
Debt Instruments
Ownership percentage in subsidiary					100.00%		100.00%
ABL Facility
Debt
Total long-term debt					$ 75,700		$ 75,700		57,000
Deferred financing costs
Net Amount					1,160		1,160		1,196
Debt Instruments
Amount outstanding					$ 75,700		75,700		57,000
Increase in borrowing capacity available under certain circumstances										$ 50,000
Commitment fee on unused commitments (as a percent)					0.375%
Outstanding letters of credit					$ 2,500		2,500		2,500
Amount available					106,800		106,800		115,500
Maximum borrowing capacity										$ 175,000
Significant components of interest expense
Interest debt expense					$ 654	366	$ 1,843	817
ABL Facility | Maximum
Debt Instruments
Inventory advance rate (as a percent)	92.50%
ABL Facility | Minimum
Debt Instruments
Inventory advance rate (as a percent)	90.00%
ABL Facility | Base rate
Debt Instruments
Applicable margin (as a percent)					1.00%		1.00%
ABL Facility | LIBOR
Debt Instruments
Applicable margin (as a percent)							2.00%
ABL Facility Amended August 2015
Debt Instruments
Amount of increase in available credit facility due to amendment	$ 10,000
Amendment fees	500
Maximum borrowing capacity	$ 185,000
First Lien Term Loan Facility
Debt
Total long-term debt					$ 596,923		$ 596,923		600,533
Unamortized OID					4,612		4,612		5,606
Deferred financing costs
Net Amount					4,734		4,734		5,754
Debt Instruments
Amount borrowed				$ 525,000
Amount outstanding					$ 596,900		$ 596,900
Scheduled quarterly payments as a percentage of original principal amount				0.25%
Term of loan				7 years
Interest rate at the end of the period (as a percent)					4.50%		4.50%
Percentage of excess cash flow to be used for prepayment of debt							50.00%
Stepdown percentage one of excess cash flow to be used for prepayment of debt							25.00%
Stepdown percentage two of excess cash flow to be used for prepayment of debt (as a percent)							0.00%
Excess cash flow payment required									0
Scheduled quarterly payments							$ 1,535
Significant components of interest expense
Interest debt expense					$ 7,230	7,345	$ 21,735	21,928
First Lien Term Loan Facility | Prime rate
Debt Instruments
Variable rate (as a percent)							3.25%
First Lien Term Loan Facility | Base rate
Debt Instruments
Applicable margin (as a percent)				4.50%
First Lien Term Loan Facility | Federal funds rate
Debt Instruments
Applicable margin (as a percent)							0.50%
First Lien Term Loan Facility | One month adjusted Eurocurrency rate
Debt Instruments
Applicable margin (as a percent)							1.00%
First Lien Term Loan Facility | LIBOR
Debt Instruments
Applicable margin (as a percent)				5.50%
Interest rate, variable interest rate floor (as a percent)				1.50%
Eurocurrency loans | Eurocurrency loan
Debt Instruments
Variable rate at the end of the period (as a percent)					1.00%		1.00%
Applicable margin at the end of the period (as a percent)					3.50%		3.50%
Senior Notes
Debt
Total long-term debt					$ 250,000		$ 250,000		250,000		$ 250,000
Deferred financing costs
Net Amount					$ 7,508		$ 7,508		$ 8,513
Debt Instruments
Interest rate (as a percent)											11.00%
Ownership percentage in subsidiary					100.00%		100.00%		100.00%
Significant components of interest expense
Interest debt expense					$ 6,875	$ 6,875	$ 20,701	$ 20,549
First Lien Term Loan Facility Amended April 2012
Debt Instruments
Refinancing costs			$ 11,200
First Lien Term Loan Facility Amended April 2012 | Base rate
Debt Instruments
Applicable margin (as a percent)			3.00%
First Lien Term Loan Facility Amended April 2012 | LIBOR
Debt Instruments
Applicable margin (as a percent)			4.00%
Interest rate, variable interest rate floor (as a percent)			1.25%
First Lien Term Loan Facility Amended October 2013
Debt Instruments
Amount borrowed		$ 100,000
Increase in borrowing capacity available under certain circumstances		$ 100,000
Scheduled quarterly payments as a percentage of original principal amount		0.25%
Percentage of positive consolidated net income to determine a restricted payment under terms of debt instruments		50.00%
Percentage of negative consolidated net income to determine a restricted payment under terms of debt instruments		100.00%
Amount used to determine dividend and other payments		$ 20,000
Scheduled quarterly payments		$ 1,500
First Lien Term Loan Facility Amended October 2013 | Base rate
Debt Instruments
Applicable margin (as a percent)		2.50%
First Lien Term Loan Facility Amended October 2013 | LIBOR
Debt Instruments
Applicable margin (as a percent)		3.50%
Interest rate, variable interest rate floor (as a percent)		1.00%

XML

Derivative Financial Instruments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2015	Oct. 31, 2014	Oct. 30, 2015	Oct. 31, 2014	Jan. 30, 2015	May. 31, 2012
Derivatives not designated as hedging instruments | Chief Executive Officer
Derivative Financial Instruments
Payment period			4 years
Derivatives not designated as hedging instruments | Maximum | Chief Executive Officer
Derivative Financial Instruments
Derivative liabilities	$ 5,000		$ 5,000
Derivatives not designated as hedging instruments | Selling, general and administrative expenses
Recorded amounts included in the consolidated statements of comprehensive income (loss)
Loss recognized	713		713
Derivatives designated as cash flow hedging instruments | OCI
Recorded amounts included in the consolidated statements of comprehensive income (loss)
Loss related to effective portion of derivative recognized in OCI	192	$ 176	333	$ 380
Derivatives designated as cash flow hedging instruments | Interest expense.
Recorded amounts included in the consolidated statements of comprehensive income (loss)
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	724	240	1,207	668
(Gain) loss related to ineffective portion of derivative recognized in interest expense	$ (27)	$ 22	$ (88)	$ (110)
Interest Rate Swap | Derivatives designated as cash flow hedging instruments
Derivative Financial Instruments
Aggregate notional amount						$ 261,800
Applicable margin (as a percent)	3.50%		3.50%
Effective fixed interest rate (as a percent)	1.36%		1.36%
Interest Rate Swap | Derivatives designated as cash flow hedging instruments | other current liabilities
Fair Value
Derivative liabilities	$ 1,221		$ 1,221		$ 1,591
Interest Rate Swap | Derivatives designated as cash flow hedging instruments | other liabilities
Fair Value
Derivative liabilities					596
Interest Rate Swap | Derivatives designated as cash flow hedging instruments | Accumulated other comprehensive loss, net of tax (included in member's equity)
Fair Value
Derivative liabilities	124		124		$ 998
Transition Payments | Derivatives not designated as hedging instruments | other current liabilities
Fair Value
Derivative liabilities	516		516
Transition Payments | Derivatives not designated as hedging instruments | other liabilities
Fair Value
Derivative liabilities	$ 197		$ 197

XML

Fair Value of Financial Instruments (Details) - Fair value measurements on a recurring basis - USD ($) $ in Thousands	Oct. 30, 2015	Jan. 30, 2015
ASSETS
Other assets - assets that fund deferred compensation	$ 762	$ 724
LIABILITIES
Other long-term liabilities - deferred compensation	762	724
Interest Rate Swap
LIABILITIES
Other current liabilities	1,221	1,591
Other long-term liabilities		596
Transition Payments
LIABILITIES
Other current liabilities	516
Other long-term liabilities	197
Level 1
ASSETS
Other assets - assets that fund deferred compensation	762	724
LIABILITIES
Other long-term liabilities - deferred compensation	762	724
Level 2 | Interest Rate Swap
LIABILITIES
Other current liabilities	1,221	1,591
Other long-term liabilities		$ 596
Level 3 | Transition Payments
LIABILITIES
Other current liabilities	516
Other long-term liabilities	$ 197

XML

Fair Value of Financial Instruments (Details 2) - Level 1 - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Oct. 30, 2015	Jan. 30, 2015
Senior Notes
Fair value of financial instruments
Estimated fair value of debt instrument	$ 141.2	$ 264.7
Fair value adjustment to liability incurred or settled	(108.8)	$ 14.7
First Lien Term Loan Facility
Fair value of financial instruments
Estimated fair value of debt instrument	487.2
Fair value adjustment to liability incurred or settled	$ 114.3

XML

Fair Value of Financial Instruments (Details 3) $ in Thousands	9 Months Ended
	Oct. 30, 2015 USD ($)
Total realized/unrealized gains (loss):
Ending balance	$ (713)
Total amount of unrealized gains (losses) for the period included in earnings related to liabilities held at the reporting period	(713)
Selling, general and administrative expenses
Total realized/unrealized gains (loss):
Included in earnings	$ (713)

XML

Stock-Based Compensation (Details) $ / shares in Units, $ in Thousands			1 Months Ended	3 Months Ended				9 Months Ended
	May. 25, 2015	Oct. 09, 2013 shares	Oct. 02, 2015 item $ / shares shares	Oct. 30, 2015 USD ($) $ / shares shares	May. 01, 2015 $ / shares shares	Oct. 31, 2014 USD ($)	Aug. 01, 2014 shares	Oct. 30, 2015 USD ($) $ / shares shares	Oct. 31, 2014 USD ($)	Oct. 30, 2015 $ / shares shares	Feb. 27, 2012 shares
Stock-Based Compensation
Stock-based compensation | $						$ 600		$ 1,456	$ 2,016
Maximum
Stock-Based Compensation
Stock-based compensation | $				$ 100
2012 Plan
Stock-based compensation
Granted (in shares)								36,800
Number of Shares
Granted (in shares)								36,800
Cancelled (in shares)								(27,719)
Stock awards available for grant under the 2012 Plan
Available for grant at the beginning of the period (in shares)					36,840			36,840
Options granted (in shares)								36,800
Granted (in shares)								(36,800)
Cancelled (in shares)								27,719
Available for grant at the end of the period (in shares)				27,759				27,759
Class A Common Stock | 2012 Plan | Number Holdings, Inc.
Stock-based compensation
Number of shares authorized under the plan											85,000
Class B Common Stock | 2012 Plan | Number Holdings, Inc.
Stock-based compensation
Number of shares authorized under the plan											85,000
Employee Option Grants
Stock-based compensation
Options outstanding (in shares)				19,675				19,675		19,675
Expiration term								10 years
Number of Shares
Outstanding at the end of the period (in shares)				19,675				19,675
Employee Option Grants | Options vesting on the achievement of performance
Stock-based compensation
Granted (in shares)					1,250		750
Number of Shares
Granted (in shares)					1,250		750
Stock awards available for grant under the 2012 Plan
Options granted (in shares)					1,250		750
Granted (in shares)					(1,250)		(750)
Employee Option Grants | Maximum
Stock-based compensation
Vesting period								5 years
Stock awards available for grant under the 2012 Plan
Vesting period								5 years
Employee Option Grants | Minimum
Stock-based compensation
Vesting period								4 years
Stock awards available for grant under the 2012 Plan
Vesting period								4 years
Employee Option Grants | Number Holdings, Inc.
Stock-based compensation
Options outstanding (in shares)				56,551	48,130			48,130		56,551
Granted (in shares)								36,800
Number of Shares
Options outstanding at the beginning of the period (in shares)					48,130			48,130
Granted (in shares)								36,800
Exercised (in shares)								(660)
Cancelled (in shares)								(27,719)
Outstanding at the end of the period (in shares)				56,551				56,551
Exercisable at the end of the period (in shares)										6,970
Weighted Average Exercise Price
Options outstanding at the beginning of the period (in dollars per share) | $ / shares					$ 1,171			$ 1,171
Granted (in dollars per share) | $ / shares								946
Exercised (in dollars per share) | $ / shares								1,000
Cancelled (in dollars per share) | $ / shares								1,209
Outstanding at the end of the period (in dollars per share) | $ / shares				$ 1,007				$ 1,007
Exercisable at the end of the period (in dollars per share) | $ / shares										$ 1,049
Weighted Average Remaining Contractual Life
Outstanding at the end of the period								8 years 2 months 12 days
Exercisable at the end of the period								6 years 8 months 12 days
Stock awards available for grant under the 2012 Plan
Options granted (in shares)								36,800
Granted (in shares)								(36,800)
Cancelled (in shares)								27,719
Employee Option Grants | Board Members
Stock-based compensation
Vesting period								5 years
Expiration term								10 years
Stock awards available for grant under the 2012 Plan
Vesting period								5 years
Employee Option Grants | Stephane Gonthier | Number Holdings, Inc. | Options vesting on the achievement of performance
Stock-based compensation
Vesting percentage		25.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		25.00%
Employee Option Grants | Stephane Gonthier | Number Holdings, Inc. | Time-based service options
Stock-based compensation
Vesting period								4 years
Percentage of options that vest based on time-based service		75.00%
Percentage of options that vested based on time-based service	20.00%
Stock awards available for grant under the 2012 Plan
Vesting period								4 years
Employee Option Grants | Stephane Gonthier | Number Holdings, Inc. | Time-based service awards vesting on the first anniversary of the date of the award
Stock-based compensation
Vesting percentage		30.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		30.00%
Employee Option Grants | Stephane Gonthier | Number Holdings, Inc. | Time-based service awards vesting on the second anniversary of the date of the award
Stock-based compensation
Vesting percentage		20.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		20.00%
Employee Option Grants | Stephane Gonthier | Number Holdings, Inc. | Time-based service awards vesting on the third anniversary of the date of the award
Stock-based compensation
Vesting percentage		25.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		25.00%
Employee Option Grants | Stephane Gonthier | Number Holdings, Inc. | Time-based service awards vesting on the fourth anniversary of the date of the award
Stock-based compensation
Vesting percentage		25.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		25.00%
Employee Option Grants | 2012 Plan | Number Holdings, Inc.
Stock-based compensation
Period of rights repurchases after the date of participant's termination of employment								180 days
Period of rights repurchases from the latest date that an option can be exercised								90 days
Employee Option Grants | 2012 Plan | Chief Executive Officer
Stock awards available for grant under the 2012 Plan
Number of grants issued | item			2
Employee Option Grants | Class A and Class B Common Stock Management | Management and Directors | Number Holdings, Inc.
Stock-based compensation
Granted (in shares)								56,551
Number of Shares
Granted (in shares)								56,551
Stock awards available for grant under the 2012 Plan
Options granted (in shares)								56,551
Granted (in shares)								(56,551)
Employee Option Grants | Class A and Class B Common Stock Management | Stephane Gonthier | Number Holdings, Inc.
Stock-based compensation
Granted (in shares)		21,505
Number of Shares
Granted (in shares)		21,505
Stock awards available for grant under the 2012 Plan
Options granted (in shares)		21,505
Granted (in shares)		(21,505)
Employee Option Grants | Class A and Class B Common Stock Management | 2012 Plan | Chief Executive Officer | Exercise price 1
Stock-based compensation
Granted (in shares)			15,500
Number of Shares
Granted (in shares)			15,500
Stock awards available for grant under the 2012 Plan
Options granted (in shares)			15,500
Exercise price of options (in dollars per share) | $ / shares			$ 1,000
Granted (in shares)			(15,500)
Employee Option Grants | Class A and Class B Common Stock Management | 2012 Plan | Chief Executive Officer | Exercise price 2
Stock-based compensation
Granted (in shares)			15,500
Number of Shares
Granted (in shares)			15,500
Stock awards available for grant under the 2012 Plan
Options granted (in shares)			15,500
Granted (in shares)			(15,500)
Employee Option Grants | Class A and Class B Common Stock Management | 2012 Plan | Chief Executive Officer | Options vesting on the achievement of performance | Exercise price 1
Stock-based compensation
Vesting percentage			50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage			50.00%
Employee Option Grants | Class A and Class B Common Stock Management | 2012 Plan | Chief Executive Officer | Options vesting on the achievement of performance | Exercise price 2
Stock-based compensation
Vesting percentage			50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage			50.00%
Employee Option Grants | Class A and Class B Common Stock Management | 2012 Plan | Chief Executive Officer | Time-based service options | Exercise price 1
Stock-based compensation
Vesting period			4 years
Vesting percentage			50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage			50.00%
Vesting period			4 years
Employee Option Grants | Class A and Class B Common Stock Management | 2012 Plan | Chief Executive Officer | Time-based service options | Exercise price 2
Stock-based compensation
Vesting period			4 years
Vesting percentage			50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage			50.00%
Vesting period			4 years
Employee Option Grants | Class A and Class B Common Stock Management | 2012 Plan | Chief Executive Officer | Minimum | Exercise price 2
Stock awards available for grant under the 2012 Plan
Exercise price of options (in dollars per share) | $ / shares			$ 750
Fair value base for exercise price adjustment (in dollars per share) | $ / shares			$ 1,000

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Related-Party (Details) - USD ($) $ in Thousands		9 Months Ended
	Mar. 31, 2015	Oct. 30, 2015	Oct. 31, 2014	Jan. 30, 2015
Related-Party Transactions
Payment made for repurchase of options		$ 390	$ 76
Ares Corporate Opportunities Fund III LP and Canada Pension Plan Investment Board | Senior Notes
Related-Party Transactions
Debt owned by affiliate		102,100
Ares | First Lien Term Loan Facility Amended October 2013
Related-Party Transactions
Amount borrowed		$ 0		$ 1,400
Mr. Kvitko | Number Holdings, Inc. | Class B Common Stock
Related-Party Transactions
Payment made for repurchase of options	$ 400

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Income Tax (Details) - USD ($) $ in Thousands	9 Months Ended
	Oct. 30, 2015	Oct. 31, 2014
Difference between the provision for income taxes and income taxes at the statutory federal income tax rate, tax rate reconciliation
Effective income tax rate (as a percent)	(16.50%)	40.70%
DEFERRED TAX ASSETS
Increase in provision for income tax	$ 31,704	$ 465

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Commitments and Contingencies (Details) - USD ($)	Oct. 30, 2015	Jan. 30, 2015
Commitments and contingencies
Estimated workers' compensation claims	$ 68,705,000	$ 70,491,000
Wage and Hour Matters | Shelley Pickett v. 99 Cents Only Stores | Minimum
Commitments and contingencies
Civil penalties per violation, per each pay period for each affected employee	100
Wage and Hour Matters | Shelley Pickett v. 99 Cents Only Stores | Maximum
Commitments and contingencies
Civil penalties per violation, per each pay period for each affected employee	200
Health Insurance
Commitments and contingencies
Self Insured Health Insurance Liability	500,000	500,000
Texas | Workers' Compensation | Maximum
Commitments and contingencies
Estimated workers' compensation claims	100,000	100,000
California | Workers' Compensation
Commitments and contingencies
Estimated workers' compensation claims	$ 68,600,000	$ 70,400,000

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Assets Held for Sale (Details) - USD ($) $ in Thousands	1 Months Ended
	Oct. 02, 2015	Apr. 30, 2015	Oct. 30, 2015	Jan. 30, 2015
Assets held for sale
Carrying value of land held for sale			$ 2,308	$ 3,094
Rancho Mirage land and Bullhead land
Assets held for sale
Carrying value of land held for sale			$ 2,300
Rancho Mirage land
Assets held for sale
Carrying value of land held for sale				$ 3,100
Pasadena-Shaver property
Assets held for sale
Carrying value of land held for sale		$ 1,400
Net proceeds from sale of property		$ 1,400
City of Commerce, Cold storage distribution center
Assets held for sale
Carrying value of land held for sale	$ 6,500
Net proceeds from sale of property	$ 11,800

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Other Accrued Expenses (Details) - USD ($) $ in Thousands	Oct. 30, 2015	Jan. 30, 2015
Other accrued expenses
Accrued interest	$ 14,073	$ 8,363
Accrued occupancy costs	15,225	11,766
Accrued legal reserves and fees	7,043	6,006
Accrued interest swap	1,221	1,591
Accrued California Redemption Value	2,450	951
Other	11,103	11,491
Total other accrued expenses	$ 51,115	$ 40,168

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Financial Guarantees (Details) - USD ($) $ in Thousands	Oct. 30, 2015	Jan. 30, 2015	Oct. 31, 2014	Jan. 31, 2014	Dec. 29, 2011
Current Assets:
Cash	$ 2,585	$ 12,463	$ 16,237	$ 34,842
Accounts receivable, net	1,813	1,954
Income taxes receivable	1,540	10,911
Deferred income taxes	31,115	41,583
Inventories, net	266,236	296,040
Assets held for sale	2,308	3,094
Other	15,697	19,039
Total current assets	321,294	385,084
Property and equipment, net	555,445	581,020
Deferred financing costs, net	13,402	15,463
Intangible assets, net	455,817	460,311
Goodwill	359,745	479,745
Deposits and other assets	7,518	7,543
Total assets	1,713,221	1,929,166
Current Liabilities:
Accounts payable	98,901	139,287
Payroll and payroll-related	20,115	20,004
Sales tax	6,668	14,087
Other accrued expenses	51,115	40,168
Workers' compensation	68,705	70,491
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligation	979	380
Total current liabilities	252,621	290,555
Long-term debt, net of current portion	916,485	901,395
Unfavorable lease commitments, net	6,365	8,220
Deferred rent	26,559	23,293
Deferred compensation liability	762	724
Capital and financing lease obligation, net of current portion	34,474	24,681
Long-term deferred income taxes	191,914	170,678
Other liabilities	3,972	1,868
Total liabilities	1,433,152	1,421,414
Member's Equity
Member units	550,144	549,135
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(250,751)	(21,185)
Other comprehensive loss	(124)	(998)
Total equity	280,069	507,752
Total liabilities and equity	$ 1,713,221	$ 1,929,166
Senior Notes
Supplemental financial information
Ownership percentage in subsidiary	100.00%	100.00%
Consolidating Adjustments
Current Assets:
Equity investments and advances to subsidiaries	$ (1,049,098)	$ (808,895)
Total assets	(1,049,098)	(808,895)
Current Liabilities:
Intercompany payable	(986,855)	(735,858)
Total current liabilities	(986,855)	(735,858)
Total liabilities	(986,855)	(735,858)
Member's Equity
Member units	(1)	(1)
Additional paid-in capital	(99,943)	(99,943)
Accumulated deficit	37,701	26,907
Total equity	(62,243)	(73,037)
Total liabilities and equity	(1,049,098)	(808,895)
Issuer
Current Assets:
Cash	1,303	11,333	14,754	33,723
Accounts receivable, net	1,711	1,844
Income taxes receivable	1,540	10,911
Deferred income taxes	31,115	41,583
Inventories, net	234,212	263,284
Assets held for sale	2,308	1,680
Other	14,438	18,023
Total current assets	286,627	348,658
Property and equipment, net	496,096	517,739
Deferred financing costs, net	13,402	15,463
Equity investments and advances to subsidiaries	565,157	451,053
Intangible assets, net	453,752	458,043
Goodwill	359,745	479,745
Deposits and other assets	7,100	7,040
Total assets	2,181,879	2,277,741
Current Liabilities:
Accounts payable	93,165	136,884
Intercompany payable	483,189	357,909
Payroll and payroll-related	18,890	18,489
Sales tax	6,010	13,562
Other accrued expenses	46,530	37,756
Workers' compensation	68,630	70,416
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligation	979	380
Total current liabilities	723,531	641,534
Long-term debt, net of current portion	916,485	901,395
Unfavorable lease commitments, net	6,303	8,103
Deferred rent	24,369	21,006
Deferred compensation liability	762	724
Capital and financing lease obligation, net of current portion	34,474	24,681
Long-term deferred income taxes	191,914	170,678
Other liabilities	3,972	1,868
Total liabilities	1,901,810	1,769,989
Member's Equity
Member units	550,144	549,135
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(250,751)	(21,185)
Other comprehensive loss	(124)	(998)
Total equity	280,069	507,752
Total liabilities and equity	2,181,879	2,277,741
Issuer | Senior Notes | Predecessor
Supplemental financial information
Principal amount of debt instrument issued					$ 250,000
Subsidiary Guarantors
Current Assets:
Cash	1,246	1,097	1,450	$ 1,119
Accounts receivable, net	102	110
Inventories, net	32,024	32,756
Assets held for sale		1,414
Other	1,245	1,005
Total current assets	34,617	36,382
Property and equipment, net	59,321	63,251
Equity investments and advances to subsidiaries	482,517	357,842
Intangible assets, net	2,065	2,268
Deposits and other assets	410	503
Total assets	578,930	460,246
Current Liabilities:
Accounts payable	5,736	2,403
Intercompany payable	501,681	377,382
Payroll and payroll-related	1,225	1,515
Sales tax	658	525
Other accrued expenses	4,568	2,375
Workers' compensation	75	75
Total current liabilities	513,943	384,275
Unfavorable lease commitments, net	62	117
Deferred rent	2,185	2,287
Total liabilities	516,190	386,679
Member's Equity
Additional paid-in capital	99,943	99,943
Accumulated deficit	(37,203)	(26,376)
Total equity	62,740	73,567
Total liabilities and equity	578,930	460,246
Non-Guarantor Subsidiaries
Current Assets:
Cash	36	33	$ 33
Other	14	11
Total current assets	50	44
Property and equipment, net	28	30
Equity investments and advances to subsidiaries	1,424
Deposits and other assets	8
Total assets	1,510	74
Current Liabilities:
Intercompany payable	1,985	567
Other accrued expenses	17	37
Total current liabilities	2,002	604
Deferred rent	5
Total liabilities	2,007	604
Member's Equity
Member units	1	1
Accumulated deficit	(498)	(531)
Total equity	(497)	(530)
Total liabilities and equity	$ 1,510	$ 74
99 Cents Only Stores Texas, Inc.
Supplemental financial information
Ownership percentage in subsidiary	100.00%

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Financial Guarantees (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 30, 2015	Oct. 31, 2014	Oct. 30, 2015	Oct. 31, 2014
Net Sales:
Total sales	$ 491,465	$ 478,278	$ 1,486,156	$ 1,414,382
Cost of sales	359,796	328,144	1,061,989	959,368
Gross profit	131,669	150,134	424,167	455,014
Selling, general and administrative expenses	147,149	140,372	451,865	395,251
Goodwill impairment	120,000	0	120,000	0
Operating (loss) income	(135,480)	9,762	(147,698)	59,763
Other (income) expense:
Interest income			(3)
Interest expense	16,549	15,717	49,302	46,613
Total other expense, net	16,549	15,717	49,299	46,613
(Loss) income before provision for income taxes	(152,029)	(5,955)	(196,997)	13,150
Provision (benefit) for income taxes	607	(2,141)	32,569	5,350
Net (loss) income	(152,636)	(3,814)	(229,566)	7,800
Comprehensive (loss) income	(152,104)	(3,750)	(228,692)	8,088
Consolidating Adjustments
Net Sales:
Total sales	(197)		(578)
Gross profit	(197)		(578)
Selling, general and administrative expenses	(197)		(578)
Other (income) expense:
Equity in (earnings) loss of subsidiaries	(4,281)	(3,378)	(10,794)	(6,431)
Total other expense, net	(4,281)	(3,378)	(10,794)	(6,431)
(Loss) income before provision for income taxes	4,281	3,378	10,794	6,431
Net (loss) income	4,281	3,378	10,794	6,431
Comprehensive (loss) income	4,281	3,378	10,794	6,431
Issuer
Net Sales:
Total sales	447,617	434,121	1,354,980	1,281,485
Cost of sales	325,304	293,887	960,445	858,364
Gross profit	122,313	140,234	394,535	423,121
Selling, general and administrative expenses	133,506	127,094	411,433	356,927
Goodwill impairment	120,000		120,000
Operating (loss) income	(131,193)	13,140	(136,898)	66,194
Other (income) expense:
Interest income			(3)
Interest expense	16,549	15,717	49,302	46,613
Equity in (earnings) loss of subsidiaries	4,281	3,378	10,794	6,431
Total other expense, net	20,830	19,095	60,093	53,044
(Loss) income before provision for income taxes	(152,023)	(5,955)	(196,991)	13,150
Provision (benefit) for income taxes	613	(2,141)	32,575	5,350
Net (loss) income	(152,636)	(3,814)	(229,566)	7,800
Comprehensive (loss) income	(152,104)	(3,750)	(228,692)	8,088
Subsidiary Guarantors
Net Sales:
Total sales	43,848	44,157	131,176	132,897
Cost of sales	34,492	34,257	101,544	101,004
Gross profit	9,356	9,900	29,632	31,893
Selling, general and administrative expenses	13,652	13,185	40,459	38,099
Operating (loss) income	(4,296)	(3,285)	(10,827)	(6,206)
Other (income) expense:
(Loss) income before provision for income taxes	(4,296)	(3,285)	(10,827)	(6,206)
Net (loss) income	(4,296)	(3,285)	(10,827)	(6,206)
Comprehensive (loss) income	(4,296)	(3,285)	(10,827)	(6,206)
Non-Guarantor Subsidiaries
Net Sales:
Total sales	197		578
Gross profit	197		578
Selling, general and administrative expenses	188	93	551	225
Operating (loss) income	9	(93)	27	(225)
Other (income) expense:
(Loss) income before provision for income taxes	9	(93)	27	(225)
Provision (benefit) for income taxes	(6)		(6)
Net (loss) income	15	(93)	33	(225)
Comprehensive (loss) income	$ 15	$ (93)	$ 33	$ (225)

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Financial Guarantees (Details 3) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Jul. 31, 2015	Oct. 30, 2015	Oct. 31, 2014
Cash flows from operating activities:
Net cash provided by operating activities		$ 1,827	$ 27,025
Cash flows from investing activities:
Purchases of property and equipment		(55,710)	(76,914)
Proceeds from sale of fixed assets		22,320	29
Net cash used in investing activities		(33,390)	(76,885)
Cash flows from financing activities:
Payments of long-term debt		(4,604)	(4,604)
Proceeds under revolving credit facility		404,050	112,500
Payments under revolving credit facility		(385,350)	(76,500)
Payments of debt issuance costs		(487)
Proceeds from financing lease obligations	$ 8,700	8,666
Payments of capital and financing lease obligations		(143)	(65)
Payments to repurchase stock options of Number Holdings, Inc.		(390)	(76)
Net settlement of stock options of Number Holdings, Inc. for tax withholdings		(57)
Net cash provided by financing activities		21,685	31,255
Net decrease in cash		(9,878)	(18,605)
Cash - beginning of period		12,463	34,842
Cash - end of period		2,585	16,237
Consolidating Adjustments
Cash flows from investing activities:
Investment in subsidiary			1
Net cash used in investing activities			1
Cash flows from financing activities:
Capital contributions			(1)
Net cash provided by financing activities			(1)
Issuer
Cash flows from operating activities:
Net cash provided by operating activities		1,447	19,287
Cash flows from investing activities:
Purchases of property and equipment		(53,998)	(69,531)
Proceeds from sale of fixed assets		20,836	21
Investment in subsidiary			(1)
Net cash used in investing activities		(33,162)	(69,511)
Cash flows from financing activities:
Payments of long-term debt		(4,604)	(4,604)
Proceeds under revolving credit facility		404,050	112,500
Payments under revolving credit facility		(385,350)	(76,500)
Payments of debt issuance costs		(487)
Proceeds from financing lease obligations		8,666
Payments of capital and financing lease obligations		(143)	(65)
Payments to repurchase stock options of Number Holdings, Inc.		(390)	(76)
Net settlement of stock options of Number Holdings, Inc. for tax withholdings		(57)
Net cash provided by financing activities		21,685	31,255
Net decrease in cash		(10,030)	(18,969)
Cash - beginning of period		11,333	33,723
Cash - end of period		1,303	14,754
Subsidiary Guarantors
Cash flows from operating activities:
Net cash provided by operating activities		374	7,706
Cash flows from investing activities:
Purchases of property and equipment		(1,709)	(7,383)
Proceeds from sale of fixed assets		1,484	8
Net cash used in investing activities		(225)	(7,375)
Cash flows from financing activities:
Net decrease in cash		149	331
Cash - beginning of period		1,097	1,119
Cash - end of period		1,246	1,450
Non-Guarantor Subsidiaries
Cash flows from operating activities:
Net cash provided by operating activities		6	32
Cash flows from investing activities:
Purchases of property and equipment		(3)
Net cash used in investing activities		(3)
Cash flows from financing activities:
Capital contributions			1
Net cash provided by financing activities			1
Net decrease in cash		3	33
Cash - beginning of period		33
Cash - end of period		$ 36	$ 33