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 27, 2017

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. 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 6, 2017, 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 27, 2017 (unaudited) and January 27, 2017	4
	Consolidated Statements of Comprehensive Loss for the third quarter and first three quarters ended October 27, 2017 (unaudited) and October 28, 2016 (unaudited)	5
	Consolidated Statements of Cash Flows for the first three quarters ended October 27, 2017 (unaudited) and October 28, 2016 (unaudited)	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	54
	Part II – Other Information
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
	Signatures	58

2

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 27, 2017 filed with the Securities and Exchange Commission.

3

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

99 CENTS ONLY STORES LLC

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	October 27, 2017			January 27, 2017
	(Unaudited)
ASSETS
Current Assets:
Cash	$	2,391		$	2,448
Accounts receivable, net of allowance for doubtful accounts of $7 and $122 at October 27, 2017 and January 27, 2017, respectively	2,331			3,510
Income taxes receivable	2,739			3,876
Inventories, net	212,838			175,892
Assets held for sale	4,903			4,903
Other	10,935			10,307
Total current assets	236,137			200,936
Property and equipment, net	461,688			507,620
Deferred financing costs, net	1,976			3,488
Intangible assets, net	442,711			447,027
Goodwill	380,643			380,643
Deposits and other assets	13,491			8,592
Total assets	$	1,536,646		$	1,548,306
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	97,240		$	86,588
Payroll and payroll-related	35,736			24,110
Sales tax	16,712			19,389
Other accrued expenses	67,710			46,082
Workers’ compensation	69,218			69,169
Current portion of long-term debt	6,138			6,138
Current portion of capital and financing lease obligations	1,228			31,330
Total current liabilities	293,982			282,806
Long-term debt, net of current portion	902,417			865,375
Unfavorable lease commitments, net	3,079			3,988
Deferred rent	30,636			30,360
Deferred compensation liability	959			816
Capital and financing lease obligation, net of current portions	52,584			47,195
Deferred income taxes	161,450			161,450
Other liabilities	16,587			12,297
Total liabilities	1,461,694			1,404,287
Commitments and contingencies (Note 11)
Member’s Equity:
Member units — 100 units issued and outstanding at October 27, 2017 and January 27, 2017	551,286			550,918
Investment in Number Holdings, Inc. preferred stock	(19,200		)	(19,200		)
Accumulated deficit	(457,134		)	(387,699		)
Total equity	74,952			144,019
Total liabilities and equity	$	1,536,646		$	1,548,306

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

4

99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	For the Third Quarter Ended						For the First Three Quarters Ended
	October 27, 2017			October 28, 2016			October 27, 2017			October 28, 2016
Net Sales:
99¢ Only Stores	$	543,856		$	489,900		$	1,613,136		$	1,479,126
Bargain Wholesale	9,775			10,244			28,457			30,405
Total sales	553,631			500,144			1,641,593			1,509,531
Cost of sales	390,776			354,982			1,160,522			1,074,202
Gross profit	162,855			145,162			481,071			435,329
Selling, general and administrative expenses	172,434			165,219			498,444			481,933
Operating loss	(9,579		)	(20,057		)	(17,373		)	(46,604		)
Other (income) expense:
Interest income	(1		)	(7		)	(8		)	(45		)
Interest expense	17,480			16,920			51,983			50,230
Loss on extinguishment	—			—			—			335
Total other expense, net	17,479			16,913			51,975			50,520
Loss before provision for income taxes	(27,058		)	(36,970		)	(69,348		)	(97,124		)
Provision for income taxes	—			21			87			146
Net loss	$	(27,058	)	$	(36,991	)	$	(69,435	)	$	(97,270	)
Other comprehensive income, net of tax:
Unrealized losses on interest rate cash flow hedge	—			—			—			(168		)
Less: reclassification adjustment included in net loss	—			—			—			330
Other comprehensive income, net of tax	—			—			—			162
Comprehensive loss	$	(27,058	)	$	(36,991	)	$	(69,435	)	$	(97,108	)

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

5

99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the First Three Quarters Ended
	October 27, 2017			October 28, 2016
Cash flows from operating activities:
Net loss	$	(69,435	)	$	(97,270	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation	50,980			51,375
Amortization of deferred financing costs and accretion of OID	5,179			4,457
Amortization of intangible assets	1,313			1,312
Amortization of favorable/unfavorable leases, net	2,117			1,802
Loss on extinguishment of debt	—			335
Gain on disposal of fixed assets	(16,402		)	(564		)
Long-lived assets impairment	1,515			491
Loss on interest rate hedge	—			514
Stock-based compensation	368			543
Changes in assets and liabilities associated with operating activities:
Accounts receivable	1,179			(1,468		)
Inventories	(36,946		)	8,271
Deposits and other assets	(5,577		)	5,202
Accounts payable	9,470			8,190
Accrued expenses	30,236			19,781
Accrued workers’ compensation	49			(847		)
Income taxes	1,137			1,322
Deferred rent	276			1,339
Other long-term liabilities	(1,485		)	3,146
Net cash (used in) provided by operating activities	(26,026		)	7,931
Cash flows from investing activities:
Purchases of property and equipment	(32,051		)	(35,273		)
Proceeds from sale of property and fixed assets	9,399			617
Insurance recoveries for replacement assets	475			937
Net cash used in investing activities	(22,177		)	(33,719		)
Cash flows from financing activities:
Proceeds from long-term debt	25,000			—
Payment of long-term debt	(4,604		)	(4,604		)
Proceeds under revolving credit facility	211,400			168,500
Payments under revolving credit facility	(197,200		)	(174,500		)
Payments of debt issuance costs	(880		)	(4,725		)
Proceeds from financing lease obligations	15,317			41,993
Payments of capital and financing lease obligations	(887		)	(762		)
Net cash provided by financing activities	48,146			25,902
Net (decrease) increase in cash	(57		)	114
Cash - beginning of period	2,448			2,312
Cash - end of period	$	2,391		$	2,426
Supplemental cash flow information:
Income taxes refunded	$	(1,124	)	$	(1,175	)
Interest paid	$	39,907		$	38,436
Non-cash investing activities for purchases of property and equipment	$	(1,182	)	$	(662	)

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

6

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 27, 2017) 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 27, 2017, the Company operated 391 retail stores with 284 in California, 48 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 (“CPPIB” and, together with Ares, the “Sponsors”). As a result of the Merger, the Company’s common stock was delisted from the New York Stock Exchange and the Company 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 27, 2017.  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 February 2, 2018 (“fiscal 2018”).

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 2018 began on January 28, 2017, will end on February 2, 2018 and will consist of 53 weeks.  The Company’s fiscal year 2017 (“fiscal 2017”) began on January 30, 2016, ended on January 27, 2017 and consisted of 52 weeks.  The third quarter ended October 27, 2017 (the “third quarter of fiscal 2018”) and the third quarter ended October 28, 2016 (the “third quarter of fiscal 2017”) were each comprised of 91 days.  The nine-month period ended October 27, 2017 (the “first three quarters of fiscal 2018”) and the nine-month period ended October 28, 2016 (the “first three quarters of fiscal 2017”) were each comprised of 273 days.

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 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 $3.3 million and $7.0 million as of October 27, 2017 and January 27, 2017, respectively.

7

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 or tenant’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 net realizable value. Inventory costs are 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.  The Company includes spoilage, scrap and shrink in its definition of shrinkage.  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 have a material effect on the reported gross margin for the period. These estimates are subject to change based on management’s evaluation of, and response to, a variety of factors and trends, including, but not limited to, consumer preferences and buying patterns, age of inventory, increased competition, inventory management, merchandising strategies and historical sell through trends.  The Company’s ability to adequately evaluate the impact of inventory management and merchandising strategies executed in response to such factors and trends in future periods could have a material impact on such estimates.

In order to obtain inventory at attractive prices, the Company takes advantage of large volume purchases, closeouts and other similar purchase opportunities.  Consequently, 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 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.

8

During the second quarter of fiscal 2018, the Company decided to close three stores by the end of fiscal 2018 or early fiscal 2019.  As a result of this decision, the Company recognized an impairment charge of approximately $1.5 million as part of selling, general and administrative expenses in the second quarter of fiscal 2018 related to the planned closure of these stores.  During the third quarter of fiscal 2017, the Company decided to close five retail stores in California by the end of fiscal 2017 upon the expiration of their respective lease terms.  As a result of this decision, the Company recognized an impairment charge of approximately $0.1 million related to the closure of three of these stores and recorded an impairment charge of $0.1 million related to fixtures that will be disposed of and for which the Company concluded the fair value was zero.  During the third quarter of fiscal 2017, the Company also reduced the carrying value of a held for sale property to the estimated net realizable value, net of expected disposal costs, and accordingly recorded an asset impairment charge of $0.2 million.

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.

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”).

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 retail reporting unit and the wholesale reporting unit.

The Company, assisted by an independent third party valuation firm, 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”). These approaches involve making key 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 and are subject to change.

During the third quarter of fiscal 2016, the Company determined that indicators of impairment existed to require an interim impairment analysis of goodwill and trade name.  The first step evaluation concluded that the fair value of the retail reporting unit was below its carrying value.  The Company performed step two of the goodwill impairment test.  As a result of the preliminary analysis and based on 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 finalization of the preliminary goodwill impairment test was completed in the fourth quarter of fiscal 2016 and resulted in a $20.9 million adjustment in goodwill, lowering the estimated third quarter of fiscal 2016 goodwill impairment charge from $120.0 million to $99.1 million.

9

The remaining amount of goodwill allocated to the retail reporting unit and wholesale reporting unit was $368.1 million and $12.5 million, respectively, as of January 29, 2016.

During the fourth quarter of fiscal 2017, the Company completed step one of its annual goodwill impairment test for the two reporting units and determined that there was no impairment of goodwill since the fair value of the Company’s reporting units exceeded their carrying amounts.  The results of this test showed that the fair value of our retail reporting unit exceeded its carrying value by a substantial amount.  The results of this test showed that the fair value of wholesale reporting unit exceeded carrying value by approximately 18%.  As discussed above, considerable management judgment is necessary in estimating future cash flows, market interest rates, discount rates and other factors affecting the valuation of goodwill.  The Company’s forecasts used in its fiscal 2017 annual impairment test include growth in net sales, new store openings and same-store sales, positive trends in cost of sales and selling, general and administrative expense.  In each case, these estimates and assumptions could be materially affected by factors such as unforeseen events or changes in general economic conditions, a decline in comparable company market multiples, changes to discount rates, increased competitive forces, inability to maintain pricing structure, deterioration of vendor relationships, failure to adequately manage and improve inventory processes and procedures and changes in customer behavior which could result in changes to management’s strategies.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

Additionally, during the fourth quarter of fiscal 2017, the Company completed its annual indefinite-lived intangible asset impairment test and determined there was no impairment to the trade name since the fair value of the trade name exceeded its carrying amount.  The results of this test showed that the fair value of trade name exceeded carrying value by approximately 18%.  The relief from royalty method estimates the Company’s theoretical royalty savings from ownership of the intangible asset.  Key assumptions used in this model included sales projections, discount rates and royalty rates, and considerable management judgment is necessary in developing and evaluating such assumptions.  If future results are not consistent with current estimates and assumptions, impairment charges maybe recorded in future.

During the first three quarters of fiscal 2018, 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.  In accordance with the adoption of ASU No. 2016-09, “Compensation — Stock Compensation, Improvements to Employee Share-Based Payment Accounting” in the first quarter of fiscal 2018, the Company elected to recognize forfeitures in the period they occur as a reversal of previously recognized compensation expense. The reduction in compensation expense is determined based on the specific options forfeited during that period. Prior to the adoption of ASU 2016-09, the Company applied an estimated forfeiture rate as a reduction of current period stock-based compensation expense. For awards classified as equity, the Company estimates the fair value for each option award

10

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.  The fair value of options that vest based on the Company’s and Parent’s achievement of certain performance hurdles were valued using a Monte Carlo simulation method. The fair value of options granted to the current Chief Executive Officer were valued using a binomial model and the Monte Carlo simulation method.   Refer to Note 8, “Stock-Based Compensation” for further discussion of the Company’s 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 shrink, 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 or based on other systematic and rational approaches where possible.

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.

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During the first quarter of fiscal 2018, the Company sold and concurrently leased back a future store site with an aggregate carrying value of $1.4 million and received net proceeds from this transaction of $6.8 million, which will be applied towards the construction of the future store.  The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transaction closed.  The Company has concluded that it is the “deemed owner” of the construction project (for accounting purposes) during the construction period.  Upon completion of construction, the Company will evaluate the de-recognition of the asset and liability under sale-leaseback accounting guidance.  As of October 27, 2017, the Company has recorded a financing lease obligation of $7.0 million (as a component of current and non-current liabilities).  During the first quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $2.2 million and received net proceeds from this transaction of $4.0 million.  The resulting lease qualifies as and is accounted for as an operating lease.  The Company will amortize the deferred gain of $1.8 million relating to the sale-leaseback transaction over the lease term.

During the second quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $3.7 million and received net proceeds from this transaction of $7.9 million.  The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transaction closed.  The resulting lease is accounted for as a financing lease and the Company has recorded a financing lease obligation of $7.9 million (as a component of current and non-current liabilities).  Also during the second quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $1.1 million and received net proceeds from this transaction of $5.3 million.  The resulting lease qualifies as and is accounted for as an operating lease.  The Company recorded a gain on the sale of $1.7 million as part of selling, general and administrative expenses and will amortize the deferred gain of $2.5 million relating to the sale-leaseback transaction over the lease term.

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 were accounted for as financing leases and the Company had recorded a corresponding financing lease obligation of $8.7 million (as a component of current and non-current liabilities).  The Company amortized the financing lease obligation over the lease terms and depreciated the assets over their remaining useful lives.  During the second quarter of fiscal 2018, the Company was no longer deemed to have “continuing involvement” and the leases now qualify and are accounted for as operating leases.  The-Company de-recognized the assets and financing lease obligation and recorded a net loss of $0.8 million as part of selling, general and administrative expenses in the second quarter of fiscal 2018 and will amortize deferred gain of $2.1 million relating to the sale-leaseback transaction over the lease term.

During the third quarter of fiscal 2017, the Company sold and concurrently leased back two stores with an aggregate carrying value of $7.6 million and received net proceeds from these transactions of $10.5 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 $10.5 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.

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 27, 2017 and January 27, 2017.

Self-Insured Health Insurance Liability

The Company self-insures its employee medical benefit claims.  The liability for the self-funded 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 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.

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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

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 unfavorable leases (in thousands):

	October 27, 2017										January 27, 2017
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(99,102	)	$	—		$	380,643	$	479,745	$	(99,102	)	$	—		$	380,643
Trade name	410,000		—			—			410,000		410,000		—			—			410,000
Total indefinite lived intangible assets	$	889,745	$	(99,102	)	$	—		$	790,643	$	889,745	$	(99,102	)	$	—		$	790,643
Finite lived intangible assets:
Trademarks	$	2,000	$	(570	)	$	(517	)	$	913	$	2,000	$	(570	)	$	(470	)	$	960
Bargain Wholesale customer relationships	20,000		—			(9,650		)	10,350		20,000		—			(8,408		)	11,592
Favorable leases	45,871		(566		)	(23,857		)	21,448		45,871		(566		)	(20,830		)	24,475
Total finite lived intangible assets	67,871		(1,136		)	(34,024		)	32,711		67,871		(1,136		)	(29,708		)	37,027
Total goodwill and other intangible assets	$	957,616	$	(100,238	)	$	(34,024	)	$	823,354	$	957,616	$	(100,238	)	$	(29,708	)	$	827,670

	October 27, 2017							January 27, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	$	19,835	$	(16,756	)	$	3,079	$	19,835	$	(15,847	)	$	3,988

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3.Property and Equipment, net

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

	October 27, 2017			January 27, 2017
Land	$	151,035		$	167,544
Buildings	106,947			110,327
Buildings improvements	72,024			77,246
Leasehold improvements	210,889			205,336
Fixtures and equipment	214,596			209,397
Transportation equipment	11,825			11,893
Construction in progress	26,452			16,724
Total property and equipment	793,768			798,467
Less: accumulated depreciation and amortization	(332,080		)	(290,847		)
Property and equipment, net	$	461,688		$	507,620

4.Comprehensive Loss

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

	For the Third Quarter Ended						For the First Three Quarters Ended
	October 27, 2017			October 28, 2016			October 27, 2017			October 28, 2016
Net loss	$	(27,058	)	$	(36,991	)	$	(69,435	)	$	(97,270	)
Unrealized loss on interest rate cash flow hedge, net of tax effects of $0, $0, $0 and $(112) for the third quarter and first three quarters of fiscal 2018 and fiscal 2017, respectively	—			—			—			(168		)
Reclassification adjustment, net of tax effects of $0, $0, $0 and $220 for the third quarter and first three quarters of fiscal 2018 and fiscal 2017, respectively	—			—			—			330
Total gains, net	—			—			—			162
Total comprehensive loss	$	(27,058	)	$	(36,991	)	$	(69,435	)	$	(97,108	)

Amounts in accumulated other comprehensive loss as of January 29, 2016 consisted of unrealized losses on interest rate cash flow hedges.  Reclassifications out of accumulated other comprehensive loss in each of the third quarter and first three quarters of fiscal 2018 and fiscal 2017 are presented in Note 6, “Derivative Financial Instruments.”

5.Debt

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

	October 27, 2017			January 27, 2017
ABL Facility revolving	$	53,500		$	39,300
FILO Facility	25,000			—
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2018, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $1,817 and $2,888 as of October 27, 2017 and January 27, 2017, respectively	587,442			590,974
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000			250,000
Deferred financing costs	(7,387		)	(8,761		)
Total debt	908,555			871,513
Less: current portion	6,138			6,138
Long-term debt, net of current portion	$	902,417		$	865,375

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As of October 27, 2017 and January 27, 2017, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	October 27, 2017		January 27, 2017
ABL Facility revolving loans (included in non-current deferred financing costs)	$	1,976	$	3,488
FILO Facility (included in long-term debt, net of current portion)	1,066		—
First Lien Term Loan Facility (included in long-term debt, net of current portion)	1,865		2,964
Senior Notes (included in long-term debt, net of current portion)	4,456		5,797
Total deferred financing costs, net	$	9,363	$	12,249

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.  As of October 27, 2017, the Credit Facilities include (a) a first lien asset based revolving credit facility and last out term credit facility (collectively, 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”).  As of October 27, 2017, the First Lien Term Loan Facility has 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 domestic subsidiaries (with customary exceptions, including immaterial subsidiaries) (collectively, the “Credit Facilities Guarantors”).  In addition, the First Lien Term Loan Facility is secured by substantially all of the Company’s assets and the assets of the Credit Facilities Guarantors, including a first priority pledge of all of the Company’s equity interests and the equity interests of the Credit Facilities Guarantors and a first priority security interest in certain other fixed assets, and a second priority security interest in certain current assets.

As of October 27, 2017, 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” (4.25% as of October 27, 2017), (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) a Eurocurrency rate determined by reference to the London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements, for the interest period relevant to such borrowing.

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 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%.  Upon the occurrence of the Second Amendment, the Company’s obligation to make scheduled quarterly payments on the Term Loans was increased to require the Company 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.

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As of October 27, 2017, the interest rate charged on the First Lien Term Loan Facility was 4.83% (1.33% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of October 27, 2017, the gross amount outstanding under the First Lien Term Loan Facility was $589.3 million.

As of October 27, 2017, 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 2017.

Additionally, as of October 27, 2017,  the First Lien Term Loan Facility requires the Company to make mandatory prepayments equal to 50% of the net cash proceeds from sale-leasebacks of any assets acquired before January 13, 2012 for consideration above a certain threshold.  In May 2017, the Company made a mandatory term loan prepayment of $2.0 million from sale-leaseback proceeds.

The First Lien Term Loan Facility includes certain customary restrictions, among other things, on the Company’s ability and the ability of Parent, the Credit Facilities Guarantors (including the Company’s subsidiary 99 Cents Only Stores Texas Inc.) 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 27, 2017, the Company was in compliance with the terms of the First Lien Term Loan Facility.

See Note 16, “Subsequent Events” for a description of the Third Amendment (as defined below) to the First Lien Term Loan Facility.

ABL Facility

The ABL Facility initially was to mature on January 13, 2017 and provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations. Subject to certain conditions, as of the Original Closing Date, 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, including a first priority security interest in certain current assets, and a second priority pledge of all of the Company’s equity interests and the equity interest of the Credit Facilities Guarantors and a second priority security interest in certain other fixed assets.

Revolving 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 (3.25% as of October 27, 2017) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (2.25% at October 27, 2017), 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 revolving loans 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 (0.50% for the quarter ended October 27, 2017).  The Company must also pay customary letter of credit fees and agency fees.

As of October 27, 2017, revolving borrowings under the ABL Facility were $53.5 million, outstanding letters of credit were $29.3 million and revolving availability under the ABL Facility subject to the borrowing base, was $53.6 million.  As of January 27, 2017, revolving borrowings under the ABL Facility were $39.3 million, outstanding letters of credit were $31.6 million and availability under the ABL Facility subject to the borrowing base was $37.2 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.

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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 (i) modified 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, (ii) increased the inventory advance rate during such period for purposes of calculating the borrowing base from 90% to 92.5%, (iii) provided 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 (iv) provided for certain additional technical waivers and amendments in order to effect the foregoing.

On April 8, 2016, the Company amended its ABL Facility to, among other things, decrease the commitments available under the ABL Facility by $25.0 million, resulting in an aggregate facility size of $160.0 million, and extend the maturity date of the ABL Facility to April 8, 2021; provided however, pursuant to the terms of the Fourth Amendment (as defined below), the ABL Facility  matures on the earlier of (i) the date that is 90 days prior to the stated maturity date in respect of the First Lien Term Loan Facility and (ii) the date that is 90 days prior to the stated maturity date in respect of the Senior Notes (as defined below), unless the First Lien Term Loan Facility and Senior Notes have been repaid or refinanced in full or amended to extend the final maturity dates thereof to a date that is at least 180 days after April 8, 2021 (the date of such repayment or refinancing, the “Term/Notes Refinancing Date”) (such amendment, the “Fourth Amendment”).  The Fourth Amendment also modified the interest rate margins payable under the ABL Facility.  Pursuant to the Fourth Amendment, the initial applicable margin for revolving borrowings under the ABL Facility was 2.0% with respect to base rate borrowings and 3.0% with respect to Eurocurrency rate borrowings.  Commencing with the first day of the first fiscal quarter commencing after the closing of the Fourth Amendment, the applicable margin for borrowings thereunder is subject to adjustment each fiscal quarter, based on average historical excess availability during the preceding fiscal quarter.  Furthermore, the applicable margin will be reduced by 0.50% after the Term/Notes Refinancing Date.

In addition, the Fourth Amendment (i) reduced the incremental revolving commitment capacity from $50.0 million to $25.0 million, but provides that any such incremental revolving commitment may take the form of a “last-out” term loan, (ii) added restrictions on certain negative covenants in respect of investments, restricted payments and prepayments of indebtedness, including the First Lien Term Loan Facility and the Senior Notes, in each case, until the occurrence of Term/Notes Refinancing Date, (iii) reduced the letter of credit sublimit from $50.0 million to $45.0 million and (iv) provided for certain additional technical waivers and amendments in order to effect the foregoing.

In connection with the Fourth Amendment and in the first quarter of fiscal 2017, the Company recognized a loss on debt extinguishment of approximately $0.3 million related to a portion of the unamortized debt issuance costs. The Company recorded $4.7 million of debt issuance costs in connection with the Fourth Amendment in the first quarter of fiscal 2017 as part of non-current deferred financing costs.

On September 6, 2017, the Company amended its ABL Facility to, among other things,  provide for a last-out term loan facility in an aggregate principal amount of $25.0 million (the “FILO Facility”), with TPG Specialty Lending, Inc. acting as agent (the “FILO Agent”) for the FILO Facility (such amendment, the “Fifth Amendment”).  The Company has drawn the entire $25.0 million under the FILO Facility and the $25.0 million of incremental revolving commitments under the ABL Facility have been reduced to $0.  As part of the ABL Facility, all obligations under the FILO Facility are guaranteed by Parent and the other Credit Facilities Guarantors and are secured by the same collateral as the ABL Facility.

Loans under the FILO Facility bear interest at a rate based, at the Company’s option, on (i) LIBOR plus 7.75% or (ii) the determined base rate (Prime Rate) plus 6.75%.  In the event the Company makes a prepayment of the loans under the FILO Facility on or prior to September 6, 2019 the Company is required to pay certain premiums to the lender under the FILO Facility.  The Company must also pay customary agency fees to the FILO Agent.

The borrowing base under the ABL Facility may be reduced by an amount equal to the excess (if any) of the outstanding loans under the FILO Facility less the borrowing base under the FILO Facility, as reflected in the most recent borrowing base certificate furnished by the Company, as required pursuant to the ABL Facility.

As of October 27, 2017, the FILO Facility matures on the earliest of (a) April 8, 2021, (b) the date that is 90 days prior to the stated maturity date in respect of the First Lien Term Loan Facility, (c) the date that is 90 days prior to the stated maturity date in respect of the Senior Notes, and (d) the date of termination of the commitments under the ABL Facility.

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The Fifth Amendment provided the FILO Agent and the FILO Facility lenders with certain consent rights to amendments relating to, among other terms and provisions, the borrowing bases, the financial covenant and certain negative covenants.

In addition, the Fifth Amendment (i) increased the in-transit inventory cap for purposes of calculating the borrowing base under the ABL Facility from $10.0 million to $15.0 million, (ii) amended payment conditions that are required to be satisfied in connection with certain specified payments and (iii) set the systems reserve at 7.5% of store level inventory, eliminating increases to 10%, 12.5% and 15% of store level inventory at the end of the fiscal quarters ending on or about April 30, 2017, July 31, 2017 and October 31, 2017, respectively.

As of October 27, 2017, the interest rate charged on the FILO Facility was 9.07%.

As of October 27, 2017, the Company was in compliance with the terms of the ABL Facility.

See Note 16, “Subsequent Events” for a description of the Sixth Amendment (as defined below) to 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 (the “Subsidiary Guarantors”).

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 27, 2017, the Company was in compliance with the terms of the Indenture.

See Note 16, “Subsequent Events” for a description of the Exchange Offer (as defined below) relating to Senior Notes.

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

	For the Third Quarter Ended				For the First Three Quarters Ended
	October 27, 2017		October 28, 2016		October 27, 2017		October 28, 2016
First Lien Term Loan Facility	$	7,148	$	6,785	$	20,937	$	20,921
ABL Facility revolving loans	1,043		700		2,686		1,824
FILO Facility	327		—		327		—
Senior Notes	6,799		6,875		20,625		20,625
Amortization of deferred financing costs and OID	1,818		1,514		5,179		4,454
Other interest expense	345		1,046		2,229		2,406
Interest expense	$	17,480	$	16,920	$	51,983	$	50,230

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, hedged 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 was 1.36% plus an applicable margin of 3.50%.

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

Transition Payments

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 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 27, 2017 and January 27, 2017. The Company recognizes the expense associated with these payments over the requisite service period.

Fair Value

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”).

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

	October 27, 2017		January 27, 2017
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	205	$	831
Transition payments (included in other long-term liabilities)	$	36	$	217

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

	For the Third Quarter Ended					For the First Three Quarters Ended
	October 27, 2017			October 28, 2016		October 27, 2017		October 28, 2016
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	—		$	—	$	—	$	168
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	—		$	—	$	—	$	330
Gain related to ineffective portion of derivative recognized in interest expense	$	—		$	—	$	—	$	36
Derivatives not designated as hedging instruments:
(Gain) loss recognized in selling, general and administrative expenses	$	(11	)	$	253	$	27	$	1,787

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.

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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) as of October 27, 2017:

	October 27, 2017
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets – assets that fund deferred compensation	$	959	$	959	$	—	$	—
LIABILITIES
Other current liabilities – transition payments	$	205	$	—	$	—	$	205
Other long-term liabilities – transition payments	$	36	$	—	$	—	$	36
Other long-term liabilities – deferred compensation	$	959	$	959	$	—	$	—

Level 1 measurements include $1.0 million of deferred compensation assets that fund the liabilities related to the Company’s deferred compensation plan, including investments in trust funds.  The fair values of these funds are based on quoted market prices in an active market.

There were no Level 2 assets or liabilities as of October 27, 2017.

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 2018.

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) as of January 27, 2017:

	January 27, 2017
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets – assets that fund deferred compensation	$	816	$	816	$	—	$	—
LIABILITIES
Other current liabilities – transition payments	$	831	$	—	$	—	$	831
Other long-term liabilities – transition payments interest rate swap	$	217	$	—	$	—	$	217
Other long-term liabilities – deferred compensation	$	816	$	816	$	—	$	—

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

There were no Level 2 assets or liabilities as of January 27, 2017.

Level 3 measurements include transition payments to Mr. Covert 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.

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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 Third Quarter Ended						For the First Three Quarters Ended
Transition Payments	October 27, 2017			October 28, 2016			October 27, 2017			October 28, 2016
Description
Beginning balance	$	(252	)	$	(827	)	$	(1,048	)	$	(1,205	)
Transfers in and/or out of Level 3	—			—			—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	11			(253		)	(27		)	(1,787		)
Included in other comprehensive loss	—			—			—			—
Purchases, redemptions and settlements:
Settlements	—			—			834			1,912
Ending balance	$	(241	)	$	(1,080	)	$	(241	)	$	(1,080	)
Total amount of unrealized gains (losses) for the period included in earnings relating to liabilities held at the reporting period	$	11		$	(253	)	$	(24	)	$	(817	)

(1)Gains (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 and deferred financing costs.

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 27, 2017 and January 27, 2017.

The fair value of the First Lien Term Loan Facility was estimated at $542.1 million, or $47.1 million lower than its carrying value, as of October 27, 2017, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the First Lien Term Loan Facility was estimated at $516.7 million, or $77.2 million lower than its carrying value, as of January 27, 2017, based on quoted market prices of the debt (Level 1 inputs).

The fair value of the Senior Notes was estimated at $210.0 million, or $40.0 million lower than the carrying value, as of October 27, 2017, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the Senior Notes was estimated at $166.9 million, or $83.1 million lower than the carrying value, as of January 27, 2017, based on quoted market prices of the debt (Level 1 inputs).

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

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

During the second quarter of fiscal 2018, the Company recognized an impairment charge of approximately $1.5 million relating to the anticipated closure of three stores by the end of fiscal 2018 or early fiscal 2019.  The remaining net book value of assets measured at fair value was $0.1 million.  The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3).

During the third quarter of fiscal 2017, the Company recognized an impairment charge of approximately $0.1 million relating to the anticipated closure of three stores. The remaining net book value of assets measured at fair value was $0.1 million.  During the third quarter of fiscal 2017, the Company also recorded impairment charges of $0.1 million related to fixtures that will be disposed of and for which the Company concluded the fair value was zero. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3).

During the third quarter of fiscal 2017, the Company also reduced the carrying value of a held for sale property to its fair value of $1.5 million from $1.7 million, resulting in an impairment charge of $0.2 million. Fair value was determined on the basis of a broker quote, less estimated cost to sell (Level 2).

8.Stock-Based Compensation

Number Holdings, Inc. 2012 Equity Incentive Plan

On February 27, 2012, the board of directors of Parent (the “Board”) adopted the Number Holdings, Inc. 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan authorizes equity awards to be granted for up to 87,500 shares of Class A Common Stock of Parent and 87,500 shares of Class B Common Stock of Parent.  As of October 27, 2017, options for 84,081 shares of each of Class A Common Stock and Class B Common Stock were outstanding and held by employees, 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.

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Employee Option Grants

Options subject to time-vesting conditions granted to employees generally become exercisable over a four or five year service period and have terms of ten years from the date of grant. Options with performance-vesting conditions granted to employees generally become exercisable based on the achievement of certain performance targets and have terms of ten years from the date of 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. 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. 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 22,516 time-based and 19,315 performance-based employee options outstanding (for individuals other than board members, Mr. Covert and Ms. Thornton) as of October 27, 2017.

Director Option Grants

Options granted to board members generally become exercisable over a three, four or five year service period and have terms of ten years from the date of grant.  Options granted to 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.  On July 26, 2016, the Compensation Committee of Parent amended 1,000 previously granted board member options with exercise prices in excess of $757 per share to lower the exercise price to $757 per share. The reduction in the exercise price was treated as a modification of stock options for accounting purposes.  The modification, based on the fair value of the options both immediately before and after such modification, resulted in a total incremental compensation expense of less than $0.1 million in the second quarter of fiscal 2017.

Chief Financial Officer Equity Awards

In October 2015, the Company entered into an employment agreement with Felicia Thornton as the Chief Financial Officer and Treasurer of each of the Company and Parent. In connection with this agreement, Ms. Thornton was granted options to purchase 10,000 shares of Class A and Class B Common Stock of Parent.  One-half of the options vest on each of the first four anniversaries of Ms. Thornton’s start date, and the other half of the options vest based on the achievement of certain performance targets. Options granted to Ms. Thornton contain repurchase rights as described above that would allow the Parent to repurchase these options at less than fair value, except that repurchase rights at less than fair value in the case of voluntary resignation without good reason lapse after November 2, 2017.

The Company records stock-based compensation for the time-based options in accordance with the four year vesting period.  The Company has deferred recognition of the stock-based compensation expense for the performance-based options until it is probable that the performance targets will be achieved.  The time-based and performance-based options are accounted for as equity awards.  The fair value of these time-based and performance-based options was estimated at the date of grant using the Black-Scholes pricing model.

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On July 26, 2016, the Compensation Committee of Parent amended Ms. Thornton’s performance-based options to conform the vesting conditions for the performance-vested options with those granted to other employees.  The amendment of the performance targets was treated as a modification of stock options for accounting purposes and had no impact on compensation expense.  The Company has continued to defer recognition of the stock-based compensation expense for the amended performance-based options.  The fair value of these amended performance-based options was estimated at the date of modification using the Black-Scholes pricing model.

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 due to repurchase rights and transfer restrictions included in the terms of the award. 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.  The fair value of the grant with an exercise price of $1,000 per share was estimated at the date of grant using a binomial model.  The fair value of the other grant was estimated at the date of grant using a Monte Carlo simulation method.

On July 26, 2016, the Compensation Committee of Parent amended Mr. Covert’s performance-based options to conform the vesting conditions for the performance-vested options with those granted to other employees.  The amendment of the performance hurdles was treated as a modification of stock options for accounting purposes and had no impact on compensation expense.  The Company has continued to defer recognition of the stock-based compensation expense for the amended performance-based options.  The fair value of the grant with an exercise price of $1,000 per share was estimated at the date of modification using a binomial model.  The fair value of the other grant was estimated at the date of modification using a Monte Carlo simulation method.

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.  In accordance with the adoption of ASU No. 2016-09, “Compensation — Stock Compensation, Improvements to Employee Share-Based Payment Accounting” in the first quarter of fiscal 2018, the Company elected to recognize forfeitures in the period they occur as a reversal of previously recognized compensation expense. The reduction in compensation expense is determined based on the specific options forfeited during that period. Prior to the adoption of ASU 2016-09, the Company applied an estimated forfeiture rate as a reduction of current period stock-based compensation expense.  During the third quarter and first three quarters of fiscal 2018, the Company recorded stock-based compensation expense of $0.1 million and $0.4 million, respectively.  During the third quarter and first three quarters of fiscal 2017, the Company recorded stock-based compensation expense of $0.2 million and $0.5 million, respectively.

The following summarizes stock option activity in the first three quarters of fiscal 2018:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	82,140		$	800
Granted	4,020		$	757
Exercised	—		$	—
Cancelled	(2,079	)	$	757
Outstanding at the end of the period	84,081		$	799	8.3
Exercisable at the end of the period	21,727		$	798	8.2

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The following table summarizes the stock awards available for grant under the 2012 Plan as of October 27, 2017:

	Number of Shares
Available for grant as of January 27, 2017	4,670
Authorized	—
Granted	(4,020	)
Cancelled	2,079
Available for grant at October 27, 2017	2,729

9.Related-Party Transactions

Management Services Agreements

Upon completion of the Merger, the Company and Parent entered into management services agreements with affiliates of the Sponsors (the “Management Services Agreements”).  Under each of the Management Services Agreements, the Company and Parent agreed to, among other things, retain and reimburse affiliates of the Sponsors for certain expenses incurred in connection with the provision by Sponsors of certain management and financial services and provide customary indemnification to the Sponsors and their affiliates.  In the first three quarters of fiscal 2018, the Company reimbursed affiliates of the Sponsors their expenses in the amount of less than $0.1 million.

First Lien Term Loan 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 October 27, 2017 and January 27, 2017, funds affiliated with Ares and CPPIB held approximately $129.5 million and $130.5 million, respectively, 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.

See Note 16, “Subsequent Events” for a description of the Third Amendment (as defined below) to the First Lien Term Loan Facility.

Senior Notes

As of October 27, 2017 and January 27, 2017 various funds affiliated with Ares and CPPIB 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.

See Note 16, “Subsequent Events” for a description of the Exchange Offer (as defined below) to the Senior Notes.

10.Income Taxes

The effective income tax rate for the first three quarters of fiscal 2018 was a provision rate of (0.1)% compared to a provision rate of (0.2)% for the first three quarters of fiscal 2017.  Income tax expense for the interim periods was computed using the effective tax rate estimated to be applicable for the full fiscal year.  The effective tax rate reflects the tax effect of the establishment of a valuation allowance against deferred tax assets in the second quarter of fiscal 2016, and the effect of not recognizing the benefit of losses incurred in fiscal 2018 and 2017 in jurisdictions where the Company concluded it is 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.  Therefore, in the second quarter of fiscal 2016, the Company recorded a $31.7 million increase to provision for income taxes in order to establish a valuation allowance against such net deferred tax assets.

As of January 27, 2017, the valuation allowance increased to $137.7 million, which was primarily related to an increase in losses incurred during fiscal 2017.

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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 indefinite-lived 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.

As of October 27, 2017 and January 27, 2017, the Company had not accrued any liabilities related to unrecognized tax benefits, and had also not accrued any interest and penalties related to uncertain tax positions for the relevant periods. 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 2011 forward.

11.Commitments and Contingencies

Credit Facilities

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

Mid-Term Cash Incentive Plan and Special Bonus Letters

On July 26, 2016, the Compensation Committee of the Board (the “Compensation Committee”) adopted the 99 Cents Only Stores LLC 2016 Mid-Term Cash Incentive Plan (the “Mid-Term Cash Incentive Plan”). The Mid-Term Cash Incentive Plan is intended to promote the success of the Company by rewarding certain employees for their service to the Company and to provide incentives for such employees to remain in the employ or other service of the Company and to contribute to the performance of the Company. Under the Mid-Term Cash Incentive Plan, if the Company achieves an initial Adjusted EBITDA (as defined in the Mid-Term Cash Incentive Plan) goal for either fiscal 2017 or the fiscal year ending January 26, 2018 (the “Initial Mid-Term Plan Goal”), 50% of a participant’s award will be eligible for payment. No amounts will be paid under the Mid-Term Cash Incentive Plan if the Initial Mid-Term Plan Goal is not achieved. If the Company achieves the Initial Mid-Term Plan Goal and then achieves the same Adjusted EBITDA goal for the fiscal year immediately following the year in which the Initial Mid-Term Plan Goal was achieved, the remaining 50% of the participant’s award will be eligible for payment. Payment of eligible awards will only be made to the extent the Company’s Free Cash Flow (as defined in the Mid-Term Cash Incentive Plan) exceeds the amount eligible for payment, as measured at the end of each second quarter and fourth quarter of each fiscal year after an amount becomes eligible for payment until the end of the fiscal year ending January 31, 2020.  The Company does not expect to maintain the Mid-Term Cash Incentive Plan for periods after the fiscal year ending July 31, 2020. As of October 27, 2017, the maximum payout under the Mid-Term Cash Incentive Plan is $22.3 million. The Company recognizes the expense associated with this Mid-Term Cash Incentive Plan over the requisite service periods and has accrued $14.7 million and $6.0 million as of October 27, 2017 and January 27, 2017, respectively.

On July 26, 2016, the Compensation Committee approved special bonus letters for three executives.  Pursuant to the terms thereof, if a Refinancing Transaction (as defined in the special bonus letters) occurs prior to October 1, 2018, each of the applicable executives will be eligible to receive a special bonus payable within 30 days of such transaction.  The special bonuses to be earned by the applicable executives total $4.0 million. No amounts have been accrued as of October 27, 2017.

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 27, 2017 and January 27, 2017, the Company had recorded a liability of $69.1 million 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 27, 2017 and January 27, 2017 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

During the third quarter of fiscal 2018, the Company began to fully self-insure its employee medical benefit claims.  Previously, the Company self-insured for a portion of its employee medical claims.  As of October 27, 2017 and January 27, 2017, the Company had recorded a liability of $2.5 million and $0.9 million, respectively, for estimated health insurance claims.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded health insurance program.

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Sale of Warehouse Facility

On July 6, 2016, the Company sold and concurrently licensed (through March 31, 2017) a warehouse facility in the City of Commerce, California with a carrying value of $12.1 million and received net proceeds from this transaction of $28.5 million. In addition to the proceeds, $1.0 million purchase price consideration had been held in escrow for the buyer to make certain repairs, and any amount not used for such repairs would be paid to the Company. The repairs were completed in January 2017 and the Company received $0.6 million from amounts held in escrow. 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 lease was accounted for as a financing lease and the Company recorded a financing lease obligation of $30.1 million (as a component of current liabilities) as of January 27, 2017.  The Company exited the warehouse facility in March 2017, de-recognized the assets and financing lease obligation and recorded a gain on sale of $18.5 million as part of selling, general and administrative expenses in the first quarter of fiscal 2018.

Legal Matters

Wage and Hour Matters

Shelley Pickett v. 99¢ Only Stores.  Plaintiff Shelley Pickett, 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 Private Attorneys General Act of 2004 (“PAGA”) claim that the Company violated section 14 of Wage Order 7-2001 by failing to provide seats for its cashiers behind checkout counters.  Pickett 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.  On June 27, 2013, Pickett 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 Pickett 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 Pickett of its position by a letter dated as of July 30, 2013, but she refused 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 September 30, 2014, the court denied the Company’s motion for judgment on the pleadings as to its cross-complaint and granted leave to Pickett to amend her complaint to add another representative plaintiff, Tracy Humphrey.  Plaintiffs filed their amended complaint on October 8, 2014, and the Company answered on October 10, 2014, denying all material allegations.  On April 4, 2016, in an unrelated matter involving similar claims against a different employer, the California Supreme Court issued a ruling that provides guidance to lower courts as to California’s employee seating requirement, which is a largely untested area of law.  The instant action had been stayed pending the issuance of the California Supreme Court ruling.  The stay was lifted and the parties mediated this matter on October 19, 2016.  The mediation did not result in a settlement. A bench trial was originally scheduled for May 31, 2017, and had been continued by the Court to June 6, 2017.  The Court bifurcated the trial so that it will address liability in the first phase, and penalties in a second phase, if necessary.  The Company filed a motion to strike the representative allegations in the complaint and focus the trial on the two stores where the named Plaintiffs worked.  That motion was heard on May 9, 2017, and, on May 25, 2017, the motion to strike was denied and the motion to phase trial was granted.  The parties engaged in settlement discussions and reached agreement to resolve the matter for an immaterial amount, subject to statutory notice requirements and court approval.  The settlement has now been finalized and the Court approved the settlement on August 1, 2017. The time to appeal has expired, the Company has fulfilled its obligations under the settlement, including payment, and this matter is now concluded.

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 the 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

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accepted.  The parties were unable to negotiate and finalize a written settlement agreement.  Subsequent settlement discussions directly and through the mediator, as well as a court-ordered settlement conference, were unsuccessful.  Discovery resumed and plaintiff’s motion for class certification was fully briefed.  Plaintiff also brought a motion to strike the evidence submitted in support of the Company’s opposition to class certification.  At the Court’s request the parties mediated this matter prior to any ruling on the class certification motion and the motion to strike.  That mediation took place on March 2, 2017, and did not result in a settlement.  The motion for class certification and motion to strike were heard on April 20, 2017, and on April 26, 2017, the Court issued a minute order denying both motions.  The Court issued a more detailed order setting forth its reasoning on August 10, 2017.   On October 10, 2017, Plaintiff Barriga filed a Notice of Appeal.  On October 26, 2015, plaintiffs’ counsel filed another action 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.  By stipulation of the parties, the Guerra action has been transferred to Riverside Superior Court. This action was mediated along with the Barriga action in the March 2, 2017 mediation that did not result in a settlement.  On November 9, 2017, the Company filed a motion to stay the Guerra action pending the outcome of the appeal in the Barriga action.  That motion will be heard on December 14, 2017.  The Company cannot predict the outcome of these lawsuits or the amount of potential loss, if any, that could result from such lawsuits.

Phillip Clavel v. 99 Cents Only Stores LLC, et al.  Former warehouse worker Phillip Clavel filed an action against the Company on March 30, 2016, in the Superior Court of the State of California, County of Los Angeles on behalf of himself and all other alleged aggrieved employees, seeking civil penalties under the PAGA for the following alleged Labor Code violations: failure to pay regular, overtime and minimum wages for all hours worked, failure to provide proper meal and rest periods, failure to pay wages timely during employment and upon termination, failure to provide proper wage statements, failure to reimburse business expenses, and failure to provide notice of the material terms of employment under the Wage Theft Prevention Act.  Plaintiff alleges that his claims arose during two periods of employment—one from March 2015 through mid-October 2015, during which he was employed by the Company as a forklift operator in the Commerce Distribution Center, and a second period from late October 2015 through February 2016, when he was similarly employed (through a staffing agency, BaronHR) at the Company’s Washington Boulevard warehouse.  On June 9, 2016, Plaintiff filed a First Amended Complaint.  The Company answered the First Amended Complaint on June 14, 2016, generally denying the allegations in the complaint and asserting a number of affirmative defenses.  BaronHR also answered the First Amended Complaint.  Trial was set to commence on July 18, 2017.  A mediation took place on January 19, 2017, and at the conclusion of the mediation, the parties executed a term sheet settlement agreement to resolve the alleged PAGA claims.  The parties have now executed a long-form settlement agreement reflecting the final terms, which was contingent on Court approval.  The Court conducted a preliminary approval hearing on August 10, 2017, and requested additional information from Plaintiff.  At a further hearing on August 29, 2017, the Court entered an order granting approval of the settlement and entered a Judgment in accordance with the terms of the Order and the Parties’ PAGA Settlement Agreement.  The Company contributed $175,000 to the total settlement amount of $500,000.  The settlement is presently being administered and a declaration from the Settlement Administrator certifying that payments have been made pursuant to the Judgment will be provided after all payments are made.

Jimmy Mejia, et al. v. 99 Cents Only Stores LLC.  Former store associates Jimmy Mejia and Yamilet Serrano filed an action against the Company on September 16, 2016, in the Superior Court of the State of California, County of Los Angeles on behalf of themselves and all other alleged aggrieved employees, seeking civil penalties under the PAGA for the following alleged Labor Code violations: failure to pay overtime and minimum wages for all hours worked, failure to provide proper meal and rest periods, failure to pay timely wages during employment and upon termination, and failure to provide proper wage statements.  On November 14, 2016, the Company answered the complaint, generally denying the allegations in the complaint and asserting a number of affirmative defenses.  Trial was initially scheduled for January 8, 2018, and has been continued at the parties’ request to April 16, 2018.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that could result from such lawsuit.

Venzel Bradford v. BaronHR, Inc., et al.  Former warehouse worker Venzel Bradford filed a putative class action complaint against BaronHR, Inc., Solvis Staffing Services, Inc., Personnel Staffing Group, LLC, and the Company on April 26, 2017, in the Superior Court of the State of California, County of Los Angeles.  On behalf of himself and all others alleged to be similarly situated, Bradford is asserting claims for failure to pay overtime wages, failure to provide meal and rest periods, waiting time penalties, failure to provide proper wage statements, and unfair competition.  Bradford was not employed by the Company; he was employed by one or more of the staffing agencies named as defendants.  The Company has sought indemnity from the employing agency(ies), and BaronHR, LLC has agreed to provide the requested indemnity.  On or about September 21, 2017, Plaintiff voluntarily dismissed Personnel Staffing Group, LLC, as a Defendant.  On or about October 10, 2017, the Company filed an answer, generally denying the allegations in the complaint and asserting a number of affirmative defenses.  An initial status conference was held on September 15, 2017.  Because the other defendants (including BaronHR, which apparently employed Plaintiff Bradford) were not given notice of the hearing, a continued status conference was set for October 30, 2017.  Following further discussions among the parties, Plaintiff agreed to dismiss his classwide allegations but he indicated that he intended to proceed with his suit as a PAGA action instead of a class action.  On or about October 26, 2017, Plaintiff filed a request and declaration in support of his request to dismiss his classwide allegations.  The Company took the position that Plaintiff must first arbitrate his individual claims prior to attempting to pursue his PAGA claim.  In addition, because Plaintiff Bradford was included among the allegedly aggrieved employees in the Clavel PAGA action described above, the Company identified the Clavel action to the Court since the Judgment there will affect—and may preclude—Plaintiff Bradford’s ability to bring PAGA claims in this action.  Following these submissions, the Court independently rescheduled the status conference to December 15, 2017.  Pending this conference, discovery in the matter remains stayed.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that could result from such lawsuit.

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Environmental Matters

People of the State of California v. 99 Cents Only Stores LLC.  This action was brought by the San Joaquin District Attorney and a number of other public prosecutors against the Company in San Joaquin County Superior Court alleging that the Company had violated hazardous waste statutory and regulatory requirements at its retail stores in California.  The Company settled this case through the entry of a stipulated judgment in December 2014 which contained injunctive relief requiring the Company to comply with applicable hazardous waste requirements at these stores. On June 29, 2015, the District Attorney informed the Company of alleged hazardous waste violations identified during a March 2015 inspection of a recently-opened store in Sonora, Tuolumne County and requested a meeting with the Company.  Since that time, the Company has been cooperating with the District Attorney to provide information regarding the alleged violations.  In May 2016, the discussions with the District Attorney were extended to include non-compliance issues identified at an existing store in San Jose during an inspection on March 16, 2016.  The Company and the District Attorney have reached a verbal agreement in principle to resolve the District Attorney’s demands in exchange for payment of an immaterial amount.  There is not yet a formal written settlement agreement.  In connection with this matter, the Company has accrued an immaterial amount.  Although any monetary damages ultimately paid by the Company may exceed the accrued amount, it is not currently possible to estimate whether any monetary damages paid would exceed the amount that the Company has accrued for this matter or the impact that any injunctive relief may have on the Company’s business, financial condition and results of operations.

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 27, 2017 and January 27, 2017 consisted of vacant land in Rancho Mirage and Los Angeles, California and land in Bullhead, Arizona with an aggregate carrying value of $4.9 million.

13.Other Accrued Expenses

Other accrued expenses as of October 27, 2017 and January 27, 2017 are as follows (in thousands):

	October 27, 2017		January 27, 2017
Accrued interest	$	14,219	$	6,840
Accrued occupancy costs	13,312		9,438
Accrued legal reserves and fees	15,299		10,624
Accrued California Redemption Value	2,688		2,343
Accrued transportation	5,471		4,598
Accrued temporary labor	4,330		2,087
Other	12,391		10,152
Total other accrued expenses	$	67,710	$	46,082

14.New Authoritative Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” 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 was 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, while allowing early adoption as of the original public entity date.  In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying

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Performance Obligations and Licensing,” which amends the revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations as well as clarifies when a promised good or service is separately identifiable. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients,” which provides clarifying guidance in certain narrow areas such as an assessment of collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition as well as adds some practical expedients. In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” to clarify or to correct unintended application of the Topic 606, including disclosure requirements related to performance obligations. In September 2017, the FASB issued ASU 2017-13, “Revenue Recognition” (Topic 605), “Revenue from Contracts with Customers” (Topic 606), “Leases” (Topic 840), and “Leases” (Topic 842), which provides additional implementation guidance on the previously issued ASU 2014-09. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers,” as amended by the one-year deferral and early adoption provisions in ASU 2015-14. The Company is primarily engaged in the business of selling consumable and general merchandise and seasonal products. Revenues from the sale of such products are recognized at the point of sale. To date, the Company has performed a preliminary detailed review of key contracts and compared historical accounting policies and practices to the new standard. While the Company is still evaluating this standard, it is not expected that this standard will have a material impact on the Company’s consolidated financial statements. The Company will continue to evaluate ASU 2014-09 and other amendments and related interpretive guidance through the date of adoption. The Company expects to adopt ASU 2014-09 under the modified retrospective approach in the first quarter of fiscal 2019.

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 adopted this standard in the first quarter of fiscal 2018 and such adoption did not have an impact on the Company or its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU revises an entity’s accounting on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. This ASU becomes effective for public entities in the fiscal year beginning after December 15, 2017. Early adoption is not permitted except for the provisions related to the presentation of certain fair value changes for financial liabilities measured at fair value. The Company will adopt ASU 2016-01 in the first quarter of fiscal 2019 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease.  This ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.  This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.  Subsequently, in September 2017, the FASB issued ASU 2017-13, “Revenue Recognition” (Topic 605), “Revenue from Contracts with Customers” (Topic 606), “Leases” (Topic 840), and “Leases” (Topic 842), which provides additional implementation guidance on the previously issued ASU 2016-02.  ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods.  Early adoption is permitted.  The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented.  The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and is anticipating a material impact on its consolidated financial statements because the Company is party to a significant number of lease contracts.

In March 2016, the FASB issued ASU 2016-04, “Recognition of Breakage for Certain Prepaid Stored-Value Products,” which is designed to provide guidance and eliminate diversity in the accounting for the de-recognition of financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model.  Breakage should be recognized in proportion to the pattern of rights expected to be exercised by the product holder to the extent that it is probable a significant reversal of the recognized breakage amount will not subsequently occur. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively or using a modified retrospective approach.  The Company will adopt ASU 2016-04 in the first quarter of fiscal 2019 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

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In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting”. This ASU requires companies to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance requires companies to present excess tax benefits as an operating activity and cash paid to a taxing authority to satisfy statutory withholding as a financing activity on the statement of cash flows. The guidance will also allow entities to make an alternative policy election to account for forfeitures as they occur.  This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company adopted this standard in the first quarter of fiscal 2018. The Company made a policy election to account for forfeitures of share-based payments as they occur and implemented this provision using a modified retrospective transition.  There was no impact on retained earnings.  The Company also adopted other provisions of ASU 2016-09 in the first quarter of fiscal 2018 and the adoption of these provisions did not have an impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”.  This ASU replaces the current incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. The standard will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted for periods after December 15, 2018. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.  This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively.  The adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In October 2016, the FASB has issued ASU No. 2016-17, “Interest Held through Related Parties that are under Common Control”, which provides guidance on the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity (“VIE”) by amending how a reporting entity, that is a single decision maker of a VIE, treats indirect interests in that entity held through related parties that are under common control. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted.  The Company adopted this standard in the first quarter of fiscal 2018 and such adoption did not have an impact on the Company or its consolidated financial statements.

In October 2016 the FASB has issued ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted as of the beginning of a fiscal year. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Restricted Cash”, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The guidance is effective for periods beginning after December 15, 2017 on a retrospective basis, with early adoption permitted. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

On December 2016, FASB issued ASU 2016-19, “Technical Corrections and Improvements”, which includes amendments related to differences between original guidance and the Accounting Standards Codification, guidance clarification and reference corrections, simplifications to the Accounting Standards Codification, and minor improvements to the guidance. The amendments of the standard that require transition guidance are effective for annual and interim reporting periods beginning after December 15, 2016, and early adoption is permitted. All other amendments were effective immediately. The Company adopted this standard in the first quarter of fiscal 2018 and such adoption did not have an impact on the Company or its consolidated financial statements.

In January 2017 the FASB issued ASU No.  2017-01 “Business Combinations: Clarifying the Definition of a Business”, revises the definition of a business and may affect acquisitions, disposals, goodwill impairment and consolidation. The new guidance specifies that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The changes to the definition of a business in this guidance will likely result in more acquisitions being accounted for as asset acquisitions and would also affect the accounting for disposal transactions. This guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted.  The adoption is not expected to have a material impact on the Company or its consolidated financial statements.

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In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment”, which simplifies the goodwill impairment testing by eliminating Step 2 from the goodwill impairment testing required, should an impairment be discovered during its annual or interim assessment. The new standard is effective for annual or interim impairment tests beginning after December 15, 2019, with early adoption permitted. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”, which provides clarification about the term “in substance nonfinancial asset” and guidance for recognizing gains and losses from the transfer of nonfinancial assets and for partial sales of nonfinancial assets. The new standard is effective for public entities for annual periods beginning after December 15, 2017 and interim periods therein. Entities may use either a full or modified approach to adopt the standard.  The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Scope of Modification Accounting”, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance is intended to reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under the new standard, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. The new standard will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities”, which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This new guidance will require a modified retrospective adoption approach to existing hedging relationships as of the adoption date.  The amended presentation and disclosure guidance is to be applied on a prospective basis.  The guidance is effective for annual and interim periods, beginning after December 15, 2018, with early adoption permitted. The adoption is not expected to have a material impact on the Company or 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 27, 2017 and January 27, 2017, the Senior Notes are fully and unconditionally guaranteed by the Subsidiary Guarantors.

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 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,212		$	1,142		$	37		$	—		$	2,391
Accounts receivable, net	2,077			254			—			—			2,331
Income taxes receivable	2,739			—			—			—			2,739
Inventories, net	183,613			29,225			—			—			212,838
Assets held for sale	4,903			—			—			—			4,903
Other	10,539			391			5			—			10,935
Total current assets	205,083			31,012			42			—			236,137
Property and equipment, net	414,587			47,080			21			—			461,688
Deferred financing costs, net	1,976			—			—			—			1,976
Equity investments and advances to subsidiaries	897,566			834,079			3,199			(1,734,844		)	—
Intangible assets, net	441,291			1,420			—			—			442,711
Goodwill	380,643			—			—			—			380,643
Deposits and other assets	13,165			311			15			—			13,491
Total assets	$	2,354,311		$	913,902		$	3,277		$	(1,734,844	)	$	1,536,646
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	88,153		$	9,087		$	—		$	—		$	97,240
Intercompany payable	835,722			859,827			3,672			(1,699,221		)	—
Payroll and payroll-related	33,543			2,193			—			—			35,736
Sales tax	16,048			664			—			—			16,712
Other accrued expenses	63,751			3,947			12			—			67,710
Workers’ compensation	69,143			75			—			—			69,218
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	1,228			—			—			—			1,228
Total current liabilities	1,113,726			875,793			3,684			(1,699,221		)	293,982
Long-term debt, net of current portion	902,417			—			—			—			902,417
Unfavorable lease commitments, net	3,067			12			—			—			3,079
Deferred rent	28,569			2,067			—			—			30,636
Deferred compensation liability	959			—			—			—			959
Capital and financing lease obligation, net of current portion	52,584			—			—			—			52,584
Deferred income taxes	161,450			—			—			—			161,450
Other liabilities	16,587			—			—			—			16,587
Total liabilities	2,279,359			877,872			3,684			(1,699,221		)	1,461,694
Member’s Equity:
Member units	551,286			—			1			(1		)	551,286
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(457,134		)	(63,913		)	(408		)	64,321			(457,134		)
Total equity	74,952			36,030			(407		)	(35,623		)	74,952
Total liabilities and equity	$	2,354,311		$	913,902		$	3,277		$	(1,734,844	)	$	1,536,646

33

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 27, 2017

(In thousands)

	Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,207		$	1,105		$	136		$	—		$	2,448
Accounts receivable, net	3,478			32			—			—			3,510
Income taxes receivable (payable)	3,885			(9		)	—			—			3,876
Inventories, net	148,429			27,463			—			—			175,892
Assets held for sale	4,903			—			—			—			4,903
Other	9,571			723			13			—			10,307
Total current assets	171,473			29,314			149			—			200,936
Property and equipment, net	456,020			51,571			29			—			507,620
Deferred financing costs, net	3,488			—			—			—			3,488
Equity investments and advances to subsidiaries	766,276			696,162			2,907			(1,465,345		)	—
Intangible assets, net	445,302			1,725			—			—			447,027
Goodwill	380,643			—			—			—			380,643
Deposits and other assets	8,246			331			15			—			8,592
Total assets	$	2,231,448		$	779,103		$	3,100		$	(1,465,345	)	$	1,548,306
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	78,835		$	7,753		$	—		$	—		$	86,588
Intercompany payable	697,590			719,397			3,497			(1,420,484		)	—
Payroll and payroll-related	22,370			1,740			—			—			24,110
Sales tax	18,867			522			—			—			19,389
Other accrued expenses	43,962			2,103			17			—			46,082
Workers’ compensation	69,094			75			—			—			69,169
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	31,330			—			—			—			31,330
Total current liabilities	968,186			731,590			3,514			(1,420,484		)	282,806
Long-term debt, net of current portion	865,375			—			—			—			865,375
Unfavorable lease commitments, net	3,969			19			—			—			3,988
Deferred rent	28,141			2,216			3			—			30,360
Deferred compensation liability	816			—			—			—			816
Capital and financing lease obligation, net of current portion	47,195			—			—			—			47,195
Deferred income taxes	161,450			—			—			—			161,450
Other liabilities	12,297			—			—			—			12,297
Total liabilities	2,087,429			733,825			3,517			(1,420,484		)	1,404,287
Member’s Equity:
Member units	550,918			—			1			(1		)	550,918
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(387,699		)	(54,665		)	(418		)	55,083			(387,699		)
Total equity	144,019			45,278			(417		)	(44,861		)	144,019
Total liabilities and equity	$	2,231,448		$	779,103		$	3,100		$	(1,465,345	)	$	1,548,306

34

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Third Quarter Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	506,861		$	46,770		$	71	$	(71	)	$	553,631
Cost of sales	354,982			35,794			—		—			390,776
Gross profit	151,879			10,976			71		(71		)	162,855
Selling, general and administrative expenses	158,170			14,267			68		(71		)	172,434
Operating (loss) income	(6,291		)	(3,291		)	3		—			(9,579		)
Other (income) expense:
Interest income	(1		)	—			—		—			(1		)
Interest expense	17,480			—			—		—			17,480
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	3,288			—			—		(3,288		)	—
Total other expense, net	20,767			—			—		(3,288		)	17,479
(Loss) income before provision for income taxes	(27,058		)	(3,291		)	3		3,288			(27,058		)
Provision for income taxes	—			—			—		—			—
Net (loss) income	$	(27,058	)	$	(3,291	)	$	3	$	3,288		$	(27,058	)
Comprehensive (loss) income	$	(27,058	)	$	(3,291	)	$	3	$	3,288		$	(27,058	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Three Quarters Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,498,496		$	143,097		$	214	$	(214	)	$	1,641,593
Cost of sales	1,050,579			109,943			—		—			1,160,522
Gross profit	447,917			33,154			214		(214		)	481,071
Selling, general and administrative expenses	456,052			42,402			204		(214		)	498,444
Operating (loss) income	(8,135		)	(9,248		)	10		—			(17,373		)
Other (income) expense:
Interest income	(8		)	—			—		—			(8		)
Interest expense	51,983			—			—		—			51,983
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	9,238			—			—		(9,238		)	—
Total other expense, net	61,213			—			—		(9,238		)	51,975
(Loss) income before provision for income taxes	(69,348		)	(9,248		)	10		9,238			(69,348		)
Provision for income taxes	87			—			—		—			87
Net (loss) income	$	(69,435	)	$	(9,248	)	$	10	$	9,238		$	(69,435	)
Comprehensive (loss) income	$	(69,435	)	$	(9,248	)	$	10	$	9,238		$	(69,435	)

35

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Third Quarter Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	458,013		$	42,131		$	459	$	(459	)	$	500,144
Cost of sales	322,306			32,676			—		—			354,982
Gross profit	135,707			9,455			459		(459		)	145,162
Selling, general and administrative expenses	152,117			13,465			96		(459		)	165,219
Operating (loss) income	(16,410		)	(4,010		)	363		—			(20,057		)
Other (income) expense:
Interest income	(7		)	—			—		—			(7		)
Interest expense	16,920			—			—		—			16,920
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	3,647			—			—		(3,647		)	—
Total other expense, net	20,560			—			—		(3,647		)	16,913
(Loss) income before provision for income taxes	(36,970		)	(4,010		)	363		3,647			(36,970		)
Provision for income taxes	21			—			—		—			21
Net (loss) income	$	(36,991	)	$	(4,010	)	$	363	$	3,647		$	(36,991	)
Comprehensive (loss) income	$	(36,991	)	$	(4,010	)	$	363	$	3,647		$	(36,991	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Three Quarters Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,382,473		$	127,058		$	570	$	(570	)	$	1,509,531
Cost of sales	975,681			98,521			—		—			1,074,202
Gross profit	406,792			28,537			570		(570		)	435,329
Selling, general and administrative expenses	442,940			39,405			158		(570		)	481,933
Operating (loss) income	(36,148		)	(10,868		)	412		—			(46,604		)
Other (income) expense:
Interest income	(45		)	—			—		—			(45		)
Interest expense	50,230			—			—		—			50,230
Loss on extinguishment of debt	335			—			—		—			335
Equity in loss (earnings) of subsidiaries	10,456			—			—		(10,456		)	—
Total other expense, net	60,976			—			—		(10,456		)	50,520
(Loss) income before provision for income taxes	(97,124		)	(10,868		)	412		10,456			(97,124		)
Provision for income taxes	146			—			—		—			146
Net (loss) income	$	(97,270	)	$	(10,868	)	$	412	$	10,456		$	(97,270	)
Comprehensive (loss) income	$	(97,108	)	$	(10,868	)	$	412	$	10,456		$	(97,108	)

36

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Three Quarters Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash (used in) provided by operating activities	$	(27,651	)	$	1,724		$	(99	)	$	—	$	(26,026	)
Cash flows from investing activities:
Purchases of property and equipment	(30,363		)	(1,688		)	—			—		(32,051		)
Proceeds from sales of property and fixed assets	9,398			1			—			—		9,399
Insurance recoveries for replacement assets	475			—			—			—		475
Net cash used in investing activities	(20,490		)	(1,687		)	—			—		(22,177		)
Cash flows from financing activities:
Proceeds from long-term debt	25,000			—			—			—		25,000
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	211,400			—			—			—		211,400
Payments under revolving credit facility	(197,200		)	—			—			—		(197,200		)
Payments of debt issuance costs	(880		)	—			—			—		(880		)
Proceeds from financing lease obligations	15,317			—			—			—		15,317
Payments of capital and financing lease obligations	(887		)	—			—			—		(887		)
Net cash provided by financing activities	48,146			—			—			—		48,146
Net increase (decrease) in cash	5			37			(99		)	—		(57		)
Cash – beginning of period	1,207			1,105			136			—		2,448
Cash – end of period	$	1,212		$	1,142		$	37		$	—	$	2,391

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Three Quarters Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	6,193		$	1,742		$	(4	)	$	—	$	7,931
Cash flows from investing activities:
Purchases of property and equipment	(33,652		)	(1,621		)	—			—		(35,273		)
Proceeds from sales of fixed assets	617			—			—			—		617
Insurance recoveries for replacement assets	937			—			—			—		937
Net cash used in investing activities	(32,098		)	(1,621		)	—			—		(33,719		)
Cash flows from financing activities:
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	168,500			—			—			—		168,500
Payments under revolving credit facility	(174,500		)	—			—			—		(174,500		)
Payments of debt issuance costs	(4,725		)	—			—			—		(4,725		)
Proceeds from financing lease obligations	41,993			—			—			—		41,993
Payments of capital and financing lease obligations	(762		)	—			—			—		(762		)
Net cash provided by financing activities	25,902			—			—			—		25,902
Net (decrease) increase in cash	(3		)	121			(4		)	—		114
Cash – beginning of period	1,266			1,009			37			—		2,312
Cash – end of period	$	1,263		$	1,130		$	33		$	—	$	2,426

37

16.Subsequent Events

Amendment to First Lien Term Loan Facility

On November 7, 2017 (the “Amendment Date”), the Company amended the terms of the First Lien Term Loan Facility (the “Third Amendment”) to, among other things, (i) provide for the refinancing or replacement of not less than 85% of the existing tranche B-2 term loans held by lenders that are not affiliates of the Company under the First Lien Term Loan Facility immediately prior to the effectiveness of the Third Amendment (the “Existing Term Facility”) with new first lien term loans (the “New First Lien Term Loans”),  (ii) provide for the reallocation of 100% of the aggregate principal amount of the tranche B-2 term loans under the Existing First Lien Term Loan Facility held by lenders that are affiliates of the Company to a new senior secured second lien facility (the “Second Lien Facility”), (iii) permit an exchange of the Borrower’s Senior Notes for new senior secured notes all or partially payable in kind and with a later maturity date, (iv) increase the mandatory prepayment threshold for excess cash flow of the Company from 50% to 100% commencing with the fiscal year ending January 25, 2019, (v) permit the Company to reinvest $5.0 million of the net cash proceeds received or realized after the Amendment Date from certain asset sales (including sale leaseback transactions) or recovery events, (vi) eliminate any incremental capacity after the Amendment Date, (vi) reduce certain thresholds in the negative covenants in a manner consistent with certain features of the ABL Facility, (vii) add certain unencumbered real property of the Company as collateral for the First Lien Term Loan Facility, as more particularly described under “Entry into Second Lien Facility” below, and (viii) permit certain other modifications as set forth in the Third Amendment. Upon the effectiveness of the Third Amendment, approximately $399.2 million of the term loans under the Existing Term Facility held by lenders that are not affiliates of the Company were converted into New First Lien Term Loans (and approximately $34.7 million of tranche B-2 loans were converted into New First Lien Term Loans after the consummation of the Third Amendment) and, upon the effectiveness of the Second Lien Credit Agreement, approximately $130 million of tranche B-2 term loans held by lenders that are affiliates of the Company under the Existing Term Facility were reallocated to the Second Lien Facility.  Lenders approving the Third Amendment received an upfront fee of 50 basis points at closing.

The New First Lien Term Loans bear interest at the Eurocurrency Rate plus 6.50% (5.00% to be payable in cash and 1.50% to be payable in-kind) or the Base Rate plus 5.50% (4.00% to be payable in cash and 1.50% to be payable in-kind (“PIK”); provided that, the Company may, at its option and upon notice to the administrative agent, pay all or any portion of the PIK interest in cash. The Eurocurrency rate is subject to a floor of 1.0%.  The New First Lien Term Loans shall be payable in equal quarterly installments of 1% per annum, with the balance payable on the scheduled maturity date (the “Extended First Lien Maturity Date”), which was extended to January 13, 2022; provided that, if less than 95% of the principal amount of the Senior Notes outstanding on the Amendment Date has been converted, redeemed, repurchased or refinanced in full on or before the date that is three business days prior to June 1, 2019, such that the stated maturity date in respect of the Senior Notes (other than up to 5% in aggregate principal amount of the Senior Notes) is at least 91 days after January 13, 2022, then the Extended First Lien Maturity Date will be June 1, 2019.

The Company may prepay or reprice the New First Lien Term Loans, in whole or in part, at any time, with payment of a prepayment premium equal to (a) 2.0% of principal amount prepaid or repriced if made during the first two years of the Amendment Date and (b) 1.0% of principal amount prepaid or repriced if made after the second anniversary of Amendment Date but before the third anniversary of the Amendment Date. Thereafter, no prepayment premium is applicable.

Tranche B-2 term loans that remain outstanding under the First Lien Term Loan Facility after the Amendment Date (a) will not benefit from certain covenants and the events of default governing the New First Lien Term Loan, other than those relating to payment, security or insolvency and (b) may not be assigned without the prior written consent of the Company in the Company’s sole discretion.

Amendment to ABL Credit Facility

In connection with the Third Amendment, the Company amended its ABL Facility (the “Sixth Amendment”) to, among other things, (i) extend the maturity date of the ABL Facility (including, for the avoidance of doubt, the FILO Facility) to a date that is 91 days prior to the Extended First Lien Maturity Date, (ii) permit an exchange of the Borrower’s Senior Notes for new senior secured notes partially payable in kind and with a later maturity date, (iii) permit the refinancing of the tranche B-2 loans under the Company’s Existing Term Facility for New First Lien Term Loans, (iv) permit the Second Lien Facility and (v) reset incremental FILO capacity up to $15.0 million and (vi)permit certain other modifications as set forth in the Sixth Amendment.

Entry into Second Lien Facility

In connection with the Third Amendment, the Company, Parent, the subsidiaries of the Company party thereto Wilmington Trust, National Association, as administrative agent (the “Second Lien Administrative Agent”), and the lenders from time to time party thereto, entered into that certain Credit Agreement (the “Second Lien Credit Agreement”). The loans under the Second Lien Facility bear interest at a per annum rate equal to Eurocurrency rate plus 8.50% or the Base Rate plus 7.50%, in each case, in the form of PIK interest. The Eurocurrency rate is subject to a floor of 1.0%. The maturity date of the Second Lien Facility will be 91 days after the Extended First Lien Maturity Date.  The Second Lien Facility is secured by a second lien on the same collateral assets as the First Lien Term Loan Facility and a third lien on the ABL-priority collateral assets, and is guaranteed by the same guarantors as the First Lien Term Loan Facility and the ABL Facility.

38

The Second Lien Facility contains prepayment provisions, covenants and events of default that are substantially similar to the New First Lien Term Loans.

All obligations under the Second Lien Facility are unconditionally guaranteed by Parent and certain of the Company’s existing wholly owned domestic restricted subsidiaries, and are required to be guaranteed by certain of the Company’s future wholly owned domestic restricted subsidiaries.  All obligations under the Second Lien Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, on a second-priority basis by substantially all of the assets of the Company and Parent and the Company’s restricted subsidiaries that have guaranteed the credit facility under the First Lien Term Loan Facility.

In connection with the Third Amendment, Sixth Amendment and Second Lien Credit Agreement, in addition to the collateral securing the Existing Term Facility and ABL Facility, (i) the First Lien Term Loan Facility will be secured by a first-priority mortgage on all unencumbered fee-owned real property of the Company other than certain property designated as excluded real property by the Company on the Amendment Date or that is eligible for an exempt sale-leaseback transaction (the “Real Estate Collateral”), (ii) the Second Lien Facility will be secured by a second-priority mortgage on the Real Estate Collateral, (iii) the ABL Facility will be secured by a third-priority mortgage on the Real Estate Collateral.

Senior Notes Exchange Offer

On November 7, 2017, the Company launched an exchange offer and consent solicitation (the “Exchange Offer”) to (i) exchange its existing 11% Senior Notes due 2019 for the Company’s newly issued 13% Cash/PIK Notes due 2022 (the “New Secured Notes”), of which there are currently $250 million aggregate principal amount outstanding and (ii) solicit consents to certain proposed amendments to the indenture governing the Senior Notes, in each case, upon the terms and subject to the conditions as set forth in an Offering Memorandum and a related Letter of Transmittal. On November 22, 2017, the Company launched an amended Exchange Offer to (i) shorten the maturity date of the New Secured Notes being offered in exchange for the Senior Notes to April 14, 2022, (ii) extend the Early Tender Date from 5:00 p.m., New York City time, on November 22, 2017 to 5:00 p.m., New York City time, on November 30, 2017, (iii) increase the early tender consideration offered to include a cash fee of $7.50 per each $1,000 principal amount of Senior Notes, (iv) amend certain terms of the New Secured Notes and (v) amend the conditions to the Exchange Offer to include a minimum tender condition that at least 95% in aggregate principal amount of Senior Notes be validly tendered and not validly withdrawn in the Exchange Offer and the simultaneous exchange of Senior Notes held by the Sponsors, as described below, to prior to 11:59 p.m., New York City time, on the expiration date. The Company also amended the consideration being offered to the Sponsors in exchange for their Senior Notes from its 13% All PIK Notes due 2023 to shares of new paid-in-kind Series A-1 Preferred Stock, $0.001 par value per share, of Parent.  The New Secured Notes will be effectively senior to all of the Company’s existing and future unsecured indebtedness, including the Senior Notes, to the extent of the value of the collateral securing the New Secured Notes.  The Exchange Offer expired at 11:59 p.m., New York City time, on December 7, 2017, and the settlement date is expected to be on or about December 14, 2017.  In connection with the Exchange Offer, the Company entered into a transaction support agreement with certain holders (including beneficial owners or investment managers of beneficial owners) of Senior Notes (together with their successors and assigns, the “Support Parties”), pursuant to which the Company and the Support Parties, including the Sponsors or their affiliates, agreed (subject to the terms and conditions set forth therein) to support the Exchange Offer as amended pursuant to the terms and conditions of the Offering Memorandum. On December 6, 2017, the Company announced that it had received tenders from holders of at least $242,228,000 in aggregate principal amount of Senior Notes, representing approximately 96.89% of the total outstanding principal amount of Senior Notes.  As of November 30, 2017, the right to withdraw tenders of Senior Notes and related consents and the right to receive an early tender premium have expired.

39

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 27, 2017) 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 everyday grocery, fresh, consumable products and other household items as well as seasonal items that are primarily priced at 99.99¢ or less. We also offer a growing assortment of items across the store priced above $1 that represent an extreme-value offering to our budget-conscious customers. We carry a wide assortment of regularly available products 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. (“Ares”) and Canada Pension Plan Investment Board (“CPPIB” and, together with Ares, the “Sponsors”).

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 2018 began on January 28, 2017, will end on February 2, 2018 and will consist of 53 weeks.  Fiscal year 2017 (“fiscal 2017”) began on January 30, 2016, ended on January 27, 2017 and consisted of 52 weeks.  The third quarter ended October 27, 2017 (the “third quarter of fiscal 2018”) and the third quarter ended October 28, 2016 (the “third quarter of fiscal 2017”) were each comprised of 91 days. Each of the nine-month period ended October 27, 2017 (the “first three quarters of fiscal 2018”) and the nine-month period ended October 28, 2016 (the “first three quarters of fiscal 2017”) was comprised of 273 days.

For the third quarter of fiscal 2018, we had net sales of $553.6 million, operating loss of $9.6 million and a net loss of $27.1 million.  Sales increased during the third quarter of fiscal 2018 over the same period in fiscal 2017 primarily due to an increase in same-store sales of 11.3% and the full quarter effect of new stores opened in fiscal 2017.  Third quarter of fiscal 2018 results were positively impacted by decreases in shrinkage and higher product margin compared to the third quarter of fiscal 2017 as further discussed in “Results of Operations — Third Quarter Ended October 27, 2017 Compared to Third Quarter Ended October 28, 2016 — Gross Profit” and also positively impacted by leveraging higher same-store sales, among other factors as further discussed in “Results of Operations — Third Quarter Ended October 27, 2017 Compared to Third Quarter Ended October 28, 2016 — Selling, General and Administrative Expenses”.  For the first three quarters of fiscal 2018, we had net sales of $1,641.6 million, operating loss of $17.4 million and a net loss of $69.4 million.  Sales increased during the first three quarters of fiscal 2018 over the same period in fiscal 2017 primarily due to an increase in same-store sales of 9.0% and the full year effect of new stores opened in fiscal 2017.

The senior leadership team continues to focus on key strategies designed to enable us to profitably scale our business while continuing to meet the needs of our customers. These areas are discussed in detail under Item 1, “Business—Our Business Strategy” of our Annual Report on Form 10-K for the fiscal year ended January 27, 2017.

In the first three quarters of fiscal 2018, we opened one new store in California.  We currently intend to open one new store in the fourth quarter of fiscal 2018 and two new stores in the first quarter of fiscal 2019. We expect to close four stores by the end of fiscal 2018.  Of these four stores, two will close upon lease expiration and two will close through exercise of our early lease termination rights.  We believe that our near term growth will primarily result from increases in same-store sales and new store openings in our existing territories.

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 27, 2017.  Since the filing of our Annual Report on Form 10-K for the fiscal year ended January 27, 2017, 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 comprehensive income.

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Net Sales: Revenue is recognized at the point of sale in our stores (“retail sales”).  Bargain Wholesale 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 shrink, 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 or based on other systematic and rational approaches where possible.

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.

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

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):

	For the Third Quarter Ended										For the First Three Quarters Ended
	October 27, 2017			% of Net Sales		October 28, 2016			% of Net Sales		October 27, 2017			% of Net Sales		October 28, 2016			% of Net Sales
Net Sales:
99¢ Only Stores	$	543,856		98.2	%	$	489,900		98.0	%	$	1,613,136		98.3	%	$	1,479,126		98.0	%
Bargain Wholesale	9,775			1.8		10,244			2.0		28,457			1.7		30,405			2.0
Total sales	553,631			100.0		500,144			100.0		1,641,593			100.0		1,509,531			100.0
Cost of sales	390,776			70.6		354,982			71.0		1,160,522			70.7		1,074,202			71.2
Gross profit	162,855			29.4		145,162			29.0		481,071			29.3		435,329			28.8
Selling, general and administrative expenses	172,434			31.1		165,219			33.0		498,444			30.4		481,933			31.9
Operating loss	(9,579		)	(1.7	)	(20,057		)	(4.0	)	(17,373		)	(1.1	)	(46,604		)	(3.1	)
Other (income) expense:
Interest income	(1		)	0.0		(7		)	0.0		(8		)	0.0		(45		)	0.0
Interest expense	17,480			3.2		16,920			3.4		51,983			3.2		50,230			3.3
Loss on extinguishment of debt	—			0.0		—			0.0		—			0.0		335			0.0
Total other expense, net	17,479			3.2		16,913			3.4		51,975			3.2		50,520			3.3
Loss before provision for income taxes	(27,058		)	(4.9	)	(36,970		)	(7.4	)	(69,348		)	(4.2	)	(97,124		)	(6.4	)
Provision for income taxes	—			0.0		21			0.0		87			0.0		146			0.0
Net loss	$	(27,058	)	(4.9	)%	$	(36,991	)	(7.4	)%	$	(69,435	)	(4.2	)%	$	(97,270	)	(6.4	)%

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Third Quarter Ended October 27, 2017 Compared to Third Quarter Ended October 28, 2016

Net sales.  Total net sales increased $53.5 million, or 10.7%, to $553.6 million in the third quarter of fiscal 2018, from $500.1 million in the third quarter of fiscal 2017.  Net retail sales increased $53.9 million, or 11.0%, to $543.8 million in the third quarter of fiscal 2018, from $489.9 million in the third quarter of fiscal 2017.  Bargain Wholesale net sales decreased by $0.4 million, or 4.6%, to $9.8 million in the third quarter of fiscal 2018, from $10.2 million in the third quarter of fiscal 2017.  The $53.9 million increase in net retail sales was primarily due to a 11.3% increase in same-store sales and the full quarter effect of stores opened in fiscal 2017.  The increase in retail sales was partially offset by a decrease in sales of approximately $5.1 million due to the impact of closed stores. Same-store sales increased 11.3% compared to the third quarter of fiscal 2017, with higher customer traffic of 5.1% and higher average ticket of 5.8%. The increase in same-store sales was primarily driven by continued sales growth in all major categories including seasonal, general merchandise, consumables, fresh and grocery.  Also contributing to the sales increase was higher sales of above $1 products, refresh market sales performance, improved product assortment, store execution and in-stock levels.

Gross profit.  Gross profit increased $17.7 million, or 12.2%, to $162.9 million in the third quarter of fiscal 2018, from $145.2 million in the third quarter of 2017.  As a percentage of net sales, overall gross margin increased to 29.4% in the third quarter of fiscal 2018, from 29.0% in the third quarter of fiscal 2017.  Among the gross profit components, shrinkage improved by 20 basis points compared to fiscal 2017 as a result of positive trends in recent physical counts that we believe were driven by ongoing initiatives that identify and reduce shrinkage, including loss prevention efforts and adherence to disciplined inventory management processes.  Product margin increased by 20 basis points compared to the third quarter of fiscal 2017 primarily as a result of lower levels of clearance initiatives compared to prior year and improved fresh category margins, partially offset by a higher mix of above $1 products, which drove overall improvements in sales and margin dollars, but was dilutive to product margin rates.  Distribution and transportation expenses increased by 20 basis points primarily due to higher distribution labor costs associated with the transition to a seven day delivery schedule.  Management expects these costs to normalize over time. 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 $7.2 million or 4.4%, to $172.4 million in the third quarter of fiscal 2018, from $165.2 million in the third quarter of fiscal 2017.  As a percentage of net sales, selling, general and administrative expenses decreased by 190 basis points to 31.1% for the third quarter of fiscal 2018 from 33.0% for the third quarter of fiscal 2017.  Selling, general and administrative expenses as a percentage of net sales for the third quarter of fiscal 2018 were favorably impacted by 80 basis points as a result of operating leverage on fixed expenses stemming from higher same-store sales, as compared to the third quarter of fiscal 2017.  Positively impacted fixed expense categories include but are not limited to depreciation, store occupancy costs and other fixed store-level expenses.  In addition, the third quarter of fiscal 2017 included an estimated sales tax liability charge, which increased prior year third quarter selling, general and administrative expenses as a percentage of sales by 50 basis points and resulted in a favorable comparison to the third quarter of fiscal 2018.  Workers’ compensation expense was also lower by 50 basis points primarily driven by lower incurred and projected expenses associated with workers’ compensation claims in fiscal 2018 and prior years. The remaining variance was primarily due to lower store operating costs, in areas such as store supplies and outside services, partially offset by higher performance compensation expenses and losses on disposal of assets.

Operating loss.  Operating loss was $9.6 million for the third quarter of fiscal 2018 compared to operating loss of $20.1 million for the third quarter of fiscal 2017.  Operating loss as a percentage of net sales was (1.7)% in the third quarter of fiscal 2018 compared to operating loss of (4.0)% in the third quarter of fiscal 2017.  The decrease in operating loss as a percentage of net sales was primarily due to changes in gross margin and selling, general, and administrative expenses, as discussed above.

Interest expense.  Interest expense was $17.5 million for the third quarter of fiscal 2018 compared to interest expense of $16.9 million for the third quarter of fiscal 2017.  Interest expense was higher primarily due to increased borrowings under the revolving portion of the ABL Facility (as defined below) and the FILO Facility (as defined below) as well higher interest rates on our variable rate debt.

Provision for income taxes. The provision for income taxes was zero for the third quarter of fiscal 2018 compared to an income tax provision of less than $0.1 million for the third quarter of fiscal 2017.  The effective income tax rate for the third quarter of fiscal 2018 was a provision rate of (0.0)% compared to a provision rate of (0.1)% for the third quarter of fiscal 2017.  The effective tax rates differ from statutory rates primarily due to the effect of not recognizing the benefit of losses incurred in the third quarter of fiscal 2018 and 2017 in jurisdictions where we concluded it is more likely than not that such benefits would not be realized and a valuation allowance established in the second quarter of 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 an effective tax rate that is materially different from the current estimate.

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Net loss.  As a result of the items discussed above, net loss for the third quarter of fiscal 2018 was $27.1 million compared to net loss of $37.0 million in the third quarter of fiscal 2017.  Net loss as a percentage of net sales was (4.9)% for the third quarter of fiscal 2018, compared to net loss of (7.4)% for the third quarter of fiscal 2017.

First Three Quarters Ended October 27, 2017 Compared to First Three Quarters Ended October 28, 2016

Net sales.  Total net sales increased $132.1 million, or 8.7%, to $1,641.6 million in the first three quarters of fiscal 2018, from $1,509.5 million in the first three quarters of fiscal 2017.  Net retail sales increased $134.0 million, or 9.1%, to $1,613.1 million in the first three quarters of fiscal 2018, from $1,479.1 million in the first three quarters of fiscal 2017.  Bargain Wholesale net sales decreased by $1.9 million, or 6.4%, to $28.5 million in the first three quarters of fiscal 2018, from $30.4 million in the first three quarters of fiscal 2017. The $134.0 million increase in net retail sales is primarily due to a 9.0% increase in same-store sales and the full year effect of stores opened in fiscal 2017.  The increase in retail sales was partially offset by a decrease in sales of approximately $17.0 million due to the impact of closed stores. Same-store sales increased 9.0% compared to the first three quarters of fiscal 2017, with higher customer traffic of 4.7% and higher average ticket of 4.1%. The increase in same-store sales was primarily driven by continued sales growth in all major categories including seasonal, general merchandise, consumables, fresh and grocery.  Also contributing to the sales increase was higher sales of above $1 products, refresh market sales performance, improved product assortment, store execution and in-stock levels.

Gross profit.  Gross profit increased $45.8 million, or 10.5%, to $481.1 million in the first three quarters of fiscal 2018, from $435.3 million in the three quarters of fiscal 2017.  As a percentage of net sales, overall gross margin increased to 29.3% in the first three quarters of fiscal 2018 from 28.8% in the first three quarters of fiscal 2017.  Among the gross profit components, shrinkage improved by 70 basis points compared to fiscal 2017 as a result of positive trends in recent physical counts that we believe were driven by ongoing initiatives that identify and reduce shrinkage, including loss prevention efforts and adherence to disciplined inventory management processes.  Product margin decreased by 40 basis points compared to the first three quarters of fiscal 2017 primarily as a result of a higher mix of above $1 products, which drove overall improvements in sales and margin dollars, but was dilutive to product margin rates, and higher import related expenses, including ocean freight and duty.   Distribution and transportation expenses decreased by 10 basis points primarily due to lower outbound transportation costs. 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 $16.5 million or 3.4%, to $498.4 million in the first three quarters of fiscal 2018, from $481.9 million in the first three quarters of fiscal 2017.  As a percentage of net sales, selling, general and administrative expenses decreased to 30.4% for the first three quarters of fiscal 2018 from 31.9% for the first three quarters of fiscal 2017.  The 150 basis point decrease in selling, general and administrative expenses as a percentage of net sales was primarily driven by an $18.5 million realized gain on sale of a warehouse facility, representing 110 basis points during the first quarter of fiscal 2018 (as described in Note 11 to our Unaudited Consolidated Financial Statements). In addition, selling, general and administrative expenses as a percentage of net sales for the first three quarters of 2018 were favorably impacted by 60 basis points as a result of operating leverage on fixed expenses stemming from higher same-store sales. Positively impacted fixed expense categories include but are not limited to depreciation, store occupancy costs and other fixed store-level expenses.  Workers’ compensation expense was also lower by 40 basis points primarily driven by lower incurred and projected expenses associated with workers’ compensation claims in fiscal 2018 and prior years.  These decreases were partially offset by an increase in payroll-related expenses of 40 basis points, primarily due to higher performance compensation expenses and an increase in the minimum wage in California and Arizona, both of which went into effect in January 2017, as well as higher losses on disposal of fixed assets and impairment charges of 20 basis points.

Operating loss.  Operating loss was $17.4 million for the first three quarters of fiscal 2018 compared to operating loss of $46.6 million for the first three quarters of fiscal 2017.  Operating loss as a percentage of net sales was (1.1)% in the first three quarters of fiscal 2018 compared to operating loss of (3.1)% in the first three quarters of fiscal 2017.  The decrease in operating loss as a percentage of net sales was primarily due to changes in gross margin and selling, general, and administrative expenses, as discussed above.

Interest expense and loss on extinguishment of debt.  Interest expense was $52.0 million for the first three quarters of fiscal 2018 compared to interest expense of $50.2 million for the first three quarters of fiscal 2017.  Interest expense was higher primarily due to amortization of debt issuance costs, higher borrowings outstanding under the revolving portion of the ABL Facility (as defined below) and FILO Facility (as defined below).  Loss on extinguishment of debt was $0.3 million relating to the amendment of the ABL Facility (as defined below) in April 2016.

Provision for income taxes. The provision for income taxes was $0.1 million for each of the first three quarters of fiscal 2018 and the first three quarters of fiscal 2017.  The effective income tax rate was (0.1)% for each of the first three quarters of fiscal 2018 compared to a provision rate of (0.2)% for the first three quarters of fiscal 2017.  The effective tax rates differ from statutory rates primarily due to the effect of not recognizing the benefit of losses incurred in the first three quarters of fiscal 2018 and 2017 in jurisdictions where we concluded it is more likely than not that such benefits would not be realized and a valuation allowance established in the second quarter of 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 an effective tax rate that is materially different from the current estimate.

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Net loss.  As a result of the items discussed above, net loss for the first three quarters of fiscal 2018 was $69.4 million compared to net loss of $97.3 million for the first three quarters of fiscal 2017.  Net loss as a percentage of net sales was (4.2)% for the first three quarters of fiscal 2018 compared to net loss of (6.4)% for the first three quarters of fiscal 2017.

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.  However, if we face unanticipated cash needs, such as the funding of a capital investment, our existing liquidity sources may be insufficient.  Availability under the ABL Facility (as defined below)  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 2018, we held $2.4 million in cash, and our total indebtedness was $917.8 million, consisting of gross borrowings under the First Lien Term Loan Facility (as defined below) of $589.3 million, borrowings under the revolving portion of the ABL Facility (as defined below) of $53.5 million, borrowings under the FILO Facility (as defined below) of $25.0 million and $250.0 million of our Senior Notes (as defined below).  As of October 27, 2017, availability under the ABL Facility (as defined below) (subject to the borrowing base) was $53.6 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.  As of November 7, 2017 (the “Amendment Date”), the tranche B-2 loans under the First Lien Term Loan Facility mature on January 13, 2019 and the New First Lien Term Loans (as defined below) mature on January 13, 2022; provided that, if less than 95% of the principal amount of the Senior Notes outstanding on the Amendment Date has been converted, redeemed, repurchased or refinanced in full on or before the date that is three business days prior to June 1, 2019, such that the stated maturity date in respect of the Senior Notes (other than up to 5% in aggregate principal amount of the Senior Notes) is at least 91 days after January 13, 2022, then the stated maturity date of the New First Lien Term Loans will be June 1, 2019, and our Senior Notes mature on December 15, 2019.  The maturity date of our ABL Facility has been extended to a date that is 91 days prior to the stated maturity date of the New First Lien Term Loans.  On November 7, 2017 (as amended on November 22, 2017), we launched the Exchange Offer (as defined below) with respect to the Senior Notes for the New Secured Notes (as defined below) maturing in 2022 and new paid-in-kind Series A-1 Preferred Stock of Parent (as discussed below). The Exchange Offer expired at 11:59 p.m., New York City time, on December 7, 2017, and the settlement date is expected to be on or about December 14, 2017.  In connection with the Exchange Offer, we entered into a Transaction Support Agreement with certain holders (including beneficial owners or investment managers of beneficial owners) of Senior Notes (together with their successors and assigns, the “Support Parties”), pursuant to which we and the Support Parties, including the Sponsors or their affiliates, agreed (subject to the terms and conditions set forth therein) to support the Exchange Offer as amended pursuant to the terms and conditions of the Offering Memorandum.  On December 6, 2017, we announced that we have received tenders from holders of at least $242,228,000 in aggregate principal amount of Senior Notes, representing approximately 96.89% of the total outstanding principal amount of Senior Notes.  As of November 30, 2017, the right to withdraw tenders of Senior Notes and related consents and the right to receive an early tender premium have expired.

We regularly evaluate market conditions, our liquidity profile, and various financing, refinancing, exchange and other alternatives for opportunities to enhance our capital structure and address maturities under our existing debt arrangements. If opportunities are favorable or are otherwise available on acceptable terms, we may seek to refinance, exchange, amend the terms of our existing debt or issue or incur additional debt, and we have engaged and may continue to engage with existing and prospective holders of our debt in connection with such matters, including by holding discussions from time to time.  Although we are actively pursuing opportunities to improve our capital structure and extend our maturity profile (including by refinancing, exchanging and/or amending the terms of our existing debt or issuing additional debt) including pursuant to the Exchange Offer, such transaction may not be available to us in the foreseeable future or at all.  If we are unable to complete such transactions on favorable terms or at all due to market conditions or otherwise, our financial condition could be materially and adversely affected.

We also have, and will continue to have, significant lease obligations.  As of October 27, 2017, our minimum annual rental obligations under long-term leases for the remainder of fiscal 2018 are $21.9 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 availability under our ABL Facility, 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.

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Credit Facilities

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.  As of October 27, 2017, the Credit Facilities include (a) our first lien asset-based revolving credit facility and last out term credit facility (collectively, 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”).

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”).  As of October 27, 2017, the First Lien Term Loan Facility has a 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 (with customary exceptions, including 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.

As of October 27, 2017, 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” (4.25% as of October 27, 2017), (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 27, 2017, the interest rate charged on the First Lien Term Loan Facility was 4.83% (1.33% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of October 27, 2017, the gross amount outstanding under the First Lien Term Loan Facility was $589.3 million.

As of October 27, 2017, 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 2017.

Additionally, as of October 27, 2017,  the First Lien Term Loan Facility requires us to make mandatory prepayments equal to 50% of the net cash proceeds from sale-leasebacks of any assets acquired before January 13, 2012 for consideration above a certain threshold.  In May 2017, we made a mandatory term loan prepayment of $2.0 million from sale-leaseback proceeds.

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The First Lien Term Loan Facility includes certain customary restrictions, among other things, on our ability and the ability of Parent, the Credit Facilities Guarantors (including our subsidiary 99 Cents Only Stores Texas Inc.) 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 27, 2017, we were in compliance with the terms of the First Lien Term Loan Facility.

As of October 27, 2017, various funds affiliated with the Sponsors held approximately $129.5 million, respectively, of term loans under the First Lien Term Loan Facility.  From time to time, these or other affiliated funds may hold additional term loans. The terms of these term loans are the same as those held by unaffiliated third party lenders under the First Lien Term Loan Facility.

On November 7, 2017, we amended the terms of the First Lien Term Loan Facility (the “Third Amendment”) to, among other things, (i) provide for the refinancing or replacement of not less than 85% of the existing tranche B-2 term loans held by lenders that are not our affiliates under the First Lien Term Loan Facility immediately prior to the effectiveness of the Third Amendment (the “Existing Term Facility”) with new first lien term loans (the “New First Lien Term Loans”),  (ii) provide for the reallocation of 100% of the aggregate principal amount of the tranche B-2 term loans under the Existing First Lien Term Facility held by lenders that are our affiliates to a new senior secured second lien facility (the “Second Lien Facility”), (iii) permit an exchange of our Senior Notes for new senior secured notes all or partially payable in kind and with a later maturity date, (iv) increase the mandatory prepayment threshold for excess cash flow from 50% to 100% commencing with the fiscal year ending January 25, 2019, (v) permit us to reinvest $5.0 million of the net cash proceeds received or realized after the Amendment Date from certain asset sales (including sale leaseback transactions) or recovery events, (vi) eliminate any incremental capacity after the Amendment Date, (vi) reduce certain thresholds in the negative covenants in a manner consistent with certain features of the ABL Facility, (vii) add certain unencumbered real property as collateral for the First Lien Term Loan Facility, as more particularly described under “Entry into Second Lien Facility” below, and (viii) permit certain other modifications as set forth in the Third Amendment. Upon the effectiveness of the Third Amendment, approximately $399.2 million of the term loans under the Existing Term Facility held by lenders that are not our affiliates were converted into New First Lien Term Loans (and approximately $34.7 million of tranche B-2 loans were converted into New First Lien Term Loans after the consummation of the Third Amendment) and, upon the effectiveness of the Second Lien Credit Agreement, approximately $130 million of tranche B-2 term loans held by lenders that are affiliates of the Company under the Existing Term Facility were reallocated to the Second Lien Facility.  Lenders approving the Third Amendment received an upfront fee of 50 basis points at closing.

The New First Lien Term Loans bear interest at the Eurocurrency Rate plus 6.50% (5.00% to be payable in cash and 1.50% to be payable in-kind) or the Base Rate plus 5.50% (4.00% to be payable in cash and 1.50% to be payable in-kind (“PIK”); provided that, we may, at our option and upon notice to the administrative agent, pay all or any portion of the PIK interest in cash. The Eurocurrency rate is subject to a floor of 1.0%.  The New First Lien Term Loans shall be payable in equal quarterly installments of 1% per annum, with the balance payable on the scheduled maturity date (the “Extended First Lien Maturity Date”), which was extended to January 13, 2022; provided that, if less than 95% of the principal amount of the Senior Notes outstanding on the Amendment Date has been converted, redeemed, repurchased or refinanced in full on or before the date that is three business days prior to June 1, 2019, such that the stated maturity date in respect of the Senior Notes (other than up to 5% in aggregate principal amount of the Senior Notes) is at least 91 days after January 13, 2022, then the Extended First Lien Maturity Date will be June 1, 2019.

We may prepay or reprice the New First Lien Term Loans, in whole or in part, at any time, with payment of a prepayment premium equal to (a) 2.0% of principal amount prepaid or repriced if made during the first two years of the Amendment Date and (b) 1.0% of principal amount prepaid or repriced if made after the second anniversary of Amendment Date but before the third anniversary of the Amendment Date. Thereafter, no prepayment premium is applicable.

Tranche B-2 term loans that remain outstanding under the First Lien Term Loan Facility after the Amendment Date (a) will not benefit from certain covenants and the events of default governing the New First Lien Term Loan, other than those relating to payment, security or insolvency and (b) may not be assigned without our prior written consent and based on our sole discretion.

ABL Facility

The ABL Facility initially was to mature on January 13, 2017 and provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations. Subject to certain conditions, as of the Original Closing Date, 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.

Revolving borrowings under the ABL Facility bear interest at a rate based, at our option, on (i) LIBOR plus an applicable margin to be determined (3.25% as of October 27, 2017) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (2.25% at October 27, 2017), in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

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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 revolving borrowings 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 (0.50% for the quarter ended October 27, 2017).  We must also pay customary letter of credit fees and agency fees.

As of October 27, 2017, revolving borrowings under the ABL Facility were $53.5 million, outstanding letters of credit were $29.3 million and revolving availability under the ABL Facility subject to the borrowing base, was $53.6 million. As of January 27, 2017, revolving borrowings under the ABL Facility were $39.3 million, outstanding letters of credit were $31.6 million and availability under the ABL Facility subject to the borrowing base, was $37.2 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.

On April 8, 2016, we amended the ABL Facility to, among other things, decrease the commitments available under the ABL Facility by $25.0 million, resulting in an aggregate facility size of $160.0 million, and extend the maturity date of the ABL Facility to April 8, 2021; provided however, pursuant to the terms of the Fourth Amendment (as defined below), the ABL Facility matures on the earlier of (i) the date that is 90 days prior to the stated maturity date in respect of the First Lien Term Loan Facility and (ii) the date that is 90 days prior to the stated maturity date in respect of the Senior Notes, unless the First Lien Term Loan Facility and Senior Notes have been repaid or refinanced in full or amended to extend the final maturity dates thereof to a date that is at least 180 days after April 8, 2021 (the date of such repayment or refinancing, the “Term/Notes Refinancing Date” (such amendment, the “Fourth Amendment”).  The Fourth Amendment also modified the interest rate margins payable under the ABL Facility.  Pursuant to the Fourth Amendment, the initial applicable margin for borrowings under the ABL Facility was 2.0% with respect to base rate borrowings and 3.0% with respect to Eurocurrency rate borrowings.  Commencing with the first day of the first fiscal quarter commencing after the closing of the Fourth Amendment, the applicable margin for borrowings thereunder is subject to adjustment each fiscal quarter, based on average historical excess availability during the preceding fiscal quarter.  Furthermore, the applicable margin will be reduced by 0.50% after the Term/Notes Refinancing Date.

In addition, the Fourth Amendment (i) reduced the incremental revolving commitment capacity from $50.0 million to $25.0 million, but provides that any such incremental revolving commitment may take the form of a “last-out” term loan, (ii) added restrictions on certain negative covenants in respect of investments, restricted payments and prepayments of indebtedness, including the First Lien Term Loan Facility and the Senior Notes, in each case, until the occurrence of Term/Notes Refinancing Date, (iii) reduced the letter of credit sublimit from $50.0 million to $45.0 million and (iv) provided for certain additional technical waivers and amendments in order to effect the foregoing.

In connection with the Fourth Amendment and in the first quarter of fiscal 2017, we recognized a loss on debt extinguishment of approximately $0.3 million related to a portion of the unamortized debt issuance costs. We recorded $4.7 million of debt issuance costs in connection with the Fourth Amendment in the first quarter of fiscal 2017 as part of non-current deferred financing costs.

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On September 6, 2017, we amended the ABL Facility to, among other things, provide for a last-out term loan facility in an aggregate principal amount of $25.0 million (the “FILO Facility”), with TPG Specialty Lending, Inc. acting as agent (the “FILO Agent”) for the FILO Facility (such amendment, the “Fifth Amendment”). We have drawn the entire $25.0 million under the FILO Facility and the $25.0 million of incremental revolving commitments under the ABL Facility have been reduced to $0.  As part of the ABL Facility, all obligations under the FILO Facility are guaranteed by Parent and the other Credit Facilities Guarantors and are secured by the same collateral as the ABL Facility.

Loans under the FILO Facility bear interest at a rate based, at our option, on (i) LIBOR plus 7.75% or (ii) the determined base rate (Prime Rate) plus 6.75%.  In the event we make a prepayment of the loans under the FILO Facility on or prior to September 6, 2019 we are required to pay certain premiums to the lender under the FILO Facility.  We must also pay customary agency fees to the FILO Agent.

The borrowing base under the ABL Facility revolving loans may be reduced by an amount equal to the excess (if any) of the outstanding loans under the FILO Facility less the borrowing base under the FILO Facility, as reflected in the most recent borrowing base certificate furnished by the Company, as required pursuant to the ABL Facility.

As of October 27, 2017, the FILO Facility matures on the earliest of (a) April 8, 2021, (b) the date that is 90 days prior to the stated maturity date in respect of the First Lien Term Loan Facility, (c) the date that is 90 days prior to the stated maturity date in respect of the Senior Notes, and (d) the date of termination of the commitments under the ABL Facility.

The Fifth Amendment provided the FILO Agent and the FILO Facility lenders with certain consent rights to amendments relating to, among other terms and provisions, the borrowing bases, the financial covenant and certain negative covenants.

In addition, the Fifth Amendment (i) increased the in-transit inventory cap for purposes of calculating the borrowing base under the ABL Facility from $10.0 million to $15.0 million, (ii) amended payment conditions that are required to be satisfied in connection with certain specified payments and (iii) set the systems reserve at 7.5% of store level inventory, eliminating increases to 10%, 12.5% and 15% of store level inventory at the end of the fiscal quarters ending on or about April 30, 2017, July 31, 2017 and October 31, 2017, respectively.

As of October 27, 2017, we were in compliance with the terms of the ABL Facility.

In connection with the Third Amendment of the First Lien Term Loan Facility, we amended our ABL Facility (the “Sixth Amendment”) to, among other things, (i) extend the maturity date of the ABL Facility (including, for the avoidance of doubt, the FILO Facility) to a date that is 91 days prior to the Extended First Lien Maturity Date, (ii) permit an exchange of our Senior Notes for new senior secured notes partially payable in kind and with a later maturity date, (iii) permit the refinancing of the tranche B-2 loans under the our Existing Term Facility for New First Lien Term Loans, (iv) permit the Second Lien Facility and (v) reset incremental FILO capacity up to $15.0 million and (vi) permit certain other modifications as set forth in the Sixth Amendment.

Entry into Second Lien Facility

In connection with the Third Amendment of the First Lien Term Loan Facility, we, Parent, our subsidiaries party thereto, Wilmington Trust, National Association, as administrative agent (the “Second Lien Administrative Agent”), and the lenders from time to time party thereto, entered into that certain Credit Agreement (the “Second Lien Credit Agreement”). The loans under the Second Lien Facility bear interest at a per annum rate equal to Eurocurrency rate plus 8.50% or the Base Rate plus 7.50%, in each case, in the form of PIK interest. The Eurocurrency rate is subject to a floor of 1.0%. The maturity date of the Second Lien Facility will be 91 days after the Extended First Lien Maturity Date.  The Second Lien Facility is secured by a second lien on the same collateral assets as the First Lien Term Loan Facility and a third lien on the ABL-priority collateral assets, and is guaranteed by the same guarantors as the First Lien Term Loan Facility and the ABL Facility.

The Second Lien Facility contains prepayment provisions, covenants and events of default that are substantially similar to the New First Lien Term Loans.

All obligations under the Second Lien Facility are unconditionally guaranteed by Parent and certain of our existing wholly owned domestic restricted subsidiaries, and are required to be guaranteed by certain of our future wholly owned domestic restricted subsidiaries.  All obligations under the Second Lien Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, on a second-priority basis by substantially all of our assets and Parent and our restricted subsidiaries that have guaranteed the credit facility under the First Lien Term Loan Facility.

In connection with the Third Amendment, Sixth Amendment and Second Lien Credit Agreement, in addition to the collateral securing the Existing Term Facility and ABL Facility, (i) the First Lien Term Loan Facility will be secured by a first-priority mortgage on all our unencumbered fee-owned real property other than certain property designated as excluded real property by us on the Amendment Date or that is eligible for an exempt sale-leaseback transaction (the “Real Estate Collateral”), (ii) the Second Lien Facility will be secured by a second-priority mortgage on the Real Estate Collateral, (iii) the ABL Facility will be secured by a third-priority mortgage on the Real Estate Collateral.

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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 27, 2017, we were in compliance with the terms of the Indenture.

As of October 27, 2017, various funds affiliated with the Sponsors 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.

On November 7, 2017, we launched an exchange offer and consent solicitation (the “Exchange Offer”) to (i) exchange our existing 11% Senior Notes due 2019 for our newly issued 13% Cash/PIK Notes due 2022 (the “New Secured Notes”), of which there are currently $250 million aggregate principal amount outstanding and (ii) solicit consents to certain proposed amendments to the indenture governing the Senior Notes, in each case, upon the terms and subject to the conditions as set forth in an Offering Memorandum and a related Letter of Transmittal. On November 22, 2017, we launched an amended Exchange Offer to (i) shorten the maturity date of the New Secured Notes being offered in exchange for the Senior Notes to April 14, 2022, (ii) extend the Early Tender Date from 5:00 p.m., New York City time, on November 22, 2017 to 5:00 p.m., New York City time, on November 30, 2017, (iii) increase the early tender consideration offered to include a cash fee of $7.50 per each $1,000 principal amount of Senior Notes, (iv) amend certain terms of the New Secured Notes and (v) amend the conditions to the Exchange Offer to include a minimum tender condition that at least 95% in aggregate principal amount of Senior Notes be validly tendered and not validly withdrawn in the Exchange Offer and the simultaneous exchange of Senior Notes held by the Sponsors, as described below, to prior to 11:59 p.m., New York City time, on December 7, 2017, unless extended or earlier terminated by us (“Expiration Date”). We also amended the consideration being offered to the Sponsors in exchange for their Senior Notes from 13% All PIK Notes due 2023 to shares of new paid-in-kind Series A-1 Preferred Stock, $0.001 par value per share, of Parent.  The New Secured Notes will be effectively senior to all of our existing and future unsecured indebtedness, including the Senior Notes, to the extent of the value of the collateral securing the New Secured Notes.  The Exchange Offer expired at 11:59 p.m., New York City time on December 7, 2017, and the settlement date is expected to be on or about December 14, 2017.  In connection with the Exchange Offer, we entered into a transaction support agreement with certain holders, pursuant to which we and the Support Parties, including the Sponsors or their affiliates, agreed (subject to the terms and conditions set forth therein) to support the Exchange Offer as amended pursuant to the terms and conditions of the Offering Memorandum.  On December 6, 2017, we announced that we have received tenders from holders of at least $242,228,000 in aggregate principal amount of Senior Notes, representing approximately 96.89% of the total outstanding principal amount of Senior Notes.  As of November 30, 2017, the right to withdraw tenders of Senior Notes and related consents and the right to receive an early tender premium have expired.

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Cash Flows

Operating Activities

	First Three Quarters Ended
	October 27, 2017			October 28, 2016
	(amounts in thousands)
Cash flows from operating activities:
Net loss	$	(69,435	)	$	(97,270	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation	50,980			51,375
Amortization of deferred financing costs and accretion of OID	5,179			4,457
Amortization of intangible assets	1,313			1,312
Amortization of favorable/unfavorable leases, net	2,117			1,802
Loss on extinguishment of debt	—			335
Gain on disposal of fixed assets	(16,402		)	(564		)
Long-lived assets impairment	1,515			491
Loss on interest rate hedge	—			514
Stock-based compensation	368			543
Changes in assets and liabilities associated with operating activities:
Accounts receivable	1,179			(1,468		)
Inventories	(36,946		)	8,271
Deposits and other assets	(5,577		)	5,202
Accounts payable	9,470			8,190
Accrued expenses	30,236			19,781
Accrued workers’ compensation	49			(847		)
Income taxes	1,137			1,322
Deferred rent	276			1,339
Other long-term liabilities	(1,485		)	3,146
Net cash (used in) provided by operating activities	$	(26,026	)	$	7,931

Cash used in operating activities during the first three quarters of fiscal 2018 was $26.0 million and consisted of (i) net loss of $69.4 million; (ii) net loss adjustments for depreciation, gain on disposal of fixed assets and other non-cash items of $45.1 million; (iii) an increase in working capital activities of $3.9 million; and (iv) a decrease in other activities of $5.6 million, primarily due to an increase in other assets.  The increase in working capital activities was primarily due to an increase in accrued expenses and accounts payable partially offset by an increase in inventory. The increase in inventory was primarily due to higher levels of purchases and the timing of seasonal inventory, which were both aimed at sustaining same store sales growth.

Cash provided by operating activities during the first three quarters of fiscal 2017 was $7.9 million and consisted of (i) net loss of $97.3 million; (ii) net loss adjustments for depreciation and other non-cash items of $60.2 million; (iii) an increase in working capital activities of $41.0 million; and (iv) an increase in other activities of $4.0 million, primarily due to an increase in other long-term liabilities.  The increase in working capital activities was primarily due to an increase in accounts payable and accrued expenses and a decrease in inventory as a result of the focused effort on inventory and supply chain efficiencies.

Investing Activities

	First Three Quarters Ended
	October 27, 2017			October 28, 2016
	(amounts in thousands)
Cash flows from investing activities:
Purchases of property and equipment	$	(32,051	)	$	(35,273	)
Proceeds from sale of property and fixed assets	9,399			617
Insurance recoveries for replacement assets	475			937
Net cash used in investing activities	$	(22,177	)	$	(33,719	)

Capital expenditures in the first three quarters of fiscal 2018 consisted of leasehold improvements, fixtures and equipment for new store openings, information technology projects and other capital projects of $32.1 million.  Proceeds from sale of property and fixed assets relate to a sale-leaseback transactions completed during the first three quarters of fiscal 2018 (see Note 1 to our Unaudited Consolidated Financial Statements).

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Capital expenditures in the first three quarters of fiscal 2017 consisted of leasehold improvements, fixtures and equipment for new store openings, information technology projects and other capital projects of $35.3 million.

We estimate that total capital expenditures in the current fiscal year will be approximately $48 million to $53 million, compared to the previous estimate for fiscal 2018 of $53 million to $58 million.  The reduction is primarily due to changes in store construction and capital project timing.  The current estimate is comprised of approximately $28 million to $31 million for leasehold improvements and fixtures and equipment for new and existing stores, and approximately $20 million to $22 million primarily related to information technology upgrades and supply chain infrastructure upgrades and maintenance.  The estimate also includes costs to rebuild one of our stores in the Houston area that was damaged during hurricane Harvey, but we expect to recover the majority of the expenditure through insurance reimbursements.

Financing Activities

	First Three Quarters Ended
	October 27, 2017			October 28, 2016
	(amounts in thousands)
Cash flows from financing activities:
Proceeds from long-term debt	$	25,000		$	—
Payments of long-term debt	(4,604		)	(4,604		)
Proceeds under revolving credit facility	211,400			168,500
Payments under revolving credit facility	(197,200		)	(174,500		)
Payments of debt issuance costs	(880		)	(4,725		)
Proceeds from financing lease obligations	15,317			41,993
Payments of capital and financing lease obligation	(887		)	(762		)
Net cash provided by financing activities	$	48,146		$	25,902

Net cash provided by financing activities in the first three quarters of fiscal 2018 was comprised primarily of borrowings under the FILO Facility (see Note 5 to our Unaudited Consolidated Financial Statements), proceeds from financing lease obligations associated with sale-leaseback transactions (see Note 1 to our Unaudited Consolidated Financial Statements) and net debt borrowings under the revolving ABL Facility, partially offset net debt repayments under the First Lien Term Loan Facility.

Net cash provided in financing activities in the first three quarters of fiscal 2017 was comprised primarily of proceeds from financing lease obligations associated with sale-leaseback transactions and net debt borrowings under the ABL Facility, partially offset by repayment of debt under the First Lien Term Loan Facility and payments of debt issuance costs associated with the amendment of the ABL Facility.  In the second quarter of fiscal 2017, we sold and concurrently licensed (through March 31, 2017) a warehouse facility in the City of Commerce, California with a carrying value of $12.1 million and received net proceeds from this transaction of $28.5 million. Additional information regarding sale of the warehouse facility is contained in Note 11 to our Unaudited Consolidated Financial Statements.

Off-Balance Sheet Arrangements

As of October 27, 2017, we had no off-balance sheet arrangements.

Contractual Obligations

A summary of our contractual obligations as of January 27, 2017 is provided in our Annual Report on Form 10-K for the fiscal year ended January 27, 2017.  During the first three quarters of fiscal 2018, except as discussed below, there were no material changes in our contractual obligations previously disclosed.

On September 6, 2017, we amended the ABL Facility as described in Note 5 to the Unaudited Consolidated Financial Statements.

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Lease Commitments

We lease various facilities under operating leases (except for six 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 2018 and fiscal 2017 was $25.8 million and $25.3 million, respectively.  Rental expense charged to operations for the first three quarters of fiscal 2018 and fiscal 2017 was $77.9 million and $75.2 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 27, 2017 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 27, 2017, we had variable rate borrowings of $589.3 million under our First Lien Term Loan Facility, $53.5 million under revolving portion of our ABL Facility and $25.0 million under our FILO 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.

We may manage interest rate risk through the use of interest swap agreements or interest cap agreements to limit the effect of interest rate fluctuations from time to time.  We were previously a party to an interest rate swap agreement that limited our interest exposure on a notional value of $261.8 million to 1.36% plus an applicable margin of 3.50%.  We are currently not using an interest swap agreement or interest cap agreement to limit such interest rate fluctuations.

A change in interest rates on our variable rate debt impacts our pre-tax earnings and cash flows.  Based on our variable rate borrowings, the annualized effect of a 1% increase in applicable interest rates would have resulted in an increase in our pre-tax loss and a decrease in cash flows of approximately $1.7 million for the three months ended October 27, 2017.

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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 Chief Executive Officer and Chief Financial Officer have concluded that, as a result of the material weakness in internal control over financial reporting related to the accounting for deferred income taxes described below, our controls and procedures were not effective as of October 27, 2017.

Material Weakness in Internal Control Over Financial Reporting; Remediation Plan

Deferred Income Taxes

During the fourth quarter of fiscal 2016, we identified a material weakness in our internal controls over financial reporting related to our accounting for deferred income taxes.  Specifically, we did not design and maintain effective controls to identify items within the deferred tax balances that could be materially incorrect. We did not provide appropriate oversight of our third-party preparer. This material weakness resulted in various adjustments to our deferred tax accounts for fiscal 2016.

In order to remediate this material weakness and further strengthen the overall controls surrounding the Company’s accounting for income taxes, we have taken, and are taking, several steps to improve the overall processes and controls in our tax function.  We have supplemented our accounting and tax professionals with additional personnel with expertise in accounting for deferred taxes; and are continuing to redesign and enhance our income tax review procedures to include a more robust reconciliation of the deferred tax balances.  As part of this remediation process, during the fourth quarter of fiscal 2017 (as more fully described in Note 1 to our Consolidated Financial Statements to our Annual Report on Form 10-K for the year ended January 27, 2017), we revised certain amounts as of and for the year ended January 29, 2016.  We evaluated the effect of these errors and concluded that they arose as a result of a material weakness over internal controls over financial reporting relating to our accounting for deferred income taxes that existed as of January 29, 2016.  In addition, during the fourth quarter of fiscal 2017, we identified certain other adjustments relating to our deferred tax accounts for fiscal 2017 that led management to conclude that the material weakness in our internal controls over financial reporting was not fully remediated.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  The material weakness in our internal control over financial reporting was a result of not designing effective controls over the assessment of accounting for deferred income taxes as described above.  Notwithstanding this material weakness, management has concluded that the consolidated financial statements in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended January 27, 2017 and year ended January 29, 2016 fairly present, in all material respects, our financial position, results of operations and cash flows for all periods and dates presented.  In addition, while the material weakness resulted in the audit adjustments described above during our fourth quarter ended January 29, 2016 and other adjustments in the fourth quarter of fiscal 2017, it did not result in any material misstatements of our consolidated financial statements or disclosures for any interim periods during, or for the annual periods of, fiscal 2017, fiscal 2016 or fiscal 2015.

Based on the foregoing processes and remediation measures, management believes that the above mentioned control deficiencies will be remediated, but the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.  Management may take additional measures over time to address this material weakness or modify the remediation plan described above.

We are committed to a strong internal control environment and will continue to review the effectiveness of our internal controls over financial reporting and other disclosure controls and procedures.

Changes in Internal Control Over Financial Reporting

Except as described above, during the third quarter of fiscal 2018, we did not make any changes that materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

54

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 27, 2017 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 27, 2017 for information regarding the most significant factors affecting our operations.  As of October 27, 2017, 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 27, 2017, except as follows:

Our liquidity may be constrained in the period immediately following the Exchange Offer and from time to time thereafter.

As of October 27, 2017, our liquidity was comprised of $2.4 million in cash and $53.6 million of availability under the ABL Facility (subject to the borrowing base).  We actively manage our liquidity, which is subject to daily fluctuations and at any given time and from time to time can fall below $53.6 million.  We currently expect that our liquidity will be sufficient to fund operations, including the costs associated with the Credit Facilities Amendments and Exchange Offer, in the period immediately following completion of the Exchange Offer; however, our liquidity in this period is typically constrained due to the seasonality of our business.  As a result, during certain periods of the year, the ABL Facility is our primary source of liquidity.  Moreover, our expectations regarding our liquidity position following the Exchange Offer are based on certain assumptions regarding, among other considerations:

·the size of the borrowing base under the ABL Facility;

·the amount and timing of cash receipts and expenditures; and

·the terms of our agreements with vendors and ongoing operational performance.

To the extent there is a reduction in the borrowing base or an adverse change in the terms of any of the agreements with our trade creditors or any of our other assumptions prove incorrect, our liquidity could be significantly lower than our expectations.

We have historically and currently present our liquidity position before giving effect to the “cash dominion” threshold in our ABL Facility.  Our ABL Facility contains restrictive “cash dominion” provisions that are imposed if “excess availability” falls below the greater of (x) 15% of the maximum credit under the ABL Facility and (y) $25.0 million for five (5) consecutive business days. Operating under “cash dominion” would increase our reporting requirements, restrict our access to borrowings under the ABL Facility, increase operational complexities for the Company and permit the administrative agent to invoke control rights over certain of our accounts. Further, under the ABL Facility, we could be required to maintain a fixed charge coverage ratio of 1.00 to 1.00 if “excess availability” falls below the greater of (i) 12.5% of the maximum credit under the ABL Facility and (ii) $20.0 million.  As of October 27, 2017, our fixed charge coverage ratio was less than 1.00 to 1.00.  In sum, a decrease in excess availability due to changes in any of the factors described above, could cause our excess availability to fall below the “cash dominion” and other adverse triggering thresholds, which would subject us to additional requirements and restrict access to borrowings under the ABL Facility, which could, in turn, materially and adversely affect our liquidity and financial condition and our ability to operate our business and execute our strategic plan.

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

55

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	Amendment No. 6 to the ABL Credit Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the subsidiaries of 99 Cents Only Stores LLC party thereto, Royal Bank of Canada, as administrative agent, and the other lenders party thereto. (2)
10.2	Amendment No. 3 to the Term Credit Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the subsidiaries of 99 Cents Only Stores LLC party thereto, Royal Bank of Canada, as administrative agent, and the other lenders party thereto. (2)
10.3	Second Lien Credit Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the subsidiaries of 99 Cents Only Stores LLC party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders from time to time party thereto. (2)
10.4	Second Lien Security Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the subsidiary guarantors party thereto from time to time and, Wilmington Trust, National Association, as collateral agent. (2)
10.5	Second Lien Guaranty, dated November 7, 2017, among Number Holdings, Inc., the other guarantors party thereto from time to time and, Wilmington Trust, National Association, as administrative agent and collateral agent. (2)
10.6	Term Intercreditor Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the other grantors party thereto, Royal Bank of Canada, as Senior Representative and Wilmington Trust, National Association, as Junior Representatives, and each additional Senior Representative and Junior Representative that from time to time becomes a party thereto. (2)
10.7	First Amendment to Intercreditor Agreement, dated November 7, 2017, among Royal Bank of Canada, as representative for the ABL Secured Parties and First Lien Term Secured Parties, and WilmingtonTrust, National Association, as representative for the Second Lien Term Secured Parties. (2)
10.8	Transaction Support Agreement, effective as of November 22, 2017. (3)
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 November 7, 2017.
(3)	Incorporated by reference from the Registrant’s Current Report on Form 8-K as filed with Securities and Exchange Commission on November 22, 2017.

56

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	Amendment No. 6 to the ABL Credit Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the subsidiaries of 99 Cents Only Stores LLC party thereto, Royal Bank of Canada, as administrative agent, and the other lenders party thereto. (2)
10.2	Amendment No. 3 to the Term Credit Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the subsidiaries of 99 Cents Only Stores LLC party thereto, Royal Bank of Canada, as administrative agent, and the other lenders party thereto. (2)
10.3	Second Lien Credit Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the subsidiaries of 99 Cents Only Stores LLC party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders from time to time party thereto. (2)
10.4	Second Lien Security Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the subsidiary guarantors party thereto from time to time and, Wilmington Trust, National Association, as collateral agent. (2)
10.5	Second Lien Guaranty, dated November 7, 2017, among Number Holdings, Inc., the other guarantors party thereto from time to time and, Wilmington Trust, National Association, as administrative agent and collateral agent. (2)
10.6	Term Intercreditor Agreement, dated November 7, 2017, among 99 Cents Only Stores LLC, Number Holdings, Inc., the other grantors party thereto, Royal Bank of Canada, as Senior Representative and Wilmington Trust, National Association, as Junior Representatives, and each additional Senior Representative and Junior Representative that from time to time becomes a party thereto. (2)
10.7	First Amendment to Intercreditor Agreement, dated November 7, 2017, among Royal Bank of Canada, as representative for the ABL Secured Parties and First Lien Term Secured Parties, and WilmingtonTrust, National Association, as representative for the Second Lien Term Secured Parties. (2)
10.8	Transaction Support Agreement, effective as of November 22, 2017. (3)
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 November 7, 2017.

(3)Incorporated by reference from the Registrant’s Current Report on Form 8-K as filed with Securities and Exchange Commission on November 22, 2017.

57

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 8, 2017	By:	/s/Felicia Thornton
		Felicia Thornton
		Chief Financial Officer and Treasurer

58

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 8, 2017
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 8, 2017
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 27, 2017 of 99 Cents Only Stores LLC (the “Issuer”).

I, Geoffrey J. Covert, the President and 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 8, 2017
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 27, 2017 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 8, 2017
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. 27, 2017	Dec. 06, 2017
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. 27, 2017
Amendment Flag	false
Current Fiscal Year End Date	--02-02
Entity Current Reporting Status	No
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		100
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
Current Assets:
Cash	$ 2,391	$ 2,448
Accounts receivable, net of allowance for doubtful accounts of $7 and $122 at October 27, 2017 and January 27, 2017, respectively	2,331	3,510
Income taxes receivable	2,739	3,876
Inventories, net	212,838	175,892
Assets held for sale	4,903	4,903
Other	10,935	10,307
Total current assets	236,137	200,936
Property and equipment, net	461,688	507,620
Deferred financing costs, net	1,976	3,488
Intangible assets, net	442,711	447,027
Goodwill	380,643	380,643
Deposits and other assets	13,491	8,592
Total assets	1,536,646	1,548,306
Current Liabilities:
Accounts payable	97,240	86,588
Payroll and payroll-related	35,736	24,110
Sales tax	16,712	19,389
Other accrued expenses	67,710	46,082
Workers' compensation	69,218	69,169
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligations	1,228	31,330
Total current liabilities	293,982	282,806
Long-term debt, net of current portion	902,417	865,375
Unfavorable lease commitments, net	3,079	3,988
Deferred rent	30,636	30,360
Deferred compensation liability	959	816
Capital and financing lease obligation, net of current portions	52,584	47,195
Deferred income taxes	161,450	161,450
Other liabilities	16,587	12,297
Total liabilities	1,461,694	1,404,287
Commitments and contingencies (Note 11)
Member's Equity:
Member units - 100 units issued and outstanding at October 27, 2017 and January 27, 2017	551,286	550,918
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(457,134)	(387,699)
Total equity	74,952	144,019
Total liabilities and equity	$ 1,536,646	$ 1,548,306

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 7	$ 122
Member units, units issued	100	100
Member units, units outstanding	100	100

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 27, 2017	Oct. 28, 2016	Oct. 27, 2017	Oct. 28, 2016
Net Sales:
99 Only Stores	$ 543,856	$ 489,900	$ 1,613,136	$ 1,479,126
Bargain Wholesale	9,775	10,244	28,457	30,405
Total sales	553,631	500,144	1,641,593	1,509,531
Cost of sales	390,776	354,982	1,160,522	1,074,202
Gross profit	162,855	145,162	481,071	435,329
Selling, general and administrative expenses	172,434	165,219	498,444	481,933
Operating loss	(9,579)	(20,057)	(17,373)	(46,604)
Other (income) expense:
Interest income	(1)	(7)	(8)	(45)
Interest expense	17,480	16,920	51,983	50,230
Loss on extinguishment				335
Total other expense, net	17,479	16,913	51,975	50,520
Loss before provision for income taxes	(27,058)	(36,970)	(69,348)	(97,124)
Provision for income taxes		21	87	146
Net loss	(27,058)	(36,991)	(69,435)	(97,270)
Other comprehensive income, net of tax:
Unrealized losses on interest rate cash flow hedge				(168)
Less: reclassification adjustment included in net loss				330
Other comprehensive income, net of tax				162
Comprehensive loss	$ (27,058)	$ (36,991)	$ (69,435)	$ (97,108)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Oct. 27, 2017	Oct. 28, 2016
Cash flows from operating activities:
Net loss	$ (69,435)	$ (97,270)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation	50,980	51,375
Amortization of deferred financing costs and accretion of OID	5,179	4,457
Amortization of intangible assets	1,313	1,312
Amortization of favorable/unfavorable leases, net	2,117	1,802
Loss on extinguishment of debt		335
Gain on disposal of fixed assets	(16,402)	(564)
Long-lived assets impairment	1,515	491
Loss on interest rate hedge		514
Stock-based compensation	368	543
Changes in assets and liabilities associated with operating activities:
Accounts receivable	1,179	(1,468)
Inventories	(36,946)	8,271
Deposits and other assets	(5,577)	5,202
Accounts payable	9,470	8,190
Accrued expenses	30,236	19,781
Accrued workers' compensation	49	(847)
Income taxes	1,137	1,322
Deferred rent	276	1,339
Other long-term liabilities	(1,485)	3,146
Net cash (used in) provided by operating activities	(26,026)	7,931
Cash flows from investing activities:
Purchases of property and equipment	(32,051)	(35,273)
Proceeds from sale of property and fixed assets	9,399	617
Insurance recoveries for replacement assets	475	937
Net cash used in investing activities	(22,177)	(33,719)
Cash flows from financing activities:
Proceeds from long-term debt	25,000
Payment of long-term debt	(4,604)	(4,604)
Proceeds under revolving credit facility	211,400	168,500
Payments under revolving credit facility	(197,200)	(174,500)
Payments of debt issuance costs	(880)	(4,725)
Proceeds from financing lease obligations	15,317	41,993
Payments of capital and financing lease obligations	(887)	(762)
Net cash provided by financing activities	48,146	25,902
Net (decrease) increase in cash	(57)	114
Cash - beginning of period	2,448	2,312
Cash - end of period	2,391	2,426
Supplemental cash flow information:
Income taxes refunded	(1,124)	(1,175)
Interest paid	39,907	38,436
Non-cash investing activities for purchases of property and equipment	$ (1,182)	$ (662)

XML

Basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Oct. 27, 2017

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 27, 2017) 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 27, 2017, the Company operated 391 retail stores with 284 in California, 48 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 (“CPPIB” and, together with Ares, the “Sponsors”). As a result of the Merger, the Company’s common stock was delisted from the New York Stock Exchange and the Company 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 27, 2017.  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 February 2, 2018 (“fiscal 2018”).

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 2018 began on January 28, 2017, will end on February 2, 2018 and will consist of 53 weeks.  The Company’s fiscal year 2017 (“fiscal 2017”) began on January 30, 2016, ended on January 27, 2017 and consisted of 52 weeks.  The third quarter ended October 27, 2017 (the “third quarter of fiscal 2018”) and the third quarter ended October 28, 2016 (the “third quarter of fiscal 2017”) were each comprised of 91 days.  The nine-month period ended October 27, 2017 (the “first three quarters of fiscal 2018”) and the nine-month period ended October 28, 2016 (the “first three quarters of fiscal 2017”) were each comprised of 273 days.

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 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 $3.3 million and $7.0 million as of October 27, 2017 and January 27, 2017, 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 or tenant’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 net realizable value. Inventory costs are 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.  The Company includes spoilage, scrap and shrink in its definition of shrinkage.  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 have a material effect on the reported gross margin for the period. These estimates are subject to change based on management’s evaluation of, and response to, a variety of factors and trends, including, but not limited to, consumer preferences and buying patterns, age of inventory, increased competition, inventory management, merchandising strategies and historical sell through trends.  The Company’s ability to adequately evaluate the impact of inventory management and merchandising strategies executed in response to such factors and trends in future periods could have a material impact on such estimates.

In order to obtain inventory at attractive prices, the Company takes advantage of large volume purchases, closeouts and other similar purchase opportunities.  Consequently, 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 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 2018, the Company decided to close three stores by the end of fiscal 2018 or early fiscal 2019.  As a result of this decision, the Company recognized an impairment charge of approximately $1.5 million as part of selling, general and administrative expenses in the second quarter of fiscal 2018 related to the planned closure of these stores.  During the third quarter of fiscal 2017, the Company decided to close five retail stores in California by the end of fiscal 2017 upon the expiration of their respective lease terms. As a result of this decision, the Company recognized an impairment charge of approximately $0.1 million related to the closure of three of these stores and recorded an impairment charge of $0.1 million related to fixtures that will be disposed of and for which the Company concluded the fair value was zero.  During the third quarter of fiscal 2017, the Company also reduced the carrying value of a held for sale property to the estimated net realizable value, net of expected disposal costs, and accordingly recorded an asset impairment charge of $0.2 million.

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.

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”).

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 retail reporting unit and the wholesale reporting unit.

The Company, assisted by an independent third party valuation firm, 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”). These approaches involve making key 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 and are subject to change.

During the third quarter of fiscal 2016, the Company determined that indicators of impairment existed to require an interim impairment analysis of goodwill and trade name.  The first step evaluation concluded that the fair value of the retail reporting unit was below its carrying value.  The Company performed step two of the goodwill impairment test.  As a result of the preliminary analysis and based on 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 finalization of the preliminary goodwill impairment test was completed in the fourth quarter of fiscal 2016 and resulted in a $20.9 million adjustment in goodwill, lowering the estimated third quarter of fiscal 2016 goodwill impairment charge from $120.0 million to $99.1 million.

The remaining amount of goodwill allocated to the retail reporting unit and wholesale reporting unit was $368.1 million and $12.5 million, respectively, as of January 29, 2016.

During the fourth quarter of fiscal 2017, the Company completed step one of its annual goodwill impairment test for the two reporting units and determined that there was no impairment of goodwill since the fair value of the Company’s reporting units exceeded their carrying amounts.  The results of this test showed that the fair value of our retail reporting unit exceeded its carrying value by a substantial amount.  The results of this test showed that the fair value of wholesale reporting unit exceeded carrying value by approximately 18%.  As discussed above, considerable management judgment is necessary in estimating future cash flows, market interest rates, discount rates and other factors affecting the valuation of goodwill.  The Company’s forecasts used in its fiscal 2017 annual impairment test include growth in net sales, new store openings and same-store sales, positive trends in cost of sales and selling, general and administrative expense.  In each case, these estimates and assumptions could be materially affected by factors such as unforeseen events or changes in general economic conditions, a decline in comparable company market multiples, changes to discount rates, increased competitive forces, inability to maintain pricing structure, deterioration of vendor relationships, failure to adequately manage and improve inventory processes and procedures and changes in customer behavior which could result in changes to management’s strategies.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

Additionally, during the fourth quarter of fiscal 2017, the Company completed its annual indefinite-lived intangible asset impairment test and determined there was no impairment to the trade name since the fair value of the trade name exceeded its carrying amount.  The results of this test showed that the fair value of trade name exceeded carrying value by approximately 18%.  The relief from royalty method estimates the Company’s theoretical royalty savings from ownership of the intangible asset.  Key assumptions used in this model included sales projections, discount rates and royalty rates, and considerable management judgment is necessary in developing and evaluating such assumptions.  If future results are not consistent with current estimates and assumptions, impairment charges maybe recorded in future.

During the first three quarters of fiscal 2018, 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.  In accordance with the adoption of ASU No. 2016-09, “Compensation — Stock Compensation, Improvements to Employee Share-Based Payment Accounting” in the first quarter of fiscal 2018, the Company elected to recognize forfeitures in the period they occur as a reversal of previously recognized compensation expense. The reduction in compensation expense is determined based on the specific options forfeited during that period. Prior to the adoption of ASU 2016-09, the Company applied an estimated forfeiture rate as a reduction of current period stock-based compensation expense. 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.  The fair value of options that vest based on the Company’s and Parent’s achievement of certain performance hurdles were valued using a Monte Carlo simulation method. The fair value of options granted to the current Chief Executive Officer were valued using a binomial model and the Monte Carlo simulation method.   Refer to Note 8, “Stock-Based Compensation” for further discussion of the Company’s 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 shrink, 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 or based on other systematic and rational approaches where possible.

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 first quarter of fiscal 2018, the Company sold and concurrently leased back a future store site with an aggregate carrying value of $1.4 million and received net proceeds from this transaction of $6.8 million, which will be applied towards the construction of the future store.  The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transaction closed.  The Company has concluded that it is the “deemed owner” of the construction project (for accounting purposes) during the construction period.  Upon completion of construction, the Company will evaluate the de-recognition of the asset and liability under sale-leaseback accounting guidance.  As of October 27, 2017, the Company has recorded a financing lease obligation of $7.0 million (as a component of current and non-current liabilities).  During the first quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $2.2 million and received net proceeds from this transaction of $4.0 million.  The resulting lease qualifies as and is accounted for as an operating lease.  The Company will amortize the deferred gain of $1.8 million relating to the sale-leaseback transaction over the lease term.

During the second quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $3.7 million and received net proceeds from this transaction of $7.9 million.  The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transaction closed.  The resulting lease is accounted for as a financing lease and the Company has recorded a financing lease obligation of $7.9 million (as a component of current and non-current liabilities).  Also during the second quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $1.1 million and received net proceeds from this transaction of $5.3 million.  The resulting lease qualifies as and is accounted for as an operating lease.  The Company recorded a gain on the sale of $1.7 million as part of selling, general and administrative expenses and will amortize the deferred gain of $2.5 million relating to the sale-leaseback transaction over the lease term.

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 were accounted for as financing leases and the Company had recorded a corresponding financing lease obligation of $8.7 million (as a component of current and non-current liabilities).  The Company amortized the financing lease obligation over the lease terms and depreciated the assets over their remaining useful lives.  During the second quarter of fiscal 2018, the Company was no longer deemed to have “continuing involvement” and the leases now qualify and are accounted for as operating leases.  The-Company de-recognized the assets and financing lease obligation and recorded a net loss of $0.8 million as part of selling, general and administrative expenses in the second quarter of fiscal 2018 and will amortize deferred gain of $2.1 million relating to the sale-leaseback transaction over the lease term.

During the third quarter of fiscal 2017, the Company sold and concurrently leased back two stores with an aggregate carrying value of $7.6 million and received net proceeds from these transactions of $10.5 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 $10.5 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.

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 27, 2017 and January 27, 2017.

Self-Insured Health Insurance Liability

The Company self-insures its employee medical benefit claims.  The liability for the self-funded 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 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

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. 27, 2017

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 unfavorable leases (in thousands):

	October 27, 2017										January 27, 2017
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(99,102	)	$	—		$	380,643	$	479,745	$	(99,102	)	$	—		$	380,643
Trade name	410,000		—			—			410,000		410,000		—			—			410,000
Total indefinite lived intangible assets	$	889,745	$	(99,102	)	$	—		$	790,643	$	889,745	$	(99,102	)	$	—		$	790,643
Finite lived intangible assets:
Trademarks	$	2,000	$	(570	)	$	(517	)	$	913	$	2,000	$	(570	)	$	(470	)	$	960
Bargain Wholesale customer relationships	20,000		—			(9,650		)	10,350		20,000		—			(8,408		)	11,592
Favorable leases	45,871		(566		)	(23,857		)	21,448		45,871		(566		)	(20,830		)	24,475
Total finite lived intangible assets	67,871		(1,136		)	(34,024		)	32,711		67,871		(1,136		)	(29,708		)	37,027
Total goodwill and other intangible assets	$	957,616	$	(100,238	)	$	(34,024	)	$	823,354	$	957,616	$	(100,238	)	$	(29,708	)	$	827,670

	October 27, 2017							January 27, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	$	19,835	$	(16,756	)	$	3,079	$	19,835	$	(15,847	)	$	3,988

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Property and Equipment, net

9 Months Ended

Oct. 27, 2017

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 27, 2017			January 27, 2017
Land	$	151,035		$	167,544
Buildings	106,947			110,327
Buildings improvements	72,024			77,246
Leasehold improvements	210,889			205,336
Fixtures and equipment	214,596			209,397
Transportation equipment	11,825			11,893
Construction in progress	26,452			16,724
Total property and equipment	793,768			798,467
Less: accumulated depreciation and amortization	(332,080		)	(290,847		)
Property and equipment, net	$	461,688		$	507,620

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Comprehensive Loss

9 Months Ended

Oct. 27, 2017

Comprehensive Loss

Comprehensive Loss

4.Comprehensive Loss

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

	For the Third Quarter Ended						For the First Three Quarters Ended
	October 27, 2017			October 28, 2016			October 27, 2017			October 28, 2016
Net loss	$	(27,058	)	$	(36,991	)	$	(69,435	)	$	(97,270	)
Unrealized loss on interest rate cash flow hedge, net of tax effects of $0, $0, $0 and $(112) for the third quarter and first three quarters of fiscal 2018 and fiscal 2017, respectively	—			—			—			(168		)
Reclassification adjustment, net of tax effects of $0, $0, $0 and $220 for the third quarter and first three quarters of fiscal 2018 and fiscal 2017, respectively	—			—			—			330
Total gains, net	—			—			—			162
Total comprehensive loss	$	(27,058	)	$	(36,991	)	$	(69,435	)	$	(97,108	)

Amounts in accumulated other comprehensive loss as of January 29, 2016 consisted of unrealized losses on interest rate cash flow hedges.  Reclassifications out of accumulated other comprehensive loss in each of the third quarter and first three quarters of fiscal 2018 and fiscal 2017 are presented in Note 6, “Derivative Financial Instruments.”

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Debt

9 Months Ended

Oct. 27, 2017

Debt

Debt

5.Debt

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

	October 27, 2017			January 27, 2017
ABL Facility revolving	$	53,500		$	39,300
FILO Facility	25,000			—
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2018, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $1,817 and $2,888 as of October 27, 2017 and January 27, 2017, respectively	587,442			590,974
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000			250,000
Deferred financing costs	(7,387		)	(8,761		)
Total debt	908,555			871,513
Less: current portion	6,138			6,138
Long-term debt, net of current portion	$	902,417		$	865,375

As of October 27, 2017 and January 27, 2017, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	October 27, 2017		January 27, 2017
ABL Facility revolving loans (included in non-current deferred financing costs)	$	1,976	$	3,488
FILO Facility (included in long-term debt, net of current portion)	1,066		—
First Lien Term Loan Facility (included in long-term debt, net of current portion)	1,865		2,964
Senior Notes (included in long-term debt, net of current portion)	4,456		5,797
Total deferred financing costs, net	$	9,363	$	12,249

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.  As of October 27, 2017, the Credit Facilities include (a) a first lien asset based revolving credit facility and last out term credit facility (collectively, 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”).  As of October 27, 2017, the First Lien Term Loan Facility has 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 domestic subsidiaries (with customary exceptions, including immaterial subsidiaries) (collectively, the “Credit Facilities Guarantors”).  In addition, the First Lien Term Loan Facility is secured by substantially all of the Company’s assets and the assets of the Credit Facilities Guarantors, including a first priority pledge of all of the Company’s equity interests and the equity interests of the Credit Facilities Guarantors and a first priority security interest in certain other fixed assets, and a second priority security interest in certain current assets.

As of October 27, 2017, 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” (4.25% as of October 27, 2017), (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) a Eurocurrency rate determined by reference to the London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements, for the interest period relevant to such borrowing.

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 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%.  Upon the occurrence of the Second Amendment, the Company’s obligation to make scheduled quarterly payments on the Term Loans was increased to require the Company 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 27, 2017, the interest rate charged on the First Lien Term Loan Facility was 4.83% (1.33% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of October 27, 2017, the gross amount outstanding under the First Lien Term Loan Facility was $589.3 million.

As of October 27, 2017, 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 2017.

Additionally, as of October 27, 2017,  the First Lien Term Loan Facility requires the Company to make mandatory prepayments equal to 50% of the net cash proceeds from sale-leasebacks of any assets acquired before January 13, 2012 for consideration above a certain threshold.  In May 2017, the Company made a mandatory term loan prepayment of $2.0 million from sale-leaseback proceeds.

The First Lien Term Loan Facility includes certain customary restrictions, among other things, on the Company’s ability and the ability of Parent, the Credit Facilities Guarantors (including the Company’s subsidiary 99 Cents Only Stores Texas Inc.) 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 27, 2017, the Company was in compliance with the terms of the First Lien Term Loan Facility.

See Note 16, “Subsequent Events” for a description of the Third Amendment (as defined below) to the First Lien Term Loan Facility.

ABL Facility

The ABL Facility initially was to mature on January 13, 2017 and provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations. Subject to certain conditions, as of the Original Closing Date, 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, including a first priority security interest in certain current assets, and a second priority pledge of all of the Company’s equity interests and the equity interest of the Credit Facilities Guarantors and a second priority security interest in certain other fixed assets.

Revolving 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 (3.25% as of October 27, 2017) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (2.25% at October 27, 2017), 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 revolving loans 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 (0.50% for the quarter ended October 27, 2017).  The Company must also pay customary letter of credit fees and agency fees.

As of October 27, 2017, revolving borrowings under the ABL Facility were $53.5 million, outstanding letters of credit were $29.3 million and revolving availability under the ABL Facility subject to the borrowing base, was $53.6 million.  As of January 27, 2017, revolving borrowings under the ABL Facility were $39.3 million, outstanding letters of credit were $31.6 million and availability under the ABL Facility subject to the borrowing base was $37.2 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 (i) modified 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, (ii) increased the inventory advance rate during such period for purposes of calculating the borrowing base from 90% to 92.5%, (iii) provided 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 (iv) provided for certain additional technical waivers and amendments in order to effect the foregoing.

On April 8, 2016, the Company amended its ABL Facility to, among other things, decrease the commitments available under the ABL Facility by $25.0 million, resulting in an aggregate facility size of $160.0 million, and extend the maturity date of the ABL Facility to April 8, 2021; provided however, pursuant to the terms of the Fourth Amendment (as defined below), the ABL Facility  matures on the earlier of (i) the date that is 90 days prior to the stated maturity date in respect of the First Lien Term Loan Facility and (ii) the date that is 90 days prior to the stated maturity date in respect of the Senior Notes (as defined below), unless the First Lien Term Loan Facility and Senior Notes have been repaid or refinanced in full or amended to extend the final maturity dates thereof to a date that is at least 180 days after April 8, 2021 (the date of such repayment or refinancing, the “Term/Notes Refinancing Date”) (such amendment, the “Fourth Amendment”).  The Fourth Amendment also modified the interest rate margins payable under the ABL Facility.  Pursuant to the Fourth Amendment, the initial applicable margin for revolving borrowings under the ABL Facility was 2.0% with respect to base rate borrowings and 3.0% with respect to Eurocurrency rate borrowings.  Commencing with the first day of the first fiscal quarter commencing after the closing of the Fourth Amendment, the applicable margin for borrowings thereunder is subject to adjustment each fiscal quarter, based on average historical excess availability during the preceding fiscal quarter.  Furthermore, the applicable margin will be reduced by 0.50% after the Term/Notes Refinancing Date.

In addition, the Fourth Amendment (i) reduced the incremental revolving commitment capacity from $50.0 million to $25.0 million, but provides that any such incremental revolving commitment may take the form of a “last-out” term loan, (ii) added restrictions on certain negative covenants in respect of investments, restricted payments and prepayments of indebtedness, including the First Lien Term Loan Facility and the Senior Notes, in each case, until the occurrence of Term/Notes Refinancing Date, (iii) reduced the letter of credit sublimit from $50.0 million to $45.0 million and (iv) provided for certain additional technical waivers and amendments in order to effect the foregoing.

In connection with the Fourth Amendment and in the first quarter of fiscal 2017, the Company recognized a loss on debt extinguishment of approximately $0.3 million related to a portion of the unamortized debt issuance costs. The Company recorded $4.7 million of debt issuance costs in connection with the Fourth Amendment in the first quarter of fiscal 2017 as part of non-current deferred financing costs.

On September 6, 2017, the Company amended its ABL Facility to, among other things,  provide for a last-out term loan facility in an aggregate principal amount of $25.0 million (the “FILO Facility”), with TPG Specialty Lending, Inc. acting as agent (the “FILO Agent”) for the FILO Facility (such amendment, the “Fifth Amendment”).  The Company has drawn the entire $25.0 million under the FILO Facility and the $25.0 million of incremental revolving commitments under the ABL Facility have been reduced to $0.  As part of the ABL Facility, all obligations under the FILO Facility are guaranteed by Parent and the other Credit Facilities Guarantors and are secured by the same collateral as the ABL Facility.

Loans under the FILO Facility bear interest at a rate based, at the Company’s option, on (i) LIBOR plus 7.75% or (ii) the determined base rate (Prime Rate) plus 6.75%.  In the event the Company makes a prepayment of the loans under the FILO Facility on or prior to September 6, 2019 the Company is required to pay certain premiums to the lender under the FILO Facility.  The Company must also pay customary agency fees to the FILO Agent.

The borrowing base under the ABL Facility may be reduced by an amount equal to the excess (if any) of the outstanding loans under the FILO Facility less the borrowing base under the FILO Facility, as reflected in the most recent borrowing base certificate furnished by the Company, as required pursuant to the ABL Facility.

As of October 27, 2017, the FILO Facility matures on the earliest of (a) April 8, 2021, (b) the date that is 90 days prior to the stated maturity date in respect of the First Lien Term Loan Facility, (c) the date that is 90 days prior to the stated maturity date in respect of the Senior Notes, and (d) the date of termination of the commitments under the ABL Facility.

The Fifth Amendment provided the FILO Agent and the FILO Facility lenders with certain consent rights to amendments relating to, among other terms and provisions, the borrowing bases, the financial covenant and certain negative covenants.

In addition, the Fifth Amendment (i) increased the in-transit inventory cap for purposes of calculating the borrowing base under the ABL Facility from $10.0 million to $15.0 million, (ii) amended payment conditions that are required to be satisfied in connection with certain specified payments and (iii) set the systems reserve at 7.5% of store level inventory, eliminating increases to 10%, 12.5% and 15% of store level inventory at the end of the fiscal quarters ending on or about April 30, 2017, July 31, 2017 and October 31, 2017, respectively.

As of October 27, 2017, the interest rate charged on the FILO Facility was 9.07%.

As of October 27, 2017, the Company was in compliance with the terms of the ABL Facility.

See Note 16, “Subsequent Events” for a description of the Sixth Amendment (as defined below) to 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 (the “Subsidiary Guarantors”).

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 27, 2017, the Company was in compliance with the terms of the Indenture.

See Note 16, “Subsequent Events” for a description of the Exchange Offer (as defined below) relating to Senior Notes.

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

	For the Third Quarter Ended				For the First Three Quarters Ended
	October 27, 2017		October 28, 2016		October 27, 2017		October 28, 2016
First Lien Term Loan Facility	$	7,148	$	6,785	$	20,937	$	20,921
ABL Facility revolving loans	1,043		700		2,686		1,824
FILO Facility	327		—		327		—
Senior Notes	6,799		6,875		20,625		20,625
Amortization of deferred financing costs and OID	1,818		1,514		5,179		4,454
Other interest expense	345		1,046		2,229		2,406
Interest expense	$	17,480	$	16,920	$	51,983	$	50,230

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Derivative Financial Instruments

9 Months Ended

Oct. 27, 2017

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, hedged 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 was 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 was highly correlated to the changes in interest rates to which the Company is exposed.  Unrealized gains and losses on the interest rate swap were designated as effective or ineffective.  The effective portion of such gains or losses was recorded as a component of AOCI or loss, while the ineffective portion of such gains or losses was recorded as a component of interest expense.  Realized gains and losses in connection with each required interest payment were reclassified from AOCI or loss to interest expense.

Transition Payments

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 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 27, 2017 and January 27, 2017. The Company recognizes the expense associated with these payments over the requisite service period.

Fair Value

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 27, 2017		January 27, 2017
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	205	$	831
Transition payments (included in other long-term liabilities)	$	36	$	217

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

	For the Third Quarter Ended					For the First Three Quarters Ended
	October 27, 2017			October 28, 2016		October 27, 2017		October 28, 2016
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	—		$	—	$	—	$	168
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	—		$	—	$	—	$	330
Gain related to ineffective portion of derivative recognized in interest expense	$	—		$	—	$	—	$	36
Derivatives not designated as hedging instruments:
(Gain) loss recognized in selling, general and administrative expenses	$	(11	)	$	253	$	27	$	1,787

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Fair Value of Financial Instruments

9 Months Ended

Oct. 27, 2017

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) as of October 27, 2017:

	October 27, 2017
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets – assets that fund deferred compensation	$	959	$	959	$	—	$	—
LIABILITIES
Other current liabilities – transition payments	$	205	$	—	$	—	$	205
Other long-term liabilities – transition payments	$	36	$	—	$	—	$	36
Other long-term liabilities – deferred compensation	$	959	$	959	$	—	$	—

Level 1 measurements include $1.0 million of deferred compensation assets that fund the liabilities related to the Company’s deferred compensation plan, including investments in trust funds.  The fair values of these funds are based on quoted market prices in an active market.

There were no Level 2 assets or liabilities as of October 27, 2017.

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 2018.

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) as of January 27, 2017:

	January 27, 2017
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets – assets that fund deferred compensation	$	816	$	816	$	—	$	—
LIABILITIES
Other current liabilities – transition payments	$	831	$	—	$	—	$	831
Other long-term liabilities – transition payments interest rate swap	$	217	$	—	$	—	$	217
Other long-term liabilities – deferred compensation	$	816	$	816	$	—	$	—

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

There were no Level 2 assets or liabilities as of January 27, 2017.

Level 3 measurements include transition payments to Mr. Covert 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 following table summarizes the activity for the period of changes in fair value of the Company’s Level 3 instruments (in thousands):

	For the Third Quarter Ended						For the First Three Quarters Ended
Transition Payments	October 27, 2017			October 28, 2016			October 27, 2017			October 28, 2016
Description
Beginning balance	$	(252	)	$	(827	)	$	(1,048	)	$	(1,205	)
Transfers in and/or out of Level 3	—			—			—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	11			(253		)	(27		)	(1,787		)
Included in other comprehensive loss	—			—			—			—
Purchases, redemptions and settlements:
Settlements	—			—			834			1,912
Ending balance	$	(241	)	$	(1,080	)	$	(241	)	$	(1,080	)
Total amount of unrealized gains (losses) for the period included in earnings relating to liabilities held at the reporting period	$	11		$	(253	)	$	(24	)	$	(817	)

(1) Gains (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 and deferred financing costs.

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 27, 2017 and January 27, 2017.

The fair value of the First Lien Term Loan Facility was estimated at $542.1 million, or $47.1 million lower than its carrying value, as of October 27, 2017, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the First Lien Term Loan Facility was estimated at $516.7 million, or $77.2 million lower than its carrying value, as of January 27, 2017, based on quoted market prices of the debt (Level 1 inputs).

The fair value of the Senior Notes was estimated at $210.0 million, or $40.0 million lower than the carrying value, as of October 27, 2017, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the Senior Notes was estimated at $166.9 million, or $83.1 million lower than the carrying value, as of January 27, 2017, based on quoted market prices of the debt (Level 1 inputs).

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

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

During the second quarter of fiscal 2018, the Company recognized an impairment charge of approximately $1.5 million relating to the anticipated closure of three stores by the end of fiscal 2018 or early fiscal 2019.  The remaining net book value of assets measured at fair value was $0.1 million.  The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3).

During the third quarter of fiscal 2017, the Company recognized an impairment charge of approximately $0.1 million relating to the anticipated closure of three stores. The remaining net book value of assets measured at fair value was $0.1 million.  During the third quarter of fiscal 2017, the Company also recorded impairment charges of $0.1 million related to fixtures that will be disposed of and for which the Company concluded the fair value was zero. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3).

During the third quarter of fiscal 2017, the Company also reduced the carrying value of a held for sale property to its fair value of $1.5 million from $1.7 million, resulting in an impairment charge of $0.2 million. Fair value was determined on the basis of a broker quote, less estimated cost to sell (Level 2).

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Stock-Based Compensation

9 Months Ended

Oct. 27, 2017

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 (the “Board”) adopted the Number Holdings, Inc. 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan authorizes equity awards to be granted for up to 87,500 shares of Class A Common Stock of Parent and 87,500 shares of Class B Common Stock of Parent.  As of October 27, 2017, options for 84,081 shares of each of Class A Common Stock and Class B Common Stock were outstanding and held by employees, 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 subject to time-vesting conditions granted to employees generally become exercisable over a four or five year service period and have terms of ten years from the date of grant. Options with performance-vesting conditions granted to employees generally become exercisable based on the achievement of certain performance targets and have terms of ten years from the date of 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. 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. 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 22,516 time-based and 19,315 performance-based employee options outstanding (for individuals other than board members, Mr. Covert and Ms. Thornton) as of October 27, 2017.

Director Option Grants

Options granted to board members generally become exercisable over a three, four or five year service period and have terms of ten years from the date of grant.  Options granted to 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.  On July 26, 2016, the Compensation Committee of Parent amended 1,000 previously granted board member options with exercise prices in excess of $757 per share to lower the exercise price to $757 per share. The reduction in the exercise price was treated as a modification of stock options for accounting purposes.  The modification, based on the fair value of the options both immediately before and after such modification, resulted in a total incremental compensation expense of less than $0.1 million in the second quarter of fiscal 2017.

Chief Financial Officer Equity Awards

In October 2015, the Company entered into an employment agreement with Felicia Thornton as the Chief Financial Officer and Treasurer of each of the Company and Parent. In connection with this agreement, Ms. Thornton was granted options to purchase 10,000 shares of Class A and Class B Common Stock of Parent.  One-half of the options vest on each of the first four anniversaries of Ms. Thornton’s start date, and the other half of the options vest based on the achievement of certain performance targets. Options granted to Ms. Thornton contain repurchase rights as described above that would allow the Parent to repurchase these options at less than fair value, except that repurchase rights at less than fair value in the case of voluntary resignation without good reason lapse after November 2, 2017.

The Company records stock-based compensation for the time-based options in accordance with the four year vesting period.  The Company has deferred recognition of the stock-based compensation expense for the performance-based options until it is probable that the performance targets will be achieved.  The time-based and performance-based options are accounted for as equity awards.  The fair value of these time-based and performance-based options was estimated at the date of grant using the Black-Scholes pricing model.

On July 26, 2016, the Compensation Committee of Parent amended Ms. Thornton’s performance-based options to conform the vesting conditions for the performance-vested options with those granted to other employees.  The amendment of the performance targets was treated as a modification of stock options for accounting purposes and had no impact on compensation expense.  The Company has continued to defer recognition of the stock-based compensation expense for the amended performance-based options.  The fair value of these amended performance-based options was estimated at the date of modification using the Black-Scholes pricing model.

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 due to repurchase rights and transfer restrictions included in the terms of the award. 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.  The fair value of the grant with an exercise price of $1,000 per share was estimated at the date of grant using a binomial model.  The fair value of the other grant was estimated at the date of grant using a Monte Carlo simulation method.

On July 26, 2016, the Compensation Committee of Parent amended Mr. Covert’s performance-based options to conform the vesting conditions for the performance-vested options with those granted to other employees.  The amendment of the performance hurdles was treated as a modification of stock options for accounting purposes and had no impact on compensation expense.  The Company has continued to defer recognition of the stock-based compensation expense for the amended performance-based options.  The fair value of the grant with an exercise price of $1,000 per share was estimated at the date of modification using a binomial model.  The fair value of the other grant was estimated at the date of modification using a Monte Carlo simulation method.

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.  In accordance with the adoption of ASU No. 2016-09, “Compensation — Stock Compensation, Improvements to Employee Share-Based Payment Accounting” in the first quarter of fiscal 2018, the Company elected to recognize forfeitures in the period they occur as a reversal of previously recognized compensation expense. The reduction in compensation expense is determined based on the specific options forfeited during that period. Prior to the adoption of ASU 2016-09, the Company applied an estimated forfeiture rate as a reduction of current period stock-based compensation expense.  During the third quarter and first three quarters of fiscal 2018, the Company recorded stock-based compensation expense of $0.1 million and $0.4 million, respectively.  During the third quarter and first three quarters of fiscal 2017, the Company recorded stock-based compensation expense of $0.2 million and $0.5 million, respectively.

The following summarizes stock option activity in the first three quarters of fiscal 2018:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	82,140		$	800
Granted	4,020		$	757
Exercised	—		$	—
Cancelled	(2,079	)	$	757
Outstanding at the end of the period	84,081		$	799	8.3
Exercisable at the end of the period	21,727		$	798	8.2

The following table summarizes the stock awards available for grant under the 2012 Plan as of October 27, 2017:

	Number of Shares
Available for grant as of January 27, 2017	4,670
Authorized	—
Granted	(4,020	)
Cancelled	2,079
Available for grant at October 27, 2017	2,729

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Related-Party Transactions

9 Months Ended

Oct. 27, 2017

Related-Party Transactions

Related-Party Transactions

9.Related-Party Transactions

Management Services Agreements

Upon completion of the Merger, the Company and Parent entered into management services agreements with affiliates of the Sponsors (the “Management Services Agreements”).  Under each of the Management Services Agreements, the Company and Parent agreed to, among other things, retain and reimburse affiliates of the Sponsors for certain expenses incurred in connection with the provision by Sponsors of certain management and financial services and provide customary indemnification to the Sponsors and their affiliates.  In the first three quarters of fiscal 2018, the Company reimbursed affiliates of the Sponsors their expenses in the amount of less than $0.1 million.

First Lien Term Loan 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 October 27, 2017 and January 27, 2017, funds affiliated with Ares and CPPIB held approximately $129.5 million and $130.5 million, respectively, 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.

See Note 16, “Subsequent Events” for a description of the Third Amendment (as defined below) to the First Lien Term Loan Facility.

Senior Notes

As of October 27, 2017 and January 27, 2017 various funds affiliated with Ares and CPPIB 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.

See Note 16, “Subsequent Events” for a description of the Exchange Offer (as defined below) to the Senior Notes.

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Income Taxes

9 Months Ended

Oct. 27, 2017

Income Taxes

Income Taxes

10.Income Taxes

The effective income tax rate for the first three quarters of fiscal 2018 was a provision rate of (0.1)% compared to a provision rate of (0.2)% for the first three quarters of fiscal 2017.  Income tax expense for the interim periods was computed using the effective tax rate estimated to be applicable for the full fiscal year.  The effective tax rate reflects the tax effect of the establishment of a valuation allowance against deferred tax assets in the second quarter of fiscal 2016, and the effect of not recognizing the benefit of losses incurred in fiscal 2018 and 2017 in jurisdictions where the Company concluded it is 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. Therefore, in the second quarter of fiscal 2016, the Company recorded a $31.7 million increase to provision for income taxes in order to establish a valuation allowance against such net deferred tax assets.

As of January 27, 2017, the valuation allowance increased to $137.7 million, which was primarily related to an increase in losses incurred during fiscal 2017.

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 indefinite-lived 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.

As of October 27, 2017 and January 27, 2017, the Company had not accrued any liabilities related to unrecognized tax benefits, and had also not accrued any interest and penalties related to uncertain tax positions for the relevant periods. 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 2011 forward.

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Commitments and Contingencies

9 Months Ended

Oct. 27, 2017

Commitments and Contingencies

Commitments and Contingencies

11.Commitments and Contingencies

Credit Facilities

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

Mid-Term Cash Incentive Plan and Special Bonus Letters

On July 26, 2016, the Compensation Committee of the Board (the “Compensation Committee”) adopted the 99 Cents Only Stores LLC 2016 Mid-Term Cash Incentive Plan (the “Mid-Term Cash Incentive Plan”). The Mid-Term Cash Incentive Plan is intended to promote the success of the Company by rewarding certain employees for their service to the Company and to provide incentives for such employees to remain in the employ or other service of the Company and to contribute to the performance of the Company. Under the Mid-Term Cash Incentive Plan, if the Company achieves an initial Adjusted EBITDA (as defined in the Mid-Term Cash Incentive Plan) goal for either fiscal 2017 or the fiscal year ending January 26, 2018 (the “Initial Mid-Term Plan Goal”), 50% of a participant’s award will be eligible for payment. No amounts will be paid under the Mid-Term Cash Incentive Plan if the Initial Mid-Term Plan Goal is not achieved. If the Company achieves the Initial Mid-Term Plan Goal and then achieves the same Adjusted EBITDA goal for the fiscal year immediately following the year in which the Initial Mid-Term Plan Goal was achieved, the remaining 50% of the participant’s award will be eligible for payment. Payment of eligible awards will only be made to the extent the Company’s Free Cash Flow (as defined in the Mid-Term Cash Incentive Plan) exceeds the amount eligible for payment, as measured at the end of each second quarter and fourth quarter of each fiscal year after an amount becomes eligible for payment until the end of the fiscal year ending January 31, 2020.  The Company does not expect to maintain the Mid-Term Cash Incentive Plan for periods after the fiscal year ending July 31, 2020. As of October 27, 2017, the maximum payout under the Mid-Term Cash Incentive Plan is $22.3 million. The Company recognizes the expense associated with this Mid-Term Cash Incentive Plan over the requisite service periods and has accrued $14.7 million and $6.0 million as of October 27, 2017 and January 27, 2017, respectively.

On July 26, 2016, the Compensation Committee approved special bonus letters for three executives.  Pursuant to the terms thereof, if a Refinancing Transaction (as defined in the special bonus letters) occurs prior to October 1, 2018, each of the applicable executives will be eligible to receive a special bonus payable within 30 days of such transaction.  The special bonuses to be earned by the applicable executives total $4.0 million. No amounts have been accrued as of October 27, 2017.

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 27, 2017 and January 27, 2017, the Company had recorded a liability of $69.1 million 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 27, 2017 and January 27, 2017 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

During the third quarter of fiscal 2018, the Company began to fully self-insure its employee medical benefit claims.  Previously, the Company self-insured for a portion of its employee medical claims.  As of October 27, 2017 and January 27, 2017, the Company had recorded a liability of $2.5 million and $0.9 million, respectively, for estimated health insurance claims.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded health insurance program.

Sale of Warehouse Facility

On July 6, 2016, the Company sold and concurrently licensed (through March 31, 2017) a warehouse facility in the City of Commerce, California with a carrying value of $12.1 million and received net proceeds from this transaction of $28.5 million. In addition to the proceeds, $1.0 million purchase price consideration had been held in escrow for the buyer to make certain repairs, and any amount not used for such repairs would be paid to the Company. The repairs were completed in January 2017 and the Company received $0.6 million from amounts held in escrow. 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 lease was accounted for as a financing lease and the Company recorded a financing lease obligation of $30.1 million (as a component of current liabilities) as of January 27, 2017.  The Company exited the warehouse facility in March 2017, de-recognized the assets and financing lease obligation and recorded a gain on sale of $18.5 million as part of selling, general and administrative expenses in the first quarter of fiscal 2018.

Legal Matters

Wage and Hour Matters

Shelley Pickett v. 99¢ Only Stores.  Plaintiff Shelley Pickett, 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 Private Attorneys General Act of 2004 (“PAGA”) claim that the Company violated section 14 of Wage Order 7-2001 by failing to provide seats for its cashiers behind checkout counters.  Pickett 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.  On June 27, 2013, Pickett 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 Pickett 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 Pickett of its position by a letter dated as of July 30, 2013, but she refused 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 September 30, 2014, the court denied the Company’s motion for judgment on the pleadings as to its cross-complaint and granted leave to Pickett to amend her complaint to add another representative plaintiff, Tracy Humphrey.  Plaintiffs filed their amended complaint on October 8, 2014, and the Company answered on October 10, 2014, denying all material allegations.  On April 4, 2016, in an unrelated matter involving similar claims against a different employer, the California Supreme Court issued a ruling that provides guidance to lower courts as to California’s employee seating requirement, which is a largely untested area of law.  The instant action had been stayed pending the issuance of the California Supreme Court ruling.  The stay was lifted and the parties mediated this matter on October 19, 2016.  The mediation did not result in a settlement. A bench trial was originally scheduled for May 31, 2017, and had been continued by the Court to June 6, 2017.  The Court bifurcated the trial so that it will address liability in the first phase, and penalties in a second phase, if necessary.  The Company filed a motion to strike the representative allegations in the complaint and focus the trial on the two stores where the named Plaintiffs worked.  That motion was heard on May 9, 2017, and, on May 25, 2017, the motion to strike was denied and the motion to phase trial was granted.  The parties engaged in settlement discussions and reached agreement to resolve the matter for an immaterial amount, subject to statutory notice requirements and court approval.  The settlement has now been finalized and the Court approved the settlement on August 1, 2017. The time to appeal has expired, the Company has fulfilled its obligations under the settlement, including payment, and this matter is now concluded.

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 the 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 and through the mediator, as well as a court-ordered settlement conference, were unsuccessful.  Discovery resumed and plaintiff’s motion for class certification was fully briefed.  Plaintiff also brought a motion to strike the evidence submitted in support of the Company’s opposition to class certification.  At the Court’s request the parties mediated this matter prior to any ruling on the class certification motion and the motion to strike.  That mediation took place on March 2, 2017, and did not result in a settlement.  The motion for class certification and motion to strike were heard on April 20, 2017, and on April 26, 2017, the Court issued a minute order denying both motions.  The Court issued a more detailed order setting forth its reasoning on August 10, 2017.   On October 10, 2017, Plaintiff Barriga filed a Notice of Appeal.  On October 26, 2015, plaintiffs’ counsel filed another action 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.  By stipulation of the parties, the Guerra action has been transferred to Riverside Superior Court. This action was mediated along with the Barriga action in the March 2, 2017 mediation that did not result in a settlement.  On November 9, 2017, the Company filed a motion to stay the Guerra action pending the outcome of the appeal in the Barriga action.  That motion will be heard on December 14, 2017.  The Company cannot predict the outcome of these lawsuits or the amount of potential loss, if any, that could result from such lawsuits.

Phillip Clavel v. 99 Cents Only Stores LLC, et al.  Former warehouse worker Phillip Clavel filed an action against the Company on March 30, 2016, in the Superior Court of the State of California, County of Los Angeles on behalf of himself and all other alleged aggrieved employees, seeking civil penalties under the PAGA for the following alleged Labor Code violations: failure to pay regular, overtime and minimum wages for all hours worked, failure to provide proper meal and rest periods, failure to pay wages timely during employment and upon termination, failure to provide proper wage statements, failure to reimburse business expenses, and failure to provide notice of the material terms of employment under the Wage Theft Prevention Act.  Plaintiff alleges that his claims arose during two periods of employment—one from March 2015 through mid-October 2015, during which he was employed by the Company as a forklift operator in the Commerce Distribution Center, and a second period from late October 2015 through February 2016, when he was similarly employed (through a staffing agency, BaronHR) at the Company’s Washington Boulevard warehouse.  On June 9, 2016, Plaintiff filed a First Amended Complaint.  The Company answered the First Amended Complaint on June 14, 2016, generally denying the allegations in the complaint and asserting a number of affirmative defenses.  BaronHR also answered the First Amended Complaint.  Trial was set to commence on July 18, 2017.  A mediation took place on January 19, 2017, and at the conclusion of the mediation, the parties executed a term sheet settlement agreement to resolve the alleged PAGA claims.  The parties have now executed a long-form settlement agreement reflecting the final terms, which was contingent on Court approval.  The Court conducted a preliminary approval hearing on August 10, 2017, and requested additional information from Plaintiff.  At a further hearing on August 29, 2017, the Court entered an order granting approval of the settlement and entered a Judgment in accordance with the terms of the Order and the Parties’ PAGA Settlement Agreement.  The Company contributed $175,000 to the total settlement amount of $500,000.  The settlement is presently being administered and a declaration from the Settlement Administrator certifying that payments have been made pursuant to the Judgment will be provided after all payments are made.

Jimmy Mejia, et al. v. 99 Cents Only Stores LLC.  Former store associates Jimmy Mejia and Yamilet Serrano filed an action against the Company on September 16, 2016, in the Superior Court of the State of California, County of Los Angeles on behalf of themselves and all other alleged aggrieved employees, seeking civil penalties under the PAGA for the following alleged Labor Code violations: failure to pay overtime and minimum wages for all hours worked, failure to provide proper meal and rest periods, failure to pay timely wages during employment and upon termination, and failure to provide proper wage statements.  On November 14, 2016, the Company answered the complaint, generally denying the allegations in the complaint and asserting a number of affirmative defenses.  Trial was initially scheduled for January 8, 2018, and has been continued at the parties’ request to April 16, 2018.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that could result from such lawsuit.

Venzel Bradford v. BaronHR, Inc., et al.  Former warehouse worker Venzel Bradford filed a putative class action complaint against BaronHR, Inc., Solvis Staffing Services, Inc., Personnel Staffing Group, LLC, and the Company on April 26, 2017, in the Superior Court of the State of California, County of Los Angeles.  On behalf of himself and all others alleged to be similarly situated, Bradford is asserting claims for failure to pay overtime wages, failure to provide meal and rest periods, waiting time penalties, failure to provide proper wage statements, and unfair competition.  Bradford was not employed by the Company; he was employed by one or more of the staffing agencies named as defendants.  The Company has sought indemnity from the employing agency(ies), and BaronHR, LLC has agreed to provide the requested indemnity.  On or about September 21, 2017, Plaintiff voluntarily dismissed Personnel Staffing Group, LLC, as a Defendant.  On or about October 10, 2017, the Company filed an answer, generally denying the allegations in the complaint and asserting a number of affirmative defenses.  An initial status conference was held on September 15, 2017.  Because the other defendants (including BaronHR, which apparently employed Plaintiff Bradford) were not given notice of the hearing, a continued status conference was set for October 30, 2017.  Following further discussions among the parties, Plaintiff agreed to dismiss his classwide allegations but he indicated that he intended to proceed with his suit as a PAGA action instead of a class action.  On or about October 26, 2017, Plaintiff filed a request and declaration in support of his request to dismiss his classwide allegations.  The Company took the position that Plaintiff must first arbitrate his individual claims prior to attempting to pursue his PAGA claim.  In addition, because Plaintiff Bradford was included among the allegedly aggrieved employees in the Clavel PAGA action described above, the Company identified the Clavel action to the Court since the Judgment there will affect—and may preclude—Plaintiff Bradford’s ability to bring PAGA claims in this action.  Following these submissions, the Court independently rescheduled the status conference to December 15, 2017.  Pending this conference, discovery in the matter remains stayed.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that could result from such lawsuit.

Environmental Matters

People of the State of California v. 99 Cents Only Stores LLC.  This action was brought by the San Joaquin District Attorney and a number of other public prosecutors against the Company in San Joaquin County Superior Court alleging that the Company had violated hazardous waste statutory and regulatory requirements at its retail stores in California.  The Company settled this case through the entry of a stipulated judgment in December 2014 which contained injunctive relief requiring the Company to comply with applicable hazardous waste requirements at these stores. On June 29, 2015, the District Attorney informed the Company of alleged hazardous waste violations identified during a March 2015 inspection of a recently-opened store in Sonora, Tuolumne County and requested a meeting with the Company.  Since that time, the Company has been cooperating with the District Attorney to provide information regarding the alleged violations.  In May 2016, the discussions with the District Attorney were extended to include non-compliance issues identified at an existing store in San Jose during an inspection on March 16, 2016.  The Company and the District Attorney have reached a verbal agreement in principle to resolve the District Attorney’s demands in exchange for payment of an immaterial amount.  There is not yet a formal written settlement agreement.  In connection with this matter, the Company has accrued an immaterial amount.  Although any monetary damages ultimately paid by the Company may exceed the accrued amount, it is not currently possible to estimate whether any monetary damages paid would exceed the amount that the Company has accrued for this matter or the impact that any injunctive relief may have on the Company’s business, financial condition and results of operations.

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. 27, 2017

Assets Held for Sale

Assets Held for Sale

12.Assets Held for Sale

Assets held for sale as of October 27, 2017 and January 27, 2017 consisted of vacant land in Rancho Mirage and Los Angeles, California and land in Bullhead, Arizona with an aggregate carrying value of $4.9 million.

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Other Accrued Expenses

9 Months Ended

Oct. 27, 2017

Other Accrued Expenses

Other Accrued Expenses

13.Other Accrued Expenses

Other accrued expenses as of October 27, 2017 and January 27, 2017 are as follows (in thousands):

	October 27, 2017		January 27, 2017
Accrued interest	$	14,219	$	6,840
Accrued occupancy costs	13,312		9,438
Accrued legal reserves and fees	15,299		10,624
Accrued California Redemption Value	2,688		2,343
Accrued transportation	5,471		4,598
Accrued temporary labor	4,330		2,087
Other	12,391		10,152
Total other accrued expenses	$	67,710	$	46,082

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New Authoritative Standards

9 Months Ended

Oct. 27, 2017

New Authoritative Standards

New Authoritative Standards

14.New Authoritative Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” 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 was 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, while allowing early adoption as of the original public entity date.  In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing,” which amends the revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations as well as clarifies when a promised good or service is separately identifiable. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients,” which provides clarifying guidance in certain narrow areas such as an assessment of collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition as well as adds some practical expedients. In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” to clarify or to correct unintended application of the Topic 606, including disclosure requirements related to performance obligations. In September 2017, the FASB issued ASU 2017-13, “Revenue Recognition” (Topic 605), “Revenue from Contracts with Customers” (Topic 606), “Leases” (Topic 840), and “Leases” (Topic 842), which provides additional implementation guidance on the previously issued ASU 2014-09. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers,” as amended by the one-year deferral and early adoption provisions in ASU 2015-14. The Company is primarily engaged in the business of selling consumable and general merchandise and seasonal products. Revenues from the sale of such products are recognized at the point of sale. To date, the Company has performed a preliminary detailed review of key contracts and compared historical accounting policies and practices to the new standard. While the Company is still evaluating this standard, it is not expected that this standard will have a material impact on the Company’s consolidated financial statements. The Company will continue to evaluate ASU 2014-09 and other amendments and related interpretive guidance through the date of adoption. The Company expects to adopt ASU 2014-09 under the modified retrospective approach in the first quarter of fiscal 2019.

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 adopted this standard in the first quarter of fiscal 2018 and such adoption did not have an impact on the Company or its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU revises an entity’s accounting on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. This ASU becomes effective for public entities in the fiscal year beginning after December 15, 2017. Early adoption is not permitted except for the provisions related to the presentation of certain fair value changes for financial liabilities measured at fair value. The Company will adopt ASU 2016-01 in the first quarter of fiscal 2019 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease.  This ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.  This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.  Subsequently, in September 2017, the FASB issued ASU 2017-13, “Revenue Recognition” (Topic 605), “Revenue from Contracts with Customers” (Topic 606), “Leases” (Topic 840), and “Leases” (Topic 842), which provides additional implementation guidance on the previously issued ASU 2016-02.  ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods.  Early adoption is permitted.  The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented.  The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and is anticipating a material impact on its consolidated financial statements because the Company is party to a significant number of lease contracts.

In March 2016, the FASB issued ASU 2016-04, “Recognition of Breakage for Certain Prepaid Stored-Value Products,” which is designed to provide guidance and eliminate diversity in the accounting for the de-recognition of financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model.  Breakage should be recognized in proportion to the pattern of rights expected to be exercised by the product holder to the extent that it is probable a significant reversal of the recognized breakage amount will not subsequently occur. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively or using a modified retrospective approach.  The Company will adopt ASU 2016-04 in the first quarter of fiscal 2019 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting”. This ASU requires companies to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance requires companies to present excess tax benefits as an operating activity and cash paid to a taxing authority to satisfy statutory withholding as a financing activity on the statement of cash flows. The guidance will also allow entities to make an alternative policy election to account for forfeitures as they occur.  This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company adopted this standard in the first quarter of fiscal 2018. The Company made a policy election to account for forfeitures of share-based payments as they occur and implemented this provision using a modified retrospective transition.  There was no impact on retained earnings.  The Company also adopted other provisions of ASU 2016-09 in the first quarter of fiscal 2018 and the adoption of these provisions did not have an impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”.  This ASU replaces the current incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. The standard will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted for periods after December 15, 2018. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.  This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively.  The adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In October 2016, the FASB has issued ASU No. 2016-17, “Interest Held through Related Parties that are under Common Control”, which provides guidance on the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity (“VIE”) by amending how a reporting entity, that is a single decision maker of a VIE, treats indirect interests in that entity held through related parties that are under common control. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted.  The Company adopted this standard in the first quarter of fiscal 2018 and such adoption did not have an impact on the Company or its consolidated financial statements.

In October 2016 the FASB has issued ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted as of the beginning of a fiscal year. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Restricted Cash”, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The guidance is effective for periods beginning after December 15, 2017 on a retrospective basis, with early adoption permitted. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

On December 2016, FASB issued ASU 2016-19, “Technical Corrections and Improvements”, which includes amendments related to differences between original guidance and the Accounting Standards Codification, guidance clarification and reference corrections, simplifications to the Accounting Standards Codification, and minor improvements to the guidance. The amendments of the standard that require transition guidance are effective for annual and interim reporting periods beginning after December 15, 2016, and early adoption is permitted. All other amendments were effective immediately. The Company adopted this standard in the first quarter of fiscal 2018 and such adoption did not have an impact on the Company or its consolidated financial statements.

In January 2017 the FASB issued ASU No.  2017-01 “Business Combinations: Clarifying the Definition of a Business”, revises the definition of a business and may affect acquisitions, disposals, goodwill impairment and consolidation. The new guidance specifies that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The changes to the definition of a business in this guidance will likely result in more acquisitions being accounted for as asset acquisitions and would also affect the accounting for disposal transactions. This guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted.  The adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment”, which simplifies the goodwill impairment testing by eliminating Step 2 from the goodwill impairment testing required, should an impairment be discovered during its annual or interim assessment. The new standard is effective for annual or interim impairment tests beginning after December 15, 2019, with early adoption permitted. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”, which provides clarification about the term “in substance nonfinancial asset” and guidance for recognizing gains and losses from the transfer of nonfinancial assets and for partial sales of nonfinancial assets. The new standard is effective for public entities for annual periods beginning after December 15, 2017 and interim periods therein. Entities may use either a full or modified approach to adopt the standard.  The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Scope of Modification Accounting”, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance is intended to reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under the new standard, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. The new standard will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The adoption is not expected to have a material impact on the Company or its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities”, which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This new guidance will require a modified retrospective adoption approach to existing hedging relationships as of the adoption date.  The amended presentation and disclosure guidance is to be applied on a prospective basis.  The guidance is effective for annual and interim periods, beginning after December 15, 2018, with early adoption permitted. The adoption is not expected to have a material impact on the Company or its consolidated financial statements.

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Financial Guarantees

9 Months Ended

Oct. 27, 2017

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 27, 2017 and January 27, 2017, the Senior Notes are fully and unconditionally guaranteed by the Subsidiary Guarantors.

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 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,212		$	1,142		$	37		$	—		$	2,391
Accounts receivable, net	2,077			254			—			—			2,331
Income taxes receivable	2,739			—			—			—			2,739
Inventories, net	183,613			29,225			—			—			212,838
Assets held for sale	4,903			—			—			—			4,903
Other	10,539			391			5			—			10,935
Total current assets	205,083			31,012			42			—			236,137
Property and equipment, net	414,587			47,080			21			—			461,688
Deferred financing costs, net	1,976			—			—			—			1,976
Equity investments and advances to subsidiaries	897,566			834,079			3,199			(1,734,844		)	—
Intangible assets, net	441,291			1,420			—			—			442,711
Goodwill	380,643			—			—			—			380,643
Deposits and other assets	13,165			311			15			—			13,491
Total assets	$	2,354,311		$	913,902		$	3,277		$	(1,734,844	)	$	1,536,646
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	88,153		$	9,087		$	—		$	—		$	97,240
Intercompany payable	835,722			859,827			3,672			(1,699,221		)	—
Payroll and payroll-related	33,543			2,193			—			—			35,736
Sales tax	16,048			664			—			—			16,712
Other accrued expenses	63,751			3,947			12			—			67,710
Workers’ compensation	69,143			75			—			—			69,218
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	1,228			—			—			—			1,228
Total current liabilities	1,113,726			875,793			3,684			(1,699,221		)	293,982
Long-term debt, net of current portion	902,417			—			—			—			902,417
Unfavorable lease commitments, net	3,067			12			—			—			3,079
Deferred rent	28,569			2,067			—			—			30,636
Deferred compensation liability	959			—			—			—			959
Capital and financing lease obligation, net of current portion	52,584			—			—			—			52,584
Deferred income taxes	161,450			—			—			—			161,450
Other liabilities	16,587			—			—			—			16,587
Total liabilities	2,279,359			877,872			3,684			(1,699,221		)	1,461,694
Member’s Equity:
Member units	551,286			—			1			(1		)	551,286
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(457,134		)	(63,913		)	(408		)	64,321			(457,134		)
Total equity	74,952			36,030			(407		)	(35,623		)	74,952
Total liabilities and equity	$	2,354,311		$	913,902		$	3,277		$	(1,734,844	)	$	1,536,646

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 27, 2017

(In thousands)

	Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,207		$	1,105		$	136		$	—		$	2,448
Accounts receivable, net	3,478			32			—			—			3,510
Income taxes receivable (payable)	3,885			(9		)	—			—			3,876
Inventories, net	148,429			27,463			—			—			175,892
Assets held for sale	4,903			—			—			—			4,903
Other	9,571			723			13			—			10,307
Total current assets	171,473			29,314			149			—			200,936
Property and equipment, net	456,020			51,571			29			—			507,620
Deferred financing costs, net	3,488			—			—			—			3,488
Equity investments and advances to subsidiaries	766,276			696,162			2,907			(1,465,345		)	—
Intangible assets, net	445,302			1,725			—			—			447,027
Goodwill	380,643			—			—			—			380,643
Deposits and other assets	8,246			331			15			—			8,592
Total assets	$	2,231,448		$	779,103		$	3,100		$	(1,465,345	)	$	1,548,306
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	78,835		$	7,753		$	—		$	—		$	86,588
Intercompany payable	697,590			719,397			3,497			(1,420,484		)	—
Payroll and payroll-related	22,370			1,740			—			—			24,110
Sales tax	18,867			522			—			—			19,389
Other accrued expenses	43,962			2,103			17			—			46,082
Workers’ compensation	69,094			75			—			—			69,169
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	31,330			—			—			—			31,330
Total current liabilities	968,186			731,590			3,514			(1,420,484		)	282,806
Long-term debt, net of current portion	865,375			—			—			—			865,375
Unfavorable lease commitments, net	3,969			19			—			—			3,988
Deferred rent	28,141			2,216			3			—			30,360
Deferred compensation liability	816			—			—			—			816
Capital and financing lease obligation, net of current portion	47,195			—			—			—			47,195
Deferred income taxes	161,450			—			—			—			161,450
Other liabilities	12,297			—			—			—			12,297
Total liabilities	2,087,429			733,825			3,517			(1,420,484		)	1,404,287
Member’s Equity:
Member units	550,918			—			1			(1		)	550,918
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(387,699		)	(54,665		)	(418		)	55,083			(387,699		)
Total equity	144,019			45,278			(417		)	(44,861		)	144,019
Total liabilities and equity	$	2,231,448		$	779,103		$	3,100		$	(1,465,345	)	$	1,548,306

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Third Quarter Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	506,861		$	46,770		$	71	$	(71	)	$	553,631
Cost of sales	354,982			35,794			—		—			390,776
Gross profit	151,879			10,976			71		(71		)	162,855
Selling, general and administrative expenses	158,170			14,267			68		(71		)	172,434
Operating (loss) income	(6,291		)	(3,291		)	3		—			(9,579		)
Other (income) expense:
Interest income	(1		)	—			—		—			(1		)
Interest expense	17,480			—			—		—			17,480
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	3,288			—			—		(3,288		)	—
Total other expense, net	20,767			—			—		(3,288		)	17,479
(Loss) income before provision for income taxes	(27,058		)	(3,291		)	3		3,288			(27,058		)
Provision for income taxes	—			—			—		—			—
Net (loss) income	$	(27,058	)	$	(3,291	)	$	3	$	3,288		$	(27,058	)
Comprehensive (loss) income	$	(27,058	)	$	(3,291	)	$	3	$	3,288		$	(27,058	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Three Quarters Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,498,496		$	143,097		$	214	$	(214	)	$	1,641,593
Cost of sales	1,050,579			109,943			—		—			1,160,522
Gross profit	447,917			33,154			214		(214		)	481,071
Selling, general and administrative expenses	456,052			42,402			204		(214		)	498,444
Operating (loss) income	(8,135		)	(9,248		)	10		—			(17,373		)
Other (income) expense:
Interest income	(8		)	—			—		—			(8		)
Interest expense	51,983			—			—		—			51,983
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	9,238			—			—		(9,238		)	—
Total other expense, net	61,213			—			—		(9,238		)	51,975
(Loss) income before provision for income taxes	(69,348		)	(9,248		)	10		9,238			(69,348		)
Provision for income taxes	87			—			—		—			87
Net (loss) income	$	(69,435	)	$	(9,248	)	$	10	$	9,238		$	(69,435	)
Comprehensive (loss) income	$	(69,435	)	$	(9,248	)	$	10	$	9,238		$	(69,435	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Third Quarter Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	458,013		$	42,131		$	459	$	(459	)	$	500,144
Cost of sales	322,306			32,676			—		—			354,982
Gross profit	135,707			9,455			459		(459		)	145,162
Selling, general and administrative expenses	152,117			13,465			96		(459		)	165,219
Operating (loss) income	(16,410		)	(4,010		)	363		—			(20,057		)
Other (income) expense:
Interest income	(7		)	—			—		—			(7		)
Interest expense	16,920			—			—		—			16,920
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	3,647			—			—		(3,647		)	—
Total other expense, net	20,560			—			—		(3,647		)	16,913
(Loss) income before provision for income taxes	(36,970		)	(4,010		)	363		3,647			(36,970		)
Provision for income taxes	21			—			—		—			21
Net (loss) income	$	(36,991	)	$	(4,010	)	$	363	$	3,647		$	(36,991	)
Comprehensive (loss) income	$	(36,991	)	$	(4,010	)	$	363	$	3,647		$	(36,991	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Three Quarters Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,382,473		$	127,058		$	570	$	(570	)	$	1,509,531
Cost of sales	975,681			98,521			—		—			1,074,202
Gross profit	406,792			28,537			570		(570		)	435,329
Selling, general and administrative expenses	442,940			39,405			158		(570		)	481,933
Operating (loss) income	(36,148		)	(10,868		)	412		—			(46,604		)
Other (income) expense:
Interest income	(45		)	—			—		—			(45		)
Interest expense	50,230			—			—		—			50,230
Loss on extinguishment of debt	335			—			—		—			335
Equity in loss (earnings) of subsidiaries	10,456			—			—		(10,456		)	—
Total other expense, net	60,976			—			—		(10,456		)	50,520
(Loss) income before provision for income taxes	(97,124		)	(10,868		)	412		10,456			(97,124		)
Provision for income taxes	146			—			—		—			146
Net (loss) income	$	(97,270	)	$	(10,868	)	$	412	$	10,456		$	(97,270	)
Comprehensive (loss) income	$	(97,108	)	$	(10,868	)	$	412	$	10,456		$	(97,108	)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Three Quarters Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash (used in) provided by operating activities	$	(27,651	)	$	1,724		$	(99	)	$	—	$	(26,026	)
Cash flows from investing activities:
Purchases of property and equipment	(30,363		)	(1,688		)	—			—		(32,051		)
Proceeds from sales of property and fixed assets	9,398			1			—			—		9,399
Insurance recoveries for replacement assets	475			—			—			—		475
Net cash used in investing activities	(20,490		)	(1,687		)	—			—		(22,177		)
Cash flows from financing activities:
Proceeds from long-term debt	25,000			—			—			—		25,000
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	211,400			—			—			—		211,400
Payments under revolving credit facility	(197,200		)	—			—			—		(197,200		)
Payments of debt issuance costs	(880		)	—			—			—		(880		)
Proceeds from financing lease obligations	15,317			—			—			—		15,317
Payments of capital and financing lease obligations	(887		)	—			—			—		(887		)
Net cash provided by financing activities	48,146			—			—			—		48,146
Net increase (decrease) in cash	5			37			(99		)	—		(57		)
Cash – beginning of period	1,207			1,105			136			—		2,448
Cash – end of period	$	1,212		$	1,142		$	37		$	—	$	2,391

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Three Quarters Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	6,193		$	1,742		$	(4	)	$	—	$	7,931
Cash flows from investing activities:
Purchases of property and equipment	(33,652		)	(1,621		)	—			—		(35,273		)
Proceeds from sales of fixed assets	617			—			—			—		617
Insurance recoveries for replacement assets	937			—			—			—		937
Net cash used in investing activities	(32,098		)	(1,621		)	—			—		(33,719		)
Cash flows from financing activities:
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	168,500			—			—			—		168,500
Payments under revolving credit facility	(174,500		)	—			—			—		(174,500		)
Payments of debt issuance costs	(4,725		)	—			—			—		(4,725		)
Proceeds from financing lease obligations	41,993			—			—			—		41,993
Payments of capital and financing lease obligations	(762		)	—			—			—		(762		)
Net cash provided by financing activities	25,902			—			—			—		25,902
Net (decrease) increase in cash	(3		)	121			(4		)	—		114
Cash – beginning of period	1,266			1,009			37			—		2,312
Cash – end of period	$	1,263		$	1,130		$	33		$	—	$	2,426

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Subsequent Events

9 Months Ended

Oct. 27, 2017

Subsequent Events

Subsequent Events

16.Subsequent Events

Amendment to First Lien Term Loan Facility

On November 7, 2017 (the “Amendment Date”), the Company amended the terms of the First Lien Term Loan Facility (the “Third Amendment”) to, among other things, (i) provide for the refinancing or replacement of not less than 85% of the existing tranche B-2 term loans held by lenders that are not affiliates of the Company under the First Lien Term Loan Facility immediately prior to the effectiveness of the Third Amendment (the “Existing Term Facility”) with new first lien term loans (the “New First Lien Term Loans”),  (ii) provide for the reallocation of 100% of the aggregate principal amount of the tranche B-2 term loans under the Existing First Lien Term Loan Facility held by lenders that are affiliates of the Company to a new senior secured second lien facility (the “Second Lien Facility”), (iii) permit an exchange of the Borrower’s Senior Notes for new senior secured notes all or partially payable in kind and with a later maturity date, (iv) increase the mandatory prepayment threshold for excess cash flow of the Company from 50% to 100% commencing with the fiscal year ending January 25, 2019, (v) permit the Company to reinvest $5.0 million of the net cash proceeds received or realized after the Amendment Date from certain asset sales (including sale leaseback transactions) or recovery events, (vi) eliminate any incremental capacity after the Amendment Date, (vi) reduce certain thresholds in the negative covenants in a manner consistent with certain features of the ABL Facility, (vii) add certain unencumbered real property of the Company as collateral for the First Lien Term Loan Facility, as more particularly described under “Entry into Second Lien Facility” below, and (viii) permit certain other modifications as set forth in the Third Amendment. Upon the effectiveness of the Third Amendment, approximately $399.2 million of the term loans under the Existing Term Facility held by lenders that are not affiliates of the Company were converted into New First Lien Term Loans (and approximately $34.7 million of tranche B-2 loans were converted into New First Lien Term Loans after the consummation of the Third Amendment) and, upon the effectiveness of the Second Lien Credit Agreement, approximately $130 million of tranche B-2 term loans held by lenders that are affiliates of the Company under the Existing Term Facility were reallocated to the Second Lien Facility.  Lenders approving the Third Amendment received an upfront fee of 50 basis points at closing.

The New First Lien Term Loans bear interest at the Eurocurrency Rate plus 6.50% (5.00% to be payable in cash and 1.50% to be payable in-kind) or the Base Rate plus 5.50% (4.00% to be payable in cash and 1.50% to be payable in-kind (“PIK”); provided that, the Company may, at its option and upon notice to the administrative agent, pay all or any portion of the PIK interest in cash. The Eurocurrency rate is subject to a floor of 1.0%.  The New First Lien Term Loans shall be payable in equal quarterly installments of 1% per annum, with the balance payable on the scheduled maturity date (the “Extended First Lien Maturity Date”), which was extended to January 13, 2022; provided that, if less than 95% of the principal amount of the Senior Notes outstanding on the Amendment Date has been converted, redeemed, repurchased or refinanced in full on or before the date that is three business days prior to June 1, 2019, such that the stated maturity date in respect of the Senior Notes (other than up to 5% in aggregate principal amount of the Senior Notes) is at least 91 days after January 13, 2022, then the Extended First Lien Maturity Date will be June 1, 2019.

The Company may prepay or reprice the New First Lien Term Loans, in whole or in part, at any time, with payment of a prepayment premium equal to (a) 2.0% of principal amount prepaid or repriced if made during the first two years of the Amendment Date and (b) 1.0% of principal amount prepaid or repriced if made after the second anniversary of Amendment Date but before the third anniversary of the Amendment Date. Thereafter, no prepayment premium is applicable.

Tranche B-2 term loans that remain outstanding under the First Lien Term Loan Facility after the Amendment Date (a) will not benefit from certain covenants and the events of default governing the New First Lien Term Loan, other than those relating to payment, security or insolvency and (b) may not be assigned without the prior written consent of the Company in the Company’s sole discretion.

Amendment to ABL Credit Facility

In connection with the Third Amendment, the Company amended its ABL Facility (the “Sixth Amendment”) to, among other things, (i) extend the maturity date of the ABL Facility (including, for the avoidance of doubt, the FILO Facility) to a date that is 91 days prior to the Extended First Lien Maturity Date, (ii) permit an exchange of the Borrower’s Senior Notes for new senior secured notes partially payable in kind and with a later maturity date, (iii) permit the refinancing of the tranche B-2 loans under the Company’s Existing Term Facility for New First Lien Term Loans, (iv) permit the Second Lien Facility and (v) reset incremental FILO capacity up to $15.0 million and (vi)permit certain other modifications as set forth in the Sixth Amendment.

Entry into Second Lien Facility

In connection with the Third Amendment, the Company, Parent, the subsidiaries of the Company party thereto Wilmington Trust, National Association, as administrative agent (the “Second Lien Administrative Agent”), and the lenders from time to time party thereto, entered into that certain Credit Agreement (the “Second Lien Credit Agreement”). The loans under the Second Lien Facility bear interest at a per annum rate equal to Eurocurrency rate plus 8.50% or the Base Rate plus 7.50%, in each case, in the form of PIK interest. The Eurocurrency rate is subject to a floor of 1.0%. The maturity date of the Second Lien Facility will be 91 days after the Extended First Lien Maturity Date.  The Second Lien Facility is secured by a second lien on the same collateral assets as the First Lien Term Loan Facility and a third lien on the ABL-priority collateral assets, and is guaranteed by the same guarantors as the First Lien Term Loan Facility and the ABL Facility.

The Second Lien Facility contains prepayment provisions, covenants and events of default that are substantially similar to the New First Lien Term Loans.

All obligations under the Second Lien Facility are unconditionally guaranteed by Parent and certain of the Company’s existing wholly owned domestic restricted subsidiaries, and are required to be guaranteed by certain of the Company’s future wholly owned domestic restricted subsidiaries.  All obligations under the Second Lien Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, on a second-priority basis by substantially all of the assets of the Company and Parent and the Company’s restricted subsidiaries that have guaranteed the credit facility under the First Lien Term Loan Facility.

In connection with the Third Amendment, Sixth Amendment and Second Lien Credit Agreement, in addition to the collateral securing the Existing Term Facility and ABL Facility, (i) the First Lien Term Loan Facility will be secured by a first-priority mortgage on all unencumbered fee-owned real property of the Company other than certain property designated as excluded real property by the Company on the Amendment Date or that is eligible for an exempt sale-leaseback transaction (the “Real Estate Collateral”), (ii) the Second Lien Facility will be secured by a second-priority mortgage on the Real Estate Collateral, (iii) the ABL Facility will be secured by a third-priority mortgage on the Real Estate Collateral.

Senior Notes Exchange Offer

On November 7, 2017, the Company launched an exchange offer and consent solicitation (the “Exchange Offer”) to (i) exchange its existing 11% Senior Notes due 2019 for the Company’s newly issued 13% Cash/PIK Notes due 2022 (the “New Secured Notes”), of which there are currently $250 million aggregate principal amount outstanding and (ii) solicit consents to certain proposed amendments to the indenture governing the Senior Notes, in each case, upon the terms and subject to the conditions as set forth in an Offering Memorandum and a related Letter of Transmittal. On November 22, 2017, the Company launched an amended Exchange Offer to (i) shorten the maturity date of the New Secured Notes being offered in exchange for the Senior Notes to April 14, 2022, (ii) extend the Early Tender Date from 5:00 p.m., New York City time, on November 22, 2017 to 5:00 p.m., New York City time, on November 30, 2017, (iii) increase the early tender consideration offered to include a cash fee of $7.50 per each $1,000 principal amount of Senior Notes, (iv) amend certain terms of the New Secured Notes and (v) amend the conditions to the Exchange Offer to include a minimum tender condition that at least 95% in aggregate principal amount of Senior Notes be validly tendered and not validly withdrawn in the Exchange Offer and the simultaneous exchange of Senior Notes held by the Sponsors, as described below, to prior to 11:59 p.m., New York City time, on the expiration date. The Company also amended the consideration being offered to the Sponsors in exchange for their Senior Notes from its 13% All PIK Notes due 2023 to shares of new paid-in-kind Series A-1 Preferred Stock, $0.001 par value per share, of Parent.  The New Secured Notes will be effectively senior to all of the Company’s existing and future unsecured indebtedness, including the Senior Notes, to the extent of the value of the collateral securing the New Secured Notes.  The Exchange Offer expired at 11:59 p.m., New York City time, on December 7, 2017, and the settlement date is expected to be on or about December 14, 2017.  In connection with the Exchange Offer, the Company entered into a transaction support agreement with certain holders (including beneficial owners or investment managers of beneficial owners) of Senior Notes (together with their successors and assigns, the “Support Parties”), pursuant to which the Company and the Support Parties, including the Sponsors or their affiliates, agreed (subject to the terms and conditions set forth therein) to support the Exchange Offer as amended pursuant to the terms and conditions of the Offering Memorandum. On December 6, 2017, the Company announced that it had received tenders from holders of at least $242,228,000 in aggregate principal amount of Senior Notes, representing approximately 96.89% of the total outstanding principal amount of Senior Notes.  As of November 30, 2017, the right to withdraw tenders of Senior Notes and related consents and the right to receive an early tender premium have expired.

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

9 Months Ended

Oct. 27, 2017

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 27, 2017.  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 February 2, 2018 (“fiscal 2018”).

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 2018 began on January 28, 2017, will end on February 2, 2018 and will consist of 53 weeks.  The Company’s fiscal year 2017 (“fiscal 2017”) began on January 30, 2016, ended on January 27, 2017 and consisted of 52 weeks.  The third quarter ended October 27, 2017 (the “third quarter of fiscal 2018”) and the third quarter ended October 28, 2016 (the “third quarter of fiscal 2017”) were each comprised of 91 days.  The nine-month period ended October 27, 2017 (the “first three quarters of fiscal 2018”) and the nine-month period ended October 28, 2016 (the “first three quarters of fiscal 2017”) were each comprised of 273 days.

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 of 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 $3.3 million and $7.0 million as of October 27, 2017 and January 27, 2017, 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 or tenant’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 net realizable value. Inventory costs are 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.  The Company includes spoilage, scrap and shrink in its definition of shrinkage.  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 have a material effect on the reported gross margin for the period. These estimates are subject to change based on management’s evaluation of, and response to, a variety of factors and trends, including, but not limited to, consumer preferences and buying patterns, age of inventory, increased competition, inventory management, merchandising strategies and historical sell through trends.  The Company’s ability to adequately evaluate the impact of inventory management and merchandising strategies executed in response to such factors and trends in future periods could have a material impact on such estimates.

In order to obtain inventory at attractive prices, the Company takes advantage of large volume purchases, closeouts and other similar purchase opportunities.  Consequently, 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’s 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 2018, the Company decided to close three stores by the end of fiscal 2018 or early fiscal 2019.  As a result of this decision, the Company recognized an impairment charge of approximately $1.5 million as part of selling, general and administrative expenses in the second quarter of fiscal 2018 related to the planned closure of these stores.  During the third quarter of fiscal 2017, the Company decided to close five retail stores in California by the end of fiscal 2017 upon the expiration of their respective lease terms. As a result of this decision, the Company recognized an impairment charge of approximately $0.1 million related to the closure of three of these stores and recorded an impairment charge of $0.1 million related to fixtures that will be disposed of and for which the Company concluded the fair value was zero.  During the third quarter of fiscal 2017, the Company also reduced the carrying value of a held for sale property to the estimated net realizable value, net of expected disposal costs, and accordingly recorded an asset impairment charge of $0.2 million.

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.

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”).

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 retail reporting unit and the wholesale reporting unit.

The Company, assisted by an independent third party valuation firm, 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”). These approaches involve making key 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 and are subject to change.

During the third quarter of fiscal 2016, the Company determined that indicators of impairment existed to require an interim impairment analysis of goodwill and trade name.  The first step evaluation concluded that the fair value of the retail reporting unit was below its carrying value.  The Company performed step two of the goodwill impairment test.  As a result of the preliminary analysis and based on 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 finalization of the preliminary goodwill impairment test was completed in the fourth quarter of fiscal 2016 and resulted in a $20.9 million adjustment in goodwill, lowering the estimated third quarter of fiscal 2016 goodwill impairment charge from $120.0 million to $99.1 million.

The remaining amount of goodwill allocated to the retail reporting unit and wholesale reporting unit was $368.1 million and $12.5 million, respectively, as of January 29, 2016.

During the fourth quarter of fiscal 2017, the Company completed step one of its annual goodwill impairment test for the two reporting units and determined that there was no impairment of goodwill since the fair value of the Company’s reporting units exceeded their carrying amounts.  The results of this test showed that the fair value of our retail reporting unit exceeded its carrying value by a substantial amount.  The results of this test showed that the fair value of wholesale reporting unit exceeded carrying value by approximately 18%.  As discussed above, considerable management judgment is necessary in estimating future cash flows, market interest rates, discount rates and other factors affecting the valuation of goodwill.  The Company’s forecasts used in its fiscal 2017 annual impairment test include growth in net sales, new store openings and same-store sales, positive trends in cost of sales and selling, general and administrative expense.  In each case, these estimates and assumptions could be materially affected by factors such as unforeseen events or changes in general economic conditions, a decline in comparable company market multiples, changes to discount rates, increased competitive forces, inability to maintain pricing structure, deterioration of vendor relationships, failure to adequately manage and improve inventory processes and procedures and changes in customer behavior which could result in changes to management’s strategies.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

Additionally, during the fourth quarter of fiscal 2017, the Company completed its annual indefinite-lived intangible asset impairment test and determined there was no impairment to the trade name since the fair value of the trade name exceeded its carrying amount.  The results of this test showed that the fair value of trade name exceeded carrying value by approximately 18%.  The relief from royalty method estimates the Company’s theoretical royalty savings from ownership of the intangible asset.  Key assumptions used in this model included sales projections, discount rates and royalty rates, and considerable management judgment is necessary in developing and evaluating such assumptions.  If future results are not consistent with current estimates and assumptions, impairment charges maybe recorded in future.

During the first three quarters of fiscal 2018, 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.  In accordance with the adoption of ASU No. 2016-09, “Compensation — Stock Compensation, Improvements to Employee Share-Based Payment Accounting” in the first quarter of fiscal 2018, the Company elected to recognize forfeitures in the period they occur as a reversal of previously recognized compensation expense. The reduction in compensation expense is determined based on the specific options forfeited during that period. Prior to the adoption of ASU 2016-09, the Company applied an estimated forfeiture rate as a reduction of current period stock-based compensation expense. 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.  The fair value of options that vest based on the Company’s and Parent’s achievement of certain performance hurdles were valued using a Monte Carlo simulation method. The fair value of options granted to the current Chief Executive Officer were valued using a binomial model and the Monte Carlo simulation method.   Refer to Note 8, “Stock-Based Compensation” for further discussion of the Company’s 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 shrink, 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 or based on other systematic and rational approaches where possible.

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 first quarter of fiscal 2018, the Company sold and concurrently leased back a future store site with an aggregate carrying value of $1.4 million and received net proceeds from this transaction of $6.8 million, which will be applied towards the construction of the future store.  The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transaction closed.  The Company has concluded that it is the “deemed owner” of the construction project (for accounting purposes) during the construction period.  Upon completion of construction, the Company will evaluate the de-recognition of the asset and liability under sale-leaseback accounting guidance.  As of October 27, 2017, the Company has recorded a financing lease obligation of $7.0 million (as a component of current and non-current liabilities).  During the first quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $2.2 million and received net proceeds from this transaction of $4.0 million.  The resulting lease qualifies as and is accounted for as an operating lease.  The Company will amortize the deferred gain of $1.8 million relating to the sale-leaseback transaction over the lease term.

During the second quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $3.7 million and received net proceeds from this transaction of $7.9 million.  The Company was deemed to have “continuing involvement,” which precluded the de-recognition of the assets from the consolidated balance sheet when the transaction closed.  The resulting lease is accounted for as a financing lease and the Company has recorded a financing lease obligation of $7.9 million (as a component of current and non-current liabilities).  Also during the second quarter of fiscal 2018, the Company sold and concurrently leased back a store with a carrying value of $1.1 million and received net proceeds from this transaction of $5.3 million.  The resulting lease qualifies as and is accounted for as an operating lease.  The Company recorded a gain on the sale of $1.7 million as part of selling, general and administrative expenses and will amortize the deferred gain of $2.5 million relating to the sale-leaseback transaction over the lease term.

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 were accounted for as financing leases and the Company had recorded a corresponding financing lease obligation of $8.7 million (as a component of current and non-current liabilities).  The Company amortized the financing lease obligation over the lease terms and depreciated the assets over their remaining useful lives.  During the second quarter of fiscal 2018, the Company was no longer deemed to have “continuing involvement” and the leases now qualify and are accounted for as operating leases.  The-Company de-recognized the assets and financing lease obligation and recorded a net loss of $0.8 million as part of selling, general and administrative expenses in the second quarter of fiscal 2018 and will amortize deferred gain of $2.1 million relating to the sale-leaseback transaction over the lease term.

During the third quarter of fiscal 2017, the Company sold and concurrently leased back two stores with an aggregate carrying value of $7.6 million and received net proceeds from these transactions of $10.5 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 $10.5 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.

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 27, 2017 and January 27, 2017.

Self-Insured Health Insurance Liability

Self-Insured Health Insurance Liability

The Company self-insures its employee medical benefit claims.  The liability for the self-funded 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 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

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. 27, 2017

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. 27, 2017

Goodwill and Other Intangibles

Schedule of goodwill and other intangible assets and unfavorable leases

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

	October 27, 2017										January 27, 2017
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(99,102	)	$	—		$	380,643	$	479,745	$	(99,102	)	$	—		$	380,643
Trade name	410,000		—			—			410,000		410,000		—			—			410,000
Total indefinite lived intangible assets	$	889,745	$	(99,102	)	$	—		$	790,643	$	889,745	$	(99,102	)	$	—		$	790,643
Finite lived intangible assets:
Trademarks	$	2,000	$	(570	)	$	(517	)	$	913	$	2,000	$	(570	)	$	(470	)	$	960
Bargain Wholesale customer relationships	20,000		—			(9,650		)	10,350		20,000		—			(8,408		)	11,592
Favorable leases	45,871		(566		)	(23,857		)	21,448		45,871		(566		)	(20,830		)	24,475
Total finite lived intangible assets	67,871		(1,136		)	(34,024		)	32,711		67,871		(1,136		)	(29,708		)	37,027
Total goodwill and other intangible assets	$	957,616	$	(100,238	)	$	(34,024	)	$	823,354	$	957,616	$	(100,238	)	$	(29,708	)	$	827,670

	October 27, 2017							January 27, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	$	19,835	$	(16,756	)	$	3,079	$	19,835	$	(15,847	)	$	3,988

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Property and Equipment, net (Tables)

9 Months Ended

Oct. 27, 2017

Property and Equipment, net

Schedule of details of property and equipment

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

	October 27, 2017			January 27, 2017
Land	$	151,035		$	167,544
Buildings	106,947			110,327
Buildings improvements	72,024			77,246
Leasehold improvements	210,889			205,336
Fixtures and equipment	214,596			209,397
Transportation equipment	11,825			11,893
Construction in progress	26,452			16,724
Total property and equipment	793,768			798,467
Less: accumulated depreciation and amortization	(332,080		)	(290,847		)
Property and equipment, net	$	461,688		$	507,620

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Comprehensive Loss (Tables)

9 Months Ended

Oct. 27, 2017

Comprehensive Loss

Schedule of comprehensive loss, net of tax effects

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

	For the Third Quarter Ended						For the First Three Quarters Ended
	October 27, 2017			October 28, 2016			October 27, 2017			October 28, 2016
Net loss	$	(27,058	)	$	(36,991	)	$	(69,435	)	$	(97,270	)
Unrealized loss on interest rate cash flow hedge, net of tax effects of $0, $0, $0 and $(112) for the third quarter and first three quarters of fiscal 2018 and fiscal 2017, respectively	—			—			—			(168		)
Reclassification adjustment, net of tax effects of $0, $0, $0 and $220 for the third quarter and first three quarters of fiscal 2018 and fiscal 2017, respectively	—			—			—			330
Total gains, net	—			—			—			162
Total comprehensive loss	$	(27,058	)	$	(36,991	)	$	(69,435	)	$	(97,108	)

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Debt (Tables)

9 Months Ended

Oct. 27, 2017

Debt

Schedule of short and long-term debt

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

	October 27, 2017			January 27, 2017
ABL Facility revolving	$	53,500		$	39,300
FILO Facility	25,000			—
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2018, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $1,817 and $2,888 as of October 27, 2017 and January 27, 2017, respectively	587,442			590,974
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000			250,000
Deferred financing costs	(7,387		)	(8,761		)
Total debt	908,555			871,513
Less: current portion	6,138			6,138
Long-term debt, net of current portion	$	902,417		$	865,375

Schedule of net deferred financing costs

As of October 27, 2017 and January 27, 2017, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	October 27, 2017		January 27, 2017
ABL Facility revolving loans (included in non-current deferred financing costs)	$	1,976	$	3,488
FILO Facility (included in long-term debt, net of current portion)	1,066		—
First Lien Term Loan Facility (included in long-term debt, net of current portion)	1,865		2,964
Senior Notes (included in long-term debt, net of current portion)	4,456		5,797
Total deferred financing costs, net	$	9,363	$	12,249

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 27, 2017		October 28, 2016		October 27, 2017		October 28, 2016
First Lien Term Loan Facility	$	7,148	$	6,785	$	20,937	$	20,921
ABL Facility revolving loans	1,043		700		2,686		1,824
FILO Facility	327		—		327		—
Senior Notes	6,799		6,875		20,625		20,625
Amortization of deferred financing costs and OID	1,818		1,514		5,179		4,454
Other interest expense	345		1,046		2,229		2,406
Interest expense	$	17,480	$	16,920	$	51,983	$	50,230

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Derivative Financial Instruments (Tables)

9 Months Ended

Oct. 27, 2017

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 27, 2017		January 27, 2017
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	205	$	831
Transition payments (included in other long-term liabilities)	$	36	$	217

Summary of recorded amounts included in the consolidated statements of comprehensive loss

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

	For the Third Quarter Ended					For the First Three Quarters Ended
	October 27, 2017			October 28, 2016		October 27, 2017		October 28, 2016
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	—		$	—	$	—	$	168
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	—		$	—	$	—	$	330
Gain related to ineffective portion of derivative recognized in interest expense	$	—		$	—	$	—	$	36
Derivatives not designated as hedging instruments:
(Gain) loss recognized in selling, general and administrative expenses	$	(11	)	$	253	$	27	$	1,787

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Oct. 27, 2017

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) as of October 27, 2017:

	October 27, 2017
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets – assets that fund deferred compensation	$	959	$	959	$	—	$	—
LIABILITIES
Other current liabilities – transition payments	$	205	$	—	$	—	$	205
Other long-term liabilities – transition payments	$	36	$	—	$	—	$	36
Other long-term liabilities – deferred compensation	$	959	$	959	$	—	$	—

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) as of January 27, 2017:

	January 27, 2017
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets – assets that fund deferred compensation	$	816	$	816	$	—	$	—
LIABILITIES
Other current liabilities – transition payments	$	831	$	—	$	—	$	831
Other long-term liabilities – transition payments interest rate swap	$	217	$	—	$	—	$	217
Other long-term liabilities – deferred compensation	$	816	$	816	$	—	$	—

Summary of activity for the period of changes in fair value of the Company's Level 3 instruments

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 Third Quarter Ended						For the First Three Quarters Ended
Transition Payments	October 27, 2017			October 28, 2016			October 27, 2017			October 28, 2016
Description
Beginning balance	$	(252	)	$	(827	)	$	(1,048	)	$	(1,205	)
Transfers in and/or out of Level 3	—			—			—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	11			(253		)	(27		)	(1,787		)
Included in other comprehensive loss	—			—			—			—
Purchases, redemptions and settlements:
Settlements	—			—			834			1,912
Ending balance	$	(241	)	$	(1,080	)	$	(241	)	$	(1,080	)
Total amount of unrealized gains (losses) for the period included in earnings relating to liabilities held at the reporting period	$	11		$	(253	)	$	(24	)	$	(817	)

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

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Stock-Based Compensation (Tables)

9 Months Ended

Oct. 27, 2017

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	82,140		$	800
Granted	4,020		$	757
Exercised	—		$	—
Cancelled	(2,079	)	$	757
Outstanding at the end of the period	84,081		$	799	8.3
Exercisable at the end of the period	21,727		$	798	8.2

Summary of stock awards available for grant

	Number of Shares
Available for grant as of January 27, 2017	4,670
Authorized	—
Granted	(4,020	)
Cancelled	2,079
Available for grant at October 27, 2017	2,729

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Other Accrued Expenses (Tables)

9 Months Ended

Oct. 27, 2017

Other Accrued Expenses

Schedule of other accrued expenses

Other accrued expenses as of October 27, 2017 and January 27, 2017 are as follows (in thousands):

	October 27, 2017		January 27, 2017
Accrued interest	$	14,219	$	6,840
Accrued occupancy costs	13,312		9,438
Accrued legal reserves and fees	15,299		10,624
Accrued California Redemption Value	2,688		2,343
Accrued transportation	5,471		4,598
Accrued temporary labor	4,330		2,087
Other	12,391		10,152
Total other accrued expenses	$	67,710	$	46,082

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Financial Guarantees (Tables)

9 Months Ended

Oct. 27, 2017

Financial Guarantees

Schedule of condensed consolidating balance sheets

CONDENSED CONSOLIDATING BALANCE SHEETS

As of October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,212		$	1,142		$	37		$	—		$	2,391
Accounts receivable, net	2,077			254			—			—			2,331
Income taxes receivable	2,739			—			—			—			2,739
Inventories, net	183,613			29,225			—			—			212,838
Assets held for sale	4,903			—			—			—			4,903
Other	10,539			391			5			—			10,935
Total current assets	205,083			31,012			42			—			236,137
Property and equipment, net	414,587			47,080			21			—			461,688
Deferred financing costs, net	1,976			—			—			—			1,976
Equity investments and advances to subsidiaries	897,566			834,079			3,199			(1,734,844		)	—
Intangible assets, net	441,291			1,420			—			—			442,711
Goodwill	380,643			—			—			—			380,643
Deposits and other assets	13,165			311			15			—			13,491
Total assets	$	2,354,311		$	913,902		$	3,277		$	(1,734,844	)	$	1,536,646
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	88,153		$	9,087		$	—		$	—		$	97,240
Intercompany payable	835,722			859,827			3,672			(1,699,221		)	—
Payroll and payroll-related	33,543			2,193			—			—			35,736
Sales tax	16,048			664			—			—			16,712
Other accrued expenses	63,751			3,947			12			—			67,710
Workers’ compensation	69,143			75			—			—			69,218
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	1,228			—			—			—			1,228
Total current liabilities	1,113,726			875,793			3,684			(1,699,221		)	293,982
Long-term debt, net of current portion	902,417			—			—			—			902,417
Unfavorable lease commitments, net	3,067			12			—			—			3,079
Deferred rent	28,569			2,067			—			—			30,636
Deferred compensation liability	959			—			—			—			959
Capital and financing lease obligation, net of current portion	52,584			—			—			—			52,584
Deferred income taxes	161,450			—			—			—			161,450
Other liabilities	16,587			—			—			—			16,587
Total liabilities	2,279,359			877,872			3,684			(1,699,221		)	1,461,694
Member’s Equity:
Member units	551,286			—			1			(1		)	551,286
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(457,134		)	(63,913		)	(408		)	64,321			(457,134		)
Total equity	74,952			36,030			(407		)	(35,623		)	74,952
Total liabilities and equity	$	2,354,311		$	913,902		$	3,277		$	(1,734,844	)	$	1,536,646

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 27, 2017

(In thousands)

	Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,207		$	1,105		$	136		$	—		$	2,448
Accounts receivable, net	3,478			32			—			—			3,510
Income taxes receivable (payable)	3,885			(9		)	—			—			3,876
Inventories, net	148,429			27,463			—			—			175,892
Assets held for sale	4,903			—			—			—			4,903
Other	9,571			723			13			—			10,307
Total current assets	171,473			29,314			149			—			200,936
Property and equipment, net	456,020			51,571			29			—			507,620
Deferred financing costs, net	3,488			—			—			—			3,488
Equity investments and advances to subsidiaries	766,276			696,162			2,907			(1,465,345		)	—
Intangible assets, net	445,302			1,725			—			—			447,027
Goodwill	380,643			—			—			—			380,643
Deposits and other assets	8,246			331			15			—			8,592
Total assets	$	2,231,448		$	779,103		$	3,100		$	(1,465,345	)	$	1,548,306
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	78,835		$	7,753		$	—		$	—		$	86,588
Intercompany payable	697,590			719,397			3,497			(1,420,484		)	—
Payroll and payroll-related	22,370			1,740			—			—			24,110
Sales tax	18,867			522			—			—			19,389
Other accrued expenses	43,962			2,103			17			—			46,082
Workers’ compensation	69,094			75			—			—			69,169
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	31,330			—			—			—			31,330
Total current liabilities	968,186			731,590			3,514			(1,420,484		)	282,806
Long-term debt, net of current portion	865,375			—			—			—			865,375
Unfavorable lease commitments, net	3,969			19			—			—			3,988
Deferred rent	28,141			2,216			3			—			30,360
Deferred compensation liability	816			—			—			—			816
Capital and financing lease obligation, net of current portion	47,195			—			—			—			47,195
Deferred income taxes	161,450			—			—			—			161,450
Other liabilities	12,297			—			—			—			12,297
Total liabilities	2,087,429			733,825			3,517			(1,420,484		)	1,404,287
Member’s Equity:
Member units	550,918			—			1			(1		)	550,918
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(387,699		)	(54,665		)	(418		)	55,083			(387,699		)
Total equity	144,019			45,278			(417		)	(44,861		)	144,019
Total liabilities and equity	$	2,231,448		$	779,103		$	3,100		$	(1,465,345	)	$	1,548,306

Schedule of condensed consolidated statements of comprehensive income (loss)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Third Quarter Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	506,861		$	46,770		$	71	$	(71	)	$	553,631
Cost of sales	354,982			35,794			—		—			390,776
Gross profit	151,879			10,976			71		(71		)	162,855
Selling, general and administrative expenses	158,170			14,267			68		(71		)	172,434
Operating (loss) income	(6,291		)	(3,291		)	3		—			(9,579		)
Other (income) expense:
Interest income	(1		)	—			—		—			(1		)
Interest expense	17,480			—			—		—			17,480
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	3,288			—			—		(3,288		)	—
Total other expense, net	20,767			—			—		(3,288		)	17,479
(Loss) income before provision for income taxes	(27,058		)	(3,291		)	3		3,288			(27,058		)
Provision for income taxes	—			—			—		—			—
Net (loss) income	$	(27,058	)	$	(3,291	)	$	3	$	3,288		$	(27,058	)
Comprehensive (loss) income	$	(27,058	)	$	(3,291	)	$	3	$	3,288		$	(27,058	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Three Quarters Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,498,496		$	143,097		$	214	$	(214	)	$	1,641,593
Cost of sales	1,050,579			109,943			—		—			1,160,522
Gross profit	447,917			33,154			214		(214		)	481,071
Selling, general and administrative expenses	456,052			42,402			204		(214		)	498,444
Operating (loss) income	(8,135		)	(9,248		)	10		—			(17,373		)
Other (income) expense:
Interest income	(8		)	—			—		—			(8		)
Interest expense	51,983			—			—		—			51,983
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	9,238			—			—		(9,238		)	—
Total other expense, net	61,213			—			—		(9,238		)	51,975
(Loss) income before provision for income taxes	(69,348		)	(9,248		)	10		9,238			(69,348		)
Provision for income taxes	87			—			—		—			87
Net (loss) income	$	(69,435	)	$	(9,248	)	$	10	$	9,238		$	(69,435	)
Comprehensive (loss) income	$	(69,435	)	$	(9,248	)	$	10	$	9,238		$	(69,435	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Third Quarter Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	458,013		$	42,131		$	459	$	(459	)	$	500,144
Cost of sales	322,306			32,676			—		—			354,982
Gross profit	135,707			9,455			459		(459		)	145,162
Selling, general and administrative expenses	152,117			13,465			96		(459		)	165,219
Operating (loss) income	(16,410		)	(4,010		)	363		—			(20,057		)
Other (income) expense:
Interest income	(7		)	—			—		—			(7		)
Interest expense	16,920			—			—		—			16,920
Loss on extinguishment of debt	—			—			—		—			—
Equity in loss (earnings) of subsidiaries	3,647			—			—		(3,647		)	—
Total other expense, net	20,560			—			—		(3,647		)	16,913
(Loss) income before provision for income taxes	(36,970		)	(4,010		)	363		3,647			(36,970		)
Provision for income taxes	21			—			—		—			21
Net (loss) income	$	(36,991	)	$	(4,010	)	$	363	$	3,647		$	(36,991	)
Comprehensive (loss) income	$	(36,991	)	$	(4,010	)	$	363	$	3,647		$	(36,991	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Three Quarters Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,382,473		$	127,058		$	570	$	(570	)	$	1,509,531
Cost of sales	975,681			98,521			—		—			1,074,202
Gross profit	406,792			28,537			570		(570		)	435,329
Selling, general and administrative expenses	442,940			39,405			158		(570		)	481,933
Operating (loss) income	(36,148		)	(10,868		)	412		—			(46,604		)
Other (income) expense:
Interest income	(45		)	—			—		—			(45		)
Interest expense	50,230			—			—		—			50,230
Loss on extinguishment of debt	335			—			—		—			335
Equity in loss (earnings) of subsidiaries	10,456			—			—		(10,456		)	—
Total other expense, net	60,976			—			—		(10,456		)	50,520
(Loss) income before provision for income taxes	(97,124		)	(10,868		)	412		10,456			(97,124		)
Provision for income taxes	146			—			—		—			146
Net (loss) income	$	(97,270	)	$	(10,868	)	$	412	$	10,456		$	(97,270	)
Comprehensive (loss) income	$	(97,108	)	$	(10,868	)	$	412	$	10,456		$	(97,108	)

Schedule of condensed consolidated statements of cash flows

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Three Quarters Ended October 27, 2017

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash (used in) provided by operating activities	$	(27,651	)	$	1,724		$	(99	)	$	—	$	(26,026	)
Cash flows from investing activities:
Purchases of property and equipment	(30,363		)	(1,688		)	—			—		(32,051		)
Proceeds from sales of property and fixed assets	9,398			1			—			—		9,399
Insurance recoveries for replacement assets	475			—			—			—		475
Net cash used in investing activities	(20,490		)	(1,687		)	—			—		(22,177		)
Cash flows from financing activities:
Proceeds from long-term debt	25,000			—			—			—		25,000
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	211,400			—			—			—		211,400
Payments under revolving credit facility	(197,200		)	—			—			—		(197,200		)
Payments of debt issuance costs	(880		)	—			—			—		(880		)
Proceeds from financing lease obligations	15,317			—			—			—		15,317
Payments of capital and financing lease obligations	(887		)	—			—			—		(887		)
Net cash provided by financing activities	48,146			—			—			—		48,146
Net increase (decrease) in cash	5			37			(99		)	—		(57		)
Cash – beginning of period	1,207			1,105			136			—		2,448
Cash – end of period	$	1,212		$	1,142		$	37		$	—	$	2,391

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Three Quarters Ended October 28, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non-Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	6,193		$	1,742		$	(4	)	$	—	$	7,931
Cash flows from investing activities:
Purchases of property and equipment	(33,652		)	(1,621		)	—			—		(35,273		)
Proceeds from sales of fixed assets	617			—			—			—		617
Insurance recoveries for replacement assets	937			—			—			—		937
Net cash used in investing activities	(32,098		)	(1,621		)	—			—		(33,719		)
Cash flows from financing activities:
Payments of long-term debt	(4,604		)	—			—			—		(4,604		)
Proceeds under revolving credit facility	168,500			—			—			—		168,500
Payments under revolving credit facility	(174,500		)	—			—			—		(174,500		)
Payments of debt issuance costs	(4,725		)	—			—			—		(4,725		)
Proceeds from financing lease obligations	41,993			—			—			—		41,993
Payments of capital and financing lease obligations	(762		)	—			—			—		(762		)
Net cash provided by financing activities	25,902			—			—			—		25,902
Net (decrease) increase in cash	(3		)	121			(4		)	—		114
Cash – beginning of period	1,266			1,009			37			—		2,312
Cash – end of period	$	1,263		$	1,130		$	33		$	—	$	2,426

XML

Basis of Presentation and Summary of Significant Accounting Policies - General Information (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 27, 2017 store	Oct. 28, 2016	Oct. 27, 2017 store item	Oct. 28, 2016	Feb. 02, 2018 item	Jan. 27, 2017 item
Nature of Business
Number or stores	391		391
Fiscal Year
Number of weeks in period | item					53	52
Accounting period duration (in days)	91 days	91 days	273 days	273 days		364 days
Number of weeks in period every five to six years | item			53
California
Nature of Business
Number or stores	284		284
Texas
Nature of Business
Number or stores	48		48
Arizona
Nature of Business
Number or stores	38		38
Nevada
Nature of Business
Number or stores	21		21

XML

Basis of Presentation and Summary of Significant Accounting Policies - Cash (Details) - USD ($)	9 Months Ended	12 Months Ended
	Oct. 27, 2017	Jan. 27, 2017
Basis of Presentation and Summary of Significant Accounting Policies
Business day which majority of payments are due for settlement of card transactions (in days)	3 days
FDIC Insured amount	$ 250,000
Book overdrafts included in accounts payable	$ 3,300,000	$ 7,000,000

XML

Basis of Presentation and Summary of Significant Accounting Policies - Property and Equipment (Details)	9 Months Ended
	Oct. 27, 2017
Owned buildings and improvements | Maximum
Property and equipment
Plant and Equipment, useful life	30 years
Fixtures and equipment | Minimum
Property and equipment
Plant and Equipment, useful life	3 years
Fixtures and equipment | Maximum
Property and equipment
Plant and Equipment, useful life	5 years
Transportation equipment | Minimum
Property and equipment
Plant and Equipment, useful life	3 years
Transportation equipment | Maximum
Property and equipment
Plant and Equipment, useful life	5 years
Information technology major corporate systems | Maximum
Property and equipment
Plant and Equipment, useful life	7 years
Information technology standalone systems | Maximum
Property and equipment
Plant and Equipment, useful life	5 years

XML

Basis of Presentation and Summary of Significant Accounting Policies - Long-Lived Assets (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 28, 2017 USD ($) store	Oct. 28, 2016 USD ($) store	Oct. 27, 2017 USD ($) store	Oct. 28, 2016 USD ($) store
Long-Lived Assets
Asset impairment			$ 1,515	$ 491
Number of Stores | store			391
California
Long-Lived Assets
Number of Stores | store			284
California | Held for sale
Long-Lived Assets
Asset impairment		$ 200
Store Closing
Long-Lived Assets
Asset impairment	$ 1,500	$ 100
Number of Stores | store	3	3		3
Store Closing | California
Long-Lived Assets
Number of Stores | store		5		5
Store Closing | California | Fixtures
Long-Lived Assets
Asset impairment				$ 100
Fair value of assets after impairment		$ 0		$ 0

XML

Basis of Presentation and Summary of Significant Accounting Policies - Goodwill and Other Intangible Assets (Details)	3 Months Ended			9 Months Ended
	Jan. 27, 2017 USD ($) item	Jan. 29, 2016 USD ($)	Oct. 30, 2015 USD ($)	Oct. 27, 2017 USD ($) segment
Goodwill and Other Intangible assets
Number of reporting units	2			2
Goodwill impairment	$ 0			$ 0
Goodwill	$ 380,643,000			380,643,000
Indefinite-lived intangible asset impairment loss				$ 0
Retail
Goodwill and Other Intangible assets
Goodwill impairment		$ 99,100,000	$ 120,000,000
Goodwill impairment adjustment		20,900,000
Goodwill		368,100,000
Wholesale
Goodwill and Other Intangible assets
Goodwill		$ 12,500,000
Fair value in excess of carrying value (as a percent)	18.00%
Trade name
Goodwill and Other Intangible assets
Indefinite-lived intangible asset impairment loss	$ 0
Fair value in excess of carrying value (as a percent)	18.00%

XML

Basis of Presentation and Summary of Significant Accounting Policies - Leases (Details) $ in Thousands	3 Months Ended				9 Months Ended
	Jul. 28, 2017 USD ($) store	Apr. 28, 2017 USD ($) store	Oct. 28, 2016 USD ($) store	Jul. 31, 2015 USD ($) store	Oct. 27, 2017 USD ($) store	Oct. 28, 2016 USD ($) store
Leases
Number of Stores | store					391
Net proceeds (loss) from the sale-leaseback transactions					$ 15,317	$ 41,993
Sold and concurrently leased back - future store site
Leases
Number of Stores | store		1
Carrying value of sale-leaseback transactions		$ 1,400
Net proceeds (loss) from the sale-leaseback transactions		$ 6,800
Leaseback obligation					$ 7,000
Sold and concurrently leased back
Leases
Number of Stores | store	1		2			2
Carrying value of sale-leaseback transactions	$ 3,700		$ 7,600			$ 7,600
Net proceeds (loss) from the sale-leaseback transactions	7,900		10,500
Leaseback obligation	$ 7,900		$ 10,500			$ 10,500
Sold and concurrently leased back | Operating lease
Leases
Number of Stores | store	1	1
Carrying value of sale-leaseback transactions	$ 1,100	$ 2,200
Net proceeds (loss) from the sale-leaseback transactions	5,300	4,000
Deferred gain	2,500	$ 1,800
Gain on sale-leaseback transactions	1,700
Retail | Sold and concurrently leased back
Leases
Number of Stores | store				2
Carrying value of sale-leaseback transactions				$ 7,900
Net proceeds (loss) from the sale-leaseback transactions				8,700
Leaseback obligation				$ 8,700
Retail | Sold and concurrently leased back | Operating lease
Leases
Net proceeds (loss) from the sale-leaseback transactions	(800)
Deferred gain	$ 2,100

XML

Goodwill and Other Intangibles - Finite and Indefinite Intangible Assets (Details) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
Indefinite lived intangible assets:
Goodwill Gross Carrying Amount	$ 479,745	$ 479,745
Goodwill Impairment Losses	(99,102)	(99,102)
Goodwill Net Carrying Amount	380,643	380,643
Indefinite Lived Assets Gross Carrying Amount	889,745	889,745
Indefinite Lived Assets Impairment Losses	(99,102)	(99,102)
Indefinite Lived Assets Net Carrying Amount	790,643	790,643
Finite lived intangible assets:
Gross Carrying Amount	67,871	67,871
Finite Lived Intangible Assets Impairment Losses	(1,136)	(1,136)
Accumulated Amortization	(34,024)	(29,708)
Net Carrying Amount	32,711	37,027
Total goodwill and other intangible assets, Gross Carrying Amount	957,616	957,616
Total goodwill and other intangible assets, Impairment Losses	(100,238)	(100,238)
Total goodwill and other intangible assets, accumulated amortization	(34,024)	(29,708)
Total goodwill and other intangible assets, Net Carrying Amount	823,354	827,670
Trademarks
Finite lived intangible assets:
Gross Carrying Amount	2,000	2,000
Finite Lived Intangible Assets Impairment Losses	(570)	(570)
Accumulated Amortization	(517)	(470)
Net Carrying Amount	913	960
Bargain Wholesale customer relationships
Finite lived intangible assets:
Gross Carrying Amount	20,000	20,000
Accumulated Amortization	(9,650)	(8,408)
Net Carrying Amount	10,350	11,592
Favorable leases
Finite lived intangible assets:
Gross Carrying Amount	45,871	45,871
Finite Lived Intangible Assets Impairment Losses	(566)	(566)
Accumulated Amortization	(23,857)	(20,830)
Net Carrying Amount	21,448	24,475
Trade name
Indefinite lived intangible assets:
Net Carrying Amount	$ 410,000	$ 410,000

XML

Goodwill and Other Intangibles - Unfavorable Leases (Details) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
Unfavorable leases
Gross Carrying Amount	$ 19,835	$ 19,835
Accumulated Amortization	(16,756)	(15,847)
Net Carrying Amount	$ 3,079	$ 3,988

XML

Property and Equipment, net (Details) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
Property and equipment
Total property and equipment	$ 793,768	$ 798,467
Less: accumulated depreciation and amortization	(332,080)	(290,847)
Property and equipment, net	461,688	507,620
Land
Property and equipment
Total property and equipment	151,035	167,544
Buildings
Property and equipment
Total property and equipment	106,947	110,327
Buildings improvements
Property and equipment
Total property and equipment	72,024	77,246
Leasehold improvements
Property and equipment
Total property and equipment	210,889	205,336
Fixtures and equipment
Property and equipment
Total property and equipment	214,596	209,397
Transportation equipment
Property and equipment
Total property and equipment	11,825	11,893
Construction in progress
Property and equipment
Total property and equipment	$ 26,452	$ 16,724

XML

Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 27, 2017	Oct. 28, 2016	Oct. 27, 2017	Oct. 28, 2016
Comprehensive Loss
Net loss	$ (27,058)	$ (36,991)	$ (69,435)	$ (97,270)
Unrealized loss on interest rate cash flow hedge, net of tax effects of $0, $0, $0 and $(112) for the third quarter and first three quarters of fiscal 2018 and fiscal 2017, respectively				(168)
Reclassification adjustment, net of tax effects of $0, $0, $0 and $220 for the third quarter and first three quarters of fiscal 2018 and fiscal 2017, respectively				330
Other comprehensive income, net of tax				162
Comprehensive loss	(27,058)	(36,991)	(69,435)	(97,108)
Tax effects of unrealized loss on interest rate cash flow hedge	0	0	0	(112)
Tax effects of reclassification adjustment	$ 0	$ 0	$ 0	$ 220

XML

Debt - Short and Long Term (Details) - USD ($) $ in Thousands	Oct. 08, 2013	Oct. 27, 2017	Jan. 27, 2017
Debt
Deferred financing costs (short and long term)		$ (7,387)	$ (8,761)
Total debt		908,555	871,513
Less: current portion		6,138	6,138
Long-term debt, net of current portion		902,417	865,375
ABL Facility revolving
Debt
Debt		53,500	39,300
FILO Facility
Debt
Debt		25,000
First Lien Term Loan Facility
Debt
Debt		587,442	590,974
Scheduled quarterly payments	$ 1,535
Unamortized OID		1,817	2,888
Senior Notes
Debt
Debt		$ 250,000	$ 250,000

XML

Debt - Deferred financing costs (Details) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
Deferred financing costs
Total deferred financing costs, net	$ 9,363	$ 12,249
ABL Facility revolving
Deferred financing costs
Deferred financing costs	1,976	3,488
FILO Facility
Deferred financing costs
Deferred financing costs	1,066
First Lien Term Loan Facility
Deferred financing costs
Deferred financing costs	1,865	2,964
Senior Notes
Deferred financing costs
Deferred financing costs	$ 4,456	$ 5,797

XML

Debt (Details) - USD ($) $ in Thousands							1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 06, 2017	Apr. 08, 2016	Aug. 24, 2015	Oct. 08, 2013	Apr. 04, 2012	Jan. 13, 2012	May 31, 2017	Oct. 27, 2017	Apr. 29, 2016	Oct. 27, 2017	Oct. 28, 2016	Jan. 27, 2017	Oct. 31, 2017	Jul. 31, 2017	Apr. 30, 2017	Dec. 29, 2011
Debt Instruments
Loss on extinguishment											$ 335
First Lien Term Loan Facility
Debt Instruments
Face amount				$ 100,000		$ 525,000
Ownership percentage in subsidiary				100.00%		100.00%
Scheduled quarterly payments as a percentage of original principal amount				0.25%						0.25%
Refinancing costs					$ 11,200
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
Interest rate at the end of the period (as a percent)								4.83%		4.83%
Amount outstanding								$ 589,300		$ 589,300
Excess cash flow to be used for prepayment of debt (in percent)										50.00%
Step down 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
Mandatory prepayment as a percent to net cash proceeds from sale-leasebacks										50.00%
Term loan prepayment							$ 2,000
Scheduled quarterly payments				$ 1,535
First Lien Term Loan Facility | Prime Rate
Debt Instruments
Interest rate (as a percent)								4.25%		4.25%
First Lien Term Loan Facility | Base Rate
Debt Instruments
Applicable margin (as a percent)				2.50%	3.00%	4.50%
First Lien Term Loan Facility | Federal Funds Effective Rate
Debt Instruments
Applicable margin (as a percent)										0.50%
First Lien Term Loan Facility | Eurocurrency rate (adjusted)
Debt Instruments
Applicable margin (as a percent)										1.00%
First Lien Term Loan Facility | Eurocurrency Rate
Debt Instruments
Variable rate at the end of the period (as a percent)								1.33%		1.33%
Applicable margin at the end of the period (as a percent)								3.50%		3.50%
First Lien Term Loan Facility | LIBOR
Debt Instruments
Interest rate floor (as a percent)				1.00%	1.25%	1.50%
Applicable margin (as a percent)				3.50%	4.00%	5.50%
ABL Facility revolving
Debt Instruments
Maximum borrowing capacity		$ 160,000	$ 185,000			$ 175,000
Amount of increase (decrease) commitments available		(25,000)	10,000
Incremental revolving commitments	$ 0	$ 25,000				$ 50,000
Commitment fee on unused commitments (as a percent)								0.50%
Amount outstanding								$ 53,500		$ 53,500		39,300
Outstanding letters of credit								29,300		29,300		31,600
Amount available								$ 53,600		$ 53,600		$ 37,200
Amendment fees			$ 500
Inventory advance rate (as a percent)			92.50%			90.00%
Maturity period prior to First Lien Term Loan Facility maturity date		90 days
Maturity period prior to Senior Notes maturity date		90 days
In-transit inventory cap for purposes of calculating the borrowing base	$ 15,000					$ 10,000
Minimum period after the maturity date of the credit facility that other refinanced debt obligations maturity date must exceed		180 days
Decrease in applicable margin upon refinancing of debt (as a percent)		0.50%
Maximum borrowing capacity of letters of credit		$ 45,000				$ 50,000
Percentage of inventory store level reserve	7.50%
Store level inventory system reserve increases eliminated													15.00%	12.50%	10.00%
Loss on extinguishment									$ 300
Debt issuance cost									$ 4,700
ABL Facility revolving | Base Rate
Debt Instruments
Applicable margin (as a percent)		2.00%								2.25%
ABL Facility revolving | Eurocurrency Rate
Debt Instruments
Applicable margin (as a percent)		3.00%
ABL Facility revolving | LIBOR
Debt Instruments
Applicable margin (as a percent)										3.25%
FILO Facility
Debt Instruments
Maximum borrowing capacity	$ 25,000
Interest rate at the end of the period (as a percent)								9.07%		9.07%
Amount outstanding	$ 25,000
Maturity period prior to First Lien Term Loan Facility maturity date										90 days
Maturity period prior to Senior Notes maturity date										90 days
FILO Facility | Base Rate
Debt Instruments
Applicable margin (as a percent)	6.75%
FILO Facility | LIBOR
Debt Instruments
Applicable margin (as a percent)	7.75%
Senior Notes
Debt Instruments
Face amount																$ 250,000
Interest rate (as a percent)																11.00%

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Debt - Interest expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 27, 2017	Oct. 28, 2016	Oct. 27, 2017	Oct. 28, 2016
Significant components of interest expense
Amortization of deferred financing costs and OID	$ 1,818	$ 1,514	$ 5,179	$ 4,454
Other interest expense	345	1,046	2,229	2,406
Interest expense	17,480	16,920	51,983	50,230
First Lien Term Loan Facility
Significant components of interest expense
Interest debt expense	7,148	6,785	20,937	20,921
ABL Facility revolving
Significant components of interest expense
Interest debt expense	1,043	700	2,686	1,824
FILO Facility
Significant components of interest expense
Interest debt expense	327		327
Senior Notes
Significant components of interest expense
Interest debt expense	$ 6,799	$ 6,875	$ 20,625	$ 20,625

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Derivative Financial Instruments - Interest Rate Swap and Payments (Details) - USD ($) $ in Thousands	1 Months Ended
	Sep. 30, 2015	Oct. 27, 2017	Jan. 27, 2017	May 31, 2012
Interest Rate Swap | Derivatives designated as cash flow hedging instruments
Derivative Financial Instruments
Aggregate notional amount				$ 261,800
Effective fixed interest rate (as a percent)				1.36%
Applicable margin (as a percent)				3.50%
Transition Payments | Derivatives not designated as hedging instruments | Chief Executive Officer
Derivative Financial Instruments
Derivative liabilities	$ 5,000
Payment period	4 years
Transition Payments | Derivatives not designated as hedging instruments | other current liabilities | Chief Executive Officer
Fair Value
Transition payments		$ 205	$ 831
Transition Payments | Derivatives not designated as hedging instruments | other long-term liabilities | Chief Executive Officer
Fair Value
Transition payments		$ 36	$ 217

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Derivative Financial Instruments - Recorded amounts (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 27, 2017	Oct. 28, 2016	Oct. 27, 2017	Oct. 28, 2016
Derivatives not designated as hedging instruments | Selling, general and administrative expenses
Recorded amounts included in the consolidated statements of comprehensive loss
(Gain) loss recognized in selling, general and administrative expenses	$ (11)	$ 253	$ 27	$ 1,787
Derivatives designated as cash flow hedging instruments | OCI
Recorded amounts included in the consolidated statements of comprehensive loss
Loss related to effective portion of derivative recognized in OCI				168
Derivatives designated as cash flow hedging instruments | Interest expense
Recorded amounts included in the consolidated statements of comprehensive loss
Loss related to effective portion of derivatives reclassified from AOCI to interest expense				330
Gain related to ineffective portion of derivative recognized in interest expense				$ 36

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Fair Value of Financial Instruments - Fair Value Hierarchy (Details) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
Transfers in and out of Levels 1 and 2
Transfer of assets from level 1 to 2	$ 0
Transfer of assets from level 2 to 1	0
Transfer of liabilities from level 1 to 2	0
Transfer of liabilities from level 2 to 1	0
Level 2
Fair value of financial instruments
Assets	0	$ 0
Liabilities	0	0
Fair value measurements on a recurring basis
ASSETS
Other assets - assets that fund deferred compensation	959	816
LIABILITIES
Other long-term liabilities - deferred compensation	959	816
Fair value measurements on a recurring basis | Transition Payments
LIABILITIES
Other current liabilities - transition payments	205	831
Other long-term liabilities - transition payments	36	217
Fair value measurements on a recurring basis | Level 1
ASSETS
Other assets - assets that fund deferred compensation	959	816
LIABILITIES
Other long-term liabilities - deferred compensation	959	816
Fair value measurements on a recurring basis | Level 3 | Transition Payments
LIABILITIES
Other current liabilities - transition payments	205	831
Other long-term liabilities - transition payments	$ 36	$ 217

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Fair Value of Financial Instruments - Change in level 3 investments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 27, 2017	Oct. 28, 2016	Oct. 27, 2017	Oct. 28, 2016
Fair Value Measurements Using Significant Unobservable Inputs
Beginning balance	$ (252)	$ (827)	$ (1,048)	$ (1,205)
Total realized/unrealized gains (loss):
Included in earnings	11	(253)	(27)	(1,787)
Purchases, redemptions and settlements:
Settlements			834	1,912
Ending balance	(241)	(1,080)	(241)	(1,080)
Total amount of unrealized gains (losses) for the period included in earnings relating to liabilities held at the reporting period	$ 11	$ (253)	$ (24)	$ (817)

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Fair Value of Financial Instruments - Estimated Fair Value and Fair Value Adjustment (Details) - Level 1 - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Oct. 27, 2017	Jan. 27, 2017
Senior Notes
Fair value of financial instruments
Estimated fair value of debt instrument	$ 210.0	$ 166.9
Fair value adjustment to liability incurred or settled	(40.0)	(83.1)
First Lien Term Loan Facility
Fair value of financial instruments
Estimated fair value of debt instrument	542.1	516.7
Fair value adjustment to liability incurred or settled	$ (47.1)	$ (77.2)

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Fair Value of Financial Instruments - Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 28, 2017 USD ($) store	Oct. 28, 2016 USD ($) store	Oct. 27, 2017 USD ($) store	Oct. 28, 2016 USD ($) store
Assets and liabilities that are measured at fair value on a nonrecurring basis
Asset impairment			$ 1,515	$ 491
Number of Stores | store			391
Store Closing
Assets and liabilities that are measured at fair value on a nonrecurring basis
Asset impairment	$ 1,500	$ 100
Number of Stores | store	3	3		3
Nonrecurring | Level 3 | Fixtures
Assets and liabilities that are measured at fair value on a nonrecurring basis
Asset impairment		$ 100
Fair value of assets after impairment		0		$ 0
Nonrecurring | Level 3 | Store Closing
Assets and liabilities that are measured at fair value on a nonrecurring basis
Asset impairment	$ 1,500	$ 100
Number of Stores | store	3	3		3
Fair value of assets after impairment	$ 100	$ 100		$ 100
Nonrecurring | Held for sale | Level 2
Assets and liabilities that are measured at fair value on a nonrecurring basis
Asset impairment		200
Carrying value of property held for sale		1,700		1,700
Fair value of assets held for disposal		$ 1,500		$ 1,500

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Stock-Based Compensation - Awards and Grants (Details) $ / shares in Units, $ in Thousands		1 Months Ended	3 Months Ended			9 Months Ended
	Oct. 02, 2015 shares	Sep. 30, 2015 Options $ / shares shares	Oct. 27, 2017 USD ($) shares	Oct. 28, 2016 USD ($)	Jul. 29, 2016 USD ($)	Oct. 27, 2017 USD ($) shares	Oct. 28, 2016 USD ($)	Jan. 27, 2017 shares	Jul. 26, 2016 $ / shares	Feb. 27, 2012 shares
Stock-based compensation
Options outstanding (in shares)			84,081			84,081		82,140
Granted (in shares)						4,020
Accounting for stock-based compensation
Stock-based compensation | $			$ 100	$ 200		$ 368	$ 543
Class A Common Stock
Stock-based compensation
Shares authorized (in shares)										87,500
Class B Common Stock
Stock-based compensation
Shares authorized (in shares)										87,500
Employee Option Grants
Stock-based compensation
Expiration period (in years)						10 years
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 | Minimum
Stock-based compensation
Vesting period (in years)						4 years
Employee Option Grants | Maximum
Stock-based compensation
Vesting period (in years)						5 years
Employee Option Grants | Director
Stock-based compensation
Expiration period (in years)						10 years
Minimum exercise price of options amended (in dollars per share) | $ / shares									$ 757
Exercise price of amended options (in dollars per share) | $ / shares									$ 757
Accounting for stock-based compensation
Stock-based compensation | $					$ 100
Employee Option Grants | Director | Tranche One Member
Stock-based compensation
Vesting period (in years)						3 years
Employee Option Grants | Director | Tranche Two Member
Stock-based compensation
Vesting period (in years)						4 years
Employee Option Grants | Director | Tranche Three Member
Stock-based compensation
Vesting period (in years)						5 years
Employee Option Grants | Chief Financial Officer
Stock-based compensation
Vesting period (in years)	4 years
Vesting percentage	50.00%
Granted (in shares)	10,000
Employee Option Grants | Chief Executive Officer
Stock-based compensation
Vesting period (in years)		4 years
Vesting percentage		50.00%
Number of options | Options		2
Granted (in shares)		15,500
Employee Option Grants | Chief Executive Officer | Grant 1
Stock-based compensation
Exercise price of options (in dollars per share) | $ / shares		$ 1,000
Employee Option Grants | Chief Executive Officer | Grant 2
Stock-based compensation
Exercise price of options (in dollars per share) | $ / shares		750
Fair value base for exercise price adjustment (in dollars per share) | $ / shares		$ 1,000
Performance-vesting options
Stock-based compensation
Options outstanding (in shares)			19,315			19,315
Expiration period (in years)						10 years
Performance-vesting options | Chief Financial Officer
Stock-based compensation
Vesting percentage	50.00%
Performance-vesting options | Chief Executive Officer
Stock-based compensation
Vesting percentage		50.00%
Time-based options
Stock-based compensation
Options outstanding (in shares)			22,516			22,516

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Stock Based Compensation - Activity (Details)	9 Months Ended
	Oct. 27, 2017 $ / shares shares
Number of Shares
Options outstanding at the beginning of the period (in shares) | shares	82,140
Granted (in shares) | shares	4,020
Cancelled (in shares) | shares	(2,079)
Outstanding at the end of the period (in shares) | shares	84,081
Exercisable at the end of the period (in shares) | shares	21,727
Weighted Average Exercise Price
Options outstanding at the beginning of the period (in dollars per share) | $ / shares	$ 800
Granted (in dollars per share) | $ / shares	757
Cancelled (in dollars per share) | $ / shares	757
Outstanding at the end of the period (in dollars per share) | $ / shares	799
Exercisable at the end of the period (in dollars per share) | $ / shares	$ 798
Weighted Average Remaining Contractual Life
Outstanding at the end of the period	8 years 3 months 18 days
Exercisable at the end of the period	8 years 2 months 12 days

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Stock Based Compensation - Awards available (Details)	9 Months Ended
	Oct. 27, 2017 shares
Stock-Based Compensation
Available for grant at the beginning of the period (in shares)	4,670
Granted (in shares)	(4,020)
Cancelled (in shares)	2,079
Available for grant at the end of the period (in shares)	2,729

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Related-Party Transactions (Details) - USD ($) $ in Millions	Oct. 27, 2017	Jan. 27, 2017
Affiliates of the Sponsors
Related-Party Transactions
Expense reimbursement	$ 0.1
Ares Management and Canada Pension Plan Investment Board | First Lien Term Loan Facility
Related-Party Transactions
Debt held or acquired	129.5	$ 130.5
Ares Management and Canada Pension Plan Investment Board | Senior Notes
Related-Party Transactions
Debt held or acquired	$ 102.1	$ 102.1

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Jul. 31, 2015	Oct. 27, 2017	Oct. 28, 2016	Jan. 27, 2017
Income Taxes
Effective income tax rate (as a percent)		(0.10%)	(0.20%)
Increase in valuation allowance	$ 31.7
Valuation allowance				$ 137.7

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Commitments and Contingencies (Details)				9 Months Ended		12 Months Ended
	Aug. 29, 2017 USD ($)	Jul. 26, 2016 USD ($) employee	Jul. 06, 2016 USD ($)	Oct. 27, 2017 USD ($) store	Oct. 28, 2016 USD ($)	Jan. 27, 2017 USD ($)	Apr. 28, 2017 USD ($)	Mar. 30, 2016 period
Commitments and contingencies
Workers' compensation				$ 69,218,000		$ 69,169,000
Self-insured health insurance liability				2,500,000		900,000
Net proceeds from sale-leaseback transactions				$ 15,317,000	$ 41,993,000
Number of Stores | store				391
Warehouse Facility
Commitments and contingencies
Carrying value			$ 12,100,000
Net proceeds from sale-leaseback transactions			28,500,000
Escrow			$ 1,000,000
Escrow amount released						600,000
Lease obligation						30,100,000
Gain on sale recorded							$ 18,500,000
Wage and Hour Matters
Commitments and contingencies
Number of Stores | store				2
Employment periods | period								2
Contributed settlement amount	$ 175,000
Total settlement amount	$ 500,000
Wage and Hour Matters | Minimum
Commitments and contingencies
Damages sought (per violation)				$ 100
Wage and Hour Matters | Maximum
Commitments and contingencies
Damages sought (per violation)				200
Mid-Term Cash Incentive Plan and Special Bonus Letters
Commitments and contingencies
Award eligible for payment based on EBITDA achievement (in percent)		50.00%
Award paid if EBITDA not achieved		$ 0
Award eligible for subsequent EBITDA achievement (in percent)		50.00%
Maximum potential payout				22,300,000
Incentive/bonus accrual				14,700,000		6,000,000
Mid-Term Cash Incentive Plan and Special Bonus Letters | Executives
Commitments and contingencies
Number of executives | employee		3
Bonus payable (in days)		30 days
Maximum potential payout		$ 4,000,000
Incentive/bonus accrual				0
California
Commitments and contingencies
Workers' compensation				$ 69,100,000		69,100,000
Number of Stores | store				284
Texas
Commitments and contingencies
Workers' compensation				$ 100,000		$ 100,000
Number of Stores | store				48

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Assets Held for Sale (Details) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
Assets held for sale
Carrying value of land held for sale	$ 4,903	$ 4,903
Land
Assets held for sale
Carrying value of land held for sale	$ 4,900	$ 4,900

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Other Accrued Expenses (Details) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017
Other accrued expenses
Accrued interest	$ 14,219	$ 6,840
Accrued occupancy costs	13,312	9,438
Accrued legal reserves and fees	15,299	10,624
Accrued California Redemption Value	2,688	2,343
Accrued transportation	5,471	4,598
Accrued temporary labor	4,330	2,087
Other	12,391	10,152
Total other accrued expenses	$ 67,710	$ 46,082

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Financial Guarantees - CONDENSED CONSOLIDATING BALANCE SHEETS (Details) - USD ($) $ in Thousands	Oct. 27, 2017	Jan. 27, 2017	Oct. 28, 2016	Jan. 29, 2016	Dec. 29, 2011
Current Assets:
Cash	$ 2,391	$ 2,448	$ 2,426	$ 2,312
Accounts receivable, net	2,331	3,510
Income taxes receivable (payable)	2,739	3,876
Inventories, net	212,838	175,892
Assets held for sale	4,903	4,903
Other	10,935	10,307
Total current assets	236,137	200,936
Property and equipment, net	461,688	507,620
Deferred financing costs, net	1,976	3,488
Intangible assets, net	442,711	447,027
Goodwill	380,643	380,643
Deposits and other assets	13,491	8,592
Total assets	1,536,646	1,548,306
Current Liabilities:
Accounts payable	97,240	86,588
Payroll and payroll-related	35,736	24,110
Sales tax	16,712	19,389
Other accrued expenses	67,710	46,082
Workers' compensation	69,218	69,169
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligation	1,228	31,330
Total current liabilities	293,982	282,806
Long-term debt, net of current portion	902,417	865,375
Unfavorable lease commitments, net	3,079	3,988
Deferred rent	30,636	30,360
Deferred compensation liability	959	816
Capital and financing lease obligation, net of current portion	52,584	47,195
Deferred income taxes	161,450	161,450
Other liabilities	16,587	12,297
Total liabilities	1,461,694	1,404,287
Member's Equity
Member units	551,286	550,918
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(457,134)	(387,699)
Total equity	74,952	144,019
Total liabilities and equity	1,536,646	1,548,306
Senior Notes
Supplemental financial information
Principal amount of debt instrument issued					$ 250,000
Consolidating Adjustments
Current Assets:
Equity investments and advances to subsidiaries	(1,734,844)	(1,465,345)
Total assets	(1,734,844)	(1,465,345)
Current Liabilities:
Intercompany payable	(1,699,221)	(1,420,484)
Total current liabilities	(1,699,221)	(1,420,484)
Total liabilities	(1,699,221)	(1,420,484)
Member's Equity
Member units	(1)	(1)
Additional paid-in capital	(99,943)	(99,943)
Accumulated deficit	64,321	55,083
Total equity	(35,623)	(44,861)
Total liabilities and equity	(1,734,844)	(1,465,345)
Issuer
Current Assets:
Cash	1,212	1,207	1,263	1,266
Accounts receivable, net	2,077	3,478
Income taxes receivable (payable)	2,739	3,885
Inventories, net	183,613	148,429
Assets held for sale	4,903	4,903
Other	10,539	9,571
Total current assets	205,083	171,473
Property and equipment, net	414,587	456,020
Deferred financing costs, net	1,976	3,488
Equity investments and advances to subsidiaries	897,566	766,276
Intangible assets, net	441,291	445,302
Goodwill	380,643	380,643
Deposits and other assets	13,165	8,246
Total assets	2,354,311	2,231,448
Current Liabilities:
Accounts payable	88,153	78,835
Intercompany payable	835,722	697,590
Payroll and payroll-related	33,543	22,370
Sales tax	16,048	18,867
Other accrued expenses	63,751	43,962
Workers' compensation	69,143	69,094
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligation	1,228	31,330
Total current liabilities	1,113,726	968,186
Long-term debt, net of current portion	902,417	865,375
Unfavorable lease commitments, net	3,067	3,969
Deferred rent	28,569	28,141
Deferred compensation liability	959	816
Capital and financing lease obligation, net of current portion	52,584	47,195
Deferred income taxes	161,450	161,450
Other liabilities	16,587	12,297
Total liabilities	2,279,359	2,087,429
Member's Equity
Member units	551,286	550,918
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(457,134)	(387,699)
Total equity	74,952	144,019
Total liabilities and equity	2,354,311	2,231,448
Subsidiary Guarantors
Current Assets:
Cash	1,142	1,105	1,130	1,009
Accounts receivable, net	254	32
Income taxes receivable (payable)		(9)
Inventories, net	29,225	27,463
Other	391	723
Total current assets	31,012	29,314
Property and equipment, net	47,080	51,571
Equity investments and advances to subsidiaries	834,079	696,162
Intangible assets, net	1,420	1,725
Deposits and other assets	311	331
Total assets	913,902	779,103
Current Liabilities:
Accounts payable	9,087	7,753
Intercompany payable	859,827	719,397
Payroll and payroll-related	2,193	1,740
Sales tax	664	522
Other accrued expenses	3,947	2,103
Workers' compensation	75	75
Total current liabilities	875,793	731,590
Unfavorable lease commitments, net	12	19
Deferred rent	2,067	2,216
Total liabilities	877,872	733,825
Member's Equity
Additional paid-in capital	99,943	99,943
Accumulated deficit	(63,913)	(54,665)
Total equity	36,030	45,278
Total liabilities and equity	913,902	779,103
Non-Guarantor Subsidiaries
Current Assets:
Cash	37	136	$ 33	$ 37
Other	5	13
Total current assets	42	149
Property and equipment, net	21	29
Equity investments and advances to subsidiaries	3,199	2,907
Deposits and other assets	15	15
Total assets	3,277	3,100
Current Liabilities:
Intercompany payable	3,672	3,497
Other accrued expenses	12	17
Total current liabilities	3,684	3,514
Deferred rent		3
Total liabilities	3,684	3,517
Member's Equity
Member units	1	1
Accumulated deficit	(408)	(418)
Total equity	(407)	(417)
Total liabilities and equity	$ 3,277	$ 3,100

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Financial Guarantees - CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 27, 2017	Oct. 28, 2016	Oct. 27, 2017	Oct. 28, 2016
Net Sales:
Total sales	$ 553,631	$ 500,144	$ 1,641,593	$ 1,509,531
Cost of sales	390,776	354,982	1,160,522	1,074,202
Gross profit	162,855	145,162	481,071	435,329
Selling, general and administrative expenses	172,434	165,219	498,444	481,933
Operating loss	(9,579)	(20,057)	(17,373)	(46,604)
Other (income) expense:
Interest income	(1)	(7)	(8)	(45)
Interest expense	17,480	16,920	51,983	50,230
Loss on extinguishment of debt				335
Total other expense, net	17,479	16,913	51,975	50,520
Loss before provision for income taxes	(27,058)	(36,970)	(69,348)	(97,124)
Provision for income taxes		21	87	146
Net loss	(27,058)	(36,991)	(69,435)	(97,270)
Comprehensive loss	(27,058)	(36,991)	(69,435)	(97,108)
Consolidating Adjustments
Net Sales:
Total sales	(71)	(459)	(214)	(570)
Gross profit	(71)	(459)	(214)	(570)
Selling, general and administrative expenses	(71)	(459)	(214)	(570)
Other (income) expense:
Equity in loss (earnings) of subsidiaries	(3,288)	(3,647)	(9,238)	(10,456)
Total other expense, net	(3,288)	(3,647)	(9,238)	(10,456)
Loss before provision for income taxes	3,288	3,647	9,238	10,456
Net loss	3,288	3,647	9,238	10,456
Comprehensive loss	3,288	3,647	9,238	10,456
Issuer
Net Sales:
Total sales	506,861	458,013	1,498,496	1,382,473
Cost of sales	354,982	322,306	1,050,579	975,681
Gross profit	151,879	135,707	447,917	406,792
Selling, general and administrative expenses	158,170	152,117	456,052	442,940
Operating loss	(6,291)	(16,410)	(8,135)	(36,148)
Other (income) expense:
Interest income	(1)	(7)	(8)	(45)
Interest expense	17,480	16,920	51,983	50,230
Loss on extinguishment of debt				335
Equity in loss (earnings) of subsidiaries	3,288	3,647	9,238	10,456
Total other expense, net	20,767	20,560	61,213	60,976
Loss before provision for income taxes	(27,058)	(36,970)	(69,348)	(97,124)
Provision for income taxes		21	87	146
Net loss	(27,058)	(36,991)	(69,435)	(97,270)
Comprehensive loss	(27,058)	(36,991)	(69,435)	(97,108)
Subsidiary Guarantors
Net Sales:
Total sales	46,770	42,131	143,097	127,058
Cost of sales	35,794	32,676	109,943	98,521
Gross profit	10,976	9,455	33,154	28,537
Selling, general and administrative expenses	14,267	13,465	42,402	39,405
Operating loss	(3,291)	(4,010)	(9,248)	(10,868)
Other (income) expense:
Loss before provision for income taxes	(3,291)	(4,010)	(9,248)	(10,868)
Net loss	(3,291)	(4,010)	(9,248)	(10,868)
Comprehensive loss	(3,291)	(4,010)	(9,248)	(10,868)
Non-Guarantor Subsidiaries
Net Sales:
Total sales	71	459	214	570
Gross profit	71	459	214	570
Selling, general and administrative expenses	68	96	204	158
Operating loss	3	363	10	412
Other (income) expense:
Loss before provision for income taxes	3	363	10	412
Net loss	3	363	10	412
Comprehensive loss	$ 3	$ 363	$ 10	$ 412

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Financial Guarantees - CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Details) - USD ($) $ in Thousands	9 Months Ended
	Oct. 27, 2017	Oct. 28, 2016
Cash flows from operating activities:
Net cash (used in) provided by operating activities	$ (26,026)	$ 7,931
Cash flows from investing activities:
Purchases of property and equipment	(32,051)	(35,273)
Proceeds from sales of property and fixed assets	9,399	617
Insurance recoveries for replacement assets	475	937
Net cash used in investing activities	(22,177)	(33,719)
Cash flows from financing activities:
Proceeds from long-term debt	25,000
Payments of long-term debt	(4,604)	(4,604)
Proceeds under revolving credit facility	211,400	168,500
Payments under revolving credit facility	(197,200)	(174,500)
Payments of debt issuance costs	(880)	(4,725)
Proceeds from financing lease obligations	15,317	41,993
Payments of capital and financing lease obligations	(887)	(762)
Net cash provided by financing activities	48,146	25,902
Net (decrease) increase in cash	(57)	114
Cash - beginning of period	2,448	2,312
Cash - end of period	2,391	2,426
Issuer
Cash flows from operating activities:
Net cash (used in) provided by operating activities	(27,651)	6,193
Cash flows from investing activities:
Purchases of property and equipment	(30,363)	(33,652)
Proceeds from sales of property and fixed assets	9,398	617
Insurance recoveries for replacement assets	475	937
Net cash used in investing activities	(20,490)	(32,098)
Cash flows from financing activities:
Proceeds from long-term debt	25,000
Payments of long-term debt	(4,604)	(4,604)
Proceeds under revolving credit facility	211,400	168,500
Payments under revolving credit facility	(197,200)	(174,500)
Payments of debt issuance costs	(880)	(4,725)
Proceeds from financing lease obligations	15,317	41,993
Payments of capital and financing lease obligations	(887)	(762)
Net cash provided by financing activities	48,146	25,902
Net (decrease) increase in cash	5	(3)
Cash - beginning of period	1,207	1,266
Cash - end of period	1,212	1,263
Subsidiary Guarantors
Cash flows from operating activities:
Net cash (used in) provided by operating activities	1,724	1,742
Cash flows from investing activities:
Purchases of property and equipment	(1,688)	(1,621)
Proceeds from sales of property and fixed assets	1
Net cash used in investing activities	(1,687)	(1,621)
Cash flows from financing activities:
Net (decrease) increase in cash	37	121
Cash - beginning of period	1,105	1,009
Cash - end of period	1,142	1,130
Non-Guarantor Subsidiaries
Cash flows from operating activities:
Net cash (used in) provided by operating activities	(99)	(4)
Cash flows from financing activities:
Net (decrease) increase in cash	(99)	(4)
Cash - beginning of period	136	37
Cash - end of period	$ 37	$ 33

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Subsequent Events - Amendment to First Lien Term Loan Facility (Details) - USD ($) $ in Millions					9 Months Ended
	Nov. 07, 2017	Oct. 08, 2013	Apr. 04, 2012	Jan. 13, 2012	Oct. 27, 2017
First Lien Term Loan Facility
Subsequent Events
Excess cash flow to be used for prepayment of debt (in percent)					50.00%
First Lien Term Loan Facility | Base Rate
Subsequent Events
Applicable margin (as a percent)		2.50%	3.00%	4.50%
Subsequent Events | Amendment to First Lien Term Loan Facility | First Lien Term Loan Facility
Subsequent Events
Term loans held by affiliates that must be reallocated to Second Lien Facility (in percent)	100.00%
Excess cash flow to be used for prepayment of debt (in percent)	100.00%
Net cash proceeds received or realized after Amendment Date which can be reinvested	$ 5.0
Debt held by non-affiliates converted after effectiveness of the Third Amendment	$ 399.2
Upfront fee to Lenders approving Third Amendment (as percent)	0.50%
Loan payable per annum in equal quarterly installments (in percent)	1.00%
Prepayment premium of principal prepaid or repriced during first two years (in percent)	2.00%
Prepayment premium of principal prepaid or repriced after second anniversary (in percent)	1.00%
Prepayment premium of principal prepaid or repriced after third anniversary (in percent)	0.00%
Subsequent Events | Amendment to First Lien Term Loan Facility | First Lien Term Loan Facility | Minimum
Subsequent Events
Term loans held by non-affiliates which must be refinanced or replaced prior to effectiveness of Third Amendment (in percent)	85.00%
Subsequent Events | Amendment to First Lien Term Loan Facility | First Lien Term Loan Facility | Eurocurrency Rate
Subsequent Events
Applicable margin (as a percent)	6.50%
Payable in cash (as a percent)	5.00%
Paid in-kind (as a percent)	1.50%
Interest rate floor (as a percent)	1.00%
Subsequent Events | Amendment to First Lien Term Loan Facility | First Lien Term Loan Facility | Base Rate
Subsequent Events
Applicable margin (as a percent)	5.50%
Payable in cash (as a percent)	4.00%
Paid in-kind (as a percent)	1.50%
Subsequent Events | Amendment to First Lien Term Loan Facility | Tranche B-2 term loan
Subsequent Events
Debt held by non-affiliates converted after effectiveness of the Third Amendment	$ 34.7
Debt held by affiliates converted after effectiveness of Second Lien Agreement	$ 130.0
Subsequent Events | Amendment to First Lien Term Loan Facility | Senior Notes
Subsequent Events
Duration the Senior Notes must extend past January 31, 2022 (in days)	91 days
Subsequent Events | Amendment to First Lien Term Loan Facility | Senior Notes | Minimum
Subsequent Events
Minimum principal amount converted, redeemed or refinanced on or before three days prior to due date (in percent)	95.00%
Subsequent Events | Amendment to First Lien Term Loan Facility | Senior Notes | Maximum
Subsequent Events
Maximum principal amount not converted, redeemed or refinanced on or before three days prior to due date (in percent)	5.00%

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Subsequent Events - Amendment to ABL Credit Facility (Details) - USD ($) $ in Millions	Nov. 07, 2017	Sep. 06, 2017	Apr. 08, 2016	Aug. 24, 2015	Jan. 13, 2012
ABL Facility revolving
Subsequent Events
Maximum borrowing capacity			$ 160.0	$ 185.0	$ 175.0
FILO Facility
Subsequent Events
Maximum borrowing capacity		$ 25.0
Subsequent Events | Amendment to ABL Credit Facility | ABL Facility revolving
Subsequent Events
Maturity requirement of ABL Credit Facility before First Lien Facility (in days)	91 days
Subsequent Events | Amendment to ABL Credit Facility | FILO Facility
Subsequent Events
Maximum incremental borrowing available	$ 15.0

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Subsequent Events - Entry into Second Lien Facility (Details) - Subsequent Events - Entry into Second Lien Facility - Second Lien Credit Agreement	Nov. 07, 2017
Subsequent Events
Duration Second Lien must mature after maturity of First Lien (in days)	91 days
Base Rate
Subsequent Events
Paid in-kind (as a percent)	7.50%
Eurocurrency Rate
Subsequent Events
Paid in-kind (as a percent)	8.50%
Interest rate floor (as a percent)	1.00%

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Subsequent Events - Senior Notes Exchange Offer (Details) - USD ($)	Nov. 22, 2017	Dec. 06, 2017	Nov. 07, 2017	Oct. 27, 2017	Jan. 27, 2017	Dec. 29, 2011
Senior Notes
Subsequent Events
Interest rate (as a percent)						11.00%
Principal amount outstanding				$ 250,000,000	$ 250,000,000
Subsequent Events | Senior Notes Exchange Offer | Senior Notes | Minimum
Subsequent Events
Tender from holders for aggregate principal amount		$ 242,228,000
Percentage of tender from holders for aggregate principal		96.89%
Subsequent Events | Senior Notes Exchange Offer | New Secured Notes
Subsequent Events
Interest rate (as a percent)			13.00%
Principal amount outstanding			$ 250,000,000
Cash fee (per each $1000 principal amount)	$ 7.50
Preferred stock, par value (in dollars per share)	$ 0.001
Subsequent Events | Senior Notes Exchange Offer | New Secured Notes | Minimum
Subsequent Events
Tender condition for minimal principal amount validly tendered and not validly withdrawn (in percent)	95.00%