UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended August 30, 2014
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36161
THE CONTAINER STORE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
26-0565401 |
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
|
|
|
500 Freeport Parkway Coppell, TX |
|
75019 |
(Addresses of principal executive offices) |
|
(Zip Codes) |
Registrants telephone number in the United States, including area code, is: (972) 538-6000
None
(Former name, former address and former 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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
o |
|
Accelerated filer |
o |
Non-accelerated filer |
x |
(Do not check if a smaller reporting company) |
Smaller reporting company |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The registrant had 47,979,297 shares of its common stock outstanding as of September 26, 2014.
PART I. |
FINANCIAL INFORMATION |
|
Item 1. |
Financial Statements |
|
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Unaudited Consolidated Balance Sheets as of August 30, 2014, March 1, 2014, and August 31, 2013 |
3 |
|
5 | |
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6 | |
|
7 | |
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8 | |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
16 | |
31 | ||
31 | ||
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|
|
| ||
32 | ||
32 | ||
32 | ||
32 | ||
32 | ||
32 | ||
32 |
The Container Store Group, Inc.
|
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August 30, |
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March 1, |
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August 31, |
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(In thousands) |
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2014 |
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2014 |
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2013 |
|
|
|
(unaudited) |
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|
|
(unaudited) |
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Assets |
|
|
|
|
|
|
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Current assets: |
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|
|
|
|
|
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Cash |
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$15,298 |
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$18,046 |
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$12,744 |
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Accounts receivable, net |
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27,732 |
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32,273 |
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25,013 |
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Inventory |
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95,708 |
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85,595 |
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91,165 |
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Prepaid expenses |
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9,675 |
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14,121 |
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10,249 |
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Forward contracts |
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|
|
|
|
227 |
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Income taxes receivable |
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2,257 |
|
83 |
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2,317 |
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Deferred tax assets, net |
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3,967 |
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3,967 |
|
855 |
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Other current assets |
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9,798 |
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10,322 |
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10,583 |
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Total current assets |
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164,435 |
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164,407 |
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153,153 |
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Noncurrent assets: |
|
|
|
|
|
|
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Property and equipment, net |
|
170,562 |
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161,431 |
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146,372 |
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Goodwill |
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202,815 |
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202,815 |
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202,815 |
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Trade names |
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237,821 |
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242,290 |
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240,434 |
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Deferred financing costs, net |
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8,721 |
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9,699 |
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10,167 |
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Noncurrent deferred tax assets, net |
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1,158 |
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1,323 |
|
1,667 |
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Other assets |
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1,064 |
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1,184 |
|
855 |
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Total noncurrent assets |
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622,141 |
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618,742 |
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602,310 |
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Total assets |
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$786,576 |
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$783,149 |
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$755,463 |
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See accompanying notes.
The Container Store Group, Inc.
Consolidated balance sheets (continued)
|
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August 30, |
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March 1, |
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August 31, |
|
(In thousands, except share and per share amounts) |
|
2014 |
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2014 |
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2013 |
|
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(unaudited) |
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|
|
(unaudited) |
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Liabilities and shareholders equity |
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|
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|
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Current liabilities: |
|
|
|
|
|
|
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Accounts payable |
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$46,600 |
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$49,282 |
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$51,465 |
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Accrued liabilities |
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56,546 |
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60,496 |
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51,892 |
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Revolving lines of credit |
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16,779 |
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16,033 |
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21,215 |
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Current portion of long-term debt |
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5,985 |
|
7,527 |
|
9,869 |
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Forward contracts |
|
486 |
|
|
|
|
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Income taxes payable |
|
1,305 |
|
3,474 |
|
585 |
|
Deferred tax liabilities, net |
|
29 |
|
29 |
|
43 |
|
Total current liabilities |
|
127,730 |
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136,841 |
|
135,069 |
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Noncurrent liabilities: |
|
|
|
|
|
|
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Long-term debt |
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343,264 |
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327,724 |
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361,108 |
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Noncurrent deferred tax liabilities, net |
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83,555 |
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85,442 |
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88,228 |
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Deferred rent and other long-term liabilities |
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36,469 |
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35,956 |
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31,492 |
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Total noncurrent liabilities |
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463,288 |
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449,122 |
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480,828 |
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Total liabilities |
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591,018 |
|
585,963 |
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615,897 |
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|
|
|
|
|
|
|
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Commitments and contingencies (Note 7) |
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Shareholders equity: |
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Common stock, $0.01 par value, 250,000,000 shares authorized, 47,979,297 shares issued and outstanding at August 30, 2014; 250,000,000 shares authorized, 47,941,180 shares issued and outstanding at March 1, 2014; 3,528,280 shares authorized, 2,942,326 shares issued and 2,928,760 shares outstanding at August 31, 2013 |
|
480 |
|
479 |
|
29 |
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Preferred stock, $0.01 par value: |
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|
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Senior cumulative; no shares authorized, issued or outstanding at August 30, 2014 and March 1, 2014; 250,000 shares authorized, 202,480 shares issued and 202,182 shares outstanding at August 31, 2013 |
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|
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2 |
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Junior cumulative; no shares authorized, issued or outstanding at August 30, 2014 and March 1, 2014; 250,000 shares authorized, 202,480 shares issued and 202,182 shares outstanding at August 31, 2013 |
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|
|
|
|
2 |
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Additional paid-in capital |
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854,516 |
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853,295 |
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455,460 |
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Accumulated other comprehensive (loss) income |
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(4,543) |
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1,683 |
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(569) |
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Retained deficit |
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(654,895) |
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(658,271) |
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(314,518) |
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Treasury stock, no shares at August 30, 2014 and March 1, 2014;14,162 shares at August 31, 2013 |
|
|
|
|
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(840) |
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Total shareholders equity |
|
195,558 |
|
197,186 |
|
139,566 |
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Total liabilities and shareholders equity |
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$786,576 |
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$783,149 |
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$755,463 |
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See accompanying notes.
The Container Store Group, Inc.
Consolidated statements of operations
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Thirteen Weeks Ended |
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Twenty-Six Weeks Ended |
| ||||
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August 30, |
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August 31, |
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August 30, |
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August 31, |
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(In thousands, except share and per share amounts) (unaudited) |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
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Net sales |
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$193,247 |
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$183,774 |
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$366,685 |
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$343,419 |
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Cost of sales (excluding depreciation and amortization) |
|
79,581 |
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76,377 |
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152,167 |
|
142,818 |
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Gross profit |
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113,666 |
|
107,397 |
|
214,518 |
|
200,601 |
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Selling, general, and administrative expenses (excluding depreciation and amortization) |
|
90,530 |
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85,838 |
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181,719 |
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169,287 |
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Pre-opening costs |
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2,359 |
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1,972 |
|
5,346 |
|
3,934 |
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Depreciation and amortization |
|
7,567 |
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7,580 |
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14,823 |
|
15,050 |
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Restructuring charges |
|
|
|
120 |
|
|
|
361 |
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Other expenses |
|
282 |
|
407 |
|
807 |
|
626 |
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Loss on disposal of assets |
|
114 |
|
51 |
|
214 |
|
73 |
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Income from operations |
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12,814 |
|
11,429 |
|
11,609 |
|
11,270 |
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Interest expense |
|
4,383 |
|
5,519 |
|
8,685 |
|
11,074 |
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Loss on extinguishment of debt |
|
|
|
|
|
|
|
1,101 |
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Income (loss) before taxes |
|
8,431 |
|
5,910 |
|
2,924 |
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(905) |
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Provision (benefit) for income taxes |
|
1,476 |
|
1,803 |
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(452) |
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(217) |
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Net income (loss) |
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$6,955 |
|
$4,107 |
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$3,376 |
|
$(688) |
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Less: Distributions accumulated to preferred shareholders |
|
|
|
(21,851) |
|
|
|
(44,150) |
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Net income (loss) available to common shareholders |
|
$6,955 |
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$(17,744) |
|
$3,376 |
|
$(44,838) |
|
|
|
|
|
|
|
|
|
|
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Net income (loss) per common share - basic |
|
$0.14 |
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$(6.06) |
|
$0.07 |
|
$(15.31) |
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Net income (loss) per common share - diluted |
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$0.14 |
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$(6.06) |
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$0.07 |
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$(15.31) |
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|
|
|
|
|
|
|
|
|
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Weighted-average common shares outstanding - basic |
|
47,976,500 |
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2,929,165 |
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47,961,558 |
|
2,929,468 |
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Weighted-average common shares outstanding - diluted |
|
48,539,762 |
|
2,929,165 |
|
48,611,985 |
|
2,929,468 |
|
See accompanying notes.
The Container Store Group, Inc.
Consolidated statements of comprehensive income (loss)
|
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Thirteen Weeks Ended |
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Twenty-Six Weeks Ended |
| ||||
|
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August 30, |
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August 31, |
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August 30, |
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August 31, |
|
(In thousands) (unaudited) |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Net income (loss) |
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$6,955 |
|
$4,107 |
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$3,376 |
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$(688) |
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Unrealized loss on financial instruments, net of taxes of $238, $59, $223, and $170 |
|
(333) |
|
(176) |
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(386) |
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(1,121) |
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Pension liability adjustment |
|
59 |
|
34 |
|
120 |
|
34 |
|
Foreign currency translation adjustment |
|
(3,158) |
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(269) |
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(5,960) |
|
(2,195) |
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Comprehensive income (loss) |
|
$3,523 |
|
$3,696 |
|
$(2,850) |
|
$(3,970) |
|
See accompanying notes.
The Container Store Group, Inc.
Consolidated statements of cash flows
|
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Twenty-Six Weeks Ended |
| ||
|
|
August 30, |
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August 31, |
|
(In thousands) (unaudited) |
|
2014 |
|
2013 |
|
Operating activities |
|
|
|
|
|
Net income (loss) |
|
$3,376 |
|
$(688) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
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Depreciation and amortization |
|
14,823 |
|
15,050 |
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Stock-based compensation |
|
546 |
|
213 |
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Excess tax benefit from stock-based compensation |
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(10) |
|
|
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Loss on disposal of property and equipment |
|
214 |
|
73 |
|
Deferred tax (benefit) expense |
|
(442) |
|
79 |
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Noncash refinancing expense |
|
|
|
723 |
|
Noncash interest |
|
978 |
|
901 |
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Changes in operating assets and liabilities: |
|
|
|
|
|
Accounts receivable |
|
3,495 |
|
67 |
|
Inventory |
|
(11,494) |
|
(9,708) |
|
Prepaid expenses and other assets |
|
4,921 |
|
(174) |
|
Accounts payable and accrued liabilities |
|
(1,751) |
|
5,091 |
|
Income taxes payable |
|
(4,316) |
|
(3,865) |
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Other noncurrent liabilities |
|
844 |
|
1,573 |
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Net cash provided by operating activities |
|
11,184 |
|
9,335 |
|
|
|
|
|
|
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Investing activities |
|
|
|
|
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Additions to property and equipment |
|
(30,917) |
|
(23,049) |
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Proceeds from sale of property and equipment |
|
6 |
|
389 |
|
Net cash used in investing activities |
|
(30,911) |
|
(22,660) |
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|
|
|
|
|
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Financing activities |
|
|
|
|
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Borrowings on revolving lines of credit |
|
45,523 |
|
31,792 |
|
Payments on revolving lines of credit |
|
(43,383) |
|
(23,579) |
|
Borrowings on long-term debt |
|
25,015 |
|
105,500 |
|
Payments on long-term debt |
|
(10,533) |
|
(19,771) |
|
Payment of debt issuance costs |
|
|
|
(3,046) |
|
Proceeds from the exercise of stock options |
|
664 |
|
|
|
Excess tax benefit from stock-based compensation |
|
10 |
|
|
|
Purchase of treasury shares |
|
|
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(53) |
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Payment of distributions to preferred shareholders |
|
|
|
(90,000) |
|
Net cash provided by financing activities |
|
17,296 |
|
843 |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
(317) |
|
(125) |
|
Net decrease in cash |
|
(2,748) |
|
(12,607) |
|
Cash at beginning of period |
|
18,046 |
|
25,351 |
|
Cash at end of period |
|
$15,298 |
|
$12,744 |
|
See accompanying notes.
The Container Store Group, Inc.
Notes to consolidated financial statements (unaudited)
(In thousands, except share amounts and unless otherwise stated)
August 30, 2014
1. Description of business and basis of presentation
These financial statements should be read in conjunction with the financial statement disclosures in our Annual Report on Form 10-K for the fiscal year ended March 1, 2014, filed with the Securities and Exchange Commission on May 28, 2014. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature and include reclassifications and other adjustments, as discussed below.
Description of business
The Container Store, Inc. was founded in 1978 in Dallas, Texas, as a retailer with a mission to provide customers with storage and organization solutions through an assortment of innovative products and unparalleled customer service. As of August 30, 2014, The Container Store, Inc. operates 67 stores with an average size of approximately 19,000 selling square feet in 24 states and the District of Columbia. The Container Store, Inc. also offers all of its products directly to its customers through its website and call center. The Container Store, Inc.s wholly owned Swedish subsidiary, Elfa International AB (Elfa) designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors. elfa® branded products are sold exclusively in the United States in The Container Store retail stores, website and call center, and Elfa sells to various retailers on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe. In 2007, The Container Store, Inc. was sold to The Container Store Group, Inc. (the Company), a holding company, of which a majority stake was purchased by Leonard Green and Partners, L.P. (LGP), with the remainder held by certain employees of The Container Store, Inc. On November 6, 2013, the Company completed its initial public offering (the IPO). Following the Companys IPO, LGP continues to maintain a controlling interest in the ownership of the Company.
Seasonality
The Companys business is moderately seasonal in nature and, therefore, the results of operations for the twenty-six weeks ended August 30, 2014 are not necessarily indicative of the operating results for the full year. Demand is generally highest in the fourth fiscal quarter due to Our Annual elfa® Sale, and lowest in the first fiscal quarter.
Reclassifications and other adjustments
Certain prior period amounts have been reclassified in order to provide consistent comparative information. These reclassifications do not materially impact the consolidated financial statements for the prior periods presented.
During the quarter ended August 30, 2014, the Company determined that it was necessary to file an amended tax return for a prior period, which resulted in a $1.8 million reduction in the provision for income taxes, as well as an increase to income taxes receivable. We evaluated the impact of the adjustment and determined that the amount was immaterial to the consolidated financial statements for the current fiscal year and prior fiscal years. As such, the entire amount was recorded during the quarter ended August 30, 2014.
Recent accounting pronouncements
In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force). The ASU clarifies that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entitys satisfaction of a performance target until it becomes probable that the performance target will be met. The ASU does not contain any new disclosure requirements. For all entities, the ASU is effective for reporting periods beginning after December 15, 2015. Early adoption is permitted. We currently do not have share-based payment awards with performance targets, however, our 2013 Incentive Award Plan allows for these types of awards. We expect to adopt this standard in fiscal 2016 and do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, an updated standard on revenue recognition. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using IFRS and US GAAP. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. ASU 2014-09 will be effective for the Company in the first quarter of fiscal 2017 and may be applied on a full retrospective or modified retrospective approach. The Company is still evaluating the impact of implementation of this standard on its financial statements.
2. Long-term debt and revolving lines of credit
On April 1, 2014, Elfa entered into a master credit agreement with Nordea Bank AB (Nordea), which consists of a SEK 60.0 million (approximately $8.6 million as of August 30, 2014) term loan facility (the 2014 Elfa Term Loan Facility) and a SEK 140.0 million (approximately $20.1 million as of August 30, 2014) revolving credit facility (the 2014 Elfa Revolving Credit Facility, and together with the 2014 Elfa Term Loan Facility, the 2014 Elfa Senior Secured Credit Facilities). The 2014 Elfa Senior Secured Credit Facilities term began on August 29, 2014 and matures on August 29, 2019, or such shorter period as provided by the agreement. Elfa is required to make quarterly principal payments under the 2014 Elfa Term Loan Facility in the amount of SEK 3.0 million (approximately $0.4 million as of August 30, 2014) through maturity. The 2014 Elfa Term Loan Facility bears interest at STIBOR + 1.7% and the 2014 Elfa Revolving Credit Facility bears interest at Nordeas base rate + 1.4%, and these rates are applicable until August 29, 2017, at which time the interest rates may be renegotiated at the request of either party to the agreement. Should the parties fail to agree on new interest rates, Elfa has the ability to terminate the agreement on August 29, 2017, at which time all borrowings under the agreement shall be paid in full to Nordea.
On May 13, 2014, Elfa entered into a credit facility with Nordea for SEK 15.0 million (the Short Term Credit Facility). The Short Term Credit Facility accrued interest at 2.53% and matured on August 28, 2014, at which time all borrowings under the agreement were paid in full to Nordea (approximately $2.2 million as of August 28, 2014). The total amount of borrowings available under the Short Term Credit Facility was used to pay a mortgage owed on the Poland manufacturing facility in full in the quarter ended May 31, 2014.
3. Detail of certain balance sheet accounts
|
|
August 30, |
|
March 1, |
|
August 31, |
|
|
|
2014 |
|
2014 |
|
2013 |
|
Inventory: |
|
|
|
|
|
|
|
Finished goods |
|
$89,787 |
|
$79,235 |
|
$83,758 |
|
Raw materials |
|
4,419 |
|
4,677 |
|
5,064 |
|
Work in progress |
|
1,502 |
|
1,683 |
|
2,343 |
|
|
|
$95,708 |
|
$85,595 |
|
$91,165 |
|
|
|
|
|
|
|
|
|
Accrued liabilities: |
|
|
|
|
|
|
|
Accrued payroll, benefits, and bonuses |
|
$21,122 |
|
$23,679 |
|
$18,410 |
|
Accrued transaction and property tax |
|
8,806 |
|
7,949 |
|
8,515 |
|
Gift cards and store credits outstanding |
|
7,162 |
|
6,900 |
|
6,323 |
|
Unearned revenue |
|
5,375 |
|
11,338 |
|
4,486 |
|
Accrued interest |
|
2,530 |
|
2,481 |
|
3,877 |
|
Other accrued liabilities |
|
11,551 |
|
8,149 |
|
10,281 |
|
|
|
$56,546 |
|
$60,496 |
|
$51,892 |
|
4. Net income (loss) per common share
Basic net income (loss) per common share is computed as net income (loss) available to common shareholders divided by the weighted-average number of common shares outstanding for the period. Net income (loss) available to common shareholders is computed as net income (loss) less accumulated distributions to preferred shareholders for the period. Diluted net income (loss) per share is computed as net income (loss) available to common shareholders divided by the weighted-average number of common shares outstanding for the period plus common stock equivalents consisting of shares subject to stock-based awards with exercise prices less than or equal to the average market price of the Companys common stock for the period, to the extent their inclusion would be dilutive. Potential dilutive securities are excluded from the computation of diluted net income (loss) per share if their effect is anti-dilutive.
The following is a reconciliation of net income (loss) available to common shareholders and the number of shares used in the basic and diluted net income (loss) per share calculations:
|
|
Thirteen Weeks Ended |
|
Twenty-Six Weeks Ended |
| ||||
|
|
August 30, |
|
August 31, |
|
August 30, |
|
August 31, |
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$6,955 |
|
$4,107 |
|
$3,376 |
|
$(688) |
|
Less: Distributions accumulated to preferred shareholders |
|
|
|
(21,851) |
|
|
|
(44,150) |
|
Net income (loss) available to common shareholders |
|
$6,955 |
|
$(17,744) |
|
$3,376 |
|
$(44,838) |
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding basic |
|
47,976,500 |
|
2,929,165 |
|
47,961,558 |
|
2,929,468 |
|
Weighted-average common shares outstanding diluted |
|
48,539,762 |
|
2,929,165 |
|
48,611,985 |
|
2,929,468 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic |
|
$0.14 |
|
$(6.06) |
|
$0.07 |
|
$(15.31) |
|
Net income (loss) per common share - diluted |
|
$0.14 |
|
$(6.06) |
|
$0.07 |
|
$(15.31) |
|
|
|
|
|
|
|
|
|
|
|
Antidilutive securities not included: |
|
|
|
|
|
|
|
|
|
Stock options outstanding |
|
795,124 |
|
|
|
|
|
|
|
5. Pension plans
The Company provides pension benefits to the Elfa employees in Sweden under collectively bargained pension plans, which are recorded in other long-term liabilities. The defined benefit plan provides benefits for participating employees based on years of service and final salary levels at retirement. The defined benefit plans are unfunded and approximately 2% of Elfa employees are participants in the defined benefit pension plan. Certain employees also participate in defined contribution plans for which Company contributions are determined as a percentage of participant compensation. The Company recognized total net periodic benefit cost of $388 and $630 for pension plans in the thirteen weeks ended August 30, 2014 and August 31, 2013, respectively. The Company recognized total net periodic benefit cost of $1,314 and $1,460 for pension plans in the twenty-six weeks ended August 30, 2014 and August 31, 2013, respectively.
6. Income taxes
The Companys effective income tax rate for the thirteen weeks ended August 30, 2014 was 17.5% compared to 30.5% for the thirteen weeks ended August 31, 2013. The decrease in the effective tax rate is primarily due to a $1.8 million reduction in tax expense recorded during the quarter ended August 30, 2014 primarily related to an expected refund of tax paid in a prior period, partially offset by a shift in the mix of projected domestic and foreign earnings.
The Companys effective income tax rate for the twenty-six weeks ended August 30, 2014 was (15.5%) compared to 24.0% for the twenty-six weeks ended August 31, 2013. The decrease in the effective tax rate is driven by a $1.8 million reduction in tax expense in fiscal 2014 primarily related to an expected refund of tax paid in a prior period, partially offset by the impact of an increase in pre-tax earnings from fiscal 2013 to fiscal 2014 and a change in mix between projected domestic and foreign earnings.
7. Commitments and contingencies
In connection with insurance policies, The Container Store, Inc. has outstanding standby letters of credit totaling $3,136 as of August 30, 2014.
The Company is subject to ordinary litigation and routine reviews by regulatory bodies that are incidental to its business, none of which is expected to have a material effect on the Companys consolidated financial statements on an individual basis or in the aggregate.
8. Accumulated other comprehensive income
Accumulated other comprehensive income (AOCI) consists of changes in our foreign currency forward contracts, minimum pension liability, and foreign currency translation. The components of AOCI, net of tax, are shown below for the twenty-six weeks ended August 30, 2014:
|
|
Foreign |
|
Minimum |
|
Foreign |
|
Total |
|
Balance at March 1, 2014 |
|
$53 |
|
$(1,153) |
|
$2,783 |
|
$1,683 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications, net of tax |
|
(333) |
|
120 |
|
(5,960) |
|
(6,173) |
|
Amounts reclassified to earnings, net of tax |
|
(53) |
|
|
|
|
|
(53) |
|
Net current period other comprehensive (loss) income |
|
(386) |
|
120 |
|
(5,960) |
|
(6,226) |
|
|
|
|
|
|
|
|
|
|
|
Balance at August 30, 2014 |
|
$(333) |
|
$(1,033) |
|
$(3,177) |
|
$(4,543) |
|
Amounts reclassified from AOCI to earnings for the foreign currency forward contracts category are generally included in cost of sales in the Companys consolidated statements of operations. For a description of the Companys use of foreign currency forward contracts, refer to Note 9.
9. Foreign currency forward contracts
The Companys international operations and purchases of its significant product lines from foreign suppliers are subject to certain opportunities and risks, including foreign currency fluctuations. The Company utilizes foreign currency forward exchange contracts in Swedish krona to stabilize its retail gross margins and to protect its domestic operations from downward currency exposure by hedging purchases of inventory from its wholly owned subsidiary, Elfa. During the twenty-six weeks ended August 30, 2014 and August 31, 2013, the Company used forward contracts for 27.9% and 76.4% of inventory purchases in Swedish krona, respectively. All of the Companys currency-related hedge instruments have terms from 1 to 12 months and require the Company to exchange currencies at agreed-upon rates at settlement.
The counterparties to the contracts consist of a limited number of major domestic and international financial institutions. The Company does not hold or enter into financial instruments for trading or speculative purposes. The Company records its financial hedge instruments on a gross basis and generally does not require collateral from these counterparties because it does not expect any losses from credit exposure. The Company did not have any material financial hedge instruments that did not qualify for hedge accounting treatment as of August 30, 2014, March 1, 2014 and August 31, 2013.
The Company records all foreign currency forward contracts on its consolidated balance sheet at fair value. Forward contracts not designated as hedges are adjusted to fair value through income. The Company accounts for its foreign currency hedge instruments as cash flow hedges, as defined. Changes in the fair value of the foreign currency hedge instruments that are considered to be effective, as defined, are recorded in other comprehensive income (loss) until the hedged item (inventory) is sold to the customer, at which time the deferred gain or loss is recognized through cost of sales. Any portion of a change in the foreign currency hedge instruments fair value that is considered to be ineffective, as defined, or that the Company has elected to exclude from its measurement of effectiveness, is immediately recorded in earnings as cost of sales. The Company assessed the effectiveness of the foreign currency forward contracts and determined the foreign currency forward contracts were highly effective during the twenty-six weeks ended August 30, 2014 and August 31, 2013. The Company records the fair value of its unsettled foreign currency forward contracts as cash flow hedges. The Company had $486 as of August 30, 2014 in fair value of its unsettled foreign currency forward contracts recorded as total current liabilities in the accompanying consolidated balance sheets. The Company had $227 as of August 31, 2013 in fair value of its unsettled foreign currency forward contracts recorded as total current assets in the accompanying consolidated balance sheets. As of March 1, 2014, the Company had no unsettled foreign currency forward contracts.
The Company recorded $333 in accumulated other comprehensive loss at August 30, 2014. Of the $333, $38 represents an unrealized loss that has been recorded for settled forward contracts related to inventory on hand as of August 30, 2014. The Company expects the unrealized loss of $38, net of taxes, to be reclassified into earnings over the next 12 months as the underlying inventory is sold to the end consumer.
The change in fair value of the Companys foreign currency forward contracts that qualify as cash flow hedges and are included in accumulated other comprehensive income (loss), net of taxes, are presented in Note 8 of these financial statements.
10. Fair value measurements
Under generally accepted accounting principles, the Company is required to a) measure certain assets and liabilities at fair value or b) disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is calculated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. Accounting standards pertaining to fair value establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include:
· Level 1Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
· Level 2Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
· Level 3Valuation inputs are unobservable and typically reflect managements estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.
As of August 30, 2014, March 1, 2014 and August 31, 2013, the Company held certain items that are required to be measured at fair value on a recurring basis. These included the nonqualified retirement plan and foreign currency forward contracts. The nonqualified retirement plan consists of investments purchased by employee contributions to retirement savings accounts. Foreign currency forward contracts are related to the Companys attempts to hedge foreign currency fluctuation on purchases of inventory in Swedish krona. The Companys foreign currency hedge instruments consist of over-the-counter (OTC) contracts, which are not traded on a public exchange. See Note 9 for further information on the Companys hedging activities.
The fair values of the nonqualified retirement plan and foreign currency forward contracts are determined based on the market approach which utilizes inputs that are readily available in public markets or can be derived from information available in publicly quoted markets for comparable assets. Therefore, the Company has categorized these items as Level 2. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of contracts it holds.
The following items are measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820, Fair Value Measurements:
|
|
|
|
|
|
August 30, |
|
March 1, |
|
August 31, |
|
Description |
|
|
|
Balance Sheet Location |
|
2014 |
|
2014 |
|
2013 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Nonqualified retirement plan |
|
Level 2 |
|
Other current assets |
|
$3,772 |
|
$3,401 |
|
$2,892 |
|
Foreign currency hedge instruments |
|
Level 2 |
|
Forward contracts |
|
|
|
|
|
277 |
|
Total assets |
|
|
|
|
|
$3,772 |
|
$3,401 |
|
$3,169 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Nonqualified retirement plan |
|
Level 2 |
|
Accrued liabilities |
|
3,788 |
|
3,417 |
|
2,907 |
|
Foreign currency hedge instruments |
|
Level 2 |
|
Forward contracts |
|
486 |
|
|
|
|
|
Total liabilities |
|
|
|
|
|
$4,274 |
|
$3,417 |
|
$2,907 |
|
The fair values of long-term debt were estimated using discounted cash flow analyses, quoted prices, as well as recent transactions for similar types of borrowing arrangements. As of August 30, 2014, March 1, 2014 and August 31, 2013, the carrying values and estimated fair values of the Companys long-term debt, including current maturities, were:
|
|
|
|
August 30, 2014 |
| ||
|
|
|
|
Carrying |
|
Fair |
|
|
|
|
|
value |
|
value |
|
Senior secured term loan facility |
|
Level 2 |
|
$326,722 |
|
$324,271 |
|
2014 Elfa term loan facility |
|
Level 2 |
|
8,602 |
|
8,602 |
|
Revolving credit facility |
|
Level 3 |
|
13,000 |
|
13,000 |
|
Other loans |
|
Level 3 |
|
925 |
|
925 |
|
|
|
|
|
$349,249 |
|
$346,798 |
|
|
|
|
|
March 1, 2014 |
| ||
|
|
|
|
Carrying |
|
Fair |
|
|
|
|
|
value |
|
value |
|
Senior secured term loan facility |
|
Level 2 |
|
$328,533 |
|
$330,176 |
|
Elfa term loan facility |
|
Level 2 |
|
1,950 |
|
1,948 |
|
Other loans |
|
Level 3 |
|
4,768 |
|
4,686 |
|
|
|
|
|
$335,251 |
|
$336,810 |
|
|
|
|
|
August 31, 2013 |
| ||
|
|
|
|
Carrying |
|
Fair |
|
|
|
|
|
value |
|
value |
|
Senior secured term loan facility |
|
Level 2 |
|
$361,344 |
|
$363,151 |
|
Elfa term loan facility |
|
Level 3 |
|
3,769 |
|
3,829 |
|
Other loans |
|
Level 3 |
|
5,864 |
|
5,910 |
|
|
|
|
|
$370,977 |
|
$372,890 |
|
11. Segment reporting
The Companys operating segments were determined on the same basis as how it evaluates the performance internally. The Companys two operating segments consist of TCS and Elfa. The TCS segment includes the Companys retail stores, website and call center, as well as the installation services business.
The Elfa segment includes the manufacturing business that produces the elfa® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately 30 countries around the world with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded
in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Corporate/Other column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States.
Amounts in the Corporate/Other column include unallocated corporate expenses and assets, intersegment eliminations and other adjustments to segment results necessary for the presentation of consolidated financial results in accordance with generally accepted accounting principles.
In general, the Company uses the same measurements to calculate income or loss before income taxes for operating segments as it does for the consolidated company. However, interest expense related to the Senior Secured Term Loan Facility and the Revolving Credit Facility is recorded in the Corporate/Other column.
|
|
|
|
|
|
Corporate/ |
|
|
|
Thirteen Weeks Ended August 30, 2014 |
|
TCS |
|
Elfa |
|
Other |
|
Total |
|
Net sales to third parties |
|
$174,814 |
|
$18,433 |
|
$ |
|
$193,247 |
|
Intersegment sales |
|
|
|
12,680 |
|
(12,680) |
|
|
|
Interest expense, net |
|
5 |
|
246 |
|
4,132 |
|
4,383 |
|
Income (loss) before taxes |
|
15,441 |
|
(213) |
|
(6,797) |
|
8,431 |
|
Assets(1) |
|
628,971 |
|
130,061 |
|
27,544 |
|
786,576 |
|
|
|
|
|
|
|
Corporate/ |
|
|
|
Thirteen Weeks Ended August 31, 2013 |
|
TCS |
|
Elfa |
|
Other |
|
Total |
|
Net sales to third parties |
|
$165,320 |
|
$18,454 |
|
$ |
|
$183,774 |
|
Intersegment sales |
|
|
|
11,651 |
|
(11,651) |
|
|
|
Interest expense, net |
|
15 |
|
195 |
|
5,309 |
|
5,519 |
|
Income (loss) before taxes |
|
14,236 |
|
(225) |
|
(8,101) |
|
5,910 |
|
Assets(1) |
|
593,542 |
|
135,554 |
|
26,367 |
|
755,463 |
|
|
|
|
|
|
|
Corporate/ |
|
|
|
Twenty-Six Weeks Ended August 30, 2014 |
|
TCS |
|
Elfa |
|
Other |
|
Total |
|
Net sales to third parties |
|
$324,543 |
|
$42,142 |
|
$ |
|
$366,685 |
|
Intersegment sales |
|
|
|
21,148 |
|
(21,148) |
|
|
|
Interest expense, net |
|
12 |
|
407 |
|
8,266 |
|
8,685 |
|
Income (loss) before taxes |
|
15,339 |
|
38 |
|
(12,453) |
|
2,924 |
|
Assets(1) |
|
628,971 |
|
130,061 |
|
27,544 |
|
786,576 |
|
|
|
|
|
|
|
Corporate/ |
|
|
|
Twenty-Six Weeks Ended August 31, 2013 |
|
TCS |
|
Elfa |
|
Other |
|
Total |
|
Net sales to third parties |
|
$302,799 |
|
$40,620 |
|
$ |
|
$343,419 |
|
Intersegment sales |
|
|
|
19,960 |
|
(19,960) |
|
|
|
Interest expense, net |
|
32 |
|
435 |
|
10,607 |
|
11,074 |
|
Income (loss) before taxes(2) |
|
16,958 |
|
(1,375) |
|
(16,488) |
|
(905) |
|
Assets(1) |
|
593,542 |
|
135,554 |
|
26,367 |
|
755,463 |
|
(1) Tangible assets in the Elfa column are located outside of the United States. Assets in Corporate/Other include assets located in the corporate headquarters and distribution center. Assets in Corporate/Other also include deferred tax assets and the fair value of forward contracts.
(2) The Corporate/Other column includes $1,101 loss on extinguishment of debt during the twenty-six weeks ended August 31, 2013.
12. Subsequent Event
On October 3, 2014, the Company completed the sale of a Norwegian subsidiary, whose primary asset was a manufacturing facility that was shut down and consolidated into a like facility in Sweden as part of Elfas restructuring efforts in fiscal 2012. The Company received proceeds of approximately $4.2 million and recorded a gain on the sale of this subsidiary of approximately $3.3 million in the third quarter of fiscal 2014.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary note regarding forward-looking statements
This report, including this Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements. In some cases, you can identify forward-looking statements by terms such as may, will, should, expects, plans, anticipates, could, intends, target, projects, contemplates, believes, estimates, predicts, potential or continue or the negative of these terms or other similar expressions. These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These include, but are not limited to: a decline in the health of the economy and the purchase of discretionary items; risks related to new store openings; our inability to source and market our products to meet customer preferences or inability to offer customers an aesthetically pleasing shopping environment; our dependence on a single distribution center for all of our stores; the vulnerability of our facilities and systems to natural disasters and other unexpected events; risks related to our reliance on independent third-party transportation providers for substantially all of our product shipments; our dependence on our brand image and any inability to protect our brand; our failure to successfully anticipate consumer demand and manage inventory commensurate with demand; our failure to effectively manage our growth; our inability to lease space on favorable terms; fluctuations in currency exchange rates; our incurrence of net losses in the past and the risk that we will experience net losses in the future; risks related to our inability to obtain capital on satisfactory terms or at all; our inability to effectively manage online sales; risks related to a security breach or cyber-attack of our website or information technology systems, and other damage to such systems; effects of competition on our business; our inability to obtain merchandise from our vendors on a timely basis and at competitive prices; the risk that our vendors may sell their products to our competitors; our dependence on key executive management; our inability to find, train and retain key personnel; labor activities and unrest; rising health care and labor costs; risks associated with our dependence on foreign imports; risks related to violations of anti-bribery and anti-kickback laws; risks related to our indebtedness; risks related to our fixed lease obligations; risks related to litigation; product recalls and/or product liability and changes in product safety and consumer protection laws; changes in statutory, regulatory, accounting and other legal requirements; the risk that our operating and financial performance in a given period will not meet the guidance we provided to the public; risks related to changes in estimates or projections used to assess the fair value of our intangible assets; significant increases in raw material prices or energy costs; fluctuations in our tax obligations, effective tax rate and realization of deferred tax assets; seasonal fluctuations in our operating results; material disruptions in one of our Elfa manufacturing facilities; our inability to protect our intellectual property rights and claims that we have infringed third parties intellectual property rights; risks related to our status as a controlled company; significant fluctuations in the price of our common stock; substantial future sales of our common stock, or the perception that such sales may occur, which could depress the price of our common stock; increased costs of being a public company; anti-takeover provisions in our governing documents, which could delay or prevent a change in control; reduced disclosure requirements applicable to emerging growth companies, which could make our stock less attractive to investors; and our failure to establish and maintain effective internal controls. Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect our operating results and financial condition are described in the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended March 1, 2014, filed with the Securities and Exchange Commission (the SEC) on May 28, 2014.
We have based these forward-looking statements largely on our current expectations and projections about future
events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this report. Because forward-looking statements are inherently subject to risks and uncertainties, you should not rely on these forward-looking statements as predictions of future events. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein after the date of this report, whether as a result of any new information, future events or otherwise.
Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the Company, we, us, and our refer to The Container Store Group, Inc. and, where appropriate, its subsidiaries.
We follow a 5-4-4 fiscal calendar, whereby each fiscal quarter consists of thirteen weeks grouped into one five-week month and two four-week months, and our fiscal year is the 52- or 53-week period ending on the Saturday closest to February 28. Fiscal 2014 ends on February 28, 2015, fiscal 2013 ended on March 1, 2014 and fiscal 2012 ended on March 2, 2013. The second quarter of fiscal 2014 ended on August 30, 2014 and the second quarter of fiscal 2013 ended on August 31, 2013, and both included thirteen weeks.
Overview
We are the leading specialty retailer of storage and organization products in the United States. We are the original storage and organization specialty retailer and the only national retailer solely devoted to the category. Our goal is to help provide order to an increasingly busy and chaotic world. We provide creative, multifunctional, customizable storage and organization solutions that help our customers save time, save space and improve the quality of their lives. The breadth, depth and quality of our product offerings are designed to appeal to a broad demographic, including our core customers, who are predominantly female, affluent, highly educated and busy.
Our operations consist of two operating segments:
· The Container Store (TCS), which consists of our retail stores, website and call center, as well as our installation services business. As of August 30, 2014, we operated 67 stores with an average size of approximately 19,000 selling square feet in 24 states and the District of Columbia. We also offer all of our products directly to customers through our website and call center. Our stores receive all products directly from our distribution center co-located with our corporate headquarters in Coppell, Texas.
· Elfa, The Container Store, Inc.s wholly owned Swedish subsidiary, Elfa International AB (Elfa), which designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors. Elfa was founded in 1948 and is headquartered in Malmö, Sweden. Elfas shelving and drawer systems are customizable for any area of the home, including closets, kitchens, offices and garages. Elfa operates four manufacturing facilities with two located in Sweden, one in Finland and one in Poland. The Container Store began selling elfa® products in 1978 and acquired Elfa in 1999. Today our TCS segment is the exclusive distributor of elfa® products in the U.S. Elfa also sells its products on a wholesale basis to various retailers in approximately 30 countries around the world, with a concentration in the Nordic region of Europe.
Note on Dollar Amounts
All dollar amounts in this Managements Discussion and Analysis of Financial Condition and Results of Operations are in thousands, except per share amounts and unless otherwise stated.
Results of Operations
The following data represents the amounts shown in our unaudited consolidated statements of operations expressed in dollars and as a percentage of net sales and operating data for the periods presented (categories that are only
applicable to our TCS segment are noted with (*) and to our Elfa segment with (+)). For segment data, see Note 11 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
|
|
Thirteen Weeks Ended |
|
Twenty-Six Weeks Ended |
| ||||
|
|
August 30, |
|
August 31, |
|
August 30, |
|
August 31, |
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Net sales |
|
$193,247 |
|
$183,774 |
|
$366,685 |
|
$343,419 |
|
Cost of sales (excluding depreciation and amortization) |
|
79,581 |
|
76,377 |
|
152,167 |
|
142,818 |
|
Gross profit |
|
113,666 |
|
107,397 |
|
214,518 |
|
200,601 |
|
Selling, general, and administrative expenses (excluding depreciation and amortization) |
|
90,530 |
|
85,838 |
|
181,719 |
|
169,287 |
|
Pre-opening costs* |
|
2,359 |
|
1,972 |
|
5,346 |
|
3,934 |
|
Depreciation and amortization |
|
7,567 |
|
7,580 |
|
14,823 |
|
15,050 |
|
Restructuring charges+ |
|
|
|
120 |
|
|
|
361 |
|
Other expenses |
|
282 |
|
407 |
|
807 |
|
626 |
|
Loss on disposal of assets |
|
114 |
|
51 |
|
214 |
|
73 |
|
Income from operations |
|
12,814 |
|
11,429 |
|
11,609 |
|
11,270 |
|
Interest expense |
|
4,383 |
|
5,519 |
|
8,685 |
|
11,074 |
|
Loss on extinguishment of debt* |
|
|
|
|
|
|
|
1,101 |
|
Income (loss) before taxes |
|
8,431 |
|
5,910 |
|
2,924 |
|
(905) |
|
Provision (benefit) for income taxes |
|
1,476 |
|
1,803 |
|
(452) |
|
(217) |
|
Net income (loss) |
|
$6,955 |
|
$4,107 |
|
$3,376 |
|
$(688) |
|
|
|
Thirteen Weeks Ended |
|
Twenty-Six Weeks Ended |
| ||||
|
|
August 30, |
|
August 31, |
|
August 30, |
|
August 31, |
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Percentage of net sales: |
|
|
|
|
|
|
|
|
|
Net sales |
|
100.0% |
|
100.0% |
|
100.0% |
|
100.0% |
|
Cost of sales (excluding depreciation and amortization) |
|
41.2% |
|
41.6% |
|
41.5% |
|
41.6% |
|
Gross profit |
|
58.8% |
|
58.4% |
|
58.5% |
|
58.4% |
|
Selling, general and administrative expenses (excluding depreciation and amortization) |
|
46.8% |
|
46.7% |
|
49.6% |
|
49.3% |
|
Pre-opening costs* |
|
1.2% |
|
1.1% |
|
1.5% |
|
1.1% |
|
Depreciation and amortization |
|
3.9% |
|
4.1% |
|
4.0% |
|
4.4% |
|
Restructuring charges+ |
|
0.0% |
|
0.1% |
|
0.0% |
|
0.1% |
|
Other expenses |
|
0.1% |
|
0.2% |
|
0.2% |
|
0.2% |
|
Loss on disposal of assets |
|
0.1% |
|
0.0% |
|
0.1% |
|
0.0% |
|
Income from operations |
|
6.6% |
|
6.2% |
|
3.2% |
|
3.3% |
|
Interest expense |
|
2.3% |
|
3.0% |
|
2.4% |
|
3.2% |
|
Loss on extinguishment of debt* |
|
0.0% |
|
0.0% |
|
0.0% |
|
0.3% |
|
Income (loss) before taxes |
|
4.4% |
|
3.2% |
|
0.8% |
|
(0.2%) |
|
Provision (benefit) for income taxes |
|
0.8% |
|
1.0% |
|
(0.1%) |
|
0.0% |
|
Net income (loss) |
|
3.6% |
|
2.2% |
|
0.9% |
|
(0.2%) |
|
Operating data: |
|
|
|
|
|
|
|
|
|
Comparable store sales growth for the period(1)* |
|
(0.4%) |
|
3.1% |
|
(0.6%) |
|
2.9% |
|
Number of stores open at end of period* |
|
67 |
|
61 |
|
67 |
|
61 |
|
Average ticket(2)* |
|
$59.65 |
|
$58.81 |
|
$58.39 |
|
$57.54 |
|
Non-GAAP measures(3): |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(4) |
|
$23,378 |
|
$22,128 |
|
$33,580 |
|
$32,719 |
|
Adjusted net income(5) |
|
$5,116 |
|
$3,688 |
|
$1,537 |
|
$474 |
|
Adjusted net income per common share - diluted(5) |
|
$0.11 |
|
$0.08 |
|
$0.03 |
|
$0.01 |
|
(1) A store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the stores opening. When a store is relocated, we continue to consider sales from that store to be comparable store sales. Net sales from our website and call center are also included in calculations of comparable store sales. The comparable store sales growth operating measure in a given period is based on merchandise orders placed in that period, which may not always reflect when the merchandise is delivered to the customer. The comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with generally accepted accounting principles.
(2) Average ticket for all periods is calculated by dividing (a) sales of merchandise by our TCS segment for that period (regardless of whether such sales are included in comparable store sales for such period) by (b) the number of transactions for that period comprising such sales. Average ticket is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with generally accepted accounting principles.
(3) We have presented certain non-GAAP measures as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. These non-GAAP measures should not be considered as alternatives to net income (loss) as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. These non-GAAP measures are key metrics used by management and our board of directors to assess our financial performance. These non-GAAP measures are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of these non-GAAP measures should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using non-GAAP measures supplementally. Our non-GAAP measures are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.
(4) EBITDA and Adjusted EBITDA have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for managements discretionary use, as they do not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures, store openings and certain other cash costs that may recur in the future. EBITDA and Adjusted EBITDA contain certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized.
A reconciliation of the GAAP financial measure of net income (loss) to the non-GAAP financial measures of EBITDA and Adjusted EBITDA is set forth below:
|
|
Thirteen Weeks Ended |
|
Twenty-Six Weeks Ended |
| ||||
|
|
August 30, |
|
August 31, |
|
August 30, |
|
August 31, |
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Net income (loss) |
|
$6,955 |
|
$4,107 |
|
$3,376 |
|
$(688) |
|
Depreciation and amortization |
|
7,567 |
|
7,580 |
|
14,823 |
|
15,050 |
|
Interest expense, net |
|
4,383 |
|
5,519 |
|
8,685 |
|
11,074 |
|
Income tax provision (benefit) |
|
1,476 |
|
1,803 |
|
(452) |
|
(217) |
|
EBITDA |
|
20,381 |
|
19,009 |
|
26,432 |
|
25,219 |
|
Management fees(a) |
|
|
|
250 |
|
|
|
500 |
|
Pre-opening costs*(b) |
|
2,359 |
|
1,972 |
|
5,346 |
|
3,934 |
|
IPO costs*(c) |
|
|
|
349 |
|
|
|
405 |
|
Noncash rent*(d) |
|
40 |
|
311 |
|
450 |
|
702 |
|
Restructuring charges+(e) |
|
|
|
120 |
|
|
|
361 |
|
Stock-based compensation(f) |
|
269 |
|
114 |
|
546 |
|
213 |
|
Loss on extinguishment of debt*(g) |
|
|
|
|
|
|
|
1,101 |
|
Foreign exchange (gains) losses(h) |
|
21 |
|
(77) |
|
(51) |
|
17 |
|
Other adjustments(i) |
|
308 |
|
80 |
|
857 |
|
267 |
|
Adjusted EBITDA |
|
$23,378 |
|
$22,128 |
|
$33,580 |
|
$32,719 |
|
(a) Fees paid to Leonard Green and Partners, L.P. in accordance with our management services agreement, which was terminated on November 6, 2013 in association with our initial public offering (IPO).
(b) Non-capital expenditures associated with relocating stores and opening new stores, including rent, marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.
(c) Charges incurred in connection with our IPO, which we do not expect to recur and do not consider in our evaluation of ongoing performance.
(d) Reflects the extent to which our annual GAAP rent expense has been above or below our cash rent payment due to lease accounting adjustments. The adjustment varies depending on the average age of our lease portfolio (weighted for size), as our GAAP rent expense on younger leases typically exceeds our cash cost, while our GAAP rent expense on older leases is typically less than our cash cost.
(e) Includes charges incurred to restructure business operations at Elfa, including the sale of a subsidiary in Germany during fiscal 2012, which we do not consider in our evaluation of our ongoing performance.
(f) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period.
(g) Loss recorded as a result of the amendment made to the Senior Secured Term Loan Facility (as further discussed under Senior Secured Term Loan Facility below) in April 2013, which we do not consider in our evaluation of our ongoing operations.
(h) Realized foreign exchange transactional gains/losses.
(i) Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including costs incurred in preparation for being a public company and other charges.
(5) Adjusted net income and adjusted net income per common share diluted have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define adjusted net income as net income (loss) available to common shareholders before distributions accumulated to preferred shareholders, stock-based compensation and other costs in connection with our IPO, restructuring charges, impairment charges related to intangible assets, losses on extinguishment of debt, and the tax impact of these adjustments and other unusual or infrequent tax items.
We define adjusted net income per common share diluted as adjusted net income divided by the number of fully diluted shares outstanding as of the end of the current fiscal period (i.e. August 30, 2014), assuming those shares were outstanding at the beginning of all periods presented. We use adjusted net income and adjusted net income per common share diluted to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures.
A reconciliation of the GAAP financial measures of net income (loss) available to common shareholders and diluted net income (loss) per common share to the non-GAAP financial measures of adjusted net income and adjusted net income per common share - diluted is set forth below:
|
|
Thirteen Weeks Ended |
|
Twenty-Six Weeks Ended |
| ||||
|
|
August 30, |
|
August 31, |
|
August 30, |
|
August 31, |
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$6,955 |
|
$(17,744) |
|
$3,376 |
|
$(44,838) |
|
Distributions accumulated to preferred shareholders(a) |
|
|
|
21,851 |
|
|
|
44,150 |
|
IPO costs*(b) |
|
|
|
349 |
|
|
|
405 |
|
Restructuring charges+(c) |
|
|
|
120 |
|
|
|
361 |
|
Loss on extinguishment of debt*(d) |
|
|
|
|
|
|
|
1,101 |
|
Taxes(e) |
|
(1,839) |
|
(888) |
|
(1,839) |
|
(705) |
|
Adjusted net income |
|
$5,116 |
|
$3,688 |
|
$1,537 |
|
$474 |
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
48,539,762 |
|
2,929,165 |
|
48,611,985 |
|
2,929,468 |
|
Adjust weighting factor of outstanding shares(f) |
|
2,797 |
|
45,613,394 |
|
17,739 |
|
45,700,256 |
|
Adjusted weighted average common shares outstanding -diluted |
|
48,542,559 |
|
48,542,559 |
|
48,629,724 |
|
48,629,724 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income per common share - diluted |
|
$0.11 |
|
$0.08 |
|
$0.03 |
|
$0.01 |
|
(a) Distributions accumulated to preferred shareholders in arrears were eliminated in association with our IPO and are not considered in our evaluation of ongoing performance.
(b) Charges incurred in connection with our IPO, which we do not expect to recur and do not consider in our evaluation of ongoing performance.
(c) Includes charges incurred to restructure business operations at Elfa, including the sale of a subsidiary in Germany during fiscal 2012, which we do not consider in our evaluation of our ongoing performance.
(d) Loss recorded as a result of the amendment made to the Senior Secured Term Loan Facility in April 2013, which we do not consider in our evaluation of our ongoing performance.
(e) Tax impact of adjustments to net income (loss), as well as other unusual or infrequent tax items, including the impact of a$1.8 million reduction in tax expense recorded in fiscal 2014 related to an expected refund of tax paid in a prior period, as well as the exclusion of the impact of certain valuation allowances on deferred tax assets in fiscal 2013, which we do not consider in our evaluation of ongoing performance.
(f) Calculated based on assumption that the number of diluted shares outstanding as of the end of the current fiscal period (i.e. August 30, 2014) were outstanding at the beginning of all periods presented.
Thirteen Weeks Ended August 30, 2014 Compared to Thirteen Weeks Ended August 31, 2013
Net sales
The following table summarizes our net sales for the thirteen weeks ended August 30, 2014 and August 31, 2013:
|
|
Thirteen Weeks Ended | ||||||
|
|
August 30, |
|
% total |
|
August 31, |
|
% total |
TCS net sales |
|
$174,814 |
|
90.5% |
|
$165,320 |
|
90.0% |
Elfa third party net sales |
|
18,433 |
|
9.5% |
|
18,454 |
|
10.0% |
Net sales |
|
$193,247 |
|
100.0% |
|
$183,774 |
|
100.0% |
Net sales in the thirteen weeks ended August 30, 2014 increased by $9,473, or 5.2%, compared to the thirteen weeks ended August 31, 2013. This increase is comprised of the following components:
|
|
Net sales |
|
Net sales for the thirteen weeks ended August 31, 2013 |
|
$183,774 |
|
Incremental net sales increase (decrease) due to: |
|
|
|
New stores |
|
9,529 |
|
Comparable stores (including a $359, or 4.7%, increase in online sales) |
|
(901) |
|
Elfa third party net sales |
|
(21) |
|
Installation services |
|
684 |
|
Other |
|
182 |
|
Net sales for the thirteen weeks ended August 30, 2014 |
|
$193,247 |
|
The increase in net sales was driven by new stores, with nine stores generating $9,529 of incremental sales, five of which were opened in fiscal 2013 and four of which were opened in the first half of fiscal 2014. The comparable store sales operating measure based on merchandise orders placed during the second quarter of fiscal 2014 declined 0.4%, primarily due to a decrease in transactions, and was partially offset by an increase in average ticket. This led to a decline in net sales from comparable stores based on merchandise deliveries of $901. Elfas third party net sales increased by 3.7% in Swedish krona; however due to the depreciation of the Swedish krona against the US dollar, Elfas third party net sales in US dollars declined slightly by 0.1%. Installation services increased by $684, due to an ongoing, focused effort to increase the number of installed spaces sold.
Gross profit and gross margin
Gross profit in the thirteen weeks ended August 30, 2014 increased by $6,269, or 5.8%, compared to the thirteen weeks ended August 31, 2013. The increase in gross profit was primarily the result of increased sales, combined with improved gross margins. The following table summarizes the gross margin for the second quarter of fiscal 2014 and fiscal 2013 by segment and total. The segment margins include the impact of inter-segment sales from the Elfa segment to the TCS segment:
|
|
Thirteen Weeks Ended | ||
|
|
August 30, 2014 |
|
August 31, 2013 |
TCS gross margin |
|
59.3% |
|
58.8% |
Elfa gross margin |
|
34.7% |
|
36.3% |
Total gross margin |
|
58.8% |
|
58.4% |
TCS gross margin increased by 50 basis points, primarily due to increased margins in non-elfa® departments, partially offset by lower margins in elfa® branded products during the second quarter. The increased margins in non-elfa® departments were due to a shift in sales mix, whereas the lower margins of elfa® branded products were due to a shift in timing of promotions during the second quarter. Elfa segment gross margin declined primarily due to a shift in sales mix. On a consolidated basis, gross margin increased 40 basis points, as the decline in Elfa gross margin was more than offset by the improvement in TCS gross margin, due to a larger percentage of net sales coming from the TCS segment.
Selling, general and administrative expenses
Selling, general and administrative expenses in the thirteen weeks ended August 30, 2014 increased by $4,692, or 5.5%, compared to the thirteen weeks ended August 31, 2013. The increase in selling, general and administrative expenses was primarily due to the increase in sales. As a percentage of consolidated net sales, selling, general and administrative expenses increased by 10 basis points. The following table summarizes selling, general and administrative expenses as a percentage of consolidated net sales for the second quarter of fiscal 2014 and fiscal 2013:
|
|
Thirteen Weeks Ended | ||
|
|
August 30, 2014 |
|
August 31, 2013 |
|
|
% of net sales |
|
% of net sales |
TCS selling, general and administrative |
|
42.0% |
|
41.8% |
Elfa selling, general and administrative |
|
4.8% |
|
4.9% |
Total selling, general and administrative |
|
46.8% |
|
46.7% |
TCS selling, general and administrative expenses increased by 20 basis points as a percentage of total net sales. The increase was primarily due to increased costs as a result of being a public company, as well as implementation of strategic initiatives. Elfa selling, general and administrative expenses decreased by 10 basis points as a percentage of total net sales, primarily due to lower sales and marketing expenses during the quarter.
Pre-opening costs
Pre-opening costs increased by $387, or 19.6% in the thirteen weeks ended August 30, 2014 to $2,359, as compared to $1,972 in the thirteen weeks ended August 31, 2013. We opened one new store and relocated one store in each of the second quarters of fiscal 2014 and fiscal 2013; however, in fiscal 2014 we incurred increased costs due to the geographic locations of the store openings.
Interest expense
Interest expense decreased $1,136, or 20.6% in the thirteen weeks ended August 30, 2014 to $4,383 as compared to $5,519 in the thirteen weeks ended August 30, 2013, primarily due to lower interest rates and repayments on debt obligations. In November 2013, a second amendment to the Senior Secured Term Loan Facility (the Repricing Transaction) was executed, which lowered the interest rate to LIBOR + 3.25%, subject to a LIBOR floor of 1.00%. Additionally, a $31,000 repayment on the Senior Secured Term Loan Facility was made in November 2013.
Taxes
The provision for income taxes in the thirteen weeks ended August 30, 2014 was $1,476 as compared to $1,803 in the thirteen weeks ended August 31, 2013. The effective tax rate for the second quarter of fiscal 2014 was 17.5%, as compared to 30.5% in the second quarter of fiscal 2013. The decrease in the effective tax rate is primarily due to a $1.8 million reduction in tax expense recorded in fiscal 2014 primarily related to an expected refund of tax paid in a prior period, partially offset by a shift in the mix of projected domestic and foreign earnings.
Twenty-Six Weeks Ended August 30, 2014 Compared to Twenty-Six Weeks Ended August 31, 2013
Net sales
The following table summarizes our net sales for the twenty-six weeks ended August 30, 2014 and August 31, 2013:
|
|
Twenty-Six Weeks Ended | ||||||||
|
|
August 30, |
|
% total |
|
|
August 31, |
|
% total |
|
TCS net sales |
|
$324,543 |
|
88.5% |
|
$302,799 |
|
88.2% | ||
Elfa third party net sales |
|
42,142 |
|
11.5% |
|
40,620 |
|
11.8% | ||
Net sales |
|
$366,685 |
|
100.0% |
|
$343,419 |
|
100.0% |
Net sales in the first half of fiscal 2014 increased by $23,266, or 6.8%, compared to the first half of fiscal 2013. This increase is comprised of the following components:
|
|
Net sales |
Net sales for the twenty-six weeks ended August 31, 2013 |
|
$343,419 |
Incremental net sales increase due to: |
|
|
New stores |
|
17,634 |
Comparable stores (including a $1,907, or 13.6%, increase in online sales) |
|
1,935 |
Elfa third party net sales |
|
1,522 |
Installation services |
|
1,769 |
Other |
|
406 |
Net sales for the twenty-six weeks ended August 30, 2014 |
|
$366,685 |
The increase in net sales was driven by new stores, with nine stores generating $17,634 of incremental sales, five of which were opened in fiscal 2013 and four of which were opened in the first half of fiscal 2014. Although the comparable store sales operating measure based on merchandise orders placed during the first quarter of fiscal 2014 declined 0.6% during the first half of fiscal 2014, net sales from comparable stores based on merchandise deliveries increased by $1,935, primarily due to the weather-related extension of Our Annual elfa® Sale in the fourth quarter of fiscal 2013. This led to an increase in merchandise delivered to customers during the first half of fiscal 2014 as compared to the first half of fiscal 2013. Additionally, there was a $1,522 increase in Elfa third party net sales, which was primarily related to a promotional campaign in the first quarter of fiscal 2014, as well as improved market conditions in the Nordic market. Installation services increased by $1,769, due to an ongoing, focused effort to increase the number of installed spaces sold.
Gross profit and gross margin
Gross profit in the first half of fiscal 2014 increased by $13,917, or 6.9%, compared to the first half of fiscal 2013. The increase in gross profit was primarily the result of increased sales. The following table summarizes the gross margin for the first half of fiscal 2014 and fiscal 2013 by segment and total. The segment margins include the impact of inter-segment sales from the Elfa segment to the TCS segment:
|
|
Twenty-Six Weeks Ended | ||
|
|
August 30, 2014 |
|
August 31, 2013 |
TCS gross margin |
|
58.8% |
|
58.8% |
Elfa gross margin |
|
37.9% |
|
38.3% |
Total gross margin |
|
58.5% |
|
58.4% |
TCS gross margin remained consistent at 58.8% for the first half of fiscal 2014, with increased discounting of our elfa® department in the first half of fiscal 2014 primarily due to the weather related extension of Our Annual elfa® Sale in the fourth quarter of fiscal 2013, completely offset by increased gross margins in other departments. Elfa segment gross margin declined primarily due to a shift in sales mix. On a consolidated basis, gross margin increased 10 basis points, as the decline in Elfa gross margin was more than offset by the impact of TCS gross margin, due to a larger percentage of net sales coming from the TCS segment.
Selling, general and administrative expenses
Selling, general and administrative expenses in the first half of fiscal 2014 increased by $12,432, or 7.3%, compared to the first half of fiscal 2013. The increase in selling, general and administrative expenses was primarily due to the increase in sales. As a percentage of consolidated net sales, selling, general and administrative expenses increased by 30 basis points. The following table summarizes selling, general and administrative expenses as a percentage of consolidated net sales for the first half of fiscal 2014 and fiscal 2013:
|
|
Twenty-Six Weeks Ended | ||
|
|
August 30, 2014 |
|
August 31, 2013 |
|
|
% of net sales |
|
% of net sales |
TCS selling, general and administrative |
|
43.9% |
|
43.4% |
Elfa selling, general and administrative |
|
5.7% |
|
5.9% |
Total selling, general and administrative |
|
49.6% |
|
49.3% |
TCS selling, general and administrative expenses increased by 50 basis points as a percentage of total net sales. The increase was primarily due to increased costs as a result of being a public company, as well as preparation for future growth and implementation of strategic initiatives. Elfa selling, general and administrative expenses decreased by 20 basis points as a percentage of total net sales. The decrease was primarily due to lower sales and marketing expenses and favorable transactional exchange rates.
Pre-opening costs
Pre-opening costs increased by $1,412, or 35.9% in the first half of fiscal 2014 to $5,346, as compared to $3,934 in the first half of fiscal 2013. We opened four new stores and relocated one store in the first half of fiscal 2014, and we opened three new stores and relocated one store in the first half of fiscal 2013. Additionally, we incurred increased costs associated with the geographic locations of the store openings in fiscal 2014 as compared to fiscal 2013.
Interest expense
Interest expense decreased $2,389, or 21.6% in the first half of fiscal 2014 to $8,685 as compared to $11,074 in the first half of fiscal 2013, primarily due to lower interest rates and repayments on debt obligations. In April 2013, The Container Store, Inc. executed an amendment to the Senior Secured Term Loan Facility (the Increase and Repricing Transaction), whereby borrowings under the Senior Secured Term Loan Facility were increased by $90,000 and accrued interest at a lower rate of LIBOR plus 4.25%, subject to a LIBOR floor of 1.25%. Further, in November 2013, the Repricing Transaction was executed. The Senior Secured Term Loan Facility now accrues interest at a rate of LIBOR + 3.25%, subject to a LIBOR floor of 1.00%. Additionally, a $31,000 repayment on the Senior Secured Term Loan Facility was made in November 2013.
Loss on extinguishment of debt
In the first half of fiscal 2013, we recorded expenses of $1,101 associated with the Increase and Repricing Transaction in April 2013, including the acceleration of deferred financing costs, legal fees, and other associated costs.
Taxes
The benefit for income taxes in the first half of fiscal 2014 was $452 as compared to $217 in the first half of fiscal 2013. The effective tax rate for the first half of fiscal 2014 was (15.5%), as compared to 24.0% in the first half of fiscal 2013. The decrease in the effective tax rate was driven by a $1.8 million reduction in tax expense in fiscal 2014 primarily related to an expected refund of tax paid in a prior period, partially offset by the impact of an increase in pre-tax earnings from fiscal 2013 to fiscal 2014 and a change in mix between projected domestic and foreign earnings.
Liquidity and Capital Resources
We rely on cash flows from operations, a $75,000 asset-based revolving credit agreement (the Revolving Credit Facility as further discussed under Revolving Credit Facility below), and the SEK 140.0 million (approximately $20,071 as of August 30, 2014) 2014 Elfa revolving credit facility (the 2014 Elfa Revolving Credit Facility as further discussed under Elfa Senior Secured Credit Facilities and 2014 Elfa Senior Secured Credit Facilities below) as our primary sources of liquidity. Our primary cash needs are for merchandise inventories, direct materials, payroll, store rent, capital expenditures associated with opening new stores and updating existing stores, as well as information technology and infrastructure, including distribution center and Elfa manufacturing facility enhancements. The most significant components of our operating assets and liabilities are merchandise inventories, accounts receivable, prepaid expenses and other assets, accounts payable, other current and non-current liabilities, taxes receivable and taxes payable. Our liquidity is seasonal as a result of our building inventory for key selling periods, and as a result, our borrowings are generally higher during these periods when compared to the rest of our fiscal year. Our borrowings generally increase in our second and third fiscal quarters as we prepare for Our Annual elfa® Sale which is in our fourth fiscal quarter. We believe that cash expected to be generated from operations and the availability of borrowings under the Revolving Credit Facility will be sufficient to meet liquidity requirements, anticipated capital expenditures, and payments due under our existing credit facilities for at least the next 24 months.
At August 30, 2014, we had $15,298 of cash and $54,844 of additional availability under the Revolving Credit Facility and approximately $3,292 of additional availability under the 2014 Elfa Revolving Credit Facility. There were $3,136 in letters of credit outstanding under the Revolving Credit Facility at that date.
Cash flow analysis
A summary of our operating, investing and financing activities are shown in the following table:
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Twenty-Six Weeks Ended | ||
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August 30, |
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August 31, |
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2014 |
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2013 |
Net cash provided by operating activities |
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$11,184 |
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$9,335 |
Net cash used in investing activities |
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(30,911) |
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(22,660) |
Net cash provided by financing activities |
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17,296 |
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843 |
Effect of exchange rate changes on cash |
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(317) |
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(125) |
Net decrease in cash |
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$(2,748) |
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$(12,607) |
Net cash provided by operating activities
Cash from operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, deferred taxes and the effect of changes in operating assets and liabilities.
Net cash provided by operating activities was $11,184 for the twenty-six weeks ended August 30, 2014. Non-cash items of $16,109 and net income of $3,376 were offset by a net change in operating assets and liabilities of $8,301, primarily due to an increase in merchandise inventory during the twenty-six weeks ended August 30, 2014.
Net cash provided by operating activities was $9,335 for the twenty-six weeks ended August 31, 2013. Non-cash items of $17,039 were offset by a net loss of $688 and a net change in operating assets and liabilities of $7,016, primarily due to an increase in merchandise inventory during the twenty-six weeks ended August 31, 2013.
Net cash used in investing activities
Investing activities consist primarily of capital expenditures for new store openings, existing store remodels, infrastructure, information systems, and our distribution center.
Our total capital expenditures for the twenty-six weeks ended August 30, 2014 were $30,917 with new store openings and existing store remodels accounting for the majority of spending at $19,205. We opened four new stores and relocated one store during the first half of fiscal 2014. The remaining capital expenditures of $11,712 were primarily for investments in information technology, our corporate offices and distribution center and Elfa manufacturing facility enhancements.
Our total capital expenditures for the twenty-six weeks ended August 31, 2013 were $23,049 with new store openings and existing store remodels accounting for the majority of spending at $14,381. We opened three new stores and relocated one store during the first half of fiscal 2013. The remaining capital expenditures of $8,668 were primarily for investments in information technology, our corporate offices and distribution center.
Net cash provided by financing activities
Financing activities consist primarily of borrowings and payments under the Senior Secured Term Loan Facility, the Revolving Credit Facility, and the Elfa Revolving Credit Facility.
Net cash provided by financing activities was $17,296 for the twenty-six weeks ended August 30, 2014. This included net proceeds of $13,000 from borrowings under the Revolving Credit Facility combined with net proceeds of $6,557 from borrowings under the Elfa Senior Secured Credit Facilities, 2014 Elfa Senior Secured Credit Facilities and a short term credit facility (the Short Term Credit Facility, as further discussed under Elfa Senior Secured Credit Facilities and 2014 Elfa Senior Secured Credit Facilities below) to support higher working capital needs. The net proceeds of the Revolving Credit Facility were offset by payments of $2,935 for repayment of long-term indebtedness. In addition, the Company received proceeds of $664 from the exercise of stock options.
Net cash provided by financing activities was $843 for the twenty-six weeks ended August 31, 2013. This included net proceeds of $8,213 from borrowings under the Elfa Revolving Credit Facility to support higher working capital needs as well as net proceeds of $85,729 from borrowings under the Senior Secured Term Loan Facility and the Elfa Senior Secured Credit Facility, which were used to finance a $90,000 distribution to holders of our senior preferred stock. In addition, we paid $3,046 in debt issuance costs and paid $53 for the repurchase of treasury stock.
As of August 30, 2014, we had a total of $54,844 of unused borrowing availability under the Revolving Credit Facility, and $3,136 in letters of credit issued under the Revolving Credit Facility. There were $13,000 of borrowings outstanding under the Revolving Credit Facility as of August 30, 2014.
As of August 30, 2014, Elfa had a total of $3,292 of unused borrowing availability under the 2014 Elfa Revolving Credit Facility and $16,779 outstanding under the 2014 Elfa Revolving Credit Facility.
Senior Secured Term Loan Facility
On April 6, 2012, The Container Store Group, Inc., The Container Store, Inc. and certain of its domestic subsidiaries entered into a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the lenders party thereto (the Senior Secured Term Loan Facility). Prior to the Increase and Repricing Transaction, as discussed below, borrowings under the Senior Secured Term Loan Facility accrued interest at LIBOR+5.00%, subject to a LIBOR floor of 1.25%.
On April 8, 2013, The Container Store Group, Inc., The Container Store, Inc. and certain of its domestic subsidiaries entered into the Increase and Repricing Transaction, pursuant to which the borrowings under the Senior Secured Term Loan Facility were increased by $90,000 to $362,250 and the interest rate on such borrowings was decreased to a rate of LIBOR + 4.25%, subject to a LIBOR floor of 1.25%. The maturity date remained as April 6, 2019. Additionally, pursuant to the Increase and Repricing Transaction (i) the senior secured leverage ratio covenant previously in effect was eliminated and (ii) we are required to make quarterly principal repayments of $906 through December 31, 2018, with a balloon payment for the remaining balance of $341,421 due on April 6, 2019. The additional $90,000 of borrowings was used to finance a distribution to holders of our senior preferred stock in the amount of $90,000, which was paid on April 9, 2013.
On November 8, 2013, net proceeds of $31,000 from the IPO were used to repay a portion of the outstanding borrowings under the Senior Secured Term Loan Facility.
On November 27, 2013, The Container Store Group, Inc., The Container Store, Inc. and certain of its domestic subsidiaries entered into the Repricing Transaction. Pursuant to the Repricing Transaction, borrowings accrue interest at a lower rate of LIBOR + 3.25%, subject to a LIBOR floor of 1.00% . The maturity date remained as April 6, 2019 and we continue to be required to make quarterly principal repayments of $906 through December 31, 2018, with a balloon payment for the remaining balance of $310,421 due on April 6, 2019.
The Senior Secured Term Loan Facility is secured by (a) a first priority security interest in substantially all of our assets (excluding stock in foreign subsidiaries in excess of 65%, assets of non-guarantors and subject to certain other exceptions) (other than the collateral that secures the Revolving Credit Facility described below on a first-priority basis) and (b) a second priority security interest in the assets securing the Revolving Credit Facility described below on a first-priority basis. Obligations under the Senior Secured Term Loan Facility are guaranteed by The Container Store Group, Inc. and each of The Container Store, Inc.s U.S. subsidiaries. The Senior Secured Term Loan Facility contains a number of covenants that, among other things, restrict our ability, subject to specified exceptions, to incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve ourselves, engage in businesses that are not in a related line of business; make loans, advances or guarantees; engage in transactions with affiliates; and make investments. In addition, the financing agreements contain certain cross-default provisions. As of August 30, 2014, we were in compliance with all covenants and no Event of Default (as such term is defined in the Senior Secured Term Loan Facility) had occurred.
Revolving Credit Facility
On April 6, 2012, The Container Store Group, Inc., The Container Store, Inc. and certain of its domestic subsidiaries entered into a $75,000 asset-based revolving credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and Wells Fargo Bank, National Association, as Syndication Agent (the Revolving Credit Facility). Borrowings under the Revolving Credit Facility accrue interest at LIBOR+1.25% to 1.75%, subject to adjustment based on average daily excess availability over the preceding quarter, and the maturity date is April 6, 2017.
The Revolving Credit Facility is to be used for working capital and other general corporate purposes. The Revolving Credit Facility allows for swing line advances to The Container Store, Inc. of up to $7,500 and the issuance of letters of credit of up to $20,000. The availability of credit at any given time under the Revolving Credit Facility is limited by reference to a borrowing base formula based upon numerous factors, including the value of eligible inventory, eligible accounts receivable, and reserves established by the administrative agent. As a result of the borrowing base formula, the actual borrowing availability under the Revolving Credit Facility could be less than the stated amount of the Revolving Credit Facility (as reduced by the actual borrowings and outstanding letters of credit under the Revolving Credit Facility).
The Revolving Credit Facility is secured by (a) a first-priority security interest in substantially all of our personal property, consisting of inventory, accounts receivable, cash, deposit accounts, and other general intangibles, and (b) a second-priority security interest in the collateral that secures the Senior Secured Term Loan Facility on a first-priority basis, as described above (excluding stock in foreign subsidiaries in excess of 65%, and assets of non-guarantor subsidiaries and subject to certain other exceptions). Obligations under the Revolving Credit Facility are guaranteed by The Container Store Group, Inc. and each of The Container Store, Inc.s U.S. subsidiaries.
The Revolving Credit Facility contains a number of covenants that, among other things, restrict our ability, subject to specified exceptions, to incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve ourselves, engage in businesses that are not in a related line of business; make loans, advances or guarantees; engage in transactions with affiliates; and make investments. In addition, the financing agreements contain certain cross-default provisions. We are required to maintain a consolidated fixed-charge coverage ratio of 1.0 to 1.0 if excess availability is less than $10,000 at any time. As of August 30, 2014, we were in compliance with all covenants and no Event of Default (as such term is defined in the Revolving Credit Facility) has occurred.
Elfa Senior Secured Credit Facilities and 2014 Elfa Senior Secured Credit Facilities
On April 27, 2009, Elfa entered into the Elfa Senior Secured Credit Facilities with Tjustbygdens Sparbank AB, which we refer to as Sparbank, which consisted of a SEK 137.5 million (approximately $19,712 as of August 30, 2014) term loan facility, which we refer to as the Elfa Term Loan Facility, and the Elfa Revolving Credit Facility and, together with the Elfa Term Loan Facility, the Elfa Senior Secured Credit Facilities. On January 27, 2012, Sparbank transferred all of its commitments, rights and obligations under the Elfa Senior Secured Credit Facilities to Swedbank AB. Borrowings under the Elfa Senior Secured Credit Facilities accrued interest at a rate of STIBOR+1.775%. Elfa was required to make quarterly principal repayments under the Elfa Term Loan Facility of SEK 6.25 million (approximately $896 as of August 30, 2014) through maturity. The Elfa Senior Secured Credit Facilities were secured by first priority security interests in substantially all of Elfas assets. The Elfa Term Loan Facility and the Elfa Revolving Credit Facility matured on August 30, 2014 and were replaced with the 2014 Elfa Senior Secured Credit Facilities as discussed below.
On April 1, 2014, Elfa entered into a master credit agreement with Nordea Bank AB (Nordea), which consists of a SEK 60.0 million (approximately $8.6 million as of August 30, 2014) term loan facility (the 2014 Elfa Term Loan Facility) and a SEK 140.0 million (approximately $20.1 million as of August 30, 2014) revolving credit facility (the 2014 Elfa Revolving Credit Facility, and together with the 2014 Elfa Term Loan Facility, the 2014 Elfa Senior Secured Credit Facilities). The 2014 Elfa Senior Secured Credit Facilities term began on August 29, 2014 and matures on August 29, 2019, or such shorter period as provided by the agreement. Elfa is required to make quarterly principal payments under the 2014 Elfa Term Loan Facility in the amount of SEK 3.0 million (approximately $0.4 million as of August 30, 2014) through maturity. The 2014 Elfa Term Loan Facility bears interest at STIBOR + 1.7% and the 2014 Elfa Revolving Credit Facility bears interest at Nordeas base rate + 1.4%, and these rates are applicable until August 29, 2017, at which time the interest rates may be renegotiated at the request of either party to the agreement. Should the parties fail to agree on new interest rates, Elfa has the ability to terminate the agreement on August 29, 2017, at which time all borrowings under the agreement shall be paid in full to Nordea.
The 2014 Elfa Senior Secured Credit Facilities contains a number of covenants that, among other things, restrict Elfas ability, subject to specified exceptions, to incur additional liens, sell or dispose of assets, merge with other companies, engage in businesses that are not in a related line of business and make guarantees. In addition, Elfa is required to maintain (i) a consolidated equity ratio (as defined in the 2014 Elfa Senior Secured Credit Facilities) of not less than 30% in year one and not less than 32.5% thereafter and (ii) a consolidated ratio of net debt to EBITDA (as defined in the 2014 Elfa Senior Secured Credit Facilities) of less than 3.2, the consolidated equity ratio tested at the end of each calendar quarter and the ratio of net debt to EBITDA tested as of the end of each fiscal quarter. As of August 30, 2014, Elfa was in compliance with all covenants and no Event of Default (as defined in the 2014 Elfa Senior Secured Credit Facilities) had occurred.
On May 13, 2014, Elfa entered into a credit facility with Nordea for SEK 15.0 million (the Short Term Credit Facility). The Short Term Credit Facility accrued interest at 2.53% and matured on August 28, 2014, at which time all borrowings under the agreement were paid in full to Nordea (approximately $2.2 million as of August 28, 2014). The total amount of borrowings available under the Short Term Credit Facility was used to pay a mortgage owed on the Poland manufacturing facility in full in the first quarter of fiscal 2014.
Critical accounting policies and estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. A summary of the Companys significant accounting policies is included in Note 1 to the Companys annual consolidated financial statements in the Companys Annual Report on Form 10-K for the fiscal year ended March 1, 2014, filed with the SEC on May 28, 2014.
Certain of the Companys accounting policies and estimates are considered critical, as these policies and estimates are the most important to the depiction of the companys consolidated financial statements and require significant, difficult, or complex judgments, often about the effect of matters that are inherently uncertain. Such policies are summarized in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended March 1, 2014, filed with the SEC on May 28, 2014. As of August 30, 2014, there were no significant changes to any of our critical accounting policies and estimates.
Contractual obligations
There have been no significant changes to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended March 1, 2014, filed with the SEC on May 28, 2014, other than those which occur in the normal course of business.
Off Balance Sheet Arrangements
We are not party to any off balance sheet arrangements.
Recent Accounting Pronouncements
Please refer to Note 1 of our unaudited consolidated financial statements for a summary of recent accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency risk
We are subject to foreign currency risk in connection with the operations of Elfa. All assets and liabilities of foreign subsidiaries are translated at year end rates of exchange, with the exception of certain assets and liabilities that are translated at historical rates of exchange. Revenues, expenses, and cash flows of foreign subsidiaries are translated at weighted-average rates of exchange for the year. Based on the average exchange rate from Swedish krona to U.S. dollar during the twenty-six weeks ended August 30, 2014, and results of operations and financial condition in functional currency, we do not believe that a 10% change in the exchange rate would have a material effect on our consolidated results of operations or financial condition.
We are also subject to foreign currency risk in connection with the purchase of inventory from Elfa. We utilize foreign currency forward contracts to mitigate this risk. During the twenty-six weeks ended August 30, 2014 and August 31, 2013, the Company used forward contracts for 27.9% and 76.4% of inventory purchases in Swedish krona at an average SEK rate of 6.7 in each period. Currently, we have hedged 47% of our planned inventory purchases for fiscal 2014 at an average SEK rate of 6.81 compared to 64% of planned purchases hedged in fiscal 2013 at an average SEK rate of 6.73.
Interest rate risk
We are subject to interest rate risk in connection with borrowings under the Senior Secured Term Loan Facility, the Revolving Credit Facility and the 2014 Elfa Senior Secured Credit Facilities, which accrue interest at variable rates. At August 30, 2014, borrowings subject to interest rate risk were $365,103, we had $54,844 of additional availability under the Revolving Credit Facility and approximately $3,292 of additional availability under the 2014 Elfa Revolving Credit Facility. We currently do not engage in any interest rate hedging activity; however we will continue to monitor the interest rate environment. Based on the average interest rate on each of the Revolving Credit Facility and the 2014 Elfa Revolving Credit Facility during the twenty-six weeks ended August 30, 2014, and to the extent that borrowings were outstanding, we do not believe that a 10% change in the interest rate would have a material effect on our consolidated results of operations or financial condition.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial.
ITEM 4. CONTROLS AND PROCEDURES
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of August 30, 2014.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in managements evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended August 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are subject to various legal proceedings and claims, including employment claims, wage and hour claims, intellectual property claims, contractual and commercial disputes and other matters that arise in the ordinary course of business. While the outcome of these and other claims cannot be predicted with certainty, management does not believe that the outcome of these matters will have a material adverse effect on our business, results of operations or financial condition on an individual basis or in the aggregate.
There have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended March 1, 2014, filed with the SEC on May 28, 2014.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
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Incorporated by Reference | ||||||||
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Exhibit Description |
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3.1 |
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Amended and Restated Certificate of Incorporation of The Container Store Group, Inc. |
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10-Q |
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001-36161 |
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3.1 |
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1/10/14 |
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Amended and Restated By-laws of The Container Store Group, Inc. |
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10.1 |
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Employment Agreement, dated 9/1/2014, between The Container Store Group, Inc. and Peter Lodwick |
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31.1 |
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Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) |
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Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) |
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Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 |
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Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
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101.INS |
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XBRL Instance Document |
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XBRL Taxonomy Extension Schema Document |
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XBRL Taxonomy Calculation Linkbase Document |
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XBRL Taxonomy Extension Definition Linkbase Document |
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XBRL Taxonomy Extension Label Linkbase Document |
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XBRL Taxonomy Extension Presentation |
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* Filed herewith.
** Furnished herewith.
In accordance with Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of Section 13 or 15(d) 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.
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The Container Store Group, Inc. | |
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(Registrant) | |
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Date: October 10, 2014 |
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/s/ Jodi L. Taylor |
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Jodi L. Taylor | |
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Chief Financial Officer (duly authorized officer and Principal Financial Officer) | |
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/s/ Jeffrey A. Miller |
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Jeffrey A. Miller | |
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Chief Accounting Officer (Principal Accounting Officer) |
Exhibit 10.1
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement (the Agreement) is entered into on July 28, 2014, and effective as of September 1, 2014 (the Effective Date), by and between Peter Lodwick (the Executive) and The Container Store Group, Inc., a Delaware corporation (Parent), and any of its subsidiaries and affiliates as may employ the Executive from time to time (collectively, and together with any successor thereto, the Company).
RECITALS
WHEREAS, the Company desires to assure itself of the continued services of the Executive by engaging the Executive to perform services on the terms and subject to the conditions set out in this Agreement;
WHEREAS, the Executive desires to provide services to the Company on the terms and subject to the conditions set out in this Agreement; and
WHEREAS, the Company and the Executive desire to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I.
DEFINED TERMS
1.1 Previously Defined Terms. As used herein, each term defined in the first paragraph and recitals of this Agreement shall have the meaning set forth above.
1.2 Definitions. As used herein, the following terms shall have the following respective meanings:
(a) Affiliate means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. As used in the preceding sentence, control has the meaning given such term under Rule 405 of the Securities Act of 1933, as amended.
(b) Annual Base Salary has the meaning set forth in Section 3.1.
(c) Board means the Board of Directors of the Parent.
(d) The Company shall have Cause to terminate the Executives employment hereunder upon the occurrence of any one or more of the following events: (i) a material breach by the Executive of any material provision of this Agreement which is not corrected by the Executive within thirty (30) days after receipt of written notice from the Company specifying such breach, to the extent such breach is capable of cure; (ii) the Executives conviction of, or entry by the Executive of a guilty or nolo contendere plea to, the commission of a felony or a crime involving moral turpitude, other than vicarious liability or traffic violations; (iii) the Executives intentional breach of Company policies constituting theft
or embezzlement from the Company or any of its customers or suppliers; or (iv) the Executives gross neglect or intentional misconduct in connection with the performance of any material portion of the Executives duties (which, in the case of the Executives gross neglect, is not corrected by the Executive within thirty (30) days after receipt of written notice from the Company specifying such neglect, to the extent that such neglect is capable of cure).
(e) Change in Control means the occurrence of any of the following events: (i) a change in ownership or control of Parent effected through a transaction or series of transactions (other than an offering of equity securities of Parent or any of its subsidiaries to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any person or related group of persons (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) (other than Parent, any of its subsidiaries, any employee benefit plan maintained by Parent or any of its subsidiaries, any Principal Stockholder or any person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, Parent or a Principal Stockholder) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of Parent possessing more than fifty percent (50%) of the total combined voting power of Parents securities outstanding immediately after such acquisition; (ii) individuals who, as of the Effective Date, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election by Parents stockholders, or nomination for election by the Board, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board; or (iii) the consummation by Parent (whether directly involving Parent or indirectly involving Parent through one or more intermediaries) of a sale or other disposition of all or substantially all of Parents assets, other than a transaction which results in Parents voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of Parent or the person that, as a result of the transaction, controls, directly or indirectly, Parent or owns, directly or indirectly, all or substantially all of Parents assets or otherwise succeeds to the business of Parent (Parent or such person, the Successor Entity)) directly or indirectly, at least a majority of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction.
(f) Compensation Committee means the Culture and Compensation Committee of the Board.
(g) Competitive Business has the meaning set forth in Section 6.1.
(h) Continuation Period has the meaning set forth in Section 5.2(a).
(i) Credit Agreement has the meaning set forth in Section 3.2.
(j) Date of Termination means: (i) if the Executives employment is terminated by his death, the date of his death; (ii) if the Executives employment is terminated
pursuant to Sections 4.1(b)-(f), either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 4.2, whichever is earlier; or (iii) if the Executives employment is terminated due to the expiration of the Term under Section 2.2, the date of expiration of the then-current Term.
(k) Disability means the Executives incapacity to perform the essential duties of his position for any six (6) months (whether or not consecutive) during any twelve (12) month period due to the Executives physical or mental illness, as determined by a physician mutually acceptable to, and agreed to in good faith by, a majority of the Board and the Executive.
(l) Fiscal Quarter means the fiscal quarter of the Company, as in effect from time to time.
(m) Fiscal Year means the fiscal year of the Company, as in effect from time to time.
(n) The Executive shall have Good Reason to resign from his employment hereunder upon the occurrence of any one or more of the following events without his prior written consent: (i) an adverse change in the Executives title or reporting line or the Executives material duties, authorities or responsibilities; (ii) the assignment to the Executive of duties materially inconsistent with his position; (iii) a material breach by the Company of any material provision of this Agreement; (iv) a reduction of the Executives Annual Base Salary or benefits hereunder (other than any such reduction which is part of, and generally consistent with, a general reduction affecting other similarly situated executives of the Company) or Performance Bonus opportunity (it being understood that the Performance Targets shall be determined from time to time by the Board); (v) failure of the Company to pay any portion of the Annual Base Salary or Performance Bonus otherwise payable to the Executive or to provide the benefits set forth in Section 3.3 (other than as provided in clause (iv) above); (vi) the Companys requiring the Executive to be headquartered at any office or location more than fifty (50) miles from Coppell, Texas, or (vii) the termination of the employment of any of Kip Tindell, Sharon Tindell or Melissa Reiff by the Company without Cause or by such executive for Good Reason (each such term as defined in the applicable executives employment agreement); provided, however, that notwithstanding any of the foregoing the Executive may not resign from his employment for Good Reason unless: (A) the Executive provides the Company with at least sixty (60) days prior written Notice of Termination of his intent to resign for Good Reason and (B) the Company has not corrected the circumstances constituting Good Reason prior to the Date of Termination specified in the Notice of Termination; provided that such Notice of Termination may not be given later than ninety (90) days after the initial occurrence of the event constituting Good Reason; provided, further, that notwithstanding anything herein to the contrary, a termination of employment by the Executive for any reason pursuant to a Notice of Termination given during the thirty (30) day period immediately following the six (6) month anniversary of the occurrence of a Change in Control shall be deemed to be termination of employment for Good Reason.
(o) Guaranteed Bonus Date shall have the meaning set forth in Section 3.2.
(p) Health Gross-Up Payment means an additional amount equal to the federal, state and local income and payroll taxes that the Executive incurs on each monthly Health Payment.
(q) Health Payment means the monthly premium amount paid by the Executive pursuant to Section 5.2(a) or 5.2(b), as applicable.
(r) Incumbent Board has the meaning set forth in Section 1.2(e).
(s) Initial Term has the meaning set forth in Section 2.2.
(t) Notice of Termination has the meaning set forth in Section 4.2.
(u) Performance Bonus has the meaning set forth in Section 3.2.
(v) Performance Target has the meaning set forth in Section 3.2.
(w) Person means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.
(x) Principal Stockholders means Green Equity Investors V, L.P., Green Equity Investors Side V, L.P., and any Affiliate thereof.
(y) Proprietary Information has the meaning set forth in Section 7.1.
(z) Restricted Period has the meaning set forth in Section 6.1.
(aa) Retirement Continuation Period has the meaning set forth in Section 5.2(c).
(bb) Section 409A means Section 409A of the United States Internal Revenue Code of 1986, as amended, and the Department of Treasury regulations and other interpretive guidance issued with respect thereto.
(cc) Successor Entity has the meaning set forth in Section 1.2(e).
(dd) Term has the meaning set forth in Section 2.2.
ARTICLE II.
EMPLOYMENT
2.1 Employment of Executive. The Company hereby agrees to employ the Executive, and the Executive agrees to enter into the employ of the Company, on the terms and subject to the conditions herein provided.
2.2 Term. The term of employment under this Agreement (the Initial Term) shall be for the period beginning on the Effective Date and ending on the fifth (5th) anniversary thereof, unless earlier terminated as provided in Section 4.1. On the fifth (5th) anniversary of the Effective Date and on each subsequent anniversary of the Effective Date, the employment term
hereunder shall automatically be extended for successive one (1)-year periods (such periods, together with the Initial Term, the Term), unless either the Executive or the Company elects not to so extend the Term by notifying the other party in writing of such election no later than ninety (90) days prior to the last day of the then-current Term.
2.3 Position and Duties. During the Term, the Executive shall serve as the Companys Vice President and General Counsel with such customary responsibilities, duties and authority as may from time to time be assigned to the Executive by the Chairman and Chief Executive Officer and President and Chief Operating Officer. Such duties, responsibilities and authority may include services for one or more subsidiaries or Affiliates of the Company. The Executive shall report directly to the Chairman and Chief Executive Officer and the President and Chief Operating Officer of the Company. The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company but shall be entitled to serve in a director or trustee capacity upon the prior written consent of the Chief Executive Officer or the President and Chief Operating Officer, which shall not be unreasonably withheld, and provided such opportunity does not result in a breach of the covenants set forth in Section 6.1. The Executive agrees to observe and comply with the Companys rules and policies, as the same may be adopted and amended from time to time.
ARTICLE III.
COMPENSATION AND RELATED MATTERS
3.1 Annual Base Salary. During the Term, the Executive shall receive a base salary at an initial rate of $450,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company, subject to review every 20-24 months for possible increase, but not decrease, in the Boards discretion (the Annual Base Salary).
3.2 Bonus. With respect to the twelve-month period immediately following the Effective Date, the Executive shall be entitled to receive a guaranteed bonus of $200,000, which shall be payable in four equal installments of $50,000 subject to the Executives continued employment through December 1, 2014, March 1, 2015 June 1, 2015 and September 1, 2015 respectively (each such date, a Guaranteed Bonus Date). Each such installment shall be payable on the first regular payroll date following the Guaranteed Bonus Date. With respect to each Fiscal Quarter beginning with the Fiscal Quarter that begins on September 1 2015, the Executive shall be eligible to receive a quarterly cash bonus (the Performance Bonus) based upon Company EBITDA and/or other financial and non-financial performance targets (the Performance Targets), established by the Board; provided that if any such Performance Target is based on Company EBITDA, EBITDA shall be determined in the same manner, and with the same adjustments, as Consolidated EBITDA (as defined in the Credit Agreement, entered into as of April 6, 2012, among the Company, the Guarantors (as defined therein) party thereto, the Lenders (as defined therein), JPMorgan Chase Bank, N.A., and the other parties thereto, as amended from time to time (the Credit Agreement)), is determined for purposes of the Credit Agreement. Notwithstanding the foregoing, in the discretion of the Company, the Performance Bonus may be modified to be payable based on performance periods of up to one year; provided that the performance bonus periods applicable to the Executive shall be comparable to those applicable to similarly situated employees of the Company. The amount of each Performance Bonus shall be no less than 0.19% of the Company EBITDA for the applicable quarter (or other performance period, as applicable). The amount of each Performance Bonus shall be based upon
the Companys attainment of the Performance Targets, as determined by the Board (or any authorized committee of the Board). Each such Performance Bonus shall be payable as soon as reasonably practicable following the completion of the Fiscal Quarter (or other performance period) to which such Performance Bonus relates, but in any event within the period required by Section 409A, such that it qualifies as a short-term deferral pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations. Notwithstanding the foregoing, except as set forth in Article V, no bonus shall be payable with respect to any Fiscal Quarter (or other performance period) unless the Executive remains continuously employed with the Company during the period beginning on the Effective Date and ending on the last day of such Fiscal Quarter (or other performance period). To the extent that the Company becomes subject to Section 162(m) of the Code (and all applicable post-initial public offering transition periods have expired with respect to applicable Company plans) and the Executive is or may be reasonably be expected to become a covered employee within the meaning of Section 162(m) of the Code, the Performance Bonus for any applicable Fiscal Quarter (or other performance period) will be payable pursuant to a qualified performance-based compensation bonus plan that has been approved by the stockholders of the Company in accordance with the provisions for such approval under Section 162(m) of the Code and the regulations promulgated thereunder, and on the basis of the Executives or the Companys attainment of objective financial or other operating criteria established by the Compensation Committee in its sole good faith discretion and in accordance with Section 162(m) of the Code and the regulations promulgated thereunder.
3.3 Benefits. During the Term, the Executive shall be entitled to the following benefits: (a) participation in the Companys employee health and welfare benefit plans and programs and arrangements which are applicable to the Companys senior executives as may be adopted by the Company from time to time, subject to the terms and conditions of the applicable employee benefit plan, program or arrangement, and (b) indemnification and/or directors and officers liability insurance coverage insuring the Executive against insurable events which occur while the Executive is a director or executive officer of the Company, on terms and conditions that are comparable to those then provided to other current or former directors or executive officers of the Company.
3.4 Vacation and Holidays. During the Term, the Executive shall be entitled to paid vacation and holidays in accordance with the Companys policies applicable to senior executives of the Company, provided that the Executive shall be entitled to paid vacation of no less than four (4) weeks for each full Fiscal Year during the Term. Any vacation shall be taken at the reasonable and mutual convenience of the Company and the Executive.
3.5 Expenses. During the Term, the Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by him in the performance of his duties to the Company in accordance with the Companys expense reimbursement policy.
3.6 Options. On the Effective Date, the Executive shall be granted stock options under the Companys 2013 Incentive Award Plan with a Black-Scholes value of $250,000, which will have an exercise price per share equal to the closing price per share of the Companys stock on the date of grant. Such options shall vest ratably in equal annual installments over seven (7) years and shall be subject to acceleration as provided under the Companys 2013 Incentive Award Plan. In addition, during the Term, the Executive shall be entitled to receive annual option grants under the Companys 2013 Incentive Award Plan (or successor plan) in
substantially comparable amounts and on substantially comparable terms as annual option grants made to other vice presidents of the Company.
ARTICLE IV.
TERMINATION
4.1 Circumstances. During the Term, the Executives employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances:
(a) Death. The Executives employment hereunder shall terminate upon his death.
(b) Disability. If the Executive has incurred a Disability, the Company may terminate the Executives employment due thereto.
(c) Termination for Cause. The Company may terminate the Executives employment for Cause.
(d) Termination without Cause. The Company may terminate the Executives employment without Cause.
(e) Resignation for Good Reason. The Executive may resign from his employment for Good Reason.
(f) Resignation without Good Reason. The Executive may resign from his employment without Good Reason.
4.2 Notice of Termination. Any termination of the Executives employment by the Company or by the Executive pursuant to Section 4.1 (other than termination due to death pursuant to Section 4.1(a)) shall be communicated by a written notice to the other party hereto. Such written notice (a Notice of Termination) shall: (a) indicate the specific termination provision in this Agreement relied upon; and (b) specify a Date of Termination which, (i) if submitted by the Executive, shall be at least sixty (60) days, but no more than six (6) months, following the date of such notice and (ii) if submitted by the Company in connection with a termination of employment by the Company without Cause, shall be at least thirty (30) days following the date of such notice. Notwithstanding the foregoing, the Company may, in its sole discretion, change the Executives proposed Date of Termination to any date following the Companys receipt of the Executives Notice of Termination (even if such date is prior to the date specified in such Notice of Termination). A Notice of Termination submitted by the Company in connection with a termination of employment by the Company for Cause may provide for a Date of Termination on the date the Executive receives the Notice of Termination, or any date thereafter chosen by the Company in its sole discretion; provided that, notwithstanding the foregoing, any Notice of Termination submitted by the Company in connection with a termination of the Executives employment for Cause within the meaning of Section 1.2(d)(i) (due to the Executives material breach of any material provision of this Agreement) or Section 1.2(d)(iv) (due to the Executives gross neglect in connection with the performance of any material portion of the Executives duties) shall indicate a Date of Termination that is at least thirty (30) days following the date of such notice, provided that such
breach is capable of cure. The failure by the Company or the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause, Good Reason, or Disability shall not waive any right of the Company or the Executive hereunder or preclude the Company or the Executive from asserting such fact or circumstance in enforcing the Companys or the Executives rights hereunder; provided that a Notice of Termination submitted by the Executive of his intent to resign for Good Reason may not be given later than 90 days after the initial occurrence of the event constituting Good Reason.
4.3 Company Obligations upon Termination. Upon termination of the Executives employment, the Executive (or the Executives estate) shall be entitled to receive: (a) any amount of the Annual Base Salary through the Date of Termination not theretofore paid; (b) any reimbursement of expenses owing to the Executive under Section 3.5; (c) any accrued vacation pay owed to the Executive pursuant to Section 3.4; and (d) any amount arising from the Executives participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 3.3, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (including, if applicable, any death benefits). Except as otherwise set forth in Sections 5.1 and 5.2 below, the payments and benefits described in this Section 4.3 shall be the only payments and benefits payable in the event of the Executives termination of employment for any reason (other than, for the avoidance of doubt, any payments or benefits to which the Executive is entitled by virtue of him being a stockholder of the Company). The amounts in subsections (a)-(c) above shall be paid within sixty (60) days after the Executives termination, but in any event within the period required by Section 409A, such that it qualifies as a short-term deferral pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations.
ARTICLE V.
SEVERANCE PAYMENTS
5.1 Termination due to Death . If the Executives employment is terminated pursuant to Section 4.1(a) due to the Executives death, then, notwithstanding the penultimate sentence of Section 3.2, in addition to the amounts set forth in Section 4.3, (a) all unvested stock options held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable option plan and option agreement(s), and (b) the Company shall pay to the Executive (or the Executives estate) a prorated amount of the Performance Bonus for the Fiscal Quarter (or other performance period) in which the Date of Termination occurs that the Executive would have received to the extent he remained employed through the end of the Fiscal Quarter (or other performance period) in which the Date of Termination occurred based on the Companys actual attainment of the applicable Performance Targets (prorated based on the number days that the Executive is employed by the Company during the Fiscal Quarter (or other performance period) in which the Date of Termination occurs); provided that, if such Fiscal Quarter (or other performance period) begins prior to September 1, 2015, such Performance Bonus (prior to proration) shall be deemed to be $50,000 (which shall be adjusted by the Company in good faith if the Performance Bonus is payable other than quarterly) for purposes of this clause (b), payable at the same time such Performance Bonus would have been paid had the Executive remained employed through the end of the Fiscal Quarter (or other performance period) in which the Date of Termination occurs (or, if such Fiscal Quarter (or other performance period) began prior to September 1, 2015, payable within thirty (30) days following the Date of Termination).
5.2 Termination without Cause; Resignation for Good Reason or without Good Reason; Due to Disability.
(a) If (i) the Executives employment is terminated by the Company without Cause pursuant to Section 4.1(d) or due to Disability pursuant to Section 4.1(b), or (ii) the Executive resigns from his employment for Good Reason pursuant to Section 4.1(e) (other than due to the occurrence of an event described in Section 1.2(n)(vii)), then in addition to the amounts set forth in Section 4.3, (A) the Company shall pay the Executive an amount equal to the sum of (x) two (2) times the Annual Base Salary as in effect immediately prior to the Date of Termination, payable in equal installments, in accordance with the Companys payroll practices, during the two (2)-year period beginning on the first payroll date that follows the thirtieth (30th) day following the Date of Termination, and (y) two (2) times the greater of (I) the aggregate amount of the Performance Bonuses earned by the Executive for the four Fiscal Quarters immediately prior to the Fiscal Quarter in which the Date of Termination occurs, and (II) the aggregate amount of the Performance Bonuses that the Executive would have earned for the Fiscal Quarter in which the Date of Termination occurs (prorated based on the number days that the Executive is employed by the Company during such Fiscal Quarter) and the three immediately preceding Fiscal Quarters if he remained employed through the end of the Fiscal Quarter in which the Date of Termination occurs based on the Companys actual attainment of the applicable Performance Targets (provided that, with respect to any Fiscal Quarter (or other performance period) referred to in clause I or II that begins prior to September 1, 2015, the Executive shall be deemed to have received a Performance Bonus of $50,000 (which shall be adjusted by the Company in good faith if the Performance Bonus is payable other than quarterly) for purposes of clauses I and II), payable at the same time as the Performance Bonus for the Fiscal Quarter in which the Date of Termination occurs would have been paid had the Executive remained employed through the end of the Fiscal Quarter in which the Date of Termination occurs (or, if such Fiscal Quarter began prior to September 1, 2015, payable within thirty (30) days following the Date of Termination); provided that, in the event that the Performance Bonus is payable other than quarterly, the bonus amounts described in clauses I and II shall be determined based on the periodic Performance Bonuses payable with respect to the twelve (12)-month period immediately prior to the Date of Termination, as determined by the Company in good faith, (B) all unvested stock options held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable option plan and option agreement(s), and (C) during the two (2)-year period beginning on the Date of Termination (such period, the Continuation Period), the Executive and his eligible dependents, if applicable, shall be entitled to continued participation in the Companys medical, health, disability and similar welfare benefit plans in which he and his eligible dependents, if applicable, were participating on the Date of Termination at the Companys sole expense; provided that if such continued participation is not permitted under such plans, the Company shall provide to the Executive and his eligible dependents, if applicable, substantially similar benefits during the Continuation Period; provided, further, that in order to receive such continued coverage, the Executive shall be required to pay to the Company at the same time that premium payments are due for the month an amount equal to the full monthly premium payments required for such coverage. The Company shall reimburse to the Executive monthly the Health Payment no later than the next payroll date of the Company that occurs after the date the premium for the month is paid by the Executive. In addition, on each date on which the monthly Health Payments are made, the Company shall pay to the Executive the Health Gross-Up Payment. The COBRA health continuation period under
Section 4980B of the Code shall run concurrently with the period of continued health coverage following the termination date. The Health Payment paid to the Executive during the period of time during which the Executive would be entitled to continuation coverage under the Companys group health plan under COBRA is intended to qualify for the exception from deferred compensation as a medical benefit provided in accordance with the requirements of Section 1.409A-1(b)(9)(v)(B) of the Department of Treasury Regulations. The Health Payment and the Health Gross-up Payment shall be reimbursed to the Executive in a manner that complies with the requirements of Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations.
(b) Notwithstanding the foregoing, in the event of (i) a termination of employment by the Executive for any reason pursuant to a Notice of Termination given during the thirty (30)-day period immediately following the six (6) month anniversary of the occurrence of a Change in Control that occurs prior to the third anniversary of the Effective Date or (ii) a termination of the Executives employment by the Company without Cause that occurs during the six (6)-month period immediately following a Change in Control that occurs prior to the third anniversary of the Effective Date, then, each time the word two appears in Section 5.2(a)(i)(A), such word shall be replaced with the number of years (rounded to the nearest whole month) remaining in the Initial Term as of immediately prior to the Date of Termination, if such number is greater than two.
(c) Notwithstanding the foregoing, if the Executive resigns from his employment for Good Reason due to the occurrence of an event described in Section 1.2(n)(vii), then in addition to the amounts set forth in Section 4.3 (but, for the avoidance of doubt, without duplication of any amounts payable pursuant to Section 5.2(b)), (i) the Company shall pay the Executive an amount equal to the sum of (A) the Annual Base Salary as in effect immediately prior to the Date of Termination, payable in equal installments, in accordance with the Companys payroll practices, during the one (1)-year period beginning on the first payroll date that follows the thirtieth (30th) day following the Date of Termination, (B) the aggregate amount of the Performance Bonuses that the Executive would have earned for the Fiscal Quarter in which the Date of Termination occurs and the three immediately preceding Fiscal Quarters if he remained employed through the end of the Fiscal Quarter in which the Date of Termination occurs based on the Companys actual attainment of the applicable Performance Targets (provided that, with respect to any Fiscal Quarter (or other performance period) referred to in this clause (B) that begins prior to September 1, 2015, the Executive shall be deemed to have earned a Performance Bonus of $50,000 (which shall be adjusted by the Company in good faith if the Performance Bonus is payable other than quarterly) for purposes of this clause (B)), payable at the same time as the Performance Bonus for the Fiscal Quarter in which the Date of Termination occurs would have been paid had the Executive remained employed through the end of the Fiscal Quarter in which the Date of Termination occurs (or, if such Fiscal Quarter began prior to September 1, 2015, payable within thirty (30) days following the Date of Termination); provided that, in the event that the Performance Bonus is payable other than quarterly, the bonus amount described in this clause (B) shall be determined based on the periodic Performance Bonuses payable with respect to the twelve (12)-month period immediately prior to the Date of Termination, as determined by the Company in good faith, and (C) a prorated amount of the Performance Bonus for the Fiscal Quarter (or other performance period) in which the Date of Termination occurs that the Executive would have received to the extent he remained employed through the end of the Fiscal Quarter (or other performance period) in which the Date of Termination occurred based on the Companys actual attainment of the applicable Performance
Targets (prorated based on the number days that the Executive is employed by the Company during the Fiscal Quarter (or other performance period) in which the Date of Termination occurs) (provided that, if such Fiscal Quarter (or other performance period) begins prior to September 1, 2015, such Performance Bonus (prior to proration) shall be deemed to be $50,000 (which shall be adjusted by the Company in good faith if the Performance Bonus is payable other than quarterly) for purposes of this clause (C)), payable at the same time such Performance Bonus would have been paid had the Executive remained employed through the end of the Fiscal Quarter (or other performance period) in which the Date of Termination occurs (or, if such Fiscal Quarter (or other performance period) began prior to September 1, 2015, payable within thirty (30) days following the Date of Termination), (ii) all unvested stock options held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable option plan and option agreement(s), and (iii) during the one (1) year period beginning on the Date of Termination (such period, the Retirement Continuation Period), the Executive and his eligible dependents, if applicable, shall be entitled to continued participation in the Companys medical, health, disability and similar welfare benefit plans in which he and his eligible dependents, if applicable, were participating on the Date of Termination at the Companys sole expense; provided that if such continued participation is not permitted under such plan, the Company shall provide to the Executive and his eligible dependents, if applicable, substantially similar benefits during the Retirement Continuation Period; provided, further, that in order to receive such continued coverage, the Executive shall be required to pay to the Company at the same time that premium payments are due for the month an amount equal to the full monthly premium payments required for such coverage. The Company shall reimburse to the Executive monthly the Health Payment no later than the next payroll date of the Company that occurs after the date the premium for the month is paid by the Executive. In addition, on each date on which the monthly Health Payments are made, the Company shall pay to the Executive the Health Gross-Up Payment. The COBRA health continuation period under Section 4980B of the Code shall run concurrently with the period of continued health coverage following the termination date. The Health Payment paid to the Executive during the period of time during which the Executive would be entitled to continuation coverage under the Companys group health plan under COBRA is intended to qualify for the exception from deferred compensation as a medical benefit provided in accordance with the requirements of Section 1.409A-1(b)(9)(v)(B) of the Department of Treasury Regulations. The Health Payment and the Health Gross-up Payment shall be reimbursed to the Executive in a manner that complies with the requirements of Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations.
5.3 Section 409A. Notwithstanding any provision to the contrary in this Agreement, no cash payments or other benefits described in Section 5.2 will be paid or made available to the Executive unless the Executives termination of employment constitutes a separation from service within the meaning of Section 1.409A-1(h) of the Department of Treasury Regulations, and unless, on or prior to the thirtieth (30th) day following the Date of Termination, (a) the Executive shall have executed a waiver and release of claims in the form attached as Exhibit A hereto, and (b) such release shall not have been revoked by the Executive prior to such thirtieth (30th) day. Notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed at the time of his separation from service to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the termination benefits to which the Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, then such portion
of the Executives termination benefits shall not be provided to the Executive prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of the Executives separation from service with the Company (as such term is defined in the Department of Treasury Regulations issued under Section 409A of the Code) or (ii) the date of the Executives death. Upon the expiration of the applicable deferral period under Section 409A(a)(2)(B)(i) of the Code, all payments deferred pursuant to Section 5.2 shall be paid in a lump sum to the Executive, and any remaining payments due under this Agreement shall be paid as otherwise provided herein. For the avoidance of doubt, no payments or benefits shall be payable under Section 5.2 in the event of the Executives termination of employment due to expiration of the Term under Section 2.2.
5.4 Survival. The expiration or termination of the Term shall not impair the rights or obligations of any party hereto, which shall have accrued prior to such expiration or termination.
ARTICLE VI.
NON-COMPETITION; NON-SOLICITATION
6.1 Non-Competition Obligation. The Executive shall not, at any time during the period commencing on the Effective Date and ending on the second (2nd) anniversary of the Date of Termination (the Restricted Period), directly or indirectly, enter the employ of, or render any services to, any Person engaged in any business in North America or anywhere in the world in which the Company conducts business as of the Date of Termination (a) which derives more than fifteen percent (15%) of its consolidated revenues from the marketing or distribution of products sold by the Company, (b) which participates in the manufacturing or design of modular or component shelving or drawer systems or other material products of Elfa Group AB and its subsidiaries, or (c) which, as of the Date of Termination, the Board (including any committee thereof) or senior management of the Company has taken active steps to engage in or acquire (any such business, a Competitive Business); and the Executive shall not become interested in any such Competitive Business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any other relationship or capacity; provided, however, that nothing contained in this Section 6.1 shall be deemed to prohibit the Executive from working for another retail organization, provided that the Executive is not engaged in any aspect of the business of such retail organization (including, but not limited to, starting any division or other segment of such retail organization in a Competitive Business), whether in a supervisory, consultative or other capacity, relating to a Competitive Business. For the avoidance of doubt, the Executives position as a senior executive officer of a retail organization, of which a Competitive Business is an immaterial aspect of its general retail business, shall not be prohibited by, or constitute a violation of, the terms of this Section 6.1; provided that the Executive does not participate in any day-to-day operations or in any strategic or other decisions relating to the conduct of such retail organization as it relates to a Competitive Business and, to the extent necessary, has delegated such responsibilities to other management personnel of such retail organization. It is expressly agreed that nothing contained in this Section 6.1 shall be deemed to prohibit the Executive from acquiring, solely as an investment, up to five percent (5%) of the outstanding shares of capital stock of any public corporation or working for a retail organization, provided that the Executive is not, directly or indirectly, engaged in a business relating to a Competitive Business.
6.2 Non-Solicitation Obligation. The Executive shall not, at any time during the Restricted Period, for his benefit or for the benefit of any other Person, solicit the employment or services of, or hire (or cause any Person to so solicit or hire), any person who upon the termination of the Executives employment hereunder, or within twelve (12) months prior thereto, was (a) employed by the Company or (b) a consultant to the Company. The restrictions in this Section 6.2 shall not apply to (i) general solicitations that are not specifically directed to employees of or consultants to the Company, (ii) at the request of a former employee, serving as an employment reference for such former employee, (iii) solicitations or hirings of former employees of the Company whose employment was terminated by the Company without Cause or who terminated their employment for Good Reason (as such terms are defined in the applicable employment agreement or, in the absence of such an agreement, as determined by a majority of the Board in its good faith discretion), or (iv) except as would constitute a breach of the covenants in Section 6.1, the solicitation or hiring of any of Kip Tindell, Sharon Tindell or Melissa Reiff following such executives termination of employment by the Company without Cause or by such executive for Good Reason (as such terms are defined in the applicable employment agreement).
6.3 Definition. As used in this Article VI , the term Company shall include the Company (as defined in the preamble hereof) and any of its direct or indirect subsidiaries.
6.4 Amendment . The provisions contained in Sections 6.1 and 6.2 may be altered and/or waived only with the prior written consent of a majority of the Board or the Compensation Committee.
ARTICLE VII.
NONDISCLOSURE OF PROPRIETARY INFORMATION
7.1 Nondisclosure. Except as required in the faithful performance of the Executives duties hereunder or pursuant to Section 7.3, the Executive shall, during the Term and after the Date of Termination, maintain in confidence and shall not directly or indirectly, use, disseminate, disclose or publish, or use for his benefit or the benefit of any Person, any confidential or proprietary information or trade secrets of or relating to the Company, including, without limitation, information with respect to the Companys operations, processes, protocols, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, compensation paid to employees or other terms of employment (Proprietary Information), or deliver to any Person any document, record, notebook, computer program or similar repository of or containing any such Proprietary Information. The Executives obligation to maintain and not use, disseminate, disclose or publish, or use for his benefit or the benefit of any Person any Proprietary Information after the Date of Termination shall continue so long as such Proprietary Information is not, or has not by legitimate means become, generally known and in the public domain (other than by means of the Executives direct or indirect disclosure of such Proprietary Information) and continues to be maintained as Proprietary Information by the Company. The parties hereby stipulate and agree that as between them, the Proprietary Information identified herein is important, material and affects the successful conduct of the businesses of the Company (and any successor or assignee of the Company).
7.2 Return of Proprietary Information. Upon termination of the Executives employment with the Company for any reason, the Executive shall promptly deliver to the Company all Proprietary Information in the Executives possession, including without limitation all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning the Companys customers, business plans, marketing strategies, products or processes.
7.3 Response to Legal Process. Notwithstanding Section 7.1, the Executive may respond to a lawful and valid subpoena or other legal process relating to the Company or its business or operations; provided that the Executive shall: (a) give the Company the earliest possible notice thereof; (b) as far in advance of the return date as possible, at the Companys sole cost and expense, make available to the Company and its counsel the documents and other information sought; and (c) at the Companys sole cost and expense, assist such counsel in resisting or otherwise responding to such process.
7.4 Non-Disparagement.
(a) The Executive agrees not to disparage the Company, any of its products or practices, or any of its directors, officers, agents, representatives, members or Affiliates, either orally or in writing, at any time; provided that the Executive may confer in confidence with his legal representatives and make truthful statements as required by law.
(b) The Company agrees to instruct the members of the Board and the executive officers of the Company not to disparage the Executive, either orally or in writing, at any time; provided that the Company may confer in confidence with its legal representatives and make truthful statements as required by law.
7.5 As used in this Article VII , the term Company shall include the Company (as defined in the preamble hereof), its parent, related entities, and any of its direct or indirect subsidiaries.
ARTICLE VIII.
REMEDIES
8.1 Acknowledgement; Blue Pencil. The Executive acknowledges and agrees that the benefits and payments provided under this Agreement represent adequate consideration for the Executives agreement to be bound by the restrictive covenants set forth in Articles VI and VII , that the Executives agreement to be bound by such restrictive covenants is a material inducement to the Companys entering into this Agreement. In the event, however, that any restrictive covenant set forth in Articles VI or VII shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it is the intention of the Executive and Company that it will be interpreted to extend only over the maximum period of time for which it may be enforceable, and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.
8.2 Injunctive Relief. The Executive acknowledges and agrees that a breach of the covenants contained in Articles VI or VII will cause irreparable damage to Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Articles VI or VII , in addition to any other remedy which may be available at law or in equity, the Company will be entitled to specific performance and injunctive relief without any requirement to post a bond. The Company acknowledges and agrees that a breach of the covenants contained in Section 7.4(b) will cause irreparable damage to the Executive, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Company agrees that in the event of a breach of any of the covenants contained in Section 7.4(b), in addition to any other remedy which may be available at law or in equity, the Executive will be entitled to specific performance and injunctive relief without any requirement to post a bond.
ARTICLE IX.
MISCELLANEOUS
9.1 Assignment. The Company may assign its rights and obligations under this Agreement to any entity, including any successor to all or substantially all the assets of the Company, by merger or otherwise, and may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Company and its Affiliates. The Executive may not assign his rights or obligations under this Agreement to any individual or entity. This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.
9.2 Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of New York, without reference to the principles of conflicts of law of New York or any other jurisdiction, and where applicable, the laws of the United States.
9.3 Notices. Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Company:
The Container Store Group, Inc.
500 Freeport Parkway
Coppell, TX 75019
ATTN: Melissa Reiff, President and Chief Operating Officer
with a copy to:
Latham & Watkins LLP
885 Third Avenue
Suite 1000
New York, NY 10022
ATTN: Howard Sobel; Bradd Williamson
(b) If to the Executive, to the address set forth in the Companys records
or at any other address as any party shall have specified by notice in writing to the other party.
9.4 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
9.5 Entire Agreement. The terms of this Agreement and the other agreements and instruments contemplated hereby or referred to herein are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of (and supersede) any prior or contemporaneous agreement (including without limitation any term sheet or similar agreement entered into between the Company and the Executive). The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
9.6 Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and a duly authorized officer of Company and approved by the Compensation Committee, which expressly identifies the amended provision of this Agreement. By an instrument in writing similarly executed and approved by the Compensation Committee, the Executive or a duly authorized officer of the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform, provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure to comply or conform. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.
9.7 No Inconsistent Action. The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.
9.8 Construction. This Agreement shall be deemed drafted equally by both the parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary: (a) the plural includes the singular and the singular includes the plural; (b) and and or are each used both conjunctively
and disjunctively; (c) any, all, each, or every means any and all, and each and every; (d) includes and including are each without limitation; (e) herein, hereof, hereunder and other similar compounds of the word here refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (f) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.
9.9 Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before an arbitrator in New York, New York in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction. Notwithstanding the foregoing, (a) the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Articles VI or VII of this Agreement and the Executive hereby consents that such restraining order or injunction may be granted without requiring the Company to post a bond, and (b) the Executive shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 7.4(b) of this Agreement and the Company hereby consents that such restraining order or injunction may be granted without requiring the Executive to post a bond. Only individuals who are: (i) lawyers engaged full-time in the practice of law and (ii) on the AAA register of arbitrators shall be selected as an arbitrator. Within twenty (20) days of the conclusion of the arbitration hearing, the arbitrator shall prepare written findings of fact and conclusions of law. It is mutually agreed that the written decision of the arbitrator shall be valid, binding, final and non-appealable, provided, however, that the parties hereto agree that the arbitrator shall not be empowered to award punitive damages against any party to such arbitration. The arbitrator shall require the non-prevailing party to pay the arbitrators full fees and expenses or, if in the arbitrators opinion there is no prevailing party, the arbitrators fees and expenses shall be borne equally by the parties thereto. In the event action is brought to enforce the provisions of this Agreement pursuant to this Section 9.9, the non-prevailing parties shall be required to pay the reasonable attorneys fees and expenses of the prevailing parties, except that if in the opinion of the court or arbitrator deciding such action there is no prevailing party, each party shall pay its own attorneys fees and expenses.
9.10 Enforcement. In the event any provision of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect: (a) such provision shall be fully severable; (b) this Agreement shall be construed and enforced as if such invalid, illegal or unenforceable provision had never comprised a portion of this Agreement; and (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by such invalid, illegal or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such invalid, illegal or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in substance to such invalid, illegal or unenforceable provision as may be possible and be valid, legal and enforceable.
9.11 Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.
9.12 Employee Acknowledgment. The Executive acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on his own judgment.
9.13 Section 409A.
(a) To the extent applicable, this Agreement shall be interpreted in accordance with Section 409A. Notwithstanding any provision of this Agreement to the contrary, in the event that a majority of the Board determines that any amounts payable pursuant to this Agreement may be subject to Section 409A, the Company may adopt such amendments to this Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Company determines are necessary or appropriate to: (i) exempt such payments from Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to such payments or (ii) comply with the requirements of Section 409A and thereby avoid the application of penalty taxes under Section 409A; provided that no such amendments, policies, procedures or actions shall reduce the economic value to the Executive of this Agreement from the value of this Agreement (without taking into account the effect of Section 409A) prior to the adoption or taking of such amendments, policies, procedures or actions. No provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from the Executive or any other individual to the Company or any of its Affiliates, employees or agents.
(b) To the extent that any installment payments under this Agreement are deemed to constitute nonqualified deferred compensation within the meaning of Section 409A, for purposes of Section 409A (including, without limitation, for purposes of Section 1.409A-2(b)(2)(iii) of the Department of Treasury Regulations), each such payment that the Executive may be eligible to receive under this Agreement shall be treated as a separate and distinct payment.
(c) To the extent that any reimbursements or corresponding in-kind benefits provided to the Executive under this Agreement (including, without limitation, the Health Payment and the Health Gross-Up Payment) are deemed to constitute deferred compensation within the meaning of Section 409A to the Executive, such amounts shall be paid or reimbursed reasonably promptly, but not later than December 31 of the year following the year in which the expense was incurred, and in any event in accordance with Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations. The amount of any such payments or expense reimbursements in one calendar year shall not affect the expenses or in-kind benefits eligible for payment or reimbursement in any other calendar year, other than an arrangement providing for the reimbursement of medical expenses referred to in Section 105(b) of the Code, and the Executives right to such payments or reimbursement of any such expenses shall not be subject to liquidation or exchange for any other benefit.
9.14 Cooperation. During the Term hereof and thereafter, the Executive shall cooperate with the Company in any disputes with third parties, internal investigations or administrative, regulatory or judicial proceedings as reasonably requested by the Company and at the Companys sole cost and expense (including, without limitation, the Executive being
available to the Company upon reasonable notice for interviews and factual investigations, at times and on schedules that are reasonably consistent with the Executives other permitted activities and commitments).
9.15 Indemnification. To the maximum extent allowed under applicable law and the Companys By-Laws and other corporate organizational documents, in the event that the Executive is a party to any threatened, pending or completed action, suit or proceeding (other than any action, suit or proceeding arising under or related to this Agreement or any other compensation agreement), whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company shall indemnify the Executive and hold him harmless against all expenses (including reasonable and documented attorneys fees and costs incurred by the Executive), judgments, fines and amounts paid in settlement (subject to the Companys consent, with such consent not to be unreasonably withheld) actually and reasonably incurred by him, as and when incurred, in connection with such action, suit or proceeding; provided that the Executive acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Executive did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, or that, with respect to any criminal action or proceeding, the Executive had reasonable cause to believe that his conduct was unlawful. The provisions of this Section 9.15 shall not be deemed exclusive of any other rights of indemnification to which the Executive may be entitled or which may be granted to him, and it shall be in addition to any rights of indemnification to which he may be entitled under any policy of insurance. These provisions shall continue in effect after Executive has ceased to be an officer or director of the Company.
9.16 No Mitigation. The Executive shall have no obligation to mitigate any payments due hereunder.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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THE CONTAINER STORE GROUP, INC. | |
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By: |
/s/ Melissa Reiff |
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Melissa Reiff |
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President and Chief Operating Officer |
[Employment Agreement with Peter Lodwick]
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EXECUTIVE |
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By: |
/s/ Peter Lodwick |
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Peter Lodwick |
[Employment Agreement with Peter Lodwick]
EXHIBIT A
Form of Release Agreement
Peter Lodwick (the Executive) agrees for the Executive, the Executives spouse and child or children (if any), the Executives heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, hereby forever to release, discharge, and covenant not to sue The Container Store Group, Inc., a Delaware corporation (the Company), the Companys past, present, or future parent, affiliated, related, and/or subsidiary entities, and all of their past and present directors, shareholders, officers, general or limited partners, employees, agents, and attorneys, and agents and representatives of such entities, and employee benefit plans in which the Executive is or has been a participant by virtue of his employment with the Company, from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected, which the Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to (or, with respect to claims of disparagement, arising or occurring on or prior to the date this release (the Release) is executed), arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever, (a) Executives employment with the Company or the termination thereof or (b) Executives status at any time as a holder of any securities of the Company, and any and all claims based on, relating to, or arising under federal, state, or local laws, including without limitation claims of discrimination, harassment, retaliation, wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, liability in tort, or for violation of public policy, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Texas Commission on Human Rights Act, the Texas Anti-Retaliation Act, the Texas Labor Code, the Sarbanes-Oxley Act, and similar state or local statutes, ordinances, and regulations; provided, however, notwithstanding anything to the contrary set forth herein, that this general release shall not extend to (i) benefit claims under employee pension benefit plans in which the Executive is a participant by virtue of his employment with the Company or to benefit claims under employee welfare benefit plans for occurrences (e.g., medical care, death, or onset of disability) arising after the execution of this Release by the Executive, and (ii) any obligation under this Release, or under that certain Employment Agreement entered into on July 10, 2014 by and between the Company and the Executive, assumed by any party thereto.
The Executive understands that this Release includes a release of claims arising under the Age Discrimination in Employment Act (ADEA). The Executive understands and warrants that he has been given a period of twenty-one (21) days to review and consider this Release and such period shall not be affected or extended by any changes, whether material or immaterial, that might be made to this Release. The Executive is hereby advised to consult with an attorney prior to executing the Release. By his signature below, the Executive warrants that he has had the opportunity to do so and to be fully and fairly advised by that legal counsel as to the terms of this
Release. The Executive further warrants that he understands that he may use as much or all of his twenty-one (21)-day period as he wishes before signing, and warrants that he has done so.
The Executive further warrants that he understands that he has seven (7) days after signing this Release to revoke the Release by notice in writing to . This Release shall be binding, effective, and enforceable upon both parties upon the expiration of this seven (7)-day revocation period without having received such revocation, but not before such time.
* * * * *
The Executive acknowledges and agrees that this Release is a legally binding document and the Executives signature will commit the Executive to its terms. Executive acknowledges and agrees that the Executive has carefully read and fully understands all of the provisions of this Release and that he voluntarily enters into this Release by signing below. Upon execution, the Executive agree to deliver a signed copy of this Release to .
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Exhibit 31.1
CERTIFICATIONS
I, William A. Kip Tindell, III, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of The Container Store Group, Inc.;
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 registrants 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)) 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) [omitted];
c) Evaluated the effectiveness of the registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
Date: October 10, 2014 |
/s/ William A. Kip Tindell, III |
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William A. Kip Tindell, III |
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Chief Executive Officer and Chairman of the Board of Directors |
Exhibit 31.2
CERTIFICATIONS
I, Jodi Taylor, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of The Container Store Group, Inc.;
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 registrants 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)) 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) [omitted];
c) Evaluated the effectiveness of the registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
Date: October 10, 2014 |
/s/ Jodi L. Taylor |
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Jodi L. Taylor |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, William A. Kip Tindell, III, Chief Executive Officer and Chairman of the Board of Directors of The Container Store Group, Inc. (the Company), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Quarterly Report on Form 10-Q of the Company for the period ended August 30, 2014 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
October 10, 2014 |
/s/ William A. Kip Tindell, III |
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William A. Kip Tindell, III |
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Chief Executive Officer and Chairman of the Board of Directors |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jodi Taylor, Chief Financial Officer of The Container Store Group, Inc. (the Company), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Quarterly Report on Form 10-Q of the Company for the period ended August 30, 2014 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
October 10, 2014 |
/s/ Jodi L. Taylor |
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Jodi L. Taylor |
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Chief Financial Officer |
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