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

The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report and in our Annual Report on Form 10-K related to the fiscal year ended January 30, 2016.

In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations, and intentions. Our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements due to various factors, including those discussed under the section of this Item 2 entitled “Safe Harbor Statement.”

Executive Summary

Introduction and Overview of Operating Results

We are a nationally recognized retailer of high-quality, branded apparel at everyday low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 570 stores, inclusive of an internet store, in 45 states and Puerto Rico, and diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, footwear, accessories, home and coats. We acquire a broad selection of desirable, first-quality, current-brand, labeled merchandise directly from nationally-recognized manufacturers and other suppliers.

Highlights from the three month period ended April 30, 2016 compared with the three month period ended May 2, 2015 include the following:

Fiscal Year

Fiscal 2016 is defined as the 52 week year ending January 28, 2017.  Fiscal 2015 is defined as the 52 week year ending January 30, 2016.

Store Openings, Closings, and Relocations

During the three month period ended April 30, 2016, we opened six new stores under the name “Burlington Stores” and closed two MJM Stores and one Burlington Store. We continue to pursue our growth plans and invest in capital projects that meet our financial requirements. We expect to open approximately 25 net new Burlington Stores during Fiscal 2016.

Ongoing Initiatives for Fiscal 2016

We continue to focus on a number of ongoing initiatives aimed at increasing our overall profitability by improving our comparable store sales trends, increasing total sales growth and reducing expenses. These initiatives include, but are not limited to:

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We intend to continue to increase comparable store sales through the following initiatives:

We intend to expand and enhance our retail store base through the following initiatives:

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We intend to increase our operating margins through the following initiatives:

Uncertainties and Challenges

As we strive to increase profitability through achieving positive comparable store sales and leveraging productivity initiatives focused on improving the in-store experience, more efficient movement of products from the vendors to the selling floors, and modifying our marketing plans to increase our core customer base and increase our share of our current customers’ spending, there are uncertainties and challenges that we face as an off-price retailer of apparel and accessories for men, women and children and home furnishings that could have a material impact on our revenues or income.

Seasonality of Sales and Weather Conditions . Our sales, like most other retailers, are subject to seasonal influences, with the majority of our sales and net income derived during the months of September through January, which includes the back-to-school and holiday seasons.

Weather continues to be a contributing factor to the sale of our clothing. Generally, our sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are increased by early cold weather during the Fall, while sales of warm weather clothing are improved by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.

General Economic Conditions. Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing global economic conditions, inflation, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs, commodities pricing, income tax rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers’ disposable income, credit availability and debt levels.

A slowdown in the U.S. economy, an uncertain global economic outlook or a credit crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. Consumer confidence is also affected by the domestic and international political situation. Our financial condition and operations could be impacted by changes in government regulations in areas including, but not limited to, taxes and healthcare. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., could lead to a decrease in spending by consumers. In addition, natural disasters, industrial accidents and acts of war in various parts of the world could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S. economies and lead to a downturn in consumer confidence and spending.

We closely monitor our net sales, gross margin, expenses and working capital. We have performed scenario planning such that if our net sales decline, we have identified variable costs that could be reduced to partially mitigate the impact of these declines. If we were to experience adverse economic trends and/or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.

Competition and Margin Pressure. We believe that in order to remain competitive with off-price retailers and discount stores, we must continue to offer brand-name merchandise at a discount from traditional department stores as well as an assortment of merchandise that is appealing to our customers.

The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete for business with department stores, off-price retailers, specialty stores, discount stores, wholesale clubs, outlet stores and with c ertain traditional, full-price retail chains that have developed off-price concepts . At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those

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offered by us at our Burlington Stores. We anticipate that competition will increase in the future. Therefore, we will continue to look for ways to differentiate our stores from those of our competitors.

The U.S. retail industry continues to face increased pressure on margins as overall challenging retail conditions have led consumers to be more value conscious. Our “open to buy” paradigm, in which we purchase both pre-season and in-season merchandise, allows us the flexibility to purchase less pre-season with the balance purchased in-season and opportunistically. It also provides us with the flexibility to shift purchases between suppliers and categories. This enables us to obtain better terms with our suppliers, which we expect to help offset any rising costs of goods.

Changes to import and export laws could have a direct impact on our operating expenses and an indirect impact on consumer prices and we cannot predict any future changes in such laws.

Key Performance Measures

We consider numerous factors in assessing our performance. Key performance measures used by management include net income, Adjusted Net Income, Adjusted EBITDA, comparable store sales, gross margin, inventory, store payroll as a percentage of net sales and liquidity.

Net income .  We earned net income of $37.5 million for the first quarter of Fiscal 2016 compared with net income of $25.7 million for the first quarter of Fiscal 2015. The improvement in our net income was primarily driven by our improved gross margin, partially offset by increases in our selling, general and administrative expenses and income tax expense.  

Adjusted Net Income and Adjusted EBITDA : Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures of our performance.

We present Adjusted Net Income and Adjusted EBITDA because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations. In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from operating income are useful supplemental measures that assist in evaluating our ability to generate earnings and leverage sales and to more readily compare these metrics between past and future periods.

Adjusted Net Income has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Some of these limitations include:

During the three months ended April 30, 2016, Adjusted Net Income improved $10.2 million to $41.6 million. This improvement in Adjusted Net Income was driven by our improved gross margin, partially offset by increased costs, primarily selling, general and administrative expenses and income tax expense, net of the tax effect of the adjustments cited above. Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net income to Adjusted Net Income for the three months ended April 30, 2016 compared with the three months ended May 2, 2015:

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Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Some of these limitations include:

During the three months ended April 30, 2016, Adjusted EBITDA improved $19.5 million to $121.0 million. This improvement was the result of our improved gross margin, partially offset by increased selling, general and administrative expenses (refer to the section below entitled “Results of Operations” for further explanation).

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The following table sh ows our reconciliation of net income to Adjusted EBITDA for the three months ended April 30, 2016 compared with the three months ended May 2, 2015:

Comparable Store Sales. Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year. The method of calculating comparable store sales varies across the retail industry. As a result, our definition of comparable store sales may differ from other retailers.

We define comparable store sales as sales of those stores, including online sales, commencing on the first day of the fiscal month one year after the end of their grand opening activities, which normally conclude within the first two months of operations. For the three months ended April 30, 2016, we experienced an increase in comparable store sales of 4.3%.

Various factors affect comparable store sales, including, but not limited to, weather conditions, current economic conditions, the timing of our releases of new merchandise and promotional events, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs.

Gross Margin. Gross margin is the difference between net sales and the cost of sales. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities include all of the costs related to their buying and distribution functions, and other costs, in cost of sales. We include certain of these costs in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in our Condensed Consolidated Statements of Operations. We include in our “Cost of sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees. Gross margin as a percentage of net sales expanded approximately 35 basis points to 40.1% during the three month period ended April 30, 2016. This improvement in gross margin more than offset the 20 basis point increase in product sourcing costs, which are included in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Operations.  

Inventory. Inventory at April 30, 2016 decreased  to $804.7 million compared with $822.3 million at May 2, 2015. This decrease was primarily driven by a decrease in our comparable store inventory of approximately 9% as a result of our ongoing initiative to reduce inventory levels and increase inventory turnover, partially offset by our 24 net new stores opened since May 2, 2015 and an increase in our pack-and-hold inventory of approximately $3 million.

Inventory at January 30, 2016 was $783.5 million. The increase in inventory from January 30, 2016 was primarily driven by the seasonality of our business, including an increase in our pack-and-hold inventory of approximately $26 million and our 3 net new stores opened since January 30, 2016.  

In order to better serve our customers and maximize sales, we continue to refine our merchandising mix and inventory levels within our stores. By appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh

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merchandise to our c ustomers. We continue to move toward more productive inventories by increasing the amount of current inventory as a percent of total inventory.

Comparable store inventory turnover is a measure that indicates how efficiently inventory is bought and sold. It measures the freshness of our store inventory. This is significant because usually the longer the inventory is sitting in stores, the more likely markdowns may be required to sell the inventory. Comparable store inventory turnover is calculated by dividing comparable store sales by the average comparable store retail value of inventory for the period being measured. The calculation is based on a rolling 13 month average of inventory and the last 12 months’ comparable sales. Our comparable store inventory turnover improved by approximately 7% for the first quarter of Fiscal 2016 compared with the first quarter of Fiscal 2015.

Store Payroll as a Percentage of Net Sales. Store payroll as a percentage of net sales measures our ability to manage our payroll in accordance with increases or decreases in net sales. The method of calculating store payroll varies across the retail industry. As a result, our store payroll as a percentage of net sales may differ from other retailers. We define store payroll as regular and overtime payroll for all store personnel as well as regional and territory personnel, exclusive of payroll charges related to corporate and warehouse employees. During the second quarter of Fiscal 2015, we increased the minimum wage for all full time, and part-time associates with six months or more of service to $9.00 per hour.  We were able to effectively leverage efficiencies realized in our stores, as we continue to simplify operating procedures and improve the execution within store operations, in order to offset this wage increase and keep store payroll as a percentage of net sales consistent at 8.6% during the first quarters of Fiscal 2016 and Fiscal 2015.  

Liquidity.  Liquidity measures our ability to generate cash. Management measures liquidity through cash flow and working capital position. Cash flow is the measure of cash generated from or used in operating, financing, and investing activities. Cash and cash equivalents increased $7.2 million during the three months ended April 30, 2016 resulting in a cash and cash equivalent balance of $28.1 million compared with an increase in cash and cash equivalents of $9.4 million during the three months ended May 2, 2015. The decrease in our cash flows compared with prior year was primarily driven by the purchase of treasury shares under our share repurchase programs, partially offset by changes in our prepaid rent due to the timing of our rental payments, a reduction in incentive compensation payments as well as a reduction in our capital expenditures.  Refer to the section below entitled “Liquidity and Capital Resources” for further explanation.

Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash) minus current liabilities. Working capital at April 30, 2016 was $78.8 million compared with $134.1 million at May 2, 2015. The decrease in working capital was primarily related to our prospective adoption of Accounting Standards Update 2015-17, “Income Taxes: Balance Sheet Classification of Deferred Taxes,” which called for the presentation of deferred tax assets and deferred tax liabilities as non-current.  As we adopted this guidance on a prospective basis during the fourth quarter of Fiscal 2015, we did not retroactively adjust prior period amounts.  In addition, we experienced a decrease in our prepaid rent due to the timing of our rental payments, a reduction in our inventories as well as increases in our income taxes payable and accrued purchases of property and equipment.   These decreases in working capital were partially offset by a reduction in our accounts payable resulting from the timing of our inventory receipts as well as an increase in our accounts receivable driven by our overall increase in sales.  

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Three Month Period Ended April 30, 2016 Compared With the Three Month Period Ended May 2, 2015

Net sales

Net sales improved approximately $99.6 million, or 8.4%, to $1,282.7 million during the first quarter of Fiscal 2016, driven primarily by the following:

We believe that the comparable store sales increase was primarily due to our improved execution of our off-price model. We also benefited from the transition of our fragrance sales from rental income from leased department to an owned category, as discussed below.

Other Revenue

Other revenue (consisting of rental income from leased departments, subleased rental income, layaway, alterations, other service charges and miscellaneous revenue items) decreased $1.6 million during the first quarter of Fiscal 2016 primarily driven by a reduction in rental income from third party fragrance sales.  During Fiscal 2015, we began the conversion of our fragrance business, which was previously operated under a licensing arrangement, to an owned category which is recorded in the line item “Net sales” in our Condensed Consolidated Statements of Operations. As of April 30, 2016, fragrances were exclusively an owned category.

Cost of sales

Cost of sales as a percentage of net sales improved approximately 35 basis points to 59.9% during the first quarter of Fiscal 2016, which more than offset the 20 basis point increase in product sourcing costs, which are included in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Operations.

On a dollar basis, cost of sales increased $55.8 million, or 7.8%, for the first quarter of Fiscal 2016, primarily driven by our overall increase in sales.

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Selling, general and administrative expenses

Selling, general and administrative expenses as a percentage of net sales improved approximately 50 basis points for the first quarter of Fiscal 2016 primarily driven by leverage in occupancy and advertising spend as well as a shift in the timing of expenses from the first quarter to the second quarter of Fiscal 2016.   The following table details selling, general and administrative expenses for the three month period ended April 30, 2016 compared with the three month period ended May 2, 2015:

Store related costs as a percentage of net sales improved approximately 40 basis points during the first quarter of Fiscal 2016, driven by improved leverage in occupancy costs.  In addition, we experienced reductions in payroll-related and other store expenses driven by the simplification of operating procedures and improved execution within our store operations.  These improvements more than offset the impact of the increase in our minimum wage.   On a dollar basis, the $16.5 million increase in store related costs was primarily driven by our 24 net new stores that have opened since May 2, 2015, as well as stores that opened during the first quarter of Fiscal 2015 that did not operate for a full 13 weeks.

Product sourcing costs as a percentage of net sales increased 20 basis points to 4.8% of net sales.   The $6.6 million increase in product sourcing costs was driven by an increase in the volume through our distribution centers.  

Corporate costs as a percentage of net sales improved approximately 20 basis points during the first quarter of Fiscal 2016 primarily driven by a 20 basis point reduction in severance expense incurred during the first quarter of Fiscal 2015 as well as 10 basis points of leverage in our business insurance.  These improvements were partially offset by a 10 basis point increase in our stock based compensation.  

Depreciation and amortization

Depreciation and amortization expense related to the depreciation of fixed assets and the amortization of favorable and unfavorable leases amounted to $45.5 million during the first quarter of Fiscal 2016 compared with $42.2 million during the first quarter of Fiscal 2015. The increase in depreciation and amortization expense was primarily driven by our 24 net new stores opened since May 2, 2015 and stores that opened during the first quarter of Fiscal 2015 that did not operate for a full 13 weeks, as well as the completion of our new corporate campus.

Interest expense

Interest expense increased slightly to $15.0 million, primarily driven by $0.2 million of realized losses related to our interest rate cap contracts reclassified from accumulated other comprehensive income into interest expense.

Our average interest rates and average balances related to our Term Loan Facility and our ABL Line of Credit, for the first quarter of Fiscal 2016 compared with the prior year’s quarter, are summarized in the table below:

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Other income, net

Other income, net (consisting of investment income, gains and losses on disposition of assets, breakage income and other miscellaneous items) increased $3.1 million, primarily driven by the sale of certain state tax credits during the first quarter of Fiscal 2016.  

Income tax expense

Income tax expense was $22.6 million during the first quarter of Fiscal 2016 compared with $15.6 million during the first quarter of Fiscal 2015. The effective tax rate for the first quarter of Fiscal 2016 was 37.6% compared with 37.8% during the first quarter of Fiscal 2015. The decrease in the effective tax rate was primarily the result of our corporate entity restructuring.

In accordance with ASC Topic No. 270, “Interim Reporting” (Topic No. 270), and ASC Topic No. 740, “Income Taxes” (Topic No. 740), at the end of each interim period we are required to determine the best estimate of our annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. We used this methodology during the first quarter of Fiscal 2016, resulting in the annual effective income tax rate of 37.7 % (before discrete items) being our best estimate. The projected annual effective income tax rate for the first quarter of Fiscal 2015 was 38.6% (before discrete items). The decrease in the annual effective tax rate was primarily driven by the impact of our corporate entity restructuring.

Net income

We earned net income of $37.5 million for the first quarter of Fiscal 2016 compared with net income of $25.7 million for the first quarter of Fiscal 2015. The improvement in our net income was primarily driven by our improved gross margin, partially offset by increases in our selling, general and administrative expenses and income tax expense.  

Liquidity and Capital Resources

Our ability to satisfy interest payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all.

We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future. However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives in the event that the economy declines.

Cash Flow for the Three Month Period Ended April 30, 2016 Compared With the Three Month Period Ended May 2, 2015

We generated $7.2 million of cash flow during the three month period ended April 30, 2016 compared with $9.4 million during the three month period ended May 2, 2015.

Net cash provided by operating activities amounted to $30.4 million during the three month period ended April 30, 2016 compared with a use of $21.9 million during the three month period ended May 2, 2015. The improvement in our operating cash flows was primarily driven by our improved operating results, the timing of our rental payments and a reduction in incentive compensation payments.  These improvements in cash flow were partially offset by changes in our accounts payable resulting from the timing of our inventory purchases and changes in our accounts receivable.

Net cash used in investing activities was $30.3 million during the three month period ended April 30, 2016 compared with a use of $43.0 million during the three month period ended May 2, 2015.  This change was primarily the result of a reduction in capital expenditures related to our supply chain initiatives, partially offset by store expenditures (new stores, store refreshes and remodels and other store expenditures).

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Net cash provided by financing activities was $7.2 million during the three month period ended April 30, 2016 compared with $ 74.2 million during the three month period ended May 2, 2015.  This decrease was primarily related to the $50.0 million of share repurchases during the first quarter of Fiscal 2016 as well as the net change in our debt obligations.  

Cash flow and working capital levels assist management in measuring our ability to meet our cash requirements. Changes in working capital also impact our cash flows. Working capital at April 30, 2016 was $78.8 million compared with $134.1 million at May 2, 2015.  Refer to the previous section entitled “Key Performance Measures” for explanation of the changes in our working capital.  Working capital at January 30, 2016 was $18.6 million.

Capital Expenditures

For the three month period ended April 30, 2016, cash spend for capital expenditures, net of $2.5 million of landlord allowances, amounted to $27.9 million. We estimate that we will spend $150 million to $160 million, net of approximately $30 million of landlord allowances, in capital expenditures during Fiscal 2016, including $85 million to $90 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, store refreshes and remodels and other store expenditures). In addition, we estimate that we will spend approximately $22 million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives.

Share Repurchase Program

During the first quarter of Fiscal 2016, we repurchased 924,953 shares of common stock for $50.0 million under our share repurchase program. As of April 30, 2016, we had $149.6 million available for purchase under our share repurchase program.   We are authorized to repurchase shares of our outstanding common stock from time to time on the open marke t or in privately negotiated transactions under our repurchase program. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. Our share repurchase program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our common stock under the program.

Dividends

We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of the Company's capital expenditures, business initiatives, and to support any potential opportunistic capital structure initiatives. Therefore, at this time, we do not anticipate paying cash dividends in the near term. Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant.

In addition, since we are a holding company, substantially all of the assets shown on our consolidated balance sheets are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.

Operational Growth

As of April 30, 2016, we operated 570 stores primarily under the name “Burlington Stores.” During the three month period ended April 30, 2016, we opened six new Burlington Stores and closed two MJM Stores and one Burlington Store. We continue to pursue our growth plans and invest in capital projects that meet our financial requirements. We expect to open approximately 25 net new Burlington Stores during Fiscal 2016.

We continue to explore expansion opportunities both within our current market areas and in other regions. We believe that our ability to find satisfactory locations for our stores is essential for the continued growth of our business. The opening of stores generally is contingent upon a number of factors including, but not limited to, the availability of desirable locations with suitable structures and the negotiation of acceptable lease terms. There can be no assurance, however, that we will be able to find suitable locations for new stores or that even if such locations are found and acceptable lease terms are obtained, we will be able to open the number of new stores presently planned. Assuming that appropriate locations are identified, we believe that we will be able to execute our growth strategy without significantly impacting our current stores.

Debt

As of April 30, 2016, our obligations include $1,112.8 million, inclusive of original issue discount, under our Term Loan Facility and $222.2 million under our ABL Line of Credit.

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Term Loan Facility

At April 30, 2016, our borrowing rate related to the Term Loan Facility was 4.25%.

ABL Line of Credit

During the three month period ended April 30, 2016, we made net borrowings on our ABL Line of Credit of $54.8 million to make our $50.0 million of share repurchases and for general working capital requirements.  At April 30, 2016, we had $ 339.3 million available under the Amended ABL Line of Credit and $222.2 million of outstanding borrowings. The maximum borrowings under the facility during the three month period ended April 30, 2016 amounted to $ 315.0 million. Average borrowings during the three month period ended April 30, 2016 amounted to $ 224.9 million at an average interest rate of 1.7 %.

Certain Information Concerning Contractual Obligations

The Company had $737.7 million of purchase commitments related to goods that were not received as of April 30, 2016. There were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. We believe there are several accounting policies that are critical to understanding our historical and future performance as these policies affect the reported amounts of revenues and other significant areas that involve management’s judgments and estimates. The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventories, long-lived assets, intangible assets, goodwill, insurance reserves and income taxes. Historical experience and various other factors that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters and (2) there would be a material effect on the consolidated financial statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from reasonably likely period-to-period changes in the estimate.

Our critical accounting policies and estimates are consistent with those disclosed in Note 1 to the audited Consolidated Financial Statements, “Summary of Significant Accounting Policies,” included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

Safe Harbor Statement

This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act). Our forward-looking statements are subject to risks and uncertainties. Such statements include but are not limited to, proposed store openings and closings, proposed capital expenditures, projected financing requirements, proposed developmental projects, projected sales and earnings, our ability to maintain selling margins, and the effect of the adoption of recent accounting pronouncements on our consolidated financial position, results of operations and cash flows. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include: competition in the retail industry, seasonality of our business, adverse weather conditions, changes in consumer preferences and consumer spending patterns, import risks, inflation, general economic conditions, our ability to implement our strategy, our substantial level of indebtedness and related debt-service obligations, restrictions imposed by covenants in our debt agreements, availability of adequate financing, our dependence on vendors for our merchandise, events affecting the delivery of merchandise to our stores, existence of adverse litigation, availability of desirable locations on suitable terms, and other risks discussed from time to time in our filings with the Securities and Exchange Commission (SEC).

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Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financi al performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued b y us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncerta inties, the forward-looking events and circumstances discussed in this report might not occur. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements.

Recent Accounting Pronouncements

Refer to Note 1 to our Condensed Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of recent accounting pronouncements and their impact in our Condensed Consolidated Financial Statements.