# Boot Barn Holdings, Inc.: Form 10-Q for the period ended Dec 26, 2015

- Company: [Boot Barn Holdings, Inc.](/companies/boot.md) (CIK 1610250)
- Form: 10-Q
- Filed: 2016-02-02
- Accepted by EDGAR: Feb 2, 2016, 17:21 ET
- Period: 2015-12-26
- Accession: 0001558370-16-003028
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1610250/000155837016003028/boot-20151226x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1610250/000155837016003028/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-12-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-09-27 to 2015-12-26 | $193.8m | us-gaap:SalesRevenueGoodsNet |
| Revenue | 9 months, 2015-03-29 to 2015-12-26 | $419.6m | us-gaap:SalesRevenueGoodsNet |
| Cost of revenue | 3 months, 2015-09-27 to 2015-12-26 | $129.7m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2015-03-29 to 2015-12-26 | $288.7m | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2015-09-27 to 2015-12-26 | $64.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2015-03-29 to 2015-12-26 | $130.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2015-09-27 to 2015-12-26 | $44.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2015-03-29 to 2015-12-26 | $105.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-09-27 to 2015-12-26 | $20.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2015-03-29 to 2015-12-26 | $24.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2015-09-27 to 2015-12-26 | $6.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2015-03-29 to 2015-12-26 | $6.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-09-27 to 2015-12-26 | $9.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2015-03-29 to 2015-12-26 | $8.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-09-27 to 2015-12-26 | $0.37 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2015-03-29 to 2015-12-26 | $0.33 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-09-27 to 2015-12-26 | $0.38 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2015-03-29 to 2015-12-26 | $0.34 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-09-27 to 2015-12-26 | 26,871,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2015-03-29 to 2015-12-26 | 27,003,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2015-03-29 to 2015-12-26 | $55.7m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2015-03-29 to 2015-12-26 | $30.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2015-12-26 | $17.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-12-26 | $206.7m | us-gaap:AssetsCurrent |
| Total assets | at 2015-12-26 | $537.7m | us-gaap:Assets |
| Current liabilities | at 2015-12-26 | $160.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-12-26 | $377.8m | us-gaap:Liabilities |
| Long-term debt | at 2015-12-26 | $229.0m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2015-12-26 | $159.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,708 characters.

*The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Boot Barn Holdings, Inc. and Subsidiaries included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on May 29, 2015 (the “Fiscal 2015 10-K”). As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “company”, “Boot Barn”, “we”, “our” and “us” refer to Boot Barn Holdings, Inc. and its subsidiaries.*

### Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate”, “believe”, “can”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “seek”, “should”, “target”, “will”, “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. These forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described under the section titled “Risk Factors” in our Fiscal 2015 10-K, those identified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.

We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

### Overview

Management believes that Boot Barn is the largest and fastest-growing lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in the U.S. As of December 26, 2015, we operated 206 stores in 29 states, as well as an e-commerce channel, including both bootbarn.com and sheplers.com. Our product offering is anchored by an extensive selection of western and work boots and is complemented by a wide assortment of coordinating apparel and accessories. Our stores feature a comprehensive assortment of approximately 200 brands and more than 1,500 styles on average, coupled with attentive, knowledgeable store associates. Many of the items that we offer are basics or necessities for our customers’ daily lives and typically represent enduring styles that are less impacted by changing fashion trends.

We strive to offer an authentic, one-stop shopping experience that fulfills the everyday lifestyle needs of our customers, and as a result, many of our customers make purchases in both the western and work wear sections of our stores. We target a broad and growing demographic, ranging from passionate western and country enthusiasts, to workers seeking dependable, high-quality footwear and apparel. Our broad geographic footprint, which comprises more than twice as many stores as our nearest direct competitor that sells primarily western and work wear, provides us with significant economies of scale, enhanced supplier relationships, the ability to recruit and retain high quality store associates and the ability to reinvest in our business at levels that we believe exceed those of our competition.

### Reorganization

As of June 8, 2014, WW Top Investment Corporation held all of the outstanding shares of common stock of WW Holding Corporation, which held 95.0% of the outstanding shares of common stock of Boot Barn Holding Corporation. Boot Barn Holding Corporation held all of the outstanding shares of common stock of Boot Barn, Inc., which is our primary operating subsidiary. To simplify our organizational structure, we completed the Reorganization on June 9, 2014, whereby WW Holding Corporation was merged with and into WW Top Investment Corporation and then Boot Barn Holding Corporation was merged with and into WW Top Investment Corporation. As a result of this Reorganization, Boot Barn, Inc. became a direct wholly owned subsidiary of WW Top Investment Corporation, and the minority stockholders that formerly held 5.0% of Boot Barn Holding Corporation became holders of 5.0% of WW Top Investment Corporation. The legal name of WW Top Investment Corporation was subsequently changed to Boot Barn Holdings, Inc.

### Amendment of Certificate of Incorporation

On October 19, 2014, our board of directors authorized the amendment of our certificate of incorporation to increase the number of shares that we are authorized to issue to 100,000,000 shares of common stock, par value $0.0001 per share. In addition, the amendment of the certificate of incorporation authorized us to issue 10,000,000 shares of preferred stock, par value $0.0001 per share, and effect a 25-for-1 stock split of our outstanding common stock. The amendment became effective on October 27, 2014. Accordingly, all common share and per share amounts in this Quarterly Report on Form 10-Q have been adjusted to reflect the increase in authorized shares and the 25-for-1 stock split as though it had occurred at the beginning of the initial period presented.

### Initial Public Offering

On October 29, 2014, we commenced our initial public offering (“IPO”) of 5,000,000 shares of our common stock. In addition, on October 31, 2014, the underwriters of the IPO exercised their option to purchase an additional 750,000 shares of common stock from us. As a result, 5,750,000 shares of common stock were issued and sold by us at a price of $16.00 per share.

### Sheplers Acquisition

On June 29, 2015, the Company completed the acquisition of Sheplers, a western lifestyle company with 25 retail locations across the United States and an e-commerce business, for a purchase price of $147.0 million (which included assumption of certain indebtedness), subject to customary adjustments (the “Sheplers Acquisition”).

### How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators we use to evaluate the financial condition and operating performance of our business are net sales and gross profit. In addition, we also review other important metrics, such as same store sales, new store openings, selling, general and administrative expenses, EBITDA and Adjusted EBITDA.

### Net sales

Net sales reflect revenue from the sale of our merchandise at retail locations, as well as sales of merchandise through our e-commerce websites. We recognize revenue upon the purchase of merchandise by customers at our stores and upon delivery of the product in the case of our e-commerce websites. Net sales also include shipping and handling fees for e-commerce shipments that have been delivered to our customers. Net sales are net of returns on sales during the period as well as an estimate of returns and award redemptions expected in the future stemming from current period sales. Revenue from the sale of gift cards is deferred until the gift cards are used to purchase merchandise.

Our business is moderately seasonal and as a result our revenues fluctuate from quarter to quarter. In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays and weather patterns. The third quarter of our fiscal year, which includes the Christmas shopping season, has historically produced higher sales and disproportionately larger operating income than the other quarters of our fiscal year. However, we believe that our sales throughout the year are more consistent than most other specialty retail chains. As a result of the dispersion of various western events throughout the year, we believe that our Christmas results are less impactful than other specialty retail chains. In addition, neither the western nor the work component of our business has been meaningfully impacted by fashion trends or seasonality historically. We believe that many of our customers are driven primarily by utility and brand, and our best-selling styles.

### Same store sales

The term “same store sales” refers to net sales from stores that have been open at least 13 full fiscal months as of the end of the current reporting period, although we include or exclude stores from our calculation of same store sales in accordance with the following additional criteria:

- stores that are closed for five or fewer days in any fiscal month are included in same store sales;
- stores that are closed temporarily, but for more than five days in any fiscal month, are excluded from same store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens;
- stores that are closed temporarily and relocated within their respective trade areas are included in same store sales;
- stores that are permanently closed are excluded from same store sales beginning in the month preceding closure; and
- acquired stores are added to same store sales beginning on the later of (a) the applicable acquisition date and (b) the first day of the first fiscal month after the store has been open for at least 13 full fiscal months regardless of whether the store has been operated under our management or predecessor management.

If the criteria described above are met, then all net sales of an acquired store, excluding those net sales before our acquisition of that store, are included for the period presented. However, when an acquired store is included for the period presented, the net sales of such acquired store for periods before its acquisition are included (to the extent relevant) for purposes of calculating “same store sales growth” and illustrating the comparison between the applicable periods. Pre-acquisition net sales numbers are derived from the books and records of the acquired company, as prepared prior to the acquisition, and have not been independently verified by us.

In addition to retail store sales, same store sales also includes e-commerce sales, e-commerce shipping and handling revenue and actual retail store or e-commerce sales returns. We exclude gift card escheatment, provision for sales returns and estimated future loyalty award redemptions from sales in our calculation of net sales per store.

Measuring the change in year-over-year same store sales allows us to evaluate how our store base is performing. Numerous factors affect our same store sales, including:

- national and regional economic trends;
- our ability to identify and respond effectively to regional consumer preferences;
- changes in our product mix;
- changes in pricing;
- competition;
- changes in the timing of promotional and advertising efforts;
- holidays or seasonal periods; and
- weather.

Opening new stores is an important part of our growth strategy and we anticipate that a significant percentage of our net sales in the near future will come from stores not included in our same store sales calculation. Accordingly, same store sales are only one measure we use to assess the success of our business and growth strategy. Some of our competitors and other retailers may calculate “same” or “comparable” store sales differently than we do. As a result, data in this Quarterly Report on Form 10-Q regarding our same store sales may not be comparable to similar data made available by other retailers.

### New store openings

New store openings reflect the number of stores, excluding acquired stores, that are opened during a particular reporting period. In connection with opening new stores, we incur pre-opening costs. Pre-opening costs consist of costs incurred prior to opening a new store and primarily consist of manager and other employee payroll, travel and training costs, marketing expenses, initial opening supplies and costs of transporting initial inventory and certain fixtures to store locations, as well as occupancy costs incurred from the time that we take possession of a store site to the opening of that store. Occupancy costs are included in cost of goods sold and the other pre-opening costs are included in selling, general and administrative (“SG&A”) expenses. All of these costs are expensed as incurred.

New stores often open with a period of high sales levels, which subsequently decrease to normalized sales volumes. In addition, we experience typical inefficiencies in the form of higher labor, advertising and other direct operating expenses, and as a result, store-level profit margins at our new stores are generally lower during the start-up period of operation. The number and timing of store openings has had, and is expected to continue to have, a significant impact on our results of operations. In assessing the performance of a new store, we review its actual sales against the sales that we projected that store to achieve at the time we initially approved its opening. We also review the actual number of stores opened in a fiscal year against the number of store openings that we included in our budget at the beginning of that fiscal year.

### Gross profit

Gross profit is equal to our net sales less our cost of goods sold. Cost of goods sold includes the cost of merchandise, obsolescence and shrinkage provisions, store and warehouse occupancy costs (including rent, depreciation and utilities), inbound and outbound freight, supplier allowances, occupancy-related taxes, compensation costs for merchandise purchasing and warehouse personnel, and other inventory acquisition-related costs. These costs are significant and can be expected to continue to increase as we grow. The components of our reported cost of goods sold may not be comparable to those of other retail companies, including our competitors.

Our gross profit generally follows changes in net sales. We regularly analyze the components of gross profit, as well as gross profit as a percentage of net sales. Specifically, we examine the initial markup on purchases, markdowns and reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns or in inventory shrinkage, or a significant increase in freight and other inventory acquisition costs, could have an adverse impact on our gross profit and results of operations.

Gross profit is also impacted by shifts in the proportion of sales of our private brand products compared to third-party brand products, as well as by sales mix changes within and between brands and major product categories such as footwear, apparel or accessories.

### Selling, general and administrative expenses

Our SG&A expenses are composed of labor and related expenses, other operating expenses and general and administrative expenses not included in cost of goods sold. Specifically, our SG&A expenses include the following:

*Labor and related expenses—*Labor and related expenses include all store-level salaries and hourly labor costs, including salaries, wages, benefits and performance incentives, labor taxes and other indirect labor costs.

*Other operating expenses—*Other operating expenses include all operating costs, including those for advertising, marketing campaigns, operating supplies, utilities, and repairs and maintenance, as well as credit card fees and costs of third-party services.

*General and administrative expenses—*General and administrative expenses comprise expenses associated with corporate and administrative functions that support the development and operations of our stores, including compensation and benefits, travel expenses, corporate occupancy costs, stock compensation costs, legal and professional fees, insurance and other related corporate costs.

The components of our SG&A expenses may not be comparable to those of our competitors and other retailers. We expect our selling, general and administrative expenses will increase in future periods as a result of incremental share-based compensation, legal, accounting, and other compliance-related expenses associated with being a public company and increases resulting from growth in the number of our stores.

### EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are important financial measures used by our management, board of directors and lenders to assess our operating performance. We use EBITDA and Adjusted EBITDA as key performance measures because we believe that they facilitate operating performance comparisons from period to period by excluding potential differences primarily caused by the impact of variations from period to period in tax positions, interest expense and depreciation and amortization, as well as, in the case of Adjusted EBITDA, excluding non-cash expenses, such as stock-based compensation and the non-cash accrual for future award redemptions, and unusual or non-recurring costs and expenses that are not directly related to our operations, including acquisition-related expenses, acquisition-related integration costs, amortization of inventory fair value adjustment, SEC filing costs, and loss on disposal of assets and contract termination costs. See “Results of Operations” below for a reconciliation of our EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use EBITDA and Adjusted EBITDA (or some variations thereof) for business planning purposes, in calculating covenant compliance for our credit facilities, in determining incentive compensation for members of our management and in evaluating acquisition opportunities. In addition, we believe that EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities. Given that EBITDA and Adjusted EBITDA are measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate EBITDA and Adjusted EBITDA in a different manner than we calculate these measures.

### 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 that affect the reported amounts of assets, liabilities, revenue and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements. A summary of our significant accounting policies is included in Note 2 of our consolidated financial statements included in the Fiscal 2015 10-K.

Certain of our accounting policies and estimates are considered critical, as these policies and estimates are the most important to the depiction of our 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Fiscal 2015 10-K. As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates described in the Fiscal 2015 10-K.

### Results of Operations

We operate on a fiscal calendar that results in a 52- or 53-week fiscal year ending on the last Saturday of March unless April 1st is a Saturday, in which case the fiscal year ends on April 1st. The fiscal year ending on March 26, 2016 (“fiscal 2016”) and the fiscal year ended on March 28, 2015 (“fiscal 2015”), each consists of 52 weeks. In a 52-week fiscal year, each quarter includes thirteen weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include thirteen weeks of operations and the fourth quarter includes fourteen weeks of operations. For ease of reference, we identify our fiscal years by reference to the calendar year in which the fiscal year ends.

The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales:

*(dollars in thousands)*

| Consolidated Statements of Operations Data (Unaudited): | Thirteen Weeks Ended December 26, 2015 | December 27, 2014 | Thirty-Nine Weeks Ended December 26, 2015 | December 27, 2014 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $193,842 | $130,523 | $419,554 | $299,404 |
| Cost of goods sold | 129,891 | 84,367 | 289,176 | 198,605 |
| Amortization of inventory fair value adjustment | (228) | — | (453) | — |
| Total cost of goods sold | 129,663 | 84,367 | 288,723 | 198,605 |
| Gross profit | 64,179 | 46,156 | 130,831 | 100,799 |
| Operating expenses: |  |  |  |  |
| Selling, general and administrative expenses | 43,986 | 28,299 | 105,323 | 73,167 |
| Acquisition-related expenses | — | — | 891 | — |
| Total operating expenses | 43,986 | 28,299 | 106,214 | 73,167 |
| Income from operations | 20,193 | 17,857 | 24,617 | 27,632 |
| Interest expense, net | 3,553 | 4,177 | 9,347 | 9,755 |
| Other income, net | — | 12 | — | 37 |
| Income before income taxes | 16,640 | 13,692 | 15,270 | 17,914 |
| Income tax expense | 6,712 | 4,929 | 6,414 | 6,794 |
| Net income | $9,928 | $8,763 | $8,856 | $11,120 |
| **Percentage of Net Sales (Unaudited):** |  |  |  |  |
| Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of goods sold | 67.0% | 64.6% | 68.9% | 66.3% |
| Amortization of inventory fair value adjustment | (0.1)% | —% | (0.1)% | —% |
| Total cost of goods sold | 66.9% | 64.6% | 68.8% | 66.3% |
| Gross profit | 33.1% | 35.4% | 31.2% | 33.7% |
| Operating expenses: |  |  |  |  |
| Selling, general and administrative expenses | 22.7% | 21.7% | 25.1% | 24.4% |
| Acquisition-related expenses | —% | —% | 0.2% | —% |
| Total operating expenses | 22.7% | 21.7% | 25.3% | 24.4% |
| Income from operations | 10.4% | 13.7% | 5.9% | 9.3% |
| Interest expense, net | 1.8% | 3.2% | 2.2% | 3.3% |
| Other income, net | — | —% | —% | — |
| Income before income taxes | 8.6% | 10.5% | 3.7% | 6.0% |
| Income tax expense | 3.5% | 3.8% | 1.5% | 2.3% |
| Net income | 5.1% | 6.7% | 2.2% | 3.7% |

28

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for each of the periods indicated:

*(in thousands)*

| EBITDA Reconciliation (Unaudited): | Thirteen Weeks Ended December 26, 2015 | December 27, 2014 | Thirty-Nine Weeks Ended December 26, 2015 | December 27, 2014 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $9,928 | $8,763 | $8,856 | $11,120 |
| Income tax expense | 6,712 | 4,929 | 6,414 | 6,794 |
| Interest expense, net | 3,553 | 4,177 | 9,347 | 9,755 |
| Depreciation and intangible asset amortization | 3,593 | 2,311 | 9,522 | 6,443 |
| EBITDA | 23,786 | 20,180 | 34,139 | 34,112 |
| Non-cash stock-based compensation(a) | 761 | 539 | 2,143 | 1,459 |
| Non-cash accrual for future award redemptions(b) | 961 | 816 | 801 | 581 |
| Acquisition-related expenses(c) | — | — | 891 | — |
| Acquisition-related integration and reorganization costs(d) | 3,153 | — | 8,521 | — |
| Amortization of inventory fair value adjustment(e) | (228) | — | (453) | — |
| Loss on disposal of assets and contract termination costs(f) | 53 | 27 | 1,106 | 113 |
| SEC filing costs(g) | 317 | — | 317 | — |
| Other due diligence expenses(h) | — | — | — | 864 |
| Adjusted EBITDA | $28,803 | $21,562 | $47,465 | $37,129 |

(a) Represents non-cash compensation expenses related to stock options, restricted stock awards and restricted stock units granted to certain of our employees and directors.

(b) Represents the non-cash accrual for future award redemptions in connection with our customer loyalty program.

(c) Includes direct costs and fees related to the Sheplers Acquisition.

(d) Represents certain store integration, remerchandising, inventory obsolescence and corporate consolidation costs incurred in connection with the integration of Sheplers. Includes an adjustment to normalize the gross margin impact of sales of discontinued inventory from Sheplers, which was sold at a discount. The adjustment assumes such inventory was sold at Sheplers’ normalized margin rate.

(e) Represents the amortization of purchase-accounting adjustments that decreased the value of inventory acquired to its fair value.

(f) Represents loss on disposal of assets and contract termination costs from store closures and unused office and warehouse space.

(g) Represents professional fees and expenses incurred in connection with a form S-1 Registration Statement filing in July 2015.

(h) Represents professional fees and expenses incurred in connection with a prior due diligence process of Sheplers.

The following table presents store operating data for the periods indicated:

| Selected Store Data (unaudited): | Thirteen Weeks Ended December 26, 2015 | December 27, 2014 | Thirty-Nine Weeks Ended December 26, 2015 | December 27, 2014 |
| --- | ---: | ---: | ---: | ---: |
| Same Store Sales (decline)/growth | (2.0)% | 7.2% | 0.3% | 7.3% |
| Stores operating at end of period | 206 | 166 | 206 | 166 |
| Total retail store square footage, end of period (in thousands) | 2,374 | 1,781 | 2,374 | 1,781 |
| Average store square footage, end of period | 11,525 | 10,729 | 11,525 | 10,729 |
| Average net sales per store (in thousands) | $751 | $737 | $1,738 | $1,712 |

29

### Thirteen Weeks Ended December 26, 2015 Compared to Thirteen Weeks Ended December 27, 2014

***Net sales.*** Net sales increased $63.3 million, or 48.5%, to $193.8 million for the thirteen weeks ended December 26, 2015 from $130.5 million for the thirteen weeks ended December 27, 2014. The increase in net sales was the result of contributions from recently acquired Sheplers and 22 new stores opened between the beginning of the fourth quarter of fiscal 2015 and the end of the third quarter of fiscal 2016. These increases were partially offset by a decrease in consolidated same store sales during the thirteen weeks ended December 26, 2015 driven by the softening of local economies dependent on oil and other commodities and unseasonably warm weather.

***Gross profit.*** Gross profit increased $18.0 million, or 39.1%, to $64.2 million for the thirteen weeks ended December 26, 2015 from $46.2 million for the thirteen weeks ended December 27, 2014. As a percentage of net sales, gross profit was 33.1% and 35.4% for the thirteen weeks ended December 26, 2015 and December 27, 2014, respectively. The gross profit increase was a result of the addition of the Sheplers’ business and the opening of 22 new stores. The decline in gross profit rate during the thirteen weeks ended December 26, 2015, was primarily driven by the addition of the lower margin Sheplers’ business, and an increase in acquisition-related integration costs of $1.0 million. The acquisition-related integration costs represent certain store integration, remerchandising, inventory obsolescence and corporate consolidation costs incurred in connection with the integration of Sheplers.

***Selling, general and administrative expenses.*** SG&A expenses increased $15.7 million, or 55.4%, to $44.0 million for the thirteen weeks ended December 26, 2015 from $28.3 million for the thirteen weeks ended December 27, 2014. As a percentage of net sales, SG&A was 22.7% and 21.7% for the thirteen weeks ended December 26, 2015 and December 27, 2014, respectively. The increase is primarily due to store-related costs, acquisition-related integration costs from the integration of Sheplers and public company costs incurred during the thirteen weeks ended December 26, 2015.

***Income from operations.*** Income from operations for the thirteen weeks ended December 26, 2015 totaled $20.2 million, an increase of $2.3 million from income from operations for the thirteen weeks ended December 27, 2014. As a percentage of net sales, income from operations was 10.4% for the thirteen weeks ended December 26, 2015, compared to income from operations as a percentage of net sales of 13.7% for the thirteen weeks ended December 27, 2014. The change in income from operations was attributable to the factors noted above.

***Interest expense, net.*** Interest expense, net, decreased 14.9% or $0.6 million, to $3.6 million for the thirteen weeks ended December 26, 2015 from $4.2 million for the thirteen weeks ended December 27, 2014. The decrease in interest expense, net was primarily due to additional interest expense incurred in the thirty-nine weeks ended December 27, 2014 related to a higher interest rate and pre-payment penalties and accelerated amortization of deferred loan fees in connection with the $81.9 million paydown of the 2013 Golub Loan balance during the third quarter of the prior year, offset by a higher debt balance in the thirteen weeks ended December 26, 2015.

***Income tax expense.*** Income tax expense increased $1.8 million, to $6.7 million for the thirteen weeks ended December 26, 2015 from $4.9 million of income tax expense for the thirteen weeks ended December 27, 2014. The increase in our income tax expense results from the $2.9 million increase in income before income taxes for the thirteen weeks ended December 26, 2015 as compared to the thirteen weeks ended December 27, 2014. Our effective tax rate was 40.3% and 36.0% for the thirteen weeks ended December 26, 2015 and December 27, 2014, respectively. The higher effective tax rate for the thirteen weeks ended December 26, 2015 compared to the thirteen weeks ended December 27, 2014 was due to discrete items that decreased taxes for the thirteen weeks ended December 27, 2014 related to prior year true-up adjustments to income taxes payable and deferred tax assets and liabilities.

***Net income.*** Net income increased $1.1 million, from $8.8 million for the thirteen weeks ended December 27, 2014 to $9.9 million for the thirteen weeks ended December 26, 2015. The increase in net income was attributable to the factors noted above.

***Adjusted EBITDA.*** Adjusted EBITDA increased $7.2 million, or 33.6%, to $28.8 million for the thirteen weeks ended December 26, 2015 from $21.6 million for the thirteen weeks ended December 27, 2014. The increase was primarily a result of the additional adjusted EBITDA contributions from the acquired Sheplers business and 22 new stores that opened between the beginning of the fourth quarter of fiscal year 2015 and the end of the third quarter of fiscal year 2016. These increases were partially offset by additions to SG&A required to support the expanded business operations and increased costs associated with being a public company.

### Thirty-nine weeks Ended December 26, 2015 Compared to Thirty-nine weeks Ended December 27, 2014

***Net sales.*** Net sales increased $120.2 million, or 40.1%, to $419.6 million for the thirty-nine weeks ended December 26, 2015 from $299.4 million for the thirty-nine weeks ended December 27, 2014. The increase in net sales was the result of contributions from recently acquired Sheplers and 22 new stores opened between the beginning of the fourth quarter of fiscal 2015 and the end of the third quarter of fiscal 2016. Consolidated same store sales during the thirty-nine weeks ended December 26, 2015 were flat, driven by the softening of local economies dependent on oil and other commodities and unseasonably warm weather.

***Gross profit.*** Gross profit increased $30.0 million, or 29.8%, to $130.8 million for the thirty-nine weeks ended December 26, 2015 from $100.8 million for the thirty-nine weeks ended December 27, 2014. As a percentage of net sales, gross profit was 31.2% and 33.7% for the thirty-nine weeks ended December 26, 2015 and December 27, 2014, respectively. The gross profit increase was a result of the addition of the Sheplers’ business and the opening of 22 new stores. Gross profit rate was lower primarily due to the addition of the lower margin Sheplers’ business, and an increase in acquisition-related integration costs of $3.2 million. The acquisition-related integration costs represent certain store integration, remerchandising, inventory obsolescence and corporate consolidation costs incurred in connection with the integration of Sheplers.

***Selling, general and administrative expenses.*** SG&A expenses increased $32.1 million, or 44.0%, to $105.3 million for the thirty-nine weeks ended December 26, 2015 from $73.2 million for the thirty-nine weeks ended December 27, 2014. As a percentage of net sales, SG&A was 25.1% and 24.4% for the thirty-nine weeks ended December 26, 2015 and December 27, 2014, respectively. The increase is primarily due to store-related costs, acquisition-related integration costs from the integration of Sheplers, contract termination costs, loss on disposal of assets and public company costs.

***Acquisition-related expenses.*** Acquisition-related expenses for the thirty-nine weeks ended December 26, 2015 were $0.9 million, which relate to the Sheplers Acquisition. See Note 3, “Business Combinations”, to our unaudited financial statements included in this Quarterly Report, for further discussion of the Sheplers Acquisition.

***Income from operations.*** Income from operations decreased $3.0 million, or 10.9%, to $24.6 million for the thirty-nine weeks ended December 26, 2015 from $27.6 million for the thirty-nine weeks ended December 27, 2014. As a percentage of net sales, income from operations was 5.9% and 9.3% for the thirty-nine weeks ended December 26, 2015 and December 27, 2014, respectively. The change in income from operations was attributable to the factors noted above.

***Interest expense, net.*** Interest expense, net, decreased $0.4 million, or 4.2%, to $9.3 million for the thirty-nine weeks ended December 26, 2015 from $9.7 million for the thirty-nine weeks ended December 27, 2014. The decrease in interest expense, net was primarily due to additional interest expense incurred in the thirty-nine weeks ended December 27, 2014 related to a higher interest rate and pre-payment penalties and accelerated amortization of deferred loan fees in connection with the $81.9 million paydown of the 2013 Golub Loan balance during the third quarter of the prior year, offset by a higher debt balance in the thirty-nine weeks ended December 26, 2015.

***Income tax expense.*** Income tax expense decreased $0.4 million, or 5.6%, to $6.4 million for the thirty-nine weeks ended December 26, 2015 from $6.8 million of income tax expense for the thirty-nine weeks ended December 27, 2014. The decrease in our income tax expense results from the $2.6 million decrease in income before income taxes for the thirty-nine weeks ended December 26, 2015 as compared to the thirty-nine weeks ended December 27, 2014. Our effective tax rate was 42.0% and 37.9% for the thirty-nine weeks ended December 26, 2015 and December 27, 2014, respectively. The higher effective tax rate for the thirty-nine weeks ended December 26, 2015 compared to the thirty-nine weeks ended December 27, 2014 was due to discrete items related to non-deductible Sheplers’ acquisition costs and increases in the blended state tax rate for the thirty-nine weeks ended December 26, 2015 and discrete items that decreased taxes for the thirty-nine weeks ended December 27, 2014.

***Net income.*** Net income decreased $2.2 million, from $11.1 million for the thirty-nine weeks ended December 27, 2014 to $8.9 million for the thirty-nine weeks ended December 26, 2015. The decrease in net income was attributable to the factors noted above.

***Adjusted EBITDA.*** Adjusted EBITDA increased $10.3 million, or 27.8%, to $47.4 million for the thirty-nine weeks ended December 26, 2015 from $37.1 million for the thirty-nine weeks ended December 27, 2014. The increase was primarily a result of the additional adjusted EBITDA contributions from the acquired Sheplers business and 22 new stores that opened between the beginning of the fourth quarter of fiscal year 2015 and the end of the third quarter of fiscal year 2016. These increases were partially offset by additions to SG&A required to support the expanded business operations and increased costs associated with being a public company.

### Liquidity and Capital Resources

We rely on cash flows from operating activities and our credit facility as our primary sources of liquidity. Our primary cash needs are for inventories, operating expenses, capital expenditures associated with opening new stores and remodeling or refurbishing existing stores, improvements to our distribution facilities, marketing and information technology expenditures, debt service and taxes. We have also used cash for acquisitions, the subsequent rebranding and integration of the stores acquired in those acquisitions and costs to consolidate the corporate offices. In addition to cash and cash equivalents, the most significant components of our working capital are accounts receivable, inventories, accounts payable and accrued expenses and other current liabilities. We believe that cash flows from operating activities and the availability of cash under our credit facilities or other financing arrangements will be sufficient to cover working capital requirements, anticipated capital expenditures and other anticipated cash needs for at least the next 12 months.

Our liquidity is moderately seasonal. Our cash requirements generally decrease in our third fiscal quarter as we experience increased sales during the Holiday shopping season. Our cash provided by operations increased in the thirty-nine weeks ended December 26, 2015 as compared to the thirty-nine weeks ended December 27, 2014, primarily as a result of a significant increase in accounts payable in the thirty-nine weeks ended December 26, 2015, relative to a smaller increase in the thirty-nine weeks ended December 27, 2014. The increase in accounts payable is attributable to Sheplers’ operational costs as a result of the acquisition, as well as Holiday seasonality. Additionally, there was a decrease in prepaid expenses and other current assets in the current year compared to an increase in prepaid expenses and other current assets in the prior year. The decrease in prepaid expenses and other current assets was primarily attributable to prepaid rent incurred in the thirty-nine weeks ended December 27, 2014, that was not incurred in the thirty-nine weeks ended December 26, 2015.

During the thirty-nine weeks ended December 26, 2015, we used $176.6 million in investing activities, primarily related to the Sheplers Acquisition, capital expenditures related to the acquired Sheplers’ stores and consolidation of our warehouses and a portion of our current distribution center into our new distribution center. We are planning to continue to open new stores, remodel and refurbish our existing stores, and make improvements to our information technology infrastructure, which will result in increased capital expenditures. We estimate that our total capital expenditures in fiscal 2016 will be approximately $33.0 million, net of landlord tenant allowances, and we anticipate that we will use cash flows from operations to fund these expenditures.

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

On December 11, 2011, we obtained a collateral-based revolving line of credit with PNC Bank, N.A. (the “PNC Line of Credit”), which we amended on August 31, 2012 and May 31, 2013. The PNC Line of Credit included a $5.0 million sub-limit for letters of credit. On April 15, 2014, we amended the PNC Line of Credit to increase the borrowing capacity from $60.0 million to up to $70.0 million. The available borrowing under the PNC Line of Credit was based on the collective value of eligible inventory and credit card receivables multiplied by specific advance rates. Total interest expense incurred on the PNC Line of Credit for the thirteen and thirty-nine weeks ended December 27, 2014 was $0.9 million and $1.5 million, respectively. On February 23, 2015, the proceeds from the February 2015 Wells Fargo Credit Facility were used to pay the entire $50.8 million outstanding balance of the PNC Line of Credit.

#### Term Loan Due May 2019 (Golub Capital LLC)

We entered into a loan and security agreement with Golub Capital LLC on May 31, 2013, as amended by the first amendment to the term loan and security agreement dated September 23, 2013 (the “2013 Golub Loan”). On April 14, 2014, we entered into an amended and restated term loan and security agreement for the 2013 Golub Loan. The amended and restated loan and security agreement increased the borrowings on the 2013 Golub Loan from $99.2 million to $130.0 million, with the proceeds used to fund a portion of the $41.3 million dividend to stockholders and cash payment to holders of vested options that was paid in April 2014. See Note 6, “Stock-Based Compensation” to our unaudited financial statements included in this Quarterly Report. On November 5, 2014, we amended the 2013 Golub Loan to reduce the applicable LIBOR Floor from 1.25% to 1.00% which changed the current interest rate from 7.00% to 6.75%. Total interest expense incurred on the 2013 Golub Loan was $1.4 million and $6.0 million for the thirteen and thirty-nine weeks ended December 27, 2014, respectively.

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

On February 23, 2015, proceeds from the credit facility with Wells Fargo Bank, N.A. (“February 2015 Wells Fargo Credit Facility”) were used to pay the entire $47.3 million outstanding balance of the 2013 Golub Loan. We incurred prepayment penalties of $1.1 million to the lenders under our prior credit facilities. Total debt issuance costs from the PNC Line of Credit and the 2013 Golub Loan of $1.4 million were written off to interest expense.

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

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

Total interest expense incurred in the thirty-nine weeks ended December 26, 2015 on the February 2015 Wells Fargo Credit Facility was $0.8 million.

#### June 2015 Wells Fargo Revolver and Golub Term Loan

On June 29, 2015, we, as guarantor, and our wholly-owned primary operating subsidiary, Boot Barn, Inc., refinanced our $150 million February 2015 Wells Fargo Credit Facility with a new $125 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association (“June 2015 Wells Fargo Revolver”), is agent, and a $200 million syndicated senior secured term loan for which GCI Capital Markets LLC (“2015 Golub Term Loan”) is agent. Borrowings under the new credit agreements were also used to pay costs and expenses related to the acquisition and the closing of the new credit agreements, and may be used for working capital and other general corporate purposes.

Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at our option, either (i) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin for LIBOR loans, or (ii) the base rate plus an applicable margin for base rate loans. The base rate is calculated as the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) one-month LIBOR plus 1.0%. The applicable margin is calculated based on a pricing grid that in each case is linked to quarterly average excess availability. For LIBOR Loans, the applicable margin ranges from 1.00% to 1.25%, and for base rate loans it ranges from 0.00% to 0.25%. We also pay a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans. The interest on the June 2015 Wells Fargo Revolver is payable in quarterly installments beginning on September 25, 2015 and ending on June 29, 2020, the maturity date. Total interest expense incurred in the thirteen and thirty-nine weeks ended December 26, 2015 on the June

2015 Wells Fargo Revolver was $0.3 million and $0.6 million, respectively, and the weighted average interest rate at December 26, 2015 was 1.6%.

Borrowings under the 2015 Golub Term Loan bear interest at per annum rates equal to, at our option, either (a) LIBOR plus an applicable margin for LIBOR loans with a LIBOR floor of 1.0%, or (b) the base bate plus an applicable margin for base rate loans. The base rate is calculated as the greater of (i) the higher of (x) the prime rate and (y) the federal funds rate plus 0.5% and (ii) the sum of one-month LIBOR plus 1.00%. The applicable margin is 4.5% for LIBOR Loans and 3.5% for base rate loans. The principal and interest on the 2015 Golub Term Loan will be payable in quarterly installments beginning on September 25, 2015 and ending on the maturity date of the term loan, June 29, 2021. Quarterly principal payments of $500,000 are due for each quarter. Total interest expense incurred in the thirteen and thirty-nine weeks ended December 26, 2015 on the 2015 Golub Term Loan was $2.8 million and $5.6 million, respectively, and the weighted average interest rate at December 26, 2015 was 5.5%.

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

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

Each of the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan contains customary provisions relating to mandatory prepayments, restricted payments, voluntary payments, affirmative and negative covenants, and events of default. In addition, the terms of the June 2015 Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio of at least 1.00:1.00 during such times as a covenant trigger event shall exist. The terms of the 2015 Golub Term Loan require us to maintain, on a consolidated basis, a maximum Consolidated Total Net Leverage Ratio of 5.25:1.00 (with step downs to 4.00:1.00 as provided for in the 2015 Golub Term Loan). The June 2015 Wells Fargo Revolver and 2015 Golub Term Loan also require us to pay additional interest of 2% per annum upon triggering certain specified events of default as set forth therein. For financial accounting purposes, the requirement for us to pay a higher interest rate upon an event of default is an embedded derivative. As of December 26, 2015, the fair value of these embedded derivatives was estimated and was not significant.

As of December 26, 2015, we were in compliance with the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan debt covenants.

### Cash Position and Cash Flow

Cash and cash equivalents were $17.8 million as of December 26, 2015 compared to $1.4 million as of March 28, 2015.

The following table presents summary cash flow information for the periods indicated (in thousands):

*(in thousands)*

| Net cash provided by/(used in): | Thirty-Nine Weeks Ended December 26, 2015 | December 27, 2014 |
| --- | ---: | ---: |
| Operating activities | $55,668 | $20,585 |
| Investing activities | (176,635) | (9,562) |
| Financing activities | 137,359 | (8,543) |
| Net increase in cash | $16,392 | $2,480 |

34

### Operating Activities

Net cash provided by operating activities was $55.7 million for the thirty-nine weeks ended December 26, 2015. The significant components of cash flows provided by operating activities were net income of $8.9 million, the add-back of non-cash depreciation and amortization expense of $9.5 million, stock-based compensation expense of $2.1 million, amortization of deferred loan fees and debt discount of $2.0 million and the excess tax benefit related to the exercise of stock options of $3.7 million. Accounts payable and accrued expenses and other current liabilities increased by $40.1 million due to increases in acquisition-related integration accruals and Holiday seasonality. Prepaid expenses and other current assets decreased by $9.1 million primarily due to a decrease in prepaid rent as a result of the timing of rent payments. The above was offset by an increase in inventories of $13.9 million due to the growth of the company.

Net cash provided by operating activities was $20.6 million for the thirty-nine weeks ended December 27, 2014. The significant components of cash flows provided by operating activities were net income of $11.1 million, the add-back of non-cash depreciation and amortization expense of $6.4 million, stock-based compensation expense of $1.5 million, amortization of deferred loan fees of $2.2 million and an increase in deferred taxes of $0.6 million. Accounts payable and accrued expenses and other current liabilities increased by $18.1 million due to the timing of payments and growth of the company. Prepaid expenses and other current assets decreased by $1.2 million primarily due to higher prepaid rent at the end of fiscal 2014, and other liabilities increased by $1.1 million due to the opening of new stores. The above was offset by increases in accounts receivable of $2.3 million and inventories of $19.2 million due to the growth of the company.

### Investing Activities

Net cash used in investing activities was $176.6 million for the thirty-nine weeks ended December 26, 2015, which was attributable to the Sheplers Acquisition, net of cash acquired, and purchases of property and equipment during the period.

Net cash used in investing activities was $9.6 million for the thirty-nine weeks ended December 27, 2014, which represents purchases of property and equipment during the period.

### Financing Activities

Net cash provided by financing activities was $137.4 million for the thirty-nine weeks ended December 26, 2015. We increased our loan borrowings by $200.9 million and our line of credit borrowings by $13.8 million. We paid $6.5 million of debt issuance fees related to these borrowings and repaid $77.3 million on our debt and capital lease obligations during the period. We also received $2.7 million from the exercise of stock options, and $3.7 million excess tax benefit from the exercise of those options.

Net cash used in financing activities was $8.5 million for the thirty-nine weeks ended December 27, 2014. We received $82.2 million of net proceeds from our IPO in the third quarter of fiscal 2015, and used $81.9 million of the proceeds to repay a portion of the principal balance on the 2013 Golub Loan. During the first quarter of fiscal 2015, we increased our loan borrowings by $30.8 million and our line of credit borrowings by $3.4 million, primarily to pay $41.3 million of dividends and payments in respect of vested options during the first quarter of fiscal 2015. We paid $0.8 million of debt issuance fees related to these borrowings.

### Contractual Obligations

During the thirty-nine weeks ended December 26, 2015, there were no significant changes to our contractual obligations described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Fiscal 2015 10-K other than those which occurred in the normal course of business and from the Sheplers Acquisition. For information on the impact of the Sheplers Acquisition and related debt refinancing, see Note 3, “Business Combinations”, Note 5, “Revolving Credit Facilities and Long Term Debt”, and Note 8, “Capital Lease and Financing Transactions” in the notes to the unaudited financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. We have additionally included below a schedule by year of our contractual cash obligations over the next several periods, which include the additional contractual obligations we have assumed as a result of the Sheplers Acquisition.

*(In thousands)*

|  | Payments Due by Period Total | Less Than 1 Year | 1 - 2 Years | 3 - 5 Years | More Than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Capital lease and financing transaction obligations | $15,109 | $311 | $2,525 | $3,962 | $8,311 |
| Operating lease obligations | 223,128 | 29,113 | 61,986 | 69,603 | 62,426 |
| Debt and line of credit | 229,007 | 500 | 4,000 | 6,000 | 218,507 |
| Interest expense on debt | 60,339 | 3,474 | 23,076 | 22,636 | 11,153 |
| Total | $527,583 | $33,398 | $91,587 | $102,201 | $300,397 |

Capital lease obligations relate to property and equipment leases that expire at various dates through fiscal 2023. The financing transaction obligation relates to the acquisition of two retail stores, one distribution center facility and land as part of the Sheplers Acquisition. The financing transaction lease has a 20-year term expiring in 2027 and includes renewal options and certain default provisions requiring us to perform repairs and maintenance, make timely rent payments and insure the buildings and equipment.

We lease our stores, facilities and certain other equipment under non-cancelable operating leases. These include newly acquired operating leases as part of the Sheplers Acquisition, expire at various dates through fiscal 2032, and contain various provisions for rental adjustments, including, in certain cases, adjustments based on increases in the Consumer Price Index. They also generally contain renewal provisions for varying periods. Our future operating lease obligations would change if we were to exercise these renewal provisions or if we were willing to enter into additional operating leases.

Debt consists of $199.0 million outstanding under our 2015 Golub Term Loan and $30.0 million outstanding under our June 2015 Wells Fargo Revolver as of December 26, 2015. Our 2015 Golub Term Loan provides for regularly scheduled principal payments beginning on September 25, 2015. Payments with respect to the June 2015 Wells Fargo Revolver are due on June 29, 2020.

Interest expense on debt consists of scheduled interest payments under our 2015 Golub Term Loan and June 2015 Wells Fargo Revolver. The interest expense relating to our 2015 Golub Term Loan was calculated using a 5.50% interest rate applied to the term loan balance of $199.0 million as of December 26, 2015. The interest expense relating to our June 2015 Wells Fargo Revolver was determined using a calculated weighted average interest rate of 1.7% applied to the revolving line of credit balance of $30.0 million on December 26, 2015, the last day of the fiscal quarter.

### Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, except for operating leases and purchase obligations.

### Implications of Being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise generally applicable to public companies.

## Market risk

As filed, 621 characters.

We are subject to interest rate risk in connection with borrowings under our credit facilities, which bear interest at variable rates. As of December 26, 2015, we had $30.0 million in outstanding borrowings under our revolving credit facility and $199.0 million under our term loan facility. The annual impact of a 1.0% rate change on the outstanding total debt balance as of December 26, 2015 would be approximately $2.3 million.

As of December 26, 2015, there were no other material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of the Fiscal 2015 10-K.

## Controls and procedures

As filed, 2,271 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 26, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 26, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

During the quarter ended December 26, 2015, no changes occurred with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

## Risk factors

As filed, 7,624 characters.

We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, prospects, operating results or cash flows, including the risks set forth below, as well as the risks contained in the section “Risk Factors” in the Fiscal 2015 10-K.

***We may not be able to successfully integrate Sheplers’ business and realize the anticipated benefits of the Sheplers Acquisition.***

We will be required to devote significant management attention and resources to integrating the business practices and operations of Sheplers into our own business practices and operations. Potential difficulties that we may encounter as part of the integration process include the following:

- the inability to successfully integrate the Sheplers business in a manner that permits us to achieve the full synergies anticipated to result from the Sheplers Acquisition in a timely manner or at all;
- complexities associated with managing the Sheplers business, including the challenge of integrating complex systems, technology, networks and other assets in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
- integrating the Sheplers workforce while maintaining focus on providing consistent, high quality customer service;
- an adverse impact on sales at the Sheplers stores as we rebrand them under the Boot Barn banner, change the store assortment and clear aged and discontinued brands and merchandise; and
- potential unknown liabilities and unforeseen increased expenses associated with the Sheplers Acquisition (related to, among other things, environmental matters and regulatory compliance), including capital expenditures and one-time cash costs to integrate the Sheplers business.

Any of the foregoing could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies of ours or of Sheplers and our ability to achieve the anticipated benefits of the Sheplers Acquisition or could reduce our combined earnings or otherwise adversely affect our business and financial results.

***Our future results will suffer if we do not effectively manage our expanded operations resulting from the acquisition.***

As a result of the Sheplers Acquisition, the size of our business increased significantly beyond the size of either our previously existing business or the Sheplers business. Our future success depends, in part, upon our ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Sheplers business.

***We may incur substantial expenses related to the integration of the Sheplers business.***

We expect to incur substantial expenses in connection with the integration of the Sheplers business. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. We also anticipate substantial capital expenditures in connection with the rebranding of the Sheplers stores under the Boot Barn banner. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings. These integration expenses may result in our taking significant charges against earnings, and the amount and timing of such charges are uncertain at present.

### We are more highly leveraged than we were prior to the Sheplers Acquisition.

In connection with the Sheplers Acquisition, we refinanced our existing credit facilities, as well as Sheplers’ existing credit facilities, with the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan. As a result, our consolidated indebtedness is greater than our indebtedness prior to the Sheplers Acquisition. This will have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing any borrowing costs.

***Our borrowings under the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan are at variable rates, exposing us to interest rate risk.***

The June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan we entered into in connection with the Sheplers Acquisition provide for variable interest rates. As a result, if interest rates increase, our debt service obligations under the new credit facilities could increase even though the amount borrowed remained the same, which would adversely impact our net income.

***The June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan contain restrictions and limitations that could significantly impact our ability to operate our business.***

The June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan contain covenants that, among other things, may, under certain circumstances, place limitations on the dollar amounts paid or other actions relating to:

- payments in respect of, or redemptions or acquisitions of, debt or equity issued by Boot Barn or its subsidiaries, including the payment of dividends on our common stock;
- incurring additional indebtedness;
- incurring guarantee obligations;
- paying dividends;
- creating liens on assets;
- entering into sale and leaseback transactions;
- making investments, loans or advances;
- entering into hedging transactions;
- engaging in mergers, consolidations or sales of all or substantially all of their respective assets; and
- engaging in certain transactions with affiliates.

In addition, the Company will be required to satisfy certain financial ratios as set forth in these agreements.

Our ability to satisfy these financial ratios will depend on our ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond our control. Our ability to comply with these ratios in future periods will also depend on our ability to successfully implement our overall business strategy and realize contemplated synergies.

Various risks, uncertainties and events beyond our control could affect our ability to comply with the covenants contained in our new credit facilities. Failure to comply with any of these covenants could result in a default under the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan credit facilities and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing.

Filed Feb 2, 2016.
Source: SEC EDGAR, the filing index for accession 0001558370-16-003028. Last ingested by Listed: Oct 29, 2026, 05:14 ET. No prices; not investment advice.