10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 29, 2016

OR

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

Commission file number 1-11735

99 CENTS ONLY STORES LLC

(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

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

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

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

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

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

As of June 10, 2016, there were 100 units outstanding of the registrant’s common units, none of which are publicly traded.

99 CENTS ONLY STORES LLC

Form 10-Q

Table of Contents

		Page
Part I - Financial Information
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of April 29, 2016 (unaudited) and January 29, 2016	4
	Consolidated Statements of Comprehensive Income (Loss) for the first quarter ended April 29, 2016 (unaudited) and May 1, 2015 (unaudited)	5
	Consolidated Statements of Cash Flows for the first quarter ended April 29, 2016 (unaudited) and May 1, 2015 (unaudited)	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
Part II — Other Information
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
	Signatures	46

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FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended.  The words “expect,” “estimate,” “anticipate,” “predict,” “will,” “project,” “plan,” “believe” and other similar expressions and variations thereof are intended to identify forward-looking statements.  Such statements appear in a number of places in this Report and include statements regarding the intent, belief or current expectations of 99 Cents Only Stores LLC and its directors or officers with respect to, among other things, (a) trends affecting the financial condition or results of operations of the Company, and (b) the business and growth strategies of the Company (including the Company’s store opening growth rate) and (c) our investments in our existing stores, warehouse and distribution facilities and information systems, that are not historical in nature.  The term the “Company” refers to 99¢ Only Stores and its consolidated subsidiaries prior to the conversion to a California limited liability company effective October 18, 2013 and to 99 Cents Only Stores LLC and its consolidated subsidiaries on or after such conversion.  Readers are cautioned not to put undue reliance on such forward-looking statements.  Such forward-looking statements are and will be based on the Company’s then-current expectations, estimates and assumptions regarding future events and are applicable only as of the date of such statements.  The Company may not realize its expectations and its estimates and assumptions may not prove correct.  In addition, such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in this Report, for the reasons, among others, discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections.  The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.  Readers should carefully review the risk factors described in the Company’s Annual Report on Form 10-K containing the Company’s most recent audited financial statements for the fiscal year ended January 29, 2016 filed with the Securities and Exchange Commission.

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PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

99 CENTS ONLY STORES LLC

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	April 29, 2016			January 29, 2016
	(Unaudited)
ASSETS
Current Assets:
Cash	$	2,376		$	2,312
Accounts receivable, net of allowance for doubtful accounts of $168 and $140 at April 29, 2016 and January 29, 2016, respectively	1,661			1,674
Income taxes receivable	2,222			3,665
Inventories, net	166,965			196,651
Assets held for sale	2,308			2,308
Other	15,337			18,603
Total current assets	190,869			225,213
Property and equipment, net	540,153			542,570
Deferred financing costs, net	5,062			916
Intangible assets, net	451,768			453,242
Goodwill	387,772			387,772
Deposits and other assets	8,273			7,319
Total assets	$	1,583,897		$	1,617,032
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	74,563		$	79,197
Payroll and payroll-related	20,060			18,421
Sales tax	6,501			13,314
Other accrued expenses	50,418			41,464
Workers’ compensation	76,506			76,389
Current portion of long-term debt	6,138			6,138
Current portion of capital and financing lease obligations	1,073			989
Total current liabilities	235,259			235,912
Long-term debt, net of current portion	867,566			875,843
Unfavorable lease commitments, net	5,289			5,746
Deferred rent	27,565			27,389
Deferred compensation liability	735			709
Capital and financing lease obligation, net of current portions	35,941			34,817
Deferred income taxes	163,045			163,045
Other liabilities	4,909			5,118
Total liabilities	1,340,309			1,348,579
Commitments and contingencies (Note 11)
Member’s Equity:
Member units — 100 units issued and outstanding at April 29, 2016 and January 29, 2016	550,390			550,226
Investment in Number Holdings, Inc. preferred stock	(19,200		)	(19,200		)
Accumulated deficit	(287,605		)	(262,411		)
Other comprehensive income (loss)	3			(162		)
Total equity	243,588			268,453
Total liabilities and equity	$	1,583,897		$	1,617,032

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

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99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	For the First Quarter Ended
	April 29, 2016			May 1, 2015
Net Sales:
99¢ Only Stores	$	501,766		$	494,808
Bargain Wholesale	11,163			11,361
Total sales	512,929			506,169
Cost of sales	363,962			349,546
Gross profit	148,967			156,623
Selling, general and administrative expenses	157,229			150,172
Operating (loss) income	(8,262		)	6,451
Other (income) expense:
Interest income	(2		)	(3		)
Interest expense	16,526			16,272
Loss on extinguishment	335			—
Total other expense, net	16,859			16,269
Loss before provision for income taxes	(25,121		)	(9,818		)
Provision (benefit) for income taxes	73			(10,989		)
Net (loss) income	$	(25,194	)	$	1,171
Other comprehensive income, net of tax:
Unrealized losses on interest rate cash flow hedge	(214		)	(76		)
Less: reclassification adjustment included in net income	379			243
Other comprehensive income, net of tax	165			167
Comprehensive (loss) income	$	(25,029	)	$	1,338

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

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99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the First Quarter Ended
	April 29, 2016			May 1, 2015
Cash flows from operating activities:
Net (loss) income	$	(25,194	)	$	1,171
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	16,302			15,803
Amortization of deferred financing costs and accretion of OID	1,304			1,146
Amortization of intangible assets	437			444
Amortization of favorable/unfavorable leases, net	587			435
Loss on extinguishment of debt	335			—
Gain on disposal of fixed assets	(34		)	(32		)
Loss on interest rate hedge	409			359
Stock-based compensation	164			634
Changes in assets and liabilities associated with operating activities:
Accounts receivable	13			(297		)
Inventories	29,686			(5,888		)
Deposits and other assets	1,758			594
Accounts payable	(5,170		)	13,054
Accrued expenses	3,403			3,380
Accrued workers’ compensation	117			(370		)
Income taxes	1,443			(11,405		)
Deferred rent	176			1,219
Other long-term liabilities	(166		)	(102		)
Net cash provided by operating activities	25,570			20,145
Cash flows from investing activities:
Purchases of property and equipment	(13,373		)	(25,642		)
Proceeds from sale of property and fixed assets	4			1,437
Net cash used in investing activities	(13,369		)	(24,205		)
Cash flows from financing activities:
Payment of long-term debt	(1,535		)	(1,535		)
Proceeds under revolving credit facility	64,800			126,300
Payments under revolving credit facility	(72,600		)	(130,400		)
Payments of debt issuance costs	(4,594		)	—
Proceeds from financing lease obligations	2,031			—
Payments of capital and financing lease obligations	(239		)	(23		)
Payments to repurchase stock options of Number Holdings, Inc.	—			(362		)
Net cash used in financing activities	(12,137		)	(6,020		)
Net increase (decrease) in cash	64			(10,080		)
Cash - beginning of period	2,312			12,463
Cash - end of period	$	2,376		$	2,383
Supplemental cash flow information:
Income taxes refunded	$	(1,370	)	$	—
Interest paid	$	8,365		$	9,125
Non-cash investing activities for purchases of property and equipment	$	(536	)	$	6,381

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

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99 CENTS ONLY STORES LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business

The Company is organized under the laws of the State of California.  Effective October 18, 2013, 99¢ Only Stores converted from a California corporation to a California limited liability company, 99 Cents Only Stores LLC, that is managed by its sole member, Number Holdings, Inc., a Delaware corporation (“Parent”).  The term “Company” refers to 99¢ Only Stores and its consolidated subsidiaries prior to the Conversion (as described in Note 1 to the Annual Report on Form 10-K for the fiscal year ended January 29, 2016) and to 99 Cents Only Stores LLC and its consolidated subsidiaries at the time of or after the Conversion.  The Company is an extreme value retailer of consumable and general merchandise and seasonal products. As of April 29, 2016, the Company operated 392 retail stores with 284 in California, 49 in Texas, 38 in Arizona, and 21 in Nevada.  The Company is also a wholesale distributor of various products.

Merger

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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  However, certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission.  These statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2016.  In the opinion of the Company’s management, these interim unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the consolidated financial position and results of operations for each of the periods presented.  The results of operations and cash flows for such periods are not necessarily indicative of results to be expected for the full fiscal year ending January 27, 2017 (“fiscal 2017”).

Fiscal Year

The Company follows a fiscal calendar consisting of four quarters with 91 days, each ending on the Friday closest to the last day of April, July, October or January, as applicable, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years.  Unless otherwise stated, references to years in this Report relate to fiscal years rather than calendar years.  The Company’s fiscal 2017 began on January 30, 2016, will end on January 27, 2017 and will consist of 52 weeks.  The Company’s fiscal year 2016 (“fiscal 2016”) began on January 31, 2015, ended on January 29, 2016 and consisted of 52 weeks.  The first quarter ended April 29, 2016 (“the first quarter of fiscal 2017”) and the first quarter ended May 1, 2015 (“the first quarter of fiscal 2016”) were each comprised of 91 days.

Use of Estimates

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

Reclassification

Certain prior year amounts have been reclassified to conform to the current year’s presentation. Specifically, the Company adopted Accounting Standard Update(“ASU”)  No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which requires the Company to present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The adoption of this accounting standard resulted in the reclassification of $11.5 million of debt issuance costs (net of accumulated amortization) from deferred financing costs, net to long-term debt, net of current portion on the Company’s consolidated balance sheet at January 29, 2016.  The Company also early adopted Accounting

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Standard Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax assets and liabilities be classified as long-term on the balance sheet.  The adoption of this accounting standard resulted in the reclassification of $16.6 million of deferred income tax from current assets to long-term deferred income taxes liability on the Company’s consolidated balance sheet at January 29, 2016.

Cash

For purposes of reporting cash flows, cash includes cash on hand, cash at the stores and cash in financial institutions.  The majority of payments due from financial institutions for the settlement of debit card and credit card transactions are processed within three business days and therefore are also classified as cash.  Cash balances held at financial institutions are generally in excess of federally insured limits.  These accounts are only insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company historically has not experienced any losses in such accounts.  The Company places its temporary cash investments with what it believes to be high credit, quality financial institutions.  Under the Company’s cash management system, checks issued but not presented to the bank may result in book cash overdraft balances for accounting purposes.  The Company reclassifies book overdrafts to accounts payable, which are reflected as an operating activity in its unaudited consolidated statements of cash flows.  Book overdrafts included in accounts payable were $2.1 million and $7.9 million as of April 29, 2016 and January 29, 2016, respectively.

Allowance for Doubtful Accounts

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

Inventories

Inventories are valued at the lower of cost or market. Inventory costs are established using a methodology that approximates first in, first out, which for store inventories is based on a retail inventory method.  Valuation allowances for shrinkage as well as excess and obsolete inventory are also recorded.  The Company includes spoilage, scrap and shrink in its definition of shrinkage.  Shrinkage is estimated as a percentage of sales for the period from the last physical inventory date to the end of the applicable period.  Such estimates are based on experience and the most recent physical inventory results.  Physical inventory counts are completed at each of the Company’s retail stores at least once a year by an outside inventory service company.  The Company performs inventory cycle counts at its warehouses throughout the year.  The Company also performs inventory reviews and analysis on a quarterly basis for both warehouse and store inventory to determine inventory valuation allowances for excess and obsolete inventory.  The valuation allowances for excess and obsolete inventory are based on the age of the inventory, sales trends and future merchandising plans.  The valuation allowances for excess and obsolete inventory require management judgment and estimates that may impact the ending inventory valuation and valuation allowances that may have a material effect on the reported gross margin for the period. These estimates are subject to change based on management’s evaluation of, and response to, a variety of factors and trends, including, but not limited to, consumer preferences and buying patterns, age of inventory, increased competition, inventory management, merchandising strategies and historical sell through trends.  The Company’s ability to adequately evaluate the impact of inventory management and merchandising strategies executed in response to such factors and trends in future periods could have a material impact on such estimates.

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

Property and Equipment

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

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

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

Long-Lived Assets

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

During the first quarter of each of fiscal 2017 and fiscal 2016, the Company did not record any long-lived asset impairment charges.

Goodwill and Other Intangible Assets

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

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

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

The Company, assisted by an independent third party valuation firm, performs the annual test for impairment in January of the fiscal year and determines fair value based on a combination of the income approach and the market approach. The income approach is based on discounted cash flows to determine fair value. The market approach uses a selection of comparable companies and transactions in determining fair value. The fair value of the trade name is also tested for impairment in the fourth quarter by comparing the carrying value to the fair value. Fair value of a trade name is determined using a relief from royalty method under the income approach, which uses projected revenue allocable to the trade name and an assumed royalty rate (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”). These approaches involve making key assumptions about future cash flows, discount rates and asset lives using then best available information.  These assumptions are subject to a high degree of complexity and judgment and are subject to change.

During the third quarter of fiscal 2016, the Company determined that indicators of impairment existed to require an interim impairment analysis of goodwill and trade name, including (i) overall performance deterioration reflected in decreased comparable same-store sales and cannibalization from stores opened in fiscal 2015 under an accelerated expansion program, (ii) increases in inventory shrinkage and buildup of excess inventory, (iii) decreased margin due to disappointing results from sales promotions and

9

(iv) a decision to delay the pace of future store openings.  The first step evaluation concluded that the fair value of the retail reporting unit was below its carrying value.  The Company performed step two of the goodwill impairment test that requires the retail reporting unit’s fair value to be allocated to all of the assets and liabilities of the reporting unit, including any intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination, including consideration of the fair value of tangible property and intangible assets.  As a result of this preliminary analysis and based on best estimate, the Company recorded a $120.0 million non-cash goodwill impairment charge in the third quarter of fiscal 2016, which was reflected as goodwill impairment in the consolidated statements of comprehensive income (loss).  The finalization of the preliminary goodwill impairment test was completed in the fourth quarter of fiscal 2016 and resulted in a $28.0 million adjustment in goodwill, lowering the third quarter of fiscal 2016 goodwill impairment charge from $120.0 million to $92.0 million.

The remaining amount of goodwill allocated to the retail reporting unit and wholesale reporting unit was $375.2 and $12.5 million, respectively, as of January 29, 2016.

During the fourth quarter of fiscal 2016, the Company completed step one of its annual goodwill impairment test for the two reporting units and determined that there was no impairment of goodwill since the fair value of the Company’s reporting units exceeded their carrying amounts.  As discussed above, considerable management judgment is necessary in estimating future cash flows, market interest rates, discount rates and other factors affecting the valuation of goodwill.  The Company’s forecasts used in its fiscal 2016 annual impairment test include growth in net sales, new store openings and same-store sales, positive trends in cost of sales and selling, general and administrative expense.  In each case, these estimates and assumptions could be materially affected by factors such as unforeseen events or changes in general economic conditions, a decline in comparable company market multiples, changes to discount rates, increased competitive forces, inability to maintain pricing structure, deterioration of vendor relationships, failure to adequately manage and improve inventory processes and procedures and changes in customer behavior which could result in changes to management’s strategies.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

Additionally, during the fourth quarter of fiscal 2016, the Company completed its annual indefinite-lived intangible asset impairment test and determined there was no impairment to the trade name since the fair value of the trade name exceeded its carrying amount.  The results of this test showed that the fair value of trade name exceeded carrying value by approximately 12%.  The relief from royalty method estimates our theoretical royalty savings from ownership of the intangible asset.  Key assumptions used in this model included sales projections, discount rates and royalty rates, and considerable management judgment is necessary in developing and evaluating such assumptions.  If future results are not consistent with current estimates and assumptions, impairment charges maybe recorded in future.

During the first quarter of fiscal 2017, the Company did not record any impairment charges related to goodwill or other intangible assets.

Derivatives

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

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

Income Taxes

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

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Stock-Based Compensation

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

Revenue Recognition

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

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

Cost of Sales

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

Selling, General and Administrative Expenses

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

Leases

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

The Company recognizes rent expense for operating leases on a straight-line basis (including the effect of reduced or free rent and rent escalations) over the applicable lease term.  The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is included in deferred rent.  Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives are recorded as deferred rent.  Deferred rent related to landlord incentives is amortized as an offset to rent expense using the straight-line method over the applicable lease term.

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

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

Self-Insured Workers’ Compensation Liability

The Company self-insures for workers’ compensation claims in California and Texas.  The Company establishes a liability for losses from both estimated known and incurred but not reported insurance claims based on reported claims and actuarial valuations of estimated future costs of known and incurred but not yet reported claims.  Should an amount of claims greater than anticipated occur, the liability recorded may not be sufficient and additional workers’ compensation costs, which may be significant, could be incurred.  The Company has not discounted the projected future cash outlays for the time value of money for claims and claim-related costs when establishing its workers’ compensation liability in its financial reports for each of April 29, 2016 and January 29, 2016.

Self-Insured Health Insurance Liability

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

Pre-Opening Costs

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

Advertising

The Company expenses advertising costs as incurred.

Fair Value of Financial Instruments

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

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

Comprehensive Income

OCI includes unrealized gains or losses on interest rate derivatives designated as cash flow hedges.

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2.Goodwill and Other Intangibles

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

	April 29, 2016										January 29, 2016
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(91,973	)	$	—		$	387,772	$	479,745	$	(91,973	)	$	—		$	387,772
Trade name	410,000		—			—			410,000		410,000		—			—			410,000
Total indefinite lived intangible assets	$	889,745	$	(91,973	)	$	—		$	797,772	$	889,745	$	(91,973	)	$	—		$	797,772
Finite lived intangible assets:
Trademarks	$	2,000	$	(570	)	$	(421	)	$	1,009	$	2,000	$	(570	)	$	(405	)	$	1,025
Bargain Wholesale customer relationships	20,000		—			(7,166		)	12,834		20,000		—			(6,752		)	13,248
Favorable leases	46,543		(566		)	(18,052		)	27,925		46,543		(566		)	(17,008		)	28,969
Total finite lived intangible assets	68,543		(1,136		)	(25,639		)	41,768		68,543		(1,136		)	(24,165		)	43,242
Total goodwill and other intangible assets	$	958,288	$	(93,109	)	$	(25,639	)	$	839,540	$	958,288	$	(93,109	)	$	(24,165	)	$	841,014

	April 29, 2016								January 29, 2016
	Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	1 to 14	$	19,835	$	(14,546	)	$	5,289	1 to 14	$	19,835	$	(14,089	)	$	5,746

3.Property and Equipment, net

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

	April 29, 2016			January 29, 2016
Land	$	170,871		$	170,871
Buildings	111,205			111,205
Buildings improvements	75,649			74,157
Leasehold improvements	196,713			192,405
Fixtures and equipment	200,891			194,671
Transportation equipment	11,817			11,835
Construction in progress	19,956			18,073
Total property and equipment	787,102			773,217
Less: accumulated depreciation and amortization	(246,949		)	(230,647		)
Property and equipment, net	$	540,153		$	542,570

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4.Comprehensive Income

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

	For the First Quarter Ended
	April 29, 2016			May 1, 2015
Net (loss) income	$	(25,194	)	$	1,171
Unrealized loss on interest rate cash flow hedge, net of tax effects of $0, and $(51) for the first quarter of each of fiscal 2017 and fiscal 2016, respectively	(214		)	(76		)
Reclassification adjustment, net of tax effects of $0 and $162 for the first quarter of each of fiscal 2017 and fiscal 2016, respectively	379			243
Total unrealized gains, net	165			167
Total comprehensive (loss) income	$	(25,029	)	$	1,338

Amounts in accumulated other comprehensive income (loss) as of April 29, 2016 and January 29, 2016 consisted of unrealized losses on interest rate cash flow hedges.  Reclassifications out of AOCI in the first quarter of fiscal 2017 and fiscal 2016 are presented in Note 6, “Derivative Financial Instruments.”

5.Debt

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

	April 29, 2016			January 29, 2016
ABL Facility	$	40,000		$	47,800
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2018, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $3,933 and $4,724 as of April 29, 2016 and January 29, 2016, respectively	594,533			595,726
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000			250,000
Deferred financing costs	(10,829		)	(11,545		)
Total debt	873,704			881,981
Less: current portion	6,138			6,138
Long-term debt, net of current portion	$	867,566		$	875,843

As of April 29, 2016 and January 29, 2016, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	April 29, 2016		January 29, 2016
ABL Facility (included in non-current deferred financing costs)	$	5,062	$	916
First Lien Term Loan Facility (included in long-term debt, net of current portion)	4,037		4,387
Senior Notes (included in long-term debt, net of current portion)	6,792		7,158
Total deferred financing costs, net	$	15,891	$	12,461

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

First Lien Term Loan Facility

Under the First Lien Term Loan Facility, (i) $525.0 million of term loans were incurred on the Original Closing Date and (ii) $100.0 million of additional term loans were incurred pursuant to an incremental facility effected through an amendment entered into on October 8, 2013 (the “Second Amendment”) (all such term loans, collectively, the “Term Loans”).  The First Lien Term Loan Facility has a maturity date of January 13, 2019.  All obligations under the First Lien Term Loan Facility are guaranteed by Parent and

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the Company’s direct or indirect 100% owned domestic subsidiaries (with customary exceptions, including immaterial subsidiaries) (collectively, the “Credit Facilities Guarantors”).  In addition, the First Lien Term Loan Facility is secured by substantially all of the Company’s assets and the assets of the Credit Facilities Guarantors, including a first priority pledge of all of the Company’s equity interests and the equity interests of the Credit Facilities Guarantors and a first priority security interest in certain other fixed assets, and a second priority security interest in certain current assets.

The Company is required to make scheduled quarterly payments each equal to 0.25% of the principal amount of the Term Loans, with the balance due on the maturity date.  Borrowings under the First Lien Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, either (i) a base rate (the “Base Rate”) determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as the “Prime Rate” (3.50% as of April 29, 2016), (b) the federal funds effective rate plus 0.50% and (c) an adjusted Eurocurrency rate for one month (determined by reference to the greater of the Eurocurrency rate for the interest period subject to certain adjustments) plus 1.00%, or (ii) a Eurocurrency rate determined by reference to the London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements, for the interest period relevant to such borrowing.

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

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

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

As of April 29, 2016, the interest rate charged on the First Lien Term Loan Facility was 4.50% (1.00% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of April 29, 2016, the gross amount outstanding under the First Lien Term Loan Facility was $598.5 million.

Following the end of each fiscal year, the Company is required to make prepayments on the First Lien Term Loan Facility in an amount equal to (i) 50% of Excess Cash Flow (as defined in the agreement governing the First Lien Term Loan Facility), with the ability to step down to 25% and 0% upon achievement of specified total leverage ratios, minus (ii) the amount of certain voluntary prepayments made on the First Lien Term Loan Facility and/or the ABL Facility during such fiscal year.  There was no Excess Cash Flow payment required for fiscal 2016.

The First Lien Term Loan Facility includes certain customary restrictions, among other things, on the Company’s ability and the ability of Parent, the Credit Facilities Guarantors (including the Company’s subsidiary 99 Cents Only Stores Texas Inc.) and certain future subsidiaries of the Company to incur or guarantee additional indebtedness, make certain restricted payments, acquisitions or investments, materially change the Company’s business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets, make capital expenditures or merge or consolidate with or into, another company. As of April 29, 2016, the Company was in compliance with the terms of the First Lien Term Loan Facility.

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

ABL Facility

The ABL Facility initially was to mature on January 13, 2017 and provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations. Subject to certain conditions, the Company could increase the commitments under the ABL Facility by up to $50.0 million.  All obligations under the ABL Facility are guaranteed by Parent and the other Credit Facilities

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Guarantors.  The ABL Facility is secured by substantially all of the Company’s assets and the assets of the Credit Facilities Guarantors, including a first priority security interest in certain current assets, and a second priority pledge of all of the Company’s equity interests and the equity interest of the Credit Facilities Guarantors and a second priority security interest in certain other fixed assets.

Borrowings under the ABL Facility bear interest at a rate based, at the Company’s option, on (i) LIBOR plus an applicable margin to be determined (3.00% as of April 29, 2016) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (2.00% at April 29, 2016), in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

In addition to paying interest on outstanding principal under the Credit Facilities, the Company is required to pay a commitment fee to the lenders under the ABL Facility on unused commitments.  The commitment fee is adjusted at the beginning of each quarter based upon the average historical excess availability of the prior quarter (0.5% for the quarter ended April 29, 2016).  The Company must also pay customary letter of credit fees and agency fees.

As of April 29, 2016, borrowings under the ABL Facility were $40.0 million, outstanding letters of credit were $11.0 million and availability under the ABL Facility subject to the borrowing base, was $56.5 million.  As of January 29, 2016, borrowings under the ABL Facility were $47.8 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $90.9 million, prior to giving effect to a subsequent amendment to the ABL Facility on April 8, 2016 that decreased commitments available under the ABL Facility by $25.0 million.

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

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

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

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

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

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

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

As of April 29, 2016, the Company was in compliance with the terms of the ABL Facility.

Senior Notes

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

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

The Indenture contains covenants that, among other things, limit the Company’s ability and the ability of certain of its subsidiaries to incur or guarantee additional indebtedness, create or incur certain liens, pay dividends or make other restricted payments and investments, incur restrictions on the payment of dividends or other distributions from restricted subsidiaries, sell assets, engage in transactions with affiliates, or merge or consolidate with other companies.  As of April 29, 2016, the Company was in compliance with the terms of the Indenture.

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

	For the First Quarter Ended
	April 29, 2016		May 1, 2015
First Lien Term Loan Facility	$	7,229	$	7,248
ABL Facility	555		521
Senior Notes	6,875		6,951
Amortization of deferred financing costs and OID	1,302		1,146
Other interest expense	565		406
Interest expense	$	16,526	$	16,272

6.Derivative Financial Instruments

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

Interest Rate Swap

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

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

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Covert Transition Payments

In September 2015, the Company entered into an employment agreement with Geoffrey J. Covert’s as the President and Chief Executive Officer of each of the Company and Parent. In connection with this agreement, Mr. Covert is entitled to receive amounts under a transition program based on the value of certain equity awards from his former employer that he forfeited in connection with his previous employment.  The maximum amount of payments due under this agreement is approximately $5.0 million, payable over a period of four years. The Company accounts for these transition payments as derivatives that are not designated as hedging instruments and has measured the obligation at fair value at April 29, 2016 and January 29, 2016. The Company recognizes the expense associated with these payments over the requisite service period.

Fair Value

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

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

	April 29, 2016			January 29, 2016
Derivatives designated as cash flow hedging instruments
Interest rate swap (included in other current liabilities)	$	408		$	569
Accumulated other comprehensive (income) loss, net of tax (included in member’s equity)	$	(3	)	$	162
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	1,010		$	1,033
Transition payments (included in other long-term liabilities)	$	212		$	172

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

	For the First Quarter Ended
	April 29, 2016		May 1, 2015
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	214	$	76
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	379	$	243
(Loss) gain related to ineffective portion of derivative recognized in interest expense	$	30	$	(46	)
Derivatives not designated as hedging instruments:
Loss recognized in selling, general and administrative expenses	$	869	$	—

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7.Fair Value of Financial Instruments

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

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

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

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

The Company uses the best available information in measuring fair value.  The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands) as of April 29, 2016:

	April 29, 2016
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	735	$	735	$	—	$	—
LIABILITIES
Other current liabilities — interest rate swap	$	408	$	—	$	408	$	—
Other current liabilities — transition payments	$	1,010	$	—	$	—	$	1,010
Other long-term liabilities — transition payments	$	212	$	—	$	—	$	212
Other long-term liabilities — deferred compensation	$	735	$	735	$	—	$	—

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

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

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

The Company did not have any transfers in and out of Levels 1 and 2 during the first quarter of fiscal 2017.

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands) as of January 29, 2016:

	January 29, 2016
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	709	$	709	$	—	$	—
LIABILITES
Other current liabilities — interest rate swap	$	569	$	—	$	569	$	—
Other current liabilities — transition payments	$	1,033	$	—	$	—	$	1,033
Other long-term liabilities — transition payments	$	172	$	—	$	—	$	172
Other long-term liabilities — deferred compensation	$	709	$	709	$	—	$	—

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

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

Level 3 measurements include transition payments to Mr. Covert estimated using a valuation model that includes Level 3 unobservable inputs.  Significant assumptions used in the analysis include projected stock prices, stock volatility and the Company’s credit spread.

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

	For the First Quarter Ended
Transition Payments	April 29, 2016			May 1, 2015
Description
Beginning balance	$	(1,205	)	$	—
Transfers in and/or out of Level 3	—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	(869		)	—
Included in other comprehensive loss	—			—
Purchases, sales, issues and settlements:
Settlements	852			—
Ending balance	$	(1,222	)	$	—
Total amount of unrealized losses for the period included in earnings relating to liabilities held at the reporting period	$	(570	)	$	—

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

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

The ABL Facility is tied directly to market rates and fluctuates as market rates change; as a result, the carrying value of the ABL Facility approximates fair value as of April 29, 2016 and January 29, 2016.

The fair value of the First Lien Term Loan Facility was estimated at $439.9 million, or $158.6 million lower than its carrying value, as of April 29, 2016, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the First Lien Term Loan Facility was estimated at $393.0 million, or $207.0 million lower than its carrying value, as of January 29, 2016, based on quoted market prices of the debt (Level 1 inputs).

The fair value of the Senior Notes was estimated at $107.5 million, or $142.5 million lower than the carrying value, as of April 29, 2016, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the Senior Notes was estimated at $103.1 million, or $146.9 million lower than the carrying value, as of January 29, 2016, based on quoted market prices of the debt (Level 1 inputs).

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

8.Stock-Based Compensation

Number Holdings, Inc. 2012 Equity Incentive Plan

On February 27, 2012, the board of directors of Parent adopted the Number Holdings, Inc. 2012 Stock Incentive Plan (the “2012 Plan”).  The 2012 Plan authorizes equity awards to be granted for up to 85,000 shares of Class A Common Stock of Parent and 85,000 shares of Class B Common Stock of Parent.  As of April 29, 2016, options for 69,140 shares of each of Class A Common Stock and Class B Common Stock were issued to certain members of management and directors.  Options upon vesting may be exercised only for units consisting of an equal number of Class A Common Stock and Class B Common Stock.  Class B Common Stock has de minimis economic rights and the right to vote solely for election of directors.

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Employee Option Grants

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

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

The Company defers recognition of substantially all of the stock-based compensation expense related to these stock options. The nature of repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence. These options are accounted for as equity-based awards. The fair value of these stock options was estimated at the date of grant using the Black-Scholes pricing model. There were 22,765 time-based employee options outstanding as of April 29, 2016.

In the fourth quarter of fiscal 2016, 5,000 options were granted to the new Chief Merchandising Officer of the Company and Parent, which will vest based on the achievement of certain performance targets.  The Company has deferred recognition of the stock-based compensation expense for these performance-based stock options due to repurchase rights and transfer restrictions included in the terms of the award.  The nature of the repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence.  Additionally, the Company has deferred recognition of the stock-based compensation expense for these performance-based options until it is probable that the performance targets will be achieved.  The fair value of these performance-based options was estimated at the date of grant using the Black-Scholes pricing model.

Director Option Grants

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

Chief Financial Officer Equity Awards

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

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

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New Chief Executive Officer Equity Awards

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

The Company has deferred recognition of the stock-based compensation expense for these time-based and performance-based stock options due to repurchase rights and transfer restrictions included in the terms of the award. The nature of the repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence. Additionally, the Company has deferred recognition of the stock-based compensation expense for performance-based options until it is probable that the performance targets will be achieved.  The fair value of the grant with an exercise price of $1,000 per share was estimated at the date of grant using a binomial model.  The fair value of the other grant was estimated at the date of grant using a Monte Carlo simulation method.

Accounting for stock-based compensation

Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise and the associated volatility.  At the grant date, the Company estimates an amount of forfeitures that will occur prior to vesting.  During the first quarter of each of fiscal 2017 and fiscal 2016, the Company recorded stock-based compensation expense of $0.2 million and $0.6 million, respectively.

There were no stock option grants in the first quarter of fiscal 2017.

The following summarizes stock option activity in the first quarter of fiscal 2017:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	69,585		$	910
Granted	—		$	—
Exercised	—		$	—
Cancelled	(445	)	$	1,170
Outstanding at the end of the period	69,140		$	909	8.9
Exercisable at the end of the period	9,277		$	1,060	6.5

The following table summarizes the stock awards available for grant under the 2012 Plan as of April 29, 2016:

	Number of Shares
Available for grant as of January 29, 2016	14,725
Authorized	—
Granted	—
Cancelled	445
Available for grant at April 29, 2016	15,170

9.Related-Party Transactions

First Lien Term Loan Facility

In connection with the Merger, the Company entered into the First Lien Term Loan Facility, under which various funds affiliated with Ares were lenders.  As of January 29, 2016, these affiliates no longer held any term loans under the First Lien Term Loan.  As of April 29, 2016 and June 6, 2016, funds affiliated with Ares and CPPIB held approximately $45.9 million and $131.7 million, respectively, of term loans under the First Lien Term Loan Facility.  The terms of the term loans are the same as those held by unaffiliated third party lenders under the First Lien Term Loan Facility.

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Senior Notes

As of April 29, 2016 and January 29, 2016 various funds affiliated with Ares and CPPIB have collectively acquired $102.1 million aggregate principal amount of the Company’s Senior Notes in open market transactions.  From time to time, these or other affiliated funds may acquire additional Senior Notes.

10.Income Taxes

The effective income tax rate for the first quarter of fiscal 2017 was a provision rate of (0.3)% compared to a benefit rate of  rate of 111.9% for the first quarter of fiscal 2016.  Income tax expense for the interim periods was computed using the effective tax rate estimated to be applicable for the full fiscal year.  The change in the effective tax rate is primarily due to the tax effect of the establishment of a valuation allowance against deferred tax assets in the second quarter of fiscal 2016 as discussed below, and the effect of not recognizing the benefit of losses incurred in fiscal 2017 in jurisdictions where we concluded is it more likely than not that such benefits would not be realized.

The Company assesses its ability to realize deferred tax assets throughout the fiscal year.  As a result of this assessment during the second quarter of fiscal 2016, the Company concluded that it was more likely than not that the Company would not realize its deferred tax assets.  In the quarters prior to the recording of a valuation allowance in the second quarter of fiscal 2016, the Company weighed all available positive and negative evidence and determined that it was more likely than not that the deferred tax assets were fully realizable.  In fiscal 2016, the Company’s management had begun to take meaningful steps to focus on the operational execution of the initiatives launched in fiscal 2015, which were expected to drive performance improvements over the second and third quarters of fiscal 2016.  However, in the second quarter of fiscal 2016, the Company’s experienced (i) margin declines due to short-term sales promotions, (ii) delays in sales growth due to cannibalization from new store openings, (iii) increased inventory shrinkage from a buildup of inventory levels, and (iv) increases in support costs as a percentage of sales.  As a result of these second quarter of fiscal 2016 events, the Company decided to adjust merchandise pricing strategies, delay the pace of future store openings for the remainder of fiscal 2016, revise inventory shrinkage processes and establish selling, general and administrative cost control measures.  The Company concluded that until the performance issues identified in the second quarter of fiscal 2016 showed improvement, it was more likely than not that the Company would not realize its net deferred tax assets, and therefore the Company recorded a $31.7 million increase to provision for income taxes in order to establish a valuation allowance against such net deferred tax assets.

As of January 29, 2016, the valuation allowance increased to $81.8 million, which was primarily related to an increase in losses incurred during fiscal 2016.

The Company will continue to evaluate all of the positive and negative evidence in future periods and will make a determination as to whether it is more likely than not that all or a portion of its deferred tax assets will be realized in such future periods. At such time as the Company determines that it is more likely than not that all or a portion of its deferred tax assets are realizable, the valuation allowance will be reduced or released in its entirety, and the corresponding benefit will be reflected in the Company’s tax provision. Deferred tax liabilities associated with indefinite-lived intangibles cannot be considered a source of taxable income to support the realization of deferred tax assets because these deferred tax liabilities will not reverse until some indefinite future period when these assets are either sold or impaired for book purposes.  The establishment of a valuation allowance does not have any impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or utilizing other deferred tax assets in the future.

As of April 29, 2016 and January 29, 2016, the Company had not accrued any liabilities related to unrecognized tax benefits, and had also not accrued any interest and penalties related to uncertain tax positions for the relevant periods. The Company files income tax returns in the U.S. federal jurisdiction and in various states.  The Company is subject to examinations by the major tax jurisdictions in which it files for the tax years 2011 forward.

11.Commitments and Contingencies

Credit Facilities

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

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Workers’ Compensation

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

As of April 29, 2016 and January 29, 2016, the Company had recorded a liability of $76.4 million and $76.3 million, respectively, for estimated workers’ compensation claims in California.  The Company has limited self-insurance exposure in Texas and had recorded a liability of less than $0.1 million as of each of April 29, 2016 and January 29, 2016 for workers’ compensation claims in Texas.  The Company purchases workers’ compensation insurance coverage in Arizona and Nevada and is not self-insured in those states.

Self-Insured Health Insurance Liability

The Company self-insures for a portion of its employee medical benefit claims.  As of each of April 29, 2016 and January 29, 2016, the Company had recorded a liability of $0.4 million for estimated health insurance claims.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

Legal Matters

Wage and Hour Matters

Shelley Pickett v. 99¢ Only Stores.  Plaintiff Shelley Pickett, a former cashier for the Company, filed a representative action complaint against the Company on November 4, 2011 in the Superior Court of the State of California, County of Los Angeles alleging a PAGA claim that the Company violated section 14 of Wage Order 7-2001 by failing to provide seats for its cashiers behind checkout counters.  Pickett seeks civil penalties of $100 to $200 per violation, per each pay period for each affected employee, and attorney’s fees.  The court denied the Company’s motion to compel arbitration of Pickett’s individual claims or, in the alternative, to strike the representative action allegations in the complaint, and the Court of Appeals affirmed the trial court’s ruling.  On June 27, 2013, Pickett entered into a settlement agreement and release with the Company in another matter.  Payment has been made to the plaintiff under that agreement and the other action has been dismissed.  The Company’s position is that the release Pickett executed in that matter waives the claims she asserts in this action, waives her right to proceed on a class or representative basis or as a private attorney general and requires her to dismiss this action with prejudice as to her individual claims.  The Company notified Pickett of its position by a letter dated as of July 30, 2013, but she refused to dismiss the lawsuit.  On February 11, 2014, the Company answered the complaint, denying all material allegations, and filed a cross-complaint against Pickett seeking to enforce her agreement to dismiss this action.  Through the cross-complaint, the Company seeks declaratory relief, specific performance and damages.  Pickett has answered the cross-complaint, asserting a general denial of all material allegations and various affirmative defenses.  On September 30, 2014, the court denied the Company’s motion for judgment on the pleadings as to its cross-complaint and granted leave to Pickett to amend her complaint to add another representative plaintiff, Tracy Humphrey.  Plaintiffs filed their amended complaint on October 8, 2014, and the Company answered on October 10, 2014, denying all material allegations.  On April 4, 2016, in an unrelated matter involving similar claims against a different employer, the California Supreme Court issued a ruling that provides guidance to lower courts as to California’s employee seating requirement, which is a largely untested area of law.  The instant action had been stayed pending the issuance of the California Supreme Court ruling.  The Court has set a case management conference for June 15, 2016.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that it could face as a result of such lawsuit.

Sofia Wilton Barriga v. 99¢ Only Stores.  Plaintiff, a former store associate, filed an action against the Company on August 5, 2013, in the Superior Court of the State of California, County of Riverside alleging on behalf of the plaintiff and all others allegedly similarly situated under the California Labor Code that the Company failed to pay wages for all hours worked, provide meal periods, pay wages timely upon termination, and provide accurate wage statements.  The plaintiff also asserted a derivative claim for unfair competition under the California Business and Professions Code.  The plaintiff seeks to represent a class of all non-exempt employees who were employed in California in the Company’s retail stores who worked the graveyard shift at any time from January 1, 2012, through the date of trial or settlement.  Although the class period as originally pled would extend back to August 5, 2009, the parties have agreed that any class period would run beginning January 1, 2012,  because of the preclusive effect of a judgment in a previous matter.  The plaintiff seeks to recover alleged unpaid wages, statutory penalties, interest, attorney’s fees and costs, and restitution.  On September 23, 2013, the Company filed an answer denying all material allegations.  A case management conference was held on October 4, 2013, at which the court ordered that discovery may proceed as to class certification issues only.  After discovery commenced, a mediation was held on March 12, 2015, resulting in a confidential mediator’s proposal, which the parties verbally accepted.  The parties were unable to negotiate and finalize a written settlement agreement.  Subsequent settlement discussions directly and through the mediator, as well as a court-ordered settlement conference, were unsuccessful.  Discovery has resumed and plaintiff’s motion for class certification was filed on April 13, 2016.  The Company’s opposition is due on June 13, 2016. Following the close of briefing, there is a further status conference set for August 8, 2016, at which the Court will set a class certification hearing date.  On October 26, 2015, plaintiffs’ counsel filed another action in Los Angeles Superior Court, entitled Ivan Guerra v. 99 Cents Only Stores LLC (Case No. BC599119), which asserts PAGA claims based in part on the allegations at issue in the Barriga action.  By stipulation of the parties, the Guerra action has been transferred to Riverside Superior Court and will be consolidated with the Barriga action.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that it could face as a result of such lawsuit.

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Environmental Matters

People of the State of California v. 99 Cents Only Stores LLC.  This is a hazardous waste enforcement action that was brought by the San Joaquin District Attorney and a number of other public prosecutors against the Company alleging that the Company had violated hazardous waste statutory and regulatory requirements at its retail stores in California.  The Company settled this case through the entry of a stipulated judgment in December 2014 which contained injunctive relief requiring the Company to comply with applicable hazardous waste requirements at its California retail stores. During a March 2015 inspection of a recently-opened store in Sonora, Tuolumne County inspectors identified a number of alleged hazardous waste violations.  On June 29, 2015, the District Attorney informed the Company that these alleged violations had been referred to their office and asked that the Company meet with them to discuss the alleged violations.  Since that time, the Company has been working cooperatively with the District Attorney to provide information regarding the alleged violations.  The District Attorney has demanded that the Company pay $187,500 to resolve this matter and to agree to additional injunctive relief in the existing settlement.  The Company is now engaged in negotiations with the District Attorney seeking to resolve the District Attorney’s demands.

Other Matters

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

12.Assets Held for Sale

Assets held for sale as of April 29, 2016 and January 29, 2016 consisted of vacant land in Rancho Mirage, California and land in Bullhead, Arizona with an aggregate carrying value of $2.3 million.

13.Other Accrued Expenses

Other accrued expenses as of April 29, 2016 and January 29, 2016 are as follows (in thousands):

	April 29, 2016		January 29, 2016
Accrued interest	$	13,731	$	6,875
Accrued occupancy costs	11,167		11,433
Accrued legal reserves and fees	8,723		8,371
Accrued interest swap	408		569
Accrued California Redemption Value	2,461		2,225
Accrued transportation	5,550		3,508
Other	8,378		8,483
Total other accrued expenses	$	50,418	$	41,464

14.New Authoritative Standards

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

In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that

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

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued.  If substantial doubt exists, additional disclosures are required. This ASU is effective for annual periods ending after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted.  The Company will adopt this standard in the annual period ended January 27, 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

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

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

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This ASU requires companies to present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. Debt issuance costs will continue to be amortized to interest expense using the effective interest method. In August 2015, FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangement.” ASU 2015-15 clarifies the presentation and measurement of debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. For line-of-credit arrangements, an entity can continue to present debt issuance costs as an asset and amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. These standards are effective for public companies for annual periods beginning after December 15, 2015 as well as interim periods within those annual periods using the retrospective approach. The Company adopted this guidance retrospectively in the first quarter of fiscal 2017. As a result, the presentation of $11.5 million of debt issuance costs (net of accumulated amortization) have been reclassified from deferred financing costs, net to long-term debt, net of current portion as of January 29, 2016.

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

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

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.”  This ASU simplifies the presentation of deferred income taxes by requiring that all deferred tax liabilities and assets be classified as long-term on the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2017, and allows for either prospective or retrospective adoption, with early adoption permitted. The Company adopted this guidance retrospectively in the first quarter of fiscal 2017.  As a result, the presentation of $16.6 million of deferred income taxes have been reclassified from current assets to long-term deferred income tax liabilities as of January 29, 2016.

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

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

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

In March 2016, the FASB issued ASU No. 2016-08, “Revenue Recognition: Clarifying the new Revenue Standard’s Principal-Versus-Agent Guidance.” The amendments finalize the guidance in the new revenue standard on assessing whether an entity is a principal or an agent in a revenue transaction. The conclusion impacts whether an entity reports revenue on a gross or net basis.  The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers,” as amended by the one-year deferral and early adoption provisions in ASU 2015-14. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting”. This ASU will require companies to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance requires companies to present excess tax benefits as an operating activity and cash paid to a taxing authority to satisfy statutory withholding as a financing activity on the statement of cash flows. The guidance will also allow entities to make an alternative policy election to account for forfeitures as they occur.  This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing”. This ASU provides guidance on accounting for licenses of intellectual property and identifying performance obligations.  The amendments clarify how an entity should evaluate its promise when granting a license of in intellectual property. They also clarify when a promised good or service is separately identifiable and allow entities to disregard items that are immaterial in the context of the contract.  The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers,” as amended by the one-year deferral and early adoption provisions in ASU 2015-14. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

27

15.Financial Guarantees

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

As of April 29, 2016 and January 29, 2016, the Senior Notes are fully and unconditionally guaranteed by the Subsidiary Guarantors.

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

28

CONDENSED CONSOLIDATING BALANCE SHEETS

As of April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,285		$	1,061		$	30		$	—		$	2,376
Accounts receivable, net	1,583			78			—			—			1,661
Income taxes receivable	2,222			—			—			—			2,222
Inventories, net	146,057			20,908			—			—			166,965
Assets held for sale	2,308			—			—			—			2,308
Other	13,992			1,345			—			—			15,337
Total current assets	167,447			23,392			30			—			190,869
Property and equipment, net	483,513			56,615			25			—			540,153
Deferred financing costs, net	5,062			—			—			—			5,062
Equity investments and advances to subsidiaries	641,177			569,353			1,965			(1,212,495		)	—
Intangible assets, net	449,839			1,929			—			—			451,768
Goodwill	387,772			—			—			—			387,772
Deposits and other assets	7,903			362			8			—			8,273
Total assets	$	2,142,713		$	651,651		$	2,028		$	(1,212,495	)	$	1,583,897
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	70,458		$	4,105		$	—		$	—		$	74,563
Intercompany payable	570,237			584,480			2,534			(1,157,251		)	—
Payroll and payroll-related	18,562			1,498			—			—			20,060
Sales tax	5,955			546			—			—			6,501
Other accrued expenses	47,391			2,985			42			—			50,418
Workers’ compensation	76,431			75			—			—			76,506
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	1,073			—			—			—			1,073
Total current liabilities	796,245			593,689			2,576			(1,157,251		)	235,259
Long-term debt, net of current portion	867,566			—			—			—			867,566
Unfavorable lease commitments, net	5,260			29			—			—			5,289
Deferred rent	25,424			2,140			1			—			27,565
Deferred compensation liability	735			—			—			—			735
Capital and financing lease obligation, net of current portion	35,941			—			—			—			35,941
Deferred income taxes	163,045			—			—			—			163,045
Other liabilities	4,909			—			—			—			4,909
Total liabilities	1,899,125			595,858			2,577			(1,157,251		)	1,340,309
Member’s Equity:
Member units	550,390			—			1			(1		)	550,390
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(287,605		)	(44,150		)	(550		)	44,700			(287,605		)
Other comprehensive income	3			—			—			—			3
Total equity	243,588			55,793			(549		)	(55,244		)	243,588
Total liabilities and equity	$	2,142,713		$	651,651		$	2,028		$	(1,212,495	)	$	1,583,897

29

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 29, 2016

(In thousands)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,266		$	1,009		$	37		$	—		$	2,312
Accounts receivable, net	1,568			106			—			—			1,674
Income taxes receivable	3,665			—			—			—			3,665
Deferred income taxes	—			—			—			—			—
Inventories, net	171,691			24,960			—			—			196,651
Assets held for sale	2,308			—			—			—			2,308
Other	17,296			1,294			13			—			18,603
Total current assets	197,794			27,369			50			—			225,213
Property and equipment, net	484,764			57,780			26			—			542,570
Deferred financing costs, net	916			—			—			—			916
Equity investments and advances to subsidiaries	604,542			527,905			1,836			(1,134,283		)	—
Intangible assets, net	451,245			1,997			—			—			453,242
Goodwill	387,772			—			—			—			387,772
Deposits and other assets	6,932			379			8			—			7,319
Total assets	$	2,133,965		$	615,430		$	1,920		$	(1,134,283	)	$	1,617,032
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	74,313		$	4,884		$	—		$	—		$	79,197
Intercompany payable	528,767			545,012			2,381			(1,076,160		)	—
Payroll and payroll-related	17,024			1,397			—			—			18,421
Sales tax	12,801			513			—			—			13,314
Other accrued expenses	38,714			2,718			32			—			41,464
Workers’ compensation	76,314			75			—			—			76,389
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	989			—			—			—			989
Total current liabilities	755,060			554,599			2,413			(1,076,160		)	235,912
Long-term debt, net of current portion	875,843			—			—			—			875,843
Unfavorable lease commitments, net	5,702			44			—			—			5,746
Deferred rent	25,218			2,168			3			—			27,389
Deferred compensation liability	709			—			—			—			709
Capital and financing lease obligation, net of current portion	34,817			—			—			—			34,817
Deferred income taxes	163,045			—			—			—			163,045
Other liabilities	5,118			—			—			—			5,118
Total liabilities	1,865,512			556,811			2,416			(1,076,160		)	1,348,579
Member’s Equity:
Member units	550,226			—			1			(1		)	550,226
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(262,411		)	(41,324		)	(497		)	41,821			(262,411		)
Other comprehensive loss	(162		)	—			—			—			(162		)
Total equity	268,453			58,619			(496		)	(58,123		)	268,453
Total liabilities and equity	$	2,133,965		$	615,430		$	1,920		$	(1,134,283	)	$	1,617,032

30

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Quarter Ended April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	469,222		$	43,707		$	—		$	—		$	512,929
Cost of sales	330,342			33,620			—			—			363,962
Gross profit	138,880			10,087			—			—			148,967
Selling, general and administrative expenses	144,263			12,913			53			—			157,229
Operating loss	(5,383		)	(2,826		)	(53		)	—			(8,262		)
Other (income) expense:
Interest income	(2		)	—			—			—			(2		)
Interest expense	16,526			—			—			—			16,526
Loss on extinguishment of debt	335			—			—			—			335
Equity in loss (earnings) of subsidiaries	2,879			—			—			(2,879		)	—
Total other expense, net	19,738			—			—			(2,879		)	16,859
(Loss) income before provision for income taxes	(25,121		)	(2,826		)	(53		)	2,879			(25,121		)
Provision for income taxes	73			—			—			—			73
Net (loss) income	$	(25,194	)	$	(2,826	)	$	(53	)	$	2,879		$	(25,194	)
Comprehensive (loss) income	$	(25,029	)	$	(2,826	)	$	(53	)	$	2,879		$	(25,029	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Quarter Ended May 1, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	462,042		$	44,127		$	109	$	(109	)	$	506,169
Cost of sales	316,767			32,779			—		—			349,546
Gross profit	145,275			11,348			109		(109		)	156,623
Selling, general and administrative expenses	137,132			13,045			104		(109		)	150,172
Operating income (loss)	8,143			(1,697		)	5		—			6,451
Other (income) expense:
Interest income	(3		)	—			—		—			(3		)
Interest expense	16,272			—			—		—			16,272
Equity in loss (earnings) of subsidiaries	1,692			—			—		(1,692		)	—
Total other expense, net	17,961			—			—		(1,692		)	16,269
(Loss) income before provision for income taxes	(9,818		)	(1,697		)	5		1,692			(9,818		)
Benefit for income taxes	(10,989		)	—			—		—			(10,989		)
Net income (loss)	$	1,171		$	(1,697	)	$	5	$	1,692		$	1,171
Comprehensive income (loss)	$	1,338		$	(1,697	)	$	5	$	1,692		$	1,338

31

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Quarter Ended April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	24,784		$	792		$	(6	)	$	—	$	25,570
Cash flows from investing activities:
Purchases of property and equipment	(12,632		)	(740		)	(1		)	—		(13,373		)
Proceeds from sales of fixed assets	4			—			—			—		4
Net cash used in investing activities	(12,628		)	(740		)	(1		)	—		(13,369		)
Cash flows from financing activities:
Payments of long-term debt	(1,535		)	—			—			—		(1,535		)
Proceeds under revolving credit facility	64,800			—			—			—		64,800
Payments under revolving credit facility	(72,600		)	—			—			—		(72,600		)
Payments of debt issuance costs	(4,594		)	—			—			—		(4,594		)
Proceeds from financing lease obligations	2,031			—			—			—		2,031
Payments of capital and financing lease obligations	(239		)	—			—			—		(239		)
Net cash used in financing activities	(12,137		)	—			—			—		(12,137		)
Net increase (decrease) in cash	19			52			(7		)	—		64
Cash — beginning of period	1,266			1,009			37			—		2,312
Cash — end of period	$	1,285		$	1,061		$	30		$	—	$	2,376

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Quarter Ended May 1, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	21,245		$	(1,140	)	$	40		$	—	$	20,145
Cash flows from investing activities:
Purchases of property and equipment	(25,200		)	(440		)	(2		)	—		(25,642		)
Proceeds from sale of fixed assets	9			1,428			—			—		1,437
Net cash (used in) provided by investing activities	(25,191		)	988			(2		)	—		(24,205		)
Cash flows from financing activities:
Payments of long—term debt	(1,535		)	—			—			—		(1,535		)
Proceeds under revolving credit facility	126,300			—			—			—		126,300
Payments under revolving credit facility	(130,400		)	—			—			—		(130,400		)
Payments of capital lease obligation	(23		)	—			—			—		(23		)
Payments to repurchase stock options of Number Holdings, Inc.	(362		)	—			—			—		(362		)
Net cash used in financing activities	(6,020		)	—			—			—		(6,020		)
Net (decrease) increase in cash	(9,966		)	(152		)	38			—		(10,080		)
Cash — beginning of period	11,333			1,097			33			—		12,463
Cash — end of period	$	1,367		$	945		$	71		$	—	$	2,383

32

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

As used in this quarterly report on Form 10-Q (this “Report”), unless the context suggests otherwise, the terms “Company,” “we,” “us,” and “our” refer to 99¢ Only Stores and its consolidated subsidiaries prior to the Conversion (as described in Note 1 to the Annual Report on Form 10-K for the fiscal year ended January 29, 2016) and to 99 Cents Only Stores LLC and its consolidated subsidiaries on or after the Conversion.

General

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

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

We follow a fiscal calendar consisting of four quarters with 91 days, each ending on the Friday closest to the last day of April, July, October or January, as applicable, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years. Unless otherwise stated, references to years in this Report relate to fiscal years rather than calendar years. Fiscal year 2017 began on January 30, 2016, will end on January 27, 2017 and will consist of 52 weeks.  Fiscal year 2016 (“fiscal 2016”) began on January 31, 2015, ended on January 29, 2016 and consisted of 52 weeks.  The first quarter ended April 29, 2016 (“the first quarter of fiscal 2017”) and the first quarter ended May 1, 2015 (“the first quarter of fiscal 2016”) were each comprised of 91 days.

For the first quarter of fiscal 2017, we had net sales of $512.9 million, operating loss of $8.3 million and a net loss of $25.2 million.  Sales increased during the first quarter of fiscal 2017 over the same period in fiscal 2016 primarily due to the full quarter effect of new stores opened in fiscal 2016. Same-store sales were flat compared to the first quarter of fiscal 2016.  First quarter of fiscal 2017 results were negatively impacted by higher shrinkage as further discussed in “Results of Operations — First Quarter Ended April 29, 2016 Compared to First Quarter Ended May 1, 2015 — Gross Profit” and higher payroll-related expenses as further discussed in “Results of Operations — First Quarter Ended April 29, 2016 Compared to First Quarter Ended May 1, 2015 — Selling, General and Administrative Expenses”.

The senior leadership team continues to focus on key strategies designed to enable us to profitably scale our business while continuing to meet the needs of our customers. These areas are discussed in detail under Item 1, “Business—Our Business Strategy” of our Annual Report on Form 10-K for the fiscal year ended January 29, 2016.

In the first quarter of fiscal 2017, we opened one new store. In fiscal 2017, we currently intend to open up to six to eight new stores, all of which are expected to be opened in our existing markets.  We believe that our near term growth in fiscal 2017 will primarily result from new store openings in our existing territories and increases in same-store sales.

Critical Accounting Policies and Estimates

Our critical accounting policies reflecting management’s estimates and judgments are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended January 29, 2016.  Since the filing of our Annual Report on Form 10-K for the fiscal year ended January 29, 2016, there have been no other significant changes to our critical accounting policies and estimates.

Results of Operations

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

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

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

33

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

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

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

	For the First Quarter Ended
	April 29, 2016			% of Net Sales		May 1, 2015			% of Net Sales
Net Sales:
99¢ Only Stores	$	501,766		97.8	%	$	494,808		97.8	%
Bargain Wholesale	11,163			2.2		11,361			2.2
Total sales	512,929			100.0		506,169			100.0
Cost of sales	363,962			71.0		349,546			69.1
Gross profit	148,967			29.0		156,623			30.9
Selling, general and administrative expenses	157,229			30.7		150,172			29.7
Operating (loss) income	(8,262		)	(1.6	)	6,451			1.3
Other (income) expense:
Interest income	(2		)	0.0		(3		)	0.0
Interest expense	16,526			3.2		16,272			3.2
Loss on extinguishment of debt	335			0.1		—			0.0
Total other expense, net	16,859			3.3		16,269			3.2
Loss before provision for income taxes	(25,121		)	(4.9	)	(9,818		)	(1.9	)
Provision (benefit) for income taxes	73			(0.0	)	(10,989		)	(2.2	)
Net income (loss)	$	(25,194	)	(4.9	)%	$	1,171		0.2	%

First Quarter Ended April 29, 2016 Compared to First Quarter Ended May 1, 2015

Net sales.  Total net sales increased $6.7 million, or 1.3%, to $512.9 million in the first quarter of fiscal 2017, from $506.2 million in the first quarter of fiscal 2016.  Net retail sales increased $6.9 million, or 1.4%, to $501.7 million in the first quarter of fiscal 2017, from $494.8 million in the first quarter of fiscal 2016.  Bargain Wholesale net sales decreased by $0.2 million, or 1.7%, to $11.2 million in the first quarter of fiscal 2017, from $11.4 million in the first quarter of fiscal 2016.  The $6.9 million increase in net retail sales was primarily due to the full quarter effect of stores opened in fiscal 2016.  Same-store sales were flat compared to the first quarter of fiscal 2016, with lower customer traffic of 1.5% offset by higher average ticket of 1.5%. Positives in same-store sales included higher sales in produce and consumables, partially as a result of improved in-stock levels due to improvements in the allocation and replenishment system, and lower cannibalization. Challenges in same-store sales included lower seasonal sales due to the overlapping of significant inventory purchases in fiscal 2016, which increased sales but led to excess inventory levels in stores, and prompted ongoing initiatives to clear excess on-hand seasonal inventory through promotions and mark-downs.

Gross profit.  Gross profit decreased $7.6 million, or 4.9%, to $149.0 million in the first quarter of fiscal 2017, from $156.6 million in the first quarter of 2016.  As a percentage of net sales, overall gross margin decreased to 29.0% in the first quarter of fiscal 2017, from 30.9% in the first quarter of fiscal 2016.  Overall gross profit was negatively impacted by an increase in inventory shrinkage of 140 basis points compared to the first quarter of fiscal 2016.  We have a number of key initiatives underway to identify and reduce shrinkage including loss prevention efforts, adherence to disciplined inventory management processes and the implementation of store perpetual inventory system.  Product margin declined by 40 basis points compared to the first quarter of fiscal 2016, driven in part by our efforts to reduce seasonal inventory through inventory clearance initiatives.  Distribution and transportation expenses increased 40 basis points primarily due to higher transportation costs. The Company completed its transition to the use of a national carrier for its outside carrier needs during the first quarter of fiscal 2017 and expects transportation costs to normalize over time.  The remaining change was attributable to other less significant items included in costs of sales.

Selling, general and administrative expenses.  Selling, general and administrative expenses increased by $7.0 million, or 4.7%, to $157.2 million in the first quarter of fiscal 2017, from $150.2 million in the first quarter of fiscal 2016.  As a percentage of net sales, selling, general and administrative expenses increased to 30.7% for the first quarter of fiscal 2017 from 29.7% for the first quarter of fiscal 2016.  The 100 basis point increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by an increase in payroll-related expenses. Payroll-related expenses were higher by 100 basis points primarily due to an increase in the minimum wage in California which went into effect in January 2016.  In addition, selling, general and administrative expenses as a percentage of net sales increased due to higher occupancy expenses, legal expenses and outside professional fees.  These increases were partially offset by lower advertising expenses.

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Operating (loss) income.  Operating loss was $8.3 million for the first quarter of fiscal 2017 compared to operating income of $6.5 million for the first quarter of fiscal 2016.  Operating loss as a percentage of net sales was (1.6)% in the first quarter of fiscal 2017 compared to operating income of 1.3% in the first quarter of fiscal 2016.  The decrease in operating income as a percentage of net sales was primarily due to changes in gross margin and selling, general, and administrative expenses, as discussed above.

Interest expense and loss on extinguishment of debt.  Interest expense was $16.5 million for the first quarter of fiscal 2017 compared to interest expense of $16.3 million for the first quarter of fiscal 2016.  Interest expense was higher primarily due to interest expense on financing leases and amortization of debt issuance costs. Loss on extinguishment of debt was $0.3 million relating to the amendment of the ABL Facility (as defined below) in April 2016.

Provision (benefit) for income taxes. The provision for income taxes was $0.1 million for the first quarter of fiscal 2017 compared to an income tax benefit of $11.0 million for the first quarter of fiscal 2016.  The effective income tax rate for the first quarter of fiscal 2017 was a provision rate of (0.3)% compared to a benefit rate of 111.9% for the first quarter 2016.  The change in the effective tax rate is primarily due to the effect of not recognizing the benefit of losses incurred in the first quarter of fiscal 2017 in jurisdictions where we concluded it is more likely than not that such benefits would not be realized.  See Note 10 to the Unaudited Consolidated Financial Statements for a description of the valuation allowance established in the second quarter of fiscal 2016 against the deferred tax assets and the implications of that allowance on the assessment of our conclusions on realization of the tax benefits of losses incurred in fiscal 2017.  Income taxes for interim periods are computed using the effective tax rate estimated to be applicable for the full fiscal year.  The estimated effective tax rate for the entire year is based on current estimates and any changes to those estimates in future periods could result in effective tax rate that is materially different from the current estimate.

Net (loss) income.  As a result of the items discussed above, net loss for the first quarter of fiscal 2017 was $25.2 million compared to net income of $1.2 million in the first quarter of fiscal 2016.  Net loss as a percentage of net sales was (4.9)% for the first quarter of fiscal 2017, compared to net income of 0.2% for the first quarter of fiscal 2016.

Liquidity and Capital Resources

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

As of the end of the first quarter of fiscal 2017, we held $2.4 million in cash, and our total indebtedness was $888.5 million, consisting of gross borrowings under the First Lien Term Loan Facility (as defined below) of $598.5 million, borrowings under the ABL Facility (as defined below) of $40.0 million and $250.0 million of our Senior Notes (as defined below).  As of April 29, 2016, availability under the ABL Facility (as defined below) (subject to the borrowing base) was $56.5 million and, subject to certain limitations and the satisfaction of certain conditions, including the receipt of commitments for additional borrowings, we were also permitted to incur up to an aggregate of $50.0 million of additional borrowings pursuant to incremental facilities under the First Lien Term Loan Facility and up to an aggregate of $25.0 million of additional revolving commitments (subject to the borrowing base) pursuant to the ABL Facility (as defined below).  The First Lien Term Loan Facility matures on January 13, 2019, and our Senior Notes mature on December 15, 2019.  While the maturity date of our ABL Facility (as defined below) has been conditionally extended to April 8, 2021 in connection with the Fourth Amendment, such extension resulted in higher interest rates and, if our First Lien Term Loan Facility and Senior Notes are not refinanced or amended to extend the final maturity dates thereof to a date that is at least 180 days after April 8, 2021, our ABL Facility (as defined below) will mature on the earlier of (i) the date that is 90 days prior to the stated maturity date in respect of our First Lien Term Loan Facility and (ii) the date that is 90 days prior to the stated maturity date in respect of the Senior Notes.  We may pursue a refinancing of our other long-term obligations, but potential volatility and challenges in the then-current capital markets, including conditions affecting borrowing costs, could limit our ability to refinance at favorable terms, and could have a material adverse impact on our future financial condition.  We also have, and will continue to have, significant lease obligations.  As of April 29, 2016, our minimum annual rental obligations under long-term operating leases for the remainder of fiscal 2017 are $57.7 million.  These obligations are significant and could affect our ability to pursue significant growth initiatives, such as strategic acquisitions, in the future.  However, we expect to be able to service these obligations from our net cash flow from operations, and we do not expect these obligations to negatively affect our expansion plans for the foreseeable future, including our plans to increase our store count, planned upgrades to our information technology systems and other planned capital expenditures.

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Credit Facilities

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

First Lien Term Loan Facility

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

We are required to make scheduled quarterly payments each equal to 0.25% of the principal amount of the Term Loans, with the balance due on the maturity date.  Borrowings under the First Lien Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, either (i) a base rate (the “Base Rate”) determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as the “Prime Rate” (3.50% as of April 29, 2016), (b) the federal funds effective rate plus 0.50% and (c) an adjusted Eurocurrency rate for one month (determined by reference to the greater of the Eurocurrency rate for the interest period subject to certain adjustments) plus 1.00%, or (ii) an adjusted Eurocurrency Rate.

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

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

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

As of April 29, 2016, the interest rate charged on the First Lien Term Loan Facility was 4.50% (1.00% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of April 29, 2016, the gross amount outstanding under the First Lien Term Loan Facility was $598.5 million.

Following the end of each fiscal year, we are required to make prepayments on the First Lien Term Loan Facility in an amount equal to (i) 50% of Excess Cash Flow (as defined in the agreement governing the First Lien Term Loan Facility), with the ability to step down to 25% and 0% upon achievement of specified total leverage ratios, minus (ii) the amount of certain voluntary prepayments made on the First Lien Term Loan Facility and/or the ABL Facility during such fiscal year.  There was no Excess Cash Flow payment required for fiscal 2016.

The First Lien Term Loan Facility includes certain customary restrictions, among other things, on our ability and the ability of Parent, the Credit Facilities Guarantors (including our subsidiary 99 Cents Only Stores Texas Inc. and certain future subsidiaries of ours to incur or guarantee additional indebtedness, make certain restricted payments, acquisitions or investments, materially change our business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets, make capital expenditures or merge or consolidate with or into, another company.  As of January 29, 2016, we were in compliance with the terms of the First Lien Term Loan Facility.

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

As of April 29, 2016 and June 6, 2016, various funds affiliated with Ares and CPPIB held approximately $45.9 million and $131.7 million, respectively, of term loans under the First Lien Term Loan Facility.  From time to time, these or other affiliated funds may hold additional term loans. The terms of these term loans are the same as those held by unaffiliated third party lenders under the First Lien Term Loan Facility.

ABL Facility

The ABL Facility initially was to mature on January 13, 2017 and provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations. Subject to certain conditions, we could increase the commitments under the ABL Facility by up to $50.0 million.  All obligations under the ABL Facility are guaranteed by Parent and the other Credit Facilities Guarantors.  The ABL Facility is secured by substantially all of our assets and the assets of the Credit Facilities Guarantors.

Borrowings under the ABL Facility bear interest at a rate based, at our option, on (i) LIBOR plus an applicable margin to be determined (3.00% as of April 29, 2016) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (2.00% at April 29, 2016), in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

In addition to paying interest on outstanding principal under the Credit Facilities, we are required to pay a commitment fee to the lenders under the ABL Facility on unused commitments.  The commitment fee is adjusted at the beginning of each quarter based upon the average historical excess availability of the prior quarter (0.50% for the quarter ended April 29, 2016).  We must also pay customary letter of credit fees and agency fees.

As of April 29, 2016, borrowings under the ABL Facility were $40.0 million, outstanding letters of credit were $11.0 million and availability under the ABL Facility subject to the borrowing base, was $56.5 million. As of January 29, 2016, borrowings under the ABL Facility were $47.8 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $90.9 million.

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

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

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

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

On April 8, 2016, we amended the ABL Facility to, among other things, decrease the commitments available under the ABL Facility by $25.0 million, resulting in an aggregate facility size of $160.0 million, and extend the maturity date of the ABL Facility to April 8, 2021; provided however, the ABL Facility will mature on the earlier of (i) the date that is 90 days prior to the stated maturity date in respect of the First Lien Term Loan Facility and (ii) the date that is 90 days prior to the stated maturity date in respect of the Senior Notes, unless the First Lien Term Loan Facility and Senior Notes have been repaid or refinanced in full or amended to extend the final maturity dates thereof to a date that is at least 180 days after April 8, 2021 (the date of such repayment or refinancing, the “Term/Notes Refinancing Date” (such amendment, the “Fourth Amendment”).  The Fourth Amendment also modified the interest rate

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margins payable under the ABL Facility.  The initial applicable margin for borrowings under the ABL Facility is 2.0% with respect to base rate borrowings and 3.0% with respect to Eurocurrency rate borrowings.  Commencing with the first day of the first fiscal quarter commencing after the closing of the Fourth Amendment, the applicable margin for borrowings thereunder is subject to adjustment each fiscal quarter, based on average historical excess availability during the preceding fiscal quarter.  Furthermore, the applicable margin will be reduced by 0.50% after the Term/Notes Refinancing Date.

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

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

As of April 29, 2016, we were in compliance with the terms of the ABL Facility.

Senior Notes

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

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

The Indenture contains covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to incur or guarantee additional indebtedness, create or incur certain liens, pay dividends or make other restricted payments and investments, incur restrictions on the payment of dividends or other distributions from restricted subsidiaries, sell assets, engage in transactions with affiliates, or merge or consolidate with other companies.  As of April 29, 2016, we were in compliance with the terms of the Indenture.

As of April 29, 2016, various funds affiliated with Ares and CPPIB have collectively acquired $102.1 million aggregate principal amount of our Senior Notes in open market transactions.  From time to time, these or other affiliated funds may acquire additional Senior Notes.

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Cash Flows

Operating Activities

	First Quarter Ended
	April 29, 2016			May 1, 2015
	(amounts in thousands)
Cash flows from operating activities:
Net (loss) income	$	(25,194	)	$	1,171
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	16,302			15,803
Amortization of deferred financing costs and accretion of OID	1,304			1,146
Amortization of intangible assets	437			444
Amortization of favorable/unfavorable leases, net	587			435
Loss on extinguishment of debt	335			—
Gain on disposal of fixed assets	(34		)	(32		)
Loss on interest rate hedge	409			359
Stock-based compensation	164			634
Changes in assets and liabilities associated with operating activities:
Accounts receivable	13			(297		)
Inventories	29,686			(5,888		)
Deposits and other assets	1,758			594
Accounts payable	(5,170		)	13,054
Accrued expenses	3,403			3,380
Accrued workers’ compensation	117			(370		)
Income taxes	1,443			(11,405		)
Deferred rent	176			1,219
Other long-term liabilities	(166		)	(102		)
Net cash provided by operating activities	$	25,570		$	20,145

Cash provided by operating activities during the first quarter of fiscal 2017 was $25.6 million and consisted of (i) net loss of $25.2 million; (ii) net income adjustments for depreciation and other non-cash items of $19.5 million; (iii) an increase in working capital activities of $32.2 million; and (iv) a decrease in other activities of $0.9 million, primarily due to an increase in other long-term assets.  The increase in working capital activities was primarily due to a decrease in inventory as a result of the focused effort on inventory and supply chain efficiencies and an increase in accrued expenses, partially offset by decreases in accounts payable.

Cash provided by operating activities during the first quarter of fiscal 2016 was $20.1 million and consisted of (i) net income of $1.2 million; (ii) net income adjustments for depreciation and other non-cash items of $18.8 million; (iii) a decrease in working capital activities of $0.6 million; and (iv) an increase in other activities of $0.8 million, primarily due to an increase in deferred rent, partially offset by an increase in other long-term assets and a decrease in other long-term liabilities.  The decrease in working capital activities was primarily due to an increase in income taxes receivable and in inventories, partially offset by increases in accounts payable and accrued expenses.

Investing Activities

	First Quarter Ended
	April 29,, 2016			May 1, 2015
	(amounts in thousands)
Cash flows from investing activities:
Purchases of property and equipment	$	(13,373	)	$	(25,642	)
Proceeds from sale of fixed assets	4			1,437
Net cash used in investing activities	$	(13,369	)	$	(24,205	)

Capital expenditures in the first quarter of fiscal 2017 consisted of leasehold improvements, fixtures and equipment for new store openings, information technology projects and other capital projects of $13.4 million.

Capital expenditures in the first quarter of fiscal 2016 consisted of leasehold improvements, fixtures and equipment for new store openings, information technology projects and other capital projects of $25.6 million.

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We estimate that total capital expenditures through the end of the current fiscal year will be approximately $35 million to $40 million, comprised of approximately $20 million to $25 million for leasehold improvements and fixtures and equipment for new and existing stores, and approximately $15 million primarily related to information technology upgrades and supply chain infrastructure maintenance. We may fund a portion of the capital expenditures through divestitures of surplus assets and sale-leaseback transactions.

Financing Activities

	First Quarter Ended
	April 29, 2016			May 1, 2015
	(amounts in thousands)
Cash flows from financing activities:
Payments of long-term debt	$	(1,535	)	$	(1,535	)
Proceeds under revolving credit facility	64,800			126,300
Payments under revolving credit facility	(72,600		)	(130,400		)
Payments of debt issuance costs	(4,594		)	—
Proceeds from financing lease obligations	2,031			—
Payments of capital lease obligation	(239		)	(23		)
Payments to repurchase stock options of Number Holdings, Inc.	—			(362		)
Net cash used in financing activities	$	(12,137	)	$	(6,020	)

Net cash used in financing activities in the first quarter of fiscal 2017 was comprised primarily of net debt repayments under the ABL Facility and the First Lien Term Loan Facility and payments of debt issuance costs associated with the amendment of the ABL Facility, partially offset by proceeds from the financing lease obligations.

Net cash used in financing activities in the first quarter of fiscal 2016 was comprised primarily of net debt repayments under the ABL Facility and the First Lien Term Loan facility.

Off-Balance Sheet Arrangements

As of April 29, 2016, we had no off-balance sheet arrangements.

Contractual Obligations

A summary of our contractual obligations as of January 29, 2016 is provided in our Annual Report on Form 10-K for the fiscal year ended January 29, 2016.  During the first quarter of fiscal 2017, except as discussed below, there were no material changes in our contractual obligations previously disclosed.

On April 8, 2016, we amended the ABL Facility as described in Note 5 to the Unaudited Consolidated Financial Statements.

Lease Commitments

We lease various facilities under operating leases (except for one location classified as a capital lease and three locations classified as financing leases), which will expire at various dates through fiscal year 2035.  Most of the lease agreements contain renewal options and/or provide for fixed rent escalations or increases based on the Consumer Price Index.  Total minimum lease payments under each of these lease agreements, including scheduled increases, are charged to operations on a straight-line basis over the term of each respective lease.  Most leases require us to pay property taxes, maintenance and insurance. Rental expense (including property taxes, maintenance and insurance) charged to operations for the first quarter of fiscal 2017 and fiscal 2016 was $24.9 million and $23.3 million, respectively. We typically seek leases with a five-year to ten-year initial term and with multiple five-year renewal options.  A large majority of our store leases were entered into with multiple renewal periods, which are typically five years and occasionally longer.

Seasonality and Quarterly Fluctuations

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

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New Authoritative Standards

Information regarding new authoritative standards is contained in Note 14 to our Unaudited Consolidated Financial Statements for the quarter ended April 29, 2016 which is incorporated herein by this reference.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Our primary interest rate exposure relates to outstanding principal amounts under our Credit Facilities.  As of April 29, 2016, we had variable rate borrowings of $598.5 million under our First Lien Term Loan Facility and $40.0 million under our ABL Facility.  The Credit Facilities provide interest rate options based on certain indices as described in Note 5 to our Unaudited Consolidated Financial Statements, which is incorporated herein by this reference.

During the first quarter of fiscal 2013, we entered into an interest rate swap agreement to limit the variability of cash flows associated with interest payments on the First Lien Term Loan Facility that result from fluctuations in the LIBOR rate.  The swap limits our interest exposure on a notional value of $261.8 million to 1.36% plus an applicable margin of 3.50% as described in Note 6 to our Unaudited Consolidated Financial Statements, which is incorporated herein by this reference.  The term of the swap is from November 29, 2013 through May 31, 2016.  The fair value of the swap on the trade date was zero as we neither paid nor received any value to enter into the swap, which was entered into at market rates.  As of April 29, 2016, the fair value of the interest rate swap was a liability of $0.4 million.

A change in interest rates on our variable rate debt impacts our pre-tax earnings and cash flows.  Based on our variable rate borrowing levels and interest rate derivatives outstanding, the annualized effect of a 1% increase in applicable interest rates would not have resulted in any material change in our pre-tax earnings and cash flows for the three months ended April 29, 2016.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Report. Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, has been appropriately recorded, processed, summarized and reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as a result of the material weakness in internal control over financial reporting related to the accounting for deferred income taxes described below, our controls and procedures were not effective as of April 29, 2016.

Material Weakness in Internal Control Over Financial Reporting; Remediation Plan

Deferred Income Taxes

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

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  The material weakness in our internal control over financial reporting was a result of not designing effective controls over the assessment of accounting for deferred income taxes as described above.  Notwithstanding this material weakness, management has concluded that the consolidated financial statements in our Annual Report on Form 10-K for year ended January 29, 2016 and this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for all periods and dates presented.  In addition, while the material weakness resulted in the audit adjustments during our fourth quarter ended January 29, 2016, it did not result in any material misstatements of our consolidated financial statements or disclosures for any interim periods during, or for the annual periods of, fiscal 2016, fiscal 2015 or transition fiscal 2014.

In order to remediate this material weakness and further strengthen the overall controls surrounding the Company’s accounting for income taxes, we are taking the following steps to improve the overall processes and controls in our tax function:

·Supplement our accounting and tax professionals with additional personnel with expertise in accounting for deferred taxes; and

·Redesign and enhance our income tax review procedures to include a more robust reconciliation of the deferred tax balances.

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

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

Changes in Internal Control Over Financial Reporting

Except as described above, during the first quarter of fiscal 2017, we did not make any changes that materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

43

PART II    OTHER INFORMATION

Item 1.    Legal Proceedings

Information regarding legal proceedings is contained in Note 11 to our Unaudited Consolidated Financial Statements for the quarter ended April 29, 2016 under the heading “Legal Matters,” which is incorporated herein by reference.

Item 1A.  Risk Factors

Reference is made to Item 1A. Risk Factors, in the Annual Report on Form 10-K for the fiscal year ended January 29, 2016 for information regarding the most significant factors affecting our operations.  As of April 29, 2016, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the fiscal year ended January 29, 2016.

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

None

Item 3.    Defaults Upon Senior Securities

None

Item 4.    Mine Safety Disclosures

None

Item 5.   Other Information

On January 28, 2016, we received a comment letter from the staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff”).  The comments from the Staff were issued with respect to its review of our Annual Report on Form 10-K for the fiscal year ended January 30, 2015 and our Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2015.  We responded to the letter, and on April 5, 2016, we received a follow-up comment letter from the Staff.  We responded to all of the Staff’s comments in a letter we filed with the Securities and Exchange Commission (the “SEC”) on April 18, 2016.  In each of our response letters were the supplemental analyses and information requested by the Staff.  On April 26, 2016, we received another follow-up comment letter from the Staff, which requested additional information on our assessment of and conclusions reached with respect to the timing of the deferred tax asset valuation allowance charge that we recorded in the second quarter of fiscal 2016.  We responded to the Staff’s comment in a letter we filed with the SEC on May 10, 2016.  We intend to continue to work with the Staff on the remaining comment.

44

Item 6.   Exhibits

Exhibit No.	Description
3.1	Limited Liability Company Articles of Organization — Conversion of 99 Cents Only Stores LLC, dated as of October 18, 2013. (1)
3.2	Limited Liability Company Agreement of 99 Cents Only Stores LLC, dated as of October 18, 2013. (1)
10.1	Amendment No. 4 to the ABL Credit Agreement, dated April 8, 2016, among the Company, Number Holdings, Inc., each other Loan Party party thereto, each Lender party thereto and Royal Bank of Canada, as administrative agent. (2)
31.1	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
32.1	Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**
32.2	Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase*

*Filed herewith.

**Furnished herewith.

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

(2)Incorporated by reference from the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 11, 2016.

45

SIGNATURE

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

	99 CENTS ONLY STORES LLC
Date: June 10, 2016	By:	/s/Felicia Thornton
		Felicia Thornton
		Chief Financial Officer and Treasurer

46

EXHIBIT INDEX

Exhibit No.	Description
3.1	Limited Liability Company Articles of Organization — Conversion of 99 Cents Only Stores LLC, dated as of October 18, 2013. (1)
3.2	Limited Liability Company Agreement of 99 Cents Only Stores LLC, dated as of October 18, 2013. (1)
10.1	Amendment No. 4 to the ABL Credit Agreement, dated April 8, 2016, among the Company, Number Holdings, Inc., each other Loan Party party thereto, each Lender party thereto and Royal Bank of Canada, as administrative agent. (2)
31.1	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
32.1	Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**
32.2	Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase*

*Filed herewith.

**Furnished herewith.

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

(2)Incorporated by reference from the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 11, 2016.

47

EX-31.1

Exhibit 31.1

Certification of

Chief Executive Officer

of 99 Cents Only Stores LLC

I, Geoffrey J. Covert, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: June 10, 2016
By:	/s/ Geoffrey J. Covert
	Geoffrey J. Covert, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of

Chief Financial Officer

of 99 Cents Only Stores LLC

I, Felicia Thornton, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: June 10, 2016
By:	/s/ Felicia Thornton
	Felicia Thornton, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

OF 99 CENTS ONLY STORES LLC

This certification is provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the “Report”) for the period ended April 29, 2016 of 99 Cents Only Stores LLC (the “Issuer”).

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

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

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

Date:  June 10, 2016

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

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

EX-32.2

Exhibit 32.2

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

OF 99 CENTS ONLY STORES LLC

This certification is provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the “Report”) for the period ended April 29, 2016 of 99 Cents Only Stores LLC (the “Issuer”).

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

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

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

Date:  June 10, 2016

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

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

XML

Document and Entity Information - shares	3 Months Ended
	Apr. 29, 2016	Jun. 10, 2016
Document and Entity Information
Entity Registrant Name	99 CENTS ONLY STORES LLC
Entity Central Index Key	0001011290
Document Type	10-Q
Document Period End Date	Apr. 29, 2016
Amendment Flag	false
Current Fiscal Year End Date	--01-27
Entity Current Reporting Status	No
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		100
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
Current Assets:
Cash	$ 2,376	$ 2,312
Accounts receivable, net of allowance for doubtful accounts of $168 and $140 at April 29, 2016 and January 29, 2016, respectively	1,661	1,674
Income taxes receivable	2,222	3,665
Inventories, net	166,965	196,651
Assets held for sale	2,308	2,308
Other	15,337	18,603
Total current assets	190,869	225,213
Property and equipment, net	540,153	542,570
Deferred financing costs, net	5,062	916
Intangible assets, net	451,768	453,242
Goodwill	387,772	387,772
Deposits and other assets	8,273	7,319
Total assets	1,583,897	1,617,032
Current Liabilities:
Accounts payable	74,563	79,197
Payroll and payroll-related	20,060	18,421
Sales tax	6,501	13,314
Other accrued expenses	50,418	41,464
Workers' compensation	76,506	76,389
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligations	1,073	989
Total current liabilities	235,259	235,912
Long-term debt, net of current portion	867,566	875,843
Unfavorable lease commitments, net	5,289	5,746
Deferred rent	27,565	27,389
Deferred compensation liability	735	709
Capital and financing lease obligation, net of current portions	35,941	34,817
Deferred income taxes	163,045	163,045
Other liabilities	4,909	5,118
Total liabilities	$ 1,340,309	$ 1,348,579
Commitments and contingencies (Note 11)
Member's Equity:
Member units - 100 units issued and outstanding at April 29, 2016 and January 29, 2016	$ 550,390	$ 550,226
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(287,605)	(262,411)
Other comprehensive income (loss)	3	(162)
Total equity	243,588	268,453
Total liabilities and equity	$ 1,583,897	$ 1,617,032

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 168	$ 140
Member units, units issued	100	100
Member units, units outstanding	100	100

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Apr. 29, 2016	May. 01, 2015
Net Sales:
99 Only Stores	$ 501,766	$ 494,808
Bargain Wholesale	11,163	11,361
Total sales	512,929	506,169
Cost of sales	363,962	349,546
Gross profit	148,967	156,623
Selling, general and administrative expenses	157,229	150,172
Operating (loss) income	(8,262)	6,451
Other (income) expense:
Interest income	(2)	(3)
Interest expense	16,526	16,272
Loss on extinguishment	335
Total other expense, net	16,859	16,269
Loss before provision for income taxes	(25,121)	(9,818)
Provision (benefit) for income taxes	73	(10,989)
Net (loss) income	(25,194)	1,171
Other comprehensive income, net of tax:
Unrealized losses on interest rate cash flow hedge	(214)	(76)
Less: reclassification adjustment included in net income	379	243
Other comprehensive income, net of tax	165	167
Comprehensive (loss) income	$ (25,029)	$ 1,338

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Apr. 29, 2016	May. 01, 2015
Cash flows from operating activities:
Net (loss) income	$ (25,194)	$ 1,171
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	16,302	15,803
Amortization of deferred financing costs and accretion of OID	1,304	1,146
Amortization of intangible assets	437	444
Amortization of favorable/unfavorable leases, net	587	435
Loss on extinguishment	335
Gain on disposal of fixed assets	(34)	(32)
Loss on interest rate hedge	409	359
Stock-based compensation	164	634
Changes in assets and liabilities associated with operating activities:
Accounts receivable	13	(297)
Inventories	29,686	(5,888)
Deposits and other assets	1,758	594
Accounts payable	(5,170)	13,054
Accrued expenses	3,403	3,380
Accrued workers' compensation	117	(370)
Income taxes	1,443	(11,405)
Deferred rent	176	1,219
Other long-term liabilities	(166)	(102)
Net cash provided by operating activities	25,570	20,145
Cash flows from investing activities:
Purchases of property and equipment	(13,373)	(25,642)
Proceeds from sale of property and fixed assets	4	1,437
Net cash used in investing activities	(13,369)	(24,205)
Cash flows from financing activities:
Payments of long-term debt	(1,535)	(1,535)
Proceeds under revolving credit facility	64,800	126,300
Payments under revolving credit facility	(72,600)	(130,400)
Payments of debt issuance costs	(4,594)
Proceeds from financing lease obligations	2,031
Payments of capital and financing lease obligations	(239)	(23)
Payments to repurchase stock options of Number Holdings, Inc.		(362)
Net cash used in financing activities	(12,137)	(6,020)
Net increase (decrease) in cash	64	(10,080)
Cash - beginning of period	2,312	12,463
Cash - end of period	2,376	2,383
Supplemental cash flow information:
Income taxes refunded	(1,370)
Interest paid	8,365	9,125
Non-cash investing activities for purchases of property and equipment	$ (536)	$ 6,381

XML

Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Apr. 29, 2016

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

1.Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business

The Company is organized under the laws of the State of California.  Effective October 18, 2013, 99¢ Only Stores converted from a California corporation to a California limited liability company, 99 Cents Only Stores LLC, that is managed by its sole member, Number Holdings, Inc., a Delaware corporation (“Parent”).  The term “Company” refers to 99¢ Only Stores and its consolidated subsidiaries prior to the Conversion (as described in Note 1 to the Annual Report on Form 10-K for the fiscal year ended January 29, 2016) and to 99 Cents Only Stores LLC and its consolidated subsidiaries at the time of or after the Conversion.  The Company is an extreme value retailer of consumable and general merchandise and seasonal products. As of April 29, 2016, the Company operated 392 retail stores with 284 in California, 49 in Texas, 38 in Arizona, and 21 in Nevada.  The Company is also a wholesale distributor of various products.

Merger

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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  However, certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission.  These statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2016.  In the opinion of the Company’s management, these interim unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the consolidated financial position and results of operations for each of the periods presented.  The results of operations and cash flows for such periods are not necessarily indicative of results to be expected for the full fiscal year ending January 27, 2017 (“fiscal 2017”).

Fiscal Year

The Company follows a fiscal calendar consisting of four quarters with 91 days, each ending on the Friday closest to the last day of April, July, October or January, as applicable, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years.  Unless otherwise stated, references to years in this Report relate to fiscal years rather than calendar years.  The Company’s fiscal 2017 began on January 30, 2016, will end on January 27, 2017 and will consist of 52 weeks.  The Company’s fiscal year 2016 (“fiscal 2016”) began on January 31, 2015, ended on January 29, 2016 and consisted of 52 weeks.  The first quarter ended April 29, 2016 (“the first quarter of fiscal 2017”) and the first quarter ended May 1, 2015 (“the first quarter of fiscal 2016”) were each comprised of 91 days.

Use of Estimates

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

Reclassification

Certain prior year amounts have been reclassified to conform to the current year’s presentation. Specifically, the Company adopted Accounting Standard Update(“ASU”)  No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which requires the Company to present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The adoption of this accounting standard resulted in the reclassification of $11.5 million of debt issuance costs (net of accumulated amortization) from deferred financing costs, net to long-term debt, net of current portion on the Company’s consolidated balance sheet at January 29, 2016.  The Company also early adopted Accounting Standard Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax assets and liabilities be classified as long-term on the balance sheet.  The adoption of this accounting standard resulted in the reclassification of $16.6 million of deferred income tax from current assets to long-term deferred income taxes liability on the Company’s consolidated balance sheet at January 29, 2016.

Cash

For purposes of reporting cash flows, cash includes cash on hand, cash at the stores and cash in financial institutions.  The majority of payments due from financial institutions for the settlement of debit card and credit card transactions are processed within three business days and therefore are also classified as cash.  Cash balances held at financial institutions are generally in excess of federally insured limits.  These accounts are only insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company historically has not experienced any losses in such accounts.  The Company places its temporary cash investments with what it believes to be high credit, quality financial institutions.  Under the Company’s cash management system, checks issued but not presented to the bank may result in book cash overdraft balances for accounting purposes.  The Company reclassifies book overdrafts to accounts payable, which are reflected as an operating activity in its unaudited consolidated statements of cash flows.  Book overdrafts included in accounts payable were $2.1 million and $7.9 million as of April 29, 2016 and January 29, 2016, respectively.

Allowance for Doubtful Accounts

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

Inventories

Inventories are valued at the lower of cost or market. Inventory costs are established using a methodology that approximates first in, first out, which for store inventories is based on a retail inventory method.  Valuation allowances for shrinkage as well as excess and obsolete inventory are also recorded.  The Company includes spoilage, scrap and shrink in its definition of shrinkage.  Shrinkage is estimated as a percentage of sales for the period from the last physical inventory date to the end of the applicable period.  Such estimates are based on experience and the most recent physical inventory results.  Physical inventory counts are completed at each of the Company’s retail stores at least once a year by an outside inventory service company.  The Company performs inventory cycle counts at its warehouses throughout the year.  The Company also performs inventory reviews and analysis on a quarterly basis for both warehouse and store inventory to determine inventory valuation allowances for excess and obsolete inventory.  The valuation allowances for excess and obsolete inventory are based on the age of the inventory, sales trends and future merchandising plans.  The valuation allowances for excess and obsolete inventory require management judgment and estimates that may impact the ending inventory valuation and valuation allowances that may have a material effect on the reported gross margin for the period. These estimates are subject to change based on management’s evaluation of, and response to, a variety of factors and trends, including, but not limited to, consumer preferences and buying patterns, age of inventory, increased competition, inventory management, merchandising strategies and historical sell through trends.  The Company’s ability to adequately evaluate the impact of inventory management and merchandising strategies executed in response to such factors and trends in future periods could have a material impact on such estimates.

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

Property and Equipment

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

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

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

Long-Lived Assets

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

During the first quarter of each of fiscal 2017 and fiscal 2016, the Company did not record any long-lived asset impairment charges.

Goodwill and Other Intangible Assets

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

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

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

The Company, assisted by an independent third party valuation firm, performs the annual test for impairment in January of the fiscal year and determines fair value based on a combination of the income approach and the market approach. The income approach is based on discounted cash flows to determine fair value. The market approach uses a selection of comparable companies and transactions in determining fair value. The fair value of the trade name is also tested for impairment in the fourth quarter by comparing the carrying value to the fair value. Fair value of a trade name is determined using a relief from royalty method under the income approach, which uses projected revenue allocable to the trade name and an assumed royalty rate (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”). These approaches involve making key assumptions about future cash flows, discount rates and asset lives using then best available information.  These assumptions are subject to a high degree of complexity and judgment and are subject to change.

During the third quarter of fiscal 2016, the Company determined that indicators of impairment existed to require an interim impairment analysis of goodwill and trade name, including (i) overall performance deterioration reflected in decreased comparable same-store sales and cannibalization from stores opened in fiscal 2015 under an accelerated expansion program, (ii) increases in inventory shrinkage and buildup of excess inventory, (iii) decreased margin due to disappointing results from sales promotions and (iv) a decision to delay the pace of future store openings.  The first step evaluation concluded that the fair value of the retail reporting unit was below its carrying value.  The Company performed step two of the goodwill impairment test that requires the retail reporting unit’s fair value to be allocated to all of the assets and liabilities of the reporting unit, including any intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination, including consideration of the fair value of tangible property and intangible assets.  As a result of this preliminary analysis and based on best estimate, the Company recorded a $120.0 million non-cash goodwill impairment charge in the third quarter of fiscal 2016, which was reflected as goodwill impairment in the consolidated statements of comprehensive income (loss).  The finalization of the preliminary goodwill impairment test was completed in the fourth quarter of fiscal 2016 and resulted in a $28.0 million adjustment in goodwill, lowering the third quarter of fiscal 2016 goodwill impairment charge from $120.0 million to $92.0 million.

The remaining amount of goodwill allocated to the retail reporting unit and wholesale reporting unit was $375.2 and $12.5 million, respectively, as of January 29, 2016.

During the fourth quarter of fiscal 2016, the Company completed step one of its annual goodwill impairment test for the two reporting units and determined that there was no impairment of goodwill since the fair value of the Company’s reporting units exceeded their carrying amounts.  As discussed above, considerable management judgment is necessary in estimating future cash flows, market interest rates, discount rates and other factors affecting the valuation of goodwill.  The Company’s forecasts used in its fiscal 2016 annual impairment test include growth in net sales, new store openings and same-store sales, positive trends in cost of sales and selling, general and administrative expense.  In each case, these estimates and assumptions could be materially affected by factors such as unforeseen events or changes in general economic conditions, a decline in comparable company market multiples, changes to discount rates, increased competitive forces, inability to maintain pricing structure, deterioration of vendor relationships, failure to adequately manage and improve inventory processes and procedures and changes in customer behavior which could result in changes to management’s strategies.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

Additionally, during the fourth quarter of fiscal 2016, the Company completed its annual indefinite-lived intangible asset impairment test and determined there was no impairment to the trade name since the fair value of the trade name exceeded its carrying amount.  The results of this test showed that the fair value of trade name exceeded carrying value by approximately 12%.  The relief from royalty method estimates our theoretical royalty savings from ownership of the intangible asset.  Key assumptions used in this model included sales projections, discount rates and royalty rates, and considerable management judgment is necessary in developing and evaluating such assumptions.  If future results are not consistent with current estimates and assumptions, impairment charges maybe recorded in future.

During the first quarter of fiscal 2017, the Company did not record any impairment charges related to goodwill or other intangible assets.

Derivatives

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

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

Income Taxes

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

Stock-Based Compensation

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

Revenue Recognition

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

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

Cost of Sales

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

Selling, General and Administrative Expenses

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

Leases

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

The Company recognizes rent expense for operating leases on a straight-line basis (including the effect of reduced or free rent and rent escalations) over the applicable lease term.  The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is included in deferred rent.  Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives are recorded as deferred rent.  Deferred rent related to landlord incentives is amortized as an offset to rent expense using the straight-line method over the applicable lease term.

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

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

Self-Insured Workers’ Compensation Liability

The Company self-insures for workers’ compensation claims in California and Texas.  The Company establishes a liability for losses from both estimated known and incurred but not reported insurance claims based on reported claims and actuarial valuations of estimated future costs of known and incurred but not yet reported claims.  Should an amount of claims greater than anticipated occur, the liability recorded may not be sufficient and additional workers’ compensation costs, which may be significant, could be incurred.  The Company has not discounted the projected future cash outlays for the time value of money for claims and claim-related costs when establishing its workers’ compensation liability in its financial reports for each of April 29, 2016 and January 29, 2016.

Self-Insured Health Insurance Liability

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

Pre-Opening Costs

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

Advertising

The Company expenses advertising costs as incurred.

Fair Value of Financial Instruments

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

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

Comprehensive Income

OCI includes unrealized gains or losses on interest rate derivatives designated as cash flow hedges.

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Goodwill and Other Intangibles

3 Months Ended

Apr. 29, 2016

Goodwill and Other Intangibles

Goodwill and Other Intangibles

2.Goodwill and Other Intangibles

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

	April 29, 2016										January 29, 2016
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(91,973	)	$	—		$	387,772	$	479,745	$	(91,973	)	$	—		$	387,772
Trade name	410,000		—			—			410,000		410,000		—			—			410,000
Total indefinite lived intangible assets	$	889,745	$	(91,973	)	$	—		$	797,772	$	889,745	$	(91,973	)	$	—		$	797,772
Finite lived intangible assets:
Trademarks	$	2,000	$	(570	)	$	(421	)	$	1,009	$	2,000	$	(570	)	$	(405	)	$	1,025
Bargain Wholesale customer relationships	20,000		—			(7,166		)	12,834		20,000		—			(6,752		)	13,248
Favorable leases	46,543		(566		)	(18,052		)	27,925		46,543		(566		)	(17,008		)	28,969
Total finite lived intangible assets	68,543		(1,136		)	(25,639		)	41,768		68,543		(1,136		)	(24,165		)	43,242
Total goodwill and other intangible assets	$	958,288	$	(93,109	)	$	(25,639	)	$	839,540	$	958,288	$	(93,109	)	$	(24,165	)	$	841,014

	April 29, 2016								January 29, 2016
	Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	1 to 14	$	19,835	$	(14,546	)	$	5,289	1 to 14	$	19,835	$	(14,089	)	$	5,746

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Property and Equipment, net

3 Months Ended

Apr. 29, 2016

Property and Equipment, net

Property and Equipment, net

3.Property and Equipment, net

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

	April 29, 2016			January 29, 2016
Land	$	170,871		$	170,871
Buildings	111,205			111,205
Buildings improvements	75,649			74,157
Leasehold improvements	196,713			192,405
Fixtures and equipment	200,891			194,671
Transportation equipment	11,817			11,835
Construction in progress	19,956			18,073
Total property and equipment	787,102			773,217
Less: accumulated depreciation and amortization	(246,949		)	(230,647		)
Property and equipment, net	$	540,153		$	542,570

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Comprehensive Income

3 Months Ended

Apr. 29, 2016

Comprehensive Income

Comprehensive Income

4.Comprehensive Income

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

	For the First Quarter Ended
	April 29, 2016			May 1, 2015
Net (loss) income	$	(25,194	)	$	1,171
Unrealized loss on interest rate cash flow hedge, net of tax effects of $0, and $(51) for the first quarter of each of fiscal 2017 and fiscal 2016, respectively	(214		)	(76		)
Reclassification adjustment, net of tax effects of $0 and $162 for the first quarter of each of fiscal 2017 and fiscal 2016, respectively	379			243
Total unrealized gains, net	165			167
Total comprehensive (loss) income	$	(25,029	)	$	1,338

Amounts in accumulated other comprehensive income (loss) as of April 29, 2016 and January 29, 2016 consisted of unrealized losses on interest rate cash flow hedges.  Reclassifications out of AOCI in the first quarter of fiscal 2017 and fiscal 2016 are presented in Note 6, “Derivative Financial Instruments.”

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Debt

3 Months Ended

Apr. 29, 2016

Debt

Debt

5.Debt

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

	April 29, 2016			January 29, 2016
ABL Facility	$	40,000		$	47,800
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2018, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $3,933 and $4,724 as of April 29, 2016 and January 29, 2016, respectively	594,533			595,726
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000			250,000
Deferred financing costs	(10,829		)	(11,545		)
Total debt	873,704			881,981
Less: current portion	6,138			6,138
Long-term debt, net of current portion	$	867,566		$	875,843

As of April 29, 2016 and January 29, 2016, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	April 29, 2016		January 29, 2016
ABL Facility (included in non-current deferred financing costs)	$	5,062	$	916
First Lien Term Loan Facility (included in long-term debt, net of current portion)	4,037		4,387
Senior Notes (included in long-term debt, net of current portion)	6,792		7,158
Total deferred financing costs, net	$	15,891	$	12,461

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

First Lien Term Loan Facility

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

The Company is required to make scheduled quarterly payments each equal to 0.25% of the principal amount of the Term Loans, with the balance due on the maturity date.  Borrowings under the First Lien Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, either (i) a base rate (the “Base Rate”) determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as the “Prime Rate” (3.50% as of April 29, 2016), (b) the federal funds effective rate plus 0.50% and (c) an adjusted Eurocurrency rate for one month (determined by reference to the greater of the Eurocurrency rate for the interest period subject to certain adjustments) plus 1.00%, or (ii) a Eurocurrency rate determined by reference to the London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements, for the interest period relevant to such borrowing.

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

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

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

As of April 29, 2016, the interest rate charged on the First Lien Term Loan Facility was 4.50% (1.00% Eurocurrency rate, plus the Eurocurrency loan margin of 3.50%).  As of April 29, 2016, the gross amount outstanding under the First Lien Term Loan Facility was $598.5 million.

Following the end of each fiscal year, the Company is required to make prepayments on the First Lien Term Loan Facility in an amount equal to (i) 50% of Excess Cash Flow (as defined in the agreement governing the First Lien Term Loan Facility), with the ability to step down to 25% and 0% upon achievement of specified total leverage ratios, minus (ii) the amount of certain voluntary prepayments made on the First Lien Term Loan Facility and/or the ABL Facility during such fiscal year.  There was no Excess Cash Flow payment required for fiscal 2016.

The First Lien Term Loan Facility includes certain customary restrictions, among other things, on the Company’s ability and the ability of Parent, the Credit Facilities Guarantors (including the Company’s subsidiary 99 Cents Only Stores Texas Inc.) and certain future subsidiaries of the Company to incur or guarantee additional indebtedness, make certain restricted payments, acquisitions or investments, materially change the Company’s business, incur or permit to exist certain liens, enter into transactions with affiliates, sell assets, make capital expenditures or merge or consolidate with or into, another company. As of April 29, 2016, the Company was in compliance with the terms of the First Lien Term Loan Facility.

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

ABL Facility

The ABL Facility initially was to mature on January 13, 2017 and provided for up to $175.0 million of borrowings, subject to certain borrowing base limitations. Subject to certain conditions, the Company could increase the commitments under the ABL Facility by up to $50.0 million.  All obligations under the ABL Facility are guaranteed by Parent and the other Credit Facilities Guarantors.  The ABL Facility is secured by substantially all of the Company’s assets and the assets of the Credit Facilities Guarantors, including a first priority security interest in certain current assets, and a second priority pledge of all of the Company’s equity interests and the equity interest of the Credit Facilities Guarantors and a second priority security interest in certain other fixed assets.

Borrowings under the ABL Facility bear interest at a rate based, at the Company’s option, on (i) LIBOR plus an applicable margin to be determined (3.00% as of April 29, 2016) or (ii) the determined base rate (Prime Rate) plus an applicable margin to be determined (2.00% at April 29, 2016), in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

In addition to paying interest on outstanding principal under the Credit Facilities, the Company is required to pay a commitment fee to the lenders under the ABL Facility on unused commitments.  The commitment fee is adjusted at the beginning of each quarter based upon the average historical excess availability of the prior quarter (0.5% for the quarter ended April 29, 2016).  The Company must also pay customary letter of credit fees and agency fees.

As of April 29, 2016, borrowings under the ABL Facility were $40.0 million, outstanding letters of credit were $11.0 million and availability under the ABL Facility subject to the borrowing base, was $56.5 million.  As of January 29, 2016, borrowings under the ABL Facility were $47.8 million, outstanding letters of credit were $2.5 million and availability under the ABL Facility subject to the borrowing base, was $90.9 million, prior to giving effect to a subsequent amendment to the ABL Facility on April 8, 2016 that decreased commitments available under the ABL Facility by $25.0 million.

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

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

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

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

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

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

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

As of April 29, 2016, the Company was in compliance with the terms of the ABL Facility.

Senior Notes

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

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

The Indenture contains covenants that, among other things, limit the Company’s ability and the ability of certain of its subsidiaries to incur or guarantee additional indebtedness, create or incur certain liens, pay dividends or make other restricted payments and investments, incur restrictions on the payment of dividends or other distributions from restricted subsidiaries, sell assets, engage in transactions with affiliates, or merge or consolidate with other companies.  As of April 29, 2016, the Company was in compliance with the terms of the Indenture.

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

	For the First Quarter Ended
	April 29, 2016		May 1, 2015
First Lien Term Loan Facility	$	7,229	$	7,248
ABL Facility	555		521
Senior Notes	6,875		6,951
Amortization of deferred financing costs and OID	1,302		1,146
Other interest expense	565		406
Interest expense	$	16,526	$	16,272

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Derivative Financial Instruments

3 Months Ended

Apr. 29, 2016

Derivative Financial Instruments

Derivative Financial Instruments

6.Derivative Financial Instruments

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

Interest Rate Swap

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

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

Covert Transition Payments

In September 2015, the Company entered into an employment agreement with Geoffrey J. Covert’s as the President and Chief Executive Officer of each of the Company and Parent. In connection with this agreement, Mr. Covert is entitled to receive amounts under a transition program based on the value of certain equity awards from his former employer that he forfeited in connection with his previous employment.  The maximum amount of payments due under this agreement is approximately $5.0 million, payable over a period of four years. The Company accounts for these transition payments as derivatives that are not designated as hedging instruments and has measured the obligation at fair value at April 29, 2016 and January 29, 2016. The Company recognizes the expense associated with these payments over the requisite service period.

Fair Value

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

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

	April 29, 2016			January 29, 2016
Derivatives designated as cash flow hedging instruments
Interest rate swap (included in other current liabilities)	$	408		$	569
Accumulated other comprehensive (income) loss, net of tax (included in member’s equity)	$	(3	)	$	162
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	1,010		$	1,033
Transition payments (included in other long-term liabilities)	$	212		$	172

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

	For the First Quarter Ended
	April 29, 2016		May 1, 2015
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	214	$	76
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	379	$	243
(Loss) gain related to ineffective portion of derivative recognized in interest expense	$	30	$	(46	)
Derivatives not designated as hedging instruments:
Loss recognized in selling, general and administrative expenses	$	869	$	—

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Fair Value of Financial Instruments

3 Months Ended

Apr. 29, 2016

Fair Value of Financial Instruments

Fair Value of Financial Instruments

7.Fair Value of Financial Instruments

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

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

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

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

The Company uses the best available information in measuring fair value.  The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands) as of April 29, 2016:

	April 29, 2016
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	735	$	735	$	—	$	—
LIABILITIES
Other current liabilities — interest rate swap	$	408	$	—	$	408	$	—
Other current liabilities — transition payments	$	1,010	$	—	$	—	$	1,010
Other long-term liabilities — transition payments	$	212	$	—	$	—	$	212
Other long-term liabilities — deferred compensation	$	735	$	735	$	—	$	—

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

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

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

The Company did not have any transfers in and out of Levels 1 and 2 during the first quarter of fiscal 2017.

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands) as of January 29, 2016:

	January 29, 2016
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	709	$	709	$	—	$	—
LIABILITES
Other current liabilities — interest rate swap	$	569	$	—	$	569	$	—
Other current liabilities — transition payments	$	1,033	$	—	$	—	$	1,033
Other long-term liabilities — transition payments	$	172	$	—	$	—	$	172
Other long-term liabilities — deferred compensation	$	709	$	709	$	—	$	—

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

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

Level 3 measurements include transition payments to Mr. Covert estimated using a valuation model that includes Level 3 unobservable inputs.  Significant assumptions used in the analysis include projected stock prices, stock volatility and the Company’s credit spread.

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

	For the First Quarter Ended
Transition Payments	April 29, 2016			May 1, 2015
Description
Beginning balance	$	(1,205	)	$	—
Transfers in and/or out of Level 3	—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	(869		)	—
Included in other comprehensive loss	—			—
Purchases, sales, issues and settlements:
Settlements	852			—
Ending balance	$	(1,222	)	$	—
Total amount of unrealized losses for the period included in earnings relating to liabilities held at the reporting period	$	(570	)	$	—

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

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

The ABL Facility is tied directly to market rates and fluctuates as market rates change; as a result, the carrying value of the ABL Facility approximates fair value as of April 29, 2016 and January 29, 2016.

The fair value of the First Lien Term Loan Facility was estimated at $439.9 million, or $158.6 million lower than its carrying value, as of April 29, 2016, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the First Lien Term Loan Facility was estimated at $393.0 million, or $207.0 million lower than its carrying value, as of January 29, 2016, based on quoted market prices of the debt (Level 1 inputs).

The fair value of the Senior Notes was estimated at $107.5 million, or $142.5 million lower than the carrying value, as of April 29, 2016, based on quoted market prices of the debt (Level 1 inputs).  The fair value of the Senior Notes was estimated at $103.1 million, or $146.9 million lower than the carrying value, as of January 29, 2016, based on quoted market prices of the debt (Level 1 inputs).

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

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Stock-Based Compensation

3 Months Ended

Apr. 29, 2016

Stock-Based Compensation

Stock-Based Compensation

8.Stock-Based Compensation

Number Holdings, Inc. 2012 Equity Incentive Plan

On February 27, 2012, the board of directors of Parent adopted the Number Holdings, Inc. 2012 Stock Incentive Plan (the “2012 Plan”).  The 2012 Plan authorizes equity awards to be granted for up to 85,000 shares of Class A Common Stock of Parent and 85,000 shares of Class B Common Stock of Parent.  As of April 29, 2016, options for 69,140 shares of each of Class A Common Stock and Class B Common Stock were issued to certain members of management and directors.  Options upon vesting may be exercised only for units consisting of an equal number of Class A Common Stock and Class B Common Stock.  Class B Common Stock has de minimis economic rights and the right to vote solely for election of directors.

Employee Option Grants

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

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

The Company defers recognition of substantially all of the stock-based compensation expense related to these stock options. The nature of repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence. These options are accounted for as equity-based awards. The fair value of these stock options was estimated at the date of grant using the Black-Scholes pricing model. There were 22,765 time-based employee options outstanding as of April 29, 2016.

In the fourth quarter of fiscal 2016, 5,000 options were granted to the new Chief Merchandising Officer of the Company and Parent, which will vest based on the achievement of certain performance targets.  The Company has deferred recognition of the stock-based compensation expense for these performance-based stock options due to repurchase rights and transfer restrictions included in the terms of the award.  The nature of the repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence.  Additionally, the Company has deferred recognition of the stock-based compensation expense for these performance-based options until it is probable that the performance targets will be achieved.  The fair value of these performance-based options was estimated at the date of grant using the Black-Scholes pricing model.

Director Option Grants

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

Chief Financial Officer Equity Awards

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

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

New Chief Executive Officer Equity Awards

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

The Company has deferred recognition of the stock-based compensation expense for these time-based and performance-based stock options due to repurchase rights and transfer restrictions included in the terms of the award. The nature of the repurchase rights and transfer restrictions create a performance condition that is not considered probable of being achieved until a liquidity event or certain employment termination events are probable of occurrence. Additionally, the Company has deferred recognition of the stock-based compensation expense for performance-based options until it is probable that the performance targets will be achieved.  The fair value of the grant with an exercise price of $1,000 per share was estimated at the date of grant using a binomial model.  The fair value of the other grant was estimated at the date of grant using a Monte Carlo simulation method.

Accounting for stock-based compensation

Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise and the associated volatility.  At the grant date, the Company estimates an amount of forfeitures that will occur prior to vesting.  During the first quarter of each of fiscal 2017 and fiscal 2016, the Company recorded stock-based compensation expense of $0.2 million and $0.6 million, respectively.

There were no stock option grants in the first quarter of fiscal 2017.

The following summarizes stock option activity in the first quarter of fiscal 2017:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	69,585		$	910
Granted	—		$	—
Exercised	—		$	—
Cancelled	(445	)	$	1,170
Outstanding at the end of the period	69,140		$	909	8.9
Exercisable at the end of the period	9,277		$	1,060	6.5

The following table summarizes the stock awards available for grant under the 2012 Plan as of April 29, 2016:

	Number of Shares
Available for grant as of January 29, 2016	14,725
Authorized	—
Granted	—
Cancelled	445
Available for grant at April 29, 2016	15,170

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Related-Party Transactions

3 Months Ended

Apr. 29, 2016

Related-Party Transactions

Related-Party Transactions

9.Related-Party Transactions

First Lien Term Loan Facility

In connection with the Merger, the Company entered into the First Lien Term Loan Facility, under which various funds affiliated with Ares were lenders.  As of January 29, 2016, these affiliates no longer held any term loans under the First Lien Term Loan.  As of April 29, 2016 and June 6, 2016, funds affiliated with Ares and CPPIB held approximately $45.9 million and $131.7 million, respectively, of term loans under the First Lien Term Loan Facility.  The terms of the term loans are the same as those held by unaffiliated third party lenders under the First Lien Term Loan Facility.

Senior Notes

As of April 29, 2016 and January 29, 2016 various funds affiliated with Ares and CPPIB have collectively acquired $102.1 million aggregate principal amount of the Company’s Senior Notes in open market transactions.  From time to time, these or other affiliated funds may acquire additional Senior Notes.

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Income Taxes

3 Months Ended

Apr. 29, 2016

Income Taxes

Income Taxes

10.Income Taxes

The effective income tax rate for the first quarter of fiscal 2017 was a provision rate of (0.3)% compared to a benefit rate of  rate of 111.9% for the first quarter of fiscal 2016.  Income tax expense for the interim periods was computed using the effective tax rate estimated to be applicable for the full fiscal year.  The change in the effective tax rate is primarily due to the tax effect of the establishment of a valuation allowance against deferred tax assets in the second quarter of fiscal 2016 as discussed below, and the effect of not recognizing the benefit of losses incurred in fiscal 2017 in jurisdictions where we concluded is it more likely than not that such benefits would not be realized.

The Company assesses its ability to realize deferred tax assets throughout the fiscal year.  As a result of this assessment during the second quarter of fiscal 2016, the Company concluded that it was more likely than not that the Company would not realize its deferred tax assets. In the quarters prior to the recording of a valuation allowance in the second quarter of fiscal 2016, the Company weighed all available positive and negative evidence and determined that it was more likely than not that the deferred tax assets were fully realizable.  In fiscal 2016, the Company’s management had begun to take meaningful steps to focus on the operational execution of the initiatives launched in fiscal 2015, which were expected to drive performance improvements over the second and third quarters of fiscal 2016.  However, in the second quarter of fiscal 2016, the Company’s experienced (i) margin declines due to short-term sales promotions, (ii) delays in sales growth due to cannibalization from new store openings, (iii) increased inventory shrinkage from a buildup of inventory levels, and (iv) increases in support costs as a percentage of sales.  As a result of these second quarter of fiscal 2016 events, the Company decided to adjust merchandise pricing strategies, delay the pace of future store openings for the remainder of fiscal 2016, revise inventory shrinkage processes and establish selling, general and administrative cost control measures.  The Company concluded that until the performance issues identified in the second quarter of fiscal 2016 showed improvement, it was more likely than not that the Company would not realize its net deferred tax assets, and therefore the Company recorded a $31.7 million increase to provision for income taxes in order to establish a valuation allowance against such net deferred tax assets.

As of January 29, 2016, the valuation allowance increased to $81.8 million, which was primarily related to an increase in losses incurred during fiscal 2016.

The Company will continue to evaluate all of the positive and negative evidence in future periods and will make a determination as to whether it is more likely than not that all or a portion of its deferred tax assets will be realized in such future periods. At such time as the Company determines that it is more likely than not that all or a portion of its deferred tax assets are realizable, the valuation allowance will be reduced or released in its entirety, and the corresponding benefit will be reflected in the Company’s tax provision. Deferred tax liabilities associated with indefinite-lived intangibles cannot be considered a source of taxable income to support the realization of deferred tax assets because these deferred tax liabilities will not reverse until some indefinite future period when these assets are either sold or impaired for book purposes.  The establishment of a valuation allowance does not have any impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or utilizing other deferred tax assets in the future.

As of April 29, 2016 and January 29, 2016, the Company had not accrued any liabilities related to unrecognized tax benefits, and had also not accrued any interest and penalties related to uncertain tax positions for the relevant periods. The Company files income tax returns in the U.S. federal jurisdiction and in various states.  The Company is subject to examinations by the major tax jurisdictions in which it files for the tax years 2011 forward.

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Commitments and Contingencies

3 Months Ended

Apr. 29, 2016

Commitments and Contingencies

Commitments and Contingencies

11.Commitments and Contingencies

Credit Facilities

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

Workers’ Compensation

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

As of April 29, 2016 and January 29, 2016, the Company had recorded a liability of $76.4 million and $76.3 million, respectively, for estimated workers’ compensation claims in California.  The Company has limited self-insurance exposure in Texas and had recorded a liability of less than $0.1 million as of each of April 29, 2016 and January 29, 2016 for workers’ compensation claims in Texas.  The Company purchases workers’ compensation insurance coverage in Arizona and Nevada and is not self-insured in those states.

Self-Insured Health Insurance Liability

The Company self-insures for a portion of its employee medical benefit claims.  As of each of April 29, 2016 and January 29, 2016, the Company had recorded a liability of $0.4 million for estimated health insurance claims.  The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

Legal Matters

Wage and Hour Matters

Shelley Pickett v. 99¢ Only Stores.  Plaintiff Shelley Pickett, a former cashier for the Company, filed a representative action complaint against the Company on November 4, 2011 in the Superior Court of the State of California, County of Los Angeles alleging a PAGA claim that the Company violated section 14 of Wage Order 7-2001 by failing to provide seats for its cashiers behind checkout counters.  Pickett seeks civil penalties of $100 to $200 per violation, per each pay period for each affected employee, and attorney’s fees.  The court denied the Company’s motion to compel arbitration of Pickett’s individual claims or, in the alternative, to strike the representative action allegations in the complaint, and the Court of Appeals affirmed the trial court’s ruling.  On June 27, 2013, Pickett entered into a settlement agreement and release with the Company in another matter.  Payment has been made to the plaintiff under that agreement and the other action has been dismissed.  The Company’s position is that the release Pickett executed in that matter waives the claims she asserts in this action, waives her right to proceed on a class or representative basis or as a private attorney general and requires her to dismiss this action with prejudice as to her individual claims.  The Company notified Pickett of its position by a letter dated as of July 30, 2013, but she refused to dismiss the lawsuit.  On February 11, 2014, the Company answered the complaint, denying all material allegations, and filed a cross-complaint against Pickett seeking to enforce her agreement to dismiss this action.  Through the cross-complaint, the Company seeks declaratory relief, specific performance and damages.  Pickett has answered the cross-complaint, asserting a general denial of all material allegations and various affirmative defenses.  On September 30, 2014, the court denied the Company’s motion for judgment on the pleadings as to its cross-complaint and granted leave to Pickett to amend her complaint to add another representative plaintiff, Tracy Humphrey.  Plaintiffs filed their amended complaint on October 8, 2014, and the Company answered on October 10, 2014, denying all material allegations.  On April 4, 2016, in an unrelated matter involving similar claims against a different employer, the California Supreme Court issued a ruling that provides guidance to lower courts as to California’s employee seating requirement, which is a largely untested area of law.  The instant action had been stayed pending the issuance of the California Supreme Court ruling.  The Court has set a case management conference for June 15, 2016.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that it could face as a result of such lawsuit.

Sofia Wilton Barriga v. 99¢ Only Stores.  Plaintiff, a former store associate, filed an action against the Company on August 5, 2013, in the Superior Court of the State of California, County of Riverside alleging on behalf of the plaintiff and all others allegedly similarly situated under the California Labor Code that the Company failed to pay wages for all hours worked, provide meal periods, pay wages timely upon termination, and provide accurate wage statements.  The plaintiff also asserted a derivative claim for unfair competition under the California Business and Professions Code.  The plaintiff seeks to represent a class of all non-exempt employees who were employed in California in the Company’s retail stores who worked the graveyard shift at any time from January 1, 2012, through the date of trial or settlement.  Although the class period as originally pled would extend back to August 5, 2009, the parties have agreed that any class period would run beginning January 1, 2012,  because of the preclusive effect of a judgment in a previous matter.  The plaintiff seeks to recover alleged unpaid wages, statutory penalties, interest, attorney’s fees and costs, and restitution.  On September 23, 2013, the Company filed an answer denying all material allegations.  A case management conference was held on October 4, 2013, at which the court ordered that discovery may proceed as to class certification issues only.  After discovery commenced, a mediation was held on March 12, 2015, resulting in a confidential mediator’s proposal, which the parties verbally accepted.  The parties were unable to negotiate and finalize a written settlement agreement.  Subsequent settlement discussions directly and through the mediator, as well as a court-ordered settlement conference, were unsuccessful.  Discovery has resumed and plaintiff’s motion for class certification was filed on April 13, 2016.  The Company’s opposition is due on June 13, 2016. Following the close of briefing, there is a further status conference set for August 8, 2016, at which the Court will set a class certification hearing date.  On October 26, 2015, plaintiffs’ counsel filed another action in Los Angeles Superior Court, entitled Ivan Guerra v. 99 Cents Only Stores LLC (Case No. BC599119), which asserts PAGA claims based in part on the allegations at issue in the Barriga action.  By stipulation of the parties, the Guerra action has been transferred to Riverside Superior Court and will be consolidated with the Barriga action.  The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that it could face as a result of such lawsuit.

Environmental Matters

People of the State of California v. 99 Cents Only Stores LLC.  This is a hazardous waste enforcement action that was brought by the San Joaquin District Attorney and a number of other public prosecutors against the Company alleging that the Company had violated hazardous waste statutory and regulatory requirements at its retail stores in California.  The Company settled this case through the entry of a stipulated judgment in December 2014 which contained injunctive relief requiring the Company to comply with applicable hazardous waste requirements at its California retail stores. During a March 2015 inspection of a recently-opened store in Sonora, Tuolumne County inspectors identified a number of alleged hazardous waste violations.  On June 29, 2015, the District Attorney informed the Company that these alleged violations had been referred to their office and asked that the Company meet with them to discuss the alleged violations.  Since that time, the Company has been working cooperatively with the District Attorney to provide information regarding the alleged violations.  The District Attorney has demanded that the Company pay $187,500 to resolve this matter and to agree to additional injunctive relief in the existing settlement.  The Company is now engaged in negotiations with the District Attorney seeking to resolve the District Attorney’s demands.

Other Matters

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

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Assets Held for Sale

3 Months Ended

Apr. 29, 2016

Assets Held for Sale

Assets Held for Sale

12.Assets Held for Sale

Assets held for sale as of April 29, 2016 and January 29, 2016 consisted of vacant land in Rancho Mirage, California and land in Bullhead, Arizona with an aggregate carrying value of $2.3 million.

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Other Accrued Expenses

3 Months Ended

Apr. 29, 2016

Other Accrued Expenses

Other Accrued Expenses

13.Other Accrued Expenses

Other accrued expenses as of April 29, 2016 and January 29, 2016 are as follows (in thousands):

	April 29, 2016		January 29, 2016
Accrued interest	$	13,731	$	6,875
Accrued occupancy costs	11,167		11,433
Accrued legal reserves and fees	8,723		8,371
Accrued interest swap	408		569
Accrued California Redemption Value	2,461		2,225
Accrued transportation	5,550		3,508
Other	8,378		8,483
Total other accrued expenses	$	50,418	$	41,464

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New Authoritative Standards

3 Months Ended

Apr. 29, 2016

New Authoritative Standards

New Authoritative Standards

14.New Authoritative Standards

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

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

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued.  If substantial doubt exists, additional disclosures are required. This ASU is effective for annual periods ending after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted.  The Company will adopt this standard in the annual period ended January 27, 2017 and such adoption is not expected to have a material impact on the Company or its consolidated financial statements.

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

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

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This ASU requires companies to present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. Debt issuance costs will continue to be amortized to interest expense using the effective interest method. In August 2015, FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangement.” ASU 2015-15 clarifies the presentation and measurement of debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. For line-of-credit arrangements, an entity can continue to present debt issuance costs as an asset and amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. These standards are effective for public companies for annual periods beginning after December 15, 2015 as well as interim periods within those annual periods using the retrospective approach. The Company adopted this guidance retrospectively in the first quarter of fiscal 2017. As a result, the presentation of $11.5 million of debt issuance costs (net of accumulated amortization) have been reclassified from deferred financing costs, net to long-term debt, net of current portion as of January 29, 2016.

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

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

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.”  This ASU simplifies the presentation of deferred income taxes by requiring that all deferred tax liabilities and assets be classified as long-term on the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2017, and allows for either prospective or retrospective adoption, with early adoption permitted. The Company adopted this guidance retrospectively in the first quarter of fiscal 2017.  As a result, the presentation of $16.6 million of deferred income taxes have been reclassified from current assets to long-term deferred income tax liabilities as of January 29, 2016.

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

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

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

In March 2016, the FASB issued ASU No. 2016-08, “Revenue Recognition: Clarifying the new Revenue Standard’s Principal-Versus-Agent Guidance.” The amendments finalize the guidance in the new revenue standard on assessing whether an entity is a principal or an agent in a revenue transaction. The conclusion impacts whether an entity reports revenue on a gross or net basis.  The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers,” as amended by the one-year deferral and early adoption provisions in ASU 2015-14. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting”. This ASU will require companies to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance requires companies to present excess tax benefits as an operating activity and cash paid to a taxing authority to satisfy statutory withholding as a financing activity on the statement of cash flows. The guidance will also allow entities to make an alternative policy election to account for forfeitures as they occur.  This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing”. This ASU provides guidance on accounting for licenses of intellectual property and identifying performance obligations.  The amendments clarify how an entity should evaluate its promise when granting a license of in intellectual property. They also clarify when a promised good or service is separately identifiable and allow entities to disregard items that are immaterial in the context of the contract.  The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers,” as amended by the one-year deferral and early adoption provisions in ASU 2015-14. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.

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Financial Guarantees

3 Months Ended

Apr. 29, 2016

Financial Guarantees

Financial Guarantees

15.Financial Guarantees

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

As of April 29, 2016 and January 29, 2016, the Senior Notes are fully and unconditionally guaranteed by the Subsidiary Guarantors.

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

CONDENSED CONSOLIDATING BALANCE SHEETS

As of April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,285		$	1,061		$	30		$	—		$	2,376
Accounts receivable, net	1,583			78			—			—			1,661
Income taxes receivable	2,222			—			—			—			2,222
Inventories, net	146,057			20,908			—			—			166,965
Assets held for sale	2,308			—			—			—			2,308
Other	13,992			1,345			—			—			15,337
Total current assets	167,447			23,392			30			—			190,869
Property and equipment, net	483,513			56,615			25			—			540,153
Deferred financing costs, net	5,062			—			—			—			5,062
Equity investments and advances to subsidiaries	641,177			569,353			1,965			(1,212,495		)	—
Intangible assets, net	449,839			1,929			—			—			451,768
Goodwill	387,772			—			—			—			387,772
Deposits and other assets	7,903			362			8			—			8,273
Total assets	$	2,142,713		$	651,651		$	2,028		$	(1,212,495	)	$	1,583,897
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	70,458		$	4,105		$	—		$	—		$	74,563
Intercompany payable	570,237			584,480			2,534			(1,157,251		)	—
Payroll and payroll-related	18,562			1,498			—			—			20,060
Sales tax	5,955			546			—			—			6,501
Other accrued expenses	47,391			2,985			42			—			50,418
Workers’ compensation	76,431			75			—			—			76,506
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	1,073			—			—			—			1,073
Total current liabilities	796,245			593,689			2,576			(1,157,251		)	235,259
Long-term debt, net of current portion	867,566			—			—			—			867,566
Unfavorable lease commitments, net	5,260			29			—			—			5,289
Deferred rent	25,424			2,140			1			—			27,565
Deferred compensation liability	735			—			—			—			735
Capital and financing lease obligation, net of current portion	35,941			—			—			—			35,941
Deferred income taxes	163,045			—			—			—			163,045
Other liabilities	4,909			—			—			—			4,909
Total liabilities	1,899,125			595,858			2,577			(1,157,251		)	1,340,309
Member’s Equity:
Member units	550,390			—			1			(1		)	550,390
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(287,605		)	(44,150		)	(550		)	44,700			(287,605		)
Other comprehensive income	3			—			—			—			3
Total equity	243,588			55,793			(549		)	(55,244		)	243,588
Total liabilities and equity	$	2,142,713		$	651,651		$	2,028		$	(1,212,495	)	$	1,583,897

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 29, 2016

(In thousands)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,266		$	1,009		$	37		$	—		$	2,312
Accounts receivable, net	1,568			106			—			—			1,674
Income taxes receivable	3,665			—			—			—			3,665
Deferred income taxes	—			—			—			—			—
Inventories, net	171,691			24,960			—			—			196,651
Assets held for sale	2,308			—			—			—			2,308
Other	17,296			1,294			13			—			18,603
Total current assets	197,794			27,369			50			—			225,213
Property and equipment, net	484,764			57,780			26			—			542,570
Deferred financing costs, net	916			—			—			—			916
Equity investments and advances to subsidiaries	604,542			527,905			1,836			(1,134,283		)	—
Intangible assets, net	451,245			1,997			—			—			453,242
Goodwill	387,772			—			—			—			387,772
Deposits and other assets	6,932			379			8			—			7,319
Total assets	$	2,133,965		$	615,430		$	1,920		$	(1,134,283	)	$	1,617,032
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	74,313		$	4,884		$	—		$	—		$	79,197
Intercompany payable	528,767			545,012			2,381			(1,076,160		)	—
Payroll and payroll-related	17,024			1,397			—			—			18,421
Sales tax	12,801			513			—			—			13,314
Other accrued expenses	38,714			2,718			32			—			41,464
Workers’ compensation	76,314			75			—			—			76,389
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	989			—			—			—			989
Total current liabilities	755,060			554,599			2,413			(1,076,160		)	235,912
Long-term debt, net of current portion	875,843			—			—			—			875,843
Unfavorable lease commitments, net	5,702			44			—			—			5,746
Deferred rent	25,218			2,168			3			—			27,389
Deferred compensation liability	709			—			—			—			709
Capital and financing lease obligation, net of current portion	34,817			—			—			—			34,817
Deferred income taxes	163,045			—			—			—			163,045
Other liabilities	5,118			—			—			—			5,118
Total liabilities	1,865,512			556,811			2,416			(1,076,160		)	1,348,579
Member’s Equity:
Member units	550,226			—			1			(1		)	550,226
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(262,411		)	(41,324		)	(497		)	41,821			(262,411		)
Other comprehensive loss	(162		)	—			—			—			(162		)
Total equity	268,453			58,619			(496		)	(58,123		)	268,453
Total liabilities and equity	$	2,133,965		$	615,430		$	1,920		$	(1,134,283	)	$	1,617,032

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Quarter Ended April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	469,222		$	43,707		$	—		$	—		$	512,929
Cost of sales	330,342			33,620			—			—			363,962
Gross profit	138,880			10,087			—			—			148,967
Selling, general and administrative expenses	144,263			12,913			53			—			157,229
Operating loss	(5,383		)	(2,826		)	(53		)	—			(8,262		)
Other (income) expense:
Interest income	(2		)	—			—			—			(2		)
Interest expense	16,526			—			—			—			16,526
Loss on extinguishment of debt	335			—			—			—			335
Equity in loss (earnings) of subsidiaries	2,879			—			—			(2,879		)	—
Total other expense, net	19,738			—			—			(2,879		)	16,859
(Loss) income before provision for income taxes	(25,121		)	(2,826		)	(53		)	2,879			(25,121		)
Provision for income taxes	73			—			—			—			73
Net (loss) income	$	(25,194	)	$	(2,826	)	$	(53	)	$	2,879		$	(25,194	)
Comprehensive (loss) income	$	(25,029	)	$	(2,826	)	$	(53	)	$	2,879		$	(25,029	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Quarter Ended May 1, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	462,042		$	44,127		$	109	$	(109	)	$	506,169
Cost of sales	316,767			32,779			—		—			349,546
Gross profit	145,275			11,348			109		(109		)	156,623
Selling, general and administrative expenses	137,132			13,045			104		(109		)	150,172
Operating income (loss)	8,143			(1,697		)	5		—			6,451
Other (income) expense:
Interest income	(3		)	—			—		—			(3		)
Interest expense	16,272			—			—		—			16,272
Equity in loss (earnings) of subsidiaries	1,692			—			—		(1,692		)	—
Total other expense, net	17,961			—			—		(1,692		)	16,269
(Loss) income before provision for income taxes	(9,818		)	(1,697		)	5		1,692			(9,818		)
Benefit for income taxes	(10,989		)	—			—		—			(10,989		)
Net income (loss)	$	1,171		$	(1,697	)	$	5	$	1,692		$	1,171
Comprehensive income (loss)	$	1,338		$	(1,697	)	$	5	$	1,692		$	1,338

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Quarter Ended April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	24,784		$	792		$	(6	)	$	—	$	25,570
Cash flows from investing activities:
Purchases of property and equipment	(12,632		)	(740		)	(1		)	—		(13,373		)
Proceeds from sales of fixed assets	4			—			—			—		4
Net cash used in investing activities	(12,628		)	(740		)	(1		)	—		(13,369		)
Cash flows from financing activities:
Payments of long-term debt	(1,535		)	—			—			—		(1,535		)
Proceeds under revolving credit facility	64,800			—			—			—		64,800
Payments under revolving credit facility	(72,600		)	—			—			—		(72,600		)
Payments of debt issuance costs	(4,594		)	—			—			—		(4,594		)
Proceeds from financing lease obligations	2,031			—			—			—		2,031
Payments of capital and financing lease obligations	(239		)	—			—			—		(239		)
Net cash used in financing activities	(12,137		)	—			—			—		(12,137		)
Net increase (decrease) in cash	19			52			(7		)	—		64
Cash — beginning of period	1,266			1,009			37			—		2,312
Cash — end of period	$	1,285		$	1,061		$	30		$	—	$	2,376

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Quarter Ended May 1, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	21,245		$	(1,140	)	$	40		$	—	$	20,145
Cash flows from investing activities:
Purchases of property and equipment	(25,200		)	(440		)	(2		)	—		(25,642		)
Proceeds from sale of fixed assets	9			1,428			—			—		1,437
Net cash (used in) provided by investing activities	(25,191		)	988			(2		)	—		(24,205		)
Cash flows from financing activities:
Payments of long—term debt	(1,535		)	—			—			—		(1,535		)
Proceeds under revolving credit facility	126,300			—			—			—		126,300
Payments under revolving credit facility	(130,400		)	—			—			—		(130,400		)
Payments of capital lease obligation	(23		)	—			—			—		(23		)
Payments to repurchase stock options of Number Holdings, Inc.	(362		)	—			—			—		(362		)
Net cash used in financing activities	(6,020		)	—			—			—		(6,020		)
Net (decrease) increase in cash	(9,966		)	(152		)	38			—		(10,080		)
Cash — beginning of period	11,333			1,097			33			—		12,463
Cash — end of period	$	1,367		$	945		$	71		$	—	$	2,383

XML

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

3 Months Ended

Apr. 29, 2016

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  However, certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission.  These statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2016.  In the opinion of the Company’s management, these interim unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the consolidated financial position and results of operations for each of the periods presented.  The results of operations and cash flows for such periods are not necessarily indicative of results to be expected for the full fiscal year ending January 27, 2017 (“fiscal 2017”).

Fiscal Year

Fiscal Year

The Company follows a fiscal calendar consisting of four quarters with 91 days, each ending on the Friday closest to the last day of April, July, October or January, as applicable, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years.  Unless otherwise stated, references to years in this Report relate to fiscal years rather than calendar years.  The Company’s fiscal 2017 began on January 30, 2016, will end on January 27, 2017 and will consist of 52 weeks.  The Company’s fiscal year 2016 (“fiscal 2016”) began on January 31, 2015, ended on January 29, 2016 and consisted of 52 weeks.  The first quarter ended April 29, 2016 (“the first quarter of fiscal 2017”) and the first quarter ended May 1, 2015 (“the first quarter of fiscal 2016”) were each comprised of 91 days.

Use of Estimates

Use of Estimates

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

Reclassification

Reclassification

Certain prior year amounts have been reclassified to conform to the current year’s presentation. Specifically, the Company adopted Accounting Standard Update(“ASU”)  No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which requires the Company to present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The adoption of this accounting standard resulted in the reclassification of $11.5 million of debt issuance costs (net of accumulated amortization) from deferred financing costs, net to long-term debt, net of current portion on the Company’s consolidated balance sheet at January 29, 2016.  The Company also early adopted Accounting Standard Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax assets and liabilities be classified as long-term on the balance sheet.  The adoption of this accounting standard resulted in the reclassification of $16.6 million of deferred income tax from current assets to long-term deferred income taxes liability on the Company’s consolidated balance sheet at January 29, 2016.

Cash

Cash

For purposes of reporting cash flows, cash includes cash on hand, cash at the stores and cash in financial institutions.  The majority of payments due from financial institutions for the settlement of debit card and credit card transactions are processed within three business days and therefore are also classified as cash.  Cash balances held at financial institutions are generally in excess of federally insured limits.  These accounts are only insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company historically has not experienced any losses in such accounts.  The Company places its temporary cash investments with what it believes to be high credit, quality financial institutions.  Under the Company’s cash management system, checks issued but not presented to the bank may result in book cash overdraft balances for accounting purposes.  The Company reclassifies book overdrafts to accounts payable, which are reflected as an operating activity in its unaudited consolidated statements of cash flows.  Book overdrafts included in accounts payable were $2.1 million and $7.9 million as of April 29, 2016 and January 29, 2016, respectively.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

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

Inventories

Inventories

Inventories are valued at the lower of cost or market. Inventory costs are established using a methodology that approximates first in, first out, which for store inventories is based on a retail inventory method.  Valuation allowances for shrinkage as well as excess and obsolete inventory are also recorded.  The Company includes spoilage, scrap and shrink in its definition of shrinkage.  Shrinkage is estimated as a percentage of sales for the period from the last physical inventory date to the end of the applicable period.  Such estimates are based on experience and the most recent physical inventory results.  Physical inventory counts are completed at each of the Company’s retail stores at least once a year by an outside inventory service company.  The Company performs inventory cycle counts at its warehouses throughout the year.  The Company also performs inventory reviews and analysis on a quarterly basis for both warehouse and store inventory to determine inventory valuation allowances for excess and obsolete inventory.  The valuation allowances for excess and obsolete inventory are based on the age of the inventory, sales trends and future merchandising plans.  The valuation allowances for excess and obsolete inventory require management judgment and estimates that may impact the ending inventory valuation and valuation allowances that may have a material effect on the reported gross margin for the period. These estimates are subject to change based on management’s evaluation of, and response to, a variety of factors and trends, including, but not limited to, consumer preferences and buying patterns, age of inventory, increased competition, inventory management, merchandising strategies and historical sell through trends.  The Company’s ability to adequately evaluate the impact of inventory management and merchandising strategies executed in response to such factors and trends in future periods could have a material impact on such estimates.

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

Property and Equipment

Property and Equipment

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

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

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

Long-Lived Assets

Long-Lived Assets

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

During the first quarter of each of fiscal 2017 and fiscal 2016, the Company did not record any long-lived asset impairment charges.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

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

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

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

The Company, assisted by an independent third party valuation firm, performs the annual test for impairment in January of the fiscal year and determines fair value based on a combination of the income approach and the market approach. The income approach is based on discounted cash flows to determine fair value. The market approach uses a selection of comparable companies and transactions in determining fair value. The fair value of the trade name is also tested for impairment in the fourth quarter by comparing the carrying value to the fair value. Fair value of a trade name is determined using a relief from royalty method under the income approach, which uses projected revenue allocable to the trade name and an assumed royalty rate (Level 3 measurement, see Note 7, “Fair Value of Financial Instruments”). These approaches involve making key assumptions about future cash flows, discount rates and asset lives using then best available information.  These assumptions are subject to a high degree of complexity and judgment and are subject to change.

During the third quarter of fiscal 2016, the Company determined that indicators of impairment existed to require an interim impairment analysis of goodwill and trade name, including (i) overall performance deterioration reflected in decreased comparable same-store sales and cannibalization from stores opened in fiscal 2015 under an accelerated expansion program, (ii) increases in inventory shrinkage and buildup of excess inventory, (iii) decreased margin due to disappointing results from sales promotions and (iv) a decision to delay the pace of future store openings.  The first step evaluation concluded that the fair value of the retail reporting unit was below its carrying value.  The Company performed step two of the goodwill impairment test that requires the retail reporting unit’s fair value to be allocated to all of the assets and liabilities of the reporting unit, including any intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination, including consideration of the fair value of tangible property and intangible assets.  As a result of this preliminary analysis and based on best estimate, the Company recorded a $120.0 million non-cash goodwill impairment charge in the third quarter of fiscal 2016, which was reflected as goodwill impairment in the consolidated statements of comprehensive income (loss).  The finalization of the preliminary goodwill impairment test was completed in the fourth quarter of fiscal 2016 and resulted in a $28.0 million adjustment in goodwill, lowering the third quarter of fiscal 2016 goodwill impairment charge from $120.0 million to $92.0 million.

The remaining amount of goodwill allocated to the retail reporting unit and wholesale reporting unit was $375.2 and $12.5 million, respectively, as of January 29, 2016.

During the fourth quarter of fiscal 2016, the Company completed step one of its annual goodwill impairment test for the two reporting units and determined that there was no impairment of goodwill since the fair value of the Company’s reporting units exceeded their carrying amounts.  As discussed above, considerable management judgment is necessary in estimating future cash flows, market interest rates, discount rates and other factors affecting the valuation of goodwill.  The Company’s forecasts used in its fiscal 2016 annual impairment test include growth in net sales, new store openings and same-store sales, positive trends in cost of sales and selling, general and administrative expense.  In each case, these estimates and assumptions could be materially affected by factors such as unforeseen events or changes in general economic conditions, a decline in comparable company market multiples, changes to discount rates, increased competitive forces, inability to maintain pricing structure, deterioration of vendor relationships, failure to adequately manage and improve inventory processes and procedures and changes in customer behavior which could result in changes to management’s strategies.  If operating results continue to change versus the Company’s expectations, additional impairment charges may be recorded in the future.

Additionally, during the fourth quarter of fiscal 2016, the Company completed its annual indefinite-lived intangible asset impairment test and determined there was no impairment to the trade name since the fair value of the trade name exceeded its carrying amount.  The results of this test showed that the fair value of trade name exceeded carrying value by approximately 12%.  The relief from royalty method estimates our theoretical royalty savings from ownership of the intangible asset.  Key assumptions used in this model included sales projections, discount rates and royalty rates, and considerable management judgment is necessary in developing and evaluating such assumptions.  If future results are not consistent with current estimates and assumptions, impairment charges maybe recorded in future.

During the first quarter of fiscal 2017, the Company did not record any impairment charges related to goodwill or other intangible assets.

Derivatives

Derivatives

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

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

Income Taxes

Income Taxes

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

Stock-Based Compensation

Stock-Based Compensation

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

Revenue Recognition

Revenue Recognition

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

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

Cost of Sales

Cost of Sales

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

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses

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

Leases

Leases

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

The Company recognizes rent expense for operating leases on a straight-line basis (including the effect of reduced or free rent and rent escalations) over the applicable lease term.  The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is included in deferred rent.  Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives are recorded as deferred rent.  Deferred rent related to landlord incentives is amortized as an offset to rent expense using the straight-line method over the applicable lease term.

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

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

Self-Insured Workers' Compensation Liability

Self-Insured Workers’ Compensation Liability

The Company self-insures for workers’ compensation claims in California and Texas.  The Company establishes a liability for losses from both estimated known and incurred but not reported insurance claims based on reported claims and actuarial valuations of estimated future costs of known and incurred but not yet reported claims.  Should an amount of claims greater than anticipated occur, the liability recorded may not be sufficient and additional workers’ compensation costs, which may be significant, could be incurred.  The Company has not discounted the projected future cash outlays for the time value of money for claims and claim-related costs when establishing its workers’ compensation liability in its financial reports for each of April 29, 2016 and January 29, 2016.

Self-Insured Health Insurance Liability

Self-Insured Health Insurance Liability

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

Pre-Opening Costs

Pre-Opening Costs

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

Advertising

Advertising

The Company expenses advertising costs as incurred.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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

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

Comprehensive Income

Comprehensive Income

OCI includes unrealized gains or losses on interest rate derivatives designated as cash flow hedges.

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

3 Months Ended

Apr. 29, 2016

Basis of Presentation and Summary of Significant Accounting Policies

Schedule of property and equipment useful lives

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

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Goodwill and Other Intangibles (Tables)

3 Months Ended

Apr. 29, 2016

Goodwill and Other Intangibles

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

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

	April 29, 2016										January 29, 2016
	Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Impairment Losses			Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill	$	479,745	$	(91,973	)	$	—		$	387,772	$	479,745	$	(91,973	)	$	—		$	387,772
Trade name	410,000		—			—			410,000		410,000		—			—			410,000
Total indefinite lived intangible assets	$	889,745	$	(91,973	)	$	—		$	797,772	$	889,745	$	(91,973	)	$	—		$	797,772
Finite lived intangible assets:
Trademarks	$	2,000	$	(570	)	$	(421	)	$	1,009	$	2,000	$	(570	)	$	(405	)	$	1,025
Bargain Wholesale customer relationships	20,000		—			(7,166		)	12,834		20,000		—			(6,752		)	13,248
Favorable leases	46,543		(566		)	(18,052		)	27,925		46,543		(566		)	(17,008		)	28,969
Total finite lived intangible assets	68,543		(1,136		)	(25,639		)	41,768		68,543		(1,136		)	(24,165		)	43,242
Total goodwill and other intangible assets	$	958,288	$	(93,109	)	$	(25,639	)	$	839,540	$	958,288	$	(93,109	)	$	(24,165	)	$	841,014

	April 29, 2016								January 29, 2016
	Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unfavorable leases	1 to 14	$	19,835	$	(14,546	)	$	5,289	1 to 14	$	19,835	$	(14,089	)	$	5,746

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Property and Equipment, net (Tables)

3 Months Ended

Apr. 29, 2016

Property and Equipment, net

Schedule of details of property and equipment

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

	April 29, 2016			January 29, 2016
Land	$	170,871		$	170,871
Buildings	111,205			111,205
Buildings improvements	75,649			74,157
Leasehold improvements	196,713			192,405
Fixtures and equipment	200,891			194,671
Transportation equipment	11,817			11,835
Construction in progress	19,956			18,073
Total property and equipment	787,102			773,217
Less: accumulated depreciation and amortization	(246,949		)	(230,647		)
Property and equipment, net	$	540,153		$	542,570

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Comprehensive Income (Tables)

3 Months Ended

Apr. 29, 2016

Comprehensive Income

Schedule of comprehensive income, net of tax effects

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

	For the First Quarter Ended
	April 29, 2016			May 1, 2015
Net (loss) income	$	(25,194	)	$	1,171
Unrealized loss on interest rate cash flow hedge, net of tax effects of $0, and $(51) for the first quarter of each of fiscal 2017 and fiscal 2016, respectively	(214		)	(76		)
Reclassification adjustment, net of tax effects of $0 and $162 for the first quarter of each of fiscal 2017 and fiscal 2016, respectively	379			243
Total unrealized gains, net	165			167
Total comprehensive (loss) income	$	(25,029	)	$	1,338

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Debt (Tables)

3 Months Ended

Apr. 29, 2016

Debt

Schedule of short and long-term debt

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

	April 29, 2016			January 29, 2016
ABL Facility	$	40,000		$	47,800
First Lien Term Loan Facility, maturing on January 13, 2019, payable in quarterly installments of $1,535, plus interest through December 31, 2018, with unpaid principal and accrued interest due on January 13, 2019, net of unamortized OID of $3,933 and $4,724 as of April 29, 2016 and January 29, 2016, respectively	594,533			595,726
Senior Notes (unsecured) maturing on December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000			250,000
Deferred financing costs	(10,829		)	(11,545		)
Total debt	873,704			881,981
Less: current portion	6,138			6,138
Long-term debt, net of current portion	$	867,566		$	875,843

Schedule of net deferred financing costs

As of April 29, 2016 and January 29, 2016, the net deferred financing costs are as follows (in thousands):

Deferred financing costs	April 29, 2016		January 29, 2016
ABL Facility (included in non-current deferred financing costs)	$	5,062	$	916
First Lien Term Loan Facility (included in long-term debt, net of current portion)	4,037		4,387
Senior Notes (included in long-term debt, net of current portion)	6,792		7,158
Total deferred financing costs, net	$	15,891	$	12,461

Schedule of significant components of interest expense

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

	For the First Quarter Ended
	April 29, 2016		May 1, 2015
First Lien Term Loan Facility	$	7,229	$	7,248
ABL Facility	555		521
Senior Notes	6,875		6,951
Amortization of deferred financing costs and OID	1,302		1,146
Other interest expense	565		406
Interest expense	$	16,526	$	16,272

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Derivative Financial Instruments (Tables)

3 Months Ended

Apr. 29, 2016

Derivative Financial Instruments

Summary of the recorded amounts included in the consolidated balance sheet

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

	April 29, 2016			January 29, 2016
Derivatives designated as cash flow hedging instruments
Interest rate swap (included in other current liabilities)	$	408		$	569
Accumulated other comprehensive (income) loss, net of tax (included in member’s equity)	$	(3	)	$	162
Derivatives not designated as hedging instruments
Transition payments (included in other current liabilities)	$	1,010		$	1,033
Transition payments (included in other long-term liabilities)	$	212		$	172

Summary of recorded amounts included in the consolidated statements of comprehensive income (loss)

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

	For the First Quarter Ended
	April 29, 2016		May 1, 2015
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	214	$	76
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	$	379	$	243
(Loss) gain related to ineffective portion of derivative recognized in interest expense	$	30	$	(46	)
Derivatives not designated as hedging instruments:
Loss recognized in selling, general and administrative expenses	$	869	$	—

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Apr. 29, 2016

Fair Value of Financial Instruments

Schedule of financial assets and liabilities recorded at fair value on a recurring basis, by level within the fair value hierarchy

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands) as of April 29, 2016:

	April 29, 2016
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	735	$	735	$	—	$	—
LIABILITIES
Other current liabilities — interest rate swap	$	408	$	—	$	408	$	—
Other current liabilities — transition payments	$	1,010	$	—	$	—	$	1,010
Other long-term liabilities — transition payments	$	212	$	—	$	—	$	212
Other long-term liabilities — deferred compensation	$	735	$	735	$	—	$	—

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis (in thousands) as of January 29, 2016:

	January 29, 2016
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	709	$	709	$	—	$	—
LIABILITES
Other current liabilities — interest rate swap	$	569	$	—	$	569	$	—
Other current liabilities — transition payments	$	1,033	$	—	$	—	$	1,033
Other long-term liabilities — transition payments	$	172	$	—	$	—	$	172
Other long-term liabilities — deferred compensation	$	709	$	709	$	—	$	—

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

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

	For the First Quarter Ended
Transition Payments	April 29, 2016			May 1, 2015
Description
Beginning balance	$	(1,205	)	$	—
Transfers in and/or out of Level 3	—			—
Total realized/unrealized gains (loss):
Included in earnings (1)	(869		)	—
Included in other comprehensive loss	—			—
Purchases, sales, issues and settlements:
Settlements	852			—
Ending balance	$	(1,222	)	$	—
Total amount of unrealized losses for the period included in earnings relating to liabilities held at the reporting period	$	(570	)	$	—

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

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Stock-Based Compensation (Tables)

3 Months Ended

Apr. 29, 2016

Stock-Based Compensation

Summary of stock option activity

The following summarizes stock option activity in the first quarter of fiscal 2017:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	69,585		$	910
Granted	—		$	—
Exercised	—		$	—
Cancelled	(445	)	$	1,170
Outstanding at the end of the period	69,140		$	909	8.9
Exercisable at the end of the period	9,277		$	1,060	6.5

Summary of stock awards available for grant

	Number of Shares
Available for grant as of January 29, 2016	14,725
Authorized	—
Granted	—
Cancelled	445
Available for grant at April 29, 2016	15,170

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Other Accrued Expenses (Tables)

3 Months Ended

Apr. 29, 2016

Other Accrued Expenses

Schedule of other accrued expenses

Other accrued expenses as of April 29, 2016 and January 29, 2016 are as follows (in thousands):

	April 29, 2016		January 29, 2016
Accrued interest	$	13,731	$	6,875
Accrued occupancy costs	11,167		11,433
Accrued legal reserves and fees	8,723		8,371
Accrued interest swap	408		569
Accrued California Redemption Value	2,461		2,225
Accrued transportation	5,550		3,508
Other	8,378		8,483
Total other accrued expenses	$	50,418	$	41,464

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Financial Guarantees (Tables)

3 Months Ended

Apr. 29, 2016

Financial Guarantees

Schedule of condensed consolidating balance sheets

CONDENSED CONSOLIDATING BALANCE SHEETS

As of April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,285		$	1,061		$	30		$	—		$	2,376
Accounts receivable, net	1,583			78			—			—			1,661
Income taxes receivable	2,222			—			—			—			2,222
Inventories, net	146,057			20,908			—			—			166,965
Assets held for sale	2,308			—			—			—			2,308
Other	13,992			1,345			—			—			15,337
Total current assets	167,447			23,392			30			—			190,869
Property and equipment, net	483,513			56,615			25			—			540,153
Deferred financing costs, net	5,062			—			—			—			5,062
Equity investments and advances to subsidiaries	641,177			569,353			1,965			(1,212,495		)	—
Intangible assets, net	449,839			1,929			—			—			451,768
Goodwill	387,772			—			—			—			387,772
Deposits and other assets	7,903			362			8			—			8,273
Total assets	$	2,142,713		$	651,651		$	2,028		$	(1,212,495	)	$	1,583,897
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	70,458		$	4,105		$	—		$	—		$	74,563
Intercompany payable	570,237			584,480			2,534			(1,157,251		)	—
Payroll and payroll-related	18,562			1,498			—			—			20,060
Sales tax	5,955			546			—			—			6,501
Other accrued expenses	47,391			2,985			42			—			50,418
Workers’ compensation	76,431			75			—			—			76,506
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	1,073			—			—			—			1,073
Total current liabilities	796,245			593,689			2,576			(1,157,251		)	235,259
Long-term debt, net of current portion	867,566			—			—			—			867,566
Unfavorable lease commitments, net	5,260			29			—			—			5,289
Deferred rent	25,424			2,140			1			—			27,565
Deferred compensation liability	735			—			—			—			735
Capital and financing lease obligation, net of current portion	35,941			—			—			—			35,941
Deferred income taxes	163,045			—			—			—			163,045
Other liabilities	4,909			—			—			—			4,909
Total liabilities	1,899,125			595,858			2,577			(1,157,251		)	1,340,309
Member’s Equity:
Member units	550,390			—			1			(1		)	550,390
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(287,605		)	(44,150		)	(550		)	44,700			(287,605		)
Other comprehensive income	3			—			—			—			3
Total equity	243,588			55,793			(549		)	(55,244		)	243,588
Total liabilities and equity	$	2,142,713		$	651,651		$	2,028		$	(1,212,495	)	$	1,583,897

CONDENSED CONSOLIDATING BALANCE SHEETS

As of January 29, 2016

(In thousands)

	Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	1,266		$	1,009		$	37		$	—		$	2,312
Accounts receivable, net	1,568			106			—			—			1,674
Income taxes receivable	3,665			—			—			—			3,665
Deferred income taxes	—			—			—			—			—
Inventories, net	171,691			24,960			—			—			196,651
Assets held for sale	2,308			—			—			—			2,308
Other	17,296			1,294			13			—			18,603
Total current assets	197,794			27,369			50			—			225,213
Property and equipment, net	484,764			57,780			26			—			542,570
Deferred financing costs, net	916			—			—			—			916
Equity investments and advances to subsidiaries	604,542			527,905			1,836			(1,134,283		)	—
Intangible assets, net	451,245			1,997			—			—			453,242
Goodwill	387,772			—			—			—			387,772
Deposits and other assets	6,932			379			8			—			7,319
Total assets	$	2,133,965		$	615,430		$	1,920		$	(1,134,283	)	$	1,617,032
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	74,313		$	4,884		$	—		$	—		$	79,197
Intercompany payable	528,767			545,012			2,381			(1,076,160		)	—
Payroll and payroll-related	17,024			1,397			—			—			18,421
Sales tax	12,801			513			—			—			13,314
Other accrued expenses	38,714			2,718			32			—			41,464
Workers’ compensation	76,314			75			—			—			76,389
Current portion of long-term debt	6,138			—			—			—			6,138
Current portion of capital and financing lease obligation	989			—			—			—			989
Total current liabilities	755,060			554,599			2,413			(1,076,160		)	235,912
Long-term debt, net of current portion	875,843			—			—			—			875,843
Unfavorable lease commitments, net	5,702			44			—			—			5,746
Deferred rent	25,218			2,168			3			—			27,389
Deferred compensation liability	709			—			—			—			709
Capital and financing lease obligation, net of current portion	34,817			—			—			—			34,817
Deferred income taxes	163,045			—			—			—			163,045
Other liabilities	5,118			—			—			—			5,118
Total liabilities	1,865,512			556,811			2,416			(1,076,160		)	1,348,579
Member’s Equity:
Member units	550,226			—			1			(1		)	550,226
Additional paid-in capital	—			99,943			—			(99,943		)	—
Investment in Number Holdings, Inc. preferred stock	(19,200		)	—			—			—			(19,200		)
Accumulated deficit	(262,411		)	(41,324		)	(497		)	41,821			(262,411		)
Other comprehensive loss	(162		)	—			—			—			(162		)
Total equity	268,453			58,619			(496		)	(58,123		)	268,453
Total liabilities and equity	$	2,133,965		$	615,430		$	1,920		$	(1,134,283	)	$	1,617,032

Schedule of condensed consolidated statements of comprehensive income (loss)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Quarter Ended April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	469,222		$	43,707		$	—		$	—		$	512,929
Cost of sales	330,342			33,620			—			—			363,962
Gross profit	138,880			10,087			—			—			148,967
Selling, general and administrative expenses	144,263			12,913			53			—			157,229
Operating loss	(5,383		)	(2,826		)	(53		)	—			(8,262		)
Other (income) expense:
Interest income	(2		)	—			—			—			(2		)
Interest expense	16,526			—			—			—			16,526
Loss on extinguishment of debt	335			—			—			—			335
Equity in loss (earnings) of subsidiaries	2,879			—			—			(2,879		)	—
Total other expense, net	19,738			—			—			(2,879		)	16,859
(Loss) income before provision for income taxes	(25,121		)	(2,826		)	(53		)	2,879			(25,121		)
Provision for income taxes	73			—			—			—			73
Net (loss) income	$	(25,194	)	$	(2,826	)	$	(53	)	$	2,879		$	(25,194	)
Comprehensive (loss) income	$	(25,029	)	$	(2,826	)	$	(53	)	$	2,879		$	(25,029	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First Quarter Ended May 1, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	462,042		$	44,127		$	109	$	(109	)	$	506,169
Cost of sales	316,767			32,779			—		—			349,546
Gross profit	145,275			11,348			109		(109		)	156,623
Selling, general and administrative expenses	137,132			13,045			104		(109		)	150,172
Operating income (loss)	8,143			(1,697		)	5		—			6,451
Other (income) expense:
Interest income	(3		)	—			—		—			(3		)
Interest expense	16,272			—			—		—			16,272
Equity in loss (earnings) of subsidiaries	1,692			—			—		(1,692		)	—
Total other expense, net	17,961			—			—		(1,692		)	16,269
(Loss) income before provision for income taxes	(9,818		)	(1,697		)	5		1,692			(9,818		)
Benefit for income taxes	(10,989		)	—			—		—			(10,989		)
Net income (loss)	$	1,171		$	(1,697	)	$	5	$	1,692		$	1,171
Comprehensive income (loss)	$	1,338		$	(1,697	)	$	5	$	1,692		$	1,338

Schedule of condensed consolidated statements of cash flows

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Quarter Ended April 29, 2016

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiary			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	24,784		$	792		$	(6	)	$	—	$	25,570
Cash flows from investing activities:
Purchases of property and equipment	(12,632		)	(740		)	(1		)	—		(13,373		)
Proceeds from sales of fixed assets	4			—			—			—		4
Net cash used in investing activities	(12,628		)	(740		)	(1		)	—		(13,369		)
Cash flows from financing activities:
Payments of long-term debt	(1,535		)	—			—			—		(1,535		)
Proceeds under revolving credit facility	64,800			—			—			—		64,800
Payments under revolving credit facility	(72,600		)	—			—			—		(72,600		)
Payments of debt issuance costs	(4,594		)	—			—			—		(4,594		)
Proceeds from financing lease obligations	2,031			—			—			—		2,031
Payments of capital and financing lease obligations	(239		)	—			—			—		(239		)
Net cash used in financing activities	(12,137		)	—			—			—		(12,137		)
Net increase (decrease) in cash	19			52			(7		)	—		64
Cash — beginning of period	1,266			1,009			37			—		2,312
Cash — end of period	$	1,285		$	1,061		$	30		$	—	$	2,376

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Quarter Ended May 1, 2015

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	21,245		$	(1,140	)	$	40		$	—	$	20,145
Cash flows from investing activities:
Purchases of property and equipment	(25,200		)	(440		)	(2		)	—		(25,642		)
Proceeds from sale of fixed assets	9			1,428			—			—		1,437
Net cash (used in) provided by investing activities	(25,191		)	988			(2		)	—		(24,205		)
Cash flows from financing activities:
Payments of long—term debt	(1,535		)	—			—			—		(1,535		)
Proceeds under revolving credit facility	126,300			—			—			—		126,300
Payments under revolving credit facility	(130,400		)	—			—			—		(130,400		)
Payments of capital lease obligation	(23		)	—			—			—		(23		)
Payments to repurchase stock options of Number Holdings, Inc.	(362		)	—			—			—		(362		)
Net cash used in financing activities	(6,020		)	—			—			—		(6,020		)
Net (decrease) increase in cash	(9,966		)	(152		)	38			—		(10,080		)
Cash — beginning of period	11,333			1,097			33			—		12,463
Cash — end of period	$	1,367		$	945		$	71		$	—	$	2,383

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Basis of Presentation and Summary of Significant Accounting Policies - General Information (Details)	3 Months Ended		12 Months Ended
	Apr. 29, 2016 USD ($) item	May. 01, 2015	Jan. 27, 2017 item	Jan. 29, 2016 USD ($) item
Nature of Business
Stores in operation	392
Change in Fiscal Year
Days in each fiscal quarter	91 days	91 days
Number of weeks in period	52		52	52
Number of days in a fiscal year	364
Number of weeks in a fiscal year every five to six years	53
Cash
Number of business days within which the majority of payments are due for the settlement of debit and credit card transactions	3 days
Cash, FDIC Uninsured Amount | $	$ 250,000
Book overdrafts included in accounts payable | $	$ 2,100,000			$ 7,900,000
Minimum
Change in Fiscal Year
Period during which fiscal years includes 53 weeks	5 years
Maximum
Change in Fiscal Year
Period during which fiscal years includes 53 weeks	6 years
California
Nature of Business
Stores in operation	284
Texas
Nature of Business
Stores in operation	49
Arizona
Nature of Business
Stores in operation	38
Nevada
Nature of Business
Stores in operation	21

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Basis of Presentation and Summary of Significant Accounting Policies - Reclassification (Details) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
Reclassification
Deferred financing costs, net	$ 5,062	$ 916
Long-term debt, net of current portion	867,566	875,843
Long-term deferred income tax liabilities	$ 163,045	163,045
ASU 2015-03 | Retrospective adjustment
Reclassification
Deferred financing costs, net		(11,500)
Long-term debt, net of current portion		(11,500)
ASU 2015-17 | Retrospective adjustment
Reclassification
Current deferred income tax assets		(16,600)
Long-term deferred income tax liabilities		$ (16,600)

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Basis of Presentation and Summary of Significant Accounting Policies - Property and Equipment and Long-Lived Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 29, 2016	May. 01, 2015
Property and equipment
Asset Impairment Charges	$ 0	$ 0
Owned buildings and improvements | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life	30 years
Fixtures and equipment | Minimum
Property and equipment
Property, Plant and Equipment, Useful Life	3 years
Fixtures and equipment | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life	5 years
Transportation equipment | Minimum
Property and equipment
Property, Plant and Equipment, Useful Life	3 years
Transportation equipment | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life	5 years
Information technology major corporate systems | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life	7 years
Information technology standalone systems | Maximum
Property and equipment
Property, Plant and Equipment, Useful Life	5 years

XML

Basis of Presentation and Summary of Significant Accounting Policies - Goodwill and Other Intangible Assets, Leases and Advertising (Details) $ in Thousands	3 Months Ended
	Apr. 29, 2016 USD ($) item	Jan. 29, 2016 USD ($) item	Oct. 30, 2015 USD ($)
Goodwill and Other Intangible assets
Number of reporting units | item	2	2
Goodwill	$ 387,772	$ 387,772
Goodwill impairment loss	$ 0
Retail reporting unit
Goodwill and Other Intangible assets
Goodwill		375,200
Goodwill impairment loss			$ 120,000
Decrease in goodwill impairment		28,000
Goodwill impairment loss after preliminary analysis			$ 92,000
Wholesale reporting unit
Goodwill and Other Intangible assets
Goodwill		12,500
Trade name
Goodwill and Other Intangible assets
Indefinite-lived intangible asset impairment loss		$ 0
Fair value in excess of carrying value (as a percent)	12.00%

XML

Goodwill and Other Intangibles - Finite and Indefinite Lived Intangible Assets (Details) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
Indefinite lived intangible assets:
Goodwill Gross Carrying Amount	$ 479,745	$ 479,745
Goodwill Impairment Losses	(91,973)	(91,973)
Goodwill Net Carrying Amount	387,772	387,772
Indefinite Lived Assets Gross Carrying Amount	889,745	889,745
Indefinite Lived Assets Impairment Losses	(91,973)	(91,973)
Indefinite Lived Assets Net Carrying Amount	797,772	797,772
Finite lived intangible assets:
Gross Carrying Amount	68,543	68,543
Finite Lived Intangible Assets Impairment Losses	(1,136)	(1,136)
Accumulated Amortization	(25,639)	(24,165)
Net Carrying Amount	41,768	43,242
Total goodwill and other intangible assets, Gross Carrying Amount	958,288	958,288
Total goodwill and other intangible assets, Impairment Losses	(93,109)	(93,109)
Total goodwill and other intangible assets, accumulated amortization	(25,639)	(24,165)
Total goodwill and other intangible assets, Net Carrying Amount	839,540	841,014
Trademarks
Finite lived intangible assets:
Gross Carrying Amount	2,000	2,000
Finite Lived Intangible Assets Impairment Losses	(570)	(570)
Accumulated Amortization	(421)	(405)
Net Carrying Amount	1,009	1,025
Bargain Wholesale customer relationships
Finite lived intangible assets:
Gross Carrying Amount	20,000	20,000
Accumulated Amortization	(7,166)	(6,752)
Net Carrying Amount	12,834	13,248
Favorable leases
Finite lived intangible assets:
Gross Carrying Amount	46,543	46,543
Finite Lived Intangible Assets Impairment Losses	(566)	(566)
Accumulated Amortization	(18,052)	(17,008)
Net Carrying Amount	27,925	28,969
Trade name
Indefinite lived intangible assets:
Indefinite-Lived Intangible Assets (Excluding Goodwill), Total	$ 410,000	$ 410,000

XML

Goodwill and Other Intangibles - Unfavorable Leases (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Apr. 29, 2016	Jan. 29, 2016
Unfavorable leases
Remaining Amortization Life, minimum	1 year	1 year
Remaining Amortization Life, maximum	14 years	14 years
Gross Carrying Amount	$ 19,835	$ 19,835
Accumulated Amortization	(14,546)	(14,089)
Net Carrying Amount	$ 5,289	$ 5,746

XML

Property and Equipment, net (Details) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
Property and equipment
Total property and equipment	$ 787,102	$ 773,217
Less: accumulated depreciation and amortization	(246,949)	(230,647)
Property and equipment, net	540,153	542,570
Land
Property and equipment
Total property and equipment	170,871	170,871
Buildings
Property and equipment
Total property and equipment	111,205	111,205
Buildings improvements
Property and equipment
Total property and equipment	75,649	74,157
Leasehold improvements
Property and equipment
Total property and equipment	196,713	192,405
Fixtures and equipment
Property and equipment
Total property and equipment	200,891	194,671
Transportation equipment
Property and equipment
Total property and equipment	11,817	11,835
Construction in progress
Property and equipment
Total property and equipment	$ 19,956	$ 18,073

XML

Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 29, 2016	May. 01, 2015
Comprehensive Income
Net (loss) income	$ (25,194)	$ 1,171
Unrealized loss on interest rate cash flow hedge, net of tax effects of $0, and $(51) for the first quarter of each of fiscal 2017 and fiscal 2016, respectively	(214)	(76)
Reclassification adjustment, net of tax effects of $0 and $162 for the first quarter of each of fiscal 2017 and fiscal 2016, respectively	379	243
Other comprehensive income, net of tax	165	167
Comprehensive (loss) income	(25,029)	1,338
Tax effects of unrealized gains (losses) on interest rate cash flow hedge	0	(51)
Tax effect of reclassification adjustment	$ 0	$ 162

XML

Debt (Details) - USD ($) $ in Thousands							3 Months Ended		12 Months Ended
	Apr. 08, 2016	Aug. 24, 2015	Oct. 08, 2013	Apr. 04, 2012	Apr. 03, 2012	Jan. 13, 2012	Apr. 29, 2016	May. 01, 2015	Jan. 29, 2016	Apr. 07, 2016	Dec. 29, 2011
Debt
Deferred financing costs							$ 15,891		$ 12,461
Total debt							873,704		881,981
Less: current portion							6,138		6,138
Long-term debt, net of current portion							867,566		875,843
Debt Instruments
Loss on extinguishment							335
Significant components of interest expense
Amortization of deferred financing costs and OID							1,302	$ 1,146
Other interest expense							565	406
Interest expense							16,526	16,272
Long term debt
Debt
Deferred financing costs							10,829		11,545
ABL Facility
Debt
Debt							$ 40,000		47,800
Debt Instruments
Maximum borrowing capacity						$ 175,000
Increase in borrowing capacity available under certain circumstances						50,000
Commitment fee on unused commitments (as a percent)							0.50%
Amount outstanding							$ 40,000		47,800
Outstanding letters of credit							11,000		2,500
Amount available							56,500		90,900
Significant components of interest expense
Interest debt expense							555	521
ABL Facility | Non-current deferred financing costs
Debt
Deferred financing costs							$ 5,062		916
ABL Facility | Minimum
Debt Instruments
Inventory advance rate (as a percent)		90.00%
ABL Facility | Maximum
Debt Instruments
Inventory advance rate (as a percent)		92.50%
ABL Facility | Base rate
Debt Instruments
Applicable margin (as a percent)							2.00%
ABL Facility | LIBOR
Debt Instruments
Applicable margin (as a percent)							3.00%
ABL Facility Amended August 2015
Debt Instruments
Amount of increase (decrease) in available credit facility due to amendment		$ 10,000
Maximum borrowing capacity		185,000
Amendment fees		$ 500
ABL Facility Amended April 2016
Debt Instruments
Amount of increase (decrease) in available credit facility due to amendment	$ (25,000)
Maximum borrowing capacity	$ 160,000
Loss on extinguishment							$ 300
Additional debt issuance costs							4,700
Maturity period prior to First Lien Term Loan Facility maturity date	90 days
Maturity period prior to Senior Notes maturity date	90 days
Minimum period after the maturity date of the credit facility that other refinanced debt obligations maturity date must exceed	180 days
Decrease in applicable margin upon refinancing of debt (as a percent)	0.50%
Maximum borrowing capacity of letters of credit	$ 45,000									$ 50,000
ABL Facility Amended April 2016 | Revolving Credit Facility
Debt Instruments
Increase in borrowing capacity available under certain circumstances	$ 25,000									$ 50,000
ABL Facility Amended April 2016 | Base rate
Debt Instruments
Applicable margin (as a percent)	2.00%
ABL Facility Amended April 2016 | Eurocurrency loan
Debt Instruments
Applicable margin (as a percent)	3.00%
First Lien Term Loan Facility
Debt
Debt							594,533		595,726
Scheduled quarterly payments							1,535
Unamortized OID							$ 3,933		4,724
Debt Instruments
Amount borrowed						$ 525,000
Interest rate at the end of the period (as a percent)							4.50%
Percentage of excess cash flow to be used for prepayment of debt							50.00%
Step down percentage one of excess cash flow to be used for prepayment of debt							25.00%
Stepdown percentage two of excess cash flow to be used for prepayment of debt (as a percent)							0.00%
Excess cash flow payment required									0
Amount outstanding							$ 598,500
Scheduled quarterly payments as a percentage of original principal amount						0.25%
Significant components of interest expense
Interest debt expense							7,229	7,248
First Lien Term Loan Facility | Long term debt
Debt
Deferred financing costs							$ 4,037		4,387
First Lien Term Loan Facility | Base rate
Debt Instruments
Applicable margin (as a percent)						4.50%
First Lien Term Loan Facility | Federal funds rate
Debt Instruments
Applicable margin (as a percent)							0.50%
First Lien Term Loan Facility | One month adjusted Eurocurrency rate
Debt Instruments
Applicable margin (as a percent)							1.00%
First Lien Term Loan Facility | LIBOR
Debt Instruments
Applicable margin (as a percent)						5.50%
Interest rate, variable interest rate floor (as a percent)					1.50%
First Lien Term Loan Facility | Prime rate
Debt Instruments
Variable rate (as a percent)							3.50%
Eurocurrency loans | Eurocurrency loan
Debt Instruments
Variable rate at the end of the period (as a percent)							1.00%
Applicable margin at the end of the period (as a percent)							3.50%
Senior Notes
Debt
Debt							$ 250,000		250,000		$ 250,000
Debt Instruments
Interest rate (as a percent)											11.00%
Significant components of interest expense
Interest debt expense							6,875	$ 6,951
Senior Notes | Long term debt
Debt
Deferred financing costs							$ 6,792		$ 7,158
First Lien Term Loan Facility Amended April 2012
Debt Instruments
Refinancing costs				$ 11,200
First Lien Term Loan Facility Amended April 2012 | Base rate
Debt Instruments
Applicable margin (as a percent)				3.00%
First Lien Term Loan Facility Amended April 2012 | LIBOR
Debt Instruments
Applicable margin (as a percent)				4.00%
Interest rate, variable interest rate floor (as a percent)				1.25%
First Lien Term Loan Facility Amended October 2013
Debt
Scheduled quarterly payments			$ 1,500
Debt Instruments
Amount borrowed			100,000
Increase in borrowing capacity available under certain circumstances			$ 100,000
Percentage of positive consolidated net income to determine a restricted payment under terms of debt instruments			50.00%
Percentage of negative consolidated net income to determine a restricted payment under terms of debt instruments			100.00%
Amount used to determine dividend and other payments			$ 20,000
Scheduled quarterly payments as a percentage of original principal amount			0.25%
First Lien Term Loan Facility Amended October 2013 | Base rate
Debt Instruments
Applicable margin (as a percent)			2.50%
First Lien Term Loan Facility Amended October 2013 | LIBOR
Debt Instruments
Applicable margin (as a percent)			3.50%
Interest rate, variable interest rate floor (as a percent)			1.00%
99 Cents Only Stores Texas, Inc.
Debt Instruments
Ownership percentage in subsidiary							100.00%

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Derivative Financial Instruments (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 29, 2016	May. 01, 2015	Jan. 29, 2016	May. 31, 2012
Derivatives not designated as hedging instruments | Chief Executive Officer
Derivative Financial Instruments
Payment period	4 years
Derivatives not designated as hedging instruments | Maximum | Chief Executive Officer
Derivative Financial Instruments
Derivative liabilities	$ 5,000
Derivatives not designated as hedging instruments | Selling, general and administrative expenses
Recorded amounts included in the consolidated statements of comprehensive income (loss)
Loss recognized	869
Derivatives designated as cash flow hedging instruments | OCI
Recorded amounts included in the consolidated statements of comprehensive income (loss)
Loss related to effective portion of derivative recognized in OCI	214	$ 76
Derivatives designated as cash flow hedging instruments | Interest expense.
Recorded amounts included in the consolidated statements of comprehensive income (loss)
Loss related to effective portion of derivatives reclassified from AOCI to interest expense	379	243
(Loss) gain related to ineffective portion of derivative recognized in interest expense	$ 30	$ (46)
Interest Rate Swap | Derivatives designated as cash flow hedging instruments
Derivative Financial Instruments
Aggregate notional amount				$ 261,800
Effective fixed interest rate (as a percent)	1.36%
Applicable margin (as a percent)	3.50%
Interest Rate Swap | Derivatives designated as cash flow hedging instruments | other current liabilities
Fair Value
Derivative liabilities	$ 408		$ 569
Interest Rate Swap | Derivatives designated as cash flow hedging instruments | Accumulated other comprehensive (income) loss
Fair Value
Derivative liabilities			162
Derivative assets	(3)
Transition Payments | Derivatives not designated as hedging instruments | other current liabilities
Fair Value
Derivative liabilities	1,010		1,033
Transition Payments | Derivatives not designated as hedging instruments | other long-term liabilities
Fair Value
Derivative liabilities	$ 212		$ 172

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Fair Value of Financial Instruments - Fair Value Hierarchy (Details) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Transfers, Net [Abstract]
Transfer of assets from level 1 to 2	$ 0
Transfer of assets from level 2 to 1	0
Transfer of liabilities from level 1 to 2	0
Transfer of liabilities from level 2 to 1	0
Fair value measurements on a recurring basis
ASSETS
Other assets - assets that fund deferred compensation	735	$ 709
LIABILITIES
Other long-term liabilities - deferred compensation	735	709
Fair value measurements on a recurring basis | Interest Rate Swap
LIABILITIES
Other current liabilities	408	569
Fair value measurements on a recurring basis | Transition Payments
LIABILITIES
Other current liabilities	1,010	1,033
Other long-term liabilities	212	172
Fair value measurements on a recurring basis | Level 1
ASSETS
Other assets - assets that fund deferred compensation	735	709
LIABILITIES
Other long-term liabilities - deferred compensation	735	709
Fair value measurements on a recurring basis | Level 2 | Interest Rate Swap
LIABILITIES
Other current liabilities	408	569
Fair value measurements on a recurring basis | Level 3 | Transition Payments
LIABILITIES
Other current liabilities	1,010	1,033
Other long-term liabilities	$ 212	$ 172

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Fair Value of Financial Instruments - Change in level 3 investments (Details) $ in Thousands	3 Months Ended
	Apr. 29, 2016 USD ($)
Fair Value Measurements Using Significant Unobservable Inputs
Beginning balance	$ (1,205)
Total realized/unrealized gains (loss):
Included in earnings	(869)
Purchases, sales, issues and settlements:
Settlements	852
Ending balance	(1,222)
Total amount of unrealized losses for the period included in earnings relating to liabilities held at the reporting period	$ (570)

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Fair Value of Financial Instruments - Estimated Fair Value and Fair Value Adjustment (Details) - Level 1 - USD ($) $ in Millions	3 Months Ended
	Apr. 29, 2016	Jan. 29, 2016
Senior Notes
Fair value of financial instruments
Estimated fair value of debt instrument	$ 107.5	$ 103.1
Fair value adjustment to liability incurred or settled	(142.5)	(146.9)
First Lien Term Loan Facility
Fair value of financial instruments
Estimated fair value of debt instrument	439.9	393.0
Fair value adjustment to liability incurred or settled	$ (158.6)	$ (207.0)

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Stock-Based Compensation (Details) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended
	Oct. 30, 2015 shares	Oct. 02, 2015 item $ / shares shares	Apr. 29, 2016 USD ($) $ / shares shares	Jan. 29, 2016 $ / shares shares	May. 01, 2015 USD ($)	Apr. 29, 2016 $ / shares shares	Feb. 27, 2012 shares
Stock-Based Compensation
Stock-based compensation | $			$ 164		$ 634
2012 Plan
Number of Shares
Cancelled (in shares)			(445)
Stock awards available for grant under the 2012 Plan
Available for grant at the beginning of the period (in shares)			14,725
Cancelled (in shares)			445
Available for grant at the end of the period (in shares)			15,170	14,725
Class A Common Stock | 2012 Plan | Number Holdings, Inc.
Stock-based compensation
Number of shares authorized under the plan							85,000
Class B Common Stock | 2012 Plan | Number Holdings, Inc.
Stock-based compensation
Number of shares authorized under the plan							85,000
Employee Option Grants
Stock-based compensation
Options outstanding (in shares)			22,765			22,765
Expiration term			10 years
Number of Shares
Outstanding at the end of the period (in shares)			22,765
Employee Option Grants | Maximum
Stock-based compensation
Vesting period			5 years
Stock awards available for grant under the 2012 Plan
Vesting period			5 years
Employee Option Grants | Minimum
Stock-based compensation
Vesting period			4 years
Stock awards available for grant under the 2012 Plan
Vesting period			4 years
Employee Option Grants | Number Holdings, Inc.
Stock-based compensation
Options outstanding (in shares)			69,585	69,585		69,140
Granted (in shares)			0
Number of Shares
Options outstanding at the beginning of the period (in shares)			69,585
Granted (in shares)			0
Cancelled (in shares)			(445)
Outstanding at the end of the period (in shares)			69,140	69,585
Exercisable at the end of the period (in shares)						9,277
Weighted Average Exercise Price
Options outstanding at the beginning of the period (in dollars per share) | $ / shares			$ 910
Cancelled (in dollars per share) | $ / shares			1,170
Outstanding at the end of the period (in dollars per share) | $ / shares			$ 909	$ 910
Exercisable at the end of the period (in dollars per share) | $ / shares						$ 1,060
Weighted Average Remaining Contractual Life
Outstanding at the end of the period			8 years 10 months 24 days
Exercisable at the end of the period			6 years 6 months
Stock awards available for grant under the 2012 Plan
Granted (in shares)			0
Cancelled (in shares)			445
Employee Option Grants | Board Members
Stock-based compensation
Expiration term			10 years
Employee Option Grants | Board Members | Tranche One Member
Stock-based compensation
Vesting period			3 years
Stock awards available for grant under the 2012 Plan
Vesting period			3 years
Employee Option Grants | Board Members | Tranche Two Member
Stock-based compensation
Vesting period			4 years
Stock awards available for grant under the 2012 Plan
Vesting period			4 years
Employee Option Grants | Board Members | Tranche Three Member
Stock-based compensation
Vesting period			5 years
Stock awards available for grant under the 2012 Plan
Vesting period			5 years
Employee Option Grants | Chief Merchandising Officer Member | Options vesting on the achievement of performance
Stock-based compensation
Granted (in shares)				5,000
Number of Shares
Granted (in shares)				5,000
Stock awards available for grant under the 2012 Plan
Granted (in shares)				(5,000)
Employee Option Grants | Felicia Thornton
Stock-based compensation
Vesting percentage	50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage	50.00%
Employee Option Grants | Felicia Thornton | Options vesting on the achievement of performance
Stock-based compensation
Vesting percentage	50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage	50.00%
Employee Option Grants | Felicia Thornton | Number Holdings, Inc. | Time-based service options
Stock-based compensation
Vesting period	4 years
Stock awards available for grant under the 2012 Plan
Vesting period	4 years
Employee Option Grants | 2012 Plan | Number Holdings, Inc.
Stock-based compensation
Period of rights repurchases after the date of participant's termination of employment			180 days
Period of rights repurchases from the latest date that an option can be exercised			90 days
Employee Option Grants | 2012 Plan | Chief Executive Officer
Stock awards available for grant under the 2012 Plan
Number of grants issued | item		2
Employee Option Grants | Class A and Class B Common Stock | Management and Directors | Number Holdings, Inc.
Stock-based compensation
Granted (in shares)			69,140
Number of Shares
Granted (in shares)			69,140
Stock awards available for grant under the 2012 Plan
Granted (in shares)			(69,140)
Employee Option Grants | Class A and Class B Common Stock | Felicia Thornton | Number Holdings, Inc.
Stock-based compensation
Granted (in shares)	10,000
Number of Shares
Granted (in shares)	10,000
Stock awards available for grant under the 2012 Plan
Granted (in shares)	(10,000)
Employee Option Grants | Class A and Class B Common Stock | 2012 Plan | Chief Executive Officer | Exercise price 1
Stock-based compensation
Granted (in shares)		15,500
Number of Shares
Granted (in shares)		15,500
Stock awards available for grant under the 2012 Plan
Exercise price of options (in dollars per share) | $ / shares		$ 1,000
Granted (in shares)		(15,500)
Employee Option Grants | Class A and Class B Common Stock | 2012 Plan | Chief Executive Officer | Exercise price 2
Stock-based compensation
Granted (in shares)		15,500
Number of Shares
Granted (in shares)		15,500
Stock awards available for grant under the 2012 Plan
Granted (in shares)		(15,500)
Employee Option Grants | Class A and Class B Common Stock | 2012 Plan | Chief Executive Officer | Options vesting on the achievement of performance
Stock awards available for grant under the 2012 Plan
Exercise price of options (in dollars per share) | $ / shares						$ 1,000
Employee Option Grants | Class A and Class B Common Stock | 2012 Plan | Chief Executive Officer | Options vesting on the achievement of performance | Exercise price 1
Stock-based compensation
Vesting percentage		50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		50.00%
Employee Option Grants | Class A and Class B Common Stock | 2012 Plan | Chief Executive Officer | Options vesting on the achievement of performance | Exercise price 2
Stock-based compensation
Vesting percentage		50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		50.00%
Employee Option Grants | Class A and Class B Common Stock | 2012 Plan | Chief Executive Officer | Time-based service options | Exercise price 1
Stock-based compensation
Vesting period		4 years
Vesting percentage		50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		50.00%
Vesting period		4 years
Employee Option Grants | Class A and Class B Common Stock | 2012 Plan | Chief Executive Officer | Time-based service options | Exercise price 2
Stock-based compensation
Vesting period		4 years
Vesting percentage		50.00%
Stock awards available for grant under the 2012 Plan
Vesting percentage		50.00%
Vesting period		4 years
Employee Option Grants | Class A and Class B Common Stock | 2012 Plan | Chief Executive Officer | Minimum | Exercise price 2
Stock awards available for grant under the 2012 Plan
Exercise price of options (in dollars per share) | $ / shares		$ 750
Fair value base for exercise price adjustment (in dollars per share) | $ / shares		$ 1,000

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Related-Party Transactions (Details) - Ares and CPPIB - USD ($) $ in Millions	Jun. 06, 2016	Apr. 29, 2016	Jan. 29, 2016
First Lien Term Loan Facility Amended October 2013
Related-Party Transactions
Debt owned by affiliate	$ 131.7	$ 45.9
Senior Notes
Related-Party Transactions
Debt owned by affiliate		$ 102.1	$ 102.1

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 29, 2016	Jul. 31, 2015	May. 01, 2015	Jan. 29, 2016
Difference between the provision for income taxes and income taxes at the statutory federal income tax rate, tax rate reconciliation
Effective income tax rate (as a percent)	(0.30%)		111.90%
DEFERRED TAX ASSETS
Increase in provision for income tax		$ 31.7
Valuation Allowance				$ 81.8

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Commitments and Contingencies (Details) - USD ($)	Jun. 29, 2015	Apr. 29, 2016	Jan. 29, 2016
Commitments and contingencies
Estimated workers' compensation claims		$ 76,506,000	$ 76,389,000
Wage and Hour Matters | Shelley Pickett v. 99 Cents Only Stores | Minimum
Commitments and contingencies
Civil penalties per violation, per each pay period for each affected employee		100
Wage and Hour Matters | Shelley Pickett v. 99 Cents Only Stores | Maximum
Commitments and contingencies
Civil penalties per violation, per each pay period for each affected employee		200
Health Insurance
Commitments and contingencies
Self Insured Health Insurance Liability		400,000	400,000
Environmental Matters
Commitments and contingencies
Amount demanded by District Attorney	$ 187,500
California | Workers' Compensation
Commitments and contingencies
Estimated workers' compensation claims		76,400,000	76,300,000
Texas | Workers' Compensation | Maximum
Commitments and contingencies
Estimated workers' compensation claims		$ 100,000	$ 100,000

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Assets Held for Sale (Details) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
Assets held for sale
Carrying value of land held for sale	$ 2,308	$ 2,308
Rancho Mirage land and Bullhead land | Held for sale
Assets held for sale
Carrying value of land held for sale	$ 2,300	$ 2,300

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Other Accrued Expenses (Details) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
Other accrued expenses
Accrued interest	$ 13,731	$ 6,875
Accrued occupancy costs	11,167	11,433
Accrued legal reserves and fees	8,723	8,371
Accrued interest swap	408	569
Accrued California Redemption Value	2,461	2,225
Accrued transportation	5,550	3,508
Other	8,378	8,483
Total other accrued expenses	$ 50,418	$ 41,464

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New Authoritative Standards (Details) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016
New Authoritative Standards
Deferred financing costs, net	$ 5,062	$ 916
Long-term debt, net of current portion	867,566	875,843
Long-term deferred income tax liabilities	$ 163,045	163,045
ASU 2015-03 | Retrospective adjustment
New Authoritative Standards
Deferred financing costs, net		(11,500)
Long-term debt, net of current portion		(11,500)
ASU 2015-17 | Retrospective adjustment
New Authoritative Standards
Current deferred income tax assets		(16,600)
Long-term deferred income tax liabilities		$ (16,600)

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Financial Guarantees - Balance Sheets (Details) - USD ($) $ in Thousands	Apr. 29, 2016	Jan. 29, 2016	May. 01, 2015	Jan. 30, 2015	Dec. 29, 2011
Current Assets:
Cash	$ 2,376	$ 2,312	$ 2,383	$ 12,463
Accounts receivable, net	1,661	1,674
Income taxes receivable	2,222	3,665
Inventories, net	166,965	196,651
Assets held for sale	2,308	2,308
Other	15,337	18,603
Total current assets	190,869	225,213
Property and equipment, net	540,153	542,570
Deferred financing costs, net	5,062	916
Intangible assets, net	451,768	453,242
Goodwill	387,772	387,772
Deposits and other assets	8,273	7,319
Total assets	1,583,897	1,617,032
Current Liabilities:
Accounts payable	74,563	79,197
Payroll and payroll-related	20,060	18,421
Sales tax	6,501	13,314
Other accrued expenses	50,418	41,464
Workers' compensation	76,506	76,389
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligation	1,073	989
Total current liabilities	235,259	235,912
Long-term debt, net of current portion	867,566	875,843
Unfavorable lease commitments, net	5,289	5,746
Deferred rent	27,565	27,389
Deferred compensation liability	735	709
Capital and financing lease obligation, net of current portion	35,941	34,817
Deferred income taxes	163,045	163,045
Other liabilities	4,909	5,118
Total liabilities	1,340,309	1,348,579
Member's Equity
Member units	550,390	550,226
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(287,605)	(262,411)
Other comprehensive income (loss)	3	(162)
Total equity	243,588	268,453
Total liabilities and equity	1,583,897	1,617,032
Consolidating Adjustments
Current Assets:
Equity investments and advances to subsidiaries	(1,212,495)	(1,134,283)
Total assets	(1,212,495)	(1,134,283)
Current Liabilities:
Intercompany payable	(1,157,251)	(1,076,160)
Total current liabilities	(1,157,251)	(1,076,160)
Total liabilities	(1,157,251)	(1,076,160)
Member's Equity
Member units	(1)	(1)
Additional paid-in capital	(99,943)	(99,943)
Accumulated deficit	44,700	41,821
Total equity	(55,244)	(58,123)
Total liabilities and equity	(1,212,495)	(1,134,283)
Issuer
Current Assets:
Cash	1,285	1,266	1,367	11,333
Accounts receivable, net	1,583	1,568
Income taxes receivable	2,222	3,665
Inventories, net	146,057	171,691
Assets held for sale	2,308	2,308
Other	13,992	17,296
Total current assets	167,447	197,794
Property and equipment, net	483,513	484,764
Deferred financing costs, net	5,062	916
Equity investments and advances to subsidiaries	641,177	604,542
Intangible assets, net	449,839	451,245
Goodwill	387,772	387,772
Deposits and other assets	7,903	6,932
Total assets	2,142,713	2,133,965
Current Liabilities:
Accounts payable	70,458	74,313
Intercompany payable	570,237	528,767
Payroll and payroll-related	18,562	17,024
Sales tax	5,955	12,801
Other accrued expenses	47,391	38,714
Workers' compensation	76,431	76,314
Current portion of long-term debt	6,138	6,138
Current portion of capital and financing lease obligation	1,073	989
Total current liabilities	796,245	755,060
Long-term debt, net of current portion	867,566	875,843
Unfavorable lease commitments, net	5,260	5,702
Deferred rent	25,424	25,218
Deferred compensation liability	735	709
Capital and financing lease obligation, net of current portion	35,941	34,817
Deferred income taxes	163,045	163,045
Other liabilities	4,909	5,118
Total liabilities	1,899,125	1,865,512
Member's Equity
Member units	550,390	550,226
Investment in Number Holdings, Inc. preferred stock	(19,200)	(19,200)
Accumulated deficit	(287,605)	(262,411)
Other comprehensive income (loss)	3	(162)
Total equity	243,588	268,453
Total liabilities and equity	2,142,713	2,133,965
Issuer | Senior Notes | Predecessor
Supplemental financial information
Principal amount of debt instrument issued					$ 250,000
Subsidiary Guarantors
Current Assets:
Cash	1,061	1,009	945	1,097
Accounts receivable, net	78	106
Inventories, net	20,908	24,960
Other	1,345	1,294
Total current assets	23,392	27,369
Property and equipment, net	56,615	57,780
Equity investments and advances to subsidiaries	569,353	527,905
Intangible assets, net	1,929	1,997
Deposits and other assets	362	379
Total assets	651,651	615,430
Current Liabilities:
Accounts payable	4,105	4,884
Intercompany payable	584,480	545,012
Payroll and payroll-related	1,498	1,397
Sales tax	546	513
Other accrued expenses	2,985	2,718
Workers' compensation	75	75
Total current liabilities	593,689	554,599
Unfavorable lease commitments, net	29	44
Deferred rent	2,140	2,168
Total liabilities	595,858	556,811
Member's Equity
Additional paid-in capital	99,943	99,943
Accumulated deficit	(44,150)	(41,324)
Total equity	55,793	58,619
Total liabilities and equity	651,651	615,430
Non-Guarantor Subsidiaries
Current Assets:
Cash	30	37	$ 71	$ 33
Other		13
Total current assets	30	50
Property and equipment, net	25	26
Equity investments and advances to subsidiaries	1,965	1,836
Deposits and other assets	8	8
Total assets	2,028	1,920
Current Liabilities:
Intercompany payable	2,534	2,381
Other accrued expenses	42	32
Total current liabilities	2,576	2,413
Deferred rent	1	3
Total liabilities	2,577	2,416
Member's Equity
Member units	1	1
Accumulated deficit	(550)	(497)
Total equity	(549)	(496)
Total liabilities and equity	$ 2,028	$ 1,920

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Financial Guarantees - Statements of Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 29, 2016	May. 01, 2015
Net Sales:
Total sales	$ 512,929	$ 506,169
Cost of sales	363,962	349,546
Gross profit	148,967	156,623
Selling, general and administrative expenses	157,229	150,172
Operating (loss) income	(8,262)	6,451
Other (income) expense:
Interest income	(2)	(3)
Interest expense	16,526	16,272
Loss on extinguishment of debt	335
Total other expense, net	16,859	16,269
Loss before provision for income taxes	(25,121)	(9,818)
Provision (benefit) for income taxes	73	(10,989)
Net (loss) income	(25,194)	1,171
Comprehensive (loss) income	(25,029)	1,338
Consolidating Adjustments
Net Sales:
Total sales		(109)
Gross profit		(109)
Selling, general and administrative expenses		(109)
Other (income) expense:
Equity in loss (earnings) of subsidiaries	(2,879)	(1,692)
Total other expense, net	(2,879)	(1,692)
Loss before provision for income taxes	2,879	1,692
Net (loss) income	2,879	1,692
Comprehensive (loss) income	2,879	1,692
Issuer
Net Sales:
Total sales	469,222	462,042
Cost of sales	330,342	316,767
Gross profit	138,880	145,275
Selling, general and administrative expenses	144,263	137,132
Operating (loss) income	(5,383)	8,143
Other (income) expense:
Interest income	(2)	(3)
Interest expense	16,526	16,272
Loss on extinguishment of debt	335
Equity in loss (earnings) of subsidiaries	2,879	1,692
Total other expense, net	19,738	17,961
Loss before provision for income taxes	(25,121)	(9,818)
Provision (benefit) for income taxes	73	(10,989)
Net (loss) income	(25,194)	1,171
Comprehensive (loss) income	(25,029)	1,338
Subsidiary Guarantors
Net Sales:
Total sales	43,707	44,127
Cost of sales	33,620	32,779
Gross profit	10,087	11,348
Selling, general and administrative expenses	12,913	13,045
Operating (loss) income	(2,826)	(1,697)
Other (income) expense:
Loss before provision for income taxes	(2,826)	(1,697)
Net (loss) income	(2,826)	(1,697)
Comprehensive (loss) income	(2,826)	(1,697)
Non-Guarantor Subsidiaries
Net Sales:
Total sales		109
Gross profit		109
Selling, general and administrative expenses	53	104
Operating (loss) income	(53)	5
Other (income) expense:
Loss before provision for income taxes	(53)	5
Net (loss) income	(53)	5
Comprehensive (loss) income	$ (53)	$ 5

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Financial Guarantees - Cash Flows (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 29, 2016	May. 01, 2015
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$ 25,570	$ 20,145
Cash flows from investing activities:
Purchases of property and equipment	(13,373)	(25,642)
Proceeds from sales of fixed assets	4	1,437
Net cash used in investing activities	(13,369)	(24,205)
Cash flows from financing activities:
Payments of long-term debt	(1,535)	(1,535)
Proceeds under revolving credit facility	64,800	126,300
Payments under revolving credit facility	(72,600)	(130,400)
Payments of debt issuance costs	(4,594)
Proceeds from financing lease obligations	2,031
Payments of capital and financing lease obligations	(239)	(23)
Payments to repurchase stock options of Number Holdings, Inc.		(362)
Net cash used in financing activities	(12,137)	(6,020)
Net increase (decrease) in cash	64	(10,080)
Cash - beginning of period	2,312	12,463
Cash - end of period	2,376	2,383
Issuer
Cash flows from operating activities:
Net cash provided by (used in) operating activities	24,784	21,245
Cash flows from investing activities:
Purchases of property and equipment	(12,632)	(25,200)
Proceeds from sales of fixed assets	4	9
Net cash used in investing activities	(12,628)	(25,191)
Cash flows from financing activities:
Payments of long-term debt	(1,535)	(1,535)
Proceeds under revolving credit facility	64,800	126,300
Payments under revolving credit facility	(72,600)	(130,400)
Payments of debt issuance costs	(4,594)
Proceeds from financing lease obligations	2,031
Payments of capital and financing lease obligations	(239)	(23)
Payments to repurchase stock options of Number Holdings, Inc.		(362)
Net cash used in financing activities	(12,137)	(6,020)
Net increase (decrease) in cash	19	(9,966)
Cash - beginning of period	1,266	11,333
Cash - end of period	1,285	1,367
Subsidiary Guarantors
Cash flows from operating activities:
Net cash provided by (used in) operating activities	792	(1,140)
Cash flows from investing activities:
Purchases of property and equipment	(740)	(440)
Proceeds from sales of fixed assets		1,428
Net cash used in investing activities	(740)	988
Cash flows from financing activities:
Net increase (decrease) in cash	52	(152)
Cash - beginning of period	1,009	1,097
Cash - end of period	1,061	945
Non-Guarantor Subsidiaries
Cash flows from operating activities:
Net cash provided by (used in) operating activities	(6)	40
Cash flows from investing activities:
Purchases of property and equipment	(1)	(2)
Net cash used in investing activities	(1)	(2)
Cash flows from financing activities:
Net increase (decrease) in cash	(7)	38
Cash - beginning of period	37	33
Cash - end of period	$ 30	$ 71