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Basis of Presentation
9 Months Ended
Oct. 31, 2015
Accounting Policies [Abstract]  
Basis of Presentation
BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (“fiscal 2014”) filed with the SEC. The Condensed Consolidated Financial Statements include the accounts of Pacific Sunwear of California, Inc. and its wholly-owned subsidiaries (Pacific Sunwear Stores Corp., a California corporation (“PacSun Stores”) and Miraloma Borrower Corporation, a Delaware corporation (“Miraloma”)). All intercompany transactions have been eliminated in consolidation.
In the opinion of management, all adjustments consisting only of normal recurring entries necessary for a fair presentation have been included. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements as well as the reported revenues and expenses during the reporting period. Actual results could differ from these estimates. The results of operations for the Company’s fiscal quarter ended and first three quarters ended October 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending January 30, 2016 (“fiscal 2015”).
Liquidity
During the first three quarters ended October 31, 2015, the Company's operating results included declining comparable store net sales and gross margins, losses from operations of $13 million, as compared to losses of $8 million for the same period a year ago, and cash flows used in operations of $33 million, as compared to $4 million for the same period a year ago. As of October 31, 2015, the Company had cash and cash equivalents of $11 million and borrowings of $35 million under its $100 million revolving credit facility (the "Wells Credit Facility") with Wells Fargo Bank, N.A. (“Wells Fargo”), which is scheduled to mature on December 7, 2016. During the fourth quarter of fiscal 2015, the Company expects to borrow up to an additional $35 million under the Wells Credit Facility primarily to fund inventory purchases for the peak holiday selling season. The Company currently anticipates that a substantial portion of these borrowings will be repaid prior to the end of the fourth quarter. The Company also has a $60 million term loan with an affiliate of Golden Gate Capital (“Golden Gate”), which is scheduled to mature on December 7, 2016 (the “Term Loan”). Upon maturity of the Term Loan, $27 million of payable-in-kind (“PIK”) interest also will become due and payable. Accordingly, in light of the upcoming maturity of the Term Loan and the Wells Credit Facility, the Company is considering various alternatives regarding the Term Loan, including discussions with Golden Gate. As part of such evaluation, the Company is considering the sales and leasebacks of its corporate headquarters in Anaheim, California and the distribution center in Olathe, Kansas, as a source of potential additional liquidity. There can be no assurance that any contemplated alternatives can be achieved.
The Company has historically financed its operations primarily from internally generated cash flow and with short- and long-term borrowings. In addition, the Company recently implemented an annual cost reduction program in the third quarter of fiscal 2015 which the Company believes will yield approximately $15 million of annual cost savings during fiscal 2016 (the “Cost Reduction Program”). The Cost Reduction Program is planned to be principally achieved through more streamlined in-store execution, reductions in selling, general and administrative expenses and capital expenditures, and through the restructuring of certain positions and departments at the corporate headquarters. Based on current forecasts, the Company believes that its cash flows from operations, together with its working capital, cash reserves, availability under the Wells Credit Facility and expected benefits associated with the Cost Reduction Program, will be sufficient to fund the Company's operating and capital expenditure needs through December 7, 2016, the scheduled maturity date of the Term Loan and the Wells Credit Facility. However, if the Company's comparable store net sales and gross margins continue to decline, and if the Company continues to experience negative operating results, the Company may deplete all of its cash reserves and be required to access most, if not all, of the Wells Credit Facility, and may be restricted from additional borrowings if it fails to comply with the minimum excess availability covenant in the Wells Credit Facility (see Note 7). The Company also could potentially require other sources of financing to fund its operations and to refinance the Term Loan, which sources might not be available on a timely basis, or at all. Should the Company be unable to execute its plans, remain in compliance with the Term Loan or the Wells Credit Facility or obtain additional or alternative financing, it may be unable to repay the Term Loan and continue as a going concern for a reasonable period of time. The accompanying unaudited condensed consolidated financial statements do not include any adjustment that might result from the outcome of these uncertainties.