Capmark Financial Group Inc. Announces Unaudited Consolidated Fourth Quarter and Full Year 2014 Earnings Results

HORSHAM, Pa.--()--Capmark Financial Group Inc. (OTCMKTS: CPMK) today reported unaudited consolidated financial results that include its wholly-owned subsidiary, Bluestem Brands, Inc. and its subsidiaries, for Capmark’s and Bluestem’s 13- and 52-week periods ended January 30, 2015 (we refer to the 13-week periods ended January 30, 2015 and January 31, 2014 in this release as respectively the “fourth quarter” of fiscal 2014 and fiscal 2013). Bluestem, which merged with Capmark on November 7, 2014, is a multi-brand, online retailer of name-brand and private label general merchandise serving low- to middle-income consumers nationwide.

Capmark delivered strong consolidated results in fiscal 2014, with full year diluted EPS of $0.99, up 1% over fiscal 2013. On a stand-alone basis, Bluestem delivered a record year in fiscal 2014, with net sales of $1.07 billion and adjusted pro-forma EBITDA of $98.7 million, year-over-year increases of 28% and 50%, respectively. Finally, we’re quite pleased with our progress integrating Bluestem into Capmark since the November 7th acquisition and we look forward to capitalizing on the combined strengths of both organizations in 2015.” said Steve Nave, Capmark’s President and Chief Executive Officer.

2014 Capmark Consolidated Highlights

  • Net income for the fourth quarter of fiscal 2014 was $58.7 million, an increase of over 300% compared to $12.9 million for the fourth quarter of fiscal 2013. Diluted earnings per share were $0.43, compared to $0.19 for fiscal 2013.
  • Net income for fiscal year 2014 was $103.0 million, an increase of 23% compared to net income of $83.7 million for fiscal year 2013. Diluted earnings per share were $0.99, compared to $0.98 for fiscal year 2013.
  • Cash and cash equivalents were $254.2 million as of January 30, 2015, compared to $169.0 million as of January 31, 2014.

2014 Bluestem Stand-alone Highlights

  • Net sales for the fourth quarter of fiscal 2014 were $456.5 million, a 22% increase over net sales of $373.7 million for the same period in fiscal 2013. Net sales for fiscal year 2014 were $1,071.5 million, a 28% increase over net sales of $838.9 million for fiscal year 2013.
  • Net loss for the fourth quarter of fiscal 2014 was $8.6 million, compared to a net income of $44.8 million for the fourth quarter of fiscal 2013. Net income for fiscal year 2014 was $1.0 million, compared to a net loss of $126.8 million for fiscal year 2013.
  • Adjusted pro forma EBITDA was $56.0 million in the fourth quarter of fiscal 2014, a 1% increase over $55.5 million for the fourth quarter of fiscal 2013. Adjusted pro forma EBITDA for fiscal year 2014 was $98.7 million, a 50% increase over $65.7 million for fiscal year 2013.
  • Revolving new customer credit accounts were 288 thousand, a 7% increase over 270 thousand in the fourth quarter of fiscal 2013. For the fiscal year 2014, revolving new customer credit accounts were 731 thousand, a 14% increase over 643 thousand in fiscal 2013.
  • FreshStart new customer credit accounts were 123 thousand, a 47% increase over 84 thousand in the fourth quarter of fiscal 2013. For the fiscal year 2014, FreshStart new customer credit accounts were 270 thousand, a 20% increase over 225 thousand in fiscal 2013.
  • Active accounts increased to 1,593 thousand in fiscal year 2014, a 12% increase over fiscal 2013.

All financial information included in this release is unaudited. Information for Capmark is presented on a consolidated basis, including Bluestem beginning November 7, 2014. Information for Capmark’s wholly-owned subsidiary, Bluestem, is also presented on a stand-alone basis. The acquisition of Bluestem was accounted for as a business combination. By the application of “push down” accounting, Bluestem’s assets and liabilities were adjusted to fair value on November 7, 2014.

Adjusted EBITDA and Adjusted pro forma EBITDA are defined in the accompanying financial information of Bluestem. Please see, “Capmark Financial Group Inc. and Bluestem Brands, Inc. Financial Information-Overview and Basis of Presentation” below and accompanying disclosures for a more detailed explanation of the foregoing matters.

Earnings Teleconference Information

Capmark will discuss Capmark’s and Bluestem’s 13- and 52-week periods ended January 30, 2015 financial results during a teleconference today, April 28, 2015, at 5:00 PM ET. The conference call can be accessed at (888) 576-4387 or (719) 457-2083 (International). The call will also be broadcast simultaneously at http://www.capmark.com/investor-relations.

Following completion of the call, a recorded replay of the webcast will be available on Capmark’s website. To listen to the telephone replay, call toll-free (877) 870-5176 or (858) 384-5517 (International), replay pin # 7898079. The telephone replay will be available at 8:00 PM ET April 28, 2015. Additional investor information can be accessed at http://www.capmark.com/investor-relations.

Annual Meeting of Stockholders

Capmark will hold its Annual Meeting of Stockholders on Wednesday, June 17, 2015, at the offices of Faegre Baker Daniels LLP, 2200 Wells Fargo Center, 90 South Seventh St., Minneapolis, Minnnesota, at 8:30AM CT. The board of directors has fixed April 30, 2015 as the record date for holders of capital stock entitled to notice of and to vote at the meeting.

About Capmark

Capmark Financial Group Inc. is a holding company whose businesses include Bluestem Brands, Inc., a multi-brand, online retailer of a broad selection of name-brand and private label general merchandise serving low- to middle-income consumers nationwide. Bluestem operates Fingerhut, Gettington.com and PayCheck Direct brands. Complementing each brand is a large selection of merchandise with a variety of payment options to provide customers with the flexibility of paying over time. Capmark is headquartered in Horsham, PA. For additional information visit Capmark’s website at www.capmark.com.

Forward Looking Statements

This release contains statements that are “forward-looking statements”. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. All statements contained herein that are not clearly historical in nature are forward-looking. In some cases, you can identify these statements by use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “intend,” “could” or similar expressions. In particular, statements regarding Capmark’s plans, strategies, prospects and expectations regarding its business are forward-looking statements. You should be aware that these statements and any other forward-looking statements in this document only reflect Capmark’s beliefs, assumptions and expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond Capmark’s control and may cause actual results and performance to differ materially from Capmark’s expectations.

Forward-looking statements are based on Capmark’s beliefs, assumptions and expectations of its future performance and actions, taking into account all information currently available to Capmark. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to Capmark or are within its control. If a change occurs, Capmark’s plans, business, financial condition, and liquidity may vary materially from those expressed in its forward-looking statements. Important factors that could cause the actual results to be materially different from Capmark’s expectations include the risks and uncertainties set forth in “Risk Factors” in Capmark’s Report as of and for the years ended December 31, 2013 and 2012.

Accordingly, you should not place undue reliance on the forward-looking statements contained in this release. These forward-looking statements are made only as of the date of this release. Capmark undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

CAPMARK FINANCIAL GROUP INC.
BLUESTEM BRANDS, INC.
FINANCIAL INFORMATION
13- and 52-weeks ended January 30, 2015 and January 31, 2014

Overview and Basis of Presentation

The accompanying financial information for Capmark is presented on a consolidated basis, including Bluestem beginning from November 7, 2014. The accompanying financial information for Capmark’s wholly-owned subsidiary, Bluestem, is presented on a stand-alone basis. All such information is unaudited.

Capmark Consolidated Financial Information

On November 7, 2014, Capmark acquired Bluestem. As a result, the financial results of Bluestem from that date through January 30, 2015 were included in the Capmark consolidated results. The acquisition of Bluestem was accounted for as a business combination.

In December 2014, Capmark changed its fiscal year from December 31 to the Friday closest to January 31 of the following year to conform to the fiscal year of Bluestem. Bluestem operates on a fiscal calendar widely used by the retail industry that results in fiscal years consisting of a 52- or 53-week period ending on the Friday closest to January 31 of the following year. The previously audited results for Capmark for the year ended December 31, 2013 were restated for the new fiscal year.

To supplement the historical financial data derived from Capmark’s consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles, or GAAP, this release uses, non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share of Capmark, as non-GAAP performance measures. These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. Please see, “Capmark Financial Group Inc.-Non-GAAP Financial Measures” below for further important information concerning these non-GAAP measures.

Bluestem Standalone Financial Information

As previously discussed, the acquisition of Bluestem was accounted for as a business combination. By the application of “push down” accounting, Bluestem’s assets and liabilities were adjusted to fair value on November 7, 2014. The accompanying Bluestem financial results are presented as “Predecessor” or “Successor” to indicate the period preceding the acquisition or the period succeeding the acquisition, respectively.

The financial information in this release includes summary Bluestem consolidated adjusted pro forma EBITDA data, assuming the receivable sales transaction that we closed with Santander Consumer USA in April 2013 was in effect and fully transitioned at the beginning of all periods presented. This information has been derived from internally prepared pro forma data, and are presented for informational purposes only and do not purport to represent what Bluestem’s consolidated financial position actually would have been had the events so described occurred on the dates indicated or to project its consolidated financial position as of any future date. This pro forma data does not relate in any way to or depict the effects in any way of the merger of Capmark and Bluestem.

To supplement the historical financial data derived from Bluestem’s consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting standards, or GAAP, this release uses, in addition to the above referenced adjusted pro forma EBITDA data of Bluestem, contribution margin, net (loss) income before loss from derivatives in our own equity and adjusted EBITDA, as non-GAAP performance measures. These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. Please see, “Bluestem Brands, Inc.-Non-GAAP Financial Measures” below for further important information concerning these non-GAAP measures.

 
 
CAPMARK FINANCIAL GROUP INC.

Condensed Consolidated Balance Sheets

(unaudited — in thousands)
         
 
January 30, 2015 January 31, 2014
ASSETS
Current assets:
Cash and cash equivalents $ 254,207 $ 169,006
Restricted cash 13,586 11,756
Customer accounts receivable, net of allowance of $10,457 40,928 -
Commercial real estate accounts and other receivables 19,270 4,738
Retail merchandise inventories 96,431 -
Other current assets 34,999 6,828
Current assets of discontinued operations   -   85,325
Total current assets 459,421 277,653
Loans held for sale 78,080 103,716
Equity investments 114,736 176,801
Property and equipment, net 49,755 -
Intangibles - net 377,892 -
Goodwill 201,642 -
Other assets 26,474 42,625
Other assets of discontinued operations   -   48,574
Total Assets $ 1,308,000 $ 649,369
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 82,037 $ 8
Accrued costs and other liabilities 92,823 17,127
Short-term debt 19,116 -
Current liabilities of discontinued operations   -   3,636
Total current liabilities 193,976 20,771
Long-term debt 359,484 107,274
Deferred income taxes 79,948 -
Other long-term liabilities 20,037 41,444
Other liabilities of discontinued operations   -   73,784
Total liabilities   653,445   243,273
 
Stockholders' Equity:
Series A participating convertible preferred stock 4,856 -
Common stock 1,364 100
Additional paid-in capital 356,697 189,970
Retained earnings 290,774 181,922
Accumulated other comprehensive income (loss), net of tax   864   1,601
Total Capmark Financial Group Inc. stockholders’ equity   654,555   373,593
Noncontrolling interest   -   32,503
Total Equity   654,555   406,096
Total Liabilities and Stockholders' Equity $ 1,308,000 $ 649,369
 
 
CAPMARK FINANCIAL GROUP INC.

Consolidated Statement of Comprehensive Income

(unaudited — in thousands, except share data)
                   
13 Weeks Ended 52 Weeks Ended
January 30, 2015 January 31, 2014 January 30, 2015 January 31, 2014
Net sales and revenue
Net retail sales $ 432,392 $ - $ 432,392 $ -
Commercial real estate revenue
Net interest income 1,734 3,462 6,609 23,255
Net gains on investments and real estate 33 176 15,978 78,794
Other noninterest income   8,295     23,209     23,505     49,848  
Total net sales and revenue   442,454     26,847     478,484     151,897  
Costs and expenses
Retail cost of goods sold 256,885 - 256,885 -
Retail sales and marketing expenses 69,128 - 69,128 -
Retail net credit expense (income) 18,011 - 18,011 -
Commercial real estate operating expenses 833 1,750 4,901 18,583
General and administrative expenses 64,837 7,611 85,289 28,830
Amortization and depreciation not included in retail cost of goods sold 21,573 366 21,627 737
Loss from derivatives in our own equity   15,353     -     15,353     -  
Total costs and expenses 446,620 9,727 471,194 48,150
 
Operating Income (4,166 ) 17,120 7,290 103,747
 
Retail interest expense   7,091     -     7,091     -  
Income from continuing operations before income taxes (11,257 ) 17,120 199 103,747
Income tax benefit   69,969     1,233     69,770     869  
Income from continuing operations after income taxes 58,712 18,353 69,969 104,616
Income (loss) from discontinued operations, net of tax   -     (5,436 )   33,037     (20,900 )
Net income 58,712 12,917 103,006 83,716
Plus: Net loss attributable to noncontrolling interests   -     5,823     5,930     14,185  
Net income attributable to Capmark Financial Group Inc.   58,712     18,740     108,936     97,901  
 
Other comprehensive income (loss)
Net change in unrealized gains and (losses) on investment securities 54 (789 ) (737 ) (1,248 )
Net foreign currency translation   -     9,141     -     8,964  
Other comprehensive income (loss)   54     8,352     (737 )   7,716  
Comprehensive income attributable to Capmark Financial Group Inc $ 58,766   $ 27,092   $ 108,199   $ 105,617  
 
Basic and Diluted Earnings Per Share - Common Stockholders
Basic earnings per share - continuing operations $ 0.43 $ 0.24 $ 0.69 $ 1.19
Diluted earnings per share - continuing operations $ 0.43 $ 0.24 $ 0.69 $ 1.19
Basic earnings per share attributable to Capmark Financial Group Inc. $ 0.43 $ 0.19 $ 1.00 $ 0.98
Diluted earnings per share attributable to Capmark Financial Group Inc. $ 0.43 $ 0.19 $ 0.99 $ 0.98
Basic weighted average shares outstanding 133,657,808 99,734,703 108,277,257 99,734,703
Diluted weighted average share outstanding 135,124,471 99,787,071 109,335,400 99,787,071
 
 
CAPMARK FINANCIAL GROUP INC.

Consolidated Statement of Changes in Stockholders’ Equity

(unaudited — in thousands, except share data)
                                   
Capmark Financial Group, Inc. Stockholders
Accumulated
Series A Convertible Additional Other Total
Preferred Stock Common Stock Paid-In Retained Comprehensive Noncontrolling Stockholders’
Shares     Amount Shares     Amount Capital Earnings Income Interest Equity
BALANCE — February 1, 2013 - $ - 100,242,722 $ 100 $ 1,240,985 $ 84,021 $ (6,115 ) $ 60,204 1,379,195
Net income (loss) 97,901 $ (14,185 ) 83,716
Total other comprehensive income net of tax 7,716 7,716
Stock-based compensation 1,801 1,801
Treasury shares retired (60,303 ) (267 ) (267 )
Stockholder distributions (1,052,549 ) (1,052,549 )

Other (includes impact from sale of discontinued operations assets)

(13,516 ) (13,516 )
                 
BALANCE — January 31, 2014 - $ -   100,182,419   $ 100 $ 189,970   $ 181,922   $ 1,601   $ 32,503   $ 406,096  
 
Net income 108,936 (5,930 ) 103,006
Total other comprehensive (loss) net of tax (737 ) (737 )
Common stock par value adjustment 902 (902 ) -
Issuance of preferred stock 1,000 5,000 5,000

Beneficial conversion feature associated with preferred stock at issuance

(228 ) 228 -
Issuance of common stock 2,081,357 21 8,317 8,338
Issuance of restricted common stock 249,623 2 2
Exercise of common stock warrants 33,861,194 339 135,311 135,650

Deemed dividend from beneficial conversion feature associated with preferred stock

84 (84 ) -
Stock-based compensation 23,773 23,773

Other (includes impact from sale of discontinued operations assets)

(26,573 ) (26,573 )
                 
BALANCE — January 30, 2015 1,000 $ 4,856   136,374,593   $ 1,364 $ 356,697   $ 290,774   $ 864   $ -   $ 654,555  
 
 
CAPMARK FINANCIAL GROUP INC.
Consolidated Statement of Cash Flows
(unaudited — in thousands)
                   
13 Weeks Ended 52 Weeks Ended
January 30, 2015 January 31,2014 January 30, 2015 January 31,2014
Operating Activities of Continuing Operations
Net income $ 58,712 $ 12,917 $ 103,006 $ 83,716
Net income (loss) from discontinued operations   -     (5,436 )   33,037     (20,900 )
Net income from continuing operations 58,712 18,353 69,969 104,616

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities of continuing operations:

Benefit for deferred income taxes (48,778 ) - (48,047 ) -
Uncertain tax positions (18,699 ) - (18,699 ) -
Net gains 27 (4,022 ) (17,722 ) (99,585 )
Equity in net gains of investees and cash return on investment (6,797 ) (15,142 ) (11,330 ) (20,527 )
Amortization and depreciation expense 21,831 114 21,885 457
Net accretion of fresh start accounting adjustment - - - (14,414 )
Loss from derivatives in our own equity 15,353 - 15,353 -
Provision for doubtful accounts 10,510 - 10,510 -
Provision for retail merchandise returns 11,455 - 11,455 -
Stock-based compensation expense 21,809 600 23,773 1,801
Other, net 12,184 166 12,218 857
Net change in assets and liabilities which provided (used) cash: - -
Customer account and other receivables, net (40,162 ) 23,973 (35,297 ) 9,796
Retail merchandise inventories 78,895 - 78,895 -
Other assets 19,833 (124 ) 21,477 5,918
Accounts payable and other liabilities (57,975 ) (8,466 ) (61,671 ) (54,777 )
Proceeds from sales of/payments from loans held for sale   4,996     200,060     26,281     469,729  
Net cash provided by operating activities of continuing operations   83,194     215,512     99,050     403,871  
 
Investing Activities of Continuing Operations
Net decrease in restricted cash 7,761 38,225 12,331 63,299
Proceeds from sales of investment securities classified as available for sale - 3,589 - 17,832
Proceeds from repayments of investment securities classified as available for sale - - 15,972 32,059
Proceeds from sales of real estate investments - - - 181,419
Proceeds from sales of/capital distributions from equity investments 13,307 19,216 73,105 71,967
Purchases of investment securities classified as available for sale - - - (11,027 )
Purchase of customer accounts receivable (430,600 ) - (430,600 ) -
Proceeds from sale of customer accounts receivable 430,949 - 430,949 -
Acquisition of Bluestem Brands, Inc. net of cash on hand (509,796 ) - (509,796 ) -
Net (purchase) disposition of property and equipment   (5,349 )   124     (688 )   1,787  
Net cash (used in) provided by investing activities of continuing operations   (493,728 )   61,154     (408,727 )   357,336  
 
Financing Activities of Continuing Operations
Repayments of debt (6,739 ) (61,526 ) (25,961 ) (115,047 )
Borrowings on debt, net of financing fees 281,064 - 281,064 -
Repayments of deposit liabilities - - - (1,001,206 )
Borrowings on revolving credit facilities 180,287 - 180,287 -
Repayments on revolving credit facilities (182,676 ) - (182,676 ) -
Settlement of Bluestem Brands Selling Stockholders' acquisition-related liabilities (66,362 ) - (66,362 ) -
Proceeds from issuance of preferred stock - - 5,000 -
Proceeds from issuance of common stock 143,988 - 143,988 -
Distributions to stockholders - (185,449 ) - (1,052,549 )
Other financing activities, net   -     (272 )   -     (9,954 )
Net cash provided by (used in) financing activities of continuing operations   349,562     (247,247 )   335,340     (2,178,756 )
Effect of Foreign Exchange Rates on Cash   (242 )   (286 )   (297 )   (593 )
Discontinued Operations
Net cash provided by (used in) operating activities of discontinued operations - 1,801 (6,313 ) (5,539 )
Net cash provided by (used in) investing activities of discontinued operations - (1,740 ) 65,710 (7,496 )
Net cash used in financing activities of discontinued operations   -     -     -     (1,823 )
Net cash provided by (used in) discontinued operations   -     61     59,397     (14,858 )
Net Increase (Decrease) in Cash and Cash Equivalents   (61,214 )   29,194     84,763     (1,433,000 )
Cash and Cash Equivalents, Beginning of Period   315,421     140,250     169,444     1,602,444  
Cash and Cash Equivalents, End of Period $ 254,207   $ 169,444   $ 254,207   $ 169,444  
 
 
CAPMARK FINANCIAL GROUP INC.

Non-GAAP Financial Measures

(unaudited — in thousands)
                   
To supplement the consolidated financial statements of Capmark Financial Group, Inc. and its subsidiaries which are presented in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, we use the following measures that are not in accordance with, or an alternative to, measures prepared in accordance with GAAP (non-GAAP measures):
 
Non-GAAP operating income, as we present it, represents operating income before amortization of acquired intangible assets, stock-based compensation expense, losses on derivatives in our own equity, costs related to acquisitions and costs related to the Centerbridge Investment Agreement.
 
Non-GAAP net income, as we present it, represents net income attributable to Capmark Financial Group, Inc. before amortization of acquired intangible assets, stock-based compensation expense, losses on derivatives in our own equity, costs related to acquisitions, costs related to the Centerbridge Investment Agreement and deferred tax valuation allowance and recognized uncertain tax positions.
 
Non-GAAP diluted earnings per share, as we present it, represents diluted earnings per share before amortization of acquired intangible assets, stock-based compensation expense, losses on derivatives in our own equity, costs related to acquisitions, costs related to the Centerbridge Investment Agreement and deferred tax valuation allowance and recognized uncertain tax positions.
 
We provide these measures because we believe they are useful to investors in evaluating our operating performance compared to other companies in our industry. As non-GAAP measures, they have limitations in that they do not reflect all of the amounts associated with Capmark’s results of operations as determined in accordance with GAAP and are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures should be considered along with the GAAP financial presentation and should not be considered in isolation or as a substitute for results reported in accordance with GAAP. In addition, our calculations of non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share may not be comparable to the calculations of such measures by other companies.
13 Weeks Ended 52 Weeks Ended

January 30, 2015

January 31,2014 January 30, 2015 January 31,2014
 
GAAP Operating income $ (4,166 ) $ 17,120 $ 7,290 $ 103,747
Adjustments:
Amortization of acquired intangible assets 18,300 - 18,300 -
Stock-based compensation expense 21,809 600 23,773 1,801
Losses on derivatives in our own equity 15,353 - 15,353 -
Costs related to acquisitions 8,533 - 9,926 -
Costs related to Centerbridge Investment Agreement   70     199     5,666     199  
Non-GAAP operating income $ 59,899   $ 17,919   $ 80,308   $ 105,747  
 
 
GAAP net income attributable to Capmark Financial Group, Inc. $ 58,712 $ 18,740 $ 108,936 $ 97,901
Adjustments:
Amortization of acquired intangible assets 18,300 - 18,300 -
Stock-based compensation expense 21,809 600 23,773 1,801
Losses on derivatives in our own equity 15,353 - 15,353 -
Costs related to acquisitions 8,533 - 9,926 -
Costs related to Centerbridge Investment Agreement 70 199 5,666 199
Tax effect of adjustments (1,074 ) (25 ) (1,225 ) (61 )
Deferred tax valuation allowance and recognized uncertain tax positions   (84,317 )   -     (90,529 )   -  
Non-GAAP net income attributable to Capmark Financial Group, Inc. $ 37,386   $ 19,514   $ 90,200   $ 99,840  
 
 
GAAP diluted earnings per share available to common stockholders $ 0.43 $ 0.19 $ 0.99 $ 0.98
Adjustments:
Amortization of acquired intangible assets 0.14 - 0.17 -
Stock-based compensation expense 0.16 0.01 0.22 0.02
Losses on derivatives in our own equity 0.11 - 0.14 -
Costs related to acquisitions 0.06 - 0.09 -
Costs related to Centerbridge Investment Agreement 0.00 0.00 0.05 -
Tax effect of adjustments (0.01 ) (0.00 ) (0.01 ) -
Deferred tax valuation allowance and recognized uncertain tax positions   (0.62 )   -     (0.83 )   -  
Non-GAAP diluted earnings per share available to common stockholders $ 0.27   $ 0.20   $ 0.82   $ 1.00  
 
 
BLUESTEM BRANDS, INC.

Consolidated Statements of Operations and Selected Operating Data

(unaudited — in thousands, except average order size)
                       
Successor Predecessor Total Predecessor
(12 Weeks Ended) (1 Week Ended) (13 Weeks Ended) (13 Weeks Ended)

Acquisition -
January 30, 2015

November 1, 2014 -
November 7, 2014

November 1, 2014 -
January 30, 2015

November 2, 2013 -
January 31, 2014

Change (a)

 
Net sales $ 432,392 $ 24,082 $ 456,474 $ 373,655 22.2 %
Cost of sales   256,885   14,750     271,635     227,518   19.4 %
Gross profit 175,507 9,332 184,839 146,137 26.5 %
Sales and marketing expenses 69,128 4,882 74,010 58,598 26.3 %
Net credit expense (income) 18,011 2,702 20,713 (30,397 ) 168.1 %
General and administrative expenses 34,466 28,650 63,116 42,000 50.3 %

Amortization and depreciation not included in cost of sales (b)

21,573 274 21,847 3,260 n/m
Loss on early extinguishment of debt - 9,298 9,298 - n/m
Interest expense, net (c)   7,091   328     7,419     3,281   126.1 %
Income (loss) before income taxes 25,238 (36,802 ) (11,564 ) 69,395 (116.7 )%
Income tax expense (benefit)   9,222   (12,182 )   (2,960 )   24,551   (112.1 )%
Net income (loss) $ 16,016 $ (24,620 ) $ (8,604 ) $ 44,844   (119.2 )%
 
 
Margins and Expenses as a Percentage of Net Sales:
Gross profit rate 40.5 % 39.1 % 138 bp
Contribution margin (d) $ 90,116 $ 117,936 (23.6 %)
As a percentage of net sales 19.7 % 31.6 % (1,182 ) bp
General and administrative expenses 13.8 % 11.2 % 259 bp
Adjusted EBITDA (d) $ 56,637 $ 94,484 (40.1 %)
As a percentage of net sales 12.4 % 25.3 % (1,288 ) bp
Adjusted pro forma EBITDA (d) $ 55,961 $ 55,542 0.8 %
As a percentage of net sales 12.3 % 14.9 % (261 ) bp
 
Selected Operating Data:
Revolving new customer credit accounts (e) 288 270 6.7 %
FreshStart new customer credit accounts (e) 123 84 46.4 %
PayCheck Direct new customer credit accounts (e) 11 3 266.7 %
Active accounts (f) 1,593 1,417 12.4 %
Average order size (g) $ 232 $ 225 3.1 %
PayCheck Direct eligible client employees (h) 2,348 1,272 84.6 %
 

(a) Changes in rates are presented as the basis point (bp) increase (decrease) from the prior period.
(b) Amortization and depreciation expense not included in cost of sales primarily consists of amortization expense of customer relationship finite-lived intangible assets and depreciation expense of software. Depreciation expense related to equipment in Bluestem's fulfillment facilities are included in cost of sales.
(c) Interest expense net of interest income.
(d) Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.
(e) Customers that have made their initial order on account during the fiscal period presented. Revolving new customer credit accounts excludes FreshStart graduates whom were initially included in FreshStart new customer credit accounts when their initial order was made.
(f) Revolving credit customers that have made at least one purchase on account within the previous twelve fiscal months and at least one payment on account since origination.
(g) Average order size represents retail merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented.
(h) PayCheck Direct clients' full-time active employees with a tenure greater than six months, are at least 18 years old, and have met certain minimum annual earnings.

                       
 
BLUESTEM BRANDS, INC.

Consolidated Statements of Operations and Selected Operating Data

(unaudited — in thousands, except average order size)
 
Successor Predecessor Total Predecessor
(12 Weeks Ended) (40 Weeks Ended) (52 Weeks Ended) (52 Weeks Ended)

Acquisition -
January 30, 2015

February 1, 2014 -
November 7, 2014

February 1, 2014 -
January 30, 2015

February 2, 2013 -
January 31, 2014

Change (a)

 

 
Net sales $ 432,392 $ 639,131 $ 1,071,523 $ 838,937 27.7 %
Cost of sales   256,885   370,763     627,648     493,461   27.2 %
Gross profit 175,507 268,368 443,875 345,476 28.5 %
Sales and marketing expenses

69,128

127,667 196,795 170,530 15.4 %
Net credit expense (income) 18,011 (1,053 ) 16,958 (62,865 ) 127.0 %
General and administrative expenses 34,466 131,801 166,267 120,756 37.7 %

Amortization and depreciation not included in cost of sales (b)

21,573 9,739 31,312 12,564 149.2 %
Loss from derivatives in our own equity (c) - - - 177,289 n/m
Loss on early extinguishment of debt - 9,298 9,298 8,258 12.6 %
Interest expense, net (d)   7,091   13,576     20,667     19,772   4.5 %
Income (loss) before income taxes 25,238 (22,660 ) 2,578 (100,828 ) 102.6 %
Income tax expense (benefit)   9,222   (7,662 )   1,560     26,017   (94.0 )%
Net income (loss) $ 16,016 $ (14,998 ) $ 1,018   $ (126,845 ) 100.8 %
 
 
Margins and Expenses as a Percentage of Net Sales:
Gross profit rate 41.4 % 41.2 % 24 bp
Contribution margin (e) $ 230,122 $ 237,811 (3.2 %)
As a percentage of net sales 21.5 % 28.3 % (687 ) bp
General and administrative expenses 15.5 % 14.4 % 112 bp
Net income before loss from derivatives in our equity (e) $ 1,018 $ 50,444 (98.0 %)
As a percentage of net sales 0.1 % 6.0 % (592 ) bp
Adjusted EBITDA (e) $ 119,896 $ 143,628 (16.5 %)
As a percentage of net sales 11.2 % 17.1 % (593 ) bp
Adjusted pro forma EBITDA (e) $ 98,699 $ 65,694 50.2 %
As a percentage of net sales 9.2 % 7.8 % 138 bp
 
Selected Operating Data:
Revolving new customer credit accounts (f) 731 643 13.7 %
FreshStart new customer credit accounts (f) 270 225 20.0 %
PayCheck Direct new customer credit accounts (f) 26 5 420.0 %
Active accounts (g) 1,593 1,417 12.4 %
Average order size (h) $ 228 $ 217 5.1 %
PayCheck Direct eligible client employees (i) 2,348 1,272 84.6 %
 

(a) Changes in rates are presented as the basis point (bp) increase (decrease) from the prior period.
(b) Amortization and depreciation expense not included in cost of sales primarily consists of amortization expense of customer relationship finite-lived intangible assets and depreciation expense of software. Depreciation expense related to equipment in Bluestem's fulfillment facilities are included in cost of sales.
(c) Bluestem had derivative liabilities relating to certain Predecessor common stock warrants, preferred stock warrants, embedded derivatives in preferred stock, and a contingent fee agreement. All of the aforementioned derivatives were extinguished as part of the Predecessor 2013 recapitalization. These derivative liabilities were recorded at their estimated fair value at each balance sheet date. Changes in fair value were reflected in the consolidated statement of operations as gains or losses from derivatives in our own equity.
(d) Interest expense net of interest income.
(e) Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.
(f) Customers that have made their initial order on account during the fiscal period presented. Revolving new customer credit accounts excludes FreshStart graduates whom were initially included in FreshStart new customer credit accounts when their initial order was made.
(g) Revolving credit customers that have made at least one purchase on account within the previous twelve fiscal months and at least one payment on account since origination.
(h) Average order size represents retail merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented.
(i) PayCheck Direct clients' full-time active employees with a tenure greater than six months, are at least 18 years old, and have met certain minimum annual earnings.

 
 
BLUESTEM BRANDS, INC.

Condensed Consolidated Balance Sheets

(unaudited — in thousands)
           
 
January 30, 2015 January 31, 2014
(Successor) (Predecessor)
ASSETS
Current assets:
Cash and cash equivalents $ 59,222 $ 132,388
Restricted cash 13,425 7,065
Customer accounts receivable — net of allowance for doubtful
accounts of $10,457 and $37,101, respectively 40,928 36,406
Merchandise inventories 96,431 68,151
Promotional material inventories 13,976 15,362
Deferred income taxes 14,914 5,847
Prepaid expenses and other assets   20,360   22,751  
Total current assets 259,256 287,970
Property and equipment — net 49,755 37,063
Intangible assets — net 377,892 -
Goodwill 201,642 -
Other assets   5,377   8,803  
Total Assets $ 893,922 $ 333,836  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 82,037 $ 71,572
Current income taxes payable 18,567 18,876
Accrued costs and other liabilities 65,109 54,021
Short-term debt   19,116   27,979  
Total current liabilities 184,829 172,448
Long-term debt 278,169 198,280
Deferred income taxes 140,119 899
Other long-term liabilities 5,187 7,754
 
Stockholders' equity:
Predecessor:
Series B convertible preferred stock - 469
Series A convertible preferred stock - 872
 
Successor:
Common stock - -
 
Additional paid-in capital 269,602 142,086
Retained earnings   16,016   (188,972 )
Total stockholders' equity (deficit)   285,618   (45,545 )
Total Liabilities and Stockholders’ Equity (Deficit) $ 893,922 $ 333,836  
 
 
BLUESTEM BRANDS, INC.

Supplemental Financial Information

(unaudited — in thousands)
                             
Successor Predecessor Total Predecessor
(12 Weeks Ended) (1 Week Ended) (13 Weeks Ended) (13 Weeks Ended)

Acquisition-
January 30, 2015

November 1, 2014 -
November 7, 2014

November 1, 2014 -
January 30, 2015

November 2, 2013 -
January 31, 2014

Change

 
Total sales by merchandise category:
Home $ 145,334 $ 8,854 $ 154,188 32.2 % $ 127,988 32.6 % 20.5 %
Entertainment 225,163 12,051 237,214 49.6 % 195,895 49.8 % 21.1 %
Fashion   82,957     4,346     87,303   18.2 %   69,126   17.6 % 26.3 %
Total merchandise sales (a) 453,454 25,251 478,705 100.0 % 393,009 100.0 % 21.8 %
Returns and allowances (27,218 ) (1,586 ) (28,804 ) (25,003 ) 15.2 %
Commissions   6,156     417     6,573     5,649   16.4 %
Net sales $ 432,392   $ 24,082   $ 456,474   $ 373,655   22.2 %
 
Gross profit rate 40.5 % 39.1 % 140 bp
Contribution margin rate (c) 19.7 % 31.6 % (1,190 ) bp
 
Fingerhut sales by merchandise category:
Home $ 131,050 $ 7,982 $ 139,032 32.8 % $ 116,559 32.9 % 19.3 %
Entertainment 194,955 10,349 205,304 48.5 % 173,762 49.1 % 18.2 %
Fashion   75,333     3,987     79,320   18.7 %   63,914   18.0 % 24.1 %
Total merchandise sales (a) 401,338 22,318 423,656 100.0 % 354,235 100.0 % 19.6 %
Returns and allowances (24,366 ) (1,411 ) (25,777 ) (22,659 ) 13.8 %
Commissions   5,612     383     5,995     5,308   12.9 %
Net sales $ 382,584   $ 21,290   $ 403,874   $ 336,884   19.9 %
 
Gross profit rate 42.8 % 41.8 % 100 bp
Contribution margin rate (c) 21.3 % 34.1 % (1,280 ) bp
 
Other sales by merchandise category: (b)
Home $ 14,284 $ 872 $ 15,156 27.5 % $ 11,429 29.5 % 32.6 %
Entertainment 30,208 1,702 31,910 58.0 % 22,133 57.1 % 44.2 %
Fashion   7,624     359     7,983   14.5 %   5,212   13.4 % 53.2 %
Total merchandise sales (a) 52,116 2,933 55,049 100.0 % 38,774 100.0 % 42.0 %
Returns and allowances (2,852 ) (175 ) (3,027 ) (2,344 ) 29.1 %
Commissions   544     34     578     341   69.5 %
Net sales $ 49,808   $ 2,792   $ 52,600   $ 36,771   43.0 %
 
Gross profit rate 22.7 % 14.7 % 800 bp
Contribution margin rate (c) 7.6 % 8.0 % (40 ) bp
 
 

(a) Total merchandise sales includes shipping and handling revenue and is net of sales discounts.
(b) Other includes Gettington.com and Paycheck Direct.
(c) Contribution margin rate represents contribution margin as a percentage of net sales. Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.

                         
 
BLUESTEM BRANDS, INC.

Supplemental Financial Information

(unaudited — in thousands)
 
Successor Predecessor Total Predecessor
(12 Weeks Ended) (40 Weeks Ended) (52 Weeks Ended) (52 Weeks Ended)

Acquisition -
January 30, 2015

February 1, 2014 -
November 7, 2014

February 1, 2014 -
January 30, 2015

February 2, 2013 -
January 31, 2014

Change

Total sales by merchandise category:
Home $ 145,334 $ 294,184 $ 439,518 39.2 % $ 351,389 40.0 % 25.1 %
Entertainment 225,163 272,136 497,299 44.3 % 387,413 44.0 % 28.4 %
Fashion   82,957     102,390     185,347   16.5 %   140,229   16.0 % 32.2 %
Total merchandise sales (a) 453,454 668,710 1,122,164 100.0 % 879,031 100.0 % 27.7 %
Returns and allowances (27,218 ) (42,685 ) (69,903 ) (56,059 ) 24.7 %
Commissions   6,156     13,106     19,262     15,965   20.7 %
Net sales $ 432,392   $ 639,131   $ 1,071,523   $ 838,937   27.7 %
 
Gross profit rate 41.4 % 41.2 % 20

bp

Contribution margin rate (c) 21.5 % 28.3 % (680 )

bp

 
Fingerhut sales by merchandise category:
Home $ 131,050 $ 267,423 $ 398,473 39.7 % $ 323,289 40.4 % 23.3 %
Entertainment 194,955 238,361 433,316 43.2 % 345,854 43.2 % 25.3 %
Fashion   75,333     95,577     170,910   17.1 %   131,284   16.4 % 30.2 %
Total merchandise sales (a) 401,338 601,361 1,002,699 100.0 % 800,427 100.0 % 25.3 %
Returns and allowances (24,366 ) (38,594 ) (62,960 ) (51,111 ) 23.2 %
Commissions   5,612     12,342     17,954     15,349   17.0 %
Net sales $ 382,584   $ 575,109   $ 957,693   $ 764,665   25.2 %
 
Gross profit rate 43.6 % 43.6 % -

bp

Contribution margin rate (c) 23.2 % 30.6 % (740 )

bp

 
Other sales by merchandise category: (b)
Home $ 14,284 $ 26,761 $ 41,045 34.3 % $ 28,100 35.7 % 46.1 %
Entertainment 30,208 33,775 63,983 53.6 % 41,559 52.9 % 54.0 %
Fashion   7,624     6,813     14,437   12.1 %   8,945   11.4 % 61.4 %
Total merchandise sales (a) 52,116 67,349 119,465 100.0 % 78,604 100.0 % 52.0 %
Returns and allowances (2,852 ) (4,091 ) (6,943 ) (4,948 ) 40.3 %
Commissions   544     764     1,308     616   112.3 %
Net sales $ 49,808   $ 64,022   $ 113,830   $ 74,272   53.3 %
 
Gross profit rate 23.0 % 16.4 % 660

bp

Contribution margin rate (c) 6.8 % 5.2 % 160

bp

 

(a) Total merchandise sales includes shipping and handling revenue and is net of sales discounts.
(b) Other includes Gettington.com and Paycheck Direct.
(c) Contribution margin rate represents contribution margin as a percentage of net sales. Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.

 
 
BLUESTEM BRANDS, INC.

Supplemental Financial Information

(unaudited — in thousands)
                 
Successor Predecessor Total Predecessor
(12 Weeks Ended) (1 Week Ended) (13 Weeks Ended) (13 Weeks Ended)

Acquisition -
January 30, 2015

November 1, 2014 -
November 7, 2014

November 1, 2014 -
January 30, 2015

November 2, 2013 -
January 31, 2014

Net credit expense (income):
Finance charge and fee income $ (3,436 ) $ 60 $ (3,376 ) $ 13,082
Provision (benefit) for doubtful accounts 10,510 1,984 12,494 (18,841 )
Credit management costs 19,038 1,518 20,556 14,714
Portfolio profit sharing and servicing fee income   (8,101 )   (860 )   (8,961 )   (39,352 )
Net credit expense (income) $ 18,011   $ 2,702   $ 20,713   $ (30,397 )
 
Serviced Portfolio Selected Credit Data:
(13 Weeks Ended)
November 1, 2014 - January 30, 2015
Revolving (a) FreshStart (b) PCD Installment (c)

Balance active accounts

1,878 184 25
Average balance outstanding $ 686 $ 127 $ 723
Customer accounts receivable (d) $ 1,287,526 $ 23,346 $ 17,921
Balances 30+ days delinquent (e) $ 189,092 $ 4,805 $ 1,109

Balances 30+ days delinquent as a percentage of total customer accounts receivable (f)

14.7 % 20.6 % 6.2 %
Average customer accounts receivable $ 1,220,616 $ 16,353 $ 15,053
Finance charge and fee income 87,673 1,782 n/a
Finance charge and fee income rate (g) 28.7 % 21.6 % n/a
Net principal charge-offs $ 58,729 $ 2,431 $ 71
Net principal charge-off rate (h) 19.2 % 29.5 % 1.9 %
 
 
(13 Weeks Ended)
November 2, 2013 - January 31, 2014
Revolving (a) FreshStart (b) PCD Installment (c)
Balance active accounts 1,719 135 5
Average balance outstanding $ 606 $ 112 $ 736
Customer accounts receivable (d) $ 1,042,258 $ 15,060 $ 3,826
Balances 30+ days delinquent (e) $ 151,843 $ 3,487 $ 243

Balances 30+ days delinquent as a percentage of total customer accounts receivable (f)

14.6 % 23.2 % 6.4 %
Average customer accounts receivable $ 987,670 $ 12,432 $ 2,805
Finance charge and fee income $ 66,666 $ 962 n/a
Finance charge and fee income rate (g) 27.0 % 15.5 % n/a
Net principal charge-offs $ 36,412 $ 2,286 $ 15
Net principal charge-off rate (h) 14.7 % 36.9 % 2.2 %
 
 

(a) Revolving serviced portfolio includes Fingerhut and Gettington.com revolving credit accounts.
(b) FreshStart serviced portfolio is Fingerhut's installment accounts.
(c) PCD installment serviced portfolio is installment receivables issued to consumers who are members and employees of participating organizations and employers in the Paycheck Direct program.
(d) Customer accounts receivable excludes impact from purchase accounting fair value adjustment.
(e) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end.
(f) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end as a percentage of total customer accounts receivable as of the customers' statement cycle dates prior to or on fiscal period end.
(g) Revolving finance charge and fee income rate represents finance charge and fee income as a percentage of average customer accounts receivable for the 13 weeks ended January 30, 2015 and January 31, 2014 annualized to 52-week periods for comparability. FreshStart finance charge and fee income rate represents finance charge and fee income as a percentage of the 13 weeks of FreshStart related sales five months prior to the 13 weeks ended January 30, 2015 and January 31, 2014.
(h) Revolving and PCD Installment net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 13 weeks ended January 30, 2015 and January 31, 2014 annualized to 52-week periods for comparability. FreshStart net principal charge-off rate represents net principal charge-offs as a percentage of the 13 weeks of FreshStart related sales five months prior to the 13 weeks ended January 30, 2015 and January 31, 2014.

                 
 
BLUESTEM BRANDS, INC.

Supplemental Financial Information

(unaudited — in thousands)
 
Successor Predecessor Total Predecessor
(12 Weeks Ended) (40 Weeks Ended) (52 Weeks Ended) (52 Weeks Ended)

Acquisition -
January 30, 2015

February 1, 2014 -
November 7, 2014

February 1, 2014 -
January 30, 2015

February 2, 2013 -
January 31, 2014

Net credit expense (income):
Finance charge and fee income $ (3,436 ) $ 7,847 $ 4,411 $ (96,835 )
Provision (benefit) for doubtful accounts 10,510 (5,958 ) 4,552 74,562
Credit management costs 19,038 51,879 70,917 50,600
Portfolio profit sharing and servicing fee income   (8,101 )   (54,821 )   (62,922 )   (91,192 )
Net credit expense (income) $ 18,011   $ (1,053 ) $ 16,958   $ (62,865 )
 
Serviced Portfolio Selected Credit Data:
(52 Weeks Ended)
February 1, 2014 - January 30, 2015
Revolving (a) FreshStart (b) PCD Installment (c)
Balance active accounts 1,878 184 25
Average balance outstanding $ 686 $ 127 $ 723
Customer accounts receivable (d) $ 1,287,526 $ 23,346 $ 17,921
Balances 30+ days delinquent (e) $ 189,092 $ 4,805 $ 1,109
Balances 30+ days delinquent as a percentage
of total customer accounts receivable (f) 14.7 % 20.6 % 6.2 %
Average customer accounts receivable $ 1,077,369 $ 13,463 $ 8,243
Finance charge and fee income $ 314,662 $ 3,582 n/a
Finance charge and fee income rate (g) 29.2 % 9.7 % n/a
Net principal charge-offs $ 182,122 $ 11,979 $ 340
Net principal charge-off rate (h) 16.9 % 32.5 % 4.1 %
 
 
(52 Weeks Ended)
February 2, 2013 - January 31, 2014
Revolving (a) FreshStart (b) PCD Installment (c)
Balance active accounts 1,719 135 5
Average balance outstanding $ 606 $ 112 $ 736
Customer accounts receivable (d) $ 1,042,258 $ 15,060 $ 3,826
Balances 30+ days delinquent (e) $ 151,843 $ 3,487 $ 243
Balances 30+ days delinquent as a percentage
of total customer accounts receivable (f) 14.6 % 23.2 % 6.4 %
Average customer accounts receivable $ 865,572 $ 14,609 $ 1,032
Finance charge and fee income $ 255,270 $ 2,727 n/a
Finance charge and fee income rate (g) 29.5 % 6.4 % n/a
Net principal charge-offs $ 132,703 $ 15,957 $ 53
Net principal charge-off rate (h) 15.3 % 37.6 % 5.1 %
 
 

(a) Revolving serviced portfolio includes Fingerhut and Gettington.com revolving credit accounts.
(b) FreshStart serviced portfolio is Fingerhut's installment accounts.
(c) PCD installment serviced portfolio is installment receivables issued to consumers who are members and employees of participating organizations and employers in the Paycheck Direct program.
(d) Customer accounts receivable excludes impact from purchase accounting fair value adjustment.
(e) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end.
(f) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end as a percentage of total customer accounts receivable as of the customers' statement cycle dates prior to or on fiscal period end.
(g) Revolving finance charge and fee income rate represents finance charge and fee income as a percentage of average customer accounts receivable for the 52 weeks ended January 30, 2015 and January 31, 2014. FreshStart finance charge and fee income rate represents finance charge and fee income as a percentage of the 52 weeks of FreshStart related sales five months prior to the 52 weeks ended January 30, 2015 and January 31, 2014.
(h) Revolving and PCD Installment net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 52 weeks ended January 30, 2015 and January 31, 2014. FreshStart net principal charge-off rate represents net principal charge-offs as a percentage of the 52 weeks of FreshStart related sales five months prior to the 52 weeks ended January 30, 2015 and January 31, 2014.

                 
 
BLUESTEM BRANDS, INC.

Non-GAAP Financial Measures

(unaudited — in thousands)
 
To supplement the consolidated financial information of Bluestem Brands, Inc. and its subsidiaries which are presented in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, Bluestem uses the following measures that are not in accordance with, or an alternative to, measures prepared in accordance with GAAP (non-GAAP measures):
 
Contribution Margin, as presented, is defined as net sales less cost of sales, sales and marketing expenses and net credit expense (income). Contribution Margin represents the combined performance of merchandising, marketing and credit management activities.
 
Net (loss) income before loss from derivatives in our own equity, as presented, is defined as GAAP net (loss) income adjusted for the non-cash loss from derivatives in our own equity. Bluestem no longer has derivatives in its own equity.
 
Adjusted EBITDA, as presented, represents net (loss) income before interest expense, income tax (benefit) expense, amortization and depreciation expense, stock-based compensation expense, dividend equivalent expense, loss from derivatives in our own equity, loss on early extinguishment of debt, (gain) loss on disposal of assets, acquisition transaction costs, specified litigation matters, and other. Specified litigation matters are certain litigation contingencies that existed as of the November 7, 2014 acquisition of Bluestem by Capmark that are subject to limited indemnification by Bluestem's former shareholders.
 
Adjusted pro forma EBITDA, as presented, represents net (loss) income, assuming that the Santander Consumer USA Inc. ("SCUSA") credit financing arrangement had been in place and all revolving customer accounts receivable were sold to SCUSA prior to the 2013 fiscal year, before interest expense, income tax (benefit) expense, amortization and depreciation expense, stock-based compensation expense, dividend equivalent expense, loss from derivatives in our own equity, loss on early extinguishment of debt, (gain) loss on disposal of assets, acquisition transaction costs, specified litigation matters, and other. In April 2013, the Company entered into a new strategic relationship with SCUSA, under which the Company would sell all newly originated Fingerhut and Gettington revolving credit receivables to SCUSA at par on the same business day as its purchase from WebBank and shares the profit on the receivables with SCUSA.
 
We provide these measures because we believe they are useful to investors in evaluating our operating performance (while giving effect to the SCUSA transaction) compared to other companies in our industry. As non-GAAP measures, they have limitations in that they do not reflect all of the amounts associated with Bluestem’s results of operations as determined in accordance with GAAP and are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures should be considered along with the GAAP financial presentation and should not be considered in isolation or as a substitute for results reported in accordance with GAAP. In addition, our calculations of Contribution Margin, Net (loss) income before loss from derivatives in our own equity, Adjusted EBITDA, and Adjusted pro forma EBITDA may not be comparable to the calculations of such measures by other companies.
 
The following table reconciles our Contribution Margin to the nearest GAAP performance measure, which is net income (loss):
 
13 Weeks Ended 52 Weeks Ended
January 30, January 31, January 30, January 31,
2015 2014 2015 2014
Contribution Margin:
Net (loss) income $ (8,604 ) $ 44,844 $ 1,018 $ (126,845 )
Income tax (benefit) expense (2,960 ) 24,551 1,560 26,017
Interest expense, net 7,419 3,281 20,667 19,772
Loss on early extinguishment of debt 9,298 - 9,298 8,258
Loss from derivatives in our own equity - - - 177,289
General and administrative expenses 63,116 42,000 166,267 120,756

Amortization and depreciation not included in cost of sales

  21,847     3,260   31,312   12,564  
Contribution Margin $ 90,116   $ 117,936 $ 230,122 $ 237,811  
 
 
The following table reconciles our net (loss) income before loss from derivatives in our own equity to the nearest GAAP performance measure, which is net (loss) income:
 
13 Weeks Ended 52 Weeks Ended
January 30, January 31, January 30, January 31,
2015 2014 2015 2014
Net (loss) income before loss from derivatives in our own equity:
Net (loss) income $ (8,604 ) $ 44,844 $ 1,018 $ (126,845 )
Loss from derivatives in our own equity - - - 177,289

Net (loss) income before loss from derivatives in our own equity:

$ (8,604 ) $ 44,844 $ 1,018 $ 50,444  
 
 
BLUESTEM BRANDS, INC.

Non-GAAP Financial Measures

(unaudited — in thousands)
 

Adjusted EBITDA

 
The following table reconciles our Adjusted EBITDA to the nearest GAAP performance measure, which is net (loss) income:
                   
13 Weeks Ended 52 Weeks Ended
January 30, January 31, January 30, January 31,
2015 2014 2015 2014
Adjusted EBITDA:
Net (loss) income $ (8,604 ) $ 44,844 $ 1,018 $ (126,845 )
Interest expense 7,421 3,298 20,684 19,805
Income tax (benefit) expense (2,960 ) 24,551 1,560 26,017
Amortization and depreciation expense 22,149 3,717 33,091 13,928
Stock-based compensation expense 7,553 657 9,684 2,665
Dividend equivalent expense 19,628 12,718 28,681 12,718
Loss from derivatives in our own equity - - - 177,289
Loss on early extinguishment of debt 9,298 - 9,298 8,258
(Gain) loss on disposal of assets (2 ) 1 (3 ) 44
Acquisition transaction costs 1,581 446 11,237 446
Specified litigation matters 54 4,132 3,595 8,519
Other   519     120   1,051     784  
Adjusted EBITDA $ 56,637   $ 94,484 $ 119,896   $ 143,628  
 
 
BLUESTEM BRANDS, INC.

Non-GAAP Financial Measures

(unaudited — in thousands)
                 

Adjusted pro forma EBITDA

 
The following tables compare our Adjusted EBITDA to Adjusted pro forma EBITDA:
 
13 weeks ended 13 weeks ended
January 30, 2015 January 31, 2014

Adjusted
EBITDA

Adjusted
pro forma
EBITDA

Adjusted
EBITDA

Adjusted
pro forma
EBITDA

 
Net sales (a) $ 456,474 $ 456,474 $ 373,655 $ 373,655
Cost of sales   271,635     271,635     227,518     227,518  
Gross profit (a) 184,839 184,839 146,137 146,137
 
Sales and marketing expenses 74,010 74,010 58,598 58,598
 
Net credit expense (income):
Finance charge and fee income (b) (3,376 ) (1,782 ) 13,082 (962 )
Provision (benefit) for doubtful accounts (b) 12,494 10,974 (18,841 ) 5,069
Credit management costs (c) 20,556 20,556 14,714 14,677
Servicing income (d) (5,945 ) (5,998 ) (4,493 ) (4,882 )
Profit sharing (d)   (3,016 )   (2,384 )   (34,859 )   (5,599 )
Net credit expense (income) 20,713 21,366 (30,397 ) 8,303
 
General and administrative expenses 63,116 63,116 42,000 42,000

Amortization and depreciation not included in cost of sales

21,847 21,847 3,260 3,260
Loss on early extinguishment of debt 9,298 9,298 - -
Interest expense, net   7,419     7,419     3,281     3,281  
(Loss) income before income taxes (e) (11,564 ) (12,217 ) 69,395 30,695
 
Interest expense 7,421 7,421 3,298 3,298
Amortization and depreciation expense (f) 22,149 22,126 3,717 3,475
Stock-based compensation expense 7,553 7,553 657 657
Dividend equivalent expense 19,628 19,628 12,718 12,718
Loss on early extinguishment of debt 9,298 9,298 - -
Loss on disposal of assets (2 ) (2 ) 1 1
Acquisition transaction costs 1,581 1,581 446 446
Specified litigation matters 54 54 4,132 4,132
Other   519     519     120     120  
Adjusted EBITDA / pro forma EBITDA $ 56,637   $ 55,961   $ 94,484   $ 55,542  
 
Adjusted EBITDA / pro forma EBITDA % of net sales 12.4 % 12.3 % 25.3 % 14.9 %
 

(a) No change in net sales or gross profit.
(b) Finance charge and fee income and provision (benefit) for doubtful accounts shifted to SCUSA for all revolving receivables. Bluestem retains finance charge and fee income and provision (benefit) for doubtful accounts for retained receivables (FreshStart and PayCheck Direct).
(c) Credit management cost decrease in the prior year due to elimination of credit origination fees incurred prior to the SCUSA arrangement.
(d) Bluestem receives a 2% servicing fee and profit sharing (based on Risk Adjusted Margin) from SCUSA.
(e) (Loss) income before income taxes decrease from the shift of net credit revenue and provision to SCUSA.
(f) Amortization and depreciation decrease due to elimination of amortization of deferred SCUSA transaction related expenses.

                   

 

BLUESTEM BRANDS, INC.

Non-GAAP Financial Measures

(unaudited — in thousands)
 

Adjusted pro forma EBITDA

 

The following tables compare our Adjusted EBITDA to Adjusted pro forma EBITDA:

 
52 weeks ended 52 weeks ended
January 30, 2015 January 31, 2014

Adjusted
EBITDA

Adjusted
pro forma
EBITDA

Adjusted
EBITDA

Adjusted
pro forma
EBITDA

 
Net sales (a) $ 1,071,523 $ 1,071,523 $ 838,937 $ 838,937
Cost of sales   627,648     627,648     493,461     493,461  
Gross profit (a) 443,875 443,875 345,476 345,476
 
Sales and marketing expenses (b) 196,795 196,795 170,530 170,682
 
Net credit expense (income):
Finance charge and fee income (c) 4,411 (3,582 ) (96,835 ) (2,727 )
Provision for doubtful accounts (c) 4,552 19,111 74,562 16,187
Credit management costs (d) 70,917 70,917 50,600 50,545
Servicing income (e) (20,854 ) (21,251 ) (8,643 ) (17,129 )
Profit sharing (e)   (42,068 )   (27,784 )   (82,549 )   (32,514 )
Net credit expense (income) 16,958 37,411 (62,865 ) 14,362
 
General and administrative expenses 166,267 166,267 120,756 120,756

Amortization and depreciation not included in cost of sales

31,312 31,312 12,564 12,564
Loss from derivatives in our own equity - - 177,289 177,289
Loss on early extinguishment of debt 9,298 9,298 8,258 8,258
Interest expense, net   20,667     20,667     19,772     19,772  
Income (loss) before income taxes (f) 2,578 (17,875 ) (100,828 ) (178,207 )
 
Interest expense 20,684 20,684 19,805 19,805
Amortization and depreciation expense (g) 33,091 32,347 13,928 13,373
Stock-based compensation expense 9,684 9,684 2,665 2,665
Dividend equivalent expense 28,681 28,681 12,718 12,718
Loss from derivatives in our own equity - - 177,289 177,289
Loss on early extinguishment of debt 9,298 9,298 8,258 8,258
(Gain) loss on disposal of assets (3 ) (3 ) 44 44
Acquisition transaction costs 11,237 11,237 446 446
Specified litigation matters 3,595 3,595 8,519 8,519
Other   1,051     1,051     784     784  
Adjusted EBITDA / pro forma EBITDA $ 119,896   $ 98,699   $ 143,628   $ 65,694  
 
Adjusted EBITDA / pro forma EBITDA % of net sales 11.2 % 9.2 % 17.1 % 7.8 %
 

(a) No change in net sales, gross profit, or net selling margin.
(b) Sales and marketing expenses increase in the prior year due to the inclusion of SCUSA interchange fees.
(c) Finance charge and fee income and provision for doubtful accounts shifted to SCUSA for all revolving receivables. Bluestem retains finance charge and fee income and provision for doubtful accounts for retained receivables (FreshStart and PayCheck Direct).
(d) Credit management cost decrease in the prior year due to elimination of credit origination fees incurred prior to the SCUSA arrangement.
(e) Bluestem receives a 2% servicing fee and profit sharing (based on Risk Adjusted Margin) from SCUSA.
(f) Income (loss) before income taxes decrease from the shift of net credit revenue and provision to SCUSA.
(g) Amortization and depreciation decrease due to elimination of amortization of deferred SCUSA transaction related expenses.

Contacts

Investor Relations:
ICR
Denise Garciam, 215-328-1555

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