Item 1.02 Termination of a Material Definitive Agreement.
On March 30, 2020, Blue Apron, LLC (f/k/a Blue Apron, Inc.) ("Blue Apron"), a
subsidiary of Blue Apron Holdings, Inc. (collectively with its subsidiaries and
other affiliates, as applicable, the "Company") entered into a Lease Termination
Agreement (the "Lease Termination Agreement") with Gateway 80 Owner, LP
("Landlord") (as successor in interest to Gateway 80 Industrial, LLC). Under the
terms of the Lease Termination Agreement, the Lease Agreement dated as of August
23, 2016 by and between Blue Apron and Landlord (the "Terminated Lease") was
terminated, effective as of March 31, 2020. The Lease Termination Agreement also
terminated a related parking lot lease.
Under the terms of the Terminated Lease, Blue Apron leased approximately 431,000
square feet of warehouse space in Fairfield, California (the "Facility"). As
previously disclosed by the Company, the Company has not occupied and does not
currently occupy the Facility. In connection with the Lease Termination
Agreement, Blue Apron agreed to pay a termination fee in the amount of $1.5
million, which will release the Company from all further rent obligations to
Landlord in the amount of approximately $33 million, which otherwise would have
expired on June 30, 2028, resulting in ongoing annual cash savings of
approximately $3.5 million.
For accounting purposes, the Company was deemed to be the owner of this
arrangement and followed build-to-suit accounting. Therefore, the Company
capitalized the fair value of the building and direct construction costs
incurred and recorded a corresponding facility financing obligation. Prior to
the lease termination, the net carrying value of the build-to-suit assets
totaled approximately $31 million, the facility financing obligation totaled
approximately $36 million and the Company had deferred rent of approximately $2
million. Accordingly, as of the termination date, the Company derecognized the
net carrying value of the build-to-suit assets and liabilities and the deferred
rent balance. As a result, the Company expects to recognize a one-time, non-cash
gain of approximately $5 million, net of the lease termination fee, for the
three months ended March 31, 2020. The Company expects to generate ongoing
annual savings of $2.5 million in interest expense and $1.0 million in product,
technology, general and administrative expenses beginning in the second quarter
of 2020 as a result of the lease terminations.
The Company entered into the Lease Termination Agreement following its
previously disclosed evaluation of potential alternatives for the Facility and
not as a result of COVID-19 or related issues.
This summary is qualified in its entirety by reference to the full text of the
Lease Termination Agreement, which is included in Exhibit 10.1 to this Form 8-K.
Forward-Looking Statements
This Form 8-K includes statements concerning the Company and its future
expectations, plans and prospects that constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terms such as "may," "should,"
"expects," "plans," "anticipates," "could," "intends," "target," "projects,"
"contemplates," "believes," "estimates," "predicts," "potential," or "continue,"
or the negative of these terms or other similar expressions. The Company has
based these forward-looking statements largely on its current expectations and
projections about future events and financial trends that it believes may affect
its business, financial condition and results of operations. These
forward-looking statements speak only as of the date of this Form 8-K and are
subject to a number of risks, uncertainties and assumptions including, without
limitation, the Company's anticipated growth strategies and dependence on the
Company's ability to obtain additional financing; its ability to sufficiently
manage costs, maintain sufficient capital and obtain additional financing to and
remain in compliance with the financial covenants under its revolving credit
facility; its ability, including the timing and extent, to obtain additional
financing and sufficiently manage costs to fund investments in its operations in
amounts necessary to support the execution of its strategic growth plan; the
Company's ability to identify, consummate and achieve the anticipated benefits
of strategic alternatives, and the structure, terms and specific risks and
uncertainties associated with any such potential strategic alternatives; the
impact of the COVID-19 pandemic on the Company's operations and results,
including as a result of the loss of adequate labor, any temporary closure of
one or more fulfillment centers, or supply chain or carrier interruptions or
delays; the ability of the Company to sustain the recent increase in demand
resulting from the COVID-19 pandemic and to retain new customers; its ability to
achieve the anticipated benefits associated with the Company's workforce
reductions and the planned closure of the Company's Arlington fulfillment center
and related consolidation of production volume to its Linden, NJ and Richmond,
CA fulfillment centers; risks resulting from the planned fulfillment center
closure and workforce reductions, including, but not limited to, further
employee attrition and adverse effects on the Company's operations, such as
interruptions in production; its expectations regarding competition and its
ability to effectively compete; its ability to expand or innovate on its
direct-to-consumer product offerings and strategic partnerships; its ability to
cost-effectively attract new customers, retain existing customers and increase
the number of customers it serves; its amount of indebtedness and ability to
fulfill its debt-related obligations; seasonal trends in customer behavior; its
expectations regarding, and the stability of, its supply chain; the size and
growth of the markets for its product offerings and its ability to serve those
markets; federal and state legal and regulatory developments; other anticipated
trends and challenges in its business; and other risks more fully described in
the Company's Annual Report on Form 10-K for the year ended December 31, 2019
filed with the Securities and Exchange Commission ("SEC") on February 18, 2020,
and in other filings that the Company may make with the SEC in the future. The
Company assumes no obligation to update any forward-looking statements contained
in this Form 8-K as a result of new information, future events or otherwise.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit Description
Lease Termination Agreement dated as of March 30, 2020 by and between
10.1 Blue Apron, LLC and Gateway 80 Owner, LP.
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