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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________ 
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 27, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

 Commission File Number 0-20214
 
BED BATH & BEYOND INC.
(Exact name of registrant as specified in its charter)
New York 11-2250488
(State of incorporation) (IRS Employer Identification No.)
650 Liberty Avenue, Union, New Jersey 07083
(Address of principal executive offices)    (Zip Code)
 
Registrant's telephone number, including area code: (908) 688-0888
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $.01 par valueBBBYThe Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
 
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
 
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at August 27, 2022
Common Stock - $0.01 par value 80,362,695



BED BATH & BEYOND INC. AND SUBSIDIARIES

INDEX 
   
   
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
   
 
   
   
 
   
 
   
 
   
 
   
 

-2-



BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
 
August 27, 2022February 26, 2022
Assets(unaudited) 
Current assets:  
    Cash and cash equivalents$135,270 $439,496 
    Merchandise inventories1,576,270 1,725,410 
    Prepaid expenses and other current assets192,615 198,248 
        Total current assets1,904,155 2,363,154 
Long-term investment securities20,228 19,212 
Property and equipment, net1,121,203 1,027,387 
Operating lease assets1,469,076 1,562,857 
Other assets151,977 157,962 
Total assets$4,666,639 $5,130,572 
Liabilities and Shareholders' (Deficit) Equity  
Current liabilities:  
    Accounts payable$783,681 $872,445 
    Accrued expenses and other current liabilities394,268 529,371 
    Merchandise credit and gift card liabilities328,089 326,465 
    Current operating lease liabilities322,430 346,506 
        Total current liabilities1,828,468 2,074,787 
Other liabilities114,259 102,438 
Operating lease liabilities1,479,456 1,508,002 
Income taxes payable92,146 91,424 
Long-term debt1,729,964 1,179,776 
        Total liabilities5,244,293 4,956,427 
Shareholders' (deficit) equity:  
Preferred stock - $0.01 par value; authorized - 1,000 shares; no shares issued or outstanding
  
Common stock - $0.01 par value; authorized - 900,000 shares; issued 345,053 and 344,146, respectively; outstanding 80,363 and 81,979 shares, respectively
3,450 3,441 
Additional paid-in capital
2,253,039 2,235,894 
Retained earnings
8,942,368 9,666,091 
Treasury stock, at cost; 264,691 and 262,167 shares, respectively
(11,728,514)(11,685,267)
Accumulated other comprehensive loss
(47,997)(46,014)
        Total shareholders' (deficit) equity(577,654)174,145 
        Total liabilities and shareholders' (deficit) equity$4,666,639 $5,130,572 
 See accompanying Notes to Consolidated Financial Statements.
-3-

BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
 Three Months EndedSix Months Ended
August 27, 2022August 28, 2021August 27, 2022August 28, 2021
Net sales$1,437,018 $1,984,696 $2,900,436 $3,938,508 
Cost of sales1,038,756 1,383,627 2,152,862 2,703,745 
    Gross profit398,262 601,069 747,574 1,234,763 
Selling, general and administrative expenses634,877 652,972 1,272,385 1,311,734 
Impairments55,518 7,584 82,217 16,713 
Restructuring and transformation initiative expenses54,069 24,495 78,332 58,181 
Loss on sale of businesses 132  4,121 
    Operating loss(346,202)(84,114)(685,360)(155,986)
Interest expense, net18,603 16,121 35,051 32,121 
Loss on extinguishment of debt 111  376 
    Loss before provision (benefit) for income taxes(364,805)(100,346)(720,411)(188,483)
Provision (benefit) for income taxes1,354 (27,131)3,414 (64,394)
Net loss$(366,159)$(73,215)$(723,825)$(124,089)
Net loss per share - Basic$(4.59)$(0.72)$(9.09)$(1.19)
Net loss per share - Diluted$(4.59)$(0.72)$(9.09)$(1.19)
Weighted average shares outstanding - Basic79,706 101,951 79,659 104,361 
Weighted average shares outstanding - Diluted79,706 101,951 79,659 104,361 
 
See accompanying Notes to Consolidated Financial Statements.
-4-

BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(in thousands, unaudited)

 
 Three Months EndedSix Months Ended
August 27, 2022August 28, 2021August 27, 2022August 28, 2021
Net loss$(366,159)$(73,215)$(723,825)$(124,089)
Other comprehensive (loss) income:  
Change in temporary impairment of auction rate securities, net of tax796 24 567 (40)
    Pension adjustment, net of tax 224  224 
    Currency translation adjustment(1,436)(8,707)(2,550)2,137 
Other comprehensive (loss) income(640)(8,459)(1,983)2,321 
Comprehensive loss$(366,799)$(81,674)$(725,808)$(121,768)
 

See accompanying Notes to Consolidated Financial Statements.
-5-

BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' (Deficit) Equity
(in thousands, unaudited)



Three Months Ended August 27, 2022
Common StockAdditional Paid-
in Capital
Retained
Earnings
Treasury StockAccumulated Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at May 28, 2022344,621 $3,446 $2,243,378 $9,308,530 (264,663)$(11,728,295)$(47,357)$(220,298)
Net loss—   (366,159)   (366,159)
Other comprehensive (loss) income, net of tax   —   (640)(640)
Dividends forfeited   (3)   (3)
Issuance of restricted shares, net367 3 (3)     
Vesting of restricted stock units65 1 (1)     
Stock-based compensation expense, net  9,665     9,665 
Accelerated share repurchase program  —  — —   
Director fees paid in stock    — —   
Repurchase of common stock, including fees    (28)(219) (219)
Balance at August 27, 2022345,053 $3,450 $2,253,039 $8,942,368 (264,691)$(11,728,514)$(47,997)$(577,654)


Six Months Ended August 27, 2022
Common StockAdditional Paid-
in Capital
Retained
Earnings
Treasury StockAccumulated Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at February 26, 2022344,146 $3,441 $2,235,894 $9,666,091 (262,167)$(11,685,267)$(46,014)$174,145 
Net loss   (723,825)   (723,825)
Other comprehensive (loss) income, net of tax   —   (1,983)(1,983)
Dividends forfeited   102    102 
Issuance of restricted shares, net329 3 (3)     
Vesting of restricted stock units567 6 (6)     
Stock-based compensation expense, net  17,009     17,009 
Accelerated share repurchase program  —  — —   
Director fees paid in stock11 — 145  — —  145 
Repurchase of common stock, including fees    (2,524)(43,247) (43,247)
Balance at August 27, 2022345,053 $3,450 $2,253,039 $8,942,368 (264,691)$(11,728,514)$(47,997)$(577,654)

See accompanying Notes to Consolidated Financial Statements.













-6-


BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' (Deficit) Equity
(in thousands, unaudited)



Three Months Ended August 28, 2021
Common StockAdditional Paid-
in Capital
Retained
Earnings
Treasury StockAccumulated Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at May 29, 2021343,570 $3,435 $2,208,052 $10,174,656 (239,057)$(11,234,529)$(44,820)$1,106,794 
Net loss   (73,215)   (73,215)
Other comprehensive (loss) income, net of tax   —   (8,459)(8,459)
Dividends forfeited   81    81 
Issuance of restricted shares, net26 1 (1)     
Vesting of restricted stock units— — —      
Stock-based compensation expense, net  10,349     10,349 
Accelerated share repurchase program  —  — —   
Director fees paid in stock—  —  — —   
Repurchase of common stock, including fees    (3,479)(101,316) (101,316)
Balance at August 28, 2021343,596 $3,436 $2,218,400 $10,101,522 (242,536)$(11,335,845)$(53,279)$934,234 


Six Months Ended August 28, 2021
Common StockAdditional Paid-
in Capital
Retained
Earnings
Treasury StockAccumulated Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at February 27, 2021343,241 $3,432 $2,152,135 $10,225,253 (233,620)$(11,048,284)$(55,600)$1,276,936 
Net loss   (124,089)   (124,089)
Other comprehensive (loss) income, net of tax   —   2,321 2,321 
Dividends forfeited   358    358 
Issuance of restricted shares, net348 4 (4)     
Vesting of restricted stock units— — —      
Stock-based compensation expense, net  18,581     18,581 
Accelerated share repurchase program  47,550  (200)(47,550)  
Director fees paid in stock7  138  — —  138 
Repurchase of common stock, including fees    (8,716)(240,011) (240,011)
Balance at August 28, 2021343,596 $3,436 $2,218,400 $10,101,522 (242,536)$(11,335,845)$(53,279)$934,234 

See accompanying Notes to Consolidated Financial Statements.
-7-

BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands, unaudited)
 Six Months Ended
August 27, 2022August 28, 2021
Cash Flows from Operating Activities:  
  Net loss$(723,825)$(124,089)
  Adjustments to reconcile net loss to net cash (used in) provided by operating activities:  
    Depreciation and amortization142,094 138,390 
    Impairments82,217 16,713 
    Stock-based compensation16,434 17,993 
    Deferred income taxes (48,938)
    Loss on sale of businesses 4,121 
    Loss on debt extinguishment 376 
    Other967 (5,373)
    Decrease (increase) in assets:  
        Merchandise inventories146,729 82,296 
        Other current assets411 82,203 
        Other assets(82)(225)
    (Decrease) increase in liabilities:  
        Accounts payable (81,401)9,490 
        Accrued expenses and other current liabilities(136,892)(116,660)
        Merchandise credit and gift card liabilities1,927 (1,543)
        Income taxes payable793 (490)
        Operating lease assets and liabilities, net(27,759)(1,744)
        Other liabilities(4,038)(6,482)
  Net cash (used in) provided by operating activities(582,425)46,038 
Cash Flows from Investing Activities:  
    Purchases of held-to-maturity investment securities (29,997)
    Net proceeds from sale of property 5,000 
    Capital expenditures(226,500)(149,475)
  Net cash used in investing activities(226,500)(174,472)
Cash Flows from Financing Activities:  
    Borrowing of long-term debt550,000  
    Repayments of long-term debt (11,355)
    Repayments of finance leases(809) 
    Repurchase of common stock, including fees(43,247)(240,011)
    Payment of dividends(316)(640)
    Payment of deferred financing fees (3,443)
  Net cash provided by (used in) financing activities505,628 (255,449)
  Effect of exchange rate changes on cash, cash equivalents and restricted cash(871)1,489 
Net decrease in cash, cash equivalents and restricted cash(304,168)(382,394)
Cash, cash equivalents and restricted cash:  
  Beginning of period470,884 1,407,224 
  End of period$166,716 $1,024,830 
See accompanying Notes to Consolidated Financial Statements.
-8-

BED BATH & BEYOND INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
 
1) BASIS OF PRESENTATION
 
The accompanying consolidated financial statements have been prepared without audit. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals and elimination of intercompany balances and transactions) necessary to present fairly the financial position of Bed Bath & Beyond Inc. and subsidiaries (the "Company") as of August 27, 2022 and February 26, 2022 (audited) and the results of its operations, shareholders' (deficit) equity, and comprehensive loss for the three and six months ended August 27, 2022 and August 28, 2021 and its cash flows for the six months ended August 27, 2022 and August 28, 2021.
 
The accompanying unaudited consolidated financial statements are presented in accordance with the requirements for Form 10-Q and consequently do not include all the disclosures normally required by U.S. generally accepted accounting principles ("GAAP"). Reference should be made to the Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2022 for additional disclosures, including a summary of the Company’s significant accounting policies, and to subsequently filed Form 8-Ks.

We account for our operations as one North American Retail reporting segment. Net sales outside of the U.S. for the Company were not material for the three and six months ended August 27, 2022 and August 28, 2021. As the Company operates in the retail industry, its results of operations are affected by general economic conditions and consumer spending habits. 

2) LIQUIDITY AND GOING CONCERN
 
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

The Company had cash, cash equivalents and restricted cash of $166.7 million as of August 27, 2022 and net cash used in operating activities of $582.4 million for the six months ended August 27, 2022. As of August 27, 2022, the Company had approximately $315.0 million of available borrowing capacity under its ABL Facility. Subsequent to the end of the second quarter of fiscal 2022, the Company entered into an amendment, which expanded its ABL Facility to $1.130 billion and entered into a new FILO Facility of $375.0 million (see "Long-Term Debt", Note 13). As of the end of fiscal September 2022, the Company's current available borrowing capacity was approximately $690.0 million.

The Company is required to perform a two-step analysis of its ability to continue as a going concern. It must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (Step 1). If the Company concludes that substantial doubt is raised, it is also required to consider whether the Company’s plans alleviate that doubt (Step 2).

Management’s assessment included the preparation of cash flow forecasts. Management has implemented or expects to implement various strategic actions including permanently closing stores that are deemed to be performing below expectations, reducing its workforce, deferring or eliminating certain capital expenditures and reducing other operating expenses to ensure alignment with customer demand and its go-forward strategy.

The Company believes that available cash and cash equivalents, the cash provided by future operating activities, and availability under its recently increased ABL credit facility and its new FILO credit facility should enable the Company to meet presently anticipated cash needs for at least the next 12 months after the date that the financial statements are issued. If the Company encounters unforeseen circumstances that place further constraints on its capital resources, management will be required to take various additional measures to conserve liquidity, which could include, but not necessarily be limited to, reducing capital expenditures, and controlling overhead expenses. Management cannot provide any assurance that the Company’s efforts will be successful. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

3) IMPACT OF THE COVID-19 PANDEMIC
 
-9-

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. During the first quarter of fiscal 2020, the Company temporarily closed all of the Company's retail stores across the U.S. and Canada except for most stand-alone buybuy BABY and Harmon stores, subject to state and local regulations, with nearly all stores reopened by the end of the second quarter of fiscal 2020. During portions of fiscal 2021, a limited number of stores in Canada either closed temporarily or continued to operate under restrictions in compliance with local governmental orders. During the six months ended August 27, 2022, all of the Company's stores were operating without restriction subject to compliance with applicable mask and vaccine requirements.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the United States, which provided for certain changes to tax laws, which impacted the Company’s results of operations, financial position and cash flows. The Company implemented certain provisions of the CARES Act, such as deferring employer payroll taxes and utilizing the ability to carry back and deduct losses to offset prior income in previously filed tax returns. The Company deposited the full amount of deferred employer payroll taxes of $3.1 million by December 2021. During the three and six months ended August 28, 2021, under the CARES Act, the Company recorded income tax benefits of $0.6 million and $16.2 million, respectively, as a result of the fiscal 2020 net operating losses that were carried back to prior years during which the federal tax rate was 35%.

During the three and six months ended August 28, 2021, the Company recorded credits of approximately $2.3 million and $4.7 million, respectively, as an offset to selling, general and administrative expenses as a result of the employee retention credits made available under the CARES Act for U.S. employees and under the Canada Emergency Wage Subsidy for Canadian employees.

Numerous uncertainties continue to surround the pandemic and its ultimate impact on the Company. Further discussion of the risks and uncertainties posed by the COVID-19 pandemic is disclosed in “Risk Factors” under Part II, Item 1A of this Form 10-Q and Part I, Item 1A of the Company’s fiscal 2021 Form 10-K.

4) REVENUE RECOGNITION

Sales are recognized upon purchase by customers at the Company’s retail stores or upon delivery for products purchased from its websites. The value of point-of-sale coupons and point-of-sale rebates that result in a reduction of the price paid by the customer are recorded as a reduction of sales. Shipping and handling fees that are billed to a customer in a sale transaction are recorded in sales. Taxes, such as sales tax, use tax and value added tax, are not included in sales.

Revenues from gift cards, gift certificates and merchandise credits are recognized when redeemed. Gift cards have no provisions for reduction in the value of unused card balances over defined time periods and have no expiration dates. For the six months ended August 27, 2022 and August 28, 2021, the Company recognized net sales for gift card and merchandise credit redemptions of approximately $45.6 million and $47.8 million, respectively, which were included in merchandise credit and gift card liabilities on the consolidated balance sheet as of February 26, 2022 and February 27, 2021, respectively.

During the second quarter of fiscal 2022, the Company launched its cross-banner customer loyalty program, Welcome Rewards™, which allows members to earn points for each qualifying purchase at its retail banners either online or in its stores. Points earned are then converted to rewards upon reaching certain thresholds. These rewards may then be redeemed on future merchandise purchases at its retail banners. The Company defers a portion of the revenue related to the points earned at the time of the original transaction and revenue is recognized for these performance obligations upon redemption or expiration of points or rewards earned by the customer. As of August 27, 2022, the Company recorded $2.9 million of loyalty program liabilities in merchandise credit and gift card liabilities on the consolidated balance sheet.

Sales returns are provided for in the period that the related sales are recorded based on historical experience. Although the estimate for sales returns has not varied materially from historical provisions, actual experience could vary from historical experience in the future if the level of sales return activity changes materially. In the future, if the Company concludes that an adjustment is required due to material changes in the returns activity, the liability for estimated returns and the corresponding right of return asset will be adjusted accordingly. As of August 27, 2022 and February 26, 2022, the Company recorded a liability for estimated returns of $20.4 million and $23.6 million, respectively, in accrued expenses and other current liabilities, and the corresponding right of return asset for merchandise of $12.8 million and $14.6 million, respectively, in prepaid expenses and other current assets.

The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall décor), consumables and certain juvenile products. Sales of domestics merchandise and home furnishings accounted for approximately
-10-

37.9% and 62.1% of net sales, respectively, for the three months ended August 27, 2022, and approximately 39.8% and 60.2% of net sales, respectively, for the three months ended August 28, 2021. Sales of domestics merchandise and home furnishings accounted for approximately 36.6% and 63.4% of net sales, respectively, for the six months ended August 27, 2022, and approximately 38.9% and 61.1% of net sales, respectively, for the six months ended August 28, 2021.

5) FAIR VALUE MEASUREMENTS
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., "the exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. The hierarchy for inputs used in measuring fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect a company’s judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability must be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 - Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. 
Level 2 - Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The Company’s financial instruments include cash and cash equivalents, investment securities, accounts payable, short-term and long-term debt and certain other liabilities. The book value of the Company's financial instruments, excluding long-term debt, is representative of their fair values. As of August 27, 2022 and February 26, 2022, the fair value of the Company’s senior unsecured notes was approximately $254.3 million and $956.0 million, respectively, which is based on quoted prices in active markets for identical instruments (i.e., Level 1 valuation), compared with the carrying value of approximately $1.184 billion for both August 27, 2022 and February 26, 2022. As of August 27, 2022, the carrying amount of the asset-based revolving credit facility (the “ABL Facility”) approximates fair value as interest charged is based on the current market rate.
 
Financial assets utilizing Level 2 inputs included the ABL Facility. Financial assets utilizing Level 3 inputs included long-term investments in auction rate securities consisting of preferred shares of closed end municipal bond funds (see "Investment Securities," Note 7). 

6) CASH AND CASH EQUIVALENTS
 
The Company considers all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents. Included in cash and cash equivalents are credit and debit card receivables from banks, which typically settle within five business days, of $41.9 million and $47.9 million as of August 27, 2022 and February 26, 2022, respectively.

As of both August 27, 2022 and February 26, 2022, the Company did not have any short-term restricted cash, and had $31.4 million of long-term restricted cash, which was included in other long-term assets on the consolidated balance sheet.
 
7) INVESTMENT SECURITIES
  
As of both August 27, 2022 and February 26, 2022, the Company’s long-term available-for-sale investment securities represented approximately $20.3 million par value of auction rate securities, less temporary valuation adjustments of approximately $1.0 million and $1.1 million, respectively. Since these valuation adjustments are deemed to be temporary, they are recorded in accumulated other comprehensive loss, net of a related tax benefit, and did not affect the Company’s net earnings. The Company had no short-term available-for-sale investment securities as of August 27, 2022 and February 26, 2022.

-11-

8) IMPAIRMENT OF LONG-LIVED ASSETS
 
The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. For the three and six months ended August 27, 2022, the Company recorded $55.5 million and $79.3 million, respectively, of non-cash pre-tax impairment charges in impairments in its consolidated statement of operations for certain store-level assets, including leasehold improvements and operating lease assets. For the three and six months ended August 28, 2021, the Company recorded $7.0 million and $14.0 million, respectively, of non-cash pre-tax impairment charges in impairments in its consolidated statement of operations for certain store-level assets, including leasehold improvements and operating lease assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.

9) PROPERTY AND EQUIPMENT
 
As of August 27, 2022 and February 26, 2022, included in property and equipment, net is accumulated depreciation of approximately $1.9 billion and $1.8 billion, respectively, of which $0.6 million and $0.2 million, respectively, in accumulated depreciation relate to assets held under finance leases.

10) LEASES

The Company leases retail stores, distribution facilities, offices and equipment under agreements expiring at various dates through 2041. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for a series of five year renewal options, often at increased rents, the exercise of which is at the Company’s sole discretion. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial for the three and six months ended August 27, 2022 and August 28, 2021), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.

The Company subleases certain real estate to unrelated third parties, which have all been classified as operating leases. The Company recognizes sublease income on a straight-line basis over the sublease term, which generally ranges from 5 to 10 years. Most sublease arrangements provide for a series of five-year renewal options, the exercise of which are at the Company's sole discretion.

The components of total lease cost for the three and six months ended August 27, 2022 and August 28, 2021, were as follows:
(in thousands)Statement of Operations LocationThree Months EndedSix Months Ended
August 27,
2022
August 28,
2021
August 27,
2022
August 28,
2021
Operating lease costCost of sales and SG&A$102,155 $110,352 $205,129 $227,722 
Finance lease cost:
   Depreciation of propertySG&A273  383  
   Interest on lease liabilitiesInterest expense, net1,646  2,106  
Variable lease costCost of sales and SG&A39,536 36,010 73,757 71,517 
Sublease incomeSG&A(13,430)(10,955)(26,810)(24,806)
Total lease cost$130,180 $135,407 $254,565 $274,433 

-12-

As of August 27, 2022 and February 26, 2022, assets and liabilities related to the Company’s leases were as follows:
(in thousands)Consolidated Balance Sheet LocationAugust 27,
2022
February 26,
2022
Assets
Operating leasesOperating lease assets$1,469,076 $1,562,857 
Finance leasesProperty and equipment, net55,680 38,790 
Total lease assets$1,524,756 $1,601,647 
Liabilities
Current:
     Operating leasesCurrent operating lease liabilities$322,430 $346,506 
     Finance leasesAccrued expenses and other current liabilities7,048 2,494 
Noncurrent:
     Operating leasesOperating lease liabilities1,479,456 1,508,002 
     Finance leasesOther liabilities46,952 35,447 
Total lease liabilities$1,855,886 $1,892,449 

As of August 27, 2022, the Company’s lease liabilities mature as follows:
(in thousands)Operating LeasesFinance Leases
Fiscal Year:
Remainder of 2022$188,794 $4,696 
2023416,053 11,525 
2024365,482 11,525 
2025304,087 11,525 
2026234,999 11,525 
2027186,180 11,525 
Thereafter565,281 49,612 
Total lease payments$2,260,876 $111,933 
Less imputed interest(458,990)(57,933)
Present value of lease liabilities$1,801,886 $54,000 
At August 27, 2022, the Company has entered into two operating leases that have not yet commenced, one of which is a regional distribution center expected to open in fiscal 2023. The aggregate minimum rental payments over the term of the lease of approximately $58.8 million are not included in the above table.
-13-

The Company’s lease terms and discount rates were as follows:

August 27, 2022February 26, 2022
Weighted-average remaining lease term (in years)
     Operating leases6.8 years7.0 years
     Finance leases9.5 years10.0 years
Weighted-average discount rate
     Operating leases7.1 %6.0 %
     Finance leases8.3 %8.4 %

Other information with respect to the Company’s leases is as follows:
(in thousands)Six Months Ended
August 27,
2022
August 28,
2021
Cash paid for amounts included in the measurement of lease liabilities
     Operating cash flows from operating leases$209,532 $228,509 
     Operating cash flows from finance leases1,541  
     Financing cash flows from finance leases809  
Operating lease assets obtained in exchange for new operating lease liabilities229,030 278,454 
Financing lease assets obtained in exchange for new financing lease liabilities17,273  

11) INCOME TAXES

The effective income tax rate for the three and six months ended August 27, 2022 was (0.4)% and (0.5)%, respectively compared with 27.0% and 34.2%, respectively, for the three and six months ended August 28, 2021. The effective income tax rate for the three and six months ended August 27, 2022 reflects the impact of a valuation allowance initially recorded in the third quarter of fiscal 2021, discussed below. For the three and six months ended August 28, 2021, the effective tax rate included the impact of charges for restructuring and transformation initiatives, as well as a benefit of $0.6 million and $16.2 million, respectively, resulting from an adjustment to the estimated net operating loss incurred in fiscal 2020 which was carried back, under the provisions of the CARES Act, to a year in which the tax rate was 35%.

In assessing the recoverability of its deferred tax assets, the Company evaluates the available objective positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit the use of existing deferred tax assets in each taxpaying jurisdiction. For any deferred tax asset in excess of the amount for which it is more likely than not that the Company will realize a benefit, the Company establishes a valuation allowance. A valuation allowance is a non-cash charge, and does not limit the Company's ability to utilize its deferred tax assets, including its ability to utilize tax loss and credit carryforward amounts, against future taxable income.

During the third quarter of fiscal 2021, the Company concluded that, based on its evaluation of available objective positive and negative evidence, it was no longer more likely than not that its net U.S. federal and state deferred tax assets were recoverable. During the six months ended August 27, 2022, the Company determined that this conclusion continued to be appropriate. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included the Company’s cumulative loss before income taxes for the past three years, current trends related to actual taxable earnings or losses, and expected future reversals of existing taxable temporary differences, as well as, timing and the cost of the Company's transformation initiatives and their expected associated benefits. As of both August 27, 2022 and February 26, 2022, the total valuation allowance relative to U.S. federal and state deferred tax assets was $224.3 million.

As of both August 27, 2022 and February 26, 2022, the Company recorded a valuation allowance of $25.2 million relative to the Company's Canadian net deferred tax asset, as the Company did not believe the deferred tax assets in that jurisdiction were more likely than not to be realized.

The amount of the deferred tax assets considered realizable, and the associated valuation allowance, could be adjusted in a future period if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as projections for future growth.
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During the three and six months ended August 27, 2022, the change in the gross amount of unrecognized tax benefits and accrued interest and penalties was not significant.

As of August 27, 2022, the Company operated in all 50 states, the District of Columbia, Puerto Rico, Canada and Mexico and files income tax returns in the United States and various state, local and international jurisdictions. The Company is currently under examination by the Internal Revenue Service for the tax year 2017. The Company is open to examination for state, foreign and local jurisdictions with varying statutes of limitations, generally ranging from 3 to 5 years.

12) INDEFINITE-LIVED INTANGIBLE ASSETS

Included in other assets in the accompanying consolidated balance sheets as of August 27, 2022 and February 26, 2022, respectively, are $13.4 million and $16.3 million for indefinite-lived tradenames and trademarks.

The Company reviews intangibles that have indefinite lives for impairment annually as of the end of the fiscal year or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. Significant assumptions and estimates are required, including, but not limited to, projecting future cash flows, determining appropriate discount rates and terminal growth rates, and other assumptions, to estimate the fair value of indefinite-lived intangible assets. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.

Indefinite-lived intangible assets were recorded as a result of acquisitions and primarily consist of tradenames. The Company values its tradenames using a relief-from-royalty approach, which assumes the value of the tradename is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the tradename and instead licensed the tradename from another company. During the three and six months ended August 27, 2022, the Company completed a quantitative impairment analysis for certain of its indefinite lived intangible assets, by comparing the fair value of the tradenames to their carrying value. There were no tradename impairment charges recognized during the three months ended August 27, 2022. During the six months ended August 27, 2022, the Company recognized a non-cash pre-tax tradename impairment charge of $2.9 million in impairments in its consolidated statements of operations. During the three and six months ended August 28, 2021, the Company recognized non-cash pre-tax tradename impairment charges of $0.6 million and $2.7 million, respectively, in impairments in its consolidated statements of operations. As of August 27, 2022, for the remaining indefinite-lived intangible assets, the Company assessed qualitative factors in order to determine whether any events and circumstances existed which indicated that it was more likely than not that the fair value of these indefinite-lived assets did not exceed their carrying values and concluded no such events or circumstances existed which would require an impairment test be performed. In the future, if events or market conditions affect the estimated fair value to the extent that an asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs.

13) LONG-TERM DEBT

Senior Unsecured Notes

On July 17, 2014, the Company issued $300.0 million aggregate principal amount of 3.749% senior unsecured notes due August 1, 2024, $300.0 million aggregate principal amount of 4.915% senior unsecured notes due August 1, 2034 and $900.0 million aggregate principal amount of 5.165% senior unsecured notes due August 1, 2044 (collectively, the "Notes"). Interest on the Notes is payable semi-annually on February 1 and August 1 of each year.

The Notes were issued under an indenture (the "Base Indenture"), as supplemented by a first supplemental indenture (together, with the Base Indenture, the "Indenture"), which contains various restrictive covenants, which are subject to important limitations and exceptions that are described in the Indenture. The Company was in compliance with all covenants related to the Notes as of August 27, 2022.

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During the three and six months ended August 27, 2022, the Company did not purchase any of its outstanding unsecured notes. During the three and six months ended August 28, 2021, the Company purchased approximately $3.1 million and $11.0 million, respectively, aggregate principal amount of its outstanding 3.749% senior unsecured notes due August 1, 2024. The total consideration paid for the notes accepted for purchase of $3.2 million and $11.4 million during the three and six months ended August 28, 2021, respectively, included accrued and unpaid interest up to, but not including, the early settlement date. The Company recorded losses on extinguishment of debt of $0.1 million and $0.4 million in its consolidated statement of operations for the three and six months ended August 28, 2021, respectively, including the write off of unamortized debt financing costs related to the extinguished portion of the notes accepted for purchase and reacquisition costs.

As of August 27, 2022 and February 26, 2022, unamortized deferred financing costs associated with the Company’s Notes were $4.4 million and $4.6 million, respectively, and are included in long-term debt in the Company's consolidated balance sheets.

Asset-Based Credit Agreement

In the second quarter of fiscal 2021, the Company amended its asset-based credit agreement (the “Amended Credit Agreement”) among the Company, certain of the Company’s U.S. and Canadian subsidiaries party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (in such capacity, the “Agent”), and the lenders party thereto. The Amended Credit Agreement provides for an asset-based revolving credit facility (the “ABL Facility”) with aggregate revolving commitments established at closing of $1.0 billion, including a swingline subfacility and a letter of credit subfacility. The Amended Credit Agreement has an uncommitted expansion feature which allows the borrowers to request, at any time following the delivery of an initial field exam and appraisal, an increase in aggregate revolving commitments under the ABL Facility or elect to enter into a first-in-last-out loan facility ("FILO Facility"), collectively, in an aggregate amount of up to $375.0 million, subject to certain customary conditions. The Amended Credit Agreement matures on August 9, 2026.

The ABL Facility is secured on a first priority basis (subject to customary exceptions) on all accounts receivable (including credit card receivables), inventory, certain deposit accounts and securities accounts, and certain related assets, of the Company and its subsidiaries that are borrowers or guarantors under the ABL Facility. Amounts available to be drawn from time to time under the ABL Facility (including, in part, in the form of letters of credit) are equal to the lesser of (i) outstanding revolving commitments under the Amended Credit Agreement and (ii) a borrowing base equal to the sum of (a) 90% of eligible credit card receivables plus (b) 90% of eligible inventory, valued at the lower of cost or market value, determined on a weighted average cost basis, minus (c) customary reserves.

Subject to customary exceptions and restrictions, the Company may voluntarily repay outstanding amounts under the ABL Facility at any time without premium or penalty. Any voluntary prepayments made will not reduce commitments under the ABL Facility. If at any time the outstanding amount under the ABL Facility exceeds the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base, the Company will be required to prepay outstanding amounts or cash collateralize letter of credit obligations under the ABL Facility.

Outstanding amounts under the Amended Credit Agreement bear interest at a rate per annum equal to, at the applicable borrower’s election: (i) in the case of loans denominated in U.S. dollars, such loans shall be comprised entirely of Alternate Base Rate ("ABR") loans and London Inter-Bank Offered ("LIBO") Rate loans and (ii) in the case of loans denominated in Canadian dollars, such loans shall be comprised entirely of Canadian Prime Rate loans and Canadian Dollar Offered Rate ("CDOR") loans, in each case as set forth in the Amended Credit Agreement, plus an interest rate margin based on average quarterly availability ranging from (i) in the case of ABR loans and Canadian Prime Rate loans, 0.25% to 0.75%; provided that if ABR or the Canadian Prime Rate is less than 1.00%, such rate shall be deemed to be 1.00%, as applicable, and (ii) in the case of LIBO Rate loans and CDOR Loans, 1.25% to 1.75%; provided that if the CDOR or LIBO Rate is less than 0.00%, such rate shall be deemed to be 0.00%, as applicable.

As of August 27, 2022, the Company had $550.0 million of borrowings outstanding under the ABL Facility, at a weighted average interest rate of 3.72%, and $136.4 million of outstanding letters of credit had been issued under the ABL Facility. The Company's borrowing under the ABL Facility have been and may be used for working capital, including inventory purposes, and other general corporate purposes.

The Amended Credit Agreement contains customary representations and warranties, events of default and financial, affirmative and negative covenants for facilities of this type, including but not limited to a springing financial covenant relating to a fixed charge coverage ratio, and restrictions on indebtedness, liens, investments and acquisitions, asset dispositions, restricted payments and prepayment of certain indebtedness. The Company was in compliance with all covenants related to the Amended Credit Agreement as of August 27, 2022.

On August 31, 2022, subsequent to the end of the second quarter of fiscal 2022, the Company entered into an amendment (the "Amendment") to the Amended Credit Agreement for more than $500.0 million of new additional financing commitments,
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including its newly expanded $1.130 billion ABL Facility, which provides for an increase of $130.0 million in aggregate revolving commitments for the time periods set forth in the Amendment, and a new $375.0 million FILO Facility (together with the ABL Facility, the "Credit Facilities"), with JPMorgan Chase Bank, N.A., as administrative agent and Sixth Street Specialty Lending, Inc., as agent and lender for the FILO Facility. The ABL Facility and FILO Facility mature on August 9, 2026 and August 31, 2027, respectively, unless required to mature earlier pursuant to the terms of the Amendment. Subsequent to the end of the second quarter of fiscal 2022, the Company borrowed an additional $175.0 million under the Credit Facilities and, as a result, total borrowings under the Credit Facilities total $725.0 million.

As of August 27, 2022 and February 26, 2022, deferred financing costs associated with the Company's ABL Facility were $6.6 million and $7.4 million, respectively, and were recorded in other assets in the Company's consolidated balance sheets.
The Company amortizes deferred financing costs for the Notes and the ABL Facility over their respective terms and such amortization is included in interest expense, net in the consolidated statements of operations. Interest expense related to the Notes and the revolving credit facilities, including the commitment fee and the amortization of deferred financing costs, was approximately $17.6 million and $16.5 million for the three months ended August 27, 2022 and August 28, 2021, respectively and $34.0 million and $32.9