Company Quick10K Filing
Big Lots
Price24.25 EPS7
Shares39 P/E4
MCap955 P/FCF12
Net Debt453 EBIT317
TEV1,409 TEV/EBIT4
TTM 2019-11-02, in MM, except price, ratios
10-Q 2020-08-01 Filed 2020-09-09
10-Q 2020-05-02 Filed 2020-06-10
10-K 2020-02-01 Filed 2020-03-31
10-Q 2019-11-02 Filed 2019-12-11
10-Q 2019-08-03 Filed 2019-09-11
10-Q 2019-05-04 Filed 2019-06-12
10-K 2019-02-02 Filed 2019-04-02
10-Q 2018-11-03 Filed 2018-12-12
10-Q 2018-08-04 Filed 2018-09-12
10-Q 2018-05-05 Filed 2018-06-13
10-K 2018-02-03 Filed 2018-04-03
10-Q 2017-10-28 Filed 2017-12-06
10-Q 2017-07-29 Filed 2017-09-06
10-Q 2017-04-29 Filed 2017-06-07
10-K 2017-01-28 Filed 2017-03-28
10-Q 2016-10-29 Filed 2016-12-07
10-Q 2016-07-30 Filed 2016-09-07
10-Q 2016-04-30 Filed 2016-06-08
10-K 2016-01-30 Filed 2016-03-29
10-Q 2015-10-31 Filed 2015-12-09
10-Q 2015-08-01 Filed 2015-09-09
10-Q 2015-05-02 Filed 2015-06-10
10-K 2015-01-31 Filed 2015-03-31
10-Q 2014-11-01 Filed 2014-12-10
10-Q 2014-08-02 Filed 2014-09-10
10-Q 2014-05-03 Filed 2014-06-11
10-K 2014-02-01 Filed 2014-04-01
10-Q 2013-08-03 Filed 2013-09-10
10-Q 2013-05-04 Filed 2013-06-12
10-K 2013-02-02 Filed 2013-04-02
10-Q 2012-10-27 Filed 2012-12-05
10-Q 2012-07-28 Filed 2012-09-05
10-Q 2012-04-28 Filed 2012-06-06
10-K 2012-01-28 Filed 2012-03-26
10-Q 2011-10-29 Filed 2011-12-07
10-Q 2011-07-30 Filed 2011-09-07
10-Q 2011-04-30 Filed 2011-06-07
10-K 2011-01-29 Filed 2011-03-30
10-Q 2010-10-30 Filed 2010-12-08
10-Q 2010-07-31 Filed 2010-09-08
10-Q 2010-05-01 Filed 2010-06-10
10-K 2010-01-30 Filed 2010-03-30
8-K 2020-08-27 Earnings, Other Events, Exhibits
8-K 2020-06-26 Other Events, Exhibits
8-K 2020-06-12
8-K 2020-06-10
8-K 2020-05-28
8-K 2020-04-30
8-K 2020-04-22
8-K 2020-04-06
8-K 2020-04-03
8-K 2020-02-26
8-K 2019-12-04
8-K 2019-08-28
8-K 2019-06-28
8-K 2019-06-21
8-K 2019-05-29
8-K 2019-03-05
8-K 2018-12-07
8-K 2018-12-04
8-K 2018-08-29
8-K 2018-08-21
8-K 2018-06-29
8-K 2018-06-27
8-K 2018-05-31
8-K 2018-04-16
8-K 2018-04-12
8-K 2018-03-07

BIG 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
Note 2 - Debt
Note 3 - Fair Value Measurements
Note 4 - Leases
Note 5 - Shareholders' Equity
Note 6 - Share - Based Plans
Note 7 - Income Taxes
Note 8 - Contingencies
Note 9 - Restructuring Costs
Note 10 - Business Segment Data
Note 11 - Derivative Instruments
Note 12 - Gain on Sale of Distribution Center
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 big-2019112xex311.htm
EX-31.2 big-2019112xex312.htm
EX-32.1 big-2019112xex321.htm
EX-32.2 big-2019112xex322.htm

Big Lots Earnings 2019-11-02

Balance SheetIncome StatementCash Flow
3.52.82.11.40.70.02012201420172020
Assets, Equity
1.81.41.00.70.3-0.12012201420172020
Rev, G Profit, Net Income
0.40.30.1-0.0-0.2-0.32012201420172020
Ops, Inv, Fin

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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 November 2, 2019
or

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 001-08897
BIG LOTS INC
(Exact name of registrant as specified in its charter)

Ohio                              06-1119097
(State or Other Jurisdiction of Incorporation or Organization)         (I.R.S. Employer Identification No.)

4900 E. Dublin-Granville Road, Columbus, Ohio                  43081
(Address of Principal Executive Offices)                 (Zip Code)

(614) 278-6800
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common shares
BIG
New York Stock Exchange

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. Yesþ     Noo

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). Yesþ     Noo

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 þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o

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 þ

The number of the registrant’s common shares, $0.01 par value, outstanding as of December 6, 2019, was 39,042,767.
 



BIG LOTS, INC. 
FORM 10-Q 
FOR THE FISCAL QUARTER ENDED NOVEMBER 2, 2019

TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
 
 
 
a)
 
 
 
b)
 
 
 
c)
 
 
 
d)
 
 
 
e)
 
 
 
Item 2. 
 
 
 
Item 3.
 
 
 
Item 4. 
 
 
 
 
 
 
Item 1.  
 
 
 
Item 1A.  
 
 
 
Item 2.  
 
 
 
Item 3.  
 
 
 
Item 4.  
 
 
 
Item 5.  
 
 
 
Item 6.  
 
 
 
 

1


Part I. Financial Information


Item 1. Financial Statements

BIG LOTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands, except per share amounts)
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
November 2, 2019
November 3, 2018
 
November 2, 2019
November 3, 2018
Net sales
$
1,167,988

$
1,149,402

 
$
3,716,198

$
3,639,554

Cost of sales (exclusive of depreciation expense shown separately below)
704,602

690,228

 
2,235,535

2,177,003

Gross margin
463,386

459,174

 
1,480,663

1,462,551

Selling and administrative expenses
436,714

436,826

 
1,352,345

1,301,523

Depreciation expense
34,752

31,911

 
97,572

90,936

Gain on sale of distribution center
(178,534
)

 
(178,534
)

Operating profit (loss)
170,454

(9,563
)
 
209,280

70,092

Interest expense
(5,359
)
(3,138
)
 
(13,657
)
(7,121
)
Other income (expense)
(322
)
59

 
(201
)
716

Income (loss) before income taxes
164,773

(12,642
)
 
195,422

63,687

Income tax expense (benefit)
37,791

(6,086
)
 
46,722

14,840

Net income (loss) and comprehensive income (loss)
$
126,982

$
(6,556
)
 
$
148,700

$
48,847

 
 
 
 
 
 
Earnings (loss) per common share
 

 

 
 
 
Basic
$
3.25

$
(0.16
)
 
$
3.78

$
1.19

Diluted
$
3.25

$
(0.16
)
 
$
3.77

$
1.19

 
 
 
 
 
 
Weighted-average common shares outstanding
 

 

 
 
 
Basic
39,017

40,021

 
39,313

41,065

Dilutive effect of share-based awards
77


 
85

138

Diluted
39,094

40,021

 
39,398

41,203

 
 
 
 
 
 
Cash dividends declared per common share
$
0.30

$
0.30

 
$
0.90

$
0.90

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


2


BIG LOTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(In thousands, except par value)
 
November 2, 2019
 
February 2, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
61,794

 
$
46,034

Inventories
1,117,263

 
969,561

Other current assets
82,495

 
112,408

Total current assets
1,261,552

 
1,128,003

Operating lease right-of-use assets
1,233,558

 

Property and equipment - net
860,659

 
822,338

Deferred income taxes

 
8,633

Other assets
65,977

 
64,373

Total assets
$
3,421,746

 
$
2,023,347

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
475,995

 
$
396,903

Current operating lease liabilities
205,390

 

Property, payroll, and other taxes
87,357

 
75,317

Accrued operating expenses
131,987

 
99,422

Insurance reserves
36,534

 
38,883

Accrued salaries and wages
38,004

 
26,798

Income taxes payable
1,977

 
1,237

Total current liabilities
977,244

 
638,560

Long-term debt
501,115

 
374,100

Noncurrent operating lease liabilities
1,067,529

 

Deferred income taxes
8,316

 

Deferred rent

 
60,700

Insurance reserves
51,665

 
54,507

Unrecognized tax benefits
12,913

 
14,189

Synthetic lease obligation

 
144,477

Other liabilities
40,640

 
43,773

Shareholders’ equity:
 

 
 

Preferred shares - authorized 2,000 shares; $0.01 par value; none issued

 

Common shares - authorized 298,000 shares; $0.01 par value; issued 117,495 shares; outstanding 39,036 shares and 40,042 shares, respectively
1,175

 
1,175

Treasury shares - 78,459 shares and 77,453 shares, respectively, at cost
(2,546,251
)
 
(2,506,086
)
Additional paid-in capital
619,441

 
622,685

Retained earnings
2,687,959

 
2,575,267

Total shareholders' equity
762,324

 
693,041

Total liabilities and shareholders' equity
$
3,421,746

 
$
2,023,347

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


3


BIG LOTS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (Unaudited)
(In thousands)
 
Common
Treasury
Additional
Paid-In
Capital
Retained Earnings
 
 
Shares
Amount
Shares
Amount
Total
Thirteen Weeks Ended November 3, 2018
Balance - August 4, 2018
39,987

$
1,175

77,508

$
(2,507,784
)
$
613,891

$
2,498,443

$
605,725

Comprehensive income





(6,556
)
(6,556
)
Dividends declared ($0.30 per share)





(12,321
)
(12,321
)
Purchases of common shares
(12
)

12

(486
)


(486
)
Exercise of stock options
42


(42
)
1,375

464


1,839

Restricted shares vested
25


(25
)
809

(809
)


Performance shares vested







Other



(2
)


(2
)
Share-based employee compensation expense




4,533


4,533

Balance - November 3, 2018
40,042

$
1,175

77,453

$
(2,506,088
)
$
618,079

$
2,479,566

$
592,732

 
 
 
 
 
 
 
 
Thirty-Nine Weeks Ended November 3, 2018
Balance - February 3, 2018
41,925

$
1,175

75,570

$
(2,422,396
)
$
622,550

$
2,468,258

$
669,587

Comprehensive income





48,847

48,847

Dividends declared ($0.90 per share)





(37,539
)
(37,539
)
Purchases of common shares
(2,635
)

2,635

(107,827
)
(3,920
)

(111,747
)
Exercise of stock options
43


(43
)
1,395

464


1,859

Restricted shares vested
413


(413
)
13,263

(13,263
)


Performance shares vested
296


(296
)
9,475

(9,475
)


Other



2

1


3

Share-based employee compensation expense




21,722


21,722

Balance - November 3, 2018
40,042

$
1,175

77,453

$
(2,506,088
)
$
618,079

$
2,479,566

$
592,732

 
 
 
 
 
 
 
 
Thirteen Weeks Ended November 2, 2019
Balance - August 3, 2019
39,001

$
1,175

78,494

$
(2,547,556
)
$
617,993

$
2,572,931

$
644,543

Comprehensive income





126,982

126,982

Dividends declared ($0.30 per share)





(11,954
)
(11,954
)
Purchases of common shares
(18
)

18

(423
)


(423
)
Exercise of stock options







Restricted shares vested
47


(47
)
1,526

(1,526
)


Performance shares vested
6


(6
)
204

(204
)


Other



(2
)


(2
)
Share-based employee compensation expense




3,178


3,178

Balance - November 2, 2019
39,036

$
1,175

78,459

$
(2,546,251
)
$
619,441

$
2,687,959

$
762,324

 
 
 
 
 
 
 
 
Thirty-Nine Weeks Ended November 2, 2019
Balance - February 2, 2019
40,042

$
1,175

77,453

$
(2,506,086
)
$
622,685

$
2,575,267

$
693,041

Comprehensive income





148,700

148,700

Dividends declared ($0.90 per share)





(36,356
)
(36,356
)
Adjustment for ASU 2016-02





348

348

Purchases of common shares
(1,474
)

1,474

(55,342
)


(55,342
)
Exercise of stock options
6


(6
)
202

(2
)

200

Restricted shares vested
201


(201
)
6,521

(6,521
)


Performance shares vested
261


(261
)
8,459

(8,459
)


Other



(5
)


(5
)
Share-based employee compensation expense




11,738


11,738

Balance - November 2, 2019
39,036

$
1,175

78,459

$
(2,546,251
)
$
619,441

$
2,687,959

$
762,324

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

4


BIG LOTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
Thirty-Nine Weeks Ended
 
November 2, 2019
November 3, 2018
Operating activities:
 
 
Net income
$
148,700

$
48,847

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

Depreciation and amortization expense
98,153

82,666

Non-cash lease amortization expense
171,564


Deferred income taxes
16,842

(8,937
)
Non-cash impairment charge
3,292


(Gain) Loss on disposition of property and equipment
(178,431
)
350

Non-cash share-based compensation expense
11,738

21,722

Unrealized loss (gain) on fuel derivatives
126

(460
)
Change in assets and liabilities:
 

 

Inventories
(147,702
)
(201,095
)
Accounts payable
79,092

128,409

Operating lease liabilities
(163,970
)

Current income taxes
2,000

(35,540
)
Other current assets
(4,880
)
(15,626
)
Other current liabilities
48,538

7,943

Other assets
(2,066
)
1,253

Other liabilities
(2,448
)
10,888

Net cash provided by operating activities
80,548

40,420

Investing activities:
 

 

Capital expenditures
(231,889
)
(165,396
)
Cash proceeds from sale of property and equipment
190,679

367

Assets acquired under synthetic lease

(116,039
)
Other
(21
)
35

Net cash used in investing activities
(41,231
)
(281,033
)
Financing activities:
 

 

Net proceeds from long-term debt
140,926

288,200

Payment of finance lease obligations
(72,479
)
(2,899
)
Dividends paid
(36,707
)
(38,592
)
Proceeds from the exercise of stock options
200

1,859

Payment for treasury shares acquired
(55,342
)
(111,747
)
Proceeds from synthetic lease

116,039

Payments for debt issuance costs
(150
)
(1,488
)
Other
(5
)
3

Net cash (used in) provided by financing activities
(23,557
)
251,375

Increase in cash and cash equivalents
15,760

10,762

Cash and cash equivalents:
 

 

Beginning of period
46,034

51,176

End of period
$
61,794

$
61,938


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

5


BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

All references in this report to “we,” “us,” or “our” are to Big Lots, Inc. and its subsidiaries.  We are a discount retailer operating in the United States (“U.S.”).  At November 2, 2019, we operated 1,418 stores in 47 states.  We make available, free of charge, through the “Investor Relations” section of our website (www.biglots.com) under the “SEC Filings” caption, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).  The contents of our website are not incorporated into or otherwise part of this report.

The accompanying consolidated financial statements and these notes have been prepared in accordance with the rules and regulations of the SEC for interim financial information. The consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly our financial condition, results of operations, and cash flows for all periods presented. The consolidated financial statements, however, do not include all information necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  Interim results may not necessarily be indicative of results that may be expected for, or actually result during, any other interim period or for the year as a whole.  We have historically experienced, and expect to continue to experience, seasonal fluctuations, with a larger percentage of our net sales and operating profit realized in our fourth fiscal quarter.  The accompanying consolidated financial statements and these notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019 (“2018 Form 10-K”).

Fiscal Periods
Our fiscal year ends on the Saturday nearest to January 31, which results in fiscal years consisting of 52 or 53 weeks.  Unless otherwise stated, references to years in this report relate to fiscal years rather than calendar years.  Fiscal year 2019 (“2019”) is comprised of the 52 weeks that began on February 3, 2019 and will end on February 1, 2020.  Fiscal year 2018 (“2018”) was comprised of the 52 weeks that began on February 4, 2018 and ended on February 2, 2019.  The fiscal quarters ended November 2, 2019 (“third quarter of 2019”) and November 3, 2018 (“third quarter of 2018”) were both comprised of 13 weeks. The year-to-date periods ended November 2, 2019 (“year-to-date 2019") and November 3, 2018 (“year-to-date 2018”) were both comprised of 39 weeks.

Selling and Administrative Expenses
Selling and administrative expenses include store expenses (such as payroll and occupancy costs) and costs related to warehousing, distribution, outbound transportation to our stores, advertising, purchasing, insurance, non-income taxes, accepting credit/debit cards, and overhead.  Our selling and administrative expense rates may not be comparable to those of other retailers that include warehousing, distribution, and outbound transportation costs in cost of sales.  Warehousing, distribution, and outbound transportation costs included in selling and administrative expenses were $48.8 million and $45.5 million for the third quarter of 2019 and the third quarter of 2018, respectively, and $137.1 million and $131.1 million for the year-to-date 2019 and the year-to-date 2018, respectively.

Advertising Expense
Advertising costs, which are expensed as incurred, consist primarily of television and print advertising, digital, internet and e-mail marketing and advertising, and in-store point-of-purchase signage and presentations.  Advertising expenses are included in selling and administrative expenses.  Advertising expenses were $18.2 million and $16.4 million for the third quarter of 2019 and the third quarter of 2018, respectively, and $57.9 million and $54.7 million for the year-to-date 2019 and the year-to-date 2018, respectively.

Derivative Instruments
We use derivative instruments to mitigate the risk of market fluctuations in the price of diesel fuel that we expect to consume to support our outbound transportation of inventory to our stores. We do not enter into derivative instruments for speculative purposes. Our derivative instruments may consist of collar or swap contracts. Our current derivative instruments do not meet the requirements for cash flow hedge accounting. Instead, our derivative instruments are marked-to-market to determine their fair value and any gains or losses are recognized currently in other income (expense) on our consolidated statements of operations and comprehensive income. For further information on our derivative instruments, see note 11.


6


Supplemental Cash Flow Disclosures
The following table provides supplemental cash flow information for the year-to-date 2019 and the year-to-date 2018:
 
Thirty-Nine Weeks Ended
(In thousands)
November 2, 2019
 
November 3, 2018
Supplemental disclosure of cash flow information:
 

 
 

Cash paid for interest, including financing or capital leases
$
13,828

 
$
6,494

Cash paid for income taxes, excluding impact of refunds
28,379

 
59,600

Gross proceeds from long-term debt
1,425,400

 
1,376,400

Gross payments of long-term debt
1,284,474

 
1,088,200

Cash paid for operating lease liabilities
217,935

 

Non-cash activity:
 

 
 

Assets acquired under financing or capital leases
70,831

 
785

Accrued property and equipment
23,906

 
37,440

Operating lease right-of-use assets obtained in exchange for operating lease liabilities
$
1,489,449

 
$



Property and Equipment - Net
Depreciation and amortization expense of property and equipment are recorded on a straight-line basis using estimated service lives. We began a significant capital investment program in our store of the future concept in 2018, which resulted in us reviewing our estimated service lives of our leasehold improvements and fixtures and equipment at both our renovated stores and newly opened stores. During 2019, in connection with analysis of our remaining lease terms under ASC 842, we changed the estimated service lives on leasehold improvements for new stores from 5 years to 10 years and for renovated stores from 5 years to 7 years, both of which more appropriately reflect the remaining lease term on these stores. Additionally, we changed the estimated service lives on fixtures and certain equipment from 5 years to 7 years for both new stores and renovated stores to reflect our revised expectation on our renovation cycle, while taking into consideration our remaining lease term.

Reclassification of Merchandise Categories
We periodically assess, and make minor adjustments to, our product hierarchy, which can impact the roll-up of our merchandise categories. Our financial reporting process utilizes the most current product hierarchy in reporting net sales by merchandise category for all periods presented. Therefore, there may be minor reclassifications of net sales by merchandise category compared to previously reported amounts.

Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The update requires a lessee to recognize, on the balance sheet, a liability to make lease payments and a right-of-use asset representing a right to use the underlying asset for the lease term. Additionally, this guidance expanded related disclosure requirements. On February 3, 2019, we adopted the new standard and elected the optional transition method, as allowed by ASU 2018-11, Leases (Topic 842), Targeted Improvements, to apply the new standard as of the effective date. Therefore, we have not applied the new standard to the comparative prior periods presented in the unaudited consolidated financial statements. We elected to apply the following practical expedients and policy elections at adoption:
Practical expedient package
 
We have not reassessed whether any expired or existing contracts are, or contain, leases.
We have not reassessed the lease classification for any expired or existing leases.
We have not reassessed initial direct costs for any expired or existing leases.
Hindsight practical expedient
 
We have not elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.
Separation of lease and non-lease components
 
We have elected to establish an accounting policy to account for lease and non-lease components as a single component for our real estate class of assets.
Short-term policy
 
We have elected to establish a short-term lease exception policy, permitting us to not apply the recognition requirements of the new standard to short-term leases (i.e., leases with terms of 12 months or less).

Adoption of this standard, in the first quarter of 2019, resulted in the recognition of right-of-use assets and lease liabilities for operating leases of $1,110 million and $1,138 million, respectively, with difference in amounts being primarily comprised of

7


pre-existing deferred rent and prepaid rent. The impact of the adoption was immaterial to the consolidated statements of shareholders' equity. For further discussion on our leases, see note 4.

NOTE 2 – DEBT

Bank Credit Facility
On August 31, 2018, we entered into a $700 million five-year unsecured credit facility (“2018 Credit Agreement”) that replaced our prior credit facility entered into in July 2011 and most recently amended in May 2015 (“2011 Credit Agreement”). The 2018 Credit Agreement expires on August 31, 2023. In connection with our entry into the 2018 Credit Agreement, we paid bank fees and other expenses in the aggregate amount of $1.5 million, which are being amortized over the term of the 2018 Credit Agreement.

Borrowings under the 2018 Credit Agreement are available for general corporate purposes, working capital, and to repay certain indebtedness.  The 2018 Credit Agreement includes a $30 million swing loan sublimit, a $75 million letter of credit sublimit, a $75 million sublimit for loans to foreign borrowers, and a $200 million optional currency sublimit.  The interest rates, pricing and fees under the 2018 Credit Agreement fluctuate based on our debt rating.  The 2018 Credit Agreement allows us to select our interest rate for each borrowing from multiple interest rate options.  The interest rate options are generally derived from the prime rate or LIBOR.  We may prepay revolving loans made under the 2018 Credit Agreement.  The 2018 Credit Agreement contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens and investments, as well as the maintenance of two financial ratios – a leverage ratio and a fixed charge coverage ratio. Additionally, we are subject to cross-default provisions associated with the synthetic lease for our new distribution center in California. A violation of any of the covenants could result in a default under the 2018 Credit Agreement that would permit the lenders to restrict our ability to further access the 2018 Credit Agreement for loans and letters of credit and require the immediate repayment of any outstanding loans under the 2018 Credit Agreement.  At November 2, 2019, we had $447.3 million of borrowings outstanding under the 2018 Credit Agreement, while $6.9 million was committed to outstanding letters of credit, leaving $245.8 million available under the 2018 Credit Agreement.

Secured Equipment Term Note
On August 7, 2019, we entered into a $70 million term note agreement (“2019 Term Note”), which is secured by the equipment at our new California distribution center. The 2019 Term Note will expire on May 7, 2024. We are required to make monthly payments over the term of the 2019 Term Note and are permitted to prepay, subject to penalties, at any time. The interest rate on the 2019 Term Note is 3.3%. In connection with our entry into the 2019 Term Note, we paid debt issuance costs of $0.2 million.

Debt was recorded in our consolidated balance sheets as follows:
Instrument (In thousands)
 
November 2, 2019
 
February 2, 2019
2019 Term Note
 
$
67,726

 
$

2018 Credit Agreement
 
447,300

 
374,100

Total debt
 
$
515,026

 
$
374,100

Less current portion of long-term debt (included in Accrued operating expenses)
 
$
(13,911
)
 
$

Long-term debt
 
$
501,115

 
$
374,100



NOTE 3 – FAIR VALUE MEASUREMENTS

In connection with our nonqualified deferred compensation plan, we had mutual fund investments of $32.5 million and $31.6 million at November 2, 2019 and February 2, 2019, respectively, which were recorded in other assets. These investments were classified as trading securities and were recorded at their fair value. The fair values of mutual fund investments were Level 1 valuations under the fair value hierarchy because each fund’s quoted market value per share was available in an active market.

The fair values of our long-term obligations under the 2018 Credit Agreement are estimated based on quoted market prices for the same or similar issues and the current interest rates offered for similar instruments. These fair value measurements are classified as Level 2 within the fair value hierarchy. Given the variable rate features and relatively short maturity of the instruments underlying the 2018 Credit Agreement, the carrying value of these instruments approximates their fair value.


8


The fair value of our long-term obligations under the 2019 Term Note are based on quoted market prices and are classified as Level 2 within the fair value hierarchy. The carrying value of the instrument approximates its fair value.

The carrying value of accounts receivable and accounts payable approximates fair value because of the relatively short maturity of these items.

NOTE 4 – LEASES

We determine if an arrangement contains a lease at inception of the agreement. Our leased property consists of our retail stores, distribution centers in California, store security, and other office equipment. Certain of our store leases have rent escalations and/or have tenant allowances or other lease incentives, which are fixed in nature and included in our calculation of right-of-use assets and lease liabilities. Certain of our store leases provide for contingent rents, which are recorded as variable costs and not included in our calculation of right-of-use assets and lease liabilities. Many of our store leases obligate us to pay for our applicable portion of real estate taxes, CAM, and property insurance, which are recorded as variable costs and not included in our calculation of right-of-use assets and lease liabilities, except for certain fixed CAM charges that are not variable. Many of our leases contain provisions for options to renew, extend the original term for additional periods, or terminate the lease if certain sales thresholds are not attained. We have assessed the reasonable certainty of these provisions to determine the appropriate lease term. Our lease agreements do not contain material residual value guarantees (excluding the synthetic lease arrangement discussed below), restrictions, or covenants.

In November 2017, we entered into a synthetic lease arrangement for a new distribution center in California. The term of this lease commenced in the second quarter of 2019 and will expire five years after commencement. Under the prior accounting standard, this lease was accounted for as a capital lease due to certain construction period considerations; therefore, it was reflected in both our balance sheet and our future minimum lease obligations disclosure. As the lease commenced in the second quarter of 2019, we assessed the lease classification of the agreement and determined it was an operating lease under ASC 842; therefore, the lease is included in our operating lease right-of-use assets and operating lease liabilities in the below table as of November 2, 2019. The annual lease payments are approximately $7 million for the duration of the term. Additionally, this arrangement includes a residual value guarantee.

Leases were recorded in our consolidated balance sheets as follows:
Leases
Balance Sheet Location
November 2, 2019
Assets
 
(In thousands)
Operating
Operating lease right-of-use assets
$
1,233,558

Finance
Property and equipment - net
8,755

Total right-of-use assets
 
$
1,242,313

Liabilities
 
 
Current
 
 
Operating
Current operating lease liabilities
$
205,390

Finance
Accrued operating expenses
3,771

Noncurrent
 
 
Operating
Noncurrent operating lease liabilities
1,067,529

Finance
Other liabilities
5,635

Total lease liabilities
$
1,282,325




9


The components of lease costs were as follows:
 
Statements of Operations and Comprehensive Income Location
Third Quarter
 
Year-to-date
Lease cost
2019
 
2019
 
 
(In thousands)
Operating lease cost
Selling and administrative expenses
$
71,721

 
$
214,771

Finance lease cost
 
 
 
 
Amortization of leased assets
Depreciation
1,427

 
3,403

Interest on lease liabilities
Interest expense
598

 
850

Short-term lease cost
Selling and administrative expenses
1,304

 
4,386

Variable lease cost
Selling and administrative expenses
17

 
237

Total lease cost
$
75,067

 
$
223,647



Maturity of our lease liabilities at November 2, 2019, was as follows:
Fiscal Year
Operating Leases
 
Finance Leases
2019 (represents the fourth quarter of 2019)
$
59,797

 
$
1,494

2020
291,127

 
4,441

2021
257,137

 
3,330

2022
220,601

 
607

2023
186,539

 
117

Thereafter
469,884

 
71

  Total lease payments
$
1,485,085

 
$
10,060

  Less amount to discount to present value
$
(212,166
)
 
$
(654
)
Present value of lease liabilities
$
1,272,919

 
$
9,406



Lease term and discount rate, for our operating leases, at November 2, 2019 were as follows:
 
November 2, 2019
Weighted average remaining lease term (years)
6.4

Weighted average discount rate
4.2
%


Our weighted average discount rate represents our estimated incremental borrowing rate, assuming a secured borrowing, based on the remaining lease term at the time of adoption of the standard, lease commencement, or the period in which the lease term expectation was modified. Our finance leases, and the associated remaining lease term and discount rate, are insignificant.

Disclosures Related to Periods Prior to Adoption of ASC 842, Leases
Under ASC 840, Leases, future minimum rental commitments for leases, excluding closed store leases, real estate taxes, CAM, and property insurance, and scheduled payments for all capital leases at February 2, 2019, were as follows:
Fiscal Year
Operating Leases
 
Capital Leases
2019 (full 12 months)
$
279,844

 
$
9,050

2020
244,978

 
10,815

2021
204,362

 
9,725

2022
159,479

 
6,992

2023
120,023

 
6,512

Thereafter
310,474

 
127,864

  Total lease payments
$
1,319,160

 
$
170,958

  Less amount to discount to present value
 
 
$
(14,758
)
Present value of lease liabilities
 
 
$
156,200




10


NOTE 5 – SHAREHOLDERS’ EQUITY

Earnings per Share
There were no adjustments required to be made to the weighted-average common shares outstanding for purposes of computing basic and diluted earnings per share. At November 2, 2019, we excluded from securities outstanding for the computation of earnings per share, antidilutive stock options, restricted stock units, and performance share units, for which the minimum applicable performance conditions had not been attained as of November 2, 2019. At November 3, 2018, there were no securities outstanding which were excluded from the computation of earnings per share other than antidilutive stock options, restricted stock units, and performance share units. For the third quarter of 2019 and 2018, there were 0.1 million and 0.1 million stock options, respectively, outstanding that were antidilutive, as determined under the treasury stock method, and excluded from the computation of diluted earnings. There were 0.1 million stock options outstanding for the year-to-date 2019 that were antidilutive, and for the year-to-date 2018, antidilutive options outstanding were determined to be immaterial. Antidilutive stock options generally consist of outstanding stock options where the exercise price per share is greater than the weighted-average market price per share for our common shares for each period. Antidilutive stock options, restricted stock units and performance share units are excluded from the calculation because they decrease the number of diluted shares outstanding under the treasury stock method. The restricted stock units and performance share units that were antidilutive, as determined under the treasury stock method, were 0.5 million for the third quarter of 2019 and determined to be immaterial for the third quarter of 2018. The restricted stock units and performance share units that were antidilutive, as determined under the treasury stock method, were 0.4 million for the year-to-date 2019, while the year-to-date 2018 units were immaterial.

Share Repurchase Programs
On March 6, 2019, our Board of Directors (“Board”) authorized a share repurchase program providing for the repurchase of $50 million of our common shares (“2019 Repurchase Program”). The 2019 Repurchase Program was exhausted during the second quarter of 2019.

During the year-to-date 2019, we acquired approximately 1.3 million of our outstanding common shares for $50.0 million under the 2019 Repurchase Program.

Dividends
The Company declared and paid cash dividends per common share during the quarterly periods presented as follows:
 
Dividends
Per Share
 
Amount Declared
 
Amount Paid
2019:
 
 
(In thousands)
 
(In thousands)
First quarter
$
0.30

 
$
12,206

 
$
13,197

Second quarter
$
0.30

 
$
12,196

 
$
11,718

Third quarter
$
0.30

 
$
11,954

 
$
11,792

Total
$
0.90

 
$
36,356

 
$
36,707

 
 
 
 
 
 


The amount of dividends declared may vary from the amount of dividends paid in a period due to the vesting of restricted stock units and performance share units. The payment of future dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, compliance with applicable laws and agreements and any other factors deemed relevant by our Board.

NOTE 6 – SHARE-BASED PLANS

We have issued nonqualified stock options, restricted stock awards, restricted stock units, and performance share units under our shareholder-approved equity compensation plans.  Our restricted stock units and performance share units, as described below, are expensed and reported as non-vested shares.  We recognized share-based compensation expense of $3.2 million and $4.5 million in the third quarter of 2019 and the third quarter of 2018, respectively, and $11.7 million and $21.7 million for the year-to-date 2019 and the year-to-date 2018, respectively.


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Non-vested Restricted Stock Units
The following table summarizes the non-vested restricted stock units activity for the year-to-date 2019:

Number of Shares
Weighted Average Grant-Date Fair Value Per Share
Outstanding non-vested restricted stock units at February 2, 2019
483,182

$
46.50

Granted
333,222

36.45

Vested
(141,820
)
47.72

Forfeited
(20,418
)
42.73

Outstanding non-vested restricted stock units at May 4, 2019
654,166

$
41.25

Granted
46,487

27.86

Vested
(12,509
)
40.74

Forfeited
(9,110
)
40.43

Outstanding non-vested restricted stock units at August 3, 2019
679,034

$
40.35

Granted
35,011

22.14

Vested
(47,001
)
43.38

Forfeited
(32,597
)
40.94

Outstanding non-vested restricted stock units at November 2, 2019
634,447

$
39.09



The non-vested restricted stock units granted in the year-to-date 2019 generally vest and are expensed on a ratable basis over three years from the grant date of the award, if certain threshold financial performance objectives are achieved and the grantee remains employed by us through the vesting dates.

Non-vested Stock Units Granted to Non-Employee Directors
In the second quarter of 2019, 11,632 common shares underlying the restricted stock units granted in 2018 to the non-employee members of our Board vested on the trading day immediately preceding our 2019 Annual Meeting of Shareholders (“2019 Annual Meeting”). These units were part of the annual compensation to the non-employee members of the Board. Additionally, in the second quarter of 2019, the chairman of our Board received an annual restricted stock unit grant having a grant date fair value of approximately $210,000. The remaining non-employees elected to our Board at our 2019 Annual Meeting each received an annual restricted stock unit grant having a grant date fair value of approximately $145,000. The 2019 restricted stock units will vest on the earlier of (1) the trading day immediately preceding our 2020 Annual Meeting of Shareholders, or (2) the non-employee director’s death or disability.  However, the restricted stock units will not vest if the non-employee director ceases to serve on our Board before either vesting event occurs.

Performance Share Units
In the year-to-date 2019, we issued performance share units (“PSUs”) to certain members of management, which will vest if certain financial performance objectives are achieved over a three-year performance period and the grantee remains employed by us during the performance period. The financial performance objectives for each fiscal year within the three-year performance period will be approved by the Compensation Committee of our Board during the first quarter of the respective fiscal year.

As a result of the process used to establish the financial performance objectives, we will only meet the requirements for establishing a grant date for the PSUs when we communicate the financial performance objectives for the third fiscal year of the award to the award recipients, which will then trigger the service inception date, the fair value of the awards, and the associated expense recognition period. If we meet the applicable threshold financial performance objectives over the three-year performance period and the grantee remains employed by us through the end of the performance period, the PSUs will vest on the first trading day after we file our Annual Report on Form 10-K for the last fiscal year in the performance period.


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We have begun or expect to begin recognizing expense related to PSUs as follows:
Issue Year
Outstanding PSUs at November 2, 2019
Actual Grant Date
Expected Valuation (Grant) Date
Actual or Expected Expense Period
2017
184,779

March 2019
 
Fiscal 2019
2018
195,182

 
March 2020
Fiscal 2020
2019
322,379

 
March 2021
Fiscal 2021
Total
702,340

 
 
 


The number of shares to be distributed upon vesting of the PSUs depends on the average performance attained during the three-year performance period compared to the performance targets established by the Compensation Committee, and may result in the distribution of an amount of shares that is greater or less than the number of PSUs granted, as defined in the related award agreement. At November 2, 2019, we estimate the attainment of an average performance that is lower than the targets established for the PSUs issued in 2017, but above the minimum attainment for vesting. We recognized $0.2 million and $2.1 million in the third quarter of 2019 and 2018, respectively, and $2.5 million and $13.3 million in the year-to-date 2019 and 2018, respectively, of share-based compensation expense related to PSUs.

The following table summarizes the activity related to PSUs for the year-to-date 2019:
 
Number of Units
Weighted Average Grant-Date Fair Value Per Share
Outstanding PSUs at February 2, 2019
282,083

$
55.67

Granted
217,518

31.89

Vested
(275,308
)
55.67

Forfeited
(8,144
)
31.89

Outstanding PSUs at May 4, 2019
216,149

$
32.51

Granted


Vested


Forfeited
(3,954
)
31.89

Outstanding PSUs at August 3, 2019