|
|
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
|
|
|
|
|
|
|
|
|
Balance - January 28, 2017
|
44,259
|
|
$
|
1,175
|
|
73,236
|
|
$
|
(2,291,379
|
)
|
$
|
617,516
|
|
$
|
2,323,318
|
|
$
|
650,630
|
|
Comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
85,004
|
|
85,004
|
|
Dividends declared ($0.75 per share)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(33,843
|
)
|
(33,843
|
)
|
Adjustment for ASU 2016-09
|
—
|
|
—
|
|
—
|
|
—
|
|
241
|
|
(146
|
)
|
95
|
|
Purchases of common shares
|
(3,437
|
)
|
—
|
|
3,437
|
|
(165,732
|
)
|
—
|
|
—
|
|
(165,732
|
)
|
Exercise of stock options
|
222
|
|
—
|
|
(222
|
)
|
7,023
|
|
1,391
|
|
—
|
|
8,414
|
|
Restricted shares vested
|
367
|
|
—
|
|
(367
|
)
|
11,520
|
|
(11,520
|
)
|
—
|
|
—
|
|
Performance shares vested
|
431
|
|
—
|
|
(431
|
)
|
13,523
|
|
(13,523
|
)
|
—
|
|
—
|
|
Share activity related to deferred compensation plan
|
—
|
|
—
|
|
—
|
|
(4
|
)
|
—
|
|
—
|
|
(4
|
)
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Share-based employee compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
21,100
|
|
—
|
|
21,100
|
|
Balance - October 28, 2017
|
41,842
|
|
1,175
|
|
75,653
|
|
(2,425,049
|
)
|
615,205
|
|
2,374,333
|
|
565,664
|
|
Comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
104,828
|
|
104,828
|
|
Dividends declared ($0.25 per share)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(10,903
|
)
|
(10,903
|
)
|
Purchases of common shares
|
—
|
|
—
|
|
—
|
|
(25
|
)
|
—
|
|
—
|
|
(25
|
)
|
Exercise of stock options
|
82
|
|
—
|
|
(82
|
)
|
2,636
|
|
662
|
|
—
|
|
3,298
|
|
Restricted shares vested
|
1
|
|
—
|
|
(1
|
)
|
42
|
|
(42
|
)
|
—
|
|
—
|
|
Performance shares vested
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Share activity related to deferred compensation plan
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Share-based employee compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
6,725
|
|
—
|
|
6,725
|
|
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
|
)
|
—
|
|
—
|
|
Share activity related to deferred compensation plan
|
—
|
|
—
|
|
—
|
|
2
|
|
1
|
|
—
|
|
3
|
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
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
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
BIG LOTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
November 3, 2018
|
October 28, 2017
|
Operating activities:
|
|
|
Net income
|
$
|
48,847
|
|
$
|
85,004
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization expense
|
82,666
|
|
79,404
|
|
Deferred income taxes
|
(8,937
|
)
|
(463
|
)
|
Loss (Gain) on disposition of property and equipment
|
350
|
|
(48
|
)
|
Non-cash share-based compensation expense
|
21,722
|
|
21,100
|
|
Unrealized gain on fuel derivative instruments
|
(460
|
)
|
(961
|
)
|
Change in assets and liabilities, excluding effects of foreign currency adjustments:
|
|
|
|
|
Inventories
|
(201,095
|
)
|
(179,466
|
)
|
Accounts payable
|
128,409
|
|
92,603
|
|
Current income taxes
|
(35,540
|
)
|
(54,016
|
)
|
Other current assets
|
(15,626
|
)
|
(11,994
|
)
|
Other current liabilities
|
7,943
|
|
(12,355
|
)
|
Other assets
|
1,253
|
|
(5,884
|
)
|
Other liabilities
|
10,888
|
|
16,148
|
|
Net cash provided by operating activities
|
40,420
|
|
29,072
|
|
Investing activities:
|
|
|
|
|
Capital expenditures
|
(165,396
|
)
|
(95,081
|
)
|
Cash proceeds from sale of property and equipment
|
367
|
|
1,798
|
|
Assets acquired under synthetic lease
|
(116,039
|
)
|
—
|
|
Other
|
35
|
|
(10
|
)
|
Net cash used in investing activities
|
(281,033
|
)
|
(93,293
|
)
|
Financing activities:
|
|
|
|
|
Net proceeds from borrowings under bank credit facility
|
288,200
|
|
265,500
|
|
Payment of capital lease obligations
|
(2,899
|
)
|
(2,916
|
)
|
Dividends paid
|
(38,592
|
)
|
(34,193
|
)
|
Proceeds from the exercise of stock options
|
1,859
|
|
8,414
|
|
Payment for treasury shares acquired
|
(111,747
|
)
|
(165,732
|
)
|
Proceeds from synthetic lease
|
116,039
|
|
—
|
|
Deferred bank credit facility fees paid
|
(1,488
|
)
|
—
|
|
Other
|
3
|
|
(4
|
)
|
Net cash provided by financing activities
|
251,375
|
|
71,069
|
|
Increase in cash and cash equivalents
|
10,762
|
|
6,848
|
|
Cash and cash equivalents:
|
|
|
|
|
Beginning of period
|
51,176
|
|
51,164
|
|
End of period
|
$
|
61,938
|
|
$
|
58,012
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
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 community retailer operating in the United States (“U.S.”). At
November 3, 2018
, we operated
1,415
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 websites are not 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 3, 2018
(“2017 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
2018
(“
2018
”) is comprised of the 52 weeks that began on February 4, 2018 and will end on
February 2, 2019
. Fiscal year
2017
(“
2017
”) was comprised of the 53 weeks that began on January 29, 2017 and ended on
February 3, 2018
. The fiscal quarters ended
November 3, 2018
(“
third
quarter of
2018
”) and
October 28, 2017
(“
third
quarter of
2017
”) were both comprised of 13 weeks. The year-to-date periods ended
November 3, 2018
(“year-to-date
2018
”) and
October 28, 2017
(“year-to-date
2017
”) 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
$45.5 million
and
$39.4 million
for the
third
quarter of
2018
and the
third
quarter of
2017
, respectively, and
$131.1 million
and
$115.6 million
for the year-to-date
2018
and the year-to-date
2017
, respectively.
Advertising Expense
Advertising costs, which are expensed as incurred, consist primarily of television and print advertising, digital or internet marketing and advertising, and in-store point-of-purchase presentations. Advertising expenses are included in selling and administrative expenses. Advertising expenses were
$16.4 million
and
$15.3 million
for the
third
quarter of
2018
and the
third
quarter of
2017
, respectively, and
$54.7 million
and
$51.1 million
for the year-to-date
2018
and the year-to-date
2017
, 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.
Supplemental Cash Flow Disclosures
The following table provides supplemental cash flow information for the year-to-date
2018
and the year-to-date
2017
:
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
(In thousands)
|
November 3, 2018
|
|
October 28, 2017
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid for interest, including capital leases
|
$
|
6,494
|
|
|
$
|
3,835
|
|
Cash paid for income taxes, excluding impact of refunds
|
59,600
|
|
|
99,037
|
|
Gross proceeds from borrowings under bank credit facility
|
1,376,400
|
|
|
1,246,300
|
|
Gross repayments of borrowings under bank credit facility
|
1,088,200
|
|
|
980,800
|
|
Non-cash activity:
|
|
|
|
|
|
Assets acquired under capital leases
|
785
|
|
|
90
|
|
Accrued property and equipment
|
$
|
37,440
|
|
|
$
|
15,224
|
|
Reclassifications
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.
Recent Accounting Pronouncements
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. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The ASU allows for either the modified or full retrospective method of adoption. However, the FASB issued ASU No. 2018-11,
Leases (Topic 842), Targeted Improvements,
which allows entities to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in the consolidated financial statements. ASU 2018-11 will allow entities to continue to apply the legacy guidance in Topic 840,
Leases
, including its disclosure requirements, in the comparative periods presented in the year the new leases standard is adopted. Entities that elect this option would still adopt the new leases standard using a modified retrospective transition method, but would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. We have elected to use the modified retrospective transition method as allowed by ASU 2018-11. We will not early adopt this standard. We are still evaluating the impact that this standard will have on our consolidated financial statements, as we complete the implementation of a new lease system. Currently we anticipate the impact on our balance sheet will be material.
Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This update provided a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Additionally, this guidance expanded related disclosure requirements. During the first quarter of 2018, we adopted the new standard on the retrospective method. The adoption had no impact on the timing of the recognition of our revenue or costs. The adoption did result in an immaterial adjustment to the amount of gross revenue and costs that we had previously reported, as certain of our vendor relationships had different principal versus agent treatment under the new standard. Additionally, we considered the disclosure requirements of the standard and determined that no additional disclosures were necessary.
NOTE 2 – BANK CREDIT FACILITY
On July 22, 2011, we entered into a
$700 million
five
-year unsecured credit facility, which was amended on May 30, 2013 and May 28, 2015 (as amended, the “2011 Credit Agreement”).
On August 31, 2018, we amended and restated the 2011 Credit Agreement. The amended and restated credit agreement (the “2018 Credit Agreement”) provides for a
$700 million
five
-year unsecured credit facility. The 2011 Credit Agreement was scheduled to expire on May 30, 2020. 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 agreement.
Borrowings under the 2018 Credit Agreement are available for general corporate purposes, working capital, and to repay certain of our 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. 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 3, 2018
, we had
$488.0 million
of borrowings outstanding under the 2018 Credit Agreement and
$8.6 million
was committed to outstanding letters of credit, leaving
$203.4 million
available under the 2018 Credit Agreement.
NOTE 3 – FAIR VALUE MEASUREMENTS
In connection with our nonqualified deferred compensation plan, we had mutual fund investments of
$32.4 million
and
$33.0 million
at
November 3, 2018
and
February 3, 2018
, 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 are estimated based on the 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 our long-term obligations, the carrying value of these instruments approximates the fair value.
The carrying value of accounts receivable, accounts payable, and accrued expenses approximates fair value because of the relatively short maturity of these items.
NOTE 4 – 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 and there were no securities outstanding at
November 3, 2018
or
October 28, 2017
which were excluded from the computation of earnings per share other than antidilutive stock options, restricted stock awards, restricted stock units, and performance share units. For the third quarter of 2018, there were
0.1 million
stock options outstanding that were antidilutive and excluded from the computation of diluted earnings. For the third quarter of 2017, the year-to-date 2018, and the year-to-date 2017, the stock options outstanding that were antidilutive and excluded from the computation of diluted earnings per share were immaterial. Antidilutive stock options generally consist of outstanding stock options with an exercise price per share that 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 awards, restricted stock units, and performance share units that were antidilutive, as determined under the treasury stock method, were immaterial for all periods presented.
Share Repurchase Programs
On March 7, 2018, our Board of Directors authorized a share repurchase program providing for the repurchase of up to
$100 million
of our common shares (“2018 Repurchase Program”). The 2018 Repurchase Program was exhausted during the second quarter of 2018.
On June 5, 2018, we utilized the entire authorization under our 2018 Repurchase Program to execute a
$100.0 million
accelerated share repurchase transaction (“ASR Transaction”), which reduced our common shares outstanding by
2.4 million
during the second quarter of 2018.
Dividends
The Company declared and paid cash dividends per common share during the periods presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Per Share
|
|
Amount Declared
|
|
Amount Paid
|
2018:
|
|
|
(In thousands)
|
|
(In thousands)
|
First quarter
|
$
|
0.30
|
|
|
$
|
12,744
|
|
|
$
|
14,386
|
|
Second quarter
|
0.30
|
|
|
12,474
|
|
|
12,141
|
|
Third quarter
|
0.30
|
|
|
12,321
|
|
|
12,065
|
|
Total
|
$
|
0.90
|
|
|
$
|
37,539
|
|
|
$
|
38,592
|
|
The amount of dividends declared may vary from the amount of dividends paid in a period based on certain instruments with restrictions on payment, including restricted stock units and performance share units. The payment of future dividends will be at the discretion of our Board of Directors 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 of Directors.
NOTE 5 – 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 awards and restricted stock units, as described below and/or in note 7 to the consolidated financial statements in our
2017
Form 10-K, are expensed and reported as non-vested shares. We recognized share-based compensation expense of
$4.5 million
and
$6.6 million
in the
third
quarter of
2018
and the
third
quarter of
2017
, respectively, and
$21.7 million
and
$21.1 million
for the year-to-date
2018
and the year-to-date
2017
, respectively.
Non-vested Restricted Stock
The following table summarizes the non-vested restricted stock awards and restricted stock units activity for the year-to-date
2018
:
|
|
|
|
|
|
|
|
Number of Shares
|
Weighted Average Grant-Date Fair Value Per Share
|
Outstanding non-vested restricted stock at February 3, 2018
|
589,843
|
|
$
|
44.77
|
|
Granted
|
212,456
|
|
47.36
|
|
Vested
|
(365,667
|
)
|
42.19
|
|
Forfeited
|
(26,597
|
)
|
43.51
|
|
Outstanding non-vested restricted stock at May 5, 2018
|
410,035
|
|
$
|
47.92
|
|
Granted
|
36,243
|
|
40.75
|
|
Vested
|
(22,343
|
)
|
48.52
|
|
Forfeited
|
(10,139
|
)
|
43.03
|
|
Outstanding non-vested restricted stock at August 4, 2018
|
413,796
|
|
$
|
47.38
|
|
Granted
|
104,091
|
|
43.08
|
|
Vested
|
(25,003
|
)
|
43.16
|
|
Forfeited
|
(11,121
|
)
|
48.15
|
|
Outstanding non-vested restricted stock at November 3, 2018
|
481,763
|
|
$
|
46.54
|
|
The non-vested restricted stock units granted in the year-to-date
2018
generally vest, and are expensed, on a ratable basis over
three
years from the grant date of the award, if it is probable that certain threshold financial performance objectives will be achieved and the grantee remains employed by us through the vesting dates.
The non-vested restricted stock awards granted in 2013 met the applicable threshold financial performance objective and vested in the first quarter of 2018.
Non-vested Stock Units to Non-Employee Directors
In the second quarter of
2018
,
17,915
common shares underlying the restricted stock units granted in
2017
to the non-employee members of our Board of Directors vested on the trading day immediately preceding our 2018 Annual Meeting of Shareholders. These units were part of the annual compensation to the non-employee members of the Board of Directors. Additionally, in the second quarter of
2018
, the chairman of our Board of Directors received an annual restricted stock unit grant having a grant date fair value of approximately
$200,000
. The remaining non-employees elected to our Board of Directors at our 2018 Annual Meeting of Shareholders and the new non-employee directors appointed by the Board of Directors during the second quarter of 2018 each received an annual restricted stock unit grant having a grant date fair value of approximately
$135,000
. The 2018 restricted stock units will vest on the earlier of (1) the trading day immediately preceding our 2019 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 of Directors before either vesting event occurs.
Performance Share Units
In the year-to-date 2018, we issued performance share units (“PSUs”) to certain members of management, which vest if certain financial performance objectives are achieved over a
three
-year performance period and the grantee remains employed by us during that period. The financial performance objectives for each fiscal year within the three-year performance period are approved by the Compensation Committee of our Board of Directors 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 of 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.
We have begun or expect to begin recognizing expense related to PSUs as follows:
|
|
|
|
|
|
|
Issue Year
|
Outstanding PSUs at November 3, 2018
|
Actual Grant Date
|
Expected Valuation (Grant) Date
|
Actual or Expected Expense Period
|
2016
|
282,083
|
|
March 2018
|
|
Fiscal 2018
|
2017
|
222,323
|
|
|
March 2019
|
Fiscal 2019
|
2018
|
237,422
|
|
|
March 2020
|
Fiscal 2020
|
Total
|
741,828
|
|
|
|
|
The number of shares to be distributed upon vesting of the PSUs depends on our average performance attained during the three-year performance period as compared to the targets defined 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 award agreement. At
November 3, 2018
, we estimate the attainment of an average performance that is slightly lower than the targets established for the PSUs issued in 2016. We recognized
$2.1 million
and
$3.6 million
in the
third
quarter of
2018
and the
third
quarter of
2017
, respectively, and
$13.3 million
and
$11.7 million
in the year-to-date
2018
and the year-to-date
2017
, respectively, of share-based compensation expense related to PSUs.
The following table summarizes the activity related to PSUs for the year-to-date
2018
:
|
|
|
|
|
|
|
|
Number of Units
|
Weighted Average Grant-Date Fair Value Per Share
|
Outstanding PSUs at February 3, 2018
|
249,324
|
|
$
|
51.49
|
|
Granted
|
337,421
|
|
55.67
|
|
Vested
|
(247,130
|
)
|
51.49
|
|
Forfeited
|
(44,146
|
)
|
43.94
|
|
Outstanding PSUs at May 5, 2018
|
295,469
|
|
$
|
55.64
|
|
Granted
|
—
|
|
—
|
|
Vested
|
(2,194
|
)
|
51.49
|
|
Forfeited
|
(2,512
|
)
|
55.67
|
|
Outstanding PSUs at August 4, 2018
|
290,763
|
|
$
|
55.67
|
|
Granted
|
—
|
|
—
|
|
Vested
|
—
|
|
—
|
|
Forfeited
|
(8,680
|
)
|
55.67
|
|
Outstanding PSUs at November 3, 2018
|
282,083
|
|
$
|
55.67
|
|
Stock Options
The following table summarizes stock option activity for the year-to-date
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
Weighted Average Exercise Price Per Share
|
Weighted Average Remaining Contractual Term (years)
|
Aggregate Intrinsic Value (000's)
|
Outstanding stock options at February 3, 2018
|
280,626
|
|
$
|
39.04
|
|
|
|
Exercised
|
(625
|
)
|
31.76
|
|
|
|
Forfeited
|
—
|
|
—
|
|
|
|
Outstanding stock options at May 5, 2018
|
280,001
|
|
$
|
39.06
|
|
1.5
|
$
|
930
|
|
Exercised
|
—
|
|
—
|
|
|
|
Forfeited
|
—
|
|
—
|
|
|
|
Outstanding stock options at August 4, 2018
|
280,001
|
|
$
|
39.06
|
|
1.2
|
$
|
1,795
|
|
Exercised
|
(42,500
|
)
|
43.28
|
|
|
|
Forfeited
|
—
|
|
—
|
|
|
|
Outstanding stock options at November 3, 2018
|
237,501
|
|
$
|
38.30
|
|
1.0
|
$
|
1,136
|
|
Vested or expected to vest at November 3, 2018
|
237,501
|
|
$
|
38.30
|
|
1.0
|
$
|
1,136
|
|
Exercisable at November 3, 2018
|
237,501
|
|
$
|
38.30
|
|
1.0
|
$
|
1,136
|
|
The stock options granted in prior years vested in equal amounts on the first
four
anniversaries of the grant date and have a contractual term of
seven
years.
The following activity occurred under our share-based plans during the respective periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
Year-to-Date
|
(In thousands)
|
2018
|
2017
|
|
2018
|
2017
|
Total intrinsic value of stock options exercised
|
$
|
220
|
|
$
|
875
|
|
|
$
|
228
|
|
$
|
2,952
|
|
Total fair value of restricted stock vested
|
1,042
|
|
1,114
|
|
|
19,230
|
|
18,943
|
|
Total fair value of performance shares vested
|
—
|
|
—
|
|
|
12,792
|
|
21,026
|
|
The total unearned compensation cost related to all share-based awards outstanding, excluding PSUs issued in 2017 and 2018, at
November 3, 2018
was approximately
$19.1 million
. This compensation cost is expected to be recognized through October 2020 based on existing vesting terms with the weighted-average remaining expense recognition period being approximately
1.7
years from
November 3, 2018
.
NOTE 6 – INCOME TAXES
In 2017, and in accordance with Staff Accounting Bulletin No. 118, we recorded the provisional tax impacts of the Tax Cut and Jobs Creation Act (“TCJA”) on then existing current and deferred tax amounts. During the third quarter of 2018, we made approximately
$0.6 million
in adjustments to previously recorded provisional amounts related to the TCJA. During the fourth quarter of 2018, we will complete our accounting for the TCJA.
We have estimated the reasonably possible expected net change in unrecognized tax benefits through November 3, 2019, based on (1) expected cash and noncash settlements or payments of uncertain tax positions, and (2) lapses of the applicable statutes of limitations for unrecognized tax benefits. The estimated net decrease in unrecognized tax benefits for the next 12 months is approximately
$3.0 million
. Actual results may differ materially from this estimate.
NOTE 7 – CONTINGENCIES
Shareholder and Derivative Matters
On May 21, May 22 and July 2, 2012,
three
shareholder derivative lawsuits were filed in the U.S. District Court for the Southern District of Ohio against us and certain of our current and former outside directors and executive officers. The lawsuits were consolidated, and, on August 13, 2012, plaintiffs filed a consolidated complaint captioned
In re Big Lots, Inc. Shareholder Litigation
, No. 2:12-cv-00445 (S.D. Ohio) (the “Consolidated Derivative Action”). The consolidated complaint asserted claims under Ohio law for breach of fiduciary duty, unjust enrichment, misappropriation of trade secrets and corporate waste and sought declaratory relief and disgorgement to us of proceeds from any wrongful sales of our common shares, plus attorneys’ fees and expenses. On October 18, 2013, a different shareholder filed an additional derivative lawsuit captioned
Brosz v. Fishman et al.
, No. 1:13-cv-00753 (S.D. Ohio) (the “Brosz Action”) in the U.S. District Court for the Southern District of Ohio against us and each of the current and former outside directors and executive officers originally named in the 2012 shareholder derivative lawsuit. On December 29, 2016, the Court ordered that the Brosz Action be consolidated with the Consolidated Derivative Action. On December 14, 2017, the parties entered into a Stipulation and Agreement of Settlement and plaintiffs filed an Unopposed Motion for Preliminary Approval of Derivative Settlement with the Court. On August 28, 2018, the Court issued an Order granting final approval of the Settlement.
On July 9, 2012, a putative securities class action lawsuit captioned
Willis, et al. v. Big Lots, Inc., et al.
, 2:12-cv-00604 (S.D. Ohio) was filed in the U.S. District Court for the Southern District of Ohio on behalf of persons who acquired our common shares between February 2, 2012 and April 23, 2012. Effective May 16, 2018, the parties executed a Stipulation of Settlement. On November 9, 2018, the Court issued an Order granting final approval of the Settlement. In connection with the settlement of the Willis class action and the Consolidated Derivative Action, during the first quarter of 2018, we recorded a net charge of
$3.5 million
related to the expected cost of the settlements for the funds in excess of our insurance coverage. During the second quarter of 2018, the settlement associated with the Willis class action was paid into escrow pending the final approval by the Court.
Other Matters
We are involved in other legal actions and claims arising in the ordinary course of business. We currently believe that each such action and claim will be resolved without a material effect on our financial condition, results of operations, or liquidity. However, litigation involves an element of uncertainty. Future developments could cause these actions or claims to have a material effect on our financial condition, results of operations, and liquidity.
NOTE 8 – BUSINESS SEGMENT DATA
We use the following seven merchandise categories, which match our internal management and reporting of merchandise net sales: Food, Consumables, Soft Home, Hard Home, Furniture, Seasonal, and Electronics, Toys, & Accessories. The Food category includes our beverage & grocery, candy & snacks, and specialty foods departments. The Consumables category includes our health, beauty and cosmetics, plastics, paper, chemical, and pet departments. The Soft Home category includes the home décor, frames, fashion bedding, utility bedding, bath, window, decorative textile, home organization and area rugs departments. The Hard Home category includes our small appliances, table top, food preparation, stationery, greeting cards, and home maintenance departments. The Furniture category includes our upholstery, mattress, ready-to-assemble, and case goods departments. The Seasonal category includes our lawn & garden, summer, Christmas, and other holiday departments. The Electronics, Toys, & Accessories category includes the electronics, jewelry, hosiery, and toys departments.
We periodically assess, and potentially enact 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.
The following table presents net sales data by merchandise category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
Year-to-Date
|
(In thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Furniture
|
|
$
|
314,085
|
|
|
$
|
277,905
|
|
|
$
|
942,856
|
|
|
$
|
900,278
|
|
Soft Home
|
|
202,693
|
|
|
188,342
|
|
|
584,016
|
|
|
552,856
|
|
Consumables
|
|
194,480
|
|
|
198,236
|
|
|
573,215
|
|
|
586,735
|
|
Food
|
|
185,641
|
|
|
192,462
|
|
|
549,576
|
|
|
568,567
|
|
Hard Home
|
|
92,275
|
|
|
97,676
|
|
|
271,916
|
|
|
285,835
|
|
Seasonal
|
|
90,824
|
|
|
83,666
|
|
|
508,397
|
|
|
500,009
|
|
Electronics, Toys, & Accessories
|
|
69,404
|
|
|
70,897
|
|
|
209,578
|
|
|
229,471
|
|
Net sales
|
|
$
|
1,149,402
|
|
|
$
|
1,109,184
|
|
|
$
|
3,639,554
|
|
|
$
|
3,623,751
|
|
NOTE 9 – DERIVATIVE INSTRUMENTS
We may enter into derivative instruments designed to mitigate certain risks, including collar contracts to mitigate our risk associated with market fluctuations in diesel fuel prices. These contracts are used strictly to limit our risk exposure and not as speculative transactions. Our derivative instruments associated with diesel fuel do not meet the requirements for cash flow hedge accounting. Therefore, our derivative instruments associated with diesel fuel will be marked-to-market to determine their fair value and the associated gains and losses will be recognized currently in other income (expense) on our consolidated statements of operations and comprehensive income.
Our outstanding derivative instrument contracts were comprised of the following:
|
|
|
|
|
(In thousands)
|
November 3, 2018
|
|
February 3, 2018
|
Diesel fuel collars (in gallons)
|
5,700
|
|
3,600
|
The fair value of our outstanding derivative instrument contracts was as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Assets (Liabilities)
|
Derivative Instrument
|
Balance Sheet Location
|
November 3, 2018
|
|
February 3, 2018
|
Diesel fuel collars
|
Other current assets
|
$
|
1,080
|
|
|
$
|
312
|
|
|
Other assets
|
452
|
|
|
262
|
|
|
Accrued operating expenses
|
(240
|
)
|
|
(77
|
)
|
|
Other liabilities
|
(442
|
)
|
|
(107
|
)
|
Total derivative instruments
|
|
$
|
850
|
|
|
$
|
390
|
|
The effect of derivative instruments on the consolidated statements of operations and comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
(In thousands)
|
|
Third Quarter
|
|
Year-to-Date
|
Derivative Instrument
|
Statements of Operations Location
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Diesel fuel collars
|
|
|
|
|
|
|
|
|
Realized
|
Other income (expense)
|
$
|
154
|
|
|
$
|
(180
|
)
|
|
$
|
279
|
|
|
$
|
(678
|
)
|
Unrealized
|
Other income (expense)
|
(102
|
)
|
|
611
|
|
|
460
|
|
|
961
|
|
Total derivative instruments
|
|
$
|
52
|
|
|
$
|
431
|
|
|
$
|
739
|
|
|
$
|
283
|
|
The fair values of our derivative instruments are determined using observable inputs from commonly quoted markets. These fair value measurements are classified as Level 2 within the fair value hierarchy.