Big Lots 2011 Annual Report Download - page 146

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and to repay certain of our indebtedness, including amounts due under the 2009 Credit Agreement. The
2011 Credit Agreement includes a $10 million Canadian swing loan sublimit, a $30 million U.S. swing loan
sublimit, a $150 million letter of credit sublimit and a $200 million Canadian revolving credit loan subfacility.
The interest rates, pricing and fees under the 2011 Credit Agreement fluctuate based on our debt rating. The
2011 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, LIBOR, or CDOR. We may prepay
revolving loans made under the 2011 Credit Agreement. The 2011 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 2011 Credit Agreement that would permit the lenders to
restrict our ability to further access the 2011 Credit Agreement for loans and letters of credit and require the
immediate repayment of any outstanding loans under the 2011 Credit Agreement. At January 28, 2012, we were
in compliance with the covenants of the 2011 Credit Agreement.
We use the 2011 Credit Agreement, as necessary, to provide funds for ongoing and seasonal working capital,
capital expenditures, share repurchase programs, and other expenditures. In addition, we use the 2011 Credit
Agreement to provide letters of credit for various operating and regulatory requirements, a significant portion
of which consists of letters of credit required as a result of our self-funded insurance programs. Given the
seasonality of our business, the amount of borrowings under the 2011 Credit Agreement may fluctuate
materially depending on various factors, including our operating financial performance, the time of year, and
our need to increase merchandise inventory levels prior to the peak selling season.
The primary source of our liquidity is cash flows from operations and, as necessary, borrowings under the
2011 Credit Agreement. Our net income and, consequently, our cash provided by operations are impacted by
net sales volume, seasonal sales patterns, and operating profit margins. Our net sales are typically highest
during the nine-week Christmas selling season in our fourth fiscal quarter. Generally, our working capital
requirements peak late in our third fiscal quarter or early in our fourth fiscal quarter. We have typically funded
those requirements with borrowings under our credit facility. In 2011, our total indebtedness (outstanding
borrowings and letters of credit) peaked at approximately $400 million in November. At January 28, 2012,
we had $65.9 million in borrowings under the 2011 Credit Agreement and the borrowings available under the
2011 Credit Agreement were $578.9 million, after taking into account the reduction in availability resulting
from outstanding letters of credit totaling $55.2 million. We anticipate that total indebtedness under the 2011
Credit Agreement through June 15, 2012 will peak at less than $100 million, which includes outstanding
letters of credit and the estimated impact of cash needs of Big Lots Canada, but excludes the impact of any
potential share repurchase activity under the 2011 Repurchase Program. Working capital was $421.8 million at
January 28, 2012.
Whenever our liquidity position requires us to borrow funds under the 2011 Credit Agreement, we typically
repay and/or borrow on a daily basis. The daily activity is a net result of our liquidity position, which is
generally driven by the following components of our operations: 1) cash inflows such as cash or credit card
receipts collected from stores for merchandise sales and other miscellaneous deposits; and 2) cash outflows such
as check clearings for the acquisition of merchandise, wire and other electronic transactions for the acquisition
of merchandise, payroll and other operating expenses, income and other taxes, employee benefits, and other
miscellaneous disbursements.
Cash provided by operating activities increased by $3.2 million to $318.5 million in 2011 compared to
$315.3 million in 2010. The increase was primarily driven by the change in our accounts payable leverage ratio,
which resulted in a $14.9 million increase, and higher depreciation and amortization expense, partially offset
by our net income of $207.1 million in 2011, which was $15.4 million lower than our net income in 2010. At
January 28, 2012, our accounts payable leverage ratio (accounts payable divided by inventory) increased to
42% from 40% at January 29, 2011, therefore driving an increase of $14.9 million. Net income in 2011 included
$13.3 million of net loss generated by our Canadian segment.
Cash used in investing activities increased by $6.1 million to $120.7 million in 2011 compared to $114.6 million
in 2010. The increase was primarily due to an increase of $23.7 million in capital expenditures to $131.3 million
in 2011 compared to $107.6 million in 2010, as more stores were opened in 2011 as compared to 2010. The