Big Lots 2009 Annual Report Download - page 147

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for each borrowing from two different interest rate options. The interest rate options are generally derived
from the prime rate or LIBOR. We may prepay revolving loans made under the 2009 Credit Agreement. The
2009 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 2009 Credit
Agreement that would permit the lenders to restrict our ability to further access the 2009 Credit Agreement for
loans and letters of credit and require the immediate repayment of any outstanding loans under the 2009 Credit
Agreement. As of January 30, 2010, we were in compliance with the covenants of the 2009 Credit Agreement.
The primary sources of our liquidity are cash flows from operations and, as necessary, borrowings under the
2009 Credit Agreement. Our net income and 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 Christmas
selling season (during 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. At January 30, 2010, we had no borrowings outstanding under the 2009
Credit Agreement and, after taking into account the reduction in availability resulting from outstanding letters
of credit totaling $50.1 million, the borrowings available under the 2009 Credit Agreement were $449.9 million.
We anticipate total indebtedness under the facility will be less than $75.0 million through the end of June
2010, all of which will be comprised of letters of credit, excluding any impact from the execution of the 2010
Repurchase Program. In 2009, our total indebtedness (outstanding borrowings and letters of credit) peaked at
approximately $120.8 million in early February 2009 under our 2004 Credit Agreement. Working capital was
$580.4 million at January 30, 2010.
Whenever our liquidity position requires us to borrow funds under the 2009 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, payroll and other operating expenses, wire and
other electronic transactions for merchandise purchases, income and other taxes, employee benefits, and other
miscellaneous disbursements.
We use the 2009 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 2009 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 2009 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.
Cash provided by operating activities was $392.0 million, $211.1 million and $307.9 million in 2009, 2008, and
2007, respectively. The 2009 increase in cash provided by operating activities of $180.9 was principally due to
higher net income and improved accounts payable leverage (accounts payable divided by inventories). Accounts
payable leverage improved due to the lower amount of inventories and our efforts to continue to work with our
import and domestic vendors to further extend payment terms. The 2008 decrease in cash provided by operating
activities of $96.8 million was primarily due to the decline in accounts payable leverage as accounts payable
decreased more than inventory decreased. Accounts payable decreased because of a shift in our merchandise
mix to purchases from vendors with shorter payment terms, many of whom offered us cash discounts. Our
cash paid for income taxes was $106.0 million, $92.4 million, and $65.8 million during 2009, 2008, and 2007,
respectively. The increases in income taxes paid were a direct result of higher operating profits and partly
impacted by the timing of required tax payments relative to the fiscal years in which these profits were earned.
Our total contributions to the Pension Plan were $10.8 million, $11.3 million, and $0.9 million in 2009, 2008,
and 2007 respectively. These contributions were made to increase the funded level of the Pension Plan. Based
on assumptions about our 2010 operating performance that we have discussed above in MD&A, we expect
cash provided by operating activities to be approximately $315 million in 2010. However, based on the current
general economic conditions, consumers may elect to defer or forego purchases in response to tighter credit
and negative financial news. Reduced consumer spending may reduce our net sales, which could lower our
profitability and limit our ability to convert merchandise inventories to cash.