Big Lots 2014 Annual Report Download - page 108

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Capital Resources and Liquidity
On July 22, 2011, we entered into the 2011 Credit Agreement, and it was amended on May 30, 2013 to lower our interest rates,
pricing, and fees and extend the term from July 22, 2016 to May 30, 2018. In connection with our entry into the 2011 Credit
Agreement, we paid bank fees and other expenses in the aggregate amount of $3.0 million, which are being amortized over the
term of the agreement. In connection with the amendment of the 2011 Credit Agreement, we paid bank fees and other expenses
in the aggregate amount of $0.9 million, which are being amortized over the term of the agreement. Borrowings under the
2011 Credit Agreement are available for general corporate purposes and working capital. The 2011 Credit Agreement includes
a $30 million swing loan sublimit and a $150 million letter of credit sublimit. 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 or
LIBOR. 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 31, 2015, 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, and if needed, letters of credit required to cover 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. 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 2014, our total indebtedness (outstanding borrowings and letters of credit) under the
2011 Credit Agreement, peaked at approximately $348 million in November. At January 31, 2015, we had $62.1 million in
outstanding borrowings under the 2011 Credit Agreement and $633.5 million borrowings available under the 2011 Credit
Agreement, after taking into account the reduction in availability resulting from outstanding letters of credit totaling $4.4
million. Working capital was $450.6 million at January 31, 2015.
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.
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, wire transfers and other electronic transactions
for the acquisition of merchandise and for payment of payroll and other operating expenses, income and other taxes, employee
benefits, and other miscellaneous disbursements.
In March 2014, our Board of Directors authorized us to repurchase up to $125.0 million of our outstanding common shares.
During 2014, we exhausted this program by purchasing approximately 3.3 million common shares at an average price of
$38.12 per share. In August 2014, our Board of Directors authorized us to repurchase up to an additional $125.0 million of our
common shares. During 2014, we exhausted this program by purchasing approximately 2.8 million common shares at an
average price of $44.21 per share.
In March 2015, our Board of Directors authorized us to repurchase up to $200.0 million of our outstanding common shares.
The repurchase program was eligible to begin on March 11, 2015 and will continue until exhausted. We expect the purchases to
be made from time to time in the open market and/or in privately negotiated transactions at our discretion, subject to market
conditions and other factors. Common shares acquired through the repurchase program will be available to meet obligations
under equity compensation plans and for general corporate purposes.