Big Lots (BIGGQ) 10-Q2024 Q2 Quarterly report

The accompanying condensed consolidated financial statements and these notes have been prepared in accordance with the rules and regulations of the SEC for interim financial information. The condensed 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 condensed 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, particularly as a result of the filing of the Chapter 11 Cases (as defined below). We have historically experienced seasonal fluctuations, with a larger percentage of our net sales and operating profit realized in our fourth fiscal quarter. The accompanying condensed consolidated financial statements and these notes should be read in conjunction with the audited condensed consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (“2023 Form 10-K”).

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 2024 (“2024”) is comprised of the 52 weeks that began on February 4, 2024 and will end on February 1, 2025. Fiscal year 2023 (“2023”) was comprised of the 53 weeks that began on January 29, 2023 and ended on February 3, 2024. The fiscal quarters ended August 3, 2024 (“second quarter of 2024”) and July 29, 2023 (“second quarter of 2023”) were both comprised of 13 weeks. The year-to-date periods ended August 3, 2024 (“year-to-date 2024”) and July 29, 2023 (“year-to-date 2023”) were both comprised of 26 weeks.

The filing of the Bankruptcy Petitions constituted an event of default under the 2022 Credit Agreement and the 2024 Term Loan (each as defined in Note 2) which accelerated our obligations under those instruments. The 2022 Credit Agreement and the 2024 Term Loan provide that, as a result of the commencement of the Chapter 11 Cases, any principal amount, together with accrued interest thereon, are immediately due and payable. As such, substantially all of the Company’s debt, with balances of approximately $556.1 million in the aggregate as of the Petition Date, is in default and accelerated. However, any efforts to enforce the payment obligations under the 2022 Credit Agreement and the 2024 Term Loan and such other instruments and agreements are automatically stayed as a result of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the 2022 Credit Agreement and the 2024 Term Loan and such other instruments and agreements are subject to the applicable

provisions of the Bankruptcy Code. As a result of the foregoing acceleration event, all of our outstanding indebtedness has been classified as current debt in the accompanying condensed consolidated balance sheet of the Company as of August 3, 2024.

The uncertainties associated with the Chapter 11 Cases raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the approval by the Bankruptcy Court, implement a plan of reorganization, successfully emerge from bankruptcy as a new company and generate sufficient liquidity following our emergence from bankruptcy to meet our liquidity needs. Most of these steps are outside of our management’s control and, as a result, at this stage management’s plans do not alleviate substantial doubt about the Company's ability to continue as a going concern.

The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of the uncertainties referenced above.

Additionally, we cannot provide any assurance that our shareholders will receive any recovery from the Chapter 11 Cases. As a result, we expect that trading in the Company’s common shares during the pendency of the Chapter 11 Cases will be highly speculative and pose substantial risks. Trading prices for the Company’s common shares may bear little or no relationship to the actual recovery, if any, by holders of the Company’s common shares in the Chapter 11 Cases. The Company expects that holders of the Company’s common shares will not receive a recovery through any plan of reorganization unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full. Consequently, there is a significant risk that the holders of the Company’s common shares would receive no recovery under the Chapter 11 Cases and that the Company’s common shares will be worthless. Accordingly, the Company urges extreme caution with respect to existing and future investments in its common shares.

Our long-lived assets primarily consist of property and equipment - net and operating lease right-of-use assets. If the net book value of a store’s long-lived assets is not recoverable by the expected undiscounted future cash flows of the store, we estimate the fair value of the store’s assets and recognize an impairment charge for the excess net book value of the store’s long-lived assets over its fair value (categorized as Level 3 under the fair value hierarchy). Fair value at the store level is typically based on projected discounted cash flows over the remaining lease term, which may include market comparative information for similar properties. In the second quarter of 2024, the Company announced the closure of 296 stores in the third quarter of 2024 as part of its strategy to aggressively pursue operating expense and capital outlay reductions. In relation to these stores, the Company recognized accelerated right-of-use asset amortization of $9.3 million and accelerated depreciation expense of $2.8 million as a result of changing the estimated useful life of the store long-lived assets based on the estimated closure date.

During the second quarter of 2024, the Company recorded aggregate asset impairment charges of $99.2 million related to 241 store locations, which were comprised of $84.0 million of operating lease right-of-use assets and $16.8 million of property and equipment - net, partially offset by gains on extinguishment of lease liabilities from lease cancellations of previously impaired stores of $1.6 million. The asset impairment charges were recorded within selling and administrative expenses in our condensed consolidated statements of operations and comprehensive loss. Of the aggregate asset impairment charges recorded in the second quarter of 2024, $98.5 million related to the store closures planned for the third quarter of 2024. In the second quarter of 2023, the Company recorded no asset impairment charges.

In the year-to-date 2024, the Company recorded aggregate asset impairment charges of $167.4 million related to 344 underperforming store locations, which were comprised of $128.1 million of operating lease right-of-use assets and $40.9 million of property and equipment - net partially offset by gains on extinguishment of lease liabilities from lease cancellations of previously impaired stores of $1.6 million. The asset impairment charges were recorded within selling and administrative expenses in our condensed consolidated statements of operations and comprehensive loss. Of the aggregate asset impairment charges recorded in the year to date 2024, $145.0 million were related to the store closures planned for the third quarter of 2024.    

A significant decline in our financial performance could negatively affect the results of our assessments of the recoverability of our property and equipment-net and operating lease right-of-use assets and estimated fair value at the store level, resulting in future asset impairment charges.

In the year-to-date 2023, the Company recorded aggregate asset impairment charges of $82.9 million related to 237 underperforming store locations, which were comprised of $62.1 million of operating lease right-of-use assets, $22.3 million of property and equipment - net, partially offset by a gain on extinguishment of a lease liability resulting from a lease cancellation of a previous impaired store of $1.5 million. The asset impairment charges were recorded in selling and administrative expenses in our condensed consolidated statements of operations and comprehensive loss.

In the year-to-date 2023, the Company completed the sale of two owned store locations that were classified as held for sale at the end of fiscal 2022 with an aggregate net book value of $2.2 million. The net cash proceeds on the sale of real estate were $9.3 million and resulted in a gain after related expenses of $7.2 million.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

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

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, impairment charges, 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 to stores in cost of sales. Distribution and outbound transportation costs included in selling and administrative expenses were $72.6 million and $63.8 million for the second quarter of 2024 and the second quarter of 2023, respectively, and $147.9 million and $204.1 million for the year-to-date 2024 and year-to-date 2023, respectively. Distribution and outbound transportation costs in the second quarter of 2023 included $2.0 million of closing costs associated with the closure of our forward distribution centers (“FDCs”). Distribution and outbound transportation costs in the year-to-date 2023 included $10.6 million of FDC closing costs and $53.6 million of costs related to the exit from our Prior Synthetic Lease.

Advertising costs, which are expensed as incurred, consist primarily of television, digital, social media, internet and e-mail marketing and advertising, payment card-linked marketing and in-store point-of-purchase signage and presentations. Advertising expenses are included in selling and administrative expenses. Advertising expenses were $9.8 million and $19.4 million for the second quarter of 2024 and the second quarter of 2023, respectively, and $33.9 million and $44.3 million for the year-to-date 2024 and year-to-date 2023, respectively.

The following table provides supplemental cash flow information for the year-to-date 2024 and the year-to-date 2023:

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.

There are currently no additional new accounting pronouncements with a future effective date that are of significance, or potential significance, to us.

As of August 3, 2024, the Company was in full compliance with the provisions and covenants associated with the debt agreements referenced below.

On April 18, 2024, concurrent with our entry into the 2024 Term Loan (as defined below), the Company entered into the First Amendment to the 2022 Credit Agreement (the “First ABL Amendment”). The First ABL Amendment amended the 2022 Credit Agreement to, among other things, (1) permit the 2024 Term Loan, (2) expand the scope of collateral to include non-working capital assets and a mortgage on the Company’s corporate headquarters located in Columbus, Ohio, (3) revise the borrowing base formula to include the Term Loan Pushdown Reserve (as defined below), (4) increase the interest rate spreads and replace CDOR with CORRA, (5) replace the fixed charge coverage ratio covenant with the Excess Availability Covenant (as defined below), and (6) make other changes to the 2022 Credit Agreement to conform with the 2024 Term Loan. In connection with our entry into the First ABL Amendment, we paid bank fees and other expenses in the aggregate amount of $2.2 million, which are being amortized over the term of the 2022 Credit Agreement. The bank fees and other expenses related to the First ABL Amendment and the remaining unamortized fees from the 2022 Credit Agreement are recorded within other assets on the condensed consolidated balance sheets.

On July 31, 2024, the Company entered into the Second Amendment to the 2022 Credit Agreement (the “Second ABL Amendment”). The Second ABL Amendment amended the 2022 Credit Agreement to, among other things, (1) increase the number of permitted store closings from 150 to 315, (2) reduce the Commitments from $900 million to $800 million, (3) increase the interest rate applicable to borrowings under the 2022 Credit Agreement by 50 bps and (4) require the Company to deliver certain additional reports to the lenders. In connection with our entry into the Second ABL Amendment, we paid bank fees and other expenses in the aggregate amount of $0.5 million, which are being amortized over the term of the 2022 Credit Agreement. In connection with the Second ABL Amendment the Company expensed $0.5 million of previously capitalized debt issuance costs, proportionate with the reduction in aggregate commitments. The bank fees and other expenses related to the Second ABL Amendment and the remaining unamortized fees from the 2022 Credit Agreement and First ABL Amendment are recorded within other assets on the condensed consolidated balance sheets.

Revolving loans under the 2022 Credit Agreement are available in an aggregate amount equal to the lesser of (1) the aggregate Commitments and (2) a borrowing base consisting of eligible credit card receivables and eligible inventory (including in-transit inventory), subject to customary exceptions and reserves, including the Term Loan Pushdown Reserve (the “ABL Borrowing Base”). Under the 2022 Credit Agreement, we may obtain additional Commitments on no more than five occasions in an aggregate amount of up to $300 million, subject to agreement by the lenders to increase their respective Commitments and certain other conditions. The 2022 Credit Agreement includes a swing loan sublimit of 10% of the then applicable aggregate Commitments and a $90 million letter of credit sublimit. The 2022 Credit Agreement requires mandatory prepayments in connection with the incurrence of certain additional debt, certain issuances of additional equity and the receipt of certain extraordinary receipts, subject to certain exceptions. Loans made under the 2022 Credit Agreement may be prepaid without penalty. Borrowings under the 2022 Credit Agreement are available for general corporate purposes, working capital and to repay certain of our indebtedness as of closing. Our obligations under the 2022 Credit Agreement are guaranteed by the Loan

Parties (as defined below)(other than the Borrowers (as defined below)) and are secured by (a) a first priority lien on substantially all of the Loan Parties’ working capital assets, including credit card receivables and inventory, and (b) a second priority lien on substantially all of the Loan Parties’ non-working capital personal property assets, including fixtures, machinery, equipment, and intellectual property, and a second priority mortgage on the Company’s corporate headquarters located in Columbus, Ohio, in each case subject to certain permitted liens. The pricing and certain fees under the 2022 Credit Agreement fluctuate based on our borrowing availability under the 2022 Credit Agreement. The 2022 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, adjusted daily simple SOFR or one, three or six month adjusted Term SOFR. We will also pay an unused commitment fee of 0.20% per annum on the unused Commitments. The 2022 Credit Agreement contains an environmental, social and governance (“ESG”) provision, which may provide favorable pricing and fee adjustments if we meet ESG performance criteria to be established by a future amendment to the 2022 Credit Agreement.

The fair values of our obligations under the 2022 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. We believe the carrying value of our debt is a reasonable approximation of fair value.

On April 18, 2024, the Company entered into a credit agreement (the “2024 Term Loan”) among the Company and Big Lots Stores, LLC, as borrowers (the “Borrowers”), all other domestic subsidiaries of the Company, as guarantors (together with the Borrowers, the “Loan Parties”), 1903P Loan Agent, LLC (the “Term Loan Agent”), as administrative agent and collateral agent, and the other lenders named therein. The 2024 Term Loan provides for a “first in, last out” delayed draw 2024 Term Loan in an aggregate committed amount of up to $200 million (the “2024 Term Loan Commitments”). At commencement of the 2024 Term Loan, the Company drew down $50 million in total borrowings under the 2024 Term Loan.

On July 31, 2024, the Company entered into the First Amendment to the 2024 Term Loan (“Term Loan Amendment”). The Term Loan Amendment amends the 2024 Term Loan to, among other things, (1) increase the number of permitted store closings from 150 to 315, (2) require all additional borrowings under the 2024 Term Loan to be made in accordance with an Approved Budget (as defined in the Term Loan Amendment) and (3) require the Company to deliver certain additional reports to the lenders. In connection with our entry into the Term Loan Amendment, we paid fees and other expenses in the aggregate amount of $0.3 million, which are being amortized over the term of the 2024 Term Loan. The fees and other expenses related to the Term Loan Amendment and the remaining unamortized fees from the 2024 Term Loan Agreement are recorded as deferred financing costs and presented within net outstanding borrowings under the 2024 Term Loan on the condensed consolidated balance sheets.

Loans under the 2024 Term Loan are available in an aggregate amount equal to the lesser of (1) the aggregate 2024 Term Loan Commitments and (2) a borrowing base calculated based on specified percentages of eligible inventory, credit card receivables, real estate, fixtures, machinery and equipment, subject to customary exceptions and reserves (the “Term Loan Borrowing Base”). If at any time the amounts borrowed under the 2024 Term Loan exceed the Term Loan Borrowing Base, the Company is required to maintain a reserve against the ABL Borrowing Base in an amount equal to such excess (the “Term Loan Pushdown Reserve”). Borrowings under the 2024 Term Loan are available for general corporate purposes, working capital and to repay a portion of our indebtedness outstanding under the 2022 Credit Agreement.

Amounts borrowed under the 2024 Term Loan bear interest at a variable rate indexed to SOFR plus a pricing margin ranging from 9.25% to 10.00% per annum based on our total borrowings under the 2024 Term Loan. Interest payments under the 2024 Term Loan are due on the first day of each calendar month. As of August 3, 2024, the interest rate on the outstanding 2024 Term Loan borrowings was 14.6%.

The 2024 Term Loan requires the Borrowers to satisfy the Excess Availability Covenant. In addition, the 2024 Term Loan contains customary covenants and restrictions on the Company’s and its subsidiaries’ activities, including, but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, distributions, dividends, the repurchase of capital stock, transactions with affiliates, the ability to change the nature of its business or its fiscal year, and permitted activities of the Company.

All obligations under the 2024 Term Loan are guaranteed by the Loan Parties (other than the Borrowers) and secured by (a) a second priority lien on substantially all of the Loan Parties’ working capital assets, including credit card receivables and inventory, and (b) a first priority lien on substantially all of the Loan Parties’ non-working capital personal property assets, including fixtures, machinery, equipment, and intellectual property, and a first priority mortgage on the Company’s corporate headquarters located in Columbus, Ohio, in each case, subject to certain permitted liens.

The Company recorded deferred financing costs associated with the issuance and amendment of the 2024 Term Loan. As of August 3, 2024, the debt financing costs associated with the 2024 Term Loan were $4.9 million and had unamortized costs of $4.5 million. These costs will be amortized over the respective contractual term of the 2024 Term Loan. The aggregate outstanding principal amount of the 2024 Term Loan is presented on the condensed consolidated balance sheets, net of unamortized costs.

The fair values of our obligations under the 2024 Term Loan 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. We believe the carrying value of our debt is a reasonable approximation of fair value.

As of August 3, 2024, we had a combined borrowing base under the 2022 Credit Agreement and 2024 Term Loan of $779.3 million.

In the second quarter of 2023, we entered into three individual financing agreements (“2023 Term Notes”) in an aggregate amount of $16.2 million, which were secured by unearned prepaid insurance premiums. The 2023 Term Notes were paid in full as of May 4, 2024. The 2023 Term Notes carried annual interest rates ranging from 7.1% to 8.5%. The Company did not receive any cash in connection with its entry into the 2023 Term Notes.

In the second quarter of 2024, we entered into four individual financing agreements (“2024 Term Notes”) in an aggregate amount of $13.6 million, which are secured by our unearned insurance premiums. The 2024 Term Notes will expire between January 2025 and May 2025. We are required to make monthly payments over the term of the 2024 Term Notes and are permitted to prepay, subject to penalties, at any time. The 2024 Term Notes carry annual interest rates ranging from 8.0% to 8.5%. The Company did not receive any cash in connection with the 2024 Term Notes.

In 2023, we entered into an immaterial financing arrangement for server and software equipment, which is included within the 2023 Term Notes balance noted within the table below.

Debt was recorded in our condensed consolidated balance sheets as follows:

The 2023 Synthetic Lease (as defined below) related to our Apple Valley, CA distribution center was terminated and paid off on August 25, 2023 in connection with the closing of the sale and leaseback transactions that took place in the third quarter of 2023.

On March 15, 2023, AVDC, LLC (“Lessee”), a wholly-owned indirect subsidiary of the Company, Bankers Commercial Corporation (“Lessor”), the rent assignees parties thereto (“Rent Assignees” and, together with Lessor, “Participants”), MUFG Bank, Ltd., as collateral agent for the Rent Assignees (in such capacity, “Collateral Agent”), and MUFG Bank, Ltd., as administrative agent for the Participants, entered into a Participation Agreement (the “Participation Agreement”), pursuant to which the Participants funded $100 million to Wachovia Service Corporation (“Prior Lessor”) to finance Lessor’s purchase of the land and building related to our Apple Valley, CA distribution center (“Leased Property”) from the Prior Lessor.

Also on March 15, 2023, we entered into a Lease Agreement and supplement to the Lease Agreement (collectively, the “Lease” and together with the Participation Agreement and related agreements, the “2023 Synthetic Lease”) pursuant to which the Lessor agreed to lease the Leased Property to Lessee for an initial term of 60 months. The Lease could have been extended for up to an additional five years, in one-year or longer annual periods, with each renewal subject to approval by the Participants. The 2023 Synthetic Lease required Lessee to pay basic rent on the scheduled payment dates in arrears in an amount equal to (a) a per annum rate equal to Term SOFR for the applicable payment period plus a 10 basis point spread adjustment plus an applicable margin equal to 250 basis points multiplied by (b) the portion of the lease balance not constituting the investment by Lessor in the Leased Property. In addition to basic rent, Lessee was required to pay all costs and expenses associated with the use or occupancy of the Leased Property, including without limitation, maintenance, insurance and certain indemnity payments. GAAP treatment of the synthetic lease refinancing transaction required us to treat the assignment of the purchase option from Prior Lessor to Lessor as a deemed acquisition of the Leased Property due to the Company’s control of the Leased Property under GAAP at the time the assigned purchase option was exercised. Accordingly, the Company applied sale and leaseback accounting to the transfer of the property from the Prior Lessor to the Lessor. The transaction met the criteria of a “failed sale-leaseback” under GAAP, which required us to record an asset for the deemed acquisition and an equivalent financing liability that represents the cost to acquire the Leased Property. Subsequently, following the sale and leaseback transactions that took place in the third quarter of 2023, the balances related to the “failed sale-leaseback” were removed.

Concurrently with Lessor’s purchase of the Leased Property from Prior Lessor, the participation agreement and lease agreement associated with our former synthetic lease arrangement, in each case entered into on November 30, 2017, and most recently amended on September 21, 2022 (the “Prior Synthetic Lease”), were terminated effective on March 15, 2023. In connection with the termination of the Prior Synthetic Lease, the Company paid a termination fee of approximately $53.4 million to Prior Lessor using borrowings under the 2022 Credit Agreement. As a result of the termination of the Prior Synthetic Lease, the ABL Borrowing Base is no longer subject to a reserve for the outstanding balance under the Prior Synthetic Lease.

No adjustments were required to be made to our weighted-average common shares outstanding for purposes of computing basic and diluted earnings per share for all periods presented. At August 3, 2024, performance share units that vest based on a relative

On December 1, 2021, our Board of Directors authorized the repurchase of up to $250 million of our common shares (“2021 Repurchase Authorization”). Pursuant to the 2021 Repurchase Authorization, we may repurchase shares in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions, our compliance with the terms of the 2022 Credit Agreement and 2024 Term Loan, and other factors. The 2021 Repurchase Authorization has no scheduled termination date. In the second quarter of 2024, second quarter of 2023, year-to-date 2024, and year-to-date 2023, no shares were repurchased under the 2021 Repurchase Authorization. As of August 3, 2024, we had $159.4 million available for future repurchases under the 2021 Repurchase Authorization.

Common shares acquired through repurchase authorizations are held in treasury at cost and are available to meet obligations under equity compensation plans and for general corporate purposes.

In addition to shares repurchased under the repurchase authorizations, purchases of common shares reported in the condensed consolidated statements of shareholders’ equity/(deficit) and the condensed consolidated statements of cash flows include shares repurchased to satisfy income tax withholdings associated with the vesting of share-based awards. In the second quarter of 2024 second quarter of 2023, year-to-date 2024, and year-to-date 2023, purchases of common shares reported in the condensed consolidated statements of shareholders’ equity/(deficit) and condensed consolidated statements of cash flows were solely comprised of shares repurchased to satisfy income tax withholdings associated with the vesting of share-based awards.

The Company declared and paid cash dividends per common share during the quarterly periods presented as follows:

We have issued RSUs, PSUs, SVCA PSUs, and TSR PSUs under our shareholder-approved equity compensation plans. We recognized share-based compensation expense of $2.4 million and $4.4 million in the second quarter of 2024 and the second quarter of 2023, respectively, and $5.1 million and $8.5 million in the year-to-date 2024 and the year-to-date 2023, respectively.

The following table summarizes the non-vested RSU activity for the year-to-date 2024:

The non-vested RSUs granted in 2022, 2023, and the year-to-date 2024 generally vest, and are expensed, on a ratable basis over three years from the grant date of the award, if the grantee remains employed by us through the vesting dates. We estimated that the attainment of the financial performance objective associated with certain RSUs granted in 2022 will fall below the minimum required performance threshold. The RSUs granted in 2024 and 2023 have no required financial performance objectives. The RSUs granted in 2024 were only issued to certain executive members of management.

In the year-to-date 2024, we did not issue PSUs, SVCA PSUs, or TSR PSUs to any members of management. Instead, we granted performance-based cash awards and time-based cash awards to certain members of management. See the “Cash Awards” section of this note for additional details regarding these awards.

We recognized $0.4 million and $0.4 million of share-based compensation expense related to PSUs, TSR PSUs and SVCA PSUs in the second quarter of 2024 and the second quarter of 2023, respectively and $0.7 million and $0.8 million of share-based compensation expense related to PSUs, TSR PSUs and SVCA PSUs in the year-to-date 2024 and the year-to-date 2023, respectively.

At August 3, 2024, we estimated that our financial performance will fall below the threshold performance objectives established for the 2022 PSUs and the FY24 Tranche of the 2023 PSUs. As of August 3, 2024, financial performance objectives have not been set for the FY25 Tranche of the 2023 PSUs. As a result, only the 2022 PSUs, the FY23 Tranche of the 2023 PSUs and the FY24 Tranche of the 2023 PSUs were deemed outstanding at August 3, 2024. In the year-to-date 2024, we did not recognize share-based compensation expense related to the 2022 PSUs or the FY24 Tranche of the 2023 PSUs.

The total unearned compensation expense related to all share-based awards outstanding, excluding the FY25 Tranche of the 2023 PSUs, was approximately $13.7 million at August 3, 2024. We expect to recognize this compensation cost through March 2027 based on existing vesting terms with the weighted-average remaining expense recognition period being approximately 1.6 years from August 3, 2024.

At August 3, 2024, we estimated that our financial performance will fall below the threshold performance objectives established for the 2024 performance-based cash awards. In the year-to-date 2024, we did not recognize share-based compensation expense related to the 2024 performance-based cash awards.

We recognized compensation expense of $0.7 million during the year-to-date 2024 related to the time-based cash awards described above. The time-based cash awards and performance-based cash awards have been recorded as a liability within accrued operating expenses in our condensed consolidated balance sheets.

The provision for income taxes was based on a current estimate of the annual effective tax rate, adjusted to reflect the effect of discrete items.

We have estimated the reasonably possible expected net change in unrecognized tax benefits through August 3, 2024, 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 $2.0 million. Actual results may differ materially from this estimate.

We record income tax expense, income tax receivable, and deferred tax assets and related liabilities based on our best estimates. Additionally, we assess the likelihood of realizing the benefits of our deferred tax assets. Our ability to recover these deferred tax assets depends on several factors, including our ability to project future taxable income. In evaluating future taxable income, significant weight is given to positive and negative evidence that is objectively verifiable. As of August 3, 2024, the Company remains in a historical three-year cumulative loss position, which is significant objective negative evidence in considering whether deferred tax assets are realizable. Such objective evidence limits the ability to consider other subjective evidence, such as the projection of future taxable income. Accordingly, we have maintained a full valuation allowance on our deferred tax assets as of the second quarter of 2024. The change in valuation allowance increased by $95.1 million and $104.3 from $159.2 million and $150.0 million, at the end of the fourth quarter of 2023, and the end of the second quarter of 2023, respectively to $254.3 million at the end of the second quarter of 2024.

The Company has significant deferred tax assets, including NOLs and tax credits (the “Tax Assets”). The impact of the Chapter 11 Cases on the Company’s Tax Assets will depend on whether the plan of reorganization is structured as (i) a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company, (ii) a recapitalization of the Company, or (iii) some other alternative structure. If structured as a taxable disposition, the Company anticipates that the Tax Assets of the Company (if any) remaining after the restructuring will not be available to the Company after consummating the restructuring. If structured as a recapitalization, the Company anticipates that it will experience an ownership change, and thus the Tax Assets of the Company (if any) remaining after the restructuring will be subject to limitation, such that the Company may not derive all of the benefits of any such remaining Tax Assets after consummating the restructuring. However, the application of the rules under IRC Section 382(l)(5) could mitigate such limitation and protect the continued existence of the Company’s Tax Assets. There is uncertainty as to whether the Company would qualify for the benefits of IRC 382(l)(5). As stated previously in the income tax footnote, the Company will continue to monitor all available evidence related to the Tax Assets for which future realization is uncertain.

We are involved in 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.

During the second quarter of 2024, the Company sold a participation interest in certain legal claims to an unrelated third-party purchaser in exchange for net proceeds of approximately $30 million. Following such monetization, we continue to retain a material interest in the outcome of such legal claims. The financing obligation is recorded within the Other Liabilities line of the Company’s condensed consolidated balance sheets. We expect the obligation to be settled in a future period of which the principal is contingent and predicated on other events.

Our six merchandise categories are as follows: Food; Consumables; Soft Home; Hard Home and Other; Furniture; and Seasonal. The Food category includes our beverage & grocery; specialty foods; and candy & snacks departments. The Consumables category includes our health, beauty and cosmetics; plastics; paper; pet; infant; stationery; and chemical departments. The Soft Home category includes our apparel; hosiery; jewelry; frames; fashion bedding; utility bedding; bath; window; decorative textile; and area rugs departments. The Hard Home and Other category includes our small appliances; table top; food preparation; home maintenance; home organization; toys; and electronics departments; and other offerings. The Furniture category includes our upholstery; mattress; ready-to-assemble; home décor; and case goods departments. The Seasonal category includes our lawn & garden; summer; Christmas; and other holiday departments.

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.

In 2023 and through February 16, 2024, we facilitated a voluntary supply chain finance (“SCF”) program through a participating financial institution. This SCF program enabled our suppliers to sell their receivables due from the Company to a participating financial institution at their discretion. As of February 16, 2024, the participating financial institution suspended funding and we have chosen to suspend the program until such time that unsecured funding is available.

As of August 3, 2024 and July 29, 2023, the SCF program had $0.0 million and $55.0 million of revolving capacity, respectively. Prior to February 16, 2024, we were not a party to the agreements between the participating financial institution and the suppliers in connection with the SCF program. The range of payment terms we negotiated with our suppliers was consistent, irrespective of whether a supplier participated in the SCF program. No guarantees were provided by the Company or any of our subsidiaries under the SCF program.

The following table summarizes changes in the supplier finance program balance:

The amounts payable to the participating financial institution for suppliers who voluntarily participate in the SCF program are included within the accounts payable on our condensed consolidated balance sheets. Amounts under the SCF program included within accounts payable were $17.8 million, $0.0 million, and $17.6 million as of February 3, 2024, August 3, 2024, and July 29, 2023, respectively. Payments made under the SCF program to the financial institution, like payments of other accounts payable, are a reduction to our operating cash flow.

In the year-to-date 2023, the Company completed the sale of two owned store locations that were classified as held for sale at the end of fiscal 2022 with an aggregate net book value of $2.2 million. The net cash proceeds on the sale of real estate were $9.3 million and resulted in a gain after related expenses of $7.2 million. We incurred immaterial additional selling and administrative expenses in connection with the sale, which primarily consisted of transfer taxes and legal fees.

On August 12, 2024, our Board of Directors approved one-time cash retention awards (“Retention Awards”) for four executive officers and other employees of the Company for an aggregate amount of approximately $11.8 million. The Retention Awards are subject to repayment in full in connection with voluntary termination, except in the case of a “constructive termination,” or by the Company for “cause” (as such terms are defined in the retention agreements), in each case, prior to the twelve-month or six-month anniversary of the payment date, depending on level of employee.

We will continue to operate our business as “debtors in possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. To ensure our ability to continue operating in the ordinary course of business, we filed with the Bankruptcy Court motions seeking a variety of “first day” relief, including authority to pay employee wages and benefits, and pay vendors and suppliers in the ordinary course for goods and services provided after the commencement of the Chapter 11 Cases, each of which was approved on an interim basis by the Bankruptcy Court. In addition, we filed with the Bankruptcy Court (a) a motion seeking approval of the DIP Facilities (as defined and described below), and (b) a motion seeking approval of certain procedures relating to the marketing and auction (if necessary) of all or some of the Company’s assets. At our “first day hearing” on September 10, 2024, the Bankruptcy Court approved all first day relief from the bench, pending entry of the revised forms of order. We filed the revised forms of order with the Bankruptcy Court immediately following the first day hearing, and the Bankruptcy Court entered the orders approving the first day relief on September 10-11, 2024.

Pursuant to section 362 of the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against us, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over our property. Subject to certain exceptions under the Bankruptcy Code, our filing of the Chapter 11 Cases also automatically stayed the filing of most legal proceedings and other actions against us or our property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of our bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

The filing of the Bankruptcy Petitions constituted an event of default under the 2022 Credit Agreement and the 2024 Term Loan and accelerated our obligations under those instruments. The 2022 Credit Agreement and the 2024 Term Loan provide that, as a result of the commencement of the Chapter 11 Cases, any principal amount, together with accrued interest thereon, are immediately due and payable. As such, substantially all of the Company’s debt, with balances of approximately $556.1 million in the aggregate as of the Petition Date, is in default and accelerated. However, any efforts to enforce the payment obligations under the 2022 Credit Agreement and the 2024 Term Loan and such other instruments and agreements are automatically stayed as a result of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the Debt Instruments and such other instruments and agreements are subject to the applicable provisions of the Bankruptcy Code. As a result of the foregoing acceleration event, all of our outstanding indebtedness has been classified as current debt in the accompanying condensed consolidated balance sheet of the Company as of August 3, 2024.

Additionally, in connection with the Chapter 11 Cases, the Company has incurred, and expects to continue to incur, significant professional fees and other costs in connection with the Chapter 11 Cases. There can be no assurance that the Company’s current liquidity is sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or to pursue confirmation of a plan of reorganization.

Pursuant to that certain Senior Secured Superpriority Debtor-in-Possession Asset-Based Revolving Credit Agreement (the “DIP ABL Credit Agreement”), dated as of September 11, 2024, by and among (A) the Company, as borrower, (B) Big Lots Stores, LLC, as borrower (and, together with the Company, the “DIP Borrowers”), (C), the lenders from time to time party thereto (the “DIP ABL Lenders”), and (D) PNC Bank, National Association (“PNC”), as lead left arranger and administrative agent for the DIP ABL Lenders (in its capacity as the administrative agent, the “DIP ABL Agent”), the DIP ABL Lenders have committed to provide approximately $550 million (the “DIP ABL Commitment”) of debtor-in-possession financing in the form of a senior secured superpriority debtor-in-possession asset-based revolving credit facility (the “DIP ABL Facility”). Following entry of the interim debtor-in-posession order (“DIP order”) by the Bankruptcy Court on September 10, 2024, the DIP ABL Commitment became available to the Borrowers to draw upon. Upon entry of the final DIP order by the Bankruptcy Court, the DIP ABL Commitment will be used to repay and refinance existing commitments under the 2022 Credit Agreement.

Additionally, pursuant to that certain Senior Secured Superpriority Debtor-in-Possession Term Loan Agreement (the “DIP Term Credit Agreement” and, together with the DIP ABL Credit Agreement, the “DIP Credit Agreements”), dated as of September 11, 2024, by and among (A) the DIP Borrowers, (B) the lenders from time to time party thereto (the “DIP Term Lenders” and, together with the DIP ABL Lenders, the “DIP Lenders”), and (C) 1903P Loan Agent, LLC (“GB”), as administrative agent for the DIP Term Lenders (in such capacity, the “DIP Term Agent” and, together with the DIP ABL Agent, the “DIP Agents”), the DIP Term Lenders have committed to provide approximately $157.5 million (the “DIP Term Commitment”) in debtor-in-possession financing in the form of a senior secured superpriority debtor-in-possession term loan facility (the “DIP Term Facility” and, together with the DIP ABL Facility, the “DIP Facilities”). Following entry of the interim DIP order by the Bankruptcy Court on September 10, 2024, $25 million of the DIP Term Commitment was funded and made available to the DIP Borrowers and applied in accordance with the DIP Credit Agreements. Additionally, following entry of the interim DIP order by the Bankruptcy Court, $75 million of the DIP Term Commitment was deemed funded and will be used to repay and refinance existing commitments under the 2024 Term Loan. Finally, upon entry of the final DIP order by the Bankruptcy Court, $10 million of the DIP Term Commitment will be funded and made available to the DIP Borrowers and applied in accordance with the DIP Credit Agreements, and the remainder of the DIP Term Commitment shall be deemed funded and used to repay and refinance existing commitments under the 2024 Term Loan.

The Borrowers’ obligations under the DIP Facilities will be guaranteed by each subsidiary of the Company (other than Big Lots Stores, LLC). In addition, following entry and subject to the terms of the interim DIP order approving the DIP Facilities (or the final DIP order, when entered), the claims of the DIP ABL Lenders and DIP Term Lenders have been, on an interim basis, (i) entitled to superpriority administrative expense claim status and, subject to certain customary exclusions in the credit documentation, (ii) with respect to the DIP ABL Lenders, secured by (a) a perfected first priority lien on all of our property subject to an existing first priority lien under the 2022 Credit Agreement (such property, “ABL Priority Collateral”), (b) a perfected junior lien on all of our property subject to an existing first priority lien under the 2024 Term Loan (such property, the “Term Priority Collateral”), (c) a perfected first priority lien on all unencumbered assets that would otherwise constitute ABL Priority Collateral, and (d) a junior lien on all unencumbered assets that would otherwise constitute Term Priority Collateral, (iii) with respect to the DIP Term Lenders, secured by (a) a perfected first priority lien on all Term Priority Collateral, (b) a perfected junior lien on all ABL Priority Collateral, (c) a perfected first priority lien on all unencumbered assets that would otherwise constitute Term Priority Collateral, and (d) a junior lien on all unencumbered assets that would otherwise constitute ABL Priority Collateral, and (iv) entitled to adequate protection liens in favor of the DIP ABL Agent and DIP Term Agent (as applicable) on all unencumbered assets in accordance with the lenders’ intercreditor agreement.

Under the DIP Credit Agreements, we will be able to make optional prepayments of the DIP Facilities, in whole or in part, without penalty (other than applicable breakage and redeployment costs and the payment of certain other fees as more fully set forth in the DIP Credit Agreements). In addition, subject to certain exceptions and conditions described in the DIP Credit Agreements, we will be obligated to prepay the obligations thereunder with the net cash proceeds of certain asset sales, with casualty insurance proceeds, extraordinary receipts or the proceeds of any indebtedness not permitted to be incurred pursuant to the terms of the DIP Credit Agreements.

The scheduled maturity date of the DIP ABL Facility will be the earliest of (i) 150 days after entry of the interim DIP order, (ii) the date on which a chapter 11 plan becomes effective, and (iii) the closing date of a Transaction (as defined in the DIP ABL

Credit Agreement). The DIP ABL Facility will bear an interest rate per annum equal to SOFR plus 3.50%. In addition, borrowings under the DIP ABL Facility will be limited to the lower of the maximum facility amount and borrowing base availability. The borrowing base availability amount will be equal to 90% of our eligible credit card receivables, up to 87.5% of the assessed value of certain eligible inventory, up to 15% of the assessed value of certain in-transit inventory, and subject to certain applicable reserves.

The scheduled maturity date of the DIP Term Facility will be the earliest of (i) 150 days after entry of the interim DIP order, (ii) the date on which a chapter 11 plan becomes effective, and (iii) the closing date of a Transaction (as defined in the DIP Term Credit Agreement). The DIP Term Facility will bear an interest rate per annum equal to SOFR plus (i) 11.25% until entry of the final DIP order, and (ii) 9.75% thereafter. In addition, borrowings under the DIP Term Facility will be limited to the lower of the maximum facility amount and the borrowing base availability. The borrowing base availability amount will be equal to 10% of our eligible credit card receivables, up to 17.5% of the assessed value of certain eligible inventory, up to 15% of the assessed value of certain in-transit inventory, the value of certain real estate, the value of certain furniture, fixtures and equipment, and subject to certain applicable reserves.

The DIP Credit Agreements contain representations, warranties and covenants that are typical and customary for these types of debtor-in-possession facilities, including, but not limited to, specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments, voluntary payments of other indebtedness, investments, loans and advances, transactions with affiliates, sale and leaseback transactions and compliance with case milestones. The DIP Credit Agreements also contain customary events of default, including as a result of certain events occurring in the Chapter 11 Cases. The DIP Credit Agreements also require compliance with a variance covenant that compares actual operating disbursements and receipts and capital expenditures to the budgeted amounts set forth in the DIP budgets delivered to the DIP Agents and DIP Lenders on or prior to the closing date and updated periodically thereafter pursuant to the terms of the DIP Credit Agreements. The DIP Credit Agreements were approved on an interim basis by the Bankruptcy Court and are subject to customary conditions precedent.

Upon Bankruptcy Court approval, the Purchaser is expected to be designated as the “stalking horse” bidder in connection with the Asset Sale under section 363 of the Bankruptcy Code. The Asset Sale will be conducted through a Bankruptcy Court-supervised process pursuant to Bankruptcy Court-approved bidding procedures. The Asset Sale is subject to the receipt of higher or otherwise better offers from competing bidders at an auction (if applicable), approval of the Asset Sale by the Bankruptcy Court, and certain other conditions set forth in the Purchase Agreement.

The Purchase Agreement contains customary representations, warranties and covenants of the parties for a transaction involving the acquisition of assets from a debtor in bankruptcy, and the completion of the Asset Sale is subject to a number of conditions, which, among others, include (i) the entry of an order of the Bankruptcy Court authorizing and approving the Asset Sale, (ii) the performance by each party of its obligations under the Purchase Agreement (subject to certain materiality qualifiers), (iii) the accuracy of each party’s representations (subject to certain materiality qualifiers), (iv) the delivery of certain closing deliverables, (v) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (vi) the absence of any order by any governmental authority that restrains, enjoins, stays, or prohibits the consummation of the Asset Sale. The obligation of the Purchaser consummate the Asset Sale is also conditioned upon (i) the Sellers having not experienced a material adverse effect and (ii) the Sellers satisfying certain requirements with respect to closing liquidity and contributed asset value. The consummation of the Asset Sale is also subject to the Purchaser’s receipt of committed debt financing prior to the hearing to approve the bidding procedures. The Purchase Agreement also provides for a break-up fee and expense reimbursement payable to the Purchaser upon the occurrence of certain events, and the forfeiture of a deposit to the Sellers upon the occurrence of certain events.

For periods occurring after the Petition Date, the Company will adopt Financial Accounting Standards Board ASC Topic 852 - Reorganizations, which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. These requirements include distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business.

The Company is currently assessing whether or not it qualifies for fresh start accounting upon emergence from Chapter 11. If the Company were to meet the requirements to adopt the fresh start accounting rules, its assets and liabilities would be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on its unaudited condensed consolidated balance sheets.

On September 5, 2024, the Company received a written notification (the “Notice”) from the New York Stock Exchange (“NYSE”) stating that the Company is no longer in compliance with NYSE continued listing standards set forth in Section 802.01C (the “Minimum Stock Price Standard”) of the NYSE’s Listed Company Manual due to the fact that the average closing price of the Company’s common shares was less than $1.00 per share over a consecutive 30 trading-day period.

On September 9, 2024, the NYSE announced that it had determined to commence proceedings to delist the Company’s common shares from the NYSE. Trading in the Company’s common shares was immediately suspended. The NYSE reached its decision that the Company’s common shares are no longer suitable for listing pursuant to the NYSE Listed Company Manual Section 802.01D after the Company’s September 9, 2024 disclosure that the Company commenced the Chapter 11 Cases. The NYSE filed a Form 25 with the SEC on September 10, 2024 to delist the Company’s common shares from the NYSE which will become effective on September 20, 2024. The Company expects that such delisted securities may be subject to trading in the OTC market.

On September 4, 2024 the Company announced we will be permanently closing our distribution centers in Columbus, Ohio and Apple Valley, California no later than October 31, 2024. In connection with these closings, we expect a material impact related to depreciation expense and right-of-use asset acceleration due to the change in estimated useful life.

The Private Securities Litigation Reform Act of 1995 (“Act”) provides a safe harbor for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statements. We wish to take advantage of the “safe harbor” provisions of the Act.

Certain statements in this report are forward-looking statements within the meaning of the Act, and such statements are intended to qualify for the protection of the safe harbor provided by the Act. The words “anticipate,” “estimate,” “approximate,” “expect,” “objective,” “goal,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “may,” “target,” “forecast,” “guidance,” “outlook,” and similar expressions generally identify forward-looking statements. Similarly, descriptions of our objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected sales, earnings, capital expenditures and business strategy. Forward-looking statements also include statements regarding the Company’s plans with respect to the Chapter 11 Cases, the Company’s plan to continue operations during the pendency of the Chapter 11 Cases, the Company’s debtor-in-possession financings, and the Company’s plans for store closures and lease renegotiations. Forward-looking statements are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and apply only as of the dates of such statements. Although we believe the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of our knowledge, forward-looking statements, by their nature, involve risks, uncertainties and other factors, any one or a combination of which could materially affect our business, financial condition, results of operations or liquidity.

Forward-looking statements that we make herein and in other reports and releases are not guarantees of future performance and actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including, but not limited to:

This report should be read in conjunction with such filings, and you should consider all of these risks, uncertainties and other factors carefully in evaluating forward-looking statements.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update forward-looking statements whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.

The discussion and analysis presented below should be read in conjunction with the accompanying condensed consolidated financial statements and related notes. Each term defined in the notes to the accompanying condensed consolidated financial statements has the same meaning in this item and the balance of this report.

The following are the results from the second quarter of 2024 that we believe are key indicators of our operating performance when compared to our operating performance from the second quarter of 2023:

See the discussion and analysis below for additional details regarding our operating results.

The following table presents stores opened and closed during the year-to-date 2024 and the year-to-date 2023:

In 2024, we currently expect to open 1 store and close up to 315 stores. In the second quarter of 2024 the Company announced the closure of 296 stores in the third quarter of 2024 as part of its strategy to aggressively pursue operating expense and capital outlay reductions.

The following table compares components of our condensed consolidated statements of operations and comprehensive loss as a percentage of net sales at the end of each period:

Net sales by merchandise category (in dollars and as a percentage of total net sales), net sales change (in dollars and percentage), and comparable sales (“comp” or “comps”) in the second quarter of 2024 compared to the second quarter of 2023 were as follows:

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.

Net sales decreased $92.8 million, or 8.1%, to $1,046.6 million in the second quarter of 2024, compared to $1,139.4 million in the second quarter of 2023. The decrease in net sales was primarily driven by a 5.3% decrease in our comps, which decreased net sales by $57.5 million, and a 2.8% decrease in our non-comparable sales, which decreased net sales by $35.4 million. The decrease in non-comparable sales was driven by the net decrease of 33 stores since the second quarter of 2023. Our comps are calculated based on the results of all stores that were open at least fifteen months plus our e-commerce net sales.

In the second quarter of 2024, we experienced decreased comps and net sales in all of our merchandise categories, except for Furniture, where we experienced slightly positive comps. Our home products categories, which include Furniture, Seasonal, Soft Home, and Hard Home, continue to be negatively impacted by macroeconomic pressures which affected our customers’ discretionary spending in the second quarter of 2024. Our Furniture and Seasonal categories continue to be impacted by a

Our Hard Home category experienced decreased sales and net comps largely driven by our electronics department. The decrease in sales is a result of a realignment of product mix during the second quarter of 2024 to meet consumer demand.

Although our Food and Consumables categories are less sensitive to changes in discretionary spending, they have experienced higher decreased sales in the second quarter of 2024 compared to our home product categories. While all departments within our Food category experienced a decrease in comps and net sales in the second quarter of 2024, our candy and snacks departments experienced the most significant decline. We believe these departments were significantly impacted by the lack of Bargain and Extreme Bargain product assortments. We are focusing on increasing our Bargain and Extreme Bargain assortments within these departments throughout the remainder of 2024.

Gross margin dollars decreased $10.7 million, or 2.8%, to $365.2 million for the second quarter of 2024, compared to $375.9 million for the second quarter of 2023. The decrease in gross margin dollars was due to a decrease in net sales, which decreased gross margin dollars by $30.6 million, partially offset by an increase in gross margin rate, which increased gross margin dollars by $19.9 million. Gross margin as a percentage of net sales increased 190 basis points to 34.9% in the second quarter of 2024 compared to 33.0% in the second quarter of 2023. The gross margin rate increase was primarily due to a lower markdown rate. The lower markdown rate was a result of better alignment of our inventory purchase activity to consumer demand compared to the second quarter of 2023, which reduced promotional activity.

As a percentage of net sales, selling and administrative expenses increased 1,250 basis points to 52.9% for the second quarter of 2024 compared to 40.4% for the second quarter of 2023.

Depreciation expense decreased $8.0 million to $33.3 million in the second quarter of 2024, compared to $41.3 million in the second quarter of 2023. The decrease in depreciation expense was driven by the absence of FDC related depreciation, asset impairment charges recorded in the last twelve months, decreased capital expenditures in the trailing twelve months, and the absence of depreciation for store properties sold in the last twelve months, partially offset by $2.8 million of accelerated depreciation expense associated with store closures that will be completed in the third quarter of fiscal 2024.

Depreciation expense as a percentage of sales decreased 40 basis points compared to the second quarter of 2023.

In the second quarter of 2023, the Company completed the sale of one owned store location with an aggregate net book value of $1.5 million. The net cash proceeds on the sale of real estate were $4.9 million and resulted in a gain after related expenses of $3.3 million. There were no sales of real estate completed in the second quarter of 2024.

Interest expense was $16.3 million in the second quarter of 2024, compared to $11.2 million in the second quarter of 2023. The increase in interest expense was primarily driven by higher total average borrowings (including in connection with our entry into the 2024 Term Loan) and an increase in our weighted average interest rate. We had total average borrowings of $721.3 million in the second quarter of 2024 compared to total average borrowings of $637.8 million in the second quarter of 2023. The increase in total average borrowings was driven by borrowings under our 2022 Credit Agreement and 2024 Term Loan in the second quarter of 2024 compared to the second quarter of 2023. The increase in our weighted average interest rate throughout the second quarter of 2024 compared to the second quarter of 2023 was primarily due to a year-over-year increase in Term SOFR, which is the basis for interest accrued on borrowings under the 2022 Credit Agreement and 2024 Term Loan.

The effective income tax rate for the second quarter of 2024 and the second quarter of 2023 was (0.2%) and (87.5%), respectively. The change in the effective income tax rate was a result of a full valuation allowance on our deferred assets as of the second quarter of 2024 compared to a valuation allowance of $150.0 million recorded against our deferred tax assets as of the second quarter of 2023. The change in the effective income tax rate was a result of the initial, full valuation allowance on our deferred assets recorded in the second quarter of 2023 compared to 2024 deferred tax expense being offset by a change in valuation allowance. The effect of the change in valuation allowance was partially offset by increases in net operating losses and impairment activity.

Net sales decreased $207.3 million, or 9.2%, to $2,055.7 million in the year-to-date 2024, compared to $2,262.9 million in the year-to-date 2023. The decrease in net sales was driven by a decrease of 7.6% in our comps, which decreased net sales by $165.8 million, and a 1.6% decrease in our non-comparable store sales, which decreased net sales by $41.5 million, driven by the net decrease of 33 stores compared to the year-to-date 2023. Our decreased comps and net sales in the year-to-date 2024

were primarily due to decreased demand in the year-to-date 2024. The decrease in demand was significantly impacted by macro economic pressures on our customers, which has negatively impacted the discretionary spending of our customers.

While our Food and Consumables categories experienced decreased comps and net sales in the year-to-date 2024, these categories performed relatively better than our home products categories in the year-to-date 2024 as they are less sensitive to changes in discretionary spending. While all departments within our Food category experienced a decrease in comps and net sales in the year-to-date 2024, our candy and snacks departments experienced the most significant decline. We believe these departments were significantly impacted by the lack of Bargain and Extreme Bargain product assortments. We are focusing on increasing our Bargain and Extreme Bargain assortments within these departments throughout the remainder of 2024.

Gross margin dollars decreased $31.5 million, or 4.1%, to $736.9 million for the year-to-date 2024, compared to $768.4 million for the year-to-date 2023. The decrease in gross margin dollars was due to a decrease in net sales, which decreased gross margin by $70.4 million, partly offset by an increase in gross margin rate, which increased gross margin by $38.9 million. Gross margin as a percentage of net sales increased 180 basis points to 35.8% in the year-to-date 2024, compared to 34.0% in the year-to-date 2023. The gross margin rate increase was primarily due to a lower markdown rate in the year-to-date 2024 compared to the year-to-date 2023. The lower markdown rate was a result of better alignment of our inventory purchase activity to consumer demand, which reduced promotional activity compared to year-to-date 2023, which experienced heavily discounted merchandise to drive store traffic and move through slow moving Seasonal and home inventory categories.

Selling and administrative expenses were $1,086.7 million for the year-to-date 2024, compared to $1,080.9 million for the year-to-date 2023. The increase of $5.8 million in selling and administrative expenses was driven by an increase in store asset impairment charges of $84.5 million, $9.3 million associated with store closures that will be completed in the third quarter of fiscal 2024, and an increase in professional fees related to the Company’s financial and strategic options of $5.3 million. These increases were partially offset by the absence of a lease payment related to the exit of our Prior Synthetic Lease of $53.6 million in year-to-date 2023, decreases in advertising expense of $10.3 million, termination costs and related expenses for the exit of our FDC operations of $8.7 million, accrued bonus expense of $5.8 million, store occupancy expense of $3.6 million, credit card and bank fees of $3.4 million, shared-based compensation costs of $2.6 million, and store payroll costs of $1.9 million. The decrease in advertising expense was related to strategic initiatives to reduce advertising costs, including significant decreased investments in social media engagement. The decrease in store payroll costs were primarily driven by a lower store count compared to the second quarter of 2023 and an overall reduction in store headcount and payroll hours. The decrease in accrued bonus expense was driven by decreased performance relative to our quarterly and annual operating plans in the year-to-date 2024 compared to the year-to-date 2023. The decrease in store occupancy expense was primarily the result of a lower year-over-year store count and operating lease right-of-use asset impairments recorded in the trailing twelve months, which decreased amortization expense on operating lease right-of-use assets, partially offset by increased lease expense associated with lease renewals and the sale and leaseback transactions completed in 2023. The decrease in credit card and bank fees was primarily driven by the decreased sales volume compared to the year-to-date 2023. The decrease in share-based compensation costs was driven by lower grant date fair value and lower performance compared to the second quarter of 2023.

As a percentage of net sales, selling and administrative expenses increased 510 basis points to 52.9% for the year-to-date 2024 compared to 47.8% for the year-to-date 2023.

Depreciation expense decreased $13.1 million to $64.8 million in the year-to-date 2024, compared to $77.9 million for the year-to-date 2023. The decrease in depreciation expense was driven by the absence of FDC related depreciation, asset impairment charges recorded in the last twelve months, decreased capital expenditures in the trailing twelve months, and the absence of

depreciation for store properties sold in the last twelve months, partially offset by $2.8 million of accelerated depreciation expense associated with store closures that will be completed in the third quarter of fiscal 2024.

As a percentage of sales, depreciation expense decreased by 20 basis points in the year-to-date 2024 compared to the year-to-date 2023.

In the year-to-date 2023, the Company completed the sale of two owned store locations with an aggregate net book value of $2.2 million. The net cash proceeds on the sale of real estate were $9.3 million and resulted in a gain after related expenses of $7.2 million. There were no sales of real estate completed in the year-to-date 2024.

Interest expense was $28.3 million in the year-to-date 2024, compared to $20.3 million in the year-to-date 2023.The increase in interest expense was primarily driven by higher total average borrowings (including in connection with our entry into the 2024 Term Loan) and an increase in our weighted average interest rate. We had total average borrowings of $689.8 million in the year-to-date 2024 compared to $606.2 million in the year-to-date 2023. The increase in total average borrowings was driven by borrowings under our 2022 Credit Agreement and 2024 Term Loan in the year-to-date 2024 compared to the year-to-date 2023. The increase in our weighted average interest rate throughout the year-to-date 2024 compared to the year-to-date 2023 was primarily due to a year-over-year increase in Term SOFR, which is the basis for interest accrued on borrowings under the 2022 Credit Agreement and 2024 Term Loan.

The effective income tax rate for the year-to-date 2024 and the year-to-date 2023 was (0.1%) and (13.0%), respectively. The change in the effective income tax rate was a result of a full valuation allowance on our deferred assets as of the year-to-date 2024 compared to a valuation allowance of $150.0 million recorded against our deferred tax assets as of the year-to-date 2023. The change in the effective income tax rate was a result of the initial, full valuation allowance on our deferred assets recorded in the second quarter of 2023 compared to 2024 deferred tax expense being offset by a change in valuation allowance. The effect of the change in valuation allowance was partially offset by increases in net operating losses and impairment activity.

The primary source of our liquidity is cash flows from operations and borrowings under the 2022 Credit Agreement and the 2024 Term Loan. Our net loss and, consequently, our cash (used in) provided by operating activities are impacted by net sales volume, seasonal sales patterns, and operating (loss) profit margins. Historically, our cash provided by operations typically peaks in the fourth quarter of each fiscal year due to net sales generated during the holiday selling season. Generally, our working capital requirements peak late in our third fiscal quarter or early in our fourth fiscal quarter as we build our inventory levels prior to the holiday selling season. We have historically funded those requirements with cash provided by operations and borrowings under our credit facilities. Cash requirements include, among other things, capital expenditures, working capital needs, interest payments, and other contractual commitments. We commenced the Chapter 11 Cases to accelerate our strategic transformation and facilitate financial restructuring. Our ability to maintain adequate liquidity through the reorganization process and beyond depends on successful operation of our business, and appropriate management of operating expenses and capital spending. Our anticipated liquidity needs are sensitive to changes in each of these and other factors.

The commencement of the Chapter 11 Cases constituted an event of default under the 2022 Credit Agreement and the 2024 Term Loan which accelerated our obligations under those instruments. The 2022 Credit Agreement and the 2024 Term Loan provide that, as a result of the commencement of the Chapter 11 Cases, any principal amount, together with accrued interest thereon, are immediately due and payable. As such, substantially all of the Company’s debt, with balances of approximately $556.1 million in the aggregate as of the Petition Date, is in default and accelerated. However, any efforts to enforce the payment obligations under the 2022 Credit Agreement and the 2024 Term Loan and such other instruments and agreements are automatically stayed as a result of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the 2022 Credit

Agreement and the 2024 Term Loan and such other instruments and agreements are subject to the applicable provisions of the Bankruptcy Code. As a result of the foregoing acceleration event, all of our outstanding indebtedness has been classified as current debt in the accompanying condensed consolidated balance sheet of the Company as of the second quarter of 2024.

The uncertainties associated with the Chapter 11 Cases raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the approval by the Bankruptcy Court, implement a plan of reorganization, successfully emerge from bankruptcy as a new company and generate sufficient liquidity following our emergence from bankruptcy to meet our liquidity needs. Most of these steps are outside of our management’s control and, as a result, the Company has concluded that at this stage management’s plans do not alleviate substantial doubt about the Company's ability to continue as a going concern.

The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for twelve months following the issuance date. Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of the uncertainties referenced above.

On September 21, 2022, we entered into the 2022 Credit Agreement, a five-year asset-based revolving credit facility in an aggregate committed amount of up to $900 million (the “Commitments”) that expires on September 21, 2027. In connection with our entry into the 2022 Credit Agreement, we paid bank fees and other expenses in the aggregate amount of $3.4 million, which are being amortized over the term of the 2022 Credit Agreement.

On July 31, 2024, the Company entered into the Second Amendment to the 2022 Credit Agreement (the “Second ABL Amendment”). The Second ABL Amendment amended the 2022 Credit Agreement to, among other things, (1) increase the number of permitted store closings from 150 to 315, (2) reduce the aggregate commitments under the 2022 Credit Agreement from $900 million to $800 million, (3) increase the interest rate applicable to borrowings under the 2022 Credit Agreement by 50 bps and (4) require the Company to deliver certain additional reports to the lenders.

Revolving loans under the 2022 Credit Agreement are available in an aggregate amount equal to the lesser of (1) the aggregate Commitments and (2) a borrowing base consisting of eligible credit card receivables and eligible inventory (including in-transit inventory), subject to customary exceptions and reserves, including the Term Loan Pushdown Reserve (the “ABL Borrowing Base”). The 2022 Credit Agreement includes a swing loan sublimit of 10% of the then applicable aggregate Commitments and a $90 million letter of credit sublimit. Loans made under the 2022 Credit Agreement may be prepaid without penalty. Borrowings under the 2022 Credit Agreement are available for general corporate purposes, working capital and to repay certain of our indebtedness as of closing. All obligations under the 2022 Credit Agreement are guaranteed by the Loan Parties (other than the Borrowers) and, after giving effect to the First ABL Amendment, our obligations under the 2022 Credit Agreement are secured by (a) a first priority lien on substantially all of the Loan Parties’ working capital assets, including credit card receivables and inventory, and (b) a second priority lien on substantially all of the Loan Parties’ non-working capital personal property assets, including fixtures, machinery, equipment, and intellectual property, and a second priority mortgage on the Company’s corporate headquarters located in Columbus, Ohio, in each case subject to certain permitted liens. The pricing and certain fees under the 2022 Credit Agreement fluctuate based on our borrowing availability under the 2022 Credit Agreement. The 2022 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, adjusted daily simply SOFR or one, three or six month adjusted Term SOFR. We also pay an unused commitment fee of 0.20% per annum on the unused Commitments. The 2022 Credit Agreement contains an environmental, social and governance (“ESG”) provision, which may provide favorable pricing and fee adjustments if we meet ESG performance criteria to be established by a future amendment to the 2022 Credit Agreement.

The 2022 Credit Agreement contains customary affirmative and negative covenants (including, where applicable, restrictions on our ability to, among other things, incur additional indebtedness, pay dividends, redeem or repurchase stock, prepay certain

On April 18, 2024, the Company entered into the 2024 Term Loan, among the Company and Big Lots Stores, LLC, as borrowers (the “Borrowers”), all other domestic subsidiaries of the Company as guarantors (together with the Borrowers, the “Loan Parties”), 1903P Loan Agent, LLC, (the “Term Loan Agent”), as administrative agent and collateral agent, and the other lenders named therein. The 2024 Term Loan provides for a “first in, last out” delayed draw 2024 Term Loan in an aggregate committed amount of up to $200 million. At commencement of the 2024 Term Loan, the Company drew down $50.0 million in total borrowings under the 2024 Term Loan.

On July 31, 2024, the Company entered into the First Amendment to the delayed draw 2024 Term Loan (“Term Loan Amendment”).The Term Loan Amendment amends the 2024 Term Loan to, among other things, (1) increase the number of permitted store closings from 150 to 315, (2) require all additional borrowings under the 2024 Term Loan to be made in accordance with the Approved Budget (as defined in the Term Loan Amendment) and (3) require the Company to deliver certain additional reports to the lenders.

Loans under the 2024 Term Loan are available in an aggregate amount equal to the lesser of (1) the aggregate Commitments and (2) a borrowing base calculated based on specified percentages of eligible inventory, credit card receivables, real estate, fixtures, machinery and equipment, subject to customary exceptions and reserves (the “Term Loan Borrowing Base”). If at any time the amounts borrowed under the 2024 Term Loan exceed the Term Loan Borrowing Base, the Company is required to maintain a reserve against the ABL Borrowing Base in an amount equal to such excess (“the Term Loan Pushdown Reserve”). Borrowings under the 2024 Term Loan are available for general corporate purposes, working capital and to repay a portion of our indebtedness outstanding under the 2022 Credit Agreement.

Amounts borrowed under the 2024 Term Loan bear interest at a variable rate indexed to SOFR plus a pricing margin ranging from 9.25% to 10.00% per annum, based on our total borrowings under the 2024 Term Loan. Interest payments under the 2024 Term Loan are due on the first day of each calendar month. As of August 3, 2024, the interest rate on the outstanding 2024 Term Loan borrowings was 14.6%.

The 2024 Term Loan requires the Borrowers to satisfy the Excess Availability Covenant. In addition, the 2024 Term Loan contains customary covenants and restrictions on the Company’s and its subsidiaries’ activities, including, but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales,

mergers, acquisitions, prepayment of other debt, distributions, dividends, the repurchase of capital stock, transactions with affiliates, the ability to change the nature of its business or its fiscal year, and permitted activities of the Company.

All obligations under the 2024 Term Loan are guaranteed by the Loan Parties (other than the Borrowers) and secured by (a) a second priority lien on substantially all of the Loan Parties’ working capital assets, including credit card receivables and inventory, and (b) a first priority lien on substantially all of the Loan Parties’ non-working capital personal property assets, including fixtures, machinery, equipment, and intellectual property, and a first priority mortgage on the Company’s corporate headquarters located in Columbus, Ohio, in each case, subject to certain permitted liens.

Pursuant to that certain Senior Secured Superpriority Debtor-in-Possession Asset-Based Revolving Credit Agreement (the “DIP ABL Credit Agreement”), dated as of September 11, 2024, by and among (A) the Company, as borrower, (B) Big Lots Stores, LLC, as borrower (and, together with the Company, the “DIP Borrowers”), (C), the lenders from time to time party thereto (the “DIP ABL Lenders”), and (D) PNC Bank, National Association (“PNC”), as lead left arranger and administrative agent for the DIP ABL Lenders (in its capacity as the administrative agent, the “DIP ABL Agent”), the DIP ABL Lenders have committed to provide approximately $550 million (the “DIP ABL Commitment”) of debtor-in-possession financing in the form of a senior secured superpriority debtor-in-possession asset-based revolving credit facility (the “DIP ABL Facility”). Following entry of the interim DIP order by the Bankruptcy Court on September 10, 2024, the DIP ABL Commitment was made available to the Borrowers to draw upon. Upon entry of the final DIP order by the Bankruptcy Court, the DIP ABL Commitment will be used to repay and refinance existing commitments under the 2022 Credit Agreement.

Additionally, pursuant to that certain Senior Secured Superpriority Debtor-in-Possession Term Loan Agreement (the “DIP Term Credit Agreement” and, together with the DIP ABL Credit Agreement, the “DIP Credit Agreements”), dated as of September 11, 2024, by and among (A) the DIP Borrowers, (B) the lenders from time to time party thereto (the “DIP Term Lenders” and, together with the DIP ABL Lenders, the “DIP Lenders”), and (C) 1903P Loan Agent, LLC (“GB”), as administrative agent for the DIP Term Lenders (in such capacity, the “DIP Term Agent” and, together with the DIP ABL Agent, the “DIP Agents”), the DIP Term Lenders have committed to provide approximately $157.5 million (the “DIP Term Commitment”) in debtor-in-possession financing in the form of a senior secured superpriority debtor-in-possession term loan facility (the “DIP Term Facility” and, together with the DIP ABL Facility, the “DIP Facilities”). Following entry of the interim DIP order by the Bankruptcy Court on September 10, 2024, $25 million of the DIP Term Commitment was funded and made available to the DIP Borrowers and applied in accordance with the DIP Credit Agreements. Additionally, following entry of the interim DIP order by the Bankruptcy Court on September 10, 2024, $75 million of the DIP Term Commitment was deemed funded and will be used to repay and refinance existing commitments under the 2024 Term Loan. Finally, upon entry of the final DIP order by the Bankruptcy Court, $10 million of the DIP Term Commitment shall be funded and made available to the DIP Borrowers and applied in accordance with the DIP Credit Agreements, and the remainder of the DIP Term Commitment shall be deemed funded and used to repay and refinance existing commitments under the 2024 Term Loan.

The Borrowers’ obligations under the DIP Facilities will be guaranteed by each subsidiary of the Company (other than Big Lots Stores, LLC). In addition, following entry and subject to the terms of the interim DIP order approving the DIP Facilities (or the final DIP order, when entered), the claims of the DIP ABL Lenders and DIP Term Lenders have been, on an interim basis, (i) entitled to superpriority administrative expense claim status and, subject to certain customary exclusions in the credit documentation, (ii) with respect to the DIP ABL Lenders, secured by (a) a perfected first priority lien on all of our property subject to an existing first priority lien under the 2022 Credit Agreement (such property, “ABL Priority Collateral”), (b) a perfected junior lien on all of our property subject to an existing first priority lien under the 2024 Term Loan (such property, the “Term Priority Collateral”), (c) a perfected first priority lien on all unencumbered assets that would otherwise constitute ABL Priority Collateral, and (d) a junior lien on all unencumbered assets that would otherwise constitute Term Priority Collateral, (iii) with respect to the DIP Term Lenders, secured by (a) a perfected first priority lien on all Term Priority Collateral, (b) a perfected junior lien on all ABL Priority Collateral, (c) a perfected first priority lien on all unencumbered assets that would otherwise constitute Term Priority Collateral, and (d) a junior lien on all unencumbered assets that would otherwise constitute ABL Priority Collateral, and (iv) entitled to adequate protection liens in favor of the DIP ABL Agent and DIP Term Agent (as applicable) on all unencumbered assets in accordance with the lenders’ intercreditor agreement.

Under the DIP Credit Agreements, we will be able to make optional prepayments of the DIP Facilities, in whole or in part, without penalty (other than applicable breakage and redeployment costs and the payment of certain other fees as more fully set forth in the DIP Credit Agreements). In addition, subject to certain exceptions and conditions described in the DIP Credit Agreements, we will be obligated to prepay the obligations thereunder with the net cash proceeds of certain asset sales, with casualty insurance proceeds, extraordinary receipts or the proceeds of any indebtedness not permitted to be incurred pursuant to the terms of the DIP Credit Agreements.

The scheduled maturity date of the DIP ABL Facility will be the earliest of (i) 150 days after entry of the interim DIP order, (ii) the date on which a chapter 11 plan becomes effective, and (iii) the closing date of a Transaction (as defined in the DIP ABL Credit Agreement). The DIP ABL Facility will bear an interest rate per annum equal to SOFR plus 3.50%. In addition, borrowings under the DIP ABL Facility will be limited to the lower of the maximum facility amount and borrowing base availability. The borrowing base availability amount will be equal to 90% of our eligible credit card receivables, up to 87.5% of the assessed value of certain eligible inventory, up to 15% of the assessed value of certain in-transit inventory, and subject to certain applicable reserves.

The scheduled maturity date of the DIP Term Facility will be the earliest of (i) 150 days after entry of the interim DIP order, (ii) the date on which a chapter 11 plan becomes effective, and (iii) the closing date of a Transaction (as defined in the DIP Term Credit Agreement). The DIP Term Facility will bear an interest rate per annum equal to SOFR plus (i) 11.25% until entry of the final DIP order, and (ii) 9.75% thereafter. In addition, borrowings under the DIP Term Facility will be limited to the lower of the maximum facility amount and the borrowing base availability. The borrowing base availability amount will be equal to 10% of our eligible credit card receivables, up to 17.5% of the assessed value of certain eligible inventory, up to 15% of the assessed value of certain in-transit inventory, the value of certain real estate, the value of certain furniture, fixtures and equipment, and subject to certain applicable reserves.

The DIP Credit Agreements contain representations, warranties and covenants that are typical and customary for these types of debtor-in-possession facilities, including, but not limited to, specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments, voluntary payments of other indebtedness, investments, loans and advances, transactions with affiliates, sale and leaseback transactions and compliance with case milestones. The DIP Credit Agreements also contain customary events of default, including as a result of certain events occurring in the Chapter 11 Cases. The DIP Credit Agreements also require compliance with a variance covenant that compares actual operating disbursements and receipts and capital expenditures to the budgeted amounts set forth in the DIP budgets delivered to the DIP Agents and DIP Lenders on or prior to the closing date and updated periodically thereafter pursuant to the terms of the DIP Credit Agreements. The DIP Credit Agreements were approved on an interim basis by the Bankruptcy Court and are subject to customary conditions precedent.

On December 1, 2021, our Board of Directors authorized the repurchase of up to $250 million of our common shares under the 2021 Repurchase Authorization. Pursuant to the 2021 Repurchase Authorization, we may repurchase shares in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions, our compliance with the terms of the 2022 Credit Agreement and the 2024 Term Loan, and other factors. The 2021 Repurchase Authorization has no scheduled termination date. In the first quarter of 2024, we did not purchase any shares under the 2021 Repurchase Authorization. As of August 3, 2024, we had $159.4 million available for future repurchases under the 2021 Repurchase Authorization.

On May 23, 2023, our Board of Directors suspended the Company’s quarterly cash dividend. The declaration of any 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.

In the year-to-date 2024, we paid approximately $0.2 million in dividends compared to $9.7 million in the year-to-date 2023. The decrease in dividends paid was due to the suspension of the Company’s quarterly cash dividend in the second quarter of 2023, which resulted in no quarterly dividend paid in the year-to-date 2024 compared to one quarterly dividend paid in the year-to-date 2023. The dividends paid in the year-to-date 2024 are a result of accrued dividends related to share-based awards that vested in the year-to-date 2024.

The following table compares the primary components of our cash flows from the year-to-date 2024 compared to the year-to-date 2023:

Cash used in operating activities increased $14.0 million to $164.6 million in the year-to-date 2024 compared to $150.6 million in the year-to-date 2023. The decrease in cash used in operating activities was primarily due to the decrease in net loss after adjusting for non-cash activities such as non-cash impairment charge, non-cash lease expense, and the change in other and operating lease liabilities related to the refinance of the AVDC synthetic lease. This increase was partially offset by the combined impact of the change in inventory and accounts payable balances, driven by the decrease in inventory purchase volumes.

Cash used in investing activities increased by $4.7 million to $25.1 million in the year-to-date 2024 compared to $20.4 million of cash used in investing activities in the year-to-date 2023. The increase was driven by a decrease in proceeds received on the sale of property and equipment compared to the year-to-date 2023, in which we sold two owned store properties, partially offset by a decrease in capital expenditures. The decrease in capital expenditures was primarily due to decreased investments in new stores and other strategic initiatives.

Cash provided by financing activities increased by $24.5 million to $196.8 million in the year-to-date 2024 compared to $172.3 million in the year-to-date 2023. The increase was driven by an increase in net proceeds received from litigation and other financing arrangements which occurred in the second quarter of fiscal 2024. The increase was partially offset by a decrease in net proceeds from the 2022 Credit Agreement and 2024 Term Loan, partially offset by a decrease in dividends paid due to the absence of a dividend payment in the year-to-date 2024, a decrease in payment for treasury shares acquired to satisfy income tax withholdings associated with the vesting of share-based awards, and an increase in payments for debt issuance costs arising from our entry into the 2024 Term Loan, Term Loan Amendment, and ABL Amendments.

The estimates, judgments, and assumptions that have a higher degree of inherent uncertainty and require the most significant judgments are outlined in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2023 Form 10-K. Had we used estimates, judgments, and assumptions different from any of those discussed in our 2023 Form 10-K, our financial condition, results of operations, and liquidity for the current period could have been materially different from those presented.

We are subject to market risk from exposure to changes in interest rates on borrowings under the 2022 Credit Agreement and 2024 Term Loan. At August 3, 2024, we had $459.3 million of borrowings under the 2022 Credit Agreement and $115.0 million of borrowings under the 2024 Term Loan, all of which was classified as current as a result of the filing of the Chapter 11 cases. An increase of 1% in our variable interest rate on our expected future borrowings could affect our financial condition, results of operations, or liquidity through higher interest expense by approximately $5.7 million.

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have each concluded that such disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, during the second quarter of 2024, there were no material changes to our risk factors as disclosed in the 2023 Form 10-K and our Quarterly Report on Form 10-Q for the quarterly period ended May 4, 2024.

The Chapter 11 Cases could have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations. For the duration of the Chapter 11 Cases, our operations and our ability to execute our business strategy will be subject to the risks and uncertainties associated with bankruptcy, including:

Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 Cases may have on our business, cash flows, liquidity, financial condition and results of operations or on our corporate or capital structure.

Our operations and our ability to develop and execute our business plan are subject to significant risks and uncertainties associated with the Chapter 11 Cases. These risks and uncertainties raise substantial doubt about our ability to continue as a going concern. Most of these risks and uncertainties are outside of our management’s control and, as a result, the Company has concluded that at this stage management’s plans do not alleviate substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for twelve months following the issuance date. Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of the risks and uncertainties referenced above.

On September 9, 2024, the NYSE announced that it had determined to commence proceedings to delist the Company’s common shares from the NYSE. Trading in the Company’s common shares was immediately suspended. The NYSE reached its decision that the Company’s common shares are no longer suitable for listing pursuant to the NYSE Listed Company Manual Section 802.01D after the Company’s September 9, 2024 disclosure that the Company commenced the Chapter 11 Cases. The NYSE filed a Form 25 with the SEC on September 10, 2024 to delist the Company’s common shares from the NYSE which will become effective on September 20, 2024.

The Company expects that such delisted securities will be subject to trading in the OTC market. The Company can provide no assurance that the Company’s common shares will continue to trade on the OTC market, whether broker-dealers will continue to provide public quotes of the Company’s common shares on the OTC market, whether the trading volume of the Company’s common shares will be sufficient to provide for an efficient trading market or whether quotes for the Company’s common shares will continue on the OTC market in the future, which could result is significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our common shares.

Additionally, we cannot provide any assurance that our shareholders will receive any recovery from the Chapter 11 Cases. As a result, we expect that trading in the Company’s common shares during the pendency of the Chapter 11 Cases will be highly speculative and pose substantial risks. Trading prices for the Company’s common shares may bear little or no relationship to the actual recovery, if any, by holders of the Company’s common shares in the Chapter 11 Cases. The Company expects that holders of the Company’s common shares will not receive a recovery through any plan of reorganization unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full. Consequently, there is a significant risk that the holders of the Company’s common shares would receive no recovery under the Chapter 11 Cases and that the Company’s common shares will be worthless. Accordingly, the Company urges extreme caution with respect to existing and future investments in its common shares.

While the Chapter 11 Cases continue, our management will be required to spend a significant amount of time and effort focusing on the cases. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Chapter 11 Cases are protracted.

In addition, during the pendency of the Chapter 11 Cases, our employees will face considerable distraction and uncertainty and we have experienced and may continue to experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to effectively and efficiently conduct our business and meet customer expectations, thereby adversely affecting our business and results of operations. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incentivize key employees to

remain with us during the pendency of the Chapter 11 Cases is limited by certain restrictions on the implementation of incentive programs under the Bankruptcy Code. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, which may have a material adverse effect on our business, cash flows, financial condition and results of operations.

Our post-bankruptcy capital structure has yet to be determined and will be set pursuant to a plan that requires Bankruptcy Court approval. The reorganization of our capital structure may include exchanges of new debt or equity securities for our existing debt, equity securities, and claims against us. Such new debt may be issued at different interest rates, payment schedules and maturities than our existing debt securities. Existing equity securities are subject to a high risk of being cancelled. The success of a reorganization through any such exchanges or modifications will depend on approval by the Bankruptcy Court and the willingness of existing debt and security holders to agree to the exchange or modification, subject to the provisions of the Bankruptcy Code, and there can be no guarantee of success. If such exchanges or modifications are successful, holders of our debt or of claims against us may find their holdings no longer have any value or are materially reduced in value, or they may be converted to equity and be diluted or may be modified or replaced by debt with a principal amount that is less than the outstanding principal amount, longer maturities and reduced interest rates. Holders of our common shares may also find that their holdings no longer have any value and face highly uncertain or no recoveries under a plan. There can be no assurance that any new debt or equity securities will maintain their value at the time of issuance. If existing debt or equity holders are adversely affected by a reorganization, it may adversely affect our ability to issue new debt or equity in the future. Although we cannot predict how the claims and interests of stakeholders in the Chapter 11 Cases, including holders of common shares, will ultimately be resolved, we expect that holders of our common shares will not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full. Consequently, there is a significant risk that the holders of our common shares would receive no recovery under the Chapter 11 Cases and that our common shares will be worthless.

The composition of our Board of Directors is expected to change significantly following the Chapter 11 Cases. Any new directors may have different backgrounds, experiences and perspectives from those individuals who currently serve on our Board of Directors and different views on issues that will determine the future of the Company. As a result, our future strategy and plans may differ materially from our current strategy and plans.

To emerge successfully from Bankruptcy Court protection, we must meet certain statutory requirements regarding the adequacy of disclosure with respect to the plan of reorganization, solicit and obtain the requisite acceptances of such a plan and fulfill other statutory conditions for confirmation of such a plan, which have not occurred to date. The confirmation process is subject to numerous, unanticipated potential delays, including a delay in the Bankruptcy Court’s commencement of the confirmation hearing regarding our plan of reorganization.

We may not receive the requisite acceptances of constituencies in the Chapter 11 proceedings to confirm our plan. Even if the requisite acceptances of our plan are received, the Bankruptcy Court may not confirm such a plan. The precise requirements and evidentiary showing for confirming a plan, notwithstanding its rejection by one or more impaired classes of claims or equity interests, depends upon a number of factors including, without limitation, the status and seniority of the claims or equity interests in the rejecting class (i.e., secured claims or unsecured claims or subordinated or senior claims). If a Chapter 11 plan of reorganization is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if anything, holders of claims against us would ultimately receive with respect to their claims.

There can be no assurance as to whether we will successfully reorganize and emerge from the Chapter 11 proceedings or, if we do successfully reorganize, as to when we would emerge from the Chapter 11 proceedings. If we are unable to successfully reorganize, we may not be able to continue our operations.

Even if a Chapter 11 plan of reorganization is consummated, we may continue to face a number of risks, such as changes in economic conditions, changes in our industry, changes in demand for our products and services and increasing expenses. Some

of these risks become more acute when a case under the Bankruptcy Code continues for a protracted period without indication of how or when the case may be completed. As a result of these risks and others, we cannot guarantee that a Chapter 11 plan of reorganization will achieve our stated goals or that we will be able to continue as a going concern.

Furthermore, even if our debt and other liabilities are reduced or discharged through a Chapter 11 plan of reorganization, we may need to raise additional funds through public or private debt or equity financing or other various means to fund our business after the completion of the Chapter 11 Cases. Our access to additional financing may be limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms, or at all.

The Company intends to pursue, among other things, the consummation of a sale or other disposition of all or substantially all assets of the Company and certain of its subsidiaries pursuant to Section 363 of the Bankruptcy Code or a Chapter 11 plan of reorganization. If we are not able to consummate a Section 363 sale, or confirm a Chapter 11 plan of reorganization or liquidation, we could be forced to liquidate under Chapter 7 of the Bankruptcy Code.

Upon a showing of cause, the Bankruptcy Court may convert the Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our creditors than those provided for in a Chapter 11 sale because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.

Any plan of reorganization that we may implement could affect both our capital structure and the ownership, structure and operation of our business and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. In addition, any plan of reorganization will rely upon financial projections, including with respect to revenues, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to: (i) our ability to substantially change our capital structure; (ii) our ability to obtain adequate liquidity and financing sources; (iii) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them; (iv) our ability to obtain merchandise; (v) our ability to retain key employees, and (vi) the overall strength and stability of the retail industry in the U.S. The failure of any of these factors could materially adversely affect the successful reorganization of our business. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.

The DIP Credit Agreements contain covenants that are typical and customary for these types of debtor-in-possession facilities, including, but not limited to, specified restrictions on indebtedness, liens, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments, voluntary payments of other indebtedness, investments, loans and advances, transactions with affiliates, sale and leaseback transactions and compliance with case milestones. The DIP Credit Agreements also contain customary events of default, including as a result of certain events occurring in the Chapter 11 Cases. The DIP Credit Agreements also require compliance with a variance covenant that compares actual operating disbursements and receipts and capital expenditures to the budgeted amounts set forth in the DIP budgets delivered to the DIP Agents and DIP Lenders on or prior to the closing date and updated periodically thereafter pursuant to the terms of the DIP Credit Agreements. Our ability to comply with these provisions may be affected by events beyond our control and our failure to comply could result in an event of default under the DIP ABL Facility and DIP Term Facility.

In addition to the cash requirements necessary to fund ongoing operations, we have incurred, and expect to continue to incur, significant professional fees and other costs in connection with our Chapter 11 proceedings. While we believe the DIP ABL Facility and the DIP Term Facility will provide sufficient liquidity to fund anticipated cash requirements through the Chapter 11 proceedings, there can be no assurance that our liquidity will be sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or to pursue confirmation of a Chapter 11 plan of reorganization or plan of liquidation. We can provide no assurance that we will be able to secure additional interim financing or exit financing sufficient to meet our liquidity needs or, if sufficient funds are available, offered to us on acceptable terms.

The Bankruptcy Code provides that the confirmation of a Chapter 11 plan of reorganization discharges a debtor from substantially all debts arising prior to consummation of the plan of reorganization. With few exceptions, all claims that arose prior to confirmation of the plan of reorganization (i) would be subject to compromise and/or treatment under the plan of reorganization and (ii) would be discharged in accordance with the Bankruptcy Code and the terms of the plan of reorganization. Any claims not ultimately discharged through a Chapter 11 plan of reorganization could be asserted against the reorganized entities and may have an adverse effect on our business, financial condition, results of operations and cash flows on a post-reorganization basis.

During the Chapter 11 Cases, we expect our financial results to remain volatile as restructuring activities and expenses, contract terminations and rejections, and claims assessments may significantly impact our consolidated financial performance. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the filing of the Chapter 11 Cases.

In addition, if we emerge from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization. We also may be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.

A long period of operations under Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. So long as the Chapter 11 Cases continue, senior management will be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on business operations. A prolonged period of operating under Bankruptcy Court protection also may make it more difficult to retain management and other key personnel necessary to the success of our business. In addition, the longer the proceedings related to the Chapter 11 Cases continue, the more likely it is that our suppliers, vendors and customers will lose confidence in our ability to reorganize our business successfully and will seek to establish alternative commercial relationships.

So long as the proceedings related to these cases continue, we will be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11 Cases, including potentially the cost of litigation. In general, litigation can be expensive and time consuming to bring or defend against. Such litigation could result in settlements or damages that could significantly and adversely affect our financial results. It is also possible that certain parties will commence litigation with respect to the treatment of their claims under a plan of reorganization. It is not possible to predict the potential litigation that we may become party to, nor the final resolution of such litigation. The impact of any such litigation on our business and financial stability, however, could be material.

Should the Chapter 11 proceedings be protracted, we may also need to seek new financing to fund operations. If we are unable to obtain such financing on favorable terms or at all, the chances of successfully reorganizing our business may be seriously jeopardized and the likelihood that we will instead be required to liquidate our assets may increase.

While we operate our business under supervision by the Bankruptcy Court, we are required to obtain approval of the Bankruptcy Court, and in some cases certain other parties, prior to engaging in activities or transactions outside the ordinary course of business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with various parties-in-interest, and one or more hearings. Parties-in-interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly to opportunities and events in the marketplace. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we would be prevented from engaging in activities, transactions and internal restructurings that we believe are beneficial to us, which may have an adverse effect on our business, financial condition, results of operations and cash flows.

None.

During the three months ended August 3, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as such terms are defined in Item 408(a) of Regulation S-K.

On September 9, 2024, the NYSE announced that it had determined to commence proceedings to delist the Company’s common shares from the NYSE. Trading in the Company’s common shares was immediately suspended. The NYSE reached its decision that the Company’s common shares are no longer suitable for listing pursuant to the NYSE Listed Company Manual Section 802.01D after the Company’s September 9, 2024 disclosure that the Company commenced the Chapter 11 Cases. The NYSE filed a Form 25 with the SEC on September 10, 2024 to delist the Company’s common shares from the NYSE which will become effective on September 20, 2024. The Company expects that such delisted securities may be subject to trading in the OTC market.