20230930-DK-Butterfly-1 (BBBYQ) 10-K2022 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Commission File Number 0-20214

(Exact name of registrant as specified in its charter)

(Address of principal executive offices) (Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

On April 25, 2023, the Bankruptcy Court entered an order approving the bidding procedures in connection with the sale of all or substantially all of the Debtors’ assets.

1.    Stalking Horse Deadline: June 11, 2023, at 5:00 p.m. (prevailing Eastern Time)

2.    Bid Deadline: June 16, 2023, at 12:00 p.m. (prevailing Eastern Time)

3.    Auction (if applicable): An Auction may be held on June 21, 2023, at 10:00 a.m. (prevailing Eastern Time) via live auction

4.    Notice of Successful Bidder: As soon as reasonably practicable after the conclusion of the Auction (if necessary).

5. Sale Objection Deadline: June 26, 2023, at 9:00 a.m. (prevailing Eastern Time)

6.     Sale Hearing: June 27, 2023, or as soon thereafter as the Court’s calendar permits

The Company Parties continue to operate their business and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Except as otherwise specifically stated herein, the description and disclosures presented elsewhere in this Form 10-K reflect the Company’s business as of February 25, 2023, prior to the filing of the Chapter 11 Cases. As a result of the filing of the Chapter 11 Cases, the Company no longer has any operations, other than those relating to the wind down of its business and the completion of the Chapter 11 process.

Holders of the Company’s equity securities will likely be entitled to no recovery on their investment following the Chapter 11 Cases, and recoveries to other stakeholders cannot be determined at this time. The Company cautions that trading in the Company’s securities given the pendency of the Chapter 11 Cases is highly speculative and poses substantial risk. Trading prices for the Company’s securities bear little or no relationship to the actual value realized, if any, by holders of the Company’s securities in the Chapter 11 Cases. Accordingly, the Company urges extreme caution with respect to existing and future investment in its securities.

PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Many of these forward-looking statements can be identified by use of words such as “may,” “will,” “expect,” “anticipate,” “approximate,” “estimate,” “assume,” “continue,” “model,” “project,” “plan,” “goal,” “preliminary,” and similar words and phrases, although the absence of those words does not necessarily mean that statements are not forward-looking. Our actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Such factors include, without limitation:

Except as required by law, we do not undertake any obligation to update our forward-looking statements. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. These assumptions could prove inaccurate.

Any forward-looking statement we make in this Annual Report on Form 10-K or elsewhere speaks only as of the date on which we make it. The risks identified above are not exhaustive, and you should be aware that there may be other risks that could adversely affect our business and financial performance. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. In any event, these and other important factors, including those set forth under the caption “Risk Factors” in this Annual Report on Form 10-K, may cause actual results to differ materially from those

indicated by our forward-looking statements. We have no duty, and do not intend, to update or revise the forward-looking statements we make in this Annual Report on Form 10-K or elsewhere, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the future events or circumstances described in any forward-looking statement we make in this Annual Report on Form 10-K or elsewhere might not occur.

We are driving a digital-first, omni-always strategy and optimizing our digital and physical store channels to provide our customers with an omni-channel shopping experience. Digital purchases, including web and mobile, can be shipped to a customer from our distribution facilities, directly from vendors, or from a store. Store purchases are primarily fulfilled from that store's inventory or may also be shipped to a customer from one of our distribution facilities, from a vendor, or from another store. Customers can also choose to pick up orders using our Buy Online Pickup In Store ("BOPIS") and contactless Curbside Pickup services, as well as return online purchases to a store, or have an order delivered through one of our delivery partners.

We operated 872 retail stores, as of February 25, 2023, consisting of 696 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 131 BABY stores in 37 states and Canada and 45 Harmon stores in 2 states. During Fiscal 2022, we opened 7 new stores and closed 88 stores. As of February 25, 2023, our total store square footage, net of openings and closings, was approximately 25.5 million square feet. In addition to our U.S. and Canadian operations, we are a partner in a joint venture that operates 5 stores in Mexico under the name Bed Bath & Beyond.

The Company Parties continue to operate their business and manage their properties as “debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company Parties filed with the Bankruptcy Court motions seeking a variety of “first-day” relief, including authority to pay employee wages and benefits and to pay vendors and suppliers for goods and services provided both before and after the Petition Date. In addition, the Company filed with the Bankruptcy Court a motion seeking approval (“Interim DIP Order”) of debtor-in-possession financing (“DIP Financing”) in the form of the DIP Credit Agreement (as defined and described below). Following a hearing held on April 24, 2023, the Bankruptcy Court approved the Company Parties’ motions seeking a variety of “first-day” relief on an interim basis. The Company Parties resolved numerous informal comments and many of the "first-day" motions were entered on a final basis consensually. A hearing was scheduled on June 14, 2023 for the Bankruptcy Court to consider final approval of the relief requested in certain first day motions, and final approval of the DIP Facility.

Prior to the Petition Date, the Company Parties and Sixth Street Specialty Lending, Inc., Sixth Street Lending Partners and TAO Talents (the “DIP Parties”) agreed to enter into a senior secured super-priority debtor-in-possession term loan credit facility in an aggregate principal amount of $240,000,000 subject to the terms and conditions set forth therein (the “DIP Credit Agreement”). On April 25, 2023, the Bankruptcy Court entered an order approving entry into the DIP Credit Facility on an interim basis. Pursuant to the DIP Credit Agreement, the DIP Lenders have provided a senior secured super-priority debtor in possession term loan facility (the “DIP Facility”), consisting of (1) a new money single draw term loan facility in the amount of $40 million, and (2) a roll-up of certain secured obligations under the existing prepetition credit agreement between the Company Parties and the Prepetition FILO Lenders in the amount of $200 million. Borrowings under the DIP Facility are senior secured obligations of the Company and certain Company Parties, secured by a super priority lien on the collateral under the Amended and Restated Credit Agreement, dated as of August 9, 2021 (as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of August 31, 2022, that certain Second Amendment to Amended and Restated Credit Agreement and Waiver, dated as of February 7, 2023, that certain Third Amendment to Amended and Restated Credit Agreement and Waiver, dated as of March 6, 2023, that certain Fourth Amendment to Amended and Restated Credit Agreement and Waiver, dated as of March 30, 2023, that certain Fifth Amendment to Amended and Restated Credit Agreement and Waiver, dated as of April 6, 2023 and that certain Sixth Amendment to Amended and Restated Credit Agreement, Consent and Waiver, dated as of April 21, 2023, the “Existing Credit Agreement”), as well as all unencumbered assets of the Company Parties (subject to customary exceptions). The DIP Credit Agreement has various customary covenants, as well as covenants mandating compliance by the Debtors with a 13-week budget, variance testing and reporting requirements, among others. The proceeds of all or a portion of the proposed DIP Credit Agreements may be used for, among other things, post-petition working capital for the Company and its subsidiaries, payment of costs to administer the Chapter 11 Cases, payment of expenses and fees of the transactions contemplated by the Chapter 11 Cases, payment of court-approved adequate protection obligations under the DIP Credit Agreements, and payment of other costs, in each case, subject to an approved budget and such other purposes permitted under the DIP Credit Agreement and the Interim DIP Order or any other order of the Bankruptcy Court.

On April 24, 2023, the Company received written notice from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, as a result of the Chapter 11 Cases and in accordance with the Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that the Company’s common stock will be delisted from Nasdaq Trading of the Company’s common stock was suspended at the opening of business on May 3, 2023.

Following delisting from Nasdaq, the Company’s common stock has been quoted in the OTC Pink Open Market under the symbol “BBBYQ”. The OTC Pink Open Market is a significantly more limited market than Nasdaq, and quotation on the OTC Pink Open Market likely results in a less liquid market for existing and potential holders of the common stock to trade the Company’s common stock and could further depress the trading price of the common stock. The Company can provide no assurance as to

whether broker-dealers will continue to provide public quotes of the common stock on this market, or whether the trading volume of the common stock will be sufficient to provide for an efficient trading market.

We expect Nasdaq to file a Form 25 with the SEC to delist our common stock from trading on Nasdaq and to remove it from registration under Section 12(b) of the Exchange Act, which will become effective 10 days after such filing. In accordance with Rule 12d2-2 of the Exchange Act, the de-registration of our common stock under Section 12(b) of the Exchange Act will become effective 90 days, or such shorter period as the SEC may determine, from the date of the Form 25 filing.

Effective on April 22, 2023, the Company appointed Holly Etlin to serve as the Chief Restructuring Officer (“CRO”) of the Company for such a term and in accordance with the terms and conditions of that certain engagement letter, dated as of April 21, 2023 by and among and the Company and AP Services, LLC (the “AP Engagement Letter”). As further set forth in the AP Engagement Letter, Ms. Etlin’s authority as CRO includes, in coordination with the Company’s advisors and management, (a) overseeing the Chapter 11 Cases and court-supervised liquidation and sale process, (b) overseeing cash management and liquidity forecasting, (c) the development of, or revisions to, the Company’s business plan, and (d) engagement with creditors and other stakeholders. Ms. Etlin shall serve at the direction of an ad hoc committee of the Board of Directors of the Company and its subsidiaries comprised of Carol Flaton, Pamela Corrie, Jonathan Foster, and Joshua Schechter, in accordance with the terms and conditions of the AP Engagement Letter.

During Fiscal 2020, we divested five non-core banners, including One Kings Lane in the first quarter, PersonalizationMall.com in the second quarter, Linen Holdings and Christmas Tree Shops in the third quarter and Cost Plus World Market in the fourth quarter, generating approximately $534 million in net proceeds. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for detailed information relating to these divestitures.

Company Parties are actively seeking to market and sell real property leases in order to capture substantial value and avoid significant costs associate with such leases.

On February 10, 2023 (the “Canadian Petition Date”), BBB Canada Limited made an application with the Ontario Superior Court of Justice (the “Canadian Court”). BBB Canada Limited was granted an order, which, among other provisions, provides a stay of proceedings pursuant to the Companies’ Creditors Arrangement Act (the “CCAA”). The CCAA is a Federal Act that allows financially troubled corporations that owe their creditors in excess of $5 million the opportunity to restructure their affairs. Although Bed Bath & Beyond Canada L.P. (“BBB LP” and together with BBB Canada Limited, “BBB Canada”) did not file an application with the Canadian Court, the stay of proceedings under the CCAA and other benefits were extended to BBB LP. BBB Canada initiated a wind-down of Bed Bath & Beyond and Buy Buy Baby Stores in Canada under the CCAA. A monitor was appointed by the Canadian Court on February 10, 2023 to oversee the orderly liquidation of its remaining inventory with assistance from a third-party professional liquidator and vacate its leased retail stores and premises.

The description of the Company’s business contained herein reflects the Company’s operations of its business prior to the filing of the Chapter 11 Cases on April 23, 2023. As a result of the filing of the Chapter 11 Cases, the Company no longer has operations, other than those relating to the wind down of its business and completion of the Chapter 11 process.

Competition

As of February 25, 2023, we had distribution facilities totaling approximately 4.4 million square feet, including our first regional distribution center, an approximately one million square foot facility in Frackville, Pennsylvania, which became operational during Fiscal 2021. Ryder Systems, Inc. operated this regional distribution center under a strategic partnership, with the objective of reducing product replenishment times and improving the customer experience. All of these capabilities allow us to better serve customers across our omni-channel network. During Fiscal 2021, we also executed a lease for our second regional distribution center in Jurupa Valley, California, which became operational during the second half of Fiscal 2022. As part of the optimization and transformation initiatives during the fourth quarter of Fiscal 2022, the Company decided to no longer use the Jurupa Valley, California distribution center. As of February 25, 2023, the Company had not fully exited the distribution center or reached a final negotiation with Ryder Systems, Inc. See "Item 2 - Properties" for additional information regarding our distribution facilities.

Tradenames, Service Marks and Domain Names

We use the service marks "Bed Bath & Beyond" and "buybuy BABY" in connection with our retail services. We have registered trademarks and service marks (including for our Owned Brands) with the United States Patent and Trademark Office. In addition, we have registered or have applications pending with the trademark registries of several foreign countries, including the "Bed Bath & Beyond" name and logo registered in Canada and Mexico and the "buybuy BABY" name and logo registered in Canada. We also own a number of product trademarks. We file patent applications and seek copyright registrations where we deem such to be advantageous to the business. We believe that our name recognition and service marks are important elements of our merchandising strategy.

At Bed Bath & Beyond Inc., we strived to create an environment where all Associates can thrive by offering resources that support their physical, mental, social, and emotional well-being. In Fiscal 2022, we specifically focused on providing a sense of continuity and stability as we navigated a dynamic environment. At the same time, and in light of significant senior leadership turnover initiated by the Board and our new CEO, it was essential to maintain an environment optimizing retention and maximizing our ability to recruit new talent.

Available Information

We make available as soon as reasonably practicable after filing with the Securities and Exchange Commission ("SEC"), free of charge, through our websites, www.bedbathandbeyond.com, and http://bedbathandbeyond.gcs-web.com/financial-information/sec-filings, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, electronically filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We may also use our websites as a distribution channel of material information about us including through press releases, investor presentations, and notices of upcoming events. We intend to utilize the investor relations section of our website as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD. We also intend to use certain social media channels, including, but not limited to, Twitter, Facebook and LinkedIn, as means of communicating with the public, our customers and investors about us, our products, and other matters. While not all the information that we post to our website and social media channels may be deemed to be of a material nature, some information may be, and we therefore encourage investors, the media and others interested in us to review the information we make public in these locations.

ITEM 1A – RISK FACTORS

An investment in our common stock involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Annual Report on Form 10-K, before making a decision to invest in our common stock.

RISKS RELATED TO THE CHAPTER 11 CASES

On April 23, 2023, we voluntarily filed the Chapter 11 Cases. The Company Parties continue to operate their business and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

To complete our Chapter 11 bankruptcy process, we must meet certain statutory requirements with respect to adequacy of disclosure with respect to a Chapter 11 plan of reorganization, solicit and obtain the requisite acceptances of such a plan and fulfill other statutory conditions for confirmation of 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.

The Company's ability to continue as a going concern is contingent upon, among other things, its ability to, subject to the Bankruptcy Court’s approval, implement a Chapter 11 plan, successfully emerge from the Chapter 11 Cases and establish a sustainable capital structure upon emergence. Our ability to consummate a Chapter 11 plan is subject to risks and uncertainties many of which are beyond our control. These factors, together with the Company’s recurring losses from operations and accumulated deficit, create substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that the Company will be able to successfully create and implement a Chapter 11 plan, or realize all or any of the expected benefits from such Chapter 11 plan.

The Company has sought the protection of the Bankruptcy Court and as a result our operations and ability to develop and execute its business plan, and its ability to continue as a going concern, are subject to the risks and uncertainties associated with bankruptcy. As such, seeking Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. Senior management has been required to spend a significant amount of time and effort attending to the Chapter 11 Cases instead of focusing exclusively on our business operations. Bankruptcy Court protection also might make it more difficult to retain management and other employees necessary to the success and growth of our business.

Delays in the Chapter 11 Cases could increase the risks of our being unable to reorganize the Company’s business and emerge from bankruptcy and increase costs associated with the bankruptcy process.

For the duration of the Chapter 11 Cases, the Debtors’ ability to operate, develop, and execute a business plan, and continue as a going concern, will be subject to the risks and uncertainties associated with bankruptcy. These risks include the following: (a) ability to obtain Bankruptcy Court approval with respect to motions filed in the Chapter 11 Cases from time to time; (b) ability to maintain contracts that are critical to the Debtors’ operations; (c) ability of third parties to seek and obtain Bankruptcy Court approval to terminate contracts and other agreements with the Debtors; (d) ability of third parties to seek and obtain Bankruptcy Court approval to terminate or shorten the exclusivity period for the Debtors to propose and confirm a Chapter 11 plan, to appoint a Chapter 11 trustee, or to convert the Chapter 11 Cases to Chapter 7 proceedings; and (e) the actions and decisions of the Debtors’ creditors and other third parties who have interests in the Chapter 11 Cases that may be inconsistent with the Debtors’ plans.

These risks and uncertainties could affect the Debtors’ businesses and operations in various ways. For example, the Debtors will need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit the Debtors’ ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with the Chapter 11 Cases, the Debtors cannot accurately predict or quantify the ultimate impact of events that occur during the Chapter 11 Cases that may be inconsistent with the Debtors’ plans.

If the Bankruptcy Court finds that it would be in the best interest of creditors and/or the debtor in a Chapter 11 case, the Bankruptcy Court may convert a Chapter 11 bankruptcy case to a case under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the debtor’s assets for distribution in accordance with the priorities established by the Bankruptcy Code. The Debtors believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to creditors than those provided for in a Chapter 11 plan because of (a) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time, rather than reorganizing or selling the business as a going concern at a later time in a controlled manner, (b) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (c) additional expenses and claims, some of which would be entitled to priority, that

would be generated during the liquidation, including claims resulting from the rejection of unexpired leases and other executory contracts in connection with cessation of operations.

Additionally, if the Bankruptcy Court finds that the Debtors have incurred substantial or continuing loss or diminution to the estate and lack of a reasonable likelihood of rehabilitation of the Debtors or the ability to otherwise determines that cause exists, the Bankruptcy Court may dismiss one or more of the Chapter 11 Cases.

While the Debtors have made efforts to minimize the length of the Chapter 11 Cases, it is impossible to predict with certainty the amount of time that the Debtors may spend in bankruptcy. There is a risk, due to uncertainty about the Debtors’ futures that, among other things: employees could be distracted from performance of their duties or more easily attracted to other career opportunities; and suppliers, vendors, or other business partners could terminate their relationship with the Debtors or demand financial assurances or enhanced performance, any of which could impair the Debtors’ prospects and ability to generate stable, recurring cash flows.

Lengthy Chapter 11 Cases also would involve additional expenses, putting strain on the Debtors’ liquidity position, and divert the attention of management from the operation of the Debtors’ businesses.

The disruption that the bankruptcy process would have on the Debtors’ businesses could increase with the length of time it takes to complete the Chapter 11 Cases. Further, the Debtors may be forced to operate in bankruptcy for an extended period of time while they try to develop a plan of reorganization that can be confirmed. A protracted bankruptcy case could increase both the probability and the magnitude of the adverse effects described above.

Even if a Chapter 11 plan is approved, the reorganized Debtors may not be able to achieve their projected financial results. If the reorganized Debtors do not achieve their projected financial results or are unable to procure sufficient exit financing to effectuate a Chapter 11 plan, the value of the Company’s securities may be negatively affected and the reorganized Debtors may lack sufficient liquidity to continue operating as planned after the effective date. Moreover, the financial condition and results of operations of the reorganized Debtors from and after the effective date may not be comparable to the financial condition or results of operations reflected in the Debtors’ historical financial statements.

We have recently experienced significant turnover in our senior management team and reductions in our workforce. Our ability to retain key employees in the long-term is affected by Chapter 11 Cases and our financial situation. Our business may be adversely affected by the transitions in our senior management team and reduction in workforce, and turnover at the senior management level may create instability within the Company, which could disrupt and impede our day-to-day operations and internal controls. In addition, management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution, and our results of operations and financial condition could be negatively impacted as a result.

Significant turnover in our senior management team and across our organization could result in one or more material weakness in our internal control over financial reporting. However, internal controls over financial reporting may not prevent or detect misstatements or omissions in the Debtors’ financial statements because of their significant turnover in senior management, inherent limitations, including the possibility of human error, and the circumvention or overriding of controls or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the Company fails to maintain the adequacy of their internal controls, the Debtors may be unable to provide financial information in a timely and reliable manner within the time periods required under the terms of the agreements governing the Debtors’ indebtedness. Further, the Debtors may discover other internal control deficiencies in the future and/or fail to adequately correct previously identified control deficiencies, which could materially adversely affect the Debtors’ businesses, results of operations, and financial condition.

In the future, the Company Parties may become parties to 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 affect the reorganized Debtors’ financial results. It is also possible that certain parties will commence litigation with respect to the treatment of their claims under the Chapter 11 plan. It is not possible to predict the potential litigation that the Company Parties may become party to nor the final resolution of such litigation. The impact of any such litigation on the reorganized Debtors’ businesses and financial stability, however, could be material.

The Bankruptcy Code provides that the effectiveness of a Chapter 11 plan discharges a debtor from substantially all debts arising prior to petition date, other than as provided in the applicable Chapter 11 plan. With few exceptions, all claims against us that arose prior to the filing of the Cases or before consummation of a Chapter 11 plan (i) would be subject to compromise and/or treatment under a Chapter 11 plan and/or (ii) would be discharged in accordance with the US Bankruptcy Code and the terms of a Chapter 11 plan. Subject to the terms of a Chapter 11 plan and orders of the Bankruptcy Court, any claims not ultimately discharged pursuant to a Chapter 11 plan could be asserted against the reorganized entities and may have an adverse effect on our liquidity and financial condition.

Generally, a company generates NOLs if the operating expenses it has incurred exceed the revenues it has earned during a single tax year. A company may apply, or “carry forward,” NOLs to reduce future tax payments (subject to certain conditions and limitations). To date, the Company has generated a significant amount of U.S. federal NOLs.

We expect that we may undergo an ownership change under Section 382 of the Code in connection with the consummation of a Chapter 11 plan. Nevertheless, we believe these NOLs are a valuable asset for us, particularly in the context of the Chapter 11 Cases.

In addition, our NOLs (and other tax attributes) may be subject to use in connection with the implementation of any bankruptcy Chapter 11 plan or reduction as a result of any cancellation of indebtedness income arising in connection with the implementation of any bankruptcy Chapter 11 plan. As such, at this time, there can be no assurance that we will have NOLs to offset future taxable income.

On April 24, we received written notice from Nasdaq notifying us Company that, as a result of the Chapter 11 Cases and in accordance with the Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that our common stock would be delisted from Nasdaq. Trading of the Company’s common stock was suspended at the opening of business on May 3, 2023. Delisting would have an adverse effect on the liquidity of our common stock and, as a result, the market price for our common stock might become more volatile. Delisting could also reduce the number of investors willing to hold or acquire our common stock and negatively impact our ability to access equity markets and obtain financing.

We expect Nasdaq to file a Form 25 with the SEC to delist our common stock from trading on Nasdaq and to remove it from registration under Section 12(b) of the Exchange Act. The delisting became effective 10 days after such filing. In accordance with Rule 12d2-2 of the Exchange Act, the de-registration of our common stock under Section 12(b) of the Exchange Act will become effective 90 days, or such shorter period as the SEC may determine, from the date of the Form 25 filing.

Following delisting from Nasdaq, the Company’s common stock has been quoted in the OTC Pink Open Market under the symbol “BBBYQ”. The OTC Pink Open Market is a significantly more limited market than Nasdaq, and quotation on the OTC Pink Open Market likely results in a less liquid market for existing and potential holders of the common stock to trade the Company’s common stock and could further depress the trading price of the common stock. The Company can provide no assurance as to whether broker-dealers will continue to provide public quotes of the common stock on this market, or whether the trading volume of the common stock will be sufficient to provide for an efficient trading market.

None.

Most of our stores are located in suburban areas of medium and large-sized cities. These stores are situated in strip and power strip shopping centers, as well as in major off-price and conventional malls, and in free standing buildings.

As of February 25, 2023, our 872 stores are located in all 50 states, the District of Columbia, Puerto Rico and Canada and range in size from approximately 4,000 to 84,000 square feet, but are predominantly between 18,000 and 50,000 square feet. Approximately 85% to 90% of store space is used for selling areas.

The table below sets forth the locations of our stores as of February 25, 2023:

We lease substantially all of our existing stores. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for a series of 5 year renewal options, often at increased rents, the exercise of which is at our sole discretion. We evaluate leases on an ongoing basis which may lead to renegotiated lease provisions, including rent and term duration, or the possible relocation or closing of stores. We have approximately 145 store leases that are up for renewal in 2023, which provide opportunity to evaluate additional store closures and relocations. Certain leases provide for scheduled rent increases (which, in the case of fixed increases, we account for on a straight-line basis over the committed lease term, beginning when we obtain possession of the premises) and/or for contingent rent (based upon store sales exceeding stipulated amounts).

As of February 25, 2023, we have approximately 706,000 square feet within 6 leased and owned facilities for corporate office functions.

The Company Parties continue to operate their business and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company Parties filed with the Bankruptcy Court motions seeking a variety of “first-day” relief, including authority to pay employee wages and benefits and to pay vendors and suppliers for goods and services provided both before and after the Petition Date. In addition, the Company filed with the Bankruptcy Court a motion seeking approval (“Interim DIP Order”) of debtor-in-possession financing (“DIP Financing”) in the form of the DIP Credit Agreement (as defined and described below). Following a hearing held on April 24, 2023, the Bankruptcy Court approved the Company Parties’ motions seeking a variety of “first-day” relief on an interim basis. The Company Parties resolved numerous informal comments and many of the "first-day" motions were entered on a final basis consensually. A hearing is scheduled on June 14, 2023 for the Bankruptcy Court to consider final approval of the relief requested in certain first day motions, and final approval of the DIP Facility.

Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against or on behalf of the Company Parties. Subject to certain exceptions under the Bankruptcy Code, the filing of the Company Parties’ Chapter 11 Cases automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the Company Parties or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Company Parties’ 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. See “Item 1 — Business — Recent Developments” for further discussion of the Chapter 11 Cases and our going concern evaluation.

On April 23, 2023, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of such bankruptcy filings, substantially all proceedings pending against the Debtors have been stayed by operation of Section 362(a) of the Bankruptcy Code.

After a mediation held in August 2021, a settlement in principle was reached between the Company and lead plaintiff in the Securities Class Action. The settlement has been executed and was preliminarily approved by the New Jersey Federal Court in February 2022. The court granted final approval to the settlement and dismissed the Securities Class Action on June 2, 2022. The

Company had previously recorded a liability for the Securities Class Action, based on the agreed settlement amount and insurance coverage available and this amount was paid by the insurance company in the second fiscal quarter of 2022.

The derivative cases were not included in the August 2021 settlement referred to above, but after mediation, a settlement in principle was reached in the first quarter of Fiscal 2022. The settlement has been executed and was preliminarily approved by the New York State Court in June 2022. The court granted final approval to the settlement on September 21, 2022 and the settlement amount has been paid by the Company’s insurer.

On August 23, 2022, a putative securities class action and shareholder derivative action was filed against the Company, Gustavo Arnal (the Company's former Chief Financial Officer), and certain third parties in the United States District Court for the District of Columbia. The case, which is captioned Si v. Bed Bath & Beyond Corp., et al., Case No. 2:22-cv-02541, asserts claims of breach of fiduciary duty, negligent misrepresentation, and violations of §§ 10(b) and 20(a) of the Exchange Act on behalf of a putative class of purchasers of our securities from March 25, 2022 through August 18, 2022. The Complaint alleges that certain of our disclosures about the Company's revenue and proposed divestments, as well as other disclosures made by certain of our investors about their holdings, during the putative class period were materially false or misleading. The Complaint was amended in November 2022 and again in January 2023 and a Lead Plaintiff was appointed by the Court. The Second Amended Complaint removes Mr. Arnal as a defendant, adds Sue Gove as a defendant, and shortens the class period and reduced the claims against the Company. The matter is now entitled In re Bed Bath & Beyond Corporation Securities Litigation. Based on current knowledge the Company believes the claims are without merit and has filed a Motion to Dismiss the Complaint.

On April 24, 2023, the Company received written notice from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, as a result of the Chapter 11 Cases and in accordance with the Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that the Company’s common stock will be delisted from Nasdaq. Trading of the Company’s common stock was suspended at the opening of business on May 3, 2023.

Following delisting from Nasdaq, the Company’s common stock has been quoted in the OTC Pink Open Market under the symbol “BBBYQ”. The OTC Pink Open Market is a significantly more limited market than Nasdaq, and quotation on the OTC Pink Open Market likely results in a less liquid market for existing and potential holders of the common stock to trade the Company’s common stock and could further depress the trading price of the common stock. The Company can provide no assurance as to whether broker-dealers will continue to provide public quotes of the common stock on this market, or whether the trading volume of the common stock will be sufficient to provide for an efficient trading market.

We expect Nasdaq to file a Form 25 with the SEC to delist our common stock from trading on Nasdaq and to remove it from registration under Section 12(b) of the Exchange Act. The delisting became effective 10 days after such filing. In accordance with Rule 12d2-2 of the Exchange Act, the de-registration of our common stock under Section 12(b) of the Exchange Act will become effective 90 days, or such shorter period as the SEC may determine, from the date of the Form 25 filing. See “Item 1 — Business — Recent Developments” for further discussion of the Chapter 11 Cases.

During Fiscal 2016, our Board of Directors authorized a quarterly dividend program. In fiscal 2022, no cash dividends were paid. During Fiscal 2021, and 2020, total cash dividends of $0.7 million, and $23.1 million were paid, respectively. As a result of the COVID-19 pandemic, in Fiscal 2021 and fiscal 2022 we suspended our quarterly cash dividend payments to support plans to build long-term shareholder value and further strengthen our financial flexibility. Any quarterly cash dividends to be paid in the future are subject to the determination by the Board of Directors, based on an evaluation of our earnings, financial condition and requirements, business conditions and other factors.

Since 2004 through the end of Fiscal 2022, we have repurchased approximately $11.731 billion of our common stock through share repurchase programs. Our purchases of our common stock during the fourth quarter of Fiscal 2022 were as follows:

The graph shown below compares the performance of our common stock with that of the S&P 500 Index, the S&P Retail Composite Index and the S&P 500 Specialty Retail Index over the same period (assuming the investment of $100 in our common stock and each of the three Indexes on February 25, 2017, and the reinvestment of dividends, if any).

OVERVIEW

The description of the Company’s business contained herein reflects the Company’s operations of its business prior to the filing of the Chapter 11 Cases on April 23, 2023. As a result of the filing of the Chapter 11 Cases, the Company no longer has operations, other than those relating to the wind down of its business and completion of the Chapter 11 process.

Bed Bath & Beyond Inc. and subsidiaries (the "Company", "we", "our", "us", or ourselves") are an omni-channel retailer that makes it easy for our customers to feel at home. We sell a wide assortment of merchandise in the Home and Baby markets and operate under the names Bed Bath & Beyond and buybuy BABY.

We offer a broad assortment of national brands and an assortment of proprietary Owned Brand merchandise in key destination categories including bedding, bath, kitchen food prep, home organization, indoor décor, baby and personal care.

We operate a omni-channel platform consisting of various websites and applications and physical retail stores. Our e-commerce platforms include bedbathandbeyond.com and buybuybaby.com. We operate Bed Bath & Beyond and buybuy BABY stores.

Across our banners, we carry a wide variety of domestics and home furnishings merchandise. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall décor), consumables and certain juvenile products.

We are driving a digital-first, omni-always growth strategy and optimizing our digital and physical store channels to provide our customers with a omni-channel shopping experience. Digital purchases, including web and mobile, can be shipped to a customer from our distribution facilities, directly from vendors, or from a store. Store purchases are primarily fulfilled from that store’s inventory or may also be shipped to a customer from one of our distribution facilities, from a vendor, or from another store. Customers can also choose to pick up orders using our Buy Online Pickup In Store ("BOPIS") and contactless Curbside Pickup services, as well as return online purchases to a store, or have an order delivered through one of our same day delivery partners.

Beginning in the third quarter of Fiscal 2022, we underwent significant strategic and management changes to transform our business and adapt to the dynamic retail environment and the evolving needs of our customers in order to position ourselves for long-term success. Beginning in the third quarter of Fiscal 2022, the Company began to execute a comprehensive strategic plan led by our new President and Chief Executive Officer, Sue Gove, who was appointed in October 2022 after serving as Interim Chief Executive Officer. This plan focused on strengthening the Company’s financial position through additional liquidity and a reduction of our cost structure, better serving our customers through merchandising, inventory and customer engagement, and regaining our authority in the Home and Baby markets. To accelerate these strategic initiatives, the Company realigned our organizational structure, which included the creation of Brand President roles for Bed Bath & Beyond and bubybuy BABY to lead merchandising, planning, brand marketing, site merchandising and stores for each banner.

In conjunction with the Company’s new strategic focus areas, the Company executed plans to rebalance our merchandise assortment to align with customer preference by leading with National Brands inventory and introducing new, emerging direct-to-consumer brands. Consequently, we announced the exiting of a third of our Owned Brands, including the discontinuation of a third of our nine labels (Haven™, Wild Sage™ and Studio 3B™). We also expect to reduce the breadth and depth of inventory across our six remaining Owned Brands (Simply Essential™, Nestwell™, Our Table™, Squared Away™, H for Happy™ and Everhome™).

In connection with the above restructuring and transformation initiatives, during Fiscal 2022, we recorded total expense of $407.7 million including $77.7 million in cost of sales, primarily associated with $330.0 million in restructuring and transformation initiative expenses for costs associated with our planned store closures as part of the store fleet optimization program and other transformation initiatives as well as workforce reduction and leadership changes. We also recorded impairment charges of approximately $1.29 billion, primarily related to store assets. At this point, we are unable to estimate the amount or range of amounts expected to be incurred in connection with future restructuring and transformation initiatives, including further store closures, and will provide such estimates as they become available.

The following represents a summary of key financial results and related business developments for the periods indicated:

 

Further discussion of the risks and uncertainties posed by the COVID-19 pandemic is included in "Risk Factors" under "Part I, Item 1A" of this Form 10-K.

The fiscal years discussed below were each comprised of 52 weeks.

The decrease in net sales for Fiscal 2021 was primarily due to the impact of traffic declines and supply chain disruptions. Store closures as part of our store fleet optimization program also contributed to the decline in sales.

Comparable Sales* for the year ended February 25, 2023 decreased by approximately 29.7%. Management attributes a portion of this decline to the impact of lower traffic due to macro-economic factors, such as steep inflation, and fluctuations in purchasing patterns of the consumer. Also contributing to the comparable sales decline was the lack of inventory availability and assortment in key product areas, due to vendor constraints and credit line decreases. For the year ended February 26, 2022, Comparable Sales was not a meaningful metric as a result of the impact of the extended closure of the majority of our stores during a portion of the comparable year ended February 27, 2021 due to the COVID-19 pandemic.

Our comparable sales metric considers sales consummated through all retail channels – in-store, online, with a mobile device or through a customer contact center. Our omni-channel environment allows our customers to use more than one channel when

making a purchase. We believe in an integrated and seamless customer experience. A few examples are: a customer may be assisted by an in-store associate to create a wedding or baby registry, while the guests may ultimately purchase a gift from our websites; or a customer may research a particular item, and read other customer reviews on our websites before visiting a store to consummate the actual purchase; or a customer may buy an item online for in-store or curbside pickup; or while in a store, a customer may make the purchase on a mobile device for in home delivery from either a distribution facility, a store or directly from a vendor. In addition, we accept returns in-store without regard to the channel in which the purchase was consummated, therefore resulting in reducing store sales by sales originally consummated through customer facing digital channels. As our retail operations are integrated and we cannot reasonably track the channel in which the ultimate sale is initiated, we can however, provide directional information on where the sale was consummated.

Sales of domestics merchandise accounted for approximately 35.8%, 37.4%, and 34.7%, of net sales in Fiscal 2022, 2021 and 2020, respectively. Sales of home furnishings accounted for approximately 64.2%, 62.6% and 65.3% of net sales, respectively, for Fiscal 2022, 2021, and 2020.

Gross profit in Fiscal 2022 was $1.21 billion, or 22.7% of net sales, compared with $2.48 billion, or 31.6% of net sales in Fiscal 2021. The decrease in gross profit percentage was primarily attributable to markdown and promotional activity associated with the general economic environment, clearance activity related to the exiting of certain Owned Brands and Owned Brands inventory assortment, and activity associated with store closures. Gross profit for Fiscal 2022 included the impact of charges of $91.6 million associated with the markdown of inventory being removed from our assortment in connection with the clearance of certain Owned Brand merchandise.

Goodwill and other impairments were $1.29 billion for Fiscal 2022, $36.5 million in Fiscal 2021 and $127.3 million in Fiscal 2020. For Fiscal 2022, impairment charges included $1.28 billion related to certain store-level, distribution facilities and corporate assets (including leasehold improvements, other property and equipment and operating lease assets) and tradename impairments of $2.9 million. For Fiscal 2021, impairment charges included $30.8 million related to certain store-level assets (including leasehold improvements and operating lease assets) and tradename impairments of $5.7 million. For Fiscal 2020, impairment charges included impairments of $391.1 million related to certain store-level assets (including leasehold improvements and operating lease assets) and tradename impairments of $35.1 million.

During Fiscal 2022, we recorded charges of $407.7 million for costs associated with restructuring and other transformation initiatives, of which approximately $77.7 million is included in cost of sales. In addition, approximately $330.0 million, was recorded in restructuring and transformation initiative expenses in the consolidated statements of operations, which included approximately $156.9 million of accelerated depreciation related to closing facilities and information technology systems, $101.5 million of other restructuring and transformation costs and $58.1 million of severance costs related to workforce reduction, store closures and leadership changes. The Company also recorded approximately $13.5 million for lease related and other costs, including in connection with store closures,

In Fiscal 2021, we recorded charges of $144.0 million, of which were primarily for costs associated with the store fleet optimization program described above, including for the termination of facility leases, as well as technology transformation and business strategy and operating model transformation programs across core functions, including merchandising, supply chain and finance. (see "Restructuring and Transformation Activities," Note 3 to the accompanying consolidated financial statements).

During Fiscal 2022, the Company did not have any businesses classified as held for sale. During Fiscal 2021, we recognized approximately $18.2 million in loss on sale of businesses in the consolidated statement of operations, primarily related to a $13.5 million charge associated with the Fiscal 2021 settlement of the CTS pension plan (see "Assets Held for Sale and Divestitures," Note 16 to the accompanying consolidated financial statements), as well as certain working capital and other adjustments related to the Fiscal 2021 divestitures.

Operating loss for Fiscal 2022 was $2.78 billion or 51.9% of net sales, compared with an operating loss of $407.6 million or 5.2% of net sales for Fiscal 2021. Operating loss for Fiscal 2022 included $407.7 million associated with restructuring and other transformation initiatives and $1.29 billion for non-cash impairment charges (each as discussed above). The change in operating loss as a percentage of net sales between Fiscal 2022 and 2021 was primarily due to the decline in sales and gross profit percentage, as discussed above, as well as higher restructuring and transformation expenses and higher impairment charges in Fiscal 2022 compared to Fiscal 2021.

Operating loss for Fiscal 2021 included the impact of pre-tax charges of $137.2 million included in gross profit primarily associated with the transition of our product assortment to Owned Brands and, to a lesser extent, our store fleet optimization program, as well as $144.0 million associated with restructuring and other transformation initiatives, $36.5 million for non-cash impairments and $18.2 million for loss on sale of business (each as described above). The change in operating loss as a percentage of net sales between Fiscal 2021 and 2020 was primarily due to the decline in gross profit percentage, as discussed above, as well as higher restructuring and transformation expenses in Fiscal 2021 compared to Fiscal 2020.

During Fiscal 2022, we recorded a $639.4 million loss on preferred stock warrants and derivative liabilities. During the fourth quarter of Fiscal 2022, the Company issued the Series A Convertible Preferred Stock, Common Stock Warrants, and Preferred Stock Warrants when the Company was in distress, and as a result the Company determined the offering was not an orderly transaction and the gross proceeds of $225.0 million did not represent fair value. As a result, the Company used a model-derived valuation to estimate the fair value of the Series A derivative liability, Preferred Stock Warrants and Common Stock Warrants in which the most significant value driver is the as-converted value utilizing the Company’s common stock price as the input. At issuance, the fair value of the Series A embedded features derivative liability, Common Stock Warrants, and Preferred Stock Warrants was $300.5 million, $186.6 million, and $615.5 million, respectively. The Company recorded a $877.6 million loss for the fair value in excess of proceeds of $225.0 million in loss on preferred stock warrants and derivative liabilities in its consolidated statement of operations for the year ended. The loss is partially offset by a gain of $244.5 million related to the change in fair value associated with these derivative liabilities for the year ended February 25, 2023. Issuance costs of $6.3 million were expensed as incurred and recognized as part of the loss on preferred stock warrants and derivative liabilities.

On February 10, 2023 (the “Canadian Petition Date”), BBB Canada Limited made an application with the Ontario Superior Court of Justice (the “Canadian Court”). BBB Canada Limited was granted an order, which, among other provisions, provides a stay of proceedings pursuant to the Companies’ Creditors Arrangement Act (the “CCAA”). The CCAA is a Federal Act that allows financially troubled corporations that owe their creditors in excess of $5 million the opportunity to restructure their affairs. Although Bed Bath & Beyond Canada L.P. (“BBB LP” and together with BBB Canada Limited, “BBB Canada”) did not file an application with the Canadian Court, the stay of proceedings under the CCAA and other benefits were extended to BBB LP. BBB Canada initiated a wind-down of Bed Bath & Beyond and Buy Buy Baby Stores in Canada under the CCAA. A monitor was appointed by the Canadian Court on February 10, 2023 to oversee the orderly liquidation of its remaining inventory with assistance from a third-party professional liquidator and vacate its leased retail stores and premises.

For these reasons, we concluded that BBBI had lost control of BBB Canada, and no longer had significant influence over BBB Canada during the pendency of the bankruptcy. Therefore, the Company deconsolidated BBB Canada on the date of the bankruptcy filing. In order to deconsolidate BBB Canada, the carrying values of the assets and certain liabilities of BBB Canada were removed from our consolidated balance sheet as of February 25, 2023, and we recorded our investment in BBB Canada at its estimated fair value of $0. The deconsolidation resulted in the recognition of a loss of $98.6 million during the year ended February 25, 2023.

During Fiscal 2022, we recorded a $94.4 million gain related to approximately $102.8 million recorded for the privately negotiated exchange offers completed in November 2022, partially offset by third-party costs of approximately $8.0 million incurred with the Exchange Offers and $0.4 million of unamortized debt financing costs written-off related to the extinguished notes. (see "Debt," Note 7 to the accompanying consolidated financial statements).

During Fiscal 2020, we recorded a $77.0 million gain on the repurchase of $75.0 million principal amount of 4.915% senior unsecured notes due August 1, 2034 and $225.0 million principal of 5.165% senior unsecured notes due August 1, 2044.

The effective tax rate was 0.9% for Fiscal 2022, (18.4)% for Fiscal 2021, and 55.2% for Fiscal 2020.

For Fiscal 2022, the effective tax rate reflects maintaining a valuation allowance against our U.S. federal and state deferred tax assets (discussed below) and benefits from amended returns related to prior fiscal years from changes in the Company's approach to deducting charitable contributions on certain federal returns and carrying back net operating losses in certain state jurisdictions.

For Fiscal 2021, the effective tax rate reflects the recording of a valuation allowance against our U.S federal and state deferred tax assets (discussed below), as well as a benefit resulting from an adjustment to the estimated net operating loss incurred in Fiscal 2020 which was carried back, under the provisions of the CARES Act, to a year in which the tax rate was 35%.

For Fiscal 2020, the effective tax rate reflected the carry back of the net operating loss to a year in which the tax rate was 35% under the CARES Act, and included the impact of the benefit of certain tax planning strategies the Company deployed, in addition to the losses from the divestitures of CTS, Linen Holdings and Cost Plus, partially offset by the impact of impairment charges for tradename and certain store-level assets, the gain on the divestiture of PMall, a benefit related to the carry back of the Fiscal 2019 net operating loss under the CARES Act, and other discrete tax items resulting in net after tax benefits.

In assessing the recoverability of our deferred tax assets, we evaluated the available objective positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit use of existing deferred tax assets in each taxpaying jurisdiction. A valuation allowance is a non-cash charge, and does not limit our ability to utilize our deferred tax assets, including our ability to utilize tax loss and credit carryforward amounts, against future taxable income.

During Fiscal 2022, we concluded that, based on our evaluation of available objective positive and negative evidence, it continues to be more likely than not that our net U.S. federal and state deferred tax assets will not be recoverable. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included our cumulative book loss for the past three years and our ability to continue as a going concern. As of February 25, 2023, the total valuation allowance relative to U.S. federal and state deferred tax assets was $851.8 million.

On March 27, 2020, the CARES Act was enacted in the United States, which provided for certain changes to tax laws which impacted our results of operations, financial position and cash flows. We implemented certain provisions of the CARES Act, such as deferring employer payroll taxes and utilizing the ability to carry back and deduct losses to offset prior income in previously filed tax returns. There was no benefit from the CARES Act recorded in the provision during the year ended February 25, 2023. As of February 26, 2022 and February 27,2021, under the CARES Act, we recorded income tax benefits of $18.7 million and $152.0 million, respectively, as a result of the Fiscal 2020 and Fiscal 2019 net operating losses were carried back to prior years during which the federal tax rate was 35%.

As a result of the factors described above, the net loss for Fiscal 2022, 2021, and 2020, was $3.50 billion, $559.6 million, and $150.8 million, respectively.

On February 7, 2023, the Company entered into a second amendment (the “Second Amendment”) to the Credit Agreement. Pursuant to the Amendment, the lenders agreed to (i) waive any outstanding defaults or events of default under the existing Credit Facilities and (ii) rescind the implementation of the acceleration of obligations under the existing Credit Facilities, the requirement to cash collateralize letters of credit obligations under the existing Credit Facilities and the default interest on the

Capital expenditures for Fiscal 2022 were $332.9 million, which includes the entering into use of accrued capital expenditures of $63.4 million which were recorded in fiscal 2021. As the Company executes its new strategic plans and refine capital resources to improve liquidity, capital expenditures are related to maintenance, and investments in technology and digital offerings.

During the first quarter of Fiscal 2022, we repurchased approximately 2.9 million shares of our common stock, at a total cost of approximately $46.1 million, which included approximately 2.3 million shares at a total cost of approximately $40.4 million repurchased under our share repurchase programs as authorized by our Board of Directors.

There were no debt repurchases made during the year ended February 25, 2023. During Fiscal 2021, we purchased approximately $11.0 million aggregate principal amount of our outstanding 3.749% senior unsecured notes due August 1, 2024.

Retail inventory, which includes inventory in our distribution facilities for direct to customer shipments, was approximately $817.6 million at February 25, 2023, a decrease of 52.6% compared with retail inventory at February 26, 2022. We continue to focus on our inventory assortment changes and other merchandising strategies. In Fiscal 2022, the Company's in-stock levels were lower than anticipated due to supplier constraints and vendor credit line decreases. We continue to focus on our inventory optimization strategies while also responding to the potential impact of global supply chain disruptions on product availability. Retail inventory at February 26, 2022 increased approximately 18.0% compared to retail inventory at February 27, 2021, which was primarily related to the focus on our inventory optimization strategies while also responding to the potential impact of global supply chain disruptions on product availability.

 

Net cash used in investing activities for Fiscal 2022 was $298.7 million, compared with net cash used in investing activities of $349.2 million in Fiscal 2021. For Fiscal 2022, net cash used in investing activities included $332.9 million of capital expenditures, a $10.5 million cash outflow related to the deconsolidation of Canadian subsidiaries, $18.9 million of cash proceeds from the sale of available-for-sale investment securities, and $25.8 million of proceeds from a note receivable. For Fiscal 2021, net cash used in investing activities included $354.2 million of capital expenditures.

Net cash provided by financing activities for Fiscal 2022 was $967.0 million, compared with net cash used in financing activities of $606.0 million in Fiscal 2021. Net cash provided by financing activities for Fiscal 2022 was comprised of $1.6 billion of borrowings under the Credit Facilities, partially offset by repayments of $926.2 million, $272.5 million of proceeds from the issuance and exercising of derivative liabilities, net proceeds from issuances of common stock and ATM Program offerings of $119.0 million, repurchases of common stock of $46.1 million, of which $40.4 million is related to our share repurchase program, payments of deferred financing costs of $24.2 million, payments of Exchange Offer costs of $8.0 million, $6,3 million of payments for issuance costs related to derivative liabilities, repayments of finance leases of $3.2 million, and dividend payments of $0.3 million. Net cash provided by financing activities in Fiscal 2021 was primarily comprised of repurchases of common stock of $589.4 million, of which $574.9 million was related to our share repurchase program, repayments of long-term debt of $11.4 million and payments of deferred financing costs of $3.4 million.

Approximately $215.4 million in principal amount of our senior unsecured notes are due August 1, 2024, with the remaining principal balances due August 1, 2034 and August 1, 2044. Our lease obligations include both operating and finance leases, and have various terms extending through 2041, with approximately $385.5 million in minimum lease payments due in Fiscal 2023, and declining amounts due each year thereafter.

Our business is subject to seasonal influences. Generally, our sales volumes are higher in the calendar months of August, November, and December, and lower in February.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires us to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on other assumptions that we believe to be relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. In particular, judgment is used in areas such as inventory valuation, impairment of long-lived assets, goodwill and other indefinite lived intangible assets, accruals for self-insurance and income and certain other taxes. Actual results could differ from these estimates.

Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail values of inventories. The inputs associated with determining the cost-to-retail ratio include: merchandise purchases, net of returns to vendors, discounts and volume and incentive rebates; inbound freight expenses; import charges, including duties, insurance and commissions.

The retail inventory method contains certain management judgments that may affect inventory valuation. At any one time, inventories include items that have been written down to the Company’s best estimate of their realizable value. Judgment is required in estimating realizable value and factors considered are the age of merchandise, anticipated demand based on factors such as customer preferences and fashion trends, and anticipated changes in product assortment (including related to the launch of Owned Brands) as well as anticipated markdowns to reduce the price of merchandise from its recorded retail price to a retail price at which it is expected to be sold in the future. These estimates are based on historical experience and current information about future events which are inherently uncertain. Actual realizable value could differ materially from this estimate based upon future customer demand or economic conditions.

The Company accrues for merchandise in transit once it takes legal ownership and title to the merchandise; as such, an estimate for merchandise in transit is included in the Company’s merchandise inventories.

In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.

Beginning in the fourth quarter of Fiscal 2020, we began insuring portions of our workers' compensation and medical insurance through a wholly owned captive insurance subsidiary (the "Captive") to enhance our risk financing strategies. The Captive is subject to regulations in Vermont, including those relating to its levels of liquidity. The Captive was in compliance with all regulations as of February 25, 2023.

The Company uses a model-derived valuation in determining the fair value of the derivative liabilities. Significant assumptions used in the model include the conversion ratio and stock price of the Company. Significant changes in these assumptions could lead to significant changes in the fair value of the derivative liabilities.

In assessing the recoverability of our deferred tax assets, we evaluate the available objective positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit use of existing deferred tax assets in each taxpaying jurisdiction. For any deferred tax asset in excess of the amount for which it is more likely than not that we will realize a benefit, we establish a valuation allowance. A valuation allowance is a non-cash charge, and does not limit our ability to utilize our deferred tax assets, including our ability to utilize tax loss and credit carryforward amounts, against future taxable income.

During Fiscal 2022, we concluded that, based on our evaluation of available objective positive and negative evidence, we continue to be more likely than not that our net U.S. federal and state deferred tax assets will not be recoverable. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included our cumulative book loss for the past three years and our ability to continue as a going concern. As of February 25, 2023, the total valuation allowance relative to U.S. federal and state deferred tax assets was $851.8 million.

The Company recognizes the tax benefit from an uncertain tax position only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities.

The Company also accrues for certain other taxes as required by its operations.

Judgment is required in determining the provision for income and other taxes and related accruals, and deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Company's various tax returns are subject to audit by various tax authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.

See accompanying Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements.