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Profile: Company Background Example Company Inc. (Stock Symbol ***) Details Index Membership: Sector: Industry: Full Time Employees: Business Summary Example Company, Inc., a fashion specialty retailer, offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. The company offers a selection of brand name and private label merchandise. It sells its products through various channels, including ‘Example Company’ full-line stores, ‘Example Company Rack’ off-price stores, ‘Example’ clearance stores, and ‘Example’ boutiques; and through catalog and the Internet. Example Company, Inc. also provides a private label card, two Example Company VISA credit cards, and a debit card for Example Company purchases. Its credit and debit cards feature a shopping-based loyalty program. The company also designs and contracts to manufacture private label merchandise sold in its retail stores. As of March 19, 2020, it had 187 retail stores located in 28 states. The company was founded in 1901 and is based in Delaware. Key Statistics GO Get Key Statistics for: VALUATION MEASURES Market Cap (intraday)5: 8.20B Trailing P/E (ttm, intraday): 17.39 Forward P/E (fye Jan 30, 2022)1: 12.24 Price/Book (mrq): 4.69 Stock Price History Beta: 1.73 Beta is a measure of a stock's violately in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. A riskfree investment has a beta of 0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower potential returns. 2 52-Week Change3:74.87% S&P500 52-Week Change3:12.41% 52-Week High (Apr 26, 2020)3:46.22 52-Week Low (Jun 23, 2019)3:18.15 50-Day Moving Average3:40.44 200-Day Moving Average3:38.29 DIRECT COMPETITOR COMPARISON JWN Pvt1 Pvt2 Pvt3 Industry Market Cap: 8.24B N/A N/A N/A 1.05B Employees: 48,000 10,5001 14,7002 N/A 4.86K Qtrly Rev Growth (yoy): 16.50% N/A N/A N/A 7.20% Revenue (ttm): 8.92B 685.80M1 3.64B2 N/A 1.60B Gross Margin (ttm): 35.25% N/A N/A N/A 41.64% Oper Margins (ttm): 10.17% N/A N/A N/A 7.68% Net Income (ttm): 476.00M N/A N/A N/A N/A EPS (ttm): 2.154 N/A N/A N/A 0.90 P/E (ttm): 17.48 N/A N/A N/A 15.68 Note: yoy means “year over year” and ttm means “trailing 12 months.” Pvt1 = Bloomingdale’s Inc (privately held) Pvt2 = Neiman Marcus, Inc. (privately held) Pvt3 = Saks Fifth Avenue, Inc (privately held) Industry = Apparel Stores 1 = As of 2018 2 = As of 2019 You can find the financial statements of any U.S. public company by visiting Morningstar, Yahoo Finance or MSN Money, and using the stock market symbol for your chosen company (which can be looked up on Morningstar, Yahoo Finance or MSN Money). Balance Sheet Get Balance Sheet for: GO View: Annual Data | All numbers in thousands Period Ending Jan 30, 2020 Jan 31, 2019 Feb 2, 2018 Assets Current Assets Cash And Cash Equivalents 795,000 72,000 358,000 Short Term Investments - - - Net Receivables 2,273,000 2,152,000 1,969,000 Inventory 898,000 900,000 956,000 Other Current Assets 88,000 93,000 78,000 Total Current Assets 4,054,000 3,217,000 3,361,000 3 Long Term Investments - - - Property Plant and Equipment 2,242,000 2,221,000 1,983,000 Goodwill 53,000 53,000 53,000 Intangible Assets - - - Accumulated Amortization - - - Other Assets 230,000 170,000 203,000 Deferred Long Term Asset Charges - - - Total Assets 6,579,000 5,661,000 5,600,000 Liabilities Current Liabilities Accounts Payable 1,062,000 777,000 882,000 Short/Current Long Term Debt 356,000 299,000 261,000 Other Current Liabilities 596,000 525,000 492,000 Total Current Liabilities 2,014,000 1,601,000 1,635,000 Long Term Debt 2,257,000 2,214,000 2,236,000 Other Liabilities 267,000 201,000 245,000 Deferred Long Term Liability Charges 469,000 435,000 369,000 Minority Interest - - - Negative Goodwill - - - Total Liabilities 5,007,000 4,451,000 4,485,000 Stockholders' Equity Misc Stocks Options Warrants - - - Redeemable Preferred Stock - - - Preferred Stock - - - Common Stock 1,066,000 997,000 936,000 Retained Earnings 525,000 223,000 201,000 Treasury Stock - - - Capital Surplus - - - Other Stockholder Equity (19,000) (10,000) (22,000) Total Stockholder Equity 1,572,000 1,210,000 1,115,000 Net Tangible Assets $1,519,000 $1,157,000 $1,062,000 So here is a summary: 4 Assets $Mil % Cash 795 12% Other Current Assets 3,259 50% Long-Term Assets 2,525 38% Total 6,579 100% Liabilities and Equity $Mil % Current Liabilities 2,014 31% Long-Term Liabilities 2,993 45% Shareholders' Equity 1,572 24% Total 6,579 100% Summary of Balance Sheet Format Total Assets = Total Liabilities + Total stockholders' equity Balance Sheet Overview At January 30, 2020 Key Questions 1) What 3 items of important information does the balance sheet reveal about the financial position of the company over the last two years? Are Current Assets > Current Liabilities? Yes. Current Assets at 1/30/10 are more than $4 billion and Current Liabilities are $2 billion. This indicates current liquidity is fine. Is Total Stockholders’ Equity > Noncurrent Liabilities? No. $1.5 billion vs. $2.9 billion. This indicates very heavy dependence on borrowing, and questionable long-term solvency. This is known as “leverage” and excessive leverage is risky. Like excessive alcohol, leverage makes the good times better and the bad times worse. Is Market Value of Total Stockholders’ Equity > Book Value? Yes. Ratio is 5.1. Market Cap = $8 billion, and Book Value is $1.57 billion on 12/31/2019 and 8/1.57 = 5.1. So Example Company is a very successful company in creating value for stockholders. Income Statement GO Get Income Statement for: View: Annual Data | All numbers in thousands Period Ending Jan 30, 2020 Jan 31, 2019 Feb 2, 2018 Total Revenue 8,627,000 8,573,000 8,828,000 Cost of Revenue 5,328,000 5,417,000 5,526,000 Gross Profit 3,299,000 3,156,000 3,302,000 5 Operating Expenses Research Development - - - Selling General and Administrative 2,465,000 2,377,000 2,360,000 Non Recurring - (9,000) - Others - - - Total Operating Expenses - - - Operating Income or Loss 834,000 779,000 942,000 Income from Continuing Operations Total Other Income/Expenses Net - - 305,000 Earnings Before Interest And Taxes 696,000 648,000 1,321,000 Interest Expense - 134,000 74,000 Income Before Tax 696,000 648,000 1,247,000 Income Tax Expense 255,000 247,000 458,000 Minority Interest - - - Net Income From Continuing Ops 441,000 401,000 715,000 Non-recurring Events Discontinued Operations - - - Extraordinary Items - - - Effect Of Accounting Changes - - - Other Items - - - Net Income 441,000 401,000 715,000 Preferred Stock And Other Adjustments - - - Net Income Applicable To Common Shares $441,000 $401,000 $715,000 So here is a summary: 6 Summary of Income Statement Format Revenues – Expenses = Net Income $ million 2020 2019 2018 Revenue 8,627 8,573 8,828 Gross Profit 3,299 3,156 3,302 S, G & A Expense 2,465 2,377 2,360 Operating Income 834 779 942 Net Income 441 401 715 Key Questions 2) What 3 items of important information does the income statement reveal about the financial performance of the company over the last three years? Pick 3 out of these 5: Income Statement % 2020 2019 2018 1. Revenue Growth 1% -3% 2. Gross Profit/Revenue 38% 37% 37% 3. SG&A Expense 29% 28% 27% 4. Operating Income/Revenue 10% 9% 11% 5. Net Income/Revenue 5% 5% 8% Revenue: Should be growing over time: Not in the recession years of 2019/20 (1%, -3%). Growth is anaemic. Gross Profit: Should be a stable % of Sales Revenue. Consistent 37%-38% each of last 3 years. SG & A1 Expenses: Should be a stable % of Sales Revenue. Fairly stable, but a hint of upward creep each year. Operating Income (EBIT2): Should be a stable % of Sales Revenue. Fairly stable at about 9-11% in 2018-2020. 1 SG&A = Selling, General, and Administrative Expenses. 7 Operating Income (EBIT3): Should be a stable % of Sales Revenue. Stable at 5% in 2019/2020. But was 8% in 2018. In sum, Example Company is only surviving rather than prospering in the current recession. View: Annual Data | All numbers in thousands Period Ending Jan 30, 2020 Jan 31, 2019 Feb 2, 2018 Net Income 441,000 401,000 715,000 Operating Activities, Cash Flows Provided By or Used In Depreciation 271,000 281,000 233,000 Adjustments To Net Income 224,000 164,000 59,000 Changes In Accounts Receivables (159,000) (93,000) (1,234,000) Changes In Liabilities 417,000 (115,000) 4,000 Changes In Inventories (1,000) 53,000 - Changes In Other Operating Activities 58,000 157,000 384,000 Total Cash Flow From Operating Activities 1,251,000 848,000 161,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (360,000) (563,000) (501,000) Investments (182,000) (232,000) - Other Cash flows from Investing Activities 1,000 3,000 231,000 Total Cash Flows From Investing Activities (541,000) (792,000) (270,000) Financing Activities, Cash Flows Provided By or Used In Dividends Paid (139,000) (138,000) (134,000) Sale Purchase of Stock 34,000 (234,000) (1,651,000) Net Borrowings 108,000 35,000 1,830,000 Other Cash Flows from Financing Activities 3,000 (9,000) 19,000 Total Cash Flows From Financing Activities 13,000 (342,000) 64,000 Effect Of Exchange Rate Changes - - - Change In Cash and Cash Equivalents $723,000 ($286,000) ($45,000) So here is a summary 2 EBIT = Earnings Before Interest and Taxes. 3 EBIT = Earnings Before Interest and Taxes. Cash Flow GO Get Cash Flow for: 8 Summary of Cash Flow Statement Format Cash from Operations + Cash from Financing – Capital Expenditures = Change in Cash & Equivalents 1/30/20 1/31/19 1/31/18 Cash from Operations $1,251 $848 $161 Add Cash from Financing 13 342 64 = Total Cash Inflows 1,264 506 225 Less Capital Expenditures 541 792 270 = Change in Cash & Equivalents 723 286 45 Key Questions 3) Can you identify the major sources of funding used by the company from the information presented in the company's annual report? If not, how could you get this information? Cash from Operations: Should be growing over time. Fortunately it is. Ratio of Cash from Operations/Net Income: Should be stable over time. The ratios show considerable improvement each year. 2020 2019 2018 2.8 2.1 0.2 Capital Expenditures: 1. Are needed for growth 2. Should be growing over time: no clear pattern. 3. Should be funded more by internal Cash from Operations than by external Cash from Financing. Very much so. So Cash from Operations is the main source of funding used by the company. note: The Statements of Shareholders’ Equity below are not asked about this week. So they are included here simply as additional useful information. Example Company, Inc. Consolidated Statements of Shareholders’ Equity 9 In millions except per share amounts Accumulated Other Common Stock Retained Comprehensive Shares Amount Earnings Earnings (Loss) Total lance at February 3, 2017 257.3 $827 $1,351 $(9) $2,169 mulative effect of accounting change - - (3) - (3) justed Beginning Balance at February 3, 2017 257.3 827 1,348 (9) 2,166 t earnings - - 715 - 715 er comprehensive (loss) earnings: eign currency translation adjustment - - - (15) (15) stretirement plan adjustments, net of tax of ($5) - - - 7 7 r value adjustment to investment in asset-backed securities, net of tax of $3 - - - (5) (5) mprehensive net earnings 702 sh dividends paid ($0.54 per share) - - (134) - (134) uance of common stock for: ck option plans 2.2 61 - - 61 ployee stock purchase plan 0.4 17 - - 17 er 0.1 5 - - 5 ck-based compensation - 26 - - 26 purchase of common stock (39.1) - (1,728) - (1,728) lance at February 2, 2018 220.9 $936 $201 $(22) $1,115 t earnings - - 401 - 401 er comprehensive earnings: stretirement plan adjustments, net of tax of ($8) - - - 12 12 mprehensive net earnings 413 sh dividends paid ($0.64 per share) - - (138) - (138) ect of postretirement plan measurement date change - - (3) - (3) uance of common stock for: ck option plans 0.8 17 - - 17 ployee stock purchase plan 0.6 17 - - 17 er - 1 - - 1 ck-based compensation - 26 - - 26 purchase of common stock (6.9) - (238) - (238) lance at January 31, 2019 215.4 $997 $223 $(10) $1,210 t earnings - - 441 - 441 er comprehensive loss: stretirement plan adjustments, net of tax of $6 - - - (9) (9) mprehensive net earnings 432 sh dividends paid ($0.64 per share) - - (139) - (139) uance of common stock for: ck option plans 1.5 27 - - 27 ployee stock purchase plan 0.7 13 - - 13 er 0.1 1 - - 1 ck-based compensation - 28 - - 28 lance at January 30, 2020 217.7 $1,066 $525 $(19) $1,572 Summary of The Statement of Owners’ Equity 10 Format: Beginning Balance + Net Income + Other Items – Dividends = Ending Balance $ Million Beginning Balance 2020 $1,210 Net Income $441 Treasury Stock $60 Cash Dividends ($139) Ending Balance 2020 $1,572 A Key Question Example Company earned Net Income of $441 on average owner equity of $1,391 That amounts to a Return on Equity of 32% - which is excellent by any standard. But bear in mind the risky leverage, which demands high returns for high risks. 11 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Example Company, Inc. We have audited the accompanying consolidated balance sheets of Example Company, Inc. and subsidiaries (the “Company”) as of January 30, 2020 and January 31, 2019, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three years in the period ended January 30, 2020. Our audits also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Example Company, Inc. and subsidiaries as of January 30, 2020 and January 31, 2019, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 30, 2020, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 19, 2020 expressed an unqualified opinion on the Company’s internal control over financial reporting. /s/ Deloitte & Touche LLP March 19, 2020 Note: the Auditor’s Report above is the auditor’s report on the financial statements. That is where the answers to Questions 4 and 5 can be found. 12 4) Who is responsible for: a) The issuance, and b) The content Of the company financial statements? Answer: see items hilighted above 5) What assurance, if any, is there that the financial statements are in compliance with GAAP, and are free of material misstatements? Answer: see items hilighted above Key Question 6) Of what use, if any, are the notes to the financial statements? The notes are an integral part of the financial statements, and provide the basic detail that underlies the financial statements. The notes include information on:  SIGNIFICANT ACCOUNTING POLICIES  ACCOUNTS RECEIVABLE COMPONENTS  LAND, BUILDINGS AND EQUIPMENT  SELF INSURANCE  PROFIT SHARING  POSTRETIREMENT BENEFITS  ETC. ETC. The notes are below. NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Founded in 1901 as a clothing store today Example Company is a fashion specialty retailer that offers customers a well-edited selection of high-quality fashion brands focused on apparel, shoes, cosmetics and accessories for men, women and children. This breadth of merchandise allows us to serve a wide range of customers who appreciate quality fashion and a superior shopping experience. We offer a wide selection of brand name and private label merchandise through multiple retail channels: our ‘Example Company’ branded 112 full-line stores and online store at www.Example Company.com (collectively, “multi-channel”), 69 off-price ‘Example Company Rack’ stores, two ‘Example ’ boutiques, and one clearance store. Our stores are located throughout the United States. Through our Credit segment, we offer our customers a variety of payment products and services, including a Example Company private label card, two Example Company VISA credit cards and a debit card for Example Company purchases. These products also allow our customers to participate in our loyalty program. Fiscal Year Our fiscal year ends on the Saturday closest to January 31st. References to 2019, 2018 and 13 2017 relate to the 52-week fiscal years ended January 30, 2020, January 31, 2019 and February 2, 2018, respectively. References to 2020 relate to the 52-week fiscal year ending January 29, 2020. Principles of Consolidation The consolidated financial statements include the balances of Example Company, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results may differ from those estimates and assumptions. Our significant accounting judgments and estimates include allowance for doubtful accounts, sales return reserve, inventory obsolescence and shrinkage reserves, deferred tax asset valuation and unrecognized tax benefits. Reclassification In 2019, we reclassified other income and expense, net in our consolidated statement of earnings to selling, general and administrative expenses and earnings on investment in asset-backed securities, net. Results for 2018 and 2017 have been reclassified for consistency with the 2019 presentation. These reclassifications do not impact our reported net earnings, earnings per share or cash flows for these periods. Net Sales We recognize revenue from sales at our retail stores at the point of sale, net of estimated returns and excluding sales taxes. Revenue from our sales to customers shipped directly from our stores and our online and catalog sales includes shipping revenue, when applicable, and is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly. Our sales return reserves were $76 and $70 at the end of 2019 and 2018. Credit Card Revenues Credit card revenues include finance charges, late fees and other fees generated by our combined Example Company private label card and Example Company VISA credit card programs, and interchange fees generated by the use of Example Company VISA cards at thirdparty merchants. These fees are assessed according to the terms of the related cardholder agreements and recognized as revenue when earned. Cost of Sales Cost of sales includes the purchase cost of inventory sold (net of vendor allowances), in-bound freight, and certain costs of loyalty program benefits related to our credit and debit cards. Buying and Occupancy Costs Buying costs consist primarily of compensation and other costs incurred by our merchandising and product development groups. Occupancy costs include rent, depreciation, property taxes and facility operating costs of our retail, corporate center and distribution operations. Rent We recognize minimum rent expense, net of landlord reimbursements, on a straight-line basis over the minimum lease term from the time that we control the leased property. For leases that 14 contain predetermined, fixed escalations of the minimum rent, we recognize the rent expense on a straight-line basis and record the difference between the rent expense and the rent payable as a liability. Contingent rental payments, typically based on a percentage of sales, are recognized in rent expense when payment of the contingent rent is probable. We receive incentives from landlords to construct stores in certain developments. These incentives are recorded as a deferred credit and recognized as a reduction of rent expense on a straight-line basis over the lease term. At the end of 2019 and 2018, the deferred credit balance was $518 and $478. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of compensation and benefits costs (other than those included in buying and occupancy costs), advertising, shipping and handling costs, bad debt expense related to our credit card operations, and other miscellaneous expenses. Advertising Production costs for newspaper, radio and other media are expensed the first time the advertisement is run. Total advertising expenses, net of vendor allowances, of $85, $98 and $101 in 2019, 2018 and 2017, respectively, were included in selling, general and administrative expenses. Vendor Allowances We receive allowances from merchandise vendors for cosmetic selling expenses, purchase price adjustments, cooperative advertising programs and various other expenses. Allowances for cosmetic selling expenses are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Purchase price adjustments are recorded as a reduction of cost of sales at the point they have been earned and the related merchandise has been sold. Allowances for cooperative advertising and promotion programs and other expenses are recorded in cost of sales and related buying and occupancy costs and selling, general and administrative expenses as a reduction of the related costs when incurred. Any allowances in excess of actual costs incurred that are included in selling, general and administrative expenses are recorded as a reduction of cost of sales. The following table shows vendor allowances earned during the year: cal year 2019 2018 2017 smetic selling expenses $106 $112 $120 chase price adjustments 91 96 86 operative advertising and promotion 63 65 61 er 2 3 2 tal vendor allowances $262 $276 $269 Shipping and Handling Costs Our shipping and handling costs include payments to third-party shippers and costs to hold, move and prepare merchandise for shipment. These costs do not include inbound freight to our distribution centers, which we include in the cost of our inventory. Shipping and handling costs of $103, $106 and $87 in 2019, 2018 and 2017, respectively, were included in selling, general and administrative expenses. Loyalty Program Customers who spend a certain amount with us using our Example Company private label cards or our Example Company VISA credit cards receive Example Company Notes ® , which can be 15 redeemed for goods or services in our stores. We estimate the net cost of the Example Company Notes that will be issued and redeemed and record this cost as rewards points are accumulated. In addition to this long-standing benefit, in 2017 we launched an enhanced loyalty program, Fashion Rewards ® . Under this program, Example Company customers receive benefits such as free alterations based on their annual levels of spending. We record the cost of the loyalty program benefits for Example Company Notes and alterations in cost of sales given that we provide customers with products or services for these rewards. Other costs of the loyalty program, which primarily include shipping and fashion events, are recorded in selling, general and administrative expenses. These expenses are recorded based on estimates of benefits expected to be accumulated and redeemed in relation to sales. Stock-Based Compensation We recognize stock-based compensation expense related to stock options at their estimated grant-date fair value, recorded on a straight-line basis over the requisite service period. The total compensation expense is reduced by estimated forfeitures expected to occur over the vesting period of the award. We estimate the fair value of stock options granted using the Binomial Lattice option valuation model. Stock-based compensation expense also includes amounts related to performance share units and our Employee Stock Purchase Plan, based on their fair values as of the end of each reporting period. New Store Opening Costs Non-capital expenditures associated with opening new stores, including marketing expenses, relocation expenses and temporary occupancy costs, are charged to expense as incurred. These costs are included in both buying and occupancy costs and selling, general and administrative expenses according to their nature as disclosed above. Gift Cards We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the likelihood of redemption, based on historical experience, is deemed to be remote. Based on an analysis of our program since its inception in 1999, we determined that balances remaining on cards issued beyond five years are unlikely to be redeemed and therefore may be recognized as income. Breakage income was $8, $7 and $6 in 2019, 2018 and 2017. To date, our breakage rate is approximately 3.2% of the amount initially issued as gift cards. Gift card breakage income is included in selling, general and administrative expenses in our consolidated statement of earnings. We had outstanding gift card liabilities of $174 and $175 at the end of 2019 and 2018, which are included in other current liabilities. Income Taxes We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between the financial reporting and tax basis of assets and liabilities. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that some portion of the tax benefit will not be realized. We regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various federal, state and foreign filings by considering all relevant facts, circumstances and information available. If we believe it is more likely than not that our position will be sustained, we recognize a benefit at the largest amount which we believe is cumulatively greater than 50% likely to be realized. Interest and penalties related to income tax matters are classified as a component of income tax expense. Comprehensive Net Earnings Comprehensive net earnings include net earnings and other comprehensive earnings and losses. Other comprehensive loss of $9 in 2019 and other comprehensive earnings of $12 in 2018 16 consisted of adjustments, net of tax, related to our postretirement benefit obligations. In 2017, other comprehensive loss of $13 consisted primarily of a foreign currency translation adjustment and a fair value adjustment to our investment in asset-backed securities, partially offset by postretirement plan adjustments. The accumulated other comprehensive losses of $19 and $10 at the end of 2019 and 2018 consist entirely of unrecognized losses on postretirement benefit obligations. During 2019 and 2018, we did not own any material foreign subsidiaries, and therefore, we did not recognize any foreign currency translation in accumulated other comprehensive loss. Cash Equivalents Cash equivalents are short-term investments with a maturity of three months or less from the date of purchase and are carried at amortized cost, which approximates fair value. Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable at the end of 2019 and 2018 included $74 and $66 of checks not yet presented for payment drawn in excess of our bank deposit balances. Accounts Receivable We record credit card accounts receivable on our consolidated balance sheets at the outstanding balance, net of an allowance for doubtful accounts. We estimate the allowance for doubtful accounts based on our best estimate of the losses inherent in our receivables as of the balance sheet date. We evaluate the collectability of our accounts receivable based on several factors, including historical trends of aging of accounts, write-off experience and expectations of future performance, including trends in unemployment rates. We recognize finance charges on delinquent accounts until the account is written off. Delinquent accounts, including fees, are written off when they are determined to be uncollectible, usually after the passage of 151 days without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of customer bankruptcy or other circumstances that make further collection unlikely. Our Example Company private label cards can be used only in Example Company stores, while the Example Company VISA cards allow our customers the option of using the cards for purchases of Example Company merchandise and services, as well as for purchases outside of Example Company. Cash flows from the use of both the private label cards and Example Company VISA credit cards for sales originating at our stores are treated as an operating activity in the consolidated statements of cash flows as they relate to sales at Example Company. Cash flows arising from the use of Example Company VISA cards outside of our stores are treated as an investing activity within the consolidated statements of cash flows, as they represent loans made to our customers for purchases at third parties. Securitization of Accounts Receivable Prior to May 2017, our private label card receivables were held in a trust, which could issue thirdparty debt that was secured by the private label receivables. The private label program was treated as ‘on-balance sheet,’ with the receivables, net of bad debt allowance, and debt recorded on our consolidated balance sheet; the finance charge income recorded in credit card revenues; and the bad debt expense recorded in credit segment selling, general and administrative expenses. The Example Company VISA credit card receivables were held in a separate trust (the VISA Trust), which could issue third-party debt that was secured by the Example Company VISA credit card receivables. The Example Company VISA credit card program was treated as ‘off-balance sheet’ prior to May 2017. We recorded the fair value of our interest in the VISA Trust on our consolidated balance sheet, gains on the sale of receivables to the VISA Trust and our share of the VISA Trust’s finance income in earnings on investment in asset-backed securities, net. On May 1, 2017, we converted the Example Company private label cards and Example Company VISA credit card programs into one securitization program, which is accounted for as a secured borrowing (on-balance sheet). When we combined the securitization programs, our investment in 17 asset-backed securities, which was accounted for as available-for-sale securities, was eliminated and we reacquired all of the Example Company VISA credit card receivables previously held offbalance sheet. Example Company VISA credit card receivables are now recorded at the outstanding balance, net of an allowance for doubtful accounts, on our consolidated balance sheet. The following table summarizes certain income, expenses and cash flows received from and paid to the VISA Trust prior to the May 2017 transaction: 3 months ended riod May 1, 2017 ncipal collections reinvested in new receivables $819 ins on sales of receivables 3 ome earned on beneficial interests 21 sh flows (used in) provided by beneficial interests: estment in asset-backed securities (457 ) vicing fees 2 Net credit losses were $9 in 2017. Merchandise Inventories Merchandise inventories are valued at the lower of cost or market, using the retail method (weighted average cost). Land, Buildings and Equipment Land is recorded at historical cost, while buildings and equipment are recorded at cost less accumulated depreciation. Capitalized software includes the costs of developing or obtaining internal-use software, including external direct costs of materials and services and internal payroll costs related to the software project. We capitalize interest on construction in progress and software projects during the period in which expenditures have been made, activities are in progress to prepare the asset for its intended use, and actual interest costs are being incurred. Depreciation is computed using the straight-line method over the asset’s estimated useful life, which is determined by asset category as follows: set Life (in years) ildings and improvements 5-40 re fixtures and equipment 3-15 asehold improvements Shorter of initial lease term or asset life pitalized software 3-7 Leasehold improvements made at the inception of the lease are amortized over the shorter of the asset life or the initial lease term. Leasehold improvements made during the lease term are amortized over the shorter of the asset life or the remaining lease term. Lease terms include the fixed, non-cancelable term of a lease, plus any renewal periods determined to be reasonably assured. Goodwill Goodwill represents the excess of acquisition cost over the fair value of the related net assets acquired, and is not subject to amortization. Impairment When facts and circumstances indicate that the carrying values of long-lived tangible assets may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the 18 net assets to their related projected undiscounted future cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying values of long-lived assets may not be recoverable, we recognize an impairment loss. We estimate the fair value of the assets using the expected present value of future cash flows of the assets. Property, plant and equipment assets are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash flows for our retail store assets are identified at the individual store level. We review our goodwill annually for impairment as of the first day of the first quarter or when circumstances indicate its carrying value may not be recoverable. We perform this evaluation at the reporting unit level, comprised of the principal business units within our Retail and Direct segments, through the application of a two-step fair value test. The first step of the test compares the carrying value of the reporting unit to its estimated fair value, which is based on the expected present value of future cash flows. If fair value does not exceed carrying value then a second step is performed to quantify the amount of the impairment. Based on the results of our tests, fair value substantially exceeds carrying value, therefore we had no goodwill impairment in 2019, 2018 or 2017. Self Insurance We retain a portion of the risk for certain losses related to employee health and welfare, workers’ compensation and general liability claims. Liabilities associated with these losses include undiscounted estimates of both losses reported and losses incurred but not yet reported. We estimate our ultimate cost based on an actuarially based analysis of claims experience, regulatory changes and other relevant factors. Derivatives Our interest rate swap agreements (collectively, the “swap”) are designated as fully effective fair value hedges. As such, we recognize our swap as either an asset or liability at fair value in our consolidated balance sheet, with an offsetting adjustment to the carrying value of our long-term debt. See Note 7: Debt and Credit Facilities for additional information related to our swap. We periodically enter into foreign currency purchase orders denominated in Euros for apparel, accessories and shoes. We use forward contracts to hedge against fluctuations in foreign currency prices. These forward contracts do not qualify for derivative hedge accounting; therefore any changes in the fair value of financial contracts are reflected in the statement of earnings. The notional amounts of our foreign currency forward contracts at the contract rates were $1 and $3 at the end of 2019 and 2018. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. The estimated fair value of long-term debt, including current maturities, based on quoted market prices of the same or similar issues, was $2,809 and $1,743 at the end of 2019 and 2018, compared to carrying values of $2,613 and $2,238, respectively. The fair value of our swap was a $1 liability as of January 30, 2020. This fair value is estimated based upon open-market quotes for identical or comparable assets from reputable third-party brokers using market-based inputs, adjusted for credit risk, and as such is considered a Level 2 fair value measurement. Recent Accounting Pronouncements In June 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-01, Generally Accepted Accounting Principles (ASC 105, Generally Accepted Accounting Principles ), which established the FASB Accounting Standards Codification (“the 19 Codification” or “ASC”) as the official single source of authoritative U.S. generally accepted accounting principles (“GAAP”). All existing accounting standards were superseded and all other accounting guidance not included in the Codification is now considered non-authoritative. The Codification is not intended to change GAAP, but is meant to organize and simplify authoritative GAAP literature. The Codification became effective for interim and annual periods ending after September 15, 2019. Following the Codification, the FASB no longer issues new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it issues Accounting Standards Updates (“ASU”) which serve to update the Codification, provide background information about the guidance and the basis for conclusions on the changes to the Codification. The impact on our consolidated financial statements is disclosure-only in nature as all references to authoritative accounting literature will be made in accordance with the Codification. In order to ease the transition to the Codification, we are providing the Codification cross-reference alongside the references to the standards issued and adopted prior to the effective date of the Codification. In March 2018, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”) (contained within ASC 815, Derivatives and Hedging ). SFAS 161 expanded the disclosure requirements in SFAS 133 about an entity’s derivative instruments and hedging activities. This statement became effective for us as of the beginning of fiscal year 2019 and did not impact our consolidated financial position or results of operations, as its requirements are disclosure-only in nature. NOTE 2: ACCOUNTS RECEIVABLE The components of accounts receivable are as follows: ) The following table summarizes the restricted trade receivables: January 30, 2020 January 31, 2019 ample Company VISA credit card receivables $1,469 $1,369 vate label card receivables 667 636 stricted trade receivables $2,136 $2,005 The restricted trade receivables relate to substantially all of our Example Company private label card receivables and our Example Company VISA credit card receivables. Under our securitization program, the restricted trade receivables are transferred to a third-party trust on a daily basis. The restricted trade receivables secure our Series 2017-1 Notes, the Series 2017-2 Notes and our two variable funding notes. Our credit card securitization agreements set a maximum percentage of receivables that can be associated with various receivable categories, such as employee or foreign receivables. As of January 30, 2020 and January 31, 2019, these maximums were not exceeded. The unrestricted trade receivables consist primarily of the remaining portion of our Example Company private label card receivables and our Example Company VISA credit card receivables and accrued finance charges not yet allocated to customer accounts. Other accounts receivable January 30, 2020 January 31, 2019 de receivables: stricted $2,136 $2,005 restricted 26 14 owance for doubtful accounts (190 ) (138 de receivables, net 1,972 1,881 er 63 61 counts receivable, net $2,035 $1,942 20 consist primarily of credit card receivables due from third-party financial institutions and vendor claims. NOTE 3: LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment consist of the following: January 30, 2020 January 31, 2019 nd and land improvements $70 $67 ildings and building improvements 924 847 asehold improvements 1,735 1,631 re fixtures and equipment 2,267 2,214 pitalized software 382 347 nstruction in progress 180 222 5,558 5,328 s: accumulated depreciation and amortization (3,316) (3,107) nd, buildings and equipment, net $2,242 $2,221 The total cost of buildings and equipment held under capital lease obligations was $28 at the end of both 2019 and 2018, with related accumulated amortization of $22 in 2019 and $21 in 2018. The amortization of capitalized leased buildings and equipment of $1 in both 2019 and 2018 was recorded in depreciation expense. NOTE 4: SELF INSURANCE Our self insurance reserves are summarized as follows: January 30, 2020 January 31, 2019 ployee health and welfare $ 20 $16 rkers’ compensation 50 53 neral liability 10 11 tal $ 80 $80 We are self-insured for the majority of our employee health and welfare coverage, and we do not use stop-loss coverage. Participants contribute to the cost of their coverage through both premiums and out-of-pocket expenses and are subject to certain plan limits and deductibles. Our workers’ compensation policies have a retention per claim of $1 or less and no policy limits. Our general liability policies, encompassing employment practices liability and commercial general liability, have a retention per claim of $1 or less and a policy limit up to $25 and $150, respectively. NOTE 5: 401(k) AND PROFIT SHARING We provide a 401(k) and profit sharing plan for our employees. Our Board of Directors establishes our profit sharing contribution each year. The 401(k) component is funded by voluntary employee contributions. In February 2019, the plan was amended to replace our fixed company matching contribution with a discretionary contribution in an amount determined by our Board of Directors. Our expense related to the profit sharing component and matching contributions to the 401(k) component totaled $74, $39 and $50 in 2019, 2018 and 2017. NOTE 6: POSTRETIREMENT BENEFITS We have an unfunded defined benefit Supplemental Executive Retirement Plan (“SERP”), which provides retirement benefits to certain officers and select employees. The SERP has different 21 benefit levels depending on the participant’s role in the company. At the end of 2019 and 2018 there were 35 and 33 officers and select employees eligible for SERP benefits. This plan is nonqualified and does not have a minimum funding requirement. Benefit Obligations and Funded Status ) ) ) ) ) ) ) The accumulated benefit obligation, which is the present value of benefits earned to date, assuming no salary growth, was $96 and $81 at the end of 2019 and 2018. Amounts recognized as liabilities in the consolidated balance sheets consist of the following: January 30, 2020 January 31, 2019 rrent liabilities $ 5 $5 ncurrent liabilities 97 80 t amount recognized $ 102 $85 Components of SERP Expense The components of SERP expense recognized in the consolidated statements of earnings are as follows: cal year 2019 2018 2017 ticipant service cost $2 $2 $2 erest cost 6 6 6 ortization of net loss - 2 3 ortization of prior service cost - 1 1 tal SERP expense $ 8 $11 $12 Amounts not yet reflected in SERP expense and included in accumulated other comprehensive earnings (pre-tax) consist of the following: January 30, 2020 January 31, 2019 cumulated loss $ (22 ) $(9 ) or service cost (2 ) (2 ) tal accumulated comprehensive loss $ (24 ) $(11 ) In 2020, we expect $2 of costs currently in accumulated other comprehensive earnings to be recognized as components of SERP expense. Assumptions Weighted-average assumptions used to determine benefit obligation and SERP expense are as follows: January 30, 2020 January 31, 2019 ange in benefit obligation: nefit obligation at beginning of year $ 85 $95 ticipant service cost 2 3 erest cost 6 7 nefits paid (4 (4 tuarial loss (gain) 13 (16 nefit obligation at end of year $ 102 $85 ange in plan assets: r value of plan assets at beginning of year - - ployer contribution $ 4 $4 nefits paid (4 (4 r value of plan assets at end of year - - derfunded status at end of year $ (102 $(85 22 cal year 2019 2018 2017 sumptions used to determine benefit obligation: count rate 5.95 % 6.95 % 6.35 % e of compensation increase 3.00 % 3.00 % 3.00 % sumptions used to determine SERP expense: count rate 6.95 % 6.35 % 6.00 % e of compensation increase 3.00 % 3.00 % 4.00 % In accordance with ASC 715, Compensation-Retirement Benefits (formerly SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans ), during 2018, we recognized a one-time adjustment of ($3) to retained earnings in shareholders’ equity as a result of changing our benefit obligation measurement date from October 31 to our fiscal year-end. Future Benefit Payments and Contributions As of January 30, 2020, the expected future benefit payments based upon the assumptions described above and including benefits attributable to estimated future employee service are as follows: cal year 20 $5 11 5 12 5 13 6 14 7 15-2019 38 In 2020, we expect to make contributions to the plan of $5. NOTE 7: DEBT AND CREDIT FACILITIES Debt A summary of our long-term debt is as follows: January 30, 2020 January 31, 2019 ured ies 2017-1 Class A Notes, 4.92%, due April 2020 $ 326 $326 ies 2017-1 Class B Notes, 5.02%, due April 2020 24 24 ies 2017-2 Class A Notes, one-month LIBOR plus 0.06% per year, due April 2012 454 454 ies 2017-2 Class B Notes, one-month LIBOR plus 0.18% per year, due April 2012 46 46 rtgage payable, 7.68%, due April 2020 60 63 er 15 17 925 930 secured ior notes, 6.75%, due June 2014, net of unamortized discount 399 - ior notes, 6.25%, due January 2018, net of unamortized discount 647 646 ior debentures, 6.95%, due March 2028 300 300 ior notes, 7.00%, due January 2038, net of unamortized discount 343 343 er (1 ) 19 1,688 1,308 al long-term debt 2,613 2,238 23 s: current portion (356) (24) tal due beyond one year $ 2,257 $2,214 Both the Series 2017-1 Class A & B Notes and the Series 2017-2 Class A & B Notes are secured by substantially all of the Example Company private label card receivables and a 90% interest in the Example Company VISA credit card receivables. Our mortgage payable is secured by an office building which had a net book value of $78 at the end of 2019. During 2019, we issued $400 of senior unsecured notes at 6.75%, due June 2014. After deducting the original issue discount of $1 and other fees and expenses of $3, net proceeds from the offering were $396. We used a portion of the proceeds from the issuance to repay the $140 in outstanding issuances of commercial paper as of May 26, 2019, the date the senior notes were issued. During 2019, we also repaid $19 in unsecured debt related to the acquisition of Jeffrey. Other secured debt as of January 30, 2020 consists primarily of capital lease obligations. Other unsecured debt as of January 30, 2020 consists primarily of an adjustment to the carrying value of our long-term debt associated with the fair value of our interest rate swap. During 2019, we entered into interest rate swap agreements (collectively, the “swap”) with a $650 notional amount maturing in 2018. Under the swap we receive a fixed rate of 6.25% and pay a variable rate based on one month LIBOR plus a margin of 2.9% (3.1% at January 30, 2020). Required principal payments on long-term debt, excluding capital lease obligations, are as follows: cal year 20 $355 11 5 12 505 13 5 14 404 ereafter 1,328 Interest Expense The components of interest expense, net are as follows: cal year 2019 2018 2017 erest expense on long-term debt and short-term borrowings $ 148 $145 $102 s: erest income (3) (3) (16) pitalized interest (7) (11) (12) erest expense, net $ 138 $131 $74 Credit Facilities As of January 30, 2020, we had total short-term borrowing capacity available for general corporate purposes of $950. Of the total capacity, we had $650 under our commercial paper program, which is backed by our unsecured revolving credit facility and $300 under our Variable Funding Note facility (“2017-A VFN”). During 2019, we entered into a new unsecured revolving credit facility (the “revolver”) with a capacity of $650. This revolver replaced our previously existing $650 unsecured line of credit, which was scheduled to expire in November 2020. The revolver, which expires in August 2012, is available for working capital, capital expenditures and general corporate purposes. Under the terms of the agreement, we pay a variable rate of interest and a facility fee based on our debt 24 rating. Consistent with our previous unsecured revolving credit facility, the new revolver requires that we maintain a leverage ratio of not greater than four times Adjusted Debt to EBITDAR. The revolver also requires that we maintain a fixed charge coverage ratio of at least two times, defined as: EBITDAR less gross capital expenditures Interest expense, net + rent expense As of January 30, 2020 and January 31, 2019 we were in compliance with these covenants. Under the revolver we have the option to increase the revolving commitment by up to $100, to a total of $750, provided that we obtain written consent from the lenders who choose to increase their commitment. Our $650 commercial paper program allows us to use the proceeds to fund share repurchases as well as operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding, of reducing borrowing capacity under our revolver by an amount equal to the principal amount of commercial paper. As of January 30, 2020 we had no outstanding issuances under our $650 commercial paper program and no outstanding borrowings under our revolver. As of January 31, 2019, we had $275 in outstanding issuances under our $650 commercial paper program and no outstanding borrowings under our revolver. During 2019, we renewed our 2017-A VFN. The 2017-A VFN has a capacity of $300 and matures in January 2011. The 2017-A VFN is backed by substantially all of the Example Company private label card receivables and a 90% interest in the co-branded Example Company VISA credit card receivables. Borrowings under the 2017-A VFN incur interest based upon the cost of commercial paper issued by a third-party bank conduit plus specified fees. We pay a commitment fee for the notes based on the size of the commitment. At the end of 2019 and 2018, we had no outstanding issuances against this facility. Our wholly owned federal savings bank, Example Company fsb, also maintains a variable funding facility with a short-term credit capacity of $100. This facility is backed by the remaining 10% interest in the Example Company VISA credit card receivables and is available, if needed, to provide liquidity support to Example Company fsb. At the end of 2019 and 2018, Example Company fsb had no outstanding borrowings under this facility. Borrowings under the facility incur interest based upon the cost of commercial paper issued by the third-party bank conduit plus specified fees. NOTE 8: LEASES We lease the land or the land and buildings at many of our full-line stores, and we lease the buildings at many of our Rack stores. Additionally, we lease office facilities, warehouses and equipment. Most of these leases are classified as operating leases and they expire at various dates through 2080. Our fixed, non-cancelable lease terms are generally 20 to 30 years for fullline stores and 10 to 15 years for Rack stores. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. Most of our leases also provide for payment of operating expenses, such as common area charges, real estate taxes and other executory costs, and some leases require additional payments based on sales. Future minimum lease payments as of January 30, 2020 are as follows: cal year Capital Leases Operating Leases 20 $2 $98 25 11 2 101 12 2 89 13 2 82 14 2 78 ereafter 7 406 al minimum lease payments 17 $854 s amount representing interest (5 ) esent value of net minimum lease payments $12 Rent expense for 2019, 2018 and 2017 was as follows: cal year 2019 2018 2017 nimum rent: re locations $ 76 $63 $67 ices, warehouses and equipment 13 13 14 centage rent - store locations 9 9 14 perty incentives - store locations (55) (48) (47) tal rent expense $ 43 $37 $48 The rent expense above does not include common area maintenance costs which were $19 in each of 2019, 2018 and 2017. NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES Our estimated total purchase obligations, capital expenditure contractual commitments and inventory purchase orders were $1,221 as of January 30, 2020. In connection with the purchase of foreign merchandise, we have outstanding import letters of credit totaling $5 as of January 30, 2020. We are subject from time to time to various claims and lawsuits arising in the ordinary course of business including lawsuits alleging violations by us of state and/or federal wage and hour laws. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. While we cannot predict the outcome of these matters with certainty, we do not believe any such claim, proceeding or litigation, either alone or in aggregate, will have a material impact on our financial condition, results of operations or cash flows. NOTE 10: SHAREHOLDERS’ EQUITY Share Repurchase Program The following is a summary of the activity related to our share repurchase programs in 2017, 2018 and 2019: ) ) ) Average Price riod Shares per Share Amount pacity at February 4, 2017 $ 592 gust 2017 authorization 1,500 vember 2017 authorization 1,000 ares repurchased (2/4/07 to 2/2/08) 39.1 $44.17 (1,728 pacity at February 2, 2018 $ 1,364 ares repurchased (2/3/08 to 1/31/09) 6.9 $34.29 (238 pacity at January 31, 2019 $ 1,126 ares repurchased (2/1/09 to 1/30/10) - - - used capacity upon program expiration in August 2019 (1,126 pacity at January 30, 2020 - 26 Fiscal 2017 share repurchases included $300 repurchased as part of an accelerated share repurchase program. We repurchased 5.4 shares of our common stock on May 23, 2017 at $55.17 per share and in June 2017, we received 0.4 shares at no additional cost, based on the volume weighted average price of our common stock from June 1, 2017 to June 26, 2017. This resulted in an average price per share of $51.69 for the accelerated share repurchase as a whole. NOTE 11: STOCK COMPENSATION PLANS We currently have three stock-based compensation plans: the 2004 Equity Incentive Plan, the 2002 Nonemployee Director Stock Incentive Plan and our Employee Stock Purchase Plan. Under our 2004 Equity Incentive plan, we grant non-qualified stock options, performance share units and common shares to employees. As of January 30, 2020, we have 48.4 shares authorized, 25.4 shares issued and outstanding and 7.8 shares available for grant. The Nonemployee Director Stock Incentive Plan authorizes the grant of stock awards to our nonemployee directors. These awards may be deferred or issued in the form of restricted or unrestricted stock, nonqualified stock options or stock appreciation rights. As of January 30, 2020, we had 0.9 shares authorized and 0.7 remaining shares available for issuance. In 2019, we deferred shares with a total expense of $1. Under the Employee Stock Purchase Plan (“ESPP”), employees may make payroll deductions of up to ten percent of their base and bonus compensation. At the end of each six-month offering period, participants may apply their accumulated payroll deductions toward the purchase of shares of our common stock at 90% of the fair market value on the last day of the offer period. As of January 30, 2020, we had 9.4 shares authorized and 1.7 shares available for issuance under the ESPP. We issued 0.7 shares under the ESPP during 2019. At the end of 2019 and 2018, we had current liabilities of $4 and $5, respectively, for future purchases of shares under the ESPP. The following table summarizes our stock-based compensation expense: cal year 2019 2018 2017 ck options $ 26 $24 $23 formance share units 3 - (1 ) ployee stock purchase plan 1 2 2 er 2 2 2 al stock-based compensation expense before income tax benefit 32 28 26 ome tax benefit (12 ) (10 ) (9 ) tal stock-based compensation expense, net of income tax benefit $ 20 $18 $17 The stock-based compensation expense before income tax benefit was recorded in our consolidated statements of earnings as follows: cal year 2019 2018 2017 st of sales and related buying and occupancy costs $ 10 $10 $10 ling, general and administrative expenses 22 18 16 tal stock-based compensation expense before income tax benefit $ 32 $28 $26 The benefits of tax deductions in excess of the compensation cost recognized for stock-based awards are classified as financing cash inflows and are reflected as “Excess tax benefit from stock-based payments” in the consolidated statements of cash flows. Stock Options We used the following assumptions to estimate the fair value for stock options at grant date: cal year 2019 2018 2017 k-free interest rate: Represents the yield on U.S. Treasury zero- 0.7% -3.3% 2.0% -4.3% 4.6% -4.7% 27 coupon securities that mature over the 10-year life of the stock options. ighted average volatility: Based on a combination of the historical volatility of our common stock and the implied volatility 61.0% 45.0% 35.0% of exchange traded options for our common stock. ighted average expected dividend yield: Our forecasted dividend yield for the next ten years. 1.3% 1.3% 1.0% pected life in years: Represents the estimated period of time until option exercise. The expected term of options granted was derived 5.3 5.5 5.7 from the output of the Binomial Lattice option valuation model and was based on our historical exercise behavior, taking into consideration the contractual term of the option and our employees’ expected exercise and post-vesting employment termination behavior. The weighted average fair value per option at the grant date was $7, $15 and $20 in 2019, 2018 and 2017. In 2019, 2018 and 2017, stock option awards to employees were approved by the Compensation Committee of our Board of Directors and their exercise price was set at $13.47, $38.02 and $53.63, the closing price of our common stock on February 27, 2019, February 28, 2018 and March 1, 2017 (the dates of grant). The stock option awards provide recipients with the opportunity for financial rewards when our stock price increases. The awards are determined based upon a percentage of the recipients’ base salary and the fair value of the stock options. In 2019, we awarded stock options to 1,213 employees compared to 1,230 and 1,195 employees in 2018 and 2017. As of January 30, 2020, we have 14.5 options outstanding under the 2004 Equity Incentive Plan. Options generally vest over four years, and expire ten years after the date of grant. A summary of the stock option activity for 2019 is presented below: cal Year 2019 Weighted- Weighted-Average Aggregate Shares Average Remaining Contractual Intrinsic Exercise Price Life (Years) Value tstanding, beginning of year 11.8 $ 27 anted 4.9 13 ercised (1.5 ) 14 ncelled (0.5 ) 29 pired (0.2 ) 20 tstanding, end of year 14.5 $ 24 6 $193 tions exercisable at end of year 7.3 $ 25 4 $93 tions vested or expected to vest at end of year 13.5 $ 24 6 $180 The total intrinsic value of options exercised during 2019, 2018 and 2017 was $23, $14 and $79. The total fair value of stock options vested during 2019 was $25 and for both 2018 and 2017 it was $24. As of January 30, 2020, the total unrecognized stock-based compensation expense related to nonvested stock options was $38, which is expected to be recognized over a weighted average period of 29 months. Performance Share Units We grant performance share units to executive officers as one of the ways to align compensation with shareholder interests. Performance share units vest after a three-year period only when our total shareholder return (reflecting daily stock price appreciation and compound reinvestment of dividends) is positive and outperforms companies in a defined group of competitors determined by the Compensation Committee of our Board of Directors. The percentage of units that are 28 earned depends on our relative position at the end of the vesting period and can range from 0% to 125% of the number of units granted. Performance share units are payable in either cash or stock as elected by the employee; therefore they are classified as a liability award. The liability is remeasured, with a corresponding adjustment to earnings, at each fiscal quarter-end during the vesting period. The performance share unit liability is remeasured using the estimated percentage of units earned multiplied by the closing market price of our common stock on the current period-end date and is pro-rated based on the amount of time passed in the vesting period. The price used to issue stock or cash for the performance share units upon vesting is the closing market price of our common stock on the vest date. Following is a summary of performance share unit activity: cal year 2019 20

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1) What 3 items of important information does the balance sheet reveal about the financial position of the company over the last two years?
The company’s current assets are $16,388 Million in 2012 and decreased to $11,573 Million in 2013. Current liabilities are worth $14,031 Million for 2012 and $12,777 Million in 2013. Current ratio computed for the year 2012 is 1.20 and for the year 2013 is 0.91. This means that during 2012, the company has 1.2 times more current assets than current liabilities and shows that the company can easily make current debt payments. For the year 2012, a current ratio of 1.20 is adequate since this would mean all current liabilities could be covered by the current assets. For the year 2013, the current liabilities are higher than the current assets and the company’s current assets are not enough to cover the current liability payments....
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