Ollie's Bargain Outlet Holdings, Inc. 10-K

Item 8: Financial Statements and Supplementary Data. OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm ( KPMG LLP , Philadelphia, PA , Auditor Firm ID 185 ) 56 Consolidated Financial Statements: Consolidated Statements of Income for the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020 58 Consolidated Balance Sheets as of January 29, 2022 and January 30, 2021 59 Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020 60 Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020 61 Notes to Consolidated Financial Statements 62 Schedule I – Condensed Financial Information of Registrant 79 55 Index Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Ollie’s Bargain Outlet Holdings, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (the Company) as of January 29, 2022 and January 30, 2021, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended January 29, 2022, and the related notes and financial statement schedule I - condensed financial information of registrant (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 29, 2022 and January 30, 2021 and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended January 29, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 29, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 56 Index Evaluation of excess inventories As discussed in Note 1(h) to the consolidated financial statements, the Company utilizes the retail inventory method. The retail inventory method involves the use of judgments and estimates, such as the timing of permanent markdowns, to account for excess inventory that may impact the valuation of ending inventory. Factors considered in the determination of permanent markdowns include inventory obsolescence, excess inventories, current and anticipated demand, age of the merchandise and customer preferences. As of January 29, 2022, the Company’s inventory balance was $467.3 million. We identified the evaluation of excess inventories as a critical audit matter. Especially challenging auditor judgement was required to evaluate the timeliness of permanent markdowns due to the subjective nature of the audit procedures applied to evaluate the time period in which the excess inventories warranted a permanent markdown. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the evaluation of excess inventories. This included controls related to inventory permanent markdowns, including controls over the review of the excess inventory analysis, which provided the time period inventories have been outstanding, in order to identify excess inventories. To test the timeliness of permanent markdowns, we assessed the reliability of the excess inventory analysis, and we involved information technology professionals with specialized skills and knowledge, who assisted in evaluating the reliability of the aged inventory items by product type. In addition, we evaluated the Company’s determination of timely permanent markdowns by analyzing the Company’s excess inventory analysis. /s/ KPMG LLP We have served as the Company’s auditor since 2009. Philadelphia, Pennsylvania March 25, 2022 57 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share amounts) Fiscal year ended January 29, 2022 January 30, 2021 February 1, 2020 Net sales $ 1,752,995 $ 1,808,821 $ 1,408,199 Cost of sales 1,071,749 1,085,455 852,610 Gross profit 681,246 723,366 555,589 Selling, general and administrative expenses 447,615 418,889 356,060 Depreciation and amortization expenses 19,364 16,705 14,582 Pre-opening expenses 9,675 10,272 13,092 Operating income 204,592 277,500 171,855 Interest expense (income), net 209 ( 278 ) ( 878 ) Income before income taxes 204,383 277,778 172,733 Income tax expense 46,928 35,082 31,603 Net income $ 157,455 $ 242,696 $ 141,130 Earnings per common share: Basic $ 2.44 $ 3.75 $ 2.23 Diluted $ 2.43 $ 3.68 $ 2.14 Weighted average common shares outstanding: Basic 64,447 64,748 63,214 Diluted 64,878 65,873 65,874 See accompanying notes to the consolidated financial statements. 58 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share amounts) January 29, 2022 January 30, 2021 Assets Current assets: Cash and cash equivalents $ 246,977 $ 447,126 Inventories 467,306 353,704 Accounts receivable 1,372 621 Prepaid expenses and other assets 11,173 7,316 Total current assets 726,828 808,767 Property and equipment, net 147,164 138,712 Operating lease right-of-use assets 420,568 380,546 Goodwill 444,850 444,850 Trade name 230,559 230,559 Other assets 2,203 2,421 Total assets $ 1,972,172 $ 2,005,855 Liabilities and Stockholders’ Equity Current liabilities: Current portion of long-term debt $ 332 $ 328 Accounts payable 106,599 117,217 Income taxes payable 2,556 10,960 Current portion of operating lease liabilities 75,535 64,732 Accrued expenses and other 78,246 90,559 Total current liabilities 263,268 283,796 Revolving credit facility - - Long-term debt 719 656 Deferred income taxes 66,179 65,064 Long-term operating lease liabilities 354,293 321,454 Other long-term liabilities 3 4 Total liabilities 684,462 670,974 Stockholders’ equity: Preferred stock - 50,000 shares authorized at $ 0.001 par value; no shares issued - - Common stock - 500,000 shares authorized at $ 0.001 par value; 66,516 and 66,165 shares issued, respectively 67 66 Additional paid-in capital 664,293 648,949 Retained earnings 883,722 726,267 Treasury - common stock, at cost; 3,816 and 702 shares, respectively ( 260,372 ) ( 40,401 ) Total stockholders’ equity 1,287,710 1,334,881 Total liabilities and stockholders’ equity $ 1,972,172 $ 2,005,855 See accompanying notes to the consolidated financial statements. 59 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (In thousands) Common stock Treasury stock Additional paid-in Retained Total stockholders’ Shares Amount Shares Amount capital earnings equity Balance as of February 2 , 2019 63,015 $ 63 ( 9 ) $ ( 86 ) $ 600,234 $ 342,441 $ 942,652 Stock-based compensation expense - - - - 7,302 - 7,302 Proceeds from stock options exercised 653 1 - - 9,086 - 9,087 Vesting of restricted stock 60 - - - - - - Common shares withheld for taxes ( 16 ) - - - ( 1,272 ) - ( 1,272 ) Shares repurchased - - ( 689 ) ( 40,014 ) - - ( 40,014 ) Net income - - - - - 141,130 141,130 Balance as of February 1 , 2020 63,712 64 ( 698 ) ( 40,100 ) 615,350 483,571 1,058,885 Stock-based compensation expense - - - - 6,501 - 6,501 Proceeds from stock options exercised 2,403 2 - - 28,059 - 28,061 Vesting of restricted stock 69 - - - - - - Common shares withheld for taxes ( 19 ) - - - ( 961 ) - ( 961 ) Shares repurchased - - ( 4 ) ( 301 ) - - ( 301 ) Net income - - - - - 242,696 242,696 Balance as of January 30 , 2021 66,165 66 ( 702 ) ( 40,401 ) 648,949 726,267 1,334,881 Stock-based compensation expense - - - - 8,042 - 8,042 Proceeds from stock options exercised 305 1 - - 8,634 - 8,635 Vesting of restricted stock 62 - - - - - - Common shares withheld for taxes ( 16 ) - - - ( 1,332 ) - ( 1,332 ) Shares repurchased - - ( 3,114 ) ( 219,971 ) - - ( 219,971 ) Net income - - - - - 157,455 157,455 Balance as of January 29 , 2022 66,516 $ 67 ( 3,816 ) $ ( 260,372 ) $ 664,293 $ 883,722 $ 1,287,710 See accompanying notes to the consolidated financial statements. 60 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) Fiscal year ended January 29, 2022 January 30, 2021 February 1, 2020 Cash flows from operating activities: Net income $ 157,455 $ 242,696 $ 141,130 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 24,894 22,465 17,543 Amortization of debt issuance costs 256 256 296 Gain on sale of assets ( 213 ) ( 2 ) ( 74 ) Deferred income tax provision 1,115 5,663 3,785 Stock-based compensation expense 8,042 6,501 7,302 Changes in operating assets and liabilities: Inventories ( 113,602 ) ( 18,523 ) ( 38,774 ) Accounts receivable ( 751 ) 2,219 ( 2,270 ) Prepaid expenses and other assets ( 3,895 ) ( 1,849 ) ( 870 ) Accounts payable ( 11,116 ) 55,574 ( 15,513 ) Income taxes payable ( 8,404 ) 7,054 ( 3,487 ) Accrued expenses and other liabilities ( 8,748 ) 39,200 ( 3,724 ) Net cash provided by operating activities 45,033 361,254 105,344 Cash flows from investing activities: Purchases of property and equipment ( 34,989 ) ( 30,525 ) ( 76,979 ) Proceeds from sale of property and equipment 3,159 122 42,855 Purchase of intangible asset - ( 45 ) - Net cash used in investing activities ( 31,830 ) ( 30,448 ) ( 34,124 ) Cash flows from financing activities: Repayments on finance leases ( 684 ) ( 429 ) ( 460 ) Payment of debt issuance costs - - ( 552 ) Proceeds from stock option exercises 8,635 28,061 9,087 Common shares withheld for taxes ( 1,332 ) ( 961 ) ( 1,272 ) Payment for shares repurchased ( 219,971 ) ( 301 ) ( 40,014 ) Net cash (used in) provided by financing activities ( 213,352 ) 26,370 ( 33,211 ) Net (decrease) increase in cash and cash equivalents ( 200,149 ) 357,176 38,009 Cash and cash equivalents at the beginning of the year 447,126 89,950 51,941 Cash and cash equivalents at the end of the year $ 246,977 $ 447,126 $ 89,950 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 358 $ 324 $ 355 Income taxes $ 54,690 $ 22,047 $ 30,857 Non-cash investing activities: Accrued purchases of property and equipment $ 3,189 $ 2,636 $ 4,562 See accompanying notes to the consolidated financial statements. 61 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Organization and Summary of Significant Accounting Policies (a) Description of Business Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (collectively referred to as the “Company” or “Ollie’s”) principally buys overproduced, overstocked and closeout merchandise from manufacturers, wholesalers and other retailers. In addition, the Company augments its name-brand closeout deals with directly sourced private label products featuring names exclusive to Ollie’s in order to provide consistently value-priced goods in select key merchandise categories. Since its first store opened in 1982, the Company has grown to 431 retail locations in 29 states as of January 29, 2022. Ollie’s Bargain Outlet retail locations are located in Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia and West Virginia. (b) Fiscal Year Ollie’s follows a 52/53-week fiscal year, which ends on the Saturday nearer January 31 of the following calendar year. References to the fiscal year ended January 29, 2022 refer to the 52-week period from January 31, 2021 to January 29, 2022 (“2021”). References to the fiscal year ended January 30, 2021 refer to the 52-week period from February 2, 2020 to January 30, 2021 (“2020”). References to the fiscal year ended February 1, 2020 refer to the 52-week period from February 3, 2019 to February 1, 2020 (“2019”) . (c) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions have been eliminated in consolidation. (d) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (e) Fair Value Disclosures Fair value is defined as the price which the Company would receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three-level hierarchy used in measuring fair value, as follows: • Level 1 inputs are quoted prices available for identical assets and liabilities in active markets. • Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data. • Level 3 inputs are less observable and reflect the Company’s assumptions. Ollie’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and the Company’s credit facilities. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their short maturities. The carrying amount of the Company’s credit facilities approximates its fair value because the interest rates are adjusted regularly based on current market conditions. 62 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (f) Cash and Cash Equivalents The Company considers cash on hand in stores, bank deposits, credit card receivables, and all highly liquid investments with remaining maturities of three months or less at the date of acquisition to be cash and cash equivalents. Amounts receivable from credit card issuers are typically converted to cash within one to two business days of the original sales transaction. (g) Concentration of Credit Risk A financial instrument which potentially subjects the Company to a concentration of credit risk is cash. Ollie’s currently maintains its day-to-day operating cash balances with major financial institutions. The Company’s operating cash balances are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. From time to time, Ollie’s invests temporary excess cash in overnight investments with expected minimal volatility, such as money market funds. Although the Company maintains balances which exceed the FDIC insured limit, it has not experienced any losses related to these balances, and Ollie’s believes the credit risk to be minimal. (h) Inventories Inventories are stated at the lower of cost or market determined using the retail inventory method on a first-in, first-out basis. The cost of inventories includes the merchandise cost, transportation costs, and certain distribution and storage costs. Such costs are thereafter expensed as cost of sales upon the sale of the merchandise. Inherent in the retail inventory method are certain management judgments and estimates including, among others, merchandise markups, the amount and timing of permanent markdowns, and shrinkage, which may significantly impact both the ending inventory valuation and gross profit. Factors considered in the determination of permanent markdowns include inventory obsolescence, excess inventories, current and anticipated demand, age of the merchandise and customer preferences. Pursuant to the retail inventory method, permanent markdowns result in the devaluation of inventory and the resulting gross profit reduction is recognized in the period in which the markdown is recorded. (i) Property and Equipment Property and equipment are stated at original cost less accumulated depreciation and amortization. Depreciation and amortization are calculated over the estimated useful lives of the related assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed on the straight-line method for financial reporting purposes. The useful lives for the purpose of computing depreciation and amortization are as follows: Software 3 years Automobiles 2 - 5 years Computer equipment 5 years Furniture, fixtures and equipment 7 - 10 years Buildings 40 years Leasehold improvements Lesser of lease term or useful life 63 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (j) Goodwill/Intangible Assets The Company amortizes intangible assets over their useful lives unless it determines such lives to be indefinite. Goodwill and intangible assets having indefinite useful lives are not amortized to earnings, but instead are subject to annual impairment testing or more frequently if events or circumstances indicate that the value of goodwill or intangible assets having indefinite useful lives might be impaired. Goodwill and intangible assets having indefinite useful lives are tested for impairment annually in the fiscal month of October. The Company has the option to evaluate qualitative factors to determine if it is more likely than not that the carrying amount of its sole reporting unit or its nonamortizing intangible assets (consisting of a tradename) exceed their implied respective fair value and whether it is necessary to perform a quantitative analysis to determine impairment. As part of this qualitative assessment, the Company weighs the relative impact of factors that are specific to its sole reporting unit or its nonamortizing intangible assets as well as industry, regulatory and macroeconomic factors that could affect the inputs used to determine the fair value of the assets. If management determines a quantitative goodwill impairment test is required, or it elects to perform a quantitative test, the test is performed by determining the fair value of the Company’s sole reporting unit. Fair value is determined based on the Company’s public market capitalization. The carrying value of goodwill is considered impaired when the reporting unit’s fair value is less than its carrying value and the Company would record an impairment loss equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit . For 2021, 2020 and 2019, the Company completed an impairment test of its goodwill and determined that no impairment of goodwill existed. If management determines a quantitative analysis of intangible assets having indefinite useful lives is required, the test is performed using the discounted cash flow method based on management’s projections of future revenues and an estimated royalty rate to determine the fair value of the asset, specifically, the Company’s tradename. An impairment loss is recognized for any excess of the carrying amount of the asset over the implied fair value of that asset. For 2021, 2020 and 2019, the Company completed an impairment test of its tradename and determined that no impairment of the asset existed. (k) Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. 64 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (l) Stock-Based Compensation The Company measures the cost of employee services received in exchange for stock-based compensation based on the grant date fair value of the employee stock award. For stock option awards, the Company estimates grant date fair value using the Black-Scholes option pricing model. For restricted stock unit awards, grant date fair value is determined based on the closing trading value of the Company’s stock on the date of grant. In both cases, stock-based compensation is recorded on a straight-line basis over the vesting period for the entire award. (m) Cost of Sales Cost of sales includes merchandise costs, inventory markdowns, shrinkage and transportation, distribution and warehousing costs, including depreciation and amortization . (n) Selling, General and Administrative Expenses Selling, general and administrative expenses (“SG&A”) are comprised of payroll and benefits for stores, field support and support center associates. SG&A also include marketing and advertising expense, occupancy costs for stores and the store support center, insurance, corporate infrastructure, and other general expenses. (o) Advertising Costs Advertising costs primarily consist of newspaper circulars, email campaigns, media broadcasts and prominent advertising at professional and collegiate sporting events and are generally expensed the first time the advertising occurs. Advertising expense for 2021, 2020 and 2019 was $ 52.2 million, $ 41.4 million and $ 42.4 million, respectively . (p) Operating Leases The Company generally leases its store locations, distribution centers and office facilities. Many of the lease agreements contain rent holidays, rent escalation clauses and contingent rent provisions – or some combination of these items. For leases of store locations and the store support centers, the Company recognizes rent expense in SG&A. For leases of distribution centers, the Company recognizes rent expense within cost of sales. All rent expense is recorded on a straight-line basis over the accounting lease term, which includes lease renewals determined to be reasonably certain. The Company recognizes operating lease assets and liabilities at the lease commencement date in accordance with Accounting Standards Update 2016-02, Leases (“ASU 2016-02”) . Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the Company’s right to use an underlying asset for the lease term. The Company’s lessors do not provide an implicit rate, nor is one readily available, therefore the Company uses its incremental borrowing rate based on the portfolio approach, which applies one rate to leases within a given period. The incremental borrowing rate is used to discount future cash flows and is an estimate which is determined by an analysis of the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms and current market conditions. 65 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (q) Pre-Opening Expenses Pre-opening expenses consist of expenses of opening new stores and distribution centers, as well as store closing costs. For opening new stores, pre-opening expenses include grand opening advertising costs, payroll expenses, travel expenses, employee training costs, rent expenses and store setup costs. Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of opening a new store. For opening distribution centers, pre-opening expenses primarily include inventory transportation costs, employee travel expenses and occupancy costs. Store closing costs primarily consist of insurance deductibles, rent and store payroll. (r) Debt Issuance Costs Debt issuance costs are amortized to interest expense using the effective interest method over the life of the related debt. As of January 29, 2022 and January 30, 2021, debt issuance costs, net of accumulated amortization, were $ 0.5 million and $ 0.8 million, respectively. The amortization expense for debt issuance costs was $ 0.3 million in each of 2021, 2020 and 2019 . (s) Self ‑ Insurance Liabilities Under a number of the Company’s insurance programs, which include the Company’s employee health insurance program, its workers’ compensation and general liability insurance programs, the Company is liable for a portion of its losses. The Company estimates the accrued liabilities for its self-insurance programs using historical claims experience and loss reserves. To limit the Company’s exposure to losses, a stop-loss coverage is maintained through third-party insurers. (t) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Ollie’s files consolidated federal and state income tax returns. For tax years prior to 2018, the Company is no longer subject to U.S. federal income tax examinations. State income tax returns are filed in various state tax jurisdictions, as appropriate, with varying statutes of limitation and remain subject to examination for varying periods up to three to four years depending on the state. 66 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (u) Earnings per Common Share Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding, after giving effect to the potential dilution, if applicable, from the assumed exercise of stock options into shares of common stock as if those stock options were exercised and the assumed lapse of restrictions on restricted stock units. The following table summarizes those effects for the diluted earnings per common share calculation (in thousands, except per share amounts): Fiscal year ended January 29, 2022 January 30, 2021 February 1, 2020 Net income $ 157,455 $ 242,696 $ 141,130 Weighted average number of common shares outstanding – Basic 64,447 64,748 63,214 Incremental shares from the assumed exercise of outstanding stock options and vesting of restricted stock units 431 1,125 2,660 Weighted average number of common shares outstanding – Diluted 64,878 65,873 65,874 Earnings per common share – Basic $ 2.44 $ 3.75 $ 2.23 Earnings per common share – Diluted $ 2.43 $ 3.68 $ 2.14 The effect of the weighted average assumed exercise of stock options outstanding totaling 425,718 , 322,238 and 359,801 as of January 29, 2022, January 30, 2021 and February 1, 2020, respectively , were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive. The effect of weighted average non-vested restricted stock units outstanding totaling 22,546 , 12,047 and 34,673 as of January 29, 2022, January 30, 2021 and February 1, 2020, respectively , were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive. (v) Impact of the Novel Coronavirus (“COVID-19” ) The outbreak of the novel coronavirus COVID-19, which was declared a global pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies. The outbreak of COVID-19 and related measures to quell the outbreak have impacted the Company’s inventory supply chain, operations and customer demand. The Company is continuing to experience labor pressures in its stores and distribution centers as well as supply chain disruptions due to the ongoing impacts of COVID-19 and related measures. The COVID-19 pandemic could further affect the Company’s operations and the operations of its suppliers and vendors as a result of continuing or renewed restrictions and limitations on travel, limitations on store or facility operations up to and including closures, and other governmental, business or consumer actions. The extent to which the COVID-19 pandemic will impact the Company’s operations, liquidity or financial results in subsequent periods is uncertain, but such impact could be material. 67 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (2) Net Sales Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of merchandise. Also included in net sales is revenue allocated to certain redeemed discounts earned via the Ollie’s Army loyalty program and gift card breakage. Net sales are presented net of returns and sales tax. The Company provides an allowance for estimated retail merchandise returns based on prior experience. Revenue Recognition Revenue is deferred for the Ollie’s Army loyalty program where members accumulate points that can be redeemed for discounts on future purchases. The Company has determined it has an additional performance obligation to Ollie’s Army members at the time of the initial transaction. The Company allocates the transaction price to the initial transaction and the discount awards based upon its relative standalone selling price, which considers historical redemption patterns for the award. Revenue is recognized as those discount awards are redeemed. Discount awards issued upon the achievement of specified point levels are subject to expiration. Unless temporarily extended, the maximum redemption period is 45 days . At the end of each fiscal period, unredeemed discount awards and accumulated points to earn a future discount award are reflected as a liability. Discount awards are combined in one homogeneous pool and are not separately identifiable. Therefore, the revenue recognized consists of discount awards redeemed that were included in the deferred revenue balance at the beginning of the period as well as discount awards issued during the current period. The following table is a reconciliation of the liability related to this program (in thousands): Fiscal year ended January 29, 2022 January 30, 2021 February 1 , 2020 Beginning balance $ 8,113 $ 8,254 $ 9,055 Revenue deferred 15,290 17,813 15,720 Revenue recognized ( 15,621 ) ( 17,954 ) ( 16,521 ) Ending balance $ 7,782 $ 8,113 $ 8,254 Gift card breakage for gift card liabilities not subject to escheatment is recognized as revenue in proportion to the redemption of gift cards. Gift cards do not expire. The rate applied to redemptions is based upon a historical breakage rate. Gift cards are combined in one homogenous pool and are not separately identifiable. Therefore, the revenue recognized consists of gift cards that were included in the liability at the beginning of the period as well as gift cards that were issued during the period. The following table is a reconciliation of the gift card liability (in thousands): Fiscal year ended January 29, 2022 January 30, 2021 February 1 , 2020 Beginning balance $ 1,902 $ 1,679 $ 1,448 Gift card issuances 5,433 4,906 5,178 Gift card redemption and breakage ( 5,044 ) ( 4,683 ) ( 4,947 ) Ending balance $ 2,291 $ 1,902 $ 1,679 68 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Sales return allowance is recorded on a gross basis on the consolidated balance sheets as a refund liability and an asset for recovery. The allowance for estimated retail merchandise returns is based on prior experience. The following table provides a reconciliation of the activity related to the Company’s sales returns allowance (in thousands): Fiscal year ended January 29, 2022 January 30, 2021 February 1, 2020 Beginning balance $ 1,060 $ 1,060 $ 798 Provisions 54,475 52,472 55,649 Sales returns ( 54,434 ) ( 52,472 ) ( 55,387 ) Ending balance $ 1,101 $ 1,060 $ 1,060 (3) Property and Equipment Property and equipment consists of the following (in thousands): January 29, 2022 January 30, 2021 Land $ 7,942 $ 7,516 Buildings 34,608 33,658 Furniture, fixtures and equipment 184,050 162,119 Leasehold improvements 40,858 31,937 Automobiles 2,338 2,109 269,796 237,339 Less: Accumulated depreciation and amortization ( 122,632 ) ( 98,627 ) $ 147,164 $ 138,712 Depreciation and amortization expense of property and equipment was $ 24.9 million, $ 22.5 million and $ 17.5 million in 2021, 2020 and 2019, respectively , of which $ 19.4 million, $ 16.7 million and $ 14.6 million is included in the depreciation and amortization expenses in 2021, 2020 and 2019, respectively , on the consolidated statements of income. The remainder, as it relates to the Company’s distribution centers, is included within cost of sales on the consolidated statements of income. (4) Commitments and Contingencies Commitments On February 3, 2019, the first day of Ollie’s fiscal year 2019, the Company adopted ASU 2016-02, which requires that lessees recognize right-of-use assets and lease liabilities for all leases on the balance sheet. Pursuant to the adoption of the new standard, the Company elected the practical expedients upon transition that did not require it to reassess existing contracts to determine if they contain leases under the new definition of a lease, or to reassess historical lease classification or initial direct costs. The Company also adopted the practical expedient to not separate lease and non-lease components for new leases after adoption of the new standard. In addition, the Company applied a policy election to exclude leases with an initial term of 12 months or less from balance sheet recognition. The Company did not adopt the hindsight practical expedient and, therefore, will continue to utilize lease terms determined under previous lease guidance for leases existing at the date of adoption that are not subsequently modified. 69 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Ollie’s generally leases its stores, offices and distribution facilities under operating leases that expire at various dates through 2034. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus contingent rentals based on a percentage of annual sales. A majority of the Company’s leases also require a payment for all or a portion of common-area maintenance, insurance, real estate taxes, water and sewer costs and repairs, on a fixed or variable payment basis, the cost of which, for leases existing as of the adoption of ASU 2016-02, is charged to the related expense category rather than being accounted for as rent expense. For leases entered into after the adoption of ASU 2016-02, the Company accounts for lease components together with non-lease components as a single component for all classes of underlying assets. Most of the leases contain options to renew for three to five successive five-year periods. The Company is generally not reasonably certain to exercise renewal options; therefore, the options are not considered in determining the lease term, and associated potential option payments are excluded from the lease payments. Ollie’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. Store and office lease costs are classified in SG&A and distribution center lease costs are classified in cost of sales on the consolidated statements of income. The following table summarizes the maturity of the Company’s operating lease liabilities by fiscal year as of January 29, 2022 (in thousands): 2022 $ 81,360 2023 94,452 2024 76,141 2025 60,109 2026 51,551 Thereafter 116,040 Total undiscounted lease payments (1) 479,653 Less: Imputed interest ( 49,825 ) Total lease obligations 429,828 Less: Current obligations under leases ( 75,535 ) Long-term lease obligations $ 354,293 (1) Lease obligations exclude $ 46.7 million of minimum lease payments for leases signed, but not commenced. The following table summarizes other information related to the Company’s operating leases as of and for the respective periods (dollars in thousands): Fiscal Year Ended January 29, 2022 January 30 , 2021 February 1 , 2020 Cash paid for operating leases $ 85,923 $ 70,829 $ 66,705 Operating lease cost 86,516 77,843 67,360 Variable lease cost 7,848 5,494 2,421 Non-cash right-of-use assets obtained in exchange for lease obligations 59,696 63,670 91,986 Weighted-average remaining lease term 6.6 years 6.7 years 7.1 years Weighted-average discount rate 3.4 % 4.1 % 4.5 % Marketing Commitment The Company has entered into an agreement with Valassis Communications, Inc. for marketing services. This agreement has a guaranteed spend commitment of $ 23.0 million over a two-year period ending on May 28, 2022. As of January 29, 2022, the Company has met its guaranteed spend commitment of $ 23.0 million . 70 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Contingencies From time to time the Company may be involved in claims and legal actions that arise in the ordinary course of its business. The Company cannot predict the outcome of any litigation or suit to which it is a party. However, the Company does not believe that an unfavorable decision of any of the current claims or legal actions against it, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, liquidity or capital resources. Sale-Leaseback On May 31, 2019, OBO Ventures, Inc. (“OBO”), a wholly owned subsidiary of the Company, entered into a sale-leaseback transaction with an unaffiliated third-party involving 12 former Toys “R” Us store locations which were acquired by OBO on August 29, 2018. OBO received approximately $ 42.0 million for the 12 locations, which resulted in no net gain or loss. Each of the 12 leased locations has 15 -year lease terms with options for renewal and are included in operating lease liabilities in the accompanying consolidated balance sheets . (5) Accrued Expenses Accrued expenses consist of the following (in thousands): January 29, 2022 January 30, 2021 Compensation and benefits $ 19,270 $ 32,943 Deferred revenue 10,073 10,015 Insurance 9,626 6,318 Advertising 8,531 4,325 Real estate related 7,234 5,753 Sales and use taxes 5,968 6,487 Freight 2,073 7,180 Other 15,471 17,538 $ 78,246 $ 90,559 (6) Debt Obligations and Financing Arrangements Long-term debt consists of finance leases as of January 29, 2022 and January 30, 2021. On May 22, 2019, the Company completed a transaction in which it refinanced its credit facility (the “Credit Facility”). The Credit Facility provides for a five-year $ 100.0 million revolving credit facility, which includes a $ 45.0 million sub-facility for letters of credit and a $ 25.0 million sub-facility for swingline loans (the “Revolving Credit Facility”). Loans under the Revolving Credit Facility mature on May 22, 2024 . In addition, the Company may at any time add term loan facilities or additional revolving commitments up to $ 150.0 million pursuant to terms and conditions set out in the Credit Facility. 71 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The interest rates for the Credit Facility are calculated as follows: for Base Rate Loans, the higher of the Prime Rate, the Federal Funds Effective Rate plus 0.50 % or the Eurodollar Rate plus 1.0 %, plus the Applicable Margin, or, for Eurodollar Loans, the Eurodollar Rate plus the Applicable Margin. The Applicable Margin will vary from 0.00 % to 0.50 % for a Base Rate Loan and 1.00 % to 1.50 % for a Eurodollar Loan, based on availability under the Credit Facility. The Eurodollar Rate is subject to a 0 % floor. Under the terms of the Revolving Credit Facility, as of January 29, 2022, the Company could borrow up to 90.0 % of the most recent appraised value (valued at cost, discounted for the current net orderly liquidation value) of its eligible inventory, as defined, up to $ 100.0 million. As of January 29, 2022, the Company had no outstanding borrowings under the Revolving Credit Facility, with $ 84.7 million of borrowing availability, outstanding letters of credit commitments of $ 15.1 million and $ 0.2 million of rent reserves. The Revolving Credit Facility also contains a variable unused line fee ranging from 0.125 % to 0.250 % per annum. The Company incurred unused line fees of $ 0.1 million, $ 0.1 million and $ 0.2 million in 2021, 2020 and 2019, respectively. The Credit Facility is collateralized by the Company’s assets and equity and contains a financial covenant, as well as certain business covenants, including restrictions on dividend payments, which the Company must comply with during the term of the agreement. The financial covenant is a consolidated fixed charge coverage ratio test of at least 1.0 to 1.0 applicable during a covenant period, based on reference to availability. The Company was in compliance with all terms of the Credit Facility during 2021. The provisions of the Credit Facility restrict all of the net assets of the Company’s consolidated subsidiaries, which constitutes all of the net assets on the Company’s consolidated balance sheet as of January 29, 2022, from being used to pay any dividends or make other restricted payments to the Company without prior written consent from the financial institutions that are a party to the Credit Facility, subject to material exceptions including proforma compliance with the applicable conditions described in the Credit Facility. (7) Income Taxes The components of income tax provision (benefit) are as follows (in thousands): Fiscal year ended January 29, 2022 January 30, 2021 February 1, 2020 Current: Federal $ 35,657 $ 22,045 $ 21,737 State 10,156 7,374 6,081 45,813 29,419 27,818 Deferred: Federal 802 5,866 3,393 State 313 ( 203 ) 392 1,115 5,663 3,785 Income tax expense $ 46,928 $ 35,082 $ 31,603 72 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate is as follows: Fiscal year ended January 29, 2022 January 30, 2021 February 1, 2020 Statutory federal rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 4.1 2.0 3.0 Excess tax benefits related to stock-based compensation ( 1.7 ) ( 10.2 ) ( 5.4 ) Other ( 0.4 ) ( 0.2 ) ( 0.3 ) 23.0 % 12.6 % 18.3 % Deferred income taxes reflect the effect of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the carrying amounts used for income tax reporting purposes. Significant components of deferred tax assets and liabilities are as follows (in thousands): January 29, 2022 January 30, 2021 Deferred tax assets: Inventory reserves $ 990 $ 1,032 Lease liability 110,465 98,793 Stock-based compensation 3,446 2,833 Deferred revenue 1,999 2,076 Other 5,450 6,169 Total deferred tax assets 122,350 110,903 Deferred tax liabilities: Tradename ( 59,214 ) ( 58,954 ) Depreciation ( 21,245 ) ( 19,369 ) Operating lease right-of-use assets ( 108,070 ) ( 97,644 ) Total deferred tax liabilities ( 188,529 ) ( 175,967 ) Net deferred tax liabilities $ ( 66,179 ) $ ( 65,064 ) In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income and the scheduled reversal of deferred liabilities over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences as of January 29, 2022 and January 30, 2021 . Ollie’s has no material accrual for uncertain tax positions or interest or penalties related to income taxes on the Company’s consolidated balance sheets as of January 29, 2022 or January 30, 2021, and has no t recognized any material uncertain tax positions or interest or penalties related to income taxes in the consolidated statements of income for 2021, 2020 or 2019 . 73 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (8) Equity Incentive Plans During 2012, Ollie’s established an equity incentive plan (the “2012 Plan”) under which stock options were granted to executive officers and key employees as deemed appropriate under the provisions of the 2012 Plan, with an exercise price at the fair value of the underlying stock on the date of grant. The vesting period for options granted under the 2012 Plan is five years ( 20 % ratably per year). Options granted under the 2012 Plan are subject to employment for vesting, expire 10 years from the date of grant, and are not transferable other than upon death. As of July 15, 2015, the date of the pricing of the Company’s initial public offering (the “IPO”), no additional equity grants will be made under the 2012 Plan. In connection with the IPO, the Company adopted the 2015 equity incentive plan (the “2015 Plan”) pursuant to which the Company’s Board of Directors may grant stock options, restricted shares or other awards to employees, directors and consultants. The 2015 Plan allows for the issuance of up to 5,250,000 shares. Awards will be made pursuant to agreements and may be subject to vesting and other restrictions as determined by the Board of Directors or the Compensation Committee of the Board. The Company uses authorized and unissued shares to satisfy share award exercises. As of January 29, 2022, there were 2,644,914 shares available for grant under the 2015 Plan. Stock Options The exercise price for stock options is determined at the fair value of the underlying stock on the date of grant. The vesting period for awards granted under the 2015 Plan is generally set at four years ( 25 % ratably per year). Awards are subject to employment for vesting, expire 10 years from the date of grant, and are not transferable other than upon death. A summary of the Company’s stock option activity and related information follows for 2019, 2020 and 2021 (in thousands, except share and per share amounts): Number of options Weighted average exercise price Weighted average remaining contractual term (years) Aggregate intrinsic value Outstanding at February 2 , 2019 3,746,422 $ 15.29 Granted 357,718 76.28 Forfeited ( 222,729 ) 51.53 Exercised ( 652,719 ) 13.92 Outstanding at February 1 , 2020 3,228,692 19.83 Granted 517,995 42.25 Forfeited ( 99,288 ) 51.39 Exercised ( 2,403,164 ) 11.68 Outstanding at January 30 , 2021 1,244,235 42.39 Granted 298,990 84.48 Forfeited ( 129,233 ) 61.98 Exercised ( 304,677 ) 28.34 Outstanding at January 29 , 2022 1,109,315 55.30 7.3 $ 6,059 Exercisable at January 29 , 2022 400,996 39.94 5.5 $ 5,082 74 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements During 2020, the estate of a former executive of the Company exercised 1.9 million vested stock options and the Company received $ 17.1 million in proceeds. The intrinsic value of stock options exercised for 2021, 2020 and 2019 was $ 17.0 million, $ 145.3 million and $ 44.6 million, respectively. The weighted average grant date fair value per option for options granted during 2021, 2020 and 2019 was $ 33.38 , $ 13.27 and $ 23.67 , respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that used the weighted average assumptions in the following table: Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Risk-free interest rate 1.33 % 0.76 % 2.30 % Expected dividend yield — — — Expected life (years) 6.25 years 6.25 years 6.25 years Expected volatility 38.39 % 30.52 % 26.00 % The expected life of stock options is estimated using the “simplified method,” as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility through January 29, 2022, the Company uses its historical information since its IPO as well as comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. Restricted Stock Units Restricted stock units (“RSUs”) are issued at a value not less than the fair value of the common stock on the date of the grant. RSUs outstanding vest ratably over four years or cliff vest in one or four years . Awards are subject to employment for vesting and are not transferable other than upon death. A summary of the Company’s RSU activity and related information for 2019, 2020 and 2021 is as follows: Number of shares Weighted average grant date fair value Nonvested balance at February 2, 2019 220,200 $ 35.75 Granted 77,469 75.40 Forfeited ( 60,172 ) 50.25 Vested ( 59,951 ) 33.82 Nonvested balance at February 1, 2020 177,546 48.78 Granted 64,771 43.30 Forfeited ( 24,917 ) 51.61 Vested ( 68,562 ) 34.99 Nonvested balance at January 30, 2021 148,838 52.28 Granted 59,195 83.18 Forfeited ( 19,887 ) 62.27 Vested ( 62,663 ) 44.51 Nonvested balance at January 29, 2022 125,483 69.15 75 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Stock-Based Compensation Expense The compensation cost for stock options and RSUs which has been recorded within SG&A was $ 8.0 million, $ 6.5 million and $ 7.3 million for 2021, 2020 and 2019, respectively. As of January 29, 2022, there was $ 17.0 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.6 years. Compensation costs related to awards are recognized using the straight-line method. (9) Employee Benefit Plans Ollie’s sponsors a defined contribution plan (the “Plan”), qualified under Internal Revenue Code (“IRC”) Section 401(k), for the benefit of employees. An employee becomes eligible to participate in the Plan upon attaining at least 21 years of age and completing three months of full-time employment. An employee may elect to contribute annual compensation up to the maximum allowable under the IRC. The Company assumes all administrative costs of the Plan and matches the employee’s contribution up to 25 % of the first 6 % of their annual compensation. The portion that the Company matches is vested ratably over six years . The employer matching contributions to the Plan were $ 0.2 million in each of the years ended 2021, 2020 and 2019. In addition to the regular matching contribution, the Company may elect to make a discretionary matching contribution. Discretionary contributions shall be allocated as a percentage of compensation of eligible participants for the Plan year. There were no discretionary contributions in 2021, 2020 or 2019. (10) Common Stock Common Stock The Company’s capital structure consists of a single class of common stock with one vote per share. The Company has authorized 500,000,000 shares at $ 0.001 par value per share. Additionally, the Company has authorized 50,000,000 shares of preferred stock at $ 0.001 par value per share; to date, however, no preferred shares have been issued. Treasury stock, which consists of the Company’s common stock, is accounted for using the cost method. Share Repurchase Program On March 26, 2019, the Board of Directors of the Company authorized the repurchase of up to $ 100.0 million of shares of the Company’s common stock. This initial tranche expired on March 26, 2021. The Board authorized the repurchase of another $ 100.0 million of the Company’s common stock on December 15, 2020 and a $ 100.0 million increase on March 16, 2021, resulting in $ 200.0 million approved for share repurchases through January 13, 2023. On November 30, 2021, the Board authorized an additional $ 200.0 million to repurchase stock pursuant to the Company’s share repurchase program, expiring on December 15, 2023. The shares to be repurchased may be purchased from time to time in open market conditions (including blocks), privately negotiated transactions, accelerated share repurchase programs or other derivative transactions, issuer self-tender offers or any combination of the foregoing. The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of the Company’s shares, general market, economic and business conditions, and other corporate considerations. Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow the Company to purchase its shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases are expected to be funded from cash on hand or through the utilization of the Company’s Revolving Credit Facility. The repurchase authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by the Company’s Board of Directors at any tim e . During 2021, the Company repurchased 3,113,981 shares of its common stock for $ 220.0 million, inclusive of transaction costs, pursuant to its share repurchase program. During 2020, the Company repurchased 3,885 shares of its common stock for $ 0.3 million, inclusive of transaction costs, and during 2019, it repurchased 689,457 shares of its common stock for $ 40.0 million, inclusive of transaction costs. These expenditures were funded by cash generated from operations. As of January 29, 2022, the Company had $ 180.0 million remaining under its share repurchase authorization. There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases. 76 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (11) Segment Reporting and Entity-Wide Information For purposes of the disclosure requirements for segments of a business enterprise, it has been determined that the Company is comprised of one operating segment. The following table summarizes the percentage of net sales by merchandise category for each year presented: Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Housewares 14.9 % 15.7 % 15.0 % Bed and bath 10.7 10.9 10.5 Food 10.3 10.2 10.8 Floor coverings 8.6 8.5 8.4 Books and stationery 7.9 7.6 8.6 Electronics 6.8 6.1 6.6 Toys 6.4 6.2 6.5 Health and beauty aids 5.9 7.7 5.7 Other 28.5 27.1 27.9 100.0 % 100.0 % 100.0 % (12) Quarterly Results of Operations and Seasonality (Unaudited) The following table reflects quarterly financial results for 2021 and 2020 (in thousands, except for per share data). Each quarterly period listed below consisted of a 13-week period. The sum of the four quarters for any given year may not equal annual totals due to rounding. 2021 2020 Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter Net sales $ 501,135 $ 383,487 $ 415,881 $ 452,492 $ 515,763 $ 414,382 $ 529,313 $ 349,363 Gross profit 183,041 152,560 163,035 182,610 204,657 171,501 206,842 140,366 Net income 44,727 23,185 34,323 55,220 64,660 45,197 99,383 33,456 Basic earnings per common share $ 0.71 $ 0.36 $ 0.53 $ 0.84 $ 0.99 $ 0.69 $ 1.53 $ 0.53 Diluted earnings per common share $ 0.71 $ 0.36 $ 0.52 $ 0.84 $ 0.98 $ 0.68 $ 1.50 $ 0.51 Beginning in the second quarter of 2020 through the first quarter of 2021, the Company’s financial results benefited from increased consumer spending associated with federal stimulus funds for the COVID- 19 pandemic. The Company’s business is seasonal in nature and demand is generally the highest in the fourth fiscal quarter due to the holiday sales season. To prepare for the holiday sales season, Ollie’s must order and keep in stock more merchandise than is carried during other times of the year and generally engage in additional marketing efforts. The Company expects inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in the third and fourth fiscal quarters in anticipation of increased net sales during the holiday sales season. As a result of this seasonality, and generally because of variation in consumer spending habits, the Company experiences fluctuations in net sales and working capital requirements during the year. 77 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (13) Transactions with Affiliated and Related Parties The Company has entered into five non-cancelable operating leases with related parties for office and store locations that expire at various dates through 2033. Ollie’s made $ 1.7 million, $ 1.7 million and $ 1.5 million in rent payments to such related parties during 2021, 2020 and 2019, respectively. The annual lease payments are $ 1.7 million for the next five years and the total remaining payments after the next five years are $ 4.5 million. These lease payments are included in the operating lease disclosures in Note 4 . During the fiscal year 2021, the Company purchased pallets totaling $ 0.2 million from a company affiliated with a member of its Board of Directors. Additionally, during 2021 the Company has sold damaged pallets to the aforementioned company totaling $ 0.1 million. (14) Subsequent Event In 2022, the Company plans to expand its York, PA distribution center by 200,000 square feet. In connection with this expansion, on March 7, 2022, the Company entered into a construction agreement totaling $ 12.3 million. 78 Index Schedule I - Condensed Financial Information of Registrant Ollie’s Bargain Outlet Holdings, Inc. (parent company only) Condensed Balance Sheets (In thousands) January 29, 2022 January 30, 2021 Assets Total current assets $ - $ - Long-term assets: Investment in subsidiaries 1,287,710 1,334,881 Total assets $ 1,287,710 $ 1,334,881 Liabilities and stockholders’ equity Total current liabilities $ - $ - Total long-term liabilities - - Total liabilities - - Stockholders’ equity: Common stock 67 66 Additional paid-in capital 664,293 648,949 Retained earnings 883,722 726,267 Treasury stock, at cost ( 260,372 ) ( 40,401 ) Total stockholders’ equity 1,287,710 1,334,881 Total liabilities and stockholders’ equity $ 1,287,710 $ 1,334,881 See accompanying notes. 79 Index Schedule I - Condensed Financial Information of Registrant Ollie’s Bargain Outlet Holdings, Inc. (parent company only) Condensed Statements of Income (In thousands) Fiscal year ended January 29, 2022 January 30, 2021 February 1, 2020 Net sales $ - $ - $ - Cost of sales - - - Gross profit - - - Selling, general and administrative expenses - - - Depreciation and amortization expenses - - - Pre-opening expenses - - - Operating income - - - Interest expense, net - - - Income before income taxes and equity in net income of subsidiaries - - - Income tax expense - - - Income before equity in net income of subsidiaries - - - Net income of subsidiaries 157,455 242,696 141,130 Net income $ 157,455 $ 242,696 $ 141,130 See accompanying notes. 80 Index Schedule I - Condensed Financial Information of Registrant Ollie’s Bargain Outlet Holdings, Inc. (parent company only) Notes to Condensed Financial Statements 1. Basis of presentation In the parent-company-only condensed financial statements, Ollie’s Bargain Outlet Holdings, Inc.’s (the “Company”) investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The parent-company-only condensed financial statements should be read in conjunction with the Company’s consolidated financial statements. A condensed statement of cash flows was not presented because Ollie’s Bargain Outlet Holdings, Inc. had no cash flow activities during 2021, 2020 or 2019. 2. Guarantees and restrictions On May 22, 2019, Ollie’s Bargain Outlet, Inc., a subsidiary of the Company, completed a transaction in which it refinanced its credit facility (the “Credit Facility”). The Credit Facility provides for a five-year $ 100.0 million revolving credit facility, which includes a $ 45.0 million sub-facility for letters of credit and a $ 25.0 million sub-facility for swingline loans (the “Revolving Credit Facility”). The loans under the Revolving Credit Facility mature on May 22, 2024 . In addition, Ollie’s Bargain Outlet, Inc. may at any time add term loan facilities or additional revolving commitments up to $ 150.0 million pursuant to the terms and conditions set out in the Credit Facility. Under the terms of the Credit Facility, Bargain Parent, Inc., a subsidiary of the Company, guaranteed the payment of all principal and interest. In the event of a default under the Credit Facility, Bargain Parent, Inc. will be directly liable to the debt holders . As of January 29, 2022 , Ollie’s Bargain Outlet, Inc. had $ 84.7 million available for borrowing under its Revolving Credit Facility. The Credit Facility is collateralized by the Company’s assets and equity and contains a financial covenant, as well as certain business covenants, including restrictions on dividend payments, which the Company must comply with during the term of the agreement. The Company was in compliance with all terms of the agreement during and as of the fiscal year ended January 29, 2022. The provisions of the Credit Facility restrict all of the net assets of the Company’s consolidated subsidiaries, which constitutes all of the net assets on the Company’s consolidated balance sheet as of January 29, 2022 , from being used to pay any dividends or make other restricted payments without prior written consent from the lenders under the Credit Facility, subject to certain exceptions. 81 Index Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.