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 ) 49 Consolidated Financial Statements: Consolidated Statements of Income for the fiscal years ended January 28, 2023, January 29, 2022, and January 30, 2021 50 Consolidated Balance Sheets as of January 28, 2023 and January 29, 2022 51 Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 28, 2023, January 29, 2022, and January 30, 2021 52 Consolidated Statements of Cash Flows for the fiscal years ended January 28, 2023, January 29, 2022, and January 30, 2021 53 Notes to Consolidated Financial Statements 54 Schedule I – Condensed Financial Information of Registrant 70 48 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 W e have audited the accompanying consolidated balance sheets of Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (the Company) as of January 28, 2023 and January 29, 2022, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended January 28, 2023, 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 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended January 28, 2023, 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 28, 2023, 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 24, 2023 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. 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 28, 2023, the Company’s inventory balance was $470.5 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. Harrisburg, Pennsylvania March 24, 2023 49 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share amounts) Fiscal year ended January 28 , January 29 , January 30 , 2023 2022 2021 Net sales $ 1,827,009 $ 1,752,995 $ 1,808,821 Cost of sales 1,170,915 1,071,749 1,085,455 Gross profit 656,094 681,246 723,366 Selling, general, and administrative expenses 490,569 447,615 418,889 Depreciation and amortization expenses 22,907 19,364 16,705 Pre-opening expenses 11,700 9,675 10,272 Operating income 130,918 204,592 277,500 Interest (income) expense, net ( 2,965 ) 209 ( 278 ) Income before income taxes 133,883 204,383 277,778 Income tax expense 31,093 46,928 35,082 Net income $ 102,790 $ 157,455 $ 242,696 Earnings per common share: Basic $ 1.64 $ 2.44 $ 3.75 Diluted $ 1.64 $ 2.43 $ 3.68 Weighted average common shares outstanding: Basic 62,495 64,447 64,748 Diluted 62,704 64,878 65,873 See accompanying notes to the consolidated financial statements. 50 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share amounts) January 28, January 29, Assets 2023 2022 Current assets: Cash and cash equivalents $ 210,596 $ 246,977 Short-term investments 60,165 - Inventories 470,534 467,306 Accounts receivable 2,374 1,372 Prepaid expenses and other assets 10,627 11,173 Total current assets 754,296 726,828 Property and equipment, net 175,947 147,164 Operating lease right-of-use assets 436,326 420,568 Goodwill 444,850 444,850 Trade name 230,559 230,559 Other assets 2,118 2,203 Total assets $ 2,044,096 $ 1,972,172 Liabilities and Stockholders’ Equity Current liabilities: Current portion of long-term debt $ 430 $ 332 Accounts payable 90,204 106,599 Income taxes payable 3,056 2,556 Current portion of operating lease liabilities 88,636 75,535 Accrued expenses and other 76,959 78,246 Total current liabilities 259,285 263,268 Revolving credit facility - - Long-term debt 858 719 Deferred income taxes 70,632 66,179 Long-term operating lease liabilities 351,251 354,293 Other long-term liabilities 1 3 Total liabilities 682,027 684,462 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; 66,672 and 66,516 shares issued, respectively 67 67 Additional paid-in capital 677,694 664,293 Retained earnings 986,512 883,722 Treasury - common stock, at cost; 4,664 and 3,816 shares, respectively ( 302,204 ) ( 260,372 ) Total stockholders’ equity 1,362,069 1,287,710 Total liabilities and stockholders’ equity $ 2,044,096 $ 1,972,172 See accompanying notes to the consolidated financial statements. 51 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (In thousands) Common stock Treasury stock Additional paid-in capital Retained earnings Total stockholders’ equity Shares Amount Shares Amount 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 Stock-based compensation expense - - - - 9,951 - 9,951 Proceeds from stock options exercised 119 - - - 4,032 - 4,032 Vesting of restricted stock 50 - - - - - - Common shares withheld for taxes ( 13 ) - - - ( 582 ) - ( 582 ) Shares repurchased - - ( 848 ) ( 41,832 ) - - ( 41,832 ) Net income - - - - - 102,790 102,790 Balance as of January 28 , 2023 66,672 $ 67 ( 4,664 ) $ ( 302,204 ) $ 677,694 $ 986,512 $ 1,362,069 See accompanying notes to the consolidated financial statements. 52 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) Fiscal year ended January 28, January 29, January 30, 2023 2022 2021 Cash Flows from Operating Activities: Net income $ 102,790 $ 157,455 $ 242,696 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 28,689 24,894 22,465 Amortization of debt issuance costs 256 256 256 Gain on sale of assets ( 325 ) ( 213 ) ( 2 ) Deferred income tax provision 4,453 1,115 5,663 Stock-based compensation expense 9,951 8,042 6,501 Changes in operating assets and liabilities: Inventories ( 3,228 ) ( 113,602 ) ( 18,523 ) Accounts receivable ( 1,002 ) ( 751 ) 2,219 Prepaid expenses and other assets 375 ( 3,895 ) ( 1,849 ) Accounts payable ( 20,379 ) ( 11,116 ) 55,574 Income taxes payable 500 ( 8,404 ) 7,054 Accrued expenses and other liabilities ( 7,734 ) ( 8,748 ) 39,200 Net cash provided by operating activities 114,346 45,033 361,254 Cash Flows from Investing Activities: Purchases of property and equipment ( 51,667 ) ( 34,989 ) ( 30,525 ) Proceeds from sale of property and equipment 378 3,159 122 Purchases of short-term investments ( 60,165 ) - - Purchase of intangible asset - - ( 45 ) Net cash used in investing activities ( 111,454 ) ( 31,830 ) ( 30,448 ) Cash Flows from Financing Activities: Repayments on finance leases ( 891 ) ( 684 ) ( 429 ) Proceeds from stock option exercises 4,032 8,635 28,061 Common shares withheld for taxes ( 582 ) ( 1,332 ) ( 961 ) Payment for shares repurchased ( 41,832 ) ( 219,971 ) ( 301 ) Net cash (used in) provided by financing activities ( 39,273 ) ( 213,352 ) 26,370 Net (decrease) increase in cash and cash equivalents ( 36,381 ) ( 200,149 ) 357,176 Cash and cash equivalents, beginning of the period 246,977 447,126 89,950 Cash and cash equivalents, end of the period $ 210,596 $ 246,977 $ 447,126 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 343 $ 358 $ 324 Income taxes $ 26,566 $ 54,690 $ 22,047 Non-cash investing activities: Accrued purchases of property and equipment $ 7,918 $ 3,189 $ 2,636 See accompanying notes to the consolidated financial statements. 53 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Basis of Presentation 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, distributors, brokers, 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 468 retail locations in 29 states as of January 28, 2023. 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 to January 31 st of the following calendar year. References to the fiscal year ended January 28, 2023 refer to the 52-week period from January 30, 2022 to January 28, 2023 (“2022”). 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”). (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. 54 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (e) Cash, Cash Equivalents, and Short-term Investments The Company considers cash on hand in stores, bank deposits, credit card receivables, and all highly liquid investments such as money market funds, treasury bonds and municipal bonds with remaining maturities of three months or less at the date of acquisition to be cash and cash equivalents. Investments with maturities greater than three months, but less than 1 year at the date of acquisition are classified as short-term investments. Amounts receivable from credit card issuers are typically converted to cash within one to two business days of the original sales transaction. (f) 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 unobservable , developed using the Company’s estimates and assumptions , which reflect those that market participants would use. Ollie’s financial instruments consist of cash and cash equivalents, investment securities, accounts receivable, accounts payable and the Company’s credit facilities. The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable and accounts payable are representative of their respective fair value because of their short-term nature. 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. Under the fair value hierarchy, the fair market values of cash equivalents and the investments in treasury bonds are Level 1 while the investments in municipal bonds are Level 2. Since quoted prices in active markets for identical assets are not available, these prices are determined by the third-party pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities. As of January 28, 2023, the Company’s investment securities are classified as held-to-maturity since the Company has the intent and ability to hold the investments to maturity. Such securities are carried at amortized cost plus accrued interest and consist of the following: As of January 28, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Market Value (in thousands) Short-term: Treasury Bonds $ 55,274 $ - $ ( 83 ) $ 55,191 Municipal bonds 4,891 - ( 8 ) 4,883 Total $ 60,165 $ - $ ( 91 ) $ 60,074 Investment securities as of January 28, 2023 all mature in one year or less. (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. 55 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (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 (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. 56 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 2022, 2021 and 2020, 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 2022, 2021 and 2020, 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. (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. 57 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (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 2022, 2021 and 2020 was $ 62.4 million, $ 52.2 million and $ 41.4 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 ASC 842, Leases (Topic 842). 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. (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) 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. 58 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (s) 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. (t) 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: Fiscal year ended January 28, January 29, January 30, 2023 2022 2021 Weighted average number of common shares outstanding – Basic 62,495 64,447 64,748 Incremental shares from the assumed exercise of outstanding stock options and vesting of restricted stock units 209 431 1,125 Weighted average number of common shares outstanding – Diluted 62,704 64,878 65,873 The effect of the weighted average assumed exercise of stock options outstanding totaling 858,413 , 425,718 , and 322,238 as of January 28, 2023, January 29, 2022, and January 30, 2021 , 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 39,342 , 22,546 , and 12,047 as of January 28, 2023, January 29, 2022, and January 30, 2021 , respectively , were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive. 59 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: Fiscal year ended January 28, January 29, January 30 , 2023 2022 2021 (in thousands) Beginning balance $ 7,782 $ 8,113 $ 8,254 Revenue deferred 14,446 15,290 17,813 Revenue recognized ( 14,098 ) ( 15,621 ) ( 17,954 ) Ending balance $ 8,130 $ 7,782 $ 8,113 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: Fiscal year ended January 28, January 29, January 30 , 2023 2022 2021 (in thousands) Beginning balance $ 2,291 $ 1,902 $ 1,679 Gift card issuances 4,948 5,433 4,906 Gift card redemption and breakage ( 4,712 ) ( 5,044 ) ( 4,683 ) Ending balance $ 2,527 $ 2,291 $ 1,902 60 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: Fiscal year ended January 28, January 29, January 30, 2023 2022 2021 (in thousands) Beginning balance $ 1,101 $ 1,060 $ 1,060 Provisions 56,989 54,475 52,472 Sales returns ( 56,920 ) ( 54,434 ) ( 52,472 ) Ending balance $ 1,170 $ 1,101 $ 1,060 (3) Property and Equipment Property and equipment consists of the following: January 28, 2023 January 29, 2022 (in thousands) Land $ 7,942 $ 7,942 Buildings 34,608 34,608 Furniture, fixtures and equipment 224,999 184,050 Leasehold improvements 55,945 40,858 Automobiles 2,839 2,338 326,333 269,796 Less: Accumulated depreciation and amortization ( 150,386 ) ( 122,632 ) $ 175,947 $ 147,164 Depreciation and amortization expense of property and equipment was $ 28.7 million, $ 24.9 million, and $ 22.5 million in 2022, 2021, and 2020, respectively , of which $ 22.9 million, $ 19.4 million, and $ 16.7 million is included in the depreciation and amortization expenses in 2022, 2021, and 2020, 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) Leases Effective February 3, 2019, the Company accounts for its leases under ASC 842, Leases (Topic 842). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease, if available. 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. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred. 61 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company does not act as a lessor. Ollie’s generally leases its stores, offices, and distribution facilities under operating leases that expire at various dates through 2035. These leases generally provide for fixed annual rentals. 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 ASC 842, is charged to the related expense category rather than being accounted for as rent expense. For leases entered into after the adoption of ASC 842, 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 28, 2023: January 28, 2023 (in thousands) 2023 $ 94,286 2024 89,568 2025 72,128 2026 65,433 2027 53,411 Thereafter 116,575 Total undiscounted lease payments (1) 491,401 Less: Imputed interest ( 51,514 ) Total lease obligations 439,887 Less: Current obligations under leases ( 88,636 ) Long-term lease obligations $ 351,251 (1) Lease obligations exclude $ 45.5 million of minimum lease payments for leases signed, but not commenced. 62 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table summarizes other information related to the Company’s operating leases as of and for the respective periods: Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 (dollars in thousands) Cash paid for operating leases $ 94,909 $ 85,923 $ 70,829 Operating lease cost 95,176 86,516 77,843 Variable lease cost 10,512 7,848 5,494 Non-cash right-of-use assets obtained in exchange for lease obligations 54,705 59,696 63,670 Weighted-average remaining lease term 6.4 years 6.6 years 6.7 years Weighted-average discount rate 3.4 % 3.4 % 4.1 % (5) Commitments and Contingencies 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. (6) Accrued Expenses Accrued expenses consist of the following: January 28, 2023 January 29, 2022 (in thousands) Compensation and benefits $ 14,751 $ 19,270 Deferred revenue 10,657 10,073 Insurance 9,141 9,626 Advertising 6,582 8,531 Sales and use taxes 6,567 5,968 Real estate related 6,283 7,234 Freight 2,641 2,073 Other 20,337 15,471 $ 76,959 $ 78,246 (7) Debt Obligations and Financing Arrangements Long-term debt consists of finance leases . The Company’s 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. 63 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As a result of the anticipated discontinuation of LIBOR in 2023, on January 24, 2023, the Company amended its Credit Facility to replace the LIBOR-based interest rates included therein with SOFR-based interest rates and to modify the provisions for determining an alternative rate of interest upon the occurrence of certain events relating to the availability of interest rate benchmarks. The interest rates for the Credit Facility are calculated as follows: for ABR Loans, the highest of the Prime Rate, the Federal Funds Effective Rate plus 0.50 % and Term SOFR with a term of one-month in effect on such day plus the SOFR Spread Adjustment plus 1.0 %, plus the Applicable Margin, or, for SOFR Loans, the SOFR Loan Rate plus the Applicable Margin plus the SOFR Spread Adjustment. The Applicable Margin will vary from 0.00 % to 0.50 % for an ABR Loan and 1.00 % to 1.50 % for a SOFR Loan, based on availability under the Credit Facility. The SOFR Loan Rate is subject to a 0 % floor. Under the terms of the Revolving Credit Facility, as of January 28, 2023, 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 28, 2023, the Company had no outstanding borrowings under the Revolving Credit Facility, with $ 87.0 million of borrowing availability, outstanding letters of credit commitments of $ 12.8 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 in each of the years ended 2022, 2021 and 2020. 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 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 28, 2023, 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. (8) Income Taxes The components of income tax provision (benefit) are as follows: Fiscal year ended January 28, 2023 January 29, 2022 January 30, 2021 (in thousands) Current: Federal $ 20,541 $ 35,657 $ 22,045 State 6,099 10,156 7,374 26,640 45,813 29,419 Deferred: Federal 5,588 802 5,866 State ( 1,135 ) 313 ( 203 ) 4,453 1,115 5,663 Income tax expense $ 31,093 $ 46,928 $ 35,082 64 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 28, 2023 January 29, 2022 January 30, 2021 Statutory federal rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 2.9 4.1 2.0 Excess tax benefits related to stock-based compensation ( 0.2 ) ( 1.7 ) ( 10.2 ) Other ( 0.5 ) ( 0.4 ) ( 0.2 ) 23.2 % 23.0 % 12.6 % 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 : January 28, 2023 January 29, 2022 (in thousands) Deferred tax assets: Inventory reserves $ 732 $ 990 Lease liability 110,100 110,465 Stock-based compensation 4,448 3,446 Deferred revenue 2,034 1,999 Other 3,370 5,450 Total deferred tax assets 120,684 122,350 Deferred tax liabilities: Tradename ( 57,664 ) ( 59,214 ) Depreciation ( 24,485 ) ( 21,245 ) Operating lease right-of-use assets ( 109,167 ) ( 108,070 ) Total deferred tax liabilities ( 191,316 ) ( 188,529 ) Net deferred tax liabilities $ ( 70,632 ) $ ( 66,179 ) 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 28, 2023 and January 29, 2022 . 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 28, 2023 or January 29, 2022, 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 2022, 2021 or 2020 . 65 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (9) 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, no additional equity grants will be made under the 2012 Plan. In connection with its initial public offering, 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 28, 2023, there were 2,225,974 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 2020, 2021 and 2022: Number of options Weighted average exercise price Weighted average remaining contractual term (years) Aggregate intrinsic value (in thousands, except share and per share amounts) 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 Granted 328,938 43.97 Forfeited ( 110,295 ) 59.60 Exercised ( 118,707 ) 33.97 Outstanding at January 28 , 2023 1,209,251 53.92 7.1 $ 11,255 Exercisable at January 28 , 2023 509,073 51.00 5.6 $ 6,148 66 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 2022, 2021 and 2020 was $ 3.5 million, $ 17.0 million and $ 145.3 million, respectively. The weighted average grant date fair value per option for options granted during 2022, 2021 and 2020 was $ 20.62 , $ 33.38 , and $ 13.27 , 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 28, 2023 January 29, 2022 January 30, 2021 Risk-free interest rate 2.63 % 1.33 % 0.76 % Expected dividend yield — — — Expected life (years) 6.25 years 6.25 years 6.25 years Expected volatility 44.40 % 38.39 % 30.52 % 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 expected volatility, the Company uses its historical information over the expected life of the option granted 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 the closing price of the Company’s common stock on the date of 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 2020, 2021 and 2022 is as follows: Weighted average Number grant date of shares fair value 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 Granted 235,754 44.04 Forfeited ( 35,457 ) 51.49 Vested ( 49,502 ) 67.33 Nonvested balance at January 28, 2023 276,278 50.32 67 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 $ 10.0 million, $ 8.0 million and $ 6.5 million for 2022, 2021 and 2020, respectively. As of January 28, 2023, there was $ 20.5 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. (10) 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 $ 0.3 million for 2022, and $ 0.2 million in each of the years ended 2021 and 2020, respectively. 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 2022, 2021 or 2020. (11) 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 December 15, 2020, the Board of Directors of the Company authorized the repurchase of up to $ 100.0 million of shares of the Company’s common stock. On March 16, 2021, the Board of Directors of the Company authorized an increase of $ 100.0 million in the Company’s share repurchase program. Both of these authorizations were authorized to be executed through January 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 time. 68 Index OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements During 2022, the Company repurchased 848,133 shares of its common stock for $ 41.8 million, inclusive of transaction costs, pursuant to its share repurchase program. During 2021, the Company repurchased 3,113,981 shares of its common stock for $ 220.0 million, inclusive of transaction costs, and during 2020, it repurchased 3,885 shares of its common stock for $ 0.3 million, inclusive of transaction costs. These expenditures were funded by cash on hand. As of January 28, 2023, the Company had $ 138.2 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. (12) 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 each product group for each year presented: Fiscal Year Ended 2022 2021 2020 (in thousands) Consumables $ 395,542 21.6 % $ 347,432 19.8 % $ 379,322 21.0 % Home 699,351 38.3 % 696,689 39.8 % 738,118 40.8 % Seasonal 325,148 17.8 % 317,113 18.1 % 313,863 17.4 % Other 406,968 22.3 % 391,761 22.3 % 377,518 20.8 % Total 1,827,009 100.0 % 1,752,995 100.0 % 1,808,821 100.0 % (13) Transactions with Affiliated and Related Parties During fiscal year 2022, the Company purchased excess inventory of $ 0.8 million from a subsidiary of Hillman Solutions, Inc. where John Swygert, President and Chief Executive Officer of Ollie’s, is a member of its Board of Directors. There were no purchases made from Hillman Solutions, Inc. or any of its subsidiaries in fiscal year 2021. During 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 Events The Company is scheduled to close on the purchase of a parcel of land in Princeton, Illinois on or about March 27, 2023, for its fourth distribution center and has entered into an agreement for the construction of its fourth distribution center. 69 Index Schedule I - Condensed Financial Information of Registrant Ollie’s Bargain Outlet Holdings, Inc. (parent company only) Condensed Balance Sheets (In thousands) January 28, 2023 January 29, 2022 Assets Total current assets $ - $ - Long-term assets: Investment in subsidiaries 1,362,069 1,287,710 Total assets $ 1,362,069 $ 1,287,710 Liabilities and stockholders’ equity Total current liabilities $ - $ - Total long-term liabilities - - Total liabilities - - Stockholders’ equity: Common stock 67 67 Additional paid-in capital 677,694 664,293 Retained earnings 986,512 883,722 Treasury stock, at cost ( 302,204 ) ( 260,372 ) Total stockholders’ equity 1,362,069 1,287,710 Total liabilities and stockholders’ equity $ 1,362,069 $ 1,287,710 See accompanying notes. 70 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 28, 2023 January 29, 2022 January 30, 2021 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 102,790 157,455 242,696 Net income $ 102,790 $ 157,455 $ 242,696 See accompanying notes. 71 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 2022, 2021 or 2020. 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 28, 2023 , Ollie’s Bargain Outlet, Inc. had $ 87.0 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 28, 2023. 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 28, 2023 , 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. 72 Index Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.