SEC Filing | Bed Bath & Beyond

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bbby-20221126

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended November 26, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from ________ to ________

Commission File Number 0-20214

BED BATH & BEYOND INC.

(Exact name of registrant as specified in its charter)


New York						11-2250488
(State of incorporation)						(IRS Employer Identification No.)

650 Liberty Avenue, Union, New Jersey 07083

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (908) 688-0888

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, $.01 par value	BBBY	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares outstanding of the issuer's Common Stock:


Class						Outstanding at November 26, 2022
Common Stock - $0.01 par value						117,321,914

Table of Contents

BED BATH & BEYOND INC. AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Consolidated Balance Sheets as of November 26, 2022 and February 26, 2022

Consolidated Statements of Operations for the three and nine months ended November 26, 2022 and November 27, 2021

Consolidated Statements of Comprehensive Loss for the three and nine months ended November 26, 2022 and November 27, 2021

Consolidated Statements of Shareholders' (Deficit) Equity for the three and nine months ended November 26, 2022 and November 27, 2021

Consolidated Statements of Cash Flows for th e nine months ended November 26, 2022 and November 27, 2021

Notes to Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II - OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)


	November 26, 2022		February 26, 2022
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	153,521	$	439,496
Merchandise inventories	1,436,150		1,725,410
Prepaid expenses and other current assets	288,503		198,248
Total current assets	1,878,174		2,363,154
Long-term investment securities	21,451		19,212
Property and equipment, net	1,050,526		1,027,387
Operating lease assets	1,321,665		1,562,857
Other assets	129,610		157,962
Total assets	$	4,401,426	$	5,130,572

Liabilities and Shareholders' (Deficit) Equity
Current liabilities:
Current portion of long-term debt	$	909,303	$	—
Accounts payable	697,889		872,445
Accrued expenses and other current liabilities	356,482		529,371
Merchandise credit and gift card liabilities	295,197		326,465
Current operating lease liabilities	313,368		346,506


Total current liabilities	2,572,239		2,074,787
Other liabilities	119,907		102,438
Operating lease liabilities	1,388,484		1,508,002
Income taxes payable	93,386		91,424
Long-term debt	1,026,053		1,179,776
Total liabilities	5,200,069		4,956,427

Shareholders' (deficit) equity:
Preferred stock - $0.01 par value; authorized - 1,000 shares; no shares issued or outstanding	—		—
Common stock - $0.01 par value; authorized - 900,000 shares; issued 382,339 and 344,146, respectively; outstanding 117,322 and 81,979 shares, respectively	3,823		3,441
Additional paid-in capital	2,427,739		2,235,894
Retained earnings	8,549,536		9,666,091
Treasury stock, at cost; 265,017 and 262,167 shares, respectively	(11,731,194)		(11,685,267)
Accumulated other comprehensive loss	(48,547)		(46,014)

Total shareholders' (deficit) equity	(798,643)		174,145

Total liabilities and shareholders' (deficit) equity	$	4,401,426	$	5,130,572

See accompanying Notes to Consolidated Financial Statements.

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	November 26, 2022		November 27, 2021		November 26, 2022		November 27, 2021
Net sales	$	1,259,112	$	1,877,874	$	4,159,548	$	5,816,382

Cost of sales	980,249		1,208,954		3,133,111		3,912,699

Gross profit	278,863		668,920		1,026,437		1,903,683

Selling, general and administrative expenses	583,588		697,953		1,855,973		2,009,687

Impairments	100,724		1,759		182,941		18,472

Restructuring and transformation initiative expenses	45,484		41,219		123,816		99,400

Loss on sale of businesses	—		14,100		—		18,221

Operating loss	(450,933)		(86,111)		(1,136,293)		(242,097)

Interest expense, net	33,527		15,772		68,578		47,893

(Gain) loss on extinguishment of debt	(94,380)		—		(94,380)		376

Loss before provision for income taxes	(390,080)		(101,883)		(1,110,491)		(290,366)

Provision for income taxes	2,886		174,546		6,300		110,152

Net loss	$	(392,966)	$	(276,429)	$	(1,116,791)	$	(400,518)

Net loss per share - Basic	$	(4.33)	$	(2.78)	$	(13.40)	$	(3.90)
Net loss per share - Diluted	$	(4.33)	$	(2.78)	$	(13.40)	$	(3.90)

Weighted average shares outstanding - Basic	90,708		99,591		83,342		102,772
Weighted average shares outstanding - Diluted	90,708		99,591		83,342		102,772

See accompanying Notes to Consolidated Financial Statements.

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Loss

(in thousands, unaudited)


	Three Months Ended				Nine Months Ended
	November 26, 2022		November 27, 2021		November 26, 2022		November 27, 2021
Net loss	$	(392,966)	$	(276,429)	$	(1,116,791)	$	(400,518)

Other comprehensive (loss) income:
Change in temporary impairment of auction rate securities, net of tax	1,092		(186)		1,659		(226)
Pension adjustment, net of tax	—		(1,786)		—		(1,562)
Reclassification adjustment on settlement of pension plan, net of tax	—		9,938		—		9,938
Currency translation adjustment	(1,642)		(2,383)		(4,192)		(246)
Other comprehensive (loss) income	(550)		5,583		(2,533)		7,904

Comprehensive loss	$	(393,516)	$	(270,846)	$	(1,119,324)	$	(392,614)

See accompanying Notes to Consolidated Financial Statements.

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' (Deficit) Equity

(in thousands, unaudited)


	Three Months Ended November 26, 2022
	Common Stock			Additional Paid- in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss		Total
	Shares	Amount						Shares	Amount
Balance at August 27, 2022	345,053	$	3,450	$	2,253,039	$	8,942,368	(264,691)	$	(11,728,514)	$	(47,997)	$	(577,654)
Net loss	—	—		—		(392,966)		—	—		—		(392,966)
Other comprehensive (loss) income, net of tax	—	—		—		—		—	—		(550)		(550)
Dividends forfeited	—	—		—		134		—	—		—		134
Issuance of restricted shares, net	(65)	(1)		1		—		—	—		—		—
Vesting of restricted stock units	496	5		(5)		—		—	—		—		—
Payment and vesting of performance stock units	177	2		(2)		—		—	—		—		—
Stock-based compensation expense, net	—	—		2,502		—		—	—		—		2,502
Accelerated share repurchase program	—	—		—		—		—	—		—		—
Director fees paid in stock	—	—		—		—		—	—		—		—
Issuance of common stock and At-the-Market offering, net of offering costs	36,678	367		172,204		—		—	—		—		172,571
Repurchase of common stock, including fees	—	—		—		—		(326)	(2,680)		—		(2,680)
Balance at November 26, 2022	382,339	$	3,823	$	2,427,739	$	8,549,536	(265,017)	$	(11,731,194)	$	(48,547)	$	(798,643)


	Nine Months Ended November 26, 2022
	Common Stock			Additional Paid- in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss		Total
	Shares	Amount						Shares	Amount
Balance at February 26, 2022	344,146	$	3,441	$	2,235,894	$	9,666,091	(262,167)	$	(11,685,267)	$	(46,014)	$	174,145
Net loss	—	—		—		(1,116,791)		—	—		—		(1,116,791)
Other comprehensive (loss) income, net of tax	—	—		—		—		—	—		(2,533)		(2,533)
Dividends forfeited	—	—		—		236		—	—		—		236
Issuance of restricted shares, net	264	2		(2)		—		—	—		—		—
Vesting of restricted stock units	1,063	11		(11)		—		—	—		—		—
Payment and vesting of performance stock units	177	2		(2)		—		—	—		—		—
Stock-based compensation expense, net	—	—		19,511		—		—	—		—		19,511
Accelerated share repurchase program	—	—		—		—		—	—		—		—
Director fees paid in stock	11	—		145		—		—	—		—		145
Issuance of common stock and At-the-Market offering, net of offering costs	36,678	367		172,204		—		—	—		—		172,571
Repurchase of common stock, including fees	—	—		—		—		(2,850)	(45,927)		—		(45,927)
Balance at November 26, 2022	382,339	$	3,823	$	2,427,739	$	8,549,536	(265,017)	$	(11,731,194)	$	(48,547)	$	(798,643)

See accompanying Notes to Consolidated Financial Statements.

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' (Deficit) Equity

(in thousands, unaudited)


	Three Months Ended November 27, 2021
	Common Stock			Additional Paid- in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss		Total
	Shares	Amount						Shares	Amount
Balance at August 28, 2021	343,596	$	3,436	$	2,218,400	$	10,101,522	(242,536)	$	(11,335,845)	$	(53,279)	$	934,234
Net loss	—	—		—		(276,429)		—	—		—		(276,429)
Other comprehensive (loss) income, net of tax	—	—		—		—		—	—		5,583		5,583
Dividends forfeited	—	—		—		63		—	—		—		63
Issuance of restricted shares, net	270	2		(2)		—		—	—		—		—
Vesting of restricted stock units	—	—		—		—		—	—		—		—
Payment and vesting of performance stock units	274	3		(3)		—		—	—		—		—
Stock-based compensation expense, net	—	—		9,074		—		—	—		—		9,074
Accelerated share repurchase program	—	—		—		—		—	—		—		—
Director fees paid in stock	—	—		—		—		—	—		—		—
Issuance of common stock and At-the-Market offering, net of offering costs	—	—		—		—		—	—		—		—
Repurchase of common stock, including fees	—	—		—		—		(5,266)	(118,912)		—		(118,912)
Balance at November 27, 2021	344,140	$	3,441	$	2,227,469	$	9,825,156	(247,802)	$	(11,454,757)	$	(47,696)	$	553,613


	Nine Months Ended November 27, 2021
	Common Stock			Additional Paid- in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss		Total
	Shares	Amount						Shares	Amount
Balance at February 27, 2021	343,241	$	3,432	$	2,152,135	$	10,225,253	(233,620)	$	(11,048,284)	$	(55,600)	$	1,276,936
Net loss	—	—		—		(400,518)		—	—		—		(400,518)
Other comprehensive (loss) income, net of tax	—	—		—		—		—	—		7,904		7,904
Dividends forfeited	—	—		—		421		—	—		—		421
Issuance of restricted shares, net	618	6		(6)		—		—	—		—		—
Vesting of restricted stock units	—	—		—		—		—	—		—		—
Payment and vesting of performance stock units	274	3		(3)		—		—	—		—		—
Stock-based compensation expense, net	—	—		27,655		—		—	—		—		27,655
Accelerated share repurchase program	—	—		47,550		—		(200)	(47,550)		—		—
Director fees paid in stock	7	—		138		—		—	—		—		138
Issuance of common stock and At-the-Market offering, net of offering costs	—	—		—		—		—	—		—		—
Repurchase of common stock, including fees	—	—		—		—		(13,982)	(358,923)		—		(358,923)
Balance at November 27, 2021	344,140	$	3,441	$	2,227,469	$	9,825,156	(247,802)	$	(11,454,757)	$	(47,696)	$	553,613

See accompanying Notes to Consolidated Financial Statements.

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands, unaudited)


	Nine Months Ended
	November 26, 2022		November 27, 2021
Cash Flows from Operating Activities:
Net loss	$	(1,116,791)	$	(400,518)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	231,019		214,742
Impairments	182,941		18,472
Stock-based compensation	18,746		26,875
Deferred income taxes	—		126,437
Loss on sale of businesses	—		18,221

(Gain) loss on debt extinguishment	(94,380)		376
Other	3,511		(7,516)
Decrease (increase) in assets:
Merchandise inventories	284,984		(240,522)
Other current assets	(34,512)		60,582
Other assets	6,059		(82)
(Decrease) increase in liabilities:
Accounts payable	(128,792)		(72,408)
Accrued expenses and other current liabilities	(156,075)		20,385
Merchandise credit and gift card liabilities	(30,724)		1,551
Income taxes payable	2,300		(1,160)
Operating lease assets and liabilities, net	(52,657)		(16,707)
Other liabilities	(5,642)		(13,468)
Net cash used in operating activities	(890,013)		(264,740)

Cash Flows from Investing Activities:
Purchases of held-to-maturity investment securities	—		(29,997)
Redemption of held-to-maturity investment securities	—		30,000

Net proceeds from sale of property	—		5,000
Capital expenditures	(322,094)		(232,470)
Net cash used in investing activities	(322,094)		(227,467)

Cash Flows from Financing Activities:
Borrowings of long-term debt	1,225,000		—
Repayments of long-term debt	(300,000)		(11,355)
Repayments of finance leases	(1,849)		—

Repurchase of common stock, including fees	(45,927)		(358,923)
Issuance of common stock and At-the-Market offering, net of offering costs	118,975		—
Payment of dividends	(329)		(767)
Payment of Exchange Offer costs	(7,992)		—
Payment of deferred financing fees	(19,479)		(3,443)
Net cash provided by (used in) financing activities	968,399		(374,488)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,517)		(88)



Net decrease in cash, cash equivalents and restricted cash	(245,225)		(866,783)

Cash, cash equivalents and restricted cash:
Beginning of period	470,884		1,407,224
End of period	$	225,659	$	540,441

See accompanying Notes to Consolidated Financial Statements.

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

1) BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared without audit. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals and elimination of intercompany balances and transactions) necessary to present fairly the financial position of Bed Bath & Beyond Inc. and subsidiaries (the "Company") as of November 26, 2022 and February 26, 2022 (audited) and the results of its operations, shareholders' (deficit) equity, and comprehensive loss for the three and nine months ended November 26, 2022 and November 27, 2021 and its cash flows for the nine months ended November 26, 2022 and November 27, 2021.

The accompanying unaudited consolidated financial statements are presented in accordance with the requirements for Form 10-Q and consequently do not include all the disclosures normally required by U.S. generally accepted accounting principles ("GAAP"). Reference should be made to the Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2022 for additional disclosures, including a summary of the Company’s significant accounting policies, and to subsequently filed Form 8-Ks.

We account for our operations as one North American Retail reporting segment. Net sales outside of the U.S. for the Company were not material for the three and nine months ended November 26, 2022 and November 27, 2021. As the Company operates in the retail industry, its results of operations are affected by general economic conditions and consumer spending habits.

2) LIQUIDITY AND GOING CONCERN

The Company’s net cash used in operating activities was $307.6 million and $890.0 million for the three and nine months ended November 26, 2022. Cash, cash equivalents and restricted cash were $225.7 million as of November 26, 2022. On or around January 13, 2023, certain events of default were triggered under the Company’s Credit Facilities (as defined below) as a result of the Company’s failure to prepay an overadvance and satisfy a financial covenant, among other things. As a result of the continuance of such events of default, on January 25, 2023, the administrative agent under the Amended Credit Agreement notified the Company that (i) the principal amount of all outstanding loans under the Credit Facilities, together with accrued interest thereon, the FILO Applicable Premium (as defined in the Amended Credit Agreement) and all fees (including, for the avoidance of doubt, any break funding payments) and other obligations of the Company accrued under the Amended Credit Agreement, are due and payable immediately, (ii) the Company is required, effective immediately, to cash collateralize letter of credit obligations under the Credit Facilities, and (iii) effective as of January 25, 2023, all outstanding loans and obligations under the Credit Facilities shall bear interest at an additional default rate of 2% per annum. As a result of these events of default, the Company classified its outstanding borrowings under its asset-based revolving credit facility (the “ABL Facility) and its FILO Facility as current in the consolidated balance sheet as of November 26, 2022. The Company’s outstanding borrowings under its ABL Facility and FILO Facility were $550.0 million and $375.0 million, respectively, as of November 26, 2022. In addition, the Company had $186.2 million in letters of credit outstanding under its ABL Facility as of November 26, 2022. The Company also had $1.030 billion in senior notes (excluding deferred financing costs) outstanding as of November 26, 2022. For information regarding the Company’s borrowings, see Note 12.

At this time, the Company does not have sufficient resources to repay the amounts under the Credit Facilities and this will lead the Company to consider all strategic alternatives, including restructuring its debt under the U.S. Bankruptcy Code. The Company is undertaking a number of actions in order to improve its financial position and stabilize its results of operations including but not limited to, cost cutting, lowering capital expenditures, and reducing its store footprint including related distribution centers. In addition, the Company will continue to seek reductions in rental obligations with landlords in its determination of the appropriate footprint, seek additional debt or equity capital, reduce or delay the Company's business activities and strategic initiatives, or sell assets. These measures may not be successful.

The Company's key drivers of cash flows are sales, management of inventory levels, vendor payment terms, and capital expenditures. Macro and micro economic challenges increased since the end of the second quarter of fiscal 2022 causing an acceleration of vendor payment terms and credit line constraints. This led to lower inventory receipts than anticipated in the third quarter of fiscal 2022, resulting in lower than required stock levels ahead of the holiday selling season. Additionally, certain service providers and vendors required prepayments.

Based on recurring losses from operations and negative cash flows from operations for the nine months ended November 26, 2022 as well as current cash and liquidity projections, the Company has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for the next 12 months. The consolidated financial statements do not include any adjustments that may result from the outcome of this going concern uncertainty.

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3) REVENUE RECOGNITION

Sales are recognized upon purchase by customers at the Company’s retail stores or upon delivery for products purchased from its websites. The value of point-of-sale coupons and point-of-sale rebates that result in a reduction of the price paid by the customer are recorded as a reduction of sales. Shipping and handling fees that are billed to a customer in a sale transaction are recorded in sales. Taxes, such as sales tax, use tax and value added tax, are not included in sales.

Revenues from gift cards, gift certificates and merchandise credits are recognized when redeemed. Gift cards have no provisions for reduction in the value of unused card balances over defined time periods and have no expiration dates. For the nine months ended November 26, 2022 and November 27, 2021, the Company recognized net sales for gift card and merchandise credit redemptions of approximately $60.7 million and $60.5 million, respectively, which were included in merchandise credit and gift card liabilities on the consolidated balance sheet as of February 26, 2022 and February 27, 2021, respectively.

During the second quarter of fiscal 2022, the Company launched its cross-banner customer loyalty program, Welcome Rewards™, which allows members to earn points for each qualifying purchase at its retail banners either online or in its stores. Points earned are then converted to rewards upon reaching certain thresholds. These rewards may then be redeemed on future merchandise purchases at its retail banners. The Company defers a portion of the revenue related to the points earned at the time of the original transaction and revenue is recognized for these performance obligations upon redemption or expiration of points or rewards earned by the customer. As of November 26, 2022, the Company recorded $5.2 million of loyalty program liabilities in accrued expenses and other current liabilities on the consolidated balance sheet.

Sales returns are provided for in the period that the related sales are recorded based on historical experience. Although the estimate for sales returns has not varied materially from historical provisions, actual experience could vary from historical experience in the future if the level of sales return activity changes materially. In the future, if the Company concludes that an adjustment is required due to material changes in the returns activity, the liability for estimated returns and the corresponding right of return asset will be adjusted accordingly. As of November 26, 2022 and February 26, 2022, the Company recorded a liability for estimated returns of $15.2 million and $23.6 million, respectively, in accrued expenses and other current liabilities, and the corresponding right of return asset for merchandise of $12.1 million and $14.6 million, respectively, in prepaid expenses and other current assets.

The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall décor), consumables and certain juvenile products. Sales of domestics merchandise and home furnishings accounted for approximately 36.0% and 64.0% of net sales, respectively, for the three months ended November 26, 2022, and approximately 37.6% and 62.4% of net sales, respectively, for the three months ended November 27, 2021. Sales of domestics merchandise and home furnishings accounted for approximately 36.4% and 63.6% of net sales, respectively, for the nine months ended November 26, 2022, and approximately 38.4% and 61.6% of net sales, respectively, for the nine months ended November 27, 2021.

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4) FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., "the exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. The hierarchy for inputs used in measuring fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect a company’s judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability must be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

•Level 1 - Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

•Level 2 - Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The Company’s financial instruments include cash and cash equivalents, investment securities, accounts payable, short-term and long-term debt and certain other liabilities. The book value of the Company's financial instruments, excluding long-term debt, is representative of their fair values. As of November 26, 2022 and February 26, 2022, the fair value of the Company’s senior unsecured notes was approximately $205.3 million and $956.0 million, respectively, which is based on quoted prices in active markets for identical instruments (i.e., Level 1 valuation), compared with the carrying value of approximately $1.030 billion and $1.184 billion for November 26, 2022 and February 26, 2022, respectively. Financial assets utilizing Level 2 inputs included the ABL Facility and FILO Facility. As of November 26, 2022, the carrying amount of the ABL Facility and FILO Facility approximates fair value as interest charged is based on the current market rate and are secured on a first priority basis (subject to customary exceptions) on substantially all assets of the Company and its subsidiaries that are borrowers or guarantors under the ABL Facility and FILO Facility.

Financial assets utilizing Level 3 inputs included long-term investments in auction rate securities consisting of preferred shares of closed end municipal bond funds (see "Investment Securities," Note 6).

5) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents. Included in cash and cash equivalents are credit and debit card receivables from banks, which typically settle within five business days, of $86.3 million and $47.9 million as of November 26, 2022 and February 26, 2022, respectively.

Short-term restricted cash was $57.1 million as of November 26, 2022 and is included in prepaid expenses and other current assets on the consolidated balance sheet. The Company did not have any short-term restricted cash as of February 26, 2022. Long-term restricted cash of $15.1 million and $31.4 million as of November 26, 2022 and February 26, 2022, respectively, is included in other long-term assets on the consolidated balance sheet.

6) INVESTMENT SECURITIES

As of both November 26, 2022 and February 26, 2022, the Company’s long-term available-for-sale investment securities represented approximately $20.3 million par value of auction rate securities, less temporary valuation adjustments of approximately $1.1 million as of both November 26, 2022 and February 26, 2022. Since these valuation adjustments are deemed to be temporary, they are recorded in accumulated other comprehensive loss, net of a related tax benefit, and did not affect the Company’s net earnings. The Company had no short-term available-for-sale investment securities as of both November 26, 2022 and February 26, 2022.

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7) IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. For the three and nine months ended November 26, 2022, the Company recorded $100.7 million and $180.0 million, respectively, of non-cash pre-tax impairment charges in impairments in its consolidated statement of operations for certain store-level assets, including leasehold improvements and operating lease assets. For the three and nine months ended November 27, 2021, the Company recorded $1.6 million and $15.6 million, respectively, of non-cash pre-tax impairment charges in impairments in its consolidated statement of operations for certain store-level assets, including leasehold improvements and operating lease assets. Future events or market conditions may further reduce the estimated fair value of these long-lived assets and as a result, the Company may need to adjust the carrying value of these long-lived assets in the period in which the reduction in the estimated fair value occurs and record further impairment charges.

8) PROPERTY AND EQUIPMENT

As of November 26, 2022 and February 26, 2022, included in property and equipment, net is accumulated depreciation of approximately $2.0 billion and $1.8 billion, respectively, of which $1.2 million and $0.2 million, respectively, in accumulated depreciation related to assets held under finance leases.

9) LEASES

The Company leases retail stores, distribution facilities, offices and equipment under agreements expiring at various dates through 2041. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for a series of five-year renewal options, often at increased rents, the exercise of which is at the Company’s sole discretion. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial for the three and nine months ended November 26, 2022 and November 27, 2021), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.

The Company subleases certain real estate to unrelated third parties, which have all been classified as operating leases. The Company recognizes sublease income on a straight-line basis over the sublease term, which generally ranges from 5 to 10 years. Most sublease arrangements provide for a series of five-year renewal options, the exercise of which are at the Company's sole discretion.

The components of total lease cost for the three and nine months ended November 26, 2022 and November 27, 2021, were as follows:


(in thousands)	Statement of Operations Location	Three Months Ended				Nine Months Ended
		November 26, 2022		November 27, 2021		November 26, 2022		November 27, 2021
Operating lease cost	Cost of sales and SG&A	$	94,606	$	105,230	$	299,735	$	332,952
Finance lease cost:
Depreciation of property	SG&A	639		—		1,022		—
Interest on lease liabilities	Interest expense, net	1,636		—		3,742		—
Variable lease cost	Cost of sales and SG&A	33,378		40,753		107,135		112,270
Sublease income	SG&A	(15,744)		(9,929)		(42,554)		(34,735)
Total lease cost		$	114,515	$	136,054	$	369,080	$	410,487

As of November 26, 2022 and February 26, 2022, assets and liabilities related to the Company’s leases were as follows:

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(in thousands)	Consolidated Balance Sheet Location	November 26, 2022		February 26, 2022
Assets
Operating leases	Operating lease assets	$	1,321,665	$	1,562,857
Finance leases	Property and equipment, net	63,639		38,790
Total lease assets		$	1,385,304	$	1,601,647

Liabilities
Current:
Operating leases	Current operating lease liabilities	$	313,368	$	346,506
Finance leases	Accrued expenses and other current liabilities	7,048		2,494
Noncurrent:
Operating leases	Operating lease liabilities	1,388,484		1,508,002
Finance leases	Other liabilities	54,452		35,447
Total lease liabilities		$	1,763,352	$	1,892,449

As of November 26, 2022, the Company’s lease liabilities mature as follows:


(in thousands)	Operating Leases		Finance Leases
Fiscal Year:
Remainder of 2022	$	72,296	$	2,881
2023	413,473		11,525
2024	364,233		11,525
2025	301,520		11,525
2026	232,768		11,525
2027	184,826		11,525
Thereafter	564,831		48,713
Total lease payments	$	2,133,947	$	109,219
Less imputed interest	(432,095)		(47,719)
Present value of lease liabilities	$	1,701,852	$	61,500

The Company’s lease terms and discount rates were as follows:


	November 26, 2022		February 26, 2022
Weighted-average remaining lease term (in years)
Operating leases	6.8 years		7.0 years
Finance leases	9.4 years		10.0 years
Weighted-average discount rate
Operating leases	7.4	%	6.0	%
Finance leases	8.3	%	8.4	%

Other information with respect to the Company’s leases is as follows:

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(in thousands)

Nine Months Ended

November 26,
2022

November 27,
2021

Cash paid for amounts included in the measurement of lease liabilities