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MarketScreener Homepage  >  Equities  >  Nyse  >  Nordstrom, Inc    JWN

NORDSTROM, INC

(JWN)
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NORDSTROM : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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09/04/2020 | 04:40pm EDT
(Dollar and share amounts in millions except per share amounts)
OVERVIEW
At the onset of the pandemic, our primary objective was protecting and enhancing
liquidity, which we achieved. Given the uncertainty over how long our temporary
store closures would last, and with inventory as our biggest investment, we took
decisive action to minimize risk and stabilize our business.
In the first quarter, we significantly reduced inventory levels by more than
25%, allowing us to mitigate markdowns and bring in newness for customers. As
the pace of change in customer behavior continued to accelerate, we also took
proactive steps to execute our strategic plans with greater speed. This included
restructuring our organization and permanently closing 16 FLS, which contributed
to overhead cost reductions of nearly 20% in the second quarter.
For the second quarter, we successfully executed on our operating plan with
earnings, cash and liquidity well exceeding our expectations. Our net loss per
share of $1.62 and EBIT loss of $370 included COVID-19 related charges of $0.08
per share or $23, primarily associated with corporate asset impairments. We
ended the quarter with almost $1,300 in liquidity, including $991 in cash. We
generated quarterly operating cash flow of more than $185, enabling us to pay
down $300 on our revolving line of credit.
Total net sales declined 53%, reflecting our stores being closed approximately
50% of the days for the quarter and also included a timing shift of
approximately 10 percentage points from moving the entire Anniversary event from
the second quarter into the third quarter. Our digital sales decrease of 5% was
also negatively impacted by the Anniversary shift by approximately 25 percentage
points. Excluding the shift impact, digital sales increased approximately 20% in
the second quarter.
From a top-line perspective, we achieved our expectations and identified
opportunities to drive further improvement. Our streamlined operations and
inventory position gave us flexibility to bring in new and relevant product.
While inventories were constrained and we left some demand unmet, our decision
to be prudent with our inventory plans helped deliver better than expected
merchandise margin, earnings and operating cash flow. We exited the quarter in
an advantageous position, with clean inventory and an ability to amplify
relevant categories to capture customer demand.
We increased receipts in July as we geared up for our Anniversary Sale that
began on August 4th. This is our largest event, offering new arrivals at
limited-time savings. It represents an important opportunity for us to provide a
one-of-a-kind experience for our loyalty customers while introducing new
customers to Nordstrom. Due to COVID-19, we moved our event from July to August
to help ensure the safety and comfort of our customers and employees and to
deliver the most relevant merchandise assortment.
As we head into the second half of the year, we continue to take a flexible and
prudent approach to planning our business. Given the highly uncertain
environment, we are prepared for a range of scenarios to ensure we can sustain
and grow our business. We are confident in our ability to continue developing
critical enablers of the customer experience while maintaining the ability to
adjust quickly. Based on current trends and our inventory plans, we expect
sequential and gradual improvement in sales, earnings and cash flow in the back
half of the year.
Our actions to shore up our financial position in the first half of 2020 allow
us to head into the second half of this year and prepare for 2021 from a
position of strength. We accelerated our long-term strategic plans by optimizing
the mix of physical and digital assets and increasing our agility through a
leaner and more efficient organization. When combined with a capital structure
that provides a strong foundation for reinvestment, we are well-positioned to
respond quickly to a period of accelerated change in customer behavior. Over the
near and medium term, we are focused on reinvesting in our strategic growth
priorities to deliver a best-in-class customer experience while maintaining a
strong balance sheet. As we emerge from this disruptive period, our ambition is
for Nordstrom to be positioned as a retail winner by gaining market share and
driving profitable growth.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollar and share amounts in millions except per share amounts)
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on
providing a seamless experience across our businesses. We invested early in our
omni-channel capabilities, integrating our operations, merchandising and
technology across our stores and online, in both our Full-Price and Off-Price
businesses. While our customers may engage with us through multiple businesses,
we know they value the overall Nordstrom brand experience and view us simply as
Nordstrom, which is ultimately how we view our company. We have one Retail
reportable segment and analyze our results on a total company basis, using
customer, market share, operational and net sales metrics.
Net Sales
The following table summarizes net sales by business:
                                                          Quarter Ended                                                                    Six Months Ended
                                               August 1, 2020                   August 3, 2019                   August 1, 2020              August 3, 2019
Net sales by business:
Full-Price                                         $1,066$2,530$2,423$4,657
Off-Price                                             712                            1,248                            1,381                       2,470
Total net sales                                    $1,778$3,778$3,804$7,127

Net sales decrease by business:
Full-Price                                          (57.9  %)                         (6.5  %)                        (48.0  %)                    (5.9  %)
Off-Price                                           (43.0  %)                         (1.9  %)                        (44.1  %)                    (1.3  %)
Total Company                                       (53.0  %)                         (5.1  %)                        (46.6  %)                    (4.3  %)

Digital sales as % of total net
sales                                                  61  %                            30  %                            57  %                       31  %


Total Company net sales decreased 53.0% and 46.6% for the second quarter and six
months ended August 1, 2020, compared with the same periods in 2019. These
declines primarily resulted from COVID-19, including our temporary store
closures for approximately 50% of the days for the quarter and six months ended
August 1, 2020, as well as the timing impact of the Anniversary Sale shifting
from the second quarter to the third quarter in 2020. The top-performing
merchandise categories were Home, Kids' and Accessories for the second quarter
of 2020 and six months ended August 1, 2020. During the six months ended August
1, 2020, we closed 16 FLS, six Trunk Club clubhouses and three Jeffrey
boutiques.
Digital sales decreased 5% for the second quarter of 2020 and were flat for the
six months ended August 1, 2020, compared with the same periods in 2019,
primarily due to the Anniversary Sale timing shift that negatively impacted the
second quarter by approximately 25 percentage points. By excluding the shift
impact, digital sales increased approximately 20% in the second quarter and in
the mid-teens range for the six months ended August 1, 2020.
Full-Price net sales decreased 57.9% and 48.0% for the second quarter and six
months ended August 1, 2020, compared with the same periods in 2019. These
declines resulted from the temporary store closures and the Anniversary Sale
timing shift. Off-Price net sales decreased 43.0% and 44.1% for the second
quarter and six months ended August 1, 2020, compared with the same periods in
2019. These declines resulted primarily from the temporary store closures.
Credit Card Revenues, Net
Credit card revenues, net include our portion of the ongoing credit card
revenue, net of credit losses, pursuant to our program agreement with TD. TD is
the exclusive issuer of our consumer credit cards and we perform the account
servicing functions. Credit card revenues, net was $84 and $177 for the second
quarter and six months ended August 1, 2020, compared with $94 and $188 for the
same periods in 2019. The decreases were primarily a result of lower interchange
revenue from lower spend on our credit cards at other merchants.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollar and share amounts in millions except per share amounts)
Gross Profit
The following table summarizes gross profit:
                                                                 Quarter Ended                                                     Six Months Ended
                                                     August 1, 2020             August 3, 2019           August 1, 2020             August 3, 2019
Gross profit                                                $372$1,302$588$2,423
Gross profit as a % of net sales                            20.9  %                    34.5  %                  15.5  %                    34.0  %

                                                                                                         August 1, 2020             August 3, 2019
Inventory turnover rate                                                                                         4.52                       4.71


Gross profit decreased $930 and 14% as a percentage of net sales for the second
quarter of 2020, and $1,835 and 19% for the six months ended August 1, 2020
compared with the same periods in 2019, primarily due to planned markdowns and
deleverage from lower sales volume.
Ending inventory as of August 1, 2020 decreased 24% compared with the prior
period, primarily due to the impact of our aggressive actions in prior quarter
to reduce receipts and clear inventory, enabling targeted new receipts to
support the Anniversary Sale. Lower sales volume led to a decrease in inventory
turnover rate as of August 1, 2020.
Selling, General and Administrative Expenses
SG&A is summarized in the following table:
                                                 Quarter Ended                                                       Six Months Ended
                                     August 1, 2020             August 3, 2019             August 1, 2020             August 3, 2019
SG&A expenses                               $826$1,180$1,948$2,319
SG&A expenses as a % of net
sales                                       46.5  %                    31.2  %                    51.2  %                    32.5  %


SG&A decreased $354 for the second quarter of 2020 and $371 for the six months
ended August 1, 2020, compared with the same periods in 2019, primarily as a
result of lower sales volumes in addition to reduced overhead labor and benefit
costs. SG&A rates increased for the second quarter of 2020 and six months ended
August 1, 2020, primarily as a result of deleverage on lower sales volumes.
Earnings (Loss) Before Interest and Income Taxes
EBIT is summarized in the following table:
                                  Quarter Ended                                        Six Months Ended
                         August 1, 2020      August 3, 2019      August 1, 2020        August 3, 2019
EBIT                          ($370)                $216            ($1,183)                  $292
EBIT as a % of sales          (20.8  %)              5.7  %           (31.1  %)                4.1  %


EBIT decreased $586 for the second quarter of 2020 and $1,475 for the six months
ended August 1, 2020, compared with the same periods in 2019, primarily due to
lower sales volume from COVID-19 and the Anniversary Sale timing shift. COVID-19
related charges of $23 in the second quarter of 2020 consisted primarily of
corporate asset impairments. COVID-19 related charges of $303 for the six months
ended August 1, 2020 consisted primarily of asset impairments from store
closures, premium pay and benefits and restructuring charges.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollar and share amounts in millions except per share amounts)
Interest Expense, Net
Interest expense, net was $51 for the second quarter of 2020, compared with $23
for the same period in 2019, and $85 for the six months ended August 1, 2020,
compared with $46 for the same period in 2019. The increase for the second
quarter of 2020 and six months ended August 1, 2020 was primarily due to
additional interest related to the Revolver drawdown and the new Senior Secured
Note in the first quarter of 2020, as well as lower capitalized interest in
2020.
Income Tax Expense
Income tax expense is summarized in the following table:
                                Quarter Ended                               

Six Months Ended

                       August 1, 2020      August 3, 2019      August 1, 2020        August 3, 2019
Income tax expense           ($166)                $52               ($492)                  $69
Effective tax rate            39.5  %             27.2  %             38.8  %               28.0  %


The effective tax rate increased in the second quarter of 2020 and for the six
months ended August 1, 2020, compared with the same periods in 2019, primarily
due to the CARES Act that allows us to carry back expected 2020 losses at the
higher tax rate in previous years. The increase was partially offset by reduced
federal credits and increased nondeductible stock compensation.
Earnings (Loss) Per Share
EPS is as follows:
                                                 Quarter Ended                                                               Six Months Ended
                                      August 1, 2020              August 3, 2019              August 1, 2020              August 3, 2019
Basic                                  ($1.62)                          $0.91                  ($4.95)                      $1.14
Diluted                                ($1.62)                          $0.90                  ($4.95)                      $1.14


Earnings (loss) per diluted share decreased $2.52 for the second quarter of
2020, compared with the same period in 2019, and decreased $6.09 for the six
months ended August 1, 2020, compared with the same period in 2019, primarily
due to lower sales as a result of COVID-19 and the Anniversary Sale timing
shift.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollar and share amounts in millions except per share amounts)
Adjusted ROIC (Non-GAAP financial measure)
We believe that Adjusted ROIC is a useful financial measure for investors in
evaluating the efficiency and effectiveness of the capital we have invested in
our business to generate returns over time. In addition, we have incorporated it
in our executive incentive measures and we believe it is an important indicator
of shareholders' return over the long term.
For 2019, income statement activity for adjusted net operating profit and
balance sheet amounts for average invested capital are comprised of two quarters
of activity under the Lease Standard for 2019, and two quarters of 2018 under
the previous lease standard. Under the previous lease standard, we estimated the
value of our operating leases as if they met the criteria for capital leases or
we had purchased the properties. This provided additional supplemental
information that estimated the investment in our operating leases. Estimated
depreciation on capitalized operating leases and average estimated asset base of
capitalized operating leases are not calculated in accordance with, nor an
alternative for, GAAP and should not be considered in isolation or as a
substitution for our results as reported under GAAP.
Adjusted ROIC is not a measure of financial performance under GAAP and should be
considered in addition to, and not as a substitute for, return on assets, net
earnings, total assets or other GAAP financial measures. Our method of
determining non-GAAP financial measures may differ from other companies' methods
and therefore may not be comparable to those used by other companies. The
financial measure calculated under GAAP which is most directly comparable to
Adjusted ROIC is return on assets.
The following is a reconciliation of return on assets to Adjusted ROIC:
                                                                            

Four Quarters Ended

                                                                          August 1, 2020             August 3, 2019
Net (loss) earnings                                                            ($458)                       $492
Add: income tax (benefit) expense                                               (375)                        144
Add: interest expense                                                            149                         109
(Loss) earnings before interest and income tax expense                          (684)                        745

Add: operating lease interest1                                                    98                          47
Add: rent expense, net                                                             -                         127
Less: estimated depreciation on capitalized operating leases2                      -                         (68)
Adjusted net operating (loss) profit                                            (586)                        851

Less: estimated income tax expense                                               264                        (193)
Adjusted net operating (loss) profit after tax                                 ($322)                       $658

Average total assets                                                          $9,850$9,016

Add: average estimated asset base of capitalized operating leases2

        -                       1,005

Less: average deferred property incentives and deferred rent liability

                                                                          -                        (303)

Less: average deferred property incentives in excess of ROU assets3

                                                                         (296)                       (154)
Less: average non-interest-bearing current liabilities                        (3,267)                     (3,528)
Average invested capital                                                      $6,287$6,036

Return on assets4                                                               (4.6  %)                     5.5  %
Adjusted ROIC4                                                                  (5.1  %)                    10.9  %


1 As a result of the adoption of the Lease Standard, we add back the operating
lease interest to reflect how we manage our business. Operating lease interest
is a component of operating lease cost recorded in occupancy costs and is
calculated in accordance with the Lease Standard.
2 Capitalized operating leases is our best estimate of the asset base we would
record for our leases that are classified as operating under the previous lease
standard if they had met the criteria for a finance lease or we had purchased
the property. The asset base for each quarter is calculated as the trailing four
quarters of rent expense multiplied by eight, a commonly used method to estimate
the asset base we would record for our capitalized operating leases.
3 For leases with property incentives that exceed the ROU assets, we reclassify
the amount from assets to other current liabilities and other liabilities. As a
result of the adoption of the Lease Standard, we reduce average total assets, as
this better reflects how we manage our business.
4 Results for the four quarters ended August 3, 2019 included the $72 impact
related to the Estimated Non-recurring Charge, which negatively impacted return
on assets by approximately 50 basis points and Adjusted ROIC by approximately 70
basis points. Integration charges, primarily related to Trunk Club, of $32 in
the fourth quarter of 2019, were primarily non-cash related and negatively
impacted return on assets by approximately 30 basis points and Adjusted ROIC by
approximately 30 basis points for the four quarters ended August 1,
2020. COVID-19 related charges for the four quarters ended August 1, 2020
negatively impacted return on assets by approximately 190 basis points and
Adjusted ROIC by approximately 270 basis points for the four quarters ended
August 1, 2020.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollar and share amounts in millions except per share amounts)
LIQUIDITY AND CAPITAL RESOURCES
In response to the uncertainty related to the COVID-19 pandemic, we took action
to provide further liquidity and flexibility during these unprecedented times.
Our stores were temporarily closed approximately 50% of the days for the quarter
and six months ended August 1, 2020. We continue to review state and local legal
requirements and conditions and may need to close some or all of the stores
currently open as COVID-19 and other uncertainties, including civil unrest,
continue to unfold. We remain open and ready to serve our customers through our
apps and online at Nordstrom.com, Nordstrom.ca, Nordstromrack.com, HauteLook.com
and TrunkClub.com, including digital styling, online order pickup and
contactless curbside services at certain FLS. Our business model serves us well
as we fulfill digital orders through many of our stores. We have taken the
following actions to date to increase our cash position and preserve financial
flexibility:
•Drew down $500 net on our Revolver and issued $600 in Secured Notes
•Suspended quarterly cash dividends beginning in the second quarter of 2020 and
share repurchases
•Planned expense savings of $200 to $250 and further net cash savings of more
than $500 in operating expenses, capital expenditures and working capital in
fiscal year 2020
Second quarter operating cash flow of $187 exceeded our expectations and enabled
us to pay down $300 on our Revolver. Nordstrom ended the second quarter with
$991 in cash and cash equivalents and $300 of additional liquidity available on
our Revolver. With our financial position strengthened, we are prioritizing
market share gains and profitable sales growth.
We strive to maintain a level of liquidity sufficient to allow us to cover our
seasonal cash needs and to maintain appropriate levels of short-term borrowings.
While this is a time of great uncertainty, we believe that our operating cash
flows are sufficient to meet our cash requirements for the next 12 months and
beyond.
Over the long term, we manage our cash and capital structure to maximize
shareholder return, maintain our financial position, manage refinancing risk and
allow flexibility for strategic initiatives. We regularly assess our debt and
leverage levels, capital expenditure requirements, debt service payments,
dividend payouts, potential share repurchases and other future investments.
The following is a summary of our cash flows by activity:
                                                                            

Six Months Ended

                                                                     August 1, 2020                 August 3, 2019
Net cash (used in) provided by operating activities                    ($591)                             $692
Net cash used in investing activities                                   (211)                             (454)
Net cash provided by (used in) financing activities                      949                              (239)


Operating Activities
Cash from operating activities decreased $1,283 for the six months ended August
1, 2020, compared with the same period in 2019, primarily due to a reduction in
net earnings as a result of temporary store closures and the Anniversary Sale
timing shift.
Investing Activities
Net cash used in investing activities decreased $243 for the six months ended
August 1, 2020, compared with the same period in 2019, primarily due to a
decrease in capital expenditures, as we prioritized investments in supply chain
and technology, while reducing non-critical spend on store remodels.
Capital Expenditures
Our capital expenditures, net are summarized as follows:
                                                 Six Months Ended
                                          August 1, 2020      August 3, 

2019

Capital expenditures                             $228$480
Less: deferred property incentives1               (27)                (39)
Capital expenditures, net                        $201$441

Capital expenditures % of net sales               6.0  %              6.7  %


1 Deferred property incentives are included in our cash provided by operations
in our Consolidated Statements of Cash Flows in Item 1. We operationally view
the property incentives we receive from our developers and vendors as an offset
to our capital expenditures.
Financing Activities
Cash from financing activities increased $1,188 for the six months ended August
1, 2020, compared with the same period in 2019, primarily due to the net
proceeds from the Revolver and Secured Notes.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollar and share amounts in millions except per share amounts)
Free Cash Flow (Non-GAAP financial measure)
Free Cash Flow is one of our key liquidity measures and, when used in
conjunction with GAAP measures, we believe it provides investors with a
meaningful analysis of our ability to generate cash from our business.
Free Cash Flow is not a measure of financial performance under GAAP and should
be considered in addition to, and not as a substitute for, operating cash flows
or other financial measures prepared in accordance with GAAP. Our method of
determining non-GAAP financial measures may differ from other companies' methods
and therefore may not be comparable to those used by other companies. The
financial measure calculated under GAAP which is most directly comparable to
Free Cash Flow is net cash (used in) provided by operating activities. The
following is a reconciliation of net cash (used in) provided by operating
activities to Free Cash Flow:
                                                                            

Six Months Ended

                                                                     August 1, 2020                 August 3, 2019
Net cash (used in) provided by operating activities                    ($591)                             $692
Less: capital expenditures                                              (228)                             (480)
(Less) Add: change in cash book overdrafts                               (84)                               92
Free Cash Flow                                                         ($903)                             $304


Adjusted EBITDA and Adjusted EBITDAR (Non-GAAP financial measures)
Adjusted EBITDA is one of our key financial metrics to reflect our view of cash
flow from net earnings. Adjusted EBITDA excludes significant items which are
non-operating in nature in order to evaluate our core operating performance
against prior periods. The financial measure calculated under GAAP which is most
directly comparable to Adjusted EBITDA is net earnings.
Adjusted EBITDAR is also one of our key financial metrics as it will be used to
measure compliance with one of our Revolver covenants beginning in the third
quarter of 2020. Adjusted EBITDAR reflects the items in Adjusted EBITDA,
excludes rent expense as defined by the Revolver agreement, and captures other
differences between the contractual requirements in the Revolver agreement and
Adjusted EBITDA, including the inclusion or exclusion of certain non-cash
charges. The financial measure calculated under GAAP which is most directly
comparable to Adjusted EBITDAR is net earnings.
Adjusted EBITDA and Adjusted EBITDAR are not measures of financial performance
under GAAP and should be considered in addition to, and not as a substitute for
net earnings, overall change in cash or liquidity of the business as a whole.
Our method of determining non-GAAP financial measures may differ from other
companies' methods and therefore may not be comparable to those used by other
companies. The following is a reconciliation of net earnings to Adjusted EBITDA
and Adjusted EBITDAR:
                                                                                Six Months Ended
                                                                      August 1, 2020                 August 3, 2019
Net (loss) earnings                                                     ($776)                             $177
Add: income tax (benefit) expense                                        (492)                               69
Add: interest expense, net                                                 85                                46
(Loss) earnings before interest and income taxes                       (1,183)                              292

Add: depreciation and amortization expenses                               342                               323
Less: amortization of developer reimbursements                            (42)                              (38)
Add: asset impairments                                                    137                                 -

Adjusted EBITDA                                                         ($746)                             $577

Add: rent expense1                                                        116                               130
Add: other Revolver covenant adjustments2                                   2                                 5
Adjusted EBITDAR                                                        ($628)                             $712


1 Rent expense, exclusive of amortization of developer reimbursements, is added
back for consistency with our debt covenant calculation requirements, and is
calculated under the previous lease standard.
2 Other adjusting items to reconcile Adjusted EBITDA to Adjusted EBITDAR as
defined by our Revolver covenant includes interest income, and certain non-cash
charges where relevant.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollar and share amounts in millions except per share amounts)
Credit Capacity and Commitments
During the first quarter of 2020, we amended our existing Revolver and borrowed
$800. As of August 1, 2020, we had $500 outstanding under the facility. The
Revolver contains customary representations, warranties, covenants and terms,
including paying a variable rate of interest and a commitment fee based on our
debt rating. The Revolver is available for working capital, capital expenditures
and general corporate purposes. Provided that we obtain written consent from our
lenders, we have the option to increase the Revolver by up to $200, to a total
of $1,000, and two options to extend the Revolver by one year. For more
information about our credit facilities, see Note 3: Debt and Credit Facilities
in Item 1.
Impact of Credit Ratings
Changes in our credit ratings may impact our costs to borrow, whether our
personal property secures our Revolver and the debt covenants we follow.
For our Revolver, the interest rate applicable to any borrowings we may enter
into depends upon the type of borrowing incurred plus an applicable margin,
which is determined based on our credit ratings. At the time of this report, our
credit ratings and outlook were as follows:
                        Credit Ratings        Outlook
Moody's                           Baa3       Negative
Standard & Poor's                  BB+       Negative


Should the ratings assigned to our long-term debt improve, the applicable margin
associated with any borrowings under the Revolver may decrease, resulting in a
lower borrowing cost under this facility. Conversely, should the ratings
assigned to our long-term debt worsen, the applicable margin associated with any
borrowings under the Revolver may increase, resulting in a higher borrowing cost
under this facility.
In June 2020, we amended our program agreement with TD to eliminate the prior
requirement to post collateral and extend the term of the agreement until April
2024.
Debt Covenants
As of August 1, 2020, our borrowings under the Revolver were classified as
secured as our Leverage Ratio exceeded four, and we met our asset coverage and
minimum liquidity covenants. For more information about our debt covenants, see
Note 3: Debt and Credit Facilities in Item 1.
Contractual Obligations
As of August 1, 2020, there have been no material changes to our contractual
obligations as disclosed in our 2019 Annual Report except as disclosed in Note
3: Debt and Credit Facilities and Note 5: Commitments and Contingencies of
Item 1.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements requires that we make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and disclosure of contingent assets and liabilities. We base our
estimates on historical experience and other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ from these
estimates. We believe that the estimates, assumptions and judgments involved in
the accounting policies referred to in our 2019 Annual Report have the greatest
potential effect on our financial statements, so we consider these to be our
critical accounting policies and estimates. Our management has discussed the
development and selection of these critical accounting estimates with the Audit
& Finance Committee of our Board of Directors.
Except as disclosed in Note 1: Basis of Presentation of Item 1, pertaining to
the impact of COVID-19, there have been no material changes to our significant
accounting policies or critical accounting estimates as described in our 2019
Annual Report.
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