Citi Trends Inc

1. Organization and Business

Citi Trends, Inc. and its subsidiary (the“Company”) is a leading off-price value retailer of apparel, accessories and home trends primarily for African American families in the United States. As of February 1, 2025, the Company operated 591 stores in urban, suburban and rural markets in 33 states.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation.

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to January 31 of each year. The years ended February 1, 2025, February 3, 2024 and January 28, 2023 are referred to as fiscal 2024, fiscal 2023 and fiscal 2022, respectively, in the accompanying consolidated financial statements. Fiscal years 2024 and 2022 have a 52-week accounting period, and fiscal year 2023 is comprised of 53 weeks.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and apply judgments that affect the reported amounts. Actual results could differ from those estimates.

The most significant estimates include those used in the valuation of inventory, property and equipment, self-insurance liabilities, leases and income taxes. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively.

Cash and Cash Equivalents/Concentration of Credit Risk

For purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents. Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents. The Company places its cash and cash equivalents in what it believes to be high credit quality banks and institutional money market funds. The Company maintains cash accounts that exceed federally insured limits.

Inventory is stated at the lower of cost (first-in, first-out basis) or net realizable value as determined by the retail inventory method for store inventory and the average cost method for distribution center inventory. Under the retail inventory method, the cost of inventory is determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory. Merchandise markdowns are reflected in the inventory valuation when the retail price of an item is lowered in the stores. Inventory is recorded net of an allowance for shrink based on the most recent physical inventory counts and other assumptions for shrink activity. The allowance for inventory shrink was$5.2 million as of February 1, 2025 and$3.9 million as of February 3, 2024.

Property and Equipment, net

Property and equipment, net are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the lesser of the estimated useful lives (primarily three tofive years forcomputer equipment and furniture, fixtures and equipment, seven years for major purchased software systems, ten years for leasehold improvements andfifteen totwenty years for buildings and building improvements) of the related assets or the relevant lease term.

Impairment of Long-Lived Assets

If facts and circumstances indicate that a long-lived asset may be impaired, the carrying value is reviewed. If this review indicates that the carrying value of the asset group will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life, the carrying value of the asset is reduced to its estimated fair value. There was non-cash impairment expense in fiscal 2024 of$2.5 million consisting of$1.2 million for leasehold improvements and fixtures and equipment at underperforming stores, and$1.3 for right of use assets. There was non-cash impairment expense in fiscal year 2023 of$1.0 million consisting of$0.9 million for leasehold improvements and fixtures and equipment at an underperforming store, and$0.1 million for a right of use asset.

Insurance Liabilities

The Company is largely self-insured for workers’ compensation costs, general liability claims. The Company’s self-insured retention or deductible, as applicable, for each claim involving workers’ compensation and general liability is limited to$250,000 and$100,000 respectively. Self-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims. Current and historical claims data, together with information from actuarial studies, are used in developing the estimates. The insurance liabilities that are recorded are primarily influenced by the frequency and severity of claims and the Company’s growth. If the underlying facts and circumstances related to the claims change, then the Company may be required to record more or less expense which could be material in relation to results of operations.

Stock-Based Compensation

The Company recognizes compensation expense associated with all nonvested restricted stock and performance-based restricted stock units based on the grant-date fair value of each award. The fair value of the awards is calculated based on the stock price on the grant date, incorporating an analysis of the performance measure where applicable. Compensation expense is recognized ratably over the requisite service period. See Note 6 for additional information on the Company’s stock-based compensation plans.

Revenue Recognition

The Company’s primary source of revenue is derived from the sale of apparel, accessories and home goods to its customers with the Company’s performance obligations satisfied at the point of sale when the customer pays for their purchase and receives the merchandise. Sales taxes collected by the Company from customers are excluded from revenue. Revenue from layaway sales is recognized at the point in time when the merchandise is paid for and control of the goods is transferred to the customer, thereby satisfying the Company’s performance obligation. The Company defers revenue from the sale of gift cards and recognizes the associated revenue upon the redemption of the cards by customers to purchase merchandise. Breakage on gift cards is minimal as the cards are generally subject to escheat regulations of the state in which the gift card subsidiary is located.

Sales Returns

The Company allows customers to return merchandise for up tothirty days after the date of sale. Expected refunds to customers are recorded based on estimated margin using historical return information. The refund liability for merchandise returns is recorded in accrued expenses on the consolidated balance sheet and totaled$0.2 million as of both February 1, 2025 and February 3, 2024. The corresponding asset for the recoverable cost of expected refunds is included in prepaid and other current assets and totaled$0.1 million as of both February 1, 2025 and February 3, 2024.

Disaggregation of Revenue

In the following table, the Company’s revenue is disaggregated by Division or major product category. The following table provides the percentage of net sales for each Division within the merchandise assortment:

Cost of Sales

Cost of sales includes the cost of inventory sold during the period and transportation costs, including inbound freight related to inventory sold, freight from the distribution centers to the stores and freight from vendors to stores, net of discounts and allowances. Distribution center costs, store occupancy expenses and advertising expenses are not considered components of cost of sales and are included as part of selling, general and administrative expenses. Depreciation is also not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations. Distribution center costs (exclusive of depreciation) for fiscal 2024, 2023 and 2022 were$32.1 million,$31.0 million and$26.3 million, respectively.

Earnings per Share

Basic earnings per common share amounts are calculated using the weighted average number of common shares outstanding for the period. Diluted earnings per common share amounts are calculated using the weighted average number of common shares outstanding plus the additional dilution for all potentially dilutive securities, such as nonvested restricted stock. During loss periods, diluted loss per share amounts are based on the weighted average number of common shares outstanding because the inclusion of common stock equivalents would be antidilutive.

The following table provides a reconciliation of the number of average common shares outstanding used to calculate basic earnings per share to the number of common shares and common stock equivalents outstanding used in calculating diluted earnings per share:

The dilutive effect of stock-based compensation arrangements is accounted for using the treasury stock method. The Company includes as assumed proceeds the amount of compensation costs attributed to future services and not yet recognized. For fiscal 2024, 2023 and 2022, respectively, there were 248,000,273,000 and 218,000 shares of nonvested restricted stock excluded from the calculation of diluted earnings per share because of antidilution.

Advertising

The Company expenses advertising as incurred. Advertising expense for fiscal 2024, 2023 and 2022 was$2.3 million,$1.6 million and$0.8 million, respectively.

Operating Leases

The Company leases all of its retail store locations, its distribution centers and certain office space and equipment. All leases are classified as operating leases. The Company records right-of-use assets and lease liabilities based on the present value of future minimum lease payments using an incremental borrowing rate. The incremental borrowing rate is determined based on rates and terms from the Company’s existing borrowing facility with adjustments to bridge for differences in collateral, terms and payments. Lease costs are recognized over the estimated term of the lease, which includes any reasonably certain lease periods associated with available renewal periods. Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term. In addition, certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of net sales that are in excess of a predetermined level. These amounts are excluded from minimum rent and included in the determination of total rent expense when it is probable that the expense has been incurred and the amount can be reasonably estimated. If an operating lease asset is impaired, the remaining operating lease asset will be amortized on a straight-line basis over the remaining lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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 loss 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 effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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. If realization of the deferred tax asset is not considered more likely than not, then a valuation allowance is recorded to reduce the deferred tax asset to its net realizable value.

Business Operating Segment

The Company is an off-price value retailer of fashion apparel, accessories and home goods for the entire family. The retail operations represent asingle operating segment based on the way the Company manages its business. Operating decisions and resource allocation decisions are made at the Company level in order to maintain a consistent retail store presentation. The Company’s retail stores sell similar products, use similar processes to sell those products, and sell their products to similar classes of customers. All sales and assets are located within the United States.

New Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09,“Improvement to Income Tax Disclosures (Topic 740)”, which requires additional disclosures for income tax rate reconciliations, income taxes paid, and certain other tax disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Adoption is required for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03,“Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses” (“ASU 2024-03”), which requires public entities to disclose additional information that disaggregates certain expense captions into specified categories in the Notes to the consolidated financial statements. The new standard is effective for fiscal years beginning after December 15, 2026, and interim periods after December 15, 2027, with early adoption permitted. The disclosure updates are required to be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact the amended guidance will have on its disclosures.

3. Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

4. Revolving Line of Credit

On October 27, 2011, the Company entered into afive-year,$50 million credit facility with Bank of America. The facility was amended in August 2015 and May 2020 to extend the maturity dates. The facility was further amended on April 15, 2021 to modify terms and extend the maturity date to April 15, 2026. In May 2023, the facility was amended to replace the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”). See Note 10 to the Financial Statements for more information regarding the subsequent amendment to extend the maturity date of the current agreement.

The facility provides a$75 million credit commitment and a$25 million uncommitted“accordion” feature that under certain circumstances could allow the Company to increase the size of the facility to$100 million. The facility is secured by the Company’s inventory, accounts receivable and related assets, but not its real estate, fixtures and equipment, and it containsone financial covenant, a fixed charge coverage ratio, which is applicable and tested only in certain circumstances. The facility has an unused commitment fee of 0.20% and permits the payment of cash dividends subject to certain limitations.

Borrowings under the credit facility bear interest (a) for SOFR Loans, at a rate equal to the SOFR Rate plus a SOFR adjustment equal to 0.10% plus either 1.25%,1.50% or 1.75%, or (b) for Base Rate Loans, at a rate equal to the highest of (i) the prime rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the Eurodollar Rate plus 1.0%, plus, in each case either 0.25%,0.50% or 0.75%, based in any such case on the average daily availability for borrowings under the facility.

As of February 1, 2025, the Company hadno borrowings under the credit facility and$2.2 million of letters of credit outstanding.

5. Income Taxes

Income tax (expense) benefit consists of the following (in thousands):

Income tax (expense) benefit computed using the federal statutory rate is reconciled to the reported income tax (expense) benefit as follows (in thousands):

Deferred tax assets and deferred tax liabilities consist of the following (in thousands):

The Company files income tax returns in U.S. federal and state jurisdictions where it does business and is subject to examinations by the Internal Revenue Service (“IRS”) and other taxing authorities. With a few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years prior to fiscal 2020. The Company reviews and assesses uncertain tax positions, if any, with recognition and measurement of tax benefit based on a“more-likely-than-not” standard with respect to the ultimate outcome, regardless of whether this assessment is favorable or unfavorable. As of February 1, 2025, there wereno material benefits taken on the Company’s income tax returns that do not qualify for financial statement recognition. If a tax position does not meet the minimum statutory threshold to avoid payment of penalties and interest, a company is required to recognize an expense for the amount of the interest and penalty in the period in which the company claims or expects to claim the position on its tax return. For financial statement purposes, companies are allowed to elect whether to classify such charges as either income tax expense or another expense classification. Should such expense be incurred in the future, the Company will classify such interest as a component of interest expense and penalties as a component of income tax expense.

At February 1, 2025, the Company had income tax net operating loss (“NOL”) carryforwards for federal purposes of$39.6 million (gross) and for state purposes of$1.7 million (tax effected). The federal tax NOL carryforwards have an indefinite carryforward, but are limited to offsetting 80% of taxable income in future years. The majority of state tax NOL carryforwards either follow federal indefinite carryforward or begin to expire in 2038, withone jurisdiction expiring in 2028.

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 upon 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, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible and income tax credits may be utilized, management believes sufficient negative evidence exists to require a valuation allowance. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal, resulting in no deferred tax asset balance being recognized. At February 1, 2025, the valuation allowance established against the entire net deferred tax asset totaled$16.5 million.

The effective income tax rate for fiscal 2024, 2023 and 2022 included the recognition of benefits arising from various federal and state tax credits. Under current IRS and state income tax regulations, these credits may be carried back forone year or carried forward for periods up to 20 years. The income tax benefit included$0.0 million,$2.2 million and$1.6 million related to such credits in each of fiscal 2024, 2023 and 2022, respectively. The credits generated for fiscal year 2024 were recorded with a full valuation allowance.

6.Stockholders**’**** Equity**

Repurchases of common stock

The Company periodically repurchases shares of its common stock under board-authorized repurchase programs. Such repurchases may be made in the open market, through block trades or through other negotiated transactions. Share repurchases are as follows (in thousands, except per share data):

At February 1, 2025,$46.2 million remained available under the Company’s previously announced stock repurchase authorization.

Stock-Based Compensation

The Company maintains the Citi Trends, Inc. Incentive Plan (the“Plan”) which permits the grant of stock-based incentive awards to employees, officers, directors and consultants. The Plan provides for the grant of incentive and nonqualified options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other forms of stock-based and cash-settled equity compensation. At February 1, 2025, the Company had 360,954 shares reserved for future grants under the Plan. During fiscal 2024, 2023 and 2022, non-cash stock-based compensation expense recorded in selling and general and administrative expenses totaled$3.3 million,$4.1 million and$3.6 million, respectively. The income tax expense resulting from the fair market value of restricted stock at vesting versus the cumulative compensation cost of such stock is recorded as a component of income tax expense and was$0.1 million,$0.5 million and$0.5 million, respectively.

The Company issues shares of restricted stock to key team members and non-employee directors. Restricted stock granted to employees vests in equal installments over three years from the date of grant. Restricted stock granted to non-employee directors vestsone year from the date of grant.

The Company also issues performance-based restricted stock units (“PSUs”) to key team members that cliff vest at the end of athree-year period based upon the Company’s achievement of pre-established goals. The number of units earned and vested is subject to scaling based on a pre-established performance matrix.

On November 18, 2024, the Company granted a performance-based restricted stock award to the Chief Executive Officer. The total number of shares earned depends on the attainment of predefined average stock price targets measured over rolling 45-trading-day periods during the performance period ending November 15, 2027. Earned shares vest annually over a period extending through November 15, 2028. The Company estimated the fair value of the awards using a Monte Carlo simulation including the following assumptions:

The risk-free interest rate was derived from the continuously compounded yield of zero-coupon U.S. Treasury STRIPS. The expected volatility is based on the Company’s historical daily stock price movements for a period equal to the simulation term. The dividend yield was based on the Company’s recent dividend history. The total grant date fair value of the award was$3.36 million, or$10.45 per share.

The fair value associated with each tranche of the award will be recognized, straight-line, over the requisite service period for that tranche. Failure to meet the market conditions for an award does not result in reversal of previously recognized expense, so long as the required service period condition is met. The Company recognized$0.3 million of expense related to the award during the year ended February 1, 2025.

The following tables summarize activity related to nonvested restricted stock and PSUs and performance-based restricted stock during fiscal 2024:

At February 1, 2025, there was$4.5 million of unrecognized compensation expense related to restricted stock. Based on current probable performance, we have determinedno compensation expense is required on our PSUs.

7. Commitments and Contingencies

The Company from time to time is involved in various legal proceedings incidental to the conduct of its business, including claims by customers, employees or former employees. Once it becomes probable that the Company will incur costs in connection with a legal proceeding and such costs can be reasonably estimated, it establishes appropriate reserves.

In connection with the January 2023 cyber disruption previously disclosed in the Company’s Form 8-K filed on February 23, 2023, four putative class action lawsuits were filed against the Company in the United States District Court for the Southern District of Georgia (the“Court”). These matters, Matousek et al v. Citi Trends, Inc.; Sienna Thomas v. Citi Trends, Inc.; Yeimy Sambrano v. Citi Trends, Inc.; Sabrina Green-Fogg v. Citi Trends, Inc. were filed in the second half of 2023, and consolidated into one case by the Court on November 8, 2023. The plaintiffs allege harm in connection with the January 2023 cyber disruption and assert a variety of claims seeking unspecified monetary damages and other related relief. A consolidated class action complaint was filed on February 15, 2024, adding an additional plaintiff, Shykira Scott. The Company is vigorously defending these lawsuits and filed a motion to dismiss the consolidated class action complaint, as well as a motion to compel individual arbitration and dismiss or stay actions on March 22, 2024. In addition, the Attorneys General of Alabama, Connecticut, Indiana and Texas sent inquiry letters to the Company regarding the January 2023 cyber disruption, which the Company has answered. As of the end of fiscal 2024, the Company had an accrual of$0.7 million for estimated losses in connection with these matters recorded in Accrued expenses. The ultimate loss to the Company for these matters could be materially different from the amount the Company has accrued. The Company cannot predict or estimate the duration or ultimate outcome of these matters. The Company is unable to predict whether it may be subject to other lawsuits, claims or inquiries.

While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable and it is possible that we could incur losses associated with these proceedings, the Company does not believe, based on the information available to it at the time of this filing, that any legal proceedings pending or threatened against it will have a material adverse effect on its financial condition, results of operations or liquidity.

The Company is also party to purchase obligations for open merchandise orders of$138.0 million that is due within 12 months.

8. Leases

The Company leases its retail store locations, its distribution centers and certain office space and equipment. Leases for store locations are typically for a term offive years with options to extend forone or more five-year periods. In fiscal 2022, the Company completed sale-leasebacks of its distribution centers. The Darlington, South Carolina distribution center lease has a 20-year lease term with the option to extend forsix additional periods offive years each. The Roland, Oklahoma distribution center has a 15-year lease term with the option to extend forsix additional periods offive years each. The sale-leaseback transactions resulted in a gain of approximately$64.1 million in the Statement of Operations for the year ended January 28, 2023.

The Company analyzes all leases at inception to determine if a right-of-use asset and lease liability should be recognized. Leases with an initial term of 12 months or less and leases with mutual termination clauses are not included on the consolidated balance sheets. The lease liability is measured at the present value of future lease payments as of the lease commencement date.

Total lease cost is comprised of operating lease costs, short-term lease costs and variable lease costs, which include rent paid as a percentage of sales, common area maintenance, real estate taxes and insurance for the Company’s real estate leases. Lease costs consisted of the following (in thousands):

Future minimum lease payments as of February 1, 2025 are as follows (in thousands):

Certain operating leases provide for fixed monthly rents, while others provide for contingent rents computed as a percentage of net sales and others provide for a combination of both fixed monthly rents and contingent rents computed as a percentage of net sales.

Supplemental cash flow and other information related to operating leases are as follows (in thousands, except for weighted average amounts):

9. Segment Reporting

The Company is an off-price value retailer of fashion apparel, accessories and home trends primarily for African American families. The retail operations represent a single operating segment based on the way the Company manages its business. The Company’s Chief Executive Officer, as our chief operating decision maker (“CODM”), manages and allocates resources to the operations of the Company on a consolidated basis. This enables the Chief Executive Officer to assess the Company’s overall level of available resources and determine how best to deploy these resources across retail stores that are in line with the Company’s long-term company-wide strategic goals. The Company’s retail stores sell similar products, use similar processes to sell those products, and sell their products to similar classes of customers. All sales and assets are located within the United States. The CODM assesses performance based on consolidated net (loss) income that is reported on the statement of operations as part of the annual budgeting and forecasting process. The CODM considers budget-to-actual variances on a monthly basis when making decisions about allocating capital and personnel. The CODM does not review assets in evaluating results, therefore such information is not provided.

The following table summarizes the Company’sone reportable segment profit or loss, including significant segment expenses, and includes the reconciliation to consolidated net (loss) income:

(1)Other segment expenses represent other store, corporate and distribution center expenses including utilities, repairs, supplies, insurance, professional fees and other miscellaneous fees.

10. Subsequent Events

As previously disclosed in the Company’s Form 8-K filed on March 27, 2025, the Company entered into an Amended and Restated Cooperation Agreement (the“Cooperation Agreement”) with Fund 1 Investments, LLC, a Delaware limited liability company (the“Investor”) on March 25, 2025. The Cooperation Agreement amends and restates the cooperation agreement previously entered into by the parties on February 28, 2024.

Pursuant to the Cooperation Agreement, the Company agreed to, among other things, (i) appoint each of Wesley Calvert and Pamela Edwards to the Company’s Board of Directors (the“New Directors”) and (ii) nominate each of the New Directors, and David Heath, Charles Liu and Michael Kvitko for election to the Board at the Company’s 2025 annual meeting of stockholders (the“2025 Annual Meeting”).

The Investor also agreed to certain customary standstill provisions prohibiting it from, among other things, (i) soliciting proxies; (ii) advising or knowingly encouraging any person with respect to the voting or disposition of any securities of the Company, subject to limited exceptions; (iii) making public announcements regarding certain transactions involving the Company; and (iv) taking actions to change or influence the Board, management or the direction of certain Company matters; in each case as further described in the Cooperation Agreement. Until the Termination Date (as defined in the Cooperation Agreement), the Company and the Investor have also agreed to certain mutual non-disparagement provisions.

The Cooperation Agreement will terminate on the date that is 30 days prior to the closing of the window for the submission of stockholder director nominations for the Company’s 2026 annual meeting of stockholders; provided, however, that the Termination Date will be automatically extended to the date that is 30 days prior to the closing of the window for the submission of stockholder director nominations for the Company’s 2027 annual meeting of stockholders if the Company’s stock price meets certain thresholds as described in the Cooperation Agreement.

On April 10, 2025 the Company amended thefive-year,$75 million credit facility with Bank of America to extend the maturity date to April 10, 2030.

The facility provides a$75 million credit commitment and a$25 million uncommitted“accordion” feature that under certain circumstances could allow the Company to increase the size of the facility to$100 million. The facility is secured by the Company’s inventory, accounts receivable and related assets, but not its real estate, fixtures and equipment, and it containsone financial covenant, a fixed charge coverage ratio, which is applicable and tested only in certain circumstances. The facility has an unused commitment fee of 0.25% and permits the payment of cash dividends subject to certain limitations.

Borrowings under the credit facility bear interest (a) for SOFR Loans, at a rate equal to the SOFR Rate plus a SOFR adjustment equal to 0.10% plus either 1.50%,1.75% or 2.00%, or (b) for Base Rate Loans, at a rate equal to the highest of (i) the prime rate, (ii) the Federal Funds Rate plus 0.5% and (iii) the Term SOFR Rate plus 1.0%, plus, in each case either 0.50%,0.75% or 1.00%, based in any such case on the average daily availability for borrowings under the facility.