Big Lots 2007 Annual Report Download

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2007 Big Lots Annual Report

Table of contents

  • Page 1
    2007 Big Lots Annual Report

  • Page 2
    ... 2005 2006 2007 0.0% 0.6% 2005 2006 2007 2.4 2005 2006 2007 $100,000 2005 2006 2007 Earnings from continuing operations per share - diluted (a) (b) Operating profit - % of net sales (a) (b) Inventory turnover (a) Cash ï¬,ow (a) (e) ($ in thousands) 2007 Big Lots Annual Report

  • Page 3
    ... future results, our management believes that the adjusted non-GAAP information is useful for the assessment of our ongoing operations. The Unaudited Adjusted Results should be read in conjunction with our Consolidated Financial Statements and the related Notes contained in our 2007 Form 10-K. The...

  • Page 4
    ... in 47 states. For more than three decades, we've delighted our customers with a vibrant mix of exciting brands, unique products and closeout prices. Big Lots offers new merchandise every week at substantial savings over traditional discount retailers. Shoppers love our unexpected deals. We also...

  • Page 5
    ... on what turned out to be a record year for Big Lots: - We continued to introduce more and more top quality brands like Cuisinart®, Broyhill®, Lego® and Olevia® to our stores, reinforcing our strategy of offering branded product at values you cannot find elsewhere. 2007 Big Lots Annual Report

  • Page 6
    ... better markup, actively worked with our vendors to increase the amount of pre-ticketed and pre-packed goods to lower labor costs, and continued to improve our inventory turnover. - Our store level and distribution center productivity measurements were at all-time highs and our transportation and...

  • Page 7
    ... accident. It's hard work, but it pays off. We know we are still making our business better. We're far from done. And we're focused on the prize. Sincerely, Steven S. Fishman Chairman, CEO and President We on developing a track record of reliability at Big Lots. focus 2007 Big Lots Annual Report

  • Page 8
    ...Prevention & Risk Management Roger D. Erwin Store Operations Shelley L. Rubin Advertising Richard L. Fannin Technology & Data Center Services Michael A. Schlonsky Associate Relations & Risk Management Senior Vice Presidents Lisa M. Bachmann Merchandise Planning/Allocation & Chief Information Of...

  • Page 9
    ... Shareholders of Big Lots, Inc. The Annual Meeting will be held at our corporate offices located at 300 Phillipi Road, Columbus, Ohio, on May 29, 2008, beginning at 9:00 a.m. EDT. The following pages contain the Notice of Annual Meeting of Shareholders and the Proxy Statement. You should review this...

  • Page 10
    ... at the close of business on the record date, March 31, 2008, are entitled to notice of and to vote at the Annual Meeting and any postponement or adjournment thereof. By Order of the Board of Directors, CHARLES W. HAUBIEL II Senior Vice President, Legal and Real Estate, General Counsel and Corporate...

  • Page 11
    ... ELECTION OF DIRECTORS ...GOVERNANCE ...Current Members of the Board ...Board Meetings in Fiscal 2007 ...Role of the Board's Committees ...Audit Committee ...Compensation Committee ...Nominating/Corporate Governance Committee ...Presiding Member of the Board ...Determination of Director Independence...

  • Page 12
    ... of In-Service Executive Compensation ...Employment Agreements ...Post-Termination and Change in Control Arrangements ...Retirement Plans ...Review of Effectiveness ...Our Executive Compensation Program for Fiscal 2007 ...Salary for Fiscal 2007 ...Bonus for Fiscal 2007 ...Equity for Fiscal 2007...

  • Page 13
    ...Bonus and Equity Plans ...Big Lots 2006 Bonus Plan...Big Lots 2005 Long-Term Incentive Plan ...Grants of Plan-Based Awards ...Outstanding Equity Awards at Fiscal Year-End ...Option Exercises and Stock Vested ...Pension Benefits ...Pension Plan and Supplemental Pension Plan ...Pension Benefits Table...

  • Page 14
    ... OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2008 ...SHAREHOLDER PROPOSALS ...ANNUAL REPORT ON FORM 10-K...PROXY SOLICITATION COSTS ...OTHER MATTERS ...BIG LOTS 2005 LONG-TERM INCENTIVE PLAN ... 46 47 47 47 47 47 48 48 48 49 49 49...

  • Page 15
    ... of proxies by the Board of Directors ("Board") of Big Lots, Inc., an Ohio corporation ("we," "us," "our" and "Big Lots"), for use at the 2008 Annual Meeting of Shareholders to be held on May 29, 2008 ("Annual Meeting"), at our corporate offices located at 300 Phillipi Road, Columbus, Ohio at 9:00...

  • Page 16
    ... permitted at the Annual Meeting. Please also note that if you hold your common shares as a beneficial shareholder, you will need to check in at the Annual Meeting registration desk and present a copy of a brokerage or bank statement reflecting your stock ownership as of the record date. How to Vote...

  • Page 17
    ... to the 2005 Incentive Plan (see Proposal Two), and (iii) FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2008 (see Proposal Three). If any other matter properly comes before the Annual Meeting, or if a director nominee named in this...

  • Page 18
    ...Executive Officer and President, Xtreem Creative, Inc. (business planning, marketing planning, and advertising services). Chairman, Chief Executive Officer and President of Big Lots; former President, Chief Executive Officer and Chief Restructuring Officer, Rhodes, Inc. (furniture retailer) - Rhodes...

  • Page 19
    GOVERNANCE Current Members of the Board The members of the Board as of the date of this Proxy Statement, and the committees of the Board on which they serve, are identified below. The Board has standing Audit, Compensation, and Nominating/Corporate Governance Committees. Each committee reports on ...

  • Page 20
    ... the Board, meeting with our chief executive officer ("CEO") to address the matters discussed during the executive session. Determination of Director Independence Pursuant to the Corporate Governance Guidelines, the Board undertook its most recent annual review of director independence in March 2008...

  • Page 21
    ... a prospective director nominee to the Board must send written notice to: Chair of the Nominating/ Corporate Governance Committee, Big Lots, Inc., 300 Phillipi Road, Columbus, Ohio 43228. The written notice must include the prospective nominee's name, age, business address, principal occupation...

  • Page 22
    ... applicable to our directors, nominees for director, officers and employees. The Board and the Nominating/Corporate Governance Committee have also enlisted the assistance of our General Counsel and human resources management to fulfill this duty. The Corporate Governance Guidelines, Code of Business...

  • Page 23
    ...-7325 Big Lots Board of Directors, 300 Phillipi Road, Columbus, Ohio 43228-5311 www.ci-wackenhut.com/getreal.htm Under a process approved by the Nominating/Corporate Governance Committee for handling correspondence received by us and addressed to outside directors, our General Counsel reviews all...

  • Page 24
    ... Plan. Director Compensation Table The following table summarizes the compensation earned by each outside director for his or her Board service in fiscal 2007. Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (f) Name (a) Fees Earned or Paid in Cash ($) (b) Stock Awards...

  • Page 25
    ..., each of the executive officers named in the Summary Compensation Table, and all our executive officers and directors as a group. The assessment of holders of more than five percent of our common shares is based on a review of and reliance upon their respective filings with the SEC. Except as...

  • Page 26
    ... Deferred Compensation table for a discussion of the Big Lots Supplemental Savings Plan. Includes 5,468 common shares owned by Xtreem Creative, Inc., of which Mr. Berman serves as Chairman, Chief Executive Officer and President. In its joint statement on Schedule 13G filed on February 5, 2008...

  • Page 27
    ... Investment Management UK Ltd. In its joint statement on Schedule 13G filed on February 14, 2008, The Bank of New York Mellon Corporation, One Wall Street, 31st Floor, New York, NY 10286, stated that it beneficially owned the number of common shares reported in the table as of December 31, 2007, had...

  • Page 28
    ...value of bonus opportunities and equity awards depends upon our financial performance and the price of our common shares. As a named executive officer's level of responsibility increases, he or she has a more significant amount of compensation at risk through bonus and equity compensation. The Board...

  • Page 29
    ... a high level of executive talent would be impaired. Each of the elements of compensation serves a different role in attracting and retaining executives. Salary serves as a short-term retention tool. Bonus under the Big Lots 2006 Bonus Plan ("2006 Bonus Plan") is based on annual corporate financial...

  • Page 30
    ...outside directors also have discretion, subject to the limitations contained in our bonus and equity plans and the executives' employment agreements, in setting named executive officers' salary, bonus opportunities and equity awards. • Salary Salary is cash compensation and is established annually...

  • Page 31
    ... received by named executive officers during its annual review of the named executive officers' total compensation. We offer most full-time employees medical and dental benefits under the Big Lots Associate Benefit Plan ("Benefit Plan"). We also offer the named executive officers the opportunity to...

  • Page 32
    ... factors considered when evaluating each named executive officer's salary and bonus opportunity change, the Committee reviews the salaries and payout percentages annually and adjustments are made if warranted. See the "Salary for Fiscal 2007" and "Bonus for Fiscal 2007" sections of this CD&A for...

  • Page 33
    ... employment with us would not be adequately served if potential payments to a named executive officer upon termination or change in control were a determinative factor in awarding current compensation. See the "Potential Payments Upon Termination or Change in Control" narrative disclosure and tables...

  • Page 34
    ... 2007 Board meeting, the outside directors discussed with the Committee the form and amount of, and rationale for, the recommended compensation and finalized the compensation awards for the EMC members. Except where we discuss the specifics of a named executive officer's fiscal 2007 compensation...

  • Page 35
    ...-Equity Incentive Plan Compensation" column of the Summary Compensation Table. To formulate bonus compensation for the EMC members, the Committee and the other outside directors considered the same information used to set salary and the annual corporate operating plan set by the Board. In March 2007...

  • Page 36
    ... of their compensation and help to align their personal rewards and motivation with our performance and shareholder value. The stock options awarded to the named executive officers in fiscal 2007 have an exercise price equal to the fair market value of our common shares on the grant date, vest...

  • Page 37
    ..., our CEO and the Committee consult with management from our human resources, finance and legal departments regarding the design and administration of our compensation programs, plans and awards for executives and directors. These members of management provide advice regarding the competitive nature...

  • Page 38
    ... human resources department reviewed each EMC member's responsibilities and mapped, where possible, the compensation of each executive to data that represents the compensation awarded to similarlysituated executives at peer group companies. The Committee compared the total direct compensation levels...

  • Page 39
    ... EMC member through prior equity awards (assuming employment continues, awards vest and the market price of our common shares fluctuates through the life of the awards). While the Committee considered the accumulated total value as a factor in setting fiscal 2007 compensation, this information was...

  • Page 40
    ... equity awards. For equity awards made throughout the fiscal year, generally as a result of a hiring or promotion, the grant date is the date of the related event (i.e., the first day of employment or effective date of promotion). We have no policy of timing the grant date of these mid-year equity...

  • Page 41
    ... considered were revenues, market capitalization, cash flows from operations, total assets, net income, earnings per share growth, price-to-earnings ratio, and shareholder return. The following 16 companies comprise the new peer group used to evaluate executive compensation for fiscal 2008: 99 Cents...

  • Page 42
    ...Waite, Executive Vice President, Human Resources, Loss Prevention and Risk Management John C. Martin, Executive Vice President, Merchandising Lisa M. Bachmann, Senior Vice President, Merchandise Planning/Allocation and Chief Information Officer Year (b) Salary ($) (c) Bonus ($) (d Stock Awards...

  • Page 43
    ...the named executive officers, as more fully described in the tables included with this footnote: i. ii. The reimbursement of taxes related to our payment of healthcare costs covered by the Executive Benefit Plan, long-term disability insurance coverage, and taxable moving expenses; Big Lots matching...

  • Page 44
    ...to the named executive officers, as reflected in the Grants of Plan-Based Awards table that follows. Big Lots 2006 Bonus Plan The 2006 Bonus Plan provides for cash compensation, which is intended to qualify as "performance based compensation" under Section 162(m), to be paid annually when we meet or...

  • Page 45
    ... 2007 - Bonus for Fiscal 2007" sections of the CD&A for more information regarding the 2006 Bonus Plan and the awards made under that plan for fiscal 2007. Big Lots 2005 Long-Term Incentive Plan Since January 1, 2006, all employee equity awards, including those made to the named executive officers...

  • Page 46
    ...named executive officers in fiscal 2007 under the 2006 Bonus Plan and the 2005 Incentive Plan. All Other All Other Stock Estimated Possible Payouts Estimated Future Payouts Closing Option Awards: Under Non-Equity Incentive Under Equity Incentive Plan Market Awards: Exercise Number Plan Awards Awards...

  • Page 47
    ... Equity Awards at Fiscal Year-End The following table sets forth, as of the end of fiscal 2007, all equity awards outstanding under our equity compensation plans for each named executive officer. Option Awards Stock Awards Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares...

  • Page 48
    ... The following table reflects all stock option exercises and the vesting of restricted stock held by each of the named executive officers during fiscal 2007. Option Awards Number of Shares Value Acquired Realized on Exercise on Exercise ($) (#) (c) (b) Stock Awards Number of Shares Value Acquired...

  • Page 49
    ..." section of the MD&A in our Form 10-K regarding the interest rate, mortality rate and other assumptions underlying the calculations in this table. Number of Years Credited Service (#) (c) Present Value of Accumulated Benefit ($) (d) Payments During Last Fiscal Year ($) (e) Name (a) Plan Name...

  • Page 50
    ...be made to a named executive officer participating in the Savings and Supplemental Savings Plans was $9,000 for fiscal 2007. Under the Savings Plan and the Supplemental Savings Plan, a participant who has terminated employment with Big Lots is entitled to all funds in his or her account, except that...

  • Page 51
    ..." section below addresses the rights of the named executive officers under their employment agreements and other compensation arrangements upon a change in control or in the event their employment with us is terminated. The "Estimated Payments if Triggering Event Occurred at Fiscal Year End" section...

  • Page 52
    ...the named executive officers' employment agreements, the 1996 Incentive Plan, the 2005 Incentive Plan, the 2006 Bonus Plan, the Supplemental Pension Plan, and the Supplemental Savings Plan, a "change in control" (and a "change of control," as such term is used interchangeably with "change in control...

  • Page 53
    ... basis had a change in control occurred as the end of fiscal 2007. The closing market price of our common shares on the final trading day on the NYSE during fiscal 2007 was $17.51 per share. This amount does not reflect any equity awards that have vested or have been granted in fiscal 2008...

  • Page 54
    ... with a Change (without Cause Cause Termination Disability Death in Control termination) Salary/Salary Continuation ($) Non-Equity Incentive Plan Compensation ($) Healthcare Coverage ($) Long-Term Disability Benefit ($) Use of Automobile/Automobile Allowance ($) Accelerated Equity Awards ($) Excise...

  • Page 55
    ... with a Change (without Cause Cause Termination Disability Death in Control termination) Salary/Salary Continuation ($) Non-Equity Incentive Plan Compensation ($) Healthcare Coverage ($) Long-Term Disability Benefit ($) Use of Automobile/Automobile Allowance ($) Accelerated Equity Awards ($) Excise...

  • Page 56
    ..., the Board will amend the Director Stock Option Plan so that no additional awards may be made under that plan and future equity awards to our outside directors will be granted under the 2005 Incentive Plan at the discretion of the Committee. Add 2,100,000 common shares to the total number of our...

  • Page 57
    ...For example, modification accounting may apply if, after a 2-for-1 stock split, a company elects (but is not required) to double the number of common shares underlying a preexisting stock option and reduce by one-half the exercise price of the stock option in order to preserve the value of the stock...

  • Page 58
    ... each of the Company's fiscal years that the 2005 Incentive Plan is in effect; plus (iv) 2,100,000 newly issued common shares. The 2005 Incentive Plan provides that the total number of common shares underlying Awards granted under the 2005 Incentive Plan, the Director Stock Option Plan, the expired...

  • Page 59
    ...2005 Incentive Plan may be either NQSOs or ISOs. The exercise price of any stock option granted may not be less than the fair market value of our common shares on the grant date. The stock option exercise price is payable in cash, by certified check, with our common shares, through a broker-assisted...

  • Page 60
    ... after the grant date. Performance unit Awards are payable in cash, our common shares or a combination of both. If cash settlement is made, the amount distributed will be the fair market value of the number of common shares that otherwise would have been distributed to settle the performance...

  • Page 61
    ... our covered employees (i.e., our CEO or our three other highest compensated executives (excluding the principal financial officer) employed at the end of the fiscal year). However, this limit does not apply to "performance based compensation." Any Awards granted under the 2005 Incentive Plan may be...

  • Page 62
    ... made to the named executive officers during fiscal 2007 and each named executive officer's title, see the Summary Compensation Table and the Grants of Plan-Based Awards table in this Proxy Statement. No current outside director has received an Award under the 2005 Incentive Plan. For additional...

  • Page 63
    ... account under Section 162(m) that is in excess of $1,000,000 and paid to our CEO or our three other highest compensated executives (excluding the principal financial officer) employed at the end of the fiscal year. To qualify for this exception, Awards must be granted under the 2005 Incentive Plan...

  • Page 64
    ... dealing with these penalties will be applied if required by the terms of another written agreement (whether currently in effect or adopted in future) with us or any of our subsidiaries (such as an employment or a change in control agreement). Each named executive officer has an employment agreement...

  • Page 65
    ... under the 2005 Incentive Plan is adjusted annually by adding 0.75% of the total number of issued common shares (including treasury shares) as of the start of each of our fiscal years that the 2005 Incentive Plan is in effect. Additionally, the common shares shown in the above table and footnotes...

  • Page 66
    ... directors of the Board. Our common shares are listed on the NYSE. The members of the Audit Committee have been reviewed by the Board and determined to be independent within the meaning of all applicable SEC regulations and the listing standards of the NYSE. The charter of the Audit Committee states...

  • Page 67
    ...(3) Total Fees (1) (2) (3) 1,348 27 296 2 1,673 1,437 115 112 - 1,664 For fiscal 2007, the audit-related fees principally related to accounting consultation. For fiscal 2006, the auditrelated fees principally related to audits of employee benefit plans and accounting consultation. For fiscal 2007...

  • Page 68
    ... in internal procedures and controls. Based on these reviews and discussions, the undersigned members of the Audit Committee recommended to the Board that the audited consolidated financial statements be included in our Annual Report on Form 10-K for fiscal 2007 for filing with the SEC. Members of...

  • Page 69
    ... Relations, Big Lots, Inc., 300 Phillipi Road, Columbus, Ohio 43228-5311. Our Form 10-K may also be accessed in the Investor Relations section of our website (www.biglots.com) under the "SEC Filings" caption. PROXY SOLICITATION COSTS This solicitation of proxies is made by and on behalf of the Board...

  • Page 70
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  • Page 71
    APPENDIX I BIG LOTS 2005 LONG-TERM INCENTIVE PLAN AMENDED AND RESTATED EFFECTIVE MAY 29, 2008

  • Page 72
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  • Page 73
    .... The Big Lots 2005 Long-Term Incentive Plan ("Plan") is hereby established by Big Lots, Inc. ("Company"), effective as of the date it is approved by the Company's shareholders ("Effective Date"). 1.2 Purposes. The Plan is intended to promote the Company's long-term financial success and materially...

  • Page 74
    ... which is designated for the purpose of the Plan. 2.10 "Company" means Big Lots, Inc., an Ohio corporation. 2.110 "Covered Employee" means a Participant whose compensation in the year of the expected payment of an Award will be subject to Code §162(m). 2.121 "Disability" means:, (1) wWith respect...

  • Page 75
    ... the Committee under Article IX. 2.26 "Plan" means the Big Lots 2005 Long-Term Incentive Plan, as herein amended and restated and as may be further amended from time to time. 2.27 "Restatement Date" means May 29, 2008, the date of the Company's 2008 Annual Meeting of Shareholders. 2.284 "Restricted...

  • Page 76
    ... under the Company's 1996 Performance Incentive Plan on December 30, 2005, plus (3) an additional .75 percent of the total number of issued Common Shares (including treasury shares) as of the start of each of the Company's fiscal years (currently comprised of a 52/53-week period which ends on the...

  • Page 77
    ... Section 4.7 shall be made in accordance with the requirements of Code §§ 409A and 424, to the extent applicable. ARTICLE V ELIGIBILITY 5.1 Eligibility. In the Committee's discretion, any salaried employee, consultant or advisor to the Company or its Affiliates or any member of the Board(other...

  • Page 78
    ...Committee) having a total Fair Market Value on the date of delivery equal to the Exercise Price; (b) the delivery of cash by a brokerdealer as a "cashless" exercise, provided this method of payment may not be used by an executive officer of the -6As amended and restated effective May 29, 2008. -6-

  • Page 79
    ... Shares to be issued pursuantsubject to the Option a number of Common Shares having a total Fair Market Value as of the date of exercise equal to the Exercise Price; or (d) any combination of the foregoing. 6.3 Effect of Termination of Employment. Unless otherwise specifically provided in an Award...

  • Page 80
    ... has been made under Section 13.17 of the Plan. (c) Forfeiture. Unless otherwise specifically provided in the Award Agreement, all Restricted Stock will be forfeited if the Participant Terminates Employment before the end of the Restriction Period or if applicable terms and conditions have not...

  • Page 81
    .... If all or part of any Performance Unit Award is to be settled in cash, the amount distributed will be equal to the Fair Market Value (as of the settlement date specified in the Award Agreement) of the number of Common Shares that otherwise would have been distributed to settle the Performance Unit...

  • Page 82
    ...inaugural Performance Period in the case of an employee who first becomes a Participant after the beginning of a fiscal year of the Company) over which their achievement will be measured, the method for computing the value of the Award that may be earned if (and to the extent that) those performance...

  • Page 83
    ..., Affiliate, business unit, business group, business venture or legal entity, including any combination thereof, or controlled directly or indirectly by the Company whether or not such information is included in the Company's annual report to shareholders, proxy statement or notice of annual meeting...

  • Page 84
    ..., or other non-GAAP financial measures (not otherwise listed); or (38) Any change in accounting principle as described in APB No. 20SFAS No. 154, as amended, revised or superseded; or (39) Unrealized gains or losses on investments in debt and equity securities as described in SFAS No. 115, as...

  • Page 85
    ... or cash subject to such Award shall be fully distributable. 11.2 Effect of Code §280G. Except as otherwise provided in the Award Agreement or any other written agreement between the Participant and the Company or any Affiliate in effect on the date of the Change in Control, if the sum (or value...

  • Page 86
    ... under the Company's policy for determining specified employees, on the date of his or her "separation from service" (as that phrase is used for purposes of Code §409A), all Awards subject to Code §409A shall be paid, distributed or settled, as applicable, on the first business day of the...

  • Page 87
    ... in Substitution for Awards Granted by Other Corporations. Awards may be granted under the Plan from time to time in substitution for awards held by employees, directors or service providers of other corporations who are about to become officers or employees of the Company or an Affiliate (and will...

  • Page 88
    ... of thisthe Plan shall control. 13.16 Term. No Award shall be granted under the Plan after May 16, 2012. 13.17 Application of Section 83(b). At the Committee's discretion, any Participant may make an early inclusion election under Code §83(b) but only by complying with procedures developed by...

  • Page 89
    ... executive officers and directors are "affiliates" of the Registrant) was $2,506,932,554 on August 4, 2007, the last business day of the Registrant's most recently completed second fiscal quarter (based on the closing price of the Registrant's Common Shares on such date as reported on the New York...

  • Page 90
    BIG LOTS, INC. FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2008 TABLE OF CONTENTS PART I Business ...Risk Factors ...Unresolved Staff Comments...Properties ...Legal Proceedings ...Submission of Matters to a Vote of Security Holders ...Supplemental Item - Executive Officers of the Registrant ......

  • Page 91
    ... At February 2, 2008, we operated a total of 1,353 stores in 47 states. Our goal is to strengthen and build upon our leadership position in broadline closeout retailing by providing our customers with great savings on brand-name closeouts and other value-priced merchandise. You can locate us on the...

  • Page 92
    ... stores operate in four states: California, Texas, Ohio, and Florida, and sales in these states represent 39% of our 2007 net retail sales. Associates At February 2, 2008, we had 38,153 active associates comprised of 14,113 full-time and 24,040 part-time associates. Temporary associates hired during...

  • Page 93
    ... service and convenience to our vendors. Our sourcing channels also include bankruptcies, liquidations, and insurance claims. We supplement our traditional brand-name closeout purchases with various direct import and domestically-sourced merchandise in departments such as furniture, home decorative...

  • Page 94
    ... seasons and the timing and amount of sales to our customers. Available Information We make available, free of charge, through the "Investor Relations" section of our website (www.biglots.com) under the "SEC Filings" caption, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current...

  • Page 95
    ..., if any, our Code of Business Conduct and Ethics (to the extent applicable to our directors and executive officers) and our Code of Ethics for Financial Professionals in the "Investor Relations" section of our website (www.biglots.com) under the "Corporate Governance" caption. We will provide any...

  • Page 96
    ... particularly important as approximately 37% of our current stores operate in these states and 39% of our 2007 net retail sales occurred in these states. Changes by vendors related to the management of their inventories may reduce the quantity and quality of brand-name closeout merchandise available...

  • Page 97
    ... title 11 of the United States Code. At the time of the bankruptcy filing, we had indemnification and guarantee obligations ("KB Lease Obligations") with respect to approximately 390 KB Toys store leases and other real property leases. KB Toys emerged from bankruptcy during 2005. We continue to have...

  • Page 98
    ...to execute our other business strategies. If we are unable to successfully implement SAP for Retail, it may have an adverse effect on our capital resources, financial condition, results of operations, and liquidity. If we are unable to retain suitable store locations under favorable lease terms, our...

  • Page 99
    ... employees; Our ability to establish effective advertising, marketing, and promotional programs; and Other risks described from time to time in our filings with the SEC. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Retail Operations All of our stores are located in the United States...

  • Page 100
    ... locations. Expiring Leases Leases Without Options Fiscal Year: 2008 ...2009 ...2010 ...2011 ...2012 ...Thereafter ...Warehouse and Distribution 237 272 238 211 176 169 36 43 35 27 14 13 At February 2, 2008, we operated five regional closeout distribution centers and two furniture distribution...

  • Page 101
    ... for marketing, merchandise presentation, and sales promotion. Prior to joining us in 2005, Mr. Claxton served as General Manager and Executive Vice President of Initiative Media, an advertising and communications company, and Chief Marketing Officer and Senior Vice President of Montgomery...

  • Page 102
    ..., accounts payable, and inventory control. Mr. Schroeder joined us as Director, Accounting Operations in April 2005, and was promoted to Vice President, Controller in September 2005. Prior to joining us, Mr. Schroeder was Director of Finance at American Signature, Inc., a furniture retailer, and...

  • Page 103
    ... PURCHASES OF EQUITY SECURITIES Effective August 18, 2006, our common shares were listed on the New York Stock Exchange ("NYSE") under the symbol "BIG." Prior to the August 18, 2006 change, our symbol on the NYSE was "BLI." The following table reflects the high and low sales prices per common share...

  • Page 104
    ... balance sheet. The repurchased common shares in 2006 and 2007 were placed into treasury and are used for general corporate purposes including the issuance of shares related to employee benefit plans. At the close of trading on the NYSE on March 28, 2008, there were approximately 1,127 registered...

  • Page 105
    ... Five Year Total Return $250 $200 $150 $100 $50 $0 Jan03 Jan04 Jan05 Jan06 Jan07 Jan08 Big Lots, Inc. S&P 500 Index S&P 500 Retailing Index Indexed Returns Years Ending Base Period January 2003 Company / Index January 2004 January 2005 January 2006 January 2007 January 2008 Big Lots...

  • Page 106
    ...-average common shares outstanding: Basic...Diluted ...Balance sheet data: Total assets ...Working capital ...Cash and cash equivalents ...Long-term obligations ...Shareholders' equity...Cash flow data: Cash provided by operating activities ...Cash used in investing activities ...Store data: Total...

  • Page 107
    ...the results from 2007 (52 weeks) that we believe are key indicators of our operating performance when compared to our operating performance in 2006 (53 weeks Comparable store sales for stores open at least two years at the beginning of 2007 increased 2.0%. Sales per selling square foot were $158 in...

  • Page 108
    ...fourth fiscal quarter. In addition, our quarterly results can be affected by the timing of new store openings and store closings, the amount of sales contributed by new and existing stores, the timing of television and circular advertising, and the timing of certain holidays. We purchase substantial...

  • Page 109
    ..., real estate, and operating expenses. Merchandising We developed our merchandise strategy with the goals of growing sales per square foot and increasing gross margin dollars. Our customer surveys have found that brand name merchandise, the "treasure hunt" experience, price, value, and savings were...

  • Page 110
    ... to market to our Buzz Club, with a free online membership and by aggressively signing up new members and alerting them to new merchandise and offerings in our stores. In 2005, as part of a review of our merchandising strategy, we: 1) closed our stand-alone furniture stores; 2) executed a series...

  • Page 111
    ...in our general office, field operations, and distribution centers. Certain resources were realigned based on the 2005 store closings and further net store closures expected in the near term. Additionally, some redundancies between our closeout store operations and our furniture store operations were...

  • Page 112
    ... most directly match our internal management and reporting of merchandise net sales results: Consumables, Home, Furniture, Hardlines, Seasonal, and Other. See Item 1, Business of this Form 10-K for a more detailed description of each category. Effective for the first quarter of 2007, we use these...

  • Page 113
    ... and outbound transportation cost savings have been achieved through certain management initiatives including, but not limited to, improvements in furniture distribution, more efficient scheduling of labor used in the distribution centers, lower health and welfare plan expense, as discussed above...

  • Page 114
    ... and Related Information. Prior period amounts presented have been reclassified to conform to the current year presentation. Net sales by product category, net sales by product category as a percentage of total net sales, and net sales change in dollars and percentage in 2006 compared to 2005, as...

  • Page 115
    ... some redundancies between closeout and furniture store operations; and 4) various initiatives aimed at improving efficiency at our stores and distribution centers including tightly managed payroll budgets, the initiation of a vendor compliance program, and merchandising strategies aimed at getting...

  • Page 116
    ... and 2005 results of operations of the 130 stores, $0.6 million, net of tax, of income for the reversal of liabilities associated with the KB Toys business, and $1.0 million, net of tax, associated with the write-down of the Pittsfield, Massachusetts distribution center to fair value less selling...

  • Page 117
    ...the new health and welfare plan provider in 2007 that makes claim payments in a more timely manner, lower accrued bonus primarily due to the lower rate of achievement of general office and store performance objectives in 2007, and lower sales taxes payable primarily driven by the 53rd week in fiscal...

  • Page 118
    ... income tax refunds in 2006 related primarily to the overpayment of taxes in 2005 and had income taxes payable of approximately $28.0 million at the end of 2006. We improved our accounts payable leverage principally by extending payment terms to foreign vendors. Cash used in investing activities was...

  • Page 119
    ...$149.9 million of purchase obligations is primarily related to distribution and transportation, information technology, print advertising, and other store security, supply, and maintenance commitments. Other long-term liabilities include $23.8 million for expected pension plan contributions, our $13...

  • Page 120
    ... merchandise department. Cost factors represent the average cost-to-retail ratio for each merchandise department based on each department's average cost-to-retail ratio for beginning inventory and for current fiscal year purchase activity. The average cost retail inventory method requires management...

  • Page 121
    ... results of cash flows adjusted for management projections for future periods. We estimated the fair value of our long-lived assets using readily available market information for similar assets. When material, we classify the results of operations of closed stores to discontinued operations when the...

  • Page 122
    ...adoption, the benefit of tax deductions in excess of recognized compensation cost is reported as a financing cash flow rather than as an operating cash flow. We value and expense stock options with graded vesting as a single award with an average estimated life over the entire term of the award. The...

  • Page 123
    .... Management makes estimates, judgments, and assumptions with respect to the use of these actuarially-based calculations, including but not limited to, estimated health care cost trends, estimated lag time to report and pay claims, average cost per claim, network utilization rates, network discount...

  • Page 124
    ... 2007 net sales on our consolidated statements of operations. The liability for the unredeemed cash value of gift cards is recorded in accrued operating expenses. We offer price hold contracts on selected furniture merchandise. Revenue for price hold contracts is recognized when the customer makes...

  • Page 125
    ... for our estimated applicable portion of real estate taxes, CAM, and property insurance incurred but not settled at each reporting date. We estimate these accruals based on historical payments made and take into account any known trends. Inherent in these estimates is the risk that actual costs...

  • Page 126
    ... AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to market risk from exposure to changes in interest rates on investments that we make from time to time and on borrowings under the Credit Agreement. We had no fixed rate long-term debt at February 2, 2008. An increase of 1% in...

  • Page 127
    ... SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Big Lots, Inc. Columbus, Ohio We have audited the internal control over financial reporting of Big Lots, Inc. and subsidiaries (the "Company") as of February 2, 2008, based on...

  • Page 128
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Big Lots, Inc. Columbus, Ohio We have audited the accompanying consolidated balance sheets of Big Lots, Inc. and subsidiaries (the "Company") as of February 2, 2008 and February 3, 2007, and the ...

  • Page 129
    BIG LOTS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share information) 2007 2006 2005 Net sales ...Cost of sales ...Gross margin ...Selling and administrative expenses ...Depreciation expense ...Operating profit ...Interest expense ...Interest and ...

  • Page 130
    ... lease obligation ...Accrued salaries and wages ...Income taxes payable ...Total current liabilities ...Long-term obligations ...Deferred rent ...Insurance reserves ...Unrecognized tax benefits...Other liabilities ...Shareholders' equity: Preferred shares - authorized 2,000 shares; $0.01 par value...

  • Page 131
    ...- Purchases of common shares ...(30,059) - Exercise of stock options ...2,742 - Restricted shares awarded ...286 - Tax benefit from sharebased awards ...- - Sale of treasury shares used for deferred compensation plan ...80 - Share-based employee compensation expense ...- - Balance - February 2, 2008...

  • Page 132
    ...long-term obligations, including capital leases...Proceeds from the exercise of stock options ...Excess tax benefit from share-based awards ...Payment for treasury shares acquired ...Structured share repurchase ...Treasury shares sold (acquired) for deferred compensation plan...Proceeds from finance...

  • Page 133
    ... retailer. At February 2, 2008, we operated a total of 1,353 stores in 47 states. Our goal is to strengthen and build upon our leadership position in broadline closeout retailing by providing our customers with great savings on brand-name closeouts and other value-priced merchandise. You can locate...

  • Page 134
    ... merchandise department's retail selling value. Cost factors represent the average cost-to-retail ratio computed using beginning inventory and all fiscal year-to-date purchase activity specific to each merchandise department. Payments Received from Vendors Payments received from vendors relate...

  • Page 135
    ... cash flows adjusted for management projections for future periods. We estimate the fair value of our long-lived assets using readily available market information for similar assets. Closed Store Accounting We recognize an obligation for the fair value of lease termination costs when we cease using...

  • Page 136
    ... benefit pool. The benefit of tax deductions in excess of recognized compensation cost is reported as a financing cash flow rather than as an operating cash flow. We value and expense stock options with graded vesting as a single award with an average estimated life over the entire term of the award...

  • Page 137
    ... table presents net loss and earnings per share if the fair value method had been applied to all outstanding and unvested stock options for 2005: 2005 (In thousands, except per share amounts) Net loss: As reported ...Total share-based employee compensation expense determined under fair value method...

  • Page 138
    ...measure defined benefit plan assets and obligations as of the date of our year-end consolidated balance sheet. Currently, our pension plans have a measurement date of December 31. Switching to the new measurement date will require a one-time adjustment to retained earnings in 2008 per the transition...

  • Page 139
    ... 2007 net sales on our consolidated statements of operations. The liability for the unredeemed cash value of gift cards is recorded in accrued operating expenses. We offer price hold contracts on selected furniture merchandise. Revenue for price hold contracts is recognized when the customer makes...

  • Page 140
    .... Diluted earnings per share is based on the weighted-average number of shares outstanding during each period and the additional dilutive effect of stock options and nonvested restricted stock awards, calculated using the treasury stock method. Store Pre-opening Costs Pre-opening costs incurred...

  • Page 141
    ...be applied consistently for most accounting applications and also generally describes and prioritizes, according to reliability, the methods and inputs used in valuations. SFAS No. 157 prescribes additional disclosures regarding the extent of fair value measurements included in a company's financial...

  • Page 142
    ... book value of the old register system equipment is $0.5 million and will be depreciated in 2008 upon the completion of the register system implementation. In 2005, depreciation expense for the 130 closed stores reported in discontinued operations was $12.2 million. Note 3 - Long-Term Obligations...

  • Page 143
    ... of our retail stores, certain warehouse space, certain transportation equipment, and certain information technology and other office equipment. Many of the store leases obligate us to pay for our applicable portion of real estate taxes, CAM, and property insurance. Certain store leases provide for...

  • Page 144
    ...and office equipment, included in accrued operating expenses and other liabilities on our consolidated balance sheet. Scheduled payments for all capital leases at February 2, 2008, were as follows: Fiscal Year (In thousands) 2008 ...2009 ...2010 ...2011 ...2012 ...Thereafter ...Total lease payments...

  • Page 145
    ... employee and director stock options and nonvested restricted stock awards. A reconciliation of the number of weighted-average common shares outstanding used in the basic and diluted earnings per share computations is as follows: 2007 (In thousands) 2006 2005 Weighted-average common shares...

  • Page 146
    ...-weighted average trading price) on the grant date. The stock options generally vest ratably over a four-year or five-year period; however, upon a change in control, all awards outstanding automatically vest. In addition to the 2005 Incentive Plan, we maintain the Big Lots Director Stock Option Plan...

  • Page 147
    ... compensation expense in 2005 as disclosed in note 1 to these consolidated financial statements. Additionally, the Committee imposed a holding period that requires all directors, executive vice presidents, and senior vice presidents (including our named executive officers other than Mr. Fishman...

  • Page 148
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 7 - Share-Based Plans (Continued) A summary of the annual stock option activity for fiscal years 2005, 2006, and 2007 is as follows: Weighted Average Remaining Contractual Term (years) Options Price(a) ...

  • Page 149
    ... on the opening of our first trading window five years after the grant date of the award. If we meet a higher financial performance objective and the grantee remains employed by us, the restricted stock will vest on the first trading day after we file our Annual Report on Form 10-K with the SEC for...

  • Page 150
    ...return and/or reducing risk. The targeted ranges of asset allocations are: Equity securities ...Debt Securities ...Cash Equivalents ...45-70% 30-55% up to 25% As permitted by our pension investment policy, equity securities may include our common shares. At the end of the two most recent plan years...

  • Page 151
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 8 - Employee Benefit Plans (Continued) Weighted-average assumptions used to determine net periodic benefit expense were: 2007 2006 2005 Discount rate ...Rate of increase in compensation levels...Expected ...

  • Page 152
    ... of year...Service cost...Interest cost...Plan amendments ...Benefits and settlements paid ...Actuarial loss (gain) ...Projected benefit obligation at end of year...Change in plan assets: Fair market value at beginning of year...Actual return on plan assets ...Employer contributions ...Benefits and...

  • Page 153
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 8 - Employee Benefit Plans (Continued) The following table sets forth certain information for the Pension Plan and the Supplemental Pension Plan at December 31: Pension Plan 2007 2006 (In thousands) ...

  • Page 154
    ... federal income tax rate and the effective income tax rate was as follows: 2007 2006 2005 Statutory federal income tax rate ...Effect of: State and local income taxes, net of federal tax benefit ...Work opportunity tax and other employment tax credits ...Net benefit recognized for prior year FIN No...

  • Page 155
    ... insurance reserves ...Uniform inventory capitalization ...Compensation related ...Accrued rent ...Accrued state taxes ...State tax net operating losses, net of federal tax benefit ...KB store lease and other discontinued operations contingencies...Valuation allowances ...Other ...Total deferred...

  • Page 156
    ... between the fair market value of the stock issued at the time of exercise and the option price. These benefits of $19.8 million in 2007, $11.9 million in 2006, and $0.3 million in 2005 were credited directly to shareholders' equity. The following is a tabular reconciliation of the total amounts of...

  • Page 157
    ...filed against us in United States District Court for the Eastern District of Texas, Texarkana Division, wherein it was alleged that we had violated the Fair Labor Standards Act regulations by misclassifying as exempt employees our furniture department managers, sales managers, and assistant managers...

  • Page 158
    ... accompanying consolidated financial statements. We are self-insured for certain losses relating to property, general liability, workers' compensation, and employee medical and dental benefit claims, a portion of which is paid by employees, and we have purchased stop-loss coverage in order to limit...

  • Page 159
    ... purchase obligations is primarily related to distribution and transportation, information technology, print advertising, and other store security, supply, and maintenance commitments. Note 11 - Discontinued operations We report discontinued operations upon disposition of a component of our business...

  • Page 160
    ... operations accounting treatment. We recorded markdowns throughout the year in the normal course of business. The markdowns associated with the liquidation sales were the only markdowns included in the exit liability table above. As of February 2, 2008, we had 17 closed stores with leases...

  • Page 161
    ... any KB Toys lease or mortgage obligation. While we controlled the KB Toys business, we provided guarantees with respect to a limited number of additional KB Toys store leases. As part of the sale of the KB Toys business by us, and in accordance with the terms of the KB Stock Purchase Agreement, KB...

  • Page 162
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 11 - Discontinued operations (Continued) 2003 and $8.6 million with respect to 72 leases rejected by KB Toys in 2004. In 2005, an additional 33 store leases and two distribution center leases were rejected. ...

  • Page 163
    ... six merchandise categories most directly match our internal management and reporting of merchandise net sales results: Consumables, Home, Furniture, Hardlines, Seasonal, and Other. Effective for the first quarter of 2007, we use these six categories externally to report net sales information by...

  • Page 164
    ... weeks. Summarized quarterly financial data for 2007 and 2006 was as follows: Fiscal Year 2007 (In thousands, except per share amounts) (a) First Second Third Fourth Year Net sales ...Gross margin ...Income from continuing operations ...Income from discontinued operations ...Net income ...Earnings...

  • Page 165
    ... to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control system as of February 2, 2008. In making its assessment, management used the...

  • Page 166
    ... MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information The information contained under the captions "Proposal Two: Approval of Amendment to the Big Lots 2005 Long-Term Incentive Plan - Equity Compensation Plan Information" and "Stock Ownership" in the 2008 Proxy Statement...

  • Page 167
    ... statements or notes thereto. BIG LOTS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Beginning of Year Charged to Cost and Expense Charged to Other Accounts Description (In thousands) Deductions End of Year Inventory Valuation Allowance Fiscal year ended February 2, 2008...

  • Page 168
    ... to our Form 10-Q for the quarter ended August 3, 2002). Form of Option Award Agreement under the Big Lots, Inc. Amended and Restated Director Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated September 9, 2004). Big Lots 2006 Bonus Plan (incorporated herein...

  • Page 169
    ... 1, 2008 (incorporated herein by reference to Exhibit 10.2 to our Form 8-K dated August 28, 2007). Big Lots Executive Benefit Plan (incorporated herein by reference to Exhibit 10(m) to our Form 10-K for the year ended January 31, 2004). Big Lots, Inc. Non-Employee Director Compensation Package...

  • Page 170
    ...for the year ended February 3, 2007). Security Agreement between Big Lots Stores, Inc. and Big Lots Capital, Inc. (incorporated herein by reference to Exhibit 10.2 to our Form 8-K dated October 29, 2004). Stock Purchase Agreement between KB Acquisition Corporation and Consolidated Stores Corporation...

  • Page 171
    ...the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 1st day of April 2008. BIG LOTS, INC. By: /s/ Steven S. Fishman Steven S. Fishman Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of...

  • Page 172
    ... Name Jurisdiction Big Lots Stores, Inc. C.S. Ross Company BLSI Property, LLC Big Lots Capital, Inc. Durant DC, LLC CSC Distribution, Inc. Closeout Distribution, Inc. Consolidated Property Holdings, Inc. Midwestern Home Products, Inc. Midwestern Home Products Company, Ltd. Tool and Supply Company...

  • Page 173
    ... internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended February 2, 2008. 1) 2) 3) 4) 5) Post-Effective Amendment No. 1 to Registration Statement No. 33-42502 on Form S-8 pertaining to Big Lots, Inc. Director Stock Option Plan; Post...

  • Page 174
    ...undersigned's name and behalf and in any and all capacities stated below, and to cause to be filed with the Securities and Exchange Commission (the "Commission"), the Company's Annual Report on Form 10-K (the "Form 10-K") for the fiscal year ended February 2, 2008, and likewise to sign and file with...

  • Page 175
    ... CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven S. Fishman, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Big Lots, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state...

  • Page 176
    ... information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Joe R. Cooper Joe R. Cooper Senior Vice President and Chief Financial Officer b) Dated: April 1, 2008

  • Page 177
    ... the annual report on Form 10-K (the "Report") for the year ended February 2, 2008, of Big Lots, Inc. (the "Company"). I, Steven S. Fishman, Chairman of the Board, Chief Executive Officer and President of the Company, certify that: (i) (ii) the Report fully complies with the requirements of Section...

  • Page 178
    ...the annual report on Form 10-K (the "Report") for the year ended February 2, 2008, of Big Lots, Inc. (the "Company"). I, Joe R. Cooper, Senior Vice President and Chief Financial Officer of the Company, certify that: (i) (ii) the Report fully complies with the requirements of Section 13(a) or Section...

  • Page 179
    ...Company Information Transfer Agent & Registrar National City Bank Shareholder Services Operations P.O. Box 92301 Cleveland, Ohio 44101-4301 (888) 622-6757 [email protected] NYSE Trading Symbol Investment Inquiries Investor Relations Department 300 Phillipi Road Columbus, Ohio...

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    visit us at www.biglots.com