Big Lots 2007 Annual Report Download - page 114

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26
Discontinued Operations
We recorded income from discontinued operations of $7.3 million in 2007 compared to $11.4 million in
2006. The income from discontinued operations in 2007 was principally comprised of the release of our KB
bankruptcy lease obligation (as defined in note 11 to the accompanying consolidated financial statements) of
$6.6 million, net of tax, 2) the recognition of $1.1 million of proceeds, net of tax, from the bankruptcy trust as
recovery for prior charges incurred by us for KB bankruptcy lease obligations and the Pittsfield, Massachusetts
distribution center (formerly owned by KB Toys) mortgage guarantee, and 3) exit-related costs on the 130 closed
stores of $0.6 million, net of tax, related to expenses on the portion of the 130 stores where the leases have not
been terminated. The income from discontinued operations in 2006 was principally comprised of the partial
release of our KB bankruptcy lease obligation of $8.7 million, net of tax, and the release of KB Toys-related
income tax and sales tax indemnification liabilities of $4.7 million, net of tax, which were partially offset by a
loss on the sale of the Pittsfield, Massachusetts distribution center of approximately $1.4 million, net of tax and
exit-related costs on the 130 closed stores of $1.6 million, net of tax, including a $0.7 million, pretax pension
settlement charge and expenses on the portion of the 130 stores where the leases had not been terminated.
2006 Compared to 2005
Net Sales
Net sales increased 7.1% to $4,743.0 million in 2006 compared to $4,429.9 million in 2005. This net sales
increase of $313.1 million was principally due to a 4.6% increase in comparable store sales and sales made
during the 53rd week in 2006. From a merchandise perspective, the Consumables, Furniture, and Hardlines were
the best performing categories. Within the Consumables category, sales of food and health and beauty products
drove the increase which was partially offset by the decline in sales of frozen food, which we discontinued in
2005. Within the Furniture category, sales of upholstery and mattresses drove the increase. Within the Hardlines
category, sales of electronics drove the increase.
As previously discussed, effective for the first quarter of 2007, we use six categories externally to report net
sales information by each merchandise group in accordance with the requirements of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. Prior period amounts presented have been
reclassified to conform to the current year presentation.
Net sales by product category, net sales by product category as a percentage of total net sales, and net sales
change in dollars and percentage in 2006 compared to 2005, as reclassified, were as follows:
2006 2005 Change
($ in thousands)
Consumables ....................... $1,317,095 27.8% $1,225,798 27.7% $91,297 7.4%
Home ............................. 842,974 17.8 785,352 17.7 57,622 7.3
Furniture .......................... 681,952 14.4 599,664 13.5 82,288 13.7
Hardlines .......................... 645,338 13.6 587,304 13.3 58,034 9.9
Seasonal ........................... 584,762 12.3 575,374 13.0 9,388 1.6
Other ............................. 670,927 14.1 656,413 14.8 14,514 2.2
Net sales ......................... $4,743,048 100.0% $4,429,905 100.0% $313,143 7.1%
Gross Margin
Gross margin dollars increased 9.2% to $1,891.4 million in 2006 compared to $1,731.7 million in 2005. We
achieved our stated goal to increase gross margin dollars as gross margin improved by $159.7 million principally
due to a combination of higher net sales and a slightly higher gross margin rate. Gross margin as a percentage
of net sales was 39.9% in 2006 compared to 39.1% in 2005. This gross margin rate increase of 80 basis points
was primarily due to an improvement in the initial mark up of merchandise purchased in 2006 compared to
purchases in 2005. This improvement is primarily attributed to our merchandising strategies as previously
discussed. Our inventory turnover improved to 3.4 turns in 2006 compared to 3.0 turns in 2005.