Big Lots 2007 Annual Report Download - page 97

9
status, currency and exchange rate fluctuations, work stoppages, transportation delays, economic uncertainties
including inflation, foreign government regulations, political unrest, natural disasters, war, terrorism, and trade
restrictions, including retaliation by the United States against foreign practices, political instability, the financial
stability of vendors, merchandise quality issues, tariffs, and other factors relating to foreign trade are beyond
our control. These and other issues affecting our vendors could materially adversely affect our business and
financial performance.
Our inability to properly manage our inventory levels and offer merchandise that our customers want may
materially adversely impact our business and financial performance.
We must maintain sufficient inventory levels to operate our business successfully. However, we also must
guard against accumulating excess inventory as we seek to minimize out-of-stock levels across all product
categories and to maintain appropriate in-stock levels. As stated above, we obtain a quarter of our merchandise
from vendors outside of the United States. These foreign vendors often require lengthy advance notice of our
requirements in order to be able to supply products in the quantities that we request. This usually requires
us to order merchandise, and enter into purchase order contracts for the purchase and manufacture of such
merchandise, well in advance of the time these products are offered for sale. As a result, we may experience
difficulty in responding to a changing retail environment, which makes us vulnerable to changes in price and
in consumer preferences. In addition, even though the lead time to obtain domestically-sourced merchandise
is less, we attempt to maximize our gross margin and operating efficiency by delivering proper quantities of
merchandise to our stores in a timely manner. If we do not accurately anticipate future demand for a particular
product or the time it will take to replenish inventory levels, our inventory levels may not be appropriate and our
results of operations may be negatively impacted.
We may be subject to periodic litigation and regulatory proceedings, including Fair Labor Standards Act
and state wage and hour class action lawsuits, which may adversely affect our business and financial
performance.
From time to time, we may be involved in lawsuits and regulatory actions, including various collective or class
action lawsuits that are brought against us for alleged violations of the Fair Labor Standards Act (“FLSA”)
and state wage and hour laws. Due to the inherent uncertainties of litigation, we may not be able to accurately
determine the impact on us of any future adverse outcome of such proceedings. The ultimate resolution of these
matters could have a material adverse impact on our financial condition, results of operations, and liquidity. In
addition, regardless of the outcome, these proceedings could result in substantial cost to us and may require us
to devote substantial resources to defend ourselves. For a description of certain current legal proceedings, see
note 10 to the accompanying consolidated financial statements.
We may be subject to risks associated with changes in laws, regulations, and accounting standards that may
adversely affect our business and financial performance.
Changes in governmental regulations and accounting standards, including new interpretations and applications of
accounting standards, may have adverse effects on our financial condition, results of operations, and liquidity.
The creditworthiness of our formerly owned KB Toys business may adversely affect our business and
financial performance.
In December 2000, we sold the KB Toys business to KB Acquisition Corporation. On January 14, 2004, KB
Acquisition Corporation and certain affiliated entities (collectively, “KB Toys”) filed for bankruptcy protection
pursuant to Chapter 11 of 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 KB Lease Obligations with respect to approximately 52 KB Toys store leases. If KB Toys fails to
perform on the remaining leases guaranteed or indemnified by us, it could result in a material adverse impact
on our financial condition, results of operations, and liquidity. For additional information regarding the KB Toys
bankruptcy, see note 11 to the accompanying consolidated financial statements.