Big Lots 2009 Annual Report Download - page 143

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Depreciation Expense
Depreciation expense decreased $3.7 million, or 4.7%, to $74.9 million in 2009 compared to $78.6 million for
2008. The decrease in depreciation expense was principally related to our stores and was due to assets becoming
fully depreciated since the prior year. Many of these fully depreciated assets were placed in service in 2003
or 2004 and had five-year estimated service lives. Compared to more recent years, capital expenditures were
significantly higher in 2003 and 2004, principally due to store remodels and a higher number of store openings
in 2003 and 2004.
For 2010, we expect capital expenditures of approximately $115 million. Using this assumption and the run rate
of depreciation on our existing property and equipment, we expect 2010 depreciation expense to be $80 million
to $85 million, which would represent an increase from the $74.9 million of depreciation expense in 2009.
Interest Expense
Interest expense decreased $3.5 million to $1.8 million in 2009 compared to $5.3 million in 2008. The decrease
in interest expense was principally due to lower average borrowings (including capital leases) of $8.6 million in
2009 compared to average borrowings of $151.8 million in 2008. The higher average borrowings in 2008 were
driven principally by the acquisition of our common shares under our publicly announced share repurchase
programs which were completed in 2008. In 2009, cash flow provided by operations was sufficient to repay the
borrowings under the 2009 Credit Agreement in the fourth fiscal quarter. Our average effective interest rate of
1.8% in 2009 was lower than our average effective interest rate of 3.5% in 2008. The decrease in the average
effective interest rate, which resulted from generally lower rates in the overall short-term interest rate markets,
decreased our interest expense by approximately $0.1 million in 2009.
Interest and Investment Income
Interest and investment income increased $0.1 million in 2009 to $0.2 million compared to $0.1 million in
2008. The increase in interest and investment income was caused by the increase in funds available to invest in
2009 compared to 2008, partly offset by a decrease in investment yield. Our average invested amount in 2009
was $68.9 million compared to $3.6 million in 2008. In 2009, we invested primarily in deposits with financial
institutions and highly liquid investments, including money market funds and variable rate demand notes. We
held $245.0 million of investments at the end of 2009.
Income Taxes
Our effective income tax rate on income from continuing operations was 37.7% for 2009 compared to 38.0%
for 2008. The net decrease in 2009 was primarily driven by the release of the valuation allowance on unrealized
capital losses in contrast to an increase in the valuation allowance in 2008.
We anticipate our 2010 effective income tax rate to be within a range of 38.0% to 39.0%.
Discontinued Operations
Loss from discontinued operations was $1.0 million, net of tax, in 2009 compared to $3.3 million, net of
tax, in 2008. The 2009 loss from discontinued operations was primarily due to the KB-II Bankruptcy Lease
Obligations (see note 11 to the accompanying consolidated financial statements). In the fourth fiscal quarter of
2009, we obtained assignment of a lease for the former KB-II corporate office and recorded a charge of $0.7
million, net of tax, in loss from discontinued operations. The remaining $0.3 million loss from discontinued
operations, net of tax, in 2009 pertained to other KB-II Bankruptcy Lease Obligations. KB-II declared
bankruptcy again in December 2008. As a result of this bankruptcy filing, KB-II rejected 31 store leases
for which we believe we have an indemnification obligation. The 2008 loss from discontinued operations of
$3.3 million, net of tax, was comprised of $3.0 million, net of tax, for the KB-II Bankruptcy Lease Obligations
and $0.3 million, net of tax, for exit-related costs on the remaining 2005 closed stores which met the criteria for
classification as discontinued operations.