Big Lots 2010 Annual Report Download

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Big Lots, Inc. 2010 Annual Report

Table of contents

  • Page 1
    Big Lots, Inc. 2010 Annual Report

  • Page 2
    ...Financial Ratios Cash and cash equivalents Inventories Property and equipment - net Total assets Borrowings under bank credit facility Shareholders' equity Working capital (b) Current ratio Inventory turnover Bank borrowings to total capitalization Return on assets - continuing operations (a) Return...

  • Page 3
    ... 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 Form 10-K for fiscal year 2010. The 2009...

  • Page 4
    ... 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 carry attractive, affordable furniture, home furnishings, seasonal merchandise and hundreds of...

  • Page 5
    ... store format - customers who may not have a Big Lots store in their normal shopping pattern. I feel particularly good about our direction in real estate and the sales volume we're experiencing in our new locations. We grew sales productivity and gross margin dollars. Our discretionary merchandise...

  • Page 6
    ... store operations given our new store growth plans for the future. Continuous improvement in this area will forever be the goal ...we will never be done. From a marketing perspective, we're now approaching eight million active Buzz Club Rewards members, and the program continues to build. We're busy...

  • Page 7
    ... best products for the best possible price and providing a pleasant shopping experience. We are investing in our Buzz Club Rewards program to better understand our customer, and we are focused on improving the shopping experience and customer service aspects of our business. ® For our associates...

  • Page 8
    ... Information Technology Development Fred L. Fox Divisional Merchandise Manager Steven S. Fishman Chairman, Chief Executive Officer & President Big Lots, Inc. William R. Gleussner Executive Vice Presidents Lisa M. Bachmann Supply Chain Management & Chief Information Officer Store Operations...

  • Page 9
    ... be held at our corporate offices located at 300 Phillipi Road, Columbus, Ohio, on May 26, 2011, 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 material for information concerning the business to be...

  • Page 10

  • Page 11
    ...to vote at the Annual Meeting and any postponement or adjournment thereof. By Order of the Board of Directors, CHARLES W. HAUBIEL II Executive Vice President, Legal and Real Estate, General Counsel and Corporate Secretary April 12, 2011 Columbus, Ohio _____ Your vote is important. Shareholders are...

  • Page 12

  • Page 13
    ... Leadership and Presiding Director ...Board Meetings in Fiscal 2010 ...Role of the Board's Committees ...Audit Committee ...Compensation Committee ...Nominating / Corporate Governance Committee ...Strategic Planning Committee ...Selection of Nominees by the Board ...Majority Vote Policy and Standard...

  • Page 14
    ...Internal Pay Equity ...Minimum Share Ownership Requirements ...Equity Grant Timing ...Tax and Accounting Considerations ...Our Executive Compensation Program for Fiscal 2011 ...Summary Compensation Table ...Bonus and Equity Plans ...Big Lots 2006 Bonus Plan...Big Lots 2005 Long-Term Incentive Plan...

  • Page 15
    ... in Fiscal 2010 ...Outstanding Equity Awards at 2010 Fiscal Year-End ...Option Exercises and Stock Vested in Fiscal 2010 ...Nonqualified Deferred Compensation ...Supplemental Savings Plan ...Nonqualified Deferred Compensation Table for Fiscal 2010 ...Potential Payments Upon Termination or Change in...

  • Page 16

  • Page 17
    ... year ending January 28, 2012 ("fiscal 2011"); and (v) transact such other business as may properly come before the Annual Meeting. Shareholder Voting Rights Only those shareholders of record at the close of business on March 28, 2011, the record date for the Annual Meeting, are entitled to receive...

  • Page 18
    ... applicable). If, after receiving the Notice of Internet Availability, you request (via toll-free telephone number, e-mail or online) that we send you paper or electronic copies of our proxy materials, you may vote your common shares by completing, dating and signing the proxy card and returning it...

  • Page 19
    ... on pay votes (see Proposal Three); and (iv) FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2011 (see Proposal Four). If any other matter properly comes before the Annual Meeting, or if a director nominee named in this Proxy Statement is...

  • Page 20
    ... nine director nominees named below. All nine nominees are currently directors on the Board. Proxies cannot be voted at the Annual Meeting for more than nine persons. Set forth below is certain information relating to the director nominees, including each nominee's age (as of the end of fiscal 2010...

  • Page 21
    ... 67 2006 2005 2008 1990 1997 2003 2003 2005 1991 * ** * ** * * Jeffrey P. Berger is the former Executive Vice President, Global Foodservice, and President and Chief Executive Officer of Heinz North America Foodservice (manufacturer and marketer of processed food products). The Board would be...

  • Page 22
    ...Director of Investor Relations of West Marine, Inc. (specialty retailer and catalog company) where he also previously served as the Executive Vice President and Chief Financial Officer. Additionally, Mr. Solt previously served as the Chief Financial Officer of Venture Stores, Inc. (discount retailer...

  • Page 23
    ... Table ("named executive officers") and all senior vice presidents. The Compensation Committee is involved in establishing our general compensation philosophy, overseeing the development of our compensation programs, reviewing and recommending to the Board the compensation for the EMC members...

  • Page 24
    ... / 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, ownership of our common shares, information that would be required under the rules of the SEC in...

  • Page 25
    ... the best interests of Big Lots and our shareholders and may consider any factors and other information they deem relevant. We will promptly publicly disclose the Board's decision in a periodic or current report to the SEC. Determination of Director Independence Pursuant to the Corporate Governance...

  • Page 26
    ... Governance Committee manages risks associated with corporate governance, related person transactions, and business conduct and ethics. The Strategic Planning Committee assists the Board and management in managing risks related to strategic planning and succession planning. The Public Policy...

  • Page 27
    ... relating to the Board or members of senior management will be referred to the members of the Nominating / Corporate Governance Committee. Parties submitting communications to the Board may choose to do so anonymously or confidentially. DIRECTOR COMPENSATION Under the Big Lots, Inc. Non-Employee...

  • Page 28
    ... as an employee is shown in the Summary Compensation Table included in this Proxy Statement. Restricted Stock In fiscal 2010, the outside directors also received a restricted stock award having a grant date fair value equal to approximately $95,000 (2,723 common shares). The fiscal 2010 restricted...

  • Page 29
    ..., 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 30
    ... Schedule 13G filed on February 14, 2011, Wellington Management Company, LLP, 280 Congress Street, Boston, MA 02210, stated that it beneficially owned the number of common shares reported in the table as of December 31, 2010, had shared power to vote or to direct the vote of 4,202,828 of the shares...

  • Page 31
    ... and Chief Information Officer; (iv) Mr. Martin, our Executive Vice President, Merchandising; and (v) Mr. Haubiel, our Executive Vice President, Legal and Real Estate, General Counsel and Corporate Secretary. Philosophy and Objectives We believe it is important to provide competitive compensation to...

  • Page 32
    ... common shares. In fiscal 2010, 83.8% of the total compensation earned by our named executive officers was derived from incentive compensation in the form of bonuses (non-equity incentive plan compensation), stock options and restricted stock, as each is reflected in the Summary Compensation Table...

  • Page 33
    ... and review the "at-risk incentive compensation" awarded to each named executive officer in that fiscal year as a percentage of the "total executive compensation awarded" to our named executive officer in that fiscal year to evaluate how effectively our incentive compensation programs address our...

  • Page 34
    ... of the Committee and the other outside directors in connection with the Board's approval of our annual corporate operating plan, subject to the terms of the 2006 Bonus Plan and our named executive officers' employment agreements. The lowest level at which we will pay a bonus under the 2006 Bonus...

  • Page 35
    ... received by named executive officers during its annual review of our named executive officers' total compensation. We offer all full-time employees medical and dental benefits under the Big Lots Associate Benefit Plan ("Benefit Plan"). We also offer employees at or above the vice president...

  • Page 36
    ... Committee and the other outside directors considered our record growth and shareholder return during Mr. Fishman's tenure with us, his vision for Big Lots' future and the efficient use of common shares under the 2005 Incentive Plan (see the "Equity for Fiscal 2010" section below for more detail on...

  • Page 37
    ... in fiscal 2011 and fiscal 2012. The number of common shares underlying the restricted stock awards to be made in fiscal 2011 and fiscal 2012 is dependent on our performance relative to the prior fiscal year's operating profit, subject to collars established in the retention agreement. Each annual...

  • Page 38
    ...certain employees whose hire date precedes April 1, 1994. None of our named executive officers are eligible to participate in the Pension Plan or Supplemental Pension Plan. Our Executive Compensation Program for Fiscal 2010 The Committee takes the lead in establishing executive compensation annually...

  • Page 39
    ... to our named executive officers for fiscal 2010 are shown in the "Salary" column of the Summary Compensation Table. During its annual review of executive compensation in March 2010, the Committee considered our fiscal 2009 performance during a very difficult environment nationwide for retailers and...

  • Page 40
    ... named executive officers under the 2006 Bonus Plan for fiscal 2010 are shown in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. At its annual review in March 2010, the Committee and other outside directors approved the financial measure, corporate performance...

  • Page 41
    ...Plan participants while encouraging strong corporate earnings growth. As a consequence of the fiscal 2010 bonus payments, total cash compensation paid to our named executive officers for fiscal 2010 was generally at or above the median for our peer groups. We believe higher than market average total...

  • Page 42
    ... number common shares underlying equity awards made, in the aggregate, to Mr. Fishman, Mr. Cooper, Ms. Bachmann and Mr. Martin (the four individuals who served as our named executive officers in both fiscal 2009 and fiscal 2010). A primary reason we were able to make this reduction was our strategy...

  • Page 43
    ... United States at the time in which the awards were made. The stock options awarded to our named executive officers in fiscal 2010 have an exercise price equal to the fair market value of our common shares on the grant date (i.e., $35.92), vest equally over four years, and expire seven years after...

  • Page 44
    ... compensation to our named executive officers for fiscal 2010. • Mr. Fishman: (i) (ii) Fiscal 2009 earnings per common share from continuing operations-diluted was $2.44 - approximately 29.1% above our fiscal 2009 corporate operating plan and our fiscal 2008 results; Fiscal 2009 operating profit...

  • Page 45
    ... the merchandise planning and allocation departments toward improving our fiscal 2009 inventory turnover rate by approximately 2.8% above our fiscal 2008 results; Successful implementation of enhancements and upgrades to current information technology infrastructure supporting our business needs...

  • Page 46
    ... than executives at peer group companies. Tally Sheets and Wealth Accumulation The Committee reviewed tally sheets that set forth the total and each element of compensation awarded to each EMC member for the immediately preceding two fiscal years, as well as estimated post-employment and change in...

  • Page 47
    ...as applicable. Equity Grant Timing Pursuant to the terms of the 2005 Incentive Plan, the grant date of equity awards must be the later of the date the terms of the award are established by corporate action or the date specified in the award agreement. Consistent with prior years, in fiscal 2010, the...

  • Page 48
    ... EMC members; (iii) reviewed internal pay equity information and comparative compensation data from our retailer-only and broader peer groups; (iv) reviewed the at-risk incentive compensation as a percentage of the total executive compensation awarded for fiscal 2010 for each named executive officer...

  • Page 49
    ... under the 2005 Incentive Plan to our named executive officers in the fiscal years reported as computed in accordance with ASC 718, excluding the effect of any estimated forfeitures. See Note 7 (Share-Based Plans) to the consolidated financial statements and the Critical Accounting Policies and...

  • Page 50
    ... available to all full-time employees; Big Lots paid premiums for long-term disability insurance, which is described in the "Overview of our Executive Compensation Program - Elements of In-Service Compensation - Personal Benefits/ Perquisites" section of the CD&A; The cost to Big Lots associated...

  • Page 51
    ...was not a named executive officer in fiscal 2009 or fiscal 2008. Bonus and Equity Plans The amounts reported in the Summary Compensation Table above include amounts earned under the 2006 Bonus Plan and the 2005 Incentive Plan. Below is a description of the material terms of each plan and the awards...

  • Page 52
    ...that is five years after the grant date. If we meet the second trigger for any fiscal year ending prior to the fifth anniversary of the grant date and the recipient remains employed by us, the restricted stock will vest on the first trading day after we file with the SEC our Annual Report on Form 10...

  • Page 53
    ... Executive Compensation Program for Fiscal 2010 - Equity Grant Timing" section of the CD&A, in fiscal 2010, the Board set as the grant date of these equity awards the second day following our release of results from our last completed fiscal year. This future date was established to allow the market...

  • Page 54
    ...the price of our common shares. Outstanding Equity Awards at 2010 Fiscal Year-End The following table sets forth, as of the end of fiscal 2010, all equity awards outstanding under our equity compensation plans for each named executive officer. Option Awards Stock Awards Equity Incentive Equity Plan...

  • Page 55
    ... date at a rate of 25% per year over the first four years of the seven year option term. (2) The restricted stock awards reported in column (i) were made in fiscal 2010 pursuant to the 2005 Incentive Plan. Mr. Fishman's fiscal 2010 restricted stock award vests if we achieve a corporate financial...

  • Page 56
    ..." section below addresses the rights of our 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 2010 Fiscal Year End...

  • Page 57
    ... payment of all amounts (vested and unvested) under the Supplemental Savings Plan. (See the "Nonqualified Deferred Compensation" section above for more information regarding the Supplemental Savings Plan and our named executive officers' aggregate balances under such plans at the end of fiscal 2010...

  • Page 58
    ... of Section 409A ("Section 409A") of the IRC and the Treasury Regulations promulgated thereunder, pursuant to our named executive officers' employment agreements, the 2006 Bonus Plan and the Supplemental Savings Plan (as to all amounts earned and vested on or after January 1, 2005), a change in...

  • Page 59
    ...the end of the fiscal year for which the bonus was earned); and (ii) in connection with a change in control are equal to two times the named executive officer's stretch bonus. We have not taken into account the possibility that a named executive officer may be eligible to receive healthcare benefits...

  • Page 60
    ... 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 Tax Benefit ($) Total ($) 500,000 494,610...

  • Page 61
    ... 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 Tax Benefit ($) Total ($) 550,000 544,071...

  • Page 62
    ... our business in order to promote sustainable profitability and enhanced shareholder value. These compensation elements provide executives with meaningful incentives to meet or exceed the corporate financial goals set by our Board each year. We believe that our strong results in fiscal 2010, in...

  • Page 63
    ...percentage of the total compensation of our named executive officers as "at-risk incentive compensation" (84.5% in fiscal 2010) exemplifies the emphasis of our executive compensation program on "pay for performance" and demonstrates that our executive compensation program is closely aligned with the...

  • Page 64
    ... YOU VOTE TO HOLD THE SAY ON PAY VOTE EVERY THREE YEARS. AUDIT COMMITTEE DISCLOSURE General Information The Audit Committee consists of three outside 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...

  • Page 65
    ... over financial reporting and management's preparations for the evaluation thereof in fiscal 2011. The Audit Committee has also reviewed key initiatives and programs aimed at strengthening the effectiveness of our internal and disclosure control structure. Independent Registered Public Accounting...

  • Page 66
    ... may also receive a copy of our Form 10-K without charge by writing to: Investor 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. - 50...

  • Page 67
    ... to mailing the Notice of Internet Availability (or, if applicable, paper copies of this Proxy Statement, the Notice of Annual Meeting of Shareholders and the proxy card) to shareholders of record on the record date, the brokers and banks holding our common shares for beneficial holders must, at our...

  • Page 68
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  • Page 69
    ... Aveda Experience Centers Avis Budget Group Avon Barnes & Noble bebe Stores Belk Benetton U S A Best Buy Birks & Mayors BJ's Wholesale Club Blockbuster Bon-Ton Stores Borders Boston Market Corporation Boy Scouts - Supply Group Brinker International Brown Shoe Company Bulgari Dollar General Dollar...

  • Page 70
    ...athletica usa Luxottica Retail US Macy's Marathon Oil Corporation Mary Kay Mattel maurices McDonald's Corporation Meijer Mervyns Michaels Stores Miles Kimball Company Nash-Finch National Vision Navy Exchange Service Command Neiman Marcus Group New York & Company Nike Nordstrom Office Depot OfficeMax...

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  • Page 73
    ... the fiscal year ended January 29, 2011 or  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 1-8897 (Exact name of registrant as specified in its charter) BIG LOTS, INC. Ohio (State or...

  • Page 74
    ... About Market Risk...Financial Statements and Supplementary Data ...Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ...Controls and Procedures...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation...

  • Page 75
    ... stated, references to years in this report relate to fiscal years rather than calendar years. The following table provides a summary of our fiscal year calendar and the associated number of weeks in the fiscal year: Fiscal Year Number of Weeks Year Begin Date Year End Date 2011 ...2010 ...2009...

  • Page 76
    ... 2009 and 2010, we successfully negotiated a number of new store leases as the availability of space improved, rental rates eased, and our sales and profitability improved at the store level. For additional information about our real estate strategy, see the discussion under the caption "Operating...

  • Page 77
    ... labor agreements. Competition We operate in the highly competitive retail industry and face strong sales competition from other general merchandise, discount, food, furniture, arts and crafts, and dollar store retailers. Additionally, we compete with a number of companies for retail site locations...

  • Page 78
    ...use a membership card when making purchases and earn discounts on future purchases when they meet certain thresholds. Buzz Club Rewards members may also receive other targeted promotions. We continue to use our website (www.biglots.com) as a key avenue to communicate to our customers through special...

  • Page 79
    ...Exchange Commission ("SEC"). In this Form 10-K, we incorporate by reference certain information from parts of our Proxy Statement for our 2011 Annual Meeting of Shareholders ("2011 Proxy Statement"). In the "Investor Relations" section of our website (www.biglots.com) under the "Corporate Governance...

  • Page 80
    ... other fuels used to generate power by utilities, may affect our gross profit and operating profit margins. Our vendors may be negatively impacted by current economic conditions due to insufficient availability of credit to fund their operations or insufficient demand for their products, which may...

  • Page 81
    ...reduce our market share, gross margin, and operating margin, and may materially adversely affect our business and results of operations in other ways. Changes by vendors related to the management of their inventories may reduce the quantity and quality of brand-name closeout merchandise available to...

  • Page 82
    ... addition, new store locations receiving shipments that are increasingly further away from our distribution centers will increase transportation costs and may create transportation scheduling strains. Our inability to properly manage our inventory levels and offer merchandise that our customers want...

  • Page 83
    ...-K for additional information regarding our accounting policies for long-lived assets and income taxes). Our inability, if any, to comply with the terms of the 2009 Credit Agreement may have a material adverse effect on our capital resources, financial condition, results of operations, and liquidity...

  • Page 84
    ... sales growth strategy is to open new store locations. If the commercial real estate market tightens and we are not able to negotiate favorable new store leases and lease renewals, our financial position, results of operations, and liquidity may be negatively affected. Changes in accounting guidance...

  • Page 85
    .... The price of our common shares as traded on the New York Stock Exchange may be volatile. Our stock price may fluctuate substantially as a result of factors beyond our control, including but not limited to, general economic and stock market conditions, risks relating to our business and industry...

  • Page 86
    ... sites, all of our stores are leased. In 2008, we acquired, for $8.6 million, two store properties we were previously leasing. The 54 owned stores are located in the following states: State Stores Owned Arizona ...California ...Colorado ...Florida ...Louisiana...New Mexico ...Ohio...Texas ...Total...

  • Page 87
    ... Information Officer Executive Vice President, Chief Financial Officer Executive Vice President, Legal and Real Estate, General Counsel and Corporate Secretary Executive Vice President, Merchandising Senior Vice President, Store Operations Senior Vice President, Marketing Senior Vice President, Big...

  • Page 88
    ..., 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 Ward, a retailer...

  • Page 89
    ... used for general corporate purposes including the issuance of shares related to equity compensation plans. The following table sets forth information regarding our repurchase of our common shares during the fourth fiscal quarter of 2010: (In thousands, except price per share data) (c) Total Number...

  • Page 90
    ... total shareholder return for our common shares, the S&P 500 Index, and the S&P 500 Retailing Index. Measurement points are the last trading day of each of our fiscal years ended February 3, 2007, February 2, 2008, January 31, 2009, January 30, 2010, and January 29, 2011. The graph and table...

  • Page 91
    ......Long-term obligations under bank credit facility ...Shareholders' equity ...Cash flow data: Cash provided by operating activities ...Cash used in investing activities ...Store data: Total gross square footage ...Total selling square footage ...Stores opened during the fiscal year ...Stores closed...

  • Page 92
    ... method. Share-based compensation expense was $6.6 million in 2006. For years 2010, 2009 and 2008, the impact is more fully described in notes 1 and 7 to the accompanying consolidated financial statements. For 2008, working capital included $61.7 million for current maturities under bank credit...

  • Page 93
    ... on our annual financial results than if our sales performance is significantly better or worse in a different season. The following table sets forth the seasonality of net sales and operating profit for 2010, 2009, and 2008 by fiscal quarter: First Second Third Fourth Fiscal Year 2010 Net sales as...

  • Page 94
    ... merchandise for our stores. We source our merchandise in three key ways: • Manufacturers and vendors have closeout merchandise for a number of different reasons including other retailers canceling orders, other retailers going out of business, marketing or packaging changes, a new product...

  • Page 95
    ... account for a discount in our stores. Additionally, members may receive marketing information and other targeted promotional materials. From a marketing perspective in 2011, there are two primary programs designed to continue to grow sales: • First, expanding the use of our Buzz Club Rewards...

  • Page 96
    ... business model. Our focus on customer service and checkout efficiency supports our goals to enhance the customer shopping experience and improve sales. Real Estate From 2006 through 2008, we slowed our rate of new store openings based on our belief that many of the real estate locations available...

  • Page 97
    ... of our current "A" location stores, we are confident that we can be successful with this new customer base, as we continue to improve the quality of the shopping experience by offering our customers a stronger product assortment and raising our store standards and customer service. Cost Structure...

  • Page 98
    ...compensation plans and for general corporate purposes. The 2010 Repurchase Program has no scheduled termination date and will be funded with cash and cash equivalents, cash generated from operations or, if needed, by drawing on our 2009 Credit Agreement. 2010 Compared to 2009 Net Sales As previously...

  • Page 99
    ... the current fiscal year. This calculation may not be comparable to other retailers who calculate comparable store sales based on other methods or criteria. The average number of stores in operation throughout 2010 and 2009 was approximately 1,380 stores and 1,354 stores, respectively. The Furniture...

  • Page 100
    ... end of 2010. Income Taxes Our effective income tax rate on income from continuing operations was 37.4% for 2010 compared to 37.7% for 2009. The lower rate in 2010 was principally due to the recognition of benefits resulting primarily from the recording of a deferred tax asset for net state credits...

  • Page 101
    ... stores that were open for at least two fiscal years as of the beginning of the current fiscal year. This calculation may not be comparable to other retailers who calculate comparable store sales based on other methods or criteria. The average number of stores in operation throughout 2009 and 2008...

  • Page 102
    ... most efficient method to ship goods to our distribution centers. The gross margin rate also benefitted from favorable adjustments to the shrink accrual as physical inventories were completed at our stores. Our inventory turnover improved to 3.7 turns in 2009 compared to 3.6 turns in 2008. Selling...

  • Page 103
    ... 2009 Credit Agreement. Our net income and cash provided by operations are impacted by net sales volume, seasonal sales patterns, and operating profit margins. Our net sales are typically highest during the Christmas selling season (during our fourth fiscal quarter). Generally, our working capital...

  • Page 104
    ...-funded insurance programs. Given the seasonality of our business, the amount of borrowings under the 2009 Credit Agreement may fluctuate materially depending on various factors, including our operating financial performance, the time of year, and our need to increase merchandise inventory levels...

  • Page 105
    ...related tax benefits totaling $46.3 million. In 2009, cash used in financing activities was principally due to the repayment of borrowings outstanding under our bank credit facility of $61.7 million and the payment of bank fees of $5.6 million associated with our entry into the 2009 Credit Agreement...

  • Page 106
    ... employee benefit plans). We have estimated the payments due by period for the nonqualified deferred compensation plan based on an average of historical distributions. We have included unrecognized tax benefits of $3.6 million for payments expected in 2011 and $1.9 million of timing-related income...

  • Page 107
    ...reported financial results. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. Merchandise Inventories Merchandise inventories are valued at the lower of cost or market using the average cost retail inventory method...

  • Page 108
    ...March 2010 as compared to March 2009 and 2008. Future share-based compensation expense for performance-based non-vested restricted stock is dependent upon the future number of awards, fair value of our common shares on the grant date, and the estimated vesting period. Future share-based compensation...

  • Page 109
    ... long-term rate of return. Our objective in selecting a discount rate is to identify the best estimate of the rate at which the benefit obligations would be settled on the measurement date. In making this estimate, we review rates of return on high-quality, fixed-income investments available at...

  • Page 110
    ... the accompanying consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to market risk from exposure to changes in interest rates on investments and on borrowings under the 2009 Credit Agreement that we make from time to time. We had no...

  • Page 111
    ... Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 29, 2011, of the Company, and our report dated March 30, 2011, expressed an unqualified opinion on those financial statements. /s/ DELOITTE & TOUCHE LLP Dayton, Ohio...

  • Page 112
    ... of Big Lots, Inc. and subsidiaries (the "Company") as of January 29, 2011 and January 30, 2010, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended January 29, 2011. These consolidated financial statements are...

  • Page 113
    ... Statements of Operations (In thousands, except per share amounts) 2010 2009 2008 Net sales ...Cost of sales (exclusive of depreciation expense shown separately below) ...Gross margin ...Selling and administrative expenses ...Depreciation expense...Gain on sale of real estate ...Operating profit...

  • Page 114
    BIG LOTS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except par value) January 29, 2011 January 30, 2010 ASSETS Current assets: Cash and cash equivalents ...$ 177,539 Inventories ...762,146 Deferred income taxes ...50,252 Other current assets ...61,782 Total current assets ...

  • Page 115
    ...328 - (328) 7,291 (7,291) - - - Net tax benefit from share-based awards ...- - - - 559 - - 559 Share activity related to deferred compensation plan ...4 - (4) 32 80 - - 112 Share-based employee compensation expense...- - - - 20,275 - - 20,275 Balance - January 30, 2010...81,922 1,175 35,573 (791,042...

  • Page 116
    ...account ...Other ...Net cash used in investing activities ...Financing activities: Net payments of borrowings under bank credit facility ...Payment of capital lease obligations ...Proceeds from the exercise of stock options ...Excess tax benefit from share-based awards ...Payment for treasury shares...

  • Page 117
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies Description of Business We are the nation's largest broadline closeout retailer. At January 29, 2011, we operated a total of 1,398 stores in 48 states. Our goal is to ...

  • Page 118
    ... and all fiscal year-to-date purchase activity specific to each merchandise department. Under the average cost retail inventory method, permanent sales price markdowns result in cost reductions in inventory. Our permanent sales price markdowns are typically related to end of season clearance events...

  • Page 119
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1 - Summary of Significant Accounting Policies (Continued) Payments Received from Vendors Payments received from vendors relate primarily to rebates and reimbursement for markdowns and are recognized in our ...

  • Page 120
    ... 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 the leased property in our operations. In...

  • Page 121
    ... long-term rate of return. Our objective in selecting a discount rate is to identify the best estimate of the rate at which the benefit obligations would be settled on the measurement date. In making this estimate, we review rates of return on high-quality, fixed-income investments available at...

  • Page 122
    ... years beyond the end of their original issuance month. The liability for the unredeemed cash value of gift cards and merchandise credits is recorded in accrued operating expenses. We offer price hold contracts on merchandise. Revenue for price hold contracts is recognized when the customer makes...

  • Page 123
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1 - Summary of Significant Accounting Policies (Continued) Cost of Sales Cost of sales includes the cost of merchandise, net of cash discounts and rebates, markdowns, and inventory shrinkage. Cost of ...

  • Page 124
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1 - Summary of Significant Accounting Policies (Continued) Share-Based Compensation Share-based compensation expense is recognized in selling and administrative expense in our consolidated statements of ...

  • Page 125
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1 - Summary of Significant Accounting Policies (Continued) Subsequent Events We have evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, we are not aware of any ...

  • Page 126
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 3 - Bank Credit Facility On April 28, 2009, we entered into the 2009 Credit Agreement, a $500 million three-year unsecured credit facility. The 2009 Credit Agreement replaced our 2004 Credit Agreement, a $500...

  • Page 127
    ...$237,356 Future minimum rental commitments for leases, excluding closed store leases, real estate taxes, CAM, and property insurance, at January 29, 2011, were as follows: Fiscal Year (In thousands) 2011 ...2012 ...2013 ...2014 ...2015 ...Thereafter ...Total leases ... $205,552 175,142 142,798 100...

  • Page 128
    ... outstanding common shares for $342.2 million in 2010, at an average purchase price of $32.74. Our remaining repurchase authorization under the 2010 Repurchase Program was approximately $57.8 million at January 29, 2011, and is available to be utilized to repurchase shares in the open market and/or...

  • Page 129
    ... from operations or, if needed, by drawing on our 2009 Credit Agreement. Note 7 - Share-Based Plans Our shareholders initially approved our existing equity compensation plan, the Big Lots 2005 Long-Term Incentive Plan ("2005 Incentive Plan") in May 2005, approved an amendment in May 2008, and...

  • Page 130
    ... 14.83 26.85 31.05 - $20.14 A summary of the annual stock option activity for fiscal years 2008, 2009, and 2010 is as follows: Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (Years) Number of Options Aggregate Intrinsic Value (000's) Outstanding at February...

  • Page 131
    ... Share-Based Plans (Continued) The number of stock options expected to vest was based on our annual forfeiture rate assumption. A summary of the nonvested restricted stock activity for fiscal years 2008, 2009, and 2010 is as follows: Weighted Average Grant Date Fair Value Per Share Number of Shares...

  • Page 132
    ... not vest if the non-employee director ceases to serve on our Board of Directors before either vesting event occurs. During 2010, 2009, and 2008, the following activity occurred under our share-based compensation plans: 2010 (In thousands) 2009 2008 Total intrinsic value of stock options exercised...

  • Page 133
    ...payments made to plan participants in excess of combined annual service cost and interest cost for each year. Weighted-average assumptions used to determine net periodic pension expense were: 2010 2009 2008 Discount rate ...Rate of increase in compensation levels...Expected long-term rate of return...

  • Page 134
    ... 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 settlements paid...Fair market value at end of year...Under funded and net amount...

  • Page 135
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 8 - Employee Benefit Plans (Continued) We elected not to make a discretionary contribution to the Pension Plan in 2010, while we elected to make $10.0 million of discretionary contributions to the Pension ...

  • Page 136
    BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 8 - Employee Benefit Plans (Continued) The fair value of our Pension Plan assets at January 29, 2011 and January 30, 2010 by asset category was comprised of the following: (In thousands) Total January 29, ...

  • Page 137
    ... and the effective income tax rate was as follows: 2010 2009 2008 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 tax uncertainties ...Valuation...

  • Page 138
    ...) State and local: State net operating loss carryforwards ...California enterprise zone credits...Texas business loss credits ...Total income tax loss and credit carryforwards ... $ 1,877 4,063 292 $ 6,232 Expires fiscal years 2014 through 2025 No expiration date Expires fiscal years through...

  • Page 139
    ... with share-based compensation. We receive an income tax deduction upon the exercise of nonqualified stock options and the vesting of restricted stock. Tax benefits of $13.8 million, $0.6 million, and $4.6 million in 2010, 2009, and 2008, respectively, were credited directly to shareholders' equity...

  • Page 140
    ... the Fair Labor Standards Act by misclassifying assistant store managers as exempt employees ("New York matter"). In addition, the plaintiff seeks class action treatment under New York law relating to those assistant store managers working in the State of New York. The plaintiff seeks to recover, on...

  • Page 141
    ... results of operations, and liquidity. In April 2010, a class action complaint was filed against us in the Superior Court of California, Los Angeles County, alleging that we violated certain California wage and hour laws by misclassifying California store managers as exempt employees ("Avitia matter...

  • Page 142
    ... Court appeal and oral arguments have been scheduled for late April 2011. On November 3, 2010, the Texas Court of Appeals affirmed the State Court's decision. On December 17, 2010, we filed a petition for review with the Texas Supreme Court. We cannot make a determination as to the probability of...

  • Page 143
    ... of 130 stores closed in 2005 should be reported as discontinued operations for all periods presented. For 2010, 2009, and 2008, the closed stores' operating income (loss) is comprised of exit-related costs, utilities, and security expenses on leased properties with remaining terms and accretion...

  • Page 144
    ...find a subtenant for this location is remote. We recorded a charge of $1.2 million, pretax in income (loss) from discontinued operations primarily related to our remaining liability for the former KB corporate office. At fiscal year end 2010 and 2009, we had accrued in total for the KB-II Bankruptcy...

  • Page 145
    ... the lease term were unsuccessful, we closed the store, ending our continuing involvement with this property, and recognized a pretax gain on sale of real estate of $13.0 million. Note 13 - Business Segment Data We manage our business based on one segment, broadline closeout retailing. We use the...

  • Page 146
    ...to Consolidated Financial Statements (Continued) Note 14 - Selected Quarterly Financial Data (Unaudited) Summarized fiscal quarterly financial data for 2010 and 2009 is as follows: Fiscal Year 2010 (In thousands, except per share amounts) (a) First Second Third Fourth Year Net sales ...Gross margin...

  • Page 147
    ...the Exchange Act) for us. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America...

  • Page 148
    ... table summarizes information as of January 29, 2011, relating to our equity compensation plans pursuant to which our common shares may be issued. Number of securities remaining available for Number of securities to Weighted average future issuance under be issued upon exercise exercise price...

  • Page 149
    ... 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. See note 7 to the accompanying consolidated financial statements. The information...

  • Page 150
    ... dated March 4, 2009). Form of Big Lots 2005 Long-Term Incentive Plan Restricted Stock Award Agreement for CEO (incorporated herein by reference to Exhibit 10.5 to our Form 8-K dated March 3, 2010). Form of Big Lots 2005 Long-Term Incentive Plan Restricted Stock Award Agreement for Outside Directors...

  • Page 151
    ... ended November 1, 2008). Form of Senior Executive Severance Agreement (incorporated herein by reference to Exhibit 10.14 to our Form 10-Q for the quarter ended November 1, 2008). Credit Agreement among Big Lots Stores, Inc., as borrower, the Guarantors named therein, and the Banks named therein...

  • Page 152
    ...8-K dated October 29, 2004). Stock Purchase Agreement between KB Acquisition Corporation and Consolidated Stores Corporation (incorporated herein by reference to Exhibit 2(a) to our Form 10-Q for the quarter ended October 28, 2000). Big Lots, Inc. Non-Employee Director Compensation Package and Share...

  • Page 153
    ... duly authorized, on this 30th day of March 2011. 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 the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 154
    .... Big Lots Online LLC Big Lots Stores, Inc. BLSI Property, LLC Capital Retail Systems, Inc. Closeout Distribution, Inc. Consolidated Property Holdings, Inc. CSC Distribution, Inc. C.S. Ross Company Durant DC, LLC Great Basin LLC Industrial Products of New England, Inc. Mac Frugal's Bargains · Close...

  • Page 155
    ... 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following documents of our reports dated March 30, 2011, relating to the consolidated financial statements of Big Lots, Inc. and subsidiaries (the "Company"), and the effectiveness of the...

  • Page 156
    ... sign, in the undersigned's name and behalf of each such director 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 January 29, 2011...

  • Page 157
    ... CERTIFICATION OF 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...

  • Page 158
    ... financial 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 Executive Vice President and Chief Financial Officer b) Dated...

  • Page 159
    ... the year ended January 29, 2011, 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 13(a) or Section 15(d) of the Securities Exchange...

  • Page 160
    ..."Report") for the year ended January 29, 2011, of Big Lots, Inc. (the "Company"). I, Joe R. Cooper, Executive 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 15(d) of the Securities Exchange...

  • Page 161
    ....com NYSE Trading Symbol Telephone (614) 278-6800 Investment Inquiries Investor Relations Department 300 Phillipi Road Columbus, Ohio 43228-5311 (614) 278-6622 [email protected] Web Site www.biglots.com E-Mail [email protected] Independent Registered Public Accounting...

  • Page 162
    300 Phillipi Road Columbus, Ohio 43228 Visit us at www.biglots.com