Big Lots 2011 Annual Report Download - page 143

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selling and administrative expense as a percentage of net sales rate is dependent upon many factors including
our level of net sales, our ability to implement additional efficiencies, principally in our store and distribution
center operations, and fluctuating commodity prices, such as diesel fuel, which directly affects our outbound
transportation cost. For 2012, we are forecasting an expense rate similar to or slightly higher than the rate
achieved in 2011. Store expenses, distribution and transportation expenses, utilities, and credit card fees are
expected to leverage as dollar growth in these areas is forecasted to be at a slower rate than our anticipated
sales growth. Additionally, expenses are forecasted to leverage from the one additional week in 2012, which is
a 53-week fiscal year. Offsetting this leverage, we believe costs will increase and deleverage in areas such as
depreciation, incentive bonus expense, and share-based compensation expense.
Depreciation Expense
Depreciation expense increased $9.9 million to $88.5 million in 2011 compared to $78.6 million in 2010. The
increase is directly related to our new store growth, investments in systems, and capital spending to support and
maintain our stores and distribution centers. Depreciation expense as a percentage of net sales increased by 10
basis points compared to 2010.
For 2012, we expect capital expenditures of approximately $130 million to $135 million, which includes opening
90 new stores. Using this assumption and the run rate of depreciation on our existing property and equipment,
we expect 2012 depreciation expense to be approximately $105 million, which would represent an increase from
the $88.5 million of depreciation expense in 2011.
Canadian Segment
We consolidated the results of our Canadian segment from the date of acquisition (July 18, 2011) through the
end of the year. Our Canadian segment’s net sales were $62.1 million, which exceeded our original expectations,
as customers responded to fresh, new merchandise with an improved value proposition, particularly in
furniture, electronics, toys, and Christmas trim. The higher than expected net sales resulted in a smaller than
expected operating loss of $12.2 million.
Other Performance Factors
Interest Expense
Interest expense increased $0.9 million to $3.5 million in 2011 compared to $2.6 million in 2010. The increase
in interest expense was primarily due to prepayment fees incurred in connection with our repayment of the
notes payable we assumed in the acquisition of Liquidation World Inc. We had total average borrowings
(including capital leases) of $88.2 million in 2011 compared to total average borrowings of $24.0 million in
2010. Borrowings increased as a result of our execution of the 2011 Repurchase Program and the acquisition of
Liquidation World Inc.
Income Taxes
The effective income tax rate in 2011 and 2010 for income from continuing operations was 39.4% and 37.4%,
respectively. The higher rate in 2011 is primarily due to a valuation allowance relative to the deferred tax
benefit of the loss generated by our Canadian segment, the effect of U.S. income taxes on a lower pretax income
base (driven by the loss generated by our Canadian segment) and a net decrease in favorable discrete income
tax items.