Big Lots 2011 Annual Report Download - page 145

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in credit card/bank fees was the result of higher rates charged by debit card network providers, which were
increased at the end of the first quarter of 2010, and from increased sales. Store rents increased primarily due
to the incremental number of stores. Store facility and operation costs increased due to the incremental number
of stores, increased store pre-opening costs (resulting from 80 store openings in 2010 as compared to 52 store
openings in 2009), and increased repair costs primarily associated with our store refresh program. Advertising
expense decreased primarily due to lower printing and distribution costs along with more efficient spending on
our broadcast promotions.
Selling and administrative expenses as a percentage of net sales were 31.8% in 2010 compared to 32.4% in
2009. The decrease of 0.6% was primarily due to the effect of the increase in sales of 4.8% as selling and
administrative expense dollars only increased 2.9% as discussed above.
Depreciation Expense
Depreciation expense increased $3.7 million, or 4.9%, to $78.6 million in 2010 compared to $74.9 million for
2009. Depreciation expense as a percentage of sales was flat compared to 2009 at 160 basis points. The increase
in depreciation expense was primarily related to our stores and was principally due to new store openings.
During 2010, the Company opened 80 new stores, including relocations.
Interest Expense
Interest expense increased $0.8 million to $2.6 million in 2010 compared to $1.8 million in 2009. The increase
in interest expense was principally due to higher average borrowings (including capital leases) of $24.0 million
in 2010 compared to average borrowings of $8.6 million in 2009. The higher average borrowings was primarily
driven by the timing of share repurchases under the 2010 Repurchase Program.
Other Income (Expense)
Other income (expense) increased $0.4 million in 2010 to $0.6 million compared to $0.2 million in 2009. The
increase in interest and investment income was caused by the increase in funds available to invest in 2010
compared to 2009, partly offset by a decrease in investment yield. Our average invested amount in 2010 was
$132.9 million compared to $68.9 million in 2009. In 2010, we invested primarily in deposits with financial
institutions and highly liquid investments, including money market funds and variable rate demand notes. We
held $126.1 million of investments at the 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, principally obtained during the third quarter of 2010,
partially offset by (1) lower year-over-year tax benefits related to the settlement of uncertain tax positions and
(2) the release of a valuation allowance on unrealized capital losses in 2009.
Discontinued Operations
There was minimal activity in discontinued operations in 2010 compared to a loss of $1.0 million, net of
tax, in 2009. The 2009 loss from discontinued operations was primarily due to the KB-II Bankruptcy Lease
Obligations (see note 13 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.
Capital Resources and Liquidity
On July 22, 2011, we entered into the 2011 Credit Agreement. The 2011 Credit Agreement is scheduled to expire
on July 22, 2016. In connection with our entry into the 2011 Credit Agreement, we paid bank fees and other
expenses in the aggregate amount of $3.0 million, which are being amortized over the term of the agreement.
Borrowings under the 2011 Credit Agreement are available for general corporate purposes, working capital,