Big Lots 2012 Annual Report Download - page 85

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our U.S. stores, we design and distribute printed advertising circulars, through a combination of newspaper
insertions and mailings. In 2012, we distributed multi-page circulars covering 30 weeks which included three
additional circulars compared to 2011 and 2010. We create regional versions of these circulars to take advantage
of market differences caused by product availability, climate, and customer preferences. In addition, we use
in-store promotional materials, including in-store signage, to emphasize special bargains and significant values
offered to our customers.
Since we acquired Big Lots Canada, Inc., our marketing efforts in Canada have been limited to in-store
promotional materials. Our marketing focus in Canada has been on enhancing the presentation of our stores. In
2012, we began evaluating our branding and promotional advertising strategies in Canada based on what actions
will assist us in accomplishing our future operational goals and we will begin implementing those which we
believe will generate incremental sales.
Our customer list, which we refer to as the Buzz Club® in the U.S., is an important marketing tool that allows
us to communicate in a cost effective manner with our customers, including e-mail delivery of our circulars. In
addition to the Buzz Club®, in August 2009, we started the Buzz Club Rewards® program (“Rewards”), which
has grown rapidly from 1.2 million members at the end of 2009 to 15.3 million members at the end of 2012.
Members of the Rewards program may earn discounts on future purchases and receive targeted promotions.
Total advertising expense as a percentage of total net sales was 1.9% in each of 2012, 2011, and 2010.
Seasonality
We have historically experienced, and expect to continue to experience, seasonal fluctuations in our sales
and profitability, with a larger percentage of our net sales and operating profit realized in the fourth fiscal
quarter. In addition, our quarterly net sales and operating profits can be affected by the timing of new store
openings and store closings, the timing of television and circular advertising, and the timing of certain holidays.
We historically receive a higher proportion of merchandise, carry higher inventory levels, and incur higher
outbound shipping and payroll expenses as a percentage of sales in the third fiscal quarter in anticipation of
increased sales activity during the fourth fiscal quarter. The fourth fiscal quarter typically includes a leveraging
effect on operating results because net sales are higher and certain of our costs, such as rent and depreciation,
are fixed and do not vary as sales levels escalate.
The seasonality of our net sales and related merchandise inventory requirements influences our availability of
and demand for cash or access to credit. We historically have drawn upon our credit facility to assist in funding
our working capital requirements, which typically peak near the end of our third fiscal quarter. We historically
have higher net sales, operating profits, and cash flow provided by operations in the fourth fiscal quarter
which allows us to substantially repay our seasonal borrowings. In 2012, our total indebtedness (outstanding
borrowings and letters of credit) peaked in November 2012 at approximately $574 million under our five-year
$700 million unsecured credit facility entered into in July 2011 (“2011 Credit Agreement”). At February 2, 2013,
our total indebtedness under the 2011 Credit Agreement was $176.6 million, which included $171.2 million in
borrowings and $5.4 million in outstanding letters of credit. We expect that borrowings will vary throughout
2013 depending on various factors, including our seasonal need to acquire merchandise inventory prior to the
peak selling season, and the timing and amount of sales to our customers. For a discussion of our sources and
uses of funds, see “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities” and the discussion under the caption “Capital Resources and Liquidity” in the
accompanying MD&A, in this Form 10-K.
Available Information
We make available, free of charge, through the “Investor Relations” section of our website (www.biglots.com)
under the “SEC Filings” caption, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after we file
such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).
In this Form 10-K, we incorporate by reference certain information from parts of our Proxy Statement for our
2013 Annual Meeting of Shareholders (“2013 Proxy Statement”).