1、Big Lots,Inc.300 Phillipi Road Columbus,Ohio 432282002 BIG LOTS,INC.ANNUAL REPORTThe Secrets Out of the Bag2002 BIG LOTS,INC.ANNUAL REPORToday many Americans shop for deals at discount chains and closeoutstores.Okay,but how much fun is that?Plenty if youve beento Big Lots.Our exciting brands and unb
2、eatable bargains makeBig Lots the nations largest broadline closeout retailer.And the fun is catchingon with consumers from every walk of life.Our secret?For decades,its been our brand names,closeoutprices,and crazy deals.Big Lots offers new merchandise everyweek and substantial savings over traditi
3、onal discount retailers,onaverage 20 to 40 percent less.Our customers love our treasure-huntatmosphere the unexpected,once-in-a-lifetime deals were knownfor.We also carry attractive,affordable furniture,home furnishings,seasonalmerchandise,and hundreds of everyday items our customers want and need.S
4、aving money has always been one of Americas favoritepastimes.Thats why Big Lots is a destination storefor millions of value-conscious consumers.Whethertheyre high-income bargain hunters or folkson a budget,people have a ball at ourstores.And theyre spreading the word thatour exciting merchandise and
5、 unbelievableprices make shopping fun again.The secrets out!Are you in on it?TRANSFER AGENT®ISTRARNational City Bank1900 East Ninth StreetCleveland,Ohio 44114INVESTMENT INQUIRIESInvestor Relations Department300 Phillipi RoadColumbus,Ohio 43228-5311(614)278-6622INDEPENDENT AUDITORSDeloitte&Touche
6、LLP1700 Courthouse Plaza NEDayton,Ohio 45402-1788NYSE TRADING SYMBOLCOMMUNICATIONSPublic Relations Department300 Phillipi RoadColumbus,Ohio 43228-5311(614)278-6820TELEPHONE(614)278-6800WEB SITEEMAILCOMPANY INFORMATIONThe Annual Meeting of Shareholders will be held at 9:00 a.m.EDT on Tuesday,May 20,2
7、003,at the Big Lots,Inc.,corporate offices,300 Phillipi Road,Columbus,Ohio.Whether or not you plan to attend,you are encouragedto return the proxy which accompanies this report to ensure that your shares will be represented.In accordance withthe accompanying proxy statement,shareholders who attend t
8、he meeting may withdraw their proxies and vote inperson if they so desire.Notice of Annual MeetingShopping is fun again!TTABLE OF CONTENTSThe secrets out!Our customers are telling the world that they found it at Big Lots!Company ProfileFinancial HighlightsLetter to Our ShareholdersEveryday PeopleBig
9、 Lots has the right values for the Kareklas family in more ways than one.Discount DarlingIts tough being the only girl in a family of seven.But thanks to Big Lots,Moriah Epling has a little room to herself.Treasure HunterGive a man a fish,and he eats for a day.Give him a bait systemfrom Big Lots,and
10、 hes a fishing fool.Decorating DivaHearth and soul:Carol Stevenson creates comfort and style withaffordable furnishings from Big Lots.Thrill SeekerDoes finding a great deal at Big Lots make you feel like youre beating the system?If so,youre not alone.Day-TripperTen hours,five Big Lots,and tons of fu
11、n.Road-tripping in search of the ultimate birthday bash.First-TimerSkip the novocaine.Dental assistant Cathy Barcus brings out a few smiles with some help from Big Lots.Store LocationsFinancial InformationDirectors and Executives2iiiii46810121416181958COMPANY PROFILEig Lots is Americas largest broad
12、linecloseout retailer.Our stores offer aunique shopping experience with brand-name products,everyday basics,and one-of-a-kind deals,all at closeout prices.We have adedicated following of loyal customers and an uncom-promising commitment to helping them save money.On May 16,2001,we announced our name
13、 change toBig Lots,Inc.,and began converting all our stores to a single national brand.Our NYSE trading symbolbecame BLI,replacing our former symbol CNS(Consolidated Stores Corporation).The conversion ofall our stores to the Big Lots brand was completed inAugust 2002.As of February 1,2003,we operate
14、d 1,331 closeoutstores in 45 states under the name Big Lots.Addition-ally,we had 49 freestanding Big Lots Furniture stores,and 687 of our closeout stores contained furnituredepartments.We also operate a Wholesale Division and an online business-to-business Web site.Our storesare serviced by four dis
15、tribution centers across the country.Construction of a fifth distribution center inDurant,Oklahoma,is under way and is scheduled toopen in early 2004.Headquartered in Columbus,Ohio,Big Lots is aFortune 500 company with annual revenues exceeding$3.8 billion.We employ over 40,000 associates in ourstor
16、es,distribution centers,and offices.Since opening our first closeout store in 1982,we havecontinued to offer brand-name closeout merchandisepriced 20 to 40 percent below most discount retailers,and up to 70 percent below traditional retailers.Through excellent relationships with manufacturers,high-v
17、olume purchases,and strict expense control,wepass tremendous savings on to our customers.BSales$in millions4,0003,5003,0002,5002,0001,5001,00050093 94 95 96 97 98 99 00 01 0293 94 95 96 97 98 99 00 01 0293 94 95 96 97 98 99 00 01 02Number of Stores1,4001,2001,000800600400200Income Per Share(1)1.21.0
18、0.80.60.40.2ii$1,590$1,821$2,034$2,242$2,493$2,551$2,934$3,277$3,433$3,8691,2901,2301,1281,025933852766669$.78$.93$1.00$.73$1.07$.76$.82$.87$.26$.661,3351,380(1)Income from continuing operations before extraordinary charges,cumulative effect of a change in accounting principle,and one-time charges(i
19、ncluding non-cash 2001 fourth quarter charges).Earnings DataNet sales$3,868,550$3,433,321$3,277,088$2,933,690$2,550,668$2,492,839$2,241,940$2,034,261$1,821,200$1,590,071 Net sales increase12.7%4.8%11.7%15.0%2.3%11.2%10.2%11.7%14.5%13.9%Income from continuing operations(b)$76,557$30,169$98,324$92,666
20、$86,263$120,321$79,208$100,634$91,998$76,683Income from continuing operations increase(decrease)(b)153.8%(69.3)%6.1%7.4%(28.3)%51.9%(21.3)%9.4%20.0%61.0%Income from continuing operations per share-diluted(b)$.66$.26$.87$.82$.76$1.07$.73$1.00$.93$.78Income from continuing operations pershare-diluted
21、increase(decrease)(b)153.8%(70.1)%6.1%7.9%(29.0)%46.6%(27.0)%7.5%19.2%59.2%Average diluted common shares outstanding 116,707113,660112,414 112,952 112,800 112,063 108,402 100,645 98,492 98,335Gross profit-%of net sales(b)42.2%40.9%42.3%43.1%42.2%42.5%42.3%43.4%44.2%44.4%Selling and administrative ex
22、penses-%of net sales(b)38.4%38.8%36.6%37.3%36.0%34.4%36.0%34.7%35.2%35.9%Operating profit-%of net sales(b)3.8%2.0%5.7%5.8%6.2%8.1%6.3%8.8%9.0%8.5%Interest expense-%of net sales.5%.6%.7%.6%.6%.7%.7%.9%.6%.5%Income from continuing operations-%of net sales(b)2.0%.9%3.0%3.2%3.4%4.8%3.5%4.9%5.1%4.8%Balan
23、ce Sheet Dataand Financial RatiosTotal assets$1,642,271$1,460,793$1,526,966$1,862,028$1,851,232$1,571,233$1,522,080$1,052,075$933,889$836,411Working capital 658,260557,741717,143 472,080546,687 327,466 327,477 391,565 250,506 281,480Inventories776,210705,293744,945 735,926 689,865 565,742 627,520 57
24、1,605449,223414,763Property and equipment-net 532,264515,023481,909 444,530 425,159407,620 380,178 363,234339,720301,668Long-term debt 204,000 204,000268,000 50,000 285,000 104,310 143,757 121,435 44,941 53,869Shareholders equity$1,026,181$927,533$927,812$1,300,062$1,181,902$1,034,542$934,114$619,96
25、3$532,115$515,885Current ratio 2.62.73.2 2.0 2.7 1.9 1.8 2.4 1.8 2.2Inventory turnover(c)2.92.72.6 2.3 2.3 2.5 2.2 2.32.42.3Long-term debt to total capitalization16.6%18.0%22.4%3.7%19.4%9.2%13.3%16.4%7.8%9.5%Return on assets-continuing operations(b)4.7%2.1%6.4%6.7%6.6%10.7%7.0%9.6%9.9%9.2%Return on
26、shareholders equity-continuing operations(b)7.5%3.3%10.6%7.1%7.3%11.6%8.5%16.2%17.3%14.9%Book value per share$8.83$8.11$8.28$11.71$10.79$9.60$10.19$8.30$7.26$7.10Cash Flow DataEBITDA(b)$228,161$139,054$247,756$228,102$210,939$256,368$192,502$226,337$206,759$174,414EBITDA increase(decrease)(b)64.1%(4
27、3.9)%8.6%8.1%(17.7)%33.2%(14.9)%9.5%18.5%41.3%Depreciation and amortization$81,509$68,986$62,290$58,488$53,737$54,515$51,273$48,236$42,477$39,065Capital expenditures$102,057$107,561$114,847$83,068$82,813$85,714$55,775$74,208$82,372$75,359 Store DataNumber of stores1,3801,3351,290 1,230 1,128 1,025 9
28、33 852 766 669 Gross square footage(000s)37,88235,52833,595 31,896 29,015 26,623 24,253 22,633 20,383 17,609 Increase in square footage 6.6%5.8%5.3%9.9%9.0%9.8%7.2%11.0%15.8%13.8%Average gross square footage per store 27,45126,61326,043 25,932 25,723 25,974 25,995 26,565 26,610 26,321 Other Sales Da
29、taComparable store sales increase(decrease)7.7%2.0%3.7%7.5%(2.1)%4.8%3.3%.6%2.8%1.1%Average sales per store(d)$2,850$2,616$2,555$2,488$2,369$2,546$2,512$2,498$2,538$2,534 Sales per gross square foot(d)$105$99$98$96$92$98$96$94$96$96(a)Fiscal years 2000 and 1995 are comprised of 53 weeks.(b)Income fr
30、om continuing operations,profitability ratios,and EBITDA are before extraordinary charges,cumulative effect of a change in accounting principle,and one-time charges(including non-cash 2001 fourth quarter charges).(c)Inventory turnover calculated before non-cash 2001 fourth quarter charges.(d)Exclude
31、s sales impact of 53rd week in 2000 and 1995.FINANCIAL HIGHLIGHTSiii020100(a)9998979695(a)9493($in thousands,except per share amounts)The end of 2002 marked considerableimprovement in our financial performance.Earnings per share grew 154 percent to 66cents.Sales revenue was up 12.7 percent,fueled by
32、 a 7.7 percent comparable store salesincrease.We nearly doubled our operatingprofit margin,growing it to 3.8 percent ofsales compared with 2 percent in 2001.Wesubstantially improved cash flow and reducedour net debt by$126 million.Our solid finish in 2002 capped a two-year period during which we emb
33、arked on a num-ber of key initiatives to position Big Lots forimproved results and long-term growth.Thanks to the enormous energy of our morethan 40,000 associates,we completed our conversion to a single national brand18 months ahead of schedule.We made continued improvements in our stores,service,m
34、erchandising,and supply chain.And wegreatly enhanced our marketing and creative presentation.The number of people who regularly shop our stores is the best evidence of what wereaccomplishing.In fact,we view customercounts as the single most important indicatorin our business and the key to sustainab
35、lefuture growth.Prior to 2001,customer countshad declined for four straight years.Inresponse to our strategies,customer countsgrew during 2001 and were up 3 percent during 2002.The result:We enter 2003 witha strong and growing customer base.We are fortunate to have one of the best competitive advant
36、ages any retailer can have:price.In shopping comparisons,we outper-form traditional discount retailers by 20 to 40 percent.In exit surveys,our customers say their savings are even more dramatic between 30 and 50 percent.Both new andseasoned Big Lots shoppers know we areaccomplishing our mission of b
37、eing the best at saving them money.The other factor which truly differentiates usis the entertainment value customers get from closeout shopping.When customers walk into Big Lots,they never know what incredibledealsthey might find.One week it could befloor tile or toothpaste,the next week slotmachin
38、es or designer leather jackets.Ourexciting merchandise creates a high level ofenthusiasm and passion among our customers.Surveys conducted by The Gallup Organiza-tion show we have one of the highest levels ofWe are pleased to report that the strategies we put into place in 2001 led to significantimp
39、rovements in company results in 2002.Our performance was especially gratifyingin that it came during a tough time for the retail sector and the economy in general.The secretof Big Lotsdefinitely got out in 2002.2To Our Shareholders:customer passionof any retailer theyvemeasured.We have placed our cu
40、stomers atthe heart of our business.We measure theirperceptions regularly and use them as a factorfor store manager incentive pay opportunities.Whats truly exciting is weve only begun toscratch the surface in terms of the potential ofour brand.While we are a national retailerwith nearly 1,400 stores
41、,our brand awarenessis still quite low.During 2003,we will launcha national television advertising campaign tocommunicate our branded deals and greatprices.We believe this will result in furtherexpansion of our customer base.We look forward to dramatically increasingpublic awareness of the Big Lots
42、brand during2003.The national television campaign willfeature our award-winning commercials high-lighting the closeout moment theexcitementand thrill of the Big Lotsshopping experience.This strategy will enablestores in all of our markets to benefit from television exposure.Our primary objectives ar
43、e to continue to increase our customer counts,same store sales,and sales per square foot.Going forward,weare focusing our merchandise mix on areas wecan dominate:consumables,seasonal,andhome.We will continue to expand these categories in new,exciting ways with high-turn merchandise that attracts cus
44、tomers andgenerates greater productivity in our stores.Were confident Big Lots is on solid ground.We have the right products,unbeatable pricing,and a broad-based commitment toour customers.Our combination of low pricesand high gross margins gives us the opportu-nity to achieve high levels of operati
45、ng profitin the future.The secret of Big Lots definitely got out in2002.The solid execution of our strategic initiatives has opened the doors of closeoutshopping to a mass audience.Whether theyrehunting for deals or stretching a dollar,ourcustomers all love to save money.And theyvemade it clear they
46、 value and desire our uniquecombination of brand names,closeout prices,and exciting merchandise.We believe Big Lots is well-positioned to realize our vision as the Worlds BestBargain Place.And well achieve thatgoal the same way we do everything else:withquality,passion,and an unshakable commit-ment
47、to our customers and our long-term success.Thank you for your ongoing invest-ment and confidence.Sincerely,Albert J.BellVice ChairmanChief Administrative OfficerMichael J.PotterChairmanChief Executive OfficerPresidente all have our favorite departments.Myhusband,Luke,usually picks up theafter-school
48、 snacks,Brandon likes thetoys,and I head for the housewares.Weve always shoppedat Big Lots.In fact,I bought all of our party goods for ourwedding reception there streamers,tableware,napkins,candles,silk flowers I even found little bottles of bub-bles to use instead of rice.Were just very practical p
49、eople.We dont roll pennies.But we have to be smart about how we spend ourmoney,especially now.Our wallets shrank considerably when Luke wasdownsized from a high-paying job.But it was also a very routine job.So hedecided to use the opportunity to follow his passion and start an enter-tainment busines
50、s for special events.He does juggling,ball spinning,balloon animals,magic,fire torches and he buys his lamp oilfor the torches at Big Lots.Like he says,you donthave to be crazy to live here,but it helps!We just havemore fun with our money when we know were gettinga good deal,and Big Lots takes the a
51、nxietyout of shopping.I think as a family,we strive to keep a healthy perspectiveabout material things.And we try to passthat value on to Brandon that its notabout how much you make.Its abouttreating your family,your creativity,andyour money with respect.Melva Molina KareklasAdministrative Assistant
52、WBig Lotsis afamily affairfor us.4EVERYDAY PEOPLEDISCOUNT DARLINGMy oldbedroom suitewasreally old.y mom had it since she was about 10,and Itried very hard to keep it nice.But it didnthave enough drawers for all my stuff,and I was trying to be more organized.My parents took the old furniture out and
53、sold it for about forty dollars,maybe sixty.For a little while,I didnt have any furniture.Thenone day my mom and dad totally surprised me andsaid we were going to Big Lots to get furniture formy room.The first time I saw it,I was so excited.They weregoing back and forth about which pieces we should
54、get,thenthey said,Lets get all of it!I know it must have beena good price because my mom always looks for the bargains.Now I have a place to put everything my blankets go inthe blanket chest.I keep my socks and p.j.s in the tall chest.I put my shirts,makeup,and artwork in the dresser and myschoolwor
55、k in the armoire.My room is even fun to clean now becauseI have drawers for everything.But the best part is that this is myown little place to be when I need to get away from my fourbrothers.The next thing I want is a horse.Moriah Epling5th GraderM7ome weekends thats probably true.Its called Captain
56、Dons Bait System.I really didnt know much about it untilI came across one at Big Lots.I go there about once a weekto check out the guy stuff tools,sporting goods,things like that.I fisha lot,and sometimes they have great deals on lures andtackle.I saw this live bait system and started reading thebro
57、chure.Its a contraption that coastal fishermen haveused for years to catch crayfish and other bait.It usuallysells for about ninety bucks.Big Lots had them for$9.99.I guess you could say I was hooked.I tookit home,baited it up with bread,and put it in the river.In the morning,I had live minnows.Some
58、times youcatch a turtle or two,or a bluegill.I guess in a way,the whole thing iskind of like Big Lots.You just never know what youre going tofind,and thats fun.Dr.Charles HallPsychologistSMy wife saysI spend more time withthis thingthan I do with her.8TREASURE HUNTERDECORATING DIVAeve always loved g
59、oing to Big Lots for this and that.But two years ago,I got this house.Id never takenon the project of decorating a whole house.I neededa lot,so I headed for Big Lots.This is what I call my first decorative cor-ner,my Oriental corner.I found this mirror and these gorgeous framesfor my silk prints.Act
60、ually just about everything inthis house came from Big Lots the tele-phone stand,the oak table lamp,this bistro table andchairs,my velvet-covered chair and footstool,and my tapestry pillows and rugs.I must have thirty rugs in thishouse,and I got them all at Big Lots.But the thing I lovethe most is m
61、y country bedroom.I walked past this bed-room suite twice and thought,Oh Carol,this is a big purchase.Then I decided to get it anyway.The whole thingonly came to about seven hundred bucks thats thedresser,mirror,headboard,nightstand,armoire,even the mat-tress and frame.Theres so much I still want to
62、 do.I call theattic the last frontier,and Ive already got my eye on someoffice furniture.If I dont stop thinking about Big Lots,Imgoing to have to get therapy!Even though Im 55 years old,Im a kid at heart.And Im just having a ball at Big Lots.Carol StevensonBusinesswomanWMy girlfriend and Icall itLo
63、tting.11THRILL SEEKERlike unusual things,and I found some ceramic vases that caughtmy eye.But ever since we got this restaurant,Ive realized howmuch we can save on everything.We started out as a silent part-ner in the business,but Ive become the cleaner,decorator,and gofershopper.Every couple of mon
64、ths we have a cleaning party,and I buy allmy brand-name supplies at Big Lots scrub brushes,detergent,window cleaner you name it.I alwayspick up plasticware or big stainless bowls and servingplatters.I also like to browse through the gourmetfoods thats where I found my decorative jars oflemons and ol
65、ives.But the glassware is still myfavorite.One day the bartender said we needed somedecorations for the top shelf.So Ifound five different vases and marbles for about$30.Atthe restaurant or at home,Ive learned that mixing is thesecret.I collect antiques,and I have pieces from Big Lotsright beside ra
66、re European pottery.My sister likes totease me by pointing to the stuff from Big Lots and saying,Ooh,whered you find that?Nobody would everknow unless I told them.Thats what makes it so entertaining.Just the thrill of finding something reallygreat for so much less.You feel like yourebeating other pe
67、ople out.And that always putsa smile on my face.Lori IacovettaCo-owner,Braddocks RestaurantI13I got hooked onBig Lotsabout10 years ago.y wife,Kay,and I were headedon a road trip with our bestfriends,Steve and Dawn Tilson.As we drove along,Steve asked me what I wantedto do,so I told him I wanted to v
68、isit fiveBig Lots stores.Everyone grinned.ThenSteve said.Seriously,what do you want to do?Theladies believed me.But he looked as if he wantedthe ground to open and swallow him whole.By the time we got to thethird Big Lots,it started sinking in,and he stuck with it.We hit five storesin a 100-mile are
69、a.Each one was a little different.Kay and Dawn startedby going down every aisle.Steve headed for the tapes and CDs.I started atthe food aisle.This wasnt our first trip to Big Lots with the Tilsons,but itwas our first daylong trip.Kay and I have shopped there for years.Wealways find so many unusual,f
70、un things.We also go there for our everydaythings like pet food and toys for our cockatoos.And the specialty foods aregreat.One time when we got back from England,we were short on a gift.So we went to Big Lots and picked up some English teas.Thats probablyone of those little secrets you dont want to
71、blow your cover on.But its always an adven-ture.We often meet the Tilsons for dinner,and afterwards we mill around a nearby BigLots.I dont think Steve will ever let me decideagain what we do for an entire day.But Imalready planning our next big trip.I thinkwell get an earlier start this time.Glenn R
72、othmanProfessor Emeritus,Fine Arts14It was my71stbirthday.MDAY-TRIPPERFIRST-TIMERconvinced everyone that we needed to be a little more creative,sothey gave us$100 to spruce things up.Im a bargain shopper,butI had no idea where wed get a tree and decorations for thatamount.Then Teesia,one of my co-wo
73、rkers,brought in a Big Lotsad.Id never been there,but they had artificial trees for$18.99,so wewere on our way.The second I saw a 15-loop fabric bowfor$2.50,I knew wed discovered gold.Webought every bow they had.We found garland for thedoors for$1.99.Lights,ornaments,stockings everythingTeesia picke
74、d out,Id say,Throw it in the cart!Later shetold me I was like a 2-year-old running through the aisles.But the tree skirt is the best story a fabric skirt withstitched detail for$12.I saw the same one someplaceelse for almost$40!Everybodys looking for a bargain,and its fun to find out afterwards howm
75、uch we saved.We filled our cart for$85.And wevegotten more compliments on this stuff.The reindeerantlers that play Jingle Bells are my favorite.A lotof people are nervous about going to the den-tist,so we wore them to bring out a fewsmiles.And what could be better than a great smile?Cathy BarcusDent
76、al AssistantILast yearsdecorationswere,well,kind of hideous.1718StoreLocationsNUMBER OF STORES OPENAlabama 33Arizona27 Arkansas11 California187 Colorado16 Connecticut6 Delaware2 Florida106 Georgia62 Idaho4 Illinois41 Indiana53Iowa9 Kansas10 Kentucky42 Louisiana24 Maine3 Maryland11 Massachusetts11 Mi
77、chigan49 Minnesota6Mississippi14 Missouri29 Montana1Nebraska4 Nevada9 New Hampshire6 New Jersey6 New Mexico11 New York36 North Carolina55North Dakota3Ohio130Oklahoma19 Oregon10 Pennsylvania50 South Carolina26 Tennessee46Texas103 Utah9 Virginia42 Washington16 West Virginia24 Wisconsin16 Wyoming2 TOTA
78、L STORES1,380NUMBER OF STATES45With the exception of 54 owned store sites,all stores are leased.Store leases generally provide for fixed monthly rental payments plus the payment,in most cases,of real estate taxes,utilities,insurance,and common area maintenance.In somelocations,the leases provide for
79、mulas requiring the payment of a percentage of sales as additional rent.Such payments aregenerally only required when sales reach a specified level.The typical lease is for an initial term of five years with multiple five-year renewal options.The following table sets forth store location information
80、 as of February 1,2003.19Selected Financial Data20Managements Discussion and Analysisof Financial Condition and Results ofOperations22Independent Auditors Report33Consolidated Statements of Operations34Consolidated Balance Sheets35Consolidated Statements of Shareholders Equity36Consolidated Statemen
81、ts of Cash Flows37Notes to Consolidated Financial Statements38TABLE OF CONTENTSFinancial Information20Selected Financial DataThe statement of operations data and the balance sheet data have been derived from the CompanysConsolidated Financial Statements and should be read in conjunction with Managem
82、ents Discussion andAnalysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notesthereto included elsewhere herein.Fiscal Year Ended(a)Feb.1,Feb.2,Feb.3,Jan.29,Jan.30,200320022001(b)2000 1999 (In thousands)Net sales$3,868,550$3,433,321$3,277,088$2,933,6
83、90$2,550,668Cost of sales2,236,6332,092,1831,891,3451,668,6231,474,767Gross profit1,631,9171,341,1381,385,7431,265,0671,075,901Selling and administrativeexpenses1,485,2651,368,3971,200,2771,095,453918,699Operating profit(loss)146,652(27,259)185,466169,614157,202Interest expense20,11120,20222,94716,4
84、4715,795Income(loss)from continuingoperations before incometaxes and cumulativeeffect of accounting change126,541(47,461)162,519153,167141,407Income tax expense(benefit)49,984(18,747)64,19560,50155,144Income(loss)from continuingoperations before cumulative effect of accounting change76,557(28,714)98
85、,32492,66686,263Discontinued operations8,480(478,976)3,44423,155Cumulative effect ofaccounting change(12,649)Net income(loss)$76,557$(20,234)$(380,652)$96,110$96,769(a)References throughout this document to fiscal 2002,fiscal 2001,and fiscal 2000 refer to the fiscal years ended February 1,2003,Febru
86、ary 2,2002,and February 3,2001,respectively.(b)Fiscal 2000 is comprised of 53 weeks.21Fiscal Year Ended(a)Feb.1,Feb.2,Feb.3,Jan.29,Jan.30,200320022001(b)20001999Income(loss)per common share-basic:Continuing operations$.66$(.25)$.88$.84$.79Discontinued operations.07(4.30).03.21Cumulative effect of ac
87、counting change(.11)$.66$(.18)$(3.42)$.87$.89Income(loss)per common share-diluted:Continuing operations$.66$(.25)$.87$.82$.76Discontinued operations.07(4.26).03.21Cumulative effect of accounting change(.11)$.66$(.18)$(3.39)$.85$.86Weighted-average common sharesoutstanding:Basic115,865113,660111,4321
88、10,360109,199Diluted116,707113,660112,414112,952112,800Balance Sheet Data:Total assets$1,642,271$1,460,793$1,526,966$1,862,028$1,851,232Working capital658,260557,741717,143472,080546,687Long-term obligations204,000204,000268,00050,000285,000Shareholders equity$1,026,181$927,533$927,812$1,300,062$1,1
89、81,902Store Data:Gross square footage37,88235,52833,59531,89629,015New stores opened877883124137Stores closed4233232234Stores open at end of year1,3801,3351,2901,2301,128Selected Financial Data(In thousands,except per shareamounts and store counts)(a)References throughout this document to fiscal 200
90、2,fiscal 2001,and fiscal 2000 refer to the fiscal years endedFebruary 1,2003,February 2,2002,and February 3,2001,respectively.(b)Fiscal 2000 is comprised of 53 weeks.22CAUTIONARY STATEMENT FOR PURPOSES OF“SAFE HARBOR”PROVISIONS OF THE SECURITIES LITIGATION REFORM ACT OF 1995The Private Securities Li
91、tigation Reform Act of 1995(the“Act”)provides a“safe harbor”for forward-looking statements toencourage companies to provide prospective information,so long as those statements are identified as forward-looking andare accompanied by meaningful cautionary statements identifying important factors that
92、could cause actual results to differmaterially from those discussed in the statement.The Company wishes to take advantage of the“safe harbor”provisions ofthe Act.This report,as well as other verbal or written statements or reports made by or on the behalf of the Company,may contain ormay incorporate
93、 material by reference which includes forward-looking statements within the meaning of the Act.Statements,other than those based on historical facts,which address activities,events,or developments that the Company expects oranticipates will or may occur in the future,including such things as future
94、capital expenditures(including the amount andnature thereof),business strategy,expansion and growth of the Companys business and operations,and other similar mattersare forward-looking statements,which are based upon a number of assumptions concerning future conditions that may ultimately prove to b
95、e inaccurate.The words“believe,”“anticipate,”“project,”“plan,”“expect,”“estimate,”“objective,”“forecast,”“goal,”“intend,”“will likely result,”or“will continue”and similar expressions generally identify forward-lookingstatements.Although the Company believes the expectations expressed in such forward
96、-looking statements are based on reasonable assumptions within the bounds of its knowledge of its business,actual events and results may materially differ fromanticipated results described in such statement.The Companys ability to achieve such results is subject to certain risks and uncertainties,an
97、y one,or a combination,of whichcould materially affect the results of the Companys operations.These factors include:sourcing and purchasing merchandise;the cost of the merchandise;economic and weather conditions which affect buying patterns of the Companys customers;changes in consumer spending and
98、consumer debt levels;inflation;the Companys ability to anticipate buying patterns andimplement appropriate inventory strategies;continued availability of capital and financing;competitive pressures and pricingpressures;the Companys ability to comply with the terms of its credit facilities(or obtain
99、waivers for non-compliance);interest rate fluctuations;transportation and distribution delays or interruptions,including,but not limited to,the impact ofthe recent management lockout of the West Coast dockworkers and any ongoing work slowdown on the economy and on theCompanys ability to receive inve
100、ntory;fuel price fluctuations;interruptions in suppliers businesses;costs and potential problems and interruptions associated with implementation of new or upgraded systems and technology;a deterioration ingeneral economic conditions caused by acts of war or terrorism;delays associated with construc
101、ting,opening and operatingnew stores;and other risks described from time to time in the Companys filings with the Securities and ExchangeCommission,in its press releases,and in other communications.Consequently,all of the forward-looking statements are qualified by these cautionary statements,and th
102、ere can be no assurance that the results or developments anticipated by the Company will be realized or that they will have the expectedeffects on the Company or its business or operations.Readers are cautioned not to place undue reliance on forward-looking statements,which speak only as of the date
103、 thereof.The Company undertakes no obligation to publicly release any revisions to the forward-looking statements contained in thisreport,or to update them to reflect events or circumstances occurring after the date of this report,or to reflect the occurrence of unanticipated events.Readers are advi
104、sed,however,to consult any further disclosures the Company may makeon related subjects in its Forms 10-Q,8-K and 10-K filed with the Securities and Exchange Commission.Managements Discussion and Analysis23OVERVIEWThe discussion and analysis presented below should be read in conjunction with the Cons
105、olidated Financial Statements andrelated Notes appearing elsewhere in this report.Business OperationsThe Company is the nations largest broadline closeout retailer.At February 1,2003,the Company operated a total of 1,380stores under the names BIG LOTS and BIG LOTS FURNITURE.The Companys goal is to b
106、uild upon its leadership position in broadline closeout retailing,a growing segment of the retailing industry,by expanding its market presence in bothexisting and new markets.The Company believes that the combination of its strengths make it a low-cost value retailer well-positioned for future growt
107、h.Wholesale operations are conducted through BIG LOTS WHOLESALE,CONSOLIDATED INTERNATIONAL,WISCONSIN TOY,and with online purchasing at .The following table compares components of the Consolidated Statements of Operations of the Company as a percentage ofnet sales.Results for fiscal 2001 include the
108、impact of a$50.4 million(after-tax)non-cash charge(see Non-Cash 2001Fourth Quarter Charge in the Notes to the Consolidated Financial Statements).Fiscal Year200220012000Net sales100.0%100.0%100.0%Gross profit42.239.142.3Selling and administrative expenses38.439.936.6Operating profit(loss)3.8(.8)5.7In
109、terest expense.5.6.7Income(loss)from continuing operations before income taxes3.3(1.4)5.0Income tax expense(benefit)1.3(.6)2.0Income(loss)from continuing operations2.0(.8)3.0Discontinued operations-.2(14.6)Net income(loss)2.0%(.6)%(11.6)%The Company has historically experienced,and expects to contin
110、ue to experience,seasonal fluctuations,with a significant percentage of its net sales and operating profit being realized in the fourth fiscal quarter.In addition,the Companys quarter-ly results can be affected by the timing of store openings and closings,the amount of net sales contributed by new a
111、nd exist-ing stores,as well as the timing of remodels,television and circular advertising,and the timing of certain holidays.Furthermore,in anticipation of increased sales activity during the fourth quarter,the Company purchases substantial amountsof inventory during the third quarter and hires a si
112、gnificant number of temporary employees to increase store staffing duringthe fourth quarter.Name Change and ReincorporationOn May 16,2001,the Company announced its name change to Big Lots,Inc.,and its ticker symbol to NYSE:BLI.The name change was approved at the Annual Meeting of Shareholders on May
113、 15,2001.Also approved was a proposal tochange the Companys state of incorporation from Delaware to Ohio.This change was affected by merging ConsolidatedStores Corporation,a Delaware corporation(“Consolidated(Delaware)”),with and into the Company(the“Merger”).Managements Discussion and Analysis24OVE
114、RVIEW(Continued)At the effective time of the Merger,the separate corporate existence of Consolidated(Delaware)ceased,and the Companysucceeded to all business,properties,assets,and liabilities of Consolidated(Delaware).The shares of common stock ofConsolidated(Delaware)issued and outstanding immediat
115、ely prior to the effective time of the Merger were,by virtue of theMerger,converted into an equal number of shares of fully paid and non-assessable common shares of the Company.In connection with the Companys name change to Big Lots,Inc.,434 stores in total have been converted,including 380stores pr
116、eviously operating under the names of Odd Lots,Mac Frugals,and Pic N Save,and 54 existing Big Lots storeslocated in conversion markets.As of the end of fiscal 2002,all of the Companys 1,380 stores were under the Big Lots name.In connection with this process,the Company made certain improvements to t
117、he converted sites.The improvements madevaried by location and included,among other things,painting,lighting retrofits,new signage(interior and exterior),newflooring,and updated restrooms.The Company believes that Big Lots is its most recognizable brand name and that thischange offers numerous oppor
118、tunities to increase brand awareness among customers,suppliers,investors,and the generalpublic.The Company believes the change will also allow it to leverage future television advertising and other expenses.On August 22,2001,the Company announced that its Board of Directors had unanimously voted to
119、redeem the preferredstock rights issued under the Companys Rights Agreement,sometimes referred to as a“poison pill.”The redemption was adirect result of the Companys redomestication into Ohio,as approved by its shareholders at the Companys 2001 AnnualMeeting of Shareholders.At the 2000 Annual Meetin
120、g of Shareholders,a non-binding shareholder proposal passed seekingthe termination of the Companys Rights Agreement.The Board of Directors believed that the statutory protections offeredby the Companys new state of incorporation provided adequate safeguards to permit the Board of Directors and theCo
121、mpanys shareholders to fully and fairly evaluate any takeover offer,whether coercive or not.Accordingly,the Board ofDirectors found it to be in the best interest of the Company and its shareholders to redeem the preferred stock rights issuedunder the Rights Agreement.Sale of DivisionOn June 27,2000,
122、the Company announced its decision to separate the toy and closeout businesses by divesting theCompanys KB Toy Division.The Consolidated Financial Statements and related Notes have been reclassified for all applicable periods presented to reflect the toy segment as a discontinued operation.On Decemb
123、er 7,2000,the Company closed the sale of its KB Toy Division to an affiliate of Bain Capital,Inc.In connectionwith the sale,the Company recorded an after-tax loss of$479.0 million consisting of a$48.2 million after-tax loss from operations and a$430.8 million after-tax loss on the disposal of the KB
124、 Toy Division.Proceeds from the sale were used primarily to pay down existing borrowings under the Companys senior unsecured revolving credit facility(“Prior Revolver”).The buyer purchased the business in conjunction with KB Toys management,who were retained to lead the KB Toy business.Gross proceed
125、s totaled approximately$305 million,consisting primarily of$258 million in cash,a note with a faceamount of$45 million,and a warrant to acquire common stock of the buyers parent.The note receivable matures onDecember 7,2010,and bears interest at a rate of 8%.As of February 1,2003,the note receivable
126、 from KB and the relatedcommon stock warrant were recorded as other long-term assets on the balance sheet.The interest is payable in annual install-ments paid by issuing additional notes with substantially identical terms as the original note.At the time of the sale(thefourth quarter of fiscal 2000)
127、,the Company evaluated the fair value of the note received as consideration in the transactionand recorded the note at its then fair value of$13 million.The fair value of the note was established based on several factorsincluding fair market value determinations obtained from independent financial a
128、dvisors at the time of the sale,the Companysknowledge of the underlying KB Toy business and industry,and the risks inherent in receiving no cash payments until thenote matures in 2010.As of fiscal 2002,the Company recorded the interest earned and accretion of the discount utilizing Managements Discu
129、ssion and Analysis25OVERVIEW(Continued)the effective interest rate method and provided a full valuation reserve against such amounts as a result of its evaluation as tothe recoverability of the carrying value of the notes.As of February 1,2003,and February 2,2002,the aggregate carryingvalue of these
130、 notes was$16 million.The warrant provides that the Company is entitled to purchase up to 2.5%of the common stock of the buyers parent for astated per share price.The stock can be purchased any time prior to December 7,2005.The note and warrant are beingaccounted for on the cost basis.The Company ha
131、s,as part of the sale agreement,retained the responsibility for certain KB insurance claims incurred throughthe date of closing of the sale(December 7,2000).During the fourth quarter of 2001,the Company determined that theestimate for the related insurance reserves exceeded the expected liability.Ac
132、cordingly,a portion of the insurance reservesestablished in connection with the sale of the KB Toy Division were adjusted and recorded as income from discontinued operations on the Companys Consolidated Statement of Operations.This adjustment resulted in$8.5 million of after-taxincome from discontin
133、ued operations in the fourth quarter of 2001.Non-Cash 2001 Fourth Quarter ChargeIn the fourth quarter of fiscal 2001,the Company recorded a non-cash charge of$50.4 million(after-tax),or$0.44 per diluted share.The charge represented:a)costs to modify the Companys product assortment and exit certain m
134、erchandisecategories($6.1 million after-tax),b)adjustments to the estimated capitalized freight costs related to inbound importedinventories in response to better systems and information($15.0 million after-tax),c)adjustments to inventory-related coststhat were identified as a result of the completi
135、on of a significant multi-year conversion to a detailed stock keeping unit-level(“SKU”)inventory management system($16.7 million after-tax),and d)changes in estimates and estimating methodologyrelated to insurance reserves($12.6 million after-tax).These charges are included in the Companys fiscal 20
136、01 fourth quarter financial statements.A critical element of the Companys overall business strategy has been a multi-year initiative to improve its information sys-tems,a major phase of which was completed in fiscal 2001.The new systems have given the Company the ability to track andmanage inventori
137、es at the SKU level with improved visibility and data.The new systems have also provided better informa-tion on inventory balances and have given management the ability to assess profitability and financial returns down to theSKU level.Based on an analysis of SKU-level information,the Company decide
138、d to modify its product assortment and exit certain categories of merchandise.This decision allowed the Company to expand its consumables and home categories,both ofwhich management believes have superior financial returns.The markdowns associated with these discontinued products,allof which were ta
139、ken during the fourth quarter of fiscal 2001,accounted for approximately$6.1 million(after-tax)of thecharge described above.The Company believes this action will result in a more productive assortment and a greater emphasison the everyday consumable items that help drive repeat store traffic.The sec
140、ond component of the charge related to the estimated capitalized import freight costs which were incurred in connec-tion with inbound inventories sourced from outside the United States.New information systems have improved theCompanys ability to manage merchandise flow and freight costs.These improv
141、ed systems have also provided better informa-tion and tools for determining the proper amount of capitalized import freight costs to be recorded on the balance sheet.Accordingly,based on this new information,the Company has revised its estimates and methodology,resulting in a$15.0million(after-tax)c
142、harge.The third component of the charge pertained to inventory-related costs that had not been allocated to the cost of merchan-dise in the Companys detailed inventory stock ledger and,accordingly,were not being fully allocated to cost of goods sold.Managements Discussion and Analysis26OVERVIEW(Conc
143、luded)The Company identified this issue in the fourth quarter of fiscal 2001 as a result of the conversion to the new SKU-based systems,resulting in a$16.7 million(after-tax)charge.The fourth and final component of the charge related to insurance reserves.At the end of fiscal 2001,the Company analyz
144、edits insurance reserve accounts and implemented a new methodology that provided better actuarial estimates of future claims.This new methodology,combined with an upward trend in fiscal 2001 claims,resulted in a$12.6 million(after-tax)charge toincrease the Companys insurance reserves.This charge con
145、sisted of two elements:the first related to the adjustment ofreserves established in connection with the sale of the KB Toy Division,which resulted in$8.5 million(after-tax)incomefrom discontinued operations,and the second element of the charge was$21.1 million(after-tax)to increase reserves related
146、to continuing operations.FISCAL 2002 COMPARED TO FISCAL 2001Net SalesNet sales increased to$3,868.5 million for fiscal 2002 from$3,433.3 million for fiscal 2001,an increase of$435.2 million,or12.7%.This increase resulted primarily from a comparable stores sales increase of 7.7%,with the remaining 5.
147、0%growth driv-en primarily by sales from 87 new stores,offset in part by the closing of 42 stores.The Company attributes its comparablestore sales increase of 7.7%to an increase in the dollar value of the average transaction of 4.9%and an increase in the numberof customer transactions of 2.8%.Compar
148、able store sales are calculated using all stores that have been open for at least two years as of the beginning of thefiscal year.The Company believes the increase in the number of customer transactions and the increase in the dollar value of the averagetransaction for fiscal 2002 may have resulted
149、from several factors such as more reliable in-stock levels of consumables prod-ucts,more productive advertising circulars,increased television advertising spending,the successful re-grand opening of 434conversion stores since March 2001,and the introduction of furniture departments in 128 stores ove
150、r the prior year.Interms of product categories,sales growth was broad based with positive comparable store sales increases across most majorcategories and strong gains in domestics,furniture,hardlines,consumables,toys,and home dcor.The Company believes that future sales growth is dependent upon the
151、increased number of customer transactions as well asincreases in the dollar value of the average transaction.The following table summarizes comparable store sales as well asgrowth in customer transactions and in the value of the average transaction:Fiscal Year EndedFebruary 1,2003February 2,2002Comp
152、arable store sales7.7%2.0%Customer transactions2.8%.3%Value of the average transaction4.9%1.7%Managements Discussion and Analysis27FISCAL 2002 COMPARED TO FISCAL 2001(Concluded)Gross ProfitGross profit increased$290.8 million,or 21.7%,in fiscal 2002 to$1,631.9 million from$1,341.1 million in fiscal
153、2001.Gross profit as a percentage of net sales was 42.2%in fiscal 2002 compared to 39.1%in the previous year.Of the 310 basispoint improvement in the gross profit percentage,180 basis points were due to prior years results having been impacted bya non-cash fourth quarter charge of$37.8 million after
154、-tax($62.4 million before tax).This charge represented the cost tomodify the Companys product assortment and exit certain categories,adjustments to the estimated capitalized import freightbalances,and inventory-related costs that were identified as a result of the completion of a significant multi-y
155、ear conversion toa detailed SKU-level inventory management system.The remaining 130 basis points of increase in the gross profit percentagewas primarily due to improvements in initial markup due to opportunistic buying conditions across most merchandise cate-gories,partially offset by promotional ma
156、rkdowns taken to clear seasonal inventory such as Christmas decorative merchandise.Selling and Administrative Expenses Selling and administrative expenses increased$116.9 million in fiscal 2002 to$1,485.3 million from$1,368.4 million in fiscal2001.As a percentage of net sales,selling and administrat
157、ive expenses decreased to 38.4%in fiscal 2002 from 39.9%in fiscal2001.Of the 150 basis point improvement in the selling and administrative expense rate,110 basis points were due to prioryears results having been impacted by a$21.1 million after-tax($34.9 million before tax)non-cash fourth quarter ch
158、argeresulting from a change in estimate relating to insurance reserves.The remaining 40 basis points of rate improvement in fiscal2002 was primarily due to improving productivity in distribution,transportation,and store payroll,partially offset by the negative impact of increased insurance costs,as
159、well as accelerating comparable sales on an expense base of which a large portion is fixed.The$116.9 million increase in selling and administrative spending was driven primarily by an increase in the number ofstores,additional variable costs associated with the higher levels of sales(primarily store
160、 payroll,incentive compensation,dis-tribution and transportation costs),investment in strategic repositioning initiatives,and insurance expense.Warehousing and distribution costs,which are included in Selling and Administrative Expenses(see Summary of SignificantAccounting Policies in the Notes to t
161、he Consolidated Financial Statements),decreased as a percentage of sales 60 basis pointswhen compared to fiscal 2001.The reduction in warehousing and distribution costs as a percentage of sales is primarily dueto productivity improvements and the leveraging of costs over a higher sales base.Interest
162、 Expense Interest expense,including the amortization of debt issuance costs,was$20.1 million for fiscal 2002 compared to$20.2 mil-lion for fiscal 2001.As a percentage of net sales,interest expense for the year declined slightly compared to fiscal 2001.The fiscal 2002 interest primarily relates to th
163、e Companys senior notes and the amortization of debt issuance costs.Thedecrease in interest expense over fiscal 2001 is primarily due to lower average borrowings under the Companys senior revolv-ing credit agreement(“Revolving Credit Agreement”).This decrease was partially offset by fiscal 2001 expe
164、nse being favor-ably impacted in the first and second quarters by the capitalization of$2.4 million of interest related to the Tremont,Pennsylvania distribution center.Additionally,the senior notes,which carry a higher interest rate than the variable-pricedRevolving Credit Agreement,were not in plac
165、e until the second quarter of fiscal 2001.Income Taxes The effective tax rate of the Company was 39.5%in both fiscal 2002 and 2001.Managements Discussion and Analysis28FISCAL 2001 COMPARED TO FISCAL 2000Net SalesNet sales increased to$3,433.3 million for fiscal 2001 from$3,277.1 million for fiscal 2
166、000,an increase of$156.2 million,or4.8%.This increase was attributable to sales from 78 new stores,offset in part by the closing of 33 stores,and a comparablestore sales increase of 2.0%.Customer transactions increased 0.3%and the value of the average basket increased 1.7%.Comparable store sales are
167、 calculated using all stores that have been open for at least two years as of the beginning of thefiscal year.The Company believes the increase in the number of customer transactions and the increase in the dollar value of the averagetransaction for fiscal 2001 may have resulted from several factors
168、 such as increased television advertising which raised theCompanys total television coverage from 30%of net sales to 52%of net sales,the successful re-grand opening of 205 conver-sion stores,and the introduction of furniture departments in 148 stores over the prior year.In terms of product categorie
169、s,furniture,home dcor,seasonal,and consumables drove sales growth with positive comparable store sales increases.The Company believes that future sales growth is dependent upon the increased number of customer transactions as well asincreases in the dollar value of the average transaction.The follow
170、ing table summarizes comparable store sales as well asgrowth in customer transactions and in the value of the average transaction:Fiscal Year EndedFebruary 2,2002February 3,2001Comparable store sales2.0%3.7%Customer transactions.3%(2.1%)Value of the average transaction1.7%5.8%Gross ProfitGross profi
171、t decreased$44.6 million,or 3.2%,in fiscal 2001 to$1,341.1 million from$1,385.7 million in fiscal 2000.Grossprofit as a percentage of net sales was 39.1%in fiscal 2001 compared to 42.3%in the previous year.The decline in gross profitas a percentage of net sales was primarily due to a non-cash fourth
172、 quarter charge of$37.8 million after-tax($62.4 millionbefore tax).This charge represented the cost to modify the Companys product assortment and exit certain categories,adjustments to the estimated capitalized import freight balances,and inventory-related costs that were identified as a result ofth
173、e completion of a significant multi-year conversion to a detailed SKU-level inventory management system.The remainingdecline in gross profit percentage was primarily due to aggressive markdowns and promotions taken to sell through seasonalmerchandise and apparel.The decline was also impacted by a sh
174、ift in product mix as customers increased purchases of lowermargin consumable goods and reduced spending on more discretionary,higher margin items.Selling and Administrative ExpensesSelling and administrative expenses increased$168.1 million in fiscal 2001 from$1,200.3 million in fiscal 2000.As a pe
175、rcent-age of net sales,selling and administrative expenses were 39.9%in fiscal 2001 compared to 36.6%in fiscal 2000.The majorcause of the increase as a percentage of net sales was due to a$21.1 million after-tax($34.9 million before tax)non-cashfourth quarter charge resulting from a change in estima
176、te relating to insurance reserves,combined with an upward trend infiscal 2001 claims.The remaining selling and administrative rate increase was primarily driven by the deleveraging impact oflower comparable store sales combined with planned strategic initiatives,including increased advertising,store
177、 maintenance,and customer service investments.Managements Discussion and Analysis29FISCAL 2001 COMPARED TO FISCAL 2000(Concluded)Warehousing and distribution costs,which are included in Selling and Administrative Expenses(see Summary of SignificantAccounting Policies in the Notes to the Consolidated
178、 Financial Statements),increased as a percentage of sales 50 basis pointsover fiscal 2000.The increase was primarily due to higher carton volume on a lower comparable sales base as well as additional overhead costs related to the new Tremont,Pennsylvania distribution center.Interest ExpenseInterest
179、expense,including the amortization of debt issuance costs,decreased to$20.2 million in fiscal 2001 from$22.9 million in fiscal 2000.The decrease in interest expense reflects favorable effective interest rates,a lower average debtbalance,and the capitalization of$2.4 million of interest related to th
180、e Tremont,Pennsylvania distribution center.Income TaxesThe effective tax rate of the Company was 39.5%in both fiscal 2001 and 2000.CAPITAL RESOURCES AND LIQUIDITYOn May 8,2001,the Company entered into the Revolving Credit Agreement with a group of financial institutions,whichconsisted of a$358.75 mi
181、llion three-year revolving credit facility and a$153.75 million 364-day facility,renewable annually.The Revolving Credit Agreement replaced the Companys Prior Revolver which,at the time of its replacement,consisted of a$500 million revolving credit facility that was due to expire on May 6,2002.The a
182、verage interest rate under the RevolvingCredit Agreement during fiscal 2002 and fiscal 2001 was 3.01%and 5.41%,respectively.Also on May 8,2001,the Company entered into the Senior Note Agreement pursuant to which it completed a$204 million private placement of senior notes with maturities ranging fro
183、m four to six years(“Senior Notes”).Principal maturities of long-term debt for the next five fiscal years are as follows:2003$-2004$-2005$174 million2006$15 million2007$15 millionThe Senior Notes currently carry a weighted-average yield of 8.21%and rank pari passu with the Companys Revolving CreditA
184、greement.Proceeds from the issue were used to pay down the Prior Revolver.Both the Revolving Credit and Senior Note Agreements contain customary affirmative and negative covenants includingfinancial covenants requiring the Company to maintain specified fixed charge coverage and leverage ratios as we
185、ll as a minimum level of net worth.On October 30,2001,the financial covenants of the Revolving Credit Agreement were amended to provide the Companywith increased operating flexibility.On February 25,2002,both the Revolving Credit Agreement and Senior Note Agree-ment were amended to exclude the non-c
186、ash 2001 fourth quarter charge from the fixed charge coverage and leverage ratiofinancial covenant calculations.As part of the February 25,2002 amendments,the Company provided collateral,consistingprincipally of its inventories,as security for both the Revolving Credit and Senior Note Agreements,and
187、 agreed to certainchanges in other terms.The February 25,2002 amendment to the Revolving Credit Agreement imposed certain limitations on the extent to which theCompany may borrow under the Revolving Credit Agreement.The Companys borrowing base fluctuates monthly basedManagements Discussion and Analy
188、sis30CAPITAL RESOURCES AND LIQUIDITY(Concluded)on the value of the Companys inventory,as determined in accordance with the Revolving Credit Agreement.On April 30,2002,the Revolving Credit Agreement was further amended to increase the applicable borrowing base factor.On May 8,2002,the Companys 364-da
189、y facility expired.This facility had not been used during the prior year and,accord-ingly,was not renewed.The Company believes that the remaining$358.75 million revolving credit facility,combined withcash provided by operations,existing cash balances,and the Senior Notes,provide sufficient liquidity
190、 to meet its operatingand seasonal borrowing needs.The primary sources of liquidity for the Company have been cash flow from operations,proceeds from the Senior Notes,andas necessary,borrowings under the Revolving Credit Agreement.Working capital at February 1,2003,was$658.3 millionand net cash prov
191、ided by operations was$218.2 million for the fiscal year then ended.The Company had no direct borrow-ings under the Revolving Credit Agreement at February 1,2003.At such date,the Company was contingently liable for out-standing letters of credit totaling$32.5 million and had$143.8 million of investe
192、d funds.The Company received federal tax refunds of approximately$62 million in fiscal 2002 and$73.2 million in fiscal 2001 from the utilization of the net operating losses and tax credit carryforwards primarily relating to the divestiture of the KB Toy Division.During fiscal 2002,the Company had av
193、erage borrowings under the Revolving Credit Agreement of$17 million and peakborrowings of$93.5 million.Additionally,the Company had average letters of credit outstanding of$34.2 million during fiscal 2002.At the point of its peak borrowing,the Company had$188.8 million of unused availability under i
194、ts borrowingbase formula.Capital expenditures were$102.1 million in fiscal 2002,$107.6 million in fiscal 2001,and$114.8 million in fiscal 2000.Capital expenditures in fiscal 2002 were primarily driven by new store openings,investments in strategic initiatives in conjunc-tion with the Companys strate
195、gic repositioning,and the commencement of the construction of a new distribution center inDurant,Oklahoma.Capital expenditures in fiscal 2001 were primarily driven by new store openings,additional distributioncenter capacity in Montgomery,Alabama and Tremont,Pennsylvania,investments in strategic ini
196、tiatives in conjunction withthe Companys strategic repositioning,and the upgrade of the warehouse management system in the Columbus,Ohio distribution center.Capital expenditures in fiscal 2000 were primarily driven by new store openings and additional distribution center capacity.Capital expenditure
197、 requirements in fiscal 2003 are anticipated to be approximately$160-$165million,primarily to complete the new distribution facility in Durant,Oklahoma,invest in new stores and store expansions,and remodel approximately 213 existing Big Lots stores.The Company is subject to market risk from exposure
198、 to changes in interest rates based on its financing,investing,and cashmanagement activities.The Company does not expect changes in interest rates in fiscal 2003 to have a material effect onincome or cash flows;however,there can be no assurances that interest rates will not materially change.The Com
199、pany continues to believe that it has,or if necessary has the ability to obtain,adequate resources to fund ongoingoperating requirements,future capital expenditures related to the expansion of existing businesses,development of new projects,and currently maturing obligations.Additionally,management
200、is not aware of any current trends,events,demands,commitments,or uncertainties which reasonably can be expected to have a material impact on the liquidity,capital resources,financial position,or results of operations of the Company.Managements Discussion and Analysis31CRITICAL ACCOUNTING POLICIES AN
201、D ESTIMATESThe preparation of financial statements,in conformity with accounting principles generally accepted in the United States ofAmerica,requires management to make estimates and assumptions about future events that affect the amounts reported in thefinancial statements and accompanying notes.F
202、uture events and their effects cannot be determined with absolute certainty.Therefore,the determination of estimates requires the exercise of judgment.The Companys accounting policies are more fully described in the Summary of Significant Accounting Policies in the Notesto the Consolidated Financial
203、 Statements.The Company has certain critical accounting policies and accounting estimates,which are described below.Merchandise inventories.Merchandise inventories are carried at the lower of cost or market on a first-in,first-out basis,pri-marily on the retail method.Certain assumptions are made to
204、 properly record inventory at the lower of cost or market,andthese assumptions are based on historical experience and current information.The Companys assumptions include significantjudgments and estimates made by management including merchandise markup,markdowns,shrinkage,and the aging ofinventorie
205、s,each of which could significantly impact the ending inventory valuation at cost as well as the resulting gross mar-gins.Due to the nature of the Companys purchasing practices for closeout and deeply discounted merchandise,vendors andmerchandise suppliers generally do not offer the Company incentiv
206、es such as slotting fees,cooperative advertising allowances,buydown agreements,or other forms of rebates that would materially reduce its cost of sales.Property and equipment.Depreciation and amortization are provided on the straight-line method over the estimated usefullives of the assets.Service l
207、ives are principally forty years for buildings and from three to fifteen years for other property and equipment.Impairment.The Company has long-lived assets that consist primarily of property and equipment.The Company estimatesuseful lives on buildings and equipment using assumptions based on histor
208、ical data and industry trends.Where there is anindication of impairment,the Company evaluates the fair value and future benefits of the related long-lived asset,and theanticipated undiscounted future net cash flows from the related asset is calculated and compared to the carrying value on theCompany
209、s books.The Companys assumptions related to estimates of future cash flows are based on historical results ofcash flows adjusted for management projections for future periods taking into account known conditions and planned futureactivities.The Companys assumptions regarding the fair value of its lo
210、ng-lived assets are based on the discounted future cash flows.Insurance reserves.The Company is self-insured for certain losses relating to general liability,workers compensation,andemployee medical benefit claims,and the Company has purchased stop-loss coverage in order to limit significant exposur
211、e inthese areas.Accrued insurance liabilities are based on claims filed and estimates of claims incurred but not reported.Suchamounts are determined by applying actuarially-based calculations taking into account known trends and projections of futureresults.Actual claims experience can impact these
212、calculations and,to the extent that subsequent claim costs vary from esti-mates,future earnings could be impacted and the impact could be material.Income taxes.The Company has generated deferred tax assets or liabilities due to temporary differences between the carryingamounts of assets and liabilit
213、ies for financial reporting purposes and the amounts used for income tax purposes.TheCompany has established a valuation allowance to reduce its deferred tax assets to the balance that is more likely than not tobe realized.The Company records liabilities relating to income taxes utilizing known obli
214、gations and estimates ofpotential obligations.Pension liabilities.Pension and other retirement benefits,including all relevant assumptions required by accounting princi-ples generally accepted in the United States of America,are evaluated each year.Due to the technical nature of retirement Managemen
215、ts Discussion and Analysis32CRITICAL ACCOUNTING POLICIES AND ESTIMATES(Concluded)accounting,outside actuaries are used to provide assistance in calculating the estimated future obligations.Since there aremany estimates and assumptions involved in retirement benefits,differences between actual future
216、 events and prior estimatesand assumptions could result in adjustments to pension expenses and obligations.Such assumptions include the discountrate,rate of increase in compensation levels,and the expected long-term rate of return on the related assets.Legal obligations.In the normal course of busin
217、ess,the Company must make continuing estimates of potential future legalobligations and liabilities,which requires the use of managements judgment on the outcome of various issues.Managementmay also use outside legal advice to assist in the estimating process;however,the ultimate outcome of various
218、legal issuescould be materially different from managements estimates and adjustments to income could be required.The assumptionsthat are used by management are based on the requirements of Statement of Financial Accounting Standards(“SFAS”)No.5,“Accounting for Contingencies.”The Company will record
219、a liability related to legal obligations when it has determined thatit is probable that the Company will be obligated to pay and the related amount can be reasonably estimated,and it will dis-close the related facts in the footnotes to its financial statements,if material.If the Company determines t
220、hat either an obli-gation is probable or reasonably possible,the Company will,if material,disclose the nature of the loss contingency and theestimated range of possible loss,or include a statement that no estimate of loss can be made.The Company makes thesedeterminations in consultation with its out
221、side legal advisors.Cost of sales.Cost of sales includes the cost of merchandise(including related inbound freight),markdowns and inventoryshortage,as well as cash discounts and rebates.The Company classifies purchasing and receiving costs,inspection costs,warehousing costs,internal transfer costs,a
222、nd the other distribution network costs as selling and administrative expenses.Due to this classification,the Companys gross margins may not be comparable to those of other retailers that include costsrelated to their distribution network in cost of sales.Selling and administrative expenses.The Comp
223、any includes store expenses(such as payroll and occupancy costs),warehousing and distribution costs,advertising,buying,depreciation,insurance,and overhead costs in selling and administra-tive expenses.The above listing is not intended to be a comprehensive list of all the Companys accounting policie
224、s.In many cases,theaccounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in theUnited States of America,with no need for managements judgment in the principles application.There are also areas inwhich managements judgment in selecting a
225、ny available alternative would not produce a materially different result.See theCompanys Consolidated Financial Statements and Notes thereto for the fiscal year ended February 1,2003,which containaccounting policies and other disclosures required by accounting principles generally accepted in the Un
226、ited States ofAmerica.RECENT ACCOUNTING PRONOUNCEMENTSRecent Accounting Pronouncements are discussed in the Summary of Significant Accounting Policies in the Notes to theConsolidated Financial Statements.COMMITMENTSCommitments are discussed in the Long-Term Obligations,the Commitments and Contingenc
227、ies,and the Leases Notes tothe Consolidated Financial Statements.Managements Discussion and Analysis33To the Board of Directors of Big Lots,Inc.:We have audited the accompanying consolidated balance sheets of BIG LOTS,INC.and subsidiaries as of February 1,2003and February 2,2002,and the related cons
228、olidated statements of operations,shareholders equity and cash flows for each ofthe three fiscal years in the period ended February 1,2003.These consolidated financial statements are the responsibility ofthe Companys management.Our responsibility is to express an opinion on these consolidated financ
229、ial statements based onour audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America.Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misst
230、atement.An audit includes examining,on a test basis,evidence supporting the amounts and disclo-sures in the consolidated financial statements.An audit also includes assessing the accounting principles used and significantestimates made by management,as well as evaluating the overall financial statem
231、ent presentation.We believe that our auditsprovide a reasonable basis for our opinion.In our opinion,such consolidated financial statements present fairly,in all material respects,the consolidated financial positionof BIG LOTS,INC.and subsidiaries at February 1,2003 and February 2,2002,and the conso
232、lidated results of their opera-tions and their cash flows for each of the three fiscal years in the period ended February 1,2003,in conformity with account-ing principles generally accepted in the United States of America.Deloitte&Touche LLPDayton,OhioFebruary 25,2003Independent Auditors Report34Fis
233、cal Year200220012000(In thousands,except per share amounts)Net sales$3,868,550$3,433,321$3,277,088Costs and expenses:Cost of sales2,236,6332,092,1831,891,345Selling and administrative expenses1,485,2651,368,3971,200,277Interest expense20,11120,20222,9473,742,0093,480,7823,114,569Income(loss)from con
234、tinuing operationsbefore income taxes126,541(47,461)162,519Income tax expense(benefit)49,984(18,747)64,195Income(loss)from continuing operations76,557(28,714)98,324Discontinued operations8,480(478,976)Net income(loss)$76,557$(20,234)$(380,652)Income(loss)per common share basic:Continuing operations$
235、.66$(.25)$.88Discontinued operations.07(4.30)$.66$(.18)$(3.42)Income(loss)per common share diluted:Continuing operations$.66$(.25)$.87Discontinued operations.07(4.26)$.66$(.18)$(3.39)The accompanying notes are an integral part of these financial statements.Consolidated Statements of OperationsFebrua
236、ry 1,February 2,20032002(In thousands,except par value)ASSETSCurrent assets:Cash$23,193$11,322Cash equivalents143,81517,500Inventories776,210705,293Deferred income taxes61,22193,899Other current assets64,72857,536Total current assets1,069,167885,550Property and equipment net532,264515,023Deferred in
237、come taxes17,76635,108Other assets23,07425,112$1,642,271$1,460,793LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable$241,905$211,457Accrued liabilities169,002116,352Total current liabilities410,907327,809Long-term obligations204,000204,000Other liabilities1,1831,451Commitments a
238、nd contingenciesShareholders equity:Common shares authorized 290,000 shares,$.01 par value;issued 116,165 shares and 114,398 shares,respectively1,1621,144Additional paid-in capital458,043435,970Retained earnings566,976490,419Total shareholders equity1,026,181927,533$1,642,271$1,460,793The accompanyi
239、ng notes are an integral part of these financial statements.35Consolidated Balance Sheets36AdditionalCommon Stock IssuedPaid-InRetainedSharesAmountCapitalEarningsTotal(In thousands)Balance January 29,2000111,000$1,110$407,647$891,305$1,300,062Net loss(380,652)(380,652)Exercise of stock options73384,
240、5084,516Contribution to savings plan346 33,8833,886Balance February 3,2001112,0791,121416,038510,653927,812Net loss(20,234)(20,234)Exercise of stock options1,7991815,55115,569Contribution to savings plan52055,5195,524Redemption of preferred stock rights(1,138)(1,138)Balance February 2,2002114,398 1,
241、144435,970490,419927,533Net income76,55776,557Exercise of stock options1,3231317,43617,449Contribution to savings plan44454,6374,642Balance February 1,2003116,165$1,162$458,043$566,976$1,026,181The accompanying notes are an integral part of these financial statements.Consolidated Statements of Share
242、holders Equity37Fiscal Year200220012000(In thousands)Operating activities:Net income(loss)$76,557$(20,234)$(380,652)Adjustments to reconcile net income(loss)tonet cash provided by(used in)operating activities:Discontinued operations(8,480)478,976Depreciation and amortization81,50968,98662,290Deferre
243、d income taxes50,020(20,209)(119,321)Loss on sale of equipment1,056Other5,0886,7723,781Change in assets and liabilities3,988124,098(103,166)Cash used in discontinued operations(249,842)Net cash provided by(used in)operating activities218,218150,933(307,934)Investment activities:Capital expenditures(
244、102,057)(107,561)(114,847)Cash proceeds from sale of equipment2,271257,613Other3,6676,12319,465Net cash provided by(used in)investing activities(96,119)(101,438)162,231Financing activities:Proceeds from(payment of)short-term credit agreements(266,549)77,900Proceeds from long-term credit agreements20
245、4,000Redemption of preferred stock rights(1,138)Proceeds from exercise of stock options16,08712,3532,127Net cash provided by(used in)financing activities16,087(51,334)80,027Increase(decrease)in cash and cash equivalents138,186(1,839)(65,676)Cash and cash equivalents:Beginning of year28,82230,66196,3
246、37End of year$167,008$28,822$30,661The accompanying notes are an integral part of these financial statements.Consolidated Statements of Cash Flows38SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESDescription of BusinessThe Company is the nations largest broadline closeout retailer.At February 1,2003,the C
247、ompany operated a total of 1,380stores under the names BIG LOTS and BIG LOTS FURNITURE.Wholesale operations are conducted through BIG LOTSWHOLESALE,CONSOLIDATED INTERNATIONAL,WISCONSIN TOY,and with online purchasing at .Fiscal YearThe Company follows the concept of a 52/53-week fiscal year,which end
248、s on the Saturday nearest to January 31.Fiscal2002 and 2001 were comprised of 52 weeks,while fiscal 2000 was comprised of 53 weeks.Segment ReportingThe Company manages its business on the basis of one segment,broadline closeout retailing.As of February 1,2003,andFebruary 2,2002,all of the Companys o
249、perations were located within the United States.Basis of PresentationThe Consolidated Financial Statements include the accounts of the Company and those subsidiaries for which the Company,directly or indirectly,has the ability to exercise significant influence over operating and financial policies.A
250、ll significant inter-company transactions have been eliminated.Management EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions which affect reported amounts of
251、 assets and liabilities anddisclosure of significant contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting periods.Actual results could differ from those estimates.Cash and Cash EquivalentsCash and cash equival
252、ents consist of highly liquid investments which are unrestricted as to withdrawal or use and which havean original maturity of three months or less.Cash equivalents are stated at cost,which approximates market value.Merchandise Inventories Merchandise inventories are carried at the lower of cost or
253、market on a first-in,first-out basis,primarily on the retail method.Certain assumptions are made to properly record inventory at the lower of cost or market,and these assumptions are basedon historical experience and current information.The Companys assumptions include significant judgments and esti
254、matesmade by management including merchandise markup,markdowns,shrinkage,and the aging of inventories,each of whichcould significantly impact the ending inventory valuation at cost as well as the resulting gross margins.Due to the nature ofthe Companys purchasing practices for closeout and deeply di
255、scounted merchandise,vendors and merchandise suppliers generally do not offer the Company incentives such as slotting fees,co-operative advertising allowances,buydown agree-ments,or other forms of rebates that would materially reduce its cost of sales.Notes to Consolidated Financial Statements39SUMM
256、ARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Stock OptionsThe Company measures compensation cost for stock options issued to employees and directors using the intrinsic value-basedmethod of accounting in accordance with Accounting Principles Board Opinion(“APB”)No.25.If compensation cost forthe
257、Companys stock options had been determined based on the fair value method of Statement of Financial AccountingStandards(“SFAS”)No.123,“Accounting for Stock-Based Compensation,”the Companys net income and net income pershare would have been reduced to the pro forma amounts as follows(see Stock Plans
258、in the Notes to the ConsolidatedFinancial Statements):200220012000(In thousands,except per share amounts)Net income(loss):As reported$76,557$(20,234)$(380,652)Deduct:Total stock-based employee compensation expensedetermined under fair value-based method for all awards,net of related tax effect5,0556
259、,7564,174Pro forma$71,502$(26,990)$(384,826)Income(loss)per common share-basic:As reported$.66$(.18)$(3.42)Pro forma.62(.24)(3.45)Income(loss)per common share-diluted:As reported$.66$(.18)$(3.39)Pro forma.61(.24)(3.42)Property and EquipmentDepreciation and amortization are provided on the straight-l
260、ine method over the estimated useful lives of the assets.Servicelives are principally forty years for buildings and from three to fifteen years for other property and equipment.ImpairmentThe Company has long-lived assets that consist primarily of property and equipment.The Company estimates useful l
261、ives onbuildings and equipment using assumptions based on historical data and industry trends.Where there is an indication ofimpairment,the Company evaluates the fair value and future benefits of the related long-lived asset,and the anticipated undis-counted future net cash flows from the related as
262、set is calculated and compared to the carrying value on the Companysbooks.The Companys assumptions related to estimates of future cash flows are based on historical results of cash flowsadjusted for management projections for future periods taking into account known conditions and planned future act
263、ivities.The Companys assumptions regarding the fair value of its long-lived assets are based on the discounted future cash flows.Computer Software CostsThe Company records software development costs in accordance with the American Institute of Certified Public AccountantsStatement of Position 98-1,“
264、Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.”Notes to Consolidated Financial Statements40SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)Income Taxes The Company has generated deferred tax assets or liabilities due to temporary differences between the ca
265、rrying amounts ofassets and liabilities for financial reporting purposes and the amounts used for income tax purposes.The Company has estab-lished a valuation allowance to reduce its deferred tax assets to the balance that is more likely than not to be realized.TheCompany records liabilities relatin
266、g to income taxes utilizing known obligations and estimates of potential obligations.Pension LiabilitiesPension and other retirement benefits,including all relevant assumptions required by accounting principles generally acceptedin the United States of America are evaluated each year.Due to the tech
267、nical nature of retirement accounting,outside actuar-ies are used to provide assistance in calculating the estimated future obligations.Since there are many estimates and assump-tions involved in retirement benefits,differences between actual future events and prior estimates and assumptions couldre
268、sult in adjustments to pension expenses and obligations.Such assumptions include the discount rate,rate of increase incompensation levels,and the expected long-term rate of return on the related assets.Legal Obligations In the normal course of business,the Company must make continuing estimates of p
269、otential future legal obligations and lia-bilities,which requires the use of managements judgment on the outcome of various issues.Management may also use out-side legal advice to assist in the estimating process;however,the ultimate outcome of various legal issues could be materiallydifferent from
270、managements estimates,and adjustments to income could be required.The assumptions that are used bymanagement are based on the requirements of SFAS No.5,“Accounting for Contingencies.”The Company will record a liability related to legal obligations when it has determined that it is probable that the
271、Company will be obligated to pay andthe related amount can be reasonably estimated,and it will disclose the related facts in the footnotes to its financial statements,if material.If the Company determines that either an obligation is probable or reasonably possible,the Companywill,if material,disclo
272、se the nature of the loss contingency and the estimated range of possible loss,or include a statementthat no estimate of loss can be made.The Company makes these determinations in consultation with its outside legal advisors.Cost of SalesCost of sales includes the cost of merchandise(including relat
273、ed inbound freight),markdowns and inventory shortage,as wellas cash discounts and rebates.The Company classifies purchasing and receiving costs,inspection costs,warehousing costs,internal transfer costs,and the other distribution network costs as selling and administrative expenses.Due to this class
274、ifica-tion,the Companys gross margins may not be comparable to those of other retailers that include costs related to their distribution network in cost of sales.Selling and Administrative ExpensesThe Company includes store expenses(such as payroll and occupancy costs),warehousing and distribution c
275、osts,advertising,buying,depreciation,insurance,and overhead costs in selling and administrative expenses.Intangible AssetsTrademarks,service marks,and other intangible assets are amortized on a straight-line basis over a period of fifteen years.Where there is an indication of impairment,the Company
276、evaluates the fair value and future benefits of the related intangibleasset and the anticipated undiscounted future net cash flows from the related intangible asset is calculated and compared tothe carrying value on the Companys books.The Companys assumptions related to estimates of future cash flow
277、s are basedon historical results of cash flows adjusted for management projections for future periods taking into account known condi-tions and planned future activities.The Companys assumptions regarding the fair value of its intangible assets are based onthe discounted future cash flows.As of Febr
278、uary 1,2003,the amount of the Companys intangible assets was$0.20 millionand the related accumulated amortization was$.01 million.Notes to Consolidated Financial Statements41SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)InvestmentsAny unrealized gains or losses on equity securities classified
279、 as available-for-sale are recorded in other comprehensive incomenet of applicable income taxes.At February 1,2003,the Company held no available-for-sale equity securities.Insurance Reserves The Company is self-insured for certain losses relating to general liability,workers compensation,and employe
280、e medical ben-efit claims,and the Company has purchased stop-loss coverage in order to limit significant exposure in these areas.Accruedinsurance liabilities are based on claims filed and estimates of claims incurred but not reported.Such amounts are determinedby applying actuarially-based calculati
281、ons taking into account known trends and projections of future results.Actual claimsexperience can impact these calculations and,to the extent that subsequent claim costs vary from estimates,future earningscould be impacted and the impact could be material.Revenue RecognitionThe Company recognizes r
282、etail sales in its stores at the time the customer takes possession of merchandise.All sales are net ofreturns and exclude sales tax.The reserve for retail merchandise returns is based on the Companys prior experience.Wholesale sales are recognized in accordance with the shipping terms agreed upon o
283、n the purchase order.Wholesale sales arepredominantly recognized under FOB origin where title and risk of loss pass to the buyer when the merchandise leaves theCompanys distribution center.However,when the shipping terms are FOB destination,recognition of sales revenue isdelayed until completion of
284、delivery to the buyers place of business.Other Comprehensive IncomeThe Companys comprehensive income is equal to net income,as there are no items that qualify as components of other comprehensive income.ReclassificationCertain prior year amounts have been reclassified to conform to current year pres
285、entation.Recent Accounting PronouncementsIn June 2001,the Financial Accounting Standards Board(“FASB”)issued SFAS No.142,“Goodwill and Other IntangibleAssets.”SFAS No.142 eliminates the amortization of purchased goodwill and requires goodwill to be reviewed for impair-ment at least annually and expe
286、nsed to earnings only in the periods in which the recorded value of goodwill is more than thefair value.SFAS No.142 was effective for fiscal years beginning after December 15,2001.This Statement was adopted infiscal 2002.The Statement does not have a material impact on the Companys financial positio
287、n,results of operations,or cash flows.Notes to Consolidated Financial Statements42SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)In June 2001,the FASB issued SFAS No.143,“Accounting for Asset Retirement Obligations.”SFAS No.143 requires thatan obligation associated with the retirement of a tan
288、gible long-lived asset be recognized as a liability when incurred.Subse-quent to initial measurement,an entity recognizes changes in the amount of the liability resulting from the passage of timeand revisions to either the timing or amount of estimated cash flows.SFAS No.143 is effective for financi
289、al statements issuedfor fiscal years beginning after June 15,2002.The Company does not believe this pronouncement will have a materialimpact on its financial position,results of operations,or cash flows.In August 2001,the FASB issued SFAS No.144,“Accounting for the Impairment or Disposal of Long-Liv
290、ed Assets.”ThisStatement supersedes,SFAS No.121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to beDisposed of,”and the accounting and reporting provisions of APB No.30,“Reporting the Results of Operations Reportingthe Effects of Disposal of a Segment of a Business,an
291、d Extraordinary,Unusual and Infrequently Occurring Events andTransactions,”that address the disposal of a segment of a business.The Statement also amends Accounting Research BulletinNo.51,“Consolidated Financial Statements,”to eliminate the exception to consolidation for a subsidiary for which contr
292、ol islikely to be temporary.The Statement is effective for financial statements issued for fiscal years beginning after December 15,2001,and interim periods within those fiscal years,and generally would be applied prospectively for disposal activities initiatedby a commitment to a plan made after th
293、e entitys initial adoption of the Statement.This Statement was adopted by theCompany in fiscal 2002.Currently,this Statement does not materially impact the Companys financial statements.In April 2002,the FASB issued SFAS No.145,“Rescission of FASB Statements Nos.4,44,and 64,Amendment of FASBStatemen
294、t No.13,and Technical Corrections.”SFAS No.145 eliminates the requirement to classify gains and losses fromthe extinguishment of indebtedness as extraordinary,requires certain lease modifications to be treated the same as a sale-lease-back transaction,and makes other non-substantive technical correc
295、tions to existing pronouncements.SFAS No.145 is effec-tive for fiscal years beginning after May 15,2002,with earlier adoption encouraged.This Statement was adopted by theCompany in fiscal 2002.The Statement does not have a material impact on the Companys financial position,results of oper-ations,or
296、cash flows.In July 2002,the FASB issued SFAS No.146,“Accounting for Costs Associated with Exit or Disposal Activities.”SFAS No.146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at thedate of a commitment to an exit or disposal pl
297、an period.SFAS No.146 is required to be applied prospectively to exit or dis-posal activities initiated after December 31,2002.The Company does not believe this pronouncement will have a materialimpact on its financial position,results of operations,or cash flows.In December 2002,the FASB issued SFA
298、S No.148,“Accounting for Stock-Based CompensationTransition and Disclosure.”SFAS No.148 amends SFAS No.123,“Accounting for Stock-Based Compensation.”Although it does not require use of fairvalue method of accounting for stock-based employee compensation,it does provide alternative methods of transit
299、ion.It alsoamends the disclosure provisions of SFAS No.123 and APB No.28,“Interim Financial Reporting,”to require disclosure inthe summary of significant accounting policies of the effects of an entitys accounting policy with respect to stock-basedemployee compensation on reported net income and ear
300、nings per share in annual and interim financial statements.SFAS No.148s amendment of the transition and annual disclosure requirements is effective for fiscal years ending after December 15,2002.The amendment of disclosure requirements of APB No.28 is effective for interim periods beginning after De
301、cember15,2002.Although the Company has not changed to the fair value method,the disclosure requirements of this Statementhave been adopted.Notes to Consolidated Financial Statements43SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Concluded)In November 2002,the FASB issued Interpretation(“FIN”)No.45,“Gua
302、rantors Accounting and Disclosure Requirementsfor Guarantees Including Indirect Guarantees of Indebtedness of Others.”FIN No.45 elaborates on the disclosures to bemade by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it hasissued.It al
303、so clarifies that a guarantor is required to recognize,at the inception of a guarantee,a liability for the fair value ofthe obligation undertaken in issuing the guarantee.The disclosure requirements in this interpretation are required for finan-cial statements for periods ending after December 15,20
304、02.The initial measurement provisions of the interpretation areapplicable on a prospective basis for guarantees issued or modified after December 31,2002.The Interpretation does nothave a material impact on the Companys financial position,results of operations,or cash flows.DISCONTINUED OPERATIONSOn
305、 June 27,2000,the Company announced its decision to separate the toy and closeout businesses by divesting theCompanys KB Toy Division.The Consolidated Financial Statements and related Notes have been reclassified for all applica-ble periods presented to reflect the toy segment as a discontinued oper
306、ation.On December 7,2000,the Company closed the sale of its KB Toy Division to an affiliate of Bain Capital,Inc.In connectionwith the sale,the Company recorded an after-tax loss of$479.0 million consisting of a$48.2 million after-tax loss fromoperations and a$430.8 million after-tax loss on the disp
307、osal of the KB Toy Division.Proceeds from the sale were usedprimarily to pay down existing borrowings under the Companys senior unsecured revolving credit facility(“Prior Revolver”).The buyer purchased the business in conjunction with KB Toys management,who were retained to lead the KB Toy business.
308、Gross proceeds totaled approximately$305 million,consisting primarily of$258 million in cash,a note with a faceamount of$45 million,and a warrant to acquire common stock of the buyers parent.The note receivable matures onDecember 7,2010,and bears interest at a rate of 8%.As of February 1,2003,the no
309、te receivable from KB and the relatedcommon stock warrant were recorded as other long-term assets on the balance sheet.The interest is payable in annual install-ments paid by issuing additional notes with substantially identical terms as the original note.At the time of the sale(thefourth quarter of
310、 fiscal 2000),the Company evaluated the fair value of the note received as consideration in the transactionand recorded the note at its then fair value of$13 million.The fair value of the note was established based on several factorsincluding fair market value determinations obtained from independen
311、t financial advisors at the time of the sale,the Companysknowledge of the underlying KB Toy business and industry,and the risks inherent in receiving no cash payments until thenote matures in 2010.As of fiscal 2002,the Company recorded the interest earned and accretion of the discount utilizingthe e
312、ffective interest rate method and provided a full valuation reserve against such amounts as a result of its evaluation as tothe recoverability of the carrying value of the notes.As of February 1,2003,and February 2,2002,the aggregate carryingvalue of these notes was$16 million.The warrant provides t
313、hat the Company is entitled to purchase up to 2.5%of the common stock of the buyers parent for astated per share price.The stock can be purchased any time prior to December 7,2005.The note and warrant are beingaccounted for on the cost basis.The Company has,as part of the sale agreement,retained the
314、 responsibility for certain KB insurance claims incurred throughthe date of closing of the sale(December 7,2000).During the fourth quarter of fiscal 2001,the Company determined thatthe estimate for the related insurance reserves exceeded the expected liability.Accordingly,a portion of the insurance
315、reservesestablished in connection with the sale of the KB Toy Division were adjusted and recorded as income from discontinued oper-ations on the Companys Statement of Operations.This adjustment resulted in$8.5 million of after-tax income from discon-tinued operations in the fourth quarter of fiscal
316、2001.Notes to Consolidated Financial Statements44DISCONTINUED OPERATIONS(Concluded)The following are the components of discontinued operations:200220012000(In thousands)Loss from operations of KB Toy Division,net of income taxes of$(31,470)in 2000-$(48,201)Income(loss)on disposal of KB Toy Division,
317、net of income taxes of$(4,000),$5,423 and$(201,953)in 2002,2001,and 2000,respectively-$8,480(430,775)$-$8,480$(478,976)NON-CASH 2001 FOURTH QUARTER CHARGEIn the fourth quarter of fiscal 2001,the Company recorded a non-cash charge of$50.4 million(after-tax),or$0.44 per dilut-ed share.The charge repre
318、sented:a)costs to modify the Companys product assortment and exit certain merchandise cate-gories($6.1 million after-tax),b)adjustments to the estimated capitalized freight costs related to inbound imported invento-ries in response to better systems and information($15.0 million after-tax),c)adjustm
319、ents to inventory-related costs thatwere identified as a result of the completion of a significant multi-year conversion to a detailed SKU-level inventory manage-ment system($16.7 million after-tax),and d)changes in estimates and estimating methodology related to insurance reserves($12.6 million aft
320、er-tax).These charges are included in the Companys fiscal 2001 fourth quarter financial statements.A critical element of the Companys overall business strategy has been a multi-year initiative to improve its information systems,a major phase of which was completed in fiscal 2001.The new systems have
321、 given the Company the ability to trackand manage inventories at the SKU level with improved visibility and data.The new systems have also provided better information on inventory balances and have given management the ability to assess profitability and financial returns down tothe SKU level.Based
322、on an analysis of SKU-level information,the Company decided to modify its product assortment and exit certain cate-gories of merchandise.This decision allowed the Company to expand its consumables and home categories,both of whichmanagement believes have superior financial returns.The markdowns asso
323、ciated with these discontinued products,all ofwhich were taken during the fourth quarter of fiscal 2001,accounted for approximately$6.1 million(after-tax)of the chargedescribed above.The Company believes this action will result in a more productive product assortment and a greater empha-sis on the e
324、veryday consumable items that help drive repeat store traffic.The second component of the charge related to the estimated capitalized import freight costs,which were incurred in connec-tion with inbound inventories sourced from outside the United States.New information systems have improved theCompa
325、nys ability to manage merchandise flow and freight costs.These improved systems have also provided better informa-tion and tools for determining the proper amount of capitalized import freight costs to be recorded on the balance sheet.Accordingly,based on this new information,the Company has revised
326、 its estimates and methodology,resulting in a$15.0million(after-tax)charge.The third component of the charge pertained to inventory-related costs that had not been allocated to the cost of merchan-dise in the Companys detailed inventory stock ledger and,accordingly,were not being fully allocated to
327、cost of goods sold.The Company identified this issue in the fourth quarter of fiscal 2001 as a result of the conversion to the new SKU-based sys-tems,resulting in a$16.7 million(after-tax)charge.Notes to Consolidated Financial Statements45NON-CASH 2001 FOURTH QUARTER CHARGE(Concluded)The fourth and
328、final component of the charge related to insurance reserves.At the end of fiscal 2001,the Company analyzedits insurance reserve accounts and implemented a new methodology that provided better actuarial estimates of future claims.This new methodology,combined with an upward trend in fiscal 2001 claim
329、s,resulted in a$12.6 million(after-tax)charge toincrease the Companys insurance reserves.This charge consisted of two elements:the first related to the adjustment ofreserves established in connection with the sale of the KB Toy Division,which resulted in$8.5 million(after-tax)incomefrom discontinued
330、 operations,and the second element of the charge was$21.1 million(after-tax)to increase reserves relatedto continuing operations.INCOME TAXESThe provision for income taxes is comprised of the following:200220012000(In thousands)Federal-current$(2,310)$5,529$95,090State and local-current2,27382018,85
331、6Deferred-federal,state and local50,021(25,096)(49,751)$49,984$(18,747)$64,195A reconciliation between the statutory federal income tax rate and the effective income tax rate follows:200220012000Statutory federal income tax rate35.0%35.0%35.0%Effect of:State and local income taxes,net of federal tax
332、 benefit2.04.54.5Work opportunity tax credits(1.0)(2.6)(.6)Valuation allowance3.87.8-Other,net(.3)(5.2).6 Effective income tax rate39.5%39.5%39.5%Income tax payments and refunds are as follows:200220012000(In thousands)Income taxes paid$39,066$8,969$68,390Income taxes refunded(74,758)(76,558)(20,679
333、)Net income taxes(refunded)paid$(35,692)$(67,589)$47,711On March 9,2002,the President of the United States of America signed into law the Job Creation and Worker AssistanceAct of 2002,which included a provision that extends the general net operating loss carryback period to five years for federalnet operating losses arising in taxable years ending in 2001 and 2002.As a result of the law change,dur
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