Big Lots (BIGGQ) 10-Q 2001 Q1 Quarterly report

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
	CONDENSED CONSOLIDATED BALANCE SHEETS
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF      FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II — OTHER INFORMATION

Securities and Exchange Commission
Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 29, 2000 Commission file number 1-8897

CONSOLIDATED STORES CORPORATION

A Delaware Corporation
IRS No. 06-1119097
1105 North Market Street, Suite 1300
P. O. Box 8985
Wilmington, Delaware 19899
(302) 478-4896

Indicate whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]   No [  ]

The number of shares of Common Stock $.01 par value per share, outstanding as of June 5, 2000, was 111,358,070 and there were no shares of Nonvoting Common Stock, $.01 par value per share outstanding at that date.

FORM 10-Q

CONSOLIDATED STORES CORPORATION
QUARTERLY REPORT ON FORM 10-Q

INDEX

				Page
Part I — Financial Information
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheets			3
		Condensed Consolidated Statements of Income			4
		Condensed Consolidated Statements of Cash Flows			5
		Notes to Condensed Consolidated Financial Statements			6
	Item 2. Management’s Discussion and Analysis of Financial
			Condition and Results of Operations		7
Part II — Other Information
	Signature				13

FORM 10-Q Page 2

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

	April 29, 2000		January 29, 2000
ASSETS
Current Assets:
Cash and cash equivalents	$	56,789	$	96,337
Inventories		1,226,962		1,146,387
Deferred income taxes		97,830		100,555
Other current assets		136,746		76,421
Total current assets		1,518,327		1,419,700
Property and equipment — net		741,229		729,985
Other assets		33,794		37,098
	$	2,293,350	$	2,186,783
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	375,112	$	418,728
Accrued liabilities and income taxes		88,736		151,338
Current maturities of long-term obligations		157,183		140,696
Total current liabilities		621,031		710,762
Long-term obligations		270,416		60,546
Deferred income taxes		106,584		107,278
Minority interest and other liabilities		4,461		8,135
Commitments and contingencies
Stockholders’ equity:
Preferred stock — authorized 2,000 shares, $.01 par value; none issued
Common stock — authorized 290,000 shares, $.01 par value; issued 111,356 shares and 111,000 shares, respectively		1,114		1,110
Nonvoting common stock — authorized 8,000 shares, $.01 par value; none issued
Additional paid-in capital		411,616		407,647
Retained earnings		878,128		891,305
Total stockholders’ equity		1,290,858		1,300,062
	$	2,293,350	$	2,186,783

      The accompanying notes are an integral part of these condensed financial statements.

FORM 10-Q Page 3

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per common share data)

		Thirteen weeks ended
		April 29, 2000			May 1, 1999
Net sales		$	1,004,347		$	923,747
Costs and expenses:
	Cost of sales		601,057			538,500
	Selling and administrative expenses		422,772			386,567
	Interest expense		5,435			4,830
			1,029,264			929,897
Loss before income taxes and minority interest			(24,917	)		(6,150	)
Income taxes (benefit)			(9,842	)		(2,429	)
Loss before minority interest			(15,075	)		(3,721	)
Minority interest in net loss of consolidated subsidiary			1,898
Net loss		$	(13,177	)	$	(3,721	)
Loss per common share		$	(0.12	)	$	(0.03	)
Loss per common share — diluted		$	(0.12	)	$	(0.03	)
Average common shares outstanding			111,105			109,840
Dilutive effect of stock options
Diluted			111,105			109,840

      The accompanying notes are an integral part of these condensed financial statements.

FORM 10-Q Page 4

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

			Thirteen weeks ended
			April 29, 2000			May 1, 1999
Operating Activities:
Net loss			$	(13,177	)	$	(3,721	)
Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization		27,503			21,337
		Deferred income taxes		2,029			(518	)
		Minority interest in consolidated subsidiary		(1,898	)
		Other		3,843			3,929
		Change in assets and liabilities		(247,115	)		(85,415	)
Net cash used in operating activities				(228,815	)		(64,388	)
Investing Activities:
	Capital expenditures			(37,504	)		(35,375	)
	Other			354
Net cash used in investing activities				(37,150	)		(35,375	)
Financing Activities:
	Proceeds from credit arrangements			226,357			89,708
	Proceeds from exercise of stock options			60			6,772
	Payments of senior notes and long-term obligations						(93	)
Net cash provided by financing activities				226,417			96,387
Decrease in cash and cash equivalents			$	(39,548	)	$	(3,376	)
Supplemental Disclosure of Cash Flow Information:
	Income taxes paid		$	64,964		$	39,813
	Interest paid		$	5,530		$	6,641

      The accompanying notes are an integral part of these condensed financial statements.

Form 10-Q Page 5

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated balance sheet at April 29, 2000, and the condensed consolidated statements of income and statements of cash flows for the thirteen week period ended April 29, 2000 and May 1, 1999, have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. Such adjustments consisted only of normal recurring items.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals have been omitted or condensed, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that the condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2000. Interim results are not necessarily indicative of results for a full year.

Note 2 — Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Company is required to adopt SFAS No. 133 in the year ended February 2, 2002. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. In June 1999, SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133 — an amendment of FASB Statement No. 133,” was issued. This amendment delayed the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.

Note 3 — New Business

On June 25, 1999, a wholly-owned subsidiary of the Company and BrainPlay.com, Inc., an unaffiliated entity, entered into a Contribution Agreement to form KBkids.com LLC as a joint venture. KBkids.com LLC operates an online retail business offering toys, video games, software and videos. Under the Contribution Agreement, the Company received 80% of the membership units in KBkids.com LLC in exchange for contributing cash of $80,000,000 and intangibles valued at $4,000,000. BrainPlay.com, Inc., received the remaining 20% of the membership units in exchange for contributing substantially all of its assets and liabilities including its Web site, technology infrastructure and management team.

Terms of the Contribution Agreement provide, among other matters, that the Company or its affiliates can not sell toy products on the Internet until December 31, 2001, or one year after the completion of a capital markets transaction, whichever comes first. In addition, as long as the Company owns a majority of the membership interests of KBkids.com LLC neither the Company nor its affiliates can sell any toy products on the Internet, unless they are “closeouts.”

Under various operating, service and supply agreements, the Company provides KBkids.com LLC a number of services, including certain executive, human resources, legal, finance, treasury, tax, purchasing and merchandising services. The cost of these services are allocated according to established methodologies as determined at arms length.

FORM 10-Q Page 6

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
     FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
     FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT FOR PURPOSES OF “SAFE HARBOR” PROVISIONS OF THE
SECURITIES LITIGATION REFORM ACT OF 1995

All forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this annual report or made by management of the Company involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the Company’s control. Accordingly, the Company’s future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements and, among other things, are based on the Company’s current best estimates that may be proven incorrect as additional information becomes available. While the Company believes its assumptions are reasonable, it cautions that it is impossible to predict factors that could cause actual costs or timetables to differ materially from the expected results. Additionally, the following factors, among others, in some cases have affected and in the future could affect the Company’s financial performance and actual results and could cause actual results for 2000 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by management: changes in consumer spending patterns, consumer preferences and overall economic conditions, the impact of competition and pricing, changes in weather patterns, political stability, currency and exchange risks and changes in existing or potential duties, tariffs or quotas, availability of suitable store locations at appropriate terms, ability to develop new merchandise, and ability to hire and train associates.

The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company’s business, including Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report, as well as, the Company’s periodic reports filed with the Securities and Exchange Commission.

RECENT ANNOUNCEMENTS

On March 14, 2000 the Company announced the engagement of the investment banking firm of Credit Suisse First Boston to assist in pursuing strategic repositioning alternatives. The review is to explore all viable strategic alternatives, including but not limited to, recapitalization, business divestitures or combinations, stock repurchases, or other means of enhancing shareholder value. No assurance is provided regarding the outcome of the review, or that any transaction will occur, or the timing thereof.

On April 13, 2000, KBkids.com announced that due to unfavorable market conditions, it has postponed its previously announced initial public offering.

OVERVIEW

The Company is a leading value retailer specializing in closeout merchandise and toys. The Company is the largest retailer of closeout products and the largest enclosed mall-based toy retailer in the United States. The Company’s goal is to build upon its leadership position in closeout retailing, toy retailing and children’s products by expanding its market presence in both existing and new markets. The Company believes that the combination of its strengths made it a low-cost value retailer well-positioned for future growth.

FORM 10-Q Page 7

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

At May 29, 2000, the Company operated a total of 2,554 stores in all 50 states, Puerto Rico and Guam and conducted online sales of children’s products. Retail operations are conducted primarily under the following names:

Closeout		Toy
	Odd Lots	K•B Toys
	Big Lots	K•B Toy Works
	Big Lots Furniture	K•B Toy Outlet
	Mac Frugal’s Bargains • Close-outs	KBkids.com
	Pic ‘N’ Save

Wholesale operations are conducted through Consolidated International and Wisconsin Toy.

The Company has historically experienced, and expects to continue to experience, seasonal fluctuations, with a significant percentage of its net sales and income being realized in the fourth fiscal quarter. In addition, the Company’s quarterly results can be affected by the timing of store openings and closings, the amount of net sales contributed by new and existing stores and the timing of certain holidays.

      The following table compares components of the statement of income as a percent of net sales and reflects the number of stores in operation at the end of each period.

		Thirteen weeks ended
		April 29, 2000			May 1, 1999
Net Sales:
	Closeout		71.0	%		68.5	%
	Toy		28.0			30.2
Total Retail			99.0			98.7
	Wholesale, corporate and other		1.0			1.3
Total Net Sales			100.0			100.0
Gross Profit:
	Closeout		42.2			43.6
	Toy		35.4			38.2
Total Retail			40.3			41.9
	Wholesale, corporate and other		24.8			23.8
Total Gross Profit			40.2			41.7

FORM 10-Q Page 8

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

		Thirteen weeks ended
		April 29, 2000			May 1, 1999
Operating profit (loss):
	Closeout		3.8			3.8
	Toy		(16.6	)		(9.2	)
Total Retail			(1.9	)		(0.2	)
	Wholesale, corporate and other		(2.4	)		0.4
Total operating loss			(1.9	)		(0.1	)
Interest expense			0.6			0.6
Loss before income taxes and minority interest			(2.5	)		(0.7	)
Income taxes (benefit)			(1.0	)		(0.3	)
Loss before minority interest			(1.5	)		(0.4	)
Minority interest in net loss of consolidated subsidiary			(0.2	)
Net loss			(1.3	)%		(0.4	)%
Retail stores in operation at end of period:
	Closeout		1,246			1,153
	Toy		1,308			1,324
			2,554			2,477

THIRTEEN WEEKS ENDED APRIL 29, 2000 COMPARED TO THIRTEEN WEEKS ENDED MAY 1, 1999

Net SalesNet sales increased to $1,004.3 million for the thirteen week period ended April 29, 2000, from $923.7 million in the same period of 1999. This 8.7% increase was primarily attributable to the increased number of stores in operation during the comparative periods and a 3.4% comparable store sales increase.

Net sales and comparable store sales by operating unit were as follows:

		Thirteen weeks ended
Operating Segment		April 29, 2000		May 1, 1999		Percentage Change
		(In thousands)
Closeout		$	712,865	$	633,058		12.6	%
Toy			281,208		279,168		0.7
	Total Retail		994,073		912,226		9.0
Wholesale, corporate and other			10,274		11,521		10.8
		$	1,004,347	$	923,747		8.7	%

FORM 10-Q Page 9

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	Thirteen weeks ended
Operating Segment	April 29, 2000			May 1, 1999
Comparable store sales:
Closeout		5.2	%		6.4	%
Toy		(0.8	)		3.7
		3.4	%		5.6	%

Gross ProfitAs a percent to net sales, gross profit was 40.2% in the 2000 quarter compared to 41.7% in the previous year quarter. Retail gross profit excluding KBkids.com was 40.5% in comparison to 41.9% in the first quarters of 2000 and 1999, respectively. Closeout Stores gross profit percentage declined to 42.2% compared to 43.6% in the prior year period which is the result of a shift in the level of consumable merchandise available in the respective periods. Toy Stores, excluding KBkids.com, gross profit percentage fell to 36.0% from 38.2% in the comparative first quarters which is reflective of a reduced product mix of trended “in-line” toys which traditionally have a higher gross margin.

Gross profit by operating unit is as follows:

		Thirteen weeks ended
Operating Segment		April 29, 2000		May 1, 1999
		(In thousands)
Closeout		$	301,145	$	275,733
Toy			99,597		106,771
	Total Retail		400,742		382,504
Wholesale, corporate and other			2,548		2,743
		$	403,290	$	385,247

Selling and Administrative ExpensesAs a percentage of net sales, selling and administrative expenses increased to 42.1% from 41.8% in the prior year quarter. Excluding KBkids.com selling and administrative expenses were 40.7% in the first quarter of 2000.

FORM 10-Q Page 10

CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Selling and administrative expenses by operating unit are as follows:

		Thirteen weeks ended
Operating Segment		April 29, 2000		May 1, 1999
		(In thousands)
Closeout		$	273,686	$	251,526
Toy			146,288		132,343
	Total Retail		419,974		383,869
Wholesale, corporate and other			2,798		2,698
		$	422,772	$	385,567

Interest ExpenseInterest expense increased to $5.4 million in the first quarter of 2000 from $4.8 million in fiscal 1999, reflecting higher effective interest rates for borrowings in the period.

Income TaxesThe effective tax rate of the Company is anticipated to be 39.5% in fiscal 2000.

CAPITAL RESOURCES AND LIQUIDITY

The primary sources of liquidity for the Company have been cash flow from operations and as necessary borrowings under available credit facilities. Working capital at April 29, 2000, was $897.3 million and for the thirteen week period then ended net cash used by operations was $228.8 million and capital expenditures were $37.5 million.

The Company has a Revolving Credit Facility which provides senior bank financing in an aggregate principal amount of up to $700 million. The facility has a maturity date of May 15, 2003. From time-to-time the Company also utilizes uncommitted credit facilities, subject to the terms of the Revolving Credit Facility, to supplement short-term borrowing requirements. At April 29, 2000, approximately $361.4 million was available for borrowings under the Revolver and $160.0 million of uncommitted credit facilities were available.

The Company continues to believe that it has, or if necessary has the ability to obtain, adequate resources to fund ongoing operating requirements, future capital expenditures related to the expansion of existing businesses, development of new projects and currently maturing obligations. Additionally, management 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.

FORM 10-Q Page 11

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings. Not applicable
Item 2.	Changes in Securities. Not applicable
Item 3.	Defaults Upon Senior Securities. Not applicable
Item 4.	Submission of Matters to Vote of Security Holders
No matter was submitted during the first quarter of the fiscal year covered by this report to a vote of security holders.
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
	(a) Exhibits
	Exhibit                         Topic
	27                Financial Data Schedule
	(b) Reports on Form 8-K. None

FORM 10-Q Page 12

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			CONSOLIDATED STORES CORPORATION
			(Registrant)
Dated:	June 9, 2000	By:	/s/ Michael J. Potter
			Michael J. Potter, Executive Vice President,
			Chief Financial Officer, and
			Principal Accounting Officer

FORM 10-Q Page 13