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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
------------------- -------------------
Common Stock $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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 [ ]
Indicate if the disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this FORM 1O-K or any amendment to
this FORM 1O-K [ ]
The aggregate market value (based on the closing price on the New York Stock
Exchange) of the Common Stock of the Registrant held by non affiliates of the
Registrant was $948,695,418 on March 31, 1995. For purposes of this response,
executive officers and directors are deemed to be the affiliates of the
Registrant and the holdings by non affiliates was computed as 47,140,145
shares.
The number of shares of Common Stock $.01 par value per share, outstanding as
of March 31, 1995, was 47,255,618 and there were no shares of Non-Voting Common
Stock, $.01 par value per share outstanding at that date.
Documents Incorporated By Reference
Portions of the Registrant's Proxy Statement are incorporated into Part III.
2
FORM 10 - K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED JANUARY 28, 1995
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to Vote of Security Holders 6
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 25
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 25
3
PART I
ITEM 1 BUSINESS
GENERAL
At January 28, 1995, Consolidated Stores Corporation (Company) operated 752
retail stores in 38 states and is the largest close-out retail company in the
world. Retail stores operate under the names Odd Lots, Big Lots, All for One
(AFO), iTZADEAL! (IAD), Toy Liquidators, and Toys Unlimited. The Company
considers the general economic conditions of all markets in which it has retail
operations to be good. Consumer goods are also sold on a wholesale basis
throughout the continental United States.
The Company purchases and sells large quantities of close-out merchandise
generally obtained at a fraction of the initial wholesale price. Merchandise
is comprised of new, primarily brand name products, obtained from
manufacturers' excess inventories and overruns, packaging changes, or
discontinued goods that have not been sold successfully through traditional
retail channels. Manufacturers' reconditioned merchandise is also sold on a
regular basis.
As a result of the holiday selling season the fourth quarter generally reflects
higher net income and net sales than the other quarters. The first quarter of
the fiscal year is usually the least profitable representing a traditional
softness in retail sales following the holiday season.
Substantially all operations are conducted through subsidiaries, and references
to the "Company" in this Item 1 include the Company and its subsidiaries.
PURCHASING
Purchasing for the retail operations is conducted by a single group of buyers.
This buying group purchases merchandise from sources throughout the world and
continually seeks values created by any close-out circumstances. The primary
sources of merchandise are manufacturers, distributors, and importers. Many
manufacturers and wholesalers offer some or all of their close-out merchandise
to the Company prior to attempting to dispose of it through other channels.
Historically, there have been various sources of supply available for each
category of merchandise sold.
In many cases, the Company has developed valuable sources from which it obtains
certain lines of merchandise on a continuing basis. The Company has purchase
commitments to acquire certain lines of paper products over the next four years
or as later may be extended. Utilization of purchase commitments in the future
will be evaluated based on the general availability of the line of merchandise
offered and other economic and operational factors. Long term purchase
commitments are not, and are not foreseen to become, a major source of
merchandise in the future.
RETAIL OPERATIONS - ODD LOTS AND BIG LOTS
Certain general categories of merchandise are offered on a continual basis,
although specific lines, products and manufacturers change frequently.
Inventories depend primarily on the types of merchandise available for
acquisition at any given time.
Historically, Odd Lots and Big Lots stores have offered substantial savings on
housewares, electronics, hardware, tools, automotive supplies, food items,
health and beauty aids, sporting goods, toys, jewelry and softgoods. The
stores also carry on a regular basis consumer items such as paint, batteries,
electrical wire and accessories, trash bags, pet food, hand tools, greeting
cards, and seasonal goods, including Christmas items, which are purchased
directly from manufacturers, suppliers and importers on a recurring basis.
The stores advertise primarily in circulars and have also engaged in a limited
amount of advertising on television and radio. During the fiscal year ended
January 28, 1995, advertising expenditures were approximately 3.0% of net
sales.
All Odd Lots and Big Lots stores are leased facilities which are located in
strip shopping centers or are free standing. Generally, locations of 20,000 to
40,000 square feet are solicited with emphasis on locations of 22,000 to 30,000
square feet. Primary in selecting suitable store locations are existing
structures which can be refurbished in a manner consistent with the intended
merchandising concept. Stores range in total size from 10,080 to 81,193 square
feet and average approximately 27,900 square feet in size. Approximately 71.8%
of the area of each store represents selling space.
4
During the fiscal year ended January 28, 1995, 79 Odd Lots and Big Lots stores
were opened, 23 closed, and it is estimated that by the end of the current
fiscal year approximately 65 (50 - 55 net of store closings) new stores will
be opened. Generally, a new store is profitable in its first full year of
operation. Stores considered for closing are selectively evaluated by a
committee comprised of management, to established profitability standards. The
cost of opening a new store in a leased facility is approximately $550,000 to
$650,000, including inventory.
ALL FOR ONE AND ITZADEAL! (AFO/IAD)
All AFO/IAD stores are located in fully enclosed malls or high traffic strip
centers with major anchor stores. The AFO/IAD concept draws on pedestrian
traffic in these locations to attract the value shopper who buys on impulse.
Each store carries a varied line of value-oriented general consumer
merchandise, similar to the categories available in Odd Lots and Big Lots
stores. AFO stores combine the value of quality merchandise, in a lively
exciting environment, principally at a single price point of one dollar. A
limited amount of floor space in selected AFO stores is dedicated to offering
merchandise at a price point above one dollar. The area dedicated to price
points over one dollar in any particular store is dependent on available space,
lease restrictions, if any, and the demographics of a particular location. IAD
stores offer a range of close-out consumer merchandise at various price points
generally under $10.
In general, the AFO operations do not independently advertise merchandise
available for sale. Advertising by participation in mall or strip center
sponsored programs are the only regularly scheduled advertising promotions.
During fiscal 1994, the Company opened 15 IAD stores, converted 12 AFO formats
to IAD and closed 10 AFO stores. All stores are located in leased facilities
and range in total size from 1,833 to 8,450 square feet and average
approximately 3,850 square feet. Approximately 75.2% of the area of each store
represents selling space. Generally, locations of 3,000 to 7,000 square feet
are considered desirable for lease.
The cost of opening a store in a leased facility averages approximately
$150,000 to $300,000, including inventory. Approximately 35 net new IAD store
openings are anticipated in 1995.
TOY LIQUIDATORS AND TOYS UNLIMITED (TOYS)
In May 1994, the Company acquired certain assets (consisting primarily of
inventories, leases, store fixtures and equipment) of 82 toy stores in 35
states. These stores were, and continue to be, operated under the name Toy
Liquidators and Toys Unlimited. Each store offers a varied line of close-out
toys to consumers. Many of the items offered in the toy stores are acquired
from vendors offering similar merchandise to other retail operations of the
Company. Purchasing for the toy business is centralized with all other
purchasing operations of the Company.
Retail toy store operations are conducted from leased facilities, with 80
located in manufacturers' outlet malls and 2 in strip shopping centers. The
stores average 4,888 square feet in total size and range from 3,496 to 7,578
square feet. Approximately, 84.2% of the stores total square footage is selling
space. The Company estimates 35 net new toy store openings in 1995.
DISTRIBUTION AND TRANSPORTATION
Substantially all merchandise distribution activities are conducted from
central distribution facilities located in Columbus, Ohio. A majority of the
merchandise purchased for the stores is shipped by common carrier directly to
the distribution facilities and from there is shipped by truck and rail to the
stores utilizing a dedicated fleet of outside transportation companies and
contract carriers.
OTHER OPERATIONS
The Company also sells goods wholesale from its corporate office in Columbus,
Ohio. The inventory consists almost entirely of merchandise obtained through
the same or shared opportunistic purchases of the retail operation.
Advertising of wholesale merchandise is conducted primarily at trade shows and
by mailings to past and potential customers. Wholesale customers include a
wide and varied range of major national and regional retailers, as well as
smaller retailers, manufacturers, distributors, and wholesalers.
ASSOCIATES
At January 28, 1995, the Company had 18,837 active associates. At any time
throughout fiscal 1994, approximately two-thirds of the associates were
employed on a part-time basis. Temporary associates hired during the Christmas
selling season increased the number of associates to a peak of 24,240 in
fiscal 1994. The relationship with associates is considered to be good and the
Company is not a party to any labor agreements.
5
COMPETITIVE CONDITIONS
The retail operations compete with discount department stores, deep discount
drugstore chains, and other value oriented specialty retailers. The Company
also competes with numerous distributors, jobbers, exporters, dealers, and
others which sell many of the items sold wholesale by the registrant.
Competition is often intense; however, by reason of the ability to make
opportunistic purchases of close-out, bulk, and surplus items, the Company
believes its prices compare favorably with those of its competitors.
There is increasing competition for the purchase of such merchandise. The
Company believes that it has, and will continue to have, sufficient sources to
enable it to continue purchasing such merchandise at favorable prices in the
future.
ITEM 2 PROPERTIES
CORPORATE, WAREHOUSE AND DISTRIBUTION
The Company owns a 2,887,000 square foot fully mechanized office, warehouse and
distribution facility located in Columbus, Ohio. Approximately 150,000 square
feet of this facility is utilized as office space for corporate offices. The
balance represents warehouse and distribution space. Warehousing and
distribution is also conducted from leased locations principally located in
central Ohio which total approximately 626,000 square feet. Substantially all
merchandise sold by the Company is received at a distribution center and is
processed for retail sale, as necessary, and distributed to the retail location
or wholesale customer.
STORES
All stores are in leased facilities. Store leases generally provide for fixed
monthly rental payments plus the payment, in most cases, of real estate taxes,
utilities, liability insurance and maintenance. In some locations, the leases
provide formulas requiring the payment of a percentage of sales as additional
rent. Such payments are generally only required when sales reach a specified
level. The typical store lease is for an initial term of three to five years
with a five-year renewal option. The following tables set forth store lease
expiration and state location information for existing leases at January 28,
1995.
Number of Leases Expiring Without
Number of Leases Expiring Renewal Options
----------------------------------------------- -----------------------------------------------
Fiscal Odd Lots AFO Odd Lots AFO
Year Big Lots IAD Toys Total Big Lots IAD Toys Total
--------- --------- --------- --------- --------- --------- --------- --------- ---------
1995 63 12 14 89 11 4 4 19
1996 92 21 12 125 21 9 4 34
1997 108 81 16 205 24 28 3 55
1998 73 25 20 118 22 14 14 50
1999 98 18 10 126 31 17 5 53
2000 and beyond 54 25 10 89 27 25 6 58
--------- --------- --------- --------- --------- --------- --------- ---------
488 182 82 752 136 97 36 269
Of the 182 AFO leases 104 are in enclosed malls and 78 are in strip centers.
6
Number of Stores Open
-------------------------------------------------------------------------------------------------------
Odd Lots AFO Odd Lots AFO
and and and and
Big Lots IAD Toys Total Big Lots IAD Toys Total
-------- -------- -------- -------- -------- -------- -------- --------
Alabama 13 -- 2 15 Missouri 12 -- 2 14
Arizona -- -- 3 3 Mississippi 2 -- -- 2
California -- -- 10 10 N. Carolina 20 -- 1 21
Colorado -- 5 1 6 Nebraska -- 2 2 4
Connecticut -- -- 1 1 Nevada -- -- 1 1
Delaware -- -- 1 1 New York 5 -- 4 9
Florida 51 12 5 68 Ohio 105 56 2 163
Georgia 31 -- 3 34 Oklahoma -- -- 1 1
Iowa -- 7 2 9 Oregon -- -- 3 3
Idaho -- -- 1 1 Pennsylvania 21 9 3 33
Illinois 20 22 -- 42 S. Carolina 14 -- 3 17
Indiana 36 15 3 54 Tennessee 35 1 2 38
Kansas 3 -- 1 4 Texas -- -- 5 5
Kentucky 29 12 3 44 Utah -- -- 2 2
Louisiana -- -- 2 2 Virginia 24 3 2 29
Maryland 3 2 1 6 Washington -- -- 2 2
Maine -- -- 1 1 Wisconsin 10 -- 1 11
Michigan 32 23 3 58 West Virginia 22 6 1 29
Minnesota -- 6 2 8 Wyoming -- 1 -- 1
Odd Lots AFO
and and
Big Lots IAD Toys Total
-------- -------- -------- ---------
Total Stores 488 182 82 752
Number of states 20 16 35 38
ITEM 3 LEGAL PROCEEDINGS
The Company is party to various legal proceedings arising from its ordinary
course of operations and believes that the outcome of these proceedings,
individually and in aggregate, will be immaterial.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
7
EXECUTIVE OFFICERS OF THE COMPANY
(Included pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.)
Officer
Name Age Offices Held Since
-------------------------- -------- -------------------------------------------- ----------
William G. Kelley 49 Chairman of the Board and Chief Executive 1990
Officer
Brady J. Churches 36 President 1981
Jerry D. Sommers 44 Executive Vice President, Merchandising 1987
Albert J. Bell 35 Sr. Vice President, Legal, Real Estate, 1988
Secretary and General Counsel
Michael J. Potter 33 Sr. Vice President and Chief Financial 1991
Officer
James A. McGrady 44 Vice President and Treasurer 1991
Mark D. Shapiro 35 Vice President and Controller 1994
James E. Eggenschwiler 36 Director - Legal, Assistant General Counsel 1992
and Assistant Secretary
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the New York Stock Exchange (NYSE)
under the symbol "CNS." The following table reflects the high and low sales
price per share of common stock as quoted from the NYSE composite transactions
for the fiscal period indicated.
1994 1993
---------------------------- ---------------------------
High Low High Low
---------- ----------- ----------- -----------
First Quarter $ 20 $ 16-3/4 $ 20-1/8 $ 14-1/8
Second Quarter 17-1/4 11-1/2 19-1/2 14-3/4
Third Quarter 18-1/2 11-7/8 22-1/8 16-1/2
Fourth Quarter 19-3/8 15-3/4 22-1/4 17-1/4
The Company has followed a policy of reinvesting earnings in the business and
consequently has not paid any cash dividends. At the present time, no change
in this policy is under consideration by the Board of Directors. The payment
of cash dividends in the future will be determined by the Board of Directors in
consideration of business conditions then existing, including the Company's
earnings, financial requirements and condition, opportunities for reinvesting
earnings, and other factors.
ITEM 6 SELECTED FINANCIAL DATA
The statement of earnings data and the balance sheet data has been derived from
the Company's consolidated financial statements and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial Statements and Notes
thereto included elsewhere herein.
8
Fiscal Year Ended
==========================================================================================
Six Year
Annual
Growth January 28, January 29, January 30, February 1, February 2, February 3, January 28,
Rate 1995 1994 1993 1992 1991 1990* 1989
====================================================================================================================================
($ In thousands except earnings per share and sales per sq. ft. )
STATEMENT OF OPERATIONS DATA:
Net sales:
Odd Lots and Big Lots 10.8% $1,112,087 $ 941,471 $ 837,805 $ 744,896 $ 662,050 $ 593,519 $ 601,008
All for One and iTZADEAL! ** 93,590 92,283 72,986 7,685 -- -- --
Toy Liquidators and Toys
Unlimited ** 45,937 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Retail 13.0 1,251,614 1,033,754 910,791 752,581 662,050 593,519 601,008
Other 0.9 27,030 21,537 18,489 18,916 17,253 15,162 25,549
- ------------------------------------------------------------------------------------------------------------------------------------
12.6 1,278,644 1,055,291 929,280 771,497 679,303 608,681 626,557
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of sales:
Odd Lots and Big Lots 10.3 638,533 531,605 479,536 441,351 405,919 352,783 355,190
All for One and iTZADEAL! ** 47,331 45,275 36,973 4,084 -- -- --
Toy Liquidators and Toys
Unlimited ** 22,467 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Retail 12.2 708,331 576,880 516,509 445,435 405,919 352,783 355,190
Other 1.6 20,163 16,358 13,895 14,047 14,267 10,999 18,362
- ------------------------------------------------------------------------------------------------------------------------------------
11.8 728,494 593,238 530,404 459,482 420,186 363,782 373,552
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 13.8 550,150 462,053 398,876 312,015 259,117 244,899 253,005
Selling and administrative
expenses 13.5 451,411 386,116 334,494 273,704 243,878 233,442 211,407
Unusual items ** -- -- -- -- -- 16,692 --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 15.5 98,739 75,937 64,382 38,311 15,239 (5,235) 41,598
Other expense - net 6.7 (6,706) (4,221) (4,116) (5,896) (8,608) (9,280) (4,536)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income
taxes 16.4 92,033 71,716 60,266 32,415 6,631 (14,515) 37,062
Income taxes (credit) 16.9 36,813 28,689 23,156 12,317 2,086 (7,561) 14,434
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 16.0% $ 55,220 $ 43,027 $ 37,110 $ 20,098 $ 4,545 $ (6,954) $ 22,628
====================================================================================================================================
Earnings (loss) per common and
common equivalent share of
stock 14.9% $ 1.15 $ 0.90 $ 0.78 $ 0.44 $ 0.10 $ (0.15) $ 0.50
====================================================================================================================================
Weighted average common and
common equivalent shares
outstanding (In thousands) 1.0% 48,077 47,976 47,676 45,797 45,615 45,456 45,238
================================================================================================================
BALANCE SHEET DATA:
Working capital $ 210,601 $ 174,529 $ 142,305 $ 120,275 $ 100,033 $ 126,542 $ 108,757
Current ratio 2.2 2.3 2.2 2.2 2.3 3.0 2.4
Total assets $ 551,620 $ 468,220 $ 390,942 $ 329,321 $ 288,119 $ 308,231 $ 286,156
Long-term obligations $ 40,000 $ 50,000 $ 50,000 50,000 $ 50,125 $ 91,087 $ 53,292
Stockholders' equity $ 315,234 $ 258,535 $ 209,459 $ 170,520 $ 149,940 $ 144,776 $ 150,998
STORE OPERATING DATA:
Average sales per square foot *** $ 121.71 $ 119.86 $ 115.64 $ 108.57 $ 100.68 $ 93.26 $ 103.14
New stores opened
Odd Lots and Big Lots 79 71 47 37 24 46 28
All for One and iTZADEAL! 15 21 120 41 -- -- --
Toy Liquidators and Toys Unlimited 82 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
176 92 167 78 24 46 28
- ------------------------------------------------------------------------------------------------------------------------------------
Stores closed
Odd Lots and Big Lots 23 20 24 16 23 18 15
All for One 10 4 -- 1 -- -- --
Toy Liquidators and Toys Unlimited -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
33 24 24 17 23 18 15
- ------------------------------------------------------------------------------------------------------------------------------------
Stores open at end of year
Odd Lots and Big Lots 488 432 381 358 337 336 308
All for One and iTZADEAL! 182 177 160 40 -- -- --
Toy Liquidators and Toys Unlimited 82 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
752 609 541 398 337 336 308
- ------------------------------------------------------------------------------------------------------------------------------------
* Consists of 53 weeks. ** Not applicable. *** Based on stores open the full period.
9
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW AND TRENDS
The Company's business operations are comprised of one primary segment: the
retail sale of "close-out" merchandise. At January 28, 1995, retail sales were
conducted through 488 Odd Lots and Big Lots specialty retail stores offering
merchandise at substantial discounts in addition to 27 iTZADEAL! (IAD)
specialty close-out retail and 155 All for One (AFO) single price point retail
stores. In May of 1994, 82 close-out toy stores were acquired which operate
under the names of Toy Liquidators and Toys Unlimited (TOYS). Operations of Odd
Lots and Big Lots have annually comprised in excess of 86% of the total sales
and gross profit in each of the past three fiscal years. The number of stores
in operation has significantly expanded over the past three years increasing
from 398 at the start of fiscal 1992 to 752 in fiscal 1994. Funding for this
store expansion, in addition to other capital requirements, has been provided
by internally generated funds from operations supplemented on an interim basis
by utilization of available credit facilities.
The retail operation is somewhat seasonal due to the fourth quarter holiday
selling season. As such, the fourth quarter generally reflects higher net sales
and income. In contrast, the first quarter of the fiscal year is generally the
least profitable displaying the customary softness in retail sales following
the holiday season. Quarterly fluctuations of inventory balances reflect the
opportunistic purchases available at any given time and the increase in the
number of stores. On a per store basis, inventories have traditionally been
lower at the end of the fiscal year and build throughout the next three
quarters to a peak level in anticipation of the holiday season.
RESULTS OF OPERATIONS
The table below compares components of the statements of earnings as a percent
to sales and presents the percentage change to the prior year.
Percent of Net Sales Percent Change
-------------------------------- ---------------------
1994 1993 1992 1994-93 1993-92
======================================================================== =====================
Sales 100.0% 100.0% 100.0% 21.2% 13.6%
------------------------------------------------------------------------ ---------------------
Costs and expenses:
Cost of sales 57.0 56.2 57.1 22.8 11.8
Selling and administrative 35.3 36.6 36.0 16.9 15.4
expenses
Interest expense 0.5 0.6 0.6 24.5 2.0
Other income - net -- (0.2) (0.2) (66.6) 0.6
------------------------------------------------------------------------ ---------------------
92.8 93.2 93.5 20.6 13.2
------------------------------------------------------------------------ ---------------------
Income before income taxes 7.2 6.8 6.5 28.3 19.0
Provision for income taxes 2.9 2.7 2.5 28.3 23.9
------------------------------------------------------------------------ ---------------------
Net income 4.3% 4.1% 4.0% 28.3% 15.9%
======================================================================== =====================
SALES
Significant increases in sales have been realized over the past three fiscal
years. These increases have resulted primarily from the expanded number of
retail stores in operation and increases in comparable store sales (stores open
more than two years at the beginning of the year).
Sales increased 21.2% to a record $1.279 billion in 1994 compared to $1.055
billion in 1993, which was 13.6% above 1992. Store sales from 176 new stores,
including sales of $45.9 million from 82 toy stores acquired in May of 1994,
contributed $178.4 million, 79.9% of the 1994 increase. The $106.7 million in
sales from 92 new stores opened in 1993 accounted for 84.6% of that year's
sales gain. Comparable store sales increases of 3.5%, $24.3 million, in 1994
and 1.8%, $11.2 million, in 1993 contributed approximately 10.9% and 8.9% of
those respective years' overall sales increases.
10
Components of sales are presented below:
Fiscal Year
---------------------------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------------------------
Pct. to No. of Pct. to No. of Pct. to No. of
($ in thousands) Sales Total Stores Sales Total Stores Sales Total Stores
==================================================================================================================================
Stores open two or more years at
the beginning of the fiscal year $ 719,728 56.3% 326 $ 635,423 60.2% 277 $ 604,681 65.1% 273
Stores open less than two years at
the beginning of the fiscal year 329,093 25.7 250 270,624 25.7 240 163,767 17.6 101
Stores opened in the fiscal period 178,382 14.0 176 106,661 10.1 92 114,825 12.3 167
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail sales for stores open
at end of fiscal year 1,227,203 96.0 752 1,012,708 96.0 609 883,273 95.0 541
Stores closed in the fiscal period 24,411 1.9 33 21,046 2.0 24 27,518 3.0 24
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail sales 1,251,614 97.9 785 1,033,754 98.0 633 910,791 98.0 565
Other 27,030 2.1 ===== 21,537 2.0 ===== 18,489 2.0 =====
- ----------------------------------------------------------- ----------------- -------------------
Total sales $ 1,278,644 100.0% $ 1,055,291 100.0% $ 929,280 100.0%
=========================================================== ================= ===================
Comparable store sales
percent increase 3.5% 1.8% 4.3%
Net sales of Odd Lots and Big Lots increased 18.1%, $170.6 million, compared
to a 12.4%, $103.7 million, increase in 1993. AFO/IAD sales increased $1.3
million, 1.4%, in 1994 compared to a 26.4%, $19.3 million, increase in
1993. The AFO/IAD sales increase in 1994 slowed primarily as a result of
net store openings which have been reduced from 120 in 1992 to 17 and 5 in
1993 and 1994, respectively.
GROSS PROFIT
Gross profit for 1994 was $550.2 million, 43.0% of sales, compared to $462.1
million, or 43.8% of 1993 sales. Contributing to the 1994 gross profit
percent decline was a planned reduction of softlines, primarily apparel,
achieved in the first and second quarters, and a move to improve merchandise
mix by utilization of slightly lower margin, higher turn goods. Improved
inventory shrink results also enhanced gross profits in 1993 and 1992. On
an ongoing basis the age and other relevant considerations relating to
merchandise presented for sale is reviewed. As a result, inventory
valuation allowances, primarily for inventory aging and similar items, are
adjusted throughout the year.
An analysis by division of the contribution to total gross profit follows:
Fiscal Year
-------------------------------------------------------------------------------------
1994 1993 1992
--------------------- ----------------------- -------------------------
Gross Pct. to Gross Pct. to Gross Pct. to
($ in thousands) Profit Total Profit Total Profit Total
========================================================== ======================= =========================
Odd Lots and Big Lots $ 473,554 86.1% $ 409,866 88.7% $ 358,269 89.8%
All for One and ITZADEAL! 46,259 8.4 47,008 10.2 36,013 9.0
Toy Liquidators and Toys Unlimited 23,470 4.3 -- -- -- --
- ---------------------------------------------------------- ----------------------- -------------------------
Total retail 543,283 98.8 456,874 98.9 394,282 98.8
Other 6,867 1.2 5,179 1.1 4,594 1.2
- ---------------------------------------------------------- ----------------------- -------------------------
Total gross profit $ 550,150 100.0% $ 462,053 100.0% $ 398,876 100.0%
========================================================== ======================= =========================
11
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses as a percent to sales decreased to 35.3%
from 36.6% and 36.0% in 1993 and 1992, respectively. The decrease in 1994
reflects a 16.9% increase in cost compared to 1993 which is less than the 21.2%
overall sales dollar increase. This has been accomplished principally from
continued expense controls, the benefits realized from consolidation of
administrative functions, and leveraging of fixed operating expenses on the
higher sales. The increase of 15.4% between 1993 and 1992 is slightly higher
than the 13.6% comparative increase in net sales reflecting the effect of fixed
store operating expenses on a lower than planned 1993 sales base.
INTEREST EXPENSE
Interest expense as a percent to net sales was .5% in 1994, and .6% in 1993 and
1992. The volume of interest expense increased 24.5% in 1994 compared to a
2.0% increase in 1993. For 1994 the volume increase is associated with greater
weighted average seasonal borrowings throughout the year associated with higher
inventory levels to support the increased number of stores in operation and the
acquisition of the toy operations. Higher effective interest rates on seasonal
borrowings also impacted the volumes in 1994 and 1993.
INCOME TAXES
The effective tax rate was 40.0% in fiscal 1994 and 1993 compared to 38.4% in
1992. In 1993, the Omnibus Budget Reconciliation Act of 1993 (Act) was signed
into law. Major provisions of the Act affecting the Company increased the
Federal income tax rate from 34.0% to 35.0% and provided for the retroactive
extension of the Targeted Jobs Tax Credit (TJTC) to January 1, 1995. Benefits
recognized from TJTC as a reduction of the effective tax rate in the prior
three fiscal years have been 1.1%, .7%, and 1.0%, respectively. Realization of
any future TJTC benefits are subject to Federal legislation. The Company
acquired a corporate owned life insurance investment in 1994 which reduced the
effective tax rate by .5%.
CAPITAL RESOURCES AND LIQUIDITY
Sources of liquidity over the past three years have been derived from two
primary sources: operations and borrowings from available credit facilities.
Net cash provided from operating activities over the last three fiscal years,
as detailed in the consolidated statements of cash flows, have been $59.7
million, $29.4 million, and $34.9 million. As necessary, the Company utilized
its available credit facilities to supplement cash provided from operations,
principally for store expansion, seasonal inventory purchases, and capital
expenditure programs. In 1994 and 1993, long-term purchase commitments
provided a source of capital not previously utilized. Future use of such
long-term commitments are not anticipated to provide any significant capital
resources. The cash provided from operations over the past three fiscal years
has been sufficient whereby the Company has fully liquidated the balance of its
outstanding credit agreements prior to the fiscal year end. Total debt as a
percent of total capitalization, i.e., total debt and stockholders' equity, was
13.7% at January 28, 1995, compared with 16.2% and 19.3% at each of the
respective prior fiscal year ends. Working capital for each of the past three
fiscal years has increased from $142.3 million in 1992 to $210.6 million in
1994. This data reflects the strength of the Company's balance sheet and the
capacity to absorb debt financing as, and if, required. Capital expenditures
for the last three fiscal years were $41.6 million, $46.0 million, and $40.4
million, respectively. The capital expenditure program in fiscal 1995 is
anticipated to be approximately $50.0 million. New store expansion of net
120-135 locations will utilize most of the balance of the 1995 capital program.
At January 28, 1995, available committed credit facilities were $90.0 million
under a revolving credit facility plus $2.5 million from an associated $50
million letter of credit facility. Seasonally, the revolving credit facility
and letter of credit facility are increased to $110 million and $75 million,
respectively. Additionally, $55.0 million of uncommitted credit facilities are
available, subject to terms of the revolving credit facility. The Company
believes capital resources from currently available cash, cash generated from
future operations, and the availability of existing credit facilities will be
sufficient to meet its foreseeable capital and seasonal operating requirements.
PROSPECTIVE INFORMATION
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.
12
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Consolidated Stores Corporation:
We have audited the accompanying consolidated balance sheets of CONSOLIDATED
STORES CORPORATION and subsidiaries as of January 28, 1995, and January 29,
1994, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the three fiscal years in the period ended January
28, 1995. Our audits also included the financial statement schedule listed in
the Index at Item 14(a)2. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of CONSOLIDATED STORES
CORPORATION and subsidiaries at January 28, 1995, and January 29, 1994, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 28, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
Dayton, Ohio
February 20, 1995
13
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Fiscal Year
1994 1993 1992
---------------------------------------------------------------------------------------------------
Net sales $1,278,644 $1,055,291 $ 929,280
---------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 728,494 593,238 530,404
Selling and administrative expenses 451,411 386,116 334,494
Interest expense 7,238 5,812 5,697
Other income - net (532) (1,591) (1,581)
---------------------------------------------------------------------------------------------------
1,186,611 983,575 869,014
---------------------------------------------------------------------------------------------------
Income before income taxes 92,033 71,716 60,266
Income taxes 36,813 28,689 23,156
---------------------------------------------------------------------------------------------------
Net income $ 55,220 $ 43,027 $ 37,110
===================================================================================================
Earnings per common and common
equivalent share of stock $ 1.15 $ 0.90 $ 0.78
===================================================================================================
The accompanying notes are an integral part of these financial statements.
14
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
January 28, January 29,
1995 1994
------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 40,356 $ 24,873
Accounts receivable 5,524 4,865
Inventories 302,132 252,880
Prepaid expenses 13,999 11,670
Deferred income taxes 19,262 16,541
------------------------------------------------------------------------------------------------------------
Total current assets 381,273 310,829
------------------------------------------------------------------------------------------------------------
Property and equipment - net 161,500 147,848
Other assets 8,847 9,543
------------------------------------------------------------------------------------------------------------
$ 551,620 $ 468,220
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 103,401 $ 81,545
Accrued liabilities 38,289 31,632
Income taxes 18,982 23,123
Current maturities of long-term obligations 10,000 --
------------------------------------------------------------------------------------------------------------
Total current liabilities 170,672 136,300
------------------------------------------------------------------------------------------------------------
Long-term obligations 40,000 50,000
Deferred income taxes 17,114 16,305
Other noncurrent liabilities 8,600 7,080
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock - authorized 2,000,000 shares,
$.01 par value; none issued -- --
Common stock - authorized 90,000,000 shares, $.01 par value;
issued 46,866,303 shares and 46,485,428 shares, respectively 469 465
Non-voting common stock - authorized 8,000,000 shares,
$.01 par value; none issued -- --
Additional paid-in capital 93,872 89,817
Retained earnings 220,699 165,479
Other adjustments 194 2,774
------------------------------------------------------------------------------------------------------------
Total stockholders' equity 315,234 258,535
------------------------------------------------------------------------------------------------------------
$ 551,620 $ 468,220
============================================================================================================
The accompanying notes are an integral part of these financial statements.
15
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Fiscal Year
1994 1993 1992
-------------------------------------------------------------------------------------------
Common stock:
Balance at beginning of year $ 465 $ 462 $ 459
Contribution to savings plan 1 -- --
Exercise of stock options 3 3 3
-------------------------------------------------------------------------------------------
Balance at end of year $ 469 $ 465 $ 462
===========================================================================================
Additional paid-in capital:
Balance at beginning of year $ 89,817 $ 86,545 $ 84,719
Exercise of stock options 2,655 2,608 1,468
Contribution to savings plan 1,400 664 358
-------------------------------------------------------------------------------------------
Balance at end of year $ 93,872 89,817 $ 86,545
===========================================================================================
Retained earnings:
Balance at beginning of year $ 165,479 $ 122,452 85,342
Net income for the year 55,220 43,027 37,110
-------------------------------------------------------------------------------------------
Balance at end of year $ 220,699 165,479 $ 122,452
===========================================================================================
Other adjustments:
Balance at beginning of year $ 2,774 $ -- $ --
Change in unrealized investment gain (3,048) 4,188 --
Minimum pension liability adjustment 468 (1,414) --
-------------------------------------------------------------------------------------------
Balance at end of year $ 194 $ 2,774 $ --
===========================================================================================
The accompanying notes are an integral part of these financial statements.
16
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 55,220 $ 43,027 $ 37,110
Adjustment for noncash items included
in net income:
Depreciation and amortization 26,477 23,685 19,542
Deferred income taxes 256 (2,236) (319)
Other 3,398 3,031 1,868
Change in assets and liabilities (25,693) (38,081) (23,280)
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 59,658 29,426 34,921
---------------------------------------------------------------------------------------------------------------------
Cash provided (used) by investment activities:
Capital expenditures (41,558) (45,994) (40,401)
Investment in corporate owned life insurance (4,781) -- --
Other (1,973) 478 1,036
---------------------------------------------------------------------------------------------------------------------
Net cash used by investment activities (48,312) (45,516) (39,365)
---------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities:
Increase in deferred credits 3,107 4,723 --
Proceeds from exercise of stock options 1,030 986 566
---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,137 5,709 566
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents $ 15,483 $(10,381) $ (3,878)
=====================================================================================================================
The accompanying notes are an integral part of these financial statements.
17
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company follows the concept of a 52/53 week fiscal year which ends on the
Saturday nearest to January 31.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments which are
unrestricted as to withdrawal or use, and which have an original maturity of
three months or less. Cash equivalents are stated at cost which approximates
market value.
INVENTORIES
Retail inventories are stated at the lower of cost or market on the retail
method. Other inventories are stated at the lower of cost (first-in, first-out
method) or market.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on the straight line method for
financial reporting purposes. Service lives are principally forty years for
buildings and from four to ten years for other property and equipment.
INVESTMENTS
At January 28, 1995, the non-current investment in equity securities is
classified as Other assets in the consolidated balance sheets and is stated at
fair value. Unrealized gains on equity securities classified as
available-for-sale are recorded as a separate component of stockholders' equity
net of applicable income taxes. The Company's 1994 investment in corporate
owned life insurance is recorded net of policy loans as Other assets. The net
life insurance expense, including $1,836 of interest expense on policy loans,
is recorded as Other income - net in the consolidated statements of earnings.
DEFERRED CREDITS
Deferred credits associated with purchase commitments are classified as other
noncurrent liabilities and are recognized when earned as a reduction of the
related inventory purchase cost.
PRE-OPENING COSTS
Non-capital expenditures associated with opening new stores are charged to
expense over the first twelve months of store operations.
INVENTORIES
Inventories are comprised of the following:
January 28, January 29,
(in thousands) 1995 1994
-----------------------------------------------------------------------------------
Retail $ 287,287 $ 241,125
Other 14,845 11,755
-----------------------------------------------------------------------------------
$ 302,132 $ 252,880
===================================================================================
18
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
INCOME TAXES
Effective January 31, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes." The statement requires the use of the asset and liability
approach for financial reporting for income taxes. Financial statements for
prior years have not been restated and the cumulative effect of the
accounting change was not material. The provision for income taxes is
comprised of the following:
Fiscal Year
(In thousands) 1994 1993 1992
------------------------------------------------------------------------------------------
Liability method Liability method Deferred method
Federal - Currently payable $ 31,815 $ 22,733 $ 18,775
Deferred (1,912) 387 (319)
State and Local 6,910 5,569 4,700
------------------------------------------------------------------------------------------
$ 36,813 $ 28,689 $ 23,156
==========================================================================================
A reconciliation between the statutory federal income tax rate and the
effective tax rate follows:
Fiscal Year
1994 1993 1992
------------------------------------------------------------------------------------------------
Liability method liability method Deferred method
Statutory Federal income tax rate 35.0% 35.0% 34.0%
Effect of:
State and local income taxes 4.9 5.1 5.1
Targeted jobs tax credit (1.1) (0.7) (1.0)
Corporate owned life insurance investments (0.5) -- --
Other 1.7 0.6 0.3
------------------------------------------------------------------------------------------------
Effective tax rate 40.0% 40.0% 38.4%
================================================================================================
Deferred taxes reflect the effects of temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. For financial reporting purposes
deferred taxes are reflected without reduction for a valuation allowance.
Components of the Company's deferred tax assets and liabilities are as
follows:
January 28, January 29,
(In thousands) 1995 1994
--------------------------------------------------------------------------------------
Deferred tax assets:
Uniform inventory capitalization $ 7,139 $ 6,877
Inventory valuation allowance 2,193 2,831
Deferred credits 192 2,602
Other (each less than 5% of total assets) 9,738 4,231
--------------------------------------------------------------------------------------
Total deferred tax assets 19,262 16,541
--------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 14,325 13,464
Unrealized gain 760 2,792
Other 2,029 49
--------------------------------------------------------------------------------------
Total deferred tax liabilities 17,114 16,305
--------------------------------------------------------------------------------------
Net deferred tax assets $ 2,148 $ 236
======================================================================================
19
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
INCOME TAXES - continued
Net income taxes paid were $29,613,000, $19,288,000, and $19,170,000 in 1994,
1993, and 1992, respectively.
LONG-TERM OBLIGATIONS
SENIOR NOTES
The 10.5% senior notes are due in semi-annual principal payments commencing in
February 1995, until maturity in August 2002. Subject to the provisions of
the Note Purchase Agreement (Agreement) the Company may prepay all or part of
the outstanding principal balance. The Agreement contains provisions
specifying certain limitations on the Company's operations including the
amount of future long-term obligations, investments, dividends and the
maintenance of specific operating ratios. At January 28, 1995, $126,286,000
of retained earnings were available for dividends under provisions of the
Agreement.
The fair value of the senior notes is estimated based on the current rates
offered to the Company for debt with similar terms and remaining maturities.
The estimated fair value of the senior notes at January 28, 1995, was
$52,351,000 and the related carrying amount was $50,000,000. Maturities of
senior notes during the next five years are as follows:
(in thousands)
---------------------------------------------------------------------
1995 $ 10,000
1996 15,000
1997 5,000
1998 5,000
1999 4,500
CREDIT AGREEMENTS
The Company has a $90,000,000 unsecured revolving credit agreement through
June 1, 1996, which is seasonally adjusted to $110,000,000 from August
through November of the credit term. Outstanding borrowings, if any, at June
1, 1996 are payable one year thereafter. The funds available under this
agreement may be used for working capital requirements and other general
corporate purposes. The Company has the option to borrow at various interest
rates and is required to pay a 1/8 of 1% commitment fee on the average daily
unused funds. Included in the revolving credit agreement is a separate
$50,000,000 letter of credit facility which is seasonally adjusted to
$75,000,000 from May through July and expires June 1, 1995. The Company was
contingently liable for outstanding letters of credit totaling $47,663,000 at
January 28, 1995. Provisions of the revolving credit agreement include the
maintenance of certain standard financial ratios similar to those described for
senior notes. Additionally, $55,000,000 of uncommitted short-term credit
facilities are available, subject to provisions of the revolving credit
agreement, at January 28, 1995. No borrowings were outstanding under any such
credit agreements.
Interest paid, including capitalized interest of $788,000 and $486,000 in 1994
and 1993, totaled $8,110,000, $6,314,000, and $5,775,000, for fiscal years
1994, 1993, and 1992, respectively.
DEFERRED CREDITS
The Company has commitments to certain vendors for future inventory purchases
totaling approximately $121,000,000 at January 28, 1995. Terms of the
commitments provide for these inventory purchases to be made through fiscal
1998 or later as may be extended. There are no annual minimum purchase
requirements,
20
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company has a defined benefit pension plan covering substantially all of
its employees. Benefits are based on credited years of service and the
employee's compensation during the last five years of employment. The
Company's funding policy is to contribute annually the amount required to
meet ERISA funding standards. Contributions are intended to provide not only
for benefits attributed to service to date but also for those anticipated to
be earned in the future. The Company amended its pension plan to provide
benefits only to employees hired on or before March 31, 1994.
The components of net periodic pension cost are comprised of the following:
(In thousands) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------
Service cost - benefits earned in the period $ 1,671 $ 944 $ 1,248
Interest cost on projected benefit obligation 689 592 492
Investment return on plan assets (575) (557) (373)
Net amortization and deferral 529 96 175
------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 2,314 $ 1,075 $ 1,542
========================================================================================================================
Assumptions used in each year of the actuarial computations were:
Discount rate 8.4% 7.2% 8.5%
Rate of increase in compensation levels 5.0% 5.0% 5.5%
Expected long-term rate of return 9.0% 9.0% 9.0%
The following table sets forth the funded status of the Company's defined benefit plan.
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $ 6,362 $ 6,097
Non-vested benefits 1,352 1,943
--------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $ 7,714 $ 8,040
==============================================================================================================
Actuarial present value of projected benefit obligation $ 10,278 $ 10,325
Plan assets at fair value, primarily cash equivalents, U.S. Government
securities and obligations, and publicly traded stocks and mutual funds 6,848 6,451
--------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (3,430) (3,874)
Unrecognized prior service cost (1,082) (1,218)
Unrecognized net obligation at transition 252 265
Unrecognized net loss 4,006 5,595
Recognition of minimum pension liability -- (2,357)
--------------------------------------------------------------------------------------------------------------
Accrued pension cost $ (254) $(1,589)
==============================================================================================================
Provisions of SFAS No. 87 "Employers' Accounting for Pensions," require
recognition of a minimum pension liability relating to certain unfunded
pension obligations. Principally as a result of the decrease in discount
rate and change in plan benefits in 1993, the Company recorded a minimum
pension liability of $2,357,000 with a corresponding reduction of
stockholders' equity, net of tax benefits. At January 28, 1995, the minimum
pension liability was $1,576,000.
21
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
EMPLOYEE BENEFIT PLANS - continued
SAVINGS PLAN
The Company has a savings plan with a 401(k) deferral feature for all
eligible employees. Provisions of $1,564,000, $1,390,000, and $920,000 have
been charged to operations in fiscal 1994, 1993, and 1992, respectively.
LEASES
Leased property consists primarily of the Company's retail stores. Store
leases generally provide for fixed monthly rental payments plus, in most
cases, the payments of real estate taxes, utilities, liability insurance and
maintenance. Certain leases provide for contingent rents, in addition to the
fixed monthly rent, based on a percentage of store sales above a specified
level. Additionally, leases generally provide options to extend the original
terms for an additional two to twenty years. Minimum operating lease
commitments as of January 28, 1995, are as follows:
(In thousands)
--------------------------------------------------------------------------------------
1995 $ 56,809
1996 48,355
1997 37,184
1998 25,586
1999 15,613
Subsequent to 1999 18,418
--------------------------------------------------------------------------------------
Total minimum operating lease payments $201,965
======================================================================================
Total rental expense consisted of the following:
Fiscal Year
(in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------
Buildings $ 62,555 $ 51,105 $ 42,339
Equipment 4,695 2,807 2,017
-------------------------------------------------------------------------------------------------
$ 67,250 $ 53,912 $ 44,356
=================================================================================================
STOCKHOLDERS' EQUITY
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding during each period including the
additional number of shares which would have been issuable upon exercise of
stock options, assuming that the Company used the proceeds received to
purchase additional shares at market value. The average number of common and
common equivalent shares outstanding during fiscal 1994, 1993 and 1992 were
48,077,162, 47,976,396, and 47,676,377, respectively.
STOCKHOLDER RIGHTS PLAN
Each share of the Company's common stock has one Right attached. The Rights
trade with the common stock and only become exercisable, or transferable
apart from the common stock, ten business days after a person or group
(Acquiring Person) acquires beneficial ownership of, or commences a tender or
exchange offer for, 20% or more of the Company's common stock. Each Right,
under certain circumstances, entitles its holder to acquire one one-hundredth
of a share of Series A Junior Participating Preferred Stock at a price of
$35, subject to adjustment. If 20% of the Company's common stock is
acquired, or a tender offer to acquire 20% of the Company's common stock is
made, each Right not owned by an Acquiring Person will entitle the holder to
purchase Company common stock having a market value of twice the exercise
price of the Rights.
22
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
STOCKHOLDERS' EQUITY - continued
In addition, if the Company is involved in a merger or other business
combination at any time there is a 20% or more stockholder of the Company, the
Rights will entitle a holder to buy a number of shares of common stock of the
acquiring company having a market value of twice the exercise price of each
Right. The Rights may be redeemed by the Company at $.01 per Right at any
time until the tenth day following public announcement that a 20% position has
been acquired. The Rights expire on April 18, 1999, and at no time have
voting power.
PREFERRED STOCK
In conjunction with the Stockholder Rights Plan the Company has reserved
600,000 shares of preferred stock for issuance thereunder.
STOCK PLANS
STOCK OPTION PLANS
The Company has a Stock Option Plan (Plan) which provides for the grant of
options to executives for the purchase of up to 6,800,000 shares of the
Company's common stock. The Plan requires that all options be granted at an
exercise price at least equal to the fair market value of the common stock at
the date of grant. The options generally become exercisable one year
following the original date of grant in five equal annual installments.
However, upon an effective change in control of the Company all options
granted become exercisable.
The Company has a Director Stock Option Plan (DSOP), for non-employee
directors, pursuant to which up to 200,000 shares of the Company's common
stock may be issued upon exercise of options granted thereunder. The DSOP is
administered by the Compensation Committee of the Board of Directors pursuant
to an established formula. Neither the Board of Directors, nor the
Compensation Committee, exercise any discretion in administration of the DSOP.
Grants are made annually, 90 days following the annual meeting of
stockholders, at an exercise price equal to 100% of the fair market value on
the date of grant. The present formula provides for an annual grant of 5,000
options to each non-employee director which becomes fully exercisable over a
three year period, beginning one year subsequent to grant.
The following table reflects transactions for all plans:
Shares Price Range
-----------------------------------------------------------------------------------
Outstanding February 1, 1992 3,759,162 $ 2.12 - 13.13
Granted 653,180 $10.13 - 15.38
Canceled 176,840 $ 2.12 - 13.38
Exercised 207,790 $ 2.12 - 9.38
-----------------------------------------------------------------------------------
Outstanding January 30, 1993 4,027,712 $ 2.12 - 15.38
Granted 708,600 $15.00 - 20.00
Canceled 107,160 $ 2.12 - 16.13
Exercised 283,945 $ 2.12 - 13.38
-----------------------------------------------------------------------------------
Outstanding January 29, 1994 4,345,207 $ 2.12 - 20.00
Granted 668,550 $12.00 - 18.75
Canceled 77,080 $ 2.50 - 18.75
Exercised 310,405 $ 2.12 - 16.13
-----------------------------------------------------------------------------------
OUTSTANDING JANUARY 28, 1995 4,626,272 $ 2.12 - 20.00
-----------------------------------------------------------------------------------
EXERCISABLE JANUARY 28, 1995 2,390,261 $ 2.12 - 20.00
-----------------------------------------------------------------------------------
AVAILABLE FOR GRANT AT JANUARY 28, 1995 931,268
-----------------------------------------------------------------
23
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
STOCK PLANS - continued
RESTRICTED STOCK
The Company's Restricted Stock Plan (Plan) permits the granting of 500,000
shares of restricted stock awards to key employees, officers and directors.
The shares are restricted as to the right of sale and other disposition until
vested as determined by the Board of Directors. The Plan provides that on
any event that results in a change in effective control of the Company, all
awards of restricted stock would become vested as of the date of such change
in effective control. The Plan terminates in 1997 or when sooner terminated
by the Company's Board of Directors.
The cost of the awards, determined at the date of grant, is charged to income
over the period the restriction lapses. As of January 28, 1995, no
restricted shares were outstanding with respect to restrictions which had not
lapsed and shares available for grant totaled 391,822.
ADDITIONAL DATA
The following is a summary of certain financial data:
January 28, January 29,
(In thousands) 1995 1994
----------------------------------------------------------------------------------------------------------
Other assets:
Investment in equity securities - at fair market value $ 1,900 $ 7,428
Net cash surrender value of life insurance policies 4,190 1,392
Other 2,757 723
----------------------------------------------------------------------------------------------------------
$ 8,847 $ 9,543
==========================================================================================================
Property and equipment - at cost:
Land $ 7,577 $ 5,260
Buildings 62,097 52,062
Fixtures and equipment 203,745 165,764
Transportation equipment 6,437 7,203
----------------------------------------------------------------------------------------------------------
279,856 230,289
Construction-in-progress -- 14,393
----------------------------------------------------------------------------------------------------------
279,856 244,682
Less accumulated depreciation 118,356 96,834
----------------------------------------------------------------------------------------------------------
$ 161,500 $ 147,848
==========================================================================================================
Accrued liabilities:
Salaries and wages $ 11,303 $ 8,771
Property, payroll and other taxes 24,279 20,014
Other 2,707 2,847
----------------------------------------------------------------------------------------------------------
$ 38,289 $ 31,632
==========================================================================================================
24
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ADDITIONAL DATA - continued
The following analysis supplements changes in assets and liabilities presented
in the consolidated statements of cash flows.
Fiscal Year
(In thousands) 1994 1993 1992
------------------------------------------------------------------------------------------
Accounts receivable $ (659) $ (3,251) $ 151
Inventories (49,252) (50,037) (40,899)
Prepaid expenses (2,329) (1,778) (2,905)
Accounts payable 24,031 3,901 14,414
Accrued liabilities 6,657 1,924 2,390
Income taxes (4,141) 11,160 3,569
------------------------------------------------------------------------------------------
$ (25,693) $ (38,081) $ (23,280)
==========================================================================================
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Summarized quarterly financial data for fiscal 1994 and 1993 is presented
below:
Quarter
-----------------------------------------------------------
First Second Third Fourth Year
=================================================================================================================
(In thousands except per share data)
Net sales
1994 $ 242,278 $ 272,813 $ 310,108 $ 453,445 $ 1,278,644
1993 210,190 234,430 261,058 349,613 1,055,291
Gross profit
1994 101,682 117,655 135,624 195,189 550,150
1993 89,353 103,259 115,059 154,382 462,053
Net income
1994 2,384 6,709 8,075 38,052 55,220
1993 1,326 6,595 6,802 28,304 43,027
Earnings per common and
common equivalent share
1994 0.05 0.14 0.17 0.79 1.15
1993 0.03 0.14 0.14 0.59 0.90
25
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEMS 10- 13
Pursuant to Instruction G(3) to Form 10-K, the information required in Items 10
- - 13 is incorporated by reference from the Company's definitive proxy statement
which will be filed with the Commission pursuant to Regulation 14A on or about
May 5, 1995.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements, Financial Statement Schedules and Exhibits
--------------------------------------------------------------------------------------
Page
1. Financial Statements
--------------------
Independent Auditors' Report 12
Consolidated Statements of Earnings 13
Consolidated Balance Sheets 14
Consolidated Statements of Stockholders' Equity 15
Consolidated Statements of Cash Flows 16
Notes to Consolidated Financial Statements 17
2. Financial Statement Schedules
-----------------------------
Schedule Description
-------- -----------
II Valuation and Qualifying Accounts 28
All other financial statements and schedules not listed in the preceding
indexes are omitted as the information is not applicable or the information is
presented in the consolidated financial statements or notes thereto.
(B) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K filed during the last quarter of the fiscal
year ended January 28, 1995.
26
(c) Exhibits
Exhibits marked with an asterisk (*) are filed herewith.
Exhibit No. Document
-------------- -------------------------------------------------------------------------------------------------
3(a) Form of Restated Certificate of Incorporation of the Company (Exhibit 4(a) to the Company
Registration Statement (No. 33-6086) on Form S-8 and incorporated herein by reference)
3(b) Amended and Restated By-laws of the Company (Exhibit 3(c) to the Company's Annual Report
on Form 10-K for the year ended February 3, 1990 and incorporated herein by reference)
3(c) Amendment to By-laws dated April 14, 1992 (Exhibit 3(c) to the Company's Annual Report on
Form 10-K for the year ended February 1, 1992 and incorporated herein by reference)
4(a) Specimen Stock Certificate (Exhibit 4(a) to the Company's Annual Report on Form 10-K for the
year ended February 1, 1992 and incorporated herein by reference)
4(b) Summary of Rights to Purchase Preferred Stock (Exhibit 4(b) to the Company's Annual Report on
Form 10-K for the year ended February 3, 1990 and incorporated herein by reference)
4(c) Rights Agreement between the Company and National City Bank (Exhibit 4(c) to the Company's
Annual Report on Form 10-K for the year ended February 3, 1990 and incorporated herein by
reference)
4(d) Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock of the Company (Exhibit 4(d) to the Company's Annual Report on Form 10-K for
the year ended February 3, 1990 and incorporated herein by reference)
10(a) Executive Stock Option and Stock Appreciation Rights Plan as amended and restated October 9,
1990 (Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended February
1, 1992 and incorporated herein by reference)
10(a)(i) Consolidated Stores Corporation Directors Stock Option Plan (Exhibit 10(q) to the Company's
Registration statement (No. 33-42502) on Form S-8 and incorporated herein by reference)
10(a)(ii) Consolidated Stores Corporation Amended and Restated Directors Stock Option Plan (Exhibit
10(c)(ii) to the Company's Annual Report on Form 10-K for the year ended February 1, 1992 and
incorporated herein by reference)
10(b) Consolidated Stores Corporation Supplemental Savings Plan (Exhibit 10(r) to the Company's
Registration Statement (No. 33-42692) on Form 10-K for the year ended February 1, 1992 and
incorporated herein by reference)
10(c) CSIC Pension Plan and Trust dated March 1, 1976 (Exhibit 10(h)(ii) to the Company's
Registration Statement (No. 2-97642) on Form S-1 and incorporated herein by reference)
10(c)(i) Amendment to CSIC Pension Plan and Trust (Exhibit 10(h)(ii) to the Company's Registration
Statement (No. 2-97642) on Form S-1 and incorporated herein by reference)
10(c)(ii) Amendment No. 2 to CSIC Pension Plan and Trust (Filed as an Exhibit to the Company's
Registration Statement (No. 33-6086) on Form S-8 and incorporated herein by reference)
10(d) Credit Guarantee dated May 27, 1994, among Consolidated Stores Corporation and C.S. Ross
Company and National City Bank, Columbus, NBD Bank, N.A., Bank One, Columbus, N.A.,
and The Bank of Tokyo Trust Company (Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 30, 1994, and incorporated herein by reference)
27
Exhibit No. Document
--------------- ---------------------------------------------------------------------------------------------------------
10(d)(i) Credit Guarantee dated May 27, 1994, among Consolidated Stores Corporation and TRO, Inc. in
favor of National City Bank, Columbus, NBD Bank, N.A., Bank One, Columbus, N.A., and The
Bank of Tokyo Trust Company (Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 30, 1994, and incorporated herein by reference)
10(d)(ii) Credit Guarantee dated as of May 27, 1994, made by subsidiaries of Consolidated Stores
Corporation jointly and severally in favor of National City Bank, Columbus, NBD Bank, N.A.,
Bank One, Columbus, N.A., and The Bank of Tokyo Trust Company (Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 1994, and incorporated
herein by reference)
1O(e) Form of Note Purchase Agreement dated as of August 1, 1987 relating to CSIC 10.50% Senior
Notes due August 1, 2002 (Exhibit 10(m) to the Company's Annual Report on Form 10-K for the
vear ended January 30, 1988 and incorporated herein by reference)
10(f) Employment Agreement with William G. Kelley (Exhibit 10(r) to the Company's Annual Report
on Form 10-K for the year ended February 3, 1990 and incorporated herein by reference)
10(f)(i)* Amendment No. 1 to Employment Agreement with William G. Kelley
10(g) Employment Agreement as of February 21, 1994, with Brady J. Churches
10(i) Employment Agreement as of February 21, 1994, with Jerry D. Sommers
10(j) Employment Agreement as of February 21, 1994, with Mark N. Hanners
10(k) Promissory Note dated July 12, 1991 between William G. Kelley and Lois Ellen Kelley and
Consolidated Stores Corporation (Exhibit 10(k) to the Company's Annual Report on Form 10-K
for the year ended February 1, 1992 and incorporated herein by reference)
10(l) Consolidated Stores Corporation 1987 Restricted Stock Plan as amended and restated (Exhibit
10(p)(i) to the Company's Annual Report on Form 10-K for the year ended February 3, 1990 and
incorporated by reference herein)
10(m) Consolidated Stores Corporation Savings Plan and Trust, as amended and restated (Exhibit
10(q)(i) to the Company's Annual Report on Form 10-K for the year ended February 3, 1990 and
incorporated by reference herein)
10(n) Form of Executive Severance Agreement of the Company (Exhibit 10(s)(i) to the Company's
Annual Report on Form 10-K for the year ended February 3, 1990 and incorporated herein by
reference)
10(o) Form of Senior Executive Severance Agreement of the Company (Exhibit 10(s)(i) to the
Company's Annual Report on Form 10-K for the year ended February 3, 1990 and incorporated
herein by reference)
10(p) Consolidated Stores Executive Benefits Plan (Exhibit 10(t) to the Company's Annual Report on
Form 10-K for the year ended February 3, 1990 and incorporated herein by reference)
21* List of subsidiaries of the Company
23* Consent of Deloitte & Touche LLP
27* Financial Data Schedule
28
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
----------------------------
Balance at Charged to Charged to Balance at
Beginning of Cost and Other End of
Period Expense Accounts Deductions Period
----------------------------------- ------------ ------------ ------------ ------------ ------------
Fiscal year ended January 28, 1995:
Inventory valuation allowance (1) $ 6,644 $ 2,573 $ -- $ 3,785 $ 5,432
============ ============ ============ ============ ============
Fiscal year ended January 29, 1994:
Inventory valuation allowance (1) $ 10,258 $ 3,376 $ -- $ 6,990 $ 6,644
============ ============ ============ ============ ============
Fiscal year ended January 30, 1993:
Inventory valuation allowance (1) $ 10,515 $ 12,479 $ -- $ 12,736 $ 10,258
============ ============ ============ ============ ============
(1) Consists of reserve for markdowns of aged goods and similar inventory reserves.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on behalf by the undersigned, thereunto duly authorized.
CONSOLIDATED STORES CORPORATION
Date: April 25, 1995 By: /s/ William G. Kelley
-----------------------------------------------
William G. Kelley
Chairman of the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
Date: April 25, 1995 By: /s/ William G. Kelley
-----------------------------------------------
William G. Kelley
Chairman of the Board and Chief Executive
Officer
Date: April 25, 1995 By: /s/ Brady J. Churches
-----------------------------------------------
Brady J. Churches
President and Director
Date: April 25, 1995 By: /s/ Sheldon M. Berman
-----------------------------------------------
Sheldon M. Berman
Director
Date: April 25, 1995 By: /s/ Michael L. Glazer
-----------------------------------------------
Michael L. Glazer
Director
Date: April 25, 1995 By: /s/ David T. Kollat
-----------------------------------------------
David T. Kollat
Director
30
Date: April 25, 1995 By: /s/ Nathan Morton
--------------------------------
Nathan Morton
Director
Date: April 25, 1995 By: /s/ John L. Sisk
--------------------------------
John L. Sisk
Director
Date: April 25, 1995 By: /s/ Dennis B. Tishkoff
--------------------------------
Dennis B. Tishkoff
Director
Date: April 25, 1995 By: /s/ William A. Wickham
--------------------------------
William A. Wickham
Director
Date: April 25, 1995 By: /s/ Michael J. Potter
--------------------------------
Michael J. Potter
Sr. Vice President, Chief Financial and
Accounting Officer