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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 February 1, 1997
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 10-K or any amendment to this
FORM 10-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 $2,441,296,449 on April 3, 1997. 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 67,114,679 shares.
The number of shares of Common Stock $.01 par value per share, outstanding as of
April 3, 1997, was 67,339,903 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 by reference into
Part III.
FORM 10-K
2
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to Vote of Security Holders 13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures 41
PART III
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners and Management 41
Item 13. Certain Relationships and Related Transactions 41
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41
FORM 10-K Page 2
3
PART I
Item 1 Business
INDUSTRY OVERVIEW
Closeout retailing is one of the fastest-growing segments of the retail industry
in the United States. Closeout retailers provide a valuable service to
manufacturers by purchasing excess product that generally result from production
overruns, package changes, discontinued products and returns. Closeout retailers
also take advantage of generally low prices in the off-season by buying and
warehousing seasonal merchandise for future sale. As a result of these lower
costs of goods sold, closeout retailers can offer merchandise at prices
significantly lower than those offered by traditional retailers.
Recent trends in the retail industry are favorable to closeout retailers. These
trends include retailer consolidations and just-in-time inventory processes,
which have resulted in a shift of inventory risk from retailers to
manufacturers. In addition, in order to maintain their market share in an
increasingly competitive environment, manufacturers are introducing new products
and new packaging on a more frequent basis. The Company believes that these
trends have helped make closeout retailers an integral part of manufacturers'
overall distribution process. As a result, manufacturers are increasingly
looking for larger, more sophisticated closeout retailers, such as the Company,
that can purchase larger quantities of merchandise and can control the
distribution and advertising of specific products.
THE COMPANY
The Company is the nation's largest closeout retailer with 1,798 stores located
in all 50 states and Puerto Rico. The Company operates 614 retail closeout
stores under the names Odd Lots and Big Lots (Closeout Stores) in the
midwestern, southern and mid-Atlantic regions of the United States, and 1,184
retail toy and closeout toy stores throughout the United States and Puerto Rico,
primarily under the names Kay-Bee Toys, KB Toy Works, and KB Toy Outlet (Toy
Stores). Kay-Bee is the largest enclosed shopping mall-based toy retailer in the
United States. 1,042 of the Toy Stores were acquired as of May 5, 1996 in the
acquisition of Kay-Bee Center, Inc. from Melville Corporation (Acquisition). As
a value retailer focused on closeout merchandise, the Company seeks to provide
the budget-conscious consumer with a broad range of quality, name-brand products
at exceptional values. The Company's name-brand closeout merchandise primarily
consists of products obtained from manufacturers' excess inventories, which
generally result from production overruns, package changes, discontinued
products and returns.
The Company's Closeout Stores typically offer merchandise at prices 15% to 35%
below those offered by other discount retailers and up to 70% below those
offered by traditional retailers. The Company's Closeout Stores offer a wide
variety of name-brand consumer products, including food items, health and beauty
aids, electronics, housewares, tools, paint, lawn and garden, hardware, sporting
goods, toys and softlines. In addition, these stores supplement their broad
offering of items in core product categories with a changing mix of new
merchandise and seasonal goods such as back-to-school and holiday merchandise.
The Toy Stores offer a broad variety of closeout toys, as well as currently
promoted retail toys (known as "in-line toys") and traditional toy merchandise.
The Company has been in the toy retailing business since its inception and has
operated stand-alone toy stores since its purchase of Toy Liquidators in 1994.
The Acquisition has allowed the Company to expand significantly its retail toy
store business at a relatively low cost. In addition, as a result of the
Acquisition, the Company will more than double its purchases of closeout toys
and become the largest purchaser of closeout toys in the United States. The
Company expects that this combined
FORM 10-K Page 3
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purchasing power will enhance its ability to source high-quality closeout toys
for all of its stores at competitive prices.
In the fourth quarter the Company announced its plan to discontinue operations
of the All For One and iTZADEAL! businesses. Closure of the 165 store division
is anticipated to be completed by the end of 1997.
BUSINESS STRATEGY
The Company's goal is to build upon its leadership position in closeout
retailing, one of the fastest growing segment of the retailing industry, by
expanding its market presence in its existing and in new markets. The Company
has adopted a business strategy of pursuing growth by capitalizing on the
following competitive strengths: (i) its ability to offer name-brand products at
discounted prices; (ii) its purchasing expertise and strong buying
relationships; (iii) its ability to lease low cost store sites in strip shopping
centers, enclosed shopping malls and outlet malls on favorable terms; (iv) its
ability to efficiently warehouse and distribute large quantities of merchandise;
and (v) its focus on cost control.
- OFFERING NAME-BRAND MERCHANDISE AT DEEPLY DISCOUNTED PRICES The
success of the Company's closeout business depends upon its ability to
select and purchase quality merchandise at attractive prices in order
to maintain a balance of product in certain core merchandising
categories along with a changing mix of merchandise. As a retailer
focused on closeout merchandise, the Company's goal is to provide
budget-conscious consumers with a broad range of quality name-brand
products at exceptional values. The Company purchases large quantities
of name-brand closeout merchandise from manufacturers' excess
inventories, which generally result from production overruns, package
changes, discontinued products and returns. The Company also takes
advantage of the availability of factory reconditioned products and
lower priced, private-label merchandise in selected product categories
in order to provide additional value to its customers. Primarily as a
result of its strong supplier relationships and purchasing expertise,
the Company offers substantial everyday savings on a wide variety of
name-brand consumer products, including food items, health and beauty
aids, electronics, housewares, tools, paint, lawn and garden,
hardware, sporting goods, toys and softlines, typically offering
merchandise at prices 15% to 35% below those offered by other discount
retailers and up to 70% below those offered by traditional retailers.
In addition, the Company supplements its broad offering of consumer
items in core product categories with a changing mix of new
merchandise, including seasonal goods, such as holiday and
back-to-school merchandise.
- PURCHASING EXPERTISE AND STRONG BUYING RELATIONSHIPS An integral part
of the Company's business is the sourcing and purchasing of quality
name-brand merchandise. The Company has built strong relationships
with many name-brand manufacturers and has capitalized on its
purchasing power in the closeout and toy marketplace in order to
source merchandise that provides exceptional value to customers. As
the largest retailer of closeout merchandise in the United States, the
Company generally has the ability to purchase all of a manufacturer's
closeout merchandise in specific product categories and to control
distribution in accordance with vendor instructions, thus providing a
high level of service and convenience to these manufacturers. The
success of the Company's toy business depends in part upon its ability
to purchase in-line toys at competitive prices and on competitive
terms.
Furthermore, the Company's strong buying relationships and financial
flexibility enable it to purchase merchandise off-season, typically at
lower costs. The Company purchases merchandise from over 3,000
domestic and foreign vendors which provides multiple sources for each
product category. The Company has significantly expanded its vendor
base over the past several fiscal years as a result of its size,
credibility, financial strength and seasoned buying team. The Company
believes that its management has long standing relationships with its
suppliers and is competitively positioned to continue to seek new
sources.
FORM 10-K Page 4
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- LOW COST SITE SELECTION The Company has developed a real estate
strategy for its Closeout Stores emphasizing smaller-sized stores in
strip shopping center locations in mid-sized cities and small towns.
The Company believes its ability to obtain these sites on attractive
terms has been enhanced by the ongoing consolidation in the retailing
industry and the migration of many retailers to larger-sized stores.
The Company seeks to enter into three to five year leases (with
renewal options) that provide for low rents and generally strives to
minimize the capital required to open a store. In addition to
enhancing the Company's ability to provide value to its customers,
this strategy has led to an attractive store level return on
investment.
- EFFICIENT WAREHOUSE/DISTRIBUTION OPERATIONS Since 1990, the Company
has focused on increasing the efficiency and reducing the cost of its
operations in order to improve profitability and enhance its
competitive position. The Company believes it operates the largest
retail warehouse/distribution center of its kind in the United States,
which covers 3,558,000 square feet. The size of this facility enables
the Company to store large quantities of merchandise purchased
off-season at low prices for distribution to its stores at a later
date. This highly automated facility uses bar code scanning and
high-speed sortation systems to process and distribute large
quantities of constantly changing merchandise in a timely and
cost-efficient manner. The Company will begin implementation of a
sophisticated new information system in its closeout business in
fiscal 1997 that will enable it to more effectively allocate and
manage inventory by SKU. These systems are expected to improve
comparable store sales and inventory turns and reduce the need to move
merchandise between stores. The Company intends to continue to invest
in its infrastructure in order to increase efficiency, reduce cost and
support its expanding operations.
- FOCUS ON COST CONTROL The Company maintains a disciplined approach to
cost control in all aspects of its business including store expenses,
corporate expenses, store leases, fixtures, leasehold improvements,
distribution, transportation and inventory management. In addition to
its low cost approach to store leasing and efficient warehousing and
distribution methods, the Company has implemented numerous expense
savings programs in areas such as store payroll, shrink control,
accident prevention and other store-related expense categories.
The Company believes that the combination of its strengths in merchandising,
purchasing, site selection, distribution and cost-containment has made it a
low-cost, value retailer well-positioned for future growth.
GROWTH STRATEGY
The Company's growth strategy is to increase net sales and earnings through (i)
new store expansion, (ii) comparable store sales increases and (iii) selective
acquisitions.
- NEW STORE EXPANSION The Company has historically increased retail
selling space by approximately 10% to 15% per fiscal year.
CLOSEOUT STORES
Currently, the Company's Closeout Stores are primarily located in the
midwestern, southern, and mid-Atlantic regions of the United States.
The closeout business has been able to operate profitably a large
number of stores in relatively close proximity in markets with
favorable demographics and suitable store sites. For example, the
Company operates 108 of the total 614 Closeout Stores in Ohio.
Management believes that there are substantial opportunities to
increase store counts in existing markets. In addition, the Company
believes the southwestern and western areas of the United States have
significant longer term growth potential for Closeout Stores because
the Company has few stores in these regions. The Company plans to open
approximately 85 to 95 new Closeout Stores, net of store closings, in
fiscal 1997.
FORM 10-K Page 5
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TOY STORES
The Company has a large presence in enclosed shopping malls with 911 Toy
Stores where the Company is usually the exclusive toy store. The Company
expects to increase the number of enclosed shopping mall-based toy stores
in the coming years. 273 Toy Stores are located in strip shopping centers
and outlet malls. The Company plans to open approximately 100 to 115 new
Toy Stores, net of store closings in fiscal 1997. The smaller strip
shopping center stores strive to appeal to customers seeking value and the
convenience not offered by toy superstores. The Company believes that the
opening of toy stores in strip shopping centers has significant potential
for growth over the next several years.
- - COMPARABLE STORE SALES INCREASES The Company continually seeks to increase
comparable store sales and has undertaken several initiatives which it
believes should positively affect comparable store sales over the next
several years. The Company has achieved positive same store sales in each
of the last six fiscal years.
CLOSEOUT STORES
The Company is seeking to attract new customers and gradually increase the
size of its average transaction by introducing and expanding key
merchandise categories such as toys, electronics (including telephones,
answering machines and portable stereos), and furniture and gradually
modifying its merchandise mix to include a greater percentage of items with
higher average retail price points. In addition, the Company has a
television advertising program in certain markets. The Company intends to
expand and refine its use of television advertising to increase awareness
of its stores and to attract new and repeat customers. Furthermore, the
Company will implement an improved inventory management system that the
Company expects will allow it to improve its process for allocating
specific products to individual stores based on the item's sales
performance and inventory levels.
TOY STORES
The Company expects that this increased purchasing power will enhance its
ability to source high-quality closeout toys for all of its stores at
competitive prices. In addition, the Company intends to gradually increase
the percentage of higher-margin closeout toys in order to increase both
gross margins and the value offered to customers.
- - SELECTIVE ACQUISITIONS The Company has grown, in part, through selective
acquisitions and believes that the current trend in retailing will present
opportunities for further strategic acquisitions.
RETAIL OPERATIONS
CLOSEOUT STORES
The Company's Closeout Stores carry a wide variety of name-brand consumer
products, including food items, health and beauty aids, electronics, housewares,
tools, paint, lawn and garden, hardware, sporting goods, toys and softlines. The
Closeout Stores also sell factory reconditioned products and lower-priced,
private-label merchandise in selected product categories. These core categories
of merchandise are carried on a continual basis, although the specific
name-brands offered may change frequently. The Company also supplements its
broad selection of consumer products in core product categories with seasonal
goods and holiday merchandise. Closeout Stores are located predominantly in
strip shopping centers located in the midwestern, southern and mid-Atlantic
regions of the United States. Individual stores range in size from 5,202 to
70,417 selling square feet and average approximately 20,092 selling square feet.
In selecting suitable new store locations, the Company generally seeks retail
space between 22,000 square feet and 30,000 square feet in size. The average
cost to open a new store in a leased facility
FORM 10-K Page 6
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is approximately $710,000, including inventory. The Company plans to open 85 to
95 new stores, net of store closings, during fiscal 1997, all of which will be
leased. Because of their low operating costs, the Closeout Stores are generally
profitable within their first full year of operation. Management regularly
monitors all stores against established profitability standards and evaluates
underperforming stores on an individual basis.
TOY STORES
The Company's Toy Stores are located in enclosed shopping malls, outlet malls,
and strip shopping centers. Enclosed mall and strip shopping center Toy Stores
carry a combination of in-line toys and close-out merchandise. Toy Stores
located in outlet malls carry primarily close-out toys supplemented by selected
in-line toys. The Company's 1,184 Toy Stores are located in enclosed shopping
malls, outlet malls and strip shopping centers across the United States and
Puerto Rico. Enclosed shopping mall-based stores range in size from 1,942 to
10,709 selling square feet and average approximately 3,265 selling square feet.
Outlet mall stores range in size from 2,313 to 5,616 selling square feet and
average approximately 4,004 selling square feet. Strip shopping center stores
range in size from 2,068 to 14,870 selling square feet, and the Company believes
the average size of new strip shopping center stores will be approximately 6,000
to 8,000 square feet. During fiscal 1997, the Company estimates it will open 50
to 60 Toy Stores, net of store closings, in strip shopping centers and mills, 10
to 20 Toy Stores, net of store closings, in outlet malls, and the balance of
openings in malls, all of which will be leased. In seeking suitable new store
locations, the Company generally seeks retail space in both high-traffic strip
shopping centers and outlet malls. The approximate average cost, including
inventory, to open a new outlet mall store or strip shopping center store is
$200,000 to $240,000, and $500,000 to open a mall store. In addition, 194
temporary Toy Stores were operated principally in enclosed shopping malls during
the 1996 fall/winter holiday season. These temporary stores, which carried
primarily closeout merchandise, were open for approximately six to eight weeks
and provide increased sales and profits during the peak holiday selling season
by utilizing vacant store space obtained on favorable terms. The average size of
the temporary stores was approximately 4,100 square feet.
PURCHASING
An integral part of the Company's business is its ability to select and purchase
quality closeout merchandise directly from manufacturers and other vendors at
prices substantially below those paid by conventional retailers. As a result of
the Acquisition, the Company will more than double its purchases of closeout
toys and become the largest purchaser of closeout toys in the United States. The
Company expects that this combined purchasing power will enhance its ability to
source high quality closeout toys for all of its stores at competitive prices.
The Company has a seasoned buying team with extensive purchasing experience,
which has enabled the Company to develop successful long-term relationships with
many of the largest and most recognized consumer-product manufacturers in the
United States. As a result of these relationships and the Company's experience
and reputation in the closeout industry, many manufacturers offer purchase
opportunities to the Company prior to attempting to dispose of their merchandise
through other channels. The Company regularly purchases manufacturers' excess
inventories, which generally result from production overruns, package changes,
discontinued products and returns. Due to its size, credibility and financial
strength, the Company frequently purchases all or substantially all of a given
manufacturer's closeout products, thus providing a superior level of service and
convenience to its vendors. The Company supplements its traditional name-brand
closeout purchases with a limited amount of program buys and private-label
merchandise.
The success of the Company's closeout business depends upon its ability to
select and purchase quality merchandise at attractive prices in order to
maintain a balance of product in certain core merchandising categories along
with a changing mix of merchandise. The Company has no continuing contracts for
the purchase of closeout merchandise and relies on buying opportunities from
both existing and new sources, for which it competes with other closeout
merchandisers and wholesalers. In addition, the success of the Company's toy
business depends in part
FORM 10-K Page 7
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upon its ability to purchase in-line toys at competitive prices and on
competitive terms. The Company believes that its management has long standing
relationships with its suppliers and is competitively positioned to continue to
seek new sources to maintaining an adequate continuing supply of quality
merchandise at attractive prices.
The Company's merchandise is purchased from over 3,000 foreign and domestic
suppliers providing the Company with multiple sources for each product category.
In fiscal 1996 and 1995, Consolidated Stores' top ten vendors accounted for
approximately 23% and 12%, respectively, of total purchases with no one vendor
accounting for more than 4.3% and 1.8%, respectively. Additionally, during
fiscal 1996 the Company's top ten toy vendors, on a combined basis, would have
provided approximately 47% of the Company's toy merchandise.
The Company purchases approximately 20% to 25% of its products directly from
overseas suppliers, and a material amount of its domestically purchased
merchandise is also manufactured abroad, including products such as seasonal
items, toys, tools, housewares, giftware and novelties. As a result, a
significant portion of the Company's merchandise supply is subject to certain
risks including increased import duties and more restrictive quotas, loss of
"most favored nation" trading status, currency fluctuations, work stoppages,
transportation delays, economic uncertainties including inflation, foreign
government regulations, political unrest and trade restrictions, including
retaliation by the United States against foreign practices. While the Company
believes that alternative domestic and foreign sources could supply merchandise
to the Company, an interruption or delay in supply from China or the Company's
other foreign sources, or the imposition of additional duties, taxes or other
charges on these imports, could have a material adverse effect on the Company's
results of operations and financial condition.
ADVERTISING and PROMOTION
The Company uses a variety of marketing approaches to promote its stores to the
public. These approaches vary by business, by market and by the time of year.
The Company promotes grand openings of its stores through a variety of print and
radio promotions. In general, the Company utilizes only those marketing methods
that it believes provide an immediate and measurable return on investment.
CLOSEOUT STORES
The Company's marketing program for its Closeout Stores is designed to create an
awareness of the broad range of quality, name-brand merchandise available at low
prices. The Company utilizes a combination of weekly advertising circulars in
all markets and television advertising in select markets. The Company currently
distributes approximately 22 million four-page circulars 42 weeks out of the
year. The method of distribution includes a combination of newspaper inserts and
direct mail. These circulars are created in-house and are distributed regionally
in order to take advantage of market differences caused by climate or other
factors. The circulars generally feature 25 to 30 products that vary each week.
The Company selects certain markets to run television promotions based upon
factors unique to each market, including the number of stores, cost of local
media and results of preliminary testing. The Company runs multiple 30-second
television spots per week, each of which feature four to six highly
recognizable, name-brand products. In-store promotions include periodic
loudspeaker announcements featuring special bargains as well as humorous
in-store signage to emphasize the significant values offered to the customer.
Historically, the Closeout Stores total advertising expense as a percent of
total net sales has been approximately 3.0%.
TOY STORES
Kay-Bee Toys stores use a combination of a holiday promotion catalog as well as
periodic in-store sales and store signs to promote their products. Advertising
costs were 2.0% of total net sales in 1996. Kay-Bee Toys stores re-
FORM 10-K Page 8
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ceive the benefit of large amounts of customer traffic in enclosed shopping
malls. Similarly, KB Toy Works and KB Outlet stores have relied primarily on
existing customer traffic and in-store signs to promote their products.
WAREHOUSING and DISTRIBUTION
An important aspect of the Company's purchasing strategy involves its ability to
warehouse and distribute merchandise quickly and efficiently. The Company's
primary 3,558,000 square foot owned warehouse/distribution center is located in
Columbus, Ohio and utilizes two high-speed tilt tray sortation systems with a
combined output of approximately 1,225,000 cartons per week. These systems
include a fully automated warehouse management system that incorporates
high-speed bar code scanning to efficiently sort and load high merchandise
volumes for immediate store delivery. Another important part of the Company's
closeout purchasing strategy is its ability to buy large quantities of
merchandise off-season at low prices. As a result, the Company must warehouse
the merchandise until the appropriate season and therefore maintains higher
inventories than most conventional retailers. The Company's primary
warehouse/distribution center has approximately 200,000 pallet positions for the
warehousing of merchandise.
At February 1, 1997 total warehouse space utilized by the Closeout Stores is
approximately 3,294,000 square feet comprised of a shared portion of the primary
warehouse/distribution center and two leased facilities; one in Ohio and one in
Georgia. Typically, a Closeout Store receives additional inventory once a week
(usually within 24 hours of dispatch) via a dedicated trucking fleet and outside
transportation companies. Substantially all the closeout merchandise sold by the
Closeout Stores is received at the primary warehouse/distribution center and is
processed for retail sale, as necessary, and distributed to the retail location
or wholesale customer.
For its Toy Stores as of February 1, 1997, the Company has six
warehouse/distribution centers, including a shared portion of the primary
warehouse/distribution center, located in Alabama, Arizona, Kentucky,
Massachusetts, Ohio, and Pennsylvania, totaling approximately 2,101,000 square
feet. These warehouse/distribution centers use automated warehouse management
systems that include bar code scanning and radio frequency technology to allow
for high accuracy and efficient product processing from vendors to retail
stores. The combined shipping capacity of these warehouse/distribution centers
is approximately 180,000 cartons per week.
In addition to these locations, the Company leases additional temporary space at
locations near the warehouse/distribution centers to store its expanded
inventory.
In January 1997, the Company announced it had entered into a purchase agreement
to acquire a 665,000 square foot distribution and warehouse facility located in
Alabama. The transaction is expected to be completed in the summer of 1997 with
operations of the facility commencing early in 1998. In February 1997, the
Company acquired a 360,000 square foot distribution facility located in New
Jersey.
FORM 10-K Page 9
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Statistics, exclusive of commitments for future warehouse/distribution centers,
by type and locations is as follows:
Number Square Footage
---------------------- ----------------------
State Owned Leased Owned Leased
- ------------------------------------------------------------------
(In thousands)
Alabama -- 1 -- 279
Arizona 1 -- 300 --
Georgia -- 1 -- 250
Kentucky -- 1 -- 300
Massachusetts 1 -- 254 --
Ohio 1 4 3,558 1,314
Pennsylvania -- 1 -- 147
- -----------------------------------------------------------------
3 8 4,112 2,290
=================================================================
INFORMATION SYSTEMS
Over the last five fiscal years the Company has continued to enhance its
information systems to support growth and the operations of its business. The
Company's current systems incorporate fully integrated distribution, allocation,
purchase order management, open-to-buy, point of sale and finance functions and
represent a combination of externally purchased software packages as well as
internally developed software. Current systems enable the Company to take
advantage of operating efficiencies resulting from bar-code scanning and
automated allocation.
The Company will continue to roll out its next generation of inventory
management systems for its Closeout Stores. Upon completion, the new system will
provide a number of features that the Company believes will improve inventory
turns, decrease markdowns and lower operating expenses. These features include
the ability to manage inventories on a micro-SKU basis as compared to its
previous macro-SKU based system. Additionally, the new system will incorporate
current inventory ownership by SKU by store when allocating merchandise, whereas
the existing system allocates inventory based on sales potential without the
benefit of store-owned inventory data. The Company has planned a multi-phased
roll out for this system, allowing for thorough testing and review prior to
start up.
OTHER OPERATIONS
The Company also sells merchandise 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 February 1, 1997, the Company had approximately 38,000 active associates
comprised of 12,600 full-time and 25,400 part-time associates. Temporary
associates hired during the fall/winter holiday selling season increased the
number of associates to a peak of approximately 56,500. Approximately two-thirds
of the associates employed throughout the year are employed on a part-time
basis. The relationship with associates is considered to be good, and the
Company is not a party to any labor agreements.
FORM 10-K Page 10
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COMPETITIVE CONDITIONS
The retail industry is highly competitive. The Company's Closeout Stores
compete with discount stores (such as Wal-Mart(R), KMart(R) and Target(R)),
deep discount drugstore chains and other value-oriented specialty retailers.
The Company's Toy Stores compete directly with local and regional enclosed
shopping mall-based toy retailers, destination toy stores (such as Toys "R"
Us(R)) and discount retailers with toy departments and indirectly with enclosed
shopping mall-based retailers such as concept stores and theme-based stores
that feature toys or toy-related merchandise. Certain of the Company's
competitors have greater financial, distribution, marketing and other resources
than the Company.
ITEM 2 PROPERTIES
RETAIL OPERATIONS
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, insurance and maintenance. Toy Store leases generally include mall
advertising charges. 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 lease
for the Company's closeout stores is for an initial term of three to five years
with multiple, three to five year renewal options, while the typical lease for
the Toy Stores is for an initial term of 10 years with various renewal options.
The following tables set forth store lease expiration and state location
information for existing store leases at February 1, 1997.
Number of Leases Expiring Without
Number of Leases Expiring Renewal Options
------------------------------------ ------------------------------------
Fiscal Year Closeout Toy Total Closeout Toy Total
- -------------------------------------------------------------------------------------------
1997 96 181 277 29 90 119
1998 83 168 251 15 152 167
1999 127 179 306 28 147 175
2000 132 135 267 23 114 137
2001 115 140 255 19 111 130
2002 and beyond 61 381 442 12 276 288
- -------------------------------------------------------------------------------------------
614 1,184 1,798 126 890 1,016
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FORM 10-K Page 11
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Number of Stores Open
========================================================================================
Closeout Toy Total Closeout Toy Total
---------------------------------- ----------------------------------
Alabama 22 17 39 Nebraska 1 8 9
Alaska -- 4 4 Nevada -- 6 6
Arizona -- 18 18 New Hampshire -- 8 8
Arkansas -- 8 8 New Jersey -- 37 37
California -- 112 112 New Mexico -- 8 8
Colorado -- 17 17 New York 15 84 99
Connecticut -- 31 31 North Carolina 30 32 62
Delaware -- 5 5 North Dakota -- 4 4
Florida 59 62 121 Ohio 108 52 160
Georgia 37 29 66 Oklahoma 8 12 20
Hawaii -- 8 8 Oregon -- 9 9
Idaho -- 6 6 Pennsylvania 22 65 87
Illinois 20 42 62 Puerto Rico -- 15 15
Indiana 38 32 70 Rhode Island -- 4 4
Iowa 1 11 12 South Carolina 21 17 38
Kansas 7 7 14 South Dakota -- 2 2
Kentucky 33 15 48 Tennessee 37 27 64
Louisiana 11 17 28 Texas 21 73 94
Maine -- 7 7 Utah -- 8 8
Maryland 3 36 39 Vermont -- 3 3
Massachusetts -- 39 39 Virginia 26 41 67
Michigan 35 41 76 Washington -- 25 25
Minnesota -- 12 12 West Virginia 22 10 32
Mississippi 11 7 18 Wisconsin 10 22 32
Missouri 16 23 39 Wyoming -- 3 3
Montana -- 3 3
Closeout Toy Total
------------------------------------
Total Stores 614 1,184 1,798
Number of states and
Puerto Rico 25 51
WAREHOUSE and DISTRIBUTION
See Warehousing and Distribution in Item I above.
CORPORATE
Approximately 150,000 square feet located on site of the Company's primary
warehouse/distribution facility in Columbus, Ohio is utilized for corporate
offices and business offices of the Closeout Stores and wholesale operations.
Toy Store executive offices occupy 140,000 square feet of leased space in
Pittsfield, Massachusetts.
FORM 10-K Page 12
13
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 the 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.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Offices Held Officer Since
- ---------------------------- ------------ ----------------------------------------------------- ---------------
William G. Kelley 51 Chairman of the Board and Chief Executive Officer 1990
Michael L. Glazer 49 President 1995
Albert J. Bell 37 Sr. Vice President, Legal, Real Estate, Secretary
and General Counsel 1988
Charles Freidenberg 51 Sr. Vice President - Merchandising 1995
C. Matthew Hunnell 34 Sr. Vice President - Merchandising 1995
Michael J. Potter 35 Sr. Vice President and Chief Financial Officer 1991
James A. McGrady 46 Vice President and Treasurer 1991
Mark D. Shapiro 37 Vice President and Controller 1994
William G. Kelley is a Director of the Company and has served in his present
capacity as Chairman of the Board and Chief Executive Officer since 1990. Mr.
Kelley is also a director of National City Bank, Columbus.
Michael L. Glazer has served on the Company's Board of Directors since 1991 and
previous to his appointment as President of the Company in 1995 he held
positions as Executive Vice President and President of The Bombay Company, a
home furnishings retailer.
Albert J. Bell has served as the Company's general counsel for over five years
and has been employed by the Company since 1987.
Charles Freidenberg has been with the Company since 1983 and has held senior
management positions in the merchandising area for the past five years.
C. Matthew Hunnell has been with the Company since 1983 and has held senior
management positions in the merchandising area for the past five years.
Michael J. Potter has been with the Company since 1991 and previous to his
appointment as Sr. Vice President and Chief Financial Officer in 1994 Mr. Potter
was Vice President and Controller for the Company.
James A. McGrady has been with the Company since 1986 and previous to his
appointment as Vice President and Treasurer in 1991 he was Assistant Controller.
Mark D. Shapiro has been with the Company since 1992 and prior to his
appointment as Vice President and Controller served as Assistant Controller.
FORM 10-K Page 13
14
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. Prices have been restated to reflect a 5 for 4 common
stock split effected by a distribution of shares on December 24, 1996, to
stockholders of record on December 10, 1996.
1996 1995
High Low High Low
-------------- -------------- -------------- --------------
First Quarter $29 45/64 $16 19/32 $16 45/64 $13
Second Quarter 32 13/32 24 18 13/32 12 19/32
Third Quarter 35 13/32 26 19/64 20 3/32 16 29/32
Fourth Quarter 34 13/64 28 45/64 20 1/2 15 1/2
As of April 3, 1997, there were 1,233 holders of record of the Company's common
stock.
The Company has followed a policy of reinvesting earnings in the business and
consequently has not paid any cash dividends. At the present time, no change in
this policy is under consideration by the Board of Directors. The payment of
cash dividends in the future will be determined by the Board of Directors in
consideration of business conditions then existing, including the Company's
earnings, financial requirements and condition, opportunities for reinvesting
earnings, and other factors.
ITEM 6 SELECTED FINANCIAL DATA
The statement of earnings data and the balance sheet data has been derived from
the Company's consolidated financial statements and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and Notes
thereto included elsewhere herein.
FORM 10-K Page 14
15
SELECTED FINANCIAL DATA
Fiscal Year Ended
================================================================================
February 1, February 3, January 28, January 29, January 30, February 1,
1997 1996* 1995 1994 1993 1992
===========================================================================================================================
($ In thousands except earnings per share)
Net sales:
Closeout Stores $1,431,873 $1,286,675 $1,112,087 $941,471 $837,805 $744,896
Toy Stores 1,178,224 76,689 45,937 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Retail 2,610,097 1,363,364 1,158,024 941,471 837,805 744,896
Other 37,419 42,652 27,030 21,537 18,489 18,916
- ---------------------------------------------------------------------------------------------------------------------------
2,647,516 1,406,016 1,185,054 963,008 856,294 763,812
- ---------------------------------------------------------------------------------------------------------------------------
Cost of sales:
Closeout Stores 826,478 738,675 638,533 531,605 479,536 441,351
Toy Stores 687,413 40,598 22,467 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Retail 1,513,891 779,273 661,000 531,605 479,536 441,351
Other 28,610 32,281 20,163 16,358 13,895 14,047
- ---------------------------------------------------------------------------------------------------------------------------
1,542,501 811,554 681,163 547,963 493,431 455,398
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 1,105,015 594,462 503,891 415,045 362,863 308,414
Selling and administrative expenses 908,468 475,798 402,411 337,363 300,569 270,921
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit 196,547 118,664 101,480 77,682 62,294 37,493
Other (expense) - net (16,689) (7,313) (5,114) (3,106) (3,398) (5,660)
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
income taxes and extraordinary charge 179,858 111,351 96,366 74,576 58,896 31,833
Income taxes 66,547 41,218 38,546 29,833 22,630 12,096
Income from continuing operations before
extraordinary charge 113,311 70,133 57,820 44,743 36,266 19,737
(Loss) income from discontinued operations (27,538) (5,727) (2,600) (1,716) 844 361
Extraordinary charge (1,856) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 83,917 $ 64,406 $ 55,220 $ 43,027 $ 37,110 $ 20,098
===========================================================================================================================
Income (loss) per common and
common equivalent share of stock:
Continuing operations $ 1.69 $ 1.15 $ 0.96 0.75 $ 0.61 $ 0.34
Discontinued operations (0.41) (0.09) (0.04) (0.03) 0.01 0.01
Extraordinary charge (0.03) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
$ 1.25 $ 1.06 $ 0.92 $ 0.72 $ 0.62 $ 0.35
===========================================================================================================================
Weighted average common and common
equivalent shares outstanding (In
thousands) 67,233 61,129 60,096 59,970 59,595 57,246
===========================================================================================================================
* Fiscal 1995 is comprised of 53 weeks.
FORM 10-K Page 15
16
SELECTED FINANCIAL DATA - continued
Fiscal Year Ended
============================================================================
February 1, February 3, January 28, January 29, January 30, February 1,
1997 1996* 1995 1994 1993 1992
===========================================================================================================================
($ In thousands except earnings per share)
BALANCE SHEET DATA:
Working capital $ 469,290 $ 253,858 $ 210,601 $174,529 $142,305 $120,275
Total assets $ 1,330,503 $ 639,815 $ 551,620 $468,220 $390,942 $329,321
Long-term obligations $ 151,292 $ 25,000 $ 40,000 $ 50,000 $ 50,000 $ 50,000
Stockholders' equity $ 682,085 $ 389,564 $ 315,234 $258,535 $209,459 $170,520
STORE OPERATING DATA:
Year end gross square footage (000's):
Closeout Stores 17,072 15,072 13,607 11,981 10,545 9,878
Toy Stores 5,267 552 401 -- -- --
New stores opened:
Closeout Stores 85 67 79 71 47 37
Toy Stores (1)1,095 30 82 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
1,180 97 161 71 47 37
Stores closed:
Closeout Stores 12 14 23 20 24 16
Toy Stores 22 1 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
34 15 23 20 24 16
Stores open at end of year:
Closeout Stores 614 541 488 432 381 358
Toy Stores 1,184 111 82 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
1,798 652 570 432 381 358
===========================================================================================================================
(1) Includes 1,042 Kay-Bee toy acquired May 5, 1996.
FORM 10-K Page 16
17
ITEM 7 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
When used in this discussion and the financial statements that follow, the
words, "expect(s)", "feel(s)", "believe(s)", "will", "may", "anticipate(s)" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect the occurrence of unanticipated events.
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 the following Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in this report, as well as, the Company's periodic reports on Forms
10-Q and 8-K filed with the Securities and Exchange Commission.
OVERVIEW
The Company is the nation's largest closeout retailer with 1,798 stores located
in all 50 states and Puerto Rico. The Company operates 614 retail closeout
stores under the names Odd Lots and Big Lots (Closeout Stores) in the
midwestern, southern and mid-Atlantic regions of the United States, and 1,184
retail toy and closeout toy stores throughout the United States and Puerto Rico,
primarily under the names Kay-Bee Toys, KB Toy Works, and KB Toy Outlet (Toy
Stores). The Company believes that Kay-Bee is the largest enclosed shopping
mall-based toy retailer in the United States. 1,042 of the Toy Stores were
acquired as of May 5, 1996 in the acquisition of Kay-Bee Center, Inc. from
Melville Corporation. As a value retailer focused on closeout merchandise, the
Company seeks to provide the budget-conscious consumer with a broad range of
quality, name-brand products at exceptional values. The Company's name-brand
closeout merchandise primarily consists of products obtained from manufacturers'
excess inventories, which generally result from production overruns, package
changes, discontinued products and returns.
In the fourth quarter of 1996 the Company adopted a plan to close its single
price point and small specialty stores operating under the names of All For One
and iTZADEAL!. Closures of the 165 stores open at February 1, 1997, are
anticipated to be completed throughout fiscal 1997. Accordingly, the operating
results for this business are reported as a discontinued operation at February
1, 1997, and prior years operating results have been restated to reflect
continuing operations.
The following table compares components of the statements of earnings of
Consolidated Stores as a percent to net sales.
FORM 10-K Page 17
18
Fiscal Year
-----------------------------------
1996 1995 1994
======================================================================================
Net sales:
Closeout Stores 54.1% 91.5% 93.8%
Toy Stores 44.5 5.5 3.9
- --------------------------------------------------------------------------------------
Total Retail 98.6 97.0 97.7
Other 1.4 3.0 2.3
- --------------------------------------------------------------------------------------
Total net sales 100.0 100.0 100.0
- --------------------------------------------------------------------------------------
Gross Profit:
Closeout Stores 42.3 42.6 42.6
Toy Stores 41.7 47.1 51.1
- --------------------------------------------------------------------------------------
Total Retail 42.0 42.8 42.9
Other 23.5 24.3 25.4
- --------------------------------------------------------------------------------------
Total Gross Profit 41.7 42.3 42.5
Selling and administrative expenses 34.3 33.8 34.0
- --------------------------------------------------------------------------------------
Operating profit 7.4 8.5 8.5
- --------------------------------------------------------------------------------------
Interest expense 0.6 0.4 0.5
Other expense (income) -- 0.1 (0.1)
- --------------------------------------------------------------------------------------
Income from continuing operations before income
taxes and extraordinary charge 6.8 8.0 8.1
Income taxes 2.5 2.9 3.2
- --------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary charge 4.3 5.1 4.9
Loss from discontinued operations (1.0) (0.4) (0.2)
Extraordinary charge (0.1) -- --
- --------------------------------------------------------------------------------------
Net income 3.2% 4.7% 4.7%
======================================================================================
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 illustrates the seasonality in the net
sales and operating income.
Quarter
-------------------------------------------
First Second Third Fourth
==============================================================================================
FISCAL 1996(1)
Percent net sales of full year 12.1% 20.1% 22.6% 45.2%
Operating income (loss) percentage of full year 5.3 (0.2) 3.4 91.5
(1) Reflects acquisition of KAY-Bee Toys at the
beginning of the second quarter.
FISCAL 1995
Percent net sales of full year 19.3% 21.5% 23.7% 35.5%
Operating income percentage of full year 6.7 15.2 18.1 60.0
FORM 10-K Page 18
19
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES Net sales increased to $2,647.5 million in fiscal 1996 from $1,406.0
million in fiscal 1995, an increase of $1,241.5 million, or 88.3%. This increase
was attributable to Kay-Bee Toy net sales of $1,037.2 million, sales from 138
new stores and comparable store sales increases of 7.7%, offset in part by the
closing of 34 stores. In addition, fiscal 1995 was a 53-week fiscal year,
compared to fiscal 1996 which had 52 weeks.
Closeout Stores net sales increased $145.2 million, or 11.3%, to $1,431.9
million in fiscal 1996 from $1,286.7 million in fiscal 1995. Net sales of Toy
Stores increased $1,101.5 million, principally as a result of the acquisition
of the toy stores discussed above.
GROSS PROFIT Gross profit increased to $1,105.0 million in fiscal 1996 from
$594.5 million in fiscal 1995, an increase of $510.5 million, or 85.9%. As a
percentage of net sales, gross profit decreased to 41.7% in fiscal 1996 from
42.3% in fiscal 1995. Closeout Stores gross profit was 42.3% in 1996 compared to
42.6% in 1995. Toy Stores gross profit was 41.7% in 1996 compared to 47.1% in
1995. The decline in Toy Stores gross profit is principally attributable to the
higher percentage of lower margin in-line toys in the Kay-Bee merchandise mix
compared to the primarily closeout selection offered by the Toy Stores in prior
years. The Company anticipates gradually increasing the mix of closeout toys
offered in its Kay-Bee Toy stores throughout fiscal 1997.
SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses
increased to $908.5 million in fiscal 1996 from $475.8 million in fiscal 1995,
an increase of $432.7 million, or 90.9%. This increase is attributable to the
acquisition of the Kay-Bee Toy Stores. As a percentage of net sales, selling and
administrative expenses increased slightly to 34.3% in fiscal 1996 from 33.8% in
fiscal 1995. Historically the Kay-Bee Toy stores cost structure has resulted in
a higher percentage ratio of selling and administrative expenses to net sales.
INTEREST EXPENSE Interest expense increased to $16.8 million in fiscal 1996
from $5.6 million in fiscal 1995. The increase was attributable to higher
weighted average debt levels principally to support requirements associated with
the operations of the increased number of Toy Stores, increased effective
interest rates on seasonal borrowings throughout the fiscal year, and debt
associated with the issuance of $100 million of subordinated debentures related
to the acquisition of Kay-Bee Center, Inc. The increase in the effective
interest rate was offset to some extent by the early extinguishment of $35
million of senior debt.
INCOME TAXES The effective tax rate of the Company was 37.0% in fiscal 1996 and
1995. The Company surrendered its corporate-owned life insurance program in 1996
and will not realize future tax benefits therefrom in the future.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES Net sales increased to $1,406.0 million in fiscal 1995 from $1,185.1
million in fiscal 1994, an increase of $220.9 million, or 18.6%. This increase
was attributable to net sales of $109.1 million from 97 new stores and
comparable store sales increases of 5.3%, offset in part by the closing of 15
stores. The increase in comparable store sales was attributable to improved
product offerings and merchandise mix as well as a continued refinement and
expansion of the Company's television advertising program, which was introduced
in the fall of 1994. Comparable store sales were negatively impacted during the
fall/winter holiday selling season by abnormally inclement weather in many of
the Company's markets. In addition, fiscal 1995 was a 53-week fiscal year,
compared to fiscal 1994 which had 52 weeks.
Net sales of The Closeout Stores increased $174.6 million, or 15.7%, to $1,286.7
million in fiscal 1995 from $1,112.1 million in fiscal 1994. Toy Stores net
sales increased $30.8 million, or 67.1%, to $76.7 million in fiscal
FORM 10-K Page 19
20
1995 from $45.9 million in fiscal 1994. This increase was largely attributable
to a full year of operations of the Toy Stores acquired in May 1994, as well as
net sales of $11.3 million from 30 new Toy Stores.
GROSS PROFIT Gross profit increased to $594.5 million in fiscal 1995 from
$503.9 million in fiscal 1994, an increase of $90.6 million, or 18.0%. As a
percentage of net sales, gross profit decreased to 42.3% in fiscal 1995 from
42.5% in fiscal 1994. The decrease in gross margin was attributable to decreases
in gross margin of the Toy Stores. Gross margin at the Toy Stores was high in
fiscal 1994 due to the advantageous terms under which the Company purchased the
inventory in May 1994. Gross margin for the Closeout Stores remained constant in
fiscal 1995 compared to fiscal 1994.
SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses
increased to $475.8 million in fiscal 1995 from $402.4 million in fiscal 1994,
an increase of $73.4 million, or 18.2%. As a percentage of net sales, selling
and administrative expenses decreased slightly to 33.8% in fiscal 1995 from
34.0% in fiscal 1994 as a result of the continued leveraging of fixed expenses
over a larger store base and comparable store sales increases.
INTEREST EXPENSE The slight decrease was attributable to higher weighted
average debt levels, resulting in part from increased seasonal borrowings to
support higher average inventory levels, and increased effective interest rates
on seasonal borrowings throughout the fiscal year, offset by scheduled principal
payments of $15.0 million on the senior debt.
INCOME TAXES The effective tax rate of the Company was 37.0% in fiscal 1995
compared to 40.0% in fiscal 1994. The reduction in the effective tax rate was
attributable to the full fiscal year effect of corporate-owned life insurance,
which was adopted in November 1994, as well as lower effective state and local
income tax rates. This reduction was partially offset by the federally
legislated elimination of the Targeted Jobs Tax Credit ("TJTC").
CAPITAL RESOURCES AND LIQUIDITY
The primary sources of liquidity for the Company have been cash flow from
operations and borrowings under available credit facilities. Total debt as a
percent of total capitalization (total debt and stockholders equity) was 20.8%
at February 1, 1997, compared with 8.2% and 13.7% at each of the respective
prior fiscal year ends. Working capital increased from $210.6 million at the end
of fiscal 1994 to $469.3 million at the end of fiscal 1996. Capital expenditures
for the last three fiscal years were $93.6 million, $48.1 million and $41.6
million, respectively, and were used primarily to fund new store openings and
distribution center expansions.
Concurrent with the acquisition of Kay-Bee Center, Inc. the Company terminated
its existing revolving credit agreement and entered into a Revolving Credit
Facility dated May 3, 1996, as amended June 28, 1996, with a syndicate of
financial institutions to provide senior bank financing in an aggregate
principal amount of up to $600 million. The Revolving Credit Facility consists
of a revolving loan facility (the "Revolver") with the amount available
thereunder equal to $450 million and a letter of credit facility with up to $200
million available for the issuance of documentary and standby letters of credit.
The facility has a maturity date of May 3, 1999. At May 4, 1996, the Company
borrowed $320 million under the Revolver to finance the acquisition of Kay-Bee
Center, Inc. and repay certain existing indebtedness under the prior revolving
credit agreement and senior notes.
Additionally, from time-to-time the Company utilizes uncommitted credit
facilities, subject to the terms of the Revolving Credit Facility, to supplement
short-term borrowing requirements. At February 1, 1997, approximately $382
million was available for direct borrowings under the Revolver and $70 million
of uncommitted credit facilities were available, subject to the terms of the
revolving credit facility.
FORM 10-K Page 20
21
In connection with the acquisition of Kay-Bee Center, Inc. the Company issued
$100 million of Subordinated Notes. The Subordinated Notes mature in the year
2000 and bear interest at a rate of 7% per annum, payable semiannually. The
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, after two years from their issuance, at a premium to their principal, plus
accrued interest.
In the second quarter of 1996 the Company completed an offering of 6,406,250
shares of common stock, including a underwriters' over-allotment of 156,250
shares. Net proceeds to the Company of approximately $190.6 million were
utilized to repay a portion of the borrowings incurred to finance the
acquisition of Kay-Bee Center, Inc.
The Company's capital structure has changed significantly from the issuance of
common stock and increased credit facilities. The Company continues to believe
that it will have adequate resources to fund ongoing operating requirements and
future capital expenditures related to the expansion of existing businesses and
development of new projects. 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-K Page 21
22
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 February 1, 1997, and February 3,
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended February
1, 1997. 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 February 1, 1997, and February 3, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997, 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 24, 1997
FORM 10-K Page 22
23
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Fiscal Year
1996 1995 1994
====================================================================================================
Net sales $2,647,516 $1,406,016 $1,185,054
- ----------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 1,542,501 811,554 681,163
Selling and administrative expenses 908,468 475,798 402,411
Interest expense 16,759 5,607 5,646
Other expense (income) - net (70) 1,706 (532)
- ----------------------------------------------------------------------------------------------------
2,467,658 1,294,665 1,088,688
- ----------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
and extraordinary charge 179,858 111,351 96,366
Income taxes 66,547 41,218 38,546
- ----------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary charge 113,311 70,133 57,820
Loss from discontinued operations (27,538) (5,727) (2,600)
Extraordinary charge (1,856) -- --
- ----------------------------------------------------------------------------------------------------
Net income $ 83,917 $ 64,406 $ 55,220
====================================================================================================
Income (loss) per common and common
equivalent share of stock:
Continuing operations $ 1.69 $ 1.15 $ 0.96
Discontinued operations (0.41) (0.09) (0.04)
Extraordinary charge (0.03) -- --
- ----------------------------------------------------------------------------------------------------
$ 1.25 $ 1.06 $ 0.92
====================================================================================================
The accompanying notes are an integral part of these financial statements.
FORM 10-K Page 23
24
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
February 1, February 3,
1997 1996
=============================================================================================
ASSETS
Current Assets:
Cash and cash equivalents $ 30,044 $ 12,999
Accounts receivable 9,342 8,957
Inventories 792,665 388,346
Prepaid expenses 35,820 18,265
Deferred income taxes 58,647 23,449
- ---------------------------------------------------------------------------------------------
Total current assets 926,518 452,016
- ---------------------------------------------------------------------------------------------
Property and equipment - net 380,095 177,323
Other assets 23,890 10,476
- ---------------------------------------------------------------------------------------------
$1,330,503 $639,815
=============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 295,701 $129,223
Accrued liabilities 68,590 41,519
Income taxes 65,045 17,416
Current maturities of long-term obligations 27,892 10,000
- ---------------------------------------------------------------------------------------------
Total current liabilities 457,228 198,158
- ---------------------------------------------------------------------------------------------
Long-term obligations 151,292 25,000
Deferred income taxes 36,996 19,879
Other noncurrent liabilities 2,902 7,214
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 670 478
value; issued 66,958,488 shares and 59,719,948 shares,
respectively
Nonvoting common stock - authorized 8,000,000 shares, $.01 -- --
par value; none issued
Additional paid-in capital 312,879 104,511
Retained earnings 369,022 285,105
Other adjustments (486) (530)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 682,085 389,564
- ---------------------------------------------------------------------------------------------
$1,330,503 $639,815
=============================================================================================
The accompanying notes are an integral part of these financial statements.
FORM 10-K Page 24
25
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Fiscal Year
1996 1995 1994
========================================================================================
Common stock:
Balance at beginning of year $ 478 $ 469 $ 465
Issuance of common stock 51 -- --
5 for 4 stock split 134 -- --
Contribution to savings plan 1 1 1
Exercise of stock options and issue of
restricted stock 6 8 3
- ----------------------------------------------------------------------------------------
Balance at end of year $ 670 $ 478 $ 469
========================================================================================
Additional paid-in capital:
Balance at beginning of year $104,511 $ 93,872 $ 89,817
Issuance of common stock 190,588 -- --
5 for 4 stock split (134) -- --
Exercise of stock options and issue of
restricted stock 15,733 9,243 2,655
Contribution to savings plan 2,181 1,396 1,400
- ----------------------------------------------------------------------------------------
Balance at end of year $312,879 $104,511 $ 93,872
========================================================================================
Retained earnings:
Balance at beginning of year $285,105 $220,699 $165,479
Net income for the year 83,917 64,406 55,220
- ----------------------------------------------------------------------------------------
Balance at end of year $369,022 $285,105 $220,699
========================================================================================
Other adjustments:
Balance at beginning of year $ (530) $ 194 $ 2,774
Change in unrealized investment gain (1,436) 296 (3,048)
Minimum pension liability adjustment 1,480 (1,020) 468
- ----------------------------------------------------------------------------------------
Balance at end of year $ (486) (530) $ 194
========================================================================================
The accompanying notes are an integral part of these financial statements.
FORM 10-K Page 25
26
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year
1996 1995 1994
==========================================================================================================
Operating Activities
Net income $ 83,917 $ 64,406 $ 55,220
Adjustments to reconcile net income to net cash provided by
operating activities:
Discontinued operations 18,900 -- --
Depreciation and amortization 48,375 30,021 26,477
Deferred income taxes (18,081) (1,018) 256
Other 12,735 2,373 3,398
Change in assets and liabilities (76,365) (66,427) (25,693)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 69,481 29,355 59,658
- ----------------------------------------------------------------------------------------------------------
Investing Activities
Payment for acquired business (185,300) -- --
Capital expenditures (93,614) (48,091) (41,558)
Investment in corporate owned life insurance -- (6,870) (4,781)
Other 8,983 6,476 (1,973)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investment activities (269,931) (48,485) (48,312)
- ----------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of common stock 190,639 -- --
Proceeds from credit agreements, net 67,600 -- --
Payments of senior notes and long-term obligations (35,237) (15,000) --
Debt issue payments (10,393) -- --
Extinguishment of debt (2,946) -- --
Proceeds from exercise of stock options 4,116 5,028 1,030
Increase in deferred credits 3,716 1,745 3,107
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 217,495 (8,227) 4,137
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents $ 17,045 $ (27,357) $ 15,483
==========================================================================================================
The accompanying notes are an integral part of these financial statements.
FORM 10-K Page 26
27
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
The Company is the nation's largest closeout retailer with stores located in all
50 states and Puerto Rico. As a value retailer specializing in close-out
merchandise and toys the Company operates 614 retail closeout specialty stores
offering name-brand merchandise at substantial discounts to traditional retail
prices under the names ODD LOTS and BIG LOTS in the midwestern, southern,
southwestern, and mid-Atlantic regions of the United States. Additionally, 1,184
retail toy and close-out toy stores were in operation throughout the United
States and Puerto Rico under the names KAY-BEE TOYS, KB TOY WORKS, and KB TOY
OUTLET. The Company believes that KAY-BEE is the largest enclosed mall-based toy
retailer in the United States.
Fiscal Year
- -----------
The Company follows the concept of a 52/53 week fiscal year which ends on the
Saturday nearest to January 31. Fiscal year 1995 ending February 3, 1996, is
comprised of 53 weeks.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions have
been eliminated. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions which affect reported amounts of assets and liabilities and
disclosure of significant contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
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 primarily 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
- -----------
Noncurrent investments in equity securities are classified as Other assets in
the consolidated balance sheets and are 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
investment in corporate owned life insurance is recorded net of policy loans as
Other assets.
FORM 10-K Page 27
28
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- continued
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.
ACQUISITION
Effective May 5, 1996, the Company acquired Kay-Bee Center, Inc. (KAY-BEE) from
Melville Corporation for a initial purchase price of approximately $315 million
(subject to post-closing adjustments), consisting of $215 million in cash and
$100 million of subordinated notes, issued to Melville Corporation. Post-closing
adjustments recorded in the third quarter 1996, reduced the cash component of
the purchase price by $29.7 million to $185.3 million. This acquisition was
accounted for as a purchase with the results of KAY-BEE included from the
acquisition date. At May 5, 1996, KAY-BEE operated 1,042 toy stores located in
all 50 states and Puerto Rico primarily under the names Kay-Bee Toys and Toy
Works.
The following summary, prepared on a pro forma basis, combines the results of
operations as if KAY-BEE had been acquired at the beginning of the fiscal years
presented. Included in the pro forma presentation is the impact of certain
purchase adjustments directly attributable to the acquisition which are expected
to have a continuing impact.
(In thousands, except per share data) 1996 1995
============================================================================
Unaudited
Net sales $2,823,907 $2,491,438
- ----------------------------------------------------------------------------
Income from continuing operations before $ 96,392 $ 32,539
extraordinary charge
- ----------------------------------------------------------------------------
Net income $ 66,998 $ 26,810
=============================================================================
Income per common and common
equivalent share of stock:
Continuing operations $ 1.39 $ 0.48
- -----------------------------------------------------------------------------
Net income $ 0.97 $ 0.40
=============================================================================
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the KAY-BEE acquisition been consummated as of the beginning of the
fiscal years presented. Additionally, the pro forma financial information is not
intended to be a prediction of future results and it does not reflect any
synergies that may be achieved from the combined operations.
FORM 10-K Page 28
29
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DISCONTINUED OPERATIONS
In the fourth quarter of 1996 the Company adopted a plan to close its single
price point and small specialty stores operating under the names of All For One
and iTZADEAL!. Closures of the 165 stores open at February 1, 1997, are
anticipated to be completed throughout fiscal 1997. Accordingly, the operating
results for this business are reported as a discontinued operation at February
1, 1997, and prior years operating results have been restated to reflect
continuing operations. Summary operating results and financial information of
this discontinued operation are as follows:
Fiscal Year
(In thousands) 1996 1995 1994
================================================================================
Net sales $ 84,253 $ 106,283 $ 93,590
- --------------------------------------------------------------------------------
Gross profit $ 38,134 $ 49,698 $ 46,259
- --------------------------------------------------------------------------------
Loss before income taxes $ (13,710) $ (9,091) $ (4,333)
Income tax benefit 5,072 3,364 1,733
- --------------------------------------------------------------------------------
(8,638) (5,727) (2,600)
Loss on store closures, net of tax (18,900) -- --
- --------------------------------------------------------------------------------
$ (27,538) $ (5,727) $ (2,600)
================================================================================
INVENTORIES
Inventories are comprised of the following:
(In thousands) 1996 1995
=================================================================
Retail $770,858 $368,569
Other 21,807 19,777
-----------------------------------------------------------------
$792,665 $388,346
=================================================================
INCOME TAXES
The provision for income taxes on continuing operations is comprised of the
following:
Fiscal Year
(In thousands) 1996 1995 1994
==========================================================================
Federal - Currently payable $ 64,316 $ 35,441 $ 33,012
Deferred (7,018) (754) (1,685)
State and Local 8,126 6,531 7,219
Foreign 1,123 -- --
--------------------------------------------------------------------------
$ 66,547 $ 41,218 $ 38,546
==========================================================================
FORM 10-K Page 29
30
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAXES - continued
A reconciliation between the statutory federal income tax rate and the effective
tax rate follows:
Fiscal Year
(In thousands) 1996 1995 1994
================================================================================
Statutory Federal income tax rate 35.0% 35.0% 35.0%
Effect of:
State and local income taxes 2.9 3.8 4.9
Work Opportunity and Targeted jobs tax credit (0.1) (0.2) (1.1)
Corporate owned life insurance investments (1.0) (2.2) (0.5)
Other 0.2 0.6 1.7
- --------------------------------------------------------------------------------
Effective tax rate 37.0% 37.0% 40.0%
================================================================================
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. Components of the Company's deferred tax
assets and liabilities are presented in the following table.
(In thousands) 1996 1995
===========================================================================
Deferred tax assets:
Uniform inventory capitalization $16,230 $ 8,186
Discontinued operations 11,458 802
Inventory valuation allowance 9,061 2,309
Deferred credits 1,596 1,293
Other (each less than 5% of total assets) 20,302 10,859
- ---------------------------------------------------------------------------
Total deferred tax assets 58,647 23,449
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 19,731 15,144
Unrealized gain -- 880
Other 17,265 3,855
- ---------------------------------------------------------------------------
Total deferred tax liabilities 36,996 19,879
- ---------------------------------------------------------------------------
Net deferred tax assets $21,651 $ 3,570
===========================================================================
Net income taxes paid were $19,053,000, $35,158,000, and $29,613,000 in 1996,
1995, and 1994, respectively.
FORM 10-K Page 30
31
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
LONG-TERM OBLIGATIONS
Long-term debt was comprised of the following on the dates indicated:
(In thousands) 1996 1995
==================================================================
Credit Agreements $ 67,600 $ --
7% Subordinated Notes 100,000 --
10.5% Senior Notes -- 35,000
9.25% Mortgage Note 7,880 --
Capital leases 3,704 --
------------------------------------------------------------------
179,184 35,000
Less current portion 27,892 10,000
------------------------------------------------------------------
$151,292 $25,000
==================================================================
Annual maturities of long-term debt for the next five fiscal years are: 1997,
$27,892,000; 1998, $321,000; 1999, $352,000; 2000, $40,387,000 and 2001,
$100,425,000.
Interest paid, including capitalized interest of $229,000, $147,000 and $788,000
in each of the respective previous three fiscal years, was $16,857,000 in 1996,
$10,705,000 for 1995, and $8,110,000 in 1994.
CREDIT AGREEMENTS
Concurrent with the acquisition of KAY-BEE the Company terminated its then
existing revolving credit agreement and entered into a Revolving Credit Facility
dated May 3, 1996, as amended June 28, 1996, with a syndicate of financial
institutions to provide unsecured senior bank financing in an aggregate
principal amount of up to $600 million. The Revolving Credit Facility consists
of a revolving loan facility (the "Revolver") with the amount available
thereunder equal to $450 million and a letter of credit facility with up to $200
million available for the issuance of documentary and standby letters of credit.
The facility has a maturity date of May 3, 1999, and requires the maintenance of
certain standard financial ratios and prohibits the payment of cash dividends.
At February 1, 1997, approximately $382,000,000 was available for direct
borrowings under the Revolving Credit Facility. The Company was contingently
liable for outstanding letters of credit and related debt instruments totaling
$88,000,000 at February 1, 1997. Direct borrowings under the Revolver at
February 1, 1997, were at a rate of 6.0% to 6.4% and there were no direct
borrowings outstanding pursuant to any credit agreements at February 3, 1996.
Additionally, $70,000,000 of uncommitted short-term credit facilities are
available, subject to provisions of the revolving credit agreement, at February
1, 1997. No borrowings were outstanding under uncommitted credit facilities at
February 1, 1997, or February 3, 1996.
SUBORDINATED NOTES
In connection with the acquisition of KAY-BEE the Company issued $100,000,000 of
Subordinated Notes. The Subordinated Notes mature in the year 2000 and bear
interest at a rate of 7% per annum, payable semiannually. The Subordinated Notes
are redeemable, subject to provisions of the Revolving Credit Agreement, at the
option of the Company, in whole or in part, after two years from their issuance,
at a premium to their principal, plus accrued interest. Provisions of the
Subordinated Notes provide, among other matters, limitations on; additional
indebtedness, payments of certain indebtedness, and asset sales. The estimated
fair value at February 1, 1997, was $97,523,000 and the related carrying amount
was $100,000,000.
FORM 10-K Page 31
32
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
LONG-TERM OBLIGATIONS - continued
EXTRAORDINARY CHARGE
During the second quarter of 1996 the Company recorded an extraordinary charge
in connection with the early extinguishment of $35 million of 10.5% senior
notes. The charge before income taxes was $2.9 million.
COMMITMENTS
The Company has commitments to certain vendors for future inventory purchases
totaling approximately $71,915,000 at February 1, 1997. 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.
EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company has a qualified defined benefit pension plan covering substantially
all of its employees hired on or before March 31, 1994, and a non-qualified
supplemental defined benefit pension plan effective January 1, 1996, covering a
select group of highly compensated employees to ensure the overall retirement
pension benefits frozen for such group of employees under the qualified plan.
Benefits under each plan 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 and to provide not only for benefits attributed to service to
date but also for those anticipated to be earned in the future.
The components of net periodic pension cost are comprised of the following:
Fiscal Year
(In thousands) 1996 1995 1994
========================================================================================
Service cost - benefits earned in the period $2,849 $1,642 $1,671
Interest cost on projected benefit obligation 1,174 811 689
Investment return on plan assets (917) (631) (575)
Net amortization and deferral 922 303 529
- ----------------------------------------------------------------------------------------
Net periodic pension cost $4,028 $2,125 $2,314
========================================================================================
Assumptions used in each year of the actuarial computations were:
Discount rate 7.1% 6.5% 8.4%
Rate of increase in compensation levels 5.5% 5.5% 5.0%
Expected long-term rate of return 9.0% 9.0% 9.0%
FORM 10-K Page 32
33
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EMPLOYEE BENEFIT PLANS - continued
The following table sets forth the funded status of the Company's defined
benefit plan.
(In thousands) 1996 1995
==============================================================================================
Actuarial present value of:
Vested benefit obligation $11,733 $10,857
Non-vested benefits 3,011 2,091
- -----------------------------------------------------------------------------------------------
Accumulated benefit obligation $14,744 $12,948
===============================================================================================
Actuarial present value of projected benefit obligation $20,539 $18,572
Plan assets at fair value, primarily cash equivalents, U.S.
Government securities and obligations, and publicly traded
stocks and mutual funds 14,152 8,910
- -----------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (6,387) (9,662)
Unrecognized prior service cost (812) (947)
Unrecognized net obligation at transition 225 239
Unrecognized net loss 7,059 9,454
- -----------------------------------------------------------------------------------------------
Prepaid (Accrued) pension cost $ 85 $ (916)
===============================================================================================
The minimum pension liability relating to certain unfunded pension obligations
at February 1, 1997, was $771,000.
SAVINGS PLAN
The Company has a savings plan with a 401(k) deferral feature and a Top Hat Plan
with a similar deferral feature for all eligible employees. Provisions of
$3,272,000, $1,650,000, and $1,564,000 have been charged to operations in fiscal
1996, 1995, and 1994, respectively.
LEASES
Leased property consists primarily of the Company's retail stores and certain
warehouse space. Many of the store leases have rent escalations and provide that
the Company pay for 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. In addition, some leases provide options to extend the original terms for
an additional two to twenty years. Minimum lease commitments as of February 1,
1997, are as follows:
FORM 10-K Page 33
34
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
LEASES - continued
(In thousands) Capital Operating
Leases Leases
==========================================================================
1997 $ 472 $136,407
1998 472 117,067
1999 472 96,272
2000 472 72,420
2001 472 50,210
Subsequent to 2001 4,676 108,749
- --------------------------------------------------------------------------
Total future minimum lease payments 7,036 $581,125
Less: interest 3,332 =========
- -------------------------------------------------------------
Present value of minimum lease payments $3,704
=============================================================
Total rental expense charged to continuing operations for operating leases of
stores and warehouses consisted of the following:
Fiscal Year
(In thousands) 1996 1995 1994
=========================================================================
Minimum rentals $163,070 $62,109 $51,237
Contingent rents 5,466 540 279
- -------------------------------------------------------------------------
$168,536 $62,649 $51,516
=========================================================================
STOCKHOLDERS' EQUITY
STOCK SPLIT
On November 19, 1996, the Board of Directors authorized a 5 for 4 stock split
payable to stockholders of record on December 10, 1996. The stock split,
distributed December 24, 1996, resulted in the issuance of 13,388,264 new shares
of common stock. All references in the financial statements to average number of
shares outstanding and related prices, per share amounts, and stock option data
have been restated to reflect the split.
PUBLIC OFFERING OF COMMON STOCK
In June 1996, the Company issued 6,406,250, adjusted for the 5 for 4 split,
shares of common stock. Net proceeds to the Company totaled $190,639,000 and
were utilized to repay a portion of the borrowings incurred to finance the
acquisition of Kay-Bee.
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income 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 1996, 1995 and 1994 were 67,233,323,
61,128,496, and 60,096,453, respectively.
FORM 10-K Page 34
35
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
STOCKHOLDERS' EQUITY - continued
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 a fraction 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.
In addition, 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 COMPENSATION PLANS
At February 1, 1997, the Company has three stock-based compensation plans, which
are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for the Consolidated Stores Corporation 1996 Performance
Incentive Plan (Incentive Plan). Total compensation cost that has been charged
against income for its Director Stock Option Plan (DSOP) and Restricted Stock
Plan (RSP) was $7,037,000, $750,000 in 1996 and 1995, respectively. Had
compensation cost for the Company's Incentive Plan been determined consistent
with FASB Statement 123, the Company's net income and income per share would
have been reduced to the pro forma amounts indicated below:
1996 1995
=================================================================
Net Income (in thousands):
As reported $83,917 $64,406
Pro forma 80,460 63,318
Income per common and common
equivalent share:
As reported $ 1.25 $ 1.06
Pro forma 1.20 1.04
FORM 10-K Page 35
36
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
STOCK PLANS - continued
FIXED STOCK OPTION PLANS
The Consolidated Stores Corporation 1996 Performance Incentive Plan (Incentive
Plan) was approved by stockholders in 1996. The Incentive Plan provides for the
issuance of stock options, restricted stock, performance units, stock equivalent
units, and stock appreciation rights (SAR's). The number of newly issued shares
of common stock available for issuance under the Incentive Plan is 2,500,000
plus an additional 1% of the total number of issued shares, including any
Treasury Stock, at the start of the Company's fiscal year plus shares available
but not issued in previous years of the Incentive Plan. Total newly issued
shares of common stock available for use under the Incentive Plan shall not
exceed 15% of the total issued and outstanding Common Stock as of any
measurement date. A minimum of 8,375,000 shares of common stock are available
for issuance and the term of each award is determined by a committee of the
Board of Directors charged with administering the Incentive Plan. Stock options
granted under the Incentive Plan may be either nonqualified or incentive stock
options and the exercise price may not be less than the fair market value, as
defined, of the underlying common stock on the date of award. The award price of
an SAR is to be a fixed amount, not less than 100% of the fair market value of a
share of common stock at the date of award. Upon an effective change in control
of the Company all awards outstanding under the Incentive Plan automatically
vest.
Prior to 1996 the Company had a Stock Option Plan (Plan) which expired in 1995.
The Plan provided 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. Options
generally became exercisable one year following the original date of grant in
five equal annual installments.
The Company has a Director Stock Option Plan (DSOP), for non-employee directors,
pursuant to which up to 625,000 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, 20% the first year and
40% each subsequent year, beginning one subsequent to grant.
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: no dividend yield
for any year; expected volatility of 42% and 32%; risk-free interest rates of
6.0% and 4.9%; and expected lives of 2.5 and 2.4 years.
A summary of the status of the Incentive Plan and DSOP as of February 1, 1997,
and February 3, 1996, and changes during the fiscal years ended on those dates
is presented below:
FORM 10-K Page 36
37
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
STOCK PLANS - continued
1996 1995
=========================================================================== ============================
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------------ ------------ ------------- ---------
Options outstanding at beginning of year 6,689,753 $ 7.80 5,782,840 $ 6.43
Granted 1,852,700 32.71 2,510,215 15.00
Exercised 457,282 9.07 1,044,519 4.78
Forfeited 56,696 14.32 558,783 3.13
- ----------------------------------------------------------------------------------------------------------
Options outstanding at end of year 8,028,475 $ 11.20 6,689,753 $ 7.80
==========================================================================================================
Options exercisable at end of year 3,803,347 3,264,781
Weighted average fair value of options granted $10.30 $3.67
during the year
The following table summarizes information about fixed stock options outstanding
at February 1, 1997:
Options Outstanding Options Exercisable
-------------------------------------------------------------------------
Range of
Exercise Prices Weighted
- --------------------- Average Weighted Weighted
less Number of Remaining Average Number of Average
Greater than or Options Contractual Exercise Options Exercise
than equal to Outstanding Life (Years) Price Exercisable Price
- --------------------- -------------------------------------------------------------------------
$ 1 $10 2,520,441 4.1 $ 4.93 2,509,893 $ 4.91
$10 $20 3,656,584 7.7 14.49 1,293,454 14.12
Greater than $20 1,851,450 9.9 32.69 -- --
- -----------------------------------------------------------------------------------------------
8,028,475 7.1 $11.20 3,803,347 $ 8.04
===============================================================================================
RESTRICTED STOCK
The Company's RSP permits the granting of 625,000 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.
As of February 1, 1997, no restricted shares were outstanding with respect to
restrictions which had not lapsed and shares available for grant totaled
216,340.
FORM 10-K Page 37
38
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
ADDITIONAL DATA
The following is a summary of certain financial data:
(In thousands) 1996 1995
================================================================================
Property and equipment - at cost:
Land $ 11,311 $ 7,700
Buildings 105,615 64,119
Fixtures and equipment 430,208 233,278
Transportation equipment 18,695 6,962
- -------------------------------------------------------------------------------
565,829 312,059
Construction-in-progress 693 9,689
- -------------------------------------------------------------------------------
566,522 321,748
Less accumulated depreciation 186,427 144,425
- -------------------------------------------------------------------------------
$380,095 $177,323
===============================================================================
Accrued liabilities:
Salaries and wages $45,941 $16,152
Property, payroll and other taxes 20,267 24,120
Other 2,382 1,247
- -------------------------------------------------------------------------------
$68,590 $41,519
===============================================================================
The following analysis supplements changes in assets and liabilities presented
in the consolidated statements of cash flows.
Fiscal Year
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
Accounts receivable $ 15,046 $ (3,433) $ (659)
Inventories (183,980) (86,214) (49,252)
Prepaid expenses (7,304) (4,266) (2,329)
Accounts payable 75,102 25,822 24,031
Accrued liabilities (23,947) 3,230 6,657
Income taxes 48,718 (1,566) (4,141)
- -----------------------------------------------------------------------------
$ (76,365) $(66,427) $(25,693)
=============================================================================
FORM 10-K Page 38
39
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BUSINESS GROUP INFORMATION
The Company is a value retailer specializing in close-out merchandise and toys.
Operations are comprised of three business groups; Closeout, Toys, and other
operations which include the Company's wholesale operations. The Closeout Stores
offer name-brand merchandise at substantial discounts to traditional retail
prices and operate under the names ODD LOTS and BIG LOTS in the midwestern,
southern, southwestern, and mid-Atlantic regions of the United States. Toy
Stores offer traditional in-line toys and closeout toys and operate throughout
the United States and Puerto Rico under the names KAY-BEE TOYS, KB TOY WORKS,
and KB TOY OUTLET. The Company believes that KAY-BEE is the largest enclosed
mall-based toy retailer in the United States. Business group information
follows:
Fiscal Year
(In thousands) 1996 1995 1994
================================================================================
Revenues:
Closeout $ 1,431,873 $ 1,286,675 $ 1,112,087
Toys 1,178,224 76,689 45,937
Other 37,419 42,652 27,030
- --------------------------------------------------------------------------------
$ 2,647,516 $ 1,406,016 $ 1,185,054
================================================================================
Operating profit (loss):
Closeout $ 110,927 $ 111,063 $ 93,432
Toys 96,474 7,438 6,696
Other and corporate (10,854) 163 1,352
- --------------------------------------------------------------------------------
$ 196,547 $ 118,664 $ 101,480
================================================================================
Depreciation and amortization:
Closeout $ 28,788 $ 25,369 $ 21,943
Toys 15,358 534 350
Other and corporate 4,229 4,118 4,184
- --------------------------------------------------------------------------------
$ 48,375 $ 30,021 $ 26,477
================================================================================
Capital expenditures:
Closeout $ 42,327 $ 41,353 $ 38,844
Toys 49,009 2,419 2,364
Other and corporate 2,278 4,319 350
- --------------------------------------------------------------------------------
$ 93,614 $ 48,091 $ 41,558
================================================================================
Identifiable assets were comprised of the following:
(In thousands) 1996 1995
================================================================================
Closeout $ 643,777 $ 530,785
Toys 619,688 23,201
Other and corporate 67,038 85,829
- --------------------------------------------------------------------------------
$1,330,503 $ 639,815
================================================================================
FORM 10-K Page 39
40
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1996 and 1995 is presented below:
Quarter
----------------------------------------------------
(In thousands except per share data) First Second Third Fourth* Year
- -------------------------------------------------------------------------------------------------------------
1996
Net sales $ 321,969 $ 532,547 $ 597,314 $ 1,195,686 $ 2,647,516
- --------------------------------------------------------------------------------------------------------------
Gross margin $ 135,108 $ 216,749 $ 255,084 $ 498,074 $ 1,105,015
- -------------------------------------------------------------------------------------------------------------
Income (loss):
Continuing operations $ 5,887 $ (3,402) $ 1,041 $ 109,785 $ 113,311
Discontinued operations (2,281) (3,317) (4,059) (17,881) (27,538)
Extraordinary charge -- (1,856) -- -- (1,856)
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,606 $ (8,575) $ (3,018) $ 91,904 $ 83,917
==============================================================================================================
Income (loss) per common and common
equivalent share of stock:
Continuing operations $ 0.10 $ (0.05) $ 0.02 $ 1.58 $ 1.69
Discontinued operations (0.04) (0.05) (0.06) (0.26) (0.41)
Extraordinary charge -- (0.03) -- -- (0.03)
- --------------------------------------------------------------------------------------------------------------
$ 0.06 $ (0.13) $ (0.04) $ 1.32 $ 1.25
===============================================================================================================
1995
Net sales $ 271,113 $ 302,563 $ 333,010 $ 499,330 $ 1,406,016
- ---------------------------------------------------------------------------------------------------------------
Gross margin $ 112,432 $ 127,337 $ 140,947 $ 213,746 $ 594,462
- ---------------------------------------------------------------------------------------------------------------
Income (loss):
Continuing operations $ 4,467 $ 10,638 $ 12,065 $ 42,963 $ 70,133
Discontinued operations (1,471) (1,885) (1,921) (450) (5,727)
- ----------------------------------------------------------------------------------------------------------------
Net income $ 2,996 $ 8,753 $ 10,144 $ 42,513 $ 64,406
================================================================================================================
Income (loss) per common and common
equivalent share of stock:
Continuing operations $ 0.07 $ 0.17 $ 0.20 $ 0.70 $ 1.15
Discontinued operations (0.02) (0.03) (0.03) (0.01) (0.09)
- ----------------------------------------------------------------------------------------------------------------
$ 0.05 $ 0.14 $ 0.17 $ 0.69 $ 1.06
================================================================================================================
* The fourth quarter of 1995 is a fourteen week period.
Income (loss) per share calculations are based on the weighted average number of
common and common equivalent shares outstanding for each period and the sum of
the quarters may not necessarily be equal to the full year income (loss) per
share amount.
FORM 10-K Page 40
41
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
April 22, 1997.
Information regarding Executive Officers of the Company is furnished in a
separate item captioned "Executive Officers of the Company" in Part I of this
report.
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 22
Consolidated Statements of Income 23
Consolidated Balance Sheets 24
Consolidated Statements of Stockholders' Equity 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 27
2. Financial Statement Schedules
Schedule Description
-------- ----------------------------------
II Valuation and Qualifying Accounts 45
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 February 1, 1997.
FORM 10-K Page 41
42
(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)* Consolidated Stores Corporation 1996 Performance Incentive Plan
as Amended and Restated on July 23, 1996
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 S-8 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)
FORM 10-K Page 42
43
Exhibit No. Document
- ----------- ----------------------------------------------------------------
10(d)* Amended and Restated Credit Agreement dated as of May 3, 1996, by
and among Consolidated Stores Corporation, an Ohio corporation
(the "Borrower"), the BANKS (as defined), and The Bank of New
York, in its capacity as Syndication Agent and as Managing Agent,
National City Bank of Columbus, in its capacity as Administrative
Agent ("Administrative Agent") and as Managing Agent, PNC Bank,
Ohio, National Association, in its capacity as Arranger, as
Documentation Agent (the "Documentation Agent") and as Managing
Agent, Bank One, Columbus, N.A., in its capacity as Managing
Agent, and National City Bank in its capacity as Managing Agent
10(e) Consolidated Stores Corporation 7% Senior Subordinated Note due
May 4, 2000 (Exhibit 10(b) to the Company's Current Report on
Form 8-K dated May 10, 1996, and incorporated herein by
reference)
10(e)(i) Indenture, dated as of May 5, 1996, between Consolidated Stores
Corporation, an Ohio corporation, and The Bank of New York, a New
York banking corporation (the "Trustee") for the equal and
ratable benefit of the Holders of the Company's Subordinated
Notes due May 4, 2000 (Exhibit 10(b)(i) to the Company's Current
Report on Form 8-K dated May 10, 1996, and incorporated herein by
reference)
10(e)(ii)* First Supplemental Indenture, dated as of January 22, 1997, among
Consolidated Stores Corporation, an Ohio corporation, and The
Bank of New York, a New York banking corporation
10(f) Stock Purchase Agreement dated as of March 25, 1996 between
Melville Corporation and Consolidated Stores Corporation relating
to the purchase and sale of 100% of the Common Stock of Kay-Bee
Center, Inc. (Exhibit B to the Company's Current Report on Form
8-K dated April 8, 1996, and incorporated herein by reference)
10(f)(i) Amendment No. 1 to Stock Purchase Agreement dated as of March 25,
1996 between Melville Corporation and Consolidated Stores
Corporation relating to the purchase and sales of 100% of the
Common Stock of Kay-Bee Center, Inc. (Exhibit 10 to the Company's
Current Report on Form 8-K dated May 10, 1996, and incorporated
herein by reference)
10(g) 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(g)(i) Amendment No. 1 to Employment Agreement with William G. Kelley
(Exhibit 10(f)(i) to the Company's Annual Report on Form 10-K for
the year ended February 3, 1996 and incorporated herein by
reference)
10(h) Employment Agreement with Armen Bahadurian (Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995, and incorporated herein by reference)
10(i) Employment Agreement with Charles Freidenberg (Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995, and incorporated herein by reference)
10(j) Employment Agreement with Michael L. Glazer (Exhibit 10(c) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995, and incorporated herein by reference)
10(k) Employment Agreement with C. Matthew Hunnell (Exhibit 10(d) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995, 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)
FORM 10-K Page 43
44
Exhibit No. Document
- ---------- ---------------------------------------------------------------
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)* The Consolidated Stores Corporation Key Associate Annual
Incentive Compensation Plan
10(o) 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(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
24 Power of Attorney for William G. Kelley, Michael L. Glazer and
Michael J. Potter (Exhibit 24 included in Part II of the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.1 Power of Attorney for David T. Kollat (Exhibit 24.1 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.2 Power of Attorney for Nathan P. Morton (Exhibit 24.2 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.3 Power of Attorney for Dennis B. Tishkoff (Exhibit 24.4 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.4 Power of Attorney for William A. Wickham (Exhibit 24.5 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.5 Power of Attorney for Sheldon M. Berman (Exhibit 24.6 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
27 Financial Data Schedule
FORM 10-K Page 44
45
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS(a)
(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 February 1, 1997:
Inventory valuation allowance (1) $4,906 $2,878 $10,200(b) $9,958 $8,026
---------- -------- --------- -------- ----------
Fiscal year ended February 3, 1996:
Inventory valuation allowance (1) $4,706 $1,307 $ -- $1,107 $4,906
---------- -------- --------- -------- ----------
Fiscal year ended January 28, 1995:
Inventory valuation allowance (1) $5,918 $2,573 $ -- $3,785 $4,706
--------- -------- --------- -------- ----------
- --------------------------
(a) Restated to reflect continuing operations.
(b) Value from company acquired.
(1) Consists primarily of reserve for markdowns of aged goods and similar
inventory reserves.
FORM 10-K Page 45
46
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 18, 1997 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 dates indicated.
Date: April 18, 1997 /s/ William G. Kelley
--------------------------------------
William G. Kelley
Chairman of the Board and Chief
Executive Officer
Date: April 18, 1997 /s/ Michael L. Glazer
--------------------------------------
Michael L. Glazer
President
Date: April 18, 1997 /s/ Michael J. Potter
--------------------------------------
Michael J. Potter
Senior Vice President, Chief Financial
and Accounting Officer
Date: April 18, 1997
Sheldon M. Berman Nathan Morton
Michael L. Glazer Dennis B. Tishkoff
William G. Kelley William A. Wickham
David T. Kollat
Directors
Albert J. Bell, by signing his name hereto, does hereby sign this Form 10-K
pursuant to the Powers of Attorney executed by the Directors named, filed with
the Securities and Exchange Commission on behalf of such Directors, all in the
capacities indicated and on the date stated, such persons being a majority of
the Directors of the Registrant.
/s/ Albert J. Bell
--------------------------------------
Albert J. Bell
Attorney-in-Fact
Dated: April 18, 1997
FORM 10-K Page 46