Back to GetFilings.com
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999
Commission file number 1-8897
CONSOLIDATED STORES CORPORATION
A Delaware Corporation
IRS No. 06-1119097
1105 North Market Street, Suite 1300
P.O. Box 8985
Wilmington, Delaware 19899
(302) 478-4896
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
------------------- -------------------
Common Stock $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate if the disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this FORM 1O-K or any amendment to this
FORM 1O-K [ ]
The aggregate market value (based on the closing price on the New York Stock
Exchange) of the Common Stock of the Registrant held by non affiliates of the
Registrant was $3,031,625,519 on March 26, 1999. 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 104,538,811
shares.
The number of shares of Common Stock $.01 par value per share, outstanding as of
March 26, 1999, was 109,901,936 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.
2
FORM 10 - K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED JANUARY 30, 1999
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
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 1
ITEM 1 BUSINESS
THE COMPANY
Consolidated Stores Corporation was incorporated in Delaware in 1983. Its
principal executive offices are located at 300 Phillipi Road, P.O. Box 28512,
Columbus, Ohio 43228-0512, and its telephone number is (614) 278-6800. All
references herein to the "Company" are to Consolidated Stores Corporation and
its subsidiaries.
The Company is a value retailer focused on closeout merchandise and toys
providing extreme values on a broad range of quality, name-brand merchandise. As
of January 30, 1999, the Company operated 2,450 stores located in all 50 states
and Puerto Rico and is the nation's largest closeout retailer and largest mall
based toy retailer. The Company operated 1,128 retail closeout stores, primarily
under the names Odd Lots, Big Lots, Big Lots Furniture, Mac Frugal's Bargains -
Close-outs, and Pic `N' Save (collectively "Closeout Stores") and 1,322 retail
toy and closeout toy stores primarily under the names KB Toys, KB Toy Works,
and KB Toy Outlet (collectively "Toy Stores").
The Company's goal is to build upon its leadership position in closeout
retailing, a growing segment of the retailing industry, and toy retailing by
expanding its market presence in both existing and new markets. As a growth
oriented company the Company looks for opportunities to diversify its core
businesses while refining and expanding its existing operations. 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.
BUSINESS GROUPS
The Company's principal businesses range across two retail industry groups;
closeouts and toys. Sales and cost of sales during the last six years for each
of the Company's business groups appear in Item 6 "Selected Financial Data"
included herein. The percent of net sales to total net sales by business group
and gross profit as a percent to net sales by business group for each of the
past three fiscal years is presented in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview" also included herein.
Financial information by business group, containing information on revenues,
operating profit, depreciation and amortization, and capital expenditures for
each of the last three fiscal years and identifiable assets for each of the last
two fiscal years, appears in the "Notes to Consolidated Financial Statements -
Business Group Information" included herein.
INDUSTRY OVERVIEW
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.
FORM 10-K Page 3
4
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.
RETAIL OPERATIONS
CLOSEOUT STORES. The Closeout Stores operation is the largest of its kind
operating 1,128 retail stores in 40 states. A large number of Closeout Stores
operate profitably in relative close proximity. For example, 298 of the total
1,128 Closeout Stores operate in Ohio and California. During 1998 the Closeout
Stores operation expanded its reach to the country's far northern corners, with
new locations in Massachusetts, New Hampshire, Rhode Island, Delaware,
Washington and Oregon. Management believes that there are substantial
opportunities to increase store counts in existing markets and as well as
expanding in new markets.
The Closeout Stores operation is best known for its wide assortment of closeout
merchandise. Manufacturer overruns, package changes, discontinued and factory
reconditioned items provide a steady supply of first-quality product at bargain
prices. Certain core categories of merchandise are carried on a continual basis,
although the specific name-brands offered may change frequently. The Closeout
Stores also offer a small but consistent line of basic items, strengthening
their role as dependable, one-stop shops for everyday needs. In addition the
stores feature seasonal items for every major holiday in all stores. Closeout
Stores also offer private-label merchandise in selected product categories in
order to provide additional value to its customers. Because of their low
operating costs, the Closeout Stores are generally profitable within their first
full year of operation.
TOY STORES. The Company has been in the toy retailing business since its
inception and has significantly expanded its presence in the retail toy trade.
The Toy Stores operation is America's largest small-box toy retailer and second
largest toy store chain. Excitement for name-brands, attention to value and
convenience are the focus in 1,322 stores in all 50 states and Puerto Rico. 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. While
in-line toys make up the largest segment of the assortment, closeouts represent
approximately 30 percent and video hardware and software accounts for about 25
percent. Exclusives, collectibles and KB's own creations round out the
merchandise mix.
Toy Stores operate under four different small-box store formats plus an
interactive Web site. Toy Stores have a large presence in enclosed shopping
malls with 974 Toy Stores where they are usually the exclusive toy store. The
balance of the Toy Stores are generally a smaller strip shopping center store or
outlet mall store striving to appeal to customers seeking value and the
convenience not offered by toy superstores. 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 closeout toys. The Company
also operates temporary stores during the holiday selling season which are open
for approximately six to eight weeks and carry primarily closeout merchandise.
These temporary stores provide increased sales and profits during the peak
holiday selling season by utilizing vacant store space obtained on favorable
terms.
FORM 10-K Page 4
5
PURCHASING
An integral part of the Company's business is the sourcing and purchasing of
quality name-brand merchandise directly from manufacturers and other vendors at
prices substantially below those paid by conventional retailers. 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. The Company
has the ability to source and 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. Also, 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. The Company supplements its
traditional name-brand closeout purchases with a limited amount of program buys
and private-label merchandise. The Company expects its purchasing power will
continue to enhance its ability to source high quality closeout merchandise and
closeout and in-line toys for all of its stores at competitive prices.
The Company has seasoned buying teams 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 and toy 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's merchandise is purchased from more than 3,000 foreign and domestic
suppliers which provide the Company with multiple sources for each product
category. In fiscal 1998, the Company's top ten vendors accounted for
approximately 18.5% of total purchases with no one vendor accounting for more
than 4%.
The Company purchases approximately 20% of its products directly from overseas
suppliers, and a material amount of its domestically purchased merchandise is
also manufactured abroad. 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.
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.
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 wholesal-
FORM 10-K Page 5
6
ers. The Company believes that its management has long standing relationships
with its suppliers and is competitively positioned to continue to seek new
sources in order to maintain an adequate continuing supply of quality
merchandise at attractive prices.
The Company continually evaluates possible candidates for acquisition and
intends to continue to seek opportunities to expand its retail businesses.
SEASONALITY
The Company has experienced seasonality, with a significant percentage of its
net sales and income being realized in the fourth fiscal quarter. Additionally,
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. Furthermore, in anticipation of increased sales activity
during the fourth fiscal quarter, the Company purchases substantial amounts of
inventory during the second and third fiscal quarters and hires a significant
number of temporary employees to bolster its stores staffing during the fourth
fiscal quarter.
The seasonality of the Company's businesses also influences the Company's demand
for seasonal borrowings. The Company has traditionally drawn upon its seasonal
credit lines in the first three fiscal quarters and substantially repaid the
borrowings during the fourth fiscal quarter.
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.
TRADEMARKS. The Company utilizes trademarks, service marks and tradedress
("intellectual property") in its retail operations. The intellectual property is
generally owned by intellectual property protection subsidiaries. The Company
considers its intellectual property to be among its most valuable assets and
where applicable, has registered, or has applications pending, with the United
States Patent and Trademark Office. The Company believes that having distinctive
intellectual property is an important factor in identifying the Company and
distinguishing it from others.
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 providing customers an extreme value. The
Closeout Stores utilize a combination of printed advertising circulars in all
markets and television advertising in select markets. The Company currently
distributes approximately 40 million two or four page circulars 24 weeks out of
the year in all markets. Additionally, for 12 weeks of the year approximately 26
million two or four page circulars are distributed predominantly in eastern
markets. 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 30 to 35 products that vary each
week. The Closeout Stores run television promotions in certain markets based
upon factors unique to each market, including the number of stores, cost of
local media and results of preliminary testing. The Closeout Stores run multiple
30 second television spots per week, each of which feature 2 to 3 highly
recognizable, name-brand products. In-store promotions include periodic
loudspeaker announcements featuring special
FORM 10-K Page 6
7
bargains as well as humorous in-store signage to emphasize the significant
values offered to the customer. The Closeout Stores continue to refine the use
of television advertising to increase awareness of the stores, build a brand
image, and to attract new and repeat customers.
Historically, the Closeout Stores total advertising expense as a percent of
total net sales has been approximately 2.5% to 3.0%.
TOY STORES. The Toy Stores utilize a combination of a holiday promotion catalog
as well as periodic in-store sales and store signs to promote their products.
Advertising costs were 1.7% of total net sales in 1998. Enclosed shopping mall
Toy Stores receive the benefit of large amounts of customer traffic. Similarly,
Toy Stores located in strip centers and outlet malls have relied primarily on
existing customer traffic and in-store signs to promote their merchandise.
WAREHOUSING AND DISTRIBUTION
An important aspect of the Company's closeout and toy purchasing strategy
involves its ability to warehouse and distribute merchandise quickly and
efficiently. The Company positions its distribution network to enable quick turn
of time sensitive product as well as providing longer term warehousing
capabilities for off-season buys. Substantially all merchandise sold by the
Closeout Stores and Toy Stores is received and processed for retail sale, as
necessary, and distributed to the retail location from Company operated
warehouse and distribution centers. Data pertaining to warehouse and
distribution centers is herein under Item 2 Properties, Warehouse and
Distribution.
OTHER OPERATIONS
The Company also sells merchandise wholesale comprised almost entirely of
merchandise obtained through the same or shared opportunistic purchases of the
retail operations. Advertising of wholesale merchandise is conducted primarily
at trade shows and by mailings to past and potential customers. Wholesale
customers include a wide and varied range of major national and regional
retailers, as well as smaller retailers, manufacturers, distributors and
wholesalers.
ASSOCIATES
At January 30, 1999, the Company had 58,254 active associates comprised of
19,078 full-time and 39,176 part-time associates. Temporary associates hired
during the fall and winter holiday selling season increased the number of
associates to a peak of approximately 77,000. 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 7
8
ITEM 2 PROPERTIES
RETAIL OPERATIONS
Closeout Stores are located predominantly in strip shopping centers throughout
the southwestern, midwestern, southern and mid-Atlantic regions of the United
States. Individual stores range in size from 3,382 to 49,385 selling square feet
and average approximately 19,011 selling square feet. In selecting suitable new
store locations, the Company generally seeks retail space between 22,000 to
30,000 square feet in size. The average cost to open a new store in a leased
facility is approximately $710,000, including inventory.
The Company's 1,322 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 470 to 7,581 selling
square feet and average approximately 3,303 selling square feet. Outlet mall
stores range in size from 3,030 to 5,598 selling square feet and average
approximately 4,019 selling square feet. Strip shopping center stores range in
size from 3,360 to 23,636 selling square feet and average approximately 7,730
selling square feet. The Company believes the average optimum size of a strip
shopping center store is approximately 6,000 to 8,000 square feet. During fiscal
1999, the Company will open Toy Stores predominately in strip shopping centers
and malls. The approximate average cost, including inventory, to open a new
outlet mall Toy Store or strip shopping center Toy Store is $233,000 and
$463,000, respectively, and $445,000 to open a mall store. In addition, 135
temporary Toy Stores under the name KB Toy Express were operated principally in
enclosed shopping malls during the 1998 fall and winter holiday season. The
average size of the temporary stores was approximately 3,795 square feet.
With the exception of 53 owned Closeout Store sites, 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
common area maintenance. All Toy Store leases generally include 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 five years with multiple, three to
five year renewal options, while the typical lease for the Toy Stores is for an
initial term of ten years with various renewal options. The following tables set
forth store lease expirations, exclusive of month to month leases, and state
location information for existing store leases at January 30, 1999.
Number of Leases Expiring
Number of Leases Expiring Without Renewal Options
------------------------------ ------------------------------
Fiscal Year Closeout Toy Total Closeout Toy Total
- ------------------------- ---------- ---------- -------- ----------- ---------
1999 122 94 216 66 89 155
2000 169 274 443 67 210 277
2001 200 155 355 67 105 172
2002 149 158 307 56 112 168
2003 168 105 273 65 60 125
2004 and beyond 203 352 555 130 288 418
- --------------------------------------------------------------------------------
1,011 1,138 2,149 451 864 1,315
- --------------------------------------------------------------------------------
FORM 10-K Page 8
9
Number of Stores Open
----------------------------------------------------------------------------------
Closeout Toy Total Closeout Toy Total
-------- --------- ---------- -------- ----------- ----------
Alabama 30 19 49 Nebraska 4 7 11
Alaska 4 4 Nevada 9 7 16
Arizona 21 21 42 New Hampshire 1 12 13
Arkansas 6 7 13 New Jersey 3 46 49
California 173 140 313 New Mexico 7 8 15
Colorado 12 17 29 New York 29 97 126
Connecticut 2 31 33 North Carolina 43 36 79
Delaware 1 5 6 North Dakota 4 4
Florida 84 64 148 Ohio 125 55 180
Georgia 48 30 78 Oklahoma 12 13 25
Hawaii 8 8 Oregon 1 13 14
Idaho 3 8 11 Pennsylvania 36 71 107
Illinois 35 47 82 Puerto Rico 24 24
Indiana 49 32 81 Rhode Island 9 9
Iowa 3 11 14 South Carolina 22 16 38
Kansas 9 12 21 South Dakota 2 2
Kentucky 41 19 60 Tennessee 45 29 74
Louisiana 22 18 40 Texas 82 74 156
Maine 7 7 Utah 9 8 17
Maryland 7 37 44 Vermont 3 3
Massachusetts 3 49 52 Virginia 35 42 77
Michigan 36 48 84 Washington 9 27 36
Minnesota 13 13 West Virginia 24 9 33
Mississippi 13 8 21 Wisconsin 12 22 34
Missouri 22 27 49 Wyoming 3 3
Montana 3 3
Closeout Toy Total
-------- --------- ----------
Total Stores 1,128 1,322 2,450
Number of states and Puerto Rico 40 51 51
WAREHOUSE AND DISTRIBUTION
At January 30, 1999 the Company operated warehouse and distribution locations
throughout the United States totaling 10,488,000 square feet. The Company's
largest warehouse and distribution campus located in Columbus, Ohio provides
separate facilities for both Closeout Stores and Toy Stores warehouse and
distribution operations.
The Company's primary warehouse and distribution centers for Closeout Stores are
located in Ohio, Alabama and California and are owned. Utilizing high-speed
sortation systems the Closeout warehouse and distribution operations have a
combined output of approximately 2,040,000 cartons per week and utilize
approximately 347,000 pallet positions.
FORM 10-K Page 9
10
For its Toy Stores as of January 30, 1999, the Company operated primary
warehouse and distribution centers, including a shared portion of the primary
warehouse and distribution complex, in Alabama and Ohio with other locations in
Arizona, Kentucky, Massachusetts, New Jersey, and Pennsylvania. The facilities
utilize advanced warehouse management technology which enable high accuracy and
efficient product processing from vendors to the retail stores. These facilities
have a shipping capacity of approximately 1,290,000 cartons per week.
Statistics, for warehouse and distribution centers, by type and locations is as
follows:
Square Footage (In thousands)
-------------------------------------------------------------
Number Closeout Toy Total
---------------- --------------------- -------------------- -------------------
State Owned Leased Owned Leased Owned Leased Owned Leased
- ------------- ----- ---------- ---------- ---------- --------- ---------- --------- ---------
Alabama 2 1,109 840 1,949
Arizona 1 369 369
California 1 1 1,423 234 1,423 234
Georgia 2 350 350
Kentucky 1 307 307
Massachusetts 1 1 250 105 250 105
New Jersey 1 360 360
Ohio 1 5 2,736 1,430 822 3,558 1,430
Pennsylvania 1 153 153
- ---------------------------------------------------------------------------------------------
7 11 5,268 2,014 2,641 565 7,909 2,579
- ---------------------------------------------------------------------------------------------
Total owned and leased 18 7,282 3,206 10,488
As necessary, the Company leases additional temporary warehouse space to support
its warehousing requirements throughout the year.
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.
FORM 10-K Page 10
11
EXECUTIVE OFFICERS OF THE COMPANY
Officer
Name Age Offices Held Since
- -------------------------- ------- ----------------------------------------------------------------------- ---------
William G. Kelley 53 Chairman of the Board, Chief Executive Officer and President 1990
Michael L. Glazer 51 Chief Executive Officer and President - KB Toy Division 1995
Albert J. Bell 39 Executive Vice President, Legal, Real Estate, Secretary and General 1988
Counsel
Michael J. Potter 37 Executive Vice President and Chief Financial Officer 1991
Kent Larsson 55 Executive Vice President, Merchandising and Sales Promotion - 1998
Closeout Division
Donald A. Mierzwa 48 Executive Vice President, Store Operations - Closeout Division 1998
Brad A. Waite 41 Sr. Vice President, Human Resources 1998
James A. McGrady 48 Vice President and Treasurer 1991
Mark D. Shapiro 39 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.
Michael L. Glazer has served on the Company's Board of Directors since 1991 and
previous to his appointment as Chief Executive Officer and President - Toy
Division in 1998 he held positions as President of the Company, Executive Vice
President and President of The Bombay Company, a home furnishings retailer. Mr.
Glazer is also a director of Brookstone, Inc.
Albert J. Bell has served as the Company's general counsel for over five years
and has been employed by the Company since 1987.
Michael J. Potter has been with the Company since 1991 and previous to his
appointment as Executive Vice President and Chief Financial Officer in 1998 Mr.
Potter served as Senior Vice President and Chief Financial Officer and Vice
President and Controller.
Kent Larsson has been with the Company since 1988 and has held various
management and senior management positions in sales promotion and merchandising
for the Closeout Division during that time.
Donald A. Mierzwa has been with the Company since 1989 and during his tenure has
held senior management positions in operations and stores operations for the
Closeout Division.
Brad A. Waite joined the Company in 1988 and has held various Human Resource
management and senior management positions since that time.
James A. McGrady has served as the Company's Treasurer for over five years and
has been with the Company since 1986.
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 11
12
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 5 for 4 common
stock split effected by a distribution of shares on June 24, 1997, to
stockholders of record on June 10, 1997.
1998 1997
------------------- -------------------
High Low High Low
------- -------- -------- ---------
First Quarter $46 1/8 $36 5/8 $34 3/32 $25 51/64
Second Quarter 42 1/2 31 5/16 40 3/4 29 29/32
Third Quarter 39 15 1/2 43 3/8 34 9/16
Fourth Quarter 23 5/8 16 5/8 50 38 1/4
As of March 26, 1999, there were 1,426 registered holders of record of the
Company's common stock.
The Company has followed a policy of reinvesting earnings in the business and
consequently has not paid any cash dividends. At the present time, no change in
this policy is under consideration by the Board of Directors. The payment of
cash dividends in the future will be determined by the Board of Directors in
consideration of business conditions then existing, including the Company's
earnings, financial requirements and condition, opportunities for reinvesting
earnings, and other factors.
FORM 10-K Page 12
13
ITEM 6 SELECTED FINANCIAL DATA
The statement of earnings data and the balance sheet data has been derived from
the Company's consolidated financial statements and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and Notes
thereto included elsewhere herein.
Fiscal Year Ended
---------------------------------------------------------------------------------
Jan.30, 1999 Jan.31, 1998 Feb.1, 1997 Feb.3, 1996* Jan.28, 1995 Jan.29, 1994
- --------------------------------------------------------------------------------------------------------------------------
($ In thousands except earnings per share )
Net sales:
Closeout Stores $2,510,420 $2,452,474 $2,204,521 $1,991,609 $1,794,170 $1,568,534
Toy Stores 1,643,044 1,562,463 1,178,224 76,689 45,937
- --------------------------------------------------------------------------------------------------------------------------
Total Retail 4,153,464 4,014,937 3,382,745 2,068,298 1,840,107 1,568,534
Other 40,248 40,365 37,419 42,652 27,030 21,537
- --------------------------------------------------------------------------------------------------------------------------
4,193,712 4,055,302 3,420,164 2,110,950 1,867,137 1,590,071
Cost of sales:
Closeout Stores 1,444,534 1,471,423 1,264,780 1,153,315 996,871 867,533
Toy Stores 1,016,586 933,222 687,413 40,598 22,467
- --------------------------------------------------------------------------------------------------------------------------
Total Retail 2,461,120 2,404,645 1,952,193 1,193,913 1,019,338 867,533
Other 30,233 30,788 28,610 32,281 20,163 16,358
- --------------------------------------------------------------------------------------------------------------------------
2,491,353 2,435,433 1,980,803 1,226,194 1,039,501 883,891
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 1,702,359 1,619,869 1,439,361 884,756 827,636 706,180
Selling and administrative expenses 1,498,696 1,386,989 1,166,918 731,931 654,979 569,240
Merger and other related costs 45,000
- --------------------------------------------------------------------------------------------------------------------------
Operating profit 203,663 187,880 272,443 152,825 172,657 136,940
Interest expense 24,300 25,691 22,991 17,992 12,019 9,489
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
income taxes, extraordinary charge and
cumulative effect of accounting change 179,363 162,189 249,452 134,833 160,638 127,451
Income taxes 69,945 76,254 92,992 50,141 63,934 50,771
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary charge and cumulative
effect of accounting change 109,418 85,935 156,460 84,692 96,704 76,680
(Loss) from discontinued operations (27,538) (5,727) (2,600) (1,716)
Extraordinary charge (1,856)
Cumulative effect of accounting change (12,649)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 96,769 $ 85,935 $ 127,066 $ 78,965 $ 94,104 $ 74,964
- --------------------------------------------------------------------------------------------------------------------------
FORM 10-K Page 13
14
Fiscal Year Ended
---------------------------------------------------------------------------------
Jan.30, 1999 Jan.31, 1998 Feb.1, 1997 Feb.3, 1996 *Jan.28, 1995 Jan.29, 1994
==========================================================================================================================
($ In thousands except earnings per share )
Income (loss) per share:
Continuing operations $ 1.00 $ 0.80 $ 1.49 $ 0.86 $ 0.98$ 0.77
Discontinued operations (0.26) (0.06) (0.03) (0.02)
Extraordinary charge (0.02)
Cumulative effect of accounting change (0.11)
- --------------------------------------------------------------------------------------------------------------------------
$ 0.89 $ 0.80 $ 1.21 $ 0.80 $ 0.95 $ 0.75
==========================================================================================================================
Income (loss) per share - diluted:
Continuing operations $ 0.97 $ 0.77 $ 1.44 $ 0.84 $ 0.95 $ 0.75
Discontinued operations (0.25) (0.06) (0.03) (0.02)
Extraordinary charge (0.02)
Cumulative effect of accounting change (0.11)
- --------------------------------------------------------------------------------------------------------------------------
$ 0.86 $ 0.77 $ 1.17 $ 0.78 $ 0.92 $ 0.73
==========================================================================================================================
Average common shares
outstanding (In thousands):
Basic 109,199 107,621 104,642 98,185 99,352 100,297
Diluted 112,800 112,063 108,402 100,645 101,772 103,098
* Fiscal 1995 is comprised of 53 weeks.
BALANCE SHEET DATA:
Working capital $ 875,234 $ 582,206 $ 563,543 $ 398,377 $ 254,613 $ 282,852
Total assets 2,042,524 1,746,381 1,715,499 1,058,887 937,996 837,783
Long-term obligations 295,619 115,281 155,049 121,435 44,491 53,869
Stockholders' equity 1,181,902 1,034,542 934,114 619,963 532,115 515,885
STORE OPERATING DATA:
Year end gross square footage (000's):
- --------------------------------------
Closeout Stores 29,015 26,623 24,253 22,081 19,982 17,609
Toy Stores 6,170 5,781 5,267 552 401
- --------------------------------------------------------------------------------------------------------------------------
35,185 32,404 29,520 22,633 20,383 17,609
==========================================================================================================================
New stores opened:
- ------------------
Closeout Stores 137 118 95 102 122 110
Toy Stores (1) 105 115 1,095 30 82
- --------------------------------------------------------------------------------------------------------------------------
242 233 1,190 132 204 110
==========================================================================================================================
Stores closed:
- --------------
Closeout Stores 34 26 14 16 25 27
Toy Stores 32 50 22 1
- --------------------------------------------------------------------------------------------------------------------------
66 76 36 17 25 27
==========================================================================================================================
Stores open at end of year:
- ---------------------------
Closeout Stores 1,128 1,025 933 852 766 669
Toy Stores 1,322 1,249 1,184 111 82
- --------------------------------------------------------------------------------------------------------------------------
2,450 2,274 2,117 963 848 669
==========================================================================================================================
(1) Includes 1,042 KB Toy stores acquired May 5, 1996.
FORM 10-K Page 14
15
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 and a leading toy retailer
with 2,450 stores located in all 50 states and Puerto Rico. The Company operates
1,128 retail closeout stores under the names Odd Lots, Big Lots, Mac Frugal's
Bargains - Close-outs, and Pic `N' Save (Closeout Stores) and 1,322 retail toy
and closeout toy stores primarily under the names KB Toys, KB Toy Works, and
KB Toy Outlet (Toy Stores). The Company is the largest enclosed shopping
mall-based toy retailer in the United States. 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.
Management's discussion and analysis has been prepared giving effect to the
pooling of interest business combination with Mac Frugal's Bargains -
Close-outs, Inc. (Mac Frugal's) on January 16, 1998, and the acquisition,
accounted for as a purchase, effective May 5, 1996, of Kay-Bee Toys.
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!. Closure of this operation was completed throughout fiscal 1997.
Accordingly, the operating results for this business are reported as a
discontinued operation at February 1, 1997.
The discussion and analysis presented below should be read in conjunction with
the consolidated financial statements and related notes appearing elsewhere in
this report.
The following table compares components of the statements of earnings of
Consolidated Stores as a percent to net sales.
FORM 10-K Page 15
16
Fiscal Year
-----------------------------
1998 1997 1996
====================================================================================================
Net sales:
Closeout Stores 59.9% 60.5% 64.5%
Toy Stores 39.2 38.5 34.5
----------------------------------------------------------------------------------------------------
Total Retail 99.1 99.0 99.0
Other 0.9 1.0 1.0
----------------------------------------------------------------------------------------------------
Total net sales 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------
Gross Profit:
Closeout Stores 42.5 40.0 42.6
Toy Stores 38.1 40.3 41.7
----------------------------------------------------------------------------------------------------
Total Retail 40.7 40.1 42.3
Other 24.9 23.7 23.5
----------------------------------------------------------------------------------------------------
Total Gross Profit 40.6 39.9 42.1
Selling and administrative expenses 35.7 34.2 34.3
Non selling and administrative expenses (gains) 1.1 (0.2)
----------------------------------------------------------------------------------------------------
Operating profit 4.9 4.6 8.0
Interest expense 0.6 0.6 0.7
----------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes, extraordinary
charge, and cumulative effect of accounting change 4.3 4.0 7.3
Income taxes 1.7 1.9 2.7
----------------------------------------------------------------------------------------------------
Income from continuing operations before extraordinary charge and
cumulative effect of accounting change 2.6 2.1 4.6
Loss from discontinued operations 0.8
Extraordinary charge 0.1
Cumulative effect of accounting change (0.3)
----------------------------------------------------------------------------------------------------
Net income 2.3% 2.1% 3.7%
====================================================================================================
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(1)
----- ---------- --------- ------------
Fiscal 1998
Percent net sales of full year 19.6% 19.7% 20.4% 40.3%
Operating profit (loss) percentage of full year 2.7 8.0 (9.2) 98.5
Fiscal 1997
Percent net sales of full year 19.2 19.8 21.2 39.8
Operating profit percentage of full year 1.1 7.6 13.6 77.7
(1) Excludes non selling and administrative expenses of $45 million in 1997.
FORM 10-K Page 16
17
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES Net sales increased to $4,193.7 million in fiscal 1998 from $4,055.3
million in fiscal 1997, an increase of $138.4 million, or 3.4%. This increase
was attributable to sales from 242 new stores offset in part by the closing of
66 stores and a comparable store sales decline of 1.3%.
Closeout Stores net sales increased $57.9 million, or 2.4%, to $2,510.4 million
in fiscal 1998 from $2,452.5 million in fiscal 1997. Contributing to this
increase was the addition of 103 net new stores during the year offset by a fall
in comparable stores sales of 2.1%. Sales in the closeout segment were
negatively impacted by appreciably lower 1998 Closeout store inventory levels
resulting from the strategic realignment in merchandise mix to offer customers a
wider selection of value oriented brand name merchandise. Additionally, the
continued integration of Mac Frugal's operations with the Company's existing
Closeout operations and the implementation of a new merchandise management
system, as well as the startup of a new distribution center, contributed to the
lower store level inventories. Restoration of Closeout Stores inventories to new
planned levels was substantially completed at the end of fiscal 1998.
Net sales of Toy Stores increased $80.6 million, 5.2%, in fiscal 1998 to
$1,643.0 million from $1,562.5 million in the prior fiscal year. This
improvement reflects the addition of 73 net new stores during the fiscal year
offset by a comparable store sales decline of 0.2%. As with most of the toy
industry, Toy Stores 1998 sales were negatively influenced by the reduced number
of popular new toy introductions compared to 1997.
GROSS PROFIT Gross profit increased $82.5 million, or 5.1%, in fiscal 1998 to
$1,702.4 million from $1,619.9 million in fiscal 1997. Gross profit as a percent
to sales was 40.6% in 1998 compared to 39.9% in the previous year. In connection
with the Mac Frugal's merger the Company recorded a fourth quarter 1997 charge
of $70,000,000 ($42,700,000 after tax, or $.38 per diluted common share) to
reflect costs for discontinued products, inventory consolidation and retail
price equalization for the combined inventory assortment. This charge reduced
gross profit as a percent of sales by 1.8% in fiscal 1997.
Closeout Stores gross profit as a percent to sales was 42.5% in 1998 compared to
40.0% (42.9% excluding the effect of the charge noted above) in 1997. Closeout
Stores gross margin was negatively influenced by aggressive pricing strategies
during the third and fourth quarters in order to restore customer traffic while
rebuilding store inventories. Toy Stores gross profit was 38.1% in 1998 compared
to 40.3% in 1997 reflecting a merchandise mix at fiscal 1997 year end which
carried a lower initial markup than the prior fiscal year end combined with the
increase in video game sales.
SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses
increased $111.7 million in fiscal 1998 from $1,387.0 million in fiscal 1997. As
a percent to sales selling and administrative expenses were 35.7% in comparison
to 34.2% (before merger and other related costs) in 1997.
As Closeout Stores inventory levels were restored closer to planned levels
throughout the second half of 1998 the company incurred a higher than historical
ratio of selling and administrative expenses. This, in combination with the
decline of fixed cost leverage from reduced comparable store sales contributed
to the rise in the percent of selling and administrative expenses to net sales.
FORM 10-K Page 17
18
INTEREST EXPENSE Interest expense declined to $24.3 million in fiscal 1998 from
$25.7 million in fiscal 1997. The decrease was attributable to lower weighted
average debt levels and a lower effective interest rate attributable to seasonal
borrowings.
INCOME TAXES The effective tax rate of the Company was 39% in 1998 compared to
47% in fiscal 1997. This decline is principally associated with merger and other
charges in connection with the business combination with Mac Frugal's in 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES Net sales increased to $4,055.3 million in fiscal 1997 from $3,420.2
million in fiscal 1996, an increase of $635.1 million, or 18.6%. This increase
was attributable to full year impact of sales for KB Toys acquired in May of
1996, sales from 233 new stores and comparable store sales increases of 6.9%,
offset in part by the closing of 76 stores.
Closeout Stores net sales increased $248.0 million, or 11.2%, to $2,452.5
million in fiscal 1997 from $2,204.5 million in fiscal 1996. Contributing to
this increase was a rise in comparable stores sales of 4.8% and the addition of
92 net new stores during the year. Net sales of Toy Stores increased $384.3
million in fiscal 1997 to $1,562.5 million. This improvement reflects a
comparable store sales increase of 10.1%, the addition of 65 net new stores, and
the full period impact of sales from the date of acquisition of KB Toys.
GROSS PROFIT Gross profit increased $180.5 million, or 12.5%, in fiscal 1997 to
$1,619.9 million from $1,439.4 million in fiscal 1996. In the fourth quarter of
1997 the Company recorded a $70,000,000 ($42,700,000 after tax, or $.38 per
diluted common share) inventory charge to reflect costs associated with the Mac
Frugal's merger for discontinued products, inventory consolidation and retail
price equalization for the combined inventory assortment. This charge reduced
gross profit as a percent of sales by 1.8%. Adjusted for the inventory charge
gross profit was 41.7% in fiscal 1997 compared to 42.1% for the prior year.
The effect of the above noted charge reduced fiscal 1997 Closeout Stores gross
profit percentage by 2.9% to 40.0% in contrast to 1996 gross profit of 42.6%.
Toy Stores gross profit was 40.3% in 1997 compared to 41.7% in 1996. The decline
in Toy Stores gross profit is principally attributable to the higher volume of
video sales in 1997 which have a lower profit margin than traditional toys.
SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses
increased $220.1 million in fiscal 1997 from $1,167.0 million in fiscal 1996.
This increase is attributable to the full year impact in 1997 of operating
expenses associated with KB Toys acquired in May 1996. Selling and
administrative expenses in fiscal 1996 include a gain of $6.1 million related to
the fire loss settlement for one of the Company's warehouses. Historically the
KB Toy stores cost structure has incurred a higher percentage ratio of selling
and administrative expenses to net sales.
MERGER AND OTHER RELATED CHARGES In connection with the Mac Frugal's merger the
Company recorded a fourth quarter charge to operating expense of $45,000,000
($40,500,000 after taxes, or $.36 per diluted common share) for direct and other
related costs pertaining to the combination. Merger transaction costs were
primarily comprised of fees for professional services, severance and similar
related costs.
FORM 10-K Page 18
19
INTEREST EXPENSE Interest expense increased to $25.7 million in fiscal 1997 from
$23.0 million in fiscal 1996. The increase was attributable to higher weighted
average debt levels principally to support requirements associated with the
operations of the increased number of stores, increased inventory levels,
capital expenditures and the pre merger stock buy back program of Mac Frugal's.
INCOME TAXES The effective tax rate of the Company increased to 47.0% in fiscal
1997 from 37.2% in 1996. This increase is principally associated with merger and
other charges in connection with the business combination with Mac Frugal's.
Additionally, the Company surrendered its corporate-owned life insurance program
in 1996.
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 long term debt and stockholders equity)
was 20.0% at January 30, 1999, compared with 10.0% and 14.2% at each of the
respective prior fiscal year ends. Working capital has increased from $582.2
million in 1997 to $875.2 million at January 30, 1999. This data reflects the
strength of the Company's balance sheet and the ability to absorb debt financing
as, and if, necessary.
Capital expenditures for the last three fiscal years have been $166.6 million,
$146.5 million and $104.8 million, respectively, and were used primarily to fund
new store openings and distribution center expansions. The capital expenditure
requirements anticipated for 1999 are approximately $164 million primarily to
support new store expansion and warehouse and equipment requirements.
The Company has a Revolving Credit Facility which provides senior bank financing
in an aggregate principal amount of up to $700 million. The facility has a
maturity date of May 15, 2003. From time-to-time the Company also utilizes
uncommitted credit facilities, subject to the terms of the Revolving Credit
Facility, to supplement short-term borrowing requirements. At January 30, 1999,
approximately $462.3 million was available for borrowings under the Revolver and
$200 million of uncommitted credit facilities were available, subject to the
terms of the revolving credit facility.
The Company has issued $100 million of Subordinated Notes which 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.
The Company is subject to market risk from exposure to changes in interest rates
based on its financing, investing and cash management activities. The Company
does not expect changes in interest rates in 1999 to have a material effect on
income or cash flows, however there can be no assurances that interest rates
will not materially change.
The Company continues to believe that it has, or if necessary has the ability to
obtain, 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 19
20
IMPACT OF YEAR 2000
The "Year 2000" issue arose because many existing computer programs use a
two-digit format, as opposed to four digits, to refer to a year. These programs,
if not corrected, could fail or create erroneous results after the century date
changes on January 1, 2000, or when otherwise dealing with dates later than
December 31, 1999. This "Year 2000" issue is believed to affect virtually all
companies and organizations, including the Company.
Since 1990 the Company has been evaluating, assessing and adjusting all known
date-sensitive systems and equipment for "Year 2000" compliance. The scope of
this effort includes internally developed information technology (IT) systems,
purchased and leased software, embedded systems, and electronic data interchange
transaction processing. The Company also instituted and maintains strict
policies regarding standards for all Network Servers and software, desktop and
laptop computers, operating systems, desktop software and applications, and
communication routers and hubs. The monitoring of "Year 2000" risks has
significantly enhanced the Company's readiness enabling the quick deployment and
testing of compliant hardware and software as it is developed. In 1996 the
Company initiated a "Year 2000" Compliance Committee which inventoried
internally developed production systems and identified those and the data files
which needed to be modified.
In 1997 all package software applications were evaluated to determine which were
not "Year 2000" compliant and a plan was developed for either updating or
eliminating these applications. Also evaluated to determine "Year 2000"
readiness were all computer hardware and operating systems including AS400's,
RISC 6000's, Tandems, servers, PC's and cash registers. The evaluation phase of
the "Year 2000" project is substantially complete and included both IT, such as
noted above, and non-IT equipment, such as warehouse sortation and security
systems.
Substantially all of the Company's operating IT systems are "Year 2000"
compliant and based on the assessment efforts to date, the Company does not
believe that the "Year 2000" issue will have a material adverse effect on its
financial condition or results of operations. However, all situations cannot be
anticipated and, there can be no assurance of timely compliance by third
parties, such as utility companies, government agencies or merchandise
suppliers, which may have an adverse effect on the Company. The Company operates
a large number of geographically dispersed stores and procures its merchandise
for resale and supplies for operational purposes from a vast network of vendors
located both within and outside the United States. The Company is not dependent
on any one vendor for more than 4% of its merchandise purchases. The established
relationships with key vendors are a valued asset, however, substitute products
for most of the goods available for sale in the closeout stores may be obtained
from other vendors. If certain vendors are unable to deliver product on a timely
basis, due to their own "Year 2000" issues, it is anticipated others would be
capable to deliver similar goods. Approximately 20% of the Company's merchandise
is imported, and any significant disruptions in the global transportation
industry, including a delay in the processing of merchandise through customs,
could cause a material adverse impact on the Company's operations. The Company
intends to allocate internal resources and retain dedicated consultants as
necessary to be ready to take action if these events occur.
To date, the Company has not established a formal contingency plan for possible
"Year 2000" issues. Where needed, the Company will establish contingency plans
based on actual testing experience and assessment of outside risks. It is
expected that any formal contingency plans will be in place by July 31, 1999.
The Company has incurred to date approximately $4 million of costs to implement
its "Year 2000" compliance program and presently expects to incur not more than
$2 million of additional costs in the aggregate. All of the Company's "Year
2000" compliance costs have been or are expected to be funded from the Company's
operating cash flow. The Company's "Year 2000" compliance budget does not
include material amounts for hardware replacement because the Company has
historically employed a strategy to continually upgrade its mainframe and
midrange
FORM 10-K Page 20
21
computer systems and to update systems with respect to both preexisting
operations and in conjunction with the acquisitions and mergers effected by the
Company in recent years. Consequently, the Company's "Year 2000" budget has not
required the diversion of funds from or the postponement of the implementation
of other planned IT projects.
The cost of the conversions and the completion dates are based on management's
best estimates and may be updated as additional information becomes available.
Readers are referred to Item 5 of this report, which addresses forward-looking
statements made by 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 January 30, 1999, and January 31,
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended January
30, 1999. Our audits also included the financial statement schedule listed in
the Index at Item 14(a)2. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of CONSOLIDATED STORES
CORPORATION and subsidiaries at January 30, 1999, and January 31, 1998, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 30, 1999, 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.
As discussed in the Summary of Significant Accounting Policies note to the
financial statements, the Company changed its method of accounting for
pre-opening costs in 1998.
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 23, 1999
FORM 10-K Page 22
23
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Fiscal Year
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
Net sales $4,193,712 $4,055,302 $3,420,164
Costs and expenses:
Cost of sales 2,491,353 2,435,433 1,980,803
Selling and administrative expenses 1,498,696 1,386,989 1,166,918
Merger and other related charges 45,000
Interest expense 24,300 25,691 22,991
- ---------------------------------------------------------------------------------------------------
4,014,349 3,893,113 3,170,712
- ---------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes,
extraordinary charge and cumulative effect of change in
accounting principle 179,363 162,189 249,452
Income taxes 69,945 76,254 92,992
- ---------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary charge and cumulative effect of
change in accounting principle 109,418 85,935 156,460
Loss from discontinued operations (27,538)
Extraordinary charge (1,856)
Cumulative effect of change in accounting principle (12,649)
- ---------------------------------------------------------------------------------------------------
Net income $ 96,769 $ 85,935 $ 127,066
- ---------------------------------------------------------------------------------------------------
Income per common share:
Continuing operations $ 1.00 $ 0.80 $ 1.49
Discontinued operations (0.26)
Extraordinary charge (0.02)
Cumulative effect of change in accounting principle (0.11)
- ---------------------------------------------------------------------------------------------------
$ 0.89 $ 0.80 $ 1.21
- ---------------------------------------------------------------------------------------------------
Income per common share - diluted:
Continuing operations $ 0.97 $ 0.77 $ 1.44
Discontinued operations (0.25)
Extraordinary charge (0.02)
Cumulative effect of change in accounting principle (0.11)
- ---------------------------------------------------------------------------------------------------
$ 0.86 $ 0.77 $ 1.17
- ---------------------------------------------------------------------------------------------------
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 par value)
January 30, January 31,
1999 1998
=====================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 75,906 $ 41,714
Inventories 1,096,844 910,668
Deferred income taxes 98,739 86,582
Other current assets 63,686 68,510
- -------------------------------------------------------------------------------------
Total current assets 1,335,175 1,107,474
- -------------------------------------------------------------------------------------
Property and equipment - net 683,437 613,478
Other assets 23,912 25,429
- -------------------------------------------------------------------------------------
$2,042,524 $1,746,381
=====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 337,368 $ 280,117
Accrued liabilities 100,956 134,288
Income taxes 21,265 38,920
Current maturities of long-term obligations 352 71,943
- -------------------------------------------------------------------------------------
Total current liabilities 459,941 525,268
- -------------------------------------------------------------------------------------
Long-term obligations 295,619 115,281
Deferred income taxes 105,062 71,290
Commitments and contingencies
Stockholders' equity:
Preferred stock - authorized 2,000 shares, $.01 par value;
none issued
Common stock - authorized 290,000 shares, $.01 par value;
issued 109,524 shares and 107,796 shares, respectively 1,095 1,078
Nonvoting common stock - authorized 8,000 shares, $.01 par
value; none issued
Additional paid-in capital 385,612 335,038
Retained earnings 795,195 698,426
- -------------------------------------------------------------------------------------
Total stockholders' equity 1,181,902 1,034,542
- -------------------------------------------------------------------------------------
$2,042,524 $1,746,381
=====================================================================================
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)
Additional Other Com-
Common Paid-in Retained prehensive Treasury
Stock Capital Earnings Income Stock Total
=================================================================================================================
Balance at February 4, 1996 $ 719 $105,493 $515,854 $(530) $ (1,573) $619,963
Net income for the year 127,066 127,066
Other comprehensive income 44 44
Total comprehensive income 127,110
Issuance of common stock 51 190,588 190,639
5 for 4 stock split 134 (134)
Exercise of stock options and issue
of restricted stock 12 24,758 24,770
Contribution to savings plan 1 2,181 2,182
Purchase of treasury stock, at cost (30,631) (30,631)
Noncash compensation expense 81 81
- -----------------------------------------------------------------------------------------------------------------
Balance at February 1, 1997 917 322,967 642,920 (486) (32,204) 934,114
Net income for the year 85,935 85,935
Other comprehensive income 486 486
Total comprehensive income 86,421
5 for 4 stock split 169 (169)
Exercise of stock options 55 31,214 31,269
Contribution to savings plan 1 3,912 3,913
Purchase of treasury stock, at cost (21,235) (21,235)
Treasury stock retired (64) (22,946) (30,429) 53,439
Noncash compensation expense 60 60
=================================================================================================================
Balance at January 31, 1998 1,078 335,038 698,426 1,034,542
Net income for the year 96,769 96,769
Exercise of stock options 16 47,253 47,269
Contribution to savings plan 1 3,321 3,322
- -----------------------------------------------------------------------------------------------------------------
Balance at January 30, 1999 $1,095 $385,612 $795,195 $1,181,902
=================================================================================================================
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
-----------------------------------
1998 1997 1996
==================================================================================================
OPERATING ACTIVITIES:
Net income $96,769 $85,935 $127,066
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 84,006 79,163 66,631
Deferred income taxes 29,702 2,926 (6,929)
Other 17,000 19,879 13,005
Cumulative effect of change in accounting principle 12,649
Discontinued operations 18,900
Change in assets and liabilities (183,891) (38,376) (29,634)
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 56,235 149,527 189,039
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (166,649) (146,460) (104,784)
Payment for acquired business (185,300)
Other 1,517 (4,142) 14,915
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (165,132) (150,602) (275,169)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 190,639
Purchase of Mac Frugal's treasury stock (21,235) (30,631)
Payments of senior notes and long-term obligations - net (442) (58,313)
Proceeds from credit arrangements 108,747 1,553
Debt issue payments (10,393)
Extinguishment of debt (2,946)
Proceeds from exercise of stock options 33,314 18,840 12,356
Proceeds attributable to deferred credits 3,638 3,716
Other 1,028 752 1,101
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 143,089 3,106 105,529
- --------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents $ 34,192 $ 2,031 $ 19,399
==================================================================================================
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 and largest mall based toy
retailer with stores located in all 50 states and Puerto Rico. As a
value-oriented retailer specializing in closeout merchandise and toys the
Company operates a total of 2,450 stores at January 30, 1999, comprised of 1,128
retail closeout specialty stores under the names ODD LOTS, BIG LOTS, MAC
FRUGAL'S BARGAINS - CLOSE-OUTS, and PIC `N' SAVE and 1,322 retail toy and
closeout toy stores under the names KB TOYS, KB TOY WORKS, and KB TOY OUTLET.
FISCAL YEAR
- -----------
The Company follows the concept of a 52/53 week fiscal year which ends on the
Saturday nearest to January 31.
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.
RECLASSIFICATION
- ----------------
Beginning in 1998, other income/expense has been included in selling and
administrative expenses. Amounts reported in prior years have been reclassified
to conform to the 1998 presentation.
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
- -----------
Inventories are stated at the lower of cost or market, first-in first-out basis,
primarily on the retail method.
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.
FORM 10-K Page 27
28
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- CONTINUED
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 in other
comprehensive income net of applicable income taxes.
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.
ACCOUNTING PRINCIPLE CHANGE
- ---------------------------
In the fourth quarter of 1998 the Company changed its method of accounting for
pre-opening costs in conformity with Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" as promulgated by The American Institute of
Certified Public Accountant's Accounting Standards Executive Committee.
Historically, non-capital expenditures associated with opening new stores were
charged to expense over the first twelve months of store operations. The change
involves expensing these and other preopening costs as incurred rather than
capitalizing and subsequently amortizing such costs. The change in accounting
principle resulted in a write-off of capitalized costs as of February 1, 1998
totaling $12,649,000 net of tax benefit of $8,087,000. The effect of this change
in accounting principle is considered immaterial to all quarters of fiscal 1998.
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.
BUSINESS COMBINATIONS
In January 1998, 23,371,639 common shares were issued in exchange for all
outstanding common shares of Mac Frugal's Bargains - Close-outs, Inc. (Mac
Frugal's) a closeout retailer. The combination constituted a tax-free
reorganization and has been accounted for as a pooling of interests.
In connection with the Mac Frugal's combination the Company recorded a fourth
quarter charge to operating expense of $45,000,000 ($40,500,000 after taxes, or
$.36 per diluted common share) for direct and other related costs pertaining to
the combination. Merger transaction costs were primarily comprised of fees for
professional services, severance and similar related costs. Additionally, the
Company recorded a $70,000,000 ($42,700,000 after tax, or $.38 per diluted
common share) charge to cost of sales in the fourth quarter of 1997 for
combination related expenses for discontinued products, inventory consolidation
and retail price equalization for the combined inventories. In the fourth
quarter of 1997, the Company utilized $31,892,000 relating to these charges and
substantially all of the remaining $83,108,000 balance was utilized in fiscal
1998.
Excluding the cost of sales charge and merger and other related charges income
per share, assuming dilution, would have been $1.51 in fiscal 1997.
FORM 10-K Page 28
29
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS COMBINATIONS - CONTINUED
Effective May 5, 1996, the Company acquired Kay-Bee Center, Inc. (KB) for a
initial purchase price of $185.3 million. This acquisition was accounted for as
a purchase with the results of KB included from the acquisition date. At May 5,
1996, KB operated 1,042 toy stores located in all 50 states and Puerto Rico.
The following summary, prepared on a pro forma basis, combines the results of
operations as if KB 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
===========================================================
(Unaudited)
Net sales $3,596,555
Income from continuing operations before $ 138,774
extraordinary charge
Net income $ 109,380
Income per share - diluted:
Continuing operations $ 1.26
Net income $ 0.99
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 KB 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.
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, were
completed throughout fiscal 1997. Accordingly, the operating results for this
business are reported as a discontinued operation for fiscal 1996. Summary
operating results and financial information of this discontinued operation are
as follows:
(In thousands) 1996
====================================================
Net sales $ 84,253
Gross profit $ 38,134
Loss before income taxes $(13,710)
Income tax benefit 5,072
----------------------------------------------------
(8,638)
Loss on store closures, net of tax (18,900)
----------------------------------------------------
$(27,538)
====================================================
FORM 10-K Page 29
30
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The provision for income taxes on income from continuing operations before
income taxes, cumulative effect of change in accounting principle and
extraordinary charge is comprised of the following:
(In thousands) 1998 1997 1996
----------------------------------------------------------------------------
Federal - Currently payable $39,604 $59,843 $77,195
Deferred - Federal, state and local 21,615 2,926 4,134
State and Local - currently payable 8,283 12,411 10,540
Foreign 443 1,074 1,123
----------------------------------------------------------------------------
$69,945 $76,254 $92,992
----------------------------------------------------------------------------
A reconciliation between the statutory federal income tax rate and the effective
tax rate follows:
1998 1997 1996
---------------------------------------------------------------------------------------
Statutory Federal income tax rate 35.0% 35.0% 35.0%
Effect of:
State and local income taxes, net of Federal tax benefit 3.4 5.0 3.5
Work Opportunity and Targeted jobs tax credit (0.4) (0.3) (0.1)
Merger and other related charges 8.0
Other 1.0 (0.7) (1.2)
---------------------------------------------------------------------------------------
Effective tax rate 39.0% 47.0% 37.2%
---------------------------------------------------------------------------------------
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) 1998 1997
------------------------------------------------------------------------
Deferred tax assets:
Uniform inventory capitalization $ 27,502 $19,184
Discontinued operations 383
Inventory valuation allowance 3,688 27,338
Deferred credits 3,241 1,072
Other (each less than 5% of total assets) 64,308 38,605
------------------------------------------------------------------------
Total deferred tax assets 98,739 86,582
------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 59,238 56,280
Deferred gain 9,422 9,761
Other 36,402 5,249
------------------------------------------------------------------------
Total deferred tax liabilities 105,062 71,290
------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ (6,323) $15,292
------------------------------------------------------------------------
FORM 10-K Page 30
31
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES - CONTINUED
Net income taxes paid were $44,614,000, $96,695,000, and $24,811,000 in 1998,
1997, and 1996, respectively.
LONG-TERM OBLIGATIONS
Long-term debt was comprised of the following on the dates indicated:
(In thousands) 1998 1997
---------------------------------------------------------------
Credit Agreements $185,000 $ 68,600
7% Subordinated Notes 100,000 100,000
9.25% Mortgage Note 7,512 7,705
Capital leases 3,459 3,587
Other 7,332
---------------------------------------------------------------
295,971 187,224
Less current portion 352 71,943
---------------------------------------------------------------
$295,619 $115,281
---------------------------------------------------------------
Annual maturities of long-term debt for the next five fiscal years are: 1999,
$352,000; 2000, $100,386,000; 2001, $425,000; 2002, $467,000; 2003, $185,513,000
and thereafter $8,828,000.
Interest paid, including capitalized interest of $2,161,000, $1,386,000 and
$258,000 in each of the respective previous three fiscal years, was $26,693,000
in 1998, $30,437,000 in 1997, and $24,206,000 for 1996.
CREDIT AGREEMENTS
- -----------------
The Company has a $700,000,000 Revolving Credit Facility (Revolver) with a
syndicate of financial institutions to provide unsecured senior bank financing.
The Revolver has a expiration date of May 15, 2003, and requires the maintenance
of certain standard financial ratios and prohibits the payment of cash
dividends. At January 30, 1999, approximately $462,309,000 was available for
borrowings under the Revolver. The Company was contingently liable for
outstanding letters of credit under the Revolver totaling $52,691,000 at January
30, 1999. Direct borrowings under the Revolver at January 30, 1999, were at a
weighted average rate of 5.2%.
Additionally, $200,000,000 of uncommitted short-term credit facilities are
available, subject to provisions of the Revolver, at January 30, 1999. There
were no borrowings under the uncommitted facilities at January 30, 1999, and as
of January 31, 1998 $55,000,000 of uncommitted facilities were outstanding at a
rate of 5.9%.
SUBORDINATED NOTES
- ------------------
In connection with the acquisition of KB 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 Revolver, at the option of the
Company, in whole or in
FORM 10-K Page 31
32
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM OBLIGATIONS - CONTINUED
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 January 30, 1999, was
$100,763,000 and the related carrying amount was $100,000,000.
COMMITMENTS
The Company has commitments to certain vendors for future inventory purchases
totaling approximately $568,865,000 at January 30, 1999. Terms of the
commitments provide for these inventory purchases to be made through fiscal 2004
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 certain
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 following provides a
reconciliation of benefit obligations, plan assets and funded status of all
plans as of December 31.
(In thousands) 1998 1997
----------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $26,365 $20,539
Service cost 3,281 2,934
Interest cost 1,673 1,496
Benefits paid (1,421) (1,150)
Actuarial loss 1,044 2,546
Other (200)
----------------------------------------------------------------------
Benefit obligation at end of year $30,742 $26,365
----------------------------------------------------------------------
Change in plan assets
Fair market value at beginning of year $16,246 $14,152
Actual return on plan assets 2,766 2,107
Employer contribution 6,033 1,137
Benefits paid (1,421) (1,150)
Other (114)
----------------------------------------------------------------------
Fair market value at end of year $23,510 $16,246
----------------------------------------------------------------------
FORM 10-K Page 32
33
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE BENEFIT PLANS - CONTINUED
(In thousands) 1998 1997
-------------------------------------------------------------------
Funded status $ (7,232) $(10,119)
Unrecognized actuarial loss 6,644 7,868
Unrecognized transition obligation 199 212
Unrecognized prior service cost (542) (677)
-------------------------------------------------------------------
Accrued benefit cost $ 931 $ 2,716
-------------------------------------------------------------------
Assumptions used in each year of the actuarial computations were:
Discount rate 6.5% 6.5%
Rate of increase in compensation levels 5.5% 5.5%
Expected long-term rate of return 9.0% 9.0%
The components of net periodic pension cost are comprised of the following:
(In thousands) 1998 1997 1996
--------------------------------------------------------------------------------
Service cost - benefits earned in the period $3,281 $2,934 $2,849
Interest cost on projected benefit obligation 1,674 1,496 1,174
Investment return on plan assets (1,485) (1,252) (917)
Net amortization and deferral 778 760 922
--------------------------------------------------------------------------------
Net periodic pension cost $4,248 $3,938 $4,028
--------------------------------------------------------------------------------
The projected benefit obligation, accumulated benefit obligation and fair market
value of plan assets for plans with accumulated benefit obligations in excess of
plan assets (the Non-Qualified plan) at December 31, 1998, were $1,658,000,
$795,000 and $0, respectively and as of December 31, 1997 were $1,159,000,
$439,000 and $0.
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
$5,164,000, $5,406,000, and $4,161,000 have been charged to operations in fiscal
1998, 1997, and 1996, 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 January 30,
1999, are as follows:
FORM 10-K Page 33
34
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASES - CONTINUED
Capital Operating
(In thousands) Leases Leases
-------------------------------------------------------------------------
1999 $ 472 $194,105
2000 472 155,312
2001 472 124,729
2002 472 96,649
2003 472 70,710
Subsequent to 2003 3,732 185,813
-------------------------------------------------------------------------
Total future minimum lease payments 6,092 $827,318
Less: interest 2,633 --------
------------------------------------------------------
Present value of minimum lease payments $3,459
------------------------------------------------------
Total rental expense charged to continuing operations for operating leases of
stores and warehouses consisted of the following:
(In thousands) 1998 1997 1996
--------------------------------------------------------------
Minimum rentals $297,243 $271,211 $204,277
Contingent rents 9,531 7,129 6,103
--------------------------------------------------------------
$306,774 $278,340 $210,380
--------------------------------------------------------------
STOCKHOLDERS' EQUITY
INCOME PER SHARE
- ----------------
There are no adjustments required to be made to income from continuing
operations before extraordinary charge for purposes of computing basic and
diluted income per share and there were no securities outstanding at January 30,
1999 which were excluded from the computation of income per share.
A reconciliation of the average number of common shares outstanding used in the
basic and diluted income per share computation is as follows:
Average Common Shares Outstanding
------------------------------------
(In thousands) 1998 1997 1996
----------------------------------------------------------------------------
Basic 109,199 107,621 104,642
Dilutive effect of stock options 3,601 4,442 3,760
----------------------------------------------------------------------------
Diluted 112,800 112,063 108,402
----------------------------------------------------------------------------
FORM 10-K Page 34
35
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY - CONTINUED
OTHER COMPREHENSIVE INCOME
- --------------------------
In 1998 the Company adopted SFAS No. 130 "Reporting Comprehensive Income". This
statement establishes rules for reporting of comprehensive income and its
components. The adoption of this statement had no impact on the Company's net
income or stockholders' equity. Other comprehensive income consists of the
following:
(In thousands) 1998 1997 1996
-----------------------------------------------------------------------------
Minimum pension liability $772 $2,350
Change in unrealized investment gain (2,315)
Income tax (expense) benefit (286) 9
-----------------------------------------------------------------------------
$486 $ 44
-----------------------------------------------------------------------------
Prior years financial statements have been reclassified to conform to these
requirements.
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 the Rights are exercisable, in the event the Company is
acquired in a merger or business combination (and is not the surviving entity)
or more than 50% of the Company's assets, cash flow or earning power is sold or
transferred, 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.
PUBLIC OFFERING OF COMMON STOCK
- -------------------------------
In June 1996, the Company issued 8,007,813, adjusted for 5 for 4 splits on
December 10, 1996, and June 10, 1997, 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 KB.
PREFERRED STOCK
- ---------------
In conjunction with the Stockholder Rights Plan the Company has reserved 600,000
shares of preferred stock for issuance thereunder.
FORM 10-K Page 35
36
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK PLANS
STOCK COMPENSATION PLANS
- ------------------------
At January 30, 1999, the Company has two 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 any options issued pursuant to any plan. The
compensation cost that has been charged against fiscal 1996 income for the
Restricted Stock Plan, which expired in 1997, was $7,037,000. Had compensation
cost for the Company's various option plans, including the pre-merger effect of
Mac Frugal's plans, 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:
(In thousands except per share data) 1998 1997 1996
--------------------------------------------------------------------------
Net income
As reported $96,769 $85,935 $127,066
Pro forma 83,282 82,999 123,267
Income per common share:
As reported $0.89 $0.80 $1.21
Pro forma 0.76 0.77 1.18
Income per common share - diluted:
As reported $0.86 $0.77 $1.17
Pro forma 0.74 0.74 1.14
FIXED STOCK OPTION PLANS
- ------------------------
Consolidated Stores Corporation 1996 Performance Incentive Plan (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 3,125,000 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. At January 30, 1999, 8,025,571 shares of common stock were
available for issuance under the Incentive Plan. 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 a 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.
The Company has a Director Stock Option Plan (DSOP), for non-employee directors,
pursuant to which up to 781,250 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
FORM 10-K Page 36
37
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK PLANS - CONTINUED
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 year 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 1998, 1997 and 1996, respectively; no dividend
yield for any year; expected volatility of 65%, 39% and 42%; risk-free interest
rates of 4.8%, 5.3% and 6.0%; and expected lives of 2.3, 2.2 and 2.5.
A summary of the Company's various option plans for fiscal 1998, 1997 and 1996
and changes during each respective fiscal year is presented below:
1998 1997 1996
---- ---- ----
(In thousands except price data) Shares Price(1) Shares Price(1) Shares Price(1)
-----------------------------------------------------------------------------------------------------------------
Under option outstanding at
beginning of year 10,710,059 $14.31 12,438,089 $11.25 10,325,979 $ 7.74
Granted 3,641,677 27.44 1,495,232 23.38 3,568,641 26.28
Exercised 1,601,742 20.19 1,522,745 13.19 1,210,784 10.23
Forfeited 807,107 24.25 1,700,517 23.58 245,747 13.52
-----------------------------------------------------------------------------------------------------------------
Under option at end of year 11,942,887 $16.85 10,710,059 $14.31 12,438,089 $ 11.25
-----------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 6,100,528 6,500,029
Weighted average fair value of
options granted during the year $15.96 $5.64
(1) Weighted average per share exercise price
The following table summarizes information about fixed stock options outstanding
at January 30, 1999:
Range of Prices Options Outstanding Options Exercisable
---------------------- ----------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Greater Less than Options Contractual Exercise Options Exercise
than or equal to Outstanding Life (Years) Price Exercisable Price
---------------------------------------------------------------------------------------
$ 1 $10 3,133,785 2.3 $ 4.28 3,116,371 $ 4.26
$10 $20 4,924,199 7.2 13.37 2,209,019 11.79
$20 $30 2,124,608 8.0 26.30 762,113 26.37
$30 1,760,295 9.0 37.57 13,025 38.44
----------------------------------------------------------------
11,942,887 6.3 $16.85 6,100,528 $9.82
----------------------------------------------------------------
FORM 10-K Page 37
38
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ADDITIONAL DATA
The following is a summary of certain financial data:
(In thousands) 1998 1997
--------------------------------------------------------------
Property and equipment - at cost:
Land $ 52,239 $ 49,310
Buildings 250,520 205,758
Fixtures and equipment 726,056 687,962
Transportation equipment 29,524 28,536
--------------------------------------------------------------
1,058,339 971,566
Construction-in-progress 54,045 18,827
--------------------------------------------------------------
1,112,384 990,393
Less accumulated depreciation 428,947 376,915
--------------------------------------------------------------
$ 683,437 $613,478
--------------------------------------------------------------
(In thousands) 1998 1997
--------------------------------------------------------------
Accrued liabilities:
Salaries and wages $57,009 $ 89,022
Property, payroll and other taxes 41,304 42,801
Other 2,643 2,465
--------------------------------------------------------------
$100,956 $134,288
--------------------------------------------------------------
The following analysis supplements changes in assets and liabilities presented
in the consolidated statements of cash flows.
(In thousands) 1998 1997 1996
------------------------------------------------------------------
Inventories $(186,176) $ 64,272 $(165,639)
Other current assets (3,979) (12,832) 8,608
Accounts payable 57,251 (55,858) 82,070
Accrued liabilities (33,332) 5,575 (12,135)
Income taxes (17,655) (39,533) 57,462
------------------------------------------------------------------
$(183,891) $(38,376) $ (29,634)
------------------------------------------------------------------
FORM 10-K Page 38
39
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS GROUP INFORMATION
The Company's principal businesses range across two retail industry groups;
closeouts and toys. The Company's Closeout Stores carry a wide variety of
name-brand consumer products and also sell factory reconditioned products and
lower-priced, private-label merchandise in selected product categories. Certain
core categories of merchandise are carried on a continual basis, although the
specific name-brands offered may change frequently. 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 accounting policies of the business groups are the same as those described
in the Summary of Significant Accounting Policies note to the financial
statements. Financial information by business group, containing information on
revenues, operating profit, depreciation and amortization, and capital
expenditures for each of the last three fiscal years and identifiable assets for
each of the last two fiscal years, is presented below.
(In thousands) 1998 1997 1996
====================================================================
Revenues:
Closeout $2,510,420 $2,452,474 $2,204,521
Toys 1,643,044 1,562,463 1,178,224
Other 40,248 40,365 37,419
--------------------------------------------------------------------
$4,193,712 $4,055,302 $3,420,164
====================================================================
Operating profit (loss):
Closeout $ 150,943 $ 205,908 $ 179,232
Toys 46,462 101,027 96,474
Other and corporate (a) 6,258 (119,055) (3,263)
--------------------------------------------------------------------
$ 203,663 $ 187,880 $ 272,443
====================================================================
(a)Fiscal 1997 includes $70,000 and $45,000 of inventory and merger
related charges associated with the Mac Frugal's Bargains -
Close-outs, Inc. acquisition.
Depreciation and amortization:
Closeout $ 53,681 $ 54,438 $ 47,044
Toys 30,269 24,648 15,358
Other and corporate 56 77 4,229
--------------------------------------------------------------------
$ 84,006 $ 79,163 $ 66,631
====================================================================
Capital expenditures:
Closeout $ 82,813 $ 85,714 $ 53,497
Toys 83,836 60,746 49,009
Other and corporate 2,278
--------------------------------------------------------------------
$ 166,649 $ 146,460 $ 104,784
====================================================================
FORM 10-K Page 39
40
BUSINESS GROUP INFORMATION - CONTINUED
Identifiable assets were comprised of the following:
(In thousands) 1998 1997
----------------------------------------------------------
Closeout $1,252,015 $1,118,119
Toys 760,459 604,893
Other and corporate 30,050 23,369
----------------------------------------------------------
$2,042,524 $1,746,381
==========================================================
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1998 and 1997 is presented below:
Quarter
------------------------------------------------------
(In thousands, except per share data) First Second Third Fourth Year
- --------------------------------------------------------------------------------------------------------------------------
1998
Net Sales $823,302 $823,870 $856,433 $1,690,107 $4,193,712
Gross profit $340,009 $342,225 $352,323 $ 667,802 $1,702,359
Net income (loss) $ 817 $ 6,506 $(16,732) $ 106,178 $ 96,769
Income (loss) per common share (b) $ 0.01 $ 0.06 $ (0.15) $ 0.97 $ 0.89
Income (loss) per common share - diluted (b) $ 0.01 $ 0.06 $ (0.15) $ 0.95 $ 0.86
1997(a)
Net Sales $778,338 $801,306 $859,559 $1,616,099 $4,055,302
Gross profit $317,365 $334,479 $367,556 $ 600,469 $1,619,869
Net income (loss) $ (1,324) $ 5,781 $ 13,622 $ 67,856 $ 85,935
Income (loss) per common share (b) $ (0.01) $ 0.05 $ 0.13 $ 0.63 $ 0.80
Income (loss) per common share - diluted (b) $ (0.01) $ 0.05 $ 0.12 $ 0.60 $ 0.77
(a) See Business Combinations for discussion of fourth quarter merger and other
related charges and associated expenses included in cost of sales recorded
in connection with the acquisition of Mac Frugal's.
(b) Income (loss) per share calculations for each quarter is based on the
applicable weighted average shares outstanding for each period and 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 General Instruction G to Form 10-K, the information called for by
Items 10, with respect to directors of the Company (to the extent not set forth
in Part I hereof), 11, 12, and 13 is incorporated by reference to the Company's
1999 Proxy Statement, which involves the election of directors, the final copy
of which the Company filed with the Securities and Exchange Commission, pursuant
to Regulation 14A, on April 9, 1999.
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 46
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.
FORM 10-K Page 41
42
(b) Reports on Form 8-K
None.
(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 (Exhibit 10(a) to the
Company's Annual Report on Form 10-K for the year ended February 1,
1997 and incorporated herein by reference)
10(b) 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)(i) 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(c) 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(d) 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)
FORM 10-K Page 42
43
Exhibit No. Document
- ----------- -------------------------------------------------------------------
10(d)(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(d)(ii) Amendment No. 2 to CSIC Pension Plan and Trust (Filed as an Exhibit
to the Company's Registration Statement (No. 33-6086) on Form S-8
and incorporated herein by reference)
10(e) Amended and Restated Credit Agrement dated as of May 15, 1998 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 a Managing Agent, National
City Bank, in its capacity as Administrative Agent ("Administrative
Agent") and as a Managing Agent, PNC Bank, National Association, in
its capacity as Arranger, as Documentation Agent (the
"Documentation Agent") and as a Managing Agent, and Bank One, N.A.,
in its capacity as a Co-Syndication Agent and a Managing Agent and
NationsBank, N.A., Fleet National Bank, Bank of America NT & SA,
and First Union National Bank, as Managing Agents (Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
August 1, 1998, and incorporated herein by reference)
10(f) Transfer Agreement, dated as of May 9, 1997, among Consolidated
Stores Corporation, an Ohio corporation, Nashua Hollis CVS, Inc., a
New Hampshire corporation, The Bank of New York, a New York banking
corporation, as Trustee, and each of the purchasers (as defined)
(Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for
the quarter ended August 2, 1997, and incorporated herein by
reference)
10(g) Consolidated Stores Corporation, Note Agreement dated May 9, 1997,
for $100,000,000 7% Senior Subordinated Notes Due May 4, 2000
(Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for
the quarter ended August 2, 1997, and incorporated herein by
reference)
10(h) 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(h)(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(i) Agreement and Plan of Merger by and Among Consolidated Stores
Corporation, MBC Consolidated Acquisition Corporation and Mac
Frugal's Bargains - Close-outs, Inc. dated as of November 4, 1997
(Exhibit 1 to the Company's Current Report on Form 8-K dated
November 5, 1997, and incorporated herein by reference)
10(j) Employment Agreement with William G. Kelley (Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 1, 1998, and incorporated herein by reference)
10(k) 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(l) 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)
FORM 10-K Page 43
44
Exhibit No. Document
- ----------- -------------------------------------------------------------------
10(m) Employment Agreement with Michael L. Glazer (Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1998, and incorporated herein by reference)
10(n) Consulting Agreement, dated as of November 4, 1997, by and between
Philip L. Carter and Consolidated Stores Corporation (Exhibit 2.2
to the Company's Registration Statement (No. 333-41143) (included
in Joint Proxy Statement/Prospectus as Annex B) on Form S-4 and
incorporated herein by reference)
10(o) Noncompetition Agreement, dated as of November 4, 1997, by and
between Philip L. Carter and Consolidated Stores Corporation
(Exhibit 2.3 to the Company's Registration Statement (No.
333-41143) (included in Joint Proxy Statement/Prospectus as Annex
C) on Form S-4 and incorporated herein by reference)
10(p) 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
herein by reference)
10(q) The Consolidated Stores Corporation Key Associate Annual Incentive
Compensation Plan (Exhibit 10(n) to the Company's Annual Report on
Form 10-K for the year ended February 1, 1997 and incorporated
herein by reference)
10(r)* Form of Executive Severance Agreement of the Company
10(s)* Form of Senior Executive Severance Agreement of the Company
10(t) 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)
24.6 Power of Attorney for W. Eric Carlborg (Exhibit 24.6 to the
Company's Registration Statement (No. 333-32063) on Form S-8 and
incorporated herein by reference)
FORM 10-K Page 44
45
Exhibit No. Document
- ----------- -------------------------------------------------------------------
24.7 Power of Attorney for Brenda J. Lauderback (Exhibit 24.7 to the
Company's Registration Statement (No. 333-32063) on Form S-8 and
incorporated herein by reference)
27* Financial Data Schedule
FORM 10-K Page 45
46
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning of Cost and Other End of
Period Expense Accounts(2) Deductions Period
- -------------------------------------------------------------------------------------------------------------
Fiscal year ended January 30, 1999:
Inventory valuation allowance $65,101 $ 4,827 $61,094 $ 8,834
Fiscal year ended January 31, 1998:
Inventory valuation allowance(1) 11,826 92,812 39,537 65,101
Fiscal year ended February 1, 1997:
Inventory valuation allowance(1) 24,506 6,678 10,200 29,558 11,826
(1) Applicable to continuing operations and consists primarily of reserve for
markdowns of aged goods and similar inventory reserves.
(2) Value from company acquired.
FORM 10-K Page 46
47
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 23, 1999 By:/s/ William G. Kelley
-------------------------------
William G. Kelley
Chairman of the Board, Chief Executive
Officer and President
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 23, 1999 /s/ William G. Kelley
-------------------------------
William G. Kelley
Chairman of the Board , Chief Executive
Officer and President
Date: April 23, 1999 /s/ Michael J. Potter
-------------------------------
Michael J. Potter
Executive Vice President, Chief Financial
and Accounting Officer
Date: April 23, 1999
Sheldon M. Berman William G. Kelley Nathan Morton
W. Eric Carlborg David T. Kollat Dennis B. Tishkoff
Michael L. Glazer Brenda J. Lauderback William A. Wickham
Directors Directors 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 23, 1999
FORM 10-K Page 47