Big_Lots_AR2005

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Big_Lots_AR2005

  1. 1. Big Lots, Inc. 2005 Annual Report
  2. 2. about our company Headquartered in Columbus, Ohio, Big Lots (NYSE: BLI) is a Fortune 500 company with over 1,400 stores nationwide. For more than three decades, we’ve delighted our customers with a vibrant mix of exciting brands, unique products, and closeout prices. Big Lots offers new merchandise every week at substantial savings over traditional discount retailers, on average 20 to 40 percent less. Our customers love our unexpected, once-in-a-lifetime deals. We also carry attractive, affordable furniture, home furnishings, seasonal merchandise, and hundreds of everyday items consumers want and need. Through excellent relationships with manufacturers, high-volume purchases, and strict expense control, we pass tremendous savings on to our customers.
  3. 3. financial highlights (UNAUDITED ADJUSTED RESULTS) Fiscal Year 2005 2004 2003 2002 2001 ($ in thousands, except per share amounts and sales per selling square foot) EARNINGS DATA (a) Net sales $ 3,248,622 $ 4,149,252 $ 4,429,905 $ 3,942,653 $ 3,647,771 Net sales increase (b) NR 5.2% 6.8% 8.1% 12.3% Income from continuing operations (c) $ 26,614 $ 31,432 $ 15,725 $ 81,073 $ 68,281 Income from continuing operations increase (decrease) (b) (c) NR (61.2)% (50.0)% 18.7% 156.6% Income from continuing operations per share - diluted (c) $ 0.23 $ 0.27 $ 0.14 $ 0.68 $ 0.59 Income from continuing operations per share - diluted increase (decrease) (b) (c) NR (60.3)% (48.1)% 15.3% 156.5% Average diluted common shares outstanding 113,660 114,801 113,677 117,253 116,707 Gross margin - % of net sales (c) 40.8% 40.7% 39.1% 41.9% 42.2% Selling and administrative expenses - % of net sales (c) 36.8% 36.6% 36.0% 36.0% 36.3% Depreciation expense - % of net sales (c) 2.1% 2.4% 2.5% 2.3% 2.2% Operating profit - % of net sales (c) 1.9% 1.7% 0.6% 3.6% 3.6% Net interest expense - % of net sales 0.6% 0.6% 0.1% 0.4% 0.6% Income from continuing operations - % of net sales (c) 0.4% 2.1% 1.9% 0.8% 0.8% BALANCE SHEET DATA AND FINANCIAL RATIOS Cash equivalents and short-term investments $ – $ 170,300 $ 143,815 $ 17,500 $ – Inventories 836,092 829,569 776,210 705,293 895,016 Property and equipment - net 584,083 621,998 548,103 527,011 648,741 Total assets 1,625,497 1,800,543 1,655,571 1,470,281 1,733,584 Long-term obligations 5,500 204,000 204,000 204,000 159,200 Shareholders’ equity 1,078,724 1,108,779 1,020,088 922,533 1,075,490 Working capital 557,231 718,620 654,626 555,719 622,269 Net debt (d) $ 5,500 $ 33,700 $ 60,185 $ 186,500 $ 159,200 Current ratio 2.3 2.7 2.7 2.8 2.5 Inventory turnover (e) 3.0 3.0 2.9 2.7 2.8 Long-term obligations to total capitalization 0.5% 15.5% 16.7% 18.1% 12.9% Return on assets - continuing operations (a) (c) 0.9% 4.7% 4.4% 1.8% 1.8% Return on shareholders’ equity - continuing operations (a) (c) 1.5% 2.9% 2.9% 7.6% 7.0% CASH FLOW DATA Depreciation and amortization $ 69,935 $ 101,917 $ 114,617 $ 92,407 $ 85,840 Capital expenditures $ 113,387 $ 170,175 $ 110,110 $ 135,291 $ 68,503 STORE DATA Stores open at end of the fiscal year 1,335 1,401 1,502 1,430 1,380 Gross square footage (000’s) 35,528 41,413 42,975 40,040 37,882 Selling square footage (000’s) 26,020 29,856 30,943 29,019 27,593 Increase (decrease) in selling square footage 5.6% (3.5)% 6.6% 5.2% 6.0% Average selling square footage per store 19,491 21,310 20,601 20,293 19,995 OTHER SALES DATA Comparable store sales growth 2.0% 1.8% 0.0% 3.4% 7.7% Average sales per store (f) $ 2,582 $ 3,028 $ 2,951 $ 2,932 $ 2,809 Sales per selling square foot (f) $ 134 $ 146 $ 144 $ 146 $ 142 1,502 $4,430 4,500 1,500 3.5 1,430 1,401 1,380 $4,149 $3,943 1,335 3.0 3.0 2.9 $3,648 2.8 2.7 3,600 1,200 2.8 $3,249 2,700 900 2.1 1,800 600 1.4 900 300 .7 0 0 .0 01 02 03 04 05 01 02 03 04 05 01 02 03 04 05 number of stores inventory turnover (adjusted results (e)) net sales (a) $ in millions (a) Earnings data and related financial ratios have been adjusted to reflect the reclassification of 130 closed stores to discontinued operations for all periods presented. For information relating to the 130 closed stores, refer to the Discontinued Operations Note to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for fiscal year 2005. (b) Comparable metrics to fiscal year 2000 are not reported (“NR”) because the Company did not report the results of fiscal year 2000 with the results of the 130 closed stores reported in discontinued operations. (c) This item is shown excluding the impact of charges for fiscal years 2003 and 2001. A reconciliation of the differences between GAAP and the non-GAAP financial measures presented in this table for fiscal years 2003 and 2001 is shown on the following page. (d) Net debt is calculated as long-term obligations less cash equivalents and short-term investments. (e) Inventory turnover includes the results of the 130 closed stores reported in discontinued operations for all periods presented and excludes the impact of the fiscal year 2001 charge described on the following page. (f) Excludes wholesale business for periods presented, and includes the 130 closed stores reported in discontinued operations for all periods presented.
  4. 4. The Unaudited Adjusted Results, which include financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”), are presented in order to improve comparability of financial information for periods presented. The following information and reconciliation exclude charges related to fiscal years 2003 and 2001, as described below. Fiscal Year 2003 Fiscal Year 2001 Unaudited Unaudited Reported Adjustments Adjusted Results Reported Adjustments Adjusted Results (GAAP) (non-GAAP) (GAAP) (non-GAAP) ($ in thousands, except per share amounts) 100.0 % $ 3,248,622 $ – 100.0 % $ 3,248,622 100.0 % $ – Net sales 100.0 % $ 3,942,653 $ 3,942,653 59.2 1,921,520 (62,439) 61.1 1,983,959 58.1 – Cost of sales 58.1 2,292,123 2,292,123 40.8 1,327,102 62,439 38.9 1,264,663 41.9 – Gross margin 41.9 1,650,530 1,650,530 Selling and administrative expenses 36.8 1,194,197 (34,888) 37.8 1,229,085 36.0 (18,698) 36.5 1,439,444 1,420,746 Depreciation expense 2.1 68,683 – 2.1 68,683 2.3 – 2.3 88,960 88,960 Operating profit (loss) 1.9 64,222 97,327 (1.0) (33,105) 3.6 18,698 3.1 122,126 140,824 Interest expense 0.6 20,489 – 0.6 20,489 0.4 – 0.4 16,443 16,443 Interest income (0.0) (287) – (0.0) (287) (0.0) – (0.0) (1,061) (1,061) Income (loss) from continuing operations before income taxes 1.3 44,020 97,327 (1.6) (53,307) 3.2 18,698 2.7 106,744 125,442 Income tax expense (benefit) 0.5 17,406 38,444 (0.6) (21,038) 1.1 23,536 0.5 20,833 44,369 Income (loss) from continuing operations 0.8 26,614 58,883 (1.0) (32,269) 2.1 (4,838) 2.2 85,911 81,073 Income (loss) from discontinued operations 0.1 2,807 (8,480) 0.4 11,287 0.1 9,720 (0.2) (5,691) 4,029 Net income (loss) 0.9 % $ 29,421 $ 50,403 (0.6)% $ (20,982) 2.2% $ 4,882 2.0% $ 80,220 $ 85,102 Income (loss) per common share - basic: Continuing operations $ 0.24 $ 0.52 $ (0.28) $ (0.04) $ 0.74 $ 0.70 Discontinued operations 0.03 (0.07) 0.10 0.08 (0.05) 0.03 $ 0.27 $ 0.45 $ (0.18) $ 0.04 $ 0.69 $ 0.73 Income (loss) per common share - diluted: Continuing operations $ 0.23 $ 0.51 $ (0.28) $ (0.05) $ 0.73 $ 0.68 Discontinued operations 0.03 (0.07) 0.10 0.09 (0.05) 0.04 $ 0.26 $ 0.44 $ (0.18) $ 0.04 $ 0.68 $ 0.72 For a discussion of defined terms, refer to the Company’s Annual Report on Form 10-K for fiscal year 2005 (“2005 Form 10-K”). The 2005 Form 10-K is included in this Annual Report to Shareholders. FISCAL YEAR 2003 CHARGE In fiscal year 2003, the Company recorded charges related to KB Toys matters and litigation of $4.9 million (net of tax), or $0.04 per diluted share. The KB Toys charge resulted primarily from KB’s bankruptcy filing on January 14, 2004, and represented: a) a $14.3 million (net of tax) charge related to KB store lease guarantee obligations; b) a $10.6 million (net of tax) benefit related to the partial charge-off of the HCC Note and the write-off of the KB warrant; and c) a $5.8 million (net of tax) benefit related to the resolution and closure of KB state and local tax matters. In another KB matter unrelated to the bankruptcy proceedings, a litigation charge of $1.2 million (net of tax) was recorded relating to certain advertising practices of KB Toys. Unrelated to KB Toys, the Company also recorded a $5.7 million (net of tax) charge to settle the Company’s two California class action lawsuits relating to the calculation of earned overtime wages for certain former and current store managers and assistant store managers in that state. FISCAL YEAR 2001 CHARGE In fiscal year 2001, the Company recorded a charge of $50.4 million (net of tax), or $0.44 per diluted share. The charge represented: a) costs to modify the Company’s product assortment and exit certain merchandise categories ($6.1 million net of tax); b) adjustments to the estimated capitalized freight costs related to inbound imported inventories in response to better systems and information ($15.0 million net of tax); c) adjustments to inventory-related costs that were identified as a result of the completion of a significant multiyear conversion to a detailed stock-keeping unit inventory management system ($16.7 million net of tax); and d) changes in estimates and estimating methodology related to insurance reserves ($12.6 million net of tax). financial highlights The Unaudited Adjusted Results should not be construed as an alternative to the reported results determined in accordance with GAAP. Further, the Company’s definition of adjusted income information may differ from similarly titled measures used by other companies. While it is not possible to predict future results, management believes the adjusted non-GAAP information is useful for the assessment of the Company’s ongoing operations. The Unaudited Adjusted Results should be read in conjunction with the Company’s Consolidated Financial Statements and Notes contained in the 2005 Form 10-K.
  5. 5. chairman’s letter Dear Shareholders: Let me begin by expressing how proud I am to be the new CEO of Big Lots. I joined the company in July 2005. During my first few weeks on the job, I spent a great deal of time learning and listening — not unusual activities for a new CEO. I also talked with hundreds of associates, company leaders, and customers during planning sessions and store visits. What’s been clear to me from the beginning is that we have talented people and a strong niche in the retail marketplace. At the same time, we also have an incredible opportunity to transform Big Lots from a good company to a truly great one. We deliberately set out looking at our business in new ways, challenging our assumptions about how we operate and what our customers expect. As I often STEVEN S. FISHMAN remind our associates, retail constantly changes, and that’s the fun part about Chairman, Chief Executive Officer, President this business. We always have to challenge ourselves to make changes in order to improve our results and drive shareholder value. And a new CEO — especially an optimistic one — can embrace change with an open mind. WIN In August we launched a new strategy called WIN, or What’s Important Now. WIN involves tactical plans to improve the financial performance of the business in the short and long term. Throughout 2005, development of the WIN strategy focused the leaders of the business on three key areas: operating expenses, real estate, and merchandising. The strategy involves three steps: Discovery, Testing, and Execution. We went through Discovery during my first six months. As a result of what we learned, we began doing some things differently. The following provides an overview of our actions involving our expense structure, real estate, and merchandising. Operating expenses Our overhead costs in relation to our sales were simply too high. It was critical for the future success of the business that we quickly reduce our cost structure. We began taking action in October and have already identified annual expense reductions of $30 to $35 million. We’ve cut millions of dollars from our budget in corporate overhead expenses. We reorganized our field operations structure, realigned positions to eliminate management redundancies, and are reducing the number of tasks and related payroll we are spending in our stores. Real estate Like every retailer, we constantly review the performance of our stores. Historically, we have closed or relocated approximately 30 to 40 stores per year. However, as part of our WIN strategy and in light of softening sales trends in 2004 and early 2005, we decided to perform a detailed review of every store in our fleet. As a result of our analysis, we accelerated the closing of an additional 85 closeout stores, bringing our total number of closeout store closings to 131 for the year. This was a very proactive move to improve the long-term fitness of our business without compromising our solid cash position. In addition to closing the 131 closeout stores, we made a decision to exit the stand-alone furniture business. While I love the furniture business, I do not have the same affection for the stand-alone furniture stores. We have a greater opportunity to improve sales in furniture departments within our closeout stores while reducing the operating expenses and the inventory committed to operating a stand-alone furniture business. In total, we closed 174 stores during 2005, which will improve our profitability in 2006 and beyond. New store openings for the company have historically been very opportunistic, spreading across all parts of the country. Starting with 2006, we will implement a more market-specific strategy, opening stores selectively and tailoring the expense structure to match the market potential. As a result, new store growth will be minimal as we focus on our prime obsession: boosting sales and profits at existing stores.
  6. 6. Merchandising One of the greatest challenges we have before us is to define and refine our merchandising strategy. I admit that merchandising has been my passion for many years. I started out as a merchant, and I often accompany our buyers on trips to market and at trade shows. Our business plan for 2006 begins with the same objective we start with every year — providing our customers with incredible brand-name deals at prices nobody can beat. Simultaneously, we will work hard to grow our profit margins by focusing on opportunities to improve our assortment, sales, productivity, and marketing. The process to refine our merchandising strategy began with extensive research. During our Discovery phase, we studied current successes, received input from store managers and company leaders, and interviewed over 20,000 Big Lots customers. We learned that Big Lots appeals to an extremely wide range of cost-conscious consumers. The majority of those surveyed have household incomes between $25,000 and $75,000, are married, and have children. About a third of them shop us at least once a month. But no matter their age, race, or income level, they all have one thing in common: They’re treasure hunters. To our customers, Big Lots represents a unique opportunity to indulge their inner treasure hunter. It doesn’t matter if they’re looking for bottled water or a bedroom suite – it’s the thrill of finding brand-name merchandise that’s Stupid Cheap.™ REINVENTING CLOSEOUTS We’re aggressively pursuing new ideas and business relationships that will help us deliver even more of the great deals our customers know and love. Based on our research, we’ve launched the following key merchandising initiatives: Buzz builders, basket builders, must-haves On average, our customers spend about $18 a trip. We have challenged ourselves to develop strategies to capture a greater share of our existing customers’ wallet or weekly spend. To achieve this goal, we are looking to build the value of the average basket through three specific merchandise categories: buzz builders, basket builders, and must-haves. Buzz builders are the WOW items that create excitement — the ones customers brag to their friends about (our famous-maker jeans at ridiculously low prices are a good example). These are primarily closeouts and once-in-a-lifetime deals. Basket builders are impulse items that increase the average sale, such as seasonal merchandise and snacks. And last, must-haves are frequently purchased items we should always have in stock, such as pens, paper towels, and tissues. The brand may vary, but we’ll always offer a great deal. Raise the ring This is another merchandising and pricing strategy aimed at increasing the value of our average basket. We’ll study the value of low-ticket items to our selling mix. In some categories, we’ll experiment with larger package sizes that can generate a slightly higher average ticket. Engineered closeouts and captive labels Closeouts will always be the biggest part of our business. Often we acquire closeouts through package changes, canceled orders, discontinued items, or manufacturer overruns. But many manufacturers have the ability to engineer closeouts just for Big Lots. We’re building relationships with major manufacturers to help us bring even more brand-name deals to our customers. In January 2006, we held our first Big Lots Business Summit with over 100 executives from many of the nation’s leading companies to explore unique options we have for working together. We’re also starting to carry captive label brands, such as our Rival® dog food. Rival was a brand-name dog food made many years ago, and we control the rights to the name. The prospects for expanding our engineered closeout and private label programs are very promising, and we hope to have more to report on this front in the coming year.
  7. 7. A SELLING ORGANIZATION In the past, our approach has been, If you buy it, they will come. Today our priorities are different. It’s not enough to focus solely on the buy-side of closeouts. We are directing our energy on being a buying and selling organization. Going forward, every great “buy” will have multiple selling mechanisms — a mixture of in-store, online, and multimedia marketing that will communicate great value instantaneously. Brand Names. Closeout Prices.® That’s our mantra. We will convey this message at every sales touch-point. Our marketing activities will address print and broadcast advertising and, most important, the in-store experience. Our research shows that the majority of our customers come into Big Lots with no specific item in mind. They’re shopping just for the treasure hunt. That means how we market inside our stores, how we present, and how well we execute across all merchandise categories will be critical to growing our business. We’ll experiment with signage, color, and clearer sight lines to help customers navigate the store and locate our great bargains. In February 2006, we launched a laboratory store to test a number of new marketing concepts and merchandise presentations. Our print circulars are undergoing a makeover too, and we’ll be tracking the distribution and effectiveness of our print advertising with a fresh eye. Also look for new TV commercials. FULL STEAM AHEAD Our team enters 2006 with incredible momentum. Our accomplishments are a testimony to the efforts of our 44,000 associates who accepted the challenge to pick up the pace. Business is everything but usual, and we are not afraid of change. In retail, it’s a necessity. We are literally changing the way closeouts are done. We’re not waiting for vendors to call us. We’re making decisions about the merchandise we want to carry — how we want to buy it, price it, market it, and distribute it efficiently. Every detail of our plan is designed to help us become a selling machine. Testing of our strategies is already underway in a group of stores across the country and will continue through 2006. Our testing phase gives all of us a chance to see strategy in action. Some of our ideas will be home runs. Others may miss the mark, and frankly, that’s a good thing. If you never make a mistake, that means you’re not trying something new, different, and exciting. Exciting things are clearly happening — new directions, new marketing, and new horizons of opportunity that make now the best time to be at Big Lots. The results of our testing in 2006 will lay the groundwork for refining our strategies and executing our successes in 2007. We will focus on the elements that are easily adaptable to our existing store prototypes and roll them out efficiently and cost-effectively. WOW is the endgame. We like to call it the closeout moment. It’s not always easy getting there. It takes exceptional people with unrelenting determination and the drive to perform. I believe in the Big Lots team. There will always be external forces that can impact our bottom line, from the national economy to intense competition and even weather. But there is one force that is more powerful, and that force is us. How we manage, how we work, how we look out for each other — these are the factors that will help separate a great company from the rest of the pack. Our niche as the nation’s most dominant broadline closeout retailer is one of our most important assets. We are not a dollar store, and we are not a discount store. We are a company unlike any other, that goes where few other retailers can follow. And we are committed to working together to make our company bigger, better, and stronger in returning shareholder value. Thank you for your support and confidence as we look forward to a great year. Sincerely, Steve Fishman Chairman, CEO, and President
  8. 8. directors and executives BOARD OF DIRECTORS COMPANY EXECUTIVES Sheldon M. Berman CHAIRMAN, CHIEF EXECUTIVE VICE PRESIDENTS (Continued) OFFICER & PRESIDENT Chairman, Chief Executive Officer & President Steven S. Fishman Craig A. Hart Xtreem Creative, Inc. Merchandise Planning Steven S. Fishman EXECUTIVE VICE PRESIDENTS Charles H. Howze Store Operations Chairman, Chief Executive John C. Martin Officer & President Gary E. Huber Merchandising Store Projects Big Lots, Inc. Donald A. Mierzwa Kathleen R. Hupper Store Operations David T. Kollat Real Estate Administration President & Founder Brad A. Waite Timothy A. Johnson Human Resources, Loss Prevention, Real 22, Inc. Strategic Planning & Investor Relations Estate & Risk Management Brenda J. Lauderback Kathryn A. Keane Transportation Services SENIOR VICE PRESIDENTS former President – Wholesale Group Stephen B. Marcus Lisa M. Bachmann Wholesale Nine West Group, Inc. Information Technology/ Merchandise Planning & Allocation Seth L. Marks Philip E. Mallott Big Lots Capital Robert C. Claxton former Vice President & Marketing Richard J. Marsan, Jr. Chief Financial Officer Merchandise Presentation Joe R. Cooper Intimate Brands, Inc. Chief Financial Officer Todd A. Noethen Distribution Support Services Ned Mansour Charles W. Haubiel II General Counsel & former President Judith A. Panoff Corporate Secretary Divisional Merchandise Manager Mattel, Inc. Kent Larsson Jo L. Roney Russell Solt Special Projects Human Resources Services former Executive Norman J. Rankin Shelley L. Rubin Vice President & General Merchandise Manager Advertising Chief Financial Officer Harold A. Wilson Michael A. Schlonsky West Marine, Inc. Distribution & Associate Relations & Transportation Services Risk Management James R. Tener President & Paul A. Schroeder VICE PRESIDENTS Controller Chief Operating Officer Brook Mays Music Group Timothy C. Anderson Robert Segal Store Control Divisional Merchandise Manager Dennis B. Tishkoff Armen Bahadurian Steven R. Smart Chairman & Wholesale Merchandise Manager Divisional Merchandise Manager Chief Executive Officer Loyd R. Barron Sharon A. Smith Drew Shoe Corporation Store Operations Allocation William Coney Wayne W. Stockton Store Operations Divisional Merchandise Manager Kevin R. Day L. Michael Watts Real Estate Tax Charles Ellis Crystal L. Weary Imports Divisional Merchandise Manager Roger D. Erwin Stewart Wenerstrom Store Operations Merchandise Support Gregory W. Wilmer Richard L. Fannin Information Technology Development Technology & Data Center Services Kevin R. Wolfe Charles C. Freidenberg Loss Prevention Divisional Merchandise Manager Mollie M. Hall Store Operations
  9. 9. Big Lots, Inc. 300 Phillipi Road Columbus, Ohio 43228 April 19, 2006 Dear Shareholder: You are cordially invited to attend the Annual Meeting of Shareholders of Big Lots, Inc., which will be held at the Company’s corporate office located at 300 Phillipi Road, Columbus, Ohio, on Thursday, May 25, 2006, beginning at 9:00 a.m. EDT. The following pages contain the formal Notice of Annual Meeting of Shareholders and the Proxy Statement. You should review this material for information concerning the business to be conducted at the Annual Meeting of Shareholders. Your vote is important. Whether or not you plan to attend the Annual Meeting of Shareholders, you are urged to complete, date and sign the enclosed proxy card and return it in the enclosed envelope. If you attend the Annual Meeting of Shareholders, you may revoke your proxy and vote in person if you wish, even if you have previously returned your proxy. On behalf of the Board of Directors, we would like to express our appreciation for your continued interest in the affairs of the Company. STEVEN S. FISHMAN Chairman, Chief Executive Officer and President
  10. 10. Big Lots, Inc. 300 Phillipi Road Columbus, Ohio 43228 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 25, 2006 Notice is hereby given that the Annual Meeting of Shareholders of Big Lots, Inc. will be held at the Company’s corporate office located at 300 Phillipi Road, Columbus, Ohio, on Thursday, May 25, 2006, beginning at 9:00 a.m. EDT. At the meeting, the holders of the Company’s outstanding common shares will act on the following matters: 1. The election of nine directors of the Company; 2. The approval of the Big Lots 2006 Bonus Plan, in the form attached hereto as Appendix I; and 3. The transaction of such other business as may properly come before the meeting. Only shareholders of record at the close of business on March 27, 2006, are entitled to notice of and to vote at the Annual Meeting of Shareholders and any postponements or adjournment thereof. By Order of the Board of Directors, CHARLES W. HAUBIEL II Senior Vice President, General Counsel and Corporate Secretary April 19, 2006 Columbus, Ohio Your vote is important. Shareholders are urged to complete, date and sign the enclosed proxy card and return it in the enclosed envelope to which no postage need be affixed if mailed in the United States. If you attend the Annual Meeting of Shareholders, you may revoke your proxy and vote in person if you wish, even if you have previously returned your proxy.
  11. 11. BIG LOTS, INC. PROXY STATEMENT TABLE OF CONTENTS ABOUT THE ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Purpose of the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Shareholder Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Registered Shareholders and Beneficial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Attendance at the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 How to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Householding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Electronic Delivery of Proxy Materials and Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Tabulation of the Votes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Board’s Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Vote Required to Approve a Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Proposal One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 PROPOSAL ONE: ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 GOVERNANCE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Current Members of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Board Meetings in Fiscal 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Role of the Board’s Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Nominating/Corporate Governance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Search Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Presiding Member of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Determination of Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Other Directorships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Selection of Nominees by the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Retainers and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Code of Business Conduct and Ethics & Code of Ethics for Financial Professionals . . . . . 10 Shareholder Communications to the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 i
  12. 12. STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Ownership of Company Stock by Certain Beneficial Owners and Management . . . . . . . . . . 10 Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION . . . . . . . . 15 Committee Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Compensation Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Executive Compensation Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Executive Compensation Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Benefits/Perquisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Comprehensive Review Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Internal Pay Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Compensation for the Chief Executive Officer in Fiscal 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 CEO Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 CEO Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 CEO Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Compensation for Other Executives in Fiscal 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Non-CEO Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Non-CEO Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Non-CEO Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Deductibility of Annual Compensation over $1 Million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Executive Change in Control Severance Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Option Grants During Fiscal 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Option Exercises During Fiscal 2005 and Fiscal Year End Option Values . . . . . . . . . . . . . . . . . 27 Comparison of Five Year Total Shareholder Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Supplemental Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Supplemental Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Employee Equity Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ii
  13. 13. Executive Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 PROPOSAL TWO: APPROVAL OF THE BIG LOTS 2006 BONUS PLAN . . . . . . . . . . . . . . . . 32 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Administration and Description of Bonus Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Amendment, Suspension or Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ANNUAL REPORT ON FORM 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 PROXY SOLICITATION COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 BIG LOTS 2006 BONUS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix I BIG LOTS, INC. AMENDED AND RESTATED AUDIT COMMITTEE CHARTER . . . . . . Appendix II iii
  14. 14. Big Lots, Inc. 300 Phillipi Road Columbus, Ohio 43228 PROXY STATEMENT This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Big Lots, Inc., an Ohio corporation (the “Company”), for use at the Annual Meeting of Shareholders (the “Annual Meeting”) to be held on May 25, 2006, at the Company’s corporate office located at 300 Phillipi Road, Columbus, Ohio. The Notice of Annual Meeting of Shareholders, this Proxy Statement and the accompanying proxy card, together with the Company’s Annual Report to Shareholders for the fiscal year ended January 28, 2006 (“fiscal 2005”), are first being mailed to shareholders on or about April 19, 2006. ABOUT THE ANNUAL MEETING Purpose of the Annual Meeting At the Annual Meeting, shareholders will act upon the matters outlined in the Notice of Annual Meeting included with this Proxy Statement. Specifically, the shareholders will be asked to elect the Company’s directors, approve the Big Lots 2006 Bonus Plan (the “2006 Bonus Plan”), and transact such other business as may properly come before the Annual Meeting. In addition, management will report on the performance of the Company. Shareholder Voting Rights Only those shareholders of record at the close of business on March 27, 2006, the record date for the Annual Meeting, are entitled to receive notice of and to vote at the Annual Meeting. At the record date, the Company had outstanding 113,759,701 common shares, $.01 par value per share. Each of the outstanding common shares is entitled to one vote on each matter voted upon at the Annual Meeting, or any postponement or adjournment thereof. The holders of common shares have no cumulative voting rights in the election of directors. All voting shall be governed by the Code of Regulations of the Company and the General Corporation Law of the State of Ohio. Registered Shareholders and Beneficial Shareholders If your common shares are registered in your name directly with the Company’s transfer agent, National City Bank, you are considered, with respect to those common shares, a registered shareholder. The Notice of Annual Meeting of Shareholders, Proxy Statement, proxy card, and 2005 Annual Report to Shareholders have been sent directly to registered shareholders by the Company. If your common shares are held in a brokerage account or by a bank or other holder of record, you are considered the beneficial owner of common shares held in street name. The Notice of Annual Meeting of Shareholders, Proxy Statement, proxy card, and 2005 Annual Report to Shareholders have been forwarded to you by your broker, bank or other holder of record who is considered, with respect to those common shares, the registered shareholder. As the beneficial owner, you have the right to direct your broker, bank or other holder of record on how to vote your common shares by using the voting instruction card included in the mailing or by following their instructions for voting electronically. -1-
  15. 15. Attendance at the Annual Meeting All shareholders as of the record date, or their duly appointed proxies, may attend the Annual Meeting. Registration and seating will begin at 8:30 a.m. EDT, and the Annual Meeting will begin at 9:00 a.m. EDT. If you attend, please note that you may be asked to present valid picture identification, such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting. Please also note that if you hold your common shares as a beneficial shareholder, you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the Annual Meeting. How to Vote You may vote by completing, dating and signing the accompanying proxy card and returning it in the enclosed envelope. You may also vote online at www.proxyvote.com until May 24, 2006 at 11:59 p.m. EDT. If you wish to vote online, you will need your proxy card and must follow the instructions posted on the website. If you complete, date, sign and return your proxy card or you properly complete your proxy via the Internet, your shares will be voted as you direct. If you are a registered shareholder and attend the Annual Meeting, you may deliver your completed proxy card in person. Beneficial shareholders who wish to vote at the Annual Meeting will need to obtain a proxy form from the broker or other nominee that is the registered holder of the common shares. Additionally, beneficial shareholders may be able to instruct the broker or other nominee how to vote by telephone or electronically, so please contact your broker or other nominee to determine availability and applicable deadlines. A proxy may be revoked at any time before it is exercised by filing with the Secretary of the Company a notice of revocation or a duly executed proxy bearing a later date. A proxy may also be revoked by attending the Annual Meeting and giving notice of revocation to the Secretary of the meeting, either in writing or in open meeting. Attendance at the Annual Meeting will not by itself revoke a previously granted proxy. Householding The Securities and Exchange Commission (“SEC”) has enacted a regulation that allows multiple shareholders residing at the same address the convenience of receiving a single copy of annual reports, proxy statements, notices of shareholder meetings, and other documents if they consent to do so. Please note that if you do not respond to the householding election, householding will begin 60 days after the mailing of the Proxy Statement. Householding will be permitted only upon certain conditions, including where you agree to or do not object to the householding of your materials and you have the same last name and address as another shareholder. If these conditions are met, and SEC regulations allow, your household will receive a single copy of annual reports, proxy statements, notices of shareholder meetings, and other documents. The householding election that appears on the enclosed proxy card provides a means for you to notify us whether or not you consent to householding. By marking “yes” in the box provided, you will consent to householding. By marking “no” in the box provided, you withhold your consent to participation. If you do nothing, you will be deemed to have given your consent to householding. Your consent to householding will be perpetual unless you revoke it. You may revoke your consent at any time by contacting Automatic Data Processing, Inc. (“ADP”), either by calling 1-800-542-1061, or by writing to: ADP-ICS, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. You will be removed from the householding program within 30 days of receipt of your response, following which you will receive an individual copy of our disclosure document. Beneficial owners can request more information about householding from their banks, brokers or other holders of record. Electronic Delivery of Proxy Materials and Annual Report In lieu of receiving paper copies of next year’s proxy materials and annual report in the mail, shareholders may elect to receive these documents electronically via e-mail or the Internet. By opting to access these documents electronically, you will save the Company the cost of producing and mailing documents to you, -2-
  16. 16. reduce the amount of mail you receive, and help preserve environmental resources. To enroll in the electronic delivery service for future annual meetings, use your proxy card information to register online at www.proxyvote.com by indicating that you agree to receive or access shareholder communications electronically in future years. Tabulation of the Votes Tabulation of the votes cast at the Annual Meeting will be performed by ADP, as inspected by duly appointed officers of the Company. Board’s Recommendation Unless you give other instructions on your proxy card (excluding broker non-votes), the persons named as proxy holders on the proxy card will vote the common shares in accordance with the recommendations of the Board. The Board’s recommendation is set forth together with the description of each proposal in this Proxy Statement. In summary, the Board recommends a vote FOR election of the nominated slate of directors (see Proposal One), and FOR the approval of the 2006 Bonus Plan (see Proposal Two). If any other matter properly comes before the Annual Meeting, or if a director nominee named in the Proxy Statement is unable to serve or for good cause will not serve, the proxy holders will vote on such matter or for such substitute nominee as recommended by the Board. Vote Required to Approve a Proposal Proposal One For purposes of Proposal One, the nine director nominees receiving the greatest number of votes cast shall be elected. A properly executed proxy marked “withhold authority” with respect to the election of one or more nominees for director will not be voted with respect to the nominee or nominees for director indicated, although it will be counted for purposes of determining whether there is a quorum. If you are a beneficial shareholder, your broker or other nominee that is the registered holder of your common shares is permitted to vote your shares for the election of directors even if the broker or other nominee does not receive voting instructions from you. Other Matters For purposes of Proposal Two and any other matters that may properly come before the Annual Meeting, the affirmative vote of the holders of a majority of the common shares represented in person or by proxy and entitled to vote on each such matter will be required for approval. A properly executed proxy marked “abstain” with respect to any such matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the effect of a negative vote. If no voting instructions are given (excluding broker non-votes), the persons named as proxy holders on the proxy card will vote the common shares in accordance with the recommendations of the Board. If you are a beneficial shareholder, your broker or other nominee may not be permitted to exercise discretionary voting power with respect to some of the matters to be acted upon. Thus, if you do not give your broker or other nominee specific voting instructions, your common shares may not be voted on those matters and will not be counted in determining the number of common shares necessary for approval. Common shares represented by such “broker non-votes” will, however, be counted in determining whether there is a quorum. Quorum The presence, in person or by proxy, of the holders of a majority of the outstanding common shares entitled to vote at the Annual Meeting will constitute a quorum, permitting the Company to conduct its business at the Annual Meeting. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of votes considered to be present at the Annual Meeting for purposes of establishing a quorum. -3-
  17. 17. PROPOSAL ONE: ELECTION OF DIRECTORS At the Annual Meeting, the common shares of the Company represented by proxies will be voted, unless otherwise specified, for the election of the nine director nominees named below. All nine nominees are currently directors of the Company. Proxies cannot be voted at the Annual Meeting for more than nine persons. Set forth below is certain information relating to the nominees for election as directors. Directors are elected to serve until the next annual meeting of shareholders and until their respective successors are elected and qualified, or until their earlier death, resignation or removal. Principal Occupation Director Name Age for the Past Five Years Since Sheldon M. Berman 65 Chairman, Chief Executive Officer and President, Xtreem Creative, Inc. 1994 (business planning, marketing planning, and advertising services). Steven S. Fishman 54 Chairman, Chief Executive Officer and President of the Company; 2005 former President, Chief Executive Officer and Chief Restructuring Officer, Rhodes, Inc. (furniture retailer) — Rhodes, Inc. filed for bankruptcy on November 4, 2004; former Chairman and Chief Executive Officer, Frank’s Nursery & Crafts, Inc. (lawn and garden specialty retailer) — Frank’s Nursery & Crafts, Inc. filed for bankruptcy on September 8, 2004; former President and Founder, SSF Resources, Inc. (investment and consulting). David T. Kollat 67 President and Founder, 22, Inc. (research and management consulting). 1990 Brenda J. Lauderback 55 Former President — Wholesale Group, Nine West Group, Inc. (retail 1997 and wholesale footwear); former President — Footwear Wholesale, U.S. Shoe Corporation (retail and wholesale footwear); former Vice President, General Merchandise Manager, Dayton Hudson Corporation (retail stores). Philip E. Mallott 48 Independent financial consultant; retail stock analyst, Coker & Palmer 2003 (securities brokerage services); former Vice President and Chief Financial Officer, Intimate Brands, Inc. (retail stores). Ned Mansour 57 Former President, Mattel, Inc. (designer, manufacturer and marketer of 2003 toy products). Russell Solt 58 Director of Investor Relations, West Marine, Inc. (specialty retailer and 2003 catalog company); former Executive Vice President and Chief Financial Officer, West Marine, Inc.; former Senior Vice President and Chief Financial Officer, West Marine, Inc.; former President, Venture Stores (discount retailer). James R. Tener 56 President and Chief Operating Officer, Brook Mays Music Group (retail 2005 and wholesale music); former Chief Operating Officer, The Sports Authority (sporting goods retailer). Dennis B. Tishkoff 62 Chairman and Chief Executive Officer, Drew Shoe Corporation 1991 (manufacture, import and export, retail and wholesale footwear); President, Tishkoff and Associates, Inc. (retail consultant); former President and Chief Executive Officer, Shoe Corporation of America (retail footwear). THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES LISTED ABOVE. -4-

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