8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported):    May 17, 2005

BIG LOTS, INC.

(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization) 1-8897
(Commission File Number) 06-1119097
(I.R.S. Employer Identification No.)

300 Phillipi Road, Columbus, Ohio 43228
(Address of principal executive office) (Zip Code)

(614) 278-6800
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o       Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o       Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o       Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o       Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 1.01 Entry into a Material Definitive Agreement
	Item 2.02 Results of Operations and Financial Condition
	Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
	Item 9.01 Financial Statements and Exhibits
Signature
EX-10.1
EX-99.1
EX-99.2

Item 1.01 Entry into a Material Definitive Agreement.

At the Company's Annual Meeting of Shareholders on May 17, 2005, the proposal to approve the Big Lots 2005 Long-Term Incentive Plan (the "2005 Incentive Plan") was approved by the Company's shareholders. The 2005 Incentive Plan is designed to support the Company's long-term business objectives in a manner consistent with its executive compensation philosophy. The 2005 Incentive Plan allows the Company to continue to offer its employees long-term, equity and qualified performance-based compensation in order to (i) align the interest of salaried employees, advisors and consultants with those of the shareholders through increased employee ownership of the Company, and (ii) attract, motivate and retain experienced and highly qualified salaried employees, advisors and consultants who will contribute to the Company's financial success. All salaried employees, consultants and advisors of the Company and its affiliates (other than non-employee directors) are eligible to receive Awards (as defined below) under the 2005 Incentive Plan.

As with its prior equity compensation plan, the Big Lots, Inc. 1996 Performance Incentive Plan, as amended (the "1996 Incentive Plan"), the 2005 Incentive Plan is an omnibus plan that provides for a variety of types of Awards to maintain flexibility. The 2005 Incentive Plan permits the granting of (i) non-qualified stock options, (ii) incentive stock options, as defined in Section 422 of the Internal Revenue Code, (iii) stock appreciation rights, (iv) restricted stock, (v) restricted stock units, and (vi) performance units (all of which are referred to collectively as "Awards"). The total number of the Company's common shares available for Awards under the 2005 Incentive Plan is equal to the sum of (i) 1,250,000 newly issued common shares, plus (ii) the number of common shares that remain available for use under the 1996 Incentive Plan on December 30, 2005, plus (iii) an annual increase equal to 0.75% of the total number of issued common shares (including treasury shares) as of the start of each of the Company's fiscal years that the 2005 Incentive Plan is in effect.

This summary is qualified in its entirety by reference to the full text of the 2005 Incentive Plan attached to this Form 8-K as Exhibit 10.1.

Item 2.02 Results of Operations and Financial Condition.

On May 17, 2005, the Company issued a press release and conducted a conference call, both of which reported the Company’s unaudited first quarter results. Attached as exhibits to this Form 8-K are copies of the Company’s May 17, 2005 press release (Exhibit 99.1) and the transcript of the Company’s May 17, 2005 conference call (Exhibit 99.2), including information concerning forward-looking statements and factors that may affect the Company’s future results. The information in Exhibits 99.1 and 99.2 is being furnished, not filed, pursuant to Item 2.02 of this Form 8-K. By furnishing the information in this Form 8-K and the attached exhibits, the Company is making no admission as to the materiality of any information in this Form 8-K or the exhibits.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

As previously disclosed, the Company’s $500 million five-year unsecured credit facility dated October 29, 2004 (the “2004 Credit Agreement”) provides the Company with access to revolving loans and includes a $30 million swing loan sub-limit, a $50 million bid loan sub-limit, and a $150 million letter of credit sub-limit. At May 17, 2005, the total indebtedness under the 2004 Credit Agreement was $138.0 million, comprised of $85.0 million in revolving credit loans, $7.5 million in swing loans, no bid loans, and $45.5 million in letters of credit. The Company expects borrowings and letters of credit through mid-June 2005 to range between $150.0 million and $200.0 million. Given the seasonality of the Company’s business, the amount of borrowings under the 2004 Credit Agreement may fluctuate materially depending on various factors, including the time of year and the Company’s need to acquire merchandise inventory.

The 2004 Credit Agreement permits, at the Company’s option, borrowings at various interest rate options based on the prime rate or London Interbank Offering Rate plus applicable margin. The 2004 Credit Agreement also permits, as applicable, borrowings at various interest rate options mutually agreed upon by the Company and the lenders. The weighted average interest rate of the outstanding loans at May 17, 2005 was 3.47%. The Company typically repays and/or borrows on a daily basis in accordance with the terms of the 2004 Credit Agreement. The daily activity is a net result of the Company’s liquidity position which is affected by (i) cash inflows such as store cash, credit card settlements, and other miscellaneous deposits, and (ii) cash outflows such as check clearings, wire and other electronic transactions, and other miscellaneous disbursements.

The 2004 Credit Agreement contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens and investments, as well as the maintenance of two financial ratios – a leverage ratio and a fixed charge coverage ratio. A violation of these covenants could result in a default under the 2004 Credit Agreement which would permit the lenders to restrict the Company’s ability to further access the 2004 Credit Agreement for loans and letters of credit, and require the immediate repayment of any outstanding loans under the 2004 Credit Agreement.

Item 9.01 Financial Statements and Exhibits.

      (c) Exhibits

Exhibit No.	Description
10.1	Big Lots 2005 Long-Term Incentive Plan.
99.1	Big Lots, Inc. press release dated May 17, 2005.
99.2	Transcript of Big Lots, Inc. conference call dated May 17, 2005.

Signature

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

	BIG LOTS, INC.
Dated: May 23, 2005	By:	/s/ Charles W. Haubiel II
		Charles W. Haubiel II
		Senior Vice President, General Counsel and Corporate Secretary

EX-10.1

EXHIBIT 10.1

BIG LOTS

2005 LONG-TERM INCENTIVE PLAN

BIG LOTS
2005 LONG-TERM INCENTIVE PLAN

ARTICLE I

ESTABLISHMENT AND PURPOSE

     1.1 Establishment. The Big Lots 2005 Long-Term Incentive Plan (“Plan”) is hereby established by Big Lots, Inc. (“Company”), effective as of the date it is approved by the Company’s shareholders (“Effective Date”).

     1.2 Purposes. The Plan is intended to promote the Company’s long-term financial success and materially increase shareholder value by motivating performance through incentive compensation. The Plan also is intended to encourage Participants to acquire ownership interests in the Company, attract and retain talented associates and enable Participants to participate in the Company’s long-term growth and financial success.

ARTICLE II

DEFINITIONS

     When used in this Plan, the following terms have the meaning given to them in this section unless another meaning is expressly provided elsewhere in this Plan or required by the plain context in which it is used. When applying the terms defined in this section and other terms used throughout the Plan, the form of any term, phrase or word will, as appropriate, include any and all of its forms.

     2.1 “Affiliate” means (1) a “parent” or a “subsidiary” of the Company, as those terms are defined in Code §§424(e) and (f), respectively; and (2) any other entity (other than the Company) regardless of its form that directly or indirectly controls, is controlled by or is under common control with, the Company within the meaning of Code §414(b) but substituting “50 percent” for “80 percent” when determining controlling interest under Code §414(b).

     2.2 “Award” means any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit or Performance Unit granted to a Participant under the Plan. At the Committee’s discretion, an Award may be granted as a Performance-Based Award.

     2.3 “Award Agreement” means any written or electronic agreement granting an Award to a Participant. Each Award Agreement will specify the Grant Date and describe the terms and conditions imposed on the Award.

     2.4 “Beneficiary” means any person (or entity), who (or which) has been designated by a Participant in his or her most recent written beneficiary designation filed with the Committee to receive the compensation or to exercise the rights that are due or exercisable at the Participant’s death. If there is no designated beneficiary, the term

means any person or entity entitled by will or the applicable laws of descent and distribution to receive such compensation.

     2.5 “Board of Directors” or “Board” means the Company’s board of directors.

     2.6 “Change in Control” means any one or more of the following events: (1) any person or group [as defined for purposes of Section 13(d) of the Exchange Act] becomes the beneficial owner of, or has the right to acquire (by contract, option, warrant, conversion of convertible securities or otherwise), 20 percent or more of the outstanding equity securities of the Company entitled to vote for the election of directors; (2) a majority of the Board of Directors of the Company then in office is replaced within any period of two years or less by directors not nominated and approved by a majority of the directors in office at the beginning of such period (or their successors so nominated and approved), or a majority of the Board of Directors at any date consists of persons not so nominated and approved; or (3) the shareholders of the Company approve an agreement to merge or consolidate with another corporation or an agreement to sell or otherwise dispose of all or substantially all of the Company’s assets (including, without limitation, a plan of liquidation). Provided, however, the other provisions of this Section 2.6 notwithstanding, the term “Change in Control” shall not mean any merger, consolidation, reorganization, or other transaction in which the Company exchanges or offers to exchange newly-issued or treasury Common Shares representing 20 percent or more, but less than 50 percent, of the outstanding equity securities of the Company entitled to vote for the election of directors, for 51 percent or more of the outstanding equity securities entitled to vote for the election of at least the majority of the directors of a corporation other than the Company or an Affiliate (the “Acquired Corporation”), or for all or substantially all of the assets of the Acquired Corporation.

     2.7 “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor, along with relevant rules, regulations and authoritative interpretations the Internal Revenue Service issues.

     2.8 “Committee” means the Board committee to which the Board assigns the responsibility of administering the Plan. The Committee shall consist of at least three members of the Board, each of whom may serve on the Committee only if the Board determines that he or she (1) is a “Non-employee Director” for purposes of Rule 16b-3 under the Exchange Act, (2) satisfies the requirements of an “outside director” for purposes of Code §162(m) and (3) qualifies as “independent” in accordance with New York Stock Exchange listing standards.

     2.9 “Common Shares” means shares of the Company’s common shares, $0.01 par value (as such par value may be amended from time to time), whether presently or hereafter issued, and any other stock or security resulting from adjustment thereof as described hereinafter, or the Common Shares of any successor to the Company which is designated for the purpose of the Plan.

     2.10 “Covered Employee” means a Participant whose compensation in the year of the expected payment of an Award will be subject to Code §162(m).

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     2.11 “Disability” means, with respect to ISOs, as that term is defined in Code §22(e)(3), with respect to any Award (other than an ISO) that is not subject to Code §409A, a physical or mental condition that, for more than six consecutive months, renders the Participant incapable, with reasonable accommodation, of performing his or her assigned duties on a full-time basis or, with respect to any Award (that is not an ISO) that is subject to Code §409A, as that term is defined under Code §409A.

     2.12 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     2.13 “Exercise Price” means the price, if any, a Participant must pay to exercise an Award or the amount upon which the value of an Award is based.

     2.14 “Fair Market Value” means the volume-weighted average trading price of a Common Share on any date for which it is relevant or, if a relevant date occurs on a day other than a trading day, on the next trading day.

     2.15 “Grant Date” means the later of (1) the date the Committee establishes the terms of an Award or (2) the date specified in the Award Agreement. In no event may the Grant Date be earlier than the Effective Date.

     2.16 “Incentive Stock Option” or “ISO” means any Option granted under the Plan that is designated as an “incentive stock option” within the meaning of Code §422.

     2.17 “Non-Qualified Stock Option” or “NQSO” means an Option granted under the Plan that (1) is not designated as an ISO or (2) an ISO that, for any reason other than exercise, ceased to be an ISO.

     2.18 “Option” means a right to purchase Common Shares granted to a Participant in accordance with Article VI. An Option may be either an ISO or NQSO.

     2.19 “Option Period” means the period during which an Option may be exercised.

     2.20 “Participant” means a person who satisfies the eligibility conditions of Article V and to whom an Award has been granted by the Committee under the Plan.

     2.21 “Performance-Based Award” means an Award granted subject to the terms of Article X.

     2.22 “Performance Period” means the period (which, with respect to a Covered Employee, may be no shorter than a fiscal quarter of the Company) established by the Committee over which the Committee measures whether or not Performance-Based Awards have been earned.

     2.23 “Performance Unit” means a right granted subject to the terms and conditions established by the Committee under Article IX.

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     2.24 “Restricted Stock” means Common Shares granted subject to the terms and conditions established by the Committee under Section 8.1.

     2.25 “Restricted Stock Unit” means an Award granted subject to the terms and conditions established by the Committee under Section 8.2.

     2.26 “Restriction Period” means the period over which the Committee measures whether terms and conditions (such as forfeitures) placed on Restricted Stock or Restricted Stock Units have been met.

     2.27 “Rule 16b-3” means Rule 16b-3, as from time to time in effect and applicable to the Plan and Participants, issued by the Securities and Exchange Commission under Section 16 of the Exchange Act or any successor rule.

     2.28 “Stock Appreciation Right” or “SAR” means a right granted under Article VII.

     2.29 “Termination of Employment” means the occurrence of any act or event that causes a Participant to cease being an employee of the Company or of any Affiliate, including, without limitation, death, Disability, dismissal, severance at the election of the Participant, or severance as a result of the discontinuance, liquidation, sale, or transfer by the Company or its Affiliates of a business owned or operated by the Company or any Affiliate. With respect to any person who is not an employee of the Company or any Affiliate (such as an eligible consultant as determined in accordance with Article V), the Award Agreement shall establish what act or event shall constitute a Termination of Employment for purposes of the Plan. A Termination of Employment shall occur with respect to an employee who is employed by an Affiliate if the Affiliate shall cease to be an Affiliate and the Participant shall not immediately thereafter become an employee of the Company or an Affiliate.

     2.30 “Vesting Acceleration Feature” means a term in an Award Agreement that, upon achievement and certification of performance goals set forth in Section 10.3, causes restrictions imposed on Restricted Stock or Restricted Stock Units to accelerate.

ARTICLE III

ADMINISTRATION

     3.1 Committee Duties. The Committee is granted all powers appropriate and necessary to administer the Plan. Consistent with the Plan’s purpose, the Committee may adopt, amend and rescind rules and regulations relating to the Plan to the extent appropriate to protect the Company’s interests and the Plan’s purpose and has complete discretion to make all other decisions necessary or advisable for the administration and interpretation of the Plan. Any action by the Committee will be final, binding and conclusive for all purposes and upon all Participants and Beneficiaries. Also, the Committee (or the Board, as appropriate) may revoke or amend the Plan and Award Agreements without any additional consideration to affected Participants, to the extent necessary to avoid penalties under Code §409A, even if that revocation or those

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amendments reduce, restrict or eliminate rights granted under the Plan or Award Agreement (or both) before the amendments, although the Company or the Committee may (but neither is required to) reimburse an affected Participant for any diminution in the value of an Award associated with any such change.

     3.2 Restrictions on Reload/Repricing. Regardless of any other provision of this Plan (1) without the prior approval of the shareholders, neither the Company nor the Committee may reprice or grant any Award in connection with the cancellation of a previously granted Award if the Exercise Price of the later granted Award is less than the Exercise Price of the earlier granted Award and (2) no Participant will be entitled (and no Committee discretion may be exercised to extend to any Participant) an automatic grant of additional Awards in connection with the exercise of an Option or otherwise.

     3.3 Committee Actions. The Committee may authorize any one or more of its members or an officer of the Company to execute and deliver documents on behalf of the Committee. The Committee may allocate among one or more of its members, or may delegate to one or more of its agents, such duties and responsibilities as it determines. However, the Committee may not delegate any duties required to be administered by the Committee to comply with Code §162(m) or any applicable law.

     3.4 Deferral of Awards. In its discretion, the Committee may permit any Participant to defer recognition of any Award through any means that is acceptable to it and which is consistent with Code §409A.

ARTICLE IV

SHARES SUBJECT TO PLAN

     4.1 Number of Shares. Subject to Section 4.7, the total number of Common Shares reserved and available for distribution pursuant to Awards shall be the sum of (1) 1,250,000 newly issued shares, plus (2) any remaining shares available for issuance under the Company’s 1996 Performance Incentive Plan on December 30, 2005, plus (3) an additional .75 percent of the total number of issued Common Shares (including treasury shares) as of the start of each of the Company’s fiscal years (currently comprised of a 52/53-week period which ends on the Saturday nearest to January 31) that the Plan is in effect (including shares exchanged when exercising Options). Such shares may consist, in whole or in part, of authorized and unissued shares or shares acquired from a third party. In any event, the total of Awards under this Plan, the 1996 Performance Incentive Plan, the Consolidated Stores Corporation Executive Stock Option and Stock Appreciation Rights Plan and the Director Stock Option Plan shall not exceed 15 percent of the total Common Shares issued and outstanding (including treasury shares) as of any date.

     4.2 Unfulfilled Awards. Any Common Shares subject to an Award that, for any reason, is forfeited, cancelled, terminated or relinquished may again be the subject of an Award. Notwithstanding the foregoing, the following shares shall not become available again for issuance as an Award: (1) Common Shares tendered by Participants as

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full or partial payment to the Company upon exercise of Awards granted under this Plan; (2) Common Shares reserved for issuance upon grant of SARs, to the extent the number of reserved shares exceeds the number of shares actually issued upon exercise of the SARs, and (3) Common Shares withheld by, or otherwise remitted to, the Company to meet the obligations described in Section 13.4.

     4.3 Restrictions on Common Shares. Common Shares issued upon exercise of an Award shall be subject to the terms and conditions specified herein and to such other term and conditions as the Committee, in its discretion, may determine or provide in the Award Agreement. The Company shall not be required to issue or deliver any certificates for Common Shares, cash or other property prior to (1) the completion of any registration or qualification of such shares under federal, state or other law or any ruling or regulation of any government body which the Committee determines to be necessary or advisable; and (2) the satisfaction of any applicable withholding obligation in order for the Company or an Affiliate to obtain a deduction or discharge its legal obligation with respect to the exercise of an Award. The Company may cause any certificate (or other representation of title) for any Common Shares to be delivered to be properly marked with a legend or other notation reflecting any limitations on transfer of such Common Shares as provided in this Plan or as the Committee may otherwise require. The Committee may require any person exercising an Award to make such representations and furnish such information as the Committee may consider appropriate in connection with the issuance or delivery of the Common Shares in compliance with applicable law or otherwise.

     4.4 Restrictions on Full Value Awards. The maximum aggregate number of shares of Restricted Stock, Restricted Stock Units and Performance Units that may be issued under this Plan shall not exceed 33? percent of all awards granted pursuant to this Plan.

     4.5 ISO Restriction. The maximum aggregate number of shares that may be granted under this Plan through the exercise of ISOs shall be five million (5,000,000).

     4.6 Shareholder Rights. Except as expressly provided in the Plan or Award Agreement, no Participant will have any rights as a shareholder with respect to Common Shares subject to an Award until, after proper transfer of the Common Shares subject to the Award or other action required, the shares have been recorded on the Company’s official shareholder records as having been issued and transferred. Upon grant of Restricted Stock, or exercise of an Option or a SAR, or payment of any other Award or any portion thereof to be made in Common Shares, the Company will have a reasonable period (but not more than 2-1/2 months after the exercise or settlement date) in which to issue and transfer the shares, and the Participant will not be treated as a shareholder for any purpose whatsoever prior to such issuance and transfer, except as provided in the Plan or Award Agreement. Unless specifically provided in the Plan or Award Agreement, no adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such shares are recorded as issued and transferred in the Company’s official shareholder records.

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     4.7 Effect of Certain Changes. In the event of any Company share dividend, share split, combination or exchange of Common Shares, recapitalization or other change in the capital structure of the Company, corporate separation, or division of the Company (including, but not limited to, a split-up, spin-off, split-off or distribution to Company shareholders other than a normal cash dividend), reorganization, rights offering, a partial or complete liquidation, or any other corporate transaction, Company securities offering, or event involving the Company and having an effect similar to any of the foregoing, the Committee may make appropriate adjustments or substitutions as described below in this section. The adjustments or substitutions may relate to the number of Common Shares available for Awards under the Plan, the number of Common Shares covered by outstanding Awards, the exercise price per share of outstanding Awards and any other characteristics or terms of the Awards as the Committee may deem necessary or appropriate to reflect equitably the effects of such changes to the Participants.

ARTICLE V

ELIGIBILITY

     5.1 Eligibility. In the Committee’s discretion, any salaried employee, consultant or advisor to the Company or its Affiliates (other than a member of the Board who also is not a salaried employee) may be a Participant, provided such eligibility would not jeopardize the Plan’s compliance with Rule 16b-3 under the Exchange Act or any successor rule. For purposes of this Plan, a consultant or advisor shall be eligible only if bona fide services are being rendered pursuant to a valid written agreement between the consultant or advisor and the Company, and the services rendered are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities. However, and unless otherwise permitted under Code §409A, no Award subject to Code §409A may be granted to any person who is performing services for an entity that is not an affiliate of the Company within the meaning of Code §§414(b) and (c).

     5.2 Conditions of Participation. By accepting an Award, each Participant agrees in his or her own behalf and in behalf of his or here Beneficiaries (1) to be bound by the terms of the Award Agreement and the Plan and (2) that the Committee (or the Board) may amend the Plan and the Award Agreement without any additional consideration to the extent necessary to avoid penalties arising under Code §409A, even if those amendments reduce, restrict or eliminate rights or Awards granted under the Plan or an Award Agreement (or both) before those amendments, although the Company or the Committee may (but neither is required to) reimburse an affected Participant or Beneficiary for any diminution in the value of an Award associated with any such change.

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ARTICLE VI

OPTIONS

     6.1 Grant of Options. Except as provided in Secion 4.5, the Committee may grant Options at any time during the term of this Plan. However:

          (1) No Option intended to be an ISO may be granted more than seven years after the earlier of the date the Board adopts the Plan or the date the Plan is approved by the Company’s shareholders.

          (2) Only a person who is a common-law employee of the Company, or an Affiliate on the Grant Date, may be granted an ISO. Any Option that is not designated as an ISO or which does not qualify as an ISO will be a NQSO.

     6.2 Terms and Conditions. Options shall be subject to the terms and conditions specified in the Award Agreement, including:

          (1) Exercise Price. The Exercise Price shall not be less than (a) 100 percent of Fair Market Value on the Grant Date or (b) 110 percent of Fair Market Value on the Grant Date in the case of an ISO granted to an individual (a “10 percent Owner”) who owns or who is deemed to own shares possessing more than 10 percent of the combined voting power of all classes of shares of the Company or any Affiliate.

          (2) Option Period. The Option Period of each Option will be specified in the Award Agreement, provided that no Option shall be exercisable fewer than six months after the Grant Date or more than ten years after the Grant Date (five years in the case of an ISO granted to a 10 percent Owner).

          (3) Exercisability. Subject to Article X, an Option shall be exercisable under terms specified in the Award Agreement. The Committee may provide in the Award Agreement for an accelerated exercise of all or part of an Option upon specified events or conditions, including one or more of the performance goals listed in Section 10.3. Also, the Committee may accelerate the exercisability of all or part of any Option at any time. The aggregate Fair Market Value (determined at the Grant Date) of the Common Shares subject to ISOs that are exercisable for the first time during any calendar year shall not exceed $100,000, calculated under Code §422.

          (4) Method of Exercise. Subject to the provisions of this Article VI and the Award Agreement, a Participant may exercise Options, in whole or in part, during the Option Period by giving written notice of exercise on a form provided by the Committee specifying the number of whole Common Shares subject to the Option to be purchased. Such notice must be accompanied by payment of the Exercise Price by cash or certified check or other form of payment acceptable to the Committee at the time of exercise, including (a) delivering Common Shares already owned by the Participant (for any minimum period

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required by the Committee) having a total Fair Market Value on the date of delivery equal to the Exercise Price; (b) the delivery of cash by a broker-dealer as a “cashless” exercise, provided this method of payment may not be used by an executive officer of the Company to the extent it would violate applicable provisions of the Sarbanes-Oxley Act of 2002; (c) withholding by the Company of Common Shares subject to the Option having a total Fair Market Value as of the date of exercise equal to the Exercise Price; or (d) any combination of the foregoing.

     6.3 Effect of Termination of Employment. Unless otherwise specifically provided in an Award Agreement or determined by the Committee, any exercisable Options held by a Participant who Terminates Employment (1) because of death or Disability may be exercised until the earlier of one year after Termination of Employment or the expiration date specified in the Award Agreement or (2) for any reason other than death or Disability may be exercised until the earlier of 90 days after Termination of Employment or the expiration date specified in the Award Agreement.

     6.4 Notice of Disposition of Common Shares Prior to the Expiration of Specified ISO Holding Periods. The Committee may require that a Participant exercising an ISO give a written representation, satisfactory in form and substance, upon which the Company may rely, that the Participant will report to the Company any disposition of Common Shares acquired through exercise of an ISO before expiration of the holding periods specified by Code §422(a)(1).

ARTICLE VII

STOCK APPRECIATION RIGHTS

     7.1 Grant of SARs. The Committee may grant SARs at any time during the term of this Plan, either alone or in tandem with other Awards. If all the terms and conditions specified in the Award Agreement are met, the Participant may exercise the SAR and receive Common Shares under the procedures described in this section.

     7.2 Terms and Conditions. SARs shall be subject to the terms and conditions specified in the Award Agreement, including:

          (1) Exercise Price. The Exercise Price may not be less than 100 percent of Fair Market Value on the Grant Date.

          (2) Period and Exercise. The Award Agreement will specify the period over which a SAR may be exercised and the terms and conditions that must be met before it may be exercised. The Committee may provide in the Award Agreement for an accelerated exercise of all or part of a SAR upon specified events or conditions, including one or more of the performance goals listed in Section 10.3. Also, the Committee may accelerate the exercisability of all or part of any SAR. A Participant may exercise a SAR giving written notice of

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exercise on a form acceptable to the Committee specifying the portion of the SAR being exercised.

          (3) Settlement. When a SAR is exercised, the Participant shall be entitled to receive a number of Common Shares (or, if permitted by rules issued under Code §409A, cash) equal to the excess of Fair Market Value on the date of exercise over the Exercise Price multiplied by the number of SARs being settled and divided by the Fair Market Value of one Common Share on the date of exercise. Also, and unless permitted by rules issued under Code §409A, neither the Company nor an Affiliate may repurchase the Common Shares delivered in settlement of a SAR or enter into an arrangement that has a similar effect.

     7.3 Effect of Termination of Employment. Unless otherwise specifically provided in an Award Agreement or determined by the Committee, any exercisable SARs held by a Participant who Terminates Employment (1) because of death or Disability may be exercised until the earlier of one year after Termination of Employment or until the expiration date specified in the Award Agreement or (2) for any reason other than death or Disability, may be exercised the earlier of 90 days after Termination of Employment or the expiration date specified in the Award Agreement.

ARTICLE VIII

RESTRICTED STOCK/RESTRICTED STOCK UNITS

     8.1 Restricted Stock. Except as provided in Section 4.4, the Committee may grant Restricted Stock at any time during the term of this Plan.

          (1) Restricted Stock Grant, Awards and Certificates. Each Participant receiving a Restricted Stock Award shall be issued a certificate (or other representation of title) in respect of such Restricted Stock. That certificate shall be registered in the name of such Participant and shall bear an appropriate legend describing the terms, conditions and restrictions applicable to such Award as determined by the Committee. The Committee, in its discretion, may distribute the certificate to the Participant or require that the certificate be held in escrow by the Company until the Restriction Period lapses and, as a condition of receiving any Restricted Stock Award, the Participant delivers a share power, endorsed in blank, relating to the Common Shares underlying the Restricted Stock Award.

          (2) Terms and Conditions. Restricted Stock shall be subject to such terms and conditions as specified in the Award Agreement, including:

               (a) Restrictions. The Award Agreement will specify the Restriction Period and the terms and conditions that must be met if the Restricted Stock is to be earned. These may include an acceleration of the Restriction Period based on one or more of the performance goals listed in Section 10.3. Also, Restricted Stock maybe earned over a period of time

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no shorter than three years from the Grant Date unless the Committee specifies otherwise in the Award Agreement.

               (b) Rights. Except as provided in Section 13.7 during the Restriction Period, a Participant receiving a Restricted Stock Award will have, with respect to the Restricted Stock, all of the rights of a shareholder of the Company holding the class of Common Shares that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any cash dividends. However, any dividends paid on Restricted Stock held in escrow also will be held in escrow and either will be paid to the Participant or forfeited at the end of the Restriction Period, depending on whether the Restricted Stock on which they were paid is earned or forfeited. Also, any stock dividends will be subject to the same restrictions that affect the Restricted Stock with respect to which the dividend was paid. Dividends paid out of escrow will be treated as remuneration for employment unless an election has been made under Section 13.17.

               (c) Forfeiture. Unless otherwise specifically provided in the Award Agreement, all Restricted Stock will be forfeited if the Participant Terminates Employment before the end of the Restriction Period or if applicable terms and conditions have not been met at the end of the Restriction Period. If forfeited Restricted Stock was held in escrow during the Restriction Period, it will be released from escrow. If forfeited Restricted Stock was issued to the Participant, the share certificates will be returned and cancelled.

               (d) Settlement. If all terms and conditions imposed on the Restricted Stock Award are met, unlegended certificates (or other representation of title) for such Common Shares shall be delivered to the Participant.

               (e) Price. The Committee may require a Participant to pay a stipulated purchase price for each share of Restricted Stock.

     8.2 Restricted Stock Units. Except as provided in Section 4.4, the Committee may grant Restricted Stock Units at any time during the term of this Plan. Restricted Stock Units shall be subject to the terms and conditions specified in the Award Agreement, including:

          (1) Restrictions. The Award Agreement will specify the restriction Period and the terms and conditions that must be met if the Restricted Stock Units are to be earned. These may include an acceleration of the Restriction Period based on one or more of the performance goals listed in Section 10.3.

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          (2) Rights. During the Restriction Period, a Participant receiving a Restricted Stock Unit Award will not have, with respect to the Restricted Stock Unit, any of the rights of a shareholder of the Company.

          (3) Forfeiture. Unless otherwise specifically provided in the Award Agreement, all Restricted Stock Units will be forfeited if the Participant Terminates Employment before the end of the Restriction Period or if applicable terms and conditions have not been met at the end of the Restriction Period.

          (4) Settlement. On the day when all terms and conditions imposed on the Restricted Stock Unit Award and specified in the Award Agreement have been met at the end of the Restriction Period, the Committee, in its discretion, will issue (as soon as practicable) unlegended certificates (or other representation of title) for Common Shares equal to the number of Restricted Stock Units to be settled, redeem the Restricted Stock Units for cash equal to the Fair Market Value (as of the last day of the Restriction Period) of the Restricted Stock Units being settled or deliver any combination of unlegended certificates or cash to the Participant having an aggregate value equal to the Restricted Stock Units being settled.

ARTICLE IX

PERFORMANCE UNITS

     9.1 Grant of Performance Units. Except as provided in Section 4.4, the Committee may grant Performance Units at any time during the term of the Plan.

     9.2 Terms and Conditions. The Committee may, in its discretion, grant Performance Units to Participants. Performance Units may be subject to any terms and conditions, including vesting, that the Committee specifies in the Award Agreement and to the terms of the Plan. Performance Units may constitute Performance-Based Awards, as described in Article X. The Award Agreement will state the form in which the Performance Unit is to be settled and when the Performance Unit will be settled. Common Shares issued through a Performance Unit Award may be issued with or without payment by the Participant as required by applicable law or any other consideration specified by the Committee.

     9.3 Settling Performance Units. One Common Share will be issued for each Performance Unit to be settled unless the Award Agreement provides for settlement in cash or partially in cash and partially in Common Shares. If all or part of any Performance Unit Award is to be settled in cash, the amount distributed will be the Fair Market Value (as of the settlement date specified in the Award Agreement) of the number of Common Shares that otherwise would have been distributed to settle the Performance Unit.

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     9.4 Forfeiture. Unless otherwise specifically provided in the Award Agreement, all Performance Units will be forfeited if the Participant Terminates Employment before meeting all applicable terms and conditions.

ARTICLE X

PERFORMANCE-BASED AWARDS

     10.1 Grant of Performance-Based Awards. Any Award may be granted in a form that qualifies as “performance based compensation” as defined under Code §162(m). As determined by the Committee, in its sole discretion, either the granting or vesting of Performance-Based Awards will be based on achieving one or more (or any combination of) performance objectives derived from the criteria listed below over the Performance Period established by the Committee.

     10.2 Establishing Objectives. With respect to Performance-Based Awards, the Committee will establish in writing the performance objectives to be applied and the Performance Period over which their achievement will be measured, the method for computing the value of the Award that may be earned if (and to the extent that) those performance objectives are met and the Participants or class of Participants to which the performance objectives apply. Performance objectives will be established in writing no later than 90 days after the beginning of the applicable Performance Period (but in no event after 25 percent of the Performance Period has elapsed).

     10.3 Performance Goals. Performance criteria imposed on Performance-Based Awards will be derived using the accounting principles generally accepted in the United States of America and will be reported or appear in the Company’s periodic filings with the Securities Exchange Commission (including Forms 10-Q and 10-K) or the Company’s annual report to shareholders and will be derived from one or more (or any combination of one or more) of the following:

          (1) Income (Loss) per common share from continuing operations; or

          (2) Income (Loss) per common share from income; or

          (3) Operating profit (loss), Operating income (loss), or Income (Loss) from operations (as the case may be); or

          (4) Income (Loss) from continuing operations before unusual or infrequent items; or

          (5) Income (Loss) from continuing operations; or

          (6) Income (Loss) from continuing operations before income taxes; or

          (7) Income (Loss) from continuing operations before extraordinary item and/or cumulative effect of a change in accounting principle (as the case may be); or

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          (8) Income (Loss) before extraordinary item and/or cumulative effect of a change in accounting principle (as the case may be); or

          (9) Net income (loss); or

          (10) Income (Loss) before other comprehensive income (loss); or

          (11) Comprehensive income (loss); or

          (12) Income (Loss) before interest and income taxes (sometimes referred to as “EBIT”); or

          (13) Income (Loss) before interest, income taxes, depreciation and amortization (sometimes referred to as “EBITDA”); or

          (14) Any other objective and specific income (loss) category or non-GAAP financial measure that appears as a line item in the Company’s periodic filings with the Securities and Exchange Commission or the annual report to shareholders; or

          (15) Any of items (3) through (14) on a weighted average common shares outstanding basis; or

          (16) Any of items (1) through (14) on a diluted basis as defined in the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 128 including authoritative interpretations or amendments thereof which may be issued from time to time as long as such interpretations or amendments are utilized on the consolidated statements of operations or statement of operations, as applicable, or in the notes to the consolidated financial statements; or

          (17) Common stock price; or

          (18) Total shareholder return expressed on a dollar or percentage basis as is customarily disclosed in the proxy statement accompanying the notice of annual meetings of shareholders; or

          (19) Percentage increase in comparable store sales; or

          (20) Gross profit (loss) or gross margin (loss) (as the case may be); or

          (21) Economic value added; or

          (22) Any of items (1) through (21) with respect to any subsidiary, Affiliate, business unit, business group, business venture or legal entity, including any combination thereof, or controlled directly or indirectly by the Company whether or not such information is included in the Company’s annual report to shareholders, proxy statement or notice of annual meeting of shareholders; or

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          (23) Any of items (1) through (21) above may be determined before or after a minority interest’s share as designated by the Committee; or

          (24) Any of items (1) through (21) above with respect to the period of service to which the performance goal relates whether or not such information is included in the Company’s periodic filings, annual report to shareholders, proxy statement or notice of annual meetings of shareholders; or

          (25) Total shareholder return ranking position meaning the relative placement of the Company’s total shareholder return [as determined in (18) above] compared to those publicly held companies in the Company’s peer group as established by the Committee prior to the beginning of a vesting period or such later date as permitted under the Code. The peer group shall be comprised of not less than eight and not more than sixteen companies, including the Company.

          (26) With respect to items (1), (2), (15) and (16) above, other terminology may be used for “income (loss) per common share” (such as “Basic EPS,” “earnings per common share,” “diluted EPS,” or “earnings per common share-assuming dilution”) as contemplated by SFAS No. 128, as amended, revised or superseded;

The Committee in its sole discretion, in setting the performance goals in the time prescribed in Section 10.2 may provide for the making of equitable adjustments (including the income tax effects attributable thereto), singularly or in combination, to the goals/targets in recognition of unusual or non-recurring events or transactions for the following qualifying objective items:

          (27) Asset impairments as described in SFAS No. 144, as amended, revised or superseded; or

          (28) Costs associated with exit or disposal activities as described by SFAS No. 146, as amended, revised or superseded; or

          (29) Amortization costs associated with the acquisition of goodwill or other intangible assets, as described by SFAS No. 142, as amended, revised or superseded; or

          (30) Merger integration costs; or

          (31) Merger transaction costs; or

          (32) Any profit or loss attributable to the business operations of a reportable segment as described by SFAS No. 131 as amended, revised or superseded; or

          (33) Any profit or loss attributable to a reportable segment as described by SFAS No. 131, as amended, revised or superseded or an entity or entities acquired during the period of service to which the performance goal relates; or

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          (34) Tax settlements; or

          (35) Any extraordinary item, event or transaction as described in Accounting Principles Board Opinion (“APB”) No. 30, as amended, revised or superseded; or

          (36) Any unusual in nature, or infrequent in occurrence items, events or transactions (that are not “extraordinary” items) as described in APB No. 30, as amended, revised or superseded; or

          (37) Any other non-recurring items or other non-GAAP financial measures (not otherwise listed); or

          (38) Any change in accounting as described in APB No. 20, as amended, revised or superseded; or

          (39) Unrealized gains or losses on investments in debt and equity securities as described in SFAS No. 115, as amended, revised or superseded; or

          (40) Any gain or loss recognized as a result of derivative instrument transactions or other hedging activities as described in SFAS No. 133, as amended, revised or superseded; or

          (41) Stock-based compensation charges as described in SFAS No. 123, as amended, revised or superseded; or

          (42) Any gain or loss as reported as a component of other comprehensive income as described in SFAS No. 130, as amended, revised or superseded; or

          (43) Any gain or loss as a result of a direct or indirect guarantee, as described in FASB Interpretations (“FIN”) No. 45, as amended, revised or superseded; or

          (44) Any gain or loss as the result of the consolidation of a variable interest entity as described in FIN No. 46, as amended, revised or superseded; or

          (45) Any gain or loss as a result of litigation or lawsuit settlement (including class action lawsuits); or

          (46) Any charges associated with the early retirement of debt obligations.

     10.4 Certification of Performance Goals. Any Award intended to qualify as “performance based compensation” as defined under Code §162(m) shall not be paid until the Committee certifies in writing that the performance goals and any other material terms were in fact satisfied. In the manner required by Code §162(m), the Committee shall, promptly after the date on which the necessary financial and other information for a

16

particular Performance Period becomes available, certify the extent to which performance goals have been achieved with respect to any Award intended to qualify as “performance-based compensation” under Code §162(m). In addition, the Committee may, in its discretion, reduce or eliminate the amount of any Award payable to any Participant, based on such factors as the Committee may deem relevant.

     10.5 Limitation on Awards. The following limits, which are subject to automatic adjustment under Section 4.7, will apply to Performance-Based Awards:

          (1) In no event may the number of Restricted Stock shares awarded to any Covered Employee for any fiscal year exceed 2,000,000 Common Shares.

          (2) During any three consecutive calendar-year period, the maximum number of Common Shares for which Options and SARs, in the aggregate, may be granted to any Covered Employee may not exceed 3,000,000 Common Shares. If an Option is cancelled, the cancelled Option continues to be counted against the maximum number of shares for which Options may be granted to the Covered Employee under the Plan.

          (3) For Performance Unit Awards that are intended to be “performance-based compensation” [as that term is used in Code §162(m)[, no more than $6,000,000 may be subject to such Awards granted to any Covered Employee during any three consecutive calendar-year period.

ARTICLE XI

CHANGE IN CONTROL PROVISIONS

     11.1 Impact of Event. Notwithstanding any other provision of the Plan to the contrary and unless otherwise specifically provided in an Award Agreement, in the event of a Change in Control:

          (1) Any Options and SARs outstanding as of the date of such Change in Control and not then exercisable shall become fully exercisable to the full extent of the original grant;

          (2) All remaining Restriction Periods shall be accelerated and any remaining restrictions applicable to any Restricted Stock Awards shall lapse and such Restricted Stock shall become free of all restrictions and become fully vested and transferable to the full extent of the original grant;

          (3) All remaining Restriction Periods shall be accelerated and any remaining restrictions applicable to any Restricted Stock Unit shall lapse and such Restricted Stock Unit shall become free of all restrictions and become fully vested and transferable to the full extent of the original grant (i.e., the Restriction Period shall lapse); and

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          (4) Any performance goal or other condition with respect to any Performance Units shall be deemed to have been satisfied in full, and the Common Shares or cash subject to such Award shall be fully distributable.

     11.2 Effect of Code §280G. Except as otherwise provided in the Award Agreement or any other written agreement between the Participant and the Company or any Affiliate in effect on the date of the Change in Control, if the sum (or value) due under Section 11.1 that are characterizable as parachute payments, when combined with other parachute payments attributable to the same Change in Control, constitute “excess parachute payments” as defined in Code §280G(b)(1), the entity responsible for making those payments or its successor or successors (collectively, “Payor”) will reduce the Participant’s benefits under this Plan by the smaller of (1) the value of the sum or the value of the payments due under Section 11.1 or (2) the amount necessary to ensure that the Participant’s total “parachute payment” as defined in Code §280G(b)(2)(A) under this and all other agreements will be $1.00 less than the amount that would generate an excise tax under Code §4999. If the reduction described in the preceding sentence applies, within 10 business days of the effective date of the event generating the payments, the Payor will apprise the Participant of the amount of the reduction (“Notice of Reduction”). Within 10 business days of receiving that information, the Participant may specify how (and against which benefit or payment source, including benefits and payment sources other than this Agreement) the reduction is to be applied (“Notice of Allocation”). The Payor will be required to implement these directions within 10 business days of receiving the Notice of Allocation. If the Payor has not received a Notice of Allocation from the Participant within 10 business days of the date of the Notice of Reduction or if the allocation provided in the Notice of Allocation is not sufficient to fully implement the reduction described in this section, the Payor will apply the reduction described in this section proportionately based on the amounts otherwise payable under Section 11.1 or, if a Notice of Allocation has been returned that does not sufficiently implement the reduction described in this section, on the basis of the reductions specified in the Notice of Allocation.

ARTICLE XII

PROVISIONS APPLICABLE TO COMMON SHARES ACQUIRED UNDER THIS PLAN

     Except to the extent required by applicable securities laws, none of the Company, an Affiliate or the Committee shall have any duty or obligation to affirmatively disclose material information to a record or beneficial holder of Common Shares or an Award, and such holder shall have no right to be advised of any material information regarding the Company or any Affiliate at any time prior to, upon or in connection with receipt or the exercise or distribution of an Award. The Company makes no representation or warranty as to the future value of the Common Shares that may be issued or acquired under of the Plan.

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ARTICLE XIII

MISCELLANEOUS

     13.1 Amendment, Alteration and Termination. The Board may amend, alter or terminate the Plan at any time, but no amendment, alteration or termination shall be made which would impair the rights of a Participant under an Award theretofore granted without the Participant’s consent. Notwithstanding the immediately preceding sentence, an amendment may be made to (1) cause the Plan to comply with applicable law (including, but not limited to, any changes needed to comply with Code §409A), (2) permit the Company, or an Affiliate a tax deduction under applicable law, or (3) avoid an expense charge to the Company or an Affiliate. The Committee may amend, alter or terminate any Award Agreement prospectively or retroactively, on the same conditions and limits (and exceptions to limitations) that apply to the Board and further subject to any approval or limitations the Board may impose. Notwithstanding the foregoing, any material amendments to the Plan or any Award Agreement shall require shareholder approval to the extent required by the rules of the New York Stock Exchange or other national securities exchange or market that regulates the securities of the Company.

     13.2 Unfunded Status of Plan. It is intended that the Plan be an “unfunded” plan for incentive compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Shares or make payments; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.

     13.3 No Additional Obligation. Nothing contained in the Plan shall prevent the Company or an Affiliate from adopting other or additional compensation or benefit arrangements for its employees.

     13.4 Withholding. As soon as practicable after the date as of which the amount first becomes includible in the gross income of the Participant (but no later than the last business day of the calendar quarter during which the amount first becomes includible in gross income), the Participant shall pay to the Company or an Affiliate (or other entity identified by the Committee), or make arrangements satisfactory to the Company or other entity identified by the Committee regarding the payment of any federal, state, or local taxes of any kind (including any employment taxes) required by law to be withheld with respect to such income. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participant. Subject to approval by the Committee, a Participant may elect to have such tax withholding obligation satisfied, in whole or in part, by (1) authorizing the Company to withhold from the Common Shares to be issued pursuant to any Award a number of Common Shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the required statutory minimum (but no more than such required minimum) with respect to the Company’s withholding obligation or (2) transferring to the Company Common Shares owned by the Participant

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with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the required statutory minimum (but no more than such required minimum) with respect to the Company’s withholding obligation.

     13.5 Controlling Law. The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of Ohio (other than its law respecting choice of laws). The Plan shall be construed to comply with all applicable law and to avoid liability (other than a liability expressly assumed under the Plan or an Award Agreement) to the Company, an Affiliate or a Participant. In the event of litigation arising in connection with actions under the Plan, the parties to such litigation shall submit to the jurisdiction of courts located in Franklin County, Ohio or to the federal district court that encompasses that county.

     13.6 Offset. Any amounts owed to the Company or an Affiliate by the Participant of whatever nature may be offset by the Company from the value of any Award to be transferred to the Participant, and no Common Shares, cash or other thing of value under this Plan or an Award Agreement shall be transferred unless and until all disputes between the Company and the Participant have been fully and finally resolved and the Participant has waived all claims to such against the Company or an Affiliate. However, no waiver of any liability (or the right to apply the offset described in this section) may be inferred because the Company pays an Award to a Participant with an outstanding liability owed to the Company or an Affiliate.

     13.7 Nontransferability; Beneficiaries. No Award or Common Shares subject to an Award shall be assignable or transferable by the Participant otherwise than by will or the laws of descent and distribution or pursuant to a beneficiary designation, and Awards shall be exercisable during the Participant’s lifetime only by the Participant (or by the Participant’s legal representatives in the event of the Participant’s incapacity). Each Participant may designate a Beneficiary to exercise any Option or SAR or receive any Award held by the Participant at the time of the Participant’s death or to be assigned any other Award outstanding at the time of the Participant’s death. No Award or Common Shares subject to an Award shall be subject to the debts of a Participant or Beneficiary or subject to attachment or execution or process in any court action or proceeding unless otherwise provided in this Plan. If a deceased Participant has named no Beneficiary, any Award held by the Participant at the time of death shall be transferred as provided in his or her will or by the applicable laws of descent and distribution. Except in the case of the Participant’s incapacity, only the Participant may exercise an Option or SAR.

     13.8 No Rights with Respect to Continuance of Employment. Nothing contained herein shall be deemed to alter the relationship between the Company or an Affiliate and a Participant, or the contractual relationship between a Participant and the Company or an Affiliate if there is a written contract regarding such relationship. Nothing contained herein shall be construed to constitute a contract of employment between the Company or an Affiliate and a Participant. The Company or an Affiliate and each of the Participants continue to have the right to terminate the employment or service relationship at any time for any reason, except as provided in a written contract. The

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Company or an Affiliate shall have no obligation to retain the Participant in its employ or service as a result of this Plan. There shall be no inference as to the length of employment or service hereby, and the Company or an Affiliate reserves the same rights to terminate the Participant’s employment or service as existed prior to the individual becoming a Participant in this Plan.

     13.9 Awards in Substitution for Awards Granted by Other Corporations. Awards may be granted under the Plan from time to time in substitution for awards held by employees, directors or service providers of other corporations who are about to become officers or employees of the Company or an Affiliate (and will be eligible to be Participants) as the result of a transaction described in Code §424. The terms and conditions of the Awards so granted may vary from the terms and conditions set forth in this Plan at the time of such grant as the majority of the members of the Committee may deem appropriate to conform, in whole or in part, to the provisions of the awards in substitution for which they are granted and to ensure that the requirements imposed under Code §§409A and 424 are met.

     13.10 Delivery of Stock Certificates. To the extent the Company uses certificates to represent Common Shares, certificates to be delivered to Participants under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have placed such certificates in the United States mail, addressed to the Participant, at the Participant’s last known address on file with the Company. Any reference in this section or elsewhere in the Plan or an Award Agreement to actual stock certificates and/or the delivery of actual stock certificates shall be deemed satisfied by the electronic record-keeping and electronic delivery of Common Shares or other mechanism then utilized by the Company and its agents for reflecting ownership of such Common Shares.

     13.11 Indemnification. To the maximum extent permitted under the Company’s Articles of Incorporation and Code of Regulations, each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (1) any loss, cost, liability or expense (including attorneys’ fees) that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan or any Award Agreement, and (2) from any and all amounts paid by him or her in settlement thereof, with the Company’s prior written approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit or proceeding against him or her; provided, however, that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or Code of Regulations, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.

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     13.12 No Fractional Shares. No fractional Common Shares shall be issued or delivered under the Plan or any Award granted hereunder, provided that the Committee, in its sole discretion, may round fractional shares down to the nearest whole share or settle fractional shares in cash.

     13.13 Severability. If any provision of this Plan shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not effect any other provision hereof, and this Plan shall be construed as if such invalid or unenforceable provision were omitted.

     13.14 Successors and Assigns. This Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon a Participant, and all rights granted to the Company hereunder, shall be binding upon the Participant’s heirs, legal representatives and successors.

     13.15 Entire Agreement. Except as expressly provided otherwise, this Plan and any Award Agreement constitute the entire agreement with respect to the subject matter hereof and thereof, provided that in the event of any inconsistency between the Plan and any Award Agreement, the terms and conditions of this Plan shall control.

     13.16 Term. No Award shall be granted under the Plan after May 16, 2012.

     13.17 Application of Section 83(b). At the Committee’s discretion, any Participant may make an early inclusion election under Code §83(b) but only by complying with procedures developed by the Committee and rules issued under Code §83(b).

     13.18 Headings. The headings of the Articles and their subparts contained in this Plan are for the convenience of reading and reference purposes only and shall not affect the meaning, interpretation or be meant to be of substantive significance of this Plan.

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EX-99.1

Exhibit 99.1

PRESS RELEASE

FOR IMMEDIATE RELEASE


Contact: Timothy A. Johnson
Vice President, Strategic
Planning and Investor Relations
614-278-6622

BIG LOTS REPORTS FIRST QUARTER EPS OF $0.07, UP 40%
OVER LAST YEAR

Columbus, Ohio — May 17, 2005 — Big Lots, Inc. (NYSE: BLI) today reported first quarter fiscal 2005 net income of $7.8 million, or $0.07 per share, compared to net income of $6.4 million in the first quarter of fiscal 2004, or $0.05 per share. This result is at the high end of the Company’s guidance and ahead of Thomson Financial/First Call’s consensus estimate of $0.05 per share.

Net sales for the first quarter ended April 30, 2005 were $1,099.1 million, a 7.8% increase compared to net sales of $1,019.2 million for the same period of fiscal 2004. Comparable store sales for stores open at least two years at the beginning of the fiscal year were up 2.4% for the quarter driven by a 5.5% increase in the value of the average basket partially offset by a 3.1% decline in the number of customer transactions.

Commenting on the results, Michael J. Potter, Chairman and Chief Executive Officer, stated, “Sales trends improved in the first quarter as comps increased 2.4% against our most challenging quarterly comp of last year. We were particularly encouraged by the strength in the average basket which offset the negative impact macro economic pressures continue to have on customer traffic. The average basket growth of 5.5% was our largest quarterly increase since 2002 and suggests we continue to make progress towards improving the merchandise content in our stores. From a merchandising perspective, home decorative, hardlines, toys, and a sizable merchandise liquidation sourced by Big Lots Capital were the key drivers of average basket growth. In contrast, sales of seasonal merchandise for the quarter were below expectations principally due to the poor weather experienced in March.”

Mr. Potter continued, “Earnings for the quarter were $0.07 per share, up 40% compared to last year. Sales and gross margin results were in line with our guidance despite the challenges of poor weather in March. Expenses were tightly managed, up only approximately 2% per store over last year, and leveraged 30 basis points, which is particularly encouraging at a 2.4% comp. Additionally, interest expense was lower due to the new debt structure which was put in place at the end of the third quarter last year.”

Shareholder Relations Department
300 Phillipi Road
Columbus, Ohio 43228-5311
Phone: (614) 278-6622     Fax: (614) 278-6666
E-mail: aschmidt@biglots.com

Commenting on the Company’s balance sheet, Mr. Potter added, “Our balance sheet remains healthy as inventory ended the quarter at $897 million, down 4% per store compared to last year. Our merchants have been intensely focused on sourcing more exciting closeout merchandise while at the same time managing overall inventory levels. We ended the quarter with bank debt of $107 million, down $52 million from the beginning of the quarter, principally due to inventory control, improved operating performance, and low levels of capital spending.”

Mr. Potter concluded, “Looking forward to the balance of 2005, clearly there is caution in the deep discount sector given the challenging economic environment. However, after several years of repositioning the business and having multiple initiatives to deliver, the Company is now singularly focused on the task of improving merchandise content, and this has allowed all areas of the business to operate more efficiently and effectively. Accordingly, we believe the business is positioned for, and focused on, delivering consistent earnings growth and meaningful cash flow in the coming years.”

As a reminder, the Company issued guidance for fiscal 2005 on February 23, 2005. This guidance calls for second quarter fiscal 2005 results to be in the range of a loss per share of $0.01 to earnings per diluted share of $0.03, compared to the second quarter fiscal 2004 loss per share of $0.07, on a restated basis. This guidance is based on a 3% to 5% comparable store sales increase compared to a 0.2% gain in the second quarter of fiscal 2004. The Company expects May comparable store sales to increase in the 1% to 3% range. For June, comparable store sales are planned to increase 3% to 5% despite the planned reduction of one advertising circular. July’s comparable store sales are expected to increase in the 4% to 6% range.

For reference purposes, the Company’s earnings guidance for fiscal 2005 along with results for fiscal 2004, on a restated basis, are provided in the attached table.

Big Lots, Inc. will host a conference call at 8:00 a.m. EDT today to discuss the Company’s financial results. The Company invites you to listen to the live webcast of the conference call. The Company is hosting the live webcast at www.biglots.com.

If you are unable to join the live webcast, an archive of the call will be available at www.biglots.com in the Investor Relations section of our website two hours after the call ends and will remain available through midnight EDT on Tuesday, May 31. A replay of the call will be available beginning May 17 at 12:00 noon EDT through May 31 at midnight EDT by dialing: (800) 207-7077 (United States and Canada) or (913) 383-5767 (International). The access number is 4113.

Big Lots, Inc. is the nation’s largest broadline closeout retailer. The Company operates a total of 1,519 stores in 46 states operating as BIG LOTS and BIG LOTS FURNITURE. Wholesale operations are conducted through BIG LOTS WHOLESALE, CONSOLIDATED INTERNATIONAL, WISCONSIN TOY and with online sales at www.biglotswholesale.com. The Company’s website is located at www.biglots.com.

Shareholder Relations Department
300 Phillipi Road
Columbus, Ohio 43228-5311
Phone: (614) 278-6622     Fax: (614) 278-6666
E-mail: aschmidt@biglots.com

Cautionary Statement Concerning Forward-Looking Statements for Purposes of “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statements. The Company wishes to take advantage of the “safe harbor” provisions of the Act.

This release, as well as other verbal or written statements or reports made by or on the behalf of the Company, may contain or may incorporate material by reference which includes forward-looking statements within the meaning of the Act. By their nature, all forward-looking statements involve risks and uncertainties. Statements, other than those based on historical facts, which address activities, events, or developments that the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), business strategy, expansion and growth of the Company’s business and operations, future earnings, store openings and new market entries, anticipated inventory turn, and other similar matters, as well as statements expressing optimism or pessimism about future operating results or events, are forward-looking statements, which are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “estimate,” “objective,” “forecast,” “goal,” “intend,” and similar expressions generally identify forward-looking statements. The forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Although the Company believes the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of its knowledge of its business, actual events and results may materially differ from anticipated results described in such statements.

The Company’s ability to achieve the results contemplated by forward-looking statements is subject to a number of factors, any one, or a combination, of which could materially affect the Company’s business, financial condition, results of operations, or liquidity. These factors may include, but are not limited to:

•   the Company’s ability to source and purchase merchandise on favorable terms;

•   interruptions and delays in merchandise supply from the Company’s and its vendors’ foreign and domestic sources;

•   risks associated with purchasing, directly or indirectly, merchandise from foreign sources, including increased import duties and taxes, imposition of more restrictive quotas, loss of “most favored nation” trading status, currency fluctuations, work stoppages, transportation delays, foreign government regulations, political unrest, natural disasters, war, terrorism, and trade restrictions including retaliation by the United States against foreign practices;

•   the ability to attract new customers and retain existing customers;

•   the Company’s ability to establish effective advertising, marketing, and promotional programs;

•   economic and weather conditions which affect buying patterns of the Company’s customers;

•   changes in consumer spending and consumer debt levels;

•   the Company’s ability to anticipate buying patterns and implement appropriate inventory strategies;

•   continued availability of capital and financing on favorable terms;

•   competitive pressures and pricing pressures, including competition from other retailers;

•   the Company’s ability to comply with the terms of its credit facilities (or obtain waivers for noncompliance);

•   significant interest rate fluctuations and changes in the Company’s credit rating;

•   the creditworthiness of the purchaser of the Company’s former KB Toys business;

Shareholder Relations Department
300 Phillipi Road
Columbus, Ohio 43228-5311
Phone: (614) 278-6622     Fax: (614) 278-6666
E-mail: aschmidt@biglots.com

•   the Company’s indemnification and guarantee obligations with respect to approximately 390 KB Toys store leases and other real property leases, some or all of which may be rejected or materially modified in connection with the pending KB Toys bankruptcy proceedings, as well as other potential costs arising out of the KB Toys bankruptcy;

•   litigation risks and changes in laws and regulations, including changes in accounting standards, the interpretation and application of accounting standards, and tax laws;

•   transportation and distribution delays or interruptions that adversely impact the Company’s ability to receive and/or distribute inventory;

•   the impact on transportation costs from the driver hours of service regulations adopted by the Federal Motor Carriers Safety Administration that became effective in January 2004;

•   the effect of fuel price fluctuations on the Company’s transportation costs and customer purchases;

•   interruptions in suppliers’ businesses;

•   the Company’s ability to achieve cost efficiencies and other benefits from various operational initiatives and technological enhancements;

•   the costs, interruptions, and problems associated with the implementation of, or failure to implement, new or upgraded systems and technology;

•   the effect of international freight rates and domestic transportation costs on the Company’s profitability;

•   delays and costs associated with building, opening, and modifying the Company’s distribution centers;

•   the Company’s ability to secure suitable new store locations under favorable lease terms;

•   the Company’s ability to successfully enter new markets;

•   delays associated with constructing, opening, and operating new stores;

•   the Company’s ability to attract and retain suitable employees; and

•   other risks described from time to time in the Company’s filings with the SEC, in its press releases, and in other communications.

The foregoing list is not exhaustive. There can be no assurances that the Company has correctly and completely identified, assessed, and accounted for all factors that do or may affect its business, financial condition, results of operations, and liquidity. Additional risks not presently known to the Company or that it believes to be immaterial also may adversely impact the Company. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the Company’s business, financial condition, results of operations, and liquidity. Consequently, all of the forward-looking statements are qualified by these cautionary statements, and there can be no assurance that the results or developments anticipated by the Company will be realized or that they will have the expected effects on the Company or its business or operations.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events. Readers are advised, however, to consult any further disclosures the Company may make on related subjects in its public announcements and SEC filings.

Shareholder Relations Department
300 Phillipi Road
Columbus, Ohio 43228-5311
Phone: (614) 278-6622     Fax: (614) 278-6666
E-mail: aschmidt@biglots.com

BIG LOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	APRIL 30		MAY 1
	2005		2004
	(Unaudited)		(Unaudited &
			Restated)
ASSETS
Current Assets:
Cash and cash equivalents	$	10,945	$	87,739
Short-term investments		—		45,825
Inventories		897,030		887,302
Deferred income taxes		73,729		69,746
Other current assets		63,755		57,106
Total Current Assets		1,045,459		1,147,718
Property and equipment — net		637,031		622,659
Deferred income taxes		20,051		18,862
Other assets		35,650		24,386
	$	1,738,191	$	1,813,625
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	175,161	$	176,224
Accrued liabilities		276,309		235,299
Total Current Liabilities		451,470		411,523
Long-term obligations		106,900		204,000
Other liabilities		90,310		75,695
Shareholders’ equity		1,089,511		1,122,407
	$	1,738,191	$	1,813,625

BIG LOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	13 WEEKS ENDED					13 WEEKS ENDED
	APRIL 30					MAY 1
	2005		%			2004			%
	(Unaudited)					(Unaudited &
						Restated)
Net sales	$	1,099,090		100.0		$	1,019,198			100.0
Gross margin		448,669		40.8			420,270			41.2
Selling and administrative expenses		408,338		37.2			382,738			37.6
Depreciation expense		26,951		2.4			23,978			2.3
Operating profit		13,380		1.2			13,554			1.3
Interest expense		1,174		0.1			4,610			0.4
Interest income		(31)		(0.0	)		(358	)		(0.0	)
Income before income taxes		12,237		1.1			9,302			0.9
Income tax expense		4,437		0.4			2,951			0.3
Net income	$	7,800		0.7		$	6,351			0.6
Income per common share — basic	$	0.07				$	0.05
Weighted average common shares outstanding		112,969					117,275
Income per common share — diluted	$	0.07				$	0.05
Weighted average common and common equivalent shares outstanding		113,343					118,294

BIG LOTS
2005 GUIDANCE
RANGE OF EXPECTATIONS
(Issued May 17, 2005)

		Comps		Gross Margin Rate		SG & A Rate		E.P.S
Annual	2005 Guidance		3% - 4%		40.7% - 41.1%		38.8% - 38.4%		$0.54 - $0.60
	2004 (a,b,c)		0.0%		40.6%		39.1%		$0.27
Q1	2005 Actual		2.4%		40.8%		39.6%		$0.07
	2004(c)		2.7%		41.2%		39.9%		$0.05
Q2	2005 Guidance		3% - 5%		40.6% - 41.0%		40.7% - 40.3%		$(0.01) - $0.03
	2004(c)		0.2%		40.8%		41.6%		($0.07)
Q3	2005 Guidance		3% - 5%		40.9% - 41.3%		42.8% - 42.4%		$(0.12) - $(0.08)
	2004 (a,b,c)		-1.4%		40.4%		43.2%		($0.23)%
Q4	2005 Guidance		2% - 4%		40.7% - 41.1%		33.6% - 33.2%		$0.57 - $0.62
	2004(c)		-1.3%		40.2%		33.7%		$0.51

(a)	Includes $0.05 charge in the third quarter and $0.01 benefit in the fourth quarter related to the retirement of senior notes during the third quarter of fiscal 2004
(b)	Excludes KB Toys matters recorded as discontinued operations
(c)	2004 Results have been restated for lease accounting corrections as described in our Form 10K filed with the SEC on April 18, 2005.

Period	Basis Point Change - 2005 to 2004
Annual		10 - 50	30 - 70
Q1		(40)	30
Q2		(20) - 20	90 - 130
Q3		50 - 90	40 - 80
Q4		50 - 90	10 - 50

EX-99.2

Exhibit 99.2

Final Transcript

Thomson StreetEvents^sm

Conference Call Transcript
BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Event Date/Time: May. 17. 2005 / 8:00AM ET
Event Duration: 38 min

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May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

CORPORATE PARTICIPANTS

Mike Potter
Big Lots, Inc. — Chairman & CEO

Joe Cooper
Big Lots, Inc. — SVP & CFO

Chuck Haubiel
Big Lots, Inc. — SVP, General Counsel, Secretary

CONFERENCE CALL PARTICIPANTS

David Mann
Johnson Rice — Analyst

Carrie

Suntrust Robinson — Analyst

David Buchsbaum
Stanford Financial Group — Analyst

Ronald Bookbinder
Sterne, Agee & Leah — Analyst

Jeff Stein
KeyBanc Capital Markets — Analyst

Ralph Jean
Wachovia — Analyst

PRESENTATION

Operator

Ladies and gentlemen, welcome to the Big Lots first quarter 2005 teleconference. [OPERATOR INSTRUCTIONS] At this time I would like to introduce today’s first speaker Mike Potter.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Thanks. Thank you everyone for joining us for our first quarter conference call. With me today is Joe Cooper Senior Vice President and Chief Financial Officer; Chuck Haubiel, Senior Vice President and General Counsel, as well as, Tim Johnson, Vice President Strategic Planning and Investor Relations. I’d like to remind you that any forward-looking statements we make on today’s call involve risks and uncertainties and are subject to our Safe Harbor provisions as stated in our press release and our SEC filings and that actual results can differ materially from those described in our forward-looking statements.

I appreciate you all joining us a little earlier than normal this morning as many of you are aware our annual meeting of shareholders is this morning starting at 9:00 a.m so we will attempt to keep our comments brief to allow sufficient time for questions and answers. After some opening remarks, Joe is going to hit the highlights of Q1 and provide some perspective on Q2. Then, Chuck will provide an update on the KB Toy situation as best we know it today and then I’d like to close with some perspectives on the balance of the year and future prospects for the business.

This morning we reported earnings per share of $0.07 which was at the high end of our original guidance for the quarter and ahead of Thompson Financial/ First Call’s consensus estimate earnings per share of $0.05. I’m pleased we were able to deliver a 40% increase in Q1 earnings over last year despite the difficult sales environment which began in 2004 and has continued throughout the first quarter of 2005. Comparable store sales for the quarter were up 2.4% against our most challenging quarter of the year in 2004. The value of the average basket increased 5.5%, partially

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May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

offset by a 3.1% decline in customer transactions. Soft customer traffic, a trend which first started with rising gas prices almost a year ago has continued throughout the first quarter of this year.

Like us, several of our competitors who also target the budget shopper with household incomes at or below $40,000 continue to be challenged by the negative impact higher gasoline prices, higher inflation, and increased job losses have had on their customer traffic. Further, unseasonably cool whether in March and the latter part of April slowed customer demand for seasonal merchandise. Despite softness in customer traffic, we were encouraged this quarter by what was our largest basket comp since 2002. This level of basket improvement indicates our focus on improving merchandise content and delivering more branded values is being rewarded. Basket improvements are largely reflective of positive growth of closeouts available in most major categories in addition to new closeout opportunities in categories that we haven’t normally carried in the store.

For the quarter, home decorative, hardlines, toys, and deals sourced through the Big Lots Capital group drove the majority of the comp increase. Each of these are great examples of how our merchant team has enhanced merchandise mix and brought new closeout deals into the stores. Home decorative continues to perform very well driven by several new closeout opportunities in frames, framed art, stationary, and cookware. We’re also experiencing strong growth in scrapbooking, a newer category that is predominantly closeout. Hardlines continues to strengthen through the expansion of closeout opportunities in business machine and audio/video categories, branded kitchen appliances, power tools, and electronics. Big Lots Capital positively impacted comps during the quarter and several different departments, particularly health and beauty, frames, toys, and sporting goods.

Partially offsetting the strength in these categories has been the softness in consumables whose trends have been correlated with the softer customer traffic for the last several quarters. Also, as we have highlighted in our sales releases, seasonal merchandise performance was below plan for most of the quarter. Seasonal as a category has been a challenge for several quarters now. We have had a new merchant team in place for the last six to nine months and we believe the assortment is much improved over prior years. We believe weather was the key issue here and not unique to Big Lots as you have heard several other retailers detail their concerns of seasonal sales trends. Unfortunately in Q1, weather was not kind for the majority of the quarter, aside from a two to three week period in the beginning of April, and consequently, comps were below plan and below last year for the first quarter. When weather was good or just normal, sales trends accelerated and comps performed in line with the Company, and as we’ve discussed with you on several occasions, we have reduced the amount of markdown risk by a shift within seasonal categories to more basic items and less fashion. However, we will be very attentive to Q2 trends and critical on the qualitative calls in this category as we move through May and the second quarter.

Finally, before I turn it over to Joe, there’s one more significant accomplishment that occurred in the first quarter. In our 10K filed in April, both management and our independent auditors, Deloitte & Touche, certified that our internal controls over financial reporting were deemed to be effective with no material weaknesses, essentially a clean opinion on the reporting requirements of Sarbanes-Oxley. I want to thank the entire organization for their efforts and in particular the finance team for leading the way. With, that Joe’s going to hit the highlights of our results.

Joe Cooper - Big Lots, Inc. — SVP & CFO

Thanks, Mike. What I’d like to do is recap the first quarter results and provide some commentary around our second quarter guidance. Additionally, as a reminder, all references to fiscal 2004 that we make today relate to restated results for certain lease accounting corrections as reflected in our form 10K filed with the SEC on April 18th of this year.

Earlier today, we reported fiscal 2004 first quarter net income of $7.8 million, or $0.07 per share, compared to net income of $6.4 million in the first quarter of 2004, or $0.05 per share, on a restated basis. As Mike mentioned earlier, this was at the high end of our guidance we provided to you in February.

Sales for the first quarter of 2005 were $1.1 billion, an increase of 7.8% over the prior year. Total sales growth was driven by a 2.4% comparable store sales increase and the net addition year-over-year of 71 stores or 4.9% growth. Our gross margin rate for the quarter was 40.8% as the sales shortfall in the higher margin seasonal category was offset by a less significant shortfall in sales in the lower margin consumables category. These impacts essentially netted out on a rate basis and landed us in the middle of our guidance range.

Expenses were well managed for the quarter, as dollars were below plan. This year’s SG&A rate of 39.6% was 30 basis points better than last year’s rate of 39.9%. We’re particularly encouraged we were able to gain such leverage on a 2.4% comp. Leverage was achieved primarily through tightly managed store controllable expenses, like payroll and supplies, as well as, distribution.

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May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Our newest regional DC in Durant is now operational versus a year ago when we were still very much in a start-up mode. Net interest expense was $1.1 million for the quarter compared to $4.3 million last year due to the Company’s new revolving credit facility put in place in the third quarter of last year. This variable rate $500 million facility carried an average interest rate of 3.4% during the first quarter of this year compared to our prior $300 million facility which was supplemented by senior notes which carried an effective rate of 8.2%.

The income tax rate for the quarter was 36.3% towards the lower end of our estimated range due to a multiyear state tax settlement which occurred during the quarter.

Turning to the balance sheet, we ended the quarter with total inventory of $897 million, that’s down 4% per store to last year. More importantly, we believe these levels are appropriate and the content as Mike said is much improved to last year and appropriately mixed by category. Specifically, in the markdown sensitive category of seasonal, inventories ended the first quarter up only 3% despite the sales shortfall. Capital expenditures were $15.3 million for the quarter, down $9.4 million, to the first quarter of last year. The decreased level of capital spending related to no store remodels compared to 17 during Q1 of last year and lower DC capital spending in 2005, as last year’s capital included final Durant costs and higher Columbus DC reengineering capital. Depreciation expense was $27.0 million, up $3.0 million compared to last year.

During the quarter we added a net of 17 stores consisting of 19 new stores and 2 closed stores. Further, we opened furniture departments in all of these new stores. At the end of the first quarter, we were operating 1,519 stores, including 43 freestanding furniture stores. Total selling square footage at the end of the first quarter was 31.4 million, up 6.8% to last year.

Looking forward, our guidance for the second quarter remains unchanged. Results for the quarter are estimated to be in the range of a loss per share of $0.01, to earnings per share of $0.03, which represents a major step forward from last year’s loss per share of $0.07 on a restated basis. This guidance is based on a sales comp increase in the 3 to 5% range as we begin to anniversary last year’s slowdown in customer traffic. May sales comps are expected in the 1 to 3% range, and through the first two weeks of May, results are in line with this plan. June comps are planned in the 3 to 5% range with a reduction of one ad circular in June compared to last year. Finally July comps are planned in the 4 to 6% range. Now Chuck is going to share with you an update on KB.

Chuck Haubiel - Big Lots, Inc. — SVP, General Counsel, Secretary

Thanks, Joe. Last Friday, KB toys and the official Committee of Unsecured Creditors filed a joint reorganization plan. The plan recognized an affiliate of Prentice Capital Management as its sponsor. Under the plan, Prentice will invest $20 million in the business and provide a seasonal over advance credit facility of up to $25 million in exchange for 90% of the common stock and 100% of the preferred stock of the reorganized company. The remaining common stock will be held by a trust for the benefit of the unsecured creditors of those KG toys entities being reorganized.

Neither the estate’s claims to be pursued by the official Committee of Unsecured Creditors against certain KB insiders and shareholders nor Big Lots’ action against certain of KB’s officers, directors and others who acted in concert with them, is adversely impacted by the proposed reorganization plan. The plan contemplates Big Lots’ participation in the claims pool at different levels based upon the type of its claim. It also provides that Big Lots will share pro rata in any litigation recovery resulting from the Committee of Unsecured Creditors claims.

In addition to filing this plan, KB has asked the bankruptcy court to approve an auction to solicit additional offers. All higher and better offers will be considered by KB and the Committee of Unsecured Creditors. Although not specifically addressed in the plan of reorganization, based upon statements made by KB’s management, we believe KB does not intend to close a significant number of additional stores in connection with the approval of this reorganization plan. As I’m sure you would expect, we intend to continue to closely monitor the proceeding and hope to have a greater understanding of the impact of this plan once KB’s disclosure statement hearing occurs sometime in late June or early July.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Thanks, Chuck. As we discussed in our fourth quarter conference call, our mission for 2005 is to focus intensely on great merchandise content and deliver a higher concentration of closeout merchandise consistently across the store. Our team has rallied around this mission and I’m very pleased by the progress we’ve made to date as evidenced by first quarter’s basket trends We had a number of closeout successes through new channels, new vendors, and expanded relationships with some of America’s most recognized brands. In fact, we have some exciting branded closeout deals in furniture and tools scheduled to arrive in the stores very soon. To help drive more traffic into the stores with these deals and other deals to come, we’ll be featuring several of these incredible, branded values in our television and print ads.

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May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Additionally, we have made some modifications to our TV advertising as it relates to messaging and closeouts. Historically, we’ve developed commercials for a 30 second spot with principally a Big Lots brand message and only recently have we began to consistently mention item and price. Starting in May, we have adjusted the advertising to include quick hitting 15 second spots focused on item and price rather than the full 30 seconds. So similar overall time coverage but higher frequency of hits on TV featuring price in an effort to create a sense of urgency to get out and shop at Big Lots.

So while I’m pleased with the continued improvement of the average basket and look for strength in the baskets to continue, our ability to deliver earnings in the second quarter and the balance of the year is going to be dependent upon comps and a return to more normal customer traffic patterns as we begin to anniversary last year’s slowdown and the spikes in energy prices. In the end, components of our business we can control, such as average basket, are trending strong but overall traffic remained weak in Q1.

Looking back on the last four years as we’ve repositioned this great business, I’m incredibly proud of this team and all that’s been accomplished. From over 700 store remodels, to the name change, to the changes in marketing mix going from 36 ad circulars to now 24 this year, expanding on our television advertising, adding two regional DC,s and one furniture DC, the creation of Big Lots Capital, and so on. It’s overwhelming, but now with the heavy investment and the strategic repositioning risk behind us, it’s all about merchandising, closeouts, low prices, and great content to drive greater frequency of customer stops. Actually, to borrow a phrase from several of you in the investment community, we believe we’re entering into a sort of “harvest phase” in the sense that the time is now and for the next several years for all of our efforts to be rewarded. We know it’s time to execute.

We’ve given full year guidance for 2005 of earnings per share in the range of $0.54 to $0.60 compared to $0.27 in the prior year. This guidance assumes a 3 to 4% comp and results in approximately $100 million of free cash flow. The Company’s goal is to grow EPS consistently over the long term at a rate of 15% to 20% or more and generate significant amounts of cash. Of course, we would expect 2005 EPS growth, which is estimated currently to be 100% or more, to be unusually high based on the disappointing 2004. However, since we have no major new planned investments or initiatives on the horizon, we would expect the SG&A leverage point and capital investment to remain low and annual cash flow to continue into the foreseeable future assuming nominal top line comp sales growth. This cash flow provides us options to drive incremental shareholder returns over the coming years. With that let me now open it up for your questions.

QUESTION AND ANSWER

Operator

[OPERATOR INSTRUCTIONS] The first question comes from the line of David Mann with Johnson Rice. David, your line is open.

David Mann - Johnson Rice — Analyst

Yes. Good morning.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Good morning, Dave.

David Mann - Johnson Rice — Analyst

Mike, can you comment a little bit on the progress in finding a new CEO and what time that — the timetable for that?

Mike Potter - Big Lots, Inc. — Chairman & CEO

I’ll do the best I can. We’re in the middle of the process so there’s really nothing that can be announced until we actually reach a completion. I guess what I would remind everybody is that the Board did create a search committee of four board members, we engaged Korn/Ferry back in January to assist us in the search. And at this point, as the search committee has reported to the Board, they feel good that they’re on progress and on plan. I feel good about the process that they’re going through and at this point, it probably would be too speculative to give any kind of timing indication.

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

David Mann - Johnson Rice — Analyst

But I guess your previous timing was talking about late spring, early summer. Is it still reasonable to think in that time line?

Mike Potter - Big Lots, Inc. — Chairman & CEO

I don’t think anything has changed since we started. Korn/Ferry advised us that a search of this type would probably take a minimum of six months and that would have put it somewhere in late spring, and early summer. So many things can depend upon all the factors that are involved. But at this point, we feel good about the process.

David Mann - Johnson Rice — Analyst

Okay. And then if I could follow up, on the consumables business, it seems like other folks are talking about that being one of the stronger areas of their business, yet it seems to be slowing down a little bit for you. Can you just give some color on what you think is going on there and, if that’s going to change anytime soon?

Mike Potter - Big Lots, Inc. — Chairman & CEO

Yes. I guess I wouldn’t characterize it right now as slowing down. It’s been an area that has been trailing the Company’s comp for a number of quarters. Actually, within this quarter, we’re seeing a little bit of acceleration. I don’t think I can put my finger on one particular point, David. We’re not sure at this point how much is being impacted by our own traffic counts. We’ve had, I’d say three, four quarters now where our traffic counts have been down high twos or low threes which is certainly a change from the trends we were on before and it’s a little bit of the chicken or the egg as far as which drives which, but our store is clearly more of a discretionary store in total than a lot of our competitors who have the milk, bread, and eggs and draw the destination traffic, ours is more of a pickup consumable category. That’s a phenomenon we’re not quite sure how to put our finger on it exactly.

And for some prior few quarters, we had some subcategories within consumables where the supply was not as strong as we would have liked. Some of that is being solved right now in the flow that we’ve had in Q1 and going into Q2. So I think the toughest time for consumables is probably behind us. We feel pretty good about what’s happening. We’ve had — if you’ve been watching our ads, we’ve had a number of ads where we’ve made a pretty powerful splash of consumables, we had an $0.88 event that happened just recently, that was powerful brands, everything at $0.88. And pretty exciting closeout items. So we’re trying to make a lot of noise there and I think we’re starting to realize some benefits from that.

David Mann - Johnson Rice — Analyst

Great. Thank you.

Operator

The next question comes from the line of Patrick McKeever with Suntrust Robinson. Patrick, your line is open.

Carrie - Suntrust Robinson — Analyst

Hey guys this is actually Carrie calling in for Patrick. I wanted to ask you about the cash balance. It’s down a little bit in second quarter. I just wanted to get your thoughts on if you’re comfortable with it at that level or if you have any comments on that.

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Joe Cooper - Big Lots, Inc. — SVP & CFO

Versus when? Versus last year or versus the beginning of the year?

Carrie - Suntrust Robinson — Analyst

Well, I mean we know that you’ve paid down some debt.

Joe Cooper - Big Lots, Inc. — SVP & CFO

Right.

Carrie - Suntrust Robinson — Analyst

So that’s part of it. But just kind of this year versus last year —?

Joe Cooper - Big Lots, Inc. — SVP & CFO

Yes. Well, the — the cash balance versus last year is principally due to the negative cash flow that we talked about at the end of the year, Carrie. Our debt balance is actually down from the beginning of the year. So we were disappointed in our free cash flow in ‘04. We executed a $75 million share repurchase which we were — feel very good about. But because of the sale shortfall, we did have negative cash flow in ‘04. And as I said, spoke to that at the end of the year.

Carrie - Suntrust Robinson — Analyst

Right.

Joe Cooper - Big Lots, Inc. — SVP & CFO

One thing that you might want to note is on our balance sheet that we put out today, the debt last year of $204 million, that was the Senior Notes that we retired in the third quarter. And so we did have some cash on the balance sheet at the end of the first quarter of last year. But that needs to be netted against the Senior Notes to get a net debt number. That net debt number was about $83 million last year, and this year it’s $107 million. So it is a little bit higher than last year. But as I said, it’s down from the $159 million at the end of the year. And we feel good about that. And that’s due to reduced capital spending and also the inventory management that we were able to achieve in the first quarter.

Carrie - Suntrust Robinson — Analyst

Okay. And then another question on the traffic, I know that you mentioned that comps were very dependent on the traffic. Do you expect to see a big benefit from cycling the gas price increases? Can you give us any color on your expectations for traffic going into the second quarter?

Mike Potter - Big Lots, Inc. — Chairman & CEO

Great question. We’ve been asking that ourselves. If there is one thing we could forecast well that we would benefit from it would be where gas prices were going to go. I think everybody that’s supposed to be a prognosticator is trying to forecast that but no one’s been too successful. What I do know though, when you look at the actual energy price statistics, starting in the second quarter of last year and continuing through the first quarter of this year, so now four quarters in a row, gas prices year-over-year have trended anywhere from 25 to 30% up from the prior year. So this past first quarter was actually about the same increase year-over-year in gas prices as what we saw the prior three quarters in ‘04.

What happens when you get into Q2 is for the first time now in four quarters, we’re going to anniversary a 30% increase from last year. If current trends of gas prices continue right now, there will be an increase over last year’s increase, but at a much smaller rate. So if that were to continue, we would expect, and that’s partially what we’re forecasting in our comps, we would expect that that declining customer traffic that we’ve experienced begins to narrow. To what extent I think it’s hard for us to know.

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Carrie - Suntrust Robinson — Analyst

But you still expect some decline.

Mike Potter - Big Lots, Inc. — Chairman & CEO

We do still expect some decline. I think there’s an inability to know whether we’re going to get close to flat, whether we’re going to get to a positive period, whether it will still be negative. It’s just too hard to predict.

Carrie - Suntrust Robinson — Analyst

Right. And you don’t have a crystal ball working too well.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Yes. I wish we did.

Carrie - Suntrust Robinson — Analyst

All right. Thanks, guys, I appreciate it.

Operator

The next question comes from the line of David Buchsbaum. David, your line is open.

David Buchsbaum - Stanford Financial Group — Analyst

Thank you. Good morning, everyone. Could you touch on furniture comps, how they’ve been trending, what their effect might be on your average basket, and just kind of qualitatively, is furniture as a category kind of a different shopping trip or are you getting some cross pollinization in terms of people cross shopping the two categories?

Mike Potter - Big Lots, Inc. — Chairman & CEO

Well, it’s — we don’t have real good data on cross shopping among furniture customers, at this point, yet. For the most part, data indicates that when people are spending time in the furniture department shopping for whatever it might be, dining sets, or couch, or ready to assemble furniture, that there isn’t a whole lot of cross shopping on that trip with Big Lots. But we do know that because our customers shop Big Lots often, they get to look at the furniture department quite often and that we sort of get the furniture benefit from all that traffic.

Furniture has actually trended fairly well. We had a pretty decent comp in the first quarter, I wouldn’t say it was too unusual to what we’ve experienced historically. I would say, though, that starting in about the second quarter last year, and to some extent the third quarter, we weren’t exactly as happy as we would have liked to have been with some of our in stock positions and some of the performance of the category in total. So as we go forward in the coming quarters, we actually feel pretty optimistic about our ability to comp furniture partly because of the comparisons that we’ve had and we just right now seem to be executing the category pretty well.

David Buchsbaum - Stanford Financial Group — Analyst

Do you do you have any sense of how much it contributed to the increase of the average basket?

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Mike Potter - Big Lots, Inc. — Chairman & CEO

We usually don’t get into that kind of detail, furniture has been additive, but it’s not the material driver of the basket. It’s actually — a lot of the basket right now is coming from good balance across all of our categories and primarily the categories that I mentioned earlier in the call.

David Buchsbaum - Stanford Financial Group — Analyst

Okay. Thank you so much.

Operator

The next question comes from the line of Ronald Bookbinder. Your line is open.

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

Good morning.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Good morning, Ron.

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

With the — the merchandising seems to be improving with a greater percentage of closeouts and the basket is showing that. Why do you think word of mouth advertising hasn’t started to improve the traffic?

Mike Potter - Big Lots, Inc. — Chairman & CEO

I don’t have an answer for that, Ron. I would agree with you. You would think that that would begin to benefit us. I think the problem right now is there’s so much noise in traffic, in general. And obviously, you see that among pretty much all of our competitors that are servicing a similar customer that there’s just too much noise going on to know what the year-over-year change of that value is. I do think, and a lot of you have called us and commented on it, I do think that our ads are pretty powerful right now, the brands are pretty powerful, the values are pretty exciting and obviously from our basket performance, the customers seem to like more and more of what they’re seeing in the stores they go in. I would normally conclude that that would lead to word of mouth benefit. And obviously with a negative 3% customer count for the quarter it’s hard to conclude that we’ve received that yet.

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

With the new DC and the reduction in mileage that you should be receiving from that, was your fuel cost up or down this past quarter even though energy prices were significantly higher?

Mike Potter - Big Lots, Inc. — Chairman & CEO

Fuel prices are a challenge. We think we’ve properly forecasted that along with what you mentioned in terms of leveraging off of the second year of the Durant distribution center. So all of that right now has been incorporated in our forecast. It’s part of why our expense structure in total is looking good and at this point, everything that we see in terms of the trend of gas prices on our expenses, not counting the trend on our customers, is — we think is probably reflected in the forecast.

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

Okay. Great. Thank you.

Operator

[OPERATOR INSTRUCTIONS] The next question comes from the line of David Mann with Johnson Rice. David, your line is open.

David Mann - Johnson Rice — Analyst

Yes. In terms of the advertising that you’re going to be doing from here on out with the 15-second spots, have you tested that had anywhere to get a sense on how that might impact business relative to your other advertising?

Mike Potter - Big Lots, Inc. — Chairman & CEO

We’ve run very little of that so far, David. We have more of industry information on what 15 seconds, 30 second spots look like in terms of the cost, the frequency, the penetration, and we think there’s an opportunity there for us to leverage from the increased frequency, the increased number of exposures that customers get. If you watch TV, there’s a number of companies that do a similar approach where they actually have a combination of 30 second and 15 second and we’re doing it in places where we’re able to get roughly close to a 50% cost reduction for 15 versus 30 so it doesn’t change our cost structure but we like the fact that if you can get a powerful message into 15 seconds you increase that frequency. So we’re doing a combination of that going forward. But it looks like it would be a very effective strategy for us.

David Mann - Johnson Rice — Analyst

In terms of your guidance, I think before you had included options expense in there. Should we assume that that’s taken out now?

Joe Cooper - Big Lots, Inc. — SVP & CFO

No, David. We had not included option expense in the guidance.

David Mann - Johnson Rice — Analyst

Oh, okay.

Joe Cooper - Big Lots, Inc. — SVP & CFO

Right. Thanks for clarifying. Yes.

David Mann - Johnson Rice — Analyst

Thank you.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Yes.

Operator

The next question comes from the line of Jeff Stein with KeyBanc Capital Markets. Jeff, your line is open.

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Jeff Stein - KeyBanc Capital Markets — Analyst

Good morning, guys. Question with regard to the holiday selling season since clearly that’s the most important for you. Over the last couple of years, there has been a significant increase in competition in the seasonal categories, Holiday Trim a Tree, decorative merchandise, and so forth. I’m wondering how do you fill that hole? Are you going to continue to go with the same offering you have in the past or are you going to try to replace that, perhaps, this year with a higher percentage of closeout merchandise and, if so, what are your inventory assumptions for the fourth quarter going into the fourth quarter relative to last year?

Mike Potter - Big Lots, Inc. — Chairman & CEO

Well, I think as we spoke about on our year-end conference call, Jeff, as we were laying out the fall plan, and we will probably talk about this again at the end of the second quarter, we are going into the fall with a different holiday trim plan and harvest and Halloween, for that matter. Generally, in those categories, we’re not looking to drive comps. In fact, in some cases, we’re looking for some negative comps. We’re focusing more on margin dollar growth. We’ve had way too many markdown exposures in the past, and obviously last year was magnified by the customer traffic reduction, which dropped every category down and, of course, seasonal has time limitations. So if you don’t sell it through, you incur some pretty dramatic markdowns.

We’re going at it very conservatively, and we are more dramatically. We learned from it last year. It was the start of learning a lot more. We’re changing where we’re putting our dollars. We know that there is certain trends within Halloween and within trim that are actually growing trends, and there are certain categories that are dramatically declining. And with the system information we have now, which we didn’t have in the past and from history and some real sell through information and margin information by class or subclass, we get a lot better handle of how to plan it. And I think our dollars are going to be a lot better managed.

In terms of overcoming that kind of lack of comp growth among that category, it’s exactly what you said. It’s in closeout deals across all categories. It’s in anything exciting, and of course in the holiday time period when our customers open up their wallet beyond $15 or $20 and start spending $100 or $200 for gifts and the holidays, in general, whether it’s electronics or tools or health and beauty or gifts or whatever it might be, wherever those closeouts can go, that’s where we want to chase it. So I think we have an opportunity to more than offset any planned reduction in the trim category with the direction that we’re taking.

Jeff Stein - KeyBanc Capital Markets — Analyst

Mike, have you given any consideration to changing the mix of your advertising in the back half of the year, if you’re going to have a heightened focus on closeouts, does it make any sense to do more circular advertising?

Mike Potter - Big Lots, Inc. — Chairman & CEO

We don’t have any change planned right now. We spent a number of years refining how many circulars and what makes it productive. There aren’t a whole lot of weeks in the peak shopping period of November and December where we don’t have a circular in place. When we’ve gone back and forth of pulling one or two, I think there’s only one week in December where we don’t have a circular and there’s probably one week in November that we don’t have a circular. We found when we add one more to it, it just dilutes the one in front and the one behind and in the end you don’t make incremental profit from that. You might drive a little bit more sales but you’re not covering the cost of the ad. So we’re pretty well saturated in circulars, we think it’s still much more about the content. We have got the pages. We just need the content and that’s what drives the improvement. Thanks.

Operator

The next question comes from the line of Ralph Jean with Wachovia. Ralph, your line is open.

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Ralph Jean - Wachovia — Analyst

Great. Thank you, guys. If you already addressed this, I apologize. But with the increase in your average basket, was that primarily driven by increased units per transaction or an average unit retail?

Mike Potter - Big Lots, Inc. — Chairman & CEO

More in the average unit retail, and that’s not because prices are up. That’s because we’re getting better balance across all of of our categories, primarily in home decorative and furniture, some of the higher ticket categories. There’s a better balance across the store, as well as to some extent, that’s also a result of consumables being weaker than the chain.

Ralph Jean - Wachovia — Analyst

Wouldn’t that suggest that your customer is still willing to spend on the more discretionary items at an increasing rate which is different than what’s going on in the sector?

Mike Potter - Big Lots, Inc. — Chairman & CEO

Well, our primary customer through all of our surveys is the treasure hunt customer. They don’t come to us every week. They come to us about once a month or every three weeks or so and they shop Big Lots because it’s entertainment and they know they’re going to save some money but it’s not something they have to do every week. So I think it’s intuitive that they’re making fewer visits right now in the environment that they’re in but when they’re coming we think the basket is a reflection of as they walk the store they’re finding more compelling things to put in their basket and walk out the door with.

Ralph Jean - Wachovia — Analyst

Great. Thank you.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Thanks.

Operator

The next question comes from the line of Ronald Bookbinder with Sterne, Agee. Ronald, your line is open.

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

Big Lots Capital. Was that a factor in the strength of wholesale and can we expect that going forward?

Mike Potter - Big Lots, Inc. — Chairman & CEO

There wasn’t really much change in wholesale and it can be a factor. It wasn’t in the first quarter. I’m not sure I would worry too much about wholesales results in the forward quarters. It’s generally a smaller percent. But Big Lots capital can be dealing in all kinds of things. And the product that they source can be — it’s obviously intended to go through the retail stores, but in some cases whether it’s excess quantity or just things that we don’t think we can move through our retail stores it becomes a good avenue for wholesale as well. But there wasn’t a lot of change in wholesale in the first quarter.

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

Are there any large deals that you’ve been working on.

Mike Potter - Big Lots, Inc. — Chairman & CEO

There are a number of deals that we’re working on. But we —.

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

Nothing you want to announce at this time.

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

Mike Potter - Big Lots, Inc. — Chairman & CEO

Yes. We certainly would prefer not to talk about that on a call like this.

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

Okay. Lastly, do you expect share repurchase with the $100 million that you’re projecting in free cash flow, do you expect that to come up at the meeting later this morning.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Well, let me just tell you what the Board’s philosophy has been so far on our balance sheet position and cash. Obviously, we did a stock buyback last year as we felt we got our balance sheet in a condition where we were not going to sacrifice our investment grade rating and had the excess cash on top of that plus we refinanced the balance sheet and achieved lower interest rates that that was an appropriate thing to do. The Board so far has not preferred getting ahead of our cash flow to do a stock buyback. We are a BBB minus rating right now, which is, kind of where we want to be but it’s on the cusp between investment grade and noninvestment grade and we think there’s a big difference in our sourcing from brand name manufacturers and in our landlords and other benefits of the business that we get from being investment grade that at this point we don’t want to put the buyback ahead of the cash flow. So to the extent that we generate that cash and obviously we get most of that cash flow in the fall when we get most of our earnings, I would expect the Board would discuss at the appropriate time what they want to do with that cash flow.

Ronald Bookbinder - Sterne, Agee & Leah — Analyst

Okay. Thank you.

Operator

At this time, we have no further questions, Mike.

Mike Potter - Big Lots, Inc. — Chairman & CEO

Okay. Well, thank you all for joining us for our first quarter. We will look forward to talking to you again at the end of our second quarter.

Operator

Ladies and gentlemen, a replay of this call will be available to you within the hour. You can access the replay by dialing 1-800-207-7077 and entering pin 4113. Again, that phone number is 1-800-207-7077 and the pin number is 4113. Ladies and gentlemen, this concludes today’s presentation. Thank you for your participation. You may now disconnect.

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Final Transcript

May. 17. 2005 / 8:00AM, BLI — Q1 2005 Big Lots, Inc. Earnings Conference Call

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