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 25, 2006

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))

Item 1.01 Entry into a Material Definitive Agreement.

At the Company’s Annual Meeting of Shareholders on May 25, 2006, the proposal to approve the Big Lots 2006 Bonus Plan (the “2006 Bonus Plan”) was approved by the Company’s shareholders. The purpose of the 2006 Bonus Plan is to advance the interests of the Company by attracting, retaining and motivating employees; aligning participants’ interests with those of the Company’s shareholders; and qualifying compensation paid to the Company’s executive officers as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code (“Section 162(m)”).

The 2006 Bonus Plan will be administered by the Compensation Committee of the Company’s Board of Directors. Each Compensation Committee member will be an “outside director” within the meaning of Section 162(m). As plan administrator, the Compensation Committee is charged with the responsibility for designating eligible participants and selecting the applicable performance criteria and performance goals used to calculate the bonus award, if any.

The percentage of salary (“performance goals”) used in calculating a participant’s bonus opportunities have been established in either his/her employment agreement (which agreements are generally limited to the Company’s executive officers) or annually by the Compensation Committee based on the participant’s position, if the participant that does not have an employment agreement. Except where established by an employment agreement, the Compensation Committee has the authority to modify the performance goals for participants.

The Company financial measures (“performance criteria”) used in calculating participants’ bonus eligibility may be based on one or more financial measures calculated in accordance with accounting principles generally accepted in the United States of America, as the same appear in the Company’s periodic filings with the SEC and/or the Company’s annual report to shareholders, and as may be adjusted in recognition of unusual or non-recurring events, transactions and accruals. Annually, the Compensation Committee, in its sole discretion, will select the performance criteria and equitable adjustments applicable to the performance period, which is generally a full fiscal year. The performance criteria include, without limitation, net income, income from continuing operations, and income from continuing operations before extraordinary items and/or the cumulative effect of a change in accounting principles. The performance criteria and equitable adjustments are described in their entirety on Appendix A to the 2006 Bonus Plan.

The 2006 Bonus Plan provides for cash compensation to be paid annually when the performance criteria are achieved. No right to a bonus exists under the 2006 Bonus Plan. For each performance period, the Compensation Committee will establish an objective compensation payout formula for each participant based on the achievement of performance criteria, the outcomes of which are substantially uncertain at the time so established, and the determination of performance goals. The Compensation Committee derives its performance criteria from the Company’s financial plan for the fiscal year, as approved by the Board at the start of the fiscal year.

The Compensation Committee also defines the performance goals at the time that the performance criteria are established, except where the performance goals are established by a participant’s employment agreement. For participants with an employment agreement, the target and stretch performance goals have been established in such agreement, while the floor is set annually by the Compensation Committee. For other participants, the performance goals approved by the Compensation Committee are set by position level. Subject to the terms of the employment agreements, the Compensation Committee retains the right to adjust the performance goals.

The 2006 Bonus Plan provides that bonus awards in any fiscal year may not exceed the maximum bonus amount that is established annually for each participant pursuant to a predetermined objective formula, subject to a maximum annual limit of $3,000,000. Under this payout formula, the maximum bonus payment for any performance period is the product of (i) the participant’s stretch performance goal for the performance period, and (ii) the performance criteria for the performance period multiplied by a pre-established factor set by the Compensation Committee.

The level of achievement of the performance criteria at the end of the performance period will be used to determine the amount of each participant’s bonus award, if any. After the end of the performance period, the Compensation Committee will determine the amount of the bonus award earned by each participant under the payout formula. Payment of the bonus award to the participant will be made, subject to the participant’s right to defer the same, upon certification by the Compensation Committee, in writing, that the threshold performance criteria have been satisfied and the bonus award has been calculated in accordance with the payout formula. In the event a participant voluntarily terminates employment with the Company prior to the day on which payments of bonus awards are made under the 2006 Bonus Plan for a performance period, the participant forfeits all rights to receive a bonus award. At the discretion of the Compensation Committee, pro-rated bonus awards may be made to participants whose employment terminates by reason of retirement, disability or death during a performance period.

The Compensation Committee may amend, in whole or in part, any or all of the provisions of the 2006 Bonus Plan, except as to those terms or provisions that are required by Section 162(m) to be approved by the shareholders, or suspend or terminate the 2006 Bonus Plan entirely; provided, however, that no such amendment, suspension or termination may, without the consent of the affected participants, reduce the right of participants to any payment due under the 2006 Bonus Plan.

This summary is qualified in its entirety by reference to the full text of the 2006 Bonus Plan attached to this Form 8-K as Exhibit 10.1.

Item 2.02 Results of Operations and Financial Condition.

On May 25, 2006, the Company issued a press release and conducted a conference call, both of which reported the Company’s unaudited results for the first quarter of fiscal year 2006, updated its share repurchase program, provided guidance for the second quarter of fiscal year 2006, and revised its previously issued guidance for fiscal year 2006. Attached as exhibits to this Form 8-K are copies of the Company’s May 25, 2006 press release (Exhibit 99.1) and the transcript of the Company’s May 25, 2006 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 26, 2006, the total indebtedness under the 2004 Credit Agreement was $57.4 million, which was comprised solely of letters of credit. Through July 2006, the Company expects to have less than $25.0 million in borrowings and between $50.0 million and $70.0 million in letters of credit. 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 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

Exhibits marked with an asterisk (*) are filed or furnished herewith. Exhibits 10.1 is a
management contract or compensatory plan or arrangement.

Exhibit No.	Description
10.1*	Big Lots 2006 Bonus Plan
99.1*	Big Lots, Inc. press release dated May 25, 2006.
99.2*	Transcript of Big Lots, Inc. conference call dated May 25, 2006.

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: June 1, 2006	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 2006 BONUS PLAN

1. NAME

1.01. The Big Lots 2006 Bonus Plan (the “Plan”) is hereby established by Big Lots, Inc., to be effective as of January 29, 2006 (the “Effective Date”), subject to approval by the Company’s shareholders no later than June 1, 2006.

2. PURPOSE

2.01. The Plan is designed to: (a) assist the Company and its Affiliates in attracting, retaining and motivating employees; (b) align Participants’ interests with those of the Company’s shareholders; and (c) qualify compensation paid to Participants who are “Covered Associates” as “other performance-based compensation” within the meaning of section 162(m) of the IRC or a successor provision.

3. DEFINITIONS

3.01.	“Acquired Corporation” has the meaning ascribed in Section 3.07.
3.02.	“Affiliate” means: (a) a “parent” or a “subsidiary” of the Company, as those terms are defined in Code sections 424(e) and (f), respectively; and (b) 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 section 414(b) but substituting “50 percent” for “80 percent” when determining controlling interest under Code section 414(b).
3.03.	“Base Salary” means as to a Performance Period, a Participant’s actual gross salary rate in effect on the Determination Date. Such salary shall be before: (a) deductions for taxes and benefits; and (b) deferrals of salary pursuant to Company-sponsored plans.
3.04.	“Beneficiary” means the person or persons entitled to receive the interest of a Participant in the event of the Participant’s death.
3.05.	“Board” means the Board of Directors of the Company.
3.06.	“Bonus” means a payment subject to the provisions of this Plan.
3.07.	“Change of Control” means any one or more of the following events: (a) any person or group [as defined for purposes of Section 13(d) of the Exchange Act] acquires 35 percent or more of the outstanding equity securities of the Company entitled to vote for the election of directors; (b) a majority of the Board of Directors of the Company then in office is replaced within any period of twelve months 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 (c) any person or group [as defined for purposes of Section 13(d) of the Exchange Act] acquires assets of the Company having a gross fair market value equal to or more than 40 percent of the gross fair market value of the Company. Provided, however, the other provisions of this Section 3.07 notwithstanding, the term “Change of 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

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an Affiliate (the “Acquired Corporation”), or for all or substantially all of the assets of the Acquired Corporation.

3.08.	“Committee” means the Compensation Committee of the Board, which shall consist of not less than three (3) members of the Board each of whom is a “non-employee director” as defined in Securities and Exchange Commission Rule 16b-3(b)(3)(i), or as such term may be defined in any successor regulation under Section 16 of the Securities Exchange Act of 1934, as amended. In addition, each member of the Committee shall be an outside director within the meaning of IRC section 162(m).
3.09.	“Common Shares” means the common shares of the Company, its successors and assigns.
3.10.	“Company” means Big Lots Inc., an Ohio Corporation, its successors and assigns and any corporation which shall acquire substantially all its assets.
3.11.	“Conditional Payment” means prepaying a Bonus before the date of current payment in Section 6.02 and subjects the prepayment (or a portion thereof) to possible return to the Company.
3.12.	“Covered Associate” means any Participant who is expected to be a “covered employee” (in the Fiscal Year the Bonus is expected to be payable) as defined in IRC section 162(m) and the regulations thereunder.
3.13.	“Deferred Bonus Account” means the bookkeeping account established under Section 6.04.
3.14.	“Determination Date” means as to a Performance Period: (a) the first day of the Performance Period; or (b) such other date set by the Committee provided such date will not jeopardize the Plan’s Bonus as performance-based compensation under IRC section 162(m).
3.15.	“Eligible Position” means an employment position with the Company or an Affiliate which provides the employee in the position the opportunity to participate in the Plan. The Committee (or its designee) determines Eligible Positions.
3.16.	“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
3.17.	“Fiscal Year” means the fiscal year of the Company (currently comprised of a 52/53 week fiscal year which ends on the Saturday nearest to January 31).
3.18.	“IRC” 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.
3.19.	“Participant” means a key employee of the Company or an Affiliate who has been approved for participation in the Plan by the Committee (or its designee).
3.20.	“Performance Period” means the period (which, with respect to a Covered Associate, may be no shorter than a fiscal quarter of the Company) established by the Committee over which the Committee measures whether or not Bonuses have been earned. In most cases, the Performance Period will be a Fiscal Year. In the case of an inaugural Performance Period or a promotion, the Performance Period may be less than a Fiscal Year.
3.21.	“Tax” means any net income, alternative or add-on minimum tax, gross income, gross receipts, commercial activity, sales, use, consumer, transfer, documentary, registration, ad valorem, value

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added, franchise, profits, license, withholding, payroll, employment, unemployment insurance contribution, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty, unclaimed fund/abandoned property, or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental authority responsible for the imposition of any such tax.

4. ELIGIBILITY AND PARTICIPATION

4.01.	Approval. Each key employee of the Company or an Affiliate who is approved for participation in the Plan by the Committee (or under the authority conveyed by the Committee) shall be a Participant as of the date designated.
4.02.	Termination of Approval. The Committee may withdraw its approval for participation for a Participant at any time. In the event of such withdrawal, the key employee concerned shall cease to be an active Participant as of the date selected by the Committee. Nothing in this Section 4.02 shall permit distribution of amounts credited to a Participant’s Deferred Bonus Account before the time specified in Section 6.04.
4.03.	Transfers In, Out of and Between Eligible Positions.

(a) A key employee may be approved for participation during a portion of a Fiscal Year.

(i)	With respect to employees who are not Covered Associates, an employee newly hired or transferred into an Eligible Position shall have his/her participation prorated during the first Fiscal Year provided employment or transfer occurs at least two months prior to the end of the Fiscal Year.
(ii)	An employee (other than a Covered Associate) transferred out of an Eligible Position may receive a prorated Bonus at the discretion of the Committee provided he/she served in the Eligible Position for at least two full months during the Fiscal Year.
(iii)	With respect to Covered Associates approved for participation during a portion of a Fiscal Year, see Section 5.03 as it would relate to Performance Periods that are not equivalent to a Fiscal Year.

(b) Participants (who are not Covered Associates) transferring between Eligible Positions having different Bonus formulas will receive Bonuses prorated to months served in each Eligible Position. Generally, for Covered Associates transferring between Eligible Positions, Section 5.03 shall apply to each respective Performance Period applicable to the particular position unless an employment agreement provides otherwise.

4.04. Termination of Employment.

(a) The Participant shall forfeit all rights to a bonus unless the Participant is employed by the Company or an Affiliate on the day on which payments determined under Section 6.02 are in fact made (or would have been made if a deferred payment election under Section 6.04 had not been executed). However, a Participant shall not forfeit a bonus for a performance period if the Participant is employed by the Company or an Affiliate at the end of the Performance Period and is involuntarily terminated by the Company or an Affiliate without cause or terminates by reason of retirement, disability, or death, after the end of the performance period, but before the bonus payment date.

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(b) The Company shall have discretion to provide a pro-rated Bonus to a Participant whose employment with the Company or an Affiliate terminated by reason of retirement, disability, or death during a Performance Period.

5. DETERMINATION OF BONUSES

5.01.	In addition to the vesting requirements of Section 4.04, Bonuses will vest solely on account of: (1) the attainment of one or more pre-established performance objectives and (2) in the case of Covered Associates, the certification described in Section 5.07.
5.02.	With respect to Bonuses for Covered Associates, the material terms of the performance measure(s) must be disclosed to, and subsequently approved by, the shareholders before the Bonus payout is executed, unless the performance measures conform individually, alternatively or in any combination of the performance criteria and the application thereof in Appendix A.
5.03.	Prior to the completion of 25% of any Performance Period (which, by example, may be a full Fiscal Year or some potion thereof) or such earlier date as required under IRC section 162(m), the Committee shall in its sole discretion, for each such Performance Period determine and establish in writing a performance measure or performance measures (in accordance with Section 5.02) applicable to the Performance Period to any Covered Associate. Within the same period of time, the Committee (or its designee) for each such Performance Period shall determine and establish in writing the performance measures applicable to the Performance Period for Participants who are not Covered Associates. Such pre-established performance measures must state, in terms of an objective formula or standard, the method for computing the amount of the Bonus payable to the Participant if the objective(s) is (are) obtained. A formula or standard is objective if a third party having knowledge of the relevant performance results could calculate the amount to be paid to the Participant. The Committee may establish any number of Performance Periods, objectives and Bonuses for any associate running concurrently, in whole or in part, provided, that in so doing the Committee does not jeopardize the Company’s deduction for such Bonuses under IRC section 162(m).
5.04.	On or prior to the date specified in Section 5.03, the Committee, in its sole discretion, shall either; (a) assign each Participant a target Bonus opportunity level expressed as a percentage of Base Salary or a whole dollar amount (for Covered Associates, Base Salary must be fixed prior to the establishment of performance objectives applicable to a particular Performance Period); or (b) establish a payout table or formula for purposes of determining the Bonus (if any) payable to each Participant. The Committee may authorize a designee to establish a payout table or formula for those Participants who are not Covered Associates.
5.05.	Each payout table or formula:

(a)	shall be in writing;
(b)	shall be based on a comparison of actual performance to the performance objectives;
(c)	may include a “floor” which is the level of achievement of the performance objective in which payout begins;
(d)	shall include a ceiling (a/k/a “stretch”) which is the level of achievement for the maximum Bonus payout percentage (subject to Section 5.09); and

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(e) shall provide for a formula for the actual Bonus attainment in relation to the Participant’s target Bonus, depending on the extent to which actual performance approached, reached or exceeded the performance criteria goal subject to Section 5.09.

5.06.	In lieu of Bonuses based on a percentage of Base Salary (Section 5.04), Bonuses may be based on a percentage or share of a Bonus pool. The Committee (or its designee) shall determine (by the date specified in Section 5.03) the total dollar amount available for Bonuses (or a formula to calculate the total dollar amount available) known as a Bonus pool. The Committee, in its sole discretion, may establish two or more separate Bonus pools and assign the Participants to a particular Bonus pool. The Committee (or its designee in the case of Participants who are not Covered Associates) shall establish in writing a performance payout table or formula detailing the Bonus pool and the payout (or payout formula) based upon the relative level of attainment of performance goals. Each payout table or formula shall (a) be based on a comparison of actual performance to the performance goals, (b) provide the amount of a Participant’s Bonus or total pool dollars available (or a formula to calculate pool dollars available), if the performance goals for the Performance Period are achieved, and (c) provide for an actual Bonus (which may be based on a formula to calculate the percentage of the pool to be bonused to a particular Participant) based on the extent to which the performance goals were achieved. The payout table or formula may include a “floor” which is the level of achievement of the performance goals in which payout begins. In the case of Bonuses which are stated in terms of a percentage of a Bonus pool, the sum of the individual percentages for all Participants in the pool cannot exceed 100 percent. In no case shall a reduction in a Bonus of one Participant result in an increase in another Participant’s Bonus.
5.07.	After the end of each Performance Period or such earlier date if the performance objective(s) are achieved, the Committee shall certify in writing, prior to the unconditional payment of any Bonus, which performance objective(s) for the Performance Period were satisfied and to what extent they were satisfied. The Committee (or its designee) shall determine the actual Bonus for each Participant based on the payout table/formula established in Section 5.05 or 5.06, as the case may be.
5.08.	The Committee, in its discretion, may cancel or decrease a Bonus calculated under this Plan, but with respect to Covered Associates, may not under any circumstances increase such Bonus calculated under this Plan.
5.09.	Any other provision of the Plan notwithstanding, the maximum aggregate Bonus payable to a Participant for a particular Fiscal Year may not exceed $3,000,000.

6. PAYMENT OF INCENTIVE BONUSES

6.01. In General

(a)

Once a Bonus has vested and the amount thereof is determined, payment of the Bonus (or the portion thereof not deferred under Section 6.04) shall be made pursuant to Section 6.02 or, if properly and timely elected and permitted by IRC section 409A (i.e. intended to avoid earlier income inclusion, interest and additional taxes of IRC section 409A), shall be deferred in accordance with Section 6.04.

(b)

To the extent that any Bonus under the Plan is subject to IRC section 409A (or its successor), the terms and administration of such Bonus shall comply with the provisions of IRC section 409A (or its successor) and good faith reasonable interpretations thereof, and to the extent necessary to achieve compliance, shall be modified, replaced, or terminated at the discretion of the Committee.

6.02. Current Payment. A Participant’s Bonus for a Performance Period, which is not deferred in accordance with the provisions of Section 6.04 hereof, and a Participant’s Bonus, whether or not he/she elected

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deferred-payment thereof, for the Fiscal Year in which his/her employment terminates, shall be paid in immediately available funds to the Participant, or his/her Beneficiary in the event of his/her death, on or before the fifteenth day of the third month following the end of the Performance Period.

6.03.

Conditional Payment. The Committee may authorize a Conditional Payment of a Participant’s Bonus based upon the Committee’s good faith determination. The Conditional Payment, at the discretion of the Committee (or, except for Covered Associates, under authority granted to its designee) may be discounted to reasonably reflect the time value of money for the prepayment. Conditional Payments to Covered Associates shall only be made in circumstances where the Covered Associate’s compensation deduction will not be jeopardized under IRC section 162(m). The amount of the Conditional Payment that will be returned to the Company is equal to the Conditional Payment less the Bonus payment that has vested, if any. For example, if the floor (see Section 5.05) was not attained for the performance goal or target for the Performance Period, all of the Conditional Payment made for that Performance Period to the Participant must be returned to the Company. Return of all or a portion of the Conditional Payment shall be made reasonably soon after it is determined the extent to which the performance goal or target was not achieved. Conditional payments shall not be made in connection with bonuses that otherwise would be subject to IRC section 409A if paid in the ordinary course.

6.04.

Deferred Payment. Only Participants who are employed by the Company or an affiliate of the Company that is related to the Company through an 80 percent chain of ownership are permitted to defer a Bonus under this Section 6.04.

(a)

Highly Compensated Employees. If a Participant in this Plan is a highly compensated employee who participates in the Big Lots, Inc. Supplemental Savings Plan (the “Top Hat Plan”), elections to defer Bonus, elections as to the form of distribution of the deferred amount, establishment of a deferred account, distributions from the deferred accounts, and all other terms governing the deferred payment of a Bonus shall be governed by the terms of the Top Hat Plan. Any election to defer the Bonus of a Participant who participates in the Top Hat Plan will result in an account administered under the Top Hat Plan.

(b)

Other Employees. The terms governing the deferral of a Bonus for Participants who do not participate in the Top Hat Plan are set forth below.

(i)

Election. Before the first day of each Performance Period (or such other date as is permissible to properly defer the Bonus for income tax purposes), a Participant may irrevocably elect in writing to have a part or (if permissible under IRC section 409A) all of a Bonus for the year under the Plan (but not less than $5,000) deferred. At the same time, the Participant also shall elect the form of distribution from the Deferred Bonus Account, from the choices set forth in Section 6.04(b)(v). Such deferred payment shall be credited to a bookkeeping reserve account which shall be established for the Participant and set up on the books of the Company or an Affiliate and known as his/her “Deferred Bonus Account”.

(ii)

Credits to Deferred Bonus Account. When a Participant has elected to have a part or all of his/her Bonus credited to a Deferred Bonus Account, the unpaid balance in such account shall be credited with a simple annual interest equivalent, as follows: As of the May 1 next following the Fiscal Year for which the deferred Bonus was paid, such Bonus shall become part of the unpaid balance of such Deferred Bonus Account. Such Deferred Bonus Account shall be credited on April 30 of each year with an amount equal to interest on the unpaid balance of such account from time to time outstanding during the year ending on such April 30 at the rate determined by adding together the Three-month Treasury Bill rate on the last banking day prior to the beginning of such year and the Three-month Treasury Bill rate in effect on the last banking

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	days of each of the calendar months of April through March of such year and dividing such total by 12. In the event that the Deferred Bonus Account shall be terminated for any reason prior to April 30 of any year, such account shall upon such termination date be credited with an amount equal to interest at the average Three-month Treasury Bill rate determined as aforesaid on the unpaid balance from time to time outstanding during that portion of such year prior to the date of termination.
(iii)	Alternate Deferral Plans. The Committee, at its discretion, may provide alternate deferral arrangements of which Bonuses under this Plan may be included provided that such deferral arrangements conform with IRC section 409A (i.e. intended to avoid earlier income inclusion, interest and additional taxes of IRC section 409A).
(iv)	Trust Deposits. The Committee, at its discretion, may establish an irrevocable trust in which the assets of the trust are subject to the general creditors of the Company and/or the Affiliate as the case may be. Such trust may upon the occurrence of certain events, as determined by the Committee, receive assets equal to the value of all Participants’ Deferred Bonus Accounts on the date of the event.
(v)	Distribution upon Termination of Employment. Upon termination of a Participant’s employment for any reason with the Company or an affiliate that is related to the Company through an 80 percent chain of ownership, the Participant, or his/her Beneficiary in the event of his/her death, shall be entitled to payment of the entire Deferred Bonus Account in one lump-sum payment payable on the date of the first regular payroll after the thirtieth day following the date of termination of employment, or in ten annual installment payments payable as set forth below, as elected by the Participant at the time the Participant elects to defer all or part of his or her Bonus. The amount accumulated in such Participant’s Deferred Bonus Account shall be paid in immediately available funds. Distribution of installments over ten years shall be made as follows:

(1)	The first annual payment shall be made on the date of the first regular payroll after the thirtieth day following the date of termination of employment, and shall be in an amount equal to the value of 1/10th of the total amount credited to the Participant’s Deferred Bonus Account as of the end of the month immediately preceding the date of termination.
(2)	A second annual payment shall be made on the date of the first regular payroll after the start of the Fiscal Year following the year during which the first anniversary of the date of termination of employment occurs, and shall be in an amount equal to the value of 1/9th of the amount credited (which includes accumulated interest) to the Participant’s Deferred Bonus Account as of January 1 next following the first anniversary of the termination of employment.
(3)	Each succeeding installment payment shall be made on the date of the first regular payroll of the succeeding Fiscal Year and shall be determined in a similar manner, i.e., the fraction of Participant’s Deferred Bonus Account balance to be paid out shall increase each year to 1/8th, 1/7th, etc., until the tenth installment which shall equal the then remaining balance of the Deferred Bonus Account.

Notwithstanding any other provision of this Plan, in the case of a Participant who is determined to be a specified employee for purposes of Code section 409A (a)(2)(B), no payment required to be made under this Plan as a result of termination of employment other than by death or Disability, shall be made earlier than the date that is six months after termination. Instead, payments in such a case shall be made or commence to be made on the first day of the first month that

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	commences following the end of the six-month period following such termination of service. Specified employees for purposes of this Section 6.04(b)(v) will be identified annually as of a date specified in writing by the Committee. If no date is specified, the identification date is deemed to be December 31.
(vi)	Distribution in Event of Financial Emergency. If requested by a Participant while in the employ of the Company or an Affiliate and if the Committee (or in the case of Participants who are not Covered Associates, its designee) determines that an unforeseeable financial emergency has occurred in the financial affairs of the Participant, all or a portion of the Deferred Bonus Account of the Participant on the date the Participant makes the request may be paid out at the sole discretion of the Committee (or its designee) in an amount no greater than the amount reasonably necessary to satisfy the emergency need (including amounts necessary to pay any Federal, state or local income taxes reasonably anticipated to result from such distribution). In order to qualify under this Section, the financial hardship must be the result of an unforeseeable financial emergency. For this purpose, an “unforeseeable financial emergency” is an extraordinary and unanticipated emergency that is caused by an event beyond the control of the Participant (such as an illness, accident or casualty) and that would result in severe financial hardship to the Participant if the early distribution were not permitted. The Participant must supply written evidence of the financial hardship and must declare, under penalty of perjury, that the Participant has no other resources available to meet the emergency, including the resources of the Participant’s spouse and minor children that are reasonably available to the Participant. The Participant must also declare that the need cannot be met by reimbursement or compensation by insurance or otherwise, or by reasonable liquidation of the Participant’s assets (or the assets of the spouse or minor children of the Participant) to the extent such liquidation will not itself cause severe financial hardship. Any such distribution shall be paid within 7 days of the determination by the Committee that such a financial emergency exists.
(vii)	Acceleration of Payment. Notwithstanding the provisions in Sections 6.04(b)(v) and (vi), once distributions of the Deferred Bonus Account begin, if the amount remaining in a Participant’s Deferred Bonus Account at any time is less than $5,000, the Committee shall pay the balance in the Participant’s Deferred Bonus Account in a lump sum.
(viii)	Beneficiary Designation.

(1)

A Participant may designate a Beneficiary who is to receive, upon his/her death or disability, the distributions that otherwise would have been paid to him/her. All designations shall be in writing and shall be effective only if and when delivered to the Secretary of the Company during the lifetime of the Participant. If a Participant designates a Beneficiary without providing in the designation that the Beneficiary must be living at the time of each distribution, the designation shall vest in the Beneficiary all of the distribution whether payable before or after the Beneficiary’s death, and any distributions remaining upon the Beneficiary’s death shall be made to the Beneficiary’s estate.

(2)

A Participant may from time to time during his lifetime change his Beneficiary by a written instrument delivered to the Secretary of the Company. In the event a Participant shall not designate a Beneficiary as aforesaid, or if for any reasons such designation shall be ineffective, in whole or in part, the distribution that otherwise would have been paid to such Participant shall be paid to his estate and in such event the term “Beneficiary” shall include his estate.

8

(ix) Corporate Changes.

(1)

Dissolution or Liquidation of Company. The Company shall cause the dollar balance of a Deferred Bonus Account (adjusted to the end of the month immediately preceding the date of dissolution or liquidation) to be paid out in cash in a lump sum to the Participants, or their Beneficiaries as the case may be, 60 days following the date of a corporate dissolution of the Company taxed under IRC section 331.

(2)

Change of Control of Company. In the event of a Change of Control of the Company, the Company may, within thirty days preceding or twelve months following the Change of Control event, elect to terminate the Plan and to distribute all Deferred Bonus Accounts under the Plan or take any other actions that the Committee deems advisable in order to protect the interests of the Participants (and Beneficiaries). In the event of a termination of the Plan on Change of Control, all Deferred Bonus Accounts under the Plan, and all accounts under any substantially similar arrangements, shall be paid within twelve months of termination of the Plan.

7. RIGHTS OF PARTICIPANTS

7.01.

No Participant or Beneficiary shall have any interest in any fund or in any specific asset or assets of the Company or an Affiliate by reason of any account under the Plan. It is intended that the Company has merely a contractual obligation to make payments when due hereunder and it is not intended that the Company hold any funds in reserve or trust to secure payments hereunder. No Participant may assign, pledge, or encumber his/her interest under the Plan, or any part thereof, except that a Participant may designate a Beneficiary as provided herein.

7.02.

Nothing contained in this Plan shall be construed to give any associate or Participant any right to receive any Bonus other than in the sole discretion of the Committee or any rights whatsoever with respect to the Common Shares of the Company.

8. NO EMPLOYEE RIGHTS

8.01. Nothing in the Plan or participation in the Plan shall confer upon any Participant the right to be employed by the Company or an Affiliate or to continue in the employ of the Company or an Affiliate, nor shall anything in the Plan, or participation in the Plan amend, alter or otherwise affect any rights or terms of employment or other benefits arising from that employment.

9. ADMINISTRATION

9.01.	Administration. The Committee shall have complete authority to administer the Plan, interpret the terms of the Plan, determine eligibility of associates to participate in the Plan, and make all other determinations and take all other actions in accordance with the terms of the Plan and any trust agreement established under Section 6.04(b)(iv). Any determination or decision by the Committee shall be conclusive and binding on all persons who at any time have or claim to have any interest whatever under this Plan.
9.02.	Liability of Committee, Indemnification. To the extent permitted by law, the Committee shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his or her own bad faith or willful misconduct.
9.03.	Expenses. The costs of the establishment, the adoption, and the administration of the Plan, including but not limited to legal and accounting fees, shall be borne by the Company. The expenses of

9

	establishing and administering any trust under Section 6.04(b)(iv) shall be borne by the trust; provided, however, that the Company shall bear, and shall not be reimbursed by, the trust for any tax liability of the Company associated with the investment of assets by the trust.
9.04.	Choice of Law. The validity and effect of this Plan and the rights and obligations of all persons affected hereby shall be construed and determined in accordance with the laws of the State of Ohio, unless superseded by federal law, which shall govern correspondingly.

10. AMENDMENT OR TERMINATION

10.01. The Committee may modify or amend, in whole or in part, any or all of the provisions of the Plan, except as to those terms or provisions that are required by IRC section 162(m) to be approved by the shareholders, or suspend or terminate the Plan entirely; provided, however, that no such modifications, amendment, suspension or termination may, without the consent of the Participant, or his Beneficiary in the case of his/her death, reduce the right of a Participant, or his/her Beneficiary, as the case may be, to any Payment due under the Plan. For the avoidance of doubt, the Committee may amend the Plan as necessary to conform the Plan to the requirements of IRC section 409A. Distributions of Deferred Bonus Accounts on termination of the Plan shall occur only under the circumstances specified in Section 6.04(b)(ix) above.

11. TAX WITHHOLDING

11.01. The Company or the employing Affiliate shall have the right to deduct from all cash payments any federal, state, or local taxes or other withholding amounts required by law or valid court order to be withheld with respect to such cash payments. Amounts deferred will be taken into account for purposes of any tax or withholding obligation under the Federal Insurance Contribution Act and Federal Unemployment Tax Act, not in the year distributed, but at the later of the year the services are performed or the year in which the rights to the amounts are no longer subject to a substantial risk of forfeiture, as required by IRC sections 3121(v) and 3306(r) and the regulations thereunder. Amounts required to be withheld pursuant to IRC sections 3121(v) and 3306(r) shall be withheld out of other current wages paid to the Participant by the Company or the employing Affiliate, or, if such current wages are insufficient, out of the amount of Bonus elected to be deferred. The determination of the Company or the employing Affiliate regarding applicable income and employment tax withholding requirements shall be final and binding on the Participant.

12. SECTION 409A

12.01. It is intended that the Plan comply with IRC section 409A and the Plan shall be construed, where possible, to comply with section 409A. Neither the Company, the employing Affiliate, nor the Committee shall be obligated to perform any obligation hereunder in any case where, in the opinion of the Company’s Counsel, such performance would result in the violation of IRC section 409A. Should it be determined that any provision or feature of the Plan is not in compliance with IRC section 409A, that provision or feature shall be null and void to the extent required to avoid the noncompliance with IRC section 409A. To the extent taxation of a Participant is required under IRC section 409A, the Participant’s Deferred Bonus Account shall be distributed to the Participant (or Beneficiary) in an amount equal to the amount required to be included in income under section 409A.

10

APPENDIX A

PERFORMANCE CRITERIA

Performance criteria imposed on Bonus opportunities 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:

(a)	Income (loss) per common share from continuing operations;
(b)	Income (loss) per common share;
(c)	Operating profit (loss), operating income (loss), or income (loss) from operations (as the case may be);
(d)	Income (loss) from continuing operations before unusual or infrequent items;
(e)	Income (loss) from continuing operations;
(f)	Income (loss) from continuing operations before income taxes;
(g)	Income (loss) from continuing operations before extraordinary item and/or cumulative effect of a change in accounting principle (as the case may be);
(h)	Income (loss) before extraordinary item and/or cumulative effect of a change in accounting principle (as the case may be);
(i)	Net income (loss);
(j)	Income (loss) before other comprehensive income (loss);
(k)	Comprehensive income (loss);
(l)	Income (loss) before interest and income taxes (sometimes referred to as “EBIT”);
(m)	Income (loss) before interest, income taxes, depreciation and amortization (sometimes referred to as “EBITDA”);
(n)	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;
(o)	Any of items (c) through (n) on a weighted average common shares outstanding basis;
(p)	Any of items (a) through (n) 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;
(q)	Common share price;
(r)	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;
(s)	Percentage increase in comparable store sales;
(t)	Gross profit (loss) or gross margin (loss) (as the case may be);
(u)	Economic value added;

11

(v)	Any of items (a) through (u) 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;
(w)	Any of items (a) through (u) above may be determined before or after a minority interest’s share as designated by the Committee;
(x)	Any of items (a) through (u) 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;
(y)	Total shareholder return ranking position meaning the relative placement of the Company’s total shareholder return [as determined in (r) 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; or
(z)	With respect to items (a), (b), (o) and (p) 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 objectives in the time prescribed in Section 5, may provide for the making of equitable adjustments (including the income tax effects attributable thereto), singularly or in combination, to the performance criteria in A above of this Appendix in recognition of unusual or non-recurring events, transactions and accruals for the effect of the following qualifying objective items:

(aa)	Asset impairments as described in SFAS No. 144, as amended, revised or superseded;
(bb)	Costs associated with exit or disposal activities as described by SFAS No. 146, as amended, revised or superseded;
(cc)	Amortization costs associated with the acquisition of goodwill or other intangible assets, as described by SFAS No. 142, as amended, revised or superseded;
(dd)	Merger integration costs;
(ee)	Merger transaction costs;
(ff)	Any profit or loss attributable to the business operations of a reportable segment as described by SFAS No. 131 as amended, revised or superseded;
(gg)	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;
(hh)	Any specified Tax settlement(s) (or combination thereof) with a Tax authority;
(ii)	The relevant Tax effect of new Tax legislation enacted after the beginning of the Performance Period or other changes in Tax law;
(jj)	Any extraordinary item, event or transaction as described in Accounting Principles Board Opinion (“APB”) No. 30, as amended, revised or superseded;
(kk)	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;
(ll)	Any other non-recurring items or other non-GAAP financial measures (not otherwise listed);

12

(mm)	Any change in accounting as described in APB No. 20, as amended, revised or superseded;
(nn)	Unrealized gains or losses on investments in debt and equity securities as described in SFAS No. 115, as amended, revised or superseded;
(oo)	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;
(pp)	Shares-based compensation charges as described in SFAS No. 123, as amended, revised or superseded;
(qq)	Any gain or loss as reported as a component of other comprehensive income as described in SFAS No. 130, as amended, revised or superseded;
(rr)	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;
(ss)	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;
(tt)	Any gain or loss as a result of litigation, judgments or lawsuit settlement (including class action lawsuits); or
(uu)	Any charges associated with the early retirement of debt obligations.

13

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 RESULTS

Columbus, Ohio – May 25, 2006 – Big Lots, Inc. (NYSE: BLI) today reported first quarter fiscal 2006 income from continuing operations of $14.5 million, or $0.13 per diluted share, compared to income from continuing operations of $7.3 million, or $0.06 per diluted share, in the first quarter of fiscal 2005, exceeding Thomson Financial/First Call’s consensus first quarter earnings estimate of $0.05 per share. Including the impact of discontinued operations, first quarter fiscal 2006 net income totaled $13.7 million, or $0.12 per diluted share, compared to $7.8 million, or $0.07 per diluted share, in the prior year. As discussed in the Company’s Form 10-K filed with the SEC on April 13, 2006, the Company’s fiscal 2005 results from continuing operations do not include the 130 stores closed in January 2006 that are classified as discontinued operations.

FIRST QUARTER HIGHLIGHTS

• Earnings per share from continuing operations of $0.13 versus $0.06 last year, an increase of 117%

• Expenses as percent of sales improved 140 basis points to 38.2% versus 39.6% last year

• Record cash flow results

• Record inventory turnover performance

First Quarter Results

Net sales for the first quarter ended April 29, 2006, increased 4.7% to $1,091.6 million, compared to $1,043.1 million for the same period in fiscal 2005. Comparable store sales for stores open at least two years at the beginning of the fiscal year increased 2.5% for the quarter.

Operating income from continuing operations for the first quarter of fiscal 2006 increased 70% to $21.3 million, compared to $12.5 million for the same period last year, with the improvement to last year driven by the Company’s 2.5% comparable store sales increase along with significant expense leverage for the quarter. Expenses as a percent of sales improved by 140 basis points for the quarter due to improving efficiencies in stores and distribution centers along with benefits from cost reduction actions taken as part of the Company’s previously discussed WIN strategy. Expense leverage for the quarter was partially offset by pressure in gross margin. The gross margin rate for the quarter declined 60 basis points compared to last year due to a slight shift in merchandise mix towards lower margin categories, such as consumables and hardlines, and the continued impact of rising fuel prices on the cost of inbound freight.

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

For the first quarter, the Company recorded net interest income of $0.3 million, a $1.4 million improvement to last year’s net interest expense of $1.1 million. The improvement in interest for the first quarter was directly attributed to the improved cash generation of the business over the last 12 months.

Inventory and Cash Management

Inventory ended the quarter at $806 million, down 10% or $91 million compared to last year. The 10% decline in inventory was due to a 7% decline in store count coupled with a 3% decline in average inventory carried per store. The combination of improving disciplines around inventory management and improving sales trends led to record inventory turnover performance for the first quarter of fiscal 2006. The inventory turnover performance combined with improving operating results and low levels of capital spending resulted in record cash flow performance for the first quarter. The Company generated $104 million of cash flow (defined as cash provided by operating activities less cash used by investing activities) for the first quarter of fiscal 2006, compared to approximately $60 million of cash flow generated in the same period last year.

Share Repurchase Update

As announced in February of 2006, the Company’s Board of Directors authorized the repurchase of up to $150 million of the Company’s common shares. From February 24, 2006 (following approval of the program by the Company’s Board of Directors) through the end of the quarter on April 29, 2006, the Company purchased 2,345,400 shares at a total cost of $31.2 million.

FINANCIAL OUTLOOK

• Provides initial Q2 Sales and EPS guidance

• Increases annual EPS guidance to a range of $0.44 to $0.49 per diluted share

• Increases annual inventory turnover guidance

• Increases annual cash flow guidance to $140 million

For the second quarter of fiscal 2006, the Company’s guidance calls for a 1% to 4% comparable store sales increase with net sales estimated to be in the range of $1,015 million to $1,045 million. The Company expects that the operating income rate as a percent of sales will improve compared to the prior year as continued expense leverage will be only partially offset by an anticipated decline in the gross margin rate. Based on these assumptions, the Company estimates a loss from continuing operations of $0.07 to $0.10 per share for the second quarter of fiscal 2006, compared to a loss from continuing operations of $0.11 per share for the second quarter of fiscal 2005.

Based on the strength of the first quarter operating results, the Company raised its fiscal 2006 guidance for earnings, inventory turnover, and cash flow. Earnings from continuing operations are now expected to be in the range of $0.44 to $0.49 per diluted share, an increase from prior guidance which called for earnings from continuing operations of $0.38 to $0.43 per diluted share. The Company’s annual earnings expectations for fiscal 2006 compare favorably to earnings from continuing operations of $0.14 per diluted share for fiscal 2005. For fiscal 2006, inventory turnover is now anticipated to be in the range of 3.1 to 3.2, up from prior guidance of 3.1. Given the increase in annual earnings and inventory turnover guidance, the Company increased its fiscal 2006 cash flow guidance to $140 million from its prior guidance of $120 million. All cash flow estimates exclude the impact of the Company’s share repurchase program mentioned earlier in this release.

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

Conference Call/Webcast

The Company will host a conference call today at 8:00 a.m. Eastern Time to discuss the Company’s financial results for the first quarter of fiscal 2006. The Company invites you to listen to the live webcast of the conference call. The Company is hosting the live webcast at http://www.biglots.com.

If you are unable to join the live webcast, an archive of the call will be available at http://www.biglots.com in the Investor Relations section of our website two hours after the call ends and will remain available through midnight on Thursday, June 8. A replay of the call will be available beginning May 25 at 12:00 noon (Eastern Time) through June 8 at midnight by dialing: 1.800.207.7077 (United States and Canada) or 1.913.383.5767 (International or metro-Seattle). The PIN number is 4783.

Big Lots is the nation’s largest broadline closeout retailer. The Company currently operates 1,401 BIG LOTS stores in 47 states. 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.

Cautionary Statement Concerning Forward-Looking Statements

Certain statements in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and such statements are intended to qualify for the protection of the safe harbor provided by that Act. The words “anticipate,” “estimate,” “expect,” “objective,” “goal,” “project,” “intend,” “plan,” “believe,” “will,” “target,” “forecast” and similar expressions generally identify forward-looking statements. Similarly, descriptions of our objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected sales, earnings, capital expenditures and business strategy. Forward-looking statements are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. 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 we believe the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of our knowledge, forward-looking statements, by their nature, involve risks, uncertainties and other factors, any one or a combination of which could materially affect our business, financial condition, results of operations or liquidity.

Forward-looking statements that we make herein and in other reports and releases are not guarantees of future performance and actual results may differ materially from those in such forward-looking statements as a result of various factors, including the cost of goods, our inability to successfully execute strategic initiatives, competitive pressures, economic pressures on our customers and us, the availability of brand name closeout merchandise, trade restrictions, freight costs, the risks discussed in the Risk Factors section of our most recent Annual Report on Form 10-K, and other factors discussed from time to time in our other filings with the SEC, including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. This release should be read in conjunction with such filings, and you should consider all of these risks, uncertainties and other factors carefully in evaluating forward-looking statements.

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 STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	13 WEEKS ENDED						13 WEEKS ENDED
	APRIL 29, 2006						APRIL 30, 2005
				%						%
	(Unaudited)						(Unaudited)
Net sales	$	1,091,622			100.0		$	1,043,084			100.0
Gross margin		438,322			40.2			425,658			40.8
Selling and administrative expenses		392,389			35.9			387,306			37.1
Depreciation expense		24,653			2.3			25,837			2.5
Operating income		21,280			1.9			12,515			1.2
Interest expense		90			0.0			1,174			0.1
Interest income		(394	)		(0.0	)		(31	)		(0.0	)
Income from continuing operations before income taxes		21,584			2.0			11,372			1.1
Income tax expense		7,080			0.6			4,106			0.4
Income from continuing operations		14,504			1.3			7,266			0.7
(Loss) income from discontinued operations, net of tax benefit (expense) of $506 and ($331), respectively		(791	)		(0.1	)		534			(0.0	)
Net income	$	13,713			1.3		$	7,800			0.7
Income (loss) per common share — basic
Continuing operations	$	0.13					$	0.06
Discontinued operations		(0.01	)					0.01
Net income	$	0.12					$	0.07
Weighted average common shares outstanding — basic		113,014						112,969
Income (loss) per common share — diluted
Continuing operations	$	0.13					$	0.06
Discontinued operations		(0.01	)					0.01
Net income	$	0.12					$	0.07
Weighted average common shares outstanding — diluted		114,508						113,343

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

	APRIL 29,		APRIL 30,
	2006		2005
	(Unaudited)		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	74,541	$	10,945
Inventories		805,604		897,030
Deferred income taxes		76,824		73,729
Other current assets		62,971		63,755
Total Current Assets		1,019,940		1,045,459
Property and equipment — net		563,661		637,031
Deferred income taxes		23,813		20,051
Other assets		29,218		35,650
	$	1,636,632	$	1,738,191
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	184,768	$	183,688
Property, payroll and other taxes		107,788		110,429
Accrued operating expenses		58,084		42,901
Insurance reserves		47,212		48,422
KB lease obligation		27,163		32,482
Accrued salaries and wages		22,248		20,642
Other current liabilities		11,687		12,906
Total Current Liabilities		458,950		451,470
Long-term obligations		—		106,900
Deferred rent		40,809		41,701
Insurance reserves		44,436		37,630
Other liabilities		19,815		10,979
Shareholders’ equity		1,072,622		1,089,511
	$	1,636,632	$	1,738,191

BIG LOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	13 WEEKS ENDED			13 WEEKS ENDED
	APRIL 29, 2006			APRIL 30, 2005
	(Unaudited)			(Unaudited)
Net cash provided by operating activities	$	109,934		$	75,124
Net cash used in investing activities		(5,916	)		(15,274	)
Net cash used in financing activities		(31,187	)		(51,426	)
Increase in cash and cash equivalents		72,831			8,424
Cash and cash equivalents:
Beginning of year		1,710			2,521
End of quarter	$	74,541		$	10,945

EX-99.2

Exhibit 99.2

Final Transcript

Conference Call Transcript

BLI — Q1 2006 Big Lots, Inc. Earnings Conference Call

Event Date/Time: May. 25. 2006 / 8:00AM ET

Thomson StreetEvents	www.streetevents.com	Contact Us	1
© 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

Final Transcript

CORPORATE PARTICIPANTS

  Tim Johnson
  Big Lots, Inc. — VP Strategic Planning & Investor Relations

  Steve Fishman
  Big Lots, Inc. — Chairman & CEO

  Joe Cooper
  Big Lots, Inc. — SVP & CFO

CONFERENCE CALL PARTICIPANTS

  Jeff Stein
  Keybanc Capital Markets — Analyst

  John Zolidis
  Buckingham Research Group — Analyst

  Dustin Thomas
  Smith Barney Citigroup — Analyst

  Mitch Kaiser
  Piper Jaffray — Analyst

  Ron Bookbinder
  Stearne, Agee & Leach — Analyst

  PRESENTATION

Operator

  Ladies and gentlemen, welcome to the BIG LOTS first-quarter 2006 teleconference.

During this session, all lines will be muted until the question-and-answer portion of the call. (OPERATOR INSTRUCTIONS).

At this time I would like to introduce today’s first speaker, Vice President of Strategic Planning and Investor Relations, Tim Johnson.

  Tim Johnson — Big Lots, Inc. — VP Strategic Planning & Investor Relations

  Thanks, Marie, and thank you, everyone, for joining us for our first quarter conference call. With me here in Columbus today is Steve Fishman, our Chairman and CEO, Joe Cooper, Senior Vice President and Chief Financial Officer, and Chuck Haubiel, Senior Vice President and General Counsel.

Before we get started, 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 provision as stated in our press release and SEC filings and that actual results can differ materially from those described in our forward-looking statements.

We appreciate you joining us a little earlier than normal this morning. As many of you may be aware, our annual meeting of shareholders is scheduled to begin at 9 AM. We’ll do our best and keep our comments brief and allow sufficient time for Q&A.

Just to set the agenda for this morning, first, Steve will share with you his thoughts about how we are progressing on our WIN strategy and add some commentary on the first quarter. Then Joe is going to cover with you our financial results for the first quarter and talk about our outlook for the second quarter and full year.

With that, I will turn it over to Steve.

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  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  Good morning, everybody.

Before Joe walks you through the financial results and our updated guidance, I want to share with you how we are progressing with our WIN strategy and also provide some of my own thoughts around our performance. For the last three quarters, our business has remained focused on WIN, “What’s Important Now”, a tactical strategy to improve our business results through three key components — real estate, SG&A, and merchandising. I believe that we’re starting to see the benefits of our hard work as it begins to positively impact the results of our business. Let me explain what I mean by that.

First, real estate — Last year, we closed underperforming stores in order to focus our efforts and our inventory in the stores that make us the most money and optimize our assets. So we have a more productive store base with a more focused store operations team. Our real estate team has remained true to this strategy, and we are focused on the markets where we are winning. We’ll only be renewing leases that meet our return requirements. In fact, Joe will update you later with all of the details, but we expect to end up closing more stores this year than originally planned. If we don’t get the lease terms to enable the store to reach our return hurdle, we will close the store and walk away. It’s just that simple. So, the real estate process has been simplified, and it’s focused.

The second component of WIN is the operating expenses. If you look at the first quarter, you can clearly see that we are making some progress on the SG&A of the business. The organization has embraced the cost reductions taken late last year and we’re clearly focused on becoming a selling organization. Our in-store inventory levels remain controlled, which allow our store managers to run a more efficient store. Our distribution center inventories are below last year, which is driving higher productivity. Our merchants are beginning to think differently and work with our vendors to deliver more store-ready merchandise, which coupled with our “raise the ring” strategy is resulting in fewer cartons processed through our distribution centers and our stores. I can tell you that I’ve been in 20 or 25 stores in the last few weeks, and in my opinion, our inventory levels today look to be about right and our stores look good. The back stock rooms are easy to handle, and our associates are focusing on servicing the customer.

While I’m pleased with our first quarter on the SG&A side, we are aggressively pursuing saving opportunities and efficiencies in our business, and we’re not just thinking of it in terms of this month or this quarter. To make meaningful improvement, we need to take a look at some of our larger cost centers like stores, distribution and transportation, insurance, advertising, and clearly rent will get the attention it deserves through the real estate strategy. The point I want a drive home here is that we’re working on this now with the expectation that savings will come in future quarters or years. Bringing the cost structure down to a more productive level or a rate that meaningfully improves the operating profit of the business is the ultimate goal. This is going to take some time to do it the right way without jeopardizing the top line, but we’re moving forward as quickly as possible. For instance, our advertising testing started earlier this month with the goal of generating leverage, either through higher sales or lower costs. Our merchandise flow-through study is underway, which could help lower costs and improve inventory turnover. Starting in the fall, we will pilot new store register systems in approximately 30 or so stores, which will allow for better information flow, improved customer service, and potentially some level of efficiency in our stores. We’ve mentioned all three of these projects before, so I won’t go into detail, but I wanted to let you know that we’re serious about lowering the cost structure.

So, the real estate and the SG&A are progressing, but at the end of the day, we are a retailer and the path to becoming a great business has to come from merchandising. I believe we’re making progress towards executing our merchandising strategy.

We took a significant amount of markdowns in the fourth quarter of last year to lower inventory levels and address slower-selling items and categories. As a result, we came into this year with clean inventories, and we’ve bought to our need and controlled inventory throughout the first quarter. The result was record inventory turn, more efficient stores, and high levels of cash generation. Overall, I’m pleased with how we have managed our business and inventory in the first quarter, and we are appropriately positioned to be successful in the second quarter.

At the category level, we’re starting to see some of the strategies become more noticeable in our stores, including more top brands, more of a closeout feel throughout both merchandising and marketing, along with early signs of engineered closeouts and an increased amount of refurbished goods in the hardlines area.

From a category perspective, some businesses are further along than others. First, consumables, which is about 30% of the business, had a very good quarter as comps were up in the high single digits and both gross margin dollars and inventory turnover were above plan. We are executing

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with more top brands, particularly in food and HBC, and starting to introduce some branded engineered closeouts as well. The team is effectively managing their inventory and remains very liquid with open-to-buy dollars to chase business in branded, closeout product.

Hardlines had another good quarter with comps up in the low double digits and both gross margin dollars and inventory turnover were also above plan. Hardlines is a good example of executing the strategy. We’ve branded closeouts, but when we can’t find a branded closeout, we work with our vendors to engineer one. Then we supplement all of that with refurbished goods that are also branded and represent value to the customer.

Our home business performed well for the quarter, particularly in the furniture area. With the first quarter and “tax time” representing the biggest quarter of the year for furniture, we executed our strategy and comps were up approximately 10%. This is the third quarter in a row that comps have increased double digits, and we continue to believe that this area has upside in our business. We are the dominant player in the entry price point furniture business, and we’re looking for more opportunities to grow this business outside of “tax time”, or more specifically in Q2 and Q3.

Next, although it’s a very small part of our store, we also had some success in denim in the first quarter. During the quarter, we featured two top brands of basic denim. These brands were featured in our ad circulars at prices at least 50% off the competition. This success has confirmed for us the developing and engineered closeout in denim or maybe basic shorts or pants could also be a successful strategy for certain key events or selling periods during the year.

From a merchandising perspective, the only real disappointment during the quarter came in seasonal, particularly lawn and garden, which seemed to be challenging for a number of retailers during the quarter. Although we believe the weather in the West worked against us here, I believe that our seasonal strategy needs some work and needs to be further differentiated from what is out there in the marketplace. Recently, we’ve added some merchant talent in this area and I believe that our assortment for holiday will be much more BIG LOTS-ized or more differentiated than what you see in our stores today. In the first quarter of next year, we will take it even further.

I’ve consistently said that we would start working on the marketing strategy when the merchandising strategy was more solidified. With that being said, we’ve taken some initial steps to create a much more impactful marketing program. Our ad circulars have a new, cleaner look that better communicates value. Better look, coupled with more impactful items from a merchandising perspective standpoint, led to higher sales and sell-through of advertised specials in the first quarter. Ad goods sold in the first quarter were up almost 20% on a per-store basis. Also during the quarter, we launched a new TV campaign using real customers who shop our store. The message of the commercial clearly communicates that we are in the brand name closeout business. I’m very pleased with our marketing program and its impact on the first quarter results.

Before I turn it over to Joe, I want to say that a tremendous amount of work has been completed over the past three quarters, and we’re thinking differently and proactively managing our business. After several quarters of disappointments in 2004 and 2005, it’s very important to the organization to begin to consistently deliver results to our customers and our shareholders. For fiscal 2006, we told you we wanted to deliver consistent topline growth and expand the operating margin through leveraging SG&A. We set goals to improve our inventory turnover and generate substantial amounts of cash. For the first quarter, we delivered all of these objectives.

Joe

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

  Thanks, Steve. Good morning, everyone.

As you can see from our earnings release this morning, our results include both continuing and discontinued operations. Discontinued operations reflect the 130 stores closed in January 2006, as described in our Form 10-K, as well as any changes to our KB reserves. For the first quarter of fiscal 2006, the $1.3 million pre-tax loss from discontinued operations primarily relates to the 130 stores closed at the end of fiscal year 2005. In fiscal year 2006, year-to-date, these stores continue to incur exit-related costs to clean up and move out of properties, and some of these stores are leased properties with extended terms which continue to incur costs, such as utilities and security, until the lease contract can be terminated. My remaining commentary this morning will be focused on continuing operations.

For the first quarter of fiscal 2006, we reported income from continuing operations of $14.5 million or $0.13 per diluted share, compared to income from continuing operations of $7.3 million or $0.06 per diluted share a year ago. This was ahead of our original guidance of $0.04 to $0.07 and exceeded Thomson Financial/First Call’s consensus estimate of $0.05. Sales and comps were in line with our expectations while lower SG&A, lower interest, and a favorable income tax settlement drove better than expected EPS for the quarter.

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For the quarter, comparable store sales increased 2.5%, driven by continued strength in the value of the average basket. Specifically, both units sold per transaction and average item retail increased in the first quarter. This is the fourth quarter in a row that both units sold and average item retail were up, and we believe this is a healthy trend and reinforces that “raise the ring” is the right strategy for the business in the near-term.

As Steve has mentioned on a number of occasions, our buyers are focused on gross margin dollars because dollars are what we take to the bank. For the first quarter, we drove higher gross margin dollars per store this year than last year, despite a slight rate decline. Our gross margin rate for the quarter was 40.2%, down 60 basis points to last year with the principle reasons for the decline centered on, number one, the impact that high fuel costs continue to have on our inbound freight costs; also, the merchandise mix shift towards lower-margin consumables and hardlines merchandise, as well as, a slightly higher margin rate this year compared to last year.

To just add a little color here on the components, as everyone is aware, fuel costs increased throughout the year last year, and even in Q1 this year costs were higher than last year. This has had a negative impact on inbound freight and ultimately our cost of goods sold. Second, the merchandise mix shift reflects where customer demand is currently. It is not a strategic shift by the business but rather where the customer voted with their dollars. Finally, a slightly higher markdown rate in Q1 is the direct result of our stated strategy to take markdowns more consistently throughout the year to drive turn and be timely on identifying slower-moving items and classifications of merchandise.

As Steve mentioned earlier, we were very pleased with the SG&A performance during the first quarter. The SG&A rate of 38.2% was 140 basis points better than last year on a 2.5% comp. The leverage for the quarter was a combination of operational improvements or efficiencies in our stores, general office and DCs, benefits of the previously discussed WIN-related headcount reduction, principally in the general office and in field management, and timing differences or nonrecurring favorable items.

From an operational standpoint, our stores’ teams did an excellent job managing payroll, and we are running much more efficient stores today as a result of lower in-store inventory levels. Additionally, the merchants are positively impacting the operations of our stores and distribution centers through improved inventory flow and our “raise the ring” strategy, which has led to a reduction in the number of cartons processed and as a result, the handling costs necessary to drive the top line. We would expect that these benefits, along with the savings associated with the WIN strategy related to headcount reduction, will continue to drive leverage throughout the rest of this year.

Also on SG&A, there were two benefits that were isolated for the quarter. First, a portion of our advertising spend has been moved from the first quarter to the second quarter to support our testing initiatives. Second, we are the beneficiary of a favorable sales and use tax settlement in the first quarter, which is more one-time in nature. The total of these two items was approximately 3 to $4 million or about $0.02 per share benefit in the first quarter.

Net interest income was $0.3 million for the quarter compared to net interest expense of $1.1 million last year. Higher earnings, reduced CapEx, and improved inventory turnover drove up the average invested cash balance throughout the quarter. The effective income tax rate for the quarter was 32.8%, as our expected rate was favorably impacted by settlement activity. Similar to the SG&A benefits I mentioned earlier, this tax benefit was isolated to the first quarter and provided an additional $0.01 of earnings in Q1.

Turning to the balance sheet, we ended the quarter with total inventory of $806 million, down $91 million or 10% to last year, due to a lower store count and also lower per-store inventory levels in the current fleet of 1,401 stores. As Steve mentioned, inventory turn was a record for the first quarter. Inventory levels are down to last year in stores and in our distribution centers. This is good not only for inventory turn and cash purposes but as I mentioned earlier, it also helps the organization run a more efficient SG&A base.

We generated $104 million of cash flow in the first quarter, versus $60 million last year. In order to provide comparative cash flow measurement and exclude the impact of our current share repurchase program, cash flow reflects cash generated by operations less cash used for investing activities. The $104 million was a record first quarter performance and the entire organization contributed to the success in the form of higher inventory turnover, higher pre-tax profits, and lower capital spending. Another benefit or driver of cash flow for the quarter was AP, or Accounts Payable, leverage, which increased to 22.9% of inventory, up from 20.5% of inventory last year, as our merchants are challenging their vendor terms.

Capital expenditures were $6.0 million for the quarter, down $9.3 million to the first quarter of last year. The decreased level of capital spending is primarily due to fewer new store openings this year and additionally, last year’s CapEx included capital related to the completion of the re-engineering of our Columbus DC. Depreciation expense for the first quarter was $24.7 million, down $1.2 million compared to last year.

During the first quarter, we opened 5 new stores and closed 5 stores, ending the quarter with 1,401 stores. At the end of the first quarter, total selling square footage was 29.9 million.

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As we discussed in our last conference call, in February of 2006, the Company’s Board of Directors authorized the repurchase of up to $150 million of the Company’s common shares. Since the approval in late February, the Company purchased 2,345,400 shares at a total cost of $31.1 million.

Moving onto guidance, today, we put out our initial guidance for the second quarter of fiscal 2006. Our guidance calls for a 1% to 4% comparable store sales increase with net sales estimated to be in the range of $1,015 million to $1,045 million. As Steve mentioned earlier, we believe that our merchandising execution will continue to improve in the second quarter, but we also remain cautious about seasonal merchandise and what it could mean for sales and also markdowns. Our guidance assumes that the operating income rate as a percentage of sales will improve compared to the prior year. Expense leverage is expected to be partially offset by a decline in the gross margin rate as we continue to take markdowns consistently throughout the year. Based on these assumptions, the Company estimates a loss from continuing operations of $0.07 to $0.10 per share, compared to a loss from continuing operations of $0.11 per share for the second quarter of fiscal 2005.

Based on the strength of the first quarter operating results, we raised guidance for the full year related to earnings, inventory turnover, and cash flow. Earnings from continuing operations are now expected to be in the range of $0.44 to $0.49 per diluted share, an increase from prior guidance which called for earnings from continuing operations of $0.38 to $0.43 per diluted share. This guidance compares favorably to last year, when 2005 earnings from continuing operations were $0.14 per diluted share. For the year, we continue to forecast improvement in the gross margin rate, which will come back in the back half of the year, principally in the form of lower markdowns as a percent of sales. Our SG&A rate is expected to be below last year and based on the strength of the first quarter, we believe that the comp needed to leverage SG&A for the year is now slightly below 2%. For fiscal 2006, inventory turnover is now anticipated to be in the range of 3.1 to 3.2, up from prior guidance of 3.1. Given the increase in annual earnings and inventory turnover guidance, the Company increased its fiscal 2006 cash flow guidance to $140 million from its prior guidance of $120 million. All cash flow estimates exclude the impact of any share repurchase activity.

One last piece of guidance and then we will open it up for your questions. From a real estate perspective, we continue to move forward very strategically. We are focused on opening stores in our strongest markets and also taking a more aggressive approach on lease renewals, renewing leases where the cost structure allows us to drive an acceptable rate of return. Based on our current new store schedule, it is likely that will open approximately 10 new stores in 2006. Also, we now believe that we will close approximately 50 stores based on where we are in the renewal process today. So we are now forecasting a net reduction of approximately 40 stores for the year, versus our original guidance of a net reduction of 25 stores.

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  Thanks, Joe. Marie, we’d like to go ahead and open up the line for questions at this time.

  QUESTION AND ANSWER

Operator

  (OPERATOR INSTRUCTIONS). Jeff Stein, Keybanc Capital Markets.

  Jeff Stein — Keybanc Capital Markets — Analyst

  Good morning. Joe, first a question for you regarding SG&A. Originally, you indicated you need a 2% increase in comps and clearly you’ve done better than that. Even if you adjust for that $3 to $4 million expense shift, it seems that you still had considerably higher leverage at the 2.5% comp than you had anticipated. I was wondering where it came from and I presume it’s sustainable. Maybe you could talk about some of the areas where your cost reductions were higher than planned.

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

  What was the last part of your question, Jeff?

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  Jeff Stein — Keybanc Capital Markets — Analyst

  Where the delta was, where your expense reductions exceeded plan.

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

  Principally, in store payroll and also in distribution and transportation, we were very pleased with, as we exceeded — as we drove through the quarter, we believe that our store associates were definitely able to hold the line on store payroll and run a very efficient store, principally, as we said, due to flow of inventory. You know, it’s amazing what a clean backroom will do to the efficiency of how a store operates. And also in the DCs, the DC inventory levels are down, which certainly helps them run a more efficient ship. So, we are pleased from that standpoint in stores and DCs.

  Jeff Stein — Keybanc Capital Markets — Analyst

  So with your expenses — your SG&A expenses up roughly just over 1% in the first quarter and I presume that that type of increase year-over-year is sustainable over the balance of the year.

  Tim Johnson — Big Lots, Inc. — VP Strategic Planning & Investor Relations

  Jeff, this is Tim. In terms of being sustainable, what we feel comfortable with is the operational piece that Joe mentioned, the stores and the distribution centers if you look at the growth rate year-over-year and discount for the timing items that we mentioned, the $3 to $4 million..

  Jeff Stein — Keybanc Capital Markets — Analyst

  Right.

  Tim Johnson — Big Lots, Inc. — VP Strategic Planning & Investor Relations

  That’s really what we are focused on as leverage, particularly in the second quarter. We obviously haven’t given guidance on third and fourth quarter, but in the near term, in the second quarter, we see the operational leverage, if you will, as something that we feel comfortable we can continue.

  Jeff Stein — Keybanc Capital Markets — Analyst

  Okay. Finally, what kind of tax rate should we expect for the balance of the year?

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

  Yes, 36% to 40%, which obviously — that’s the original guidance. Based on the first quarter with that state tax settlement, wherever you were within that range, they are down.

  Jeff Stein — Keybanc Capital Markets — Analyst

  That’s a pretty broad range. I mean, are there additional tax settlement possibilities out there?

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

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  Not to that extent. That was a particular state settlement that occurred. As you know, whenever settlements occur, they are recognized in the quarter that they are realized. But we do not anticipate settlement. We set up the reserves according to how we think they will come out.

  Jeff Stein — Keybanc Capital Markets — Analyst

  So the rate you’re planning to accrue for the balance of the year, what should we be using? Again, 36% to 40% is a pretty broad range. What number are you going to be using?

  Tim Johnson — Big Lots, Inc. — VP Strategic Planning & Investor Relations

  We can’t necessarily speak to what number we are going to be using, but the 36% to 40% is our original guidance and as Joe said, it does take into account things like where the earnings come from, you know, what states or what jurisdictions, what if any kind of activities will happen on the settlement side, what, if any, kind of activities could happen on the recognition of the work opportunities tax credit, which is still a moving target. So there are several moving targets within the tax line that, at the level of earnings that we are at today, obviously can cause a wider range than what you might be used to.

Operator

  John Zolidis, Buckingham Research Group.

  John Zolidis — Buckingham Research Group — Analyst

  Good morning. Obviously, first quarter results are better than some of the expectations you had provided for us at the beginning of the year. I guess two questions that I’m interested in hearing your answer to. One, free cash flow this year, obviously you’re getting a big benefit from having lower capital expenditures than what you’ve had in the past. I wonder if you could comment on what you think the sustainable free cash flow this business can generate is, what kind of magnitude or range you could give for that.

Second, on the gross margin, I’m a little curious about why we had more markdowns in Q1, given the clean state of inventories heading into the quarter. I guess you’re saying also to expect more markdowns in Q2. What can be done, aside from gas prices going down, to get the gross margin going in the other direction?

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

  It’s Joe. I will take the free cash flow question. John, we don’t have a long-term model on the street right now we can talk to this year, but clearly, as we’ve said, we are very focused on continuing to improve inventory turnover, continuing to improve on how we manage cash within the business, and obviously continuing to improve the earnings of the business. So, all of the components that are helping free cash flow this year will continue to be focuses of this business. I think that’s as complete an answer as I can provide at this time.

Do you want to take the markdowns?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  Yes. I mean, the markdown issue is an issue that we’ve talked about before. We are focused on gross margin dollars; we’re not focused on gross margin percent. The answer is we will continue to take markdowns as we need to take them. We are in the closeout business, and we need to be as fluid as we can possibly be. Some of the buys that we make are great buys, and they move out and move out very quickly. Some of them don’t move as quickly as I’d like to see them moving. Instead of sitting on them, I like to move the goods out. I want to be as fluid as we can possibly be, and that’s the approach we’re going to be taking to this business as long as I’m running it, now and going forward, and I’ve said that in the last three quarters and I will continue to say that.

Now, on the other hand, by the end of the year, the gross margin will continue to increase, particularly as we get into the third and fourth quarter of the year, because we will be up against numbers where we don’t feel we’re going to be having to take those kinds of markdowns. But if we

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have to take more markdowns in the second quarter versus last year because I want to continue to be fluid and we need to move inventory out that for one reason or another is not going to get better, it’s going to only get worse, we are going to continue to do that. So I guess that’s the best answer I can give your right now, and it’s very consistent with what we’ve said the last three quarters and what we will continue to say as long as we run the business. We are focused on gross margin dollars.

  John Zolidis — Buckingham Research Group — Analyst

  Thanks for that answer on the markdowns. If I can just have one follow-up question on the free cash flow? I guess all of those things you mentioned affect the operating cash flow line, but what my concern is is that the capital expenditure line has to go up. So while operating cash flow may improve or continue to improve going forward, that’s going to be eaten up by additional spending required to I guess grow the business in the future. So I was wondering if you could talk about what the CapEx guidance is again for this year, what the components of that guidance is, and then what you think CapEx is going to have to be in the future in order to grow the business.

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

  We can answer the first part, and we will be consistent on the second part. Yes, this year the CapEx is principally maintenance cap. If you look at the CapEx of close to a little under $50 million for the year, about $10 million of that is for stores and the balance is maintenance cap related to stores, DCs, and central office. Going forward, we would expect the component of that to go up would obviously be the new store piece of that. We are also looking at a new POS system, which we’ve talked about.

But remember, when we were adding significantly more stores, the new store CapEx was still $25 to $30 million. So when we are generating $140 million of free cash flow, it would be our long-term goal to certainly be able to fund that out of operating cash and also still have a healthy free cash flow to the business.

  John Zolidis — Buckingham Research Group — Analyst

  Okay. Then just to clarify again, in the press release, the cash flow number that you’re giving out, that is an operating cash flow number before CapEx or after CapEx?

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

  It’s after CapEx but it’s before the share repurchase.

  John Zolidis — Buckingham Research Group — Analyst

  Great. Thanks and good luck.

Operator

  [Dustin] Thomas, Citigroup.

  Dustin Thomas — Smith Barney Citigroup — Analyst

  You had mentioned a timing shift on the SG&A. I wanted to ask what that related to, and is it specifically around the advertising spend? If so, what was that amount?

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

  There were two components there, Dustin. What we spoke to was first a timing shift in advertising, as we are testing, it actually will take place predominantly in the second and third quarter, so we’ve got a shift in dollars year-over-year. Then we also had what we characterized as a one-

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time settlement on a state sales and use tax issue. The combination of those two things gave us a first-quarter benefit of about $3 to $4 million on the SG&A line. That’s what we were speaking to.

  Dustin Thomas — Smith Barney Citigroup — Analyst

  Okay, thank you.

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

  Just to clarify it, since I know you guys want to model this out, about $2 million of that was the advertising, just to make it easier for you.

  Dustin Thomas — Smith Barney Citigroup — Analyst

  Thank you. On the gross margin, that’s something you commented a little bit on the consumables mix. We’ve seen this before with some others in your space, where the consumables can add a lift for awhile but, over time, it’s a very competitive space and it doesn’t have the gross margin; it can boost the traffic for awhile. Maybe you could talk about what’s happening with your consumables.

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  Well, I’m not sure exactly. Let me answer you in the way that I think I should. The consumables business is around 30% of our total business. One of the reasons we made the comment on it is because the consumables business had gotten a little weaker in previous quarters than it had been performing, and I think there was some thought process out there that maybe we weren’t interested in the consumables business. But we’re very interested in the consumables business, and it’s a higher percent to total. I don’t know, long-term, that it will grow at as fast a rate as some of the other initiatives that we have going, but you know, we still like the business; we like it a lot. Now, we approach it slightly different since we are in the closeout business. We have more margin pressure to the total Company because consumables is a lower margin. But probably our margins, on an overall basis, are higher in the way we run the closeout business than another general merchandise retailer out there who is in the consumables business. So we like the business; we like it a lot.

As we continue to grow the closeout parts of the business, we continue to take advantage of and will always take advantage of what’s available to us. I think it’s going to be very difficult for us to pinpoint and say we’re specifically going to only grow certain businesses at certain times and not grow them. If we’ve got closeouts available to us in certain categories, we will always take advantage of them. That could shift the margin of this company slightly one way or another. Next year, at this time, I might tell you that I don’t have consumable closeouts because Nabisco didn’t have something, Procter & Gamble didn’t have something the way that we had it this year or the way that we had it the year before. So we take advantage in the closeout business of all the closeouts that are available to us on a timely basis.

One of the things that I mentioned before that we’re trying to shift the business to is going after this approach of engineered closeouts, which in turn will help us to eventually create more stability to the business. If a closeout is not available, maybe we have an agreed-upon closeout or an engineered closeout with the manufacturer to make up for the volume that we may lose the following year because they don’t have enough closeout product, they’re not changing a label, they didn’t overrun a product for one reason or another. But our customer base reacts quite well to our closeouts in consumables, both in the health and beauty aids end of the business and particularly in the food business. In fact, the higher the income levels we have in the economic surroundings of our stores, the more business we do in those categories. I think, economically, if you are advantaged, you have the ability to try things that you don’t want to try if you don’t have the money to do so. So we like that business; we will continue to grow that business. As a margin percent, it’s not quite as high as our overall, average margin of our company’s business, but it is still a very good business.

  Dustin Thomas — Smith Barney Citigroup — Analyst

  Okay, thank you.

Operator

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  (OPERATOR INSTRUCTIONS). Mitch Kaiser, Piper Jaffray.

  Mitch Kaiser — Piper Jaffray — Analyst

  I was wondering. First of all, Joe, on the store closures, would you expect any charges associated with that? With those?

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

  Nothing out of the ordinary. Those are all stores that the leases are terminating this year.

  Mitch Kaiser — Piper Jaffray — Analyst

  Oh, they are, okay.

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

  Yes, we have about 200 to 300 leases that come up every year. We make an estimate at the beginning of the year of how many of those stores we can renew and make sure that we reach the hurdle. There are some stores that we’re not able to do that incrementally to our original estimate, but they are terminating this year in the ordinary course of business, so there’s no incremental costs.

  Mitch Kaiser — Piper Jaffray — Analyst

  Okay, I understand that. Then I guess Steve made the comment on gross margin, as we head into the third and fourth quarters, that we’d expect some moderation and maybe not the decline. Could we assume that gross margins might actually be up in the last couple of quarters then?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  Yes, yes. That’s principally related to the markdown favorability because, as you may recall, we had some pretty significant markdowns in the back half of last year.

  Mitch Kaiser — Piper Jaffray — Analyst

  Right, right, okay, understood. Then also, if we ex out the $0.03 that I think you identified, where was the biggest upside relative to your numbers?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  It came in all areas. Our gross margin dollars were up, and we’re very pleased with that, and the leverage of the SG&A — our efficiencies, both in our distribution centers and our stores, were exemplary. I mean, they performed extremely well. As we continue to work on raising the ring, the average carton of retail value is higher. Our distribution center is touching the same amount or fewer cartons but a higher value, so we’re getting great efficiencies there. As we continue to work through our merchandising organization as store-ready type goods, there’s just huge efficiencies coming out of the stores because they don’t have to handle the goods as often as they handled them in the past, simple things like pre-ticketing of goods, so that the stores don’t have to handle hours and payroll of ticketing goods, efficiencies like that, just things like that. It’s going to continue and it should get — we would like it to continue into the second, third and fourth quarter. We don’t see any reason for it to change.

  Mitch Kaiser — Piper Jaffray — Analyst

  Okay. Then if I look at SG&A on a per-store basis, as I calculate it, it’s up about 9% on a per-store basis. So if you just take SG&A dollars divided by the average stores in the quarter, do you think that there’s more opportunities there to take that number down as we go forward? I

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recognize that fuel costs are going to be working probably against you, at least in the second quarter, and we will see about the third and fourth, but I wonder if you could just comment on that.

  Tim Johnson — Big Lots, Inc. — VP Strategic Planning & Investor Relations

  Mitch, I think, on the SG&A side, I guess I would look at the SG&A dollars per store that you’re talking, again, because it would not be up 9% per store.

  Mitch Kaiser — Piper Jaffray — Analyst

  Well, if I take last year’s numbers and at — you’re at $417 million this year in SG&A. Last year, you were at $413, and I divide it by the number of average stores. Remember, you had a lot more stores last year than you did this year.

  Tim Johnson — Big Lots, Inc. — VP Strategic Planning & Investor Relations

  You’ve got to remember, you’ve got to look at it on a continuing-operations basis, Mitch. The numbers that we have out there for this quarter and last quarter are both continuing ops. So you’ve got to adjust your store count accordingly. We had about 1,401 stores throughout the whole quarter this year. Last year, at the end of the first quarter, we had about 1,519 stores, but you’ve got to back off the 130 stores that we’re classifying as DO. So I think, when you do that, you will probably get a different answer.

  Mitch Kaiser — Piper Jaffray — Analyst

  Got you. Okay, thank you.

Operator

  Jeff Stein, Keybanc Capital Markets.

  Jeff Stein — Keybanc Capital Markets — Analyst

  Joe, just a couple of things — first of all, expensing of stock options, can you tell us how that affected SG&A in the quarter?

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

  Yes, about $0.5 million, which is less than $0.01 less than $0.005.

  Jeff Stein — Keybanc Capital Markets — Analyst

  Okay. A question for Steve with regard to closeouts — can you talk a little bit more, Steve, in terms of the goal seems to be to try to raise the closeout mix by about 5 points. I’m not quite sure what the original timeline was on that. But can you tell us, first quarter this year versus last, how much more true brand-name closeout inventory you have in the store, relative to the prior year?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  Jeff, the 50% to 55% is I think what you are remembering; that’s a goal from last year as we started the year. We’ve not quantified or put out a number for this year to communicate where are we today on what percent of our business is closeout. But we do not have that information that we’re going to provide today. But clearly, it’s a focus and you know, I think we all feel comfortable that if you look at our store this year compared to last year, we have more closeouts available in the stores and hopefully that the customer agrees with which is what we saw in the first quarter.

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  Jeff Stein — Keybanc Capital Markets — Analyst

  Can you talk at all about the differential in gross margin between your traditional closeouts and what you’re seeing so far on engineered closeouts?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  They are very consistent, Jeff. I mean, there’s no significant difference between an engineered closeout and a regular closeout. We’ve got closeouts that we make additional margin over plan on and we’ve got closeouts that we think we make a deal on because it’s right for customers at the time and we think we can get a quick turnover on it or less. But there’s no significant difference in an engineered closeout margin and a branded closeout margin.

  Jeff Stein — Keybanc Capital Markets — Analyst

  Okay. One last question — you mentioned, Steve, that your comps in furniture were up about 10%. I’m wondering, away from kind of big-ticket home, how your soft home and smaller ticket home category performed during the quarter.

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  Most of them were pretty good. Particularly the domestics business continues to ride good. I think I had mentioned that before; I just didn’t pick on it this quarter. Linens, domestics, bedding, accessories, window coverings were all very, very good. Home decor was something I was slightly disappointed with early on in the first quarter. I think, if you go into our stores now, you will see some — we made a major Burnes of Boston brand name closeout that actually breaks next week, but I think it’s in the stores right now. The shift in that home decor area on a comp-store basis has about 15 to 20 points in the last two weeks since we got the closeout. The only business that I’m not really happy with right now and I don’t think the merchants are happy with would be the basic tabletop area and cookware area, where we are a little challenged and that business is softer for us when it comes to the home parts of the business. But the other parts of the business are decent single-digit, mid single-digit comp-store increases other than in domestics, the high single digit comp-store increases. Their business is even more active. I think you’ll see more bedding and more bath promotion and inventory investment from us. We think we have a huge upside in linens and domestics.

  Jeff Stein — Keybanc Capital Markets — Analyst

  I got it. The weakness you’re seeing in tabletop and cookware, is that a function of lack of availability in merchandise or the customer is just not buying it?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  I think we have to challenge ourselves, Jeff. I believe very strongly that when we’re having a problem outside of a seasonal area, when it’s raining in California and I can’t sell seasonal goods, that we have to challenge ourselves. I think we believe that we have to take a good, hard look at our inventory investment right now. It’s not from lack of closeouts; it’s what we’ve bought in the content.

  Jeff Stein — Keybanc Capital Markets — Analyst

  I got it. Okay, thank you.

  Tim Johnson — Big Lots, Inc. — VP Strategic Planning & Investor Relations

  Marie, we have about two or three more minutes to take Q&A and then we need to move on to our annual shareholders meeting.

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Final Transcript

Operator

  Okay, the last question comes from the line of Ron Bookbinder, Sterne, Agee.

  Ron Bookbinder — Stearne, Agee & Leach — Analyst

  Good morning and congratulations on some strong cost control. Back in the fall, you talked about repositioning the real estate and that a good real estate location can improve the merchandising. When looking at the new store performance, are they performing better? How do the metrics compare to how new stores had performed in the past?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  The only problem we have with answering that, Ron, is that since we’ve just opened up most of those new stores within the last 30 days, I can’t give you the actual true-cost metrics of what’s going on there. I would tell you we’re not disappointed with the performance in the stores that we’ve opened so far this year, but it’s literally a handful. We just opened one in Kent, Washington yesterday, and soft-opened it over the weekend. It was great, and it’s got the new — we’re playing with and I think we’ve mentioned that we have some ideas about a next-generation prototype and we opened that store with the next generation prototype. We have a store here in Columbus, Ohio that we’ve been playing with for about 60 days that we like the flow, we like the way the customer is feeling about it. It’s making or exceeding plan and we intend to play with about a dozen more stores across the country by the time we get into back-to-school to see if those are metrics that help us operationally operate the store more efficiently from a cost savings and make it more customer friendly for our customers to shop the stores at the same time. But it’s just too early for me to give you a good number.

  Ron Bookbinder — Stearne, Agee & Leach — Analyst

  Okay. On the commentary at the beginning of the call, you talked about gross margin improvement in the back half of the year and that you’re going to try and differentiate the merchandise. Given that holiday merchandise in the past has become very generic and so it has become very price-competitive, how do you differentiate that to drive the margins in the back half?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  We will be more than happy to show you that when we go through our stores at Christmas time.

  Ron Bookbinder — Stearne, Agee & Leach — Analyst

  (LAUGHTER). That’s a long wait.

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

  It will be. We are prepared but there’s no benefit for me to let the market know of our plans for Christmas. But trust me when I tell you that we will differentiate ourselves in the Christmas seasonal business this fall.

  Ron Bookbinder — Stearne, Agee & Leach — Analyst

  Well, in the past, BIG LOTS had drifted away from I guess what they call more fashion or decorative, seasonal items, because of the margin risk. Are you looking to go back to some more higher-margin items?

  Steve Fishman — Big Lots, Inc. — Chairman & CEO

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  I wouldn’t pick on it that way and I wouldn’t look at it that way. I would say that we’re not afraid of decorative items in the seasonal businesses or the home decor business or any business, if there is great value there for us. I think what we probably didn’t do is offer the best kind of value to our customer that we possibly could, and we didn’t differentiate it enough from everyone else. So I think the seasonal strategy has got to clearly give our customers a reason to want to shop us and have great value. That’s what I think you are going to see. Whether it’s in what you consider to be the basic parts of the business,those types of things, or if it’s in the decorative parts of the business. We’re not afraid of any of it; we just need to make sure it’s great value.

  Ron Bookbinder — Stearne, Agee & Leach — Analyst

  Okay, great. Thank you.

  Tim Johnson — Big Lots, Inc. — VP Strategic Planning & Investor Relations

  Thanks, Ron. Thank you, everyone, for joining us today. We look forward to talking to you in about a quarter. Have a good day.

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 number 4783. (Operator repeats numbers).

Ladies and gentlemen, this concludes today’s presentation. Thank you for your participation. You may now disconnect.

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