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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 3, 2001

Commission file number 1-8897

CONSOLIDATED STORES CORPORATION

A Delaware Corporation
IRS No. 06-1119097
300 Phillipi Road
P.O. Box 28512
Columbus, Ohio 43228-0512
(614) 278-6800

Securities registered pursuant to Section 12(b) of the Act:

Indicate whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this FORM 10-K or any amendment to this FORM 10-K [ ]

The aggregate market value (based on the closing price on the New York Stock Exchange) of the Common Stock of the Registrant held by non-affiliates of the Registrant was $1,303,024,015 on April 18, 2001. For purposes of this response, executive officers and directors are deemed to be the affiliates of the Registrant and the holdings by non-affiliates were computed as 1,143,061 shares.

The number of shares of Common Stock $.01 par value per share, outstanding as of April 18, 2001, was 113,279,379 and there were no shares of Non-Voting Common Stock, $.01 par value per share outstanding at that date.

Portions of the Registrant’s definitive Proxy Statement to security holders for its Annual Meeting of Stockholders to be held on May 15, 2001, are incorporated by reference into Part III of this Annual Report on Form 10-K.

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FORM 10-K

ANNUAL REPORT
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001
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PART I

Item 1 Business

THE COMPANY

Consolidated Stores Corporation was incorporated in Delaware in 1983. Its principal executive offices are located at 300 Phillipi Road, P.O. Box 28512, Columbus, Ohio 43228-0512, and its telephone number is (614) 278-6800. All references herein to the “Company” are to Consolidated Stores Corporation and its subsidiaries.

The Company is the nation’s largest broadline closeout retailer. The Company’s goal is to build upon its leadership position in closeout retailing, a growing segment of the retailing industry, by expanding its market presence in both existing and new markets.

At February 3, 2001, the Company operated a total of 1,290 stores in 46 states. The Company’s retail operations are conducted as BIG LOTS, BIG LOTS FURNITURE, ODD LOTS, PIC ‘N’ SAVE and MAC FRUGAL’S BARGAINS•CLOSE-OUTS. Wholesale operations are conducted under the names CONSOLIDATED INTERNATIONAL and WISCONSIN TOY.

CLOSEOUT RETAILING

Closeout retailers provide a service to manufacturers by purchasing excess product that generally result from production overruns, package changes, discontinued products and returns. Closeout retailers also take advantage of generally low prices in the off-season by buying and warehousing seasonal merchandise for future sale. As a result of these lower costs of goods sold, closeout retailers can offer merchandise at prices significantly lower than those offered by traditional retailers.

The Company believes that recent trends in the retail industry are favorable to closeout retailers. These trends include retailer consolidations and just-in-time inventory processes, which management believes resulted in a shift of inventory risk from retailers to manufacturers. In addition, to maintain their market share in an increasingly competitive environment, management believes that manufacturers are introducing new products and new packaging on a more frequent basis. The Company believes that these trends have helped make closeout retailers an integral part of manufacturers’ overall distribution process. As a result, management believes that manufacturers are increasingly looking for larger, more sophisticated closeout retailers, such as the Company, that can purchase larger quantities of merchandise and can control the distribution and advertising of specific products.

RETAIL OPERATIONS

The Company’s stores are known for their wide assortment of closeout merchandise. A large number of stores operate profitably in relative close proximity. For example, 514 of the total 1,290 stores operate in four states: California, Ohio, Texas and Florida. Management believes that there are substantial opportunities to increase store counts in existing markets as well as expanding into new markets.

Certain core categories of merchandise are carried on a continual basis, although the specific name-brands offered may change frequently. The Company’s stores also offer a small but consistent line of basic items, strengthening their role as dependable, one-stop shops for everyday needs. In addition the stores feature seasonal items for every major holiday. To provide additional value to its customers, the Company also offers private-label merchandise in selected product categories. Because of their low operating costs, the Company’s stores are generally cash-positive within the first full year of operations, and profitable in the second year.

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WHOLESALE OPERATIONS

The Company also sells merchandise wholesale comprised predominately of merchandise obtained through the same or shared opportunistic purchases of the retail operations. Advertising of wholesale merchandise is conducted primarily at trade shows and by mailings to past and potential customers. Wholesale customers include a wide and varied range of major national and regional retailers, as well as smaller retailers, manufacturers, distributors and wholesalers.

DISCONTINUED OPERATIONS

On June 27, 2000, the Company announced its decision to separate the toy and closeout businesses by divesting the Company’s KB Toy Division. The financial statements and notes have been reclassified for all periods presented to reflect the toy segment as a discontinued operation.

On December 7, 2000, the Company closed the sale of its KB Toy Division to an affiliate of Bain Capital, Inc. The buyer purchased the business in conjunction with KB Toy’s management, who the buyer informed the Company were retained to lead the KB Toy business. Gross proceeds totaled approximately $305 million, consisting primarily of $258 million in cash, a note with a face amount of $45 million, and a warrant to acquire common stock of the buyer. Proceeds from the sale were used primarily to pay down existing borrowings under the Company’s Revolving Credit Facility.

PURCHASING

An integral part of the Company’s business is the sourcing and purchasing of quality name-brand merchandise directly from manufacturers and other vendors typically at prices substantially below those paid by conventional retailers. The Company believes that it has built strong relationships with many name-brand manufacturers and has capitalized on its purchasing power in the closeout marketplace to source merchandise that provides exceptional value to customers. The Company has the ability to source and purchase substantially all of a manufacturer’s closeout merchandise in specific product categories and to control distribution in accordance with vendor instructions, thus providing a high level of service and convenience to these manufacturers. The Company supplements its traditional name-brand closeout purchases with a limited amount of program buys and private-label merchandise. The Company expects its purchasing power will continue to enhance its ability to source quality closeout merchandise for all of its stores at competitive prices.

The Company has a seasoned buying team with extensive closeout purchasing experience, which the Company believes has enabled it to develop successful long-term relationships with many of the largest and most recognized consumer-product manufacturers in the United States. As a result of these relationships and the Company’s experience and reputation in the closeout industry, many manufacturers offer purchase opportunities to the Company prior to attempting to dispose of their merchandise through other channels.

The Company’s merchandise is purchased from domestic and foreign suppliers that provide the Company with multiple sources for each product category. In fiscal 2000, the Company’s top ten vendors accounted for approximately 14.0% of total purchases with no one vendor accounting for more than 3.2%.

The Company purchases approximately 20% to 25% of its products directly from overseas suppliers, and a material amount of its domestically purchased merchandise is also manufactured abroad. As a result, a significant portion of the Company’s merchandise supply is subject to certain risks including increased import duties and more restrictive quotas, loss of “most favored nation” trading status, currency fluctuations, work stoppages, transportation delays, economic uncertainties including inflation, foreign government regulations, political unrest and trade restrictions, including retaliation by the United States against foreign practices. While the Company believes that alternative domestic and foreign sources could supply merchandise to the Company, an interruption or delay in supply from China or the Company’s other foreign sources, or the imposition of additional duties, taxes or other charges on these imports, could have a material adverse effect on the Company’s results of operations and financial condition.

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COMPETITIVE CONDITIONS

All aspects of the retailing industry are highly competitive. The Company competes with discount stores (such as Wal-Mart®, KMart® and Target®), deep discount drugstore chains and other value-oriented specialty retailers. Certain of the Company’s competitors have greater financial, distribution, marketing and other resources than the Company.

The Company has no continuing contracts for the purchase of closeout merchandise and relies on buying opportunities from both existing and new sources, for which it competes with other closeout merchandisers and wholesalers. The Company believes that its management has long standing relationships with its suppliers and is competitively positioned to continue to seek new sources in order to maintain an adequate continuing supply of quality merchandise at attractive prices.

SEASONALITY

The Company has historically experienced, and expects to continue to experience, seasonal fluctuations, with a significant percentage of its net sales and operating profit being realized in the fourth fiscal quarter. In addition, the Company’s quarterly results can be affected by the timing of store openings and closings, the amount of net sales contributed by new and existing stores and the timing of certain holidays. Furthermore, in anticipation of increased sales activity during the fourth fiscal quarter, the Company purchases substantial amounts of inventory during the second and third fiscal quarters and hires a significant number of temporary employees to bolster its stores staffing during the fourth fiscal quarter.

The seasonality of the Company’s business also influences the Company’s demand for seasonal borrowings. The Company traditionally has drawn upon its seasonal credit lines in the first three fiscal quarters and has substantially repaid the borrowings during the fourth fiscal quarter.

ADVERTISING AND PROMOTION

The Company uses a variety of marketing approaches to promote its stores to the public. These approaches vary by business, by market and by the time of year. The Company promotes grand openings of its stores through a variety of print and radio promotions. In general, the Company utilizes only those marketing methods that it believes provide an immediate and measurable return on investment.

The Company utilizes trademarks, service marks and tradedress in its retail operations. This intellectual property is generally owned by intellectual property protection subsidiaries of the Company. The Company considers its intellectual property to be among its most valuable assets and where applicable, has registered, or has applications pending, with the United States Patent and Trademark Office. The Company believes that having distinctive intellectual property is an important factor in identifying the Company and distinguishing it from others.

The Company’s marketing program is designed to create an awareness of the broad range of quality, name-brand merchandise available at closeout prices providing customers an extreme value. The marketing program utilizes a combination of printed advertising circulars in all markets and television advertising in select markets. The Company currently distributes approximately 43 million two or four page circulars 26 weeks out of the year in all markets. Additionally, for 10 weeks of the year in 2000, approximately 30 million two or four page circulars were distributed predominantly in eastern markets. The method of distribution includes a combination of newspaper inserts and direct mail. These circulars are created in-house and are distributed regionally in order to take advantage of market differences caused by climate or other factors. The circulars generally feature 35 to 42 products that vary each week. The Company runs television promotions in certain markets based upon factors unique to each market, including the number of stores, cost of local media and results of preliminary testing. Multiple 30-second television spots are run per week, each of which feature two to four highly recognizable, name-brand products. In-store promotions include periodic loudspeaker announcements featuring special bargains as well as in-store signage to emphasize the significant values offered to the customer.

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As part of the Company’s strategy to increase its customer base, the advertising media mix will change in 2001, by increasing television advertising while decreasing the number of circulars. This change is expected to raise the Company’s total television coverage from 30% of sales to 52% of sales. The Company continues to refine the use of television advertising to increase awareness of the stores, strengthen its brand image, and attract new and repeat customers.

On March 1, 2001, the Company announced that it was planning to change its corporate name from Consolidated Stores Corporation to Big Lots, Inc., pending approval by the Company’s Stockholders at its Annual Meeting on May 15, 2001. The Company plans to convert all stores to the Big Lots brand name over a three-year period. The Company believes that Big Lots is its most recognizable brand name and this change will offer numerous opportunities to increase brand awareness among customers, suppliers, investors and the general public. The Company believes the change will also allow it to leverage future television advertising and other expenses.

Historically, total advertising expense as a percent of total net sales has been approximately 2.5% to 3.0%.

WAREHOUSING AND DISTRIBUTION

An important aspect of the Company’s purchasing strategy involves its ability to warehouse and distribute merchandise quickly and efficiently. The Company positions its distribution network to enable quick turn of time sensitive product as well as providing longer term warehousing capabilities for off-season buys. Substantially all merchandise sold by the Company is received and processed for retail sale, as necessary, and distributed to the retail location from Company operated warehouse and distribution centers. Data pertaining to warehouse and distribution centers is described under Item 2 Properties, Warehouse and Distribution.

ASSOCIATES

At February 3, 2001, the Company had 45,676 active associates comprised of 16,162 full-time and 29,514 part-time associates. Temporary associates hired during the fall and winter holiday selling season increased the number of associates to a peak of 54,157. Approximately two-thirds of the associates employed throughout the year are employed on a part-time basis. The relationship with associates is considered to be good, and the Company is not a party to any labor agreements.

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Item 2 Properties

RETAIL OPERATIONS

The Company’s stores are located predominantly in strip shopping centers throughout the United States. Individual stores range in size from 5,073 to 78,325 square feet and average approximately 26,000 square feet. In selecting suitable new store locations, the Company generally seeks retail space between 22,000 to 30,000 square feet in size. The average cost to open a new store in a leased facility is approximately $650,000, including inventory.

With the exception of 54 owned store sites, all stores are in leased facilities. Store leases generally provide for fixed monthly rental payments plus the payment, in most cases, of real estate taxes, utilities, insurance and common area maintenance. In some locations, the leases provide formulas requiring the payment of a percentage of sales as additional rent. Such payments are generally only required when sales reach a specified level. The typical lease is for an initial term of five years with multiple, three to five year renewal options. The following tables set forth store location information and store, office and warehouse lease expirations, exclusive of month to month leases, as of February 3, 2001.

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WAREHOUSE AND DISTRIBUTION

At February 3, 2001 the Company operated warehouse and distribution locations strategically placed across the United States totaling 9,048,000 square feet. The Company’s primary warehouse and distribution centers are owned and located in Ohio, Alabama, California and Pennsylvania. The facilities utilize advanced warehouse management technology which enable high accuracy and efficient product processing from vendors to the retail stores. The approximate combined weekly output of the Company’s facilities is 1,807,000 cartons per week. Statistics, including 1,272,000 square feet of construction-in-progress, for warehouse and distribution centers are presented below:

As necessary, the Company leases additional temporary warehouse space throughout the year to support its warehousing requirements.

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Item 3 Legal Proceedings

The Company is involved in various litigation and related matters generally incidental to normal operations. In the opinion of management, after consultation with legal counsel, the resolution of pending litigation and related matters is not expected to have a material effect on the financial condition, results of operations or liquidity of the Company.

Item 4 Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

OFFICERS OF THE COMPANY

Michael J. Potter was promoted to Chief Executive Officer and President in June 2000. Mr. Potter was appointed Chairman of the Board of Directors in August 2000. Mr. Potter joined the Company in 1991 as Vice President and Controller and was later promoted to Senior Vice President and Chief Financial Officer. In 1998, he was promoted to Executive Vice President and assumed additional responsibilities for Distribution and Information Services.

Albert J. Bell oversees finance, human resources, loss prevention, real estate, legal, and risk management. Mr. Bell was appointed to the Company’s Board of Directors and promoted to Chief Administrative Officer in June 2000. Previous to his promotion in 2000, Mr. Bell served as the Company’s General Counsel for over five years and has been employed by the Company since 1987.

Kent Larsson is responsible for buying, planning and the allocation of merchandise. Mr. Larsson joined the Company in 1988 as Vice President of Sales Promotion and was promoted to Executive Vice president of Merchandising and Sales Promotion in 1998.

Donald A. Mierzwa oversees the Company’s store standards, customer service, personnel development and program implementation and execution. Mr. Mierzwa has been with the Company since 1989 and has served as Executive Vice President of Store Operations since 1999.

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Brad A. Waite is responsible for human resources, loss prevention, risk management, and administrative services. Mr. Waite joined the Company in 1988 as Director of Employee Relations and held various Human Resource management and senior management positions prior to his promotion to his current position in July 2000.

Mark D. Shapiro is responsible for the Company’s financial strategy, performance and controls. He oversees treasury, tax and investor relations, as well as reporting, planning and control functions of the business. Mr. Shapiro joined the Company in 1992 as Director and Assistant Controller and was promoted to Vice President and Controller in 1994. In July 2000, Mr. Shapiro was promoted to Senior Vice president and Chief Financial Officer.

Joe R. Cooper is responsible for the Company’s strategic planning, investor relations, and treasury functions. He joined the Company as Vice President of Strategic Planning and Investor Relations in May 2000. In July 2000, he also assumed responsibility for the treasury department and was appointed Vice President Treasurer. Prior to joining the Company, Mr. Cooper held various financial and accounting positions with Bath & Body Works, KinderCare Learning Center, The Limited, Inc., and KPMG Peat Marwick.

Charles W. Haubiel II is responsible for the Company’s legal affairs. He was promoted to Vice President, General Counsel and Secretary in July 2000. He joined the Company in 1997 as Senior Staff Counsel and was promoted to Director, Corporate Counsel and Assistant Secretary in 1999. Prior to joining the Company, Mr. Haubiel practiced law with the law firm of Vorys, Sater, Seymour & Pease, LLP.

PART II

Item 5 Market for the Registrant’s Common Equity and Related Stockholder Matters

The Company’s common stock is listed on the New York Stock Exchange (NYSE) under the symbol “CNS.” On May 16, 2001 the Company’s NYSE trading symbol will change to “BLI.” The Company will also be changing its name to Big Lots, Inc., pending stockholder approval at the Company’s annual meeting. The following table reflects the high and low sales price per share of common stock as quoted from the NYSE composite transactions for the fiscal period indicated.

As of March 16, 2001, there were 1,652 registered holders of record of the Company’s common stock.

The Company has followed a policy of reinvesting earnings in the business and consequently has not paid any cash dividends. At the present time, no change in this policy is under consideration by the Board of Directors. The payment of cash dividends in the future will be determined by the Board of Directors in consideration of business conditions then existing, including the Company’s earnings, financial requirements and condition, opportunities for reinvesting earnings, and other factors.

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Item 6 Selected Financial Data

The statement of operations data and the balance sheet data have been derived from the Company’s consolidated financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included elsewhere herein.

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(a) Fiscal 2000 is comprised of 53 weeks

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Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT FOR PURPOSES OF “SAFE HARBOR” PROVISIONS OF THE SECURITIES LITIGATION REFORM ACT OF 1995

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

Statements, other than those based on historical facts, which address activities, events or developments that the Company expects or anticipates may occur in the future are forward-looking statements, which are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Actual events and results may materially differ from anticipated results described in such statements. The Company’s ability to achieve such results is subject to certain risks and uncertainties, including, but not limited to, sourcing and purchasing merchandise, economic and weather conditions which affect buying patterns of the Company’s customers, changes in consumer spending and consumer debt levels, the Company’s ability to anticipate buying patterns and implement appropriate inventory strategies, continued availability of capital and financing, competitive factors and pricing pressures, and other risks described from time to time in the Company’s filings with the Securities and Exchange Commission. Consequently, all of the forward-looking statements are qualified by these cautionary statements and there can be no assurance that the results or developments anticipated by the Company will be realized or that they will have the expected effects on the Company or its business or operations.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events.

OVERVIEW

The discussion and analysis presented below should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this report.

Sale of Division

On June 27, 2000, the Company announced its decision to separate the toy and closeout businesses by divesting the Company’s KB Toy Division. The financial statements and notes have been reclassified for all periods presented to reflect the toy segment as a discontinued operation.

On December 7, 2000, the Company closed the sale of its KB Toy Division to an affiliate of Bain Capital, Inc. The buyer purchased the business in conjunction with KB Toy’s management, who the buyer informed the Company will be retained to lead the KB Toy business. Gross proceeds totaled approximately $305 million, consisting primarily of $258 million in cash, a note with a face amount of $45 million, and a warrant to acquire common stock of the buyer. The note receivable matures on December 7, 2010 and bears interest at a rate of 8%. The interest is payable in annual installments to be paid by issuing additional notes with substantially identical terms as the original note. The warrant provides that the Company is entitled to purchase up to 2.5% of the common stock of the buyer for a stated per share price. The stock can be purchased any time prior to December 7, 2005. The note and warrant are being accounted for on the cost basis. Proceeds from the sale were used primarily to pay down existing borrowings under the Company’s Revolving Credit Facility.

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Included in the loss from discontinued operations for the year ended February 3, 2001, was a $72.0 million charge, net of tax, recorded in the second quarter. The charge included a $51.3 million loss on disposal for costs to reposition and exit the business, as well as actual and estimated profits and losses associated with the business from the measurement date to the expected date of disposal. The second quarter charge also included a $20.7 million loss from operations for actual operating results prior to the measurement date.

In the third quarter, the Company recorded an after tax loss on the disposal of the discontinued operation of $407 million. Additional losses were recorded on the sale during the third quarter, as the Company’s initial charge during the second quarter assumed no gain or loss on sale. Additionally, the third quarter after tax loss on disposal included the reversal of estimated operating profits and losses of $45 million, net of tax, recorded in the initial second quarter charge.

Fourth quarter net income includes income from discontinued operations of $27.1 million, net of tax, related to the settlement of various contingencies and finalization of estimates related to the sale of the KB Toy Division. For the year, the $27.1 million is reflected as part of the $430.8 million loss on disposal of the Toy segment. Included in the balance sheet at February 3, 2001, are approximately $11 million of remaining reserves for contingencies and other post-closing adjustments related primarily to professional fees, severance and benefit-related items.

Business Operations

The Company is the nation’s largest broadline closeout retailer. The Company’s goal is to build upon its leadership position in closeout retailing, a growing segment of the retailing industry, by expanding its market presence in both existing and new markets. The Company believes that the combination of its strengths in merchandising, purchasing, site selection, distribution and cost containment has made it a low-cost value retailer well-positioned for future growth.

At February 3, 2001, the Company operated a total of 1,290 stores operating as BIG LOTS, BIG LOTS FURNITURE, ODD LOTS, PIC ‘N’ SAVE and MAC FRUGAL’S BARGAINS•CLOSEOUTS. Wholesale operations are conducted through CONSOLIDATED INTERNATIONAL and WISCONSIN TOY.

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The following table compares components of the statements of operations of Consolidated Stores as a percent to net sales.

The Company has historically experienced, and expects to continue to experience, seasonal fluctuations, with a significant percentage of its net sales and operating profit being realized in the fourth fiscal quarter. In addition, the Company’s quarterly results can be affected by the timing of store openings and closings, the amount of net sales contributed by new and existing stores and the timing of certain holidays. The following table illustrates the seasonality in net sales and operating profit.