Big Lots
Annual Report 2020

Plain-text annual report

Big Lots, Inc. 4900 E. Dublin-Granville Road Columbus, Ohio 43081 April 13, 2021 Dear Big Lots Shareholder: We cordially invite you to attend the 2021 Annual Meeting of Shareholders of Big Lots, Inc. The Annual Meeting will be held virtually on Wednesday, May 26, 2021, beginning at 11:00 a.m., Eastern Time. Due to public health concerns related to the coronavirus (COVID-19) pandemic and to support the health and welfare of our shareholders and associates, the Annual Meeting will be held in a completely virtual format through a live webcast. You will not be able to attend the Annual Meeting physically in person. At our virtual Annual Meeting, shareholders will be able to attend, vote and submit questions by visiting www.virtualshareholdermeeting.com/BIG2021. We believe that the virtual format will provide a consistent experience to our shareholders and allow all shareholders to participate in the Annual Meeting regardless of location. The following pages contain the Notice of Annual Meeting of Shareholders and the Proxy Statement. You should review this material for information concerning the business to be conducted at the Annual Meeting. Your vote is important and we encourage you to attend and participate in the virtual Annual Meeting. For additional information regarding how to attend and participate in the virtual meeting format, please see “Attendance and Participation at the Virtual Annual Meeting” on page 2 of the Proxy Statement. Whether or not you plan to attend the virtual Annual Meeting, we urge you to vote as soon as possible. If you attend the virtual Annual Meeting and wish to participate by voting electronically during the virtual Annual Meeting, you may revoke your previously submitted proxy as described in the Proxy Statement. Thank you for your ongoing support of, and continued interest in, Big Lots, Inc. Respectfully submitted, JAMES R. CHAMBERS Chairman BRUCE K. THORN President and Chief Executive Officer NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS Wednesday, May 26, 2021 11:00 a.m. Eastern Time Virtual Meeting Site: www.virtualshareholdermeeting.com/BIG2021 Notice is hereby given that the 2021 Annual Meeting of Shareholders of Big Lots, Inc. will be held virtually on Wednesday, May 26, 2021, beginning at 11:00 a.m., Eastern Time. At our virtual Annual Meeting, shareholders will be able to attend, vote and submit questions by visiting www.virtualshareholdermeeting.com/BIG2021. You will not be able to attend the Annual Meeting physically in person. The Annual Meeting is being held for the following purposes: 1. To elect as directors the eleven nominees named in our accompanying Proxy Statement; 2. To approve, on an advisory basis, the compensation of our named executive officers; 3. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2021; and 4. To transact such other business as may properly come before the Annual Meeting. Only shareholders of record at the close of business on the record date, March 31, 2021, are entitled to notice of and to vote at the Annual Meeting and any postponement or adjournment thereof. Further information regarding voting rights and matters to be voted upon is presented in the accompanying Proxy Statement. On or about April 13, 2021, we began mailing to our shareholders of record at the close of business on March 31, 2021 a Notice of Internet Availability of Proxy Materials containing instructions on how to access this Notice of Annual Meeting of Shareholders, the Proxy Statement and our Annual Report to Shareholders for our fiscal year ended January 30, 2021 (“fiscal 2020”), as well as instructions on how to request a paper copy of the proxy materials. By Order of the Board of Directors, Ronald A. Robins, Jr. Executive Vice President, Chief Legal and Governance Officer, General Counsel and Corporate Secretary April 13, 2021 Columbus, Ohio Your vote is important. Shareholders are urged to vote online. If you attend the virtual Annual Meeting and wish to participate by voting electronically during the virtual Annual Meeting, you may revoke your previously submitted proxy as described in the Proxy Statement. To attend and participate in the virtual Annual Meeting, you will need the control number included on your Notice of Internet Availability of Proxy Materials (or proxy card, if you received printed copies of the proxy materials). For additional information regarding how to participate in the virtual meeting format, please see “Attendance and Participation at the Virtual Annual Meeting” on page 2 of the Proxy Statement. BIG LOTS, INC. PROXY STATEMENT TABLE OF CONTENTS ABOUT THE ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSAL ONE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSAL TWO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AUDIT COMMITTEE DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSAL THREE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROXY SOLICITATION COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 15 23 25 27 62 64 67 67 67 68 i PROXY STATEMENT The Board of Directors (“Board”) of Big Lots, Inc., an Ohio corporation (“we,” “us,” “our,” the “Company” or “Big Lots”), is furnishing you this proxy statement (this “Proxy Statement”) to solicit proxies for use at the 2021 Annual Meeting of Shareholders of Big Lots to be held virtually on Wednesday, May 26, 2021 beginning at 11:00 a.m., Eastern Time (including any adjournments, postponements or continuations thereof, the “Annual Meeting”). Due to public health concerns related to the coronavirus (COVID-19) pandemic and to support the health and welfare of our shareholders and associates, the Annual Meeting will be held in a completely virtual format through a live webcast. You will not be able to attend the Annual Meeting physically in person. We believe that the virtual format will provide a consistent experience to our shareholders and allow all shareholders to participate in the Annual Meeting regardless of location. At our virtual Annual Meeting, shareholders will be able to attend, vote and submit questions by visiting www.virtualshareholdermeeting.com/BIG2021. To participate (e.g., submit questions and/or vote) in the virtual Annual Meeting, you will need the control number included on your Notice of Internet Availability of Proxy Materials (or proxy card, if you received printed copies of the proxy materials). This Proxy Statement is dated April 13, 2021, and on or about April 13, 2021, we began mailing to our shareholders of record at the close of business on March 31, 2021 a Notice of Internet Availability of Proxy Materials containing instructions on how to access the Notice of Annual Meeting of Shareholders, this Proxy Statement and our Annual Report to Shareholders for our fiscal year ended January 30, 2021 (“fiscal 2020”). ABOUT THE ANNUAL MEETING Purpose of the Annual Meeting At the Annual Meeting, shareholders will act upon the matters outlined in the Notice of Annual Meeting included with this Proxy Statement. Specifically, our shareholders will be asked to: (1) elect eleven directors to serve until the 2022 Annual Meeting of the Shareholders of the Company; (2) approve, on an advisory basis, the compensation of our named executive officers, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and the narrative discussion accompanying the tables (“say-on-pay resolution”); (3) ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending January 29, 2022 (“fiscal 2021”); and (4) transact such other business as may properly come before the Annual Meeting. Under our governing documents, no other business may be raised by shareholders at the Annual Meeting unless proper and timely notice has been given to us by the shareholders seeking to bring such business before the meeting. Virtual-Only Meeting Format Due to the ongoing public health considerations associated with the COVID-19 pandemic, and because the health, safety and well-being of our associates and shareholders is of utmost importance to us, we will be holding our 2021 Annual Meeting of Shareholders in a virtual-only meeting format. Shareholder Voting Rights Only those shareholders of record at the close of business on March 31, 2021, the record date for the Annual Meeting (“Record Date”), are entitled to receive notice of, and to vote at, the Annual Meeting. At 1 the Record Date, the Company had 35,101,482 common shares, $0.01 par value per share (“Common Shares”) outstanding. Each of the outstanding Common Shares entitles the holder thereof to one vote on each matter to be voted upon at the Annual Meeting or any postponement or adjournment thereof. The holders of our Common Shares have no cumulative voting rights in the election of directors. All voting at the Annual Meeting will be governed by our Amended Articles of Incorporation, our Amended Code of Regulations and the Ohio General Corporation Law. Registered Shareholders and Beneficial Shareholders If your Common Shares are registered in your name directly with our transfer agent, Computershare Investor Services, LLC, you are considered a holder of record (which we also refer to as a registered shareholder). If you hold our Common Shares in a brokerage account or through a bank or other holder of record, you are considered the beneficial shareholder of the Common Shares, which shares are often referred to as being held in “street name.” Internet Availability of Proxy Materials In accordance with rules adopted by the Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of our proxy materials to each shareholder of record, we are permitted to furnish our proxy materials, including the Notice of Annual Meeting of Shareholders, this Proxy Statement and our Annual Report to Shareholders, by providing access to such documents on the Internet. Generally, shareholders will not receive printed copies of the proxy materials unless they request them. We believe furnishing proxy materials to our shareholders on the Internet will allow us to provide our shareholders with the information they need, while reducing the costs of delivery of our proxy materials and the environmental impact of the Annual Meeting. A Notice of Internet Availability of Proxy Materials that provides instructions for accessing our proxy materials on the Internet was mailed directly to registered shareholders. The Notice of Internet Availability of Proxy Materials also provides instructions regarding how registered shareholders may vote their Common Shares on the Internet. Registered shareholders who prefer to receive a paper or email copy of our proxy materials should follow the instructions provided in the Notice of Internet Availability of Proxy Materials for requesting such paper or email copies. A notice that directs our beneficial shareholders to the website where they can access our proxy materials should be forwarded to each beneficial shareholder by the broker, bank or other holder of record that is considered the registered shareholder with respect to the Common Shares of the beneficial shareholder. Such broker, bank or other holder of record should also provide to the beneficial shareholders instructions on how the beneficial shareholders may request a paper or email copy of our proxy materials. Beneficial shareholders have the right to direct their broker, bank or other holder of record on how to vote their Common Shares by following the voting instructions they receive from their broker, bank or other holder of record. To enroll in the electronic delivery service for future shareholder meetings, use your Notice of Internet Availability of Proxy Materials (or proxy card, if you received printed copies of the proxy materials) to register online at www.proxyvote.com and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years. Attendance and Participation at the Virtual Annual Meeting Annual Meeting Access Instructions Because the Annual Meeting will be held in a completely virtual format through a live webcast, there is no physical meeting location. To attend and participate (e.g., submit questions and/or vote) in the virtual Annual Meeting, holders of Common Shares as of the Record Date, or their duly appointed proxies, should access the live webcast of the Annual Meeting at www.virtualshareholdermeeting.com/BIG2021. For additional information regarding how to vote at the virtual Annual Meeting, see “Vote by Internet at the Annual Meeting” below. 2 To attend and participate in the virtual Annual Meeting, you will need the control number included on your Notice of Internet Availability of Proxy Materials (or proxy card, if you received printed copies of the proxy materials). Access to the webcast of the Annual Meeting will open approximately 15 minutes before the scheduled start time of the Annual Meeting. We recommend that you log in to the Annual Meeting several minutes before its scheduled start time. An audio recording of the entire virtual Annual Meeting will be available in the Investor Relations section of our website (www.biglots.com) after the meeting. We will have technicians available to assist you with any difficulties you may have accessing the virtual Annual Meeting. If you encounter any difficulties accessing the virtual Annual Meeting or during the Annual Meeting, a phone number will be available for you to call at the registration start time on www.virtualshareholdermeeting.com/BIG2021. Submission of Questions to Annual Meeting Shareholders as of the Record Date for the Annual Meeting who attend and participate in the virtual Annual Meeting may submit questions at www.virtualshareholdermeeting.com/BIG2021 for the question and answer session that will immediately follow the adjournment of the Annual Meeting. Shareholders must have the control number included on their Notice of Internet Availability of Proxy Materials (or proxy card, if they received printed copies of the proxy materials) to submit questions. As with the annual meetings of shareholders we have held in the past, we will use reasonable efforts to answer all questions relevant to meeting matters during the virtual Annual Meeting, subject to time constraints and the rules of conduct for the Annual Meeting. How to Vote and Revoke Your Vote Registered Shareholders After receiving your Notice of Internet Availability of Proxy Materials (or proxy card, if you received printed copies of the proxy materials), registered shareholders are urged to visit www.proxyvote.com to access our proxy materials. If you are a registered shareholder, there are several ways for you to vote your Common Shares: • Vote By Internet Before the Date of the Annual Meeting. You will have the opportunity to vote your Common Shares online at www.proxyvote.com until May 25, 2021 at 11:59 p.m., Eastern Time. When voting online before the date of the Annual Meeting, you must have the control number included on your Notice of Internet Availability of Proxy Materials (or proxy card, if you received printed copies of the proxy materials) and follow the instructions. • Vote By Internet at the Annual Meeting. You may also vote your Common Shares online at www.virtualshareholdermeeting.com/BIG2021 during the virtual Annual Meeting. When voting online at the virtual meeting, you must have the control number included on your Notice of Internet Availability of Proxy Materials (or proxy card, if you received printed copies of the proxy materials) and follow the instructions. • Vote By Telephone. You may vote your Common Shares by telephone by calling 1-800-690-6903 from any touch-tone telephone until May 25, 2021 at 11:59 p.m., Eastern Time. When voting by telephone, you must have the control number included on your Notice of Internet Availability of Proxy Materials (or proxy card, if you received printed copies of the proxy materials) and follow the instructions. • Vote By Mail. If you received a printed copy of the proxy materials, you may submit your vote by completing, signing and dating your proxy card and returning it in the prepaid envelope provided with the proxy materials to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717. Proxy cards submitted by mail must be received no later than May 25, 2021 to be voted at the Annual Meeting. If you vote via the Internet or by telephone, your electronic vote authorizes the named proxy holders in the same manner as if you signed, dated and returned your proxy card. If you vote via the Internet or by telephone, do not return your proxy card. 3 Beneficial Shareholders Beneficial shareholders have the right to direct the broker, bank or other holder of record that is the registered holder of their Common Shares on how to vote their Common Shares by following the voting instructions included in the materials they receive from their registered holder. Beneficial shareholders should follow the procedures and directions set forth in such voting instructions to instruct their registered holder how to vote those Common Shares or revoke or change previously given voting instructions (including how to vote at the Annual Meeting). Beneficial shareholders should contact their broker, bank or other holder of record to determine the applicable deadlines. Brokers, banks and other holders of record who hold Common Shares for beneficial shareholders in street name may vote such Common Shares on “routine” matters (as determined under New York Stock Exchange (“NYSE”) rules), such as Proposal Three, without specific voting instructions from the beneficial owner of such Common Shares. Such brokers, banks and other holders of record may not, however, vote such Common Shares on “non-routine” matters, such as Proposal One, and Proposal Two, without specific voting instructions from the beneficial owner of such Common Shares. Proxies submitted by such brokers, banks and other holders of record that have not been voted on “non-routine” matters are referred to as “broker non-votes.” Broker non-votes will not be counted for purposes of determining the number of Common Shares necessary for approval of any matter to which broker non-votes apply (i.e., broker non- votes will have no effect on the outcome of such matter). How to Revoke or Change Your Vote If you are a registered shareholder, you may revoke or change your vote at any time before the final vote at the Annual Meeting by: • signing and returning a new proxy card with a later date (only your latest completed, signed and dated proxy card received by May 25, 2021 will be counted); • submitting a later-dated vote by telephone or via the Internet (only your latest telephone or Internet voting instructions received by 11:59 p.m., Eastern Time, on May 25, 2021, will be counted); • attending and participating in the virtual Annual Meeting and voting again online (attending the virtual Annual Meeting will not by itself revoke a previously submitted proxy); or • delivering a written revocation to our Corporate Secretary at 4900 E. Dublin-Granville Road, Columbus, Ohio 43081, received no later than May 25, 2021. Beneficial shareholders should follow the procedures and directions set forth in the voting instructions they receive from their registered holder to instruct their registered holder how to revoke or change previously given voting instructions. What is a “proxy”? A proxy is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card. Householding SEC rules allow multiple shareholders residing at the same address the convenience of receiving a single copy of the Notice of Internet Availability of Proxy Materials (or the Annual Report to Shareholders and Proxy Statement, if requested) if they consent to do so (we refer to this process as “householding”). Householding is permitted only in certain circumstances, including when you have the same last name and address as another shareholder. If the required conditions are met, and SEC rules allow, your household may receive a single copy of the Notice of Internet Availability of Proxy Materials or, if requested, the Annual Report to Shareholders and Proxy Statement. Upon request, we will promptly deliver a separate copy of the Annual Report to Shareholders and Proxy Statement or Notice of Internet Availability of Proxy Materials, as applicable, to a shareholder at a shared address to which a single copy of the document(s) was delivered. Such a request should be made in the same manner as a revocation of consent for householding. 4 You may revoke your consent for householding at any time by contacting Broadridge Financial Solutions, Inc. (“Broadridge”), either by calling 1-866-540-7095, or by writing to: Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. You will be removed from the householding program within 30 days of receipt of your instructions at which time you will be sent separate copies of the Annual Report to Shareholders and Proxy Statement or Notice of Internet Availability of Proxy Materials, as applicable. Beneficial shareholders can request more information about householding from their brokers, banks or other holders of record. Board’s Recommendations Subject to revocation, all proxies that are properly completed and timely received will be voted in accordance with the instructions contained therein. If no instructions are given (excluding broker non- votes), the persons named as proxy holders will vote the Common Shares in accordance with the recommendations of the Board. The Board’s recommendations are set forth together with the description of each proposal in this Proxy Statement. In summary, the Board recommends a vote: (1) FOR the election of the director nominees identified in Proposal One; (2) FOR the approval, on an advisory basis, of the compensation of our named executive officers, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Disclosure and Analysis, compensation tables and the narrative discussion accompanying the tables (see Proposal Two); and (3) FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2021 (see Proposal Three). If any other matter properly comes before the Annual Meeting, or if a director nominee named in this Proxy Statement is unable to serve or for good cause will not serve, the proxy holders will vote on such matter or for a substitute nominee as recommended by the Board. Quorum The presence, in person or by proxy, of the holders of a majority of the outstanding Common Shares entitled to vote at the Annual Meeting will constitute a quorum and permit us to conduct our business at the Annual Meeting. Virtual attendance of a shareholder at the Annual Meeting constitutes presence in person for purposes of determining whether a quorum is present at the Annual Meeting. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of Common Shares considered to be present at the Annual Meeting for purposes of establishing a quorum. Vote Required to Approve a Proposal Proposal One Our Amended Articles of Incorporation impose a majority vote standard in uncontested elections of directors and our Corporate Governance Guidelines contain a majority vote policy applicable to uncontested elections of directors. Specifically, Article Eighth of our Amended Articles of Incorporation provides that if a quorum is present at the Annual Meeting, a director nominee in an uncontested election will be elected to the Board if the number of votes cast for such nominee’s election exceeds the number of votes cast against and/or withheld from such nominee’s election. In all director elections other than uncontested elections, plurality voting will apply and the director nominees receiving the greatest number of votes cast for their election will be elected as directors. An “uncontested election” generally means an election of directors at a meeting of shareholders in which the number of nominees for election does not exceed the number of directors to be elected. A properly executed proxy marked as withholding authority with respect to the election of one or more nominees for director will not be voted with respect to the nominee or nominees for director indicated and 5 will have the same effect as a vote against the nominee or nominees. Broker non-votes will not be considered votes cast for or against or withheld from a director nominee’s election at the Annual Meeting. See the “Governance — Majority Vote Standard and Policy” section of this Proxy Statement for more information about our majority vote policy and standard. Other Matters For purposes of Proposal Two and Proposal Three, the affirmative vote of the holders of a majority of the outstanding Common Shares will be required for approval. The votes received with respect to Proposal Two and Proposal Three are advisory and will not bind the Board or the Company. A properly executed proxy marked “abstain” with respect to Proposal Two and Proposal Three will not be voted with respect to such matter, although it will be counted for purposes of determining the number of Common Shares necessary for approval of Proposal Two and Proposal Three. Accordingly, an abstention will have the same effect as a vote against Proposal Two and Proposal Three. If no voting instructions are given (excluding broker non- votes), the persons named as proxy holders on the proxy card will vote the Common Shares in accordance with the recommendation of the Board. Tabulation Votes will be counted by an independent inspector of election appointed for the Annual Meeting by the Board. Appraisal or Dissenters’ Rights Shareholders of the Company will not have rights of appraisal or similar dissenters’ rights with respect to any of the matters identified in this Proxy Statement to be acted upon at the Annual Meeting. Results We will announce preliminary results promptly once they are available and will report final results in a filing with the SEC on a Current Report on Form 8-K. You can access both Form 8-Ks and our other reports we file with the SEC at our website at https://www.biglots.com/corporate/investors/sec-filings or at the SEC’s website at www.sec.gov. The information provided on these websites is for informational purposes only and is not incorporated by reference into this Proxy Statement. 6 PROPOSAL ONE: ELECTION OF DIRECTORS In accordance with the Company’s Amended Code of Regulations, the current size of the Board is set at eleven directors. Jeffrey P. Berger retired from the Board on June 10, 2020 after serving on the Board for 14 years. On October 1, 2020, Aaron Goldstein tendered his resignation as a director of the Company, which resignation was subsequently accepted by the Board. In addition, the Board has decided not to renominate Andrew C. Clarke, a current director, for election as a director at the Annual Meeting. The Board has nominated the eleven persons identified in the biographies set forth below for election as directors at the Annual Meeting, who include the incumbent directors other than Mr. Clarke and two new nominees, Sandra Campos and Kimberley A. Newton. At the Annual Meeting, the Common Shares represented by proxies will be voted, unless otherwise specified, for the election of the eleven director nominees named below. Proxies cannot be voted at the Annual Meeting for more than eleven persons. Directors are elected to serve until the next annual meeting of shareholders and until their respective successors are elected and qualified, or until their earlier death, resignation or removal. All of the nominees set forth below have consented to being named in this Proxy Statement and to serve as directors of the Company if elected. It is expected that all nominees proposed by the Board will be able to serve on the Board if elected. However, if before the Annual Meeting one or more of the Board’s nominees are unable to serve or for good cause will not serve (a situation that we do not anticipate), the proxy holders will vote the proxies for the remaining nominees and for substitute nominees chosen by the Board. If any substitute nominees are designated, we will file an amended proxy statement that, as applicable, identifies the substitute nominees, discloses that such nominees have consented to being named in the revised proxy statement and to serve as directors if elected, and includes certain biographical and other information about such nominees required by the rules of the SEC, but, should any of them decline or be unable to serve, proxies may be voted for another person nominated as a substitute by the Board. There are no family relationships, of first cousins or closer, among the Company’s directors and executive officers, by blood, marriage or adoption. Set forth below is certain information related to the nominees. Director Independence Tenure 1 Age 2 5 10 6 3 Independent Directors Executive Officer < 3 years 3-9 years 5 1 < 55 55-60 years old 61-65 years old 65-70 years old Gender Diversity Racial Diversity 1 1 6 5 9 White Black Hispanic Men Women 7 Summary of Director Nominee Core Experiences and Skills Our Board possesses a deep and broad set of experiences and skills that facilitate strong oversight and strategic direction for a leading retailer. The following chart summarizes the competencies of each director nominee to be represented on our Board. EXPERIENCE/SKILLS Campos Chambers DiGrande Gottschalk Jamison Kingsbury McCormick Newton Reardon Schoppert Thorn Retail Industry Operating or managerial experience with retailers. Customer Experience/Omnichannel and Digital Strategies Experience developing and deploying retail (or adjacent sector) customer experience programs across physical and digital mediums. Public Company CEO/COO/CFO/ CHRO Prior public company C-suite experience. Finance/Accounting/Audit Understanding of finance, accounting, financial reporting and/or audit processes. Legal/Risk Management Governmental/public policy, legal/regulatory and risk management experience. Strategy, Innovation and Business Transformation Experience successfully ideating and executing transformative business strategies. Human Capital/Talent Management Experience in human resources, talent and leadership development and/or executive compensation. Other Public Company Board Prior public company board experience to assist in enhancing board form and function. Environmental, Social and Governance Significant experience with ESG strategies and programs. X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X The lack of an “X” for a particular item does not mean that the director does not possess that qualification, characteristic, skill or experience. Each of our board members have experience and/or skills in the enumerated areas. However, the “X” indicates that a director has a particular strength in that area. 8 The following information is furnished with respect to each of the nominees of the Company, including information regarding their business experience, director positions held currently or at any time during the last five years, involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Nominating / Corporate Governance Committee and the Board to determine that the nominees should serve as our directors. Other than as set forth in this Proxy Statement, no principal occupation of any of the Board’s nominees has been at any corporation or organization that is a parent, subsidiary or other affiliate of the Company. Age: 54 Director since: Nominated in April 2021 Committees: • Not applicable Age: 63 Director since: 2012 Committees: • None SANDRA CAMPOS Ms. Campos is the Chief Executive Officer of Project Verte Inc. (a cloud- based supply chain platform). Ms. Campos served as the Chief Executive Officer of DVF (Diane von Fürstenberg) (an apparel retailer) from 2018 to 2020. Prior to joining DVF, she was the Co-President, Women’s Apparel of Global Brands Group Holding Limited (a branded apparel, footwear and brand management company) from 2015 to 2018, which included the Juicy Couture, Bebe, Buffalo, Tretorn, BCBG and Herve Leger brands. Ms. Campos also held leadership roles with apparel companies Oscar de la Renta, Ralph Lauren, Nautica International and Polo Jeans Company. Ms. Campos also founded Fashion Launchpad (a digital educational platform for the fashion, beauty and retail community), Mobi, Inc. (a consumer products company) and Cynosure Holdings (a celebrity brand management company). She is also a member of the advisory board of Athena Technology Acquisition Corp. (a special purpose acquisition company). Qualifications: Ms. Campos’ qualifications to serve on the Board include her extensive executive experience in the retail, technology and consumer products industries, global brand building, and omnichannel development. JAMES R. CHAMBERS Chairman of the Board of Big Lots, Inc. Mr. Chambers served as President and Chief Executive Officer and director of Weight Watchers International, Inc. (weight management services provider) from 2013 to late 2016. Since his retirement from Weight Watchers International, Inc. in 2016, he has been serving as a professional director. Mr. Chambers previously served as President of the US Snacks and Confectionery business unit and General Manager of the Immediate Consumption Channel of Kraft Foods Inc. (food manufacturer) until 2011. Mr. Chambers also served as President and CEO of Cadbury Americas (confectionery manufacturer) until 2010 and as the President and Chief Executive Officer of Remy Amerique, Inc. (spirits manufacturer). Prior to his employment with Remy Amerique, Inc., Mr. Chambers served as the Chief Executive Officer of Paxonix, Inc. (online branding and packaging process solutions business), the Chief Executive Officer of Netgrocer.com (online grocery retailer) and the Group President of Information Resources, Inc. (global market research provider). Mr. Chambers spent the first 17 years of his career at Nabisco (food manufacturer), where he held leadership roles in sales, distribution, marketing and information technology, culminating in the role of President, Refrigerated Foods. Mr. Chambers previously served as a director of B&G Foods (food manufacturer) for seven years where he served on the nominating and governance committee and the compensation committee and as a director of Weight Watchers International, Inc. 9 Qualifications: Mr. Chambers’ qualifications to serve on the Board include his extensive cross-functional packaged goods industry experience, his extensive leadership experience as a chief executive officer, his 20-year track record in general management and his experience serving on the boards of other public companies. Other Directorships: TIAA Board of Trustees since 2015, where he is chair-elect and serves on the human resources committee, the nominating and governance committee and the risk and compliance committee. SEBASTIAN J. DIGRANDE Mr. DiGrande is the former Executive Vice President of Strategy and Chief Customer Officer for Gap Inc. (apparel retailer) from May 2016 until 2019, where he led the company’s E-Commerce/Digital business, which focused on strategy, consumer and market insights, customer data and analytics, digital and customer marketing, payments, loyalty, and franchise teams. Prior to joining Gap, Inc., Mr. DiGrande was a Senior Partner and Managing Director for The Boston Consulting Group from 1996 to April 2016. He was also a leader in BCG’s Technology, Marketing and Digital Innovation efforts. Since 2019, he has been serving as a professional director. Qualifications: Mr. DiGrande’s qualifications to serve on the Board include his extensive experience in senior management roles including leading one of the largest E-Commerce/Digital business operations, his extensive consulting background and his qualification as an “audit committee financial expert,” as defined by applicable SEC rules. MARLA C. GOTTSCHALK Ms. Gottschalk is the former Chief Executive Officer of The Pampered Chef, Ltd. (marketer of kitchen tools, food products and cookbooks), where she also previously served as President and Chief Operating Officer. Since her retirement from The Pampered Chef, Ltd. in 2013, she has been serving as a professional director. Ms. Gottschalk served as Senior Vice President of Financial Planning and Investor Relations for Kraft Foods, Inc. (food manufacturer), where she also previously served as Executive Vice President and General Manager of the Post Cereal division and Vice President of Marketing and Strategy of the Kraft Cheese division. Qualifications: Ms. Gottschalk’s qualifications to serve on the Board include her extensive experience in operations and strategic management, her qualification as an “audit committee financial expert,” as defined by applicable SEC rules, her extensive leadership experience as a chief executive officer, her expertise in the food industry and her experience serving on the boards of other public companies. Other Directorships: Potbelly Corporation (food retailer) since 2009, where she is chair of the audit committee and a member of the compensation committee; Reynolds Consumer Products Inc. (consumer products) since 2020, where she is chair of the audit committee; Underwriter Laboratories since 2009, where she is chair of the compensation committee and serves on the nominating and governance committee; and Ocean Spray Cranberries, Inc. since 2014, where she serves on the nominating and governance committee and the audit committee. 10 Age: 54 Director since: 2018 Committees: • Audit • Nominating /Corporate Governance Age: 60 Director since: 2015 Committees: • Audit (Chair) • Compensation Age: 61 Director since: 2015 Committees: • Compensation • Nominating /Corporate Governance (Chair) • Capital Allocation Planning Age: 68 Director since: Nominated in April 2020 Committees: • Audit • Compensation CYNTHIA T. JAMISON Ms. Jamison served as Chief Financial Officer or Chief Operating Officer of several companies during her tenure from 1999 to 2009 at Tatum, LLC (executive services firm). From 2005 to 2009, she led the CFO services practice and was a member of the firm’s operating committee. After retiring from Tatum, Ms. Jamison subsequently served as Chief Financial Officer of AquaSpy, Inc. from 2009 to 2012 (provider of soil moisture sensors to monitor soil moisture levels). Since her retirement from AquaSpy Inc. in 2012, she has been serving as a professional director. Ms. Jamison has also served as Chief Financial Officer of Chart House Enterprises (food retailer) and held various financial positions at Allied Domecq Retailing USA, Kraft General Foods and Arthur Anderson LLP. Ms. Jamison previously served as a director of B&G Foods, Inc. (food manufacturer and distributor) from 2004 to 2015, where she served as chair of the audit committee. She previously held board seats at Horizon Organic Holdings from 2001 to 2003 and Cellu Tissue, Inc. Qualifications: Ms. Jamison’s qualifications to serve on the Board include her extensive experience in financial and accounting matters, including public company reporting, as well as strategy and capitalization expertise, her qualification as an “audit committee financial expert,” as defined by applicable SEC rules, and her key management, leadership, financial and strategic planning, corporate governance and public company executive and board experience. Other Directorships: Tractor Supply Company (farm and ranch retailer) since 2002, where she has served as chairman since 2014; Darden, Inc. (food retailer) since 2014, where she serves as chair of the audit committee and a member of the compensation committee; and The ODP Corporation (office supply retailer) since 2013, where she is chair of the compensation committee. THOMAS A. KINGSBURY Mr. Kingsbury served as President, Chief Executive Officer and a member of the Board of Directors of Burlington Stores, Inc. (discount clothing retailer) from 2008 to 2019. He also served as Executive Chairman of the Board of Directors of Burlington Stores, Inc. from September 2014 to January 2020. Mr. Kingsbury previously served as Senior Executive Vice President of Information Services, E-Commerce, Marketing and Business Development of Kohl’s Corporation (department store retailer) from August 2006 to December 2008. Mr. Kingsbury also held various management positions with The May Department Stores Company (department store retailer) commencing in 1976, including President and Chief Executive Officer of the Filene’s division from 2000 to 2006. Qualifications: Mr. Kingsbury’s qualifications to serve on the board include his valuable perspectives and unique insights developed from more than 40 years of experience in the retail industry, providing him with a comprehensive understanding of customer dynamics and shifting consumer preferences, his broad-based retail experience and extensive experience in senior leadership positions, including his service as a former president and chief executive officer and as a current director of a publicly traded retail company and his qualification as an “audit committee financial expert,” as defined by applicable SEC rules. 11 Other Directorships: Tractor Supply Company (farm and ranch retailer) since 2017, where he serves on the Corporate Governance and Nominating Committee and the Compensation Committee and B.J.’s Wholesale Club, Inc. (mass merchant club retailer) since 2020, where he serves on the Compensation Committee. CHRISTOPHER J. MCCORMICK Mr. McCormick is the former President and Chief Executive Officer of L.L. Bean, Inc. (clothing and outdoor recreation equipment retailer). He joined L.L. Bean, Inc. in 1983 and held a number of leadership positions in Advertising and Marketing prior to his tenure as President and Chief Executive Officer from 2001 until March 2016. Since his retirement from L.L. Bean, Inc. in 2016, he has been serving as a professional director. Mr. McCormick previously served as a director of Sun Life Financial, Inc. (financial services company) from 2017 to 2019, where he served as a member of the compensation committee and nominating corporate governance committee. Qualifications: Mr. McCormick’s qualifications to serve on the Board include his extensive leadership experience as a chief executive officer of a retail company, his service on the boards of other public companies and his qualification as an “audit committee financial expert,” as defined by applicable SEC Rules. Other Directorships: Levi Strauss & Co. (clothing retailer) since 2016, where he is a member of the audit committee and the finance committee. KIMBERLEY A. NEWTON Ms. Newton is the former Senior Vice President Consumer Experience of Hallmark Cards, Inc. (a greeting card and gift products retailer and media company) from 2017 to 2019. Ms. Newton joined Hallmark Cards, Inc. in 1997 and held a number of leadership positions in marketing and strategy before serving as Vice President North America Strategy and Planning from 2011 to 2015 and Vice President Corporate Strategy and Business Development from 2015 to 2017. Qualifications: Ms. Newton’s qualifications to serve on the Board include her extensive experience in consumer marketing, corporate strategy, business development, omnichannel consumer experience, P&L management and digital transformation. Age: 65 Director since: 2018 Committees: • Audit • Compensation Age: 48 Director since: Nominated in April 2021 Committees: • Not applicable 12 Age: 68 Director since: 2015 Committees: • Compensation (Chair) • Nominating /Corporate Governance Age: 54 Director since: 2015 Committees: • Audit • Nominating /Corporate Governance • Capital Allocation Planning (Chair) NANCY A. REARDON Ms. Reardon is the former Senior Vice President and Chief Human Resources and Communications Officer of Campbell Soup Company (food manufacturer). Since her retirement from Campbell Soup Company in 2012, she has been serving as a professional director. Additionally, Ms. Reardon served as Executive Vice President of Human Resources for Comcast Cable Communications, Inc. (telecommunications provider) from 2002 to 2004. Prior to that, Ms. Reardon served as Partner and Executive Vice President, Human Resources and Corporate Affairs for Borden Capital Management Partners (consumer products retailer) from 1997 to 2002, where she developed financial and merger and acquisition skills through her involvement in multiple transactions for a portfolio of operating companies. Ms. Reardon previously served as a director of Warnaco Group, Inc. (apparel retailer) where she served as a member of the audit committee and the compensation committee. Qualifications: Ms. Reardon’s qualifications to serve on the Board include her extensive experience in senior management roles, her experience on the boards of other public companies and private and charitable organizations, her experience leading human resources departments and in communications and public affairs, her leadership skills and her skills in human capital management, talent development and succession planning. Other Directorships: Signet Jewelers Limited (jewelry retailer) since 2018, where she chairs the compensation committee and serves on the nominating and corporate governance committee and corporate citizenship and sustainability committee. WENDY L. SCHOPPERT Ms. Schoppert is the former Executive Vice President and Chief Financial Officer of Sleep Number Corporation (bedding retailer and manufacturer) from June 2011 to February 2014, where she also served as Chief Information Officer and led Marketing, Digital, International, and New Channel Development. Since her retirement from Sleep Number Corporation in 2014, she has been serving as a professional director. Prior to joining Sleep Number, Ms. Schoppert led US Bank’s Private Asset Management (financial services company) team from 2004 to 2005 and served as Head of Product, Marketing & Corporate Development for U.S. Bank’s Asset Management division from 2002 to 2004. Ms. Schoppert began her career in the airline industry, serving in various financial, strategic and general management leadership positions at American Airlines, Northwest Airlines and America West Airlines. Ms. Schoppert also previously served as a director of Gaia, Inc. (formerly Gaiam, Inc.) (an alternative media video streaming service) from 2013 to 2018. Qualifications: Ms. Schoppert’s qualifications to serve on the Board include her qualification as an “audit committee financial expert,” as defined by applicable SEC Rules, her extensive retail experience across finance, information technology, digital and marketing, and her significant financial leadership and expertise with respect to the oversight of financial reporting and disclosure for public companies. Other Directorships: The Hershey Company (a global confectionery company) since 2017, where she serves on the audit committee and the 13 finance & risk management committee, The ODP Corporation (office supply retailer), where she serves on the audit committee, and Bremer Financial Corporation (a financial services firm) since 2017, where she chairs the audit committee and serves on the compensation committee. BRUCE K. THORN Mr. Thorn is our President and Chief Executive Officer. Before joining Big Lots in September 2018, he served as President (since 2017) and Chief Operating Officer (since 2015) of Tailored Brands, Inc. (a leading specialty retailer of men’s tailored clothing and formalwear) until 2018. Mr. Thorn also previously held various enterprise-level roles with PetSmart, Inc. (a pet supply retailer), most recently as Executive Vice President, Store Operations, Services and Supply Chain, as well as leadership positions with The Gap, Inc., Cintas Corp, LESCO, Inc. and The United States Army. Qualifications: Mr. Thorn’s qualifications to serve on the Board include his day-to-day leadership as President and Chief Executive Officer of Big Lots, strong leadership skills, proven management capabilities and more than 25 years of diverse retail and services experience. Age: 54 Director since: 2018 Committees: • Capital Allocation Planning (nonvoting member) THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH NOMINEE LISTED ABOVE. 14 The following table sets forth some of our key governance policies and practices we have implemented to advance the objectives and long term interests of our shareholders: GOVERNANCE Governance Highlights • Nine of our ten current directors are independent • Six of our ten independent director nominees are women • Annual election of all directors and Majority • Annual board and committee self-evaluations Voting Standard • Proxy Access for our shareholders • Executive session of non-employee directors at all • We have a non-executive chairman • Director orientation and continuing education regularly scheduled board meetings • All committees composed of independent directors • Limit of 4 public company directorships Board members may hold • Annual shareholder engagement • Mandatory Board retirement at age 72 Board Leadership and Independent Chairman of the Board The Board is currently composed of the individuals identified in Proposal One, except for Mr. Clarke who is not standing for reelection at the Annual Meeting. Mr. Clarke and each of the director nominees (other than Mr. Thorn, our Chief Executive Officer (“CEO”) and President), qualify as an independent (as defined by the applicable NYSE rules) non-employee director (“non-employee directors”). Mr. Chambers, a non-employee director, serves as non-executive Chairman of the Board (“Chairman”). The Board believes it should have the flexibility to establish a leadership structure that works best for us at a particular time, and it reviews that structure from time to time, including in the context of a change in leadership. The Chairman works with management to plan the agendas for meetings of the Board, chairs the Board meetings, and is responsible for briefing our CEO, as needed, concerning executive sessions of the independent members of the Board. The Chairman also determines when additional meetings of the Board are needed. Additionally, the Chairman communicates informally with other directors between meetings of the Board to foster free and open dialogue among directors. Board Meetings in Fiscal 2020 The Board held 44 meetings during fiscal 2020. During fiscal 2020, each director attended at least 75% of the aggregate of the total number of meetings of the Board and the committees on which he or she served (in each case, held during the periods that he or she served). All of our directors attended our 2020 annual meeting of shareholders, which was held virtually, as required by our Corporate Governance Guidelines. In addition, the non-employee directors met in executive session at each of the Board’s regularly scheduled meetings. Role of the Board’s Committees The Board has standing Audit, Compensation, Nominating / Corporate Governance and Capital Allocation Planning Committees. The Board established the Capital Allocation Planning Committee in April 2020. Each of these committees reports its activities to the Board. Audit Committee The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibility with respect to: (1) the integrity of the financial reports and other financial information provided by us to our shareholders and others; 15 (2) our compliance with legal and regulatory requirements; (3) the engagement of our independent registered public accounting firm and the evaluation of the firm’s qualifications, independence and performance; (4) the performance of our system of internal controls; (5) the oversight of the performance of the internal audit function; (6) our audit, accounting and financial reporting processes generally; and (7) the evaluation of enterprise risk issues. All members of the Audit Committee are independent as required by the Audit Committee’s charter and by the applicable NYSE and SEC rules. The Board has determined that each member of the Audit Committee is “financially literate,” as required by NYSE rules, and each of Messrs. DiGrande, Kingsbury and McCormick and Mses. Gottschalk and Schoppert is an “audit committee financial expert,” as defined by applicable SEC rules. The functions of the Audit Committee are further described in its charter, which is available in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. The Audit Committee met eight times during fiscal 2020. Compensation Committee The Compensation Committee discharges the responsibilities of the Board relating to the administration of our compensation programs, including the compensation program for our executive leadership team (“Leadership Team”). Our Leadership Team is composed of the current executives named in the Summary Compensation Table (“named executive officers”) and other executives reporting to our CEO. The responsibilities of the Compensation Committee include: (1) establishing our general compensation philosophy; (2) overseeing the development of our compensation programs; (3) approving goals and objectives for the incentive compensation awarded to the Leadership Team; (4) (5) reviewing and recommending to the Board the other compensation for our CEO and the Leadership Team; in coordination with the Nominating / Corporate Governance Committee, monitoring issues associated with CEO succession planning and management development; (6) administering our compensation programs; and (7) reporting on the entirety of the executive compensation program to the Board. The Compensation Committee annually conducts a compensation risk assessment. The purpose of the assessment is to identify risks arising from the Company’s compensation policies, practices and programs and the controls in place to mitigate any such risks. The Compensation Committee determined that our compensation policies are consistent with our overall risk structure. Because a significant portion of the incentive compensation we award is subject to performance goals based on operating profit, we believe our associates are encouraged to take a balanced approach that focuses on corporate profitability and performance. If the Company is not profitable at a reasonable level, there are limited payouts under the bonus programs and restricted stock units may not vest. The Company has internal controls over the measurement and calculation of the performance measures, including operating profit, earnings per share, return on invested capital, sales and net income. These controls, and the auditing of the Company’s financial statements by an independent registered public accounting firm, are designed to keep the Company, including its compensation programs, from being 16 susceptible to manipulation by associates. In addition, our associates are subject to the Company’s Code of Business Conduct and Ethics which covers, among other things, accuracy of books and records. During fiscal 2020, Mses. Gottschalk, Jamison and Reardon and Messrs. Berger, Kingsbury and McCormick served on our Compensation Committee. All members of the Compensation Committee are independent as required by the Compensation Committee’s charter and NYSE rules. The functions of the Compensation Committee are further described in its charter, which is available in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. The Compensation Committee met seven times during fiscal 2020. Nominating / Corporate Governance Committee The responsibilities of the Nominating / Corporate Governance Committee include: (1) (2) recommending individuals to the Board for nomination as members of the Board and its committees; taking a leadership role in shaping our corporate governance policies and practices, including recommending to the Board changes to our Corporate Governance Guidelines and monitoring compliance with such guidelines; (3) developing and recommending to the Board appropriate criteria for determining director independence; (4) in coordination with the Compensation Committee, monitoring issues associated with CEO succession planning and management development; (5) overseeing the evaluation of the Board and CEO; and (6) reviewing the compensation of the members of the Board and recommending any changes to such compensation to the Board for its approval. During fiscal 2020, Mses. Jamison, Reardon and Schoppert and Messrs. Berger, Clarke and DiGrande served on our Nominating / Corporate Governance Committee. All members of the Nominating / Corporate Governance Committee are independent as required by the Committee’s charter and NYSE rules. The functions of the Nominating / Corporate Governance Committee are further described in its charter, which is available in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. The Nominating / Corporate Governance Committee met seven times during fiscal 2020. Capital Allocation Planning Committee The responsibilities of the Capital Allocation Planning Committee include: (1) reviewing, at least annually, the Company’s three-year capital expenditure outlook and expected returns, current year capital expenditure plan and associated returns and three-year liquidity outlook; (2) periodically reviewing the Company’s current year actual capital expenditures versus the current year capital expenditure plan, the Company’s rolling twelve-month liquidity outlook, debt ratio and other ratios required for compliance with the Company’s credit facilities and management’s estimate of the Company’s weighted-average cost of capital; (3) (4) reviewing management recommendations on the Company’s declaration and payment of quarterly or special dividends on our Common Shares; reviewing management recommendations on the establishment and, upon establishment, execution of a share repurchase program; 17 (5) periodically reviewing the Company’s capital allocation strategy in comparison to peers and industry benchmarks; and (6) reviewing the Company’s short-term investment policy. During fiscal 2020, Mses. Jamison and Schoppert and Messrs. Clarke, Goldstein and Thorn (as a non- voting member) served on our Capital Allocation Planning Committee. All voting members of the Capital Allocation Planning Committee meet the NYSE independence requirements. The functions of the Capital Allocation Planning Committee are further described in its charter, which is available in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. The Capital Allocation Planning Committee met three times during fiscal 2020. Selection of Nominees by the Board The Nominating / Corporate Governance Committee has oversight over a broad range of issues relating to the composition and operation of the Board. The Nominating / Corporate Governance Committee is responsible for recommending to the Board the appropriate skills and qualifications required of Board members, based on our needs from time to time. The Nominating / Corporate Governance Committee also evaluates prospective director nominees against the standards and qualifications set forth in the Corporate Governance Guidelines. Although the Nominating / Corporate Governance Committee has not approved any specific minimum qualifications that must be met by a nominee for director recommended by the Nominating / Corporate Governance Committee and has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees, the Nominating / Corporate Governance Committee considers factors such as the prospective nominee’s relevant experience, character, intelligence, independence, commitment, judgment, prominence, age, and compatibility with our CEO, senior management and other members of the Board. The Nominating / Corporate Governance Committee also considers other relevant factors that it deems appropriate, including the current composition of the Board, the alignment of the Board members’ skills and experiences with our strategic plan, diversity, experience with succession planning, crisis management, the balance of management and independent directors, public company experience and the need for committee expertise. Before commencing a search for a new director nominee, the Nominating / Corporate Governance Committee confers with the Board regarding the factors it intends to consider in its search. In identifying potential candidates for Board membership, the Nominating / Corporate Governance Committee considers recommendations from the Board, shareholders and management, as well as proxy access candidates. Any shareholder who wishes to recommend a prospective director nominee to the Board must send written notice to: Chair of the Nominating / Corporate Governance Committee, Big Lots, Inc., 4900 E. Dublin-Granville Road, Columbus, Ohio 43081. The written notice must include the prospective nominee’s name, age, business address, principal occupation, ownership of our Common Shares, information that would be required under the rules of the SEC in a proxy statement soliciting proxies for the election of such prospective nominee as a director, and any other information that is deemed relevant by the recommending shareholder. Shareholder recommendations that comply with these procedures and that meet the factors outlined above will receive the same consideration that the recommendations of the Board and management receive. Pursuant to its written charter, the Nominating / Corporate Governance Committee has the authority to retain consultants and search firms to assist in the process of identifying and evaluating director candidates and to approve the fees and other retention terms for any such consultant or search firm. The Nominating / Corporate Governance Committee retained Ellig Group to assist it in connection with the search process that identified Ms. Campos and Ms. Newton, whom the Nominating / Corporate Governance Committee recommended as nominees for election as directors at the Annual Meeting. Director Vote Standard and Policy Our Amended Articles of Incorporation impose a majority vote standard in uncontested elections of directors and our Corporate Governance Guidelines contain a majority vote policy applicable to uncontested elections of directors. Article Eighth of our Amended Articles of Incorporation provides that if a quorum 18 is present at the Annual Meeting, a director nominee in an uncontested election will be elected to the Board if the number of votes cast for such nominee’s election exceeds the number of votes cast against and/or withheld from such nominee’s election. The majority vote policy contained in our Corporate Governance Guidelines requires any nominee for director who does not receive more votes cast for such nominee’s election than votes cast against and/or withheld as to his or her election to deliver his or her resignation from the Board to the Nominating / Corporate Governance Committee. Broker non-votes have no effect in determining whether the required affirmative majority vote has been obtained. Withheld votes have the same effect as a vote against a director nominee. Upon its receipt of such resignation, the Nominating / Corporate Governance Committee will promptly consider the resignation and recommend to the Board whether to accept the resignation or to take other action. The Board will act on the recommendation of the Nominating / Corporate Governance Committee no later than 100 days following the certification of the shareholder vote. The Nominating / Corporate Governance Committee, in making its recommendation, and the Board, in making its decision, will evaluate such resignation in light of the best interests of Big Lots and our shareholders and may consider any factors and other information they deem relevant. We will promptly publicly disclose the Board’s decision in a periodic or current report to the SEC. Determination of Director Independence The Board affirmatively determined that Mr. Clarke and all of the directors nominated for election at the Annual Meeting other than Mr. Thorn are independent of Big Lots, its subsidiaries and its management under the standards set forth in the NYSE rules, and no director nominee other than Mr. Thorn has a material relationship with Big Lots, its subsidiaries or its management aside from his or her service as a director. In determining that Mr. Clarke and each of the director nominees other than Mr. Thorn is independent, the Board considered charitable contributions to not-for-profit organizations of which these director nominees or their immediate family members are executive officers or directors and determined that each of the transactions and relationships it considered was immaterial and did not impair the independence of any of the directors. In addition, all members of the Board’s standing Audit Committee meet the independence standards required by the Audit Committee’s charter and by the applicable NYSE and SEC rules. All members of the Compensation Committee meet the independence standards required by the Compensation Committee’s charter and NYSE rules. Related Person Transactions Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Financial Professionals, and human resources policies prohibit (without the consent of the Board or the Nominating / Corporate Governance Committee) directors, officers and employees from engaging in transactions that conflict with our interests or that otherwise usurp corporate opportunities. Pursuant to our written related person transaction policy, the Nominating / Corporate Governance Committee evaluates “related person transactions.” Consistent with SEC rules, we consider a related person transaction to be any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which Big Lots or a subsidiary thereof is, was or will be a participant: (1) involving more than $120,000; and (2) in which any of our directors, nominees for director, executive officers, holders of more than five percent of our Common Shares or their respective immediate family members had, has or will have a direct or indirect material interest. Under our policy, our directors, executive officers and other members of management are responsible for bringing all transactions, whether proposed or existing, of which they have knowledge and which they believe may constitute related person transactions to the attention of our General Counsel. If our General Counsel determines that the transaction constitutes a related person transaction, our General Counsel will notify the chair of the Nominating / Corporate Governance Committee. Thereafter, the Nominating / Corporate Governance Committee will review the related person transaction, considering all factors and 19 information it deems relevant, and either approve or disapprove the transaction in light of what the Committee believes to be the best interests of Big Lots and our shareholders. If advance approval is not practicable or if a related person transaction that has not been approved is discovered, the Nominating / Corporate Governance Committee will promptly consider whether to ratify the related person transaction. Where advance approval is not practicable or we discover a related person transaction that has not been approved and the Committee disapproves the transaction, the Committee will, taking into account all of the factors and information it deems relevant (including the rights available to us or other parties under the transaction), determine whether we should amend, rescind or terminate the transaction in light of what it believes to be the best interests of Big Lots and its shareholders. Examples of factors and information that the Nominating / Corporate Governance Committee may consider in its evaluation of a related person transaction include: (1) our reasons for entering into the transaction; (2) the terms of the transaction; (3) the benefits of the transaction to us; (4) the comparability of the transaction to similar transactions with unrelated third parties; (5) the materiality of the transaction to each party; (6) the nature of the related person’s interest in the transaction; (7) the potential impact of the transaction on the status of an independent director; and (8) the alternatives to the transaction. Additionally, each director, nominee for director and executive officer must complete an annual questionnaire that requires written disclosure of any related person transaction. The responses to these questionnaires are reviewed by the Nominating / Corporate Governance Committee and our General Counsel to identify any potential conflicts of interest or potential related person transactions. The son-in-law of Lisa Bachmann, our former Executive Vice President, Chief Merchandising and Operating Officer, is employed by Big Lots as a senior buyer and in fiscal 2020 received compensation greater than $150,000 but less than $200,000. Oversight of Corporate Strategy The Board actively oversees management’s establishment and execution of corporate strategy, including major business and organizational initiatives, annual budget and long-term strategic plans, capital allocation priorities and potential corporate development opportunities. At the Board and committee meetings and throughout the year, the Board regularly receives information and formal updates from our management and actively engages with the Leadership Team with respect to our corporate strategy, oversight of corporate culture and human capital management. The Board’s independent directors also hold regularly scheduled executive sessions at which strategy is discussed. Board’s Role in Risk Oversight The Board and its committees play an important role in overseeing the identification, assessment and mitigation of risks that are material to us. In fulfilling this responsibility, the Board and its committees regularly consult with management to evaluate and, when appropriate, modify our risk management strategies. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed about such risks through committee reports. The Board oversees the conduct of our business and the assessment of our business and other enterprise risks to evaluate whether the business is being properly managed. The Board also oversees the processes for maintaining our integrity with regard to our financial statements and other public disclosures, and compliance with law and ethics. The Audit Committee assists the Board in fulfilling its oversight responsibility relating to the performance of our system of internal controls, legal and regulatory compliance, cybersecurity matters, our 20 audit, accounting and financial reporting processes, and the evaluation of enterprise risk issues, particularly those risk issues not overseen by other committees. The Compensation Committee is responsible for overseeing the management of risks relating to our compensation programs and succession planning. The Nominating / Corporate Governance Committee manages risks associated with corporate governance, related person transactions, succession planning, and business conduct and ethics. The Capital Allocation Planning Committee is responsible for overseeing risks related to our liquidity and allocation of capital. The Public Policy and Environmental Affairs Committee, a management committee that reports to the Nominating / Corporate Governance Committee, oversees management of risks associated with public policy, environmental affairs and social matters that may affect our operations, performance or public image. Environmental, Social and Governance Practices Our Public Policy and Environmental Affairs Committee takes a leadership role in shaping the policies and practices of the Company relating to current and emerging public policy, environmental and social trends and issues that may affect the operations, performance or public image of the Company, including, without limitation, corporate social responsibility, climate change and related environmental matters, diversity and philanthropic activities. The Public Policy and Environmental Affairs Committee is comprised of our Chief Legal and Governance Officer, Chief Financial Officer and a senior investor relations representative and reports its activities, findings and recommendations to the Board and management at least annually. The functions of the Public Policy and Environmental Affairs Committee are further described in its charter, which is available in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. In addition, the Company recently formed a Diversity, Equity and Inclusion (DEI) Executive Advisory Committee comprised of six senior leaders of the Company to provide guidance and direction for our diversity, equity and inclusion efforts on a Company-wide basis and help remove barriers for underrepresented associates. The Committee solicits ideas from our newly-formed DEI Council, a group of close to 20 associates from all levels and areas of the Company from diverse backgrounds that serve as the voice of all our associates. In 2021, the Company intends to focus on formalizing its DEI strategy to drive our aim of increasing associate diversity through best practices such as proactive recruiting at historically black colleges and universities and establishing more internal business resource groups to help further promote a diverse and inclusive workplace. In 2021, we also published our inaugural corporate social responsibility report, titled “BIG Cares,” which addresses our environmental, social and governance policies, initiatives and achievements. A copy of the corporate social responsibility report is available on our website (www.biglots.com). Information on our website, including the corporate and social responsibility report, is not incorporated by reference in or otherwise considered a part of this Proxy Statement. Corporate Governance Guidelines Our Corporate Governance Guidelines comply with applicable NYSE rules and can be found in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. Code of Business Conduct and Ethics & Code of Ethics for Financial Professionals We have a Code of Business Conduct and Ethics, which applies to all of our directors, officers and employees. We also have a Code of Ethics for Financial Professionals which applies to our principal executive officer, principal financial officer, principal accounting officer, controller and other persons performing similar functions. Both the Code of Business Conduct and Ethics and the Code of Ethics for Financial Professionals are available in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. We intend to post amendments to or waivers from any applicable provision (related to elements listed under Item 406(b) of Regulation S-K) of the Code of Business Conduct and Ethics and the Code of Ethics for Financial Professionals (in each case, to the extent applicable to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions), if any, in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. 21 Compensation Committee Interlocks and Insider Participation During fiscal 2020, Mses. Gottschalk, Jamison and Reardon and Messrs. Berger, Kingsbury and McCormick served on our Compensation Committee. No member of our Compensation Committee serves, or at any time has served, as one of our officers or employees or has, or during fiscal 2020, had a material interest in any related person transaction, as defined in Item 404 of Regulation S-K. None of our executive officers serves or, during fiscal 2020, served as a member of the board of directors or compensation committee of any other company that has or had an executive officer serving as a member of the Board or our Compensation Committee. Communications with the Board Shareholders and other parties interested in communicating directly with the Board, with specified individual directors or with the non-employee directors as a group, may do so by choosing one of the following options: Call: Write: (866) 834-7325 Big Lots Board of Directors, 4900 E. Dublin-Granville Road, Columbus, Ohio 43081 Online Message: http://biglotsbigvoice.com Under a process approved by the Nominating / Corporate Governance Committee for handling correspondence received by us and addressed to non-employee directors, our General Counsel reviews all such correspondence and forwards to the Board or appropriate members of the Board a summary and/or copies of any such correspondence that deals with the functions of the Board, members or committees thereof or otherwise requires their attention. Directors may at any time review a log of all correspondence received by us and directed to members of the Board and may request copies of any such correspondence. Concerns relating to our accounting, internal accounting controls or auditing matters will be referred to the Audit Committee. Concerns relating to the Board or members of senior management will be referred to the Nominating / Corporate Governance Committee. Parties submitting communications to the Board may choose to do so anonymously or confidentially. 22 DIRECTOR COMPENSATION Under the Big Lots, Inc. Non-Employee Director Compensation Package established by the Board, each non-employee director is compensated for Board and committee participation in the form of retainers and fees and a restricted stock unit award. Retainers and Charitable Contributions During fiscal 2020, Messrs. Berger, Chambers, Clarke, DiGrande, Goldstein, Kingsbury and McCormick and Mses. Gottschalk, Jamison, Reardon and Schoppert qualified as non-employee directors and, as a result, received compensation for their Board service. Due to our employment of Mr. Thorn in fiscal 2020, he did not qualify as a non-employee director and did not receive compensation for his services as a director. The compensation received by Mr. Thorn as an employee is shown in the Summary Compensation Table included in this Proxy Statement. We pay our non-employee directors retainers and fees on a quarterly basis. For fiscal 2020, the annual retainers we paid to non-employee directors consisted of: (1) an annual retainer of $85,000 for each non- employee director other than the nonexecutive chair; (2) an annual retainer of $170,000 for the nonexecutive chair; (3) an additional annual retainer of $35,000 for the chair of the Audit Committee; (4) an additional annual retainer of $25,000 for the chair of the Compensation Committee; (5) an additional annual retainer of $20,000 for the chair of the Nominating / Corporate Governance Committee and the chair of the Capital Allocation Planning Committee; (6) an additional annual retainer of $17,500 for each other member of the Audit Committee; (7) an additional annual retainer of $12,500 for each other member of the Compensation Committee; and (8) an additional annual retainer of $10,000 for each other member of the Nominating / Corporate Governance Committee and each other member of the Capital Allocation Planning Committee. Each term during which our non-employee directors serve on the Board, we donate an aggregate annual amount of up to $15,000 to charitable organizations nominated by the non-employee director and make matching charitable donations in an aggregate annual amount of up to $15,000 to charitable organizations to which the non-employee director makes contributions. Restricted Stock Units In June 2020, our nonexecutive chair received a restricted stock unit award having a grant date fair value equal to approximately $210,000 (6,074 Common Shares) and our other non-employee directors received a restricted stock unit award having a grant date fair value equal to approximately $145,000 (4,194 Common Shares). The restricted stock unit awards were made under the terms of the Big Lots 2020 Long-Term Incentive Plan (“2020 LTIP”) and will be settled in our Common Shares on the earlier to occur of (1) the trading day immediately preceding the Annual Meeting or (2) the non-employee director’s death or disability (as defined in the 2020 LTIP). The non-employee director will forfeit the restricted stock units if the non-employee director ceases to serve on the Board before either settlement event occurs. Our non-employee directors may defer all or any portion of their restricted stock unit award until the earlier to occur of (1) the date specified by the non-employee director, (2) the non-employee director’s death or disability or (3) the date the non-employee director ceases to serve as a member of the Board. The non- employee directors must make any deferral election on or before December 31 of the year preceding the grant of the restricted stock unit award (e.g., December 31, 2019 for awards granted in 2020) or, in the case of a newly elected director, within thirty days of the date they become eligible to participate in the 2020 LTIP. 23 Director Compensation Table for Fiscal 2020 The following table summarizes the total compensation for fiscal 2020 for each of our non-employee directors. Fees Earned or Paid in Cash ($) (b) Stock Awards ($)(1)(2) (c) Option Awards ($) (d) Name (a) Mr. Berger(4) Mr. Chambers . . . . . . . . . . . . 170,000 209,978 — . . . . . . . . . . . . . 0 — 53,750 Mr. Clarke . . . . . . . . . . . . . . 88,830 144,987 — Mr. DiGrande . . . . . . . . . . . . 112,500 144,987 — Mr. Goldstein(5) . . . . . . . . . . . 67,050 144,987 — Ms. Gottschalk . . . . . . . . . . . 132,500 144,987 — Ms. Jamison . . . . . . . . . . . . . 127,210 144,987 — Mr. Kingsbury . . . . . . . . . . . . 97,290 144,987 — Mr. McCormick . . . . . . . . . . 115,000 144,987 — Ms. Reardon . . . . . . . . . . . . . 120,000 144,987 — Ms. Schoppert . . . . . . . . . . . . 129,420 144,987 — Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (f) Non-Equity Incentive Plan Compensation ($) (e) — — — — — — — — — — — — — — — — — — — — — — All Other Compensation ($)(3) (g) Total ($) (h) — 53,750 — 379,978 18,500 252,317 30,000 287,487 — 212,037 17,000 294,487 — 272,197 30,000 272,277 — 259,987 10,000 15,825 274,987 290,232 (1) Amounts in this column reflect the aggregate grant date fair value of the restricted stock unit awards granted to the non-employee directors in fiscal 2020 as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”). The full grant date fair value of the fiscal 2020 restricted stock unit award granted to our nonexecutive chair and each non-employee director was based on individual awards of 6,074 and 4,194 Common Shares, respectively, at a per Common Share value of $34.57 on the grant date. In accordance with ASC 718 and the 2020 LTIP, the per Common Share grant date value is the closing price of our Common Shares on the NYSE on the grant date. (2) As of January 30, 2021, Mr. Chambers held 6,074 restricted stock units and Mses. Gottschalk, Jamison, Reardon and Schoppert and Messrs. Clarke, DiGrande, Kingsbury and McCormick held 4,194 restricted stock units. (3) Amounts in this column reflect both matching contributions and payments made by us during fiscal 2020 to charitable organizations nominated by the specified directors. (4) Mr. Berger retired as a member of the Board on June 10, 2020 and, as a result, did not receive a restricted stock unit award in fiscal 2020. (5) Mr. Goldstein resigned from the Board on October 1, 2020 and, as a result, forfeited his restricted stock unit award for fiscal 2020. 24 STOCK OWNERSHIP Ownership of Our Common Shares by Certain Beneficial Owners and Management The following table sets forth certain information with regard to the beneficial ownership of our Common Shares by each holder of more than five percent of our Common Shares, each director, each director nominee, each of the current and former executive officers named in the Summary Compensation Table, and all executive officers, directors and director nominees as a group. The assessment of holders of more than five percent of our Common Shares is based on a review of and reliance upon their respective filings with the SEC. Except as otherwise indicated, all information is as of March 31, 2021. Name and Address of Beneficial Owner or Identity of Group(1) Amount and Nature of Beneficial Ownership(2) Percent of Outstanding Common Shares Sandra Campos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lisa M. Bachmann . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . James R. Chambers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Andrew C. Clarke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sebastian J. DiGrande . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marla C. Gottschalk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cynthia T. Jamison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thomas A. Kingsbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Christopher J. McCormick . . . . . . . . . . . . . . . . . . . . . . . . . . . Kimberley A. Newton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jack Pestello . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jonathan E. Ramsden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nancy A. Reardon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ronald A. Robins, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Michael A. Schlonsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wendy L. Schoppert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bruce K. Thorn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BlackRock, Inc.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Vanguard Group, Inc.(4) . . . . . . . . . . . . . . . . . . . . . . . . . . FMR LLC(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dimensional Fund Advisors LP(6) . . . . . . . . . . . . . . . . . . . . . . LSV Asset Management(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . All directors, nominees and executive officers as a group 0 12,175 35,345 4,194 12,678 21,898 20,048 4,194 12,678 0 0 59,879 20,048 66,716 93,639 12,794 208,256 5,856,857 5,049,502 2,515,247 2,194,946 2,128,298 (20 persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691,932 * * * * * * * * * * * * * * * * * 16.7% 14.4% 7.2% 6.3% 6.1% 1.9% * Represents less than 1.0% of the outstanding Common Shares. (1) Unless otherwise indicated, the address for each director and officer is c/o Big Lots, Inc., 4900 E. Dublin- Granville Road, Columbus, Ohio, 43081. (2) Each person named in the table has sole voting power and sole dispositive power with respect to all Common Shares shown as beneficially owned by such person, except as otherwise stated in the footnotes to this table. The amounts set forth in the table include Common Shares that may be acquired within 60 days of March 31, 2021 through the vesting of restricted stock unit awards as follows: Ms. Bachmann: 12,175; Mr. Chambers: 6,074; Mr. Clarke: 4,194, Mr. DiGrande: 4,194; Ms. Gottschalk, 4,194; Ms. Jamison: 4,194; Mr. Kingsbury: 4,194; Mr. McCormick: 4,194; Mr. Ramsden: 55,183; Ms. Reardon: 4,194; Mr. Robins: 39,415; Mr. Schlonsky: 40,487; Ms. Schoppert: 4,194; and Mr. Thorn: 154,161. 25 (3) (4) (5) (6) (7) In its Schedule 13G filed on January 25, 2021, BlackRock, Inc., 55 East 52nd Street, New York, NY 10055, stated that it beneficially owned the number of Common Shares reported in the table as of December 31, 2020, had sole voting power over 5,753,095 of the shares and sole dispositive power over 5,856,867 of the shares, and had no shared voting power or shared dispositive power over any of the reported shares. In its Schedule 13G/A filed on February 10, 2021, The Vanguard Group, Inc., 100 Vanguard Blvd., Malvern, PA 19355, stated that it beneficially owned the number of Common Shares reported in the table as of December 31, 2020, had sole dispositive power over 4,972,222 of the shares, had shared dispositive power over 77,280 of the shares, had shared voting power over 43,760 of the shares and had no sole voting power over any of the reported shares. In its Schedule 13G filed on February 8, 2021, FMR LLC and Abigail P. Johnson (a director and Chairman and Chief Executive Officer of FMR LLC), 245 Summer Street, Boston, Massachusetts 02210, stated that they beneficially owned the number of Common Shares reported in the table as of December 31, 2020, had sole voting power over 692,833 of the shares and sole dispositive power over 2,515,247 of the shares, and had no shared voting power or shared dispositive power over any of the reported shares. In its Schedule 13G/A filed on February 12, 2021, Dimensional Fund Advisors LP, Building One, 6300 Bee Cave Road, Austin, TX 78746, stated that it beneficially owned the number of Common Shares reported in the table as of December 31, 2020, had sole voting power over 2,112,745 of the shares and sole dispositive power over 2,194,946 of the shares, and had no shared voting power or shared dispositive power over any of the reported shares. In its Schedule 13G filed on February 11, 2021, LSV Asset Management, 155 North Wacker Drive, Suite 4600, Chicago, IL 60606, stated that it beneficially owned the number of Common Shares reported in the table as of December 31, 2020, had sole voting power over 1,315,348 of the shares and sole dispositive power over 2,128,298 of the shares, and had no shared voting power or shared dispositive power over any of the reported shares. 26 Compensation Discussion and Analysis EXECUTIVE COMPENSATION This Compensation Discussion and Analysis, or CD&A, describes the compensation program for our named executive officers for fiscal 2020, who are listed below: Bruce K. Thorn President and Chief Executive Officer Michael A. Schlonsky Executive Vice President, Chief Human Resources Officer Jonathan E. Ramsden Executive Vice President, Chief Financial and Administrative Officer Ronald A. Robins, Jr. Executive Vice President, Chief Legal and Governance Officer, General Counsel and Corporate Secretary Jack Pestello* Executive Vice President, Chief Merchandising Officer Lisa M. Bachmann** Former Executive Vice President, Chief Merchandising and Operating Officer (*) Mr. Pestello was appointed as our Executive Vice President, Chief Merchandising Officer effective July 27, 2020. (**) Ms. Bachmann’s employment as our Executive Vice President, Chief Merchandising and Operating Officer ended on September 4, 2020. EXECUTIVE SUMMARY Company Performance in Fiscal 2020 and Impact of COVID-19 Fiscal 2020 presented unprecedented challenges as a result of the COVID-19 pandemic, which has disrupted and may continue to disrupt our business. In addition to addressing the challenges presented by COVID-19, we also continued to implement our transformative restructuring strategy that we call Operation North Star. As an essential retailer, Big Lots has been at the forefront of adapting to these unprecedented times. With the health and safety of our customers and employees as our number one priority, we created a task force dedicated to responding to COVID-19. As the situation and research rapidly developed, we responded quickly to implement effective safety protocols in our stores and throughout the Company. Through our agility and innovation, we continued to safely deliver essential products to our communities throughout the pandemic. We have always been dedicated to the health and safety of our associates. Now more than ever, we are focusing on our associates’ total well-being through the pandemic. In addition to increased health and safety protocols, we came together to provide financial support for our associates that have been particularly impacted by COVID-19. We are particularly thankful to our store and distribution center associates, whose dedication through the most uncertain times of the pandemic enabled us to maintain operations and continue serving our customers. In recognition of this, we provided a temporary $2 hourly increase to hourly store and distribution center associates. In addition, we provided an across-the-board 30% associate discount from March through September 2020 and, later in the year, provided a 40% associate discount on December 23 and December 24, 2020. In addition, to help fund the Company’s Employee Assistance Fund to provide aid to Big Lots associates affected by COVID-19, each member of the Company’s senior management, including each of our named executive officers, voluntarily relinquished 10% of their base salary in each pay period in April, May, and June. The aggregate amount of the corresponding contribution to the Employee Assistance Fund was approximately $190,000. While the impact of the COVID-19 pandemic on our business and liquidity was uncertain early in our fiscal year, government stimulus payments, the emergence of a “nesting” trend among consumers and our status as an essential retailer, had a significantly positive impact on our sales for the full year. These impacts complemented and augmented benefits from our Operation North Star strategies launched or expanded 27 during 2020. As a result of all of these factors, fiscal 2020 was a record year on both the top and bottom lines. Despite the challenges presented by COVID-19 in fiscal 2020, we also returned approximately $220 million to our shareholders through share repurchases and dividends in fiscal 2020. The following charts set forth our (1) net sales, (2) net income, (3) adjusted net income, (4) diluted earnings per common share, (5) adjusted diluted earnings per common share, (6) increase in comparable sales for stores open at least fifteen months plus our e-commerce operations, and (7) return on invested capital for fiscal 2018, fiscal 2019 and fiscal 2020 (reconciliations of adjusted net income and adjusted diluted earnings per common share (each a non-GAAP financial measure) to net income and diluted earnings per share (the most directly comparable GAAP financial measures), respectively, are attached to this Proxy Statement on Appendix A). Net Sales Net Income $6,199,186,000 $629,191,000 $5,238,105,000 $5,323,180,000 $242,464,000 $156,894,000 2018 2019 2020 2018 2019 2020 Adjusted Net Income Diluted Earnings Per Common Share $287,288,000 $16.11 $165,368,000 $144,413,000 $6.16 $3.83 2018 2019 2020 2018 2019 2020 Adjusted Diluted Earnings Per share Comparable Sales Increase $7.35 $4.04 $3.67 2018 2019 2020 1.2% 2018 0.3% 2019 16.1% 2020 Return on Invested Capital 48.4% 16.3% 21.2% 2018 2019 2020 28 The following table sets forth the one-, two- and three-year median annualized total shareholder return of our peer group, the S&P 500, the S&P 500 Retailing Index and the Company. Median Annualized TSR 1 Year (2/1/2020 – 1/31/2021) 2 Year (2/1/2019 – 1/31/2021) 3 Year (2/1/2018 – 1/31/2021) Comparator Group Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . Big Lots Percent Rank vs. Peer Group . . . . . . . . S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Big Lots Percent Rank vs. S&P 500 . . . . . . . . . . S&P 500 Retailing . . . . . . . . . . . . . . . . . . . . . Big Lots Percent Rank vs. S&P 500 Retailing . . . 54.4% 87% 11.0% 99% 21.5% 96% Big Lots, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 131.6% Key Executive Compensation Actions in Fiscal 2020 7.1% 79% 12.9% 92% 25.6% 87% 44.5% 8.7% 40% 8.4% 37% 15.4% 22% 4.2% • Base Salaries for Named Executive Officers. In light of the uncertainty surrounding the COVID-19 pandemic, the Committee did not approve any merit increases in fiscal 2020 to the base salaries of the named executive officers, marking the second consecutive year with no merit-based base salary increases for our named executive officers. In addition, to help fund the Company’s Employee Assistance Fund in order to provide aid to Big Lots associates affected by COVID-19, each member of the Company’s senior management, including each of our named executive officers, voluntarily relinquished 10% of their base salary in each pay period in April, May, and June. Mr. Pestello joined the Company in July 2020, and his base salary was established in connection with his hiring. • Impact of COVID-19 on Annual Cash Incentive Awards. In light of the uncertainty surrounding the COVID-19 pandemic, the Committee bifurcated the annual cash incentive award for fiscal 2020 into a (1) a discretionary award based on effective management and leadership through the crisis, including goals related to health and safety, business continuity, cash and liquidity management, and internal and external communication, during the first half of fiscal 2020 and (2) an objective corporate performance-based award based on our adjusted operating profit and comparable sales in fiscal 2020. Each executive’s total annual cash incentive award for fiscal 2020 was weighted 40% for the discretionary award and 60% for the corporate performance-based award. • Impact of COVID-19 on Long-Term Equity Incentive Awards. The long-term equity incentive awards granted to our named executive officers in fiscal 2020 consisted of performance restricted stock unit awards (“PRSUs”) (50% weighting) and restricted stock units (“RSUs”) (50% weighting). The Committee determined the number of PRSUs and RSUs awarded to our named executive officers in fiscal 2020 by applying a 20 percent premium to the closing price of our Common Shares on the grant date in an effort to impose appropriate limits on the potential dilution of our Common Shares and to acknowledge the decline in the market price of our Common Shares following the onset of the COVID-19 pandemic. As a result, the grant values were approximately 20% lower than the grant values for 2019. The Committee granted PRSUs in lieu of the performance share units (“PSUs”) that it has granted in recent fiscal years due to the uncertainty related to the COVID-19 pandemic and resulting challenges in establishing performance goals. The PRSUs were subject to vesting in one-third tranches based upon the closing price of our Common Shares equaling or exceeding the following thresholds for 20 consecutive trading days on or before the third anniversary of the grant date: (1) $17.00; (2) $21.00; and (3) $25.00, which represented premiums of approximately 7%, 33%, and 58%, respectively, above the closing price of our Common Shares on the grant date. No shares are eligible to vest prior to the first anniversary of the grant date and any vested shares must be held through the third anniversary of the grant date. • Payouts on Annual Cash Incentive Awards. Based on the Committee’s assessment of various actions taken and results achieved by management in the areas of cash and liquidity management and crisis leadership during the first half of fiscal 2020, each of our named executive officers earned a maximum payout under the discretionary annual incentive award for fiscal 2020. Based on the 29 Company’s adjusted operating profit and comparable sales for fiscal 2020, each of our named executive officers also earned a maximum payout under the objective corporate performance-based annual incentive awards. • Vesting of Long-Term Equity Incentive Awards. Based on the Company’s adjusted earnings per share — diluted (“EPS”) and adjusted return on invested capital (“ROIC”) over the past three years, the PSUs we granted in fiscal 2018 vested at 145.9% of the target performance level. Based on the sustained appreciation of the market price of our Common Shares in fiscal 2020, all of the PRSUs we granted in fiscal 2020 fully vested in April 2021 on the first anniversary of the grant date, although the underlying Common Shares may not be sold until the third anniversary of the grant date. Based on the Company’s operating profit in fiscal 2020, one-third of the RSUs we granted in fiscal 2020 vested and the remaining two-thirds will vest ratably over the next two years. Key Executive Compensation Actions in Fiscal 2021 • Although the COVID-19 pandemic is not over and the potential effect of the pandemic on the Company’s business remained somewhat unclear at the time of the Committee’s annual evaluation of the executive compensation program in March 2021, the Committee determined to return to a more customary mix of merit increases, annual cash incentive awards based entirely on annual Company financial goals, and long-term equity incentive awards consisting of PSUs (weighted 60%) and RSUs (weighted 40%) for the named executive officers in fiscal 2021. Executive Compensation Program Objectives and Components Compensation Objectives Our executive compensation program is designed to: • Pay for superior results by rewarding executives for achieving short- and long-term performance goals and creating long-term shareholder value; • Align the interests of our executives with the interests of our shareholders through performance- and equity-based compensation; and • Attract and retain talented executives by paying compensation that is competitive with the compensation paid by the companies in our peer group. 30 Compensation Components The following table summarizes the primary components of our executive compensation program and the primary purposes each component serves in furthering the objectives of our executive compensation program: Component Base Salary Characteristics Primary Purposes Annual fixed cash compensation Attract and retain talented executives through an annual salary that reflects the executive’s performance, experience and scope of responsibilities. Mitigate pressure to take unnecessary or excessive risks or unduly focus on the price of our Common Shares. Motivate executives to achieve performance objectives that directly relate to our annual operating and strategic goals. Align the interests of our executives with the interests of our shareholders. Motivate executives to achieve multi-year financial and strategic goals and create long-term shareholder value. Retain talented executives for the long-term. Annual Cash Incentive Awards Annual variable performance- based cash compensation Long-Term Equity Incentive Awards Long-term variable equity awards granted annually as a combination of performance based awards (PSUs or PRSUs) and RSUs 31 Pay-for Performance Pay-for-performance is the fundamental objective of our executive compensation philosophy. As a result, the Committee believes that a majority of each named executive officer’s total compensation should be at risk or variable based on our performance and/or stock price (i.e., performance-based). The following graphs show the percentage of the total compensation awarded to Mr. Thorn and our other named executive officers (who we employed at the end of fiscal 2020) for fiscal 2020 that was performance-based as disclosed in the Summary Compensation Table. 2020 COMPENSATION AWARDED MR. THORN OTHER NEOS 83% Performance-Linked Incentive Compensation 17% 74% Performance-Linked Incentive Compensation 27% 26% 36% 47% 47% Salary and Other Compensation Performance Share Units Award & Restricted Stock Units Award Annual Bonus Incentive Award Executive Compensation and Governance Practices and Policies The following table sets forth executive compensation and governance practices and policies we have implemented to advance the objectives of our executive compensation program and to align our practices and policies with industry-leading standards. Practice Pay-for-Performance Philosophy Stock Ownership Requirements Clawback Policy Independent Compensation Consultant Big Lots Policy ✓ A majority of the total target compensation opportunity of each of our named executive officers is at risk or variable based on our performance and/or stock price. ✓ ✓ ✓ All of our executive officers and outside directors are subject to stock ownership requirements. All of our executive officers are subject to a compensation clawback policy. The Committee engages an independent compensation consultant that reviews and advises the Committee on executive compensation. The consultant performs services solely for the Committee. Independent Board Chair ✓ We maintain separate CEO and Chairman of the Board Anti-Hedging and Pledging Policy Excise Tax Gross-Ups positions. ✓ We do not allow our directors or Leadership Team members to enter into any hedging or pledging transactions relating to our Common Shares. ✓ We do not pay excise tax gross-ups under our severance agreements in the event of a change in control. 32 Practice Dividends on Unearned Awards “Double-Trigger” Requirements Big Lots Policy ✓ We do not pay dividends on unearned performance awards. ✓ The 2020 LTIP and our severance agreements only provide certain cash payments and other benefits upon a change in control if the participant is terminated in connection with the change in control. 2020 Say-on-Pay Advisory Vote and Shareholder Engagement At our 2020 annual meeting of shareholders, our shareholders approved the compensation of our named executive officers with approximately 98.5% of votes cast in favor of our say-on-pay resolution. The Committee considers this vote a positive endorsement of our executive compensation program. Our shareholders’ support of our 2020 say-on-pay resolution and discussions with our shareholders before our 2020 annual meeting contributed to the Committee’s decision to not make significant changes to our current executive compensation program, other than in connection with addressing the uncertainty as a result of the COVID-19 pandemic. EXECUTIVE COMPENSATION PROCESS Roles in Executive Compensation Process The principal roles of the Committee, our outside directors, our CEO and members of management in our executive compensation process are as follows: Responsible Party Compensation Committee Role Lead the process for establishing our annual executive compensation program and approve or recommend that the Board approve compensation actions. Consult with management and the Committee’s compensation consultant regarding employee benefit and compensation programs, plans and awards. All Outside Directors Conduct comprehensive evaluation of CEO performance. CEO Management Approve annual executive compensation program and finalize compensation awards for the members of our Leadership Team. Provide the Committee and other outside directors with an annual performance evaluation and compensation recommendation for each of the other members of our Leadership Team in the first quarter of each fiscal year based on the CEO’s direct knowledge of their respective performance and contributions. Make recommendations to the Committee and our CEO regarding the design and administration of our employee benefit and compensation programs, plans and awards in accordance with the Committee’s charter and the terms of our compensation plans. Advise the Committee and our CEO regarding the competitiveness of existing and proposed compensation programs and the impact of accounting rules, laws and regulations on existing and proposed compensation programs. 33 Fiscal 2020 Executive Compensation Process The Committee maintains an annual calendar for reviewing and approving the compensation elements described above for our named executive officers. The table below summarizes the timing of key actions for establishing our executive compensation program for fiscal 2020. Committee Meeting Date March 3, 2020 (Regular Meeting) March 31, 2020 (Special Meeting) April 3, 2020 (Special Meeting) July 24, 2020 (Special Meeting) Key Actions for Establishing Fiscal 2020 Compensation • Reviewed structure and goals for annual cash incentive awards and long-term equity incentive awards and deferred approval of the awards to a subsequent meeting. • Reviewed and approved the 2020 LTIP for approval by shareholders at the 2020 annual meeting. • Reviewed goals for the 2018 and 2019 PSUs based 50% each on EPS and ROIC and deferred approval of the goals to a subsequent meeting. • Reviewed base salary, target annual cash incentive levels, and long-term equity incentive award levels for fiscal 2020 for the CEO and Leadership Team (including the named executive officers) and determined that no increases would be made to any of the compensation elements for the CEO or Leadership Team. • Reviewed a market update of observed and anticipated COVID-19 impacts to compensation programs provided by the Committee’s compensation consultant. • Bifurcated the fiscal 2020 plan year for annual cash incentive compensation purposes and established the discretionary bonus based on effective management and leadership through the crisis, including goals related to health and safety, business continuity, cash and liquidity management, and internal and external communication, during the first half of fiscal 2020. • Deferred establishment of the corporate performance-based award until August 2020 to be based on our adjusted operating profit and comparable sales in fiscal 2020. • Reviewed potential alternatives to the typical grant of 60% PSUs and 40% RSUs and deferred approval to a subsequent meeting. • Approved a structure for awarding fiscal 2020 long-term equity incentive awards, consisting of PRSUs (50% weighting) and RSUs (50% weighting) for the CEO and Leadership Team, including performance goals and vesting terms. • Approved the grant of awards under the approved structure above by applying a 20% premium to the grant date share price used to convert the grant value to the number of units granted. • Reviewed an update on the Company’s financial performance and management’s progress on goals under the discretionary cash incentive award. 34 Committee Meeting Date August 26, 2020 (Regular Meeting) Key Actions for Establishing Fiscal 2020 Compensation • Reevaluated the weighting of the discretionary and objective annual cash incentive award opportunities for fiscal 2020 and approved an increase to the weight of the discretionary award from 20% to 40% and a reduction to the weight of the objective award from 80% to 60%. • Reviewed management’s performance against goals under the discretionary annual cash incentive awards and approved a payout at maximum. • Established criteria for the objective annual cash incentive award opportunity based 80% on an operating income target and 20% on a comparable sales target. • Established 2020 plan year goals for the 2018 and 2019 PSUs, based 50% each on EPS and ROIC. Performance Evaluation Process The Committee and our outside directors generally consider the following objective and subjective factors when evaluating the performance of the members of our Leadership Team: • long-term strategic goals • short-term business goals • profit and revenue goals • expense goals • operating margin improvement • earnings per share growth • capital efficiency metrics • fostering teamwork and other corporate values • optimization of organizational effectiveness and productivity • leadership and the development of talent • the performance of our • comparable store and competitors ecommerce sales growth of the Company compared to the industry • specific business challenges and general economic and market conditions The Committee and the other outside directors do not assign any of these performance factors a specific weight and may consider different factors for each executive. Independent Compensation Consultant The Committee has the authority, in its sole discretion, to retain compensation consultants. In establishing executive compensation for fiscal 2020, the Committee retained Meridian Compensation Partners, LLC (“Meridian”) as its compensation consultant based on its independence, expertise and past service to the Committee. Meridian provided research, data analyses, survey information and design expertise in developing compensation programs for executives and incentive programs for eligible employees. Meridian kept the Compensation Committee apprised of regulatory developments and market trends related to executive compensation practices. Meridian does not determine or recommend the exact amount or form of executive compensation for any of the named executive officers. Representatives of Meridian attended meetings of the Compensation Committee. Peer Compensation Data During the course of establishing our fiscal 2020 executive compensation program, the Committee reviewed compensation data for a group of retailers similar to us with whom we believe we compete for talent (the “Retailer Peer Group”). In selecting the Retailer Peer Group, the Committee considered revenue, gross profit margin, geographic location, market capitalization and number of stores. The companies included in the Retailer Peer Group for fiscal 2020 compensation decisions were: 35 • Abercrombie & Fitch • Burlington Stores • L Brands • Advance Auto Parts • Dick’s Sporting Goods • RH • American Eagle Outfitters • DSW • Ascena Retail Group • Express • Tractor Supply • Urban Outfitters • Bed Bath & Beyond • Foot Locker • Williams — Sonoma As a secondary reference, the Committee also reviewed executive compensation data regarding a broader group of retail companies included in a compensation survey provided by Equilar. We believe it is important to consult both sets of information because the compensation survey for the broader group includes compensation information on more executives and provides a more extensive basis on which to compare the compensation of the Leadership Team members, particularly those Leadership Team members whose responsibilities, experience and other characteristics are not directly comparable to the executives included in the publicly-available reports of the Retailer Peer Group. The Committee and our human resources department reviewed each Leadership Team member’s responsibilities and compared, where possible, the total direct compensation (which includes salary, annual incentive award at target and equity awards) levels for our Leadership Team members to the total direct compensation of similarly situated executives within the peer groups. As discussed in this CD&A, we determine compensation subjectively based on numerous factors. We do not benchmark or target our compensation at any particular level in relation to the compensation of the peer groups. Rather, the peer group data provides a point of reference and market check. COMPONENTS OF OUR 2020 EXECUTIVE COMPENSATION PROGRAM Base Salary The Committee annually reviews and establishes the base salary for each named executive officer. The Committee determines adjustments to the base salaries of our named executive officers based on each executive’s performance, experience, scope of responsibilities and base salary in comparison to our other employees and similarly positioned executives in our Retailer Peer Group and the anticipated future contributions of the executive. For fiscal 2020, the Committee approved the following salaries for the named executive officers, which were unchanged from fiscal 2019, except in the case of Mr. Pestello, who joined the Company in July 2020. To help fund the Company’s Employee Assistance Fund to provide aid to Big Lots associates affected by COVID-19, each member of the Company’s senior management, including each of the named executive officers, voluntarily relinquished 10% of their base salary in each pay period in April, May, and June. Name Fiscal 2020 Established Salary ($) Fiscal 2020 Relinquished Salary ($) Fiscal 2020 Paid Salary ($) Mr. Thorn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Ramsden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Schlonsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Robins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Pestello* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Bachmann** . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,100,000 $ 700,000 $ 513,600 $ 500,000 $ 320,000 $ 484,169 $27,500 $17,500 $12,840 $12,500 $ 0 $19,669 $1,072,500 $ 682,500 $ 500,760 $ 487,500 $ 320,000 $ 464,500 (*) Mr. Pestello was appointed as our Executive Vice President, Chief Merchandising Officer effective July 27, 2020. (**) Ms. Bachmann’s employment as our Executive Vice President, Chief Merchandising and Operating Officer ended on September 4, 2020. 36 Annual Cash Incentive Awards Each of our named executive officers participates in our annual cash incentive award program. Historically, the amount of the annual cash incentive award earned by each named executive officer has been based entirely on our annual corporate performance. As a result of the lack of business visibility resulting from the COVID-19 pandemic and our related inability to establish realistic performance goals until the second half of the year, the Committee, with input from the other outside directors, restructured our annual cash incentive award program by bifurcating the award for fiscal 2020 into (1) a discretionary award based on effective management and leadership through the crisis, including goals related to health and safety, business continuity, cash and liquidity management, and internal and external communication, during the first half of fiscal 2020 and (2) an objective corporate performance-based award similar to the annual cash incentive awards we have granted to our executives in recent fiscal years based on our adjusted operating profit and comparable sales in fiscal 2020. In March 2020, the Committee and the other outside directors weighted each executive’s total annual cash incentive award 20% for the discretionary award and 80% for the corporate performance-based award. In August 2020, the Committee and the other outside directors revised the weighting of each executive’s total annual cash incentive award to 40% for the discretionary award and 60% for the corporate performance-based award due to our strong performance during the first half of fiscal 2020. With respect to both awards under our annual cash incentive award program for fiscal 2020, the Committee (1) selected performance measures and criteria, (2) established threshold, target and maximum performance goals for each performance measure and criterion and (3) established for each named executive officer a percentage of base salary that is earned at the threshold, target and maximum performance levels (with linear interpolation between the specified payout percentages). No annual cash incentive award is earned if we do not meet the applicable threshold performance goal. See the “Bonus and Equity Plans” discussion following the Summary Compensation Table for more information regarding our annual cash incentive awards. Fiscal 2020 Discretionary Annual Cash Incentive Award In March 2020, the Committee and the other outside directors selected health and safety, business continuity, cash and liquidity management, and internal and external communication as the performance criteria for the discretionary annual incentive award. In July 2020, the Compensation Committee evaluated the extent to which management satisfied each performance criteria using a scale of fail, underperform, meets and exceeds, which would result in the executive earning an award below threshold, at threshold, at target and at maximum, respectively. In August 2020, the Compensation Committee determined, based on various actions taken and results achieved by management during the first half of fiscal 2020, that management’s performance achieved an exceeds rating for the discretionary annual incentive award and, as a result, each of our named executive officers earned a maximum payout under the discretionary annual incentive award for fiscal 2020. The Compensation Committee and the other outside directors also authorized the payment of the discretionary annual incentive award to our named executive officers promptly after their approval of the award in August 2020. The following table sets forth for fiscal 2020 the payout percentage under the discretionary annual incentive award established for each named executive officer for each performance level (the lower payout percentages applicable to the award for Mr. Pestello are attributable to his partial year of service): Payout Percentage (% of salary) Fiscal 2020 Performance Levels Mr. Thorn Mr. Ramsden Mr. Schlonsky Mr. Robins Mr. Pestello Ms. Bachmann Below Threshold . . . . . . . . . . . . . . . Threshold . . . . . . . . . . . . . . . . . . . . Target . . . . . . . . . . . . . . . . . . . . . . 0 25% 50% Maximum . . . . . . . . . . . . . . . . . . . 100% 0 12% 24% 48% 0 12% 24% 48% 0 12% 24% 48% 0 0.4% 0.8% 1.6% 0 12% 24% 48% 37 The following table sets forth the payout percentage achieved and the discretionary annual incentive award earned by each named executive officer for fiscal 2020 (the awards earned by Mr. Pestello and Ms. Bachmann were prorated based on their period of service): Name Payout Percentage (% of salary) Annual Cash Incentive Award ($) Mr. Thorn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Ramsden . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Schlonsky . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Robins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Pestello . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Bachmann . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 48% 48% 48% 1.6% 28.5% $1,100,000 $ 336,000 $ 246,528 $ 240,000 $ 10,127 $ 224,101 Fiscal 2020 Objective Corporate Performance-Based Annual Cash Incentive Award In March 2020, the Committee deferred establishing criteria for the objective corporate performance- based incentive award until the second half of the fiscal year when there would be greater visibility to a financial forecast after the COVID-19 pandemic. In August 2020, the Committee selected adjusted operating profit (weighted 80%) and comparable sales (weighted 20%) as the performance measures for the objective annual incentive award for fiscal 2020. The Committee selected adjusted operating profit as the primary performance measure because they believe it represents a key indicator of the strength of our operating results and financial condition and incentivizes the participants in our annual cash incentive award program to achieve strong earnings growth. The Committee selected comparable sales as the other performance measure because continued comparable sales growth was a key component of the Company’s growth strategy under Operation North Star. The Compensation Committee established the performance goals for the adjusted operating profit and comparable sales performance measures in August 2020 based on management’s projected results for fiscal 2020 and the second half of fiscal 2020 and the potential challenges to our business in the second half of fiscal 2020 relating to sales pulled forward into the first half of fiscal 2020 as a result of stimulus payments, potential inventory constraints and holiday season shopping disruptions, as well as the continued additional unknown impacts of the COVID-19 pandemic. The Compensation Committee set the threshold, target and maximum adjusted operating profit performance goals for fiscal 2020 at a level that would require us to increase our adjusted operating profit in fiscal 2020 by 3.5%, 8.1% and 72%, respectively, compared to fiscal 2019. The threshold, target and maximum comparable sales performance goals established by the Compensation Committee for fiscal 2020 would require us to increase our comparable sales by 9.9%, 11.6% and 13.4%, respectively, compared to fiscal 2019. The following table sets forth for fiscal 2020 the adjusted operating income performance goal established for each performance level and the payout percentage established for each named executive officer for each performance level (the lower payout percentages applicable to the award for Mr. Pestello are attributable to his partial year of service): Payout Percentage (% of salary) Fiscal 2020 Performance Levels Performance Goal ($) Mr. Thorn Mr. Ramsden Mr. Schlonsky Mr. Robins Mr. Pestello Ms. Bachmann Below Threshold . . . 0-$215,000,000 $215,000,000 Threshold . . . . . . . . $225,000,000 Target . . . . . . . . . . . 0 30% 60% Maximum . . . . . . . . $357,000,000 120% 0 14.4% 28.8% 57.6% 0 14.4% 28.8% 57.6% 0 14.4% 28.8% 57.6% 0 12.1% 24.2% 48.4% 0 14.4% 28.8% 57.6% 38 The following table sets forth for fiscal 2020 the comparable sales performance goal established for each performance level and the payout percentage established for each named executive officer for each performance level (the lower payout percentages applicable to the award for Mr. Pestello are attributable to his partial year of service): Performance Payout Percentage (% of salary) Fiscal 2020 Performance Levels Goal (%) Mr. Thorn Mr. Ramsden Mr. Schlonsky Mr. Robins Mr. Pestello Ms. Bachmann Below Threshold . . . . . . . 0-9.9% Threshold . . . . . . . . . . . Target . . . . . . . . . . . . . . Maximum . . . . . . . . . . . 9.9% 11.6% 13.4% 0 7.5% 15% 30% 0 3.6% 7.2% 14.4% 0 3.6% 7.2% 0 3.6% 7.2% 0 3% 6% 14.4% 14.4% 12% 0 3.6% 7.2% 14.4% To calculate the amount of the objective performance-based annual incentive award for fiscal 2020 earned under the 2019 Bonus Plan, if any, we first calculate the applicable financial measure for purposes of our financial statements. We then adjust the measure to eliminate the effect of selective events, transactions or accrual items. The Committee approves such adjustments at the same time it establishes the corporate performance goals and annual incentive award payout percentages applicable to the award. These adjustments may increase or decrease the corporate performance amount achieved. Consistent with prior years, the Committee exercised negative discretion to reduce the corporate performance amount achieved with respect to the objective performance-based incentive awards to exclude certain accrual items, such as the gain on the sale-leaseback of the Company’s four owned distribution centers in June 2020, which would have otherwise increased such amount. The Committee decided to exclude these accrual items principally because they were either anticipated as part of the corporate operating plan for fiscal 2020 upon which the financial measure and corporate performance goals were established or because of their potential outsized effect on operating income, and not because of any corporate or individual performance factors. Notwithstanding the exercise of such negative discretion, the Company achieved maximum payout against the objective performance-based incentive award for fiscal 2020 as a result of the Company’s achievement of adjusted operating profit and comparable sales of $410.8 million and 16.1%, respectively, for fiscal 2020. The following table sets forth the payout percentage achieved and the objective corporate performance- based incentive award earned by each named executive officer for fiscal 2020 (the awards earned by Mr. Pestello and Ms. Bachmann were prorated based on their period of service): Name Mr. Thorn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Ramsden . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Schlonsky . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Robins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Pestello . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Bachmann . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-Term Equity Incentive Compensation Payout Percentage (% of salary) Annual Cash Incentive Award ($) 150% 72% 72% 72% 60% 43% $1,650,000 $ 504,000 $ 369,792 $ 360,000 $ 386,532 $ 336,152 The Committee awarded PRSUs and RSUs to each of our named executive officers in April 2020. Each named executive officer received 50% of their equity awards in the form of PRSUs and 50% in the form of RSUs, instead of 60% in the form of PSUs and 40% in the form of RSUs that we awarded to our named executive officers in recent fiscal years prior to fiscal 2020. All of these awards were granted utilizing a 20% premium to the grant date share price so that each award was granted at a value of approximately 80% of the typical annual long-term equity incentive compensation awards to the named executive officers. The Committee determined the value of the equity awards granted to our named executive officers, and the allocation of the equity awards between PRSUs and RSUs, based on: 39 • the uncertainty of the impacts of the COVID-19 pandemic on our performance and the short-term and long-term market price of our Common Shares; • the lack of business visibility resulting from the COVID-19 pandemic and our related inability to establish realistic performance goals until the second half of the year for the performance measures that have applied to the PSUs granted in previous fiscal years; • management’s estimate of the number of Common Shares underlying the equity awards to be granted during fiscal 2020; • comparative compensation data; • individual performance; • the executive’s level of responsibility; • the potential impact that the executive could have on our operations and financial condition; • the market price of our Common Shares; and • the recommendations for the value of the equity awards granted to the other named executive officers. The Committee did not utilize a particular formula in making these determinations, although individual performance and the executive’s role and responsibility were the most significant factors in determining the value of the equity awards granted to our named executive officers in fiscal 2020. See “Performance Evaluation Process” above for more information regarding how we evaluate performance. PRSUs and RSUs are settled in our Common Shares. Any PRSUs or RSUs that do not vest will be forfeited. The PRSUs and RSUs do not have voting rights. PRSUs and RSUs include a dividend-equivalent right, which represents the right to receive the equivalent of any cash dividends payable with respect to our Common Shares underlying the awards. Any cash dividends will accrue without interest and will vest and be paid only at the time the corresponding PRSUs or RSUs vest. Any accrued cash dividends relating to PRSUs or RSUs that do not vest will be forfeited. Fiscal 2020 PRSU Awards In connection with its equity award process for fiscal 2020, the Committee decided to continue to grant equity awards to our named executive officers early in the year to motivate and incentivize executive performance throughout the year. The Committee decided to award PRSUs to our named executive officers in fiscal 2020, instead of the PSUs it awarded to our named executive officers in fiscal 2019 and fiscal 2018, due to the lack of business visibility resulting from the COVID-19 pandemic, and our related inability to establish realistic performance goals until the second half of the year. The Committee determined the number of PRSUs awarded to our named executive officers in fiscal 2020 by applying a 20 percent premium to the closing price of our Common Shares on the grant date in an effort to impose appropriate limits on the potential dilution of our Common Shares and to acknowledge the decline in the price of our Common Shares following the onset of the COVID-19 pandemic The PRSUs awarded to our named executive officers vest 33-1/3% upon the closing price of our Common Shares equaling or exceeding the following thresholds for 20 consecutive trading days on or before the third anniversary of the grant date: (1) $17.00 (an increase of approximately 7% above the price of our Common Shares on the grant date); (2) $21.00 (an increase of approximately 33% above the price of our Common Shares on the grant date); and (3) $25.00 (an increase of approximately 58% above the price of our Common Shares on the grant date). PRSUs do not have the ability to be earned above target as is the case with our historical PSUs. As a result of our Common Shares trading above $25.00 for 20 consecutive trading days during fiscal 2020, the PRSUs awarded to our named executive officers fully vested on the first anniversary of the grant date although the underlying Common Shares may not be sold until the third anniversary of the grant date. Fiscal 2020 RSU Awards The Committee determined the number of RSUs awarded to our named executive officers in fiscal 2020 (other than the RSUs awarded to Mr. Pestello, which were granted to him in August 2020 in connection 40 with his hiring) by applying a 20 percent premium to the closing price of our Common Shares on the grant date in an effort to impose appropriate limits on the potential dilution of our Common Shares and to acknowledge the decline in the market price of our Common Shares following the onset of the COVID-19 pandemic. The RSUs awarded to our named executive officers vest ratably over three years from the grant date of the award and, are subject to (1) the participant remaining employed by us through each annual vesting date and (2) an operating profit performance component that requires us to earn at least one dollar in operating profit for the fiscal year in which the grant date occurs or in either of the two fiscal years immediately thereafter. As a result of our performance in fiscal 2020, the performance requirement for the fiscal 2020 RSU awards was met. Accordingly, one-third of the RSU awards for fiscal 2020 vested on the second trading day after we filed our Current Report on Form 8-K with the SEC reporting the satisfaction of the performance requirement. The following table sets forth the number and grant value of the PRSUs awarded to the named executive officers in fiscal 2020 (Mr. Pestello did not receive a PRSU award in fiscal 2020 and Ms. Bachmann’s PRSU award terminated with her employment in fiscal 2020), the number and grant value of the RSUs awarded to the named executive officers in fiscal 2020 (Ms. Bachmann’s RSU award was prorated due to her termination of employment) and the total grant value of the PRSUs and the RSUs awarded to our named executive officers in fiscal 2020. Name Number of PRSUs Mr. Thorn . . . . . . . . . . 115,911 Mr. Ramsden . . . . . . . . Mr. Schlonsky . . . . . . . Mr. Robins . . . . . . . . . . Mr. Pestello . . . . . . . . . 41,491 30,442 29,636 — Grant Value of PRSUs $1,833,712 $ 656,388 $ 481,592 $ 468,842 — Ms. Bachmann . . . . . . . 46,634 $ 737,750 Number of RSUs Grant Value of RSUs Total Grant Value of PRSUs and RSUs 115,911 41,491 30,442 29,636 22,577 46,634 $1,833,712 $ 656,388 $ 481,592 $ 468,842 $1,129,979 $ 737,750 $3,667,424 $1,312,775 $ 963,184 $ 937,684 $1,129,979 $1,475,500 PSU Award Process for Fiscal 2019 and Fiscal 2018 In Fiscal 2019 and Fiscal 2018, the Committee awarded a target number of PSUs to our named executive officers subject to (1) the attainment of performance goals applicable to specified performance measures during a three-year performance cycle consisting of three annual service periods and (2) the named executive officer’s continued employment through the end of the performance cycle. To calculate the attainment of the performance goals, we first calculate the applicable performance measures derived from our financial statements and then adjust the performance measures to eliminate the effect of selected events, transactions or accrual items described in the 2017 LTIP and approved by the Committee when it establishes the performance goals. These adjustments may increase or decrease the amount achieved for the performance measure. The Committee establishes the performance measures for each performance cycle at the beginning of each performance cycle (EPS and ROIC in the case of both the Fiscal 2019 PSU awards and the Fiscal 2018 PSU awards) and has historically established the performance goals for each service period at the beginning of the service period. The Committee did not establish the performance goals applicable to the second service period of the fiscal 2019 PSU award performance cycle and the last service period of the 2018 PSU award performance cycle until August 2020 due to the lack of business visibility resulting from the COVID-19 pandemic and our related inability to establish realistic performance goals until the second half of the year. The following table sets forth the performance goals established by the Committee for each performance measure for fiscal 2020 and the actual amount of each performance measure in fiscal 2020: Performance Measure Weighting Target Actual EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% $4.06 $7.64 ROIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% 15.3% 23.6% 41 Fiscal 2019 PSU Awards For the fiscal 2019 PSU awards, a percentage of the target number of PSUs (i.e., the vesting factor) vests based on our average attainment of the performance goals applicable to the performance measures during the three-year performance cycle (with linear interpolation between the performance levels) as described in the following chart: Performance Level 3-Year Average Performance Attainment Vesting Factor Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80% 100% 120% 50% 100% 150% The following table sets forth the target number and grant value of the PSUs awarded to the named executive officers in fiscal 2019 (Mr. Pestello was not employed by the Company during fiscal 2019 and Ms. Bachmann’s 2019 PSU award terminated with her employment in fiscal 2020) and the performance attained for each performance measure during each completed service period in the fiscal 2019 PSU award performance cycle: Name Target Number of PSUs Grant Value of PSUs Mr. Thorn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Ramsden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Schlonsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Robins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,528 20,770 19,049 17,573 $2,640,019 $ 472,518 $ 693,384 $ 639,657 Fiscal 2019 PSU Award Performance Cycle Attainment (2019 – 2021) EPS ROIC Actual Results Target Performance Goal Performance % Actual Results Target Performance Goal Performance % Fiscal 2019 $3.69 $3.72 99.2% 13.9% 14.7% 94.8% Fiscal 2020 $7.64 $4.06 188.2% 23.6% 15.3% 154.3% Fiscal 2021 TBD TBD TBD TBD TBD TBD Fiscal 2018 PSU Awards For the fiscal 2018 PSU awards, a percentage of the target number of PSUs (i.e., the vesting factor) vests based on our average attainment of the performance goals applicable to the performance measures during the three-year performance cycle (with linear interpolation between the performance levels) as described in the following chart: Performance Level 3-Year Average Performance Attainment Vesting Factor Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% 100% 110% 50% 100% 150% The following table sets forth the target number and grant value of the PSUs awarded to the named executive officers in fiscal 2018 (Mr. Thorn did not receive a PSU award in fiscal 2018, Messrs. Ramsden and Pestello were not employed by the Company during fiscal 2018 and Ms. Bachmann’s 2018 PSU award terminated with her employment in fiscal 2020), the number and value (calculated based on the closing price 42 of our Common Shares on the last trading day of fiscal 2020) of the PSUs actually earned by the named executive officer under such awards, the vesting factor applicable to such awards and the performance attained for each performance measure during each service period in the fiscal 2018 PSU award performance cycle: Name Target Number of PSUs Grant Value of PSUs Number of PSUs Earned Value of PSUs Earned Vesting Factor Mr. Schlonsky . . . . . . . . . . . . . . . . Mr. Robins . . . . . . . . . . . . . . . . . . . 14,214 11,656 $673,175 $552,028 20,738 17,006 $1,237,644 $1,014,918 145.9% 145.9% EPS Fiscal 2018 PSU Award Performance Cycle Attainment (2018 – 2020) Actual Results Target Performance Goal Fiscal 2018 $3.91 $4.90 Fiscal 2019 $3.69 $3.72 Fiscal 2020 $7.64 $4.06 Performance % 79.8% 99.2% 188.2% EPS 3-year average performance: 122.4% (150% vesting factor) ROIC Actual Results Target Performance Goal Performance % 17.5% 23.0% 76.0% 13.9% 14.7% 94.8% 23.6% 15.3% 154.3% ROIC 3-year average performance: 108.4% (141.8% vesting factor) Personal Benefits and Perquisites We provide our named executive officers with certain benefits that are available to nearly all salaried employees, including paid group term life insurance equal to one and a half times base salary, matching contributions to our Savings Plan, and medical and dental insurance. We generally provide the following limited personal benefits and perquisites to employees at or above the vice president level: (1) coverage under the Big Lots Executive Benefit Plan (“Executive Benefit Plan”); (2) enhanced long-term disability insurance coverage; and (3) payment of an automobile allowance. We believe these personal benefits and perquisites, although immaterial to us in amount, are an important element of total compensation because of the value our executives place on these benefits. Our Executive Benefit Plan reimburses executives for health-related costs incurred but not covered under our Big Lots Associate Benefit Plan, up to an annual maximum reimbursement of $40,000 per family. Amounts received by named executive officers under the Executive Benefit Plan are treated as taxable income, and we reimburse each executive the approximate amount of his or her income tax liability relating to the benefits received under the Executive Benefit Plan. We offer short-term disability coverage to all full-time employees and long-term disability coverage to all salaried employees. The benefits provided under the long-term disability plan are greater for our named executive officers than for employees below the vice president level. Under the enhanced long-term disability coverage, a named executive officer may receive 67% of his or her monthly salary, up to $25,000 per month, until the executive is no longer disabled or turns 65, whichever occurs earlier. We pay the premiums for this long-term disability coverage and also reimburse our named executive officers for any income taxes resulting from our payment of such premiums. In June 2020, in light of concerns regarding commercial travel through the COVID-19 pandemic and the fact that Mr. Thorn maintained a residence in Arizona, where members of his immediate family continued to reside, the Board resolved to strongly encourage Mr. Thorn to use the Company’s business relationship with NetJets for personal and business travel through the remainder of fiscal 2020 and agreed to cover up to three round-trip domestic trips on NetJets during such period. The total incremental cost of Mr. Thorn’s personal use of NetJets in fiscal 2020 was $105,214. In March 2020, in order to attend to pressing business 43 matters and avoid the risk of COVID-19 travel restrictions, Mr. Ramsden utilized the Company’s relationship with NetJets to transport himself and his family home from a vacation outside the United States several days prior to his scheduled commercial flight. With the approval of the Committee, the Company reimbursed Mr. Ramsden for the expense he incurred in connection with the NetJets flight, net of the cost of the unused return commercial flights, in the amount of $26,584. Post-Termination and Change in Control Arrangements The senior executive severance agreements described below in “Agreements with Named Executive Officers” provide our named executive officers with potential severance and change in control payments and benefits. Our equity compensation plans and related award agreements also provide for the accelerated vesting of outstanding equity awards, including PSUs and RSUs, in connection with certain termination events. The change in control provisions of the severance agreements provide the named executive officer certain cash payments and other benefits upon a change in control only if the executive is terminated in connection with the change in control (including a constructive termination). The Committee believes that this “double trigger” structure incentivizes our executive officers to remain objective in connection with, and not be distracted by the personal uncertainties and risks created by, an actual or proposed change in control. While the Committee considers the potential payments upon termination or change in control annually when it establishes compensation for the applicable year, this information is not a primary consideration in setting salary, bonus payout percentages or equity compensation amounts. See “Potential Payments Upon Termination or Change in Control” below for a discussion of the compensation that may be paid to our named executive officers in connection with a change in control or the termination of employment. AGREEMENTS WITH NAMED EXECUTIVE OFFICERS Senior Executive Severance Agreements We entered into a separation agreement with Ms. Bachmann in connection with the termination of her employment. The separation agreement provides Ms. Bachmann with the following severance benefits: • a cash payment equal to $1,573,550 less applicable withholdings payable in regular installments until the end of the post-termination restriction period; • a cash payment equal to a prorated portion of the annual incentive award that she would have earned for fiscal 2020 had her employment not terminated; • a cash payment of $25,000 for outplacement assistance; • continued coverage under our health plans until the last day of the calendar month in which the post- termination restriction period ends, plus the amount necessary to reimburse Ms. Bachmann for the taxes she would be liable for as a result of such continued coverage; and • prorated vesting of all unvested, outstanding RSU awards granted to Ms. Bachmann. The payment of these severance benefits is subject to Ms. Bachmann’s continuing compliance with the restrictive covenants set forth in the Severance Plan and her release of claims against the Company. We have entered into a senior executive severance agreement with each of Messrs. Thorn, Ramsden, Schlonsky, Robins and Pestello and several other key officers who are not parties to an employment agreement. The senior executive severance agreements expire on the first anniversary of the date of execution and automatically renew for an additional year unless we provide the executive at least 30 days’ notice of non- renewal. The senior executive severance agreements provide for the following severance benefits if, within 24 months after a change in control, the executive is terminated by us (other than for cause) or as a result of a constructive termination: (1) a lump-sum payment equal to 200% of the executive’s then current annual salary and target annual incentive award; (2) a lump-sum payment equal to executive’s target bonus prorated for the number of days the executive worked during the applicable performance period prior to 44 the executive’s termination; and (3) for a period of two years, the executive is entitled to participate in any group life, hospitalization or disability insurance plan, health program or other executive benefit plan generally available to similarly titled executive officers. The executives are also entitled to reimbursement of legal fees and expenses they incur in seeking to enforce their rights under the agreement. The senior executive severance agreements do not provide a gross-up payment to any participants to offset any Excise Tax. Severance Plan The Board adopted the Severance Plan, which covers each of our named executive officers and several of our other key executives, to provide more uniform severance payments and benefits to our executives, avoid the use of individual severance agreements and ensure that restrictive covenants apply to our key executives. The payments and benefits to which our named executive officers would be entitled to under the Severance Plan (collectively, the “Severance Benefits”) if they are terminated without Cause (as defined in the Severance Plan) or as a result of a Constructive Termination (as defined in the Severance Plan) are described below in the “Potential Payments Upon Termination or Change in Control — Involuntary Termination Without Cause.” The Severance Plan also imposes confidentiality, non-competition, non-solicitation, non-disparagement and post-termination cooperation obligations on participants. The non-competition and non-solicitation obligations apply during the period of employment and continue until the end of the restriction period set forth in the Severance Plan. The Severance Plan does not provide a gross-up payment to any participants to offset any Excise Tax. Retirement Plans We maintain a tax-qualified defined contribution plan (“Savings Plan”). We believe that the Savings Plan is generally commensurate with the retirement plans provided by companies in our peer groups and that providing this plan enhances our ability to attract and retain qualified executives. In December 2020, the Board approved the termination of our non-qualified supplemental defined contribution plan (“Supplemental Savings Plan”). The balances under the Supplemental Savings Plan will be distributed to participants in December 2021 and January 2022. See the “Nonqualified Deferred Compensation — Supplemental Savings Plan” section of this Proxy Statement for a discussion of our retirement plans. OTHER EXECUTIVE COMPENSATION POLICIES AND PRACTICES Minimum Share Ownership Requirements and Hedging and Pledging Prohibition The Board has adopted minimum share ownership requirements for all outside directors and Leadership Team members. These requirements are designed to align the long-term interests of our outside directors and executives with those of our shareholders. Under the requirements, the outside directors and Leadership Team members must own Common Shares having an aggregate value equal to at least the following multiple of his or her Board retainer or salary (as is in effect at the time compliance with the requirements is evaluated), as applicable: Title Multiple of Retainer or Salary Outside Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5x 5x 2.5x 2x Shares counted toward these requirements include Common Shares held directly or through a broker, Common Shares held under the Savings Plan or Supplemental Savings Plan, unvested restricted stock, unvested RSUs, unvested PSUs (at the threshold amount), unvested or vested PRSUs, deferred stock units and vested but unexercised in-the-money stock options. Each member of senior management that is required 45 to meet the minimum share ownership requirements is required to hold 50% of any net (after-tax) shares received until his or her minimum share ownership requirements are met or whenever his or her minimum share ownership requirements are not met. Outside directors and executives must meet the requirements on the first annual testing date for outside directors or executives following the fifth anniversary of their election, hire or promotion, as applicable. Each outside director and executive who has been on the Board or a Leadership Team member for at least five years satisfied our minimum share ownership requirements. In addition to the minimum share ownership requirements, we do not allow our outside directors or Leadership Team members to enter into any hedging, pledging or monetization transactions involving our Common Shares. Anti-Hedging Policy Our insider trading policies prohibit our Leadership Team and members of the Board from engaging in hedging and monetization transactions relating to Company securities, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. Our insider trading policies also prohibit our Leadership Team and members of the Board from holding Company securities in a margin account or otherwise pledging Company securities as collateral for a loan. The Committee has adopted an incentive compensation recoupment policy, commonly referred to as a clawback policy, which applies to all cash and equity incentive-based compensation paid or awarded to an associate (including our named executive officers) on or after March 2017. Under the policy, if we determine that we must prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the U.S. federal securities laws, we will seek to recover, at the discretion of the compensation committee after it has reviewed the facts and circumstances that led to the requirement for the restatement, the amount of erroneously awarded cash and equity incentive-based compensation received by the associate during the three-year period immediately preceding the date on which we are required to prepare the restatement. Equity Grant Timing Pursuant to the terms of the 2017 LTIP and the 2020 LTIP, the grant date of equity awards must be the later of the date the terms of the award are established by corporate action or the date specified in the award agreement. In fiscal 2020, the Committee specified that the grant date of the equity awards was April 6, 2020. This date was somewhat later than the grant dates in prior years (typically in March), reflecting additional deliberation by the Compensation Committee in the highly unusual circumstances of the emerging COVID-19 pandemic. For equity awards made throughout the fiscal year, which generally are made as a result of a hiring or promotion, the grant date is the 15th day of the month following the month of the hire or promotion date. We have no policy of timing the grant date of equity awards with the release of material non-public information, and we have not timed the release of material non-public information for the purpose of affecting the value of any equity awards. Tax and Accounting Considerations The Committee reviews and considers the impact that tax laws and accounting regulations may have on the executive compensation awards, including the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “IRC”). In doing so, the Committee relies on guidance from members of our finance and legal departments, as well as outside accountants and attorneys. Section 162(m) generally does not allow a tax deduction to publicly-held companies for compensation over $1 million paid in any fiscal year to certain current and former executive officers of the Company. However, prior to December 2017, when the Tax Cuts and Jobs Act (“Tax Act”) was enacted into law, Section 162(m) exempted qualified performance-based compensation from this $1 million limit if certain requirements were met. Historically, the Committee had structured the annual cash incentives and performance-based compensation awarded to covered employees in a manner intended to meet the exception from Section 162(m)’s deduction limits. 46 The Tax Act eliminated the qualified performance-based exception to the $1 million deduction limit and subjects all compensation paid to the chief executive officer, the chief financial officer and the next three highest paid officers whose compensation is required to be reported in the Summary Compensation Table of the proxy statement for 2018 and beyond (each, a “Covered Employee”). Once an individual becomes a Covered Employee, that individual will remain a Covered Employee for all subsequent years. The Tax Act includes a grandfathering provision for compensation paid pursuant to a written binding contract in effect on or before November 2, 2017 that has not been modified in any material way since that date. Based on current guidance, we believe our equity awards granted on and prior to November 2, 2017 comply with the grandfathering provision and will remain deductible. However, equity awards granted after November 2, 2017 will likely be subject to the limitations on deductibility under Section 162(m). Prior to 2019, we granted short-term annual cash incentive awards to our named executive officers under the 2006 Bonus Plan. Beginning with the 2019 fiscal year, we granted short-term annual cash incentive awards to our named executive officers under the 2019 Bonus Plan. Historically, we intended annual cash incentive awards issued to covered employees under the 2006 Bonus Plan to qualify for the performance- based compensation deduction allowed by Section 162(m). Although we still intend to grant performance- based annual compensation opportunities, amounts paid pursuant to the 2019 Bonus Plan are subject to the limitations on deductibility under Section 162(m). COMPENSATION COMMITTEE REPORT The Compensation Committee reviewed and discussed the above CD&A with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this Proxy Statement and our Annual Report on Form 10-K for fiscal 2020 (“Form 10-K”). Members of the Compensation Committee Nancy A. Reardon (Chair) Cynthia T. Jamison Thomas A. Kingsbury Marla C. Gottschalk Christopher J. McCormick 47 Summary Compensation Table for Fiscal 2020 Name and Principal Position(1) (a) Bruce K. Thorn, President and Chief Executive Officer(8) Jonathan E. Ramsden, Executive Vice President, Chief Financial and Administrative Officer(9) Michael A. Schlonsky, Executive Vice President, Chief Human Resources Officer Ronald A. Robins, Jr., Executive Vice President, Chief Legal and Governance Officer, General Counsel and Corporate Secretary Year (b) Salary ($)(2) (c) Bonus ($)(3) (d) Stock Awards ($)(4) (e) Non-Equity Incentive Plan Compensation ($)(5) (g) 2020 1,072,500 — 3,667,424 2,750,000 2019 1,100,000 — 4,399,996 976,113 2018 2020 2019 2020 2019 2018 2020 2019 2018 359,615 500,000 2,999,992 682,500 336,539 — 1,312,775 — 937,506 500,760 513,600 511,008 487,500 481,358 471,412 — 963,184 — 1,155,591 — 1,620,517 — 937,684 — 1,066,047 — 1,379,975 — 840,000 177,519 616,320 218,763 — 600,000 212,970 — Jack Pestello, 2020 320,000 — 1,129,979 396,659 Executive Vice President, Chief Merchandising Officer(10) Lisa M. Bachmann, Former Executive Vice President, Chief Merchandising and Operating Officer(11) 2020 2019 2018 464,500 786,775 782,807 — 1,475,500 — 1,770,241 — 3,269,227 560,253 335,119 — Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (h) — — — — — — — — — — — — — — — All Other Compensation ($)(6)(7) (i) Total ($) (j) 235,716 7,725,640 71,721 6,547,830 47,725 3,907,332 87,007 2,922,282 28,997 1,480,561 133,396 2,213,660 139,672 2,027,626 135,267 2,266,792 115,152 2,140,336 96,540 1,856,915 84,277 1,935,664 43,485 1,890,123 1,769,042 4,269,295 196,835 3,088,970 235,106 4,287,140 (1) We are a party to a separation agreement with Ms. Bachmann and a senior executive severance agreement with Mr. Thorn, Mr. Ramsden, Mr. Schlonsky, Mr. Robins and Mr. Pestello, the material terms of which are described in the “Agreements with Named Executive Officers — Senior Executive Severance Agreements” section of the CD&A. We are a party to an executive severance plan with each of our named executive officers, the material terms of which are described in the “Agreements with Named Executive Officers — Severance Plan” section of the CD&A. (2) The amounts in this column reflect the salary earned by each named executive officer for fiscal 2020, fiscal 2019 and fiscal 2018. (3) The amount in this column reflects the one-time bonus paid by the Company to Mr. Thorn upon the commencement of his employment with the Company. (4) The amounts in this column reflect the sum of (i) the grant date fair value of the RSUs, as determined in accordance with ASC 718, awarded to Mr. Pestello in fiscal 2020 under the 2020 LTIP and to the other named executive officers in fiscal 2020, fiscal 2019 and fiscal 2018 under the 2017 LTIP and (ii) the estimated fair value of the PRSUs awarded to the named executive officers in fiscal 2020 under the 2017 LTIP and the PSUs awarded to the named executive officers in fiscal 2019 and fiscal 2018 under the 2017 LTIP. These amounts do not represent the actual amounts that will be realized by the Named Executive Officers with respect to such awards. Assumptions used in the calculation of these amounts are included in Note 7 to the Company’s audited consolidated financial statements for the fiscal year ended January 30, 2021, included in the Form 10-K. (5) The amounts in this column reflect annual incentive awards earned under the 2019 Bonus Plan for performance during fiscal 2020 and fiscal 2019. 48 (6) For fiscal 2020, the amounts in this column include the following compensation for the executives, as more fully described in the table included with this footnote: i. The reimbursement of taxes related to our payment of healthcare costs, including costs covered by the Executive Benefit Plan, long-term disability insurance premiums, and relocation expenses; ii. Matching contributions made by Big Lots pursuant to the Savings Plan and the Supplemental Savings Plan, both of which are described in the narrative disclosure accompanying the Nonqualified Deferred Compensation table below; iii. Healthcare costs paid by Big Lots pursuant to the Executive Benefit Plan, which is described in the “Components of our Executive Compensation Program — Personal Benefits and Perquisites” section of the CD&A; iv. Premiums paid by Big Lots for life insurance, which is generally available to all full-time employees; v. Premiums paid by Big Lots for long-term disability insurance, which is described in the “Components of our Executive Compensation Program — Personal Benefits and Perquisites” section of the CD&A; vi. The cost to Big Lots associated with the executive’s receipt of a cash allowance in lieu of an automobile; vii. Separation payments made to Ms. Bachmann pursuant to her severance agreement and the executive severance plan; viii. Matching charitable contributions made by Big Lots; ix. Dividends paid on vested RSU and PSU awards; x. The aggregate incremental cost to Big Lots associated with non-business use of non-commercial aircraft by Messrs. Thorn and Ramsden; and xi. Payments made to Mr. Pestello to reimburse him for expenses he incurred in connection with his relocation to Columbus, Ohio. Name Mr. Thorn Mr. Ramsden Mr. Schlonsky Mr. Robins Mr. Pestello Ms. Bachmann Reimbursement of Taxes ($) . . . . . . . . . 7,538 3,628 8,728 5,905 13,129 16,688 Big Lots Contributions to Defined Contribution Plans ($) . . . . . . . . . . . 11,400 11,400 11,400 11,400 — 11,400 Big Lots Paid Health Care under Executive Benefits Plans ($) . . . . . . . . 7,584 6,826 18,529 12,049 1,343 19,109 Big Lots Paid Life Insurance Premiums ($) . . . . . . . . . . . . . . . . . 775 775 599 583 Big Lots Paid Long-Term Disability Insurance Premiums ($) . . . . . . . . . . 1,501 1,501 1,501 1,501 372 625 Use of Automobile or Automobile Allowance ($) . . . . . . . . . . . . . . . . . 13,200 13,200 13,200 13,200 6,600 Severance Expenses ($) . . . . . . . . . . . . — — Matching Charitable Contributions ($) . . 15,000 15,000 Dividend Payments ($) . . . . . . . . . . . . 73,504 8,093 Personal Use of Company Aircraft ($) . . . 105,214 26,584 Relocation Expenses ($) . . . . . . . . . . . . — — — 15,000 64,439 — — — 15,000 55,514 — — — — — — 21,415 452 1,001 8,123 1,598,550 15,000 98,719 — — Total . . . . . . . . . . . . . . . . . . . . . . . . 235,716 87,007 133,396 115,152 43,485 1,769,042 (7) We purchase tickets to entertainment and sporting venues for the primary purpose of allowing employees to use such tickets in furtherance of our business. Because we incur no incremental cost if a named executive officer uses such tickets for purposes other than our business, such tickets are not included in the amounts in this column. (8) Mr. Thorn joined Big Lots as our President and CEO on September 30, 2018 and did not serve in any other capacity with Big Lots prior to such date. 49 (9) Mr. Ramsden joined Big Lots as our Executive Vice President, Chief Financial and Administrative Officer on August 5, 2019 and did not serve in any other capacity with Big Lots prior to such date. (10) Mr. Pestello joined Big Lots as our Executive Vice President, Chief Merchandising Officer on July 27, 2020 and did not serve in any other capacity with Big Lots prior to such date. (11) Ms. Bachmann served as our Executive Vice President, Chief Merchandising and Operating Officer until September 4, 2020. Bonus and Equity Plans The amounts reported in the Summary Compensation Table above include awards granted to the named executive officers under the 2019 Bonus Plan, the 2017 LTIP and the 2020 LTIP. Below is a description of the material terms of each plan and the awards made under those plans to our named executive officers, as reflected in the following Grants of Plan-Based Awards in Fiscal 2020 table. Big Lots 2019 Bonus Plan The 2019 Bonus Plan provides for cash compensation paid annually when we meet or exceed pre- established minimum corporate performance amounts under one or more financial measures approved by the Compensation Committee and other non-employee directors at the start of the fiscal year. Whether we achieve the minimum corporate performance amounts is substantially uncertain at the time the corporate performance amounts and financial measures are established. No right to a minimum annual incentive award exists under the 2019 Bonus Plan, and the Compensation Committee has the discretion to cancel or decrease an annual incentive award calculated under the 2019 Bonus Plan. Payments made with respect to a fiscal year were made in the first quarter of the following fiscal year. The annual incentive awards that may be earned under the 2019 Bonus Plan range from the threshold to the maximum annual incentive award payout percentages, and include all amounts in between. The threshold annual incentive award payout percentage is pre-established annually by the Compensation Committee and the other non-employee directors and has historically been one-half of the target annual incentive award payout percentage. The Compensation Committee and the other non-employee directors retain the right to adjust the payout percentages and, in the past, have generally done so as deemed necessary to realign an executive’s annual incentive award opportunity with our compensation philosophy. See the “Components of our Executive Compensation Program — Annual Cash Incentive Awards” section of the CD&A for more information regarding the 2019 Bonus Plan and the awards made under that plan for fiscal 2020. Big Lots 2017 Long-Term Incentive Plan From May 25, 2017 through June 10, 2020, all equity awards granted to our employees and non- employee directors were granted under the 2017 LTIP. The 2017 LTIP authorized the grant of (1) NQSOs, (2) ISOs, (3) SARs, (4) restricted stock, (5) RSUs, (6) deferred stock units, (7) performance shares, (8) PSUs, (9) performance units, (10) cash-based awards, and (11) other stock-based awards. All of our and our affiliates’ employees, outside directors and consultants were eligible to receive Awards under the 2017 LTIP. The RSUs awarded to our named executive officers in fiscal 2020 pursuant to the 2017 LTIP covered a fixed number of RSUs. The RSUs will vest, if at all, ratably over three years from the grant date of the award if the participant remains employed by us through each annual vesting date (except in the case of death, disability, retirement, involuntary termination or constructive termination). These RSUs are also subject to an operating profit performance component that requires us to earn at least one dollar in operating profit for the fiscal year in which the grant date occurs or in either of the two fiscal years immediately thereafter. The PRSUs awarded to our named executive officers in fiscal 2020 pursuant to the 2017 LTIP covered a fixed number of PRSUs. The PRSUs vest 33-1/3% upon the closing price of our Common Shares equaling or exceeding the following thresholds for 20 consecutive trading days on or before the third anniversary of the grant date: (1) $17.00; (2) $21.00; and (3) $25.00. 50 The PSUs awarded to our named executive officers in fiscal 2019 and fiscal 2018 pursuant to the 2017 LTIP covered a target number of PSUs. The PSUs will vest, if at all, after the completion of a three-year performance period, based: (1) 50% on our average EPS performance, excluding selected plan-defined items, for each of the three service periods during the performance period; (2) 50% on our average ROIC performance (net operating profit after-tax divided by invested capital for the fiscal year), excluding selected plan-defined items, for each of the three service periods during the performance period; and (3) on the named executive officer’s continued employment through the end of the performance period (except in the case of death, disability or retirement). The actual number of PSUs that will vest will increase to 150% of the target number if we achieve the maximum performance levels for both of the EPS and ROIC performance goals, and decrease to zero if we fail to meet the minimum performance levels for both of the performance goals. If we achieve the minimum performance levels for both of the EPS and ROIC performance goals, 50% of the target number of PSUs will vest. The percentage of the target number of PSUs that will vest for performance between the threshold and maximum performance levels will increase proportionately from 50% to 150% based on our actual performance. Upon a change in control (as defined in the 2017 LTIP), all awards outstanding under the 2017 LTIP automatically become fully vested. For a discussion of the change in control provisions in Ms. Bachmann’s severance agreement, our senior executive severance agreements and the 2017 LTIP, see the “Potential Payments Upon Termination or Change in Control — Rights Under Post-Termination and Change in Control Arrangements” section below. See the “Components of our Executive Compensation Program — Long-Term Equity Incentive Compensation” section of the CD&A and the “Potential Payments Upon Termination or Change in Control — Rights Under Post-Termination and Change in Control Arrangements” section below for more information regarding the equity awards made under the 2017 LTIP in fiscal 2020. Big Lots 2020 Long-Term Incentive Plan All equity awards granted to our employees and non-employee directors since June 10, 2020 have been granted under the 2020 LTIP. The 2020 LTIP authorized the grant of (1) NQSOs, (2) ISOs, (3) SARs, (4) restricted stock, (5) RSUs, (6) deferred stock units, (7) performance shares, (8) PSUs, (9) performance units, (10) cash-based awards, and (11) other stock-based awards. All of our and our affiliates’ employees, outside directors and consultants were eligible to receive Awards under the 2020 LTIP. The RSUs awarded to our named executive officers in fiscal 2020 pursuant to the 2020 LTIP (which consisted of the RSUs awarded to Mr. Pestello in connection with his hiring) covered a fixed number of RSUs. The RSUs will vest, if at all, ratably over three years from the grant date of the award if the participant remains employed by us through each annual vesting date (except in the case of death, disability, retirement, involuntary termination or constructive termination). In the event of a change in control (as defined in the 2020 LTIP) where the participant incurs a separation of service (as defined in Section 409A of the IRC) within the 30 days before or 24 months following the change in control, all awards outstanding under the 2020 LTIP automatically become fully vested. For a discussion of the change in control provisions in our senior executive severance agreements and the 2020 LTIP, see the “Potential Payments Upon Termination or Change in Control — Rights Under Post- Termination and Change in Control Arrangements” section below. See the “Components of our Executive Compensation Program — Long-Term Equity Incentive Compensation” section of the CD&A and the “Potential Payments Upon Termination or Change in Control — Rights Under Post-Termination and Change in Control Arrangements” section below for more information regarding the equity awards made under the 2020 LTIP in fiscal 2020. 51 Grants of Plan-Based Awards in Fiscal 2020 The following table sets forth each award made to our named executive officers in fiscal 2020 under the 2019 Bonus Plan, the 2017 LTIP and the 2020 LTIP. Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2) Estimated Future Payouts Under Equity Incentive Plan Awards(3) Name (a) Grant Date(1) (b) Threshold ($) (c) Target ($) (d) Maximum ($) (e) Threshold (#) (f) Target (#) (g) Maximum (#) (h) All Other Stock Awards: Number of Shares of Stock or Units (#)(4) (i) All Other Option Awards: Number of Securities Underlying Options (#) (j) Mr. Thorn . . . . . . — 275,000 550,000 1,100,000 — — 412,500 825,000 1,650,000 — — — 4/6/20 4/6/20 — — — — — — 115,911 — — Mr. Ramsden . . . . — 84,000 168,000 336,000 — — 126,000 252,000 504,000 — 4/6/20 4/6/20 — — — — — — — — Mr. Schlonsky . . . . — 61,632 123,264 246,528 — — 92,448 184,896 369,792 — 4/6/20 4/6/20 — — — — — — — — Mr. Robins . . . . . . — 60,000 120,000 240,000 — — 90,000 180,000 360,000 — 4/6/20 4/6/20 — — — — — — — — Mr. Pestello . . . . . . — 2,532 5,064 10,127 — — 99,165 198,330 396,660 — 8/15/20 8/15/20 — — — — — — — — Ms. Bachmann . . . . — 94,313 188,826 377,652 — — 141,620 283,239 566,478 — 4/6/20 4/6/20 — — — — — — — — 46,634 — — — — 41,491 — — — 30,442 — — — 29,636 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 115,911 — — — 41,491 — — — 30,442 — — — 29,636 — — 21,578 999 — — — 46,634 — — — — — — — — — — — — — — — — — — — — — — — — Grant Date Fair Value of Stock and Option Awards ($/ Shr.)(5) (l) — — Exercise or Base Price of Option Awards ($/Sh.) (k) — — — 1,833,712 — 1,833,712 — — — — — — — — — — — — — — — — 656,388 656,388 — — 481,592 481,592 — — 468,842 468,842 — — — 1,079,979 — — — — — 50,000 — — 737,750 737,750 (1) As discussed in the “Compensation Policies & Practices — Equity Grant Timing” section of the CD&A, in fiscal 2020, the Board set the grant date for the PRSU and RSU awards as April 6, 2020 in order to provide the market with more time to absorb and react to our release of material non-public information, and to avoid any suggestion that the Board, the Committee or any employee manipulated the terms of the equity awards. For all other equity awards, the Board set the grant date as the 15th day of the month following the award date. (2) The amounts in columns (c), (d) and (e) of the first row represent our named executive officers’ threshold, target and maximum discretionary annual incentive award levels, respectively, for fiscal 2020 pursuant to the 2019 Bonus Plan. The amounts in columns (c), (d) and (e) of the second row represent our named executive officers’ threshold, target and maximum objective corporate performance-based annual incentive award levels, respectively, for fiscal 2020 pursuant to the 2019 Bonus Plan. These 52 awards are further described in the “Components of our Executive Compensation Program — Annual Cash Incentive Awards” section of the CD&A. (3) The amounts in columns (g) represent PRSUs awarded pursuant to the 2017 LTIP. The PRSUs vest 33-1/3% upon the closing price of our Common Shares equaling or exceeding the following thresholds for 20 consecutive trading days on or before the third anniversary of the grant date: (1) $17.00; (2) $21.00; and (3) $25.00. For more information on PRSUs, see the narrative discussion preceding this table and the “Components of our Executive Compensation Program — Long-Term Equity Incentive Compensation” section of the CD&A. (4) The amounts in column (i) represent RSUs awarded pursuant to the 2017 LTIP and, in the case of the RSUs awarded to Mr. Pestello, the 2020 LTIP, which awards are described in the narrative discussion preceding this table and the “Components of our Executive Compensation Program — Long-Term Equity Incentive Compensation” section of the CD&A. (5) This column represents the full grant date fair value of the RSUs as calculated in accordance with ASC 718 and the estimated fair value of the PRSUs as of the issuance date based on the probable outcome of the performance conditions. Outstanding Equity Awards at 2020 Fiscal Year-End The following table sets forth, as of the end of fiscal 2020, all equity awards outstanding under our equity compensation plans for each named executive officer. Option Awards Stock Awards Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) Number of Shares or Units of Stock That Have Not Vested (#)(1) (g) Market Value of Shares or Units of Stock That Have Not Vested ($)(3) (h) Option Exercise Price ($) (e) Option Expiration Date (f) Number of Securities Underlying Unexercised Options (#) Exercisable (b) Number of Securities Underlying Unexercised Options (#) Unexercisable (c) Name (a) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) (j) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(2) (i) Mr. Thorn . . . . . . . . Mr. Ramsden . . . . . . Mr. Schlonsky . . . . . . Mr. Robins . . . . . . . . Mr. Pestello . . . . . . . Ms. Bachmann . . . . . — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 171,643 10,243,654 188,439 11,246,040 55,186 3,293,500 62,261 3,715,736 42,172 2,516,825 63,705 3,801,914 40,127 22,577 12,175 2,394,779 1,347,395 726,604 58,865 — — 3,513,063 — — (1) The awards reported in column (g) reflect the unvested RSUs awarded to Mr. Pestello in fiscal 2020 under the 2020 LTIP, the unvested RSUs awarded to Mr. Ramsden in fiscal 2020 and fiscal 2019 under the 2017 LTIP and the unvested RSUs awarded to our other named executive officers in fiscal 2020, fiscal 2019 and fiscal 2018 under the 2017 LTIP. The first third of the fiscal 2019 RSU awards and the second third of the fiscal 2018 RSU awards vested during fiscal 2020. For additional information regarding the fiscal 2020 RSU awards, including the vesting terms, see the narrative discussion preceding the Grants of Plan-Based Awards in Fiscal 2020 table and the “Components of our Executive Compensation Program — Long-Term Equity Incentive Compensation” section of the CD&A. (2) The awards reported in column (i) reflect the following: (1) for Mr. Thorn, Mr. Ramsden, Mr. Schlonsky, and Mr. Robins, a PRSU award in fiscal 2020, (2) for Mr. Thorn and Mr. Ramsden, a PSU award in 53 fiscal 2019 (each at target amount); and (3) for Mr. Schlonsky and Mr. Robins, a PSU award in fiscal 2019 and fiscal 2018 (each at the target amount). If we achieve the maximum performance levels applicable to the PSU awards in fiscal 2019, the total number of PSUs that would vest and be earned for such PSU awards would be: (1) 108,792 for Mr. Thorn; (2) 31,155 for Mr. Ramsden; (3) 28,573 for Mr. Schlonsky; and (4) 26,539 for Mr. Robins. The awards reported in column (i) were made pursuant to the 2017 LTIP. The PRSUs awarded to our named executive officers in fiscal 2020 vest 33-1/3% upon the closing price of our Common Shares equaling or exceeding the following thresholds for 20 consecutive trading days on or before the third anniversary of the grant date: (1) $17.00; (2) $21.00; and (3) $25.00. The actual number of PSUs awarded to our named executive officers in fiscal 2019 and fiscal 2018 that will vest and be earned (if any) by each named executive officer is determined after the three-year performance period based: (1) 50% on our average EPS performance, excluding plan-defined items, for each of the three service periods during the performance period; (2) 50% on our average ROIC performance (net operating profit after-tax divided by invested capital for the fiscal year), excluding plan- defined items, for each of the three service periods during the performance period; and (3) on the named executive officer’s continued employment through the end of the performance period (except in the case of death, disability or retirement). (3) The market value was computed by multiplying the number of units or shares by $59.68, the closing price of our Common Shares on January 29, 2021 (the last trading day of fiscal 2020). If we achieve the maximum performance levels applicable to the PSU awards in fiscal 2019, the aggregate market value for such PSU awards would be: (1) $6,492,707 for Mr. Thorn; (2) $1,859,330 for Mr. Ramsden; (3) $1,705,237 for Mr. Schlonsky; and (4) $1,583,848 for Mr. Robins. The fiscal 2020 PRSU awards and the fiscal 2018 PSU awards vested on April 6, 2021 and March 31, 2021, respectively. For additional information on the fiscal 2020 PRSU awards and the fiscal 2018 PSU awards, see the narrative discussion in the “Components of our Executive Compensation Program — Long-Term Equity Incentive Compensation” section of the CD&A. Option Exercises and Stock Vested in Fiscal 2020 The following table reflects all stock option exercises and the vesting of restricted stock held by each of our named executive officers during fiscal 2020. Option Awards Stock Awards Name (a) Number of Shares Acquired on Exercise (#) (b) Value Realized on Exercise ($) (c) Number of Shares Acquired on Vesting (#) (d) Mr. Thorn . . . . . . . . . . . . . . . . . . . . . Mr. Ramsden . . . . . . . . . . . . . . . . . . . Mr. Schlonsky . . . . . . . . . . . . . . . . . . Mr. Robins . . . . . . . . . . . . . . . . . . . . . Mr. Pestello . . . . . . . . . . . . . . . . . . . . Ms. Bachmann . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — 38,604 6,744 25,278 22,116 — 38,725 Value Realized on Vesting ($)(1) (e) 1,443,731 319,126 417,327 365,868 — 639,330 (1) The amounts shown reflect the number of Common Shares issued to the named executive officer in settlement of the vesting of stock awards multiplied by the closing price of our Common Shares on trading day before the vesting date. Nonqualified Deferred Compensation Supplemental Savings Plan All of our named executive officers, as well as substantially all other employees, are eligible to participate in the Savings Plan, our “401(k) plan.” The Supplemental Savings Plan was maintained for those executives participating in the Savings Plan who desired to contribute more than the amount allowable under the Savings Plan. The Supplemental Savings Plan constitutes a contract to pay deferred compensation and limits 54 deferrals in accordance with prevailing tax law. The Supplemental Savings Plan was designed to pay the deferred compensation in the same amount as if contributions had been made to the Savings Plan. We have no obligation to fund the Supplemental Savings Plan, and all assets and amounts payable under the Supplemental Savings Plan are subject to the claims of our general creditors. In order to participate in the Savings and Supplemental Savings Plans, an eligible employee must satisfy applicable service requirements and must make contributions to such plans (“Participant Contributions”). Participant Contributions are made through authorized payroll deductions to one or more of the several investment funds available under the Savings and Supplemental Savings Plans and selected at the discretion of the participant. All Participant Contributions are matched by us (“Registrant Contributions”) at a rate of 100% for the first 3% of salary contributed and 50% for the next 2% of salary contributed. Additionally, the amount of the Registrant Contribution is subject to the maximum annual compensation that may be taken into account for benefit calculation purposes under the IRC ($285,000 for calendar year 2020). Accordingly, the maximum aggregate Registrant Contribution that could be made to a named executive officer participating in the Savings and Supplemental Savings Plans was $11,400 for fiscal 2020. Prior to fiscal 2017, under the Savings Plan and the Supplemental Savings Plan, 25% of the Registrant Contributions vests annually beginning on the second anniversary of the employee’s hiring. Under the Savings Plan, a participant who has terminated employment with us is entitled to all funds in his or her account, except that if termination is for a reason other than retirement, disability or death, then the participant is entitled to receive only the Participant Contributions and the vested portion of the Registrant Contributions. Under the Supplemental Savings Plan, a participant who has terminated employment with us for any reason is entitled to receive the Participant Contributions and only the vested portion of the Registrant Contributions. Under both plans, all other unvested accrued benefits pertaining to Registrant Contributions will be forfeited. Upon a change in control of Big Lots, the participant will receive a lump sum payment of all amounts (vested and unvested) under the Supplemental Savings Plan. In fiscal 2017, the Savings Plan and Supplemental Savings Plan were amended and all Registrant Contributions in fiscal 2017 and in the future will vest immediately and a participant in the Savings Plan and Supplemental Savings Plan who has terminated employment will be entitled to all funds in his or her account. In December 2020, the Board approved the termination of the Supplemental Savings Plan. The balances under the Supplemental Savings Plan will be distributed to participants in December 2021 and January 2022. Nonqualified Deferred Compensation Table for Fiscal 2020 The following table reflects the contributions to, earnings in and balance of each named executive officer’s account held under the Supplemental Savings Plan. Name (a) Executive Contributions in Last FY ($)(1) (b) Registrant Contributions in Last FY ($) (c) Mr. Thorn . . . . . . . . . . . . . . . . . . . . . . . Mr. Ramsden . . . . . . . . . . . . . . . . . . . . Mr. Schlonsky . . . . . . . . . . . . . . . . . . . . Mr. Robins . . . . . . . . . . . . . . . . . . . . . . Mr. Pestello . . . . . . . . . . . . . . . . . . . . . . Ms. Bachmann . . . . . . . . . . . . . . . . . . . — — 22,075 21,297 — — — — — — — — Aggregate Earnings in Last FY ($)(2) (d) — — 233,463 57,293 — 69,490 Aggregate Withdrawals/ Distributions ($) (e) Aggregate Balance at Last FYE ($)(3) (f) — — — — — 1,341,460 249,967 — — — 1,461,461 (73,110) (1) The amounts in this column are included in the “Salary” column of the Summary Compensation Table for fiscal 2020. (2) The amounts in this column are not included in the Summary Compensation Table as these amounts reflect only the earnings on the investments designated by the named executive officer in his or her 55 Supplemental Savings Plan account in fiscal 2019 (i.e., appreciation or decline in account value). The amounts in this column do not include any above-market or preferential earnings, as defined by Item 402(c)(2)(viii) of Regulation S-K and the instructions thereto. (3) $88,237, $11,389 and $94,560 of the amounts in this column were previously reported as compensation to Mr. Schlonsky, Mr. Robins, and Ms. Bachmann, respectively, in the Summary Compensation Table for the prior years reported. Potential Payments Upon Termination or Change in Control The “Rights Under Post-Termination and Change in Control Arrangements” section below summarizes the rights of our named executive officers under their employment agreements and other compensation arrangements upon a change in control or in the event their employment with us is terminated. The “Estimated Payments if Triggering Event Occurred at 2020 Fiscal Year End” section below sets forth the payments that would have been received by each executive (or his or her beneficiaries, as applicable) upon a change in control or in the event the executive’s employment with us terminated on January 30, 2021: (1) voluntarily or for cause; (2) involuntarily without cause (including a constructive termination (as defined in the Severance Plan)); (3) in connection with the executive’s disability; (4) upon the executive’s death; (5) upon the executive’s retirement (none of the named executive officers was retirement eligible at the end of fiscal 2020 other than Mr. Robins); or (6) in connection with a change in control. Rights Under Post-Termination and Change in Control Arrangements Termination for Cause If a named executive officer is terminated for cause or due to his or her voluntary resignation, we have no obligation to pay any unearned compensation or to provide any future benefits to the executive. Involuntary Termination Without Cause If a named executive officer is involuntarily terminated without cause (including a constructive termination), the Severance Plan would entitle the named executive officer to: • a cash payment equal to the product of (1) the named executive officer’s annualized base salary in effect on the date of termination and (2) a multiple thereof; • a cash payment equal to a prorated portion of the annual incentive award that the named executive officer would have earned for the fiscal year in which the termination occurred had such termination not occurred; • a cash payment for outplacement assistance; • continued coverage for the named executive officer under our health plans until the last day of the calendar month in which the post-termination restriction period applicable to the named executive officer elapses, plus the amount necessary to reimburse the named executive officer for the taxes he or she would be liable for as a result of such continued coverage; and • upon achievement of the applicable performance trigger, except for Mr. Thorn’s 2018 RSU award, prorated vesting of all unvested, outstanding RSU awards granted to the named executive officer. If Mr. Thorn is involuntary terminated without cause, his 2018 RSU award will vest in full. Termination due to Disability or Death If a named executive officer is terminated as a result of his or her disability or death: • the Severance Plan would entitle the named executive officer to a cash payment equal to a prorated portion of the annual incentive award that the named executive officer would have earned for the fiscal year in which the termination occurred had such termination not occurred; • a prorated portion of the unvested PSUs granted under the 2017 LTIP that the named executive officer would have earned had the named executive officer remained employed for the entire performance period would vest upon the certification of the applicable performance condition; and 56 • a prorated portion of the unvested RSUs granted under the 2017 LTIP and the 2020 LTIP would vest on the termination date. Termination Upon Retirement If a named executive officer is terminated as a result of his or her retirement (as defined in the applicable award agreement): • a prorated portion of the unvested PSUs granted under the 2017 LTIP that the named executive officer would have earned had the named executive officer remained employed for the entire performance period would vest upon the certification of the applicable performance condition; and • a prorated portion of the unvested RSUs granted under the 2017 LTIP and the 2020 LTIP would vest on the termination date. Termination in connection with Change in Control If terminated without cause (including a constructive termination) within 24 months after a change in control, the senior executive severance agreements would entitle the named executive officers to (1) a lump- sum payment equal to 200% of the executive’s then current annual base salary and target annual incentive award, (2) a lump-sum payment equal to executive’s target bonus prorated for the number of days the executive worked during the applicable performance period prior to the executive’s termination and (3) continued coverage under our health plans for up to two years after the date of termination. In addition, upon a change in control: • if the change in control occurs before the third anniversary of the grant date, all unvested RSUs granted to the named executive officer under the 2017 LTIP would vest; • if the change in control occurs before the third anniversary of the grant date and the named executive officer incurs a separation of service (as defined in Section 409A of the IRC) within the 30 days before or 24 months following the change in control, all unvested RSUs granted to the named executive officer under the 2020 LTIP would vest; and • if the change in control occurs before the end of the applicable performance period, the greater of (1) the target number of PSUs and (2) a number of PSUs calculated based on the satisfaction of the applicable performance conditions before the change in control, would vest for each named executive officer. Upon a change in control, each participating named executive officer would also receive a lump sum payment of all vested and unvested amounts under the Supplemental Savings Plan. (See the “Nonqualified Deferred Compensation” section above for more information regarding the Supplemental Savings Plan and our named executive officers’ aggregate balances under such plans at the end of fiscal 2020.) Change in Control Described Under the 2017 LTIP, the 2020 LTIP, the Supplemental Savings Plan (as to amounts earned and vested before January 1, 2005, including earnings attributable to such amounts) and the Severance Plan, a change in control generally occurs upon: (i) certain acquisitions of 20% or more of our outstanding voting securities; (ii) an unapproved change in the majority of the Board during any two-year period; or (iii) certain corporate transactions, including certain mergers, consolidations or the sale of substantially all of the Company’s assets. Under the senior executive severance agreements, the 2019 Bonus Plan and the Supplemental Savings Plan (as to all amounts earned and vested on or after January 1, 2005), a change in control generally occurs upon: (i) certain acquisitions of more than 50% of the total fair market value or voting power in our outstanding voting securities; (ii) certain acquisitions during a one-year period of 30% or more of our outstanding voting securities; (iii) an unapproved change in the majority of the Board during any one-year period; or (iv) the disposition, during any one-year period, of 40% or more of the total gross fair market value of all of our assets. 57 Estimated Payments if Triggering Event Occurred at 2020 Fiscal Year-End The amounts in the following tables are approximations based on various assumptions and estimates. The actual amounts to be paid can only be determined at the time of the change in control or termination of employment, as applicable. In the tables that follow, we have made the following material assumptions, estimates and characterizations: • Except as otherwise provided in the tables below, the amounts are calculated based on compensation levels and benefits effective at January 30, 2021, the last day of fiscal 2020. • We have not taken into account the possibility that a named executive officer may be eligible to receive healthcare benefits from another source following his or her termination. Therefore, the amounts shown in the “Healthcare Coverage” row in the tables below reflect, consistent with the assumptions that would be used to estimate the cost of these benefits for financial reporting purposes under generally accepted accounting principles, the current monthly cost to provide continued healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) applied to each month these benefits would be provided to the named executive officer. Included in the amounts shown in the “Healthcare Coverage” row in the tables below are the related tax gross-up amounts. The amounts shown in the “Long-Term Disability Benefit” row in the tables below represent 67% of the named executive officer’s monthly salary, up to a maximum of $25,000 per month in accordance with the long-term disability insurance we maintain for our named executive officers. This benefit is payable until the named executive officer is no longer disabled or age 65, whichever occurs earlier. Due to the speculative nature of estimating the period of time during which a named executive officer may be disabled, we have presented only one month of disability benefits in the tables below. • The amounts in the “Accelerated Equity Awards” row under the “Termination upon Disability” and “Termination upon Death” columns in the tables below represent the value (as of the final trading day on the NYSE during fiscal 2020) of (1) a prorated portion of the unvested RSUs granted under the 2017 LTIP and the 2020 LTIP, (2) a prorated portion of the unvested PSUs granted under the 2017 LTIP in fiscal 2019, assuming that the applicable performance goals will be achieved at the target level, and (3) the PSUs granted under the 2017 LTIP in fiscal 2018, that will vest based on our actual performance. The amounts in the “Accelerated Equity Awards” row under the “Retirement” columns in the tables below represent the value (as of the final trading day of fiscal 2020) of (1) a prorated portion of the unvested RSUs granted under the 2017 LTIP and the 2020 LTIP, (2) a prorated portion of the unvested PSUs granted under the 2017 LTIP in fiscal 2019, assuming that the applicable performance goals will be achieved at the target level and (3) the PSUs granted under the 2017 LTIP in fiscal 2018 that vested based on our actual performance. • The amounts in the “Accelerated Equity Awards” row under the “Termination in Connection with a Change in Control” and “Change in Control (without termination)” columns in the tables below include all unvested RSUs and PSUs that would have vested on an accelerated basis had a change in control occurred as of the end of fiscal 2020. These amounts do not reflect any equity awards that vested in fiscal 2020. • The closing market price of our Common Shares on the final trading day on the NYSE during fiscal 2020 was $59.68 per share. 58 Bruce K. Thorn The following table reflects the payments that would have been due to Mr. Thorn in the event of a change in control and/or the termination of his employment on January 30, 2021. Event Occurring at January 30, 2021 Voluntary Termination/ For Cause ($) Involuntary Termination without Cause ($) Termination upon Disability ($) Termination upon Death ($) Retirement ($) Termination in Connection with a Change in Control ($) Change in Control (without termination) ($) Salary/Salary Continuation ($) . . . . . . Non-Equity Incentive Plan Compensation ($) . . . . . . . . . . . . . Healthcare Coverage ($) . . . . . . . . . . Long-Term Disability Benefit ($) . . . . Outplacement Benefits ($) . . . . . . . . . Accelerated Equity Awards ($) . . . . . . Total ($) . . . . . . . . . . . . . . . . . . . . . — — — — — — — 2,200,000 — — — 2,200,000 2,750,000 — 2,750,000 2,750,000 4,125,000 61,069 — — — 40,000 — — 25,000 — — — — 61,069 — — — — — — — 4,285,908 — 6,278,394 6,278,394 22,013,158 22,013,158 9,336,977 — 9,053,394 9,028,394 28,399,227 22,013,158 Jonathan E. Ramsden The following table reflects the payments that would have been due to Mr. Ramsden in the event of a change in control and/or the termination of his employment with us on January 30, 2021. Event Occurring at January 30, 2021 Voluntary Termination/ For Cause ($) Involuntary Termination without Cause ($) Termination upon Disability ($) Termination upon Death ($) Retirement ($) Termination in Connection with a Change in Control ($) Change in Control (without termination) ($) Salary/Salary Continuation ($) . . . . . . . Non-Equity Incentive Plan Compensation ($) . . . . . . . . . . . . . . Healthcare Coverage ($) . . . . . . . . . . . Long-Term Disability Benefit ($) . . . . . Outplacement Benefits ($) . . . . . . . . . . Accelerated Equity Awards ($) . . . . . . . Total ($) . . . . . . . . . . . . . . . . . . . . . . — — — — — — — 1,400,000 — — — 1,400,000 840,000 — 840,000 840,000 1,260,000 85,337 — — — 25,000 — — 25,000 — — — — 85,337 — — — — — — — 851,474 — 1,444,897 1,444,897 7,154,311 7,154,311 3,201,811 — 2,309,897 2,284,897 9,899,648 7,154,311 59 Michael A. Schlonsky The following table reflects the payments that would have been due to Mr. Schlonsky in the event of a change in control and/or the termination of his employment with us on January 30, 2021. Event Occurring at January 30, 2021 Voluntary Termination/ For Cause ($) Involuntary Termination without Cause ($) Termination upon Disability ($) Termination upon Death ($) Retirement ($) Termination in Connection with a Change in Control ($) Change in Control (without termination) ($) Salary/Salary Continuation ($) . . . . . . . Non-Equity Incentive Plan Compensation ($) . . . . . . . . . . . . . . Healthcare Coverage ($) . . . . . . . . . . . Long-Term Disability Benefit ($) . . . . . Outplacement Benefits ($) . . . . . . . . . . Accelerated Equity Awards ($) . . . . . . . Total ($) . . . . . . . . . . . . . . . . . . . . . . — — — — — — — 1,027,200 — — — 1,027,200 616,320 — 616,320 616,320 924,480 85,337 — — — 25,000 — — 25,000 — — — — 85,337 — — — — — — — 925,751 — 3,024,233 3,024,233 6,502,441 6,502,441 2,679,608 — 3,665,553 3,640,553 8,539,458 6,502,441 Ronald A. Robins, Jr. The following table reflects the payments that would have been due to Mr. Robins in the event of a change in control and/or the termination of his employment with us on January 30, 2021. Voluntary Termination/ For Cause ($) Salary/Salary Continuation ($) . . . . . . Non-Equity Incentive Plan Compensation ($) . . . . . . . . . . . . . Healthcare Coverage ($) . . . . . . . . . . Long-Term Disability Benefit ($) . . . . Outplacement Benefits ($) . . . . . . . . . Accelerated Equity Awards ($) . . . . . . Total ($) . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — Event Occurring at January 30, 2021 Termination upon Disability ($) Termination upon Death ($) Retirement ($) Termination in Connection with a Change in Control ($) Change in Control (without termination) ($) — — — 1,000,000 Involuntary Termination without Cause ($) 1,000,000 600,000 600,000 600,000 600,000 900,000 85,337 — 25,000 — — — 25,000 — — — — — 85,337 — — 861,083 2,662,504 2,662,504 2,662,504 6,073,673 6,073,673 2,571,420 3,262,504 3,287,504 3,262,504 8,059,010 6,073,673 60 Jack Pestello The following table reflects the payments that would have been due to Mr. Pestello in the event of a change in control and/or the termination of his employment with us on January 30, 2021. Event Occurring at January 30, 2021 Voluntary Termination/ For Cause ($) Involuntary Termination without Cause ($) Termination upon Disability ($) Termination upon Death ($) Retirement ($) Termination in Connection with a Change in Control ($) Change in Control (without termination) ($) Salary/Salary Continuation ($) . . . . . . . Non-Equity Incentive Plan Compensation ($) . . . . . . . . . . . . . . Healthcare Coverage ($) . . . . . . . . . . . Long-Term Disability Benefit ($) . . . . . Outplacement Benefits ($) . . . . . . . . . . Accelerated Equity Awards ($) . . . . . . . Total ($) . . . . . . . . . . . . . . . . . . . . . . — — — — — — — 1,280,000 — — — 1,280,000 396,659 — 396,659 396,659 1,152,000 85,337 — — — — 25,000 25,000 — — — — — 85,337 — — 210,016 — 210,016 210,016 1,360,942 1,997,012 — 631,675 606,675 3,878,279 — — — — — — — Lisa M. Bachmann The following table reflects the payments due to Ms. Bachmann following her termination of employment on September 4, 2020. Event Occurring at September 4, 2020 Voluntary Termination/ For Cause ($) Involuntary Termination without Cause ($) Termination upon Disability ($) Termination upon Death ($) Retirement ($) Termination in Connection with a Change in Control ($) Change in Control (without termination) ($) Salary/Salary Continuation ($) . . . . . . . Non-Equity Incentive Plan Compensation ($) . . . . . . . . . . . . . . Healthcare Coverage ($) . . . . . . . . . . . Long-Term Disability Benefit ($) . . . . . Outplacement Benefits ($) . . . . . . . . . . Accelerated Equity Awards ($) . . . . . . . Total ($) . . . . . . . . . . . . . . . . . . . . . . — — — — — — — 1,573,550 — 560,253 — 61,069 — — — 25,000 — 749,063 — 2,968,935 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 61 PROPOSAL TWO: APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO ITEM 402 OF REGULATION S-K, INCLUDING THE CD&A, COMPENSATION TABLES AND THE NARRATIVE DISCUSSION ACCOMPANYING THE TABLES Section 14A of the Exchange Act requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. The following summary of our executive compensation program describes our compensation philosophy and the key objectives identified by our Compensation Committee to implement our compensation philosophy. Our executive compensation program is designed to: (1) pay for superior results by rewarding executives for achieving short- and long-term performance goals and creating long-term shareholder value; (2) align the interests of our executives with the interests of our shareholders through performance- and equity- based compensation; and (3) attract and retain talented executives by paying compensation that is competitive with the compensation paid by the companies in our peer group. We use a balanced mix of salary, annual cash incentive awards and equity awards to promote these objectives. For a more detailed discussion of how our executive compensation program promotes these objectives and our executive compensation philosophy, including information about the fiscal 2020 compensation of our named executive officers, we encourage you to read the CD&A as well as the Summary Compensation Table and other compensation tables in this Proxy Statement and the narrative discussion accompanying the tables. Fiscal 2020 presented unprecedented challenges as a result of the COVID-19 pandemic, which has disrupted and may continue to disrupt our business. Due to the lack of business visibility resulting from the COVID-19 pandemic and our related inability to establish realistic performance goals until the second half of the year, the executive compensation program established by the Compensation Committee for fiscal 2020 differed significantly from the programs established for recent fiscal years. • Base Salaries. In light of the uncertainty surrounding the COVID-19 pandemic and the potential effect of the pandemic on the Company’s business at the time the Compensation Committee evaluates base salaries, the Compensation Committee did not approve any merit increases in fiscal 2020 to the base salaries of our named executive officers. In addition, to help fund the Company’s Employee Assistance Fund in order to provide aid to Big Lots associates affected by COVID-19, each member of the Company’s senior management, including each of our named executive officers, voluntarily relinquished 10% of their base salary in each pay period in April, May, and June. • Annual Cash Incentive Awards. The Compensation Committee bifurcated the annual cash incentive award for fiscal 2020 into (1) a discretionary award based on effective management and leadership through the crisis, including goals related to health and safety, business continuity, cash and liquidity management, and internal and external communication, during the first half of fiscal 2020 and (2) an objective corporate performance-based award similar to the annual cash incentive awards we have granted to our executives in recent fiscal years based on our adjusted operating profit and comparable sales in fiscal 2020. Based on the Compensation Committee’s assessment of various actions taken and results achieved by management in the areas of cash and liquidity management and crisis leadership during the first half of fiscal 2020, each of our named executive officers earned a maximum payout under discretionary annual incentive award. Based on the Company’s adjusted operating profit and comparable sales for fiscal 2020, each of our named executive officers also earned a maximum payout under the objective corporate performance-based awards. • Long-Term Equity Incentive Awards. The long-term equity incentive awards granted to our named executive officers in fiscal 2020 consisted of PRSUs (50% weighting) and restricted stock units (“RSUs”) (50% weighting). The Compensation Committee determined the number of PRSUs and RSUs awarded to our named executive officers in fiscal 2020 by applying a 20 percent premium to the closing price of our Common Shares on the grant date in an effort to impose appropriate limits on the potential dilution of our Common Shares and to acknowledge the decline in the market price of our Common Shares following the onset of the COVID-19 pandemic. The Compensation Committee granted PRSUs in lieu of the PSUs that it granted in recent years due to its desire to grant equity awards at approximately the same time that it granted equity awards in recent years 62 in order to motivate and incentivize executive performance throughout the year and our inability to establish realistic performance goals for PSUs until the second half of the year. The PRSUs vested 33-1∕3% upon the closing price of our Common Shares equaling or exceeding the following thresholds for 20 consecutive trading days on or before the third anniversary of the grant date: (1) $17.00; (2) $21.00; and (3) $25.00, which represented premiums of approximately 7%, 33%, and 58%, respectively, above the closing price of our Common Shares on the grant date. The closing price of our Common Shares subsequently exceeded each of the thresholds in fiscal 2020 and, as a result, all of the PRSUs vested in April 2021 on the first anniversary of the grant date although the underlying Common Shares may not be sold until the third anniversary of the grant date. RSUs are primarily intended to align the interests of our named executive officers and our shareholders and help retain and motivate our named executive officers. The RSUs will vest ratably over three years from the grant date of the award if the participant remains employed by us through each annual vesting date and are subject to an operating profit performance component. Based on the Company’s operating profit in fiscal 2020, one-third of the RSUs we granted in fiscal 2020 vested on the first anniversary of the grant and the remaining two-thirds will vest ratably over the next two years. We request that our shareholders indicate their support for the compensation of our named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K by approving the following resolution: “RESOLVED, that the shareholders of Big Lots approve, on an advisory basis, the compensation of the named executive officers of Big Lots, as disclosed in Big Lots’ Proxy Statement for the 2021 Annual Meeting of Shareholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and the narrative discussion accompanying the tables.” The vote on the approval of the compensation of our named executive officers is advisory, which means that the vote is not binding on the Board, the Compensation Committee or us. If a majority of the votes are cast against the approval of the compensation of our named executive officers, the Board and the Compensation Committee will evaluate whether to take any actions to address the concerns of the shareholders with respect to our executive compensation program. THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO ITEM 402 OF REGULATION S-K, INCLUDING THE CD&A, COMPENSATION TABLES AND THE NARRATIVE DISCUSSION ACCOMPANYING THE TABLES. 2020 CEO PAY RATIO As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, the Company is disclosing the following information about the relationship of the annual total compensation of our CEO and the median of the annual total compensation of our employees (other than the CEO) for our 2020 fiscal year: • The annual compensation of our CEO (Bruce K. Thorn) was $7,725,640. • The annual total compensation of our median employee, a part-time store associate, was $10,124. • The ratio of the annual total compensation of our CEO to the annual total compensation of our median employee was 763 to 1. We identified our median employee for our 2020 fiscal year using the following methodology and material assumptions and adjustments. To identify the median of the annual total compensation of our active employees as of January 30, 2021, including any full-time, part-time, temporary or seasonal employees but excluding our CEO, we used total wages from our payroll records as reported to the Internal Revenue Service on Form W-2 for 2020. In making this determination, we did not annualize compensation for any full- time or part-time permanent employees who were employed on January 30, 2021 but did not work for us the entire year or make any full-time equivalent adjustments for part-time employees. We consistently applied this compensation measure and methodology to all of our employees included in the calculation. 63 We determined the annual total compensation for fiscal year 2020 of our median employee (who was calculated to be a part-time store associate) in the same manner that we determine the total compensation of our named executive officers for purposes of the Summary Compensation Table. With respect to the annual total compensation of our CEO for fiscal 2020, we used the amount for fiscal 2020 reported in the “Total” column of the Summary Compensation Table. This information is being provided for compliance purposes. Neither the Compensation Committee nor management of the Company used the pay ratio measure in making compensation decisions. AUDIT COMMITTEE DISCLOSURE General Information The Audit Committee consists of five non-employee directors of the Board. The members of the Audit Committee have been reviewed by the Board and determined to be independent within the meaning of all applicable SEC regulations and NYSE listing standards. The charter of the Audit Committee states that the purpose of the Audit Committee is to assist the Board in its oversight of: • the integrity of our financial statements and financial reporting process, and our systems of internal accounting and financial controls; • our compliance with legal and regulatory requirements, including our disclosure controls and procedures; • the annual independent audit of our financial statements, the engagement of our independent registered public accounting firm, and the evaluation of the firm’s qualifications, independence and performance; • the performance of our internal audit function; • the evaluation of enterprise risk issues; and • the fulfillment of other responsibilities set forth in its charter. The full text of the Audit Committee’s charter is available in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. The Audit Committee regularly reviews its responsibilities as outlined in its charter, prepares an annual agenda that addresses all of its responsibilities and conducts a self-assessment and review of the charter annually. The Audit Committee believes it fulfilled its responsibilities under the charter in fiscal 2020. The Audit Committee schedules its meetings with a view towards ensuring that it devotes appropriate attention to all of its responsibilities. The Audit Committee’s meetings include, whenever appropriate, executive sessions with the independent registered public accounting firm, the Company’s Vice President, Internal Audit and our Chief Financial Officer, in each case without the presence of management. The Audit Committee also meets in executive session without the presence of anyone else, whenever appropriate. During fiscal 2020, our management completed an assessment of our system of internal control over financial reporting in accordance with the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit Committee was apprised of the progress of the assessment and provided oversight and advice to management during the process. In connection with its oversight, the Audit Committee received periodic updates provided by management and the independent registered public accounting firm at each regularly scheduled Audit Committee meeting. The Audit Committee also reviewed the report of management contained in our Form 10-K, as well as the independent registered public accounting firm’s Report of Independent Registered Public Accounting Firm included in our Form 10-K related to its audit of (1) our financial statements and (2) the effectiveness of our internal control over financial reporting. The Audit Committee continues to oversee efforts related to our system of internal control over financial reporting and management’s preparations for the assessment thereof in fiscal 2021. The Audit Committee has also reviewed key initiatives and programs aimed at strengthening the effectiveness of our internal and disclosure control structure. 64 Independent Registered Public Accounting Firm The Audit Committee engaged Deloitte & Touche LLP as our independent registered public accounting firm to audit our financial statements for fiscal 2020. Deloitte & Touche LLP has served as our independent registered public accounting firm since October 1989. The Audit Committee annually selects and evaluates our independent registered public accounting firm and reviews the scope of and plans for the audit by the independent registered public accounting firm. Some of the factors the Audit Committee considers in its evaluation include the independent auditor’s qualifications, performance, independence and tenure. Based on its evaluation and review, the Audit Committee believes that it is in the best interest of the Company to retain Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2021. Audit and Non-Audit Services Pre-Approval Policy Pursuant to the Audit Committee’s Audit and Non-Audit Services Pre-Approval Policy, all audit and non-audit services rendered by Deloitte & Touche LLP in fiscal 2020 and fiscal 2019, including the related fees, were pre-approved by the Audit Committee. Under the policy, the Audit Committee is required to pre-approve all audit and permissible non-audit services performed by the independent registered public accounting firm to assure that the provision of those services does not impair the firm’s independence. Pre-approval is detailed as to the particular service or category of service and is subject to a specific engagement authorization. The Audit Committee requires the independent registered public accounting firm and management to report on the actual fees incurred for each category of service at Audit Committee meetings throughout the year. During the year, it may become necessary to engage the independent registered public accounting firm for additional services that have not been pre-approved. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm. The Audit Committee may delegate pre-approval authority to one or more of its members for those instances when pre-approval is needed prior to a scheduled Audit Committee meeting. The member or members to whom pre-approval authority is delegated must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. Fees Paid to Independent Registered Public Accounting Firm The fees billed to us for the professional services rendered by Deloitte & Touche LLP during the two most recently completed fiscal years were as follows: ($ in thousands) Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit-Related Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2019 ($) Fiscal 2020 ($) 1,400 1,440 20 40 2 1,462 92 90 2 1,624 (1) For fiscal 2019 and fiscal 2020, the audit-related fees principally related to implementation of new accounting standards and significant non-routine transactions. (2) For fiscal 2019 and fiscal 2020, the other fees include fees related to online subscription fees for technical support. Audit Committee Report The Audit Committee has reviewed and discussed the audited financial statements for fiscal 2020 with management and the independent registered public accounting firm. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, as adopted by the Public Company Accounting Oversight Board. The Audit Committee has received the written communications from the independent registered public accounting firm required 65 by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence. Based on these reviews and discussions, the undersigned members of the Audit Committee recommended to the Board that the audited consolidated financial statements for fiscal 2020 be included in our Form 10-K for filing with the SEC. Members of the Audit Committee: Marla C. Gottschalk, Chair Sebastian J. DiGrande Thomas A. Kingsbury Christopher J. McCormick Wendy L. Schoppert 66 PROPOSAL THREE: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2021 At its March 3, 2021 meeting, the Audit Committee appointed Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2021, subject to our entry into a mutually agreed upon services contract with Deloitte & Touche LLP. The submission of this matter for approval by shareholders is not legally required; however, we believe that such submission is consistent with best practices in corporate governance and is another opportunity for shareholders to provide direct feedback on an important issue of our corporate governance. If the shareholders do not ratify the appointment of Deloitte & Touche LLP, the selection of such firm as our independent registered public accounting firm will be reconsidered by the Audit Committee. A representative of Deloitte & Touche LLP will be present at the Annual Meeting to respond to appropriate questions and to make a statement if so desired. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2021. SHAREHOLDER PROPOSALS Any proposals of shareholders that are intended to be presented at our 2022 annual meeting of shareholders must be received by our Corporate Secretary at our corporate offices on or before December 14, 2021 to be eligible for inclusion in our 2022 proxy statement and form of proxy. Such proposals must be submitted in accordance with Rule 14a-8 of the Exchange Act. If a shareholder intends to present a proposal at our 2022 annual meeting of shareholders without inclusion of that proposal in our 2022 proxy materials and written notice of the proposal is not received by our Corporate Secretary at our corporate offices on or before February 27, 2022, or if we meet other requirements of the SEC rules, proxies solicited by the Board for our 2022 annual meeting of shareholders will confer discretionary authority on the proxy holders named therein to vote on the proposal at the meeting. Our Amended Code of Regulations permits a shareholder, or a group of shareholders, who has continuously owned at least 3% of our outstanding Common Shares for at least 3 years, to nominate and include in our proxy statement candidates for the Board, subject to certain requirements. Each eligible shareholder, or group of shareholders that together is an eligible shareholder, may nominate candidates for director, up to a limit of 25% of the number of directors on the Board. Any nominee must meet the qualification standards set forth in our Amended Code of Regulations. Any such notice and nomination materials must be delivered to, or mailed to and received by, our Corporate Secretary no earlier than 150 days and no later than 120 days before the anniversary of the date that the Company issued its proxy statement for the previous year’s annual meeting of shareholders; provided however, that if the date of the annual meeting has changed by more than 30 calendar days from the previous year, then the eligible shareholder must deliver the notice and nomination materials to our Corporate Secretary a reasonable time before we issue our proxy materials. Based on the anticipated one-year anniversary of the date that we issued our proxy statement for the 2021 annual meeting, an eligible shareholder wishing to nominate a candidate for election to the Board at the 2022 annual meeting must provide such notice no earlier than November 14, 2021 and no later than December 14, 2021. Any such notice and accompanying nomination materials must meet the requirements set forth in our Amended Code of Regulations, which is available in the Investor Relations section of our website (www.biglots.com) under the “Corporate Governance” caption. PROXY SOLICITATION COSTS This solicitation of proxies is made by and on behalf of the Board. In addition to mailing the Notice of Internet Availability of Proxy Materials (or, if applicable, paper copies of this Proxy Statement, the Notice of Annual Meeting of Shareholders and the proxy card) to shareholders of record on the Record Date, the brokers and banks holding our Common Shares for beneficial shareholders must, at our expense, provide our proxy materials to persons for whom they hold our Common Shares in order that such Common Shares may be voted. Solicitation of proxies may also be made by our officers and regular employees personally or by telephone, mail or electronic mail. Officers and employees who assist with the solicitation will not receive 67 any additional compensation. The cost of the solicitation will be borne by us. We have also retained Georgeson LLC to aid in the solicitation of proxies for a fee estimated to be $11,000, plus reasonable out-of-pocket expenses. OTHER MATTERS As of the date of this Proxy Statement, we know of no business that will be presented for consideration at the Annual Meeting other than as referred to in Proposal One, Proposal Two and Proposal Three above. If any other matter is properly brought before the Annual Meeting for action by shareholders, Common Shares represented by proxies returned to us and not revoked will be voted on such matter in accordance with the recommendations of the Board. By order of the Board of Directors, Ronald A. Robins, Jr. Executive Vice President, Chief Legal and Governance Officer, General Counsel and Corporate Secretary April 13, 2021 68 Appendix A BIG LOTS, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (In thousands, except per share data) (Unaudited) The following tables reconcile net income and diluted earnings per share (GAAP financial measures) to adjusted net income and adjusted diluted earnings per share (non-GAAP financial measures) for fiscal 2020, fiscal 2019 and fiscal 2018. Fiscal 2020 As Reported Adjustment to exclude gain on sale of distribution centers and related expenses As Adjusted (non-GAAP) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $629,191 Diluted earnings per share . . . . . . . . . . . . . . . $ 16.11 $(341,903) $ (8.75) $287,288 $ 7.35 The above adjusted net income and adjusted diluted earnings per share are “non-GAAP financial measures” as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) a gain resulting from the sale of our Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA distribution centers and the related expenses of $459,097 ($341,903, net of tax). Fiscal 2019 Impact to exclude department exit inventory impairment Impact to exclude transformational restructuring costs Adjustment to exclude legal settlement loss contingencies Adjustment to exclude gain on sale of distribution center As Adjusted (non-GAAP) As Reported Net income . . . $242,464 $4,497 $28,502 $5,554 $(136,604) $144,413 Diluted earnings per share . . . . . . $ 6.16 $ 0.11 $ 0.72 $ 0.14 $ (3.47) $ 3.67 The above adjusted net income and adjusted diluted earnings per share are “non-GAAP financial measures” as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with GAAP: (1) an inventory impairment amount of $6,050 ($4,497, net of tax) as a result of a merchandise department exit; (2) the costs associated with a transformational restructuring initiative of $38,338 ($28,502, net of tax); (3) a pretax charge related to estimated legal settlement of employee class actions of $7,250 ($5,554, net of tax); and (4) a gain resulting from the sale of our Rancho Cucamonga, CA distribution center of $178,534 ($136,604, net of tax). Fiscal 2018 As Reported Adjustment to exclude CEO retirement costs Adjustment to exclude shareholder litigation matter As Adjusted (non-GAAP) Net income . . . . . . . . . . . . . . . $156,894 Diluted earnings per share . . . . . $ 3.83 $6,123 $ 0.15 $2,621 $ 0.06 $165,638 $ 4.04 The above adjusted net income and adjusted diluted earnings per share are “non-GAAP financial measures” as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly 69 comparable financial measures calculated and presented in accordance with GAAP: (1) the costs associated with the retirement of our former CEO of $7,018 ($6,123, net of tax); and (2) a pretax charge related to the settlement in principle of shareholder litigation matters of $3,500 ($2,621, net of tax). Our management believes that the disclosure of these non-GAAP financial measures provides useful information to investors because the non-GAAP financial measures present an alternative and more relevant method for measuring our operating performance, excluding special items included in the most directly comparable GAAP financial measures, which management believes is more indicative of our on-going operating results and financial condition. Our management uses these non-GAAP financial measures, along with the most directly comparable GAAP financial measures, in evaluating our operating performance. 70 Table of Contents 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 January 30, 2021 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ ☑ ☐ Commission File Number 001-08897 BIG LOTS, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Ohio 06-1119097 4900 E. Dublin-Granville Road, Columbus, Ohio (Address of principal executive offices) 43081 (Zip Code) (614) 278-6800 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Shares $0.01 par value Trading Symbol(s) BIG Name of each exchange on which registered New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Indicate by check mark 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐ Yes ☐ No ☑ Yes ☑ No ☐ Yes ☑ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ ☑ Yes ☐ No ☑ The aggregate market value of the Common Shares held by non-affiliates of the Registrant (assuming for these purposes that all executive officers and directors are “affiliates” of the Registrant) was $1,532,148,465 on July 31, 2020, the last business day of the Registrant’s most recently completed second fiscal quarter (based on the closing price of the Registrant’s Common Shares on such date as reported on the New York Stock Exchange). The number of the Registrant’s common shares, $0.01 par value, outstanding as of March 26, 2021, was 35,056,102. Documents Incorporated by Reference Portions of the Registrant’s Proxy Statement for its 2021 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K. Table of Contents BIG LOTS, INC. FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 2021 TABLE OF CONTENTS Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Item 16. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Supplemental Item. Executive Officers of the Registrant Part II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Part III Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Exhibits and Financial Statement Schedules Form 10-K Summary Signatures Part IV Page 2 8 13 14 15 15 15 17 19 20 33 34 64 64 64 65 65 66 66 66 67 69 70 1 Table of Contents Item 1. Business The Company Part I Big Lots, Inc., an Ohio corporation, through its wholly owned subsidiaries is a neighborhood discount retailer operating in the United States (“U.S.”). At January 30, 2021, we operated a total of 1,408 stores and an e-commerce platform. Our mission is to help people live BIG and save LOTS by providing our customers with the right product at the right price. Our vision is to be the BIG difference for a better life by delivering unmatched value through surprise and delight, building a “Best Places to Work” culture, rewarding shareholders with consistent growth and top tier returns, and doing good as we do well. Our values are leading with our core customer (whom we refer to as Jennifer), treating all like friends, succeeding together, and playing to win. Our principal executive offices are located at 4900 E. Dublin-Granville Road, Columbus, Ohio 43081, and our telephone number is (614) 278‑6800. Unless this Annual Report on Form 10-K (“Form 10-K”) otherwise indicates or the context otherwise requires, the terms the “Company,” “we,” “us,” and “our” refer to Big Lots, Inc. and its subsidiaries. Similar to many other retailers, our fiscal year ends on the Saturday nearest to January 31, which results in some fiscal years being comprised of 52 weeks and some fiscal years being comprised of 53 weeks. Unless otherwise stated, references to years in this Form 10-K relate to fiscal years rather than to calendar years. The following table provides a summary of our fiscal year calendar and the associated number of weeks in each fiscal year: Fiscal Year Number of Weeks Year Begin Date 2021 2020 2019 2018 2017 2016 52 52 52 52 53 52 January 31, 2021 February 2, 2020 February 3, 2019 February 4, 2018 January 29, 2017 January 31, 2016 Year End Date January 29, 2022 January 30, 2021 February 1, 2020 February 2, 2019 February 3, 2018 January 28, 2017 We manage our business on the basis of one segment: discount retailing. In 2020, we evaluated and reported overall sales and merchandise performance based on the following key merchandising categories: Furniture; Seasonal; Soft Home; Food; Consumables; Hard Home; and Electronics, Toys, & Accessories. The Furniture category includes our upholstery; mattress; case goods; and ready-to-assemble departments. The Seasonal category includes our lawn & garden; summer; Christmas; and other holiday departments. The Soft Home category includes our fashion bedding; utility bedding; bath; window; decorative textile; home organization; area rugs; home décor; and frames departments. The Food category includes our beverage & grocery; candy & snacks; and specialty foods departments. The Consumables category includes our health, beauty and cosmetics; plastics; paper; chemical; and pet departments. The Hard Home category includes our small appliances; table top; food preparation; stationery; and home maintenance departments. The Electronics, Toys, & Accessories category includes our electronics; toys; jewelry; apparel; and hosiery departments. Merchandising We focus our merchandising strategy on (1) being the authority on price and value to Jennifer in all of our merchandise categories and (2) surprising and delighting Jennifer with our product assortment. We utilize traditional sourcing methods and in certain merchandise categories, we also take advantage of closeout channels to enhance our ability to offer outstanding value and bring surprise and delight into our product offerings. We evaluate our product offerings to ensure we are providing quality and value. This process requires us to focus our product offering decisions on our customer’s expectations and enables us to compare the potential performance of traditionally-sourced merchandise, either domestic or import, to closeout merchandise, which is generally sourced from production overruns, packaging changes, discontinued products, order cancellations, liquidations, returns, and other disruptions in the supply chain of manufacturers. We believe that focusing on our customers’ expectations has improved our ability to provide a desirable assortment of offerings in our merchandise categories. 2 Table of Contents We source our merchandise through both closeout opportunities and planned purchases to provide Jennifer with the novelty of closeouts and the consistency of staple product offerings. Our planned purchases in the Food, Consumables, Soft Home, and Furniture merchandise categories provide a merchandise assortment that our customers expect us to consistently offer in our stores at a significant value. Over the last two years, we have focused on increasing our sourcing and purchasing of quality closeout merchandise directly from manufacturers and other vendors, typically at prices lower than those paid by traditional discount retailers. We believe that our strong vendor relationships and our strong credit profile support this sourcing model. We expect that the unpredictability of the retail and manufacturing environments coupled with what we believe is our significant purchasing power position will continue to support our ability to source quality closeout merchandise at competitive prices. As a result of our renewed focus on closeouts, our 2020 closeout-related net sales increased by approximately 37% compared to 2019. Our global sourcing department and overseas vendor relationships represent important components of our merchandising strategy. We expect our import partners to responsibly source goods that our merchandising teams identify as having our desired mix of quality, fashion, and value. During 2020, we purchased approximately 21% of our merchandise, at cost, directly from overseas vendors, including approximately 13% from vendors located in China. Additionally, a significant amount of our domestically-purchased merchandise is manufactured abroad. As a result, a significant portion of our merchandise supply is subject to certain risks described in “Item 1A. Risk Factors” of this Form 10-K. Advertising and Promotion Our brand image is an important part of our marketing program. We use a variety of marketing vehicles to promote our brand awareness, including television, internet, social media, e-mail, in-store point-of-purchase, and print media. Over the past few years, we have refined our brand identity to accentuate our friendly service and community orientation. We focus on serving Jennifer with a friendly approach and an easy, positive shopping experience. We believe our approach to retailing differentiates us from the competition and allows us to make a difference in the communities we serve. Our community-oriented approach to retailing includes “doing good as we do well,” which means supporting both local and national causes that aid the communities in which we do business. In our local markets, we invest in point of sale campaigns in each of our geographic regions, the beneficiaries of which are selected based on their impacts on local customers and associates. We serve the community on a national level through our Big Lots Foundation, which focuses on healthcare, housing, hunger, and education. In addition, we are pleased to support our local community in Columbus, OH through our partnership with Nationwide Children’s Hospital, to which the Company committed $40 million and the Big Lots Foundation committed additional funds to open the Big Lots Behavioral Health Pavilion, a state-of-the-art medical facility dedicated to child and adolescent mental and behavioral health. In all of our markets, we design and distribute printed advertising circulars, through newspaper insertions and mailings. In 2020, we distributed multi-page circulars representing 23 weeks of advertising coverage, compared to 29 circulars in 2019. We create regional versions of these circulars to tailor our advertising message based on market differences caused by product availability, climate, and customer preferences. Our customer database is an important marketing tool that allows us to communicate in a cost-effective manner with our customers, including through e-mail delivery of our circulars, announcement of flash sales, and product-specific promotions. In addition, our BIG Rewards program rewards our customers for making frequent and high-ticket purchases and offers a special birthday reward. We utilize insights gained through the BIG Rewards program to evaluate the effectiveness of our promotions and tailor promotions to our customers’ desires. At January 30, 2021, our BIG Rewards program included nearly 21 million active members who had made a purchase in our stores in the last 12 months. In 2020, we substantially increased our investment in social media marketing and digital media marketing, which includes Facebook®, Instagram®, Twitter®, Pinterest®, and YouTube®. Our marketing program also employs a traditional television campaign, which combines strategic branding and promotional elements used in most of our other marketing media. Our highly-targeted media placement strategy uses strategically selected networks and programs aired by national cable providers as the foundation of our television advertising. In addition, we use in-store promotional materials, including in-store signage, to emphasize special bargains and significant values offered to our customers. Total advertising expense as a percentage of total net sales was 1.7%, 1.8%, and 1.8% in 2020, 2019, and 2018, respectively. 3 Table of Contents Competition We operate in the highly competitive retail industry. We face strong sales competition from other general merchandise, discount, food, furniture, arts and crafts, and dollar store retailers, which operate in traditional brick and mortar stores and/or online. Additionally, we compete with a number of companies for retail site locations, to attract and retain quality employees, and to acquire our broad merchandising assortment from vendors. We operate an e-commerce platform which faces additional competition from a wider range of retailers in a highly competitive marketplace, where we compete for customers, fulfillment capabilities, and technological innovation. Real Estate The following table compares the number of our stores in operation at the beginning and end of each of the last five fiscal years: 2020 2019 2018 2017 2016 Stores open at the beginning of the year 1,404 1,401 1,416 1,432 1,449 Stores opened during the year Stores closed during the year 24 (20) 54 (51) 32 (47) 24 (40) 9 (26) Stores open at the end of the year 1,408 1,404 1,401 1,416 1,432 For additional information about our real estate strategy, see the discussion under the caption “Operating Strategy - Real Estate” in the accompanying “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) in this Form 10-K. The following table details our U.S. stores by state at January 30, 2021: Alabama Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana 29 33 11 150 18 14 5 104 50 6 33 44 3 7 40 21 Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming 6 26 23 46 1 14 23 3 3 12 6 29 11 66 72 1 98 18 15 68 1 35 47 112 7 4 40 27 15 9 2 Total stores Number of states 1,408 47 Of our 1,408 stores, 33% operate in four states: California, Texas, Florida, and Ohio, and net sales from stores in these states represented 33% of our 2020 net sales. We have a concentration in these states based on their size, population, and customer base. 4 Table of Contents Warehouse and Distribution The majority of our merchandise offerings are processed for retail sale and distributed to our stores from five regional distribution centers located in Alabama, California, Ohio, Oklahoma, and Pennsylvania. We select the locations of our distribution centers to help manage transportation costs and to minimize the distance from our distribution centers to our stores. While certain of our merchandise vendors deliver directly to our stores, the large majority of our inventory is staged and delivered from our distribution centers to facilitate prompt and efficient distribution and transportation of merchandise to our stores and help maximize our sales and inventory turnover. In addition to our regional distribution centers that handle store merchandise, we operate two warehouses within our Ohio distribution center. One warehouse distributes fixtures and supplies to our stores and our five regional distribution centers and the other warehouse supplements our fulfillment center for our e-commerce operations. In 2020, to supplement our e-commerce fulfillment center, we began fulfilling direct-ship e-commerce orders from 47 of our store locations, which we strategically selected based on geographic location, size, and other relevant factors. We continue to evaluate our e-commerce fulfillment capabilities to reduce shipping times. In 2021, we intend to expand our distribution network by opening two small-format distribution centers, which will be operated by a third party, to increase the efficiency and capacity of our supply chain, and support future growth. These small-format distribution centers will process full-pallet shipments and other bulky items, particularly furniture, which will allow our regional distribution centers to focus on standard carton processing. For additional information regarding our warehouses and distribution facilities and related initiatives, see the discussion under the caption “Warehouse and Distribution” in “Item 2. Properties” of this Form 10-K. 5 Table of Contents Seasonality We have historically experienced seasonal fluctuations in our sales and profitability, with a larger percentage of our net sales and operating profit realized in our fourth fiscal quarter, which includes the Christmas holiday selling season. In addition, our quarterly net sales and operating profits can be affected by the timing of new store openings and store closings, advertising, and certain holidays. We historically receive a higher proportion of merchandise, carry higher inventory levels, and incur higher outbound shipping and payroll expenses as a percentage of sales in our third fiscal quarter in anticipation of increased sales activity during our fourth fiscal quarter. Performance during our fourth fiscal quarter typically reflects a leveraging effect which has a favorable impact on our operating results because net sales are higher and certain of our costs, such as rent and depreciation, are fixed and do not vary as sales levels escalate. If our sales performance is significantly better or worse during the Christmas holiday selling season, we would expect a more pronounced impact on our annual financial results than if our sales performance is significantly better or worse in a different season. Our net sales as a percentage of full year in the second quarter of 2020 were disproportionately higher as a result of increased demand arising from the COVID-19 pandemic. Due to the ongoing COVID-19 pandemic and the demand volatility we have experienced during the COVID-19 pandemic, the seasonality of our 2021 results may also differ from historical experience. The following table sets forth the seasonality of net sales and operating profit (loss) for 2020, 2019, and 2018 by fiscal quarter: Fiscal Year 2020 Net sales as a percentage of full year Operating profit as a percentage of full year (a) Fiscal Year 2019 Net sales as a percentage of full year Operating profit as a percentage of full year (b) Fiscal Year 2018 Net sales as a percentage of full year Operating profit (loss) as a percentage of full year First Second Third Fourth 23.2 % 8.7 24.3 % 7.7 24.2 % 20.8 26.5 % 71.0 23.5 % 3.9 23.3 % 15.7 22.2 % 5.0 21.9 % 50.9 22.0 % (4.4) 28.1 % 15.3 30.3 % 37.5 30.5 % 67.9 (a) The second quarter of 2020 included a gain on sale of distribution centers and related expenses of $459.1 million related to the sale and leaseback of four distribution centers, which significantly increased second quarter operating profit as a percentage of full year in comparison to 2019 and 2018. (b) The third quarter of 2019 included a gain on sale of distribution center of $178.5 million, which significantly increased third quarter operating profit as a percentage of full year in comparison to 2018 and 2020. Human Capital At January 30, 2021, we had approximately 37,000 active associates comprised of 10,800 full-time and 26,200 part‑time associates. Approximately 71% of the associates we employed during 2020 were employed on a part-time basis. Temporary associates hired for the holiday selling season increased the total number of associates to a peak of approximately 39,100 in 2020. We are not a party to any labor agreements. We require all of our associates to adhere to our code of ethics and workplace safety protocols. We believe our associates are among our most important resources. We evaluate our human capital management at our stores, distribution centers, and corporate headquarters on the basis of associate engagement, diversity, equity, and inclusion, compensation and benefits, and talent development. Associate Engagement We send an associate engagement survey to each of the associates in our corporate headquarters and to our field and distribution center leadership on an annual basis to assess our associate engagement and ask those associates their thoughts on manager effectiveness, performance enablement, and our diversity and inclusion efforts. In 2020, 93% of the associates surveyed responded to the survey with an 82% favorable engagement rate. Based on results of the annual survey, our leaders create action plans to address areas where our associates have told us we can improve. 6 Table of Contents Diversity, Equity, and Inclusion We recognize the value of creating a diverse, equitable, and inclusive workplace. As a result, diversity, equity, and inclusion (“DEI”) is a significant component of our human capital management. In 2020, we established our Diversity, Equity, and Inclusion Council (“DEI Council”), which is comprised of associates from our stores, distribution centers, and corporate headquarters who represent various job levels, locations, ages, genders, languages, work shifts, races, sexual orientations, and leadership styles. The DEI Council’s mission is to lead the development and advancement of our DEI strategy. Additionally, we formed a Diversity, Equity, and Inclusion Executive Advisory Committee, which is comprised of senior leaders who provide guidance to the DEI Council, as well as approve our DEI strategy and promote its achievement throughout our organization. In 2021, our DEI strategy for human capital includes, among other things, a focus on recruitment and development of diverse talent, conscious inclusion training, and policy review to prevent bias. Compensation and Benefits We offer a competitive compensation and benefits package to our eligible associates including, among other benefits, incentive compensation, performance-based merit pay, paid holidays, paid vacation, 401(k) match, and healthcare coverage, including medical, dental, and vision insurance with health savings account and flexible savings account options. Our compensation and benefits packages are designed to attract and retain high-performing talent. Additionally, we provide our associates with a company discount on our merchandise and our associates redeemed approximately $37 million in corporate discounts in 2020. Talent Development Talent development is critical to developing the high-performance culture that we seek to foster. Each of our associates participates in an annual goal-setting process and completes an annual performance review, which is followed by periodic discussions throughout the year to assess progress. Each of our managers also completes an individual development plan on an annual basis to set and track long-term goals. Additionally, our business leaders participate in a succession planning process that serves as a tool for identifying and developing high-potential individuals within our organization as well as ensuring business continuity. We also offer a robust catalog of training and development programs to our associates through our Big Lots University training tool, which covers topics including, but not limited to, workplace harassment, safety, ethics, and job skills. COVID-19 Response One of our key business goals during 2020 was to ensure the safety and well-being of our associates during the COVID-19 pandemic. To provide a safe working environment for our associates and our customers, we increased sanitation protocols, secured personal protective equipment for our associates, installed plexiglass at all registers, implemented social distancing and mask protocols at our stores and distribution centers, and implemented daily health screens and temperature checks for all associates. From March 2020 through July 2020, we also provided our non-exempt store and distribution center associates with a $2 per hour wage increase and, in the second quarter of 2020, we made additional bonus payments to our associates. In 2020, we spent more than $50 million on these and other COVID-19 related response efforts. Available Information We make available, free of charge, through the “Investors” section of our website (www.biglots.com) under the “SEC Filings” caption, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as well as our definitive proxy materials filed pursuant to section 14 of the Exchange Act, as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). These filings are also available on the SEC’s website at http://www.sec.gov. In April 2021, we will publish our first Corporate Social Responsibility Report, titled Big Cares, which will be available on our website. The contents of our website are not incorporated into, or otherwise made a part of, this Form 10-K. 7 Table of Contents Item 1A. Risk Factors The statements in this item describe material risks to our business and should be considered carefully. In addition, these statements constitute cautionary statements under the Private Securities Litigation Reform Act of 1995. This Form 10-K contains forward-looking statements that set forth anticipated results based on management’s plans and assumptions. From time to time, we also provide forward-looking statements in other materials we release to the public and in oral statements that may be made by us. Such forward-looking statements give our current expectations or forecasts of future events. They do not relate strictly to historical or current facts. Such statements are commonly identified by using words such as “anticipate,” “estimate,” “approximate,” “expect,” “objective,” “goal,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “may,” “target,” “forecast,” “guidance,” “outlook,” and similar expressions in connection with any discussion of future operating or financial performance. In particular, forward-looking statements include statements relating to future actions, future performance, or results of current and anticipated products, sales efforts, expenses, interest rates, the outcome of contingencies, such as legal proceedings, and financial results. We cannot guarantee that any forward-looking statement will be actualized. Achievement of future results is subject to risks, uncertainties, and potentially inaccurate assumptions. If known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results or those anticipated, estimated, or projected results set forth in the forward-looking statements. You should bear this in mind as you consider forward-looking statements made or to be made by us. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. The following cautionary discussion of material risks, uncertainties, and assumptions relevant to our businesses describes factors that, individually or in the aggregate, we believe could cause our actual results to differ materially from expected and historical results. Additional risks not presently known to us or that we presently believe to be immaterial also may adversely impact us. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition, results of operations, and liquidity. Consequently, all forward-looking statements made or to be made by us are qualified by these cautionary statements, and there can be no assurance that the results or developments we anticipate will be realized or that they will have the expected effects on our business or operations. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. Our ability to achieve the results contemplated by forward-looking statements is subject to a number of factors, any one or a combination of which could materially affect our business, financial condition, results of operations, or liquidity. These factors may include, but are not limited to: Operational Risks If we are unable to successfully refine and execute our operating strategies, our operating performance could be significantly impacted. There is a risk that we will be unable to meet or exceed our operating performance targets and goals in the future if our strategies and initiatives are unsuccessful. Our ability to execute and/or refine our operating and strategic plans, as necessary, including cost savings initiatives, could impact our ability to meet our operating performance targets. Additionally, we must be able to effectively adjust our operating and strategic plans over time to adapt to an ever-changing marketplace. See the MD&A in this Form 10-K for additional information concerning our operating strategy. Our inability to properly manage our inventory levels and offer merchandise that meets changing customer demands may materially impact our business and financial performance. We must maintain sufficient inventory levels to successfully operate our business. However, we also must seek to avoid accumulating excess inventory to maintain appropriate in-stock levels based on evolving customer demands. We obtain slightly less than one quarter of our merchandise directly from vendors outside of the U.S. These foreign vendors often require us to order merchandise and enter into purchase order contracts for the purchase of such merchandise well in advance of the time we offer these products for sale. As a result, we may experience difficulty in rapidly responding to a changing retail environment, which makes us vulnerable to changes in price and in consumer preferences. In addition, we attempt to maximize our operating 8 Table of Contents profit and operating efficiency by delivering proper quantities of merchandise to our stores in a timely manner. If we do not accurately anticipate future demand for a particular product or the time it will take to replenish inventory levels, our inventory levels may not be appropriate and our results of operations may be negatively impacted. Disruption to our distribution network, the capacity of our distribution centers, and our timely receipt of merchandise inventory could adversely affect our operating performance. We rely on our ability to replenish depleted merchandise inventory through deliveries to our distribution centers and from the distribution centers to our stores by various means of transportation, including shipments by sea, rail and truck carriers. A decrease in the capacity of carriers and/or labor strikes, disruptions or shortages in the transportation industry could negatively affect our distribution network, our timely receipt of merchandise and/or our transportation costs. In addition, disruptions to the U.S. and international transportation infrastructure from wars, political unrest, terrorism, natural disasters, pandemic diseases, governmental budget constraints and other significant events that lead to delays or interruptions of service could adversely affect our business. Also, a fire, earthquake, or other disaster at one of our distribution centers could disrupt our timely receipt, processing and shipment of merchandise to our stores which could adversely affect our business. Additionally, as we seek to expand our operation through the implementation of our online retail capabilities, we may face increased or unexpected demands on distribution center operations, as well as new demands on our distribution network. Lastly, global pandemics, such as the COVID-19 pandemic, could lead to the shutdown of parts, or all, of our distribution network and generally disrupt our ability to receive, process, and ship merchandise to our stores and meet the demand of our customers. If we are unable to retain existing and/or secure suitable new store locations under favorable lease terms, our financial performance may be negatively affected. We lease almost all of our stores, and a significant number of these leases expire or are up for renewal each year, as noted below in “Item 2. Properties” and in MD&A in this Form 10-K. Our strategy to improve our financial performance includes increasing sales while managing the occupancy cost of each of our stores. The primary component of our sales growth strategy is increasing our comparable store sales, which will require renewing many leases each year. Additional components of our sales growth strategy include relocating certain existing stores to new locations within existing markets and opening new store locations, either as an expansion in an existing market or as an entrance into a new market. If the commercial real estate market does not allow us to negotiate favorable lease renewals and new store leases, our financial position, results of operations, and liquidity may be negatively affected. If we are unable to maintain or upgrade our computer systems or if our information technology or computer systems are damaged or cease to function properly, our operations may be disrupted or become less efficient. We depend on a variety of information technology and computer systems for the efficient functioning of our business. We rely on certain hardware, telecommunications and software vendors to maintain and periodically upgrade many of these systems so that we can continue to support our business. Various components of our information technology and computer systems, including hardware, networks, and software, are licensed to us by third party vendors. We rely extensively on our information technology and computer systems to process transactions, summarize results, and manage our business, including management and distribution of our inventory. Our information technology and computer systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyberattacks or other security breaches, obsolescence, catastrophic events such as fires, floods, earthquakes, tornados, hurricanes, acts of war or terrorism, and usage errors by our employees or our contractors. In recent years, we have begun using vendor-hosted solutions for certain of our information technology and computer systems, which are more exposed to telecommunication failures. If our information technology or computer systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations as a result. Any material interruption experienced by our information technology or computer systems could negatively affect our business and results of operations. Costs and potential interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of our existing systems could disrupt or reduce the efficiency of our business. 9 Table of Contents Human Capital Risks If we are unable to attract, train, and retain highly qualified associates while also controlling our labor costs, our financial performance may be negatively affected. Our customers expect a positive shopping experience, which is driven by a high level of customer service from our associates and a quality presentation of our merchandise. To grow our operations and meet the needs and expectations of our customers, we must attract, train, and retain a large number of highly qualified associates, while at the same time control labor costs. We compete with other retail businesses for many of our associates in hourly and part-time positions. These positions have historically had high turnover rates, which can lead to increased training and retention costs. In addition, our ability to control labor costs is subject to numerous external factors, including prevailing wage rates, the impact of federal, state, or local minimum wage legislation (including the increased possibility of federal, state, and/or local wage rate legislation in 2021), the impact of legislation or regulations governing labor relations or benefits, and health insurance costs. The loss of key personnel may have a material impact on our future business and results of operations. We believe that we benefit substantially from the leadership and experience of our senior executives. The loss of the services of these individuals could have a material adverse impact on our business and results of operations. Competition for key personnel in the retail industry is intense, and our future success will depend on our ability to recruit, train, and retain our senior executives and other qualified personnel. Market and Competitive Risks If we are unable to compete effectively in the highly competitive discount retail industry, our business and results of operations may be materially adversely affected. The discount retail industry, which includes both traditional brick and mortar stores and online marketplaces, is highly competitive. As discussed in Item 1 of this Form 10-K, we compete for customers, products, employees, real estate, and other aspects of our business with a number of other companies. Some of our competitors have broader distribution (e.g., more stores and/or a more established online presence), and/or greater financial, marketing, and other resources than us. It is possible that increased competition, significant discounting, improved performance by our competitors, or an inability to distinguish our brand from our competitors may reduce our market share, gross margin, and operating margin, and may materially adversely affect our business and results of operations. If we are unable to compete effectively in today’s omnichannel retail marketplace, our business and results of operations may be materially adversely affected. With the saturation of mobile devices, competition from other retailers in the online retail marketplace is very high and growing. Certain of our competitors, and a number of pure online retailers, have established online operations against which we compete for customers and products. It is possible that the competition in the online retail space may reduce our market share, gross margin, and operating margin, and may materially adversely affect our business and results of operations in other ways. Our operations include an e-commerce platform with multiple fulfillment options to enhance our omnichannel experience. Operating an e-commerce platform is a complex undertaking and there is no guarantee that the resources we have applied to this effort will result in increased revenues or improved operating performance. If our online retailing initiatives do not meet our customers’ expectations, the initiatives may reduce our customers’ desire to purchase goods from us both online and at our brick and mortar stores and may materially adversely affect our business and results of operations. Deterioration in general economic conditions, disposable income levels, and other conditions, such as unseasonable weather or pandemic diseases, could lead to reduced consumer demand for our merchandise, thereby materially affecting our revenues and gross margin. Our results of operations can be directly impacted by the health of the U.S. economy. Our business and financial performance may be adversely impacted by current and future economic conditions, including factors that may restrict or otherwise negatively impact consumer financing, disposable income levels, unemployment levels, energy costs, interest rates, recession, and inflation, and other matters, such as tax reform, natural disasters, pandemic diseases, or terrorist activities, that influence consumer spending. Specifically, our Soft Home, Hard Home, Furniture and Seasonal merchandise categories may be threatened when disposable income levels are negatively impacted by economic conditions. Additionally, the net sales of cyclical product offerings in our Seasonal category may be threatened when we experience extended periods of unseasonable weather. Inclement weather can also negatively impact our Furniture category, as many customers transport the product home 10 Table of Contents personally. In particular, the economic conditions and weather patterns of four states (California, Texas, Florida, and Ohio) are important as approximately 33% of our current stores operate and 33% of our 2020 net sales occurred in these states. Cybersecurity Risks If we are unable to secure customer, employee, vendor and company data, our systems could be compromised, our reputation could be damaged, and we could be subject to penalties or lawsuits. In the normal course of business, we process and collect relevant data about our customers, employees and vendors. The protection of our customer, employee, vendor and company data and information is critical to us. We have implemented procedures, processes and technologies designed to safeguard our customers’ debit and credit card information and other private data, our employees’ and vendors’ private data, and our records and intellectual property. We utilize third-party service providers in connection with certain technology related activities, including credit card processing, website hosting, data encryption and software support. We require these providers to take appropriate measures to secure such data and information and assess their ability to do so. Despite our procedures, technologies and other information security measures, we cannot be certain that our information technology systems or the information technology systems of our third-party service providers are or will be able to prevent, contain or detect all cyberattacks, cyberterrorism, or security breaches. As evidenced by other retailers who have suffered serious security breaches, we may be vulnerable to data security breaches and data loss, including cyberattacks. A material breach of our security measures or our third-party service providers’ security measures, the misuse of our customer, employee, vendor and company data or information or our failure to comply with applicable privacy and information security laws and regulations could result in the exposure of sensitive data or information, attract a substantial amount of negative media attention, damage our customer or employee relationships and our reputation and brand, distract the attention of management from their other responsibilities, subject us to government enforcement actions, private litigation, penalties and costly response measures, and result in lost sales and a reduction in the market value of our common shares. While we have taken action to mitigate our financial risk, in the event we experience a material data or information security breach, our protection may not be sufficient to cover the impact to our business. In addition, the regulatory environment surrounding data and information security and privacy is increasingly demanding, as new and revised requirements are frequently imposed across our business. Compliance with more demanding privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes. Regulatory and Legal Liability Risks We rely on manufacturers located in foreign countries, including China, for significant amounts of merchandise, including a significant amount of our domestically-purchased merchandise. Our business may be materially adversely affected by risks associated with international trade, including the impact of tariffs and/or sanctions imposed by the U.S. with respect to certain consumer goods imported from China and the impact of the COVID-19 pandemic. Global sourcing of many of the products we sell is an important factor in driving higher operating profit. During 2020, we purchased approximately 21% of our products, at cost, directly from overseas vendors, including 13% from vendors located in China. Additionally, a significant amount of our domestically-purchased merchandise is manufactured abroad. Our ability to identify qualified vendors and to access products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced outside of the U.S. Global sourcing and foreign trade involve numerous risks and uncertainties beyond our control, including increased shipping costs, increased import duties, more restrictive quotas, loss of most favored nation trading status, currency and exchange rate fluctuations, work stoppages, transportation delays, economic uncertainties such as inflation, foreign government regulations, political unrest, pandemic diseases, natural disasters, war, terrorism, trade restrictions and tariffs (including retaliation by the U.S. against foreign practices or by foreign countries against U.S. practices), the financial stability of vendors, or merchandise quality issues. U.S. policy on trade restrictions is ever-changing and may result in new laws, regulations, or treaties that increase the costs of importing goods and/or limit the scope of available foreign vendors. These and other issues affecting our international vendors could materially adversely affect our business and financial performance. The majority of our products and components of our products imported from China are currently subject to tariffs and proposed tariffs. As a result, we are continually evaluating the potential impact of the effective and proposed tariffs on our supply chain, costs, sales, and profitability, and are considering strategies to mitigate such impact, including reviewing sourcing options, exploring first sale valuation strategies, filing requests for exclusion from the tariffs with the U.S. Trade Representative for 11 Table of Contents certain product lines, and working with our vendors and merchants. Given the volatility and uncertainty regarding the scope and duration of these tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the impact on our operations and results is uncertain and could be significant. We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful. To the extent that our supply chain, costs, sales, or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition and results of operations may be materially adversely affected. The COVID-19 pandemic has led to general manufacturing and supply chain disruption in the U.S. and globally, including manufacturers and supply chains that produce our retail merchandise, supplies, and fixtures. To the extent our manufacturers, supply chain and associated costs are negatively affected by the COVID-19 pandemic, including delayed shipment of seasonally sensitive product offerings, our business, financial condition, results of operations, and liquidity may be materially adversely affected. Changes in federal or state legislation and regulations, including the effects of legislation and regulations on product safety and hazardous materials, could increase our cost of doing business and adversely affect our operating performance. We are exposed to the risk that new federal or state legislation, including new product safety and hazardous material laws and regulations, may negatively impact our operations, increase our cost of doing business and adversely affect our operating performance. Changes in product safety legislation or regulations may lead to product recalls and the disposal or write-off of merchandise, as well as fines or penalties and reputational damage. If our merchandise and food products do not meet applicable governmental safety standards or our customers’ expectations regarding quality or safety, we could experience lost sales, increased costs and be exposed to legal and reputational risk. In addition, if we discard or dispose of our merchandise, particularly that which is non-salable, in a fashion that is inconsistent with jurisdictional standards, we could expose ourselves to certain fines and litigation costs related to hazardous material regulations. Our inability to comply on a timely basis with regulatory requirements, execute product recalls in a timely manner, or consistently implement waste management standards, could result in fines or penalties which could have a material adverse effect on our financial results. In addition, negative customer perceptions regarding the safety of the products we sell could cause us to lose market share to our competitors. If this occurs, it may be difficult for us to regain lost sales. We are subject to periodic litigation and regulatory proceedings, including Fair Labor Standards Act, state wage and hour, and shareholder class action lawsuits, which may adversely affect our business and financial performance. From time to time, we are involved in litigation and regulatory actions, including various collective, class action or shareholder derivative lawsuits that are brought against us for alleged violations of the Fair Labor Standards Act, state wage and hour laws, sales tax and consumer protection laws, False Claims Act, federal securities laws and environmental and hazardous waste regulations. Due to the inherent uncertainties of litigation, we may not be able to accurately determine the impact on us of any future adverse outcome of such proceedings. The ultimate resolution of these matters could have a material adverse impact on our financial condition, results of operations, and liquidity. In addition, regardless of the outcome, these proceedings could result in substantial cost to us and may require us to devote substantial attention and resources to defend ourselves. For a description of certain current legal proceedings, see note 9 to the accompanying consolidated financial statements. Our current insurance program may expose us to unexpected costs and negatively affect our financial performance. Our insurance coverage is subject to deductibles, self-insured retentions, limits of liability and similar provisions that we believe are prudent based on our overall operations. We may incur certain types of losses that we cannot insure or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime, some natural disasters, and pandemic diseases. If we incur these losses and they are material, our business could suffer. Certain material events may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases. To offset negative cost trends in the insurance market, we may elect to self-insure, accept higher deductibles or reduce the amount of coverage in response to these market changes. In addition, we self-insure a significant portion of expected losses under our workers’ compensation, general liability, including automobile, and group health insurance programs. Unanticipated changes in any applicable actuarial assumptions and management estimates underlying our recorded liabilities for these self-insured losses, including potential increases in medical and indemnity costs, could result in significantly different expenses than expected under these programs, which could have a material adverse effect on our financial condition and results of operations. Although we continue to maintain property insurance for catastrophic events, we are self-insured for losses up to the amount of our deductibles. If we experience a greater number of self-insured losses than we anticipate, our financial performance could be adversely affected. 12 Table of Contents Financial Risks If we are unable to comply with the terms of the 2018 Credit Agreement, our capital resources, financial condition, results of operations, and liquidity may be materially adversely effected. We may need to borrow funds under our $700 million five-year unsecured credit facility (“2018 Credit Agreement”) from time to time, depending on operating or other cash flow requirements. The 2018 Credit Agreement contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens, and investments, as well as the maintenance of a leverage ratio and a fixed charge coverage ratio. Additionally, we are subject to cross-default provisions under the synthetic lease agreement (the “Synthetic Lease”) that we entered in connection with our distribution center in California. A violation of any of these covenants may permit the lenders to restrict our ability to borrow additional funds, provide letters of credit under the 2018 Credit Agreement and may require us to immediately repay any outstanding loans. Our failure to comply with these covenants may have a material adverse effect on our capital resources, financial condition, results of operations, and liquidity. A significant decline in our operating profit may impair our ability to realize the value of our long-lived assets. We are required by accounting rules to periodically assess our property and equipment and intangible assets for impairment and recognize an impairment loss, if necessary. In performing these assessments, we use our historical financial performance to determine whether we have potential impairments or valuation concerns and as evidence to support our assumptions about future financial performance. A significant decline in our financial performance could negatively affect the results of our assessments of the recoverability of our property and equipment, deferred tax assets, and our intangible assets and trigger the impairment of these assets. Impairment charges taken against property and equipment and intangible assets could be material and could have a material adverse impact on our capital resources, financial condition, results of operations, and liquidity. Other Risks We also may be subject to a number of other factors which may, individually or in the aggregate, materially adversely affect our business, capital resources, financial condition, results of operations and liquidity. These factors include, but are not limited to: • • • • • • • Changes in governmental laws, case law and regulations, including changes that increase our effective tax rate, comprehensive tax reform, or other matters related to taxation; Changes in accounting standards, including new interpretations and updates to current standards; A downgrade in our credit rating could negatively affect our ability to access capital or increase our borrowing costs; Events or circumstances could occur which could create bad publicity for us or for the types of merchandise offered in our stores which may negatively impact our business results including our sales; Fluctuating commodity prices, including but not limited to diesel fuel and other fuels used by utilities to generate power, may affect our gross profit and operating profit margins; Infringement of our intellectual property, including the Big Lots trademarks, could dilute their value; and Other risks described from time to time in our filings with the SEC. Item 1B. Unresolved Staff Comments None. 13 Table of Contents Item 2. Properties Retail Operations All of our stores are located in the U.S., predominantly in strip shopping centers, and have an average store size of approximately 32,700 square feet, of which an average of 22,700 is selling square feet. For additional information about the properties in our retail operations, see the discussion under the caption “Real Estate” in “Item 1. Business” and under the caption “Real Estate” in MD&A in this Form 10-K. The average cost to open a new store in a leased facility during 2020 was approximately $1.7 million, including the cost of construction, fixtures, and inventory. All of our stores are leased, except for the 50 stores we own in the following states: State California Colorado Florida Louisiana Michigan New Mexico Ohio Texas Total Stores Owned 36 3 3 1 1 2 1 3 50 Additionally, we own two closed sites which we are not currently operating and one of those sites is available for sale. Since these owned sites are no longer operating as active stores, they have been excluded from our store counts at January 30, 2021. Store leases generally obligate us for fixed monthly rental payments plus the payment, in most cases, of our applicable portion of real estate taxes, common area maintenance costs (“CAM”), and property insurance. Some leases require the payment of a percentage of sales in addition to minimum rent. Such payments generally are required only when sales exceed a specified level. Our typical store lease is for an initial minimum term of approximately ten years with multiple five-year renewal options. Twenty-six store leases have sales termination clauses that allow us to exit the location at our option if we do not achieve certain sales volume results. The following table summarizes the number of store lease expirations in each of the next five fiscal years and the total thereafter. As stated above, many of our store leases have renewal options. The table also includes the number of leases that are scheduled to expire each year that do not have a renewal option. The table includes leases for stores with more than one lease and leases for stores not yet open and excludes 18 month-to-month leases and 50 owned locations. Fiscal Year: Expiring Leases Leases Without Options 2021 2022 2023 2024 2025 Thereafter 245 204 235 190 204 267 64 45 46 23 29 7 Warehouse and Distribution At January 30, 2021, we leased and operated approximately 9.0 million square feet of distribution center and warehouse space in five distribution facilities strategically located across the United States. In the first quarter of 2020, we completed the transition of operations from our former Rancho Cucamonga, CA distribution center to our Apple Valley, CA distribution center, which we opened in the fourth quarter of 2019. The regional distribution centers utilize warehouse management technology, which we believe enables highly accurate and efficient processing of merchandise from vendors to our retail stores. The combined output of our regional distribution centers was approximately 2.4 million merchandise cartons per week in 2020. 14 Table of Contents Certain vendors deliver merchandise directly to our stores when it supports our operational goal to deliver merchandise from our vendors to the sales floor in the most efficient manner. We operate an e-commerce fulfillment center out of our Columbus, OH warehouse. In 2020, to supplement our Columbus, OH e-commerce fulfillment center, we began fulfilling direct-ship e- commerce orders from 47 of our store locations, which we strategically selected based on geographic location, size, and other relevant factors. Distribution centers and warehouse space, and the corresponding square footage of the facilities, by location at January 30, 2021, were as follows: Location Year Opened Total Square Footage Number of Stores Served (Square footage in thousands) Columbus, OH Montgomery, AL Tremont, PA Durant, OK Apple Valley, CA Total Corporate Office 1989 1996 2000 2004 2019 3,559 1,411 1,295 1,297 1,416 8,978 323 304 310 253 218 1,408 In 2018, we moved our corporate headquarters to a new leased facility within Columbus, Ohio. In 2019, we exercised our purchase option to acquire our headquarters facility and completed the purchase transaction in October 2019. Item 3. Legal Proceedings For information regarding certain legal proceedings to which we have been named a party or are subject, see note 9 to the accompanying consolidated financial statements. Item 4. Mine Safety Disclosures None. Supplemental Item. Executive Officers of the Registrant Our executive officers at March 30, 2021 were as follows: Name Bruce K. Thorn Gene Eddie Burt Andrej Mueller Age Offices Held 53 President and Chief Executive Officer 55 Executive Vice President, Chief Supply Chain Officer 44 Executive Vice President, Strategy and Chief Customer Officer Nicholas E. Padovano 57 Executive Vice President, Chief Stores Officer Jack A. Pestello 51 Executive Vice President, Chief Merchandising Officer Jonathan E. Ramsden 56 Executive Vice President, Chief Financial Officer and Chief Administrative Officer Officer Since 2018 2020 2019 2014 2020 2019 Ronald A. Robins, Jr. 57 Executive Vice President, Chief Legal and Governance Officer, General 2015 Counsel and Corporate Secretary Michael A. Schlonsky 54 Executive Vice President, Chief Human Resources Officer 2000 Bruce K. Thorn is our President and Chief Executive Officer. Before joining Big Lots in September 2018, he served as President and Chief Operating Officer of Tailored Brands, Inc., a leading specialty retailer of men’s tailored clothing and formalwear, from 2015 to 2018. Mr. Thorn also held various enterprise-level roles with PetSmart, Inc., most recently as Executive Vice President, Store Operations, Services and Supply Chain, as well as leadership positions with Gap, Inc., Cintas Corp, LESCO, Inc. and The United States Army. 15 Table of Contents Gene Eddie Burt is responsible for our supply chain and logistics. He was promoted to Executive Vice President, Chief Supply Chain Officer in January 2021 after serving as our Senior Vice President, Supply Chain since joining us in March 2019. Prior to joining us, Mr. Burt served as the Executive Vice President of Merchandising and Supply Chain at GNC Holdings, a specialty nutrition retailer. Additionally, Mr. Burt spent eight years with PetSmart, Inc., in multiple Vice President and Senior Vice President roles focusing on distribution, transportation, supply chain, and real estate development. His experience also includes logistics and supply chain roles with Tuesday Morning Corporation and Home Depot, Inc.. Andrej Mueller is responsible for business strategy and marketing. Mr. Mueller was promoted to Executive Vice President, Strategy and Chief Customer Officer in May 2020. Mr. Mueller joined us in October 2019 as Executive Vice President, Business Strategy. Prior to joining us, Mr. Mueller spent 18 years at Boston Consulting Group, an international management consulting firm, where he most recently was a partner and managing director. He has over 15 years of experience in the consumer products sector across a broad range of categories including personal care, snacks, beverages, cheese and dairy, and durable goods. He has worked in both developed and developing trade environments in Western and Eastern Europe, Russia, the Middle East, South Africa, and Latin America. Nicholas E. Padovano is responsible for store operations and customer engagement. He was promoted to Executive Vice President, Chief Stores Officer in March 2021. Mr. Padovano joined us in 2014 as Senior Vice President, Store Operations. Prior to joining us, Mr. Padovano was an executive at the Hudson Bay Company, a department store retailer, where he was responsible for store operations of the Bay and Zellers brands. Additionally, Mr. Padovano served as Head of Stores, Distribution and Supply Chain for Lowes Canada, a home improvement retailer. Jack A. Pestello is responsible for merchandising and global sourcing, merchandise presentation, and merchandise planning and allocation. Mr. Pestello joined us in July 2020 as Executive Vice President, Chief Merchandising Officer following seven years in leadership roles at Walmart Inc., an international retailer, where he most recently served as Senior Vice President and General Merchandise Manager for Walmart Inc.’s grocery business, after having served as Senior Vice President, Private Brands and Vice President of Walmart Inc’s International Division. Additionally, Mr. Pestello has previously served in leadership roles with Woolworths Group Ltd., an international retailer, and Daymon Worldwide, Inc., an international retail branding and sourcing consultant. Jonathan E. Ramsden is responsible for financial reporting and controls, financial planning and analysis, treasury, risk management, tax, internal audit, investor relations, real estate, and asset protection. Mr. Ramsden joined us in August 2019 as Executive Vice President, Chief Financial Officer and Chief Administrative Officer. Prior to joining us, Mr. Ramsden served for over seven years with Abercrombie & Fitch Co., an apparel retailer, as Chief Financial Officer and then later Chief Operating Officer. Additionally, Mr. Ramsden spent 10 years as Chief Financial Officer of TBWA Worldwide, a global marketing services group, after having served as Controller of TBWA’s parent, Omnicom Group Inc. Ronald A. Robins, Jr. is responsible for legal affairs, corporate governance and related matters. Mr. Robins was promoted to Executive Vice President in September 2019, and now serves as the Chief Legal and Governance Officer. Prior to that, Mr. Robins served as Senior Vice President, General Counsel and Corporate Secretary since joining us. Prior to joining us, Mr. Robins was a partner at Vorys, Sater, Seymour and Pease LLP and also previously served as General Counsel, Chief Compliance Officer, and Secretary of Abercrombie & Fitch Co., an apparel retailer. Michael A. Schlonsky is responsible for talent management and oversight of human resources. He was promoted to Executive Vice President in August 2015, and now serves as the Chief Human Resources Officer. He was promoted to Senior Vice President, Human Resources in August 2012 and promoted to Vice President, Associate Relations and Benefits in 2010. Prior to that, Mr. Schlonsky was promoted to Vice President, Associate Relations and Risk Management in 2005. Mr. Schlonsky joined us in 1993 as Staff Counsel and was promoted to Director, Risk Management in 1998, and to Vice President, Risk Management and Administrative Services in 2000. 16 Table of Contents Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “BIG.” The following table sets forth information regarding our repurchase of common shares during the fourth fiscal quarter of 2020: (In thousands, except price per share data) Period November 1, 2020 - November 28, 2020 November 29, 2020 - December 26, 2020 December 27, 2020 - January 30, 2021 Total (1) (a) Total Number of Shares Purchased (1)(2) 3 (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (b) Average Price Paid per Share (1)(2) $ 1,010 561 1,574 $ 47.47 45.30 48.31 46.38 — $ 1,009 561 1,570 $ 400,000 354,305 327,167 327,167 The 2020 Repurchase Authorization is comprised of an August 27, 2020 authorization by our Board of Directors for the repurchase of up to $500.0 million of our common shares. During the fourth quarter of 2020, we purchased approximately 1.6 million of our common shares for approximately $72.8 million under the 2020 Repurchase Authorization. The 2020 Repurchase Authorization has no scheduled termination date. (2) In November 2020, December 2020, and January 2021, in connection with the vesting of certain outstanding restricted stock units, we acquired 2,764, 752, and 11 of our common shares, respectively, which were withheld to satisfy minimum statutory income tax withholdings. At the close of trading on the NYSE on March 26, 2021, there were approximately 849 registered holders of record of our common shares. 17 Table of Contents The following graph and table compares, for the five fiscal years ended January 30, 2021, the cumulative total shareholder return for our common shares, the S&P 500 Index, and the S&P 500 Retailing Index. Measurement points are the last trading day of each of our fiscal years ended January 28, 2017, February 3, 2018, February 2, 2019, February 1, 2020 and January 30, 2021. The graph and table assume that $100 was invested on January 30, 2016, in each of our common shares, the S&P 500 Index, and the S&P 500 Retailing Index and reinvestment of any dividends. The stock price performance on the following graph and table is not necessarily indicative of future stock price performance. Indexed Returns Years Ended Base Period January January January January January January 2016 2017 2018 2019 2020 2021 $ 100.00 $ 100.00 127.64 $ 120.87 154.50 $ 148.47 86.44 $ 148.38 77.91 $ 180.37 180.46 211.48 309.14 Company / Index Big Lots, Inc. S&P 500 Index S&P 500 Retailing Index $ 100.00 $ 118.55 $ 167.52 $ 181.29 $ 218.65 $ 18 Table of Contents Item 6. Selected Financial Data The following statements of operations and balance sheet data have been derived from our consolidated financial statements and should be read in conjunction with MD&A and the consolidated financial statements and related notes included herein. (In thousands, except per share amounts and store counts) 2020 (a) 2019 (a) 2018 (a) 2017 (b) 2016 (a) Net sales $ 6,199,186 $ 5,323,180 $ 5,238,105 $ 5,264,362 $ 5,193,995 Cost of sales (exclusive of depreciation expense shown separately below) 3,701,800 3,208,498 3,116,210 3,121,920 3,094,576 Fiscal Year Gross margin Selling and administrative expenses Depreciation expense Gain on sale of distribution centers Operating profit Interest expense Other income (expense) Income before income taxes Income tax expense Net income Earnings per common share - basic: Earnings per common share - diluted: 2,497,386 2,114,682 2,121,895 2,142,442 2,099,419 1,965,555 1,823,409 1,778,416 1,723,996 1,730,956 138,336 134,981 124,970 117,093 120,460 (463,053) (178,534) — — — 856,548 334,826 218,509 301,353 248,003 (11,031) (16,827) (10,338) (6,711) (5,091) (911) (451) (558) 712 844,606 215,415 317,548 207,613 75,084 50,719 295,354 105,522 1,387 244,299 91,471 629,191 $ 242,464 $ 156,894 $ 189,832 $ 152,828 16.46 $ 16.11 $ 6.18 $ 6.16 $ 3.84 $ 3.83 $ 4.43 $ 4.38 $ 3.37 3.32 $ $ $ Weighted-average common shares outstanding: Basic Diluted 38,233 39,067 39,244 39,351 40,809 40,962 42,818 43,300 45,316 45,974 Cash dividends declared per common share $ 1.20 $ 1.20 $ 1.20 $ 1.00 $ 0.84 Balance sheet data: Total assets (c) Working capital (c) Cash and cash equivalents Long-term debt Shareholders’ equity Cash flow data: $ 4,037,257 $ 3,189,281 $ 2,023,347 $ 1,651,726 $ 1,607,707 585,165 559,556 193,129 489,443 432,365 315,784 52,721 46,034 51,176 51,164 35,764 279,464 374,100 199,800 106,400 $ 1,277,731 $ 845,464 $ 693,041 $ 669,587 $ 650,630 Cash provided by operating activities Cash provided by (used in) investing activities $ $ 399,349 $ 338,970 $ 234,060 $ 250,368 $ 311,925 452,987 $ (74,480) $ (376,473) $ (156,508) $ (84,701) Store data: Total gross square footage Total selling square footage Stores open at end of the fiscal year 46,008 32,016 1,408 45,453 31,705 1,404 44,500 31,217 1,401 44,638 31,399 1,416 44,570 31,519 1,432 (a) The period presented is comprised of 52 weeks. (b) The period presented is comprised of 53 weeks. (c) In 2019, we adopted Accounting Standards Update 2016-02, Leases (Topic 842). As such, 2020 and 2019 include right-of- use assets and operating lease liabilities and are not comparable to the other fiscal years presented. 19 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview The discussion and analysis presented below should be read in conjunction with the accompanying consolidated financial statements and related notes. Please refer to “Item 1A. Risk Factors” of this Form 10-K for a discussion of forward-looking statements and certain risk factors that may have a material adverse effect on our business, financial condition, results of operations, and/or liquidity. Our fiscal year ends on the Saturday nearest to January 31, which results in some fiscal years with 52 weeks and some with 53 weeks. Fiscal years 2020, 2019, and 2018 were comprised of 52 weeks. Fiscal year 2021 will also be comprised of 52 weeks. Operating Results Summary The following are the results from 2020 that we believe are key indicators of our financial condition and results of operations when compared to 2019. • • • • • Net sales increased $876.0 million, or 16.5%. Comparable sales for stores open at least fifteen months, plus our e-commerce operations, increased $816.1 million, or 16.1%. Gross margin dollars increased $382.7 million and gross margin rate increased 60 basis points to 40.3% of net sales. Selling and administrative expenses increased $142.2 million. However, as a percentage of net sales, selling and administrative expenses decreased 260 basis points to 31.7% of net sales. Gain on sale of distribution centers increased $284.6 million to $463.1 million resulting from the sale of four distribution centers in 2020 compared to the sale of one distribution center in 2019. Operating profit increased $521.7 million to $856.5 million. Diluted earnings per share increased 161.5% to $16.11 per share, compared to $6.16 per share in 2019. Our return on invested capital increased to 48.4% from 21.2%. Cash and cash equivalents increased $506.9 million to $559.6 million compared to $52.7 million in 2019. Inventory of $940.3 million represented a $19.0 million increase, or 2.1%, from 2019. • • • • • • We acquired 3.8 million of our outstanding common shares for $172.8 million under our 2020 Repurchase Authorization (as defined below) compared to 1.3 million of our outstanding common shares for $50.0 million, under share repurchase programs in 2019. • We declared and paid four quarterly cash dividends in the amount of $0.30 per common share, for a total paid amount of $47.0 million. The following table compares components of our consolidated statements of operations as a percentage of net sales: Net sales Cost of sales (exclusive of depreciation expense shown separately below) Gross margin Selling and administrative expenses Depreciation expense Gain on sale of distribution centers Operating profit Interest expense Other income (expense) Income before income taxes Income tax expense Net income 2020 2019 2018 100.0 % 100.0 % 100.0 % 59.7 40.3 31.7 2.2 (7.5) 13.8 (0.2) (0.0) 13.6 3.5 60.3 39.7 34.3 2.5 (3.4) 6.3 (0.3) (0.0) 6.0 1.4 59.5 40.5 34.0 2.4 0.0 4.2 (0.2) (0.0) 4.0 1.0 10.1 % 4.6 % 3.0 % 20 Table of Contents See the discussion below under the caption “2020 Compared To 2019” for additional details regarding the specific components of our operating results. See our Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended February 1, 2020 for a comparison of operating results for 2019 to operating results for 2018. In 2020, we recognized a gain on sale of distribution centers of $463.1 million related to the sale and leaseback of four distribution centers. Additionally, our selling and administrative expenses include $4.0 million of consulting and other costs associated with the sale and leaseback transactions. The combined gain on sale of distribution centers and associated consulting and other expenses increased our operating profit by $459.1 million and increased our diluted earnings per share by approximately $8.75 per share. See note 10 to the accompanying consolidated financial statements for additional information on the sale and leaseback transactions. In 2019, our cost of sales includes a $6.0 million charge for impairment of inventory in our greeting cards department, which we chose to exit in the first quarter of 2019. Additionally, our selling and administrative expenses include $38.3 million of costs associated with our transformational restructuring initiative, which we refer to as “Operation North Star”, announced in the first quarter of 2019 and $7.3 million in estimated costs associated with employee wage and hour claims brought against us in the state of California. We also recognized a gain on sale of distribution center of $178.5 million related to the sale of our Rancho Cucamonga, CA distribution center which increased our 2019 operating profit by $178.5 million and increased our diluted earnings per share by approximately $3.47 per share. See note 10 to the accompanying consolidated financial statements for additional information on this sale transaction. Operating Strategy In 2019, the Company completed an initial, comprehensive review of its operating strategy. The outcome of the review was a multi-year plan for a strategic transformation, which we refer to as “Operation North Star.” Operation North Star Operation North Star has three primary objectives: • • • Drive profitable long-term growth; Fund the journey; and Create long-term shareholder value. Drive profitable long-term growth The “drive profitable long-term growth” objective of Operation North Star is focused on growing our net sales, which includes: • • • • • • Strengthening our home offerings (“Home”), which spans our Furniture, Seasonal, and Soft Home merchandise categories, as a destination for Jennifer; Growing our own brands, especially our Broyhill® brand; Growing store traffic; Responsibly investing in store presentation initiatives to create an easy shopping experience; Growing our store count; and Growing our e-commerce sales. Fund the journey The “fund the journey” objective of Operation North Star is focused on reducing costs so we can invest those savings in the growth areas of our business, which includes: • • • • • Expanding our gross margin rate; Increasing store efficiency and productivity; Increasing organizational efficiency; Encouraging a culture of frugality; and Continuously analyzing our purchasing habits and vendor agreements to ensure we are maximizing our buying power and making cost-effective decisions. Create long-term shareholder value The “create long-term shareholder value” objective is the culmination of our “drive profitable long-term growth” and “fund the journey” objectives. If we effectively execute the first two objectives of Operation North Star, we believe that we will deliver value to our shareholders through earnings growth over time. In addition, we continue to optimize our capital allocation to support Operation North Star initiatives while returning capital to our shareholders, when appropriate. 21 Table of Contents Enablers In recognition of the importance of having the appropriate technology and processes in place to achieve our “drive profitable long-term growth” and “fund the journey” objectives, we have established several enabler work streams with the following objectives: • • • Improve in-store engagement; Scale supply chain capabilities; and Nurture a high performance culture. Operation North Star Progress In 2020, we successfully completed the following under our Operation North Star strategy: • • • • • • • • • • Grew our Broyhill® brand offerings to account for over $400 million of net sales in 2020; Grew our net store count by four stores, which is our second consecutive year of net store growth; Implemented our presentation initiatives, The Lot and Queue Line, in approximately 50% of our chain; Completed our Pantry Optimization project in our full chain of stores; Developed curbside pickup capabilities for our buy online pick up in store (“BOPIS”) orders; Partnered with Instacart® and PICKUP® to provide same-day delivery; Achieved 82% favorable associate engagement rate, which is above our retail industry benchmark; Increased our customer satisfaction score, which is based on survey results, by 600 bps to approximately 81% Expanded our gift card offerings to our e-commerce platform and third-party gift card sellers; and Expanded our e-commerce distribution network by implementing ship-from-store capabilities in 47 of our stores. Next Steps In 2021, we plan to implement the following initiatives to achieve our Operation North Star goals: • • • • • • • Expand our presentation initiatives, The Lot and Queue Line, to approximately 550 additional stores in our chain; Expand our distribution network by opening two small-format distribution centers to enable efficient processing of bulky items and full-pallet shipments; Implement a space planning tool to improve space productivity and insights; Expand our Broyhill® offerings to include housewares and kitchen textiles; Continue to grow our store count; Update the user interface of our e-commerce platform for easier online shopping; and Invest in e-commerce analytics tools for better insights into our customers’ online shopping habits. Merchandising We focus our merchandising strategy on (1) being the authority on price and value to Jennifer in all of our merchandise categories and (2) providing a merchandise assortment that surprises and delights her. Under Operation North Star, our merchandising strategy is also focused on strengthening our Home offerings. Home is an area where we believe Jennifer gives us the right to play and where we believe we can play to win. Strengthening Home begins with growing our own brands, particularly the Broyhill® brand, an iconic brand that we acquired in 2018. We launched the Broyhill® brand of product offerings in late 2019 with initial product offerings in our Furniture, Seasonal, Soft Home, and Hard Home merchandise categories. Available both in-store and online, we believe the Broyhill® assortment strengthens our Home assortment with a high-quality product offering at a value-based price that Jennifer finds attractive. In 2020, we expanded our assortment of Broyhill® products and our customers responded positively. Our Broyhill®- related net sales exceeded $400 million in 2020. In 2021, we plan to expand our Broyhill® assortment to include housewares and kitchen textiles. We believe our merchandising strategies for Furniture, Seasonal, and Soft Home position us to surprise and delight Jennifer with our Home offerings: • Our Furniture category primarily focuses on being a destination for our core customer’s home furnishing needs, such as upholstery, mattresses, case goods, and ready-to-assemble. In Furniture, we believe our competitive advantage is attributable to our sourcing relationships, our in-store availability, and everyday value offerings. A significant majority of our offerings in this category consist of replenishable products sold under our own brands or sourced from recognized brand-name manufacturers. Our long-standing relationships with certain brand-name manufacturers, most notably in our mattresses and upholstery departments, allow us to work directly with them to create product offerings specifically for us, which enables us to provide a high-quality product at a competitive price. Additionally, we believe our “buy today, take home today” practice of carrying in-stock inventory of our core furniture offerings, which allows Jennifer to take home her purchase at the end of her shopping experience, positively differentiates us from our 22 Table of Contents • • competition. We encourage Jennifer to shop and buy our products online anytime and anywhere, and we invite her into our stores to touch and feel the quality and comfort of our products. Additionally, Jennifer can have furniture delivered to her door same-day through PICKUP®, our new national delivery partner. We believe that offering a focused assortment, which is displayed in furniture vignettes, provides Jennifer a solution for decorating her home when combined with our home décor offerings. Supplementing our merchandising and presentation strategies, we provide multiple third-party financing options for our customers who may be more challenged for approval in traditional credit channels. Our financing partners are solely responsible for the credit approval decisions and carry the financial risk. Our Seasonal category strengthens Home with our patio furniture, gazebos, Christmas trim, and other holiday departments. We believe we have a competitive advantage in this category by offering trend-right products with a strong value proposition in our own brands. We have a large selection of samples assembled and displayed throughout the seasonal section of our store and have packaged the box stock so that it is very easy for Jennifer to purchase and take home. Much of this merchandise is sourced on an import basis, which allows us to maintain our competitive pricing. Additionally, our Seasonal category offers a mix of departments and products that surprise and delight by complementing her outdoor experience and holiday decorating desires. We continue to work with our vendors to expand the product assortment in our Seasonal category to respond to Jennifer’s evolving wants and needs. Our Soft Home category complements our Furniture and Seasonal categories in making our stores a destination for a broader range of Home needs. Over the past several years, we have enhanced our assortment in Soft Home by allocating more selling space to the category to support a wider range of replenishable, fashion-based products. We believe that we have a competitive advantage in Soft Home as a result of our trend-right, focused assortment with improved quality and perceived value, and our ability to furnish Jennifer’s home with décor that complements an in- store furniture purchase. We have worked to develop a “solutions” approach to complete a room through our cross- merchandising efforts, particularly color palette coordination, when combining our Soft Home offerings with our Furniture and Seasonal categories. We believe that this approach helps Jennifer envision how the product can work in her home and enhances our brand image. We consider Food, Consumables, Hard Home, and Electronics, Toys, & Accessories as convenience categories: • Our Food and Consumables categories focus primarily on catering to Jennifer’s daily essentials by providing reliable value, consistency, and convenience of product offerings. We believe we possess a competitive advantage in the Food and Consumables categories based on our sourcing capabilities for closeout merchandise. Manufacturers and vendors have closeout merchandise for a variety of different reasons, including other retailers canceling orders or going out of business, production overruns, or marketing or packaging changes. We believe our vendor relationships, along with our size and financial strength, afford us these opportunities. To supplement our closeout business, we have focused on improving and expanding our brand name, “never out” product assortment to provide more consistency in those areas where Jennifer desires consistently available product offerings, such as over-the-counter medications. We believe that we have added top brands to our “never out” programs in Consumables and that our assortment and value proposition will continue to differentiate us in this highly competitive industry. In 2020, we reallocated space from the Food category to the Consumables category through our “Pantry Optimization” initiative, which right-sized our food assortment, including reducing our refrigerated foods, and allowed us to expand the “never out” Consumables assortment that Jennifer has told us she loves. • We believe that our Hard Home and Electronics, Toys, & Accessories categories serve as convenient adjacencies to our other merchandise categories. Over the past several years, with the exception of apparel, we have intentionally narrowed our assortments in these categories and reallocated space from these categories to our Home categories. These categories focus on value, and savings in comparison to competitors, in areas such as food prep, table top, home maintenance, small appliances, electronics, and apparel. In 2020, we expanded our apparel assortment to include graphic tees following a successful test during 2019. These graphic tees are primarily displayed in The Lot, but also appear in other sections of our store. Additionally, during 2020, we took advantage of several well-received closeout opportunities to expand our apparel offering and we intend to continue seeking apparel closeouts going forward. Our merchandising management team is aligned with our merchandise categories, and their primary goal is to increase our total company comparable sales (“comp” or “comps”), which includes stores open at least fifteen months, plus our e-commerce operations. Our review of the performance of the members of our merchandise management team focuses on comps by merchandise category, as we believe it is the key metric that will drive our long-term net sales. By focusing on strengthening our Home offerings, and managing our convenience categories, we believe our merchandise management team can effectively address the changing shopping behaviors of our customers and implement more focused offerings within each merchandise category, which we believe will lead to continued comp growth. 23 Table of Contents Marketing The top priority of our marketing activities is to increase our net sales and comps by developing our brand identity as (1) the authority on price and value for Jennifer and (2) a source of surprise and delight. Over the past few years, we have reviewed our brand identity to gain further insights into Jennifer’s perception of us and how best to improve the overall effectiveness of our marketing efforts. Our research has affirmed that Jennifer is deal-driven, enjoys a “treasure hunt,” comes to us for our value- priced merchandise assortment, and appreciates our ability to assist her in fashioning and furnishing her home so that she can feel empowered to enjoy the space with family and friends. We believe our strong price value perception and the surprise and delight factor in our stores enhances our ability to effectively connect with Jennifer in a way that lets her understand when shopping at Big Lots, she can afford to live Big, while saving Lots. In an effort to align our messaging with the positive aspects of Jennifer’s perception of our brand, we have focused our marketing efforts on driving our value proposition in every season and category. We continue to increase our use of social and digital media outlets, including conducting entire campaigns through these outlets (specifically on Facebook®, Instagram®, Pinterest®, Twitter®, and YouTube®), to drive an increased understanding of our value proposition with our core customer and to communicate that message to new potential customers. These outlets enable us to deliver our message directly to Jennifer and provide her with the opportunity to share direct feedback with us, which can enhance our understanding of what is most important to her and how we can improve the shopping experience in our stores. Given our customer’s proficiency with mobile devices and digital media, we focus on communicating with her through those channels. Our BIG Rewards Program allows us to more effectively incentivize our loyal customers and encourage new membership by highlighting the significant features and benefits. Our loyalty program rewards Jennifer with a coupon after every third purchase, a birthday reward offer, and special rewards after large-ticket furniture purchases. Research has shown there is a direct correlation between loyal, frequent shoppers and a larger basket. We believe that growing the membership base of the BIG Rewards Program will provide more opportunities to understand and leverage customer behavior through segmentation. We leverage our rewards program database to gain insights into shopping behaviors, reengage lapsed members, and tailor our assortment and promotions to Jennifer’s desires. At January 30, 2021, our BIG Rewards Program had nearly 21 million active members (defined as having made a purchase in the last 12 months) and we are focused on continuing to grow the membership base of our BIG Rewards Program in 2021. In addition to electronic, social and digital media, our marketing communication efforts involve a mix of television advertising, printed ad circulars, and in-store signage. The primary goals of our television advertising are to promote our brand and, from time to time, promote products or special discounts in our stores. We have also shifted towards using more digital streaming media in concentrated markets, which allows us to connect more deeply and frequently with Jennifer. Our printed advertising circulars and our in-store signage initiatives focus on promoting our value proposition on our unique merchandise offerings. Shopping Experience One of the core objectives of Operation North Star is to responsibly invest in store presentation initiatives that create an easy shopping experience for our customers. From 2017 through 2019, we invested heavily in a presentation initiative we called “Store of the Future,” which moved our Furniture department to the front center of the store with Seasonal and Soft Home on either side and moved Food and Consumables to the back of the store, while keeping them visible with clear sight lines from the entrance of the store. Additionally, the Store of the Future concept included improved lighting and new flooring. Prior to 2020, we intended to expand the Store of the Future concept to our entire chain of stores. In 2020, we reevaluated our investment in the Store of the Future concept and chose to shift our focus to smaller scale initiatives, such as The Lot and Queue Line initiatives discussed below, that we believe will have a higher return on our investment. Therefore, we do not plan to invest in the Store of the Future concept going forward. In 2020, we implemented a presentation solution we call “The Lot” in approximately 50% of our stores. We designed The Lot to add incremental selling space to our store layout and display items from various merchandise categories placed in vignettes to promote life’s occasions, such as fall tailgating. The Lot offers surprise and delight to Jennifer by demonstrating the breadth and value of products that we offer in one convenient experience. Our expectation is to re-introduce Jennifer to the “treasure” that we offer, while removing the challenges of the “hunt” from the experience. In 2021, we plan to expand The Lot to approximately 550 additional stores. 24 Table of Contents Also in 2020, we implemented a streamlined checkout experience in approximately 50% of our stores that we call the “Queue Line,” which features a reconfigured checkout design. The Queue Line both enhances the customer experience and builds a bigger basket as our customers walk by new and expanded convenience offerings as they check out. Furthermore, the Queue Line creates additional selling space for our Furniture merchandise category. In 2021, we plan to expand the Queue Line to approximately 550 additional stores. As discussed above in “Merchandising,” in 2020, we reallocated space from the Food category to the Consumables category as part of our Pantry Optimization project. This project streamlined our Food assortment and added more staple Consumables offerings to provide the consistency that drives our customers to keep coming back to our stores. We believe this initiative has resonated well with our customers and we are continuing to refine our assortments to meet her needs. In addition to our efforts to improve the in-store shopping experience, Operation North Star is focused on improving our e- commerce shopping experience and growing e-commerce net sales. Our efforts are centered around removing barriers, creating a fun and easy experience, and expanding the items available for purchase online. Over the last few years, we have made a concerted effort to increase our “extended aisle” assortments on our e-commerce platform, which offer additional fabric and color options on products in our Furniture and Seasonal categories, including items only available online. In 2019, we launched our BOPIS program nationwide, which has allowed us to nearly double the available SKUs online. In 2020, we launched curbside pickup to supplement our BOPIS service, began selling gift cards online, reduced shipping times by expanding our distribution network to include ship-from-store capabilities at 47 stores around the country, and introduced same-day delivery of all items available in our stores through our partnerships with Instacart® and PICKUP®. In 2021, we plan to update the user interface of our e-commerce site to create an easier shopping experience and implement new analytics tools so we can gain better insights into our customer’s online shopping habits to fuel future improvements to the user experience. Lastly, we continue to offer a private label credit card and our Easy Leasing lease-to-own solutions for customer financing and a coverage/warranty program, focused on our Furniture and Seasonal merchandise categories, to round out Jennifer’s experience. Our private label credit card provides access to revolving credit, through a third party, for use on both larger ticket items and daily purchases. Our Easy Leasing lease-to-own program provides a single use opportunity for access to third-party financing. Our coverage/warranty program provides a method for obtaining multi-year warranty coverage for Furniture purchases. In 2021, we plan to expand our coverage/warranty program to include additional merchandise categories and offer coverage/warranty plans on our e-commerce platform. Real Estate Historically, we had determined that our average store size of approximately 22,000 selling square feet was appropriate for us to provide our core customer with a positive shopping experience and properly present a representative assortment of merchandise categories that our core customer finds meaningful. As we have shifted our net sales to a higher proportion of Furniture, we have chosen to gradually expand the size of our new stores to accommodate the Furniture vignettes. From 2017 through 2019, we remodeled existing stores and opened new stores in our Store of the Future layout. In 2020, we reevaluated our investment in the Store of the Future concept and chose to shift our focus to smaller scale initiatives that we believe will generate higher returns. Our current real estate development plans include a focus on growing our store count, which we expect to increase by 15 to 25 stores in 2021, and refreshing select older stores in our fleet, which includes low-cost updates to paint, flooring, restrooms, and exterior signage. During 2021, we anticipate opening 50 to 60 stores and closing approximately 35 of our existing locations, which includes approximately 20 relocations within the same market. As discussed in “Item 2. Properties,” of this Form 10-K, we have 245 store leases that will expire in 2021. The majority of our 2021 closings will involve the relocation of stores to improved locations within the same local market, with the balance resulting from a lack of renewal options or our belief that a location’s sales and operating profit volume are not strong enough to warrant additional investment in the location. As part of our evaluation of potential store closings, we consider our ability to transfer sales from a closing store to other nearby locations and generate a better overall financial result for the geographic market. For our remaining store locations with fiscal 2021 lease expirations, we expect to exercise our renewal option or negotiate lease renewal terms sufficient to allow us to continue operations and achieve an acceptable return on our investment. As we increase our capital investment in our stores, we have collaborated with our landlords to negotiate longer lease terms and renewal options. 25 Table of Contents 2020 COMPARED TO 2019 Net Sales Net sales by merchandise category (in dollars and as a percentage of total net sales), net sales change (in dollars and percentage), and comps in 2020 compared to 2019 were as follows: (In thousands) Furniture Soft Home Consumables Seasonal Food Electronics, Toys, & Accessories Hard Home Net sales 2020 2019 Change Comps $ 1,736,932 28.0 % $ 1,427,129 26.8 % $ 309,803 21.7 % 20.5 % 1,048,970 932,259 815,378 798,950 438,450 428,247 16.9 15.0 13.2 12.9 7.1 6.9 853,434 803,593 773,720 757,351 344,947 363,006 16.0 15.1 14.6 14.2 6.5 6.8 195,536 128,666 41,658 41,599 93,503 65,241 22.9 16.0 5.4 5.5 27.1 18.0 22.8 16.6 5.4 5.6 26.9 18.4 $ 6,199,186 100.0 % $ 5,323,180 100.0 % $ 876,006 16.5 % 16.1 % We periodically assess and make minor adjustments to our product hierarchy, which can impact the roll-up to our merchandise categories. Our financial reporting process utilizes the most current product hierarchy in reporting net sales by merchandise category for all periods presented. Therefore, there may be minor reclassifications of net sales by merchandise category compared to previously reported amounts. Net sales increased $876.0 million, or 16.5%, to $6,199.2 million in 2020, compared to $5,323.2 million in 2019. The increase in net sales was due to comp increases in each of our merchandise categories, with an overall comp increase of 16.1%, which increased net sales by $816.1 million. Additionally, there was a $59.9 million increase in net sales from our non-comparable stores, driven by increased sales in our new and relocated stores compared to our closed stores and the net increase of four stores in 2020. In 2020, we experienced a favorable impact to net sales due to our position as an “essential retailer” during the COVID-19 pandemic and an increased demand for our home products as customers were spending more time at home. In the first quarter, we experienced a significant increase in demand for “Essential Products”, which we define as food, consumables, health products, and pet supplies. The primary impact was in our Food and Consumables merchandise categories as customers began stocking up on Essential Products as concern over the COVID-19 pandemic grew. From the end of the first quarter through the second quarter of 2020, we experienced a surge in demand in our Furniture, Seasonal, Soft Home, and Hard Home categories driven by the release of government stimulus and unemployment funds under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. Following the release of government stimulus and unemployment funds, a “nesting” trend emerged. As a result of spending more time at home, customers chose to invest more in their home which drove a continued demand in our Furniture, Soft Home, and Hard Home through the balance of 2020. We experienced earlier-than-usual Christmas holiday sales late in the third quarter of 2020 and early in the fourth quarter of 2020, which, combined with an intentional reduction in Christmas inventory purchases due to demand uncertainty in the Spring of 2020, led to lower levels of Christmas seasonal inventory and had an unfavorable impact on net sales early in the fourth quarter of 2020. Late in the fourth quarter, we experienced a favorable impact to net sales due to the release of a second round of government stimulus funds. In 2020, we introduced The Lot and the Queue Line initiatives in approximately 50% of our stores, which also contributed to the increased net sales and positive comps compared to 2019. Additionally, the impact of our Pantry Optimization project, which was completed late in the third quarter of 2020, contributed to the increased net sales and positive comps in comparison to 2019. We believe we have successfully retained the new customers we attracted as a result of our position as an essential retailer and we have seen a positive response to our strategic initiatives and our product assortment’s alignment with customer demand. All of our merchandise categories generated increased net sales and positive comps in 2020 compared to 2019: • Our Furniture and Soft Home categories experienced increased net sales and positive comps during 2020, driven by our customers choosing to invest in home furnishings and home decor as a result of nesting trends throughout 2020, as well as a surge in demand following the release of government stimulus and unemployment funds in the second and fourth quarters of 2020. Additionally, customers have responded positively to our brand-name mattress assortment and our Broyhill® assortments. 26 Table of Contents • • • The increased sales and positive comps in our Food and Consumables categories were driven primarily by a surge in demand for Essential Products during the COVID-19 pandemic. Additionally, the Consumables category benefited from the completion of our Pantry Optimization project, which reallocated linear square footage from the Food category to the Consumables category. Our Seasonal category experienced an increase in net sales and positive comps driven by the summer, lawn & garden, and harvest departments. These increases were primarily driven by nesting trends, as our customers have spent more time in their homes throughout the COVID-19 pandemic, which increased their desire to decorate for holidays and invest in outdoor furniture and lawn maintenance. Additionally, we benefited from increased sales of high-ticket items such as patio furniture following the release of government unemployment and stimulus funds in mid-April 2020. Our customers have also continued to respond well to our Broyhill® patio furniture assortments. The increase in net sales and comps in our Seasonal category was partially offset by a decrease in net sales and comps in our Christmas department, which was due to our decision in the Spring of 2020 to reduce our Christmas inventory purchases based on discretionary spending concerns connected with the COVID-19 pandemic. While we worked to increase our Christmas purchases when pandemic-related economic concerns subsided, we were unable to reach inventory levels that met our pre-pandemic planned purchases and customer demand. The increase in net sales and comps in the Electronics, Toys, & Accessories category was driven by our toys, apparel, and accessories departments. The increase was primarily due to the introduction of these products into The Lot and Queue line presentations in 2020. • Hard Home experienced increased sales and positive comps driven by an increase in our small appliances, table top, and food preparation departments. Despite space reductions and the exit from our greeting card offering, we experienced high demand for products that improve our customers’ at-home dining experience. Gross Margin Gross margin dollars increased $382.7 million, or 18.1%, to $2,497.4 million in 2020, compared to $2,114.7 million in 2019. The increase in gross margin dollars was primarily due to an increase in net sales, which increased gross margin dollars by $348.0 million. Gross margin as a percentage of net sales, or gross margin rate, increased 60 basis points to 40.3% in 2020 compared to 39.7% in 2019. The gross margin rate increase was primarily due to a lower markdown rate, higher comps in our high margin merchandise categories, and the absence of a $6.0 million impairment of inventory in our greeting cards department, which we chose to exit in the first quarter of 2019. The increase in gross margin rate was partially offset by higher shrink costs and lower initial mark-up compared to 2019, as our receipts skewed towards domestic purchases, which carry a lower average initial markup. Additionally, our lower initial markup was driven by a significant increase in inbound freight costs in the fourth quarter of 2020, which resulted from transportation capacity restraints and processing backlogs at our distribution centers as we worked to restore inventory levels. Selling and Administrative Expenses Selling and administrative expenses were $1,965.6 million in 2020, compared to $1,823.4 million in 2019. The increase of $142.2 million, or 7.8%, was primarily due to $59.2 million in distribution and transportation costs, store-related payroll of $50.5 million, bonus expense of $34.3 million, $13.1 million of share-based compensation expense, $9.1 million of store occupancy expense, advertising expense of $7.6 million, transaction fees of $8.8 million, $7.0 million in stores supplies expense, $4.6 million of employee retirement and separation costs, $4.0 million of sale and leaseback related expenses, and $3.7 million of proxy contest-related costs, partially offset by the absence of $38.3 million in costs incurred for our transformational restructuring initiative, the absence of a $7.3 million loss contingency recorded in 2019, and a decrease in health benefit costs of $16.4 million. The increase in distribution and transportation expenses was due to the transition from our Rancho Cucamonga, CA distribution center to our Apple Valley, CA distribution center, rent expense on our leased distribution centers, higher outbound rates and volume to support our increased net sales, and a temporary $2 per hour wage increase that began in March 2020 and continued through early July 2020 for most of our non-exempt workforce during the COVID-19 coronavirus pandemic. The increase in store-related payroll was driven by additional payroll hours allocated to stores to support the increased net sales in 2020 and the aforementioned temporary $2 per hour wage increase. The increase in bonus expense was driven by increased performance in 2020 relative to our quarterly and annual operating plans as compared to our performance in 2019 relative to our quarterly and annual operating plans, and a one-time discretionary bonus in the second quarter of 2020 to recognize our non-exempt associates in our stores and distribution centers. Our share-based compensation expense increased as a result of higher grant date fair value and higher estimated performance for the 2018 performance share units (“PSUs”) for which we recognized expense during 2020, compared to the 2017 PSUs for which expense was recognized in 2019. Additionally, our share-based compensation expense increased due to our grant in 2020 of performance share units with a restriction feature to certain members of management, which vest based on the achievement of share price performance goals and a minimum service requirement of one year (“PRSUs”). We began recognizing expense for PRSUs in 2020, compared to our PSU awards, which typically have a deferred grant date. The increase in store occupancy expense was due to new stores opened since the end of 2019, which have higher rents than the stores closed, and normal rent increases resulting from lease renewals. Advertising expense increased due to increased investments in social media engagement and rewards- 27 Table of Contents based marketing. The increase in transaction fees, which includes credit card fees, debit card fees, and other transaction-driven costs, was primarily due to the increased net sales in 2020 compared to 2019. The increase in store supplies expense was driven by safety and cleaning supplies, such as personal protective equipment, hand sanitizer, and disinfectants, distributed to our stores in 2020 to ensure a safe environment for our customers and associates during the COVID-19 coronavirus pandemic. The employee retirement and separation costs were primarily driven by the retirement and separation of senior executives in 2020. The sale and leaseback related expenses were due to consulting costs incurred in connection with the completion of the sale and leaseback transactions for four distribution centers in the second quarter of 2020. The proxy contest-related costs were comprised of legal, public relations, and advisory fees, and settlement costs incurred to resolve a proxy contest in the first quarter of 2020. The costs incurred for our transformational restructuring initiative consisted of consulting expenses and employee separation costs recognized in 2019. The loss contingency recorded in 2019 was associated with wage and hour claims in the state of California. The decrease in health benefits costs was primarily due to lower benefits claim volume in 2020 as many medical care providers suspended non-emergency care and procedures during 2020 due to the COVID-19 coronavirus pandemic. As a percentage of net sales, selling and administrative expenses decreased by 260 basis points to 31.7% in 2020 compared to 34.3% in 2019. Depreciation Expense Depreciation expense increased $3.3 million to $138.3 million in 2020 compared to $135.0 million in 2019. The increase was primarily driven by the full-year impact of investments in our Apple Valley, CA distribution center, new store build-outs and Store of the Future remodels in 2019, and the acquisition of our corporate headquarters facility in the third quarter of 2019, partially offset by a decrease resulting from the sale of four distribution centers in 2020. Depreciation expense as a percentage of net sales decreased by 30 basis points compared to 2019. Gain on Sale of Distribution Centers The gain on sale of distribution center in 2020 was $463.1 million, compared to $178.5 million in 2019. The gain on sale of distribution centers in 2020 was attributable to the sale and leaseback of our distribution centers in Durant, OK; Tremont, PA; Montgomery, AL; and Columbus, OH. The gain on sale of distribution centers in 2019 was attributable to the sale of our Rancho Cucamonga, CA distribution center. Operating Profit Operating profit was $856.5 million in 2020 compared to $334.8 million in 2019. The increase in operating profit was primarily driven by the items discussed in the “Net Sales,” “Gross Margin,” “Selling and Administrative Expenses,” “Depreciation Expense,” and “Gain on Sale of Distribution Centers” sections above. In summary, operating profit was driven by the gain on the sale of our distribution centers and an increase in net sales and gross margin rate, partially offset by increases in selling and administrative expenses and depreciation expense. Interest Expense Interest expense decreased $5.8 million, to $11.0 million in 2020 compared to $16.8 million in 2019. The decrease in interest expense was driven by lower total average borrowings (including finance leases and the sale and leaseback financing liability) and a lower average interest rate on our revolving debt. We had total average borrowings of $257.6 million in 2020 compared to total average borrowings of $461.6 million in 2019. The decrease in total average borrowings was driven by our repayment of all outstanding debt under the 2018 Credit Agreement following the sale and leaseback transactions completed in the second quarter of 2020, partially offset by the timing of our entry into a $70 million term note on August 7, 2019 (“2019 Term Note”), as the 2019 Term Note was only in place for the second half of 2019, and the establishment of a financial liability in connection with the sale and leaseback transactions for our distribution centers in the second quarter of 2020. The average interest rate on our revolving debt, which is variable based on LIBOR and our credit rating, decreased due to a significant decline in the LIBOR rate in 2020 as a result of the COVID-19 coronavirus pandemic, partially offset by the impact of a decrease in our credit rating during the first quarter of 2020. Other Income (Expense) Other income (expense) was $(0.9) million in 2020, compared to $(0.5) million in 2019. The change was primarily driven by unrealized losses on our diesel fuel derivatives due to a sharp decline in current and forward diesel fuel prices in the first quarter of 2020 as a result of the COVID-19 pandemic. 28 Table of Contents Income Taxes Our effective income tax rate in 2020 and 2019 was 25.5% and 23.6%, respectively. The increase in the effective income tax rate was primarily attributable to the impact of the sale of our distribution centers. In 2019, the tax rate on the gain on the sale of our California distribution center was less than our normalized rate, thereby reducing our effective tax rate in 2019. In 2020, the tax rate on the gain on sale of our non-California distribution centers was similar to our normalized tax rate, thereby having a more muted impact on our effective tax rate in 2020. Additionally, the impact of our discrete items was similar in value in 2020 compared to 2019, but their impact on the tax rate was significantly curtailed in 2020 by the significant increase in income before income taxes in 2020 as compared to 2019. 2021 Guidance In March 2020, the World Health Organization declared COVID-19 a pandemic. The continued spread of the virus throughout the U.S. has significantly impacted the U.S. economy, which has reduced our visibility to future financial results. In 2021, we expect that our financial performance will continue to be significantly impacted by the COVID-19 pandemic, which includes the impact of volatility in consumer sentiment and potential impact of future government stimulus. Therefore, at this time, the Company does not believe it has sufficient visibility to provide full year guidance for 2021. Based on information available as of March 5, 2021, and excluding consideration of potential share repurchase activity and government stimulus and/or enhanced unemployment funds released during the first quarter of 2021, we expect the following in the first quarter of 2021: • • • • Comparable sales increase in the low single digits; Gross margin rate in the range of flat to slightly above last year, despite higher anticipated freight costs; Selling and administrative expenses above last year; and Diluted earnings per share in the range of $1.30 to $1.45. Capital Resources and Liquidity On August 31, 2018, we entered into the 2018 Credit Agreement, which provides for a $700 million five-year unsecured credit facility. The 2018 Credit Agreement expires on August 31, 2023. Borrowings under the 2018 Credit Agreement are available for general corporate purposes, working capital, and to repay certain indebtedness. The 2018 Credit Agreement includes a $30 million swing loan sublimit, a $75 million letter of credit sublimit, a $75 million sublimit for loans to foreign borrowers, and a $200 million optional currency sublimit. The interest rates, pricing and fees under the 2018 Credit Agreement fluctuate based on our debt rating. The 2018 Credit Agreement allows us to select our interest rate for each borrowing from multiple interest rate options. The interest rate options are generally derived from the prime rate or LIBOR. We may prepay revolving loans made under the 2018 Credit Agreement without penalty. The 2018 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. The covenants of the 2018 Credit Agreement do not restrict our ability to pay dividends. Additionally, we are subject to cross-default provisions associated with the synthetic lease for our distribution center in Apple Valley, CA. A violation of any of the covenants could result in a default under the 2018 Credit Agreement that would permit the lenders to restrict our ability to further access the 2018 Credit Agreement for loans and letters of credit and require the immediate repayment of any outstanding loans under the 2018 Credit Agreement. At January 30, 2021, we were in compliance with the covenants of the 2018 Credit Agreement. On August 7, 2019, we entered into the 2019 Term Note, a $70 million term note agreement, which is secured by the equipment at our California distribution center. The 2019 Term Note will expire on May 7, 2024. We are required to make monthly payments over the term of the 2019 Term Note and are permitted to prepay the note, subject to penalties, at any time. The interest rate on the note is fixed at 3.3%. The primary source of our liquidity is cash flows from operations and borrowings under the 2018 Credit Agreement, as necessary. Our net income and, consequently, our cash provided by operations are impacted by net sales volume, seasonal sales patterns, and operating profit margins. Our net sales are typically highest during the nine-week Christmas selling season in our fourth fiscal quarter. However, due to demand volatility we have experienced during the COVID-19 pandemic, the seasonality of our 2020 results differed from historical experience and our 2021 results may differ from historical experience. Generally, our working capital requirements peak late in our third fiscal quarter or early in our fourth fiscal quarter. We have historically funded those requirements with borrowings under our credit facility. However, as a result of the sale and leaseback transactions completed in the second quarter of 2020 and our strong cash flow from operations in 2020, we funded our working capital requirements for the second half of 2020 without borrowing under the 2018 Credit Agreement. At January 30, 2021, we had no borrowings under the 2018 Credit Agreement, and the borrowings available under the 2018 Credit Agreement were $693.3 million, after taking into account the reduction in availability resulting from outstanding letters of credit totaling $6.7 million. Currently, we do not anticipate borrowing under the 2018 Credit Agreement during 2021. Cash requirements include among other things, capital expenditures, working capital needs, interest payments, and other contractual commitments. 29 Table of Contents As a measure to secure additional liquidity during a period of economic uncertainty caused by the COVID-19 pandemic, on June 12, 2020, we completed the sale and leaseback transactions relating to our distribution centers located in Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA for an aggregate selling price of $725 million. Due to sale-leaseback accounting requirements, the proceeds received in the transactions were allocated between proceeds on the sale of the distribution centers and financing proceeds. Accordingly, aggregate net proceeds on the sales of the distribution centers was $586.9 million and the aggregate gain on the sales was $463.1 million. The remainder of consideration received was financing liability proceeds of $134.0 million. See note 10 to the accompanying consolidated financial statements for additional information on the sale and leaseback transactions. In 2020, we invested a portion of the proceeds from the sale and leaseback of the four distribution centers in money market funds, commercial paper, and treasury bills, of which only money market funds were held at January 30, 2021. These highly liquid investments were recorded in cash and cash equivalents in our consolidated balance sheets at their fair value. Our aggregate money market fund investments were $175.1 million and $0 at January 30, 2021 and February 1, 2020, respectively. As a result of the sale and leaseback transactions and our strong cash flow from operations during 2020, our cash and cash equivalents increased $506.9 million to $559.6 million compared to 2019. In August 2020, our Board of Directors authorized the repurchase of up to $500 million of our common shares (“2020 Repurchase Authorization”). Pursuant to the 2020 Repurchase Authorization, we are authorized to repurchase shares in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. Common shares acquired through the 2020 Repurchase Authorization will be available to meet obligations under our equity compensation plans and for general corporate purposes. The 2020 Repurchase Authorization has no scheduled termination date and we intend to fund repurchases under the authorization with cash and cash equivalents on hand and cash generated from operations going forward. During 2020, we purchased 3.8 million of our common shares for $172.8 million under the 2020 Repurchase Authorization, at an average price of $46.05. In 2020, we declared and paid four quarterly cash dividends of $0.30 per common share for a total paid amount of $47.0 million. The cash dividends declared and paid in 2020 were consistent with the cash dividends declared and paid in 2019. In March 2021, our Board declared a quarterly cash dividend of $0.30 per common share payable on April 2, 2021 to shareholders of record as of the close of business on March 19, 2021. The following table compares the primary components of our cash flows from 2020 to 2019: (In thousands) Net cash provided by operating activities Net cash provided by (used in) investing activities Net cash used in financing activities 2020 2019 Change $ $ 399,349 $ 338,970 $ 452,987 (345,501) $ (74,480) (257,803) $ 60,379 527,467 (87,698) Cash provided by operating activities increased by $60.4 million to $399.3 million in 2020 compared to $339.0 million in 2019. The increase was primarily driven by our higher net income, after adjusting for non-cash activity such as deferred taxes and the add-back for the gain on disposition of property and equipment, and an increase in income taxes payable, which was principally due to our higher taxable income in 2020 compared to 2019. The increase was partly offset by a decrease in the combined change in inventory and accounts payable, which resulted from our lower inventory position at the end of 2019. Cash provided by (used in) investing activities increased by $527.5 million to cash provided by investing activities of $453.0 million in 2020 compared to cash used in investing activities of $74.5 million in 2019. The increase was primarily due to an increase in cash proceeds from sale of property and equipment, resulting from the sale of four distribution centers in 2020 compared to the sale of one distribution center in 2019. Additionally, our capital expenditures decreased compared to 2019, which was driven by our decision to reduce our investments in our Store of the Future concept and new stores in 2020 to preserve liquidity and promote safety during the COVID-19 coronavirus pandemic, and a decrease in investments in our Apple Valley, CA distribution center which opened in late 2019. Cash used in financing activities increased by $87.7 million to $345.5 million in 2020 compared to $257.8 million in cash used in financing activities in 2019. The increase was driven by increases in net repayments of long-term debt resulting from our repayment of all outstanding borrowings under the 2018 Credit Agreement during 2020 and payment for treasury shares acquired, which is due to our repurchase of $172.8 million of our common shares under the 2020 Repurchase Authorization 30 Table of Contents during 2020, compared to our repurchase of $50.0 million of our common shares under the 2019 Repurchase Program during 2019. The increases were partially offset by an increase in net financing proceeds from sale and leaseback resulting from the sale and leaseback of four distribution centers in 2020 and a decrease in payment of finance lease obligations, which was due to the exercise of a purchase option to acquire our corporate headquarters in 2019. Based on historical and expected financial results, we believe that we have or, if necessary, have the ability to obtain, adequate resources to fund ongoing and seasonal working capital requirements, proposed capital expenditures, new projects, and currently maturing obligations. Contractual Obligations The following table summarizes payments due under our contractual obligations at January 30, 2021: (In thousands) Long-term debt (2) Operating lease obligations (3) Finance lease obligations Purchase obligations (4) (5) Other long-term liabilities (6) Total contractual obligations Payments Due by Period (1) Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years $ 53,293 $ 16,076 $ 31,900 $ 5,317 $ — 2,486,847 362,784 704,150 505,290 914,623 4,602 3,820 710 1,123,719 932,543 138,151 250,106 43,562 23,391 72 53,024 24,315 — 1 158,838 $ 3,918,567 $ 1,358,785 $ 898,302 $ 588,018 $ 1,073,462 (1) The disclosure of contractual obligations in this table is based on assumptions and estimates that we believe to be reasonable as of the date of this report. Those assumptions and estimates may prove to be inaccurate; consequently, the amounts provided in the table may differ materially from those amounts that we ultimately incur. Variables that may cause the stated amounts to vary from the amounts actually incurred include, but are not limited to: the termination of a contractual obligation prior to its stated or anticipated expiration; fees or damages incurred as a result of the premature termination or breach of a contractual obligation; the acquisition of more or less services or goods under a contractual obligation than are anticipated by us as of the date of this report; fluctuations in third party fees, governmental charges, or market rates that we are obligated to pay under contracts we have with certain vendors; and the exercise of renewal options under, or the automatic renewal of, contracts that provide for the same. (2) Long-term debt consists of the borrowings outstanding under the 2019 Term Note, expected interest on the 2019 Term Note, and associated accrued interest of $0.1 million. At January 30, 2021, we had no borrowings under the 2018 Credit Agreement. In addition, we had outstanding letters of credit totaling $41.0 million at January 30, 2021. Approximately $34.3 million of the outstanding letters of credit represent stand-by letters of credit and we do not expect to meet the conditions requiring significant cash payments on these letters of credit; accordingly, they have been excluded from this table. For further discussion, see note 3 to the accompanying consolidated financial statements. The remaining $6.7 million of outstanding letters of credit represent commercial letters of credit whereby the related obligation is included in the purchase obligation. (3) Operating lease obligations include, among other items, leases for retail stores and distribution centers. The future commitments for retail store and distribution center leases are $2,144.4 million. In accordance with lease accounting requirements, we have assessed the reasonable certainty of exercising options to extend or terminate existing leases to determine the duration of our lease obligations. For a further discussion of leases, see note 5 to the accompanying consolidated financial statements. Many of our store lease obligations require us to pay for our applicable portion of CAM, real estate taxes, and property insurance. In connection with our store lease obligations, we estimated that future obligations for CAM, real estate taxes, and property insurance were $342.4 million at January 30, 2021. We have made certain assumptions and estimates in order to account for our contractual obligations relative to CAM, real estate taxes, and property insurance. Those assumptions and estimates include, but are not limited to: use of historical data to estimate our future obligations; calculation of our obligations based on comparable store averages where no historical data is available for a particular leasehold; and assumptions related to average expected increases over historical data. (4) For purposes of the purchase obligation disclosures, we have assumed that we will make all payments scheduled or reasonably estimated to be made under those obligations that have a determinable expiration date, and we disregarded the possibility that such obligations may be prematurely terminated or extended, whether automatically by the terms of 31 Table of Contents the obligation or by agreement between us and the counterparty, due to the speculative nature of premature termination or extension. Where a purchase obligation is subject to a month-to-month term or another automatically renewing term, we included in the table our minimum commitment under such obligation, such as one month in the case of a month-to-month obligation and the then-current term in the case of another automatically renewing term, due to the uncertainty of future decisions to exercise options to extend or terminate any existing agreements. (5) Purchase obligations include outstanding purchase orders for merchandise issued in the ordinary course of our business that are valued at $722.5 million, the entirety of which represents obligations due within one year of January 30, 2021. The remaining $401.2 million of purchase obligations is primarily related to distribution and transportation, information technology, print advertising, energy procurement, and other store security, supply, and maintenance commitments, which includes $16.0 million for a charitable commitment over six years, which is the remaining obligation of a $40.0 million charitable donation over a 10-year period. (6) Other long-term liabilities include $213.8 million for payment of financing obligations related to the sale and leaseback transactions for four distribution centers, $32.8 million for obligations related to our nonqualified deferred compensation plan, and $3.4 million for unrecognized tax benefits. In 2020, we completed sale and leaseback transactions for four distribution centers, which gave rise to a financing obligation. The financing obligations related to the sale and leaseback transactions include expected interest on the obligations. In December 2020, we notified plan participants in our nonqualified deferred compensation plan of our decision to terminate the plan and distribute all account balances to plan participants by the end of 2021. Accordingly, obligations related to our nonqualified deferred compensation plan reflect our intent to pay all remaining obligations by the end of 2021. We have included unrecognized tax benefits of $2.1 million for payments expected in 2021 and $1.3 million of timing-related income tax uncertainties anticipated to reverse in 2021. Unrecognized tax benefits in the amount of $10.0 million have been excluded from the table because we are unable to make a reasonably reliable estimate of the timing of future payments. Off-Balance Sheet Arrangements Not applicable. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. The use of estimates, judgments, and assumptions creates a level of uncertainty with respect to reported or disclosed amounts in our consolidated financial statements or accompanying notes. On an ongoing basis, management evaluates its estimates, judgments, and assumptions, including those that management considers critical to the accurate presentation and disclosure of our consolidated financial statements and accompanying notes. Management bases its estimates, judgments, and assumptions on historical experience, current trends, and various other factors that management believes are reasonable under the circumstances. Because of the inherent uncertainty in using estimates, judgments, and assumptions, actual results may differ from these estimates. Our significant accounting policies, including the recently adopted accounting standards and recent accounting standards - future adoptions, if any, are described in note 1 to the accompanying consolidated financial statements. We believe the following estimates, assumptions, and judgments are the most critical to understanding and evaluating our reported financial results. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. Merchandise Inventories Merchandise inventories are valued at the lower of cost or market using the average cost retail inventory method. Market is determined based on the estimated net realizable value, which generally is the merchandise selling price at or near the end of the reporting period. The average cost retail inventory method requires management to make judgments and contains estimates, such as the amount and timing of markdowns to clear slow-moving inventory and the allowance for shrinkage, which may impact the ending inventory valuation and current or future gross margin. These estimates are based on historical experience and current information. 32 Table of Contents When management determines the salability of merchandise inventories is diminished, markdowns for clearance activity and the related cost impact are recorded at the time the price change decision is made. Factors considered in the determination of markdowns include current and anticipated demand, customer preferences, the age of merchandise, and seasonal trends. Timing of holidays within fiscal periods, weather, and customer preferences could cause material changes in the amount and timing of markdowns from year to year. The allowance for shrinkage is recorded as a reduction to inventories, charged to cost of sales, and calculated as a percentage of sales for the period from the last physical inventory date to the end of the reporting period. Such estimates are based on both our current year and historical inventory results. Independent physical inventory counts are typically taken at each store once a year. During 2020, scheduling challenges arising due to COVID-19 resulted in a small number of stores that did not take physical inventory counts in calendar 2020 as initially planned. These stores were prioritized to be counted early in the 2021 physical inventory counting cycle and the allowance for shrinkage associated with these stores at January 30, 2021 was adjusted in consideration of early calendar 2021 results. During calendar 2021, the majority of physical counts will occur between January and June. As physical inventories are completed, actual results are recorded and new go-forward allowance for shrinkage rates are established based on historical results at the individual store level. Thus, the allowance for shrinkage rates will be adjusted throughout the January to June inventory cycle based on actual results. At January 30, 2021, a 10% difference in our shrink accrual would have affected gross margin, operating profit and income before income taxes by approximately $4.1 million. While it is not possible to quantify the impact from each cause of shrinkage, we have asset protection programs and policies aimed at minimizing shrinkage. Insurance and Insurance-Related Reserves We are self-insured for certain losses relating to property, general liability, workers’ compensation, and employee medical, dental, and prescription drug benefit claims, a portion of which is funded by employees. We purchase stop-loss coverage from third party insurance carriers to limit individual or aggregate loss exposures in these areas. Accrued insurance liabilities and related expenses are based on actual claims reported and estimates of claims incurred but not reported. The estimated loss accruals for claims incurred but not paid are determined by applying actuarially-based calculations taking into account historical claims payment results and known trends such as claims frequency and claims severity. Management makes estimates, judgments, and assumptions with respect to the use of these actuarially-based calculations, including but not limited to, estimated health care cost trends, estimated lag time to report and pay claims, average cost per claim, network utilization rates, network discount rates, and other factors. A 10% change in our self-insured liabilities at January 30, 2021 would have affected selling and administrative expenses, operating profit, and income before income taxes by approximately $7.9 million. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk We are subject to market risk from exposure to changes in interest rates on investments and on borrowings under the 2018 Credit Agreement that we make from time to time. We had no borrowings under the 2018 Credit Agreement at January 30, 2021. An increase of 1% in our variable interest rate on our investments and estimated future borrowings would not currently affect our financial condition, results of operations, or liquidity. Additionally, we are subject to cross-default provisions associated with the Synthetic Lease for our distribution center in California. An increase of 1% in this leasing instrument could affect our financial condition, results of operations, or liquidity through higher rent expense by approximately $0.9 million. Risks Associated with Derivative Instruments We are subject to market risk from exposure to changes in our derivative instruments, associated with diesel fuel. At January 30, 2021, we had outstanding derivative instruments, in the form of collars, covering 3.6 million gallons of diesel fuel. The below table provides further detail related to our current derivative instruments, associated with diesel fuel. Calendar Year of Maturity Diesel Fuel Derivatives Fair Value Puts Calls Asset (Liability) 2021 2022 Total (Gallons, in thousands) (In thousands) 2,400 1,200 3,600 2,400 1,200 3,600 $ $ (525) (212) (737) Additionally, at January 30, 2021, a 10% difference in the forward curve for diesel fuel prices could affect unrealized gains (losses) in other income (expense) by approximately $1.1 million. 33 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Big Lots, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Big Lots, Inc. and subsidiaries (the “Company”) as of January 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended January 30, 2021, of the Company and our report dated March 30, 2021, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Columbus, Ohio March 30, 2021 34 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Big Lots, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Big Lots, Inc. and subsidiaries (the “Company”) as of January 30, 2021 and February 1, 2020, the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows, for each of the three years in the period ended January 30, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 1 to the financial statements, effective February 3, 2019, the Company adopted FASB Accounting Standards Update 2016-02, Leases (Topic 842), using the optional transition method, as allowed by ASU 2018-11, Leases (Topic 842), Targeted Improvements, to apply the new standard as of the effective date. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Measurement of Inventory Valuation Reserves - Refer to Note 1 to the financial statements Critical Audit Matter Description Merchandise inventories are valued at the lower of cost or market using the average cost retail inventory method. The average cost retail inventory method requires management to make judgments and contains estimates, including the amount and timing of markdowns to clear slow-moving inventory and an estimated allowance for shrinkage, which may impact ending inventory valuation. The balance of ending inventory was $940.3 million at January 30, 2021. 35 Table of Contents When management determines the salability of merchandise inventories is diminished, markdowns for clearance activity and the related cost impact are recorded at the time the price change decision is made. Factors considered in the determination of markdowns include current and anticipated demand, and customer preferences. The inventory allowance for shrinkage is recorded as a reduction to inventories, charged to cost of sales, and calculated as a percentage of sales for the period from the last physical inventory date to the end of the reporting period. Given the significant estimates and assumptions management utilizes to quantify inventory reserves which includes markdowns and the allowance for shrinkage, a high degree of auditor judgment and an increased extent of effort is required when performing audit procedures to evaluate the methodology and reasonableness of the estimates and assumptions. For markdowns, such estimates are based on the timing and completeness of recorded markdowns. For the allowance for shrinkage, such estimates are based on a combination of historical shrinkage experience and current year physical inventory results. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the measurement of the valuation of inventory reserves included the following, among others: • We tested the effectiveness of controls over the completeness and measurement of inventory reserves. • We evaluated the methods and assumptions used by management to estimate markdowns by: ◦ ◦ ◦ Evaluating management’s estimate for markdowns by comparing markdowns recorded after period end to the markdowns reserve at year end. Performing an analysis comparing the markdown reserve to historical results. Comparing inventory sell through for the first period subsequent to year end to historical sell through results to evaluate the salability of merchandise inventories at year end. • We evaluated the methods and assumptions used by management to estimate the allowance for shrinkage by: ◦ ◦ ◦ Attending a selection of store physical inventories and recalculating the shrink for locations using the results of the store physical inventory. Performing an analysis comparing the methodology and inputs used by management to historical results, trends in the prior years and current year, and industry averages. Comparing management’s prior-year assumptions of expected shrink activity to actual activity incurred during the current year to determine the appropriateness of the shrinkage inventory allowance. Measurement of Insurance Valuation Reserves - Refer to Notes 1 and 9 to the financial statements Critical Audit Matter Description The Company is self-insured for certain losses relating to general liability and workers’ compensation. Accrued insurance liabilities, $92.1 million at January 30, 2021, are based on actual claims reported and estimates of claims incurred but not reported. The estimated loss accruals for claims incurred but not paid are determined by applying actuarially-based calculations taking into account historical claims payment results and known trends such as claims frequency and claims severity. Given the significant estimates and assumptions in determination of the selected actuarial models management utilizes to quantify insurance reserves, a high degree of auditor judgment and increased extent of effort is required, including the need to involve our actuarial specialists, when performing audit procedures to evaluate whether insurance reserves were appropriately valued. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the general liability and workers’ compensation self-insurance reserves included the following, among others: • We tested the effectiveness of controls related to general liability and workers’ compensation self-insurance reserves. • We evaluated the methods and assumptions used by management to estimate the self-insurance reserves by: ◦ ◦ Testing the underlying data that served as the basis of the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were reasonable. Comparing management’s prior-year assumptions of expected loss to actuals incurred during the current year to evaluate the appropriateness of assumptions used to determine the insurance reserves. 36 Table of Contents • With the assistance of our actuarial specialists, we developed independent estimates of the insurance reserves, including loss and industry claim development factors, and compared our estimates to management’s estimates. Further, the actuarial specialists: ◦ ◦ ◦ Assessed the actuarial models used by the Company for consistency with the generally accepted actuarial standards; Evaluated the Company’s ability to estimate the insurance liabilities by comparing its historical estimates with actual loss payments; Evaluated the key assumptions underlying the Company’s actuarial estimates used to determine the insurance reserves. /s/ DELOITTE & TOUCHE LLP Columbus, Ohio March 30, 2021 We have served as the Company’s auditor since 1989. 37 Table of Contents BIG LOTS, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share amounts) Net sales 2020 2019 2018 $ 6,199,186 $ 5,323,180 $ 5,238,105 Cost of sales (exclusive of depreciation expense shown separately below) 3,701,800 3,208,498 3,116,210 Gross margin Selling and administrative expenses Depreciation expense Gain on sale of distribution centers Operating profit Interest expense Other income (expense) Income before income taxes Income tax expense 2,497,386 2,114,682 2,121,895 1,965,555 1,823,409 1,778,416 138,336 134,981 124,970 (463,053) (178,534) 856,548 (11,031) (911) 844,606 215,415 334,826 (16,827) (451) 317,548 75,084 — 218,509 (10,338) (558) 207,613 50,719 Net income and comprehensive income $ 629,191 $ 242,464 $ 156,894 Earnings per common share: Basic Diluted $ $ 16.46 $ 16.11 $ 6.18 $ 6.16 $ 3.84 3.83 The accompanying notes are an integral part of these consolidated financial statements. 38 BIG LOTS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except par value) Table of Contents ASSETS Current assets: Cash and cash equivalents Inventories Other current assets Total current assets Operating lease right-of-use assets Property and equipment - net Deferred income taxes Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable Current operating lease liabilities Property, payroll, and other taxes Accrued operating expenses Insurance reserves Accrued salaries and wages Income taxes payable Total current liabilities Long-term debt Noncurrent operating lease liabilities Deferred income taxes Insurance reserves Unrecognized tax benefits Other liabilities Shareholders’ equity: Preferred shares - authorized 2,000 shares; $0.01 par value; none issued Common shares - authorized 298,000 shares; $0.01 par value; issued 117,495 shares; outstanding 35,535 shares and 39,037 shares, respectively January 30, 2021 February 1, 2020 $ 559,556 $ 940,294 85,939 1,585,789 1,649,009 717,216 16,329 68,914 52,721 921,266 89,962 1,063,949 1,202,252 849,147 4,762 69,171 $ 4,037,257 $ 3,189,281 $ 398,433 $ 226,075 109,694 138,331 34,660 49,830 43,601 1,000,624 35,764 1,465,433 7,762 57,452 11,304 181,187 — 1,175 378,241 212,144 82,109 118,973 36,131 39,292 3,930 870,820 279,464 1,035,377 48,610 57,567 10,722 41,257 — 1,175 Treasury shares - 81,960 shares and 78,458 shares, respectively, at cost (2,709,259) (2,546,232) Additional paid-in capital Retained earnings Total shareholders’ equity 634,813 3,351,002 1,277,731 620,728 2,769,793 845,464 Total liabilities and shareholders’ equity $ 4,037,257 $ 3,189,281 The accompanying notes are an integral part of these consolidated financial statements. 39 Table of Contents BIG LOTS, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders’ Equity (In thousands) Balance - February 3, 2018 Comprehensive income Dividends declared ($1.20 per share) Purchases of common shares Exercise of stock options Restricted shares vested Performance shares vested Other Share-based employee compensation expense Balance - February 2, 2019 Comprehensive income Dividends declared ($1.20 per share) Adjustment for ASU 2016-02 Purchases of common shares Exercise of stock options Restricted shares vested Performance shares vested Other Share-based employee compensation expense Balance - February 1, 2020 Comprehensive income Dividends declared ($1.20 per share) Purchases of common shares Exercise of stock options Restricted shares vested Performance shares vested Other Common Treasury Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Total 41,925 $ 1,175 75,570 $ (2,422,396) $ 622,550 $ 2,468,258 $ 669,587 — — (2,635) 43 413 296 — — — — — — — — 156,894 156,894 (49,885) (49,885) — 2,635 (107,830) (3,920) — (111,750) — (43) 1,395 464 — (413) 13,271 (13,271) — (296) 9,475 (9,475) — — — — — — (1) — 2 26,335 — — — — — 1,859 — — 1 26,335 40,042 1,175 77,453 (2,506,086) 622,685 2,575,267 693,041 — — — (1,474) 6 202 261 — — — — — — — — — — — — 1,474 (55,347) — (6) — (202) — (261) — — — — 202 6,545 8,459 (5) — — — — — (2) (6,545) (8,459) (2) 13,051 242,464 242,464 (48,286) (48,286) 348 348 — — — — — — (55,347) 200 — — (7) 13,051 39,037 1,175 78,458 (2,546,232) 620,728 2,769,793 845,464 — — (3,890) 13 309 65 1 — — — — — — — 3,890 (175,642) — (13) 429 — — — 64 — (309) 10,034 (10,034) — — (65) (1) 2,107 (2,107) 45 — 7 26,155 629,191 629,191 (47,982) (47,982) — (175,642) — — — — — 493 — — 52 26,155 Share-based employee compensation expense — — — Balance - January 30, 2021 35,535 $ 1,175 81,960 $ (2,709,259) $ 634,813 $ 3,351,002 $ 1,277,731 The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents BIG LOTS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) Operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: 2020 2019 2018 $ 629,191 $ 242,464 $ 156,894 Depreciation and amortization expense Non-cash lease expense Deferred income taxes Non-cash share-based compensation expense Non-cash impairment charge (Gain) loss on disposition of property and equipment Unrealized (gain) loss on fuel derivatives Change in assets and liabilities: Inventories Accounts payable Operating lease liabilities Current income taxes Other current assets Other current liabilities Other assets Other liabilities Net cash provided by operating activities Investing activities: Capital expenditures Cash proceeds from sale of property and equipment Assets acquired under synthetic lease Payments for purchase of intangible assets Other 138,848 246,442 (52,415) 26,155 1,792 (462,916) (294) (19,028) 20,193 (250,131) 56,564 (10,238) 55,775 (90) 19,501 399,349 (135,220) 588,258 — — (51) 135,686 229,143 52,374 13,051 3,986 (177,996) 346 48,295 (18,662) (215,956) (4,442) (5,836) 36,962 (5,499) 5,054 338,970 (265,203) 190,741 — — (18) 114,025 — 5,353 26,335 141 732 1,075 (96,772) 45,677 — (14,108) (7,055) (11,637) 1,985 11,415 234,060 (232,402) 519 (128,872) (15,750) 32 Net cash provided by (used in) investing activities 452,987 (74,480) (376,473) Financing activities: Net (repayments of) proceeds from long-term debt Net financing proceeds from sale and leaseback Payment of finance lease obligations Dividends paid Proceeds from the exercise of stock options Payment for treasury shares acquired Proceeds from synthetic lease Payments for debt issuance costs Other Net cash (used in) provided by financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents: Beginning of year End of year (243,227) 123,435 (3,648) (46,964) 493 (175,642) — — 52 (345,501) 506,835 (80,609) — (73,469) (48,421) 200 (55,347) — (150) (7) (257,803) 6,687 52,721 46,034 $ 559,556 $ 52,721 $ 174,300 — (3,908) (50,608) 1,859 (111,750) 128,872 (1,495) 1 137,271 (5,142) 51,176 46,034 The accompanying notes are an integral part of these consolidated financial statements. 41 Table of Contents BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business We are a neighborhood discount retailer in the United States (“U.S.”). At January 30, 2021, we operated 1,408 stores in 47 states and an e-commerce platform. Our mission is to help people live BIG and save LOTS. Our vision is to be the BIG difference for a better life by delivering unmatched value through surprise and delight, by building a “Best Places to Work” culture, by rewarding shareholders with consistent growth and top tier returns, and by doing good as we do well. Our values are leading with our core customer (whom we refer to as Jennifer), treating all like friends, succeeding together, and playing to win. Basis of Presentation The consolidated financial statements include Big Lots, Inc. and all of its subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and include all of our accounts. We consolidate all majority-owned and controlled subsidiaries. All intercompany accounts and transactions have been eliminated. Management Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. The use of estimates, judgments, and assumptions creates a level of uncertainty with respect to reported or disclosed amounts in our consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, judgments, and assumptions, including those that management considers critical to the accurate presentation and disclosure of our consolidated financial statements and accompanying notes. Management bases its estimates, judgments, and assumptions on historical experience, current trends, and various other factors that it believes are reasonable under the circumstances. Because of the inherent uncertainty in using estimates, judgments, and assumptions, actual results may differ from these estimates. Fiscal Periods Our fiscal year ends on the Saturday nearest to January 31, which results in fiscal years consisting of 52 or 53 weeks. Unless otherwise stated, references to years in this report relate to fiscal years rather than calendar years. Fiscal year 2020 (“2020”) was comprised of the 52 weeks that began on February 2, 2020 and ended on January 30, 2021. Fiscal year 2019 (“2019”) was comprised of the 52 weeks that began on February 3, 2019 and ended on February 1, 2020. Fiscal year 2018 (“2018”) was comprised of the 52 weeks that began on February 4, 2018 and ended on February 2, 2019. Segment Reporting We manage our business based on one segment, discount retailing. Our entire operation is located in the U.S. Cash and Cash Equivalents Cash and cash equivalents primarily consist of amounts on deposit with financial institutions, outstanding checks, credit and debit card receivables, and highly liquid investments, such as money market funds, treasury bills, and commercial paper, which are unrestricted to withdrawal or use and which have an original maturity of three months or less. We review cash and cash equivalent balances on a bank by bank basis in order to identify book overdrafts. Book overdrafts occur when the aggregate amount of outstanding checks and electronic fund transfers exceed the cash deposited at a given bank. We reclassify book overdrafts, if any, to accounts payable on our consolidated balance sheets. Amounts due from banks for credit and debit card transactions are typically settled in less than three days, and at January 30, 2021 and February 1, 2020, totaled $34.7 million and $28.8 million, respectively. Investments Investment securities are classified as available-for-sale, held-to-maturity, or trading at the date of purchase. Investments are recorded at fair value as either current assets or non-current assets based on the stated maturity or our plans to either hold or sell the investment. Unrealized holding gains and losses on trading securities are recognized in earnings. Unrealized holding gains and losses on available-for-sale securities are recognized in other comprehensive income until realized. We did not own any held-to-maturity or available-for-sale securities as of January 30, 2021 and February 1, 2020. 42 Table of Contents Merchandise Inventories Merchandise inventories are valued at the lower of cost or market using the average cost retail inventory method. Cost includes any applicable inbound shipping and handling costs associated with the receipt of merchandise into our distribution centers (see the discussion below under the caption “Selling and Administrative Expenses” for additional information regarding outbound shipping and handling costs to our stores). Market is determined based on the estimated net realizable value, which generally is the merchandise selling price. Under the average cost retail inventory method, inventory is segregated into classes of merchandise having similar characteristics at its current retail selling value. Current retail selling values are converted to a cost basis by applying an average cost factor to each specific merchandise class’s retail selling value. Cost factors represent the average cost-to-retail ratio computed using beginning inventory and all fiscal year-to-date purchase activity specific to each merchandise class. Under the average cost retail inventory method, permanent sales price markdowns result in cost reductions in inventory. Our permanent sales price markdowns are typically related to end of season clearance events and are recorded as a charge to cost of sales in the period of management’s decision to initiate sales price reductions with the intent not to return the price to regular retail. Promotional markdowns are recorded as a charge to net sales in the period the merchandise is sold. Promotional markdowns are typically related to specific marketing efforts with respect to products maintained continuously in our stores or products that are only available in limited quantities but represent substantial value to our customers. Promotional markdowns are principally used to drive higher sales volume during a defined promotional period. We record a reduction to inventories and charge to cost of sales for an allowance for shrinkage. The allowance for shrinkage is calculated as a percentage of sales for the period from the last physical inventory date to the end of the reporting period. Such estimates are based on a combination of our historical experience and current year physical inventory results. We record a reduction to inventories and charge to cost of sales for any excess or obsolete inventory. The excess or obsolete inventory is estimated based on a review of our aged inventory and takes into account any items that have already received a cost reduction as a result of the permanent markdown process discussed above. We estimate the reduction for excess or obsolete inventory based on historical sales trends, age and quantity of product on hand, and anticipated future sales. Property and Equipment - Net Depreciation and amortization expense of property and equipment are recorded on a straight‑line basis using estimated service lives. The estimated service lives of our depreciable property and equipment by major asset category were as follows: Land improvements Buildings Leasehold improvements Store fixtures and equipment Distribution and transportation fixtures and equipment Office and computer equipment Computer software costs Company vehicles 15 years 40 years 5 - 10 years 2 - 7 years 5 - 15 years 3 - 5 years 3 - 8 years 3 years Leasehold improvements are amortized on a straight-line basis using the shorter of their estimated service lives or the lease term. Assets acquired under leases which meet the criteria of a finance lease are capitalized in property and equipment - net and amortized over the estimated service life of the asset or the applicable lease term, whichever is shorter. Depreciation estimates are revised prospectively to reflect the remaining depreciation or amortization of the asset over the shortened estimated service life when a decision is made to dispose of property and equipment prior to the end of its previously estimated service life. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts with any resulting gain or loss included in selling and administrative expenses. Major repairs that extend service lives are capitalized. Maintenance and repairs are charged to expense as incurred. Capitalized interest was not significant in any period presented. 43 Table of Contents Long-Lived Assets Our long-lived assets primarily consist of property and equipment - net and operating lease right-of-use assets. In order to determine if impairment indicators are present for store property and equipment and operating lease right-of-use assets, we review historical operating results at the store level on an annual basis, or when other impairment indicators are present. Generally, all other property and equipment and operating lease right-of-use assets are reviewed for impairment at the enterprise level. If the net book value of a store’s long-lived assets is not recoverable by the expected undiscounted future cash flows of the store, we estimate the fair value of the store’s assets and recognize an impairment charge for the excess net book value of the store’s long-lived assets over their fair value. Our assumptions related to estimates of undiscounted future cash flows are based on historical results of cash flows adjusted for management projections for future periods. We estimate the fair value of our long-lived assets using expected cash flows, including salvage value, which is based on readily available market information for similar assets. Intangible Assets During 2018, we acquired the Broyhill® trademark and trade name. This trademark and trade name have indefinite lives. We test the trademark and trade name for impairment annually or whenever circumstances indicate that the carrying value of the asset may not be recoverable. We estimate the fair value of these intangible assets based on an income approach. We perform our annual impairment testing during our fourth fiscal quarter of each year. Savings Plans We have a savings plan with a 401(k) deferral feature and a nonqualified deferred compensation plan with a similar deferral feature for eligible employees. We provide a matching contribution based on a percentage of employee contributions. Our matching contributions are subject to Internal Revenue Service (“IRS”) regulations. For 2020, 2019, and 2018, we expensed $9.2 million, $8.3 million, and $8.5 million, respectively, related to our matching contributions. In connection with our nonqualified deferred compensation plan, we had liabilities of $33.0 million and $33.9 million at January 30, 2021 and February 1, 2020, respectively, which are recorded in other liabilities. In December 2020, we notified plan participants in our nonqualified deferred compensation plan of our decision to terminate the plan and distribute all account balances to plan participants by the end of 2021. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement basis and tax basis of assets and liabilities using enacted law and tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We assess the adequacy and need for a valuation allowance for deferred tax assets. In making such assessment, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. We have established a valuation allowance to reduce our deferred tax assets to the balance that is more likely than not to be realized. We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations and comprehensive income. Accrued interest and penalties are included within the related tax liability line in the accompanying consolidated balance sheets. The effective income tax rate in any period may be materially impacted by the overall level of income (loss) before income taxes, the jurisdictional mix and magnitude of income (loss), changes in the income tax laws (which may be retroactive to the beginning of the fiscal year), subsequent recognition, de-recognition and/or measurement of an uncertain tax benefit, changes in a deferred tax valuation allowance, and adjustments of a deferred tax asset or liability for enacted changes in tax laws or rates. Insurance and Insurance-Related Reserves We are self-insured for certain losses relating to property, general liability, workers’ compensation, and employee medical, dental, and prescription drug benefit claims, a portion of which is paid by employees. We purchase stop-loss coverage to limit significant exposure in these areas. Accrued insurance-related liabilities and related expenses are based on actual claims filed and estimates of claims incurred but not reported and are reliably determinable. The accruals are determined by applying actuarially-based calculations. 44 Table of Contents Fair Value of Financial Instruments The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Level 1, defined as observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities. Level 2, defined as observable inputs other than Level 1 inputs. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Revenue Recognition We recognize sales revenue at the time the customer takes possession of the merchandise (i.e., the point at which we transfer the goods). Sales are recorded net of discounts (i.e., the amount of consideration we expect to receive for the goods) and estimated returns and exclude any sales tax. The reserve for merchandise returns is estimated based on our prior return experience. We sell gift cards in our stores, online, and through third-party retailers, and issue merchandise credits, typically as a result of customer returns, on stored value cards. We do not charge administrative fees on unused gift card or merchandise credit balances and our gift cards and merchandise credits do not expire. We recognize sales revenue related to gift cards and merchandise credits (1) when the gift card or merchandise credit is redeemed in a sales transaction by the customer or (2) as breakage occurs. We recognize gift card and merchandise credit breakage when we estimate that the likelihood of the card or credit being redeemed by the customer is remote and we determine that we do not have a legal obligation to remit the value of unredeemed cards or credits to the relevant regulatory authority. We estimate breakage based upon historical redemption patterns. The liability for the unredeemed cash value of gift cards and merchandise credits is recorded in accrued operating expenses in our consolidated balance sheets. We offer price hold contracts and buy now pick up later arrangements on merchandise. Revenue for price hold contracts and buy now pick up later arrangements is recognized when the customer makes the final payment and takes possession of the merchandise. Amounts paid by customers under price hold contracts and buy now pick up later arrangements are recorded in accrued operating expenses in our consolidated balance sheets until a sale is consummated. We recognize sales revenue for direct-to-customer transactions on our e-commerce platform at the time the merchandise is shipped (i.e., the point at which we transfer the goods). We also offer buy online pick up in store services on our e-commerce platform. Revenue for buy online pick up in store transactions is recognized when the customer takes possession of the merchandise at the store. Cost of Sales Cost of sales includes the cost of merchandise, net of cash discounts and rebates, markdowns, and inventory shrinkage. Cost of merchandise includes related inbound freight to our distribution centers, duties, and commissions. We classify warehousing, distribution and outbound transportation costs as selling and administrative expenses. Due to this classification, our gross margin rates may not be comparable to those of other retailers that include warehousing, distribution and outbound transportation costs in cost of sales. Selling and Administrative Expenses Selling and administrative expenses include store expenses (such as payroll and occupancy costs) and costs related to warehousing, distribution, outbound transportation to our stores, advertising, purchasing, insurance, non-income taxes, accepting credit/debit cards, and overhead. Our selling and administrative expense rates may not be comparable to those of other retailers that include warehousing, distribution, and outbound transportation costs in cost of sales. Distribution and outbound transportation costs included in selling and administrative expenses were $251.0 million, $191.8 million, and $180.5 million for 2020, 2019, and 2018, respectively. Leases and Rent Expense We determine if an arrangement contains a lease at inception of the agreement. Our leased property consists of our retail stores, our distribution centers, store security, and other office equipment. Certain of our store and distribution center leases have rent escalations and/or have tenant allowances or other lease incentives, which are fixed in nature and included in our calculation of right-of-use assets and lease liabilities. Certain of our store leases provide for contingent rents, which are recorded as variable 45 Table of Contents costs and not included in our calculation of right-of-use assets and lease liabilities. Many of our leases obligate us to pay for our applicable portion of real estate taxes, common area maintenance costs (“CAM”), and property insurance, which are recorded as variable costs and not included in our calculation of right-of-use assets and lease liabilities, except for certain fixed CAM and insurance charges that are not variable. Many of our leases contain provisions for options to renew, extend the original term for additional periods, or terminate the lease if certain sales thresholds are not attained. We have assessed the reasonable certainty of these provisions to determine the appropriate lease term. Our lease agreements do not contain material residual value guarantees (excluding the Synthetic Lease discussed in note 5 to the accompanying consolidated financial statements), restrictions, or covenants. We recognize a lease liability and right-of-use asset at commencement of the lease when possession of the property is taken from the lessor, which, for stores, normally includes a construction or set-up period prior to store opening. We begin recognizing rent expense at commencement of the lease. Rent expense for operating leases is recognized on a straight-line basis over the lease term and is included in selling and administrative expenses. Advertising Expense Advertising costs, which are expensed as incurred, consist primarily of television and print advertising, digital, social media, internet and e-mail marketing and advertising, and in-store point-of-purchase signage and presentations. Advertising expenses are included in selling and administrative expenses. Advertising expenses were $102.8 million, $95.2 million, and $93.6 million for 2020, 2019, and 2018, respectively. Share-Based Compensation Share-based compensation expense is recognized in selling and administrative expense in our consolidated statements of operations and comprehensive income for all awards that we expect to vest. Non-vested Restricted Stock Units We expense our non-vested restricted stock units with graded vesting as a single award with an average estimated life over the entire term of the award. The expense for the non-vested restricted stock units is recorded on a straight-line basis over the vesting period. Performance Share Units In 2020, we awarded performance share units with a restriction feature to certain members of senior management, which vest based on the achievement of share price performance goals and a minimum service requirement of one year (“PRSUs”). The PRSUs have a contractual term of three years. The grant date fair value and estimated vesting period of the PRSUs is determined by a third party using a Monte Carlo simulation. The awards are expensed over their estimated vesting period on a straight-line basis. Compensation expense for performance share units (“PSUs”) is recorded based on fair value of the award on the grant date and the estimated achievement of financial performance objectives. From an accounting perspective, the grant date is established once all financial performance targets have been set. We monitor the estimated achievement of the financial performance objectives at each reporting period and will potentially adjust the estimated expense on a cumulative basis. The expense for the PSUs is recorded on a straight-line basis from the grant date through the end of the performance period. Earnings per Share Basic earnings per share is based on the weighted-average number of shares outstanding during each period. Diluted earnings per share is based on the weighted-average number of shares outstanding during each period and the additional dilutive effect of stock options, restricted stock awards, restricted stock units, PRSUs, and PSUs, calculated using the treasury stock method. Derivative Instruments We use derivative instruments to mitigate the risk of market fluctuations in diesel fuel prices. We do not enter into derivative instruments for speculative purposes. Our derivative instruments may consist of collar or swap contracts. Our current derivative instruments do not meet the requirements for cash flow hedge accounting. Instead, our derivative instruments are marked-to- market to determine their fair value and any gains or losses are recognized currently in other income (expense) on our consolidated statements of operations and comprehensive income. 46 Table of Contents Supplemental Cash Flow Disclosures The following table provides supplemental cash flow information for 2020, 2019, and 2018: (In thousands) Supplemental disclosure of cash flow information: 2020 2019 2018 Cash paid for interest $ 6,366 $ 17,446 $ Cash paid for income taxes, excluding impact of refunds Gross proceeds from long-term debt Gross payments of long-term debt Gross financing proceeds from sale and leaseback Gross repayments of financing from sale and leaseback Cash paid for operating lease liabilities Non-cash activity: Assets acquired under finance or capital leases Accrued property and equipment Operating lease right-of-use assets obtained in exchange for operating lease liabilities 217,308 514,500 757,727 133,999 10,564 340,747 — 17,791 29,375 1,811,000 1,891,609 — — 292,048 70,831 17,632 10,292 59,691 1,861,900 1,687,600 — — — 902 32,264 $ 694,811 $ 1,493,888 $ — Recently Adopted Accounting Standards In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15 Intangibles - Goodwill and Other - Internal-Use Software. This update evaluates the accounting for costs paid by a customer to implement a cloud computing arrangement. The new guidance aligns cloud computing arrangement implementation cost accounting with the capitalization requirements for internal-use software development, while leaving the accounting for service elements unchanged. On February 2, 2020, we adopted ASU 2018-15 on a prospective basis. The impact of the adoption was immaterial to the consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The update requires a lessee to recognize, on the balance sheet, a liability to make lease payments and a right-of-use asset representing a right to use the underlying asset for the lease term. Additionally, this guidance expanded related disclosure requirements. On February 3, 2019, we adopted the new standard and elected the optional transition method, as allowed by ASU 2018-11, Leases (Topic 842), Targeted Improvements, to apply the new standard as of the effective date. Therefore, we have not applied the new standard to the comparative prior periods presented in the consolidated financial statements. We elected to apply the following practical expedients and policy elections at adoption: Practical expedient package We have not reassessed whether any expired or existing contracts are, or contain, leases. We have not reassessed the lease classification for any expired or existing leases. We have not reassessed initial direct costs for any expired or existing leases. Hindsight practical expedient We have not elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets. Separation of lease and non- lease components We have elected to establish an accounting policy to account for lease and non-lease components as a single component for our real estate class of assets. Short-term policy We have elected to establish a short-term lease exception policy, permitting us to not apply the recognition requirements of the new standard to short-term leases (i.e., leases with terms of 12 months or less). Adoption of this ASU 2016-02, in the first quarter of 2019, resulted in the recognition of right-of-use assets and lease liabilities for operating leases of $1,110 million and $1,138 million, respectively, with difference in amounts being primarily comprised of pre-existing deferred rent and prepaid rent. The impact of the adoption was immaterial to the consolidated statements of shareholders’ equity. For further discussion on our leases, see note 5 to the accompanying consolidated financial statements. 47 Table of Contents Subsequent Events We have evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, we are not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing that would require recognition or disclosure in our consolidated financial statements. NOTE 2 – PROPERTY AND EQUIPMENT - NET Property and equipment - net consist of: (In thousands) Land and land improvements Buildings and leasehold improvements Fixtures and equipment Computer software costs Construction-in-progress Property and equipment - cost Less accumulated depreciation and amortization Property and equipment - net January 30, 2021 February 1, 2020 $ $ 48,862 $ 779,104 870,074 213,042 27,455 1,938,537 1,221,321 717,216 $ 63,691 1,034,458 884,051 196,449 22,038 2,200,687 1,351,540 849,147 Property and equipment - cost includes $25.8 million and $27.5 million at January 30, 2021 and February 1, 2020, respectively, to recognize assets from finance leases. Accumulated depreciation and amortization includes $22.2 million and $20.1 million at January 30, 2021 and February 1, 2020, respectively, related to finance leases. During 2020, 2019, and 2018, respectively, we invested $135.2 million, $265.2 million, and $232.4 million of cash in capital expenditures and we recorded $138.3 million, $135.0 million, and $125.0 million of depreciation expense. In 2020, we disposed of $123.8 million of property and equipment - cost in connection with the sale of four distribution centers in sale and leaseback transactions (see note 10 to the accompanying consolidated financial statements for additional information on the sale and leaseback transactions). We incurred $0.9 million, $0.4 million, and $0.1 million in asset impairment charges, excluding impairment of right-of-use assets (see note 5 to the accompanying consolidated financial statements), in 2020, 2019, and 2018, respectively. In 2020, we impaired the value of property and equipment assets at four stores as a result of our annual store impairment review. In 2019, we impaired the value of property and equipment assets at two stores as a result of our annual store impairment review. During 2018, we wrote down the value of an asset held for sale. Asset impairment charges are included in selling and administrative expenses in our accompanying consolidated statements of operations and comprehensive income. We perform annual impairment reviews of our long-lived assets at the store level. When we perform the annual impairment reviews, we first determine which stores had impairment indicators present. We generally use actual historical cash flows to determine if stores had negative cash flows within the past two years. For each store with negative cash flows, we estimate future cash flows based on operating performance estimates specific to each store’s operations that are based on assumptions currently being used to develop our company level operating plans. If the net book value of a store’s long-lived assets is not recoverable by the expected future cash flows of the store, we estimate the fair value of the store’s assets and recognize an impairment charge for the excess net book value of the store’s long-lived assets over their fair value. 48 Table of Contents NOTE 3 – DEBT Bank Credit Facility On August 31, 2018, we entered into a $700 million five-year unsecured credit facility (“2018 Credit Agreement”). The 2018 Credit Agreement expires on August 31, 2023. In connection with our entry into the 2018 Credit Agreement, we paid bank fees and other expenses in the aggregate amount of $1.5 million, which are being amortized over the term of the agreement. Borrowings under the 2018 Credit Agreement are available for general corporate purposes, working capital, and to repay certain indebtedness. The 2018 Credit Agreement includes a $30 million swing loan sublimit, a $75 million letter of credit sublimit, a $75 million sublimit for loans to foreign borrowers, and a $200 million optional currency sublimit. The interest rates, pricing and fees under the 2018 Credit Agreement fluctuate based on our debt rating. The 2018 Credit Agreement allows us to select our interest rate for each borrowing from multiple interest rate options. The interest rate options are generally derived from the prime rate or LIBOR. We may prepay revolving loans made under the 2018 Credit Agreement. The 2018 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. The covenants of the 2018 Credit Agreement do not restrict our ability to pay dividends. Additionally, we are subject to cross- default provisions associated with the synthetic lease for our distribution center in Apple Valley, CA. A violation of any of the covenants could result in a default under the 2018 Credit Agreement that would permit the lenders to restrict our ability to further access the 2018 Credit Agreement for loans and letters of credit and require the immediate repayment of any outstanding loans under the 2018 Credit Agreement. At January 30, 2021, we had no borrowings outstanding under the 2018 Credit Agreement, while $6.7 million was committed to outstanding letters of credit, leaving $693.3 million available under the 2018 Credit Agreement. Secured Equipment Term Note On August 7, 2019, we entered into a $70 million term note agreement (“2019 Term Note”), which is secured by the equipment at our California distribution center. The 2019 Term Note will expire on May 7, 2024. We are required to make monthly payments over the term of the 2019 Term Note and are permitted to prepay, subject to penalties, at any time. The interest rate on the 2019 Term Note is 3.3%. In connection with our entry into the 2019 Term Note, we paid debt issuance costs of $0.2 million. Debt was recorded in our consolidated balance sheets as follows: Instrument (In thousands) 2019 Term Note 2018 Credit Agreement Total debt Less current portion of long-term debt (included in Accrued operating expenses) Long-term debt January 30, 2021 February 1, 2020 $ $ $ $ 50,264 $ — 50,264 (14,500) 35,764 $ $ $ 64,291 229,200 293,491 (14,027) 279,464 49 Table of Contents NOTE 4 – FAIR VALUE MEASUREMENTS In 2020, we invested a portion of the proceeds from the sale of four distribution centers (see note 10 to the accompanying consolidated financial statements for additional information on the sale and leaseback transactions) in highly liquid investments, including money market funds, commercial paper, and treasury bills, of which only money market funds were held at January 30, 2021. These highly liquid investments were recorded in cash and cash equivalents in our consolidated balance sheets at their fair value. The fair values of the money market fund investments were Level 1 valuations under the fair value hierarchy because each fund’s quoted market value per share was available in an active market. In connection with our nonqualified deferred compensation plan, we had mutual fund investments, which were recorded in other assets. These investments were classified as trading securities and were recorded at their fair value. The fair values of mutual fund investments were Level 1 valuations under the fair value hierarchy because each fund’s quoted market value per share was available in an active market. As of January 30, 2021, the fair value of our investments were recorded in our consolidated balance sheets as follows: (In thousands) Assets: Balance Sheet Location January 30, 2021 Level 1 Money market funds Cash and cash equivalents $ Mutual funds - deferred compensation plan Other Assets 175,113 $ 32,484 175,113 32,484 As of February 1, 2020, the fair value of our investments were recorded in our consolidated balance sheets as follows: (In thousands) Assets: Balance Sheet Location February 1, 2020 Level 1 Money market funds Cash and cash equivalents $ Mutual funds - deferred compensation plan Other Assets — $ 33,715 — 33,715 The fair values of our long-term obligations under the 2018 Credit Agreement are estimated based on quoted market prices for the same or similar issues and the current interest rates offered for similar instruments. These fair value measurements are classified as Level 2 within the fair value hierarchy. The carrying value of these instruments was $0 as of January 30, 2021. The fair value of our long-term obligations under the 2019 Term Note are based on quoted market prices and are classified as Level 2 within the fair value hierarchy. The carrying value of the instrument approximates its fair value. The carrying value of accounts receivable and accounts payable approximates fair value because of the relatively short maturity of these items. 50 Table of Contents NOTE 5 – LEASES Our leased property consists of our retail stores, distribution centers, store security, and other office equipment. In November 2017, we entered into a synthetic lease arrangement (the “Synthetic Lease”) for our Apple Valley, CA distribution center. The term of the Synthetic Lease commenced in the second quarter of 2019 and will expire 5 years after commencement. The Synthetic Lease is included in our operating lease right-of-use assets and operating lease liabilities. In the second quarter of 2020, we completed sale and leaseback transactions for our distribution centers located in Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA. The leases for the Columbus, OH and Montgomery, AL distribution centers each have an initial term of 15 years and multiple five-year extension options. The leases for the Durant, OK and Tremont, PA distribution centers each have an initial term of 20 years and multiple five-year extension options. At lease commencement, we determined that none of the extension options were reasonably certain to be exercised. Therefore, none of the extension options were included in the computation of the operating lease liabilities and operating lease right-of-use assets. At commencement of the leases, we recorded aggregate operating lease liabilities of $466.1 million and aggregate operating lease right-of-use assets of $466.1 million. The weighted average discount rate for the leases was 6.2%. All of the leases are absolute net. Additionally, all of the leases include a right of first refusal beginning after the fifth year of the initial term which allows us to purchase the leased property if the buyer-lessor receives a bona fide purchase offer from a third-party. For additional information on the sale and leaseback transactions, see note 10 to the accompanying consolidated financial statements. Leases were recorded in our consolidated balance sheets as follows: Leases (In thousands) Balance Sheet Location January 30, 2021 February 1, 2020 Assets Operating Finance Total right-of-use assets Liabilities Current Operating Finance Noncurrent Operating Finance Total lease liabilities Operating lease right-of-use assets Property and equipment - net Current operating lease liabilities Accrued operating expenses Noncurrent operating lease liabilities Other liabilities $ $ $ $ 1,649,009 $ 3,667 1,652,676 $ 1,202,252 7,436 1,209,688 226,075 $ 3,190 212,144 3,650 1,465,433 1,242 1,695,940 $ 1,035,377 4,482 1,255,653 The components of lease costs were as follows: Lease cost (In thousands) Operating lease cost Finance lease cost Statements of Operations and Comprehensive Income Location 2020 2019 Selling and administrative expenses $ 326,780 $ 295,810 Amortization of leased assets Depreciation Interest on lease liabilities Interest expense Selling and administrative expenses Selling and administrative expenses Short-term lease cost Variable lease cost Total lease cost 3,800 274 4,728 88,074 423,656 $ 4,373 948 5,671 81,666 388,468 $ In 2020 and 2019, our operating lease cost above included $0.9 million and $3.6 million, respectively, of right-of-use asset impairment charges related to store closures prior to lease termination date. 51 Table of Contents Maturity of our lease liabilities at January 30, 2021, was as follows: Fiscal Year (In thousands) Operating Leases Finance Leases 2021 2022 2023 2024 2025 Thereafter Total lease payments Less amount to discount to present value Present value of lease liabilities $ 288,500 $ 3,820 308,518 275,233 231,367 191,446 849,370 $ $ $ 2,144,434 (452,926) 1,691,508 $ $ $ 586 124 53 19 — 4,602 (170) 4,432 Lease term and discount rate for our operating leases were as follows: Weighted average remaining lease term (years) Weighted average discount rate 8.7 4.5 % 6.4 4.1 % January 30, 2021 February 1, 2020 Our weighted average discount rate represents our estimated incremental borrowing rate, assuming a secured borrowing, based on the remaining lease term at the time of adoption of the standard, lease commencement, or the period in which the lease term expectation was modified. Our finance leases, and the associated remaining lease term and discount rate, are insignificant. Disclosures Related to Periods Prior to Adoption of ASC 842, Leases Under ASC 840, Leases, total rent expense, including real estate taxes, CAM, and property insurance for operating leases consisted of the following: (In thousands) Minimum rents Contingent rents Total rent expense 2018 346,067 168 346,235 $ $ NOTE 6 – SHAREHOLDERS’ EQUITY Earnings per Share There were no adjustments required to be made to weighted-average common shares outstanding for purposes of computing basic and diluted earnings per share and there were no securities outstanding in any year presented, which were excluded from the computation of earnings per share other than antidilutive stock options, restricted stock awards, restricted stock units, PSUs, and PRSUs. Stock options outstanding that were excluded from the diluted share calculation because their impact was antidilutive at the end of 2019 and 2018 were insignificant. There were no stock options outstanding at the end of 2020. The restricted stock units, PSUs, and PRSUs that were antidilutive, as determined under the treasury stock method, were immaterial for 2020, 0.3 million for 2019 and immaterial for 2018. A reconciliation of the number of weighted-average common shares outstanding used in the basic and diluted earnings per share computations is as follows: (In thousands) Weighted-average common shares outstanding: Basic Dilutive effect of share-based awards Diluted 2020 2019 2018 38,233 39,244 834 107 39,067 39,351 40,809 153 40,962 52 Table of Contents Share Repurchases On August 27, 2020, our Board of Directors authorized the repurchase of up to $500 million of our common shares (“2020 Repurchase Authorization”). Pursuant to the 2020 Repurchase Authorization, we may repurchase shares in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. The 2020 Repurchase Authorization has no scheduled termination date. During 2020, we acquired 3.8 million shares for $172.8 million under the 2020 Repurchase Authorization. Common shares acquired through repurchase programs are held in treasury at cost and are available to meet obligations under equity compensation plans and for general corporate purposes. Dividends The Company declared and paid cash dividends per common share during the periods presented as follows: 2019: First quarter Second quarter Third quarter Fourth quarter Total 2020: First quarter Second quarter Third quarter Fourth quarter Total Dividends Per Share Amount Declared Amount Paid (In thousands) (In thousands) $ $ $ $ 0.30 0.30 0.30 0.30 1.20 0.30 0.30 0.30 0.30 1.20 $ 12,206 $ $ $ 12,196 11,954 11,930 48,286 $ 11,905 $ 12,335 11,993 11,749 $ 47,982 $ 13,197 11,718 11,792 11,714 48,421 12,478 11,807 11,540 11,139 46,964 The amount of dividends declared may vary from the amount of dividends paid in a period due to the vesting of restricted stock units and performance share units, which accrue dividend equivalent rights that are paid when the award vests. The payment of future dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with applicable laws and agreements and any other factors deemed relevant by our Board of Directors. 53 Table of Contents NOTE 7 – SHARE-BASED PLANS Our shareholders approved the Big Lots 2020 Long-Term Incentive Plan (“2020 LTIP”) in June 2020. The 2020 LTIP authorizes the issuance of incentive and nonqualified stock options, restricted stock, restricted stock units, deferred stock units, performance shares, PSUs, performance units, stock appreciation rights, cash-based awards, and other share-based awards. We have issued restricted stock units under the 2020 LTIP. The number of common shares available for issuance under the 2020 LTIP consists of an initial allocation of 3,600,000 common shares plus any common shares subject to the 1,360,943 outstanding awards as of February 1, 2020 under the Big Lots 2017 Long-Term Incentive Plan (“2017 LTIP”) that, on or after February 1, 2020, cease for any reason to be subject to such awards (other than by reason of exercise or settlement). The Compensation Committee of our Board of Directors (“Committee”), which is charged with administering the 2020 LTIP, has the authority to determine the terms of each award. Our former equity compensation plan, the 2017 LTIP, approved by our shareholders in May 2017, was terminated on June 10, 2020. The 2017 LTIP authorized the issuance of incentive and nonqualified stock options, restricted stock, restricted stock units, deferred stock awards, PSUs, stock appreciation rights, cash-based awards, and other share-based awards. We have issued restricted stock units, PSUs, and PRSUs under the 2017 LTIP. During 2020, all nonqualified stock options granted to employees under the Big Lots 2012 Long-Term Incentive Plan (“2012 LTIP”) were exercised or expired. There were no nonqualified stock options outstanding at January 30, 2021. Share-based compensation expense was $26.2 million, $13.1 million, and $26.3 million in 2020, 2019, and 2018, respectively. Non-vested Restricted Stock The following table summarizes the non-vested restricted stock awards and restricted stock units activity for fiscal years 2018, 2019, and 2020: Outstanding non-vested restricted stock at February 3, 2018 Granted Vested Forfeited Outstanding non-vested restricted stock at February 2, 2019 Granted Vested Forfeited Outstanding non-vested restricted stock at February 1, 2020 Granted Vested Forfeited Outstanding non-vested restricted stock at January 30, 2021 Weighted Average Grant-Date Fair Value Per Share Number of Shares 589,843 $ 354,457 (413,261) (47,857) 483,182 $ 440,014 (202,101) (72,585) 648,510 $ 1,031,213 (308,797) (156,714) 1,214,212 $ 44.77 45.38 42.60 44.49 46.50 33.54 46.26 39.89 38.52 18.18 40.65 22.80 22.71 The non-vested restricted stock units granted in 2018, 2019, and 2020 generally vest, and are expensed, on a ratable basis over three years from the grant date of the award, if a threshold financial performance objective is achieved and the grantee remains employed by us through the vesting dates. 54 Table of Contents Performance Share Units In 2020, we awarded PRSUs to certain members of senior management, which vest based on the achievement of share price performance goals and a minimum service requirement of one year. The PRSUs have a contractual term of three years. We use a Monte Carlo simulation to estimate the fair value of the PRSUs on the grant date and recognize expense over the derived service period. If the share price performance goals applicable to the PRSUs are not achieved prior to expiration, the unvested portion of the awards will be forfeited. Shares issued in connection with vested PRSUs are generally restricted from sale, transfer, or other disposition prior to the third anniversary of the grant date except under certain circumstances, including death, disability, or change in control. At January 30, 2021, the share price performance goals applicable to all outstanding PRSUs had been attained and we expect the outstanding PRSUs to vest in 2021. Prior to 2020, we awarded PSUs to certain members of management, which will vest if certain financial performance objectives are achieved over a three-year performance period and the grantee remains employed by us through that performance period. The financial performance objectives for each fiscal year within the three-year performance period are generally approved by the Committee during the first quarter of the respective fiscal year. In 2020, due to lack of business visibility resulting from the COVID-19 pandemic, the Committee deferred establishing the third and final financial performance objectives for the PSUs issued in 2018 until the third quarter of 2020. At January 30, 2021, 737,818 non-vested PSUs and PRSUs were outstanding in the aggregate. As a result of the process used to establish the financial performance objectives, we will only meet the requirements of establishing a grant date for the PSUs when we communicate the financial performance objectives for the third fiscal year of the award to the award recipients, which will then trigger the service inception date, the fair value of the awards, and the associated expense recognition period. If we meet the applicable threshold financial performance objectives over the three-year performance period and the grantee remains employed by us through the end of the performance period, the PSUs will vest on the first trading day after we file our Annual Report on Form 10-K for the last fiscal year in the performance period. We have begun, or expect to begin, recognizing expense related to PSUs and PRSUs as follows: Issue Year 2018 2019 2020 Total Outstanding PSUs and PRSUs at January 30, 2021 134,463 263,787 339,568 737,818 Actual Grant Date August 2020 April 2020 Expected Valuation (Grant) Date Actual or Expected Expense Period March 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020 - 2021 The number of shares to be distributed upon vesting of the PSUs depends on our average performance attained during the three-year performance period as compared to the targets defined by the Committee, and may result in the distribution of an amount of shares that is greater or less than the number of PSUs granted, as defined in the award agreement. At January 30, 2021, we estimate the attainment of an average performance that is substantially greater than the average targets established for the PSUs issued in 2018. In 2020, 2019, and 2018, we recognized $14.2 million, $1.2 million and $14.9 million, respectively, in share-based compensation expense related to PSUs and PRSUs. 55 Table of Contents The following table summarizes the activity related to PSUs and PRSUs for fiscal years 2018, 2019, and 2020: Outstanding PSUs and PRSUs at February 3, 2018 Granted Vested Forfeited Outstanding PSUs and PRSUs at February 2, 2019 Granted Vested Forfeited Outstanding PSUs and PRSUs at February 1, 2020 Granted Vested Forfeited Outstanding PSUs and PRSUs at January 30, 2021 Weighted Average Grant-Date Fair Value Per Share Number of Shares 249,324 $ 337,421 (249,324) (55,338) 282,083 $ 217,518 (282,083) (35,596) 181,922 $ 580,285 (181,062) (107,114) 474,031 $ 51.49 55.67 51.49 46.31 55.67 31.89 55.67 31.89 31.89 24.53 31.89 25.56 24.31 Board of Directors’ Awards In 2018, we granted (1) the chairman of our Board of Directors an annual restricted stock unit award having a grant date fair value of approximately $200,000, and (2) the remaining non-employee directors an annual restricted stock unit award having a grant date fair value of approximately $135,000. In 2019 and 2020, we granted (1) the chairman of our Board of Directors an annual restricted stock unit award having a grant date fair value of approximately $210,000, and (2) the remaining non-employee directors an annual restricted stock unit award having a grant date fair value of approximately $145,000. These awards vest on the earlier of (1) the trading day immediately preceding the annual meeting of our shareholders following the grant of such awards or (2) the death or disability of the grantee. However, the non-employee directors will forfeit their restricted stock units if their service on the Board terminates before either vesting event occurs. Additionally, we allow our non-employee directors to defer all or a portion of their restricted stock unit award and by such election, the non-employee directors can defer receipt of their restricted stock units until the earlier of the first to occur of: (1) the specified date by the non-employee director in the deferral agreement, (2) the non-employee director’s death or disability, or (3) the date the non-employee director ceases to serve as a member of the Board of Directors. During 2020, 2019, and 2018, the following activity occurred under our share-based compensation plans: (In thousands) Total intrinsic value of stock options exercised Total fair value of restricted stock vested Total fair value of performance shares vested 2020 2019 2018 $ 161 $ 7,102 924 42 $ 6,452 9,849 228 19,240 12,792 The total unearned compensation cost related to all share-based awards outstanding, excluding PSUs issued in 2019, at January 30, 2021 was approximately $17.2 million. This compensation cost is expected to be recognized through November 2023 based on existing vesting terms with the weighted-average remaining expense recognition period being approximately 1.8 years from January 30, 2021. 56 Table of Contents NOTE 8 – INCOME TAXES The provision for income taxes was comprised of the following: (In thousands) Current: U.S. Federal U.S. State and local Total current tax expense Deferred: U.S. Federal U.S. State and local Total deferred tax expense Income tax provision 2020 2019 2018 $ 206,883 $ 60,947 267,830 (40,848) (11,567) (52,415) 15,495 $ 7,215 22,710 48,613 3,761 52,374 $ 215,415 $ 75,084 $ 35,025 10,341 45,366 5,300 53 5,353 50,719 Reconciliation between the statutory federal income tax rate and the effective income tax rate was as follows: Statutory federal income tax rate Effect of: State and local income taxes, net of federal tax benefit Executive compensation limitations - permanent difference Work opportunity tax and other employment tax credits Excess tax detriment (benefit) from share-based compensation Other, net Effective income tax rate Income tax payments and refunds were as follows: 2020 2019 2018 21.0 % 21.0 % 21.0 % 4.6 0.2 (0.3) 0.2 (0.2) 2.7 0.4 (0.8) 0.4 (0.1) 4.0 0.7 (1.4) 0.4 (0.3) 25.5 % 23.6 % 24.4 % (In thousands) Income taxes paid Income taxes refunded Net income taxes paid 2020 2019 2018 $ $ 217,308 $ (1,522) 215,786 $ 29,375 $ (2,313) 27,062 $ 59,691 (474) 59,217 57 Table of Contents Deferred taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax, including income tax uncertainties. Significant components of our deferred tax assets and liabilities were as follows: January 30, 2021 February 1, 2020 $ 449,058 $ (In thousands) Deferred tax assets: Lease liabilities, net of lease incentives Depreciation and fixed asset basis differences Sale and leaseback financing liability Uniform inventory capitalization Workers’ compensation and other insurance reserves Compensation related Accrued payroll taxes related to CARES Act Accrued operating liabilities Accrued state taxes State tax credits, net of federal tax benefit Other Valuation allowances, net of federal tax benefit Total deferred tax assets Deferred tax liabilities: Right-of-use assets, net of amortization Accelerated depreciation and fixed asset basis differences Synthetic lease obligation Deferred gain on like-kind exchange Lease construction reimbursements Prepaid expenses 37,117 32,263 24,050 20,692 20,171 9,367 4,011 4,045 2,470 14,500 (2,105) 615,639 421,801 111,427 34,438 14,809 9,216 4,539 3,591 7,251 607,072 8,567 $ 327,499 37,430 — 22,611 21,013 16,378 — 3,674 3,027 3,495 13,907 (2,674) 446,360 305,091 100,187 34,485 15,382 18,920 5,039 3,507 7,597 490,208 (43,848) Workers’ compensation and other insurance reserves Other Total deferred tax liabilities Net deferred tax assets (liabilities) $ Our deferred tax assets and deferred tax liabilities, netted by tax jurisdiction, are summarized in the table below: (In thousands) U.S. Federal U.S. State and local Net deferred tax assets (liabilities) January 30, 2021 February 1, 2020 $ $ (7,762) $ 16,329 8,567 $ (48,610) 4,762 (43,848) We have the following income tax loss and credit carryforwards at January 30, 2021 (amounts are shown net of tax excluding the federal income tax effect of the state and local items): (In thousands) U.S. State and local: State net operating loss carryforwards $ 15 Expires predominately during fiscal year 2021 California enterprise zone credits 2,958 Predominately expires fiscal year 2023 Other state credits 168 Expires fiscal years through 2025 Total income tax loss and credit carryforwards $ 3,141 58 Table of Contents The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for 2020, 2019, and 2018: (In thousands) 2020 2019 2018 Unrecognized tax benefits - beginning of year $ 10,760 $ 11,986 $ Gross increases - tax positions in current year Gross increases - tax positions in prior period Gross decreases - tax positions in prior period Settlements Lapse of statute of limitations 728 745 (1,871) (20) (877) 976 1,031 (2,333) (484) (416) 11,673 1,649 1,025 (1,827) 403 (937) Unrecognized tax benefits - end of year $ 9,465 $ 10,760 $ 11,986 At the end of 2020 and 2019, the total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is $7.1 million and $8.4 million, respectively, after considering the federal tax benefit of state and local income taxes of $1.3 million and $1.4 million, respectively. Unrecognized tax benefits of $1.1 million and $1.0 million in 2020 and 2019, respectively, relate to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The uncertain timing items could result in the acceleration of the payment of cash to the taxing authority to an earlier period. We recognized an expense (benefit) associated with interest and penalties on unrecognized tax benefits of approximately $(0.4) million, $(1.1) million, and $(0.7) million during 2020, 2019, and 2018, respectively, as a component of income tax expense. The amount of accrued interest and penalties recognized in the accompanying consolidated balance sheets at January 30, 2021 and February 1, 2020 was $3.9 million and $4.3 million, respectively. We are subject to U.S. federal income tax, and income tax of multiple state and local jurisdictions. The statute of limitations for assessments on our federal income tax returns for periods prior to 2017 has lapsed. In addition, the state income tax returns filed by us are subject to examination generally for periods beginning with 2006, although state income tax carryforward attributes generated prior to 2006 and non-filing positions may still be adjusted upon examination. We have various state returns in the process of examination or administrative appeal. We have estimated the reasonably possible expected net change in unrecognized tax benefits through January 29, 2022, based on expected cash and noncash settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations for unrecognized tax benefits. The estimated net decrease in unrecognized tax benefits for the next 12 months is approximately $3.0 million. Actual results may differ materially from this estimate. 59 Table of Contents NOTE 9 – COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS California Wage and Hour Matters We currently are defending several wage and hour matters in California. The cases were brought by various current and/or former California associates alleging various violations of California wage and hour laws. Upon further consideration of these matters, including outcomes of cases against other retailers, during the first quarter of 2019, we determined a loss from these matters was probable and we increased our accrual for litigation by recording a $7.3 million charge as our best estimate for these matters in aggregate. Since the end of the first quarter of 2019, we have settled and/or reached settlement agreements, including preliminary approval by the courts, in each of the class actions. We intend to defend ourselves vigorously against the allegations levied in the remaining individual lawsuits. We believe the existing accrual for litigation remains appropriate. Shareholder and Derivative Matters In 2012, three shareholder derivative lawsuits were filed in the U.S. District Court for the Southern District of Ohio against us and certain of our current and former outside directors and executive officers. The lawsuits were consolidated, and, on August 13, 2012, plaintiffs filed a consolidated complaint captioned In re Big Lots, Inc. Shareholder Litigation , No. 2:12-cv-00445 (S.D. Ohio) (the “Consolidated Derivative Action”). The consolidated complaint asserted various claims under Ohio law, including for breach of fiduciary duty. On December 14, 2017, the parties entered into a Stipulation and Agreement of Settlement and plaintiffs filed an Unopposed Motion for Preliminary Approval of Derivative Settlement with the Court. On August 28, 2018, the Court issued an Order granting final approval of the Settlement. Also in 2012, a putative securities class action lawsuit captioned Willis, et al. v. Big Lots, Inc., et al., 2:12-cv-00604 (S.D. Ohio) was filed in the U.S. District Court for the Southern District of Ohio on behalf of persons who acquired our common shares between February 2, 2012 and April 23, 2012. Effective May 16, 2018, the parties executed a Stipulation of Settlement. On November 9, 2018, the Court issued an Order granting final approval of the Settlement. In connection with the settlement of the Willis class action and the Consolidated Derivative Action, during the first quarter of 2018, we recorded a net charge of $3.5 million related to the expected cost of the settlements for the funds in excess of our insurance coverage. During the second quarter of 2018, the settlement associated with the Willis class action was paid into escrow and has since been released. Other Matters We are involved in other legal actions and claims arising in the ordinary course of business. We currently believe that each such action and claim will be resolved without a material effect on our financial condition, results of operations, or liquidity. However, litigation involves an element of uncertainty. Future developments could cause these actions or claims to have a material effect on our financial condition, results of operations, and liquidity. We are self-insured for certain losses relating to property, general liability, workers’ compensation, and employee medical, dental, and prescription drug benefit claims, a portion of which is paid by employees, and we have purchased stop-loss coverage in order to limit significant exposure in these areas. Accrued insurance liabilities are actuarially determined based on claims filed and estimates of claims incurred but not reported. We use letters of credit, which amounted to $41.0 million at January 30, 2021, as collateral to back certain of our self-insured losses with our claims administrators. We have purchase obligations for outstanding purchase orders for merchandise issued in the ordinary course of our business that are valued at $722.5 million, the entirety of which represents obligations due within one year of January 30, 2021. We have additional purchase obligations in the amount of $401.2 million primarily related to distribution and transportation, information technology, print advertising, energy procurement, and other store security, supply, and maintenance commitments. 60 Table of Contents NOTE 10 - GAIN ON SALE OF DISTRIBUTION CENTER In the second quarter of 2020, we completed sale and leaseback transactions for our distribution centers located in Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA. The aggregate sale price for the transactions was $725.0 million. Due to sale-leaseback accounting requirements, the proceeds received in the transactions were allocated between proceeds on the sale of the distribution centers and financing proceeds. Accordingly, aggregate net proceeds, before income taxes, on the sales of the distribution centers were $586.9 million and the aggregate gain on the sales was $463.1 million. Additionally, we incurred $4.0 million of additional selling and administrative expenses in connection with the transaction, which primarily consisted of consulting services. The remainder of consideration received was financing liability proceeds of $134.0 million. The current portion of the financing liability was recorded in accrued operating expenses in our consolidated balance sheets. The noncurrent portion of the financing liability was recorded in other liabilities in our consolidated balance sheets. Interest expense will be recognized on the financing liability using the effective interest method and the financing liability will be accreted over the duration of the lease agreements. Future payments to the buyer-lessor will be allocated between the financing liability and the lease liabilities. See note 5 to the accompanying consolidated financial statements for information on the lease agreements. In connection with our entrance into the sale and leaseback transactions, we agreed to repay all borrowings outstanding under the 2018 Credit Agreement and restrict our borrowings under the 2018 Credit Agreement for 90 days following closing of the transactions. Aggregate initial annual cash payments to the buyer-lessor, including payments of the financing liability and lease payments, are approximately $50 million and the payments escalate two percent annually. Aggregate annual straight-line rent expense for the four leases is approximately $46 million. Aggregate initial annual interest expense on the financing liability, which will decrease over the term, is approximately $8 million. In the third quarter of 2019, we completed the sale of our distribution center located in Rancho Cucamonga, CA. As part of our agreement with the purchaser, we leased the property back from the purchaser for several months while we wound down our operations at the distribution center. The Rancho Cucamonga, CA distribution center was closed in the first quarter of 2020. Net proceeds from the sale of the distribution center were $190.3 million and our gain on the sale was $178.5 million. 61 Table of Contents NOTE 11 – BUSINESS SEGMENT DATA We use the following seven merchandise categories, which match our internal management and reporting of merchandise net sales: Food; Consumables; Soft Home; Hard Home; Furniture; Seasonal; and Electronics, Toys, & Accessories. The Food category includes our beverage & grocery; candy & snacks; and specialty foods departments. The Consumables category includes our health, beauty and cosmetics; plastics; paper; chemical; and pet departments. The Soft Home category includes the home décor; frames; fashion bedding; utility bedding; bath; window; decorative textile; home organization; and area rugs departments. The Hard Home category includes our small appliances; table top; food preparation; stationery; and home maintenance departments. The Furniture category includes our upholstery; mattress; ready-to-assemble; and case goods departments. The Seasonal category includes our lawn & garden; summer; Christmas; and other holiday departments. The Electronics, Toys, & Accessories category includes our electronics; jewelry; hosiery; apparel; and toys departments. We periodically assess, and make minor adjustments to, our product hierarchy, which can impact the roll-up of our merchandise categories. Our financial reporting process utilizes the most current product hierarchy in reporting net sales by merchandise category for all periods presented. Therefore, there may be minor reclassifications of net sales by merchandise category compared to previously reported amounts. The following table presents net sales data by merchandise category: (In thousands) Furniture Soft Home Consumables Seasonal Food Electronics, Toys, & Accessories Hard Home Net sales 2020 2019 2018 $ 1,736,932 $ 1,427,129 $ 1,286,995 1,048,970 932,259 815,378 798,950 438,450 428,247 853,434 803,593 773,720 757,351 344,947 363,006 828,451 799,038 765,619 782,988 367,418 407,596 $ 6,199,186 $ 5,323,180 $ 5,238,105 62 Table of Contents NOTE 12 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized fiscal quarterly financial data for 2020 and 2019 is as follows: Fiscal Year 2020 First Second Third Fourth Year (In thousands, except per share amounts) (a) Net sales Gross margin Net income Earnings per share: Basic Diluted $ 1,439,149 $ 1,644,197 $ 1,377,925 $ 1,737,915 $ 6,199,186 570,756 683,564 557,893 685,173 2,497,386 49,323 451,972 29,910 97,986 629,191 $ 1.26 $ 1.26 11.52 $ 11.29 0.79 $ 0.76 2.68 $ 2.59 16.46 16.11 Fiscal Year 2019 First Second Third Fourth Year (In thousands, except per share amounts) (a) Net sales Gross margin Net income Earnings per share: Basic Diluted $ 1,295,796 $ 1,252,414 $ 1,167,988 $ 1,606,982 $ 5,323,180 519,047 498,230 463,386 634,019 2,114,682 15,540 6,178 126,982 93,764 242,464 $ 0.39 $ 0.39 0.16 $ 0.16 3.25 $ 3.25 2.40 $ 2.39 6.18 6.16 (a) Earnings per share calculations for each fiscal quarter are based on the applicable weighted-average shares outstanding for each period, and the sum of the earnings per share for the four fiscal quarters may not necessarily be equal to the full year earnings per share amount. NOTE 13 – RESTRUCTURING COSTS In March 2019, we announced a transformational restructuring initiative, referred to as “Operation North Star,” to both drive growth in our net sales and reduce costs within our business. The goal of the initiative was to generate costs savings from this initiative through improved markdown and merchandise management, reduced management layers, optimization of store labor, improved efficiencies in our supply chain, and reduced central and other costs. With the initial implementation of this initiative in 2019, we incurred upfront costs, including employee severance costs and consultancy fees, and made payments to execute the initiative of $38.3 million. The remaining obligation associated with severance and postemployment benefits was immaterial and $2.2 million at January 30, 2021 and February 1, 2020, respectively. 63 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have each concluded that such disclosure controls and procedures were effective as of the end of the period covered by this report. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for us. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. Management assessed the effectiveness of our internal control over financial reporting as of January 30, 2021. In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 Framework). Based on this assessment, management, including our Principal Executive Officer and Principal Financial Officer, concluded that we maintained effective internal control over financial reporting as of January 30, 2021. Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on our internal control over financial reporting. The report appears in the Financial Statements and Supplementary Data section of this Form 10-K. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 64 Table of Contents Item 10. Directors, Executive Officers and Corporate Governance Part III The information contained under the captions “Proposal One: Election of Directors,” “Governance,” and “Stock Ownership” in our definitive Proxy Statement for our 2021 annual meeting of shareholders ( “2021 Proxy Statement”), with respect to directors, shareholder nomination procedures, the code of ethics, the Audit Committee, our audit committee financial experts, and Section 16(a) beneficial ownership reporting compliance, is incorporated herein by reference in response to this item. The information contained in Part I of this Form 10-K under the caption “Supplemental Item. Executive Officers of the Registrant,” with respect to executive officers, is incorporated herein by reference in response to this item. In the “Investors” section of our website (www.biglots.com) under the “Corporate Governance” and “SEC Filings” captions, the following information relating to our corporate governance may be found: Corporate Governance Guidelines; charters of our Board of Directors’ Audit, Capital Allocation Planning, Compensation, and Nominating/Corporate Governance Committees, and our Public Policy and Environmental Affairs Committee; Code of Business Conduct and Ethics; Code of Ethics for Financial Officers; Chief Executive Officer and Chief Financial Officer certifications related to our SEC filings; the means by which shareholders may communicate with our Board of Directors; and transactions in our securities by our directors and executive officers. The Code of Business Conduct and Ethics applies to all of our associates, including our directors and our principal executive officer, principal financial officer, and principal accounting officer. The Code of Ethics for Financial Professionals applies to our Chief Executive Officer and all other Senior Financial Officers (as that term is defined therein) and contains provisions specifically applicable to the individuals serving in those positions. We intend to satisfy the requirement under Item 5.05 of Form 8-K regarding disclosure of any amendments to, and any waivers from, our Code of Business Conduct and Ethics (to the extent applicable to our directors and executive officers (including our principal executive officer, principal financial officer, and principal accounting officer)) and our Code of Ethics for Financial Professionals in the “Investors” section of our website (www.biglots.com) under the “Corporate Governance” caption. We will provide any of the foregoing information without charge upon written request to our Corporate Secretary addressed to our principal executive offices at 4900 E. Dublin-Granville Road, Columbus, Ohio 43081. Item 11. Executive Compensation The information contained under the caption “Governance” with respect to Compensation Committee interlocks and insider participation and under the captions “Director Compensation,” “Executive Compensation” and “Compensation Committee Report” in the 2021 Proxy Statement is incorporated herein by reference in response to this item. 65 Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Equity Compensation Plan Information The following table summarizes information as of January 30, 2021, relating to our equity compensation plans pursuant to which our common shares may be issued. Number of securities to be issued upon exercise of outstanding options, warrants, and rights (#) Weighted-average exercise price of outstanding options, warrants, and rights ($) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (#) (a) (b) (c) 1,952,030 (1) — 1,952,030 — (2) — — (2) 3,659,048 (3) — 3,659,048 Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total (1) Includes performance share units, performance restricted share units, and restricted stock units granted under the 2020 LTIP and the 2017 LTIP. (2) The weighted average exercise price does not take into account the performance share units, performance restricted share units, and the restricted stock units granted under the 2020 LTIP and 2017 LTIP. (3) The common shares available for issuance under the 2020 LTIP are limited to 3,659,048 common shares. There are no common shares available for issuance under any of the other shareholder-approved plans. The 2017 LTIP was approved in May 2017 and was terminated in June 2020. The 2020 LTIP was approved in June 2020. See note 7 to the accompanying consolidated financial statements. The information contained under the caption “Stock Ownership” in the 2021 Proxy Statement, with respect to the security ownership of certain beneficial owners and management, is incorporated herein by reference in response to this item. Item 13. Certain Relationships and Related Transactions, and Director Independence The information contained under the caption “Governance” in the 2021 Proxy Statement, with respect to the determination of director independence and related person transactions, is incorporated herein by reference in response to this item. Item 14. Principal Accountant Fees and Services The information contained under the captions “Audit Committee Disclosure” in the 2021 Proxy Statement, with respect to our audit and non-audit services pre-approval policy and the fees paid to our independent registered public accounting firm, Deloitte & Touche LLP, is incorporated herein by reference in response to this item. 66 Table of Contents Item 15. Exhibits and Financial Statement Schedules Index to Consolidated Financial Statements, Financial Statement Schedules and Exhibits Part IV (a) (1) Documents filed as part of this report: Financial Statements Reports of Independent Registered Public Accounting Firm Consolidated Statements of Operations and Comprehensive Income Consolidated Balance Sheets Consolidated Statements of Shareholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 34 38 39 40 41 42 All other financial statements not listed in the preceding index are omitted because they are not required or are not applicable or because the information required to be set forth therein either was not material or is included in the consolidated financial statements or notes thereto. (2) Financial Statement Schedules All schedules are omitted because they are not required or are not applicable or because the information required to be set forth therein either was not material or is included in the consolidated financial statements or notes thereto. Exhibits. Exhibits marked with an asterisk (*) are filed herewith. The Exhibit marked with two asterisks (**) is (3) furnished electronically with this Annual Report. Certain portions of the exhibits marked with a pound sign (#) have been excluded from the exhibit pursuant to Item 601(b)(10)(iv) of Regulation S-K. Copies of exhibits will be furnished upon written request and payment of our reasonable expenses in furnishing the exhibits. Exhibits 10.1 through 10.23 are management contracts or compensatory plans or arrangements. Exhibit No. 2 3.1 3.2 3.3 4.1 4.2* 10.1 10.2 10.3 10.4 Document Agreement of Merger (incorporated herein by reference to Exhibit 2 to our Form 10-Q for the quarter ended May 5, 2001) (File No. 1-8897). Amended Articles of Incorporation (incorporated herein by reference to Exhibit 3(a) to our Form 10-Q for the quarter ended May 5, 2001) (File No. 1-8897). Amendment to the Amended Articles of Incorporation of Big Lots, Inc. (incorporated herein by reference to Exhibit 3.1 to our Form 8-K dated May 27, 2010) (File No. 1-8897). Amended Code of Regulations of Big Lots, Inc. (incorporated herein by reference to Exhibit 4.3 to our Form S-8 dated June 10, 2020). Specimen Common Share Certificate (incorporated herein by reference to Exhibit 4(a) to our Form 10-K for the year ended February 2, 2002) (File No. 1-8897). Description of Big Lots, Inc.’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. Big Lots 2017 Long-Term Incentive Plan (incorporated herein by reference to Appendix A to our definitive proxy statement on Schedule 14A relating to the 2017 Annual Meeting of Shareholders filed April 11, 2017). Form of Big Lots 2017 Long-Term Incentive Plan Restricted Stock Units Award Agreement (incorporated herein by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended April 29, 2017). Form of Big Lots 2017 Long-Term Incentive Plan Performance Share Units Award Agreement (incorporated herein by reference to Exhibit 10.2 to our Form 10-Q for the quarter ended April 29, 2017). Form of Big Lots 2017 Long-Term Incentive Plan Restricted Stock Units Retention Award Agreement (incorporated herein by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended August 4, 2018). 67 Table of Contents Exhibit No. 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 Document Form of Big Lots 2017 Long-Term Incentive Plan Deferral Election Form and Deferred Stock Units Award for Non-Employee Directors (incorporated herein by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended October 28, 2017). Form of Big Lots 2017 Long-Term Incentive Plan Performance Share Units Award Agreement (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated April 3, 2020). Big Lots 2020 Long-Term Incentive Plan (incorporated herein by reference to Appendix A to the Registrant’s definitive proxy statement on Schedule 14A relating to the 2020 Annual Meeting of Shareholders of the Registrant filed with the Commission on May 1, 2020 (File No. 1-8897)). Form of Big Lots 2020 Long-Term Incentive Plan Restricted Stock Units Award Agreement for Non- Employee Directors (incorporated herein by reference to Exhibit 10.3 to our Form 10-Q for the quarter ended May 2, 2020). Form of Big Lots 2020 Long-Term Incentive Plan Restricted Stock Units Award Agreement (incorporated herein by reference to Exhibit 10.4 to our Form 10-Q for the quarter ended May 2, 2020). Form of Big Lots 2020 Long-Term Incentive Plan Deferral Election Form and Deferred Stock Unit Award Agreement for Non-Employee Directors (incorporated herein by reference to Exhibit 10.5 to our Form 10-Q for the quarter ended May 2, 2020). Form of Big Lots 2020 Long-Term Incentive Plan Restricted Performance Share Units Award Agreement (incorporated herein by reference to Exhibit 10.6 to our Form 10-Q for the quarter ended May 2, 2020). Form of Big Lots 2020 Long-Term Incentive Plan Performance Share Units Award Agreement (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated March 9, 2021). Form of Big Lots 2020 Long-Term Incentive Plan Restricted Stock Units Award Agreement (incorporated herein by reference to Exhibit 10.2 to our Form 8-K dated March 9, 2021). Big Lots 2019 Bonus Plan (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated March 5, 2019). Big Lots Savings Plan (incorporated herein by reference to Exhibit 10.8 to our Form 10-K for the year ended January 29, 2005) (File No. 1-8897). Big Lots Supplemental Savings Plan, as amended and restated effective December 31, 2015 (incorporated herein by reference to Exhibit 10.25 to our Form 10-K for the year ended January 30, 2016). Big Lots Executive Benefit Plan (incorporated herein by reference to Exhibit 10(m) to our Form 10-K for the year ended January 31, 2004) (File No. 1-8897). First Amendment to Big Lots Executive Benefit Plan (incorporated herein by reference to Exhibit 10.11 to our Form 10-Q for the quarter ended November 1, 2008) (File No. 1-8897). Offer Letter with Bruce Thorn (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated August 21, 2018). Second Amended and Restated Employment Agreement with Lisa M. Bachmann (incorporated herein by reference to Exhibit 10.2 to our Form 8-K dated April 29, 2013). Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.12 to our Form 10-Q for the quarter ended November 1, 2008) (File No. 1-8897). Big Lots Executive Severance Plan (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated August 28, 2014). Form of Big Lots Executive Severance Plan Acknowledgment and Agreement (incorporated by reference to Exhibit 10.2 to our Form 8-K dated August 28, 2014). Credit Agreement, dated August 31, 2018, by and among Big Lots, Inc. and Big Lots Stores, Inc., as borrowers, the Guarantors named therein, and the Banks named therein (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated August 29, 2018). Security Agreement between Big Lots Stores, Inc. and Big Lots Capital, Inc. (incorporated herein by reference to Exhibit 10.2 to our Form 8-K dated October 29, 2004) (File No. 1-8897). Stock Purchase Agreement between KB Acquisition Corporation and Consolidated Stores Corporation (incorporated herein by reference to Exhibit 2(a) to our Form 10-Q for the quarter ended October 28, 2000) (File No. 1-8897). Acquisition Agreement between Big Lots, Inc. and Liquidation World Inc. (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated May 26, 2011) (File No. 1-8897). AVDC Participation Agreement incorporated herein by reference to Exhibit 10.40 to our Form 10-K for the year ended February 3, 2018) (File No. 1-8897). AVDC Lease Agreement (Real Property) (incorporated herein by reference to Exhibit 10.41 to our Form 10-K for the year ended February 3, 2018) (File No. 1-8897). 68 Table of Contents Exhibit No. 10.30 10.31 10.32# 10.33# 21* 23* 24* 31.1* 31.2* 32.1* 32.2* 101.Def* 101.Pre* 101.Lab* 101.Cal* 101.Sch 101.Ins 104 Document AVDC Construction Agency Agreement (incorporated herein by reference to Exhibit 10.42 to our Form 10- K for the year ended February 3, 2018) (File No. 1-8897). Settlement Agreement dated April 22, 2020, by and among Big Lots, Inc., Ancora Advisors, LLC, Ancora Merlin Institutional, LP, Ancora Merlin, LP, Ancora Catalyst Institutional, LP, Ancora Catalyst, LP, Ancora Catalyst SPV I LP, Ancora Catalyst SPV I SPC Ltd. - Segregated Portfolio C, Macellum Advisors GP, LLC, Macellum Management, LP, and Macellum Opportunity Fund LP. (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated April 22, 2020). Agreement for Purchase and Sale of Real Property, as amended, between Durant DC, LLC and BIGDUOK001 LLC relating to the registrant’s distribution center located in Durant, Oklahoma. (incorporated herein by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended August 1, 2020). Lease Agreement, as amended, between Big Lots Stores, Inc. and BIGCOOH002, LLC relating to the registrant’s distribution center located in Columbus, OH (incorporated herein by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended October 31, 2020). Subsidiaries. Consent of Deloitte & Touche LLP. Power of Attorney for James R. Chambers, Andrew C. Clarke, Sebastian J. DiGrande, Marla C. Gottschalk, Cynthia T. Jamison, Thomas A. Kingsbury, Christopher J. McCormick, Nancy A. Reardon, and Wendy L. Schoppert. Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. XBRL Taxonomy Definition Linkbase Document XBRL Taxonomy Presentation Linkbase Document XBRL Taxonomy Labels Linkbase Document XBRL Taxonomy Calculation Linkbase Document XBRL Taxonomy Schema Linkbase Document XBRL Taxonomy Instance Document - the instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). Item 16. Form 10-K Summary None. 69 Table of Contents Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 30th day of March 2021. BIG LOTS, INC. By: /s/ Bruce K. Thorn Bruce K. Thorn President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 30th day of March 2021. By: /s/ Bruce K. Thorn Bruce K. Thorn President and Chief Executive Officer (Principal Executive Officer) By: /s/ Jonathan E. Ramsden Jonathan E. Ramsden Executive Vice President, Chief Financial and Administrative Officer (Principal Financial Officer, Principal Accounting Officer and Duly Authorized Officer) /s/ James R. Chambers * James R. Chambers Director /s/ Andrew C. Clarke * Andrew C. Clarke Director /s/ Sebastian J. DiGrande * Sebastian J. DiGrande Director /s/ Marla C. Gottschalk * Marla C. Gottschalk Director /s/ Cynthia T. Jamison * Cynthia T. Jamison Director /s/ Thomas A. Kingsbury * Thomas A. Kingsbury Director /s/ Christopher J. McCormick * Christopher J. McCormick Director /s/ Nancy A. Reardon * Nancy A. Reardon Director /s/ Wendy L. Schoppert * Wendy L. Schoppert Director * The above named Directors of the Registrant execute this report by Ronald A. Robins, Jr., their attorney-in-fact, pursuant to the power of attorney executed by the above-named Directors all in the capacities indicated and on the 4th day of March 2021, and filed herewith. By: /s/ Ronald A. Robins, Jr. Ronald A. Robins, Jr. Attorney-in-Fact 70 EXHIBIT 4.2 DESCRIPTION OF BIG LOTS, INC.’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 As of January 30, 2021, Big Lots, Inc. (the “Company,” “we,” “us” or “our”) had one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: the Company’s common shares, par value $.01 per share (the “common shares”). The following summary describes the material features of our capital stock. This summary is subject to, and qualified in its entirety by reference to, our Amended Articles of Incorporation (the “Articles”) and our Amended Code of Regulations (the “Regulations”), each of which is filed as an exhibit to the Annual Report on Form 10-K of which this exhibit is a part, and the applicable provisions of Ohio law. Authorized Capital Stock Our authorized capital stock consists of 298,000,000 common shares, par value $.01 per share (the common shares”) and 2,000,000 preferred shares, par value $.01 per share (the “preferred shares”). As of January 30, 2021, there were 35,535,274 common shares issued and outstanding, 81,960,121 common shares held by us in treasury and no preferred shares issued and outstanding. Common Shares Holders of our common shares are entitled to: • • • one vote for each share held; receive dividends when, as and if declared by our board of directors from funds legally available therefor, subject to the rights of holders of preferred shares, if any; and share ratably in our net assets legally available to our shareholders in the event of our liquidation, dissolution or winding up, after provision for the distribution of preferential amounts to the holders of preferred shares, if any. Holders of our common shares have no preemptive, subscription, redemption, conversion, exchange or cumulative voting rights. The rights, preferences and privileges of the holders of our common shares are subject to, and may be adversely affected by, the rights, preferences and privileges of holders of our preferred shares, including any preferred shares that we may designate and issue in the future. In all director elections other than uncontested elections, plurality voting will apply and the director nominees receiving the greatest number of votes cast for their election will be elected as directors. An “uncontested election” generally means an election of directors at a meeting of shareholders in which the number of nominees for election does not exceed the number of directors to be elected. Our Articles impose a majority vote standard in uncontested elections of directors and our Corporate Governance Guidelines contain a majority vote policy applicable to uncontested elections of directors. Article Eighth of our Articles provides that if a quorum is present at the Annual Meeting, a director nominee in an uncontested election will be elected to our board of directors if the number of votes cast for such nominee’s election exceeds the number of votes cast against and/or withheld from such nominee’s election. The majority vote policy contained in our Corporate Governance Guidelines requires any nominee for director who does not receive more votes cast for such nominee’s election than votes cast against and/or withheld as to his or her election to deliver his or her resignation from our board of directors to the Nominating / Corporate Governance Committee. Upon its receipt of such resignation, the Nominating / Corporate Governance Committee will promptly consider the resignation and recommend to our board of directors whether to accept the resignation or to take other action. Except as otherwise provided by law or as set forth in “Anti-Takeover Effects of Articles, Regulations and the Ohio General Corporation Law” below, at any shareholder meeting at which a quorum is present all business which comes before such meeting will be determined by the vote of the holders of a majority of the voting power. Our common shares are listed on the New York Stock Exchange (“NYSE”) under the trading symbol “BIG.” Our outstanding common shares are fully paid and nonassessable. Preferred Shares Our Articles authorize our board of directors to issue, without any further vote or action by our shareholders, subject to certain limitations prescribed by law and the rules of the NYSE, up to an aggregate of 2,000,000 preferred shares in one or more series on such terms as our board of directors may determine. Subject to applicable law, our board of directors is also authorized to fix or change the division of such shares into series and the designation and authorized number of shares of each series; the dividend or distribution rights; dividend rate; liquidation rights, preferences and price; redemption rights and price; sinking fund requirements; voting rights; pre- emptive rights; conversion rights; restrictions on issuance of shares; and such other rights, preferences and limitations as shall not be inconsistent with our Articles. Absent a determination by our board of directors to establish different voting rights, holders of preferred shares will be entitled to one vote per share on matters to be voted upon by the holders of common shares and preferred shares voting together as a single class, except that the Ohio General Corporation Law entitles the holders of preferred shares to exercise a class vote on certain matters. Our board of directors may authorize the issuance of preferred shares with voting, conversion or other rights that could adversely affect the voting power or other rights of the holders of our common shares. The issuance of preferred shares could have the effect of decreasing the market price of our common shares, decreasing the amount of earnings and assets available for distribution to holders of our common shares and creating restrictions upon the payment of dividends and other distributions to holders of our common shares. The issuance of preferred shares also could have the effect of delaying, deterring or preventing a change in control of us without further action by our shareholders. Anti-Takeover Effects of Articles, Regulations and the Ohio General Corporation Law Certain provisions in our Articles and Regulations and the Ohio General Corporation Law could discourage potential takeover attempts and make attempts by shareholders to change management more difficult. These provisions could also adversely affect the market price of our common shares. Blank Check Preferred Shares. As discussed above under “— Preferred Shares,” our Articles authorize our board of directors to issue, without any further vote or action by our shareholders, subject to certain limitations prescribed by law and the rules of NYSE, up to an aggregate of 2,000,000 preferred shares in one or more classes or series. Our board of directors may authorize the issuance of preferred shares with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common shares. The issuance of preferred shares could have the effect of decreasing the market price of our common shares. The issuance of preferred shares also could have the effect of delaying, deterring or preventing a change in control without further action by our shareholders. Limited Shareholder Action by Written Consent. Section 1701.54 of the Ohio General Corporation Law requires that an action by written consent of the shareholders in lieu of a meeting be approved by all shareholders who would be entitled to notice of such meeting, except that, pursuant to Section 1701.11 of the Ohio General Corporation Law, a corporation’s code of regulations may be amended by an action by written consent of holders of shares entitling them to exercise two-thirds of the voting power of the corporation or, if the corporation’s articles of incorporation or code of regulations otherwise provide, such greater or lesser amount, but not less than a majority. Our Regulations provide that they may be amended without a meeting by the written consent of holders of shares entitling them to exercise two-thirds of our voting power of the corporation. This provision may have the effect of delaying, deferring or preventing a tender offer, takeover attempt or other corporate action subject to approval by our shareholders. Calling of Special Meetings of Shareholders. Pursuant to our Regulations, special meetings of shareholders may be called only by the chairman of the board, the chief executive officer, the president, or, in case of the president’s absence, death, or disability, the vice president or other officer authorized to exercise the authority of the president; the secretary; the directors by action at a meeting, or a majority of the directors acting without a meeting; or the holders of at least twenty-five percent (25%) of all shares outstanding and entitled to vote thereat. Control Share Acquisition Act. Section 1701.831 of the Ohio General Corporation Law, known as the Control Share Acquisition Act, provides that certain notice and informational filings, and special shareholder meeting and voting procedures, must occur prior to any acquisition of shares of an “issuing public corporation” that would entitle the acquirer to exercise or direct the voting power of the “issuing public corporation” in the election of directors within any of the following ranges: • • • one-fifth or more but less than one-third of such voting power; one-third or more but less than a majority of such voting power; and a majority or more of such voting power. An “issuing public corporation” is an Ohio corporation with 50 or more shareholders that has its principal place of business, principal executive offices or substantial assets within Ohio, and as to which no close corporation agreement exists. The Control Share Acquisition Act does not apply to a corporation if its articles of incorporation or code of regulations so provide. We have not opted out of the application of the Control Share Acquisition Act. Merger Moratorium Statute. Chapter 1704 of the Ohio Revised Code, known as the Merger Moratorium Statute, prohibits specified business combinations and other transactions (including mergers, consolidations, asset sales, loans, disproportionate distributions of property and disproportionate issuances or transfers of shares or rights to acquire shares) between an Ohio corporation and an “Interested Shareholder” (as such term is defined in Section 1704.01 of the Ohio Revised Code) for a period of three years after a person becomes an Interested Shareholder, unless, prior to such date, the directors approved either the business combination or other transaction or approved the acquisition that caused the person to become an Interested Shareholder. Under the Merger Moratorium Statute, an Interested Shareholder generally includes any beneficial owner of shares of an Ohio corporation who, alone or with others, may exercise or direct the exercise of at least 10% of the voting power of the corporation in the election of directors. Following the three-year moratorium period, the corporation may engage in the covered transaction with the Interested Shareholder only if: • • the transaction receives the approval of the holders of shares entitling them to exercise at least two-thirds of the voting power of the corporation in the election of directors (or a different proportion specified in the corporation’s articles of incorporation), including at least a majority of the voting shares held by persons other than an Interested Shareholder; or the remaining shareholders receive an amount for their shares equal to the higher of the highest amount paid in the past by the Interested Shareholder for the corporation’s shares or the amount that would be due to the shareholders if the corporation were to dissolve. The Merger Moratorium Statute does not apply to a corporation if its articles of incorporation or code of regulations so provide. We have not opted out of the application of the Merger Moratorium Statute. Name Big Lots Capital, Inc. Big Lots F&S, Inc. Big Lots Online LLC Big Lots Stores, Inc. BLSI Property, LLC Capital Retail Systems, Inc. Closeout Distribution, Inc. Consolidated Property Holdings, Inc. CSC Distribution, LLC C.S. Ross Company Durant DC, LLC Great Basin LLC Industrial Products of New England, Inc. Mac Frugal's Bargains Close‑outs Inc. Midwestern Home Products, Inc. PNS Stores, Inc. Sahara LLC Sonoran LLC Tool and Supply Company of New England, Inc. West Coast Liquidators, Inc. Barn Acquisition Corporation Fashion Barn, Inc. Fashion Barn of Oklahoma, Inc. Fashion Bonanza, Inc. Midwestern Home Products Company, Ltd. Rogers Fashion Industries, Inc. SS Investments Corporation BLC LLC Liquidation Services, Inc. Liquidation World U.S.A. Holding Corp. Liquidation World U.S.A Inc. LQW Traders Inc. North American Solutions, Inc. Talon Wholesale, Inc. Big Lots eCommerce LLC AVDC, Inc. BLHQ LLC Broyhill, LLC SUBSIDIARIES EXHIBIT 21 Jurisdiction OH OH OH OH DE OH PA NV AL OH OH DE ME DE DE CA DE DE DE CA DE NY OK NY OH NY DE DE DE DE DE DE DE DE OH OH OH OH CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements listed below on Form S-8 of our reports dated March 30, 2021, relating to the consolidated financial statements of Big Lots, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended January 30, 2021. EXHIBIT 23 1) 2) 3) 4) 5) Post-Effective Amendment No. 1 to Registration Statement No. 33-42692 on Form S-8 pertaining to Big Lots, Inc. Supplemental Savings Plan; Post-Effective Amendment No. 2 to Registration Statement No. 33-19309 on Form S-8 pertaining to Big Lots, Inc. Savings Plan; Post-Effective Amendment No. 1 to Registration Statement No. 333-32063 on Form S-8 pertaining to Big Lots, Inc. 1996 Performance Incentive Plan; Registration Statement No. 333-218262 on Form S-8 pertaining to the Big Lots 2017 Long-Term Incentive Plan; and Registration Statement No. 333-239066 on Form S-8 pertaining to the Big Lots 2020 Long-Term Incentive Plan; /s/ DELOITTE & TOUCHE LLP Columbus, Ohio March 30, 2021 POWER OF ATTORNEY EXHIBIT 24 Each director of Big Lots, Inc. (the “Company”) whose signature appears below hereby appoints Ronald A. Robins, Jr. as the undersigned’s attorney-in-fact to sign, in the undersigned’s name and on behalf of each such director and in any and all capacities stated below, and to cause to be filed with the Securities and Exchange Commission (the “Commission”), the Company’s Annual Report on Form 10-K (the “Form 10-K”) for the 2020 fiscal year ended January 30, 2021, and likewise to sign and file with the Commission any and all amendments thereto, including any and all exhibits and other documents required to be included therewith, and the Company hereby also appoints Ronald A. Robins, Jr. as its attorney-in-fact with like authority to sign and file the Form 10-K and any amendments thereto, granting to such attorneys-in-fact full power of substitution and revocation, and hereby ratifying all that any such attorneys-in-fact or their substitutes may do by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has executed this instrument to be effective as of March 4, 2021. Signature /s/ James R. Chambers James R. Chambers /s/ Andrew C. Clarke Andrew C. Clarke /s/ Sebastian J. DiGrande Sebastian J. DiGrande /s/ Marla C. Gottschalk Marla C. Gottschalk /s/ Cynthia T. Jamison Cynthia T. Jamison /s/ Thomas A. Kingsbury Thomas A. Kingsbury /s/ Christopher J. McCormick Christopher J. McCormick /s/ Nancy A. Reardon Nancy A. Reardon /s/ Wendy L. Schoppert Wendy L. Schoppert Title Director Director Director Director Director Director Director Director Director CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 31.1 I, Bruce K. Thorn, certify that: 1. I have reviewed this annual report on Form 10-K of Big Lots, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: March 30, 2021 By: /s/ Bruce K. Thorn Bruce K. Thorn President and Chief Executive Officer (Principal Executive Officer) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 31.2 I, Jonathan E. Ramsden, certify that: 1. I have reviewed this annual report on Form 10-K of Big Lots, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: March 30, 2021 By: /s/ Jonathan E. Ramsden Jonathan E. Ramsden Executive Vice President, Chief Financial and Administrative Officer (Principal Financial Officer) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32.1 This certification is provided pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and accompanies the annual report on Form 10-K (the “Report”) for the year ended January 30, 2021, of Big Lots, Inc. (the “Company”). I, Bruce K. Thorn, President and Chief Executive Officer of the Company, certify that: (i) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 30, 2021 By: /s/ Bruce K. Thorn Bruce K. Thorn President and Chief Executive Officer (Principal Executive Officer) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32.2 This certification is provided pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and accompanies the annual report on Form 10-K (the “Report”) for the year ended January 30, 2021, of Big Lots, Inc. (the “Company”). I, Jonathan E. Ramsden, Executive Vice President, Chief Financial and Administrative Officer of the Company, certify that: (i) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 30, 2021 By: /s/ Jonathan E. Ramsden Jonathan E. Ramsden Executive Vice President, Chief Financial and Administrative Officer (Principal Financial Officer) 

Continue reading text version or see original annual report in PDF format above