CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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

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

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

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update forward-looking statements whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.

OVERVIEW

The discussion and analysis presented below should be read in conjunction with the accompanying consolidated financial statements and related notes. Each term defined in the notes has the same meaning in this item and the balance of this report.

We are North America's largest broadline closeout retailer, and manage our business as two segments: U.S. and Canada. The following are the results from the third quarter of 2012 that we believe are key indicators of both our consolidated and segment operating performance when compared to the third quarter of 2011:

Consolidated Highlights
• Net sales decreased $4.1 million or 0.4%.

• Diluted earnings per share from continuing operations decreased from $0.06 per share to a loss of $0.10 per share.

• Inventory increased by 8.2% or $90.3 million to $1,190.7 million from the third quarter of 2011.

• We acquired 1.6 million of our outstanding common shares for $51.3 million, which exhausted our authorization under the 2012 Repurchase Program.

U.S. Segment Highlights
• Net sales decreased $21.6 million or 1.9%.

• Comparable store sales for stores open at least fifteen months decreased 4.6%.

• Gross margin dollars decreased $17.6 million, while gross margin rate decreased 90 basis points from 39.0% to 38.1% of sales.

• Selling and administrative expenses decreased $3.1 million. As a percentage of net sales, selling and administrative expenses increased 40 basis points to 36.0%.

• Operating profit rate decreased 160 basis points to a loss of 0.2%.

Canadian Segment Highlights
• Net sales increased $17.5 million to $39.0 million.

• Operating loss narrowed $2.6 million to $4.3 million.

See the discussion and analysis below for additional details regarding our segments' operating results.

STORES

The following table presents stores opened and closed during the year-to-date
2012 and the year-to-date 2011:
                                                     U.S.   Canada   Total
2011
  Stores open at the beginning of the fiscal year   1,398      -    1,398
  Stores opened during the period                      69      -       69
  Stores acquired during the period                     -     89       89
  Stores closed during the period                     (22 )   (4 )    (26 )
     Stores open at the end of the period           1,445     85    1,530
2012
  Stores open at the beginning of the fiscal year   1,451     82    1,533
  Stores opened during the period                      55      -       55
  Stores closed during the period                     (24 )   (3 )    (27 )
     Stores open at the end of the period           1,482     79    1,561

We continue to expect net new store growth of 45 stores in the U.S. during 2012.

RESULTS OF OPERATIONS

The following table compares components of our consolidated statements of
operations as a percentage of net sales at the end of each period:

                                                 Third Quarter             Year-to-Date
                                               2012        2011          2012        2011
Net sales                                      100.0  %    100.0  %      100.0  %    100.0  %
Cost of sales (exclusive of depreciation
expense shown separately below)                 61.9        61.0          61.0        60.4
Gross margin                                    38.1        39.0          39.0        39.6
Selling and administrative expenses             36.4        36.2          34.1        33.4
Depreciation expense                             2.3         2.0           2.1         1.8
Operating profit (loss)                         (0.6 )       0.8           2.8         4.4
Interest expense                                (0.1 )      (0.1 )        (0.1 )      (0.1 )
Other income (expense)                           0.0        (0.0 )         0.0        (0.0 )
Income (loss) from continuing operations
before income taxes                             (0.7 )       0.7           2.7         4.3
Income tax expense (benefit)                    (0.2 )       0.3           1.1         1.7
Income (loss) from continuing operations        (0.5 )       0.4           1.6         2.6
Discontinued operations                          0.0        (0.0 )        (0.0 )      (0.0 )
Net income (loss)                               (0.5 )%      0.4  %        1.6  %      2.6  %

THIRD QUARTER OF 2012 COMPARED TO THIRD QUARTER OF 2011

U.S. Segment

Net Sales
Net sales by merchandise category, as a percentage of total net sales, and net
sales change in dollars and percentage from the third quarter of 2012 compared
to the third quarter of 2011 were as follows:
                                   Third Quarter
                          2012                   2011                 Change
(in thousands)
Consumables       $   387,374   35.4 %   $   384,443   34.4 %   $   2,931    0.8  %
Furniture             212,914   19.4         210,440   18.8         2,474    1.2
Home                  190,662   17.4         196,962   17.6        (6,300 ) (3.2 )
Play n' Wear          134,808   12.3         144,887   13.0       (10,079 ) (7.0 )
Hardlines & Other      96,515    8.8         100,030    9.0        (3,515 ) (3.5 )
Seasonal               72,907    6.7          79,994    7.2        (7,087 ) (8.9 )

Net sales decreased $21.6 million, or 1.9%, to $1,095.2 million in the third quarter of 2012, compared to $1,116.8 million in the third quarter of 2011. The decrease in net sales was principally due to a 4.6% decrease in comparable store sales for stores open at least fifteen months, which decreased net sales by $48.0 million. The decrease in comparable store sales was partially offset by the net addition of 37 stores since the end of the third quarter of 2011, which increased net sales by $26.4 million.

The Consumables category experienced the largest sales increase in dollars during the third quarter of 2012. The increase in the Consumables category was driven by significant branded closeouts in our housekeeping supplies, household chemicals, and paper departments, which were partially offset by lower sales in our food department. The Furniture category sales increase was driven by mattresses and upholstered items. Within the Home category, most major departments experienced a decline in sales as our Home category expansion that began earlier in 2012, has experienced disappointing results as customers have not responded to our new assortment. The primary driver of the sales decrease in the Hardlines & Other category was lower sales in our home maintenance and paint departments as we reduced their space allotment, partially offset by increased sales of branded closeout merchandise in our small appliances department. The Seasonal category continued to experience a slowdown in sales of our lawn & garden and patio merchandise from the second quarter of 2012. Additionally, sales in our Halloween and Harvest areas were challenged during the quarter. In the Play n' Wear category, our electronics department experienced a modest comparable store sales increase which was the result of favorable customer reaction to our tablet computer offerings. This increase was more than offset by the continuation of lower sales in our toys department and our apparel, infant and lingerie departments as we shifted square footage away from these departments to facilitate the expansion of the Home category as noted above.

Gross Margin
Gross margin dollars decreased $17.6 million, or 4.0%, to $417.8 million for the third quarter of 2012, compared to $435.4 million for the third quarter of 2011. The decrease in gross margin dollars was due to both lower net sales of $21.6 million, which decreased gross margin dollars by approximately $8.4 million, and a lower gross margin rate, which decreased gross margin dollars by approximately $9.2 million. Gross margin as a percentage of net sales decreased 90 basis points to 38.1% in the third quarter of 2012, compared to 39.0% in the third quarter of 2011. The gross margin rate decrease was principally due to merchandise mix, as sales declines in certain higher margin categories were partially offset by sales increases in our Furniture and lower margin Consumables categories, and increased markdowns to address the slower than expected sales in our Home, Furniture, and Consumables categories.

Selling and Administrative Expenses
Selling and administrative expenses were $394.1 million for the third quarter of 2012, compared to $397.2 million for the third quarter of 2011. The decrease of $3.1 million, or 0.8%, was primarily due to decreases in share-based compensation expense of $6.5 million and advertising expense of $3.4 million, partially offset by increases in store occupancy expenses of $3.3 million and health benefit expenses of $2.3 million. The decrease in share-based compensation expense of $6.5 million was primarily driven by the reversal of the year-to-date expense associated with Mr. Fishman's 2012 nonvested restricted stock award. This reversal resulted from a third quarter of 2012 change in our estimate from probable to remote on the likelihood of achievement of the corporate financial goal for 2012. Advertising expense decreased as a result of lower print and circulation expenses associated with our decision to reduce certain preprinted circulars and increase our market coverage through electronic media during the third quarter of 2012 as compared to the third quarter of 2011. The increase in store occupancy expenses was primarily due to the net increase of 37 stores compared to the end of the third quarter of 2011. The increase in our health benefits expenses was primarily driven by costs associated with certain large claims that were covered during the third quarter of 2012.

As a percentage of net sales, selling and administrative expenses increased 40 basis points to 36.0% for the third quarter of 2012 compared to 35.6% for the third quarter of 2011.

Depreciation Expense
Depreciation expense increased $3.6 million to $26.0 million in the third quarter of 2012, compared to $22.4 million for the third quarter of 2011. The increase is directly related to our new store growth, investments in systems, and capital spending to support and maintain our stores and distribution centers. Depreciation expense as a percentage of sales increased by 40 basis points compared to the third quarter of 2011.

Canadian Segment

Our Canadian segment's net sales increased $17.5 million to $39.0 million for the third quarter of 2012, as compared to $21.5 million in the third quarter of 2011. Net sales were positively impacted by growing inventory levels, improved quality and breadth of assortment, and strong customer demand for newly introduced consumable, seasonal, and furniture merchandise. Our operating loss was $4.3 million for the third quarter of 2012 compared to $6.9 million in the third quarter of 2011. Our operating loss narrowed from the third quarter of 2011 to the third quarter of 2012 primarily due to the increase in net sales.

Other Performance Factors

Interest Expense
Interest expense was $1.5 million in the third quarter of 2012, compared to $0.9 million in the third quarter of 2011. The increase was driven by increased borrowings in the third quarter of 2012. We had total average borrowings (including capital leases) of $343.8 million in the third quarter of 2012 compared to total average borrowings of $190.1 million in the third quarter of 2011. The increase in total average borrowings from the third quarter of 2011 to the third quarter of 2012 was primarily the result of our purchase of approximately 8.1 million of our outstanding shares under our 2011 and 2012 Repurchase Programs in the year-to-date 2012.

Income Taxes
The effective income tax benefit rate for the third quarter of 2012 and tax expense rate for the third quarter of 2011 for income from continuing operations was 26.4% and 45.4%, respectively. The lower rate was primarily due to a valuation allowance relative to the deferred tax benefit of the loss generated by our Canadian segment, the effect of U.S. income taxes on a lower pretax income base (driven by the loss generated by our Canadian segment), and less favorable discrete settlement activity.

YEAR-TO-DATE 2012 COMPARED TO YEAR-TO-DATE 2011

U.S. Segment

Net Sales
Net sales by merchandise category, as a percentage of total net sales, and net
sales change in dollars and percentage from the year-to-date 2012 compared to
the year-to-date 2011 were as follows:
                                  Year-to-Date
                          2012                   2011                 Change
($ in thousands)
Consumables       $ 1,153,503   32.6 %   $ 1,136,713   32.4 %   $ 16,790    1.5  %
Furniture             681,437   19.2         647,327   18.5       34,110    5.3
Home                  560,099   15.8         554,093   15.8        6,006    1.1
Seasonal              440,784   12.4         442,935   12.6       (2,151 ) (0.5 )
Play n' Wear          396,785   11.2         423,658   12.1      (26,873 ) (6.3 )
Hardlines & Other     307,830    8.8         302,505    8.6        5,325    1.8
 Net sales        $ 3,540,438  100.0 %   $ 3,507,231  100.0 %   $ 33,207    0.9  %

Net sales increased $33.2 million, or 0.9%, to $3,540.4 million in the year-to-date 2012, compared to $3,507.2 million in the year-to-date 2011. The increase in net sales was principally due to the opening of 78 new stores since the end of the third quarter of 2011, which increased net sales by $110.5 million, partially offset by a 2.3% decrease in comparable store sales for stores open at least fifteen months, which decreased net sales by $77.3 million. The Furniture category experienced the largest sales gains in the year-to-date 2012, with mattresses and upholstered items being the primary drivers. The sales increase in the Home category was led by the domestics and food preparation departments. In addition, in 2012 we expanded the square footage allocation to the Home category. The primary driver of the increase in the Hardlines & Other category was an attractive assortment of branded closeout merchandise primarily in our small appliances and automotive departments, partially offset by lower sales in our home maintenance and paint departments. The Consumables category increase was primarily due to our expanded offerings in specialty foods and a significant branded closeout deal, partially offset by lower than expected sales in our food and health and beauty departments.

The Seasonal category experienced differing trends during the first quarter of 2012 compared to the second and third quarters of 2012. During the first quarter of 2012, the Seasonal category generated positive sales trends primarily related to higher price point lawn & garden and patio merchandise. However, during the second and third quarters of 2012, the Seasonal category experienced declining sales trends, primarily related to the perceived value of our opening price point lawn & garden and patio merchandise. Additionally, lower than anticipated sales in our Spring holiday, Halloween and Harvest departments negatively impacted our Seasonal category in the year-to-date 2012. The Play n' Wear category, as expected, has produced lower sales in our toys department and decreases in our apparel, infant, and lingerie departments which were downsized to facilitate expansion of the Home category.

Based on the early sales trends in the fourth quarter of 2012, we expect comparable store sales to decline in the low to mid single digits during the fourth quarter of 2012. As previously disclosed in our 2011 Form 10-K, we believe our total sales during the fourth quarter of 2012 will benefit from the additional one week of sales as a result of 2012 having a 53-week fiscal calendar.

Gross Margin
Gross margin dollars decreased $4.5 million, or 0.3%, to $1,384.1 million for the year-to-date 2012, compared to $1,388.6 million for the year-to-date 2011. The decrease in gross margin dollars was principally due to lower gross margin rate, which decreased gross margin dollars by approximately $17.6 million, partially offset by higher net sales of $33.2 million, which increased gross margin dollars by approximately $13.1 million. Gross margin as a percentage of net sales decreased 50 basis points to 39.1% in the year-to-date 2012, compared to 39.6% in the year-to-date 2011. The gross margin rate decrease was principally due to the impact of the change in accounting principle related to our merchandise inventories of $5.6 million, or 20 basis points and a slightly higher markdown rate.

In the fourth quarter of 2012, we expect our gross margin rate will be lower than the fourth quarter of 2011, as we expect a higher markdown rate in 2012 as compared to 2011.

Selling and Administrative Expenses
Selling and administrative expenses were $1,193.0 million for the year-to-date 2012, compared to $1,162.0 million for the year-to-date 2011. The increase of $31.0 million, or 2.7%, was primarily due to increases in store occupancy expenses of $12.3 million, health benefit expenses of $7.2 million, store payroll expense of $7.1 million and advertising expense of $4.4 million, which were partially offset by a decrease of $5.3 million in share-based compensation expense. The increases in store payroll and store occupancy expenses were primarily due to the net increase of 37 stores compared to the year-to-date 2011. The increase in our health benefits expense was primarily driven by costs associated with certain large claims that were expensed during the second and third quarters of 2012. Advertising expense increased as a result of our decision to distribute one additional circular in the second quarter of 2012, the increased store count, and new signage initiatives. The decrease in share-based compensation expense was primarily driven by the nonvested restricted stock awards granted to Mr. Fishman in 2012. In the year-to-date 2011, the award granted to Mr. Fishman in 2011 was estimated to be achieved, while in the year-to-date 2012, the award granted to Mr. Fishman in 2012 was estimated to not be achieved.

As a percentage of net sales, selling and administrative expenses increased 60 basis points to 33.7% for the year-to-date 2012 compared to 33.1% for the year-to-date 2011.

For the fourth quarter of 2012, we anticipate our selling and administrative expenses as a percentage of net sales will be consistent with the fourth quarter of 2011.

Depreciation Expense
Depreciation expense increased $11.5 million to $75.9 million in the year-to-date 2012, compared to $64.4 million for the year-to-date 2011. The increase is directly related to our new store growth, investments in systems, and capital spending to support and maintain our stores and distribution centers. Depreciation expense as a percentage of sales increased by 30 basis points compared to the year-to-date 2011.

During the fourth quarter of 2012, we expect that depreciation expense will increase as compared to the fourth quarter of 2011 as a result of forecasted capital expenditures associated with new store openings and maintenance of existing stores and distribution centers. Total capital expenditures continue to be forecasted in the range of $130 million to $135 million for 2012.

Canadian Segment

Our Canadian segment's net sales increased $80.8 million to $106.3 million in the year-to-date 2012, as compared to $25.5 million in the year-to-date 2011. Net sales in the year-to-date 2011 represent sales from the date of acquisition (July 18, 2011) through the end of the third quarter of 2011. Our operating loss was $13.7 million in the year-to-date 2012 as compared to $7.3 million in the year-to-date 2011. Our operating loss as a percentage of net sales has improved in the year-to-date 2012 as compared to the year-to-date 2011, as we have generated positive sales trends from an improved assortment and breadth of offerings.

Other Performance Factors

Interest Expense
Interest expense was $2.7 million in the year-to-date 2012, compared to $2.8 million in the year-to-date 2011. The decrease was driven by the occurrence in the second quarter of 2011 of $0.8 million in prepayment fees associated with the repayment of the notes payable assumed in the Big Lots Canada acquisition that did not recur in the second quarter of 2012. Additionally, the decrease was driven by lower amortization of deferred bank fees on our 2011 Credit Agreement in the year-to-date 2012 as compared to deferred bank fees on our prior credit agreement in the year-to-date 2011. These interest expense reductions were partially offset by additional interest expense related to increased borrowings in the year-to-date 2012. We had total average borrowings (including capital leases) of $169.9 million in the year-to-date 2012 compared to total average borrowings of $69.1 million in the year-to-date 2011. The increase in total average borrowings from the year-to-date 2011 to the year-to-date 2012 was primarily the result of our investment of $298.5 million in the year-to-date 2012 to purchase approximately 8.1 million of our outstanding shares under the 2011 and 2012 Repurchase Programs.

Income Taxes
The effective income tax rate for the year-to-date 2012 and the year-to-date 2011 for income from continuing operations was 42.4% and 39.2%, respectively. The higher rate was primarily due to an incremental valuation allowance relative to the deferred tax benefit of a larger loss generated by our Canadian segment and the effect of U.S. income taxes on a lower pretax income base (driven by the loss generated by our Canadian segment). The income tax rate differential on the loss generated by our Canadian segment, coupled with the related valuation allowance, increased our effective tax rate by 5.1% and 2.0% during the year-to-date 2012 and the year-to-date 2011, respectively.

Capital Resources and Liquidity
The 2011 Credit Agreement is scheduled to expire on July 22, 2016. In connection with our entry into the 2011 Credit Agreement, we paid bank fees and other expenses in the aggregate amount of $3.0 million, which are being amortized over the term of the agreement. Borrowings under the 2011 Credit Agreement are available for general corporate purposes, working capital, and to repay certain of our indebtedness. The 2011 Credit Agreement includes a $10 million Canadian swing loan sublimit, a $30 million U.S. swing loan sublimit, a $150 million letter of credit sublimit, and a $200 million Canadian revolving credit loan subfacility. The interest rates, pricing and fees under the 2011 Credit Agreement fluctuate based on our debt rating. The 2011 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, LIBOR, or CDOR. We may prepay revolving loans made under the 2011 Credit Agreement. The 2011 Credit Agreement contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens and investments, as well as the maintenance of two financial ratios - a leverage ratio and a fixed charge coverage ratio. A violation of any of the covenants could result in a default under the 2011 Credit Agreement that would permit the lenders to restrict our ability to further access the 2011 Credit Agreement for . . .