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55
BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens, and
investments, as well as the maintenance of two financial ratios – a leverage ratio and a fixed charge coverage ratio.
A violation of these covenants could result in a default under the 2004 Credit Agreement, which would permit
the lenders to restrict our ability to further access the 2004 Credit Agreement for loans and letters of credit, and
require the immediate repayment of any outstanding borrowings under the 2004 Credit Agreement. We were in
compliance with the financial covenants of the 2004 Credit Agreement, as amended, at January 31, 2009.
The 2004 Credit Agreement permits, at our option, borrowings at various interest rate options based on the
prime rate or the London InterBank Offering Rate plus applicable margin. The 2004 Credit Agreement also
permits, as applicable, borrowings at various interest rate options mutually agreed upon by us and the lenders.
Whenever our liquidity position requires us to borrow funds under the 2004 Credit Agreement, we typically
repay and/or borrow on a daily basis. The daily activity is a net result of our liquidity position, which is
generally driven by: 1) cash inflows such as cash or credit card receipts collected from stores for merchandise
sales and other miscellaneous deposits; and 2) cash outflows such as check clearings for the acquisition of
merchandise and payroll, wire and other electronic transactions, and other miscellaneous disbursements.
In addition to revolving credit loans, the 2004 Credit Agreement includes a $30.0 million swing loan sub-limit,
a $50.0 million bid loan sub-limit, and a $150.0 million letter of credit sub-limit. We had $61.7 million
and $163.7 million of borrowings outstanding under the 2004 Credit Agreement at January 31, 2009 and
February 2, 2008, respectively. The weighted average interest rate on these borrowings was 1.3% and 4.6%
as of January 31, 2009 and February 2, 2008, respectively. The borrowings available under the 2004 Credit
Agreement, after taking into account the outstanding borrowings and the reduction of availability resulting
from outstanding letters of credit totaling $53.2 million, were $385.1 million at January 31, 2009.
Note 4 — Sales of Real Estate
In September 2006, under the threat of eminent domain, we sold a company-owned and operated store in
California for an approximate gain of $12.8 million. As part of the sale, we entered into a lease which permitted
us to occupy and operate the store through January 2009 in exchange for $1 per year rent plus the cost of taxes,
insurance, and common area maintenance. Subsequently, this lease has been modified to allow us to occupy this
space through September 2009. We may vacate the property at any time without liability. Due to our continuing
involvement with the property at below market rent, the sale was recognized as a finance obligation under the
provisions of SFAS No. 66, Accounting for Sales of Real Estate. As a result, the gain on the sale was deferred
until the end of the lease and the net sales proceeds of approximately $13.3 million were recorded as a long-term
real estate liability included in other liabilities on our consolidated balance sheets as of January 31, 2009 and
February 2, 2008.
See note 11 to the accompanying consolidated financial statements for discussion of the sale of the Pittsfield,
Massachusetts distribution center (formerly owned by the KB Toys business) in 2006.
Note 5 — Leases
Leased property consisted primarily of 1,285 of our retail stores, 1.2 million square feet of warehouse space,
certain transportation equipment, and information technology and other office equipment. Many of the store leases
obligate us to pay for our applicable portion of real estate taxes, CAM, and property insurance. Certain store leases
provide for contingent rents, have rent escalations, and have tenant allowances or other lease incentives. Many of
our leases contain provisions for options to renew or extend the original term for additional periods.
Note 3 — Bank Credit Facility (Continued)