Big Lots 2008 Annual Report Download - page 140

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72
BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11 — Discontinued Operations (Continued)
As of February 2, 2008, we no longer carried a balance on our consolidated balance sheet for the HCC Note.
The lease indemnification and mortgage guarantee proceeds of $1.8 million were recorded as income from
discontinued operations in 2007.
Pittsfield Distribution Center
As a result of our guarantee of a mortgage obligation on one of KB Toy’s distribution centers and the KB-I
bankruptcy, we received notice of a default relating to a first mortgage (guaranteed by CVS) on the Pittsfield,
Massachusetts distribution center (“Pittsfield DC”). On November 5, 2004, we satisfied our indemnity
obligation with respect to the Pittsfield DC with a payment of $8.4 million. We recorded a pretax charge to
discontinued operations in 2004 in the amount of $2.7 million to reflect our best estimate of the difference
between the subrogation rights flowing from the indemnification payment and the net realizable value of the
Pittsfield DC. In the fourth quarter of 2006, we sold the Pittsfield DC for approximately $3.9 million, net of
selling costs, and recognized a $1.4 million loss, net of tax, included in income from discontinued operations.
Other KB Toys Matters
In addition to including KB Toys’ indemnity of us with respect to lease and mortgage obligations, the KB
Stock Purchase Agreement contains mutual indemnifications of KB Toys by us and of us by KB Toys. These
indemnifications relate primarily to losses arising out of general liability claims, breached or inaccurate
representations or warranties, shared litigation expenses, other payment obligations, and taxes. Under a tax
indemnification provision in the KB Stock Purchase Agreement, we were to indemnify KB Toys for tax losses
generally related to the periods prior to our sale of KB Toys. During the fourth quarter of 2006, we reversed prior
pretax charges of approximately $4.7 million and net income tax contingencies of approximately $1.7 million
in income from discontinued operations primarily related to income and sales tax indemnification contingency
reserves. We estimated this reversal of charges based on information that we received as a result of our settlement
discussions with the KB-I bankruptcy trust and KB Toys.
During 2006, we recorded $0.7 million in discontinued operations to reflect the reduction of insurance reserves
specifically identifiable with respect to the KB Toys business.
The following table summarizes these charges and reversals during the years 2006, 2007 and 2008:
2008 2007 2006
(In thousands)
Continuing Operations
HCC Note — Partial recovery of prior charges ........................ $ — $ 5,172 $ —
Discontinued Operations
Lease indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,928) 12,787 14,546
Tax indemnifications and other — Partial recovery of prior charges ....... — 125 5,425
Pittsfield distribution center — Loss on sale .......................... — — (1,440)
KB matters pretax income (loss) from discontinued operations ......... $(4,928) $12,912 $18,531