Big Lots 2011 Annual Report Download - page 186

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13 — Discontinued Operations
Our discontinued operations for 2011, 2010, and 2009, were comprised of the following:
2011 2010 2009
(In thousands)
Closed stores .................................................... $ (19) $ 81 $ (48)
KB Toys matters ................................................. (264) (118) (1,609)
Total income (loss) from discontinued operations, pretax............... $(283) $ (37) $(1,657)
Closed Stores
In 2005, we determined that the results of 130 stores closed in 2005 should be reported as discontinued
operations for all periods presented. For 2011, 2010, and 2009, the closed stores’ operating income (loss) is
comprised of exit-related costs, utilities, and security expenses on leased properties with remaining terms.
Accretion on the lease termination obligations was less than $0.1 million and $0.1 million in 2010 and 2009,
respectively. At fiscal year end 2011 and 2010, we had no accrued exit-related liabilities, as there were no
remaining lease obligations related to the 130 stores. At fiscal year end 2009, we had accrued exit-related
liabilities of $0.5 million as a result of the 130 store closures in 2005. The decrease in liabilities is due to
payments of the exit-related amounts. Included in payments is sublease income of less than $0.1 million and
$0.2 million in 2010 and 2009, respectively.
KB Toys Matters
We acquired the KB Toys business from Melville Corporation (now known as CVS New York, Inc., and
together with its subsidiaries “CVS”) in May 1996. As part of that acquisition, we provided, among other
things, an indemnity to CVS with respect to any losses resulting from KB Toys’ failure to pay all monies due
and owing under any KB Toys lease or mortgage obligation. While we controlled the KB Toys business, we
provided guarantees with respect to a limited number of additional KB Toys store leases. We sold the KB
Toys business to KB Acquisition Corp. (“KBAC”), an affiliate of Bain Capital, pursuant to a Stock Purchase
Agreement. KBAC similarly agreed to indemnify us with respect to all lease and mortgage obligations. These
guarantee and lease obligations are collectively referred to as the “KB Lease Obligations.”
On January 14, 2004, KBAC and certain affiliated entities (collectively referred to as “KB-I”) filed for
bankruptcy protection pursuant to Chapter 11 of title 11 of the United States Code. In connection with the
2004 bankruptcy, KB-I rejected 226 store leases and two distribution center leases for which we believed we
may have guarantee or indemnification obligations (collectively referred to as the “KB-I Bankruptcy Lease
Obligations”). We recorded pretax charges for estimated KB-I Bankruptcy Lease Obligations in loss from
discontinued operations of $18.1 million in years prior to 2007. We based this amount on the number of demand
notices that we had received from landlords and used information received from KB-I, the bankruptcy trust, and
our own lease records which date back to when we owned the KB Toys business.
In the second fiscal quarter of 2007, we recorded a gain of $2.0 million, pretax in income (loss) from
discontinued operations to reflect favorable settlements related to the KB-I Bankruptcy Lease Obligations. In
the fourth fiscal quarter of 2007, we recorded approximately $8.8 million in income of the KB-I Bankruptcy
Lease Obligations to reduce the amount on our consolidated balance sheet to zero as of February 2, 2008. We
based this reversal on the following factors: 1) we had not received any new demand letters from landlords
during 2007, 2) all prior demands against us by landlords had been settled or paid or the landlords had stopped
pursuing their demands, 3) the KB-I bankruptcy occurred more than four years prior to the end of 2007 and
most of the lease rejections occurred more than three years prior to the end of 2007, and 4) we believed that the
likelihood of new claims against us was remote, and, if incurred, the amount would be immaterial.