Big Lots 2013 Annual Report Download - page 216

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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. During the fourth
quarter of 2013, we received a final distribution from the KB-I bankruptcy estate in the amount of $2.1 million.
On August 30, 2005, in connection with the acquisition by an affiliate of Prentice Capital Management of majority ownership
of KB-I, KB-I emerged from its 2004 bankruptcy (the KB Toys business that emerged from bankruptcy is hereinafter referred
to as “KB-II”). In 2007, we entered into an agreement with KB-II and various Prentice Capital entities which we believe
provides a cap on our liability under the existing KB Lease Obligations and an indemnity from the Prentice Capital entities
with respect to any renewals, extensions, modifications or amendments of the KB Lease Obligations which otherwise could
potentially expose us to additional incremental liability beyond the date of the agreement, September 24, 2007. Under the
agreement, KB-II is required to update us periodically with respect to the status of any remaining leases for which they believe
we have a guarantee or indemnification obligation. In addition, we have the right to request a statement of the net asset value
of Prentice Capital Offshore in order to monitor the sufficiency of the indemnity.
On December 11, 2008, KB-II filed for bankruptcy protection pursuant to Chapter 11 of title 11 of the United States Code.
Based on information provided to us by KB-II, we believe that we continue to have KB Lease Obligations with respect to 29
KB Toys stores (“KB-II Bankruptcy Lease Obligations”). In the fourth fiscal quarter of 2008, we recorded a charge in the
amount of $5.0 million, pretax, in income (loss) from discontinued operations to reflect the estimated amount that we expect to
pay for KB-II Bankruptcy Lease Obligations. In the fourth quarter of 2013, we recorded approximately $3.1 million in income
for the KB-II Bankruptcy Lease Obligations to reduce the amount on our consolidated balance sheet to zero as of February 1,
2013. We based this reversal on the following factors: (1) we had not received any new demand letters from landlords during
the past two years; (2) all prior demands against us by landlords had been settled or paid or the landlords had stopped pursuing
their demands; (3) the KB-II bankruptcy occurred more than five years prior to the end of 2008 and most of the lease rejections
occurred more than two years prior to the end of 2013; and (4) we believed that the likelihood of new claims against us was
remote, and, if incurred, the amount would be immaterial.
In 2009, we obtained an assignment of a lease for the former KB corporate office at which time we recorded a charge of $1.2
million, pretax in income (loss) from discontinued operations primarily related to our remaining liability for the former KB
corporate office. In 2012, the KB corporate office lease obligation expired.