Big Lots 2014 Annual Report Download - page 150

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Canadian Operations
During the fourth quarter of 2013, we announced our intention to wind down our Canadian operations. We began the wind
down activities during the fourth quarter of 2013, which included the closing of our Canadian distribution centers, and
completed the wind down activities during the first quarter of 2014, which included the closing of our Canadian stores and
corporate offices. Therefore, we determined the results of our Canadian operations should be reported as discontinued
operations for all periods presented. The results of our Canadian operations have historically consisted of sales of product to
retail customers, the costs associated with those products, and selling and administrative expenses, including personnel,
purchasing, warehousing, distribution, occupancy and overhead costs. During 2013, the results of our Canadian operations also
included significant impairment charges related to goodwill, property and equipment, tradenames, severance and contract
termination costs. During 2014, the results of our Canadian operations also included significant contract termination costs,
severance charges associated with the wind down of the operations, and a loss on the realization of our cumulative translation
adjustment on our investment in our Canadian operations. Please see the Canadian Operations section of note 12 to the
consolidated financial statements for additional details regarding the costs we incurred in connection with the wind down of our
Canadian operations during 2013 and 2014.
In addition to the costs associated with our Canadian operations, we reclassified to discontinued operations the direct expenses
incurred by our U.S. operations to facilitate the wind down. These costs primarily consist of professional fees. We also
reclassified the income tax benefit that our U.S. operations should generate as a result of the wind down of our Canadian
operations, based principally on our ability to recover a worthless stock deduction in the foreseeable future. During 2013 and
2014, the amount of this income tax benefit that we recognized was approximately $24.4 million and $13.8 million,
respectively.
Wholesale Business
During the third quarter of 2013, we announced our intention to wind down the operations of our wholesale business. During
the fourth quarter of 2013, we executed our wind down plan and ceased the operations of our wholesale business; therefore, we
determined the results of our wholesale business should be reported as discontinued operations for all periods presented. The
results of operations of our wholesale business primarily consist of sales of product to wholesale customers, the costs
associated with those products, and selling and administrative expenses, including personnel, purchasing, warehousing,
distribution, occupancy and overhead costs. Please see the Wholesale Business section of note 12 to the consolidated financial
statements for further information regarding the costs we incurred in connection with the wind down of our wholesale business
during 2013.
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 2007, we reduced our liabilities for potential remaining claims
to zero for the KB-I bankruptcy. 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.