Big Lots 2011 Annual Report Download - page 126

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regardless of the outcome, these proceedings could result in substantial cost to us and may require us to devote
substantial resources to defend ourselves. For a description of certain current legal proceedings, see note 10 to
the accompanying consolidated financial statements.
Our current insurance program may expose us to unexpected costs and negatively affect our financial
performance.
Our insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions
that we believe are prudent based on the dispersion of our operations. However, there are types of losses we
may incur but against which we cannot be insured or which we believe are not economically reasonable to
insure, such as losses due to acts of war, employee and certain other crime and some natural disasters. If we
incur these losses and they are material, our business could suffer. Certain material events may result in sizable
losses for the insurance industry and adversely impact the availability of adequate insurance coverage or
result in excessive premium increases. To offset negative insurance market trends, we may elect to self-insure,
accept higher deductibles or reduce the amount of coverage in response to these market changes. In addition,
we self-insure a significant portion of expected losses under our workers’ compensation, general liability,
including automobile, and group health insurance programs. Unanticipated changes in any applicable actuarial
assumptions and management estimates underlying our recorded liabilities for these losses, including expected
increases in medical and indemnity costs, could result in materially different amounts of expense than expected
under these programs, which could have a material adverse effect on our financial condition and results of
operations. Although we continue to maintain property insurance for catastrophic events, we are effectively
self-insured for losses up to the amount of our deductibles. If we experience a greater number of these losses
than we anticipate, our financial performance could be adversely affected.
A significant decline in our operating profit and taxable income may impair our ability to realize the value
of our long-lived assets and deferred tax assets.
We are required by accounting rules to periodically assess our property and equipment, goodwill, intangible
assets, and deferred tax assets for impairment and recognize an impairment loss or valuation charge, if
necessary. In performing these assessments in our U.S. segment, we use our historical financial performance
to determine whether we have potential impairments or valuation concerns and as evidence to support our
assumptions about future financial performance. In relation to our recently acquired Canadian segment, we
use our estimate of future financial performance in performing these assessments as we do not believe pre-
acquisition performance is indicative of the future performance of the segment. If our financial performance
significantly declines, it could negatively affect the results of our assessments of the recoverability of our
property and equipment, goodwill, intangible assets, and our deferred tax assets. There is a risk that if our
future operating results significantly decline, it could impair our ability to recover the value of these assets.
Impairment or valuation charges taken against property and equipment, goodwill, intangible assets, and
deferred tax assets could be material and could have a material adverse impact on our capital resources,
financial condition, results of operations, and liquidity (see the discussion under the caption “Critical
Accounting Policies and Estimates” in the accompanying MD&A in this Form 10-K for additional information
regarding our accounting policies for long-lived assets, goodwill, and income taxes).
Our inability, if any, to comply with the terms of the 2011 Credit Agreement may have a material adverse
effect on our capital resources, financial condition, results of operations, and liquidity.
We have the ability to borrow funds under the 2011 Credit Agreement and we utilize this ability at various times
depending on operating or other cash flow requirements. The 2011 Credit Agreement 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 may permit the lenders to restrict our ability to further access loans and letters of credit and may
require the immediate repayment of any outstanding loans. If we do not comply with these covenants, it may
have a material adverse effect on our capital resources, financial condition, results of operations, and liquidity.