Big Lots 2011 Annual Report Download - page 153

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such as claims frequency and claims severity. Management makes estimates, judgments, and assumptions with
respect to the use of these actuarially-based calculations, including but not limited to, estimated health care cost
trends, estimated lag time to report and pay claims, average cost per claim, network utilization rates, network
discount rates, and other factors. A 10% change in our self-insured liabilities at January 28, 2012 would have
affected selling and administrative expenses, operating profit, and income from continuing operations before
income taxes by approximately $8 million.
General liability and workers’ compensation liabilities are recorded at our estimate of their net present value,
using a 4.0% discount rate, while other liabilities for insurance reserves are not discounted. A 1.0% change in
the discount rate on these liabilities would have affected selling and administrative expenses, operating profit,
and income from continuing operations before income taxes by approximately $1.8 million.
Lease Accounting
In order to recognize rent expense on our leases, we evaluate many factors to identify the lease term such as
the contractual term of the lease, our assumed possession date of the property, renewal option periods, and the
estimated value of leasehold improvement investments that we are required to make. Based on this evaluation,
our lease term is typically the minimum contractually obligated period over which we have control of the
property. This term is used because although many of our leases have renewal options, we typically do not incur
an economic or contractual penalty in the event of non-renewal. Therefore, we typically use the initial minimum
lease term for purposes of calculating straight-line rent, amortizing deferred rent, and recognizing depreciation
expense on our leasehold improvements.
Commitments
For a discussion on certain of our commitments, refer to note 3, note 5, note 10, and note 13 to the
accompanying consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk from exposure to changes in interest rates on investments and on borrowings
under the 2011 Credit Agreement that we make from time to time. We had borrowings of $65.9 million under
the 2011 Credit Agreement at January 28, 2012. An increase of 1.0% in our variable interest rate on our
investments and expected future borrowings would not have a material effect on our financial condition, results
of operations, or liquidity.
Through the operations of Big Lots Canada, we are subject to market risks associated with foreign currency
exchange rate fluctuations between the Canadian Dollar and the U.S. Dollar. An increase or decrease of 1%
in foreign currency exchange rates would not have a material effect on our financial condition, results of
operations, or liquidity.