Big Lots 2012 Annual Report Download - page 118

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by $0.8 million. The long-term rate of return on assets used to determine net periodic pension cost in 2012 was
5.5%. A 1.0% decrease in the expected long-term rate of return on plan assets would increase the net periodic
pension cost by $0.6 million.
During 2012, we reclassified $1.4 million, net of tax, from other comprehensive income to expense in our
consolidated statement of operations. We also recognized a benefit of $0.2 million, net of tax, to other
comprehensive income in 2012, which was principally driven by the recognition of $0.3 million (pretax)
in settlement charges as participants elected more lump sum payments than originally estimated. At
February 2, 2013, the accumulated other comprehensive income amount associated with the plans, which was
principally unrealized actuarial loss, was $11.9 million loss, net of tax. During 2013, and in future periods,
we expect to reclassify approximately $2.0 million from other comprehensive income to expense, assuming
we achieve our estimated rate of return on pension plan investments in future periods. Additionally, in the
event that we have future settlements, as occurred in 2012, 2011 and 2010, we would expect that the pretax
expense related to future settlements would be in the range of the $0.3 million to $1.8 million charges in
2012 and 2010, respectively.
Insurance and Insurance-Related Reserves
We are self-insured for certain losses relating to property, general liability, workers’ compensation, and
employee medical and dental benefit claims, a portion of which is funded by employees. We purchase stop-
loss coverage from third party insurance carriers to limit individual or aggregate loss exposure in these areas.
Accrued insurance liabilities and related expenses are based on actual claims reported and estimates of claims
incurred but not reported. The estimated loss accruals for claims incurred but not paid are determined by
applying actuarially-based calculations taking into account historical claims payment results and known trends
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 February 2, 2013 would have
affected selling and administrative expenses, operating profit, and income from continuing operations before
income taxes by approximately $7 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 $1.9 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.