Family Dollar 2010 Annual Report Download - page 36

As of August 28, 2010, we recorded our liabilities for workers’ compensation, general liability and auto
liability costs on a gross basis, and recorded a separate insurance asset for amounts recoverable under stop-loss
insurance policies. In addition, our gross liabilities and the related insurance asset were separated into current and
non-current amounts on the Consolidated Balance Sheets. The insurance liabilities in our previous filings were
recorded net of amounts recoverable under stop-loss insurance policies, and were classified as current liabilities.
The prior year amounts in this Report have also been adjusted to properly reflect the gross insurance liabilities
and related insurance asset, as well as the current and non-current classification on the Consolidated Balance
Sheets. The changes were not material and had no impact on the Consolidated Statements of Income or
Shareholders’ Equity. While certain changes were made to the operating section of the Consolidated Statements
of Cash Flows to reflect the changes in operating assets and liabilities, there was no impact on total cash flows
from operating activities, investing activities or financing activities.
Our total liabilities for workers’ compensation, general liability and auto liability costs were $249.4 million
($63.7 million current and $185.7 million non-current) as of the end of fiscal 2010 and $255.6 million ($56.7
million current and $198.9 million non-current) as of the end of fiscal 2009. The current portion of the liabilities
is included in accrued liabilities on the Consolidated Balance Sheets, and the non-current portion is included in
other liabilities. The insurance assets related to these amounts totaled $37.9 million ($3.2 million current and
$34.7 million non-current) as of the end of fiscal 2010 and $45.5 million ($4.0 million current and $41.5 million
non-current) as of the end of fiscal 2009. The current portion of the assets is included in prepayments and other
current assets on the Consolidated Balance Sheets, and the non-current portion is included in other assets. There
were no other material estimates for insurance liabilities during fiscal 2010 or fiscal 2009. Our insurance expense
during fiscal 2010, fiscal 2009, and fiscal 2008 was impacted by changes in our liabilities for workers’
compensation, general liability and auto liability costs. See our discussion of SG&A expenses under “Results of
Operations” above for more information.
Contingent Income Tax Liabilities:
We are subject to routine income tax audits that occur periodically in the normal course of business and we
record contingent income tax liabilities related to our uncertain tax positions. Our liabilities related to uncertain
tax positions require an assessment of the probability of the income-tax-related exposures and settlements and are
influenced by our historical audit experiences with various state and federal taxing authorities as well as by
current income tax trends. If circumstances change, we may be required to record adjustments that could be
material to our reported financial condition and results of operations. Our liabilities related to uncertain tax
positions were $23.4 million as of the end of fiscal 2010 and $39.4 million as of the end of fiscal 2009. The
decrease was due primarily to the settlement of an income tax examination related to U.S. federal income taxes
for fiscal years 2008 and prior. There were no material changes in the estimates or assumptions used to determine
contingent income tax liabilities during fiscal 2010. See Note 8 to the Consolidated Financial Statements
included in this Report for more information on our contingent income tax liabilities.
Contingent Legal Liabilities:
We are involved in numerous legal proceedings and claims. Our accruals, if any, related to these
proceedings and claims are based on a determination of whether or not the loss is both probable and
estimable. We review outstanding claims and proceedings with external counsel to assess probability and
estimates of loss. We re-evaluate the claims and proceedings each quarter or as new and significant information
becomes available, and we adjust or establish accruals, if necessary. If circumstances change, we may be
required to record adjustments that could be material to our reported financial condition and results of operations.
Our total legal liabilities were $4.0 million as of the end of fiscal 2010 and $53.3 million as of the end of fiscal
2009. The decrease was due primarily to the payment of the litigation judgment and other costs that were accrued
in connection with the Morgan litigation. There were no material changes in the estimates or assumptions used to
determine contingent legal liabilities during fiscal 2010. See Note 10 to the Consolidated Financial Statements
included in this Report for more information on our contingent legal liabilities.
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