Family Dollar 2012 Annual Report Download - page 40

Property and Equipment:
We state property and equipment at cost. We calculate depreciation for financial reporting purposes using
the straight-line method over the estimated useful lives of the related assets. For leasehold improvements, this
depreciation is over the shorter of the term of the related lease (generally five or ten years) or the asset’s useful
economic life. The valuation and classification of these assets and the assignment of useful depreciable lives
involves significant judgments and the use of estimates. We generally do not assign salvage value to property and
equipment. We review property and equipment for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Historically, our impairment losses on fixed
assets, which typically relate to normal store closings, have not been material to our financial position and results
of operations. There were no material changes in the estimates or assumptions related to the valuation and
classification of property and equipment during fiscal 2012. See Notes 1 and 4 to the Consolidated Financial
Statements included in this Report for more information on property and equipment.
Insurance Liabilities:
We are primarily self-insured for health care, property loss, workers’ compensation, general liability, and
auto liability costs. These costs are significant primarily due to the large number of our retail locations and
employees. Our self-insurance liabilities are based on the total estimated costs of claims filed and estimates of
claims incurred but not reported, less amounts paid against such claims, and are not discounted. We review
current and historical claims data in developing our estimates. We also use information provided by outside
actuaries with respect to medical, workers’ compensation, general liability, and auto liability claims. The
insurance liabilities we record are mainly influenced by changes in payroll expense, sales, number of vehicles,
and the frequency and severity of claims. The estimates of more recent claims are more volatile and more likely
to change than older claims. If the underlying facts and circumstances of the claims change or the historical trend
is not indicative of future trends, then we may be required to record additional expense or a reduction in expense,
which could be material to our reported financial condition and results of operations.
We record our liabilities for workers’ compensation, general liability and auto liability costs on a gross
basis, and record a separate insurance asset for amounts recoverable under stop-loss insurance policies on the
Consolidated Balance Sheets. In addition, our gross liabilities and the related insurance asset are separated into
current and non-current amounts on the Consolidated Balance Sheets.
Our total liabilities for workers’ compensation, general liability and auto liability costs were $236.7 million
($52.0 million current and $184.6 million non-current) as of the end of fiscal 2012, and $249.6 million ($56.4
million current and $193.2 million non-current) as of the end of fiscal 2011. 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 $34.8 million ($2.9 million current and
$31.9 million non-current) as of the end of fiscal 2012, and $36.7 million ($3.0 million current and $33.7 million
non-current) as of the end of fiscal 2011. 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 2012 or fiscal 2011. Our insurance
expense during fiscal 2012, fiscal 2011 and fiscal 2010 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 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 $22.4 million
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