Family Dollar 2013 Annual Report Download - page 40

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 if 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 $232.1 million
($52.2 million current and $179.9 million non-current) as of the end of fiscal 2013 and $236.7 million
($52.0 million current and $184.6 million non-current) as of the end of fiscal 2012. 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 $31.7 million ($2.5 million
current and $29.2 million non-current) as of the end of fiscal 2013 and $34.8 million ($2.9 million current and
$31.9 million non-current) as of the end of fiscal 2012. 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 2013 or
fiscal 2012. Our insurance expense during fiscal 2013, fiscal 2012 and fiscal 2011 was impacted by changes in
our liabilities for workers’ compensation, general liability and auto liability costs.
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 $30.2 million
as of the end of fiscal 2013 and $22.4 million as of the end of fiscal 2012. There were no material changes in the
estimates or assumptions used to determine contingent income tax liabilities during fiscal 2013. See Note 10 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 not material as of the end of fiscal 2013 or fiscal 2012. There were no material changes in the
36