Big Lots 2009 Annual Report Download - page 166

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1 — Summary of Significant Accounting Policies (Continued)
date and expected to be available during the period to maturity of the benefits. This process includes a review of
the bonds available on the measurement date with a quality rating of Aa or better. The expected long-term rate of
return on assets is derived from detailed periodic studies, which includes a review of asset allocation strategies,
anticipated future long-term performance of individual asset classes, risks (standard deviations), and correlations
of returns among the asset classes that comprised the plan’s asset mix. While the studies give appropriate
consideration to recent plan performance and historical returns, the assumption for the expected long-term rate of
return is primarily based on our expectation of a long-term, prospective rate of return.
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 paid by employees. We purchase stop-loss
coverage to limit significant exposure in these areas. Accrued insurance-related liabilities and related expenses
are based on actual claims filed and estimates of claims incurred but not reported. The estimated accruals are
determined by applying actuarially-based calculations. General liability and workers’ compensation liabilities
are recorded at our estimate of their net present value, using a 4% discount rate, while other liabilities for
insurance-related reserves are not discounted.
Fair Value of Financial Instruments
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy,
as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs.
Level 1, defined as observable inputs such as unadjusted quoted prices in active markets for identical
assets or liabilities.
Level 2, defined as observable inputs other than Level 1 inputs. These include quoted prices for similar
assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
In connection with our nonqualified deferred compensation plan, we had mutual fund investments of
$16.2 million and $10.5 million at January 30, 2010 and January 31, 2009, respectively, which were recorded
in other assets. These investments were classified as trading securities and were recorded at their fair value.
The fair value of mutual fund investments was a Level 1 valuation under the fair value hierarchy because each
fund’s quoted market value per share was available in an active market.
Included in cash and cash equivalents were amounts on deposit with financial institutions totaling $123.0 million
and $9.2 million at January 30, 2010 and January 31, 2009, respectively, stated at cost, which approximates fair
value. At January 30, 2010, cash and cash equivalents carried at fair value was comprised of the following:
Total Level 1 Level 2 Level 3
(In thousands)
Money market funds .......................... $ 76,350 $76,350 $ — $ —
Variable rate demand notes . . . . . . . . . . . . . . . . . . . . 56,152 — 56,152 —
Total ...................................... $132,502 $76,350 $56,152 $ —