Big Lots 2010 Annual Report Download - page 110

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During 2010, we reclassified $1.3 million, net of tax, from other comprehensive income to expense in our
consolidated statement of operations. We recognized a benefit of $1.3 million, net of tax, to other comprehensive
income in 2010, which was principally driven by the recognition of $1.8 million in settlement charges as
participants elected more lump sum payments than originally estimated. At January 29, 2011, the accumulated
other comprehensive income amount, which was principally unrealized actuarial loss, was $10.5 million
loss, net of tax. During 2011, and in future periods, we expect to reclassify approximately $1.4 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 2010
and 2009, we would expect that the expense related to future settlements would be between the $0.2 million and
$1.8 million charges in 2009 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 January 29, 2011 would have
affected selling and administrative expenses, operating profit, and income from continuing operations before
income taxes by approximately $8 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 $1.5 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 11 to the
accompanying consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk from exposure to changes in interest rates on investments and on borrowings
under the 2009 Credit Agreement that we make from time to time. We had no borrowings under the 2009
Credit Agreement at January 29, 2011. An increase of 1.0% in our variable interest rate on our investments and
expected future borrowings would not have a material effect on our financial condition, results of operations,
or liquidity.