Big Lots 2012 Annual Report Download - page 90

10
We may be subject to periodic litigation and regulatory proceedings, including Fair Labor Standards
Act and state wage and hour class action lawsuits, which may adversely affect our business and
financial performance.
From time to time, we may be involved in lawsuits and regulatory actions, including various collective or class
action lawsuits that are brought against us for alleged violations of the Fair Labor Standards Act and state wage
and hour laws. Due to the inherent uncertainties of litigation, we may not be able to accurately determine the
impact on us of any future adverse outcome of such proceedings. The ultimate resolution of these matters could
have a material adverse impact on our financial condition, results of operations, and liquidity. In addition,
regardless of the outcome, these proceedings could result in substantial cost to us and may require us to devote
substantial resources to defend ourselves. For a description of certain current legal proceedings, see note 10 to
the accompanying consolidated financial statements.
Our current insurance program may expose us to unexpected costs and negatively affect our financial
performance.
Our insurance coverage is subject to deductibles, self-insured retentions, limits of liability and similar
provisions that we believe are prudent based on the dispersion of our operations. However, we may incur certain
types of losses that we cannot insure or which we believe are not economically reasonable to insure, such
as losses due to acts of war, employee and certain other crime and some natural disasters. If we incur these
losses and they are material, our business could suffer. Certain material events may result in sizable losses
for the insurance industry and adversely impact the availability of adequate insurance coverage or result in
excessive premium increases. To offset negative cost trends in the insurance market, we may elect to self-insure,
accept higher deductibles or reduce the amount of coverage in response to these market changes. In addition,
we self-insure a significant portion of expected losses under our workers’ compensation, general liability,
including automobile, and group health insurance programs. Unanticipated changes in any applicable actuarial
assumptions and management estimates underlying our recorded liabilities for these losses, including potential
increases in medical and indemnity costs, could result in materially different amounts of expense than expected
under these programs, which could have a material adverse effect on our financial condition and results of
operations. Although we continue to maintain property insurance for catastrophic events, we are self-insured
for losses up to the amount of our deductibles. If we experience a greater number of self-insured losses than we
anticipate, our financial performance could be adversely affected.
A significant decline in our operating profit and taxable income may impair our ability to realize the value
of our long-lived assets and deferred tax assets.
We are required by accounting rules to periodically assess our property and equipment, goodwill, intangible
assets, and deferred tax assets for impairment and recognize an impairment loss or valuation charge, if
necessary. In performing these assessments for our U.S. segment, we use our historical financial performance
to determine whether we have potential impairments or valuation concerns and as evidence to support our
assumptions about future financial performance. In relation to our Canadian segment, we use our estimate of
future financial performance in performing these assessments (exclusive of matters associated with deferred
tax assets) as we do not believe that past performance is indicative of the future performance of the segment.
If our financial performance significantly declines, it could negatively affect the results of our assessments
of the recoverability of our property and equipment, goodwill, intangible assets, and our deferred tax assets.
A significant decline in our future operating results could impair our ability to recover the value of these
assets. Impairment or valuation charges taken against property and equipment, goodwill, intangible assets,
and deferred tax assets could be material and could have a material adverse impact on our capital resources,
financial condition, results of operations, and liquidity (see the discussion under the caption “Critical
Accounting Policies and Estimates” in the accompanying MD&A in this Form 10-K for additional information
regarding our accounting policies for long-lived assets, goodwill, and income taxes).
Our inability, if any, to comply with the terms of the 2011 Credit Agreement may have a material adverse
effect on our capital resources, financial condition, results of operations, and liquidity.
We have the ability to borrow funds under the 2011 Credit Agreement and we utilize this ability at various
times depending on operating or other cash flow requirements. The 2011 Credit Agreement contains financial
and other covenants, including, but not limited to, limitations on indebtedness, liens, and investments, as well