Big Lots 2013 Annual Report Download - page 153

11
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. With the enactment of the
Affordable Care Act, we may experience an increase in participation in our group health insurance programs, which may lead
to a greater number of medical claims. 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, 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. If our financial performance
significantly declines, it could negatively affect the results of our assessments of the recoverability of our property and
equipment, intangible assets, and our deferred tax assets and trigger the impairment of these assets. Impairment or valuation
charges taken against property and equipment, 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, 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 as the maintenance of a leverage ratio and a fixed
charge coverage ratio. A violation of any of these covenants may permit the lenders to restrict our ability to further access
loans and letters of credit and may require the immediate repayment of any outstanding loans. Our failure to comply with these
covenants may have a material adverse effect on our capital resources, financial condition, results of operations, and liquidity.
If we are unable to maintain or upgrade our computer systems or if we are unable to convert to alternate systems in an
efficient and timely manner, our operations may be disrupted or become less efficient.
We depend on a variety of computer systems for the efficient functioning of our business. We rely on certain hardware,
telecommunications and software vendors to maintain and periodically upgrade many of these systems so that we can continue
to support our business. Various components of our computer systems, including hardware, networks, and software, are
licensed to us by third party vendors. We rely extensively on our computer systems to process transactions, summarize results,
and manage our business. Our computer systems are subject to damage or interruption from power outages, computer and
telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires,
floods, earthquakes, tornados, hurricanes, acts of war or terrorism, and usage errors by our employees or our contractors. If our
computer systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace
them, and we may suffer loss of critical data and interruptions or delays in our operations as a result. Any material interruption
experienced by our computer systems could negatively affect our business and results of operations. Costs and potential
interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate
support of our existing systems could disrupt or reduce the efficiency of our business.