Big Lots 2008 Annual Report Download - page 77

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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 and deferred tax
assets for realizability and recognize an impairment loss or valuation charge, if necessary. In performing
these assessments, we use our historical financial performance to indicate to us 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 and our deferred tax assets. This risk is
heightened as a result of the current economic conditions; however, we did not recognize a material impairment
or valuation allowance upon completing the assessments necessary for the accompanying consolidated financial
statements. There is a risk that if our future operating results significantly decline, it could impair our ability
to recover the value of our property and equipment and deferred tax assets. Impairment or valuation charges
taken against property and equipment 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 Critical
Accounting Policies and Estimates section of our MD&A for further discussion of our accounting policies for
long-lived assets and income taxes).
Our inability, if any, to comply with the terms of the 2004 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 2004 Credit Agreement and we utilize this ability at various
times depending on operating or other cash flow requirements. The 2004 Credit Agreement contains financial
and other covenants, including, but not limited to, limitations on indebtedness, liens, and investments, as well as
the maintenance of two financial ratios – a leverage ratio and a fixed charge coverage ratio. A violation 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. If our financial performance is not in compliance
with these covenants, it may have a material adverse effect on our capital resources, financial condition, results
of operations, and liquidity.
Disruption in credit markets and volatility in equity markets may affect our ability to access sufficient
funding beyond the maturity of the 2004 Credit Agreement in October 2009.
Our primary source of liquidity is cash flows from operations and, as necessary, access to the credit markets
to fund our seasonal working capital, other capital, and operating expenditures. Specifically, we have used our
revolving bank credit facility under the 2004 Credit Agreement to fund peak levels of working capital, which
have historically occurred late in our third fiscal quarter or early in our fourth fiscal quarter, and to make other
investments in the business for which we expect a future economic benefit. The termination of the 2004 Credit
Agreement in October 2009 and the reduced availability and increased costs in the current credit market may
impact our current operating and investing strategies. We intend to arrange for a new revolving credit facility
to replace the expiring 2004 Credit Agreement. There can be no assurance that the credit markets will not
deteriorate further which could adversely impact our ability to execute a new credit facility. If we were unable
to access the credit markets and secure a new credit facility, we could face business disruptions. Also, costs
associated with a new credit facility could increase our costs of funding our operations.
If we are unable to maintain or upgrade our information systems and software programs 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 information systems for the efficient functioning of our business. We rely on
certain software vendors to maintain and periodically upgrade many of these systems so that we can continue
to support our business. The software programs supporting many of our systems were licensed to us by
independent software developers. 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.