Big Lots 2011 Annual Report Download - page 163

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1 — Basis of Presentation and Summary of Significant Accounting Policies (Continued)
Long-Lived Assets
Our long-lived assets primarily consist of property and equipment - net. In order to determine if impairment
indicators are present for store property and equipment, we review historical operating results at the store
level on an annual basis, or when other impairment indicators are present. Generally, all other property and
equipment is reviewed for impairment at the enterprise level. If the net book value of a store’s long-lived assets
is not recoverable by the expected future cash flows of the store, we estimate the fair value of the store’s assets
and recognize an impairment charge for the excess net book value of the store’s long-lived assets over their fair
value. Our assumptions related to estimates of future cash flows are based on historical results of cash flows
adjusted for management projections for future periods. We estimate the fair value of our long-lived assets using
readily available market information for similar assets.
Goodwill
Instead of being amortized, goodwill is tested for impairment annually and whenever events or changes in
circumstances indicate the carrying value of the asset may not be recoverable. We use an income approach and
a market approach in determining fair value for purposes of goodwill impairment tests. We will perform our
annual impairment testing during our second fiscal quarter of each year.
Closed Store Accounting
We recognize an obligation for the fair value of lease termination costs when we cease using the leased property
in our operations. In measuring fair value of these lease termination obligations, we consider the remaining
minimum lease payments, estimated sublease rentals that could be reasonably obtained, and other potentially
mitigating factors. We discount the estimated obligation using the applicable credit adjusted interest rate,
resulting in accretion expense in periods subsequent to the period of initial measurement. We monitor the
estimated obligation for lease termination liabilities in subsequent periods and revise any estimated liabilities,
if necessary. Severance and benefits associated with terminating employees from employment are recognized
ratably from the communication date through the estimated future service period, unless the estimated future
service period is less than 60 days, in which case we recognize the impact at the communication date. Generally
all other store closing costs are recognized when incurred.
We classify the results of operations of closed stores to discontinued operations when the operations and cash
flows of the stores have been (or will be) eliminated from ongoing operations and we no longer have any
significant continuing involvement in the operations associated with the stores after closure. We generally
meet the second criteria on all closed stores as, upon closure, operations cease and we have no continuing
involvement. To determine if cash flows have been (or will be) eliminated from ongoing operations, we evaluate
a number of qualitative and quantitative factors, including, but not limited to, proximity of a closing store to any
remaining open stores and the estimated sales migration from the closed store to any stores remaining open.
The estimated sales migration is based on historical estimates of our sales migration upon opening or closing
a store in a similar market. For purposes of reporting closed stores as discontinued operations, we report net
sales, gross margin, and related operating costs that are directly related to and specifically identifiable with
respect to the stores’ operations identified as discontinued operations. Certain corporate-level charges, such
as general office cost, field operations, national advertising, fixed distribution costs, and interest cost are not
allocated to closed stores’ discontinued operations because we believe that these costs are not specific to the
stores’ operations.