Dollar General 2012 Annual Report Download - page 126

10-K
and comparing that estimated fair value with the recorded carrying value, which includes goodwill. If
the estimated fair value is less than the carrying value, a second step is performed to compute the
amount of the impairment, if any, by determining an ‘‘implied fair value’’ of goodwill. The
determination of the implied fair value of goodwill would require us to allocate the estimated fair value
of our reporting unit to its assets and liabilities. Any unallocated fair value represents the implied fair
value of goodwill, which would be compared to its corresponding carrying value.
The quantitative impairment test for indefinite-lived intangible assets consists of a comparison of
the fair value of the intangible asset with its carrying amount. If the carrying amount of an indefinite-
lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that
excess.
Our most recent testing of our goodwill and indefinite lived trade name intangible assets was
completed during the third quarter of 2012. No indicators of impairment were evident and no
adjustment to these assets was required. We are not currently projecting a decline in cash flows that
could be expected to have an adverse effect such as a violation of debt covenants or future impairment
charges.
Property and Equipment. Property and equipment are recorded at cost. We group our assets into
relatively homogeneous classes and generally provide for depreciation on a straight-line basis over the
estimated average useful life of each asset class, except for leasehold improvements, which are
amortized over the lesser of the applicable lease term or the estimated useful life of the asset. Certain
store and warehouse fixtures, when fully depreciated, are removed from the cost and related
accumulated depreciation and amortization accounts. The valuation and classification of these assets
and the assignment of depreciable lives involves significant judgments and the use of estimates, which
we believe have been materially accurate in recent years.
Impairment of Long-lived Assets. We review the carrying value of long-lived assets for impairment
at least annually, and whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. In accordance with accounting standards for impairment or disposal
of long-lived assets, we review for impairment stores open for approximately two years or more for
which recent cash flows from operations are negative. Impairment results when the carrying value of
the assets exceeds the estimated undiscounted future cash flows over the life of the lease. Our estimate
of undiscounted future cash flows over the lease term is based upon historical operations of the stores
and estimates of future store profitability which encompasses many factors that are subject to variability
and are difficult to predict. If our estimates of future cash flows are not materially accurate, our
impairment analysis could be impacted accordingly. If a long-lived asset is found to be impaired, the
amount recognized for impairment is equal to the difference between the carrying value and the asset’s
estimated fair value. The fair value is estimated based primarily upon projected future cash flows
(discounted at our credit adjusted risk-free rate) or other reasonable estimates of fair market value in
accordance with U.S. GAAP. Although not currently anticipated, changes in these estimates,
assumptions or projections could materially affect the determination of fair value or impairment.
Insurance Liabilities. We retain a significant portion of the risk for our workers’ compensation,
employee health, property loss, automobile and general liability. These represent significant costs
primarily due to our large employee base and number of stores. Provisions are made for these liabilities
on an undiscounted basis based on actual claim data and estimates of incurred but not reported claims
developed using actuarial methodologies based on historical claim trends, which have been and are
anticipated to continue to be materially accurate. If future claim trends deviate from recent historical
patterns, or other unanticipated events affect the number and significance of future claims, we may be
required to record additional expenses or expense reductions, which could be material to our future
financial results.
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