Lumber Liquidators 2011 Annual Report Download - page 55

Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements—(Continued)
(amounts in thousands, except share data and per share amounts)
Store Opening Costs
Costs to open new store locations are charged to SG&A as incurred.
Depreciation and Amortization
Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives.
The estimated useful lives for leasehold improvements are the shorter of the estimated useful lives or the remainder of the
lease terms. For leases with optional renewal periods, the Company uses the original lease term, excluding optional renewal
periods, to determine the appropriate estimated useful lives. Capitalized software costs, including those related to the
Company’s integrated information technology solution, are capitalized from the time that technological feasibility is
established until the software is ready for use. The estimated useful lives are generally as follows:
Years
Property and Equipment ................................................ 5to10
Computer Software and Hardware ........................................ 3to10
Leasehold Improvements ............................................... 1to15
Operating Leases
The Company has operating leases for its stores, Corporate Headquarters, supplemental office and distribution facilities
and certain equipment. The lease agreements for certain stores and distribution facilities contain rent escalation clauses, rent
holidays and tenant improvement allowances. For scheduled rent escalation clauses during the lease terms or for rental
payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses in
SG&A on a straight-line basis over the terms of the leases. The difference between the rental expense and rent paid is
recorded as deferred rent in the consolidated balance sheets. For tenant improvement allowances, the Company records
deferred rent in the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to
rental expense.
Stock-Based Compensation
The Company records compensation expense associated with stock options and other forms of equity compensation in
accordance with FASB ASC 718. The Company may issue incentive awards in the form of stock options, restricted stock
awards and other equity awards to employees and non-employee directors. The Company recognizes expense for its stock-
based compensation based on the fair value of the awards that are granted. Measured compensation cost is recognized ratably
over the requisite service period of the related stock-based compensation award.
Foreign Currency Translation
The Company’s Canadian operations use the Canadian dollar as the functional currency. Assets and liabilities are
translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average monthly
exchange rates during the year. Resulting translation adjustments are recorded as a component of accumulated other
comprehensive income on the consolidated balance sheets.
Income Taxes
Income taxes are accounted for in accordance with FASB ASC 740 (“ASC 740”). Income taxes are provided for under
the asset and liability method and consider differences between the tax and financial accounting bases. The tax effects of
these differences are reflected on the balance sheet as deferred income taxes and measured using the effective tax rate
expected to be in effect when the differences reverse. ASC 740 also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. In evaluating
the need for a valuation allowance, the Company took into account various factors, including the expected level of future
taxable income. If actual results differ from the assumptions made in the evaluation of the valuation allowance, a change in
the valuation allowance will be recorded through income tax expense in the period such determination is made.
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