Big Lots 2011 Annual Report Download - page 150

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Long-Lived Assets
Our long-lived assets primarily consist of property and equipment. We perform annual impairment reviews of
our long-lived assets at the store level. Generally, all other property and equipment is reviewed for impairment
at the enterprise level. When we perform the annual impairment reviews, we first determine which stores had
impairment indicators present. We use actual historical cash flows to determine which stores had negative cash
flows within the past two years. For each store with negative cash flows, we obtain future cash flow estimates
based on operating performance estimates specific to each store’s operations that are based on assumptions
currently being used to develop our company level operating plans. If the net book value of a store’s long-
lived assets is not recoverable through 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. The fair value of store assets is estimated based on information available in the
marketplace for similar assets.
We recognized impairment charges of less than $0.1 million and $0.4 million in 2010 and 2009, respectively. We
did not recognize an impairment charge in 2011, related to our stores. We believe that our impairment charges
are trending lower because we have been closing underperforming stores over the past 5 years (primarily
through non-renewal of leases), and our store productivity continues to improve. In our U.S. segment, we only
identified one store with impairment indicators as a result of our annual store impairment tests in 2011 and
that store was planned to be, and was, closed by the end of 2011. Therefore, we do not believe that varying
the assumptions used to test for recoverability to estimate fair value of our long-lived assets would have a
material impact on the impairment charges we incurred in 2011. In our Canadian segment, we did not note
any significant impairment indicators. Further, the assets were recorded at fair value upon the acquisition of
Liquidation World Inc.
If our future operating results decline significantly, we may be exposed to impairment losses that could
be material (for additional discussion of this risk, see “Item 1A. Risk Factors - 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.”).
In addition to our annual store impairment reviews, we evaluate our other long-lived assets at each reporting
period to determine whether impairment indicators are present. In 2011, we reviewed our operational needs
surrounding travel and determined that we needed to replace an aircraft due in part to the repair costs and
declining reliability of the aging aircraft. As a result of this decision, we both purchased a new aircraft to
meet our needs and placed an older aircraft in the market as available-for-sale. We recorded a $2.2 million
impairment charge on the held-for-sale aircraft, based on market conditions at the time the decision
was executed.
Goodwill
Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the
acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates
and assumptions as a part of the purchase price allocation process to accurately value assets acquired and
liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As
a result, during the measurement period, which may be up to one year from the acquisition date, we may record
adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon
the conclusion of the measurement period or final determination of the values of assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements
of operations.
On an annual basis, we must review our goodwill for potential impairment. We will conduct an impairment
review which consists of preparing an estimate of the fair value of our reporting segments using an income
approach and a market approach. Determining the fair value of a reporting segment involves the use of
significant estimates and assumptions. These estimates and assumptions include revenue growth rates and
operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic
and market conditions and determination of appropriate market comparables. We will base our estimates of fair