Big Lots 2014 Annual Report Download - page 125

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Property and Equipment - Net
Depreciation and amortization expense of property and equipment are recorded on a basis using estimated service
lives. The estimated service lives of our depreciable property and equipment by major asset category were as follows:
Land improvements 15 years
Buildings 40 years
Leasehold improvements 5 years
Store fixtures and equipment 5 - 7 years
Distribution and transportation fixtures and equipment 5 - 15 years
Office and computer equipment 5 years
Computer software costs 5 - 8 years
Company vehicles 3 years
Leasehold improvements are amortized on a straight-line basis using the shorter of their estimated service lives or the lease
term. Because many initial lease terms range from five to seven years and the majority of our lease options have a term of five
years, we estimate the useful life of leasehold improvements at five years. This amortization period is consistent with the
amortization period for any lease incentives that we would typically receive when initially entering into a new lease that are
recognized as deferred rent and amortized over the initial lease term.
Assets acquired under noncancellable leases, which meet the criteria of a capital lease, are capitalized in property and
equipment - net and amortized over the estimated service life of the asset or the applicable lease term.
Depreciation estimates are revised prospectively to reflect the remaining depreciation or amortization of the asset over the
shortened estimated service life when a decision is made to dispose of property and equipment prior to the end of its previously
estimated service life. The cost of assets sold or retired and the related accumulated depreciation are removed from the
accounts with any resulting gain or loss included in selling and administrative expenses. Major repairs that extend service lives
are capitalized. Maintenance and repairs are charged to expense as incurred. Capitalized interest was not significant in any
period presented.
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 undiscounted 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 undiscounted 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 expected cash flows, including salvage value, which is based on readily available market
information for similar assets.
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, which results 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 our 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.