Dillard's 2002 Annual Report Download - page 37

FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of APB No. 50” (“FIN 46”) was issued in
January 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new
variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The
adoption of FIN 46 is not expected to have an impact on the Company’s results of operations, financial position or cash flows.
The FASB’s EITF Issue 02-16, “Accounting By A Customer (Including A Reseller) For Cash Consideration Received From A
Vendor” addressed the accounting treatment for vendor allowances. The Company has not completed the process of evaluating the
impact of EITF Issue 02-16, however, the Company does not expect that its adoption in 2003 will have a material impact on its
financial position or results of operations.
Reclassifications – Certain reclassifications have been made to prior year financial statements to conform with fiscal 2002
presentations.
2. Goodwill
The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” effective February 3, 2002. It changes the accounting
for goodwill from an amortization method to an “impairment only” approach. Under SFAS No. 142, goodwill is no longer amortized
but reviewed for impairment annually or more frequently if certain indicators arise. The Company tested goodwill for impairment as
of the adoption date using the two-step process prescribed in SFAS No. 142. The Company identified its reporting units under SFAS
No. 142 at the store unit level. The fair value of these reporting units was estimated using the expected discounted future cash flows
and market values of related businesses, where appropriate.
Related to the 1998 acquisition of Mercantile Stores Company Inc., the Company had $570 million in goodwill recorded in its
consolidated balance sheet at the beginning of 2002. The Company completed the required impairment tests of goodwill in the second
quarter of 2002 and determined that $530 million of goodwill was impaired under the fair value test. This impairment was the result
of sequential periods of declining profits in certain of these reporting units. In accordance with SFAS No. 142, the impairment loss for
goodwill was reflected as a cumulative effect of a change in accounting principle in the first quarter of 2002.
The changes in the carrying amount of goodwill for the year ended February 1, 2003 are as follows (in thousands):
Goodwill balance at February 2, 2002 $569,545
Cumulative effect of adopting SFAS No. 142 (530,331)
Goodwill balance at February 1, 2003 $ 39,214
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