Dillard's 2003 Annual Report Download - page 40

Buildings and leasehold improvements 20 - 40 years
Furniture, fixtures and equipment 3 - 10 years
Properties leased by the Company under lease agreements which are determined to be capital leases are stated at an amount equal to
the present value of the minimum lease payments during the lease term, less accumulated amortization. The properties under capital
leases and leasehold improvements under operating leases are amortized on the straight-line method over the shorter of their useful
lives or the related lease terms. The provision for amortization of leased properties is included in depreciation and amortization
expense.
Included in property and equipment as of January 31, 2004 are assets held for sale in the amount of $31.9 million. During fiscal 2003,
2002 and 2001, the Company realized gains on the sale of property and equipment of $8.7 million, $1.1 million and $2.1 million,
respectively.
Depreciation expense on property and equipment was $291 million, $301 million and $295 million for fiscal 2003, 2002 and 2001,
respectively.
Long-Lived Assets Excluding Goodwill – The Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” which requires impairment losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying
amount. In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the
anticipated undiscounted future net cash flows of the related long-lived assets. This analysis is performed at the store unit level. If
the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. Various
factors including future sales growth and profit margins are included in this analysis. Management believes at this time that the
carrying value and useful lives continue to be appropriate, after recognizing the impairment charge recorded in 2003 and 2002, as
disclosed in Note 13.
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. Prior to the adoption of SFAS No. 142, goodwill, which
represents the cost in excess of fair value of net assets acquired, was amortized on the straight-line basis over 40 years. Accumulated
goodwill amortization was $55.6 million at February 2, 2002. Management believes at this time that the carrying value continues to
be appropriate, recognizing the impairment charge recorded in fiscal 2003 and 2002, as disclosed in Note 2.
Other Assets – Other assets include investments in joint ventures accounted for by the equity method. These joint ventures, which
consist of malls and a general contracting company that constructs Dillard’s stores and other commercial buildings, had carrying
values of $97 million and $97 million at January 31, 2004 and February 1, 2003, respectively. The malls are located in Crestview
Hills, Kentucky; Toledo, Ohio; Denver, Colorado and two currently under construction in Bonita Springs, Florida and Yuma, Arizona.
Earnings from joint ventures were $8.1 million, $19.5 million and $11.6 million for fiscal 2003, 2002 and 2001, respectively. The
Company also recorded a $15.6 million pretax gain for the year ended January 31, 2004 from the sale of its interest in Sunrise Mall
and its associated center in Brownsville, Texas for $80.7 million including the assumption of the $40.0 million mortgage note. The
Company recorded a pretax gain of $64.3 million pertaining to the Company’s sale of its interest in FlatIron Crossing, a Broomfield,
Colorado shopping center, for the year ended February 1, 2003. The gains on the sale were recorded in Service Charges, Interest and
Other Income.
Vendor Allowances – The Company receives concessions from its vendors through a variety of programs and arrangements,
including co-operative advertising and markdown reimbursement programs. Co-operative advertising allowances are reported as a
reduction of advertising expense in the period in which the advertising occurred. Payroll reimbursements are reported as a reduction
of payroll expense in the period in which the reimbursement occurred. All other vendor allowances are recognized as a reduction of
cost purchases. Accordingly, a reduction or increase in vendor concessions has an inverse impact on cost of sales and/or selling and
administrative expenses.
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