Dillard's 2003 Annual Report Download - page 51

13. Asset Impairment and Store Closing Charges
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. If the carrying value of the related asset exceeds the undiscounted
cash flows, the Company reduces the carrying value to its fair value, which is generally calculated using discounted cash flows.
During fiscal 2003, the Company recorded a pre-tax charge of $43.7 million for asset impairment and store closing costs. The charge
includes a write-down to fair value for certain under-performing properties. The charge consists of a write down to a joint venture in
the amount of $5.5 million, a write down of goodwill on two stores to be closed of $2.5 million and a write down of property and
equipment in the amount of $35.7 million. The Company does not expect to incur significant additional exit costs upon the closing of
these properties during fiscal 2004. During fiscal 2002, the Company recorded a pre-tax charge of $52.2 million for asset impairment
and store closing costs. The charge includes a write down to fair value for certain under-performing properties in the amount of $55.8
million and exit costs to close four such properties in the amount of $4.4 million, all of which were closed during fiscal 2003, partially
offset by the forgiveness of a lease obligation of $8.0 million in connection with the sale of a closed owned store in Memphis,
Tennessee in satisfaction of that obligation. During fiscal 2001, the Company recorded a pre-tax charge of $3.8 million for asset
impairment and store closing costs. The charge includes a write down to fair value for one under-performing store in the amount of
$1.8 million and lease commitments of $2 million.
14. Fair Value Disclosures
The estimated fair values of financial instruments which are presented herein have been determined by the Company using available
market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data
to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company
could realize in a current market exchange.
The fair value of trade accounts receivable is determined by discounting the estimated future cash flows at current market rates, after
consideration of credit risks and servicing costs using historical rates. The fair value of the Company’s long-term debt and Guaranteed
Preferred Beneficial Interests in the Company’s Subordinated Debentures is based on market prices or dealer quotes (for publicly
traded unsecured notes) and on discounted future cash flows using current interest rates for financial instruments with similar
characteristics and maturity (for bank notes and mortgage notes).
The fair value of the Company’s cash and cash equivalents and trade accounts receivable approximates their carrying values at
January 31, 2004 and February 1, 2003 due to the short-term maturities of these instruments. The fair value of the Company’s long-
term debt at January 31, 2004 and February 1, 2003 was $2.06 billion and $2.24 billion, respectively. The carrying value of the
Company’s long-term debt at January 31, 2004 and February 1, 2003 was $2.02 billion and $2.33 billion, respectively. The fair value
of the Guaranteed Preferred Beneficial Interests in the Company’s Subordinated Debentures at January 31, 2004 and February 1, 2003
was $526 million and $473 million, respectively. The carrying value of the Guaranteed Preferred Beneficial Interests in the
Company’s Subordinated Debentures at January 31, 2004 and February 1, 2003 was $532 million.
15. Securitizations of Assets
As part of its credit card securitizations, the Company transfers credit card receivable balances to a Trust in exchange for certificates
representing undivided interests in such receivables. The Trust securitizes balances by issuing certificates representing undivided
interests in the Trust’s receivables to outside investors. In each securitization, the Company retains certain subordinated interests that
serve as a credit enhancement to outside investors and expose the Trust assets to possible credit losses on receivables sold to outside
investors. The investors and the Trust have no recourse against the Company beyond Trust assets. In order to maintain the committed
level of securitized assets, the Trust reinvests cash collections on securitized accounts in additional balances. The Company also
receives annual servicing fees as compensation for servicing the outstanding balances.
Currently, all borrowings under the Company’s receivable financing conduit are recorded on balance sheet. The Company had $400
million of long-term debt outstanding under this agreement on the consolidated balance sheet as of January 31, 2004 and February 1,
2003. Prior to May 2002, the Company accounted for securitizations of credit card receivables as sales of receivables, thus off
balance sheet. Since May 2002, future transfers no longer meet sale treatment, and interest paid to outside investors is recorded in
interest expense instead of other revenue. The Company reclassified $11.3 million for the twelve months ended February 2, 2002 to
conform to current period classification. Accordingly, as a result of this decision, the Company recorded an income statement charge
of $5.4 million related to the amortization of the beneficial interests recognized up front on the off-balance-sheet financing for the
twelve months ended February 1, 2003. This charge was included in Service Charges, Interest and Other Income.
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