Dillard's 2009 Annual Report Download - page 54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of Business and Summary of Significant Accounting Policies (Continued)
Property and Equipment—Property and equipment owned by the Company is stated at cost, which
includes related interest costs incurred during periods of construction, less accumulated depreciation
and amortization. Capitalized interest was $1.5 million, $2.6 million and $6.3 million in fiscal 2009, 2008
and 2007, respectively. For financial reporting purposes, depreciation is computed by the straight-line
method over estimated useful lives:
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 30, 2010 are assets held for sale in the amount
of $34.0 million. During fiscal 2009 and 2008, the Company realized gains on the disposal of property
and equipment of $3.2 million and $24.6 million, respectively. During fiscal 2007, the Company realized
losses on the disposal of property and equipment of $1.5 million. During fiscal 2008, we also recorded a
$3.9 million loss related to property damages sustained on one store during Hurricane Ike.
Depreciation expense on property and equipment was $263 million, $284 million and $299 million
for fiscal 2009, 2008 and 2007, respectively.
Long-Lived Assets Excluding Goodwill—Impairment losses are required 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 charges recorded in
fiscal 2009, 2008 and 2007, as disclosed in Note 16.
Goodwill—Goodwill is required to be reviewed for impairment annually or more frequently if
certain indicators arise that suggest that the carrying amount may not be recoverable from its estimated
future cash flows. The Company tests for goodwill impairment annually as of the last day of the fourth
quarter using the two-step process prescribed by GAAP. The Company identifies its reporting units at
the store unit level. The fair value of these reporting units are estimated using the expected discounted
future cash flows and market values of related businesses, where appropriate. These estimates are
subject to review and approval by senior management. This approach uses significant assumptions,
including projected future cash flows, the discount rate reflecting the risk inherent in future cash flows
and a terminal growth rate.
As of January 31, 2009, the entire balance of goodwill was determined to be impaired because the
estimated future cash flows of the related properties were unable to sustain the recorded amount of
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