Saks Fifth Avenue 2008 Annual Report Download - page 65

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
STORE PRE-OPENING COSTS
Store pre-opening costs primarily consist of rent expense incurred during the construction of new stores and
payroll and related media costs incurred in connection with new store openings and are expensed when incurred.
Rent expense is generally incurred for six to twelve months prior to a store’s opening date.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost less accumulated depreciation. For financial reporting
purposes, depreciation is computed principally using the straight-line method over the estimated useful lives of
the assets. Buildings and improvements are depreciated over 20 to 40 years while fixtures and equipment are
primarily depreciated over 3 to 15 years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or their related lease terms, generally ranging from 10 to 20 years. Terms of leases used in
the determination of estimated useful lives may include renewal periods at the Company’s option if exercise of
the option is determined to be reasonably assured at the inception of the lease. Costs incurred for the
development of internal computer software are capitalized and amortized using the straight-line method over 3 to
10 years. Costs incurred in the discovery and post-implementation stages of internally created computer software
are generally expensed as incurred.
When constructing stores, the Company receives allowances from landlords. If the landlord is determined to
be the primary beneficiary of the property, then the portion of those allowances attributable to the property
owned by the landlord is considered to be a deferred rent liability, whereas the corresponding capital
expenditures related to that store are considered to be prepaid rent. Allowances in excess of the amounts
attributable to the property owned by the landlord are considered leasehold improvement allowances and are
recorded as deferred rent liabilities that are amortized over the life of the lease. Capital expenditures are reduced
when the Company receives cash and allowances from merchandise vendors to fund the construction of vendor
shops.
On a yearly basis and as changes in circumstances arise, the Company evaluates the recoverability of its
property and equipment based upon the utilization of the assets and expected future cash flows, in accordance
with SFAS No. 144. Write-downs associated with the evaluation are reflected in Impairments and Dispositions in
the accompanying consolidated statements of income.
IMPAIRMENTS & DISPOSITIONS
The Company continuously evaluates its real estate portfolio and closes individual underproductive stores in
the normal course of business as leases expire or as other circumstances indicate. The Company also performs an
asset impairment analysis at each fiscal year end. During the year ended January 31, 2009, February 2, 2008 and
February 3, 2007, the Company incurred charges of $11,139, $4,279 and $5,676, respectively, related to asset
impairments and other costs in the normal course of business.
OPERATING LEASES
The Company leases stores, distribution centers, and administrative facilities under operating leases. Store
lease agreements generally include rent holidays, rent escalation clauses and contingent rent provisions for
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