Saks Fifth Avenue 2009 Annual Report Download - page 39

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Table of Contents
perceived value, and (3) estimating the shrinkage that has occurred through theft during the period between physical inventory counts. These judgments and
estimates, coupled with the averaging processes within the retail method, can, under certain circumstances, produce varying financial results. Factors that can
lead to different financial results include setting original retail prices for merchandise held for sale too high, failure to identify a decline in perceived value of
inventories and process the appropriate retail value markdowns and overly optimistic or overly conservative shrinkage estimates. The Company believes it has
the appropriate merchandise valuation and pricing controls in place to minimize the risk that its inventory values would be materially under or overvalued.
The Company regularly records a provision for estimated shrinkage, thereby reducing the carrying value of merchandise inventory. A complete physical
inventory of all the Company’s stores and distribution facilities is performed annually, with the recorded amount of merchandise inventory being adjusted to
coincide with this physical count. The differences between the estimated amount of shrinkage and the actual amount realized have been insignificant.
The Company receives vendor provided support in different forms. When the vendor provides support for inventory markdowns, the Company records the
support as a reduction to cost of sales. Such support is recorded in the period that the corresponding markdowns are taken. When the Company receives
inventory-related support that is not designated for markdowns, the Company includes this support as a reduction in cost purchases.
SELF-INSURANCE RESERVES
The Company self-insures a substantial portion of the exposure for costs related primarily to employee medical, workers’ compensation and general
liability. Expenses are recorded based on estimates for reported and incurred but not reported claims considering a number of factors, including historical claims
experience, severity factors, litigation costs, inflation and other assumptions. Although the Company does not expect the amount it will ultimately pay to differ
significantly from its estimates, self-insurance reserves could be affected if future claims experience differs significantly from the historical trends and
assumptions.
DEPRECIATION AND RECOVERABILITY OF CAPITAL ASSETS
Over forty percent of the Company’s assets at January 30, 2010 are represented by investments in property and equipment. Determining appropriate
depreciable lives and reasonable assumptions for use in evaluating the carrying value of capital assets requires judgments and estimates.
• The Company principally utilizes the straight-line depreciation method and a variety of depreciable lives. Land is not depreciated. Buildings and
improvements are depreciated over 20 to 40 years. Store fixtures are depreciated over 10 years. Equipment utilized in stores (e.g., escalators) and in
support areas (e.g., distribution centers, technology) and fixtures in support areas are 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. Internally generated
computer software is amortized over 3 to 10 years. Generally, no estimated salvage value at the end of the useful life of the assets is considered.
• 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 improvement allowances and are recorded as deferred rent liabilities that are amortized over the life of
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Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Research℠