Saks Fifth Avenue 2009 Annual Report Download - page 40

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Table of Contents
the lease. Capital expenditures are also reduced when the Company receives cash and allowances from merchandise vendors to fund the construction
of vendor shops.
• To the extent the Company remodels or otherwise replaces or disposes of property and equipment prior to the end of their assigned depreciable lives,
the Company could realize a loss or gain on the disposition. To the extent assets continue to be used beyond their assigned depreciable lives, no
depreciation expense is being realized. The Company reassesses the depreciable lives in an effort to reduce the risk of significant losses or gains at
disposition and utilization of assets with no depreciation charges. The reassessment of depreciable lives involves utilizing historical remodel and
disposition activity and forward-looking capital expenditure plans.
• Recoverability of the carrying value of store assets is assessed upon the occurrence of certain events (e.g., opening a new store near an
existing store or announcing plans for a store closing) and, absent certain triggering events, annually during the fourth quarter. The
recoverability assessment requires judgment and estimates for future store generated cash flows. The underlying estimates for cash
flows include estimates for future sales, gross margin rates, inflation and store expenses. During the year ended January 30,
2010, January 31, 2009, and February 2, 2008, the Company incurred impairment charges of $29.3 million, $11.1 million, and $4.3
million, respectively, related to asset impairments and other costs in the normal course of business.
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 a percentage of sales in excess of specified levels. Most of the Company’s lease agreements
include renewal periods at the Company’s option. The Company recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the
lease term beginning with the date the Company takes possession of the leased space. Rent expense incurred prior to the opening of a store is charged to Store
Pre-Opening Costs. The Company records tenant improvement allowances and rent holidays as deferred rent liabilities on the Consolidated Balance Sheets and
amortizes the deferred rent over the terms of the lease to rent expense in the Consolidated Statements of Income. The Company records rent liabilities on the
Consolidated Balance Sheets for contingent percentage of sales lease provisions when the Company determines that it is probable that the specified levels will be
reached during the fiscal year.
INCOME AND OTHER TAXES
The majority of the Company’s net deferred tax assets of $257.3 million at January 30, 2010 consist of federal and state NOL carryforwards that will
expire between 2010 and 2029. The majority of the NOL carryforward is a result of the net operating losses incurred during the fiscal years ended January 30,
2010 and January 31, 2009 due principally to difficult market and macroeconomic conditions. We have concluded, based on the weight of all available positive
and negative evidence that all but $42.8 million of these tax benefits relating to certain state losses are more likely than not to be realized in the future. Therefore,
a valuation allowance for the $42.8 million has been established. We evaluate the realizability of our deferred tax assets on a quarterly basis. In 2009, this
evaluation resulted in an additional reserve against state deferred tax assets of $3.0 million, impacting our results of operations. A similar analysis was performed
in 2008, which resulted in an additional reserve against state deferred tax assets of $6.1 million. While the Company has incurred a cumulative loss over the three
year period ended January 30, 2010, after evaluating all available evidence including our past operating results, the macroeconomic factors contributing to the
recent fiscal loss, the length of the carryforward periods available and our forecast of future taxable income, including the availability of prudent and feasible tax
planning strategies, we concluded that it is more likely than not the deferred tax asset, net of the $42.8 million
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Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Research℠