Dillard's 2012 Annual Report Download - page 61

Notes to Consolidated Financial Statements (Continued)
1. Description of Business and Summary of Significant Accounting Policies (Continued)
gross margins. During periods of deflation, inventory values on the first-in, first-out retail inventory
method (‘‘FIFO RIM’’) may be lower than the LIFO RIM method. Additionally, inventory values at
LIFO RIM cost may be in excess of net realizable value. At February 2, 2013 and January 28, 2012, the
Company reduced the value of inventories on LIFO RIM to the FIFO RIM value, which approximates
market value. Cost of sales during fiscal 2012, 2011 and 2010 under both the FIFO RIM and LIFO
RIM methods was the same. The remaining 4% of the inventories are valued at the lower of cost or
market using the average cost or specific identified cost methods.
The Company regularly records a provision for estimated shrinkage, thereby reducing the carrying
value of merchandise inventory. Complete physical inventories of all of the Company’s stores and
warehouses are performed no less frequently than annually, with the recorded amount of merchandise
inventory being adjusted to coincide with these physical counts.
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. Interest capitalized during fiscal 2012, 2011 and 2010 was immaterial. 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 February 2, 2013 are assets held for sale in the amount
of $7.4 million. During fiscal 2012, 2011 and 2010, the Company realized gains on the disposal of
property and equipment of $12.4 million, $1.8 million and $5.6 million, respectively.
Depreciation expense on property and equipment was $260 million, $258 million and $262 million
for fiscal 2012, 2011 and 2010, respectively.
Long-Lived Assets—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
2012, 2011 and 2010, as disclosed in Note 13.
Other Assets—Other assets include investments in joint ventures accounted for by the equity
method. The carrying values of these investments were approximately $5.2 million at February 2, 2013
and January 28, 2012. These joint ventures originally consisted of two shopping malls located in
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