Dillard's 2002 Annual Report Download - page 46

charge includes a write-down to fair value for certain under-performing properties in the amount of $37 million and exit costs to close
four such properties in the amount of $14 million, all of which were closed during fiscal 2001.
14. Fair Value Disclosures
The estimated fair values of financial instruments which are presented herein have been determined by the Company using available
market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data
to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company
could realize in a current market exchange.
The fair value of trade accounts receivable is determined by discounting the estimated future cash flows at current market rates, after
consideration of credit risks and servicing costs using historical rates. The fair value of the Company’s long-term debt and Guaranteed
Preferred Beneficial Interests in the Company’s Subordinated Debentures is based on market prices or dealer quotes (for publicly
traded unsecured notes) and on discounted future cash flows using current interest rates for financial instruments with similar
characteristics and maturity (for bank notes and mortgage notes).
The fair value of the Company’s cash and cash equivalents and trade accounts receivable approximates their carrying values at
February 1, 2003 and February 2, 2002 due to the short-term maturities of these instruments. The fair value of the Company’s long-
term debt at February 1, 2003 and February 2, 2002 was $2.24 billion and $2.09 billion, respectively. The carrying value of the
Company’s long-term debt at February 1, 2003 and February 2, 2002 was $2.33 billion and $2.22 billion, respectively. The fair value
of the Guaranteed Preferred Beneficial Interests in the Company’s Subordinated Debentures at February 1, 2003 and February 2, 2002
was $473 million and $496 million, respectively. The carrying value of the Guaranteed Preferred Beneficial Interests in the
Company’s Subordinated Debentures at February 1, 2003 and February 2, 2002 was $532 million.
15. Securitizations of Assets
The Company utilizes credit card securitizations as a part of its overall funding strategy. In May 2002, the Company amended its
conduit financing agreement in a manner that prevented future transfers of accounts receivable to its master trust from qualifying as a
sale and thus receiving off-balance-sheet treatment. The Company decided not to amend its agreements to allow continuing off-
balance-sheet treatment but to allow accounts receivable and the related financing to be brought back onto the balance sheet. As a
result of this decision, the Company took a charge to its income statement in the amount of $5.4 million related to the amortization of
the beneficial interests recognized up front on the off-balance-sheet financing. The Company has $400 million of debt and the related
asset on its balance sheet as of February 1, 2003.
Under generally accepted accounting principles, if the structure of the securitization meets certain requirements, these transactions are
accounted for as sales of receivables. Prior to May 2002, the Company accounted for it securitizations of credit card receivables as
sales of receivables. As part of its credit card securitizations, the Company transferred credit card receivable balances to a Master
Trust ("Trust") in exchange for certificates representing undivided interests in such receivables. The Trust securitized balances by
issuing certificates representing undivided interests in the Trust’s receivables to outside investors. In each securitization the Company
retains certain subordinated interests that serve as a credit enhancement to outside investors and expose the Company’s Trust assets to
possible credit losses on receivables sold to outside investors. The investors and the Trust have no recourse against the Company
beyond Trust assets. In order to maintain the committed level of securitized assets, the Trust reinvests cash collections on securitized
accounts in additional balances. The Company also receives annual servicing fees as compensation for servicing the outstanding
balances.
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