Dillard's 2004 Annual Report Download - page 42

Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies
Description of Business – Dillard’s, Inc. (the “Company”) operates retail department stores located primarily in the
Southeastern, Southwestern and Midwestern areas of the United States. The Company’s fiscal year ends on the Saturday
nearest January 31 of each year. Fiscal years 2004, 2003 and 2002 ended on January 29, 2005, January 31, 2004 and
February 1, 2003, respectively. Fiscal years 2004, 2003 and 2002 included 52 weeks.
Consolidation – The accompanying consolidated financial statements include the accounts of Dillard’s, Inc. and its
wholly owned subsidiaries. Intercompany accounts and transactions are eliminated in consolidation. Investments in and
advances to joint ventures in which the Company has a 50% ownership interest are accounted for by the equity method.
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant estimates include
inventories, sales return, allowance for doubtful accounts prior to November 1, 2004, self-insured accruals, future cash
flows for impairment analysis, pension discount rate and lives of long-lived assets. Actual results could differ from
those estimates.
Cash Equivalents – The Company considers all highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents. The Company considers receivables from charge card companies as cash
equivalents.
Accounts Receivable – In November 2004, the Company sold substantially all of its accounts receivable to GE
Consumer Finance (“GE”) and no longer maintains an allowance for doubtful accounts.
Prior to November 2004, customer accounts receivable on the Company’s proprietary credit card were classified as
current assets and include some which are due after one year, consistent with industry practice. Proprietary credit card
receivables were shown net of an allowance for uncollectible accounts. The Company calculated the allowance for
uncollectible accounts using a model that analyzes factors such as bankruptcy filings, delinquency rates, historical
charge-off patterns, recovery rates and other portfolio data. The calculation was then reviewed by management to assess
whether, based on recent economic events, additional analyses were required to appropriately estimate losses inherent in
the portfolio. The Company charged off an account automatically when a customer has failed to make a required
payment in each of the six billing cycles following a missed payment. The Company also provided for the estimated
uncollectible portion of the finance charge revenue based upon our historical collection experience as part of the
allowance for doubtful accounts. This allowance represented amounts of credit card receivable balances (including
billed but uncollected finance charges) which management estimated will ultimately not be collected. Finance charge
revenue was recorded until an account is charged off, at which time uncollected finance charge revenue was recorded as
a reduction of credit revenues.
Historically, the Company utilized credit card securitizations as part of its overall funding strategy. The transfers were
accounted for under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for
Transfer and Servicing of Financial Assets and Liabilities”. All financing through these facilities are recorded on the
balance sheet as of January 31, 2004 (see Note 16).
In November 2004, the Company either repaid or transferred to GE all of its debt securitized by credit card receivables.
Significant Group Concentrations of Credit Risk – The Company granted credit to customers throughout North
America. There were no Metropolitan Statistical Areas that comprised 10% of the Company’s managed credit card
receivables at January 29, 2005 and January 31, 2004. As of November 1, 2004, GE owns all accounts and balances
generated through sales on the Company’s private label card.
F-10