Dillard's 2004 Annual Report Download - page 44

the Company’s sale of its interest in FlatIron Crossing, a Broomfield, Colorado shopping center, for the year ended
February 1, 2003. The gains on the sale were recorded in Service Charges, Interest and Other Income.
Vendor Allowances – The Company receives concessions from its vendors through a variety of programs and
arrangements, including co-operative advertising and markdown reimbursement programs. Co-operative advertising
allowances are reported as a reduction of advertising expense in the period in which the advertising occurred. Payroll
reimbursements are reported as a reduction of payroll expense in the period in which the reimbursement occurred. All
other vendor allowances are recognized as a reduction of cost purchases. Accordingly, a reduction or increase in vendor
concessions has an inverse impact on cost of sales and/or selling and administrative expenses.
Insurance Accruals – The Company’s consolidated balance sheets include liabilities with respect to self-insured
workers’ compensation and general liability claims. The Company estimates the required liability of such claims,
utilizing an actuarial method, based upon various assumptions, which include, but are not limited to, our historical loss
experience, projected loss development factors, actual payroll and other data. The required liability is also subject to
adjustment in the future based upon the changes in claims experience, including changes in the number of incidents
(frequency) and changes in the ultimate cost per incident (severity).
Operating Leases – The Company leases retail stores and office space under operating leases. Most leases contain
construction allowance reimbursements by landlords, rent holidays, rent escalation clauses and/or contingent rent
provisions. The Company recognizes the related rental expense on a straight-line basis over the lease term and records
the difference between the amounts charged to expense and the rent paid as a deferred rent liability.
To account for construction allowance reimbursements from landlords and rent holidays, the Company records a
deferred rent liability included in trade accounts payable and accrued expenses and other liabilities on the consolidated
balance sheets and amortizes the deferred rent over the lease term, as a reduction to rent expense on the consolidated
income statements. For leases containing rent escalation clauses, the Company records minimum rent expense on a
straight-line basis over the lease term on the consolidated income statement. The lease term used for lease evaluation
includes renewal option periods only in instances in which the exercise of the option period can be reasonably assured
and failure to exercise such options would result in an economic penalty.
Revenue Recognition – The Company recognizes revenue at the “point of sale.” Revenue associated with gift cards is
recognized upon redemption of the gift card. Prior to the sale of its credit card business to GE, finance charge revenue
earned on customer accounts, serviced by the Company under its proprietary credit card program, was recognized in the
period in which it was earned. Beginning November 1, 2004, the Company’s share of income earned under the long-
term marketing and servicing alliance is included as a component of Service Charges, Interest and Other Income.
Allowance for sales returns are recorded as a component of net sales in the period in which the related sales are recorded.
Advertising – Advertising and promotional costs, which include newspaper, television, radio and other media
advertising, are expensed as incurred and were $246 million, $229 million and $253 million for fiscal years 2004, 2003
and 2002, respectively.
Income Taxes – In accordance with SFAS No. 109, “Accounting for Income Taxes,” deferred income taxes reflect the
future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting
amounts at year-end.
Shipping and Handling – In accordance with Emerging Issues Task Force (“EITF”) 00-10, “Accounting for Shipping
and Handling Fees and Costs,” the Company records shipping and handling reimbursements in Service Charges, Interest
and Other Income. The Company records shipping and handling costs in Advertising, Selling, Administrative and
General Expenses.
Comprehensive Income (Loss) – Accumulated other comprehensive loss consists only of the minimum pension
liability, which is calculated annually in the fourth quarter.
Stock-Based Compensation – The Company periodically grants stock options to employees. Pursuant to Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” the Company accounts for stock-based
employee compensation arrangements using the intrinsic value method. No compensation expense has been recorded in
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