Dillard's 2004 Annual Report Download - page 46

2. Disposition of Credit Card Receivables
On November 1, 2004, the Company completed the sale of substantially all of the assets of its private label credit card
business to GE. The purchase price of approximately $1.1 billion includes the assumption of $400 million of
securitization liabilities, the purchase of owned accounts receivable and other assets. Net cash proceeds received by the
Company were $688 million. The Company recorded a pretax gain of $83.9 million as a result of the sale. The gain is
recorded in Service Charges, Interest and Other Income on the Consolidated Statement of Operations.
As part of the transaction, the Company and GE have entered into a long-term marketing and servicing alliance with an
initial term of 10 years, with an option to renew. GE will own the accounts and balances generated during the term of the
alliance and will provide all key customer service functions supported by ongoing credit marketing efforts.
3. Goodwill
The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” effective February 3, 2002. It changes
the accounting for goodwill from an amortization method to an “impairment only” approach. Under SFAS No. 142,
goodwill is no longer amortized but reviewed for impairment annually or more frequently if certain indicators arise. The
Company tested goodwill for impairment as of the adoption date using the two-step process prescribed in SFAS No. 142.
The Company identified its reporting units under SFAS No. 142 at the store unit level. The fair value of these reporting
units was estimated using the expected discounted future cash flows and market values of related businesses, where
appropriate.
Related to the 1998 acquisition of Mercantile Stores Company Inc., the Company had $570 million in goodwill recorded
in its consolidated balance sheet at the beginning of 2002. The Company completed the required impairment tests of
goodwill in the second quarter of 2002 and determined that $530 million of goodwill was impaired under the fair value
test. This impairment was the result of sequential periods of declining profits in certain of these reporting units. In
accordance with SFAS No. 142, the impairment loss for goodwill was reflected as a cumulative effect of a change in
accounting principle in fiscal 2002. The Company tests the realizability of goodwill as of the end of each fiscal year or
when circumstances deem necessary.
The changes in the carrying amount of goodwill for the years ended January 29, 2005 and January 31, 2004 are as
follows (in thousands):
Goodwill balance at February 1, 2003 $39,214
Goodwill written off in fiscal 2003 ( 2,483)
Goodwill balance at January 31, 2004 36,731
Goodwill written off in fiscal 2004 (1,236)
Goodwill balance at January 29, 2005 $35,495
4. Revolving Credit Agreement
At January 29, 2005, the Company maintained a $1 billion revolving credit facility with JPMorgan Chase Bank
(“JPMorgan”). Borrowings under the credit agreement accrue interest at JPMorgan’s Base Rate or LIBOR plus 1.50%
(currently 4.09%) subject to certain availability thresholds as defined in the credit agreement. Availability for
borrowings and letter of credit obligations under the credit agreement is limited to 75% of the inventory of certain
Company subsidiaries (approximately $878 million at January 29, 2005). There are no financial covenant requirements
under the credit agreement provided availability exceeds $100 million. The credit agreement expires on December 12,
2008. The Company pays an annual commitment fee of 0.375% of the committed amount less outstanding borrowings
and letters of credit to the banks. The Company borrowed $100 million on its revolving credit facility during 2004 in
connection with the redemption of the $331.6 million Preferred Securities on February 2, 2004. There were no funds
borrowed under the revolving credit facility during fiscal 2003.
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