Dillard's 2004 Annual Report Download - page 55

properties. The charge consists of a write down for a joint venture in the amount of $7.6 million, a write down of
goodwill on one store to be closed in fiscal 2005 of $1.2 million, an accrual for future rent, property tax and utility
payments on three stores (two closed in fiscal 2004 and one to be closed in fiscal 2005) of $3.1 million and a write down
of property and equipment in the amount of $7.5 million. The Company does not expect to incur significant additional
exit costs upon the closing of these properties during fiscal 2005. During fiscal 2003, the Company recorded a pre-tax
charge of $43.7 million for asset impairment and store closing costs. The charge includes a write down to fair value for
certain under-performing properties. The charge consists of a write down to a joint venture in the amount of $5.5
million, a write down of goodwill on two stores closed in fiscal 2004 of $2.5 million and a write down of property and
equipment in the amount of $35.7 million. During fiscal 2002, the Company recorded a pre-tax charge of $52.2 million
for asset impairment and store closing costs. The charge includes a write down to fair value for certain under-performing
properties in the amount of $55.8 million and exit costs to close four such properties in the amount of $4.4 million, all of
which were closed during fiscal 2003, partially offset by the forgiveness of a lease obligation of $8.0 million in
connection with the sale of a closed owned store in Memphis, Tennessee in satisfaction of that obligation.
Following is a summary of the activity in the 2004 reserve established for asset impairment and store closing charges:
(in thousands)
Balance,
beginning
of year Charges Cash Payments
Balance,
end of year
Rent, property taxes and utilities $- $3,080 $175 $2,905
15. 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).
16. Securitizations of Assets
Prior to November 1, 2004, the Company transferred credit card receivable balances to Dillards Credit Card 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 retained certain subordinated interests that serve as a credit enhancement to outside
investors and exposed the Trust assets to possible credit losses on receivables sold to outside investors. The investors
and the Trust had no recourse against the Company beyond Trust assets. In order to maintain the committed level of
securitized assets, the Trust reinvested cash collections on securitized accounts in additional balances. The Company
also received annual servicing fees as compensation for servicing the outstanding balances.
The fair value of the Company’s cash and cash equivalents and trade accounts receivable approximates their carrying
values at January 29, 2005 and January 31, 2004 due to the short-term maturities of these instruments. The fair value of
the Company’s long-term debt at January 29, 2005 and January 31, 2004 was $1.47 billion and $2.06 billion,
respectively. The carrying value of the Company’s long-term debt at January 29, 2005 and January 31, 2004 was $1.41
billion and $2.02 billion, respectively. The fair value of the Guaranteed Preferred Beneficial Interests in the Company’s
Subordinated Debentures at January 29, 2005 and January 31, 2004 was $199 million and $526 million, respectively.
The carrying value of the Guaranteed Preferred Beneficial Interests in the Company’s Subordinated Debentures at
January 29, 2005 and January 31, 2004 was $200 million and $532 million, respectively.
All borrowings under the Company’s receivable financing conduit were recorded on the balance sheet. The Company
had $400 million of long-term debt outstanding under this agreement on the consolidated balance sheet as of January 31,
2004. Prior to May 2002, the Company accounted for securitizations of credit card receivables as sales of receivables,
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