Dillard's 2005 Annual Report Download - page 49

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 2005, 2004 and 2003 ended on
January 28, 2006, January 29, 2005 and January 31, 2004, respectively. Fiscal years 2005, 2004 and 2003
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, 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.
Guarantees—The Company accounts for certain guarantees in accordance with FASB Interpretation
No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34” (“FIN 45”). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under guarantees issued. FIN 45 also clarifies that a
guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of certain obligations
undertaken. The Company has recognized a liability related to indebtedness incurred by certain joint ventures.
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. Accounts receivable
primarily consist of the monthly settlement with GE for Dillards share of revenue from the long-term marketing
and servicing alliance.
Merchandise Inventories—The retail last-in, first-out (“LIFO”) inventory method is used to value
merchandise inventories. At January 28, 2006 and January 29, 2005, the LIFO cost of merchandise was
approximately equal to the first-in, first-out (“FIFO”) cost of merchandise.
Property and Equipment—Property and equipment owned by the Company is stated at cost, which
includes related interest costs incurred during periods of construction, less accumulated depreciation and
amortization. Capitalized interest was $6.1 million, $4.5 million and $2.6 million in fiscal 2005, 2004 and 2003,
respectively. For financial reporting purposes, depreciation is computed by the straight-line method over
estimated useful lives:
Buildings and leasehold improvements .............................. 20–40years
Furniture, fixtures and equipment .................................. 3–10years
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