Dillard's 2005 Annual Report Download - page 53

New Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43,
Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory
Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material effect on the Company’s
financial position, results of operations or cash flows.
In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS
No. 123-R”). SFAS No. 123-R requires all forms of share-based payments to employees, including employee
stock options, be treated as compensation and recognized in the income statement based on their estimated fair
values. This statement will be effective for fiscal years beginning after June 15, 2005.
The Company currently accounts for stock options under APB No. 25 using the intrinsic value method in
accounting for its employee stock options. No stock-based compensation costs were reflected in net income, as
no options under those plans had an exercise price less than the market value of the underlying common stock on
the date of grant.
Under the adoption of SFAS No. 123-R, the Company will be required to expense stock options over the
vesting period in its statement of operations. In addition, the Company will need to recognize expense over the
remaining vesting period associated with unvested options outstanding as of January 28, 2006. Based on the
stock options outstanding as of January 28, 2006, the stock-based employee compensation expense, net of related
tax effects, will be approximately $0.6 million in fiscal 2006.
In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”), “Accounting for Conditional
Asset Retirement Obligations, an interpretation of FASB Statement No. 143.” FIN 47 clarifies the scope and
timing of liability recognition for conditional asset retirement obligations under SFAS No. 143 and is effective
no later than the end of our 2005 fiscal year. The adoption of FIN 47 did not have a material impact on our
consolidated financial position, results of operations or cash flows.
In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Correction, a
replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 changes the
requirements for the accounting for and reporting of a change in accounting principle. This statement requires
retrospective application to prior periods’ financial statements of changes in accounting principles, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS
No. 154 is effective for accounting changes and errors made in fiscal years beginning after December 15, 2005.
The adoption of SFAS No. 154 is not expected to have a material effect on the Company’s financial position,
results of operations or cash flows.
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.
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