Dillard's 2005 Annual Report Download - page 63

The Company is a member of a class of a settled lawsuit against Visa U.S.A. Inc. (“Visa”) and MasterCard
International Incorporated (“MasterCard”). The Visa Check/Mastermoney Antitrust litigation settlement became
final on June 1, 2005. The settlement provides $3.05 billion in compensatory relief by Visa and MasterCard to be
funded over a fixed period of time to respective Settlement Funds. The Company expects to receive
approximately $6.5 million ($4.2 million after tax) as its share of the proceeds from the settlement. The Company
believes this settlement represents an indeterminate mix of loss recovery and gain contingency and therefore
believes the application of a gain contingency model is the appropriate model to use for the entire amount of
expected proceeds. Therefore, the Company decided to exclude the expected settlement proceeds of $6.5 million
from recognition in the consolidated financial statements for the year ended January 28, 2006. At the time the
settlement is known beyond a reasonable doubt, the Company will record such gain contingency.
On July 29, 2002, a Class Action Complaint (followed on December 13, 2004 by a Second Amended Class
Action Complaint) was filed in the United States District Court for the Southern District of Ohio against the
Company, the Mercantile Stores Pension Plan (the “Plan”) and the Mercantile Stores Pension Committee (the
“Committee”) on behalf of a putative class of former Plan participants. The complaint alleges that certain actions
by the Plan and the Committee violated the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), as a result of amendments made to the Plan that allegedly were either improper and/or ineffective
and as a result of certain payments made to certain beneficiaries of the Plan that allegedly were improperly
calculated and/or discriminatory on account of age. The Second Amended Complaint does not specify any
liquidated amount of damages sought and seeks recalculation of certain benefits paid to putative class members.
No trial date has been set.
The Company is defending the litigation vigorously and has named the Plan’s actuarial firm as a cross
defendant. While it is not feasible to predict or determine the ultimate outcome of the pending litigation,
management believes after consultation with counsel, that its outcome, after consideration of the provisions
recorded in the Company’s consolidated financial statements, would not have a material adverse effect upon its
consolidated cash flow or financial position. However, it is possible that an adverse outcome could have an
adverse effect on the Company’s consolidated net income in a particular quarterly or annual period.
Various other legal proceedings, in the form of lawsuits and claims, which occur in the normal course of
business are pending against the Company and its subsidiaries. In the opinion of management, disposition of
these matters is not expected to materially affect the Company’s financial position, cash flows or results of
operations.
14. Asset Impairment and Store Closing Charges
During fiscal 2005, the Company recorded a pre tax charge of $61.7 million for asset impairment and store
closing costs. Included in asset impairment and store closing charges is a pretax loss on the disposition of all the
outstanding capital stock of an indirect wholly-owned subsidiary in the amount of $40.1 million. The charge also
consists of a write down of goodwill on one store of $1.0 million, an accrual for future rent, property tax, legal
expense and utility payments on four stores of $3.7 million and a write down of property and equipment on nine
stores in the amount of $16.9 million. The Company does not expect to incur significant additional exit costs
upon the closing of these properties during fiscal 2006. During fiscal 2004, the Company recorded a pretax
charge of $19.4 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 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 closed
in fiscal 2005) of $3.1 million and a write down of property and equipment in the amount of $7.5 million. 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.
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