Dillard's 2008 Annual Report Download - page 60

During fiscal 2008, the investment in the properties in Toledo, Ohio and Denver, Colorado was determined
to be impaired because the properties’ estimated future cash flows could not sustain the value of the investment.
The Company recorded asset impairment and store closing charges of $58.8 million to write down the
investment.
During fiscal 2006, the Company recorded a $13.8 million pretax gain for the sale of its interest in the Yuma
Palms joint venture for $20.0 million.
Vendor Allowances—The Company receives concessions from its vendors through a variety of programs
and arrangements, including cooperative advertising and margin maintenance programs. The Company has
agreements in place with each vendor setting forth the specific conditions for each allowance or payment. These
agreements range in periods from a few days to up to a year. If the payment is a reimbursement for costs
incurred, it is offset against those related costs; otherwise, it is treated as a reduction to the cost of the
merchandise. Amounts of vendor concessions are recorded only when an agreement has been reached with the
vendor and the collection of the concession is deemed probable.
For cooperative advertising programs, the Company generally offsets the allowances against the related
advertising expense when incurred. Many of these programs require proof-of-advertising to be provided to the
vendor to support the reimbursement of the incurred cost. Programs that do not require proof-of-advertising are
monitored to ensure that the allowance provided by each vendor is a reimbursement of costs incurred to advertise
for that particular vendor. If the allowance exceeds the advertising costs incurred on a vendor-specific basis, then
the excess allowance from the vendor is recorded as a reduction of merchandise cost for that vendor.
Margin maintenance allowances are credited directly to cost of purchased merchandise in the period earned
according to the agreement with the vendor. Under the retail method of accounting for inventory, a portion of
these allowances reduces cost of goods sold and a portion reduces the carrying value of merchandise inventory.
The accounting policies described above are in compliance with Emerging Issues Task Force 02-16,
Accounting by a Customer (Including a Reseller) for Certain Considerations Received from a Vendor.
Insurance Accruals—The Company’s consolidated balance sheets include liabilities with respect to self-
insured workers’ compensation and general liability claims. The Company estimates the required liability of such
claims, utilizing an actuarial method, based upon various assumptions, which include, but are not limited to, our
historical loss experience, projected loss development factors, actual payroll and other data. The required liability
is also subject to adjustment in the future based upon the changes in claims experience, including changes in the
number of incidents (frequency) and changes in the ultimate cost per incident (severity).
Operating Leases—The Company leases retail stores, office space and equipment under operating leases.
Many store leases contain construction allowance reimbursements by landlords, rent holidays, rent escalation
clauses and/or contingent rent provisions. The Company recognizes the related rental expense on a straight-line
basis over the lease term and records the difference between the amounts charged to expense and the rent paid as
a deferred rent liability.
To account for construction allowance reimbursements from landlords and rent holidays, the Company
records a deferred rent liability included in trade accounts payable and accrued expenses and other liabilities on
the consolidated balance sheets and amortizes the deferred rent over the lease term, as a reduction to rent expense
on the consolidated income statements. For leases containing rent escalation clauses, the Company records
minimum rent expense on a straight-line basis over the lease term on the consolidated income statement. The
lease term used for lease evaluation includes renewal option periods only in instances in which the exercise of the
option period can be reasonably assured and failure to exercise such options would result in an economic penalty.
Revenue Recognition—The Company recognizes merchandise revenue at the “point of sale.” Allowance
for sales returns are recorded as a component of net sales in the period in which the related sales are recorded.
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