Dillard's 2010 Annual Report Download - page 55

Notes to Consolidated Financial Statements (Continued)
1. Description of Business and Summary of Significant Accounting Policies (Continued)
To account for construction allowance reimbursements from landlords and rent holidays, the
Company records a deferred rent liability 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’s retail operations segment 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.
GE owns and manages Dillard’s branded proprietary cards under the Alliance that expires in fiscal
2014. The Company’s share of income earned under the Alliance is included as a component of service
charges and other income. The Company received income of approximately $85 million, $89 million
and $110 million from GE in fiscal 2010, 2009 and 2008, respectively. Further pursuant to this Alliance,
the Company has no continuing involvement other than to honor the proprietary cards in its stores.
Although not obligated to a specific level of marketing commitment, the Company participates in the
marketing of the proprietary cards and accepts payments on the proprietary cards in its stores as a
convenience to customers who prefer to pay in person rather than by mailing their payments to
GE. Amounts received for providing these services are included in the amounts disclosed above.
Revenue from CDI construction contracts is generally recognized by applying percentages of
completion for each period to the total estimated revenue for the respective contracts. The length of
each contract varies but is typically nine to eighteen months. The percentages of completion are
determined by relating the actual costs of work performed to date to the current estimated total costs
of the respective contracts. Any anticipated losses on completed contracts are recognized as soon as
they are determined.
Gift Card Revenue Recognition—The Company establishes a liability upon the sale of a gift card.
The liability is relieved and revenue is recognized when gift cards are redeemed for merchandise. The
Company uses a homogeneous pool to recognize gift card breakage and will recognize income over the
period when the likelihood of the gift card being redeemed is remote and the Company determines
that it does not have a legal obligation to remit the value of unredeemed gift cards to the relevant
jurisdiction as abandoned property. The Company determines gift card breakage income based upon
historical redemption patterns. At that time, the Company will recognize breakage income over the
performance period for those gift cards (i.e. 60 months) as a reduction of cost of sales. As of
January 29, 2011 and January 30, 2010, gift card liabilities of $57.4 million and $58.5 million,
respectively, were included in trade accounts payable and accrued expenses and other liabilities.
Advertising—Advertising and promotional costs, which include newspaper, magazine, Internet,
broadcast and other media advertising, are expensed as incurred and were approximately $106 million,
$134 million and $166 million, net of cooperative advertising reimbursements of $42.9 million,
$41.8 million and $59.1 million for fiscal years 2010, 2009 and 2008, respectively.
Income Taxes—Income taxes are recognized for the amount of taxes payable for the current year
and deferred tax assets and liabilities for the future tax consequence of events that have been
recognized differently in the financial statements than for tax purposes. Deferred tax assets and
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