Dillard's 2012 Annual Report Download - page 28

The Company regularly records a provision for estimated shrinkage, thereby reducing the carrying
value of merchandise inventory. Complete physical inventories of all of the Company’s stores and
warehouses are performed no less frequently than annually, with the recorded amount of merchandise
inventory being adjusted to coincide with these physical counts. The differences between the estimated
amounts of shrinkage and the actual amounts realized during the past three years have not been
material.
Revenue recognition. The Company’s retail operations segment recognizes revenue upon the sale
of merchandise to its customers, net of anticipated returns of merchandise. The provision for sales
returns is based on historical evidence of our return rate. We recorded an allowance for sales returns of
$6.5 million and $9.0 million as of February 2, 2013 and January 28, 2012, respectively. Adjustments to
earnings resulting from revisions to estimates on our sales return provision were not material for the
years ended February 2, 2013, January 28, 2012 and January 29, 2011.
The Company’s share of income earned under the Alliance with GE involving the Dillard’s
branded proprietary credit cards is included as a component of service charges and other income. The
Company received income of approximately $107 million, $96 million and $85 million from GE in fiscal
2012, 2011 and 2010, respectively. 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 credit
cards and accepts payments on the proprietary credit cards in its stores as a convenience to customers
who prefer to pay in person rather than by paying online or mailing their payments to GE.
Revenues from CDI construction contracts are 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.
Vendor allowances. The Company receives concessions from vendors through a variety of
programs and arrangements, including co-operative advertising, payroll reimbursements and margin
maintenance programs.
Cooperative advertising allowances are reported as a reduction of advertising expense in the period
in which the advertising occurred. If vendor advertising allowances were substantially reduced or
eliminated, the Company would likely consider other methods of advertising as well as the volume and
frequency of our product advertising, which could increase or decrease our expenditures. Similarly, we
are not able to assess the impact of vendor advertising allowances on creating additional revenues, as
such allowances do not directly generate revenues for our stores.
Payroll reimbursements are reported as a reduction of payroll expense in the period in which the
reimbursement occurred.
Amounts of margin maintenance allowances are recorded only when an agreement has been
reached with the vendor and the collection of the concession is deemed probable. All such merchandise
margin maintenance allowances are recognized as a reduction of cost purchases. Under LIFO RIM, a
portion of these allowances reduces cost of goods sold and a portion reduces the carrying value of
merchandise inventory.
Insurance accruals. The Company’s consolidated balance sheets include liabilities with respect to
claims for self-insured workers’ compensation (with a self-insured retention of $4 million per claim)
and general liability (with a self-insured retention of $1 million per claim and a one-time $1 million
corridor). The Company’s retentions are insured through a wholly-owned captive insurance subsidiary.
24