Dillard's 2012 Annual Report Download - page 60

Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies
Description of Business—Dillard’s, Inc. (‘‘Dillard’s’’ or the ‘‘Company’’) operates retail department
stores, located primarily in the Southeastern, Southwestern and Midwestern areas of the United States,
and a general contracting construction company based in Little Rock, Arkansas. The Company’s fiscal
year ends on the Saturday nearest January 31 of each year. Fiscal year 2012 ended on February 2, 2013
and included 53 weeks, and fiscal years 2011 and 2010 ended on January 28, 2012 and January 29,
2011, respectively, and each included 52 weeks.
Consolidation—The accompanying consolidated financial statements include the accounts of
Dillard’s, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions are eliminated
in consolidation. Investments in and advances to joint ventures are accounted for by the equity method
where the Company does not have control.
Use of Estimates—The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include inventories, sales return, self-insured
accruals, future cash flows for impairment analysis, pension discount rate and taxes. Actual results
could differ from those estimates.
Seasonality—The Company’s business is highly seasonal, and historically the Company has realized
a significant portion of its sales, net income and cash flow in the second half of the fiscal year,
attributable to the impact of the back-to-school selling season in the third quarter and the holiday
selling season in the fourth quarter. Additionally, working capital requirements fluctuate during the
year, increasing in the third quarter in anticipation of the holiday season.
Cash Equivalents—The Company considers all highly liquid investments with an original maturity
of three months or less when purchased or certificates of deposit with no early withdrawal penalty to
be cash equivalents. The Company considers receivables from charge card companies as cash
equivalents because they settle the balances within two to three days.
Accounts Receivable—Accounts receivable primarily consists of construction receivables of CDI
and the monthly settlement with GE for Dillard’s share of revenue from the long-term marketing and
servicing alliance. Construction receivables are based on amounts billed to customers. The Company
provides any allowance for doubtful accounts considered necessary based upon a review of outstanding
receivables, historical collection information and existing economic conditions. Accounts receivable are
ordinarily due 30 days after the issuance of the invoice. Contract retentions are due 30 days after
completion of the project and acceptance by the owner. Accounts that are past due more than 120 days
are considered delinquent. Delinquent receivables are written off based on individual credit evaluation
and specific circumstances of the customer.
Merchandise Inventories—Approximately 96% of the Company’s inventories are valued at the
lower of cost or market using the last-in, first-out retail inventory method (‘‘LIFO RIM’’). Under LIFO
RIM, the valuation of inventories at cost and the resulting gross margins are calculated by applying a
calculated cost to retail ratio to the retail value of inventories. LIFO RIM is an averaging method that
is widely used in the retail industry due to its practicality. Inherent in the LIFO RIM calculation are
certain significant management judgments including, among others, merchandise markon, markups, and
markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting
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