Dillard's 2013 Annual Report Download - page 57

F-11
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.
Insurance Accruals—The Company's consolidated balance sheets include liabilities with respect to self-insured workers'
compensation and general liability claims. The Company's self-insured retention is insured through a wholly-owned captive
insurance subsidiary. The Company estimates the required liability of such claims, utilizing an actuarial method, based upon
various assumptions, which include, but are not limited to, the Company's 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). These insurance accruals are recorded in trade accounts payable and accrued expenses and other liabilities
on the consolidated balance sheets.
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 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. Sales
taxes collected from customers are excluded from revenue and are recorded in trade accounts payable and accrued expenses
until remitted to the taxing authorities.
GE Consumer Finance ("GE") owns and manages Dillard's proprietary credit cards ("proprietary cards") under a long-
term marketing and servicing alliance ("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
$113 million, $107 million and $96 million from GE in fiscal 2013, 2012 and 2011, 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. Gift card breakage income is determined
based upon historical redemption patterns. 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. At that time, the Company will recognize breakage income over the performance period for those gift cards (i.e. 60
months) and will record it in service charges and other income. As of February 1, 2014 and February 2, 2013, gift card
liabilities of $57.9 million and $57.5 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 $65 million, $77 million and $99 million, net of
cooperative advertising reimbursements of $34.1 million, $33.5 million and $33.8 million for fiscal years 2013, 2012 and 2011,
respectively. The Company records net advertising expenses in selling, general and administrative expenses.