Dillard's 2014 Annual Report Download - page 50

F-9
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 years 2014 and 2013 ended on January 31, 2015 and February 1, 2014, respectively, and each included 52 weeks. Fiscal
year 2012 ended on February 2, 2013 and included 53 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 3 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 2 to 3 days.
Restricted Cash—Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition
of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary.
Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the
property sale pending the acquisition of replacement property. Changes in restricted cash balances are reflected as an
investment activity in the accompanying Consolidated Statements of Cash Flows.
Accounts Receivable—Accounts receivable primarily consists of construction receivables of CDI and the monthly
settlement with Wells Fargo 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 ("LIFO") retail inventory method. Under the retail inventory method, 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.
The retail inventory method is an averaging method that is widely used in the retail industry due to its practicality. Inherent in
the retail inventory method 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
gross margins. During periods of deflation, inventory values on the first-in, first-out ("FIFO") retail inventory method may be
lower than the LIFO retail inventory method. Additionally, inventory values at LIFO cost may be in excess of net realizable
value. At January 31, 2015 and February 1, 2014, merchandise inventories valued at LIFO, including adjustments as necessary
to record inventory at the lower of cost or market, approximated the cost of such inventories using the FIFO retail inventory
method. The application of the LIFO retail inventory method did not result in the recognition of any LIFO charges or credits
affecting cost of sales for fiscal 2014, 2013 or 2012. The remaining 4% of the inventories are valued at the lower of cost or
market using the average cost or specific identified cost methods.