Dillard's 2015 Annual Report Download - page 52

F-10
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.
Property and Equipment—Property and equipment owned by the Company is stated at cost, which includes related
interest costs incurred during periods of construction, less accumulated depreciation and amortization. Interest capitalized
during fiscal 2015 and 2014 was $2.1 million and $1.7 million, respectively, and was immaterial during fiscal 2013. For
financial reporting purposes, depreciation is computed by the straight-line method over estimated useful lives:
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 - 40 years
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 10 years
Properties leased by the Company under lease agreements which are determined to be capital leases are stated at an
amount equal to the present value of the minimum lease payments during the lease term, less accumulated amortization. The
assets under capital leases and leasehold improvements under operating leases are amortized on the straight-line method over
the shorter of their useful lives or the related lease terms. The provision for amortization of leased properties is included in
depreciation and amortization expense.
Included in property and equipment as of January 30, 2016 are assets held for sale in the amount of $4.0 million. During
fiscal 2015, 2014 and 2013, the Company realized gains on the disposal of property and equipment of $12.6 million, $6.4
million and $0.6 million, respectively.
Depreciation expense on property and equipment was $250 million, $251 million and $255 million for fiscal 2015, 2014
and 2013, respectively.
Long-Lived Assets—Impairment losses are required to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the
assets' carrying amount. In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an
analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. This analysis is performed at the
store unit level. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to
its fair value. Various factors including future sales growth and profit margins are included in this analysis. Management
believes at this time that the carrying value and useful lives continue to be appropriate.
Other Assets—Other assets include the deferred charge related to the REIT Transaction of $184.7 million and $191.8
million at January 30, 2016 and January 31, 2015, respectively. Other assets also include investments accounted for by the
equity and cost methods.
During fiscal 2013, the Company received proceeds of $15.7 million from the sale of its investment in Acumen, resulting
in a gain of $11.7 million that was recorded in gain on disposal of assets.
Vendor Allowances—The Company receives concessions from its vendors through a variety of programs and
arrangements, including cooperative advertising and margin maintenance programs. The Company has agreements in place
with each vendor setting forth the specific conditions for each allowance or payment. These agreements range in periods from a
few days to up to a year. If the payment is a reimbursement for costs incurred, it is offset against those related costs; otherwise,
it is treated as a reduction to the cost of the merchandise. Amounts of vendor concessions are recorded only when an agreement
has been reached with the vendor and the collection of the concession is deemed probable.
For cooperative advertising programs, the Company generally offsets the allowances against the related advertising
expense when incurred. Many of these programs require proof-of-advertising to be provided to the vendor to support the
reimbursement of the incurred cost. Programs that do not require proof-of-advertising are monitored to ensure that the
allowance provided by each vendor is a reimbursement of costs incurred to advertise for that particular vendor. If the allowance
exceeds the advertising costs incurred on a vendor-specific basis, then the excess allowance from the vendor is recorded as a
reduction of merchandise cost for that vendor.
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