Dillard's 2009 Annual Report Download - page 25

January 30, 2010 and January 31, 2009, insurance accruals of $51.7 million and $53.7 million,
respectively, were recorded in trade accounts payable and accrued expenses and other liabilities.
Adjustments resulting from changes in historical loss trends have reduced expenses during the years
ended January 30, 2010 and January 31, 2009, partially due to recently implemented Company
programs that have helped decrease both the number and cost of claims. Further, we do not anticipate
any significant change in loss trends, settlements or other costs that would cause a significant change in
our earnings. A 10% change in our self-insurance reserve would have affected net earnings by
$3.3 million for the fiscal year ended January 30, 2010.
Finite-lived assets. The Company’s judgment regarding the existence of impairment indicators is
based on market and operational performance. We assess the impairment of long-lived assets, primarily
fixed assets, whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger an impairment review include the
following:
• Significant changes in the manner of our use of assets or the strategy for the overall business;
• Significant negative industry or economic trends; or
• Store closings.
The Company performs an analysis of the anticipated undiscounted future net cash flows of the
related finite-lived assets. 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. To the extent these future projections or the Company’s strategies
change, the conclusion regarding impairment may differ from the current estimates.
Income taxes. Temporary differences arising from differing treatment of income and expense
items for tax and financial reporting purposes result in deferred tax assets and liabilities that are
recorded on the balance sheet. These balances, as well as income tax expense, are determined through
management’s estimations, interpretation of tax law for multiple jurisdictions and tax planning. If the
Company’s actual results differ from estimated results due to changes in tax laws, changes in store
locations or tax planning, the Company’s effective tax rate and tax balances could be affected. As such,
these estimates may require adjustment in the future as additional facts become known or as
circumstances change.
The total amount of unrecognized tax benefits as of January 30, 2010 and January 31, 2009 was
$18.2 million and $27.3 million, respectively, of which $13.8 million and $19.5 million, respectively,
would, if recognized, affect the effective tax rate. The Company classifies accrued interest expense and
penalties relating to income tax in the consolidated financial statements as income tax expense. The
total interest and penalties recognized in the consolidated statements of operations as of January 30,
2010, January 31, 2009 and February 2, 2008 was $(2.0) million, $0.6 million, and $(4.4) million,
respectively. The total accrued interest and penalties in the consolidated balance sheets as of
January 30, 2010 and January 31, 2009 was $7.1 million and $9.4 million, respectively.
The Company is currently being examined by the Internal Revenue Service (‘‘IRS’’) for the fiscal
tax years 2006 through 2007. During fiscal 2008, the IRS completed its examination of the Company’s
federal income tax returns for the fiscal tax years 2003 through 2005. Certain issues relating to this
examination are currently under appeal. The Company is also under examination by various state and
local taxing jurisdictions for various fiscal years. During fiscal 2009, the Company reached a settlement
with a state taxing jurisdiction which resulted in a reduction in the liability for unrecognized tax
benefits. The tax years that remain subject to examination for major tax jurisdictions are fiscal tax years
2003 and forward, with the exception of fiscal 1997 through 2002 amended state and local tax returns
related to the reporting of federal audit adjustments. At this time, the Company does not expect the
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