Dillard's 2012 Annual Report Download - page 63

Notes to Consolidated Financial Statements (Continued)
1. Description of Business and Summary of Significant Accounting Policies (Continued)
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 $107 million, $96 million and $85
million from GE in fiscal 2012, 2011 and 2010, 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 2, 2013 and January 28, 2012, gift card liabilities of $57.5 million 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 $77 million,
$99 million and $107 million, net of cooperative advertising reimbursements of $33.5 million,
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