Dillard's 2013 Annual Report Download - page 27

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Payroll reimbursements are reported as a reduction of payroll expense in the period in which the reimbursement occurred.
Amounts of margin maintenance allowances are recorded only when an agreement has been reached with the vendor and
the collection of the concession is deemed probable. All such merchandise margin maintenance allowances are recognized as a
reduction of cost purchases. Under LIFO RIM, 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 claims for self-
insured workers' compensation (with a self-insured retention of $4 million per claim) and general liability (with a self-insured
retention of $1 million per claim and a one-time $1 million corridor). The Company's retentions are 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, our 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). As of February 1, 2014 and February 2, 2013, insurance accruals of $47.5 million and $48.7 million,
respectively, were recorded in trade accounts payable and accrued expenses and other liabilities. Adjustments resulting from
changes in historical loss trends have helped control expenses during fiscal 2013 and 2012, partially due to 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 $3.1 million for fiscal 2013.
Long-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;
• A current-period operating or cash flow loss combined with a history of operating or cash flow losses; 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, settlements of tax audits 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.
Changes in the Company's assumptions and judgments can materially affect amounts recognized in the consolidated balance
sheets and statements of income.
The total amount of unrecognized tax benefits as of February 1, 2014 and February 2, 2013 was $6.5 million and
$5.4 million, respectively, of which $4.1 million and $3.9 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 income during
fiscal 2013, 2012 and 2011 was $(0.4) million, $(2.1) million, and $(0.2) million, respectively. The total accrued interest and
penalties in the consolidated balance sheets as of February 1, 2014 and February 2, 2013 was $0.9 million and $1.4 million,
respectively.
The Company is currently under examination by the Internal Revenue Service (“IRS”) for the fiscal tax year 2011. The
tax years that remain subject to examination for major tax jurisdictions are fiscal tax years 2010 and forward. At this time, the
Company does not expect the results from any income tax audit to have a material impact on the Company's consolidated
financial statements.
The Company has taken positions in certain taxing jurisdictions for which it is reasonably possible that the total amounts
of unrecognized tax benefits may decrease within the next twelve months. The possible decrease could result from the